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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, DC 20549
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FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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EXODUS COMMUNICATIONS, INC.
(Exact name of the Registrant as specified in its charter)
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Delaware 77-0403076
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
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2831 Mission College Boulevard
Santa Clara, California 95054
(408) 346-2200
(Address and telephone number of the Registrant's principal executive offices)
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Adam W. Wegner
Vice President and General Counsel
Exodus Communications, Inc.
2831 Mission College Boulevard
Santa Clara, California 95054
(408) 346-2200
(Name, address and telephone number of the Registrant's 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 to the public: From time
to time after this registration statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please 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(c)
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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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Proposed Maximum Proposed Maximum Amount of
Title of Each Class of Shares Amounts to be Offering Price Aggregate Registration
to be Registered Registered per Unit Offering Price Fee
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4 3/4% Convertible Subordinated Notes
due July 15, 2008................... $500,000,000 100% $500,000,000 $132,000
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Common stock, $0.001 par value per
share(1)............................ 7,101,700 (2) -- (3) -- (3) -- (2)
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(1) Associated with Exodus Common Stock are preferred stock purchase rights
which will not be exerciseable or evidenced separately from the common
stock prior to the occurrence of specified triggering events.
(2) This number represents the number of shares of Common Stock that are
initially issuable upon conversion of the 4 3/4% Convertible Subordinated
Notes due July 15, 2008 (the "Notes") registered hereby. For purposes of
estimating the number of shares of Common Stock to be included in the
Registration Statement upon the conversion of the Notes, the Company
calculated the number of shares issuable upon conversion of the Notes based
on a conversion rate of 14.2034 shares per $1,000 principal amount of the
Notes. In addition to the shares set forth in the table, pursuant to Rule
416 under the Securities Act of 1933, as amended, the amount to be
registered includes an indeterminate number of shares of Common Stock
issuable upon conversion of the Notes, as this amount may be adjusted as a
result of stock splits, stock dividends and antidilution provisions.
(3) No additional consideration will be received for the Common Stock, and,
therefore, no registration fee is required pursuant to Rule 457(i).
The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the Registrant
files a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to Section 8(a), may determine.
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PROSPECTUS
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$500,000,000
EXODUS COMMUNICATIONS, INC.
4 3/4% Convertible Subordinated Notes Due July 15, 2008 and 7,101,700 Shares
of Common Stock Issuable Upon Conversion of the Notes
Holders of our 4 3/4% Convertible Subordinated Notes due July 15, 2008 may
offer for sale the notes and the shares of our common stock into which the
notes are convertible at any time at market prices prevailing at the time of
sale or at privately negotiated prices. The selling holders may sell the notes
or the common stock directly to purchasers or through underwriters, broker-
dealers or agents, who may receive compensation in the form of discounts,
concessions or commissions.
The holders of the notes may convert the notes into shares of our common
stock at any time at a conversion rate of 14.2034 shares per $1,000 principal
amount of notes. Interest on the notes is payable on January 15 and July 15 of
each year, commencing on July 15, 2000. After January 20, 2002, we may redeem
the notes, in whole or in part, at the redemption prices set forth in this
prospectus. However, we may not redeem the notes on or after January 20, 2002
and before January 15, 2004 unless the closing price of our common stock is at
least 140% of the conversion price for a period of time.
In the event of a change in control, defined in this prospectus of Exodus,
each holder of notes may require us to repurchase the notes at 100% of the
principal amount of the notes plus accrued interest. At our option, we may
repurchase the notes for cash or common stock.
The notes are unsecured obligations that are subordinated in right of
payment to all of our existing and future senior indebtedness.
Our common stock currently trades on the Nasdaq National Market under the
symbol "EXDS." The last reported sale price on January 31, 2000 was $114.875
per share.
The notes are currently eligible for trading on the Portal Market of the
National Association of Securities Dealers, Inc.
Investing in our common stock or the notes involves a high degree of risk.
Please carefully consider the "Risk Factors" beginning on page 3 of this
prospectus.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities 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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In connection with this offering, no person is authorized to give any
information or to make any representations not contained in this prospectus.
If information is given or representations are made, you may not rely on that
information or representations as having been authorized by us. This
prospectus is neither an offer to sell nor a solicitation of an offer to buy
any securities other than those registered by this prospectus, nor is it an
offer to sell or a solicitation of an offer to buy securities where an offer
or solicitation would be unlawful. You may not imply from the delivery of this
prospectus, nor from any sale made under this prospectus, that our affairs are
unchanged since the date of this prospectus or that the information contained
in this prospectus is correct as of any time after the date of this
prospectus.
TABLE OF CONTENTS
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Summary..................................................................... 1
Recent Events............................................................... 2
Risk Factors................................................................ 3
Ratio of Earnings to Fixed Charges.......................................... 14
Where You Can Find More Information......................................... 14
Documents Incorporated by Reference......................................... 15
Use of Proceeds............................................................. 15
Selling Holders............................................................. 16
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Plan of Distribution........................................................ 20
Description of Notes........................................................ 22
Material United States Federal Income Tax Considerations.................... 33
Other Indebtedness.......................................................... 38
Description of Capital Stock................................................ 40
Legal Matters............................................................... 42
Experts..................................................................... 42
Financial Statements........................................................ F-1
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This prospectus contains forward-looking statements relating to future
events or financial results, including statements indicating that "we
believe," "we expect" or "we anticipate" that various events may occur or
various trends may continue, and similar statements relating to future events
or financial results. These forward-looking statements are subject to material
risks and uncertainties as indicated under the caption "Risk Factors." Actual
results could vary materially as a result of a number of factors, including
those set forth in "Risk Factors" and elsewhere in this prospectus. We assume
no obligation to update the forward-looking information contained in this
prospectus.
Unless the context otherwise requires, the terms "we," "our," "us," "the
company" and "Exodus" refer to Exodus Communications, Inc., a Delaware
corporation.
All share numbers in this prospectus reflect the two-for-one stock split
effected by Exodus on December 14, 1999. The information incorporated by
reference into this prospectus, however, may not reflect the stock split.
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SUMMARY
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;
. 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:
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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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RISK FACTORS
This offering involves a high degree of risk. In addition to the other
information set forth in this prospectus, the following risk factors should be
considered carefully in evaluating Exodus and its business before purchasing
any of the notes or common stock. This prospectus contains forward-looking
statements that involve risks and uncertainties, such as statements of our
plans, objectives, expectations and intentions. The cautionary statements made
in this prospectus should be read as being applicable to all related forward-
looking statements wherever they appear in this prospectus. Our actual results
could differ materially from those discussed in this prospectus. Factors that
could cause or contribute to such differences include those discussed below, as
well as those discussed elsewhere in this prospectus.
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.
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;
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. 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 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
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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;
. 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.
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The notes are subordinated to other debt
The notes are unsecured and subordinated in right of payment to all of our
existing and future senior indebtedness as defined in the indenture governing
the notes. As a result, in the event of bankruptcy, liquidation or
reorganization or upon acceleration of the notes due to an event of default, as
defined below, and in specific other events, our assets will be available to
pay obligations on the notes only after all senior indebtedness has been paid
in full in cash or other payment satisfactory to the holders of senior
indebtedness. There may not be sufficient assets remaining to pay amounts due
on any or all of the notes then outstanding. The notes also will be effectively
subordinated to the liabilities, including trade payables, of our subsidiaries.
The indenture governing the notes does not prohibit or limit the incurrence of
senior indebtedness or the incurrence of other debt and other liabilities by us
or our subsidiaries. The incurrence of additional debt and other liabilities by
us or our subsidiaries could impede our ability to pay obligations on the
notes. As of September 30, 1999, we had approximately $339.7 million of debt
outstanding that would have constituted senior indebtedness. As of September
30, 1999, our subsidiaries had $17.4 million of debt and other liabilities. In
addition, we incurred additional senior indebtedness of $375.0 million
aggregate principal amount of our 10 3/4% senior notes due 2009 and (Euro)125.0
million aggregate principal amount of our senior notes due 2009 that were
issued in December 1999. We anticipate that from time to time we will incur
additional debt, including senior indebtedness. See "Description of Notes--
Subordination".
There are limitations on redemption of notes upon change of control
Upon a change of control, as defined below, each holder of notes has rights,
at the holder's option, to require us to redeem all or a portion of the
holder's notes. Although the indenture governing the notes allows us, subject
to satisfaction of conditions, to pay the redemption price in shares of common
stock, if a change of control were to occur, we may not have sufficient funds
to pay the redemption price for all notes tendered by holders. Our indentures
relating to our 11 1/4% senior notes and 10 3/4% senior notes may prohibit the
payment of the redemption price of the notes while the 11 1/4% senior notes or
10 3/4% senior notes are outstanding. Any future credit agreements or other
agreements relating to other debt, including other senior indebtedness to which
we become a party, may contain similar restrictions and provisions. In the
event a change of control occurs at a time when we are prohibited from
purchasing or redeeming notes, we could seek the consent of lenders to the
purchase of notes or could attempt to refinance the borrowings that contain
such prohibition. If we do not obtain a consent or repay such borrowings, we
would remain prohibited from purchasing or redeeming notes. Our failure to
redeem tendered notes would constitute an event of default under the indenture
governing the notes, which might constitute a default under the terms of other
indebtedness that we may enter into from time to time. In these circumstances,
the subordination provisions in the indenture governing the notes would likely
restrict payments to the holders of notes. The term "change of control" is
limited to specified transactions and may not include other events that might
adversely affect our financial condition. In addition, the requirement that we
offer to repurchase the notes upon a change of control does not necessarily
afford holders of the notes protection in the event of a highly leveraged
transaction, reorganization, merger or similar transaction involving us. See
"Description of Notes--Repurchase at Option of Holders Upon a Change of
Control".
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
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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;
. 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
7
<PAGE>
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 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.
8
<PAGE>
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 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
9
<PAGE>
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 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,
10
<PAGE>
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.
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
11
<PAGE>
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.
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
12
<PAGE>
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.
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.
There will be no public market for the notes and restrictions on transfer of
the notes may significantly impair the liquidity of the notes
There is no public market for the notes, and there can be no assurance as
to:
. the liquidity of any such market that may develop;
. the ability of the holders to sell their notes; or
. the price at which the holders would be able to sell their notes.
If such a market were to exist, the notes could trade at prices that may be
higher or lower than the principal amount or purchase price, depending on many
factors, including prevailing interest rates, the market for similar notes and
our financial performance. We do not presently intend to apply for the listing
of the notes on any securities exchange or for inclusion of the notes in the
automated quotation system of the National Association of Securities Dealers,
Inc. The notes are eligible for trading on The Portal Market. Although the
initial purchasers of the notes have advised us that they intend to make a
market in the notes, they are not obligated to make a market in the notes, and
any market-making may be discontinued at any time at their sole discretion. In
addition, market-making activity will be subject to the limits imposed by the
Securities Act and the Exchange Act. Accordingly, no assurance can be given as
to the development or liquidity of any market for the notes.
Our stock price has been volatile in the past and is likely to continue to be
volatile
The notes are convertible into our common stock and the market price of our
common stock has been volatile in the past and is likely to continue to be
volatile. In addition, the securities markets in general, and Internet stocks
in particular, have experienced significant price volatility and accordingly
the trading price of the notes is likely to be volatile.
13
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Nine Months
Year Ended December 31, Ended September 30,
------------------------------------------- --------------------
1995 1996 1997 1998 1998 1999
-------- -------------- --------- --------- ---------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
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
-----------------
<S> <C>
Ratio of earnings to fixed
charges.......................... 26 x
</TABLE>
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 or rental expense we believe to be
representative of interest.
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the Securities
and Exchange Commission. You may inspect the documents we file with the SEC and
copy them, at prescribed rates, at the public reference facilities maintained
by the SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549. You
may obtain information on the operation of the public reference facilities by
calling the SEC at 1-800-SEC-0330. You may also read our filings at the SEC's
Web site at http://www.sec.gov.
We have filed with the SEC a registration statement on Form S-3 under the
Securities Act with respect to the notes and common stock offered by this
prospectus. This prospectus does not contain all of the information set forth
in the registration statement. We have omitted parts of the registration
statement as permitted by the rules and regulations of the SEC. Statements
contained in this prospectus as to the contents of any contract or other
document are not necessarily complete. You should refer to the copy of each
contract or document filed as an exhibit to the registration statement for
complete information. Copies of the registration statement, including exhibits,
may be inspected without charge at the SEC's public reference facilities or Web
site.
The SEC allows us to incorporate by reference into this prospectus
information that we file with the SEC. This means that we can disclose
important information to you by referring you to those documents. The
information we incorporate by reference is considered as part of this
prospectus, and later information we file with the SEC will automatically
update and supersede this information. We will furnish without charge to each
person to whom a copy of this prospectus is delivered, upon written or oral
request, a copy of any and all of the information that has been incorporated by
reference into this prospectus other than exhibits to these documents, unless
the exhibits are specifically incorporated by reference in the prospectus as
well. Requests for copies should be directed to 2831 Mission College Boulevard,
Santa Clara, California 95054, Attention: Adam W. Wegner, General Counsel,
telephone: (408) 346-2200.
14
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
The following documents that we have filed with the SEC are incorporated by
reference into this prospectus:
. our annual report on Form 10-K for the year ended December 31, 1998;
. our quarterly reports on Form 10-Q, as amended, if applicable, for the
quarters ended March 31, 1999, June 30, 1999 and September 30, 1999;
. 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;
. the description of our common stock on Form 8-A filed on February 13,
1998 and the description of our preferred stock purchase rights on Form
8-A filed on January 29, 1999, as amended November 29, 1999; and
. all other information that we file with the SEC pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of
this prospectus and prior to the termination of this offering.
USE OF PROCEEDS
We will not receive any proceeds from the sale of the notes or common stock
by the selling security holders.
15
<PAGE>
SELLING HOLDERS
The notes were originally issued by Exodus and sold by the initial
purchasers in a transaction exempt from the registration requirements of the
Securities Act to persons reasonably believed by the initial purchasers to be
qualified institutional buyers or other institutional accredited investors.
Selling holders, including their transferees, pledgees or donees or their
successors, may from time to time offer and sell pursuant to this prospectus
any or all of the notes and common stock into which the notes are convertible.
The following table sets forth information, as of January 27, 2000, with
respect to the selling holders and the principal amounts of notes beneficially
owned by each selling holder that may be offered under this prospectus. The
information is based on information provided by or on behalf of the selling
holders. The selling holders may offer all, some or none of the notes or common
stock into which the notes are convertible. Because the selling holders may
offer all or some portion of the notes or the common stock, no estimate can be
given as to the amount of the notes or the common stock that will be held by
the selling holders upon termination of any sales. In addition, the selling
holders identified below may have sold, transferred or otherwise disposed of
all or a portion of their notes since the date on which they provided the
information regarding their notes in transactions exempt from the registration
requirements of the Securities Act. No selling holder named in the table below
beneficially owns one percent or more of our common stock assuming conversion
of a selling holder's notes, except that Deutsche Bank Securities Inc.
beneficially owned 1.1% before the offering, assuming the conversion of their
notes.
<TABLE>
<CAPTION>
Principal Amount Common
of Notes Common Stock Stock Owned
Beneficially Owned Prior Common After
Owned and to the Stock Completion of
Name Offered Offering(1)(2) Offered(2) the Offering
- ---- ---------------- -------------- ---------- -------------
<S> <C> <C> <C> <C>
1976 Distribution Trust
FBO A.R.
Lauder/Zinterhofer..... $ 20,000 284 284 --
1976 Distribution Trust
FBO Jane A. Lauder..... 20,000 284 284 --
AIG SoundShore Holdings
Ltd.................... 1,000,000 14,203 14,203 --
AIM America Growth
Fund................... 45,000 639 639 --
AIM
CapitalConstellation... 70,000 994 994 --
AIM Constellation Fund.. 19,815,000 281,440 281,440 --
AIM Mid Cap Growth
Fund................... 90,000 1,278 1,278 --
AIM Mid Cap
Opportunities Fund..... 310,000 4,403 4,403 --
Alta Partners Holdings,
LDC.................... 1,500,000 21,305 21,305 --
American Home Assurance
Co..................... 250,000 3,550 3,550 --
American Master Fund "AG
Absolute Return Series"
LTD.................... 670,000 9,516 9,516 --
Argent Classic
Convertible Arbitrage
Fund (Bermuda) L.P..... 6,000,000 85,220 85,220 --
Arkansas Teachers
Retirement System...... 3,952,000 56,131 56,131 --
Aspen Balanced Fund..... 12,250,000 173,991 173,991 --
Aspen Equity Income
Fund................... 100,000 1,420 1,420 --
Bancroft Convertible
Fund, Inc.............. 750,000 10,652 10,652 --
Bank Austria............ 1,465,000 20,807 20,807 --
Bank of America Pension
Plan................... 2,000,000 28,406 28,406 --
Baptist Health of South
Florida................ 264,000 3,749 3,749 --
Bear, Stearns & Co.
Inc.................... 2,000,000 28,406 28,406 --
BNP Arbitrage SNC....... 6,000,000 85,220 85,220 --
Boston Museum of Fine
Art.................... 178,000 2,528 2,528 --
Boulder Capital
Inc.(3)................ 1,550,000 445,242 22,015 423,227
Boulder II Limited(3)... 1,950,000 115,266 27,696 87,570
Chilton International,
L.P.(4)................ 6,770,000 197,617 96,157 101,460
Chilton Investment
Partners, L.P.(4)...... 3,607,000 105,411 51,231 54,180
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Principal Amount Common
of Notes Common Stock Stock Owned
Beneficially Owned Prior Common After
Owned and to the Stock Completion of
Name Offered Offering(1)(2) Offered(2) the Offering
- ---- ---------------- -------------- ---------- -------------
<S> <C> <C> <C> <C>
Chilton Opportunity
International,
L.P.(4)................ 1,438,000 30,424 20,424 10,000
Chilton Opportunity
Trust, L.P.(4)......... 554,000 52,984 7,868 45,116
Chilton QP Investment
Partners, L.P.(4)...... 1,502,000 43,625 21,333 22,292
Christian Science
Trustees For Gifts and
Endowments............. 325,000 4,616 4,616 --
Chrysler Corporation
Master Retirement
Trust.................. 1,275,000 18,109 18,109 --
CIBC World Markets...... 7,675,000 109,011 109,011 --
City University of New
York................... 104,000 1,477 1,477 --
Class IC Company,
Ltd.(3)................ 1,500,000 65,090 21,305 43,785
Cova Bond-Debenture
Fund................... 1,000,000 14,203 14,203 --
Deeprock & Co........... 1,000,000 14,203 14,203 --
Delaware PERS(3)........ 1,700,000 45,161 24,145 21,016
Deutsche Bank Securities
Inc.(3)................ 9,455,000 1,903,215 134,293 1,768,922
Donaldson, Lufkin &
Jenrette Securities
Corp................... 8,000,000 113,627 113,627 --
DRT Capital, L.P........ 51,000 724 724 --
Elf Aquitaine........... 250,000 3,550 3,550 --
Ellsworth Convertible
Growth and Income Fund,
Inc.................... 750,000 10,652 10,652 --
Engineers Joint Pension
Fund................... 543,000 7,712 7,712 --
Forest Alternative
Strategies Fund II
Series ASI............. 550,000 7,811 7,811 --
Forest Alternative
Strategies Fund Series
II ASM................. 285,000 4,047 4,047 --
Forest Fulcrum Fund..... 1,280,000 18,180 18,180 --
Forest Global
Convertible Fund Series
A5..................... 5,980,000 84,936 84,936 --
Forum Capital Markets
LLC.................... 4,000,000 56,813 56,813 --
Fuji U.S. Income Open... 750,000 10,652 10,652 --
GCG Trust-Strategic
Equity Series Fund..... 210,000 2,982 2,982 --
General Motors Welfare
Benefit Trust.......... 1,000,000 14,203 14,203 --
Global Bermuda Limited
Partnership(4)......... 500,000 13,201 7,101 6,100
Goldman Sachs & Co.,
Inc.(3)................ 10,872,000 241,989 154,419 87,570
Grace Brothers, Ltd..... 3,000,000 42,610 42,610 --
Grady Hospital.......... 159,000 2,258 2,258 --
ICI American Holdings
Trust(3)............... 825,000 20,474 11,717 8,757
IDEX JCC Balanced Fund.. 1,050,000 14,913 14,913 --
JMG Convertible
Investments L.P.(3).... 4,625,000 761,874 65,690 696,184
JMG Triton Offshore
Fund, Ltd.(3).......... 2,000,000 724,590 28,406 696,184
JWF Balanced Fund....... 1,500,000 21,305 21,305 --
Janus Balanced Fund..... 16,500,000 234,356 234,356 --
Janus Equity Income
Fund................... 4,795,000 68,105 68,105 --
Janus Global Technology
Fund................... 15,000,000 213,051 213,051 --
Jefferson Pilot Variable
Fund Balanced
Portfolio.............. 250,000 3,550 3,550 --
K.D. Offshore Fund
C.V.................... 1,000,000 14,203 14,203 --
Kaiser Hill-Rocky Flats
Retirement Plan........ 461,000 6,547 6,547 --
Kellner, DiLeo & Co..... 500,000 7,101 7,101 --
Key Asset Management,
Inc. as Agent for the
Victory Convertible
Securities Fund........ 250,000 3,550 3,550 --
L.A. Fire and Police
Pension Fund........... 6,250,000 88,771 88,771 --
Lakeshore International,
LTD.(4)................ 1,000,000 26,303 14,203 12,100
Lipper Convertibles,
L.P.(3)................ 6,500,000 1,252,629 92,322 1,160,307
Lipper Offshore
Convertibles, L.P...... 2,000,000 28,406 28,406 --
LLT Limited............. 415,000 5,894 5,894 --
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
Principal Amount Common
of Notes Common Stock Stock Owned
Beneficially Owned Prior Common After
Owned and to the Stock Completion of
Name Offered Offering(1)(2) Offered(2) the Offering
- ---- ---------------- -------------- ---------- -------------
<S> <C> <C> <C> <C>
Lord Abbett Bond
Debenture Fund......... 8,000,000 113,627 113,627 --
Lord Abbett Investment
Trust High Yield....... 100,000 1,420 1,420 --
Merrill Lynch Pierce
Fenner & Smith Inc..... 2,980,000 42,326 42,326 --
Michael Angelo, L.P..... 2,010,000 28,548 28,548 --
MIT Mid Cap Growth Trust
Fund................... 650,000 9,232 9,232 --
Morgan Stanley Dean
Witter Convertible
Securities............. 2,250,000 31,957 31,957 --
Motion Picture Industry
Health Plan--Active.... 145,000 2,059 2,059 --
Motion Picture Industry
Health Plan--Retiree
Member Fund............ 75,000 1,065 1,065 --
MSD Portfolio L.P.--
Investments............ 335,000 4,758 4,758 --
Nalco Chemical
Company(3)............. 375,000 9,704 5,326 4,378
New Orleans
Firefighters........... 163,000 2,315 2,315 --
New York Life Insurance
and Annuity Corporation
(NYLIA)................ 2,000,000 28,406 28,406 --
New York Life Insurance
Company (NYLIC)........ 14,000,000 198,847 198,847 --
Nicholas-Applegate
Convertible Fund....... 985,000 13,990 13,990 --
Nomura Securities
International,
Inc.(4)................ 5,500,000 169,218 78,118 91,100
Northern Income Equity
Fund................... 1,000,000 14,203 14,203 --
Occidental Petroleum.... 275,000 3,905 3,905 --
OCM Convertible Trust... 685,000 9,729 9,729 --
Onex Industrial Partners
Limited(3)............. 250,000 507,079 3,550 503,529
Oppenheimer Convertible
Securities Fund........ 5,000,000 71,017 71,017 --
Pacific Life Insurance
Company................ 1,500,000 21,305 21,305 --
Partner Reinsurance
Company Ltd............ 255,000 3,621 3,621 --
Pebble Capital Inc.(3).. 250,000 171,422 3,550 167,872
Physicians Life......... 358,000 5,084 5,084 --
Pilgrim Convertible
Fund................... 4,533,000 64,384 64,384 --
Pillar Equity Income
Fund................... 500,000 7,101 7,101 --
Pine Grove Equitized
Partners V, LLC........ 500,000 7,101 7,101 --
Pitney Bowes Retirement
Fund................... 750,000 10,652 10,652 --
Q Opportunity Fund,
Ltd.................... 15,100,000 214,471 214,471 --
Quattro Offshore Fund... 750,000 10,652 10,652 --
Raphael II LTD.......... 595,000 8,451 8,451 --
RCG Multi Strategy
Account, L.P........... 260,000 3,692 3,692 --
San Diego City
Retirement............. 1,282,000 18,208 18,208 --
San Diego County
Convertible............ 3,475,000 49,356 49,356 --
Shell Pension Trust..... 217,000 3,082 3,082 --
State Employees'
Retirement Fund of the
State of Delaware...... 645,000 9,161 9,161 --
State of Connecticut
Combined Investment
Funds.................. 1,550,000 22,015 22,015 --
State of Maryland....... 2,201,000 31,261 31,261 --
State of Oregon
Equity(3).............. 8,315,000 170,643 118,101 52,542
Summer Hill Global
Partners L.P........... 175,000 2,485 2,485 --
Sylvan IMA Ltd. c/o
Forest Investment
Mgmt................... 490,000 6,959 6,959 --
TAL High Yield Debt
Fund................... 500,000 7,101 7,101 --
Talvert Hyperion High
Yield Bond Fund........ 500,000 7,101 7,101 --
TCW Group, Inc.......... 14,575,000 207,014 207,014 --
Transamerica Life
Insurance & Annuity
Company................ 2,000,000 28,406 28,406 --
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Principal Amount Common
of Notes Common Stock Stock Owned
Beneficially Owned Prior Common After
Owned and to the Stock Completion of
Name Offered Offering(1)(2) Offered(2) the Offering
- ---- ---------------- -------------- ---------- -------------
<S> <C> <C> <C> <C>
Transatlantic
Reinsurance Co......... 250,000 3,550 3,550 --
Travelers Indemnity
Company................ 2,624,000 37,269 37,269 --
Travelers Insurance
Company................ 1,678,000 23,833 23,833 --
Travelers Insurance
Company Separate
account TLAC........... 198,000 2,812 2,812 --
Vanguard Convertible
Securities Fund, Inc... 1,190,000 16,902 16,902 --
Wake Forest
University............. 1,325,000 18,819 18,819 --
Warburg Dillon Read
LLC.................... 4,000,000 56,813 56,813 --
White River Securities
LLC.................... 2,000,000 28,406 28,406 --
Yield Strategies Fund I,
L.P.................... 1,500,000 21,305 21,305 --
Zeneca Holdings Pension
Trust(3)............... 785,000 19,906 11,149 8,757
Any other holders of
notes or future
transferee from any
holder(5)(6)........... 173,141,000 2,459,251 2,459,251 --
------------ ---------- --------- ---------
Total............... $500,000,000 13,174,649 7,101,700 6,072,949
============ ========== ========= =========
</TABLE>
- --------
(1) Includes common stock into which the notes are convertible.
(2) Assumes a conversion rate of 14.2034 shares per $1,000 principal amount of
notes and a cash payment in lieu of any fractional interest.
(3) Includes an additional number of shares of our common stock held by the
security holder subject to the conversion of our 5% convertible
subordinated notes due March 15, 2006 in an amount equal to the number set
forth in the column entitled "Common Stock Owned After Completion of the
Offering."
(4) Includes an additional number of shares of our common stock held by the
security holder equal to the amount set forth in the column entitled
"Common Stock Owned After Completion of the Offering."
(5) Information concerning other selling holders of notes will be set forth in
prospectus supplements from time to time, if required.
(6) Assumes that any other holders of notes or any future transferee from any
holder does not beneficially own any common stock other than common stock
into which the notes are convertible at the conversion rate of 14.2034
shares per $1,000 principal amount of notes.
None of the selling holders nor any of their affiliates, officers, directors
or principal equity holders has held any position or office or has had any
material relationship with Exodus within the past three years, except that
Goldman, Sachs & Co., Donaldson, Lufkin & Jenrette Securities Corporation and
Morgan Stanley were initial purchasers in connection with the offer and sale of
the notes in December 1999 and our 10 3/4% senior notes due 2009. In addition,
Goldman, Sachs & Co. and Donaldson, Lufkin & Jenrette were initial purchasers
in connection with the offer and sale of our 11 1/4% senior notes due 2008 in
June 1998 and our 5% convertible subordinated notes due March 15, 2006 in March
1999. Goldman, Sachs & Co. was the initial purchaser in connection with the
offer and sale of our 11 1/4% senior notes due 2008 in June 1999 and was the
lead underwriter for our initial public offering of common stock in March 1998.
The selling holders purchased all of the notes from Exodus in a private
transaction on December 8, 1999. All of the notes were "restricted securities"
under the Securities Act prior to this registration.
Information concerning the selling holders may change from time to time and
any changed information will be set forth in supplements to this prospectus if
and when necessary. In addition, the conversion rate, and therefore, the number
of shares of common stock issuable upon conversion of the notes, is subject to
adjustment under certain circumstances. Accordingly, the aggregate principal
amount of notes and the number of shares of common stock into which the notes
are convertible may increase or decrease.
19
<PAGE>
PLAN OF DISTRIBUTION
The selling holders and their successors, including their transferees,
pledgees or donees or their successors, may sell the notes and the common stock
into which the notes are convertible directly to purchasers or through
underwriters, broker-dealers or agents, who may receive compensation in the
form of discounts, concessions or commissions from the selling holders or the
purchasers. These discounts, concessions or commissions as to any particular
underwriter, broker-dealer or agent may be in excess of those customary in the
types of transactions involved.
The notes and the common stock into which the notes are convertible may be
sold in one or more transactions at fixed prices, at prevailing market prices
at the time of sale, at prices related to the prevailing market prices, at
varying prices determined at the time of sale, or at negotiated prices. These
sales may be effected in transactions, which may involve crosses or block
transactions:
. on any national securities exchange or U.S. inter-dealer system of a
registered national securities association on which the notes or the
common stock may be listed or quoted at the time of sale;
. in the over-the-counter market;
. in transactions otherwise than on these exchanges or systems or in the
over-the-counter market;
. through the writing of options, whether the options are listed on an
options exchange or otherwise; or
. through the settlement of short sales.
In connection with the sale of the notes and the common stock into which the
notes are convertible or otherwise, the selling holders may enter into hedging
transactions with broker-dealers or other financial institutions, which may in
turn engage in short sales of the notes or the common stock into which the
notes are convertible in the course of hedging the positions they assume. The
selling holders may also sell the notes or the common stock into which the
notes are convertible short and deliver these securities to close out their
short positions, or loan or pledge the notes or the common stock into which the
notes are convertible to broker-dealers that in turn may sell these securities.
The aggregate proceeds to the selling holders from the sale of the notes or
common stock into which the notes are convertible offered by them will be the
purchase price of the notes or common stock less discounts and commissions, if
any. Each of the selling holders reserves the right to accept and, together
with their agents from time to time, to reject, in whole or in part, any
proposed purchase of notes or common stock to be made directly or through
agents. Exodus will not receive any of the proceeds from this offering.
Exodus' outstanding common stock is listed for trading on the Nasdaq
National Market. We do not intend to list the notes for trading on any national
securities exchange or on the Nasdaq National Market and can give no assurance
about the development of any trading market for the notes.
In order to comply with the securities laws of some states, if applicable,
the notes and common stock into which the notes are convertible may be sold in
these jurisdictions only through registered or licensed brokers or dealers. In
addition, in some states the notes and common stock into which the notes are
convertible may not be sold unless they have been registered or qualified for
sale or an exemption from registration or qualification requirements is
available and is complied with.
The selling holders and any underwriters, broker-dealers or agents that
participate in the sale of the notes and common stock into which the notes are
convertible may be "underwriters" within the meaning of Section 2(11) of the
Securities Act. Any discounts, commissions, concessions or profit they earn on
any resale of the shares may be underwriting discounts and commissions under
the Securities Act. Selling holders who are "underwriters" within the meaning
of Section 2(11) of the Securities Act will be subject to the prospectus
delivery requirements of the Securities Act. The selling holders have
acknowledged that they understand their obligations to comply with the
provisions of the Exchange Act and the rules thereunder relating to stock
manipulation, particularly Regulation M.
20
<PAGE>
In addition, any securities covered by this prospectus which qualify for
sale pursuant to Rule 144 or Rule 144A of the Securities Act may be sold under
Rule 144 or Rule 144A rather than pursuant to this prospectus. A selling holder
may not sell any notes or common stock described in this prospectus and may not
transfer, devise or gift these securities by other means not described in this
prospectus.
To the extent required, the specific notes or common stock to be sold, the
names of the selling holders, the respective purchase prices and public
offering prices, the names of any agent, dealer or underwriter, and any
applicable commissions or discounts with respect to a particular offer will be
set forth in an accompanying prospectus supplement or, if appropriate, a post-
effective amendment to the registration statement of which this prospectus is a
part.
Exodus entered into a registration rights agreement for the benefit of
holders of the notes to register their notes and common stock under applicable
federal and state securities laws under specific circumstances and at specific
times. The registration rights agreement provides for cross-indemnification of
the selling holders and Exodus and their respective directors, officers and
controlling persons against specific liabilities in connection with the offer
and sale of the notes and the common stock, including liabilities under the
Securities Act. Exodus will pay substantially all of the expenses incurred by
the selling holders of Exodus incident to the offering and sale of the notes
and the common stock.
21
<PAGE>
DESCRIPTION OF NOTES
The notes were issued under an indenture dated as of December 1, 1999
between Exodus and Chase Manhattan Bank and Trust Company, National
Association, as trustee. You may request a copy of the indenture from the
trustee at its offices in New York City. References in this section to "us" or
"Exodus" are solely to Exodus Communications, Inc. and not our subsidiaries.
This section summarizes the provisions of the notes and the indenture and the
related registration rights agreement. You should refer to these documents for
more detailed information.
General
We issued $500.0 million aggregate principal amount of the notes in December
1999. The notes are unsecured subordinated obligations of Exodus. The notes
will mature on July 15, 2008, when they will be payable at a price of 100% of
the principal amount. The notes bear interest beginning on December 8, 1999
at an annual rate of 4 3/4%, payable semiannually on January 15 and July 15 of
each year, commencing on July 15, 2000.
The notes are currently convertible into our common stock initially at the
conversion rate of 14.2034 shares per $1,000 principal amount, subject to
adjustment upon the occurrence of the specified events described below under
"Conversion Rights," at any time until the maturity date, unless previously
redeemed or repurchased.
Global Note; Book-Entry System
Notes held by qualified institutional buyers are evidenced by a global note
and were deposited with the trustee as custodian for the Depository Trust
Company, or DTC, and registered in the name of Cede & Co., as nominee of DTC.
Except as set forth below, record ownership of the global note may be
transferred, in whole or in part, only to another nominee of DTC or to a
successor of DTC or its nominee.
If a qualified institutional buyer is a participant in DTC, it may hold its
interest in the global note directly through DTC or indirectly through
organizations that are participants. Qualified institutional buyers who are not
participants may beneficially own interests in the global note held by DTC only
through participants in DTC or various banks, brokers, dealers, trust companies
and other parties that clear through or maintain a custodial relationship with
a participant. Transfers between participants will be effected in the ordinary
way in accordance with DTC's rules and will be settled in same-day funds. The
laws of some states require that specified persons take physical delivery of
securities in definitive form. Consequently, the ability to transfer beneficial
interests in the global note to these persons may be limited.
We will pay interest on and principal of and the redemption or repurchase
price of the global note, as well as any payment of liquidated damages, as
described below, to Cede, the nominee for DTC, as the registered owner of the
global note, by wire transfer of immediately available funds on each relevant
payment date. We and the trustee have no responsibility or liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interests in the global note.
DTC has informed us that its practice is to credit participants' accounts on
the payment date with payments in amounts proportionate to their beneficial
interests in the global note, unless it has reason to believe that it will not
receive payment. Only the DTC participants are responsible for payments to
owners of beneficial interests held through them.
Redemption notices shall be sent to Cede. If less than all the notes are
being redeemed, DTC's practice is to determine by lot the amount of the
holdings of each participant in the issue to be redeemed.
Neither DTC nor Cede will consent or vote with respect to the notes. Under
its usual procedures, DTC mails an omnibus proxy to the issuer as soon as
possible after the record date. The omnibus proxy assigns
22
<PAGE>
Cede's consenting or voting rights to those participants to whose accounts to
which the notes are credited on the record date are identified in a listing
attached to the omnibus proxy.
Because DTC can only act on behalf of participants, who in turn act on
behalf of indirect participants, a person or entity having a beneficial
interest in the global note may be unable to pledge its interest to persons or
entities that do not participate in the DTC book-entry system, and other
actions related to their interest may be affected, due to the lack of a
physical certificate evidencing their interest.
DTC has advised us that it will take any action permitted to be taken by a
holder of notes only at the direction of one or more participants to whose
account with DTC interests in the global note are credited. DTC will only take
action in respect of the portion of the principal amount of the notes
represented by the global note as to which the participant or participants has
or have given direction.
DTC has advised us that it is a limited purpose trust company organized
under the laws of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the Uniform Commercial Code, as amended, and
a "clearing agency" registered pursuant to the provisions of Section 17A of the
Exchange Act. DTC was created to hold securities for its participants and
facilitate the clearance and settlement of securities transactions between
participants through electronic book-entry changes in accounts of its
participants. Participants include securities brokers and dealers, banks, trust
companies and clearing corporations and may include other organizations.
Various participants or their representatives, together with other entities,
own DTC. Indirect access to the DTC system is available to other entities such
as banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant.
Although DTC has agreed to the above procedures in order to facilitate
transfers of beneficial ownership interests in the global note among
participants, it has no obligation to perform or continue to perform these
procedures.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that we believe to be reliable, but we take no
responsibility for the accuracy of this information. We are not responsible for
the performance by DTC or its participants or indirect participants of their
obligations under the rules and procedures governing their operations,
including maintaining, supervising or reviewing the records relating to, or
payments made on account of, beneficial ownership interests in the global note.
The trustee is also not responsible for this performance.
So long as DTC is the registered owner of the global note, DTC will be
considered the sole legal owner or holder of the notes represented by the
global note. Except as set forth below, owners of beneficial interests in a
global note will not be entitled to have notes represented by the global note
registered in their names, will not receive or be entitled to receive physical
delivery of notes in definitive form and will not be considered the legal
owners or holder of the notes under the indenture. Accordingly, each person
owning a beneficial interest in the global note must rely on the procedures of
DTC and, if that person is not a participant, those of the participant through
which that person owns its interests, in order to exercise any rights of a
holder under the indenture or the holder's note.
A global note is exchangeable for definitive notes in registered
certificated form if:
. DTC notifies us that it is unwilling or unable to continue as depositary
for our global note and we fail to appoint a successor depository within
90 days of that notice, or DTC has ceased to be a clearing agency
registered under the Exchange Act;
. we notify the trustee in writing that we desire the issuance of the
notes in certificated form; or
. there shall have occurred and be continuing a default or an event of
default with respect to the notes.
In all cases, certificated notes delivered in exchange for any global note will
be registered in the names, and issued in any approved denominations, required
by or on behalf of the depositary.
23
<PAGE>
Conversion Rights
You may convert any portion of a note, in multiples of $1,000, into shares
of our common stock at any time until the maturity date, unless previously
redeemed or repurchased, at a conversion rate of 14.2034 shares of common stock
per $1,000 principal amount of notes. This is equivalent to an approximate
conversion price of $70.41 per share of common stock. This conversion rate is
subject to adjustment upon specific events as described below. The right to
convert a note called for redemption or delivered for repurchase will terminate
at the close of business on the business day immediately preceding the
redemption date or the repurchase date, as the case may be.
You may convert a note by delivering the note to the corporate trust office
of the trustee in New York City, accompanied by a duly signed and completed
notice of conversion. You may obtain this conversion notice at the office of
the trustee.
As promptly as practicable on or after the conversion date, we will issue
and deliver to the trustee a certificate or certificates for the number of full
shares of common stock issuable upon conversion, together with a cash payment
instead of any fraction of a share. The shares of common stock issuable upon
conversion of the notes will be fully paid and nonassessable and will rank
equal to the other shares of our common stock outstanding. If a note is
surrendered for conversion on or after a record date for interest payments, but
before the next interest payment date, and we have not called the note for
redemption on a redemption date during the period beginning on the record date
and ending on the third business day after the interest payment date, the note
must be accompanied by payment equal to the interest payable on the next
interest payment date. In the case of any note which has been converted after
any record date for interest payments but before the next succeeding interest
payment date, interest will be payable on that interest payment date
notwithstanding a conversion, and the interest shall be paid to the holder of
the converted note on the record date. If you surrender a note for conversion
on a date that is not after a record date and on or after an interest payment
date, you will not receive any interest for the period from the prior interest
payment date to the date of conversion or for any later period. No other
payment or adjustment for interest, or for any dividends in respect of common
stock, will be made upon conversion. Holders of common stock issued upon
conversion will not be entitled to receive any dividends payable to holders of
common stock as of any record time or date before the close of business on the
conversion date.
A holder delivering a note for conversion will not be required to pay any
taxes or duties in respect of the issue or delivery of common stock on
conversion. However, if the common stock will be issued or delivered in a name
other than that of the holder of the note, the holder will be required to pay
any tax or duty which may be payable in respect of the transfer. Certificates
representing shares of common stock will not be issued or delivered unless all
taxes and duties, if any, payable by the holder have been paid.
We will adjust the conversion rate of the notes if we:
. issue dividends or other distributions, payable in common stock on
shares of our common stock;
. issue to all holders of our common stock rights to subscribe for or
purchase common stock at less than the then current market price;
. subdivide, combine or reclassify our common stock;
. distribute to all holders of common stock evidences of our indebtedness,
shares of capital stock, cash or assets, including securities, but
excluding:
. those dividends and rights, and distributions referred to above;
. dividends and distributions paid exclusively in cash;
. distributions upon mergers or consolidations resulting in a
reclassification, conversion, exchange or cancellation of our
common stock;
24
<PAGE>
. pay a cash dividend or distribution to the holders of our common stock,
if, when aggregated with all other all-cash distributions and cash and
consideration payable through a tender offer by us, or a subsidiary,
made during the prior 12 months for which an adjustment to the
conversion rate was not made, the dividend, distribution or repurchase
exceeds 10% of our market capitalization.
. complete a tender offer for our common stock which involves aggregate
consideration that together with (a) cash and other consideration
payable in a tender offer by us, or a subsidiary for our common stock
expiring within the 12 months preceding the expiration of that tender
offer for which no adjustment was made and (b) the amount of any all-
cash distributions referred to in the bullet point immediately above to
all holders of our common stock within the 12 months preceding the
expiration of that tender offer for which no adjustment was made,
exceeds 10% of our market capitalization on the expiration of the tender
offer.
We are not required to adjust the conversion rate until the cumulative
adjustments amount to 1.0% or more of the conversion rate. We will give notice
by mail of any adjustments.
If we are consolidated or merged with another entity that results in the
reclassification, conversion, exchange or cancellation of our common stock, or
if we sell or transfer all or substantially all of our assets, each note will
automatically become convertible only into the consideration receivable upon
this event by the holders of our common stock.
We may increase the conversion rate by any amount for any period of at least
20 days, upon at least 15 days notice, if our board of directors deems the
increase to be in the best interests of Exodus.
If we make a distribution of property to our stockholders which would be
taxable to them as a dividend for United States federal income tax purposes and
the number of shares into which notes are convertible is increased, the
increase may be deemed for federal income tax purposes to be the payment of a
taxable dividend to holders of notes.
Subordination
All payments on the notes are subordinated to the prior payment in full of
all our senior indebtedness. Senior indebtedness includes indebtedness
evidenced by a credit or loan agreement, note, bond or other written
obligation, all obligations for money borrowed and specified types of leases.
The principal amount of outstanding senior indebtedness was approximately
$339.7 million at September 30, 1999. In addition, the $375.0 million principal
amount of our 10 3/4% senior notes due 2009 and the (Euro)125.0 million
principal amount of our 10 3/4% senior notes due 2009 issued in December 1999
and the additional $100.0 million principal amount of 10 3/4% senior notes due
2009 that may be issued on or before December 8, 2000 constitute senior
indebtedness.
Our obligations under the notes is also effectively subordinated to all
liabilities of our subsidiaries. As of September 30, 1999, our subsidiaries had
approximately $17.4 million in liabilities. The indenture does not limit our
ability or our subsidiaries' ability to incur senior indebtedness or any other
indebtedness.
In addition, the subordination provisions of the indenture prevent us from
making any payments on the notes if:
. we fail to pay any amounts due on any designated senior debt, as defined
in the indenture, beyond the applicable grace period; or
. any other event of default occurs and is continuing under any designated
senior debt that permits its holders to accelerate the maturity of that
debt, and the trustee receives a payment blockage notice of the default
from us, from a holder of the designated senior debt or from other
persons permitted to give notice under the indenture.
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We may resume making payments on the notes once a payment default on the
designated senior debt is cured or waived.
We may also resume making payments on the notes following a nonpayment
default on the designated senior debt on the earlier of the date on which the
default is cured or waived or 179 days after the date on which the payment
blockage notice is received. No new payment blockage period may be commenced
unless:
. 365 days have passed since the trustee's receipt of the prior payment
blockage notice; and
. all scheduled payments of principal, premium, if any, and interest on
the notes that have come due have been paid in full in cash.
As a result of the subordination provisions, in the event of our
dissolution, winding up, liquidation, reorganization, bankruptcy, insolvency,
receivership or other similar proceedings, holders of the notes may receive
less than other creditors on a ratable basis.
In addition, the notes are structurally subordinated to all indebtedness and
other liabilities of our subsidiaries.
Optional Redemption
We may not redeem the notes prior to January 20, 2002. We may redeem the
notes on and after January 20, 2002, at our option, in whole or in part, upon
not less than 30 nor more than 60 days notice to each holder, at the prices set
forth below. However, we may not redeem the notes on or after January 20, 2002
and before January 15, 2004 unless the last reported bid price for our 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.
The redemption price, expressed as a percentage of principal amount, is as
follows for the 12-month periods beginning on January 15 of the years indicated
below, other than the year 2002, which will be from January 20, 2002 to January
14, 2003 and 2008, which period will be from January 19, 2008 to July 14, 2008:
<TABLE>
<CAPTION>
Redemption
Year Price
---- ----------
<S> <C>
2002...................................................... 103.632%
2003...................................................... 103.074
2004...................................................... 102.515
2005...................................................... 101.956
2006...................................................... 100.397
2007...................................................... 100.838
2008...................................................... 100.279
</TABLE>
and thereafter is equal to 100% of the principal amount, in each case together
with accrued interest to the date of redemption.
Payment
The principal of notes will be payable in U.S. dollars, when the notes are
surrendered at the corporate trust office of the trustee in New York City.
Payment will be made by check drawn on a bank in New York City, or, if
requested by holders with more than $2,000,000 of notes, by transfer to an
account maintained by the holder with a bank in New York City. Interest
payments on each note will be made to the person in whose name the note is
registered at the close of business on the January 1 or the July 1 preceding
the relevant interest payment date. Interest payments are payable in U.S.
dollars and made by a check drawn on a bank in New York City mailed to the
holder at the holder's registered address. In addition, if requested by a
holder with more than
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$2,000,000 of notes, interest payments may be made by transfer to an account
maintained by the holder with a bank in New York City. No transfer to an
account will be made unless the trustee has received written wire instructions
at least 15 days prior to the relevant payment date.
Payments on any global note registered in the name of DTC or its nominee
will be payable by the trustee to DTC or its nominee. The trustee will not have
any responsibility or liability for the actions and practices of DTC or any of
its participants or indirect participants.
Any payment on the notes due on any day which is not a business day may be
made on the next business day.
We have initially appointed the trustee as paying agent and conversion
agent. We may at any time terminate the appointment of any paying agent or
conversion agent and appoint additional or other paying agents and conversion
agents. Notice of any termination or appointment and of any change in the
office through which any paying agent or conversion agent will act will be
given in accordance with "--Notices" below.
All moneys deposited by us with the trustee or any paying agent for any
payment on any notes which remain unclaimed at the end of two years after
payment has become due will be repaid to us, and the holder of the note must
then look only to us for payment.
Repurchase at Option of Holders Upon a Change in Control
If a change in control, as defined below, occurs, we must mail holders of
notes a notice within 30 days of the change in control describing the
transaction or transactions that constitute the change of control and offering
to purchase notes on the date specified in the notice. If a change in control
occurs, each holder of notes may require us to purchase the holder's notes in
integral multiples of $1,000. We will repurchase the notes for an amount of
cash equal to 100% of the principal amount plus accrued and unpaid interest, if
any, to the date of purchase.
Instead of repurchasing notes for cash, we may, at our option, deliver to
holders of notes shares of our common stock valued at 95% of the average of the
closing bid prices for the five trading days immediately preceding and
including the third day prior to the repurchase date. However, payment may not
be made in our common stock unless we satisfy specific conditions with respect
to the payment prior to the repurchase date.
A change in control means:
1. the acquisition by any person, including any group deemed to be a
"person" under Section 13(d)(3) of the Exchange Act, of beneficial
ownership, directly or indirectly, through a purchase, merger or other
acquisition transaction or series of transactions, of shares of our
capital stock entitling the person to exercise 50% or more of the total
voting power of all shares of our capital stock entitled to vote
generally in elections of directors, other than an acquisition of
capital stock by us, any subsidiary of us or any of our employee
benefit plans; or
2. any consolidation or merger of us with or into, any other person, any
merger of another person into us, or any conveyance, sale, transfer or
lease of all or substantially all of our assets to another person,
other than:
. a transaction which does not result in any reclassification,
conversion, exchange or cancellation of outstanding shares of our
capital stock and where the holders of our common stock immediately
prior to the transaction have the entitlement to exercise, directly
or indirectly, 50% or more of the total voting power of all shares
of our capital stock entitled to vote generally in the election of
directors of the continuing or surviving corporation immediately
after the transaction; and
. any merger which is effected solely to change our jurisdiction of
incorporation and results in a reclassification, conversion or
exchange of outstanding shares of common stock only into shares of
common stock;
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A change in control is not deemed to have occurred if:
. the closing bid price per share of our common stock for any five trading
days within the period of 10 consecutive trading days ending immediately
after the later of the change in control or the public announcement of
the change in control, in the case of a change in control under the
first bullet point above, or the period of 10 consecutive trading days
ending immediately before the change in control, in the case of a change
in control under the second bullet point above, shall equal or exceed
105% of the conversion price of the notes in effect on each of these
trading days; or
. all of the consideration, excluding cash payments for fractional shares
and cash payments made pursuant to dissenters' appraisal rights, in a
merger or consolidation constituting the change of control consists of
shares of common stock traded on a national securities exchange or on
the Nasdaq National Market or will be so traded immediately following
the change of control.
In connection with any purchase offer, we will comply with the provisions of
Rule 13e-4, 14e-1 and any other tender offer rules under the Exchange Act which
may then be applicable.
The change in control feature of the notes would not necessarily afford
holders protection in the event of highly leveraged or other transactions
involving us that may adversely affect holders.
Our ability to repurchase notes upon the occurrence of a change in control
is subject to limitations. We may not have the financial resources, or may not
be able to arrange financing, to pay the repurchase price for all the notes
that might be delivered seeking to exercise the repurchase right. Moreover,
although we may elect to pay the repurchase price for the notes using shares of
our common stock, our ability to repurchase notes may be limited or prohibited
by the terms of borrowing arrangements, including the indentures governing our
11 1/4% senior notes due 2008 and our 10 3/4% senior notes due 2009 and other
senior indebtedness. Our ability to repurchase notes may also be limited by the
terms of our subsidiaries' borrowing arrangements due to dividend restrictions.
If we fail to repurchase the notes when required following a change in control
this would result in an event of default under the indenture. A default may, in
turn, cause a default under our senior indebtedness. In addition, the
occurrence of a change in control could result in an event of default under the
terms of the indentures governing our 11 1/4% senior notes due 2008 or our 10
3/4% senior notes due 2009 or under the terms of our other senior indebtedness.
As a result, any repurchase of the notes would, absent a waiver, be prohibited
under the subordination provisions of the indenture until the senior
indebtedness is paid in full. In addition, our repurchase of notes as a result
of the occurrence of a change in control may be prohibited or limited by, or
create an event of default under, the terms of agreements related to borrowings
which we may enter into from time to time, including agreements relating to
senior indebtedness. See "--Subordination."
Covenant Regarding Use of Proceeds
We will use the net proceeds of the sale of the notes, other than the first
$291.75 million, 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, or for other purposes as may be permitted by the indenture for our 11
1/4% senior note due 2008. "Restricted Subsidiary" shall mean any subsidiary
that has not been designated an "Unrestricted Subsidiary" pursuant to the
indenture for our 11 1/4% senior notes due 2008. "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 to the items
listed above.
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<PAGE>
Mergers and Sales of Assets by Exodus
We may not consolidate with or merge into any other entity or convey,
transfer, sell or lease our properties and assets substantially as an entirety
to any entity unless:
. the surviving entity or the person to which our properties and assets
are so conveyed, transferred, sold or leased shall be a corporation,
limited liability company, partnership or trust organized under the laws
of the United States, any state or the District of Columbia and, if
other than us, shall expressly assume the payment of the notes and the
performance of our other covenants under the indenture; and
. immediately after giving effect to this transaction, no event of
default, and no event that, after notice or lapse of time or both, would
become an event of default, shall have occurred and be continuing.
Events of Default
The following are events of default under the indenture:
(1) failure to pay principal of or premium, if any, on any note when due,
whether or not the payment is prohibited by the subordination
provisions of the notes and the indenture;
(2) failure to pay any interest, including any liquidated damages, on any
note when due, continuing for 30 days, whether or not the payment is
prohibited by the subordination provisions of the notes and the
indenture;
(3) failure to provide an offer to purchase in the event of a change in
control whether or not the offer to purchase is prohibited by the
subordination provisions of the notes and the indenture;
(4) failure to perform any of our other covenants in the indenture,
continuing for 60 days after written notice as provided in the
indenture;
(5) any default by us or any significant subsidiary, in payment with
respect to amounts in excess of $10.0 million due under any other
indebtedness if the default shall have continued after any applicable
grace period and, if not already matured at its final maturity, the
holder of the indebtedness shall have the right to accelerate the
indebtedness;
(6) any event of default as defined in any of our other indebtedness in
excess of $10.0 million shall have occurred and the indebtedness, if
not already matured at its final maturity, shall have been
accelerated; and
(7) specified events of bankruptcy, insolvency or reorganization with
respect to us or any significant subsidiary.
Generally, the trustee will be under no obligation to exercise any of its
rights under the indenture, unless holders shall have offered reasonable
indemnity to the trustee. Upon providing 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 as specified in clause number 7 above,
occurs and is continuing, either the trustee or the holders of at least 25% in
aggregate principal amount of the outstanding notes may, subject to the
subordination provisions of the indenture, accelerate the maturity of all
notes. However, after acceleration, but before a judgment or decree based on
acceleration, the holders of a majority in aggregate principal amount of
outstanding notes may rescind and annul the acceleration if all events of
default, other than the non-payment of principal of the notes which have become
due solely by declaration of acceleration, have been cured or waived as
provided in the indenture. If an event of default as specified in clause number
7 above occurs and is continuing, then the principal of, and accrued interest
on, all the notes shall automatically become immediately due and payable
without any declaration or other act on the part of the holders of the notes or
the trustee.
29
<PAGE>
No holder of any note will have any right to institute any proceeding with
respect to the indenture or for any remedy under the indenture, unless:
. the holder shall have previously given to the trustee written notice of
a continuing event of default; and
. 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 the 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 the proceeding within 60 days.
However, these limitations do not apply to a suit instituted by a holder of a
note for the enforcement of payment on the note on or after the due dates
expressed in the note or of the right to convert the note in accordance with
the indenture.
Meetings, Modification and Waiver
The indenture contains provision for convening meetings of the holders of
notes to consider matters affecting their interests.
Limited modifications of the indenture may be made without obtaining the
consent of the holders of the notes. Other modifications and amendments of the
indenture may be made, and various past defaults by us may be waived, either:
. with the written consent of the holders of not less than a majority in
aggregate principal amount of the notes at the time outstanding; or
. by the adoption of a resolution, at a meeting of holders of the notes at
which a quorum is present, by the holders of at least 66 2/3% in
aggregate principal amount of the notes represented at the meeting.
However, the consent of the holder of each outstanding note affected is
required to approve modifications or amendments of the notes that would:
. change the stated maturity of the principal of, or any installment of
interest on, any note;
. reduce the principal amount of, or the premium, if any, or interest on,
any note;
. reduce the amount payable upon a redemption or mandatory repurchase;
. modify the provisions with respect to the repurchase right of the
holders in a manner adverse to the holders;
. change the place or currency of payment on any note;
. impair the right to institute suit for the enforcement of any payment on
any note;
. modify our obligation to maintain an office or agency in New York City;
. except as otherwise permitted or contemplated by specified provisions in
the indenture, adversely affect the right of holders to convert any of
the notes or to require us to repurchase any note other than as provided
in the indenture;
. modify the subordination provisions in a manner adverse to the holders
of the notes;
. 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;
. reduce the percentage in aggregate principal amount of outstanding notes
required for the adoption of a resolution or the quorum required at any
meeting of holders of notes; or
30
<PAGE>
. modify our obligation to deliver information required under Rule 144A to
permit resales of notes and common stock issuable upon conversion of the
notes in the event we cease to be subject to reporting requirements
under the United States securities laws.
The quorum at any meeting called to adopt a resolution will be persons
holding or representing a majority in aggregate principal amount of the notes
at the time outstanding and, at any reconvened meeting adjourned for lack of a
quorum, 25% of the aggregate principal amount.
The holders of a majority in aggregate principal amount of the outstanding
notes may waive compliance by us with various restrictive provisions of the
indenture by written consent or by the adoption of a resolution at a meeting.
The holders of a majority in aggregate principal amount of the outstanding
notes also may waive any past default under the indenture, except a default in
the payment of principal, premium, if any, or interest, by written consent.
Registration Rights
We have entered into a registration rights agreement with the initial
purchasers of the notes. Under this agreement we must, at our own expense:
. file with the SEC, within 90 days after the date of original issuance of
the notes, a shelf registration statement covering resales of the notes
and the common stock issuable on conversion of the notes;
. use all reasonable efforts to cause the shelf registration statement to
be declared effective under the Securities Act within 180 days after the
date of original issuance of the notes; and
. use all reasonable efforts to keep effective the shelf registration
statement until two years after the date it is declared effective or, if
earlier, until there are no outstanding unregistered notes or common
stock issuable on conversion of the notes.
We are permitted to suspend the use of the prospectus which is part of the
shelf registration statement during periods of time, not to exceed an aggregate
of 45 days in any 90-day period, or an aggregate of 90 days in any 365-day
period, under specific circumstances relating to pending corporate
developments, public filings with the SEC and other events.
We will provide to each holder copies of the prospectus that is a part of
the shelf registration statement, notify each holder when the shelf
registration statement has become effective and take other actions as are
required to permit public resales of the notes and the common stock issuable on
conversion of the notes.
If the shelf registration statement ceases to be effective, or the holders
are otherwise prevented or restricted by us from effecting sales while the
shelf registration statement is supposed to be effective, for more than 45 days
during any 90 day period, or for more than 90 days during any 12-month period
then, in either case, the interest rate borne by the notes will increase by an
additional 0.5% per annum until the time the failure is cured.
A holder who elects to sell any securities pursuant to the shelf
registration statement:
. will be required to be named as a selling security holder in the related
prospectus;
. may be required to deliver a prospectus to purchasers;
. may be subject to civil liability provisions under the Securities Act in
connection with the sales; and
. will be bound by the provisions of the registration rights agreement
which are applicable to a holder making the election, including
indemnification provisions.
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<PAGE>
We have mailed a notice and questionnaire to the holders of the notes.
Unless a holder has returned a completed and signed notice and questionnaire to
us by the deadline for response set forth in the notice, that holder is not
entitled to:
. be named as a selling security holder in the shelf registration
statement as of the effective time of the shelf registration statement;
and
. use the prospectus forming a part of the shelf registration statement
for offers and resales of notes or common stock at any time.
We will, upon the request of any holder of securities that has not
previously elected to have their securities included, as promptly as reasonably
practicable, send a notice and questionnaire to the holder. We will not be
required to name that holder as a selling securityholder in the shelf
registration statement until that holder has returned a completed and signed
notice and questionnaire to us. Following our receipt of the notice and
questionnaire, we will as promptly as practicable include the securities listed
in the notice and questionnaire in the shelf registration statement, if not
previously included.
Title
Exodus, the trustee, any paying agent and any conversion agent may treat the
registered owner of any note as the absolute owner for the purpose of making
payment and for all other purposes.
Notices
Notice to holders of the notes will be given by mail to the addresses of the
holders as they appear in the security register. These notices will be deemed
to have been given on the date of mailing.
Replacement of Notes
We will replace notes that become mutilated, destroyed, stolen or lost at
the expense of the holder upon delivery to the trustee of the mutilated notes
or evidence of the loss, theft or destruction of the note satisfactory to us
and the trustee. If a note is lost, stolen or destroyed, indemnity satisfactory
to the trustee and us may be required at the expense of the holder before a
replacement note will be issued.
Governing Law
The indenture and the notes are governed by and construed in accordance with
the laws of the State of New York.
The Trustee
In case an event of default shall occur and shall not be cured, the trustee
will be required to use the degree of care of a prudent person in the conduct
of his own affairs in the exercise of its powers. The trustee will be under no
obligation to exercise any of its rights or powers under the indenture at the
request of any of the holders of notes, unless they shall have offered to the
trustee reasonable security or indemnity.
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<PAGE>
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of material U.S. federal income tax
considerations relevant to holders of the notes and common stock into which the
notes may be converted. 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 in this section, and we have not
obtained, nor do we intend to obtain, a ruling from the IRS with respect to the
U.S. federal income tax consequences of acquiring or holding notes or common
stock. 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 organizations, and persons
holding notes or common stock as part of a hedging or conversion transaction or
straddle or persons deemed to sell notes or common stock 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 as applicable to U.S. Holders (as defined
below). In addition, this discussion is limited to original purchasers of notes
who acquire the notes at their original issue price within the meaning of
Section 1273 of the Code, and who will hold the notes and common stock as
"capital assets" within the meaning of Section 1221 of the Code.
All prospective 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 and the common stock.
U.S. Holders
As used herein, the term "U.S. Holder" means the beneficial owner of a note
or common stock that for United States federal income tax purposes is (i) a
citizen or resident (as defined in Section 7701(b) of the Code) of the United
States, (ii) a corporation, partnership or other entity formed under the laws
of the United States or any political subdivision thereof, (iii) an estate the
income of which is subject to U.S. federal income taxation regardless of its
source and (iv) in general, a trust subject to the primary 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
of a note or common stock other than a U.S. Holder.
Interest
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.
Conversion of Notes into Common Stock
A U.S. Holder generally will not recognize any income, gain or loss upon
conversion of a note into common stock except to the extent the common stock is
considered attributable to accrued interest not previously included in income
(which is taxable as ordinary income). Cash received in lieu of a fractional
share of common stock should generally be treated as a payment in exchange for
such fractional share rather than as a dividend. Gain or loss recognized on the
receipt of cash paid in lieu of such fractional share generally will equal the
difference between the amount of cash received and the amount of tax basis
allocable to the fractional shares. The adjusted basis of shares of common
stock received on conversion will equal the adjusted basis of the note
converted, reduced by the portion of adjusted basis allocated to any fractional
share of common stock exchanged for cash. The holding period of the common
stock received on conversion will generally include the
33
<PAGE>
period during which the convertsed notes were held prior to conversion.
However, a U.S. Holder's tax basis in shares of common stock considered
attributable to accrued interest as described above, generally will equal the
amount of such accrued interest included in income, and the holding period for
such shares shall begin as of the date of the conversion.
The conversion price of the notes is subject to adjustment under certain
circumstances. Section 305 of the Code and the Treasury Regulations issued
thereunder may treat the holders of the notes as having received a construction
distribution, resulting in ordinary income, subject to a possible dividends
received deduction in the case of corporate holders, to the extent of Exodus'
current and/or accumulated earnings and profits, if, and to the extent that
certain adjustments in the conversion price, which may occur in limited
circumstances, particularly an adjustment to reflect a taxable dividend to
holders of common stock, increase the proportionate interest of a holder of
notes in the fully diluted common stock, whether or not such holder ever
exercises its conversion privilege. Moreover, if there is not a full adjustment
to the conversion ratio of the notes to reflect a stock dividend or other event
increasing the proportionate interest of the holders of outstanding common
stock in the assets or earnings and profits of Exodus, then such increase in
the proportionate interest of the holders of the common stock generally will be
treated as a distribution to such holders, taxable as ordinary income, subject
to a possible dividends received deduction in the case of corporate holders, to
the extent of Exodus' current and/or accumulated earnings and profits.
Therefore, U.S. Holders may recognize income in the event of a deemed
distribution even though they may not receive any cash or property.
Sale, Exchange or Retirement of the Notes
Each U.S. Holder generally will recognize gain or loss upon the sale,
exchange, redemption, retirement or other disposition of notes measured by the
difference (if any) between (i) 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 (ii) such holder's
adjusted tax basis in the notes. Any gain or loss recognized on the sale,
exchange, redemption, retirement or other disposition of a Note should be
capital gain or loss and will generally be long-term capital gain or loss if
the Note has been held or deemed held for more than 12 months at the time of
the sale or exchange. Generally, the long-term capital gain rate for
individuals is 20%. Capital gain that is not long-term capital gain is taxed at
ordinary income rates. A holder's initial basis in a note will be the amount
paid for the note.
The Common Stock
Distributions, if any, paid on the common stock after a conversion, to the
extent made from current and/or accumulated earnings and profits of Exodus, as
determined for U.S. federal income tax purposes, will be included in a U.S.
Holder's income as ordinary income (subject to a possible dividends received
deduction in the case of corporate holders) as they are paid. Gain or loss
realized on the sale or exchange of common stock will equal the difference
between the amount realized on such sale or exchange and the U.S. Holder's
adjusted tax basis in such common stock. Such gain or loss will generally be
long-term capital gain or loss if the holder has held or is deemed to have held
the common stock for more than one year. Generally, the long-term capital gains
rate for individuals is 20%. Capital gain that is not long-term capital gain is
taxed at ordinary income rates.
Information Reporting and Backup Withholding
A U.S. Holder of notes or common stock may be subject to "backup
withholding" at a rate of 31% with respect to certain "reportable payments,"
including interest payments, dividend payments and, under certain
circumstances, principal payments on the notes. These backup withholding rules
apply if the 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 therefore,
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. the IRS provides notification that the U.S. Holder has furnished us with
an incorrect TIN,
. fails to report properly interest or dividends, or
. under certain circumstances, fails to provide a certified statement,
signed under penalties of perjury, that the TIN furnished is the correct
number and that such holder is not subject to backup withholding. Any
amount withheld from a payment to a holder under the backup withholding
rules is creditable against the 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, tax-exempt organizations and
certain foreign persons, provided their exemptions from backup
withholding are properly established.
Exodus will report to the U.S. Holders of notes and common stock 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.
Non-U.S. Holders
The following discussion is limited to the U.S. federal income tax
consequences relevant to a Non-U.S. Holder.
For purposes of withholding tax on interest and dividends 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, dividends
and gain on the sale, exchange or other disposition of a note or common stock
will be considered to be "U.S. trade or business income" if such income or gain
is (a) effectively connected with the conduct of a U.S. trade or business or
(b) in the case of a resident of a jurisdiction with a relevant 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.
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. 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 voting power of all voting stock of Exodus and is not a
"controlled foreign corporation" with respect to which we are a "related
person" within the meaning of the Code,
. the withholding agent receives a qualifying statement that the owner is
not a U.S. resident and does not have actual knowledge or reason to know
otherwise,
. 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 to a Non-U.S. Holder of interest 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 withholding.
U.S. trade or business income will be taxed at regular U.S. rates rather than
the 30% of treaty reduced 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. The branch
profits tax may not apply, or may apply at a reduced rate, if a recipient is a
qualified resident of certain
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countries with which the United States has an income tax treaty in force. 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"), Forms
1001 and 4224 will be replaced by a new requirement to provide a properly
executed 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 Exodus. Special
procedures are provided in the Withholding Regulations for payments through
qualified intermediaries. Prospective investors should consult their tax
advisors regarding the effect, if any, of the Withholding Regulations.
Dividends
In general, dividends paid to a Non-U.S. Holder of common stock will be
subject to withholding of U.S. federal income tax at a 30% rate, unless such is
reduced by an applicable income tax treaty. Dividends that are U.S. trade or
business income are generally subject to U.S. federal income tax at regular
rates, but are not generally subject to the 30% withholding tax if the Non-U.S.
Holder files the appropriate form with the payor, as discussed above. Any U.S.
trade or business income received by a Non-U.S. Holder that is a corporation
may also, under certain circumstances, be subject to an additional "branch
profits tax" at a 30% rate or such lower rate as may be applicable under an
income tax treaty. A Non-U.S. Holder of common stock who wishes to claim the
benefit of an applicable treaty rate would be required to satisfy applicable
certification and other requirements.
A Non-U.S. Holder of common stock that is eligible for a reduced rate of
U.S. withholding tax pursuant to an income treaty may obtain a refund of any
amounts currently withheld by filing an appropriate claim for a refund with the
IRS.
Conversion
A Non-U.S. Holder generally will not be subject to the U.S. federal income
tax on the conversion of notes into common stock, except with respect to cash,
if any, received in lieu of a fractional share or interest not previously
included in income. Cash received in lieu of a fractional share may give rise
to gain that would be subject to the rules described below for the sale of
notes. Cash or common stock treated as issued for accrued interest would be
treated as interest under the rules described above.
Sale, Exchange or Redemption of Notes or Common Stock
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 or common stock generally will not be subject to U.S.
federal income tax, unless:
. such gain is U.S. trade or business income,
. subject to certain exceptions, the Non-U.S. Holder is an individual who
holds the note or common stock as a capital asset and is present in the
United States for 183 days or more in the taxable year of the
disposition,
. 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), or
. in the case of the disposition of common stock, Exodus is a U.S. real
property holding corporation. We do not believe that we are currently a
"United States real property holding corporation," or that it will
become one in the future.
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Information Reporting and Backup Withholding
Generally, we must report annually to the IRS and to each Non-U.S. Holder
any interest or dividend that is subject to withholding, 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. Under certain
circumstances, Exodus will 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 Exodus or any
agent thereof 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 Exodus or its paying
agent has actual knowledge that the payee is a United States person.
The payment of the proceeds from the disposition of the notes or common
stock to or through the U.S. office of any broker, U.S. or foreign, will be
subject to information reporting and possible backup withholding unless the
owner certifies 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 payment of the proceeds from
the disposition of a note or common stock to or through a non-U.S. office of a
non-U.S. broker that is not a U.S. related person 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, information reporting will
apply unless such broker has documentary evidence in its files of the Non-U.S.
Holder's foreign status and has no actual knowledge to the contrary or unless
the Non-U.S. Holder otherwise establishes an exemption. Both backup withholding
and information reporting will apply to the proceeds of such dispositions if
the broker has actual knowledge that the payee is a U.S. Holder. The
Withholding Regulations alter the foregoing rules in certain respects.
Investors should consult their tax advisors regarding the effect, if any, of
the Withholding Regulations.
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 are followed.
THE PRECEDING DISCUSSION OF CERTAIN UNITED STATES FEDERAL INCOME AND ESTATE
TAX CONSEQUENCES IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE.
ACCORDINGLY, EACH INVESTOR SHOULD CONSULT ITS OWN TAX ADVISER AS TO PARTICULAR
TAX CONSEQUENCES TO IT OF PURCHASING, HOLDING AND DISPOSING OF THE NOTES AND
THE COMMON STOCK, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR
FOREIGN TAX LAWS, AND OF ANY PROPOSED CHANGES IN APPLICABLE LAWS.
37
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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 due 2008 under 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 its 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 remains 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. There can be no
assurance that we would have sufficient funds available at the time of any
change of control to make any required debt repayment including repurchases of
the 11 1/4% senior notes. The definition of change of control in the 11 1/4%
senior note indenture differs in a number of respects from the definition of
change of control in the indenture governing our 4 3/4% convertible
subordinated notes.
The indebtedness evidenced by the 11 1/4% senior notes ranks equally in
right of payment with all of our existing and future unsubordinated
indebtedness, including our 10 3/4% senior notes due 2009, and senior in right
of payment to all of our existing and future subordinated indebtedness,
including our 4 3/4% convertible subordinated notes and our 5% convertible
subordinated notes.
The 11 1/4% senior notes indenture restricts, among other things, our
ability to incur additional indebtedness and the use of proceeds in connection
therewith, pay dividends or make certain other restricted payments, incur
certain liens to secure indebtedness, or engage in merger transactions. There
are significant "carve-outs" and exceptions to these covenants.
The 10 3/4% Senior Notes
In December 1999, we issued an aggregate of $375.0 million of our 10 3/4%
senior notes due 2009 and (Euro)125.0 million of our 10 3/4% senior notes due
2009 under an indenture between us and Chase Manhattan Bank and Trust Company,
National Association, as trustee. We have the option to issue an additional
$100.0 million of 10 3/4% senior notes due 2009 at any time up to December 8,
2000. The 10 3/4% senior notes are unsecured obligations, and mature on
December 15, 2009. Interest on the 10 3/4% senior notes accrues at the rate of
10 3/4% per annum, payable semi-annually on June 15 and December 15 of each
year, commencing June 15, 2000.
The 10 3/4% senior notes are redeemable at our option, in whole or in part,
at any time or from time to time, on or after December 15, 2004 at the
redemption prices set forth in the 10 3/4% senior notes indenture. In addition,
at any time prior to December 15, 2002, we may redeem up to 35% of the
aggregate principal amount of each of the 10 3/4% dollar denominated senior
notes and the 10 3/4% euro denominated senior notes with the net proceeds of
one or more sales of specific types of our stock at a redemption price of
110.75%, plus accrued and unpaid interest, if any, to the redemption date;
provided that at least 65% of the original principal amount of each of the 10
3/4% dollar denominated senior notes and the 10 3/4% euro denominated senior
notes initially issued remain outstanding. Upon a change of control, as defined
in the 10 3/4% senior note indenture, we would be required to make an offer to
purchase the 10 3/4% senior notes at a purchase price equal to 101% of the
principal amount, plus accrued and unpaid interest, if any. There can be no
assurance that we would have
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sufficient funds available at the time of any change of control to make any
required debt repayment including repurchases of the 10 3/4% senior notes. The
definition of change of control in the 10 3/4% senior note indenture differs in
a number of respects from the definition of change of control in the indentures
governing our 4 3/4% convertible subordinated notes.
The indebtedness evidenced by the 10 3/4% senior notes ranks equally in
right of payment with all of our existing and future unsubordinated
indebtedness, including the 11 1/4% senior notes, and senior in right of
payment to all of our existing and future subordinated indebtedness, including
our 4 3/4% convertible subordinated notes and our 5% convertible subordinated
notes.
The 10 3/4% senior notes indenture restricts, among other things, our
ability to incur additional indebtedness and the use of proceeds in connection
therewith, pay dividends or make certain other restricted payments, incur
certain liens to secure indebtedness, 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 March 15, 2006 under 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 ratio
of 87.5704 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. There can be no
assurance that we would have sufficient funds available at the time of any
change of control to make any required debt repayment. The definition of change
of control in the 5% convertible subordinated notes indenture is substantially
similar to the definition of change of control in the indenture governing our 4
3/4% convertible subordinated notes.
The indebtedness evidenced by the 5% convertible subordinated notes is
subordinated in right of payment with 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 our 4 3/4% convertible subordinated notes.
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DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 300,000,000 shares of common stock,
$0.001 par value per share, and 5,000,000 shares of preferred stock, $0.001 par
value per share. As of December 31, 1999, there were outstanding 177,914,376
shares of common stock held of record by approximately 659 stockholders,
warrants to purchase 506,664 shares of common stock and outstanding options to
purchase 55,135,487 shares of common stock. No shares of preferred stock are
outstanding.
Common Stock
Subject to preferences that may apply to shares of preferred stock
outstanding at the time, the holders of outstanding shares of our common stock
are entitled to receive dividends out of assets legally available when and in
amounts as our board may from time to time determine. Each stockholder is
entitled to one vote for each share of common stock held on all matters
submitted to a vote of stockholders. Cumulative voting for the election of
directors is not provided for in our certificate of incorporation, which means
that the holders of a majority of the shares voted can elect all of the
directors then standing for election. Our common stock is not entitled to
preemptive rights and is not subject to conversion or redemption. Upon our
liquidation, dissolution or winding-up, the assets legally available for
distribution to stockholders are distributable ratably among the holders of the
common stock and any participating preferred stock outstanding at that time
after payment of liquidation preferences, if any, on any outstanding preferred
stock and payment of other claims of creditors.
Preferred Stock
Our board is authorized, subject to limitations prescribed by Delaware law,
to provide for the issuance of shares of preferred stock in one or more series,
to establish from time to time the number of shares to be included in each
series, to fix the powers, designations, preferences and rights of the shares
of each wholly unissued series and designate any qualifications, limitations or
restrictions and to increase or decrease the number of shares of any series,
but not below the number of shares of the series then outstanding, without any
further vote or action by the stockholders. The issuance of preferred stock
with voting or conversion rights could adversely affect the voting power or
other rights of the holders of common stock and may have the effect of
delaying, deferring or preventing a change in control of us. We have no current
plan to issue any shares of preferred stock.
Warrants
As of December 31, 1999, we had outstanding warrants to purchase 506,664
shares of common stock at a weighted average per share exercise price of $1.83.
A warrant for 480,000 shares of common stock will expire in April 2007 and a
warrant for 26,664 shares of common stock will expire in December 2004.
Anti-Takeover Provisions
Delaware Law
We are subject to Section 203 of the Delaware General Corporation Law, an
anti-takeover law. In general, the statute prohibits a publicly-held Delaware
corporation from entering into a "business combination" with any "interested
stockholder" for a three-year period after the date of the transaction in which
the person became an interested stockholder unless the business combination is
approved in a prescribed manner. A "business combination" includes a merger,
asset sale or transaction resulting in a financial benefit to an interested
stockholder. An "interested stockholder" is a person who, together with
affiliates and associates, owns, or within three years prior, did own, 15% or
more of Exodus' voting capital stock. Our certificate of incorporation and
bylaws do not exclude us from the restrictions imposed under Section 203. The
provisions of Section 203 may encourage companies interested in acquiring us to
negotiate in advance with our board since the stockholder approval requirement
would be avoided if a majority of the directors then in office approve
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either the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder. These provisions may have the
effect of deterring hostile takeovers or delaying changes in control of Exodus,
which could depress the market price of our Common Stock and which could
deprive the stockholders of opportunities to realize a premium on shares of the
Common Stock held by them.
Charter and Bylaw Provisions
Our certificate of incorporation and bylaws contain provisions that could
discourage potential takeover attempts and make more difficult attempts by
stockholders to change management. For instance, our certificate of
incorporation provides that stockholders may not take action by written consent
but may only act at a stockholders' meeting, and that special meetings of our
stockholders may only be called by the Chairman of the board or a majority of
the board.
Stockholder Rights Plan
Our stockholder rights plan is designed to protect the long-term value of
Exodus for our stockholders during any future unsolicited acquisition attempt.
In connection with the plan, we declared a dividend of one preferred share
purchase right for each share of our common stock outstanding on February 11,
1999 and further directed the issuance of one right with respect to each share
of our common stock that is issued after February 11, 1999, except in specified
circumstances. The rights will expire on January 27, 2009. The rights are
initially attached to our common stock and will not trade separately. If a
person or a group acquires 15% (20% in the case of FMR Corp.) or more of our
common stock (an "Acquiring Person"), or announces an intention to make a
tender offer for our common stock the consummation of which would result in a
person or group becoming an Acquiring Person, then the rights will be
distributed (the "Distribution Date") and will thereafter trade separately from
the common stock. Upon the Distribution Date, each right may be exercised for
1/800th of a share of a newly-designated Series A Junior Participating
Preferred Stock at an exercise price of $43.75. The preferred stock has been
structured so that the value of 1/100th of a share of the preferred stock will
approximate the value of one share of common stock. Upon a person becoming an
Acquiring Person, holders of the rights (other than the Acquiring Person) will
have the right to acquire shares of our common stock at a substantially
discounted price, in lieu of the preferred stock. Additionally, if after the
Distribution Date, we are acquired in a merger or other business combination,
or 50% or more of our assets are sold in a transaction with an Acquiring
Person, the holders of rights (other than the Acquiring Person) will have the
right to receive shares of common stock of the acquiring corporation at a
substantially discounted price. After a person has become an Acquiring Person,
our board of directors may, at its option, require the exchange of outstanding
rights (other than those held by the Acquiring Person) for common stock at an
exchange ratio of one share of common stock per right. The board also has the
right to redeem outstanding rights at any time prior to the Distribution Date
(or later in specified circumstances) at a price of $0.001 per right. The terms
of the rights, including the period to redeem the rights, may be amended by the
board in specified circumstances.
Registration Rights
The shares of our common stock held by two members of our board of directors
have rights to require us to register those shares under the Securities Act. If
we propose to register any of our shares of common stock under the Securities
Act other than in connection with an employee benefit plan or corporate
acquisitions, mergers or reorganizations, the holders of stock with
registration rights may require us to include all or a portion of their shares
in the registration, subject to rights of any managing underwriter to limit the
number of shares in any offering.
All expenses incurred in connection with the registrations, other than
underwriters' discounts and commissions, will be borne by us. The registration
rights expire in March 2005. In addition, no holder of common stock will be
entitled to registration rights if and so long as the holder can sell all of
its shares in compliance with Rule 144 of the Securities Act during any 90-day
period.
The holders of common stock with registration rights have waived their
rights to include their common stock in this shelf registration.
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Transfer Agent and Registrar
The Transfer Agent and Registrar for our common stock is Boston EquiServe
Limited Partnership.
LEGAL MATTERS
Fenwick & West LLP, Palo Alto, California, will provide Exodus with an
opinion as to legal matters in connection with the notes and the common stock.
Winthrop, Stimson, Putnam & Roberts, New York, New York, will provide an
opinion as to legal matters related to the laws of the State of New York in
connection with the notes.
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.
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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-27
Consolidated Balance Sheets............................................... F-28
Consolidated Statements of Operations..................................... F-29
Consolidated Statements of Stockholders' (Deficit) Equity................. F-30
Consolidated Statements of Cash Flows..................................... F-31
Notes to Consolidated Financial Statements................................ F-32
COHESIVE TECHNOLOGY SOLUTIONS, INC. AND SUBSIDIARIES
Independent Auditors' Report.............................................. F-50
Consolidated Balance Sheets............................................... F-51
Consolidated Statements of Operations..................................... F-52
Consolidated Statements of Stockholders' Equity........................... F-53
Consolidated Statements of Cash Flows..................................... F-54
Notes to Consolidated Financial Statements................................ F-55
Condensed Consolidated Balance Sheets..................................... F-65
Condensed Consolidated Statements of Operations........................... F-66
Condensed Consolidated Statements of Cash Flows........................... F-67
Notes to Unaudited Condensed Consolidated Financial Statements............ F-68
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
Unaudited Pro Forma Combined Condensed Financial Statements............... F-69
Unaudited Pro Forma Combined Condensed Statement of Operations............ F-70
Notes to Unaudited Pro Forma Combined Condensed Financial Statements...... F-72
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.
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)
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, 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.
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)
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 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.
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)
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 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
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)
of an Enterprise and Related Information. Internet Data Center operations
primarily include services such as server infrastructure support, Internet
connectivity, and managed services.
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 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.
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)
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 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.
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)
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 redeemable convertible
preferred stock at $0.84 per share. In March and June 1997, the Company
received a
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)
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
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)
("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.
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.
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)
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.
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 this sale, the
vesting of options held by employees of the Internet services division were
accelerated by
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
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>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EXODUS COMMUNICATIONS, INC.
$500,000,000
4 3/4% Convertible Subordinated Notes
Due July 15, 2008
and
7,101,700 Shares of Common Stock
Issuable Upon Conversion of the Notes
----------------
PROSPECTUS
----------------
, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. Other Expenses of Issuance and Distribution.
The following table sets forth the various expenses payable by the
Registrant in connection with the sale and distribution of the securities being
registered hereby. Normal commission expenses and brokerage fees are payable
individually by the selling stockholders. All amounts are estimated except the
Securities and Exchange Commission registration fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.............. $132,000
Nasdaq National Market filing fee................................ 17,500
Accounting fees and expenses..................................... 50,000
Legal fees and expenses.......................................... 50,000
Miscellaneous.................................................... 50,500
--------
Total........................................................ $300,000
========
</TABLE>
ITEM 15. Indemnification of Directors and Officers.
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, indemnity 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 indemnify; 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
II-1
<PAGE>
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
indemnification 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 party of securities in
violation of Section 16(b) of the Securities Exchange Act of 1934 or any
similar successor statute or (iii) if a final decision by a court having
jurisdiction in the matter shall determine that such indemnification is not
lawful.
The indemnification agreement also provides for contribution in certain
situations in which the Registrant and a director or executive officer are
jointly liable for indemnification is unavailable, such contribution to be
based on the relative benefits received 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.
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 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, maintains director and officer liability insurance.
In addition, Thadeus Mocarski, a director of the Registrant, is indemnified
in certain circumstances by Fleet Financial Group, Inc.
ITEM 16. Exhibits.
The following exhibits are filed herewith or incorporated by reference
herein:
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title
------- -------------
<C> <S>
3.01 Registrant's Restated Certificate of Incorporation. (Incorporated by
reference from Exhibit 3.07 to Registrant's Quarterly Report on Form
10-Q for the quarter ended July 19, 1999).
3.02 Certificate of Designations specifying the terms of the Series A
Junior Participating Preferred Stock of the Registrant, as filed with
the Delaware Secretary of State on January 28, 1999 (Incorporated by
reference from Exhibit 3.02 to the Registrant's Registration Statement
on Form 8-A filed with the Commission on January 29, 1999).
3.03 Registrant's Bylaws. (Incorporated by reference from Exhibit 3.06 to
the Registrant's Registration Statement on Form S-1 declared effective
on March 18, 1998 (the "Form S-1")).
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
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 Rights Agreement dated January 27, 1999 between Registrant and
BankBoston, N.A., as Rights Agent (the "Rights Agreement") (Incorporated
by reference from Exhibit 4.04 to the Registrant's registration
statement on Form 8-A filed on January 29, 1999).
4.03 Amendment to the Rights Agreement dated October 20, 1999 (Incorporated
by reference from Exhibit 4.05 to the amendment to the Registrant's
registration statement on Form 8-A filed November 29, 1999).
4.04 Form of Note for Registrant's 4 3/4% Convertible Subordinated Notes due
July 15, 2008.
4.05 Indenture between Exodus Communications, Inc. 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.
4.06 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.
4.07 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.
5.01 Opinion of Fenwick & West LLP.
5.02 Opinion of Winthrop, Stimson, Putnam & Roberts.
12.01 Statement regarding Computation of Ratios.
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 LLP.
24.01 Power of Attorney (see page II-5).
25.01 Statement of Eligibility of Trustee.
</TABLE>
II-3
<PAGE>
ITEM 17. Undertakings.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933 each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement 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.
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 provisions described under Item 15 above, 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.
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;
(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 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; and (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; provided, however, that (i) and (ii) do not apply
if the information required to be included in a post-effective amendment
thereby is contained in periodic reports filed with or furnished to the
Commission by the Registrant pursuant to Section 13 or Section 15(d) of the
Exchange Act that are incorporated by reference in the registration
statement.
(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.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and 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 this 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 individual whose signature appears below constitutes and appoints Ellen
M. Hancock and Adam W. Wegner, and each of them, his true and lawful attorneys-
in-fact and agents, each with the power of substitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this registration
statement, and to sign any registration statement for the same offering covered
by this registration statement that is to be effective upon filing pursuant to
Rule 415 promulgated under the Securities Act of 1933, and all post-effective
amendments thereto, and to file the same, with all exhibits thereto and all
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents or any of them, or his or their
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
Principal Executive Officer:
<S> <C> <C>
/s/ Ellen M. Hancock President and Chief January 31, 2000
____________________________________ Executive Officer and
Ellen M. Hancock Director
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
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
Additional Directors:
<S> <C> <C>
/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
Director January , 2000
____________________________________
John R. Dougery
/s/Mark Dubovoy Director January 31, 2000
____________________________________
Mark Dubovoy
/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-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title
------- -------------
<C> <S>
3.01 Registrant's Restated Certificate of Incorporation. (Incorporated by
reference from Exhibit 4.01 to Registrant's Registration Statement on
Form S-8 filed on July 19, 1999).
3.02 Certificate of Designations specifying the terms of the Series A
Junior Participating Preferred Stock of the Registrant, as filed with
the Delaware Secretary of State on January 28, 1999 (Incorporated by
reference from Exhibit 3.02 to the Registrant's Registration Statement
on Form 8-A filed with the Commission on January 29, 1999).
3.03 Registrant's Bylaws. (Incorporated by reference from Exhibit 3.06 to
the Registrant's Registration Statement on Form S-1 declared effective
on March 18, 1998 (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 Rights Agreement dated January 27, 1999 between Registrant and
BankBoston, N.A., as Rights Agent (the "Rights Agreement")
(Incorporated by reference from Exhibit 4.04 to the Registrant's
registration statement on Form 8-A filed on January 29, 1999).
4.03 Amendment to the Rights Agreement dated October 20, 1999 (Incorporated
by reference from Exhibit 4.05 to the amendment to the Registrant's
registration statement on Form 8-A filed November 29, 1999).
4.04 Form of Note for Registrant's 4 3/4% Convertible Subordinated Notes
due July 15, 2008.
4.05 Indenture between Exodus Communications, Inc. 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.
4.06 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.
4.07 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.
5.01 Opinion of Fenwick & West LLP.
5.02 Opinion of Winthrop, Stimson, Putnam & Roberts.
12.01 Statement regarding Computation of Ratios.
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 LLP.
24.01 Power of Attorney (see page II-5).
25.01 Statement of Eligibility of Trustee.
</TABLE>
<PAGE>
EXHIBIT 4.04
[FACE OF SECURITY]
THIS SECURITY AND ANY COMMON STOCK ISSUABLE UPON THE CONVERSION OF THIS SECURITY
HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE
OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF
THIS SECURITY THAT IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT) IS HEREBY NOTIFIED THAT THE SELLER OF THIS SECURITY
MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE
SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER.
THIS SECURITY AND ANY SHARES OF COMMON STOCK ISSUABLE UPON ITS CONVERSION MAY
NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (I) TO A PERSON
WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER ACQUIRING
FOR ITS OWN ACCOUNT OR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (II) TO AN INSTITUTION THAT
IS AN "ACCREDITED INVESTOR" WITHIN THE MEANING OF RULE 501(a)(1), (2), (3) OR
(7) UNDER THE SECURITIES ACT IN A TRANSACTION EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT, (III) PURSUANT TO THE EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF
AVAILABLE), OR (IV) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT, AND IN EACH OF CASES (I) THROUGH (IV) IN ACCORDANCE WITH ALL
APPLICABLE SECURITIES LAWS OF THE STATES AND OTHER JURISDICTION OF THE UNITED
STATES.
THIS SECURITY, ANY SHARES OF COMMON STOCK ISSUABLE UPON ITS CONVERSION AND ANY
RELATED DOCUMENTATION MAY BE AMENDED OR SUPPLEMENTED FROM TIME TO TIME TO MODIFY
THE RESTRICTIONS ON RESALES AND OTHER TRANSFERS OF THIS SECURITY AND ANY SUCH
SHARES TO REFLECT ANY CHANGE IN APPLICABLE LAW OR REGULATION (OR THE
INTERPRETATION THEREOF) OR IN PRACTICES RELATING TO THE RESALE OR TRANSFER OF
RESTRICTED SECURITIES GENERALLY. THE HOLDER OF THIS SECURITY AND ANY SUCH
SHARES SHALL BE DEEMED BY THE ACCEPTANCE OF THIS SECURITY AND ANY SUCH SHARES TO
HAVE AGREED TO ANY SUCH AMENDMENT OR SUPPLEMENT.
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE DEPOSITARY OR A
NOMINEE OF THE DEPOSITARY, WHICH MAY BE
<PAGE>
TREATED BY THE COMPANY, THE TRUSTEE AND ANY AGENT THEREOF AS OWNER AND HOLDER OF
THIS SECURITY FOR ALL PURPOSES.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
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.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN
DEFINITIVE REGISTERED FORM IN THE LIMITED CIRCUMSTANCES REFERRED TO IN THE
INDENTURE, THIS GLOBAL SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE
DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO
THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY
SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR
DEPOSITARY.
<PAGE>
EXODUS COMMUNICATIONS, INC.
4 3/4% CONVERTIBLE SUBORDINATED NOTE DUE JULY 15, 2008
CUSIP NO. 302088 AG 4
No. C1 $400,000,000
EXODUS COMMUNICATIONS, INC., a corporation duly organized and existing
under the laws of the State of Delaware (herein called the "Company", which term
includes any successor Person under the Indenture referred to on the reverse
hereof), for value received, hereby promises to pay to Cede & Co., or registered
assigns, the principal sum of Four Hundred Million United States Dollars
($400,000,000) (which principal amount may from time to time be increased or
decreased to such other principal amounts (which, taken together with the
principal amounts of all other Outstanding Securities, shall not exceed
$500,000,000 in the aggregate at any time) by adjustments made on the records of
the Trustee hereinafter referred to in accordance with the Indenture) on July
15, 2008 and to pay interest thereon, from December 8, 1999, or from the most
recent Interest Payment Date (as defined below) to which interest has been paid
or duly provided for, semi-annually in arrears on January 15 and July 15 in each
year (each, an "Interest Payment Date"), commencing July 15, 2000, at the rate
of 4 3/4% per annum, until the principal hereof is due, and at the rate of 6
3/4% per annum on any overdue principal and premium, if any, and, to the extent
permitted by law, on any overdue interest. The interest so payable, and
punctually paid or duly provided for, on any Interest Payment Date will, as
provided in the Indenture, be paid to the Person in whose name this 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 January 1 or July
1 (whether or not a Business Day), as the case may be, next preceding such
Interest Payment Date. Except as otherwise provided in the Indenture, any such
interest not so punctually paid or duly provided for will forthwith cease to be
payable to the Holder on such Regular Record Date and may either be paid to the
Person in whose name this 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 Company, notice whereof shall be
given to Holders of Securities not less than 10 days prior to the Special Record
Date, or be paid at any time in any other lawful manner not inconsistent with
the requirements of any automated quotation system or securities exchange on
which the Securities may be quoted or listed, and upon such notice as may be
required by such exchange, all as more fully provided in the Indenture. Payments
of principal shall be made upon the surrender of this Security at the option of
the Holder at the Corporate Trust Office of the Trustee, or at such other office
or agency of the Company as may be designated by it for such purpose in the
Borough of Manhattan, The City of New York, in such coin or currency of the
United States of America as at the time of payment shall be legal tender for the
payment of public and private debts, or at such other offices or agencies as the
Company may designate, by United States Dollar check drawn on, or transfer to, a
United States Dollar account (such a transfer to be made only to a Holder of an
aggregate principal amount of Securities in excess of $2,000,000, and only if
such Holder shall have furnished wire instructions in writing to the Trustee no
later than 15 days prior to the relevant payment date). Payment of interest on
this Security may be made by United States Dollar check mailed to the address of
the Person
<PAGE>
entitled thereto as such address shall appear in the Security Register, or, upon
written application by the Holder to the Security Registrar setting forth wire
instructions not later than the relevant Record Date, by transfer to a United
States Dollar account (such a transfer to be made only to a Holder of an
aggregate principal amount of Securities in excess of $2,000,000 and only if
such Holder shall have furnished wire instructions in writing to the Trustee no
later than 15 days prior to the relevant payment date).
Except as specifically provided herein and in the Indenture, the Company shall
not be required to make any payment with respect to any tax, assessment or other
governmental charge imposed by any government or any political subdivision or
taxing authority thereof or therein.
Reference is hereby made to the further provisions of this 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
referred to on the reverse hereof or an Authenticating Agent by the manual
signature of one of their respective authorized signatories, this Security shall
not be entitled to any benefit under the Indenture or be valid or obligatory for
any purpose.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Security 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 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 Security is one of a duly authorized issue of securities of the Company
designated as its "4 3/4% Convertible Subordinated Notes due July 15, 2008"
(herein called the "Securities"), limited in aggregate principal amount to
$500,000,000, issued and to be issued under an Indenture, dated as of December
1, 1999 (herein called the "Indenture"), between the Company 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 Company, the Trustee, the holders of Senior
Indebtedness and the Holders of the Securities and of the terms upon which the
Securities are, and are to be, authenticated and delivered. As provided in the
Indenture and subject to certain limitations therein set forth, Securities are
exchangeable for a like aggregate principal amount of Securities of any
authorized denominations as requested by the Holder surrendering the same upon
surrender of the Security or Securities to be exchanged, at the Corporate Trust
Office of the Trustee. The Trustee upon such surrender by the Holder will issue
the new Securities in the requested denominations.
No sinking fund is provided for the Securities. The Securities will not be
subject to redemption prior to January 20, 2002 and will be redeemable on and
after that date at the option of the Company, in whole or in part, upon not less
than 30 nor more than 60 days notice to the Holders prior to the Redemption Date
at the Redemption Prices (expressed as percentages of the principal amount) set
forth below; provided, however, that the Securities will not be redeemable at
the option of the Company 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.
The following table sets forth the Redemption Prices (expressed as percentages
of the principal amount) if such Security is redeemed during the 12-month
periods beginning on January 15 of the years indicated below (other than 2002
which period will be from January 20, 2002 to January 14, 2003 and 2008 which
period will be from January 15, 2008 through July 14, 2008):
YEAR REDEMPTION PRICE
---- ----------------
2002 103.632%
2003 103.074%
2004 102.515%
2005 101.956%
2006 101.397%
2007 100.838%
2008 100.279%
and thereafter at a Redemption Price equal to 100% of the principal amount,
together, in each case, with accrued interest to the Redemption Date; provided,
however, that interest installments on Securities whose Stated Maturity is on or
prior to such Redemption Date will be payable to the
<PAGE>
Holders of such Securities, or one or more Predecessor Securities, of record at
the close of business on the relevant Record Dates referred to on the face
hereof, all as provided in the Indenture.
In the event of a redemption of the Securities, the Company will not be required
(a) to register the transfer or exchange of Securities for a period of 15 days
immediately preceding the date notice is given identifying the serial numbers of
the Securities called for such redemption or (b) to register the transfer or
exchange of any Security, or portion thereof, called for redemption.
In any case where the due date for the payment of the principal of, premium, if
any, interest, or Liquidated Damages on any Security or the last day on which a
Holder of a Security has a right to convert his Security shall be, at any Place
of Payment or Place of Conversion as the case may be, a day on which banking
institutions at such Place of Payment or Place of Conversion are authorized or
obligated by law or executive order to close, then payment of principal,
premium, if any, interest, or Liquidated Damages, or delivery for conversion of
such Security need not be made on or by such date at such place but may be made
on or by the next succeeding day at such place which is not a day on which
banking institutions are authorized or obligated by law or executive order to
close, with the same force and effect as if made on the date for such payment or
the date fixed for redemption or repurchase, or by such last day for conversion,
and no interest shall accrue on the amount so payable for the period after such
date.
Subject to and upon compliance with the provisions of the Indenture, the Holder
of this Security is entitled, at his option, at any time following the initial
issuance date of the Securities and on or before the close of business on the
date of Maturity, or in case this Security or a portion hereof is called for
redemption or the Holder hereof has exercised his right to require the Company
to repurchase this Security or such portion hereof, then in respect of this
Security until and including, but (unless the Company defaults in making the
payment due upon redemption or repurchase, as the case may be) not after, the
close of business on the Redemption Date or the Repurchase Date, as the case may
be, to convert this Security (or any portion of the principal amount hereof that
is an integral multiple of $1,000, provided that the unconverted portion of such
principal amount is $1,000 or any integral multiple of $1,000 in excess
thereof) into fully paid and nonassessable shares of Common Stock of the Company
at an initial Conversion Rate of 7.1017 shares of Common Stock for each $1,000
principal amount of Securities (or at the current adjusted Conversion Rate if an
adjustment has been made as provided in the Indenture) by surrender of this
Security, duly endorsed or assigned to the Company or in blank, with the
conversion notice hereon duly executed and, in case such surrender shall be made
during the period from the close of business on any Regular Record Date next
preceding any Interest Payment Date to the opening of business on such Interest
Payment Date (except if this Security or portion thereof has been called for
redemption on a Redemption Date during the period from such Regular Record Date
through the date that is three Business Days following such Interest Payment
Date), also accompanied by payment in New York Clearing House or other funds
acceptable to the Company of an amount equal to the interest payable on such
Interest Payment Date on the principal amount of this Security then being
converted, to the Company at the Corporate Trust Office of the Trustee, or at
such other office or agency of the Company, subject to any laws or regulations
applicable thereto and subject to the right of the Company to terminate the
appointment of any Conversion Agent (as defined below) as may be
<PAGE>
designated by it for such purpose in the Borough of Manhattan, The City of New
York, or at such other offices or agencies as the Company may designate (each a
"Conversion Agent"). Subject, in the case of a conversion after the close of
business on the Regular Record Date next preceding any Interest Payment Date and
on or before the close of business on such Interest Payment Date, to the right
of the Holder of this Security (or any Predecessor Security of record as of such
Regular Record Date) to receive the related installment of interest to the
extent and under the circumstances provided in the Indenture, no cash payment or
adjustment is to be made on conversion for interest accrued hereon from the
Interest Payment Date next preceding the day of conversion, or for dividends on
the Common Stock issued on conversion hereof. The Company shall thereafter
deliver to the Holder the fixed number of shares of Common Stock (together with
any cash adjustment, as provided in the Indenture) into which this Security is
convertible and such delivery will be deemed to satisfy the Company's obligation
to pay the principal amount of this Security. No fractions of shares or scrip
representing fractions of shares will be issued on conversion, but instead of
any fractional interest (calculated to the nearest 1/100th of a share) the
Company shall pay a cash adjustment as provided in the Indenture. The Conversion
Rate is subject to adjustment as provided in the Indenture. In addition, the
Indenture provides that in case of certain consolidations or mergers to which
the Company is a party (other than a consolidation or merger that does not
result in any reclassification, conversion, exchange or cancellation of the
Common Stock) or the conveyance, transfer, sale or lease of all or substantially
all of the property and assets of the Company, the Indenture shall be amended,
without the consent of any Holders of Securities, so that this Security, if then
Outstanding, will be convertible thereafter, during the period this Security
shall be convertible as specified above, only into the kind and amount of
securities, cash and other property receivable upon such consolidation, merger,
conveyance, transfer, sale or lease by a holder of the number of shares of
Common Stock of the Company into which this Security could have been converted
immediately prior to such consolidation, merger, conveyance, transfer, sale or
lease (assuming such holder of Common Stock is not a Constituent Person or an
Affiliate of a Constituent Person, failed to exercise any rights of election and
received per share the kind and amount received per share by a plurality of Non-
electing Shares). No adjustment in the Conversion Rate will be made until such
adjustment would require an increase or decrease of at least one percent of such
rate, provided that any adjustment that would otherwise be made will be carried
forward and taken into account in the computation of any subsequent adjustment.
If this Security is a Registrable Security (as defined in the Indenture), then
the Holder of this Security (including any Person that has a beneficial interest
in this Security) and the Common Stock of the Company issuable upon conversion
hereof is entitled to the benefits of the Registration Rights Agreement, dated
as of December 1, 1999 (the "Registration Rights Agreement"), between the
Company and the Initial Purchasers, as such agreement may be amended from time
to time. Pursuant to the Registration Rights Agreement, the Company has agreed
for the benefit of the Holders from time to time of the Registrable Securities
that it will, at its expense, (a) within 90 days after the Issue Date file a
shelf registration statement (the "Shelf Registration Statement") with the
Commission with respect to resales of the Registrable Securities, (b) use all
reasonable efforts to cause such Shelf Registration Statement to be declared
effective by the Commission within 180 days after the Issue Date of the
Securities, provided, however, that the Company may, upon written
<PAGE>
notice to all the Holders, postpone having the Shelf Registration Statement
declared effective for a reasonable period not to exceed 90 days if the Company
possesses material non-public information, the disclosure of which would have a
material adverse effect on the Company and its subsidiaries taken as a whole,
and (c) use all reasonable efforts to maintain such Shelf Registration Statement
effective under the Securities Act of 1933, as amended, until the second annual
anniversary of the date it is declared effective or such earlier date as is
provided in the Registration Rights Agreement (the "Effectiveness Period"). The
Company will be permitted to suspend the use of the prospectus which is part of
the Shelf Registration Statement during certain periods of time as provided in
the Registration Rights Agreement.
If (i) on or prior to 90 days following the Issue Date, a Shelf Registration
Statement has not been filed with the Commission, or (ii) on or prior to the
180th day following the Issue Date, such Shelf Registration Statement is not
declared effective (each, a "Registration Default"), additional interest
("Liquidated Damages") will accrue on this Restricted Security from and
including the day following such Registration Default to but excluding the day
on which such Registration Default has been cured. Liquidated Damages will be
paid semi-annually in arrears, with the first semi-annual payment due on the
first Interest Payment Date, as applicable, in respect of the Restricted
Securities following the date on which such Liquidated Damages begin to accrue,
and will accrue at a rate per annum equal to an additional one-quarter of one
percent (0.25%) of the principal amount of the Restricted Securities to and
including the 90th day following such Registration Default and at a rate per
annum equal to one-half of one percent (0.50%) thereof from and after the 91st
day following such Registration Default. Pursuant to the Registration Rights
Agreement, in the event that the Shelf Registration Statement ceases to be
effective (or the Holders of Registrable Securities are otherwise prevented or
restricted by the Company from effecting sales pursuant thereto) (an "Effective
Failure") during the Effectiveness Period for more than 45 days, whether or not
consecutive, during any 90 day period, or for more than 90 days, whether or not
consecutive, during any 12-month period, then the interest rate borne by the
Restricted Securities shall increase by an additional one-half of one percent
(0.50%) per annum from the 46th day of the applicable 90 day period or the 91st
day of the applicable 12-month period, as the case may be, until such time as
the Effective Failure is cured.
Whenever in this Security there is a reference, in any context, to the payment
of the principal of, premium, if any, or interest on, or in respect of, any
Security, such mention shall be deemed to include mention of the payment of
Liquidated Damages payable as described in the preceding paragraph to the extent
that, in such context, Liquidated Damages are, were or would be payable in
respect of such Security and express mention of the payment of Liquidated
Damages (if applicable) in any provisions of this Security shall not be
construed as excluding Liquidated Damages in those provisions of this Security
where such express mention is not made.
If this Security is a Registrable Security and the Holder of this Security
(including any Person that has a beneficial interest in this Security) elects to
sell this Security pursuant to the Shelf Registration Statement then, by its
acceptance hereof, such Holder of this Security agrees to be bound by the terms
of the Registration Rights Agreement relating to the Registrable Securities
which are the subject of such election.
<PAGE>
If a Change in Control occurs, the Holder of this Security, at the Holder's
option, shall have the right, in accordance with the provisions of the
Indenture, to require the Company to repurchase this Security (or any portion of
the principal amount hereof that is an integral multiple of $1,000 for cash at a
Repurchase Price equal to 100% of the principal amount thereof plus interest
accrued to the Repurchase Date. At the option of the Company, the Repurchase
Price may be paid in cash or, subject to the conditions provided in the
Indenture, by delivery of shares of Common Stock having a fair market value
equal to the Repurchase Price. For purposes of this paragraph, the fair market
value of shares of Common Stock shall be determined by the Company and shall be
equal to 95% of the average of the Closing Prices Per Share for the five
consecutive Trading Days immediately preceding and including the third Trading
Day prior to the Repurchase Date. Whenever in this Security there is a
reference, in any context, to the principal of any Security as of any time, such
reference shall be deemed to include reference to the Repurchase Price payable
in respect of such Security to the extent that such Repurchase Price is, was or
would be so payable at such time, and express mention of the Repurchase Price in
any provision of this Security shall not be construed as excluding the
Repurchase Price so payable in those provisions of this Security when such
express mention is not made; provided, however, that, for the purposes of the
second succeeding paragraph, such reference shall be deemed to include reference
to the Repurchase Price only to the extent the Repurchase Price is payable in
cash.
In the event of a deposit or withdrawal of an interest in this Security,
including an exchange, transfer, redemption, repurchase or conversion of this
Security in part only, the Trustee, as custodian of the Depositary, shall make
an adjustment on its records to reflect such deposit or withdrawal in accordance
with the Applicable Procedures.
The indebtedness evidenced by this Security is, to the extent and in the manner
provided in the Indenture, subordinate and subject in right of payment to the
prior payment in full of all Senior Indebtedness of the Company, and this
Security is issued subject to such provisions of the Indenture with respect
thereto. Each Holder of this Security, by accepting the same, (a) agrees to and
shall be bound by such provisions, (b) authorizes and directs the Trustee on his
behalf to take such action as may be necessary or appropriate to effectuate the
subordination so provided and (c) appoints the Trustee his attorney-in-fact for
any and all such purposes.
If an Event of Default shall occur and be continuing, the principal of all the
Securities, together with accrued interest to the date of declaration, may be
declared due and payable in the manner and with the effect provided in the
Indenture. Upon payment (i) of the amount of principal so declared due and
payable, together with accrued interest to the date of declaration, and (ii) of
interest on any overdue principal and, to the extent permitted by applicable
law, overdue interest, all of the Company's obligations in respect of the
payment of the principal of and interest on the Securities shall terminate.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities under the Indenture at
any time by the Company and the Trustee with either (a) the written consent of
the Holders of not less than a majority in principal amount of the Securities at
the time
<PAGE>
Outstanding, or (b) by the adoption of a resolution, at a meeting of Holders of
the Outstanding Securities at which a quorum is present, by the Holders of at
least 66-2/3% in aggregate principal amount of the Outstanding Securities
represented and entitled to vote at such meeting. The Indenture also contains
provisions permitting the Holders of specified percentages in principal amount
of the Securities at the time Outstanding, on behalf of the Holders of all the
Securities, to waive compliance by the Company with certain provisions of the
Indenture and certain past defaults under the Indenture and their consequences.
Any such consent or waiver by the Holder of this Security shall be conclusive
and binding upon such Holder and upon all future Holders of this Security and of
any Security issued in exchange therefore or in lieu hereof whether or not
notation of such consent or waiver is made upon this Security or such other
Security.
As provided in and subject to the provisions of the Indenture, the Holder of
this 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, 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 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 the Securities 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 any suit instituted by the Holder of this Security for the enforcement
of any payment of principal hereof, premiums if any, or interest (including
Liquidated Damages) hereon on or after the respective due dates expressed herein
or for the enforcement of the right to convert this Security as provided in the
Indenture.
No reference herein to the Indenture and no provision of this Security or of the
Indenture shall alter or impair the obligation of the Company, which is absolute
and unconditional, to pay the principal of, premium, if any, and interest
(including Liquidated Damages) on this Security at the times, places and rate,
and in the coin or currency, herein prescribed or to convert this Security as
provided in the Indenture.
As provided in the Indenture and subject to certain limitations therein set
forth, the transfer of this Security is registrable on the Security Register
upon surrender of this Security for registration of transfer at the Corporate
Trust Office of the Trustee or at such other office or agency of the Company as
may be designated by it for such purpose in the Borough of Manhattan, The City
of New York (which shall initially be an office or agency of the Trustee), or at
such other offices or agencies as the Company may designate, duly endorsed by,
or accompanied by a written instrument of transfer in form satisfactory to the
Company and the Security Registrar duly executed by, the Holder thereof or his
attorney duly authorized in writing, and thereupon one or more new Securities,
of authorized denominations and for the same aggregate principal amount, will
be issued to the designated transferee or transferees by the Registrar. No
service charge shall be made for any such registration of transfer or exchange,
but the Company may require payment of a sum sufficient to recover any tax or
other governmental charge payable in connection therewith.
<PAGE>
Prior to due presentation of a this Security for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name such Security is registered, as the owner thereof for all
purposes, whether or not such Security be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
No recourse for the payment of the principal (and premium, if any) or interest
on this Security and no recourse under or upon any obligation, covenant or
agreement of the Company in the Indenture or any indenture supplemental thereto
or in any Security, or because of the creation of any indebtedness represented
thereby, shall be had against any incorporator, stockholder, employee, agent,
officer or director or subsidiary, as such, past, present or future, of the
Company or of any successor corporation, either directly or through the Company
or any successor corporation, whether by virtue of any constitution, statute or
rule of law or by the enforcement of any assessment or penalty or otherwise, all
such liability being, by the acceptance hereof and as part of consideration for
the issue hereof, expressly waived and released.
THE INDENTURE AND THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK, UNITED STATES OF AMERICA, WITHOUT REGARD
TO THE PRINCIPLES OF CONFLICTS OF LAWS.
All terms used in this Security which are defined in the Indenture shall have
the meanings assigned to them in the Indenture.
<PAGE>
ABBREVIATIONS
The following abbreviations, when used in the inscription of the face of this
Security, shall be construed as though they were written out in full according
to applicable laws or regulations:
<TABLE>
<CAPTION>
UNIF GIFT MIN ACT ____ Custodian _____
<S> <C>
TEN COM as tenant in common (Cust) (Minor)
TEN ENT as tenants by the entireties (Cust) under Uniform Gifts
JT TEN as joint tenants with right of to Minors Act _____
survivorship and not as tenants in (State)
common
</TABLE>
Additional abbreviations may also be used though not in the above list.
<PAGE>
ELECTION OF HOLDER TO REQUIRE REPURCHASE
(1) Pursuant to Article 14.1 of the Indenture, the undersigned hereby elects to
have this Security repurchased by the Company.
(2) The undersigned hereby directs the Trustee or the Company to pay it or
______________ an amount in cash or, at the Company's election, Common
Stock valued as set forth in the Indenture, equal to 100% of the principal
amount to be repurchased (as set forth below), plus interest accrued to the
Repurchase Date, as provided in the Indenture.
Dated:____________
__________________________________
Signature(s)
Signature(s) must be guaranteed by
an Eligible Guarantor Institution
with membership in an approved
signature guarantee program
pursuant to Rule 17Ad-15 under the
Securities Exchange Act of 1934.
___________________________________
Signature Guaranteed
Principal amount to be repurchased (at least
$5,000 or an integral multiple of $1,000
in excess thereof): ___________________
Remaining principal amount following such
repurchase (not less than $1,000):
______________
NOTICE: The signature to the foregoing Election must correspond to the Name as
written upon the face of this Security in every particular, without alteration
or any change whatsoever.
<PAGE>
CONVERSION NOTICE
To: Exodus Communications, Inc.
The undersigned Holder of this Security hereby irrevocably exercises the
option to convert this Security, or any portion of the principal amount hereof
(which is $1,000 or an integral multiple of $1,000 in excess thereof, provided
that the unconverted portion of such principal amount is $1,000 or any integral
multiple of $1,000 in excess thereof) below designated, into shares of Common
Stock in accordance with the terms of the Indenture referred to in this
Security, and directs that such shares, together with a check in payment for any
fractional share and any Securities representing any unconverted principal
amount hereof, be delivered to and be registered in the name of the undersigned
unless a different name has been indicated below. If shares of Common Stock or
Securities are to be registered in the name of a Person other than the
undersigned, (a) the undersigned will pay all transfer taxes payable with
respect thereto and (b) signature(s) must be guaranteed by an Eligible Guarantor
Institution with membership in an approved signature guarantee program pursuant
to Rule 17Ad-15 under the Securities Exchange Act of 1934. Any amount required
to be paid by the undersigned on account of interest accompanies this Security.
Dated:___________ _____________________________
Signature(s)
Signature(s) must be
guaranteed by an Eligible
Guarantor Institution with
membership in an approved
signature guarantee program
pursuant to Rule 17Ad - 15
under the Securities Exchange
Act of 1934.
______________________________
Signature Guarantee
<PAGE>
If shares or Securities are to be registered in the name of a Person other than
the Holder, please print such Person's name and address:
___________________________________________
(Name)
___________________________________________
(Address)
___________________________________________
Social Security or other Identification
Number, if any.
If only a portion of the Securities is to be converted, please indicate:
1. Principal amount to be converted: $ ___________
2. Principal amount and denomination of Securities
representing unconverted principal amount to be issued:
Amount: $___________ Denominations: $____________
($1,000 or any integral multiple of $1,000 in excess thereof, provided that the
unconverted portion of such principal amount is $1,000 or any integral multiple
of $1,000 in excess thereof)
<PAGE>
ASSIGNMENT
For value received ________________ hereby sell(s), assign(s) and
transfer(s) unto ________________ (Please insert social security or other
identifying number of assignee) the within Security, and hereby irrevocably
constitutes and appoints ____________________as attorney to transfer the said
Security on the books of the Company, with full power of substitution in the
premises.
Dated:________
____________________________
Signature(s)
Signature(s) must be
guaranteed by an Eligible
Guarantor Institution with
membership in an approved
signature guarantee program
pursuant to Rule 17Ad - 15
under the Securities
Exchange Act of 1934.
____________________________
Signature Guarantee
<PAGE>
EXHIBIT 4.05
_______________________________________
EXODUS COMMUNICATIONS, INC.
ISSUER
TO
CHASE MANHATTAN BANK AND TRUST COMPANY, NATIONAL ASSOCIATION,
TRUSTEE
__________________
INDENTURE
Dated as of December 1, 1999
___________________
4 3/4% CONVERTIBLE SUBORDINATED NOTES DUE JULY 15, 2008
_______________________________________
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ARTICLE I DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION................................................. 1
SECTION 1.1 Definitions........................................................................ 1
SECTION 1.2 Compliance Certificates And Opinions............................................... 11
SECTION 1.3 Form of Documents Delivered to The Trustee......................................... 12
SECTION 1.4 Acts of Holders of Securities...................................................... 13
SECTION 1.5 Notices, Etc....................................................................... 15
SECTION 1.6 Notice to Holders of Securities; Waiver............................................ 16
SECTION 1.7 Effect of Headings and Table of Contents........................................... 16
SECTION 1.8 Successors and Assigns............................................................. 16
SECTION 1.9 Separability Clause................................................................ 16
SECTION 1.10 Benefits of Indenture.............................................................. 17
SECTION 1.11 Governing Law...................................................................... 17
SECTION 1.12 Legal Holidays..................................................................... 17
SECTION 1.13 Conflict With Trust Indenture Act.................................................. 17
ARTICLE II SECURITY FORMS......................................................................................... 18
SECTION 2.1 Form Generally..................................................................... 18
SECTION 2.2 Form of Security................................................................... 19
SECTION 2.3 Form of Certificate of Authentication.............................................. 33
SECTION 2.4 Form of Conversion Notice.......................................................... 34
SECTION 2.5 Form of Assignment................................................................. 36
ARTICLE III THE SECURITIES........................................................................................ 37
SECTION 3.1 Title and Terms.................................................................... 37
SECTION 3.2 Denominations...................................................................... 38
SECTION 3.3 Execution, Authentication, Delivery and Dating..................................... 38
SECTION 3.4 Global Securities; Non-global Securities; Book-entry Provisions.................... 38
SECTION 3.5 Registration; Registration of Transfer and Exchange; Restrictions on Transfer...... 40
SECTION 3.6 Mutilated, Destroyed, Lost or Stolen Securities.................................... 44
SECTION 3.7 Payment of Interest; Interest Rights Preserved..................................... 45
SECTION 3.8 Persons Deemed Owners.............................................................. 46
SECTION 3.9 Cancellation....................................................................... 47
SECTION 3.10 Computation of Interest............................................................ 47
SECTION 3.11 Cusip Numbers...................................................................... 47
ARTICLE IV SATISFACTION AND DISCHARGE............................................................................. 47
SECTION 4.1 Satisfaction And Discharge of Indenture............................................ 47
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SECTION 4.2 Application of Trust Money......................................................... 49
ARTICLE V REMEDIES................................................................................................ 49
SECTION 5.1 Events of Default.................................................................. 49
SECTION 5.2 Acceleration of Maturity; Rescission and Annulment................................. 51
SECTION 5.3 Collection of Indebtedness and Suits for Enforcement by Trustee.................... 52
SECTION 5.4 Trustee May File Proofs of Claim................................................... 53
SECTION 5.5 Trustee May Enforce Claims Without Possession of Securities........................ 53
SECTION 5.6 Application of Money Collected..................................................... 54
SECTION 5.7 Limitation on Suits................................................................ 54
SECTION 5.8 Unconditional Right of Holders to Receive Principal, Premium and Interest
and to Convert..................................................................... 55
SECTION 5.9 Restoration of Rights and Remedies................................................. 56
SECTION 5.10 Rights and Remedies Cumulative..................................................... 56
SECTION 5.11 Delay or Omission Not Waiver....................................................... 56
SECTION 5.12 Control by Holders of Securities................................................... 56
SECTION 5.13 Waiver of Past Defaults............................................................ 56
SECTION 5.14 Undertaking for Costs.............................................................. 58
SECTION 5.15 Waiver of Stay, Usury or Extension Laws............................................ 58
ARTICLE VI THE TRUSTEE............................................................................................ 58
SECTION 6.1 Certain Duties and Responsibilities................................................ 58
SECTION 6.2 Notice of Defaults................................................................. 59
SECTION 6.3 Certain Rights of Trustee.......................................................... 60
SECTION 6.4 Not Responsible for Recitals or Issuance of Securities............................. 61
SECTION 6.5 May Hold Securities, Act as Trustee under Other Indentures......................... 61
SECTION 6.6 Money Held in Trust................................................................ 62
SECTION 6.7 Compensation and Reimbursement..................................................... 62
SECTION 6.8 Corporate Trustee Required; Eligibility............................................ 63
SECTION 6.9 Resignation and Removal; Appointment of Successor.................................. 63
SECTION 6.10 Acceptance of Appointment by Successor............................................. 64
SECTION 6.11 Merger, Conversion, Consolidation or Succession to Business........................ 65
SECTION 6.12 Authenticating Agents.............................................................. 65
SECTION 6.13 Disqualification; Conflicting Interests............................................ 68
SECTION 6.14 Preferential Collection of Claims Against Company.................................. 68
ARTICLE VII CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE.................................................. 68
SECTION 7.1 Company May Consolidate, Etc....................................................... 68
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SECTION 7.2 Successor Substituted.............................................................. 69
ARTICLE VIII SUPPLEMENTAL INDENTURES.............................................................................. 69
SECTION 8.1 Supplemental Indentures Without Consent of Holders of Securities................... 69
SECTION 8.2 Supplemental Indentures with Consent of Holders of Securities...................... 70
SECTION 8.3 Execution of Supplemental Indentures............................................... 72
SECTION 8.4 Effect of Supplemental Indentures.................................................. 72
SECTION 8.5 Reference in Securities to Supplemental Indentures................................. 72
SECTION 8.6 Notice of Supplemental Indentures.................................................. 72
ARTICLE IX MEETINGS OF HOLDERS OF SECURITIES...................................................................... 72
SECTION 9.1 Purposes for Which Meetings May Be Called.......................................... 72
SECTION 9.2 Call, Notice and Place of Meetings................................................. 73
SECTION 9.3 Persons Entitled to Vote at Meetings............................................... 73
SECTION 9.4 Quorum; Action..................................................................... 73
SECTION 9.5 Determination of Voting Rights; Conduct and Adjournment of Meetings................ 74
SECTION 9.6 Counting Votes and Recording Action of Meetings.................................... 75
ARTICLE X COVENANTS............................................................................................... 75
SECTION 10.1 Payment of Principal, Premium and Interest......................................... 76
SECTION 10.2 Maintenance of Offices or Agencies................................................. 76
SECTION 10.3 Money for Security Payments to Be Held in Trust.................................... 77
SECTION 10.4 Existence.......................................................................... 78
SECTION 10.5 Maintenance of Properties.......................................................... 78
SECTION 10.6 Payment of Taxes and Other Claims.................................................. 78
SECTION 10.7 Registration and Listing........................................................... 78
SECTION 10.8 Statement by Officers as to Default................................................ 79
SECTION 10.9 Delivery of Certain Information.................................................... 79
SECTION 10.10 Resale of Certain Securities....................................................... 80
SECTION 10.11 Registration Rights................................................................ 80
SECTION 10.12 Use of Proceeds.................................................................... 82
SECTION 10.13 Waiver of Certain Covenants........................................................ 82
ARTICLE XI REDEMPTION OF SECURITIES............................................................................... 82
SECTION 11.1 Right of Redemption................................................................ 82
SECTION 11.2 Applicability of Article........................................................... 83
SECTION 11.3 Election to Redeem; Notice to Trustee.............................................. 83
SECTION 11.4 Selection by Trustee of Securities to Be Redeemed.................................. 83
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SECTION 11.5 Notice of Redemption............................................................... 83
SECTION 11.6 Deposit of Redemption Price........................................................ 84
SECTION 11.7 Securities Payable on Redemption Date.............................................. 85
SECTION 11.8 Conversion Arrangement on Call for Redemption...................................... 85
ARTICLE XII CONVERSION OF SECURITIES.............................................................................. 86
SECTION 12.1 Conversion Privilege and Conversion Rate........................................... 86
SECTION 12.2 Exercise of Conversion Privilege................................................... 87
SECTION 12.3 Fractions of Shares................................................................ 88
SECTION 12.4 Adjustment of Conversion Rate...................................................... 89
SECTION 12.5 Notice of Adjustments of Conversion Rate........................................... 94
SECTION 12.6 Notice of Certain Corporate Action................................................. 94
SECTION 12.7 Company to Reserve Common Stock.................................................... 95
SECTION 12.8 Taxes on Conversions............................................................... 95
SECTION 12.9 Covenant as to Common Stock........................................................ 96
SECTION 12.10 Cancellation of Converted Securities............................................... 96
SECTION 12.11 Provision in Case of Consolidation, Merger or Sale of Assets....................... 96
SECTION 12.12 Rights Issued in Respect of Common Stock........................................... 97
SECTION 12.13 Responsibility of Trustee for Conversion Provisions................................ 98
ARTICLE XIII SUBORDINATION OF SECURITIES.......................................................................... 98
SECTION 13.1 Securities Subordinate to Senior Indebtedness...................................... 98
SECTION 13.2 No Payment in Certain Circumstances, Payment over of Proceeds upon
Dissolution, Etc................................................................... 98
SECTION 13.3 Prior Payment to Senior Indebtedness upon Acceleration of Securities............... 101
SECTION 13.4 Payment Permitted If No Default.................................................... 101
SECTION 13.5 Subrogation to Rights of Holders of Senior Indebtedness............................ 101
SECTION 13.6 Provisions Solely to Define Relative Rights........................................ 102
SECTION 13.7 Trustee to Effectuate Subordination................................................ 102
SECTION 13.8 No Waiver of Subordination Provisions.............................................. 102
SECTION 13.9 Notice to Trustee.................................................................. 103
SECTION 13.10 Reliance on Judicial Order or Certificate of Liquidating Agent..................... 104
SECTION 13.11 Trustee Not Fiduciary for Holders of Senior Indebtedness........................... 104
SECTION 13.12 Reliance by Holders of Senior Indebtedness on Subordination Provisions............. 104
SECTION 13.13 Rights of Trustee as Holder of Senior Indebtedness; Preservation of
Trustee's Rights................................................................... 104
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SECTION 13.14 Article Applicable to Paying Agents................................................ 105
SECTION 13.15 Certain Conversions and Repurchases Deemed Payment................................. 105
ARTICLE XIV REPURCHASE OF SECURITIES AT THE OPTION OF THE HOLDER UPON A CHANGE IN CONTROL......................... 106
SECTION 14.1 Right to Require Repurchase........................................................ 106
SECTION 14.2 Conditions to the Company's Election to Pay the Repurchase Price
in Common Stock.................................................................... 107
SECTION 14.3 Notices; Method of Exercising Repurchase Right, Etc................................ 107
SECTION 14.4 Certain Definitions................................................................ 111
SECTION 14.5 Consolidation, Merger, etc......................................................... 112
ARTICLE XV HOLDERS LISTS AND REPORTS BY TRUSTEE AND COMPANY....................................................... 113
SECTION 15.1 Company to Furnish Trustee Names and Addresses of Holders.......................... 113
SECTION 15.2 Preservation of Information........................................................ 113
SECTION 15.3 Reserved........................................................................... 113
SECTION 15.4 Reports by Company................................................................. 114
ARTICLE XVI IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS....................................... 114
SECTION 16.1 Indenture and Securities Solely Corporate Obligations.............................. 114
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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 office at 2831 Mission College
Boulevard, Santa Clara, California 95054 (herein called the "Company"), and
CHASE MANHATTAN BANK AND TRUST COMPANY, NATIONAL ASSOCIATION, a national banking
association, as Trustee hereunder (herein called the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the creation of an issue of its 4 3/4%
Convertible Subordinated Notes due July 15, 2008 (herein called the
"Securities") of substantially the tenor and amount hereinafter set forth, and
to provide therefor the Company has duly authorized the execution and delivery
of this Indenture.
All things necessary to make the Securities, when the Securities are
executed by the Company and authenticated and delivered hereunder, the valid
obligations of the Company, and to make this Indenture a valid agreement of the
Company, in accordance with their and its terms, have been done. Further, all
things necessary to duly authorize the issuance of the Common Stock of the
Company issuable upon the conversion of the Securities, and to duly reserve for
issuance the number of shares of Common Stock issuable upon such conversion,
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 I
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 1.1 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 accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles in the United States, and, except as otherwise herein expressly
provided, the term "generally accepted accounting principles" with
<PAGE>
respect to any computation required or permitted hereunder shall mean such
accounting principles as are generally accepted at the date of such computation;
and
(3) 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.
"Act", when used with respect to any Holder of a Security, has the meaning
specified in Section 1.4.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control", when used with respect to any specified Person, means the power to
direct the management and policies of such 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.
"Agent Member" means any member of, or participant in, the Depositary.
"Applicable Procedures" means, with respect to any transfer or transaction
involving a Global Security or beneficial interest therein, the rules and
procedures of The Depository Trust Company, in each case to the extent
applicable to such transaction and as in effect from time to time.
"Authenticating Agent" means any Person authorized pursuant to Section 6.12
to act on behalf of the Trustee to authenticate Securities.
"Board of Directors" means either the board of directors of the Company
or any duly authorized committee of that board.
"Board Resolution" means a resolution duly adopted by the Board of
Directors, a copy of which, certified by the Secretary or an Assistant Secretary
of the Company to have been duly adopted by the Board of Directors and to be in
full force and effect on the date of such certification, shall have been
delivered to the Trustee.
"Business Day", when used with respect to any Place of Payment, Place of
Conversion or any other place, as the case may be, means each Monday, Tuesday,
Wednesday, Thursday and Friday which is not a day on which banking institutions
in such Place of Payment, Place of Conversion or other place, as the case may
be, are authorized or obligated by law or executive order to close; provided,
however, that a day on which banking institutions in New York, New York are
authorized or obligated by law or executive order to close shall not be a
Business Day for purposes of Section 13.9.
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<PAGE>
"Change in Control" has the meaning specified in Section 14.4(2).
"Closing Price Per Share" means, with respect to the Common Stock, for any
day, (i) the last reported bid price regular way on the Nasdaq National Market
or, (ii) if the Common Stock is not quoted on the Nasdaq National Market, the
last reported sale price regular way per share or, in case no such reported sale
takes place on such day, the average of the reported closing bid and asked
prices regular way, in either case, on the principal national securities
exchange on which the Common Stock is listed or admitted to trading, or (iii) if
the Common Stock is not quoted on the Nasdaq National Market or listed or
admitted to trading on any national securities exchange, the average of the
closing bid prices in the over-the-counter market as furnished by any New York
Stock Exchange member firm selected from time to time by the Company for that
purpose.
"Code" has the meaning specified in Section 2.l.
"Commission" means the United States 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" means the Common Stock, par value $0.001 per share, of the
Company authorized at the date of this instrument as originally executed.
Subject to the provisions of Section 12.11, shares issuable on conversion or
repurchase of Securities shall include only shares of Common Stock or shares of
any class or classes of common stock resulting from any reclassification or
reclassifications thereof; provided, however, that if at any time there shall be
more than one such resulting class, the shares so issuable on conversion of
Securities shall include shares of all such classes, and the shares of each such
class then so issuable shall be substantially in the proportion which the total
number of shares of such class resulting from all such reclassifications bears
to the total number of shares of all such classes resulting from all such
reclassifications.
"Common stock" includes any stock of any class of capital stock which has
no preference in respect of dividends or of amounts payable in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the issuer
thereof and which is not subject to redemption by the issuer thereof.
"Company" means the Person named as the "Company" in the first paragraph of
this instrument until a successor Person shall have become such pursuant to the
applicable provisions of this Indenture, and thereafter "Company" shall mean
such successor Person.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its (i) Chairman of the Board, its Vice
Chairman of the Board, its Chief
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<PAGE>
Executive Officer, its President, an Executive Vice President or a Vice
President, and by its (ii) principal financial officer, Treasurer, an Assistant
Treasurer, its Secretary or an Assistant Secretary, and delivered to the
Trustee.
"Constituent Person" has the meaning specified in Section 12.11.
"Conversion Agent" means any Person authorized by the Company to convert
Securities in accordance with Article XII. The Company has initially appointed
the Trustee as its Conversion Agent pursuant to Section 10.2 hereof.
"Conversion Price" has the meaning specified in Section 14.4(3).
"Conversion Rate" has the meaning specified in Section 12.1.
"Corporate Trust Office" means the office of the Trustee at which at any
particular time the trust created by this Indenture shall be principally
administered (which at the date of this Indenture is located at 101 California
Street, Suite 2725, San Francisco, CA 94111, Attention: Corporate Trust
Administration (Exodus Communications, Inc., 4 3/4% Convertible Subordinated
Notes due July 15, 2008)).
"Corporation" means a corporation, company, association, joint-stock
company or business trust.
"Defaulted Interest" has the meaning specified in Section 3.7.
"Depositary" means, with respect to any Securities (including any Global
Securities), a clearing agency that is registered as such under the Exchange Act
and is designated by the Company to act as Depositary for such Securities (or
any successor securities clearing agency so registered).
"Designated Senior Debt" means the Company's obligations in respect of (x)
the Company's 11 1/4% Senior Notes due 2008 and $375,000,000 principal amount
of the 10 3/4% Senior Notes due 2009 (the "Dollar Securities") and Euro
125,000,000 principal amount of the 10 3/4% Senior Notes due 2009 (the "Euro
Securities") and (y) any particular Senior Indebtedness in which the instrument
creating or evidencing the same or the assumption or guarantee thereof (or
related agreements or documents to which the Company is a party) expressly
provides that such Senior Indebtedness shall be "Designated Senior Debt" for
purposes of this Indenture (provided that such instrument, agreement or other
document may place limitations and conditions on the right of such Senior
Indebtedness to exercise the rights of Designated Senior Debt).
"Distribution Date" shall mean the "Distribution Date" as such term is
defined in the Rights Agreement.
-4-
<PAGE>
"Dollar" or "U.S. $" means a dollar or other equivalent unit in such coin
or currency of the United States as at the time shall be legal tender for the
payment of public and private debts.
"DTC" means The Depository Trust Company, a New York corporation.
"Effective Failure" has the meaning specified in Section 10.11.
"Effectiveness Period" has the meaning specified in Section 10.11.
"Event of Default" has the meaning specified in Section 5.1.
"Exchange Act" means the United States Securities Exchange Act of 1934 (or
any successor statute), as amended from time to time.
"Global Security" means a Security that is registered in the Security
Register in the name of a Depositary or a nominee thereof.
"Holder" means the Person in whose name the Security is registered in the
Security Register.
"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, including, for
all purposes of this instrument and any such supplemental indenture, the
provisions of the Trust Indenture Act that are deemed to be a part of and govern
this instrument and any such supplemental indenture, respectively.
"Initial Purchasers" means Goldman, Sachs & Co., Donaldson, Lufkin &
Jenrette, Securities Corporation and Morgan Stanley & Co., Incorporated.
"Interest Payment Date" means the Stated Maturity of an installment of
interest on the Securities.
"Issue Date" means December 8, 1999.
"Liquidated Damages" has the meaning specified in Section 10.11.
"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, exercise of the repurchase right set forth in Article XIV or
otherwise.
"Non-electing Share" has the meaning specified in Section 12.11.
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<PAGE>
"Notice of Default" has the meaning specified in Section 5.1.
"Offer to Purchase" has the meaning specified in Section 14.3
"Officers' Certificate" means a certificate signed by (i) the Chairman of
the Board, a Vice Chairman of the Board, the Chief Executive Officer, the
President, an Executive Vice President or a Vice President and by (ii) the
principal financial officer, the Treasurer, an Assistant Treasurer, the
Secretary or an Assistant Secretary of the Company, and delivered to the
Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may be counsel
for the Company and who shall be acceptable to the Trustee.
"Outstanding", when used with respect to Securities, means, as of the date
of determination, all Securities theretofore authenticated and delivered under
this Indenture, except:
(i) Securities theretofore canceled by the Trustee or
delivered to the Trustee for cancellation;
(ii) Securities for the payment or redemption of which money in
the necessary amount has been theretofore deposited with the Trustee or any
Paying Agent (other than the Company) in trust or set aside and segregated in
trust by the Company (if the Company 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;
(iii) Securities which have been paid pursuant to Section 3.6 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 Company; and
(iv) Securities converted into Common Stock pursuant to Article
XII;
provided, however, that in determining whether the Holders of the requisite
principal amount of Outstanding Securities are present at a meeting of Holders
of Securities for quorum purposes or have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Securities owned
by the Company or any other obligor upon the Securities or any Affiliate of the
Company or 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 determination as to the presence of a quorum or upon
any such request, demand, authorization, direction, notice, consent or waiver,
only Securities which a Responsible Officer of the Trustee has been notified in
writing to be
-6-
<PAGE>
so owned shall be so disregarded. Securities so owned which have been pledged in
good faith may be regarded as Outstanding if the pledgee is not the Company or
any other obligor upon the Securities or any Affiliate of the Company or such
other obligor, and the Trustee shall be protected in relying upon an Officer's
Certificate to such effect.
"Paying Agent" means any Person authorized by the Company to pay the
principal of or interest on any Securities on behalf of the Company and, except
as otherwise specifically set forth herein, such term shall include the Company
if it shall act as its own Paying Agent. The Company has initially appointed the
Trustee as its Paying Agent pursuant to Section 10.2 hereof.
"Payment Blockage Notice" has the meaning specified in Section 13.2.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, trust, estate, unincorporated organization or
government or any agency or political subdivision thereof.
"Place of Conversion" has the meaning specified in Section 3.1.
"Place of Payment" has the meaning specified in Section 3.1.
"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 3.6 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.
"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.
"Purchase Agreement" means the Purchase Agreement, dated as of December 2,
1999, between the Company and the Initial Purchasers, as such agreement may be
amended from time to time.
"Qualified Institutional Buyer" shall mean a "qualified institutional
buyer" as defined in Rule 144A.
"Record Date" means any Regular Record Date or Special Record Date.
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<PAGE>
"Record Date Period" means the period from the close of business of any
Regular Record Date next preceding any Interest Payment Date to the opening of
business on such Interest Payment Date.
"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.
"Registrable Securities" has the meaning specified in Section 10.11.
"Registration Default" has the meaning specified in Section 10.11.
"Registration Rights Agreement" means the Registration Rights Agreement,
dated as of December 1, 1999, between the Company and the Initial Purchasers, as
such agreement may be amended from time to time.
"Regular Record Date" for interest payable in respect of any Security on
any Interest Payment Date means the January 1 or July 1 (whether or not a
Business Day), as the case may be, next preceding such Interest Payment Date.
"Representative" means the (a) indenture trustee or other trustee, agent or
representative for any Senior Indebtedness or (b) with respect to any Senior
Indebtedness that does not have any such trustee, agent or other representative,
(i) in the case of such Senior Indebtedness issued pursuant to an agreement
providing for voting arrangements as among the holders or owners of such Senior
Indebtedness, any holder or owner of such Senior Indebtedness acting with the
consent of the required persons necessary to bind such holders or owners of such
Senior Indebtedness and (ii) in the case of all other such Senior Indebtedness,
the holder or owner of such Senior Indebtedness.
"Repurchase Date" has the meaning specified in Section 14.1.
"Repurchase Price" has the meaning specified in Section 14.1.
"Responsible Officer", when used with respect to the Trustee, means any
officer within the Corporate Trust Office of the Trustee with direct
responsibility for the administration of this Indenture and also means, with
respect to a particular corporate trust matter, any other officer to whom such
matter is referred because of his knowledge and familiarity with the particular
subject.
"Restricted Global Security" has the meaning specified in Section 2.1.
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"Restricted Securities" means all Securities required pursuant to Section
3.5(3) to bear any Restricted Securities Legend. Such term includes the
Restricted Global Security.
"Restricted Securities Certificate" means a certificate substantially in
the form set forth in Annex A.
"Restricted Securities Legend" means, collectively, the legends
substantially in the forms of the legends required in the form of Security set
forth in Section 2.2 to be placed upon each Restricted Security.
"Rule 144A" means Rule 144A under the Securities Act (or any successor
provision), as it may be amended from time to time.
"Rule 144A Information" has the meaning specified in Section 10.9.
"Securities" has the meaning ascribed to it in the first paragraph under
the caption "Recitals of the Company".
"Securities Act" means the United States Securities Act of 1933 (or any
successor statute), as amended from time to time.
"Security Register" and "Security Registrar" have the respective meanings
specified in Section 3.5.
"Senior Indebtedness" means the principal of (and premium, if any) and
interest (including all interest accruing subsequent to the commencement of any
bankruptcy or similar proceeding, whether or not a claim for post-petition
interest is allowable as a claim in any such proceeding) rent and end of term
payments payable on, and, to the extent not included in the foregoing, all
amounts payable as fees, costs, expenses, liquidated damages, indemnities,
repurchase and other put obligations and other amounts to the extent accrued or
due, in connection with the following, whether secured or unsecured, due or to
become due, outstanding on the date of this Indenture or thereafter created,
incurred or assumed: (a) indebtedness of the Company evidenced by a credit or
loan agreement, note, bond, debenture or other written obligation, (b) all
obligations of the Company for money borrowed, (c) all obligations of the
Company evidenced by a note or similar instrument given in connection with the
acquisition of any businesses, properties or assets of any kind, (d) obligations
of the Company (i) as lessee under leases required to be capitalized on the
balance sheet of the lessee under generally accepted accounting principles and
(ii) as lessee under other leases for facilities, capital equipment or related
assets, whether or not capitalized, entered into or leased for financing
purposes, (e) all obligations of the Company under interest rate and currency
swaps, caps, floors, collars, hedge agreements, forward contracts or similar
agreements or arrangements, (f) all obligations of the Company with respect to
letters of credit, bankers' acceptances and similar
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facilities (including reimbursement obligations with respect to the foregoing),
(g) all obligations of the Company issued or assumed as the deferred purchase
price of property or services (but excluding trade accounts payable and accrued
expenses arising in the ordinary course of business), (h) all obligations of the
type referred to in clauses (a) through (g) above of another Person and all
dividends of another Person, the payment of which, in either case, the Company
has assumed or guaranteed, or for which the Company is responsible or liable,
directly or indirectly, jointly or severally, as obligor, guarantor or
otherwise, or which is secured by a lien on the property of the Company, and (i)
renewals, extensions, modifications, replacements, restatements and refundings
of, or any indebtedness or obligation issued in exchange for, any such
indebtedness or obligation described in clauses (a) through (h) of this
paragraph; provided, however, that Senior Indebtedness shall not include the
Securities or any such indebtedness or obligation if the terms of such
indebtedness or obligation (or the terms of the instrument under which, or
pursuant to which it is issued) expressly provide that such indebtedness or
obligation is not superior in right of payment to the Securities.
"Shelf Registration Statement" has the meaning specified in Section 10.11.
"Significant Subsidiary" means, with respect to any Person, a Subsidiary of
such Person that would constitute a "significant subsidiary" as such term is
defined under Rule 1-02 of Regulation S-X under the Securities Act and the
Exchange Act.
"Special Record Date" for the payment of any Defaulted Interest means a
date fixed by the Company pursuant to Section 3.7.
"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.
"Subsidiary" means a corporation more than 50% of the outstanding voting
stock of which is owned, directly or indirectly, by the Company or by one or
more other Subsidiaries, or by the Company and one or more other Subsidiaries.
For the purposes of this definition, "voting stock" means stock or other similar
interests in the corporation which ordinarily has or have voting power for the
election of directors, or persons performing similar functions, whether at all
times or only so long as no senior class of stock or other interests has or have
such voting power by reason of any contingency.
"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 purposes of this definition, any Security
authenticated and delivered under Section 3.6 in
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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.
"Surrender Certificate" means a certificate substantially in the form set
forth in Annex C.
"Trading Day" means (i) if the Common Stock is quoted on the Nasdaq
National Market or any other system of automated dissemination of quotations of
securities prices, days on which trades may be effected through such system,
(ii) if the Common Stock is listed or admitted for trading on any national or
regional securities exchange, days on which such national or regional securities
exchange is open for business, or (iii) if the Common Stock is not listed on a
national or regional securities exchange or quoted on the Nasdaq National Market
or any other system of automated dissemination of quotation of securities
prices, days on which the Common Stock is traded regular way in the over-the-
counter market and for which a closing bid and a closing asked price for the
Common Stock are available.
"Trust Indenture Act" means the Trust Indenture Act of 1939, and the rules
and regulations thereunder, as in force at the date as of which this instrument
was executed, 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, and the rules
and regulations thereunder, 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.
"United States" means the United States of America (including the States
and the District of Columbia), its territories, its possessions and other areas
subject to its jurisdiction (its "possessions" including Puerto Rico, the U.S.
Virgin Islands, Guam, American Samoa, Wake Island and the Northern Mariana
Islands).
"Unrestricted Securities Certificate" means a certificate substantially in
the form set forth in Annex B.
"Vice President", when used with respect to the Company or the Trustee,
means any vice president, whether or not designated by a number or a word or
words added before or after the title "vice president".
SECTION 1.2 Compliance Certificates And Opinions.
------------------------------------
Upon any application or request by the Company to the Trustee to take any
action under any provision of this Indenture, the Company shall furnish to the
Trustee an Officers' Certificate stating
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that all conditions precedent, if any, provided for in this Indenture relating
to the proposed action have been complied with and an Opinion of Counsel stating
that in the opinion of such counsel all such conditions precedent, if any, have
been complied with, except that in the case of any such application or request
as to which the furnishing of such documents is specifically required by any
provision of this Indenture relating to such particular application or request,
no additional certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture (including certificates provided for in
Section 10.8) shall include:
(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 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; and
(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
SECTION 1.3 Form of Documents Delivered to The 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 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 Company 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 such certificate or opinion is based are
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 Company or any other Person
stating that the information with respect to such factual matters is in the
possession of the Company or such other Person, unless such counsel knows, or in
the exercise of
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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 1.4 Acts of Holders of Securities.
-----------------------------
(1) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided or permitted by this Indenture to be given or
taken by Holders of Securities may be embodied in and evidenced by (A) one or
more instruments of substantially similar tenor signed by such Holders in person
or by an agent or proxy duly appointed in writing by such Holders or (B) the
record of Holders of Securities voting in favor thereof, either in person or by
proxies duly appointed in writing, at any meeting of Holders of Securities duly
called and held in accordance with the provisions of Article IX. Such action
shall become effective when such instrument or instruments or record is
delivered to the Trustee and, where it is hereby expressly required, to the
Company. The Trustee shall promptly deliver to the Company copies of all such
instruments and records delivered to the Trustee. Such instrument or instruments
and records (and the action embodied therein and evidenced thereby) are herein
sometimes referred to as the "Act" of the Holders of Securities signing such
instrument or instruments and so voting at such meeting. Proof of execution of
any such instrument or of a writing appointing any such agent or proxy, or of
the holding by any Person of a Security, shall be sufficient for any purpose of
this Indenture and (subject to Section 6.1) conclusive in favor of the Trustee
and the Company if made in the manner provided in this Section. The record of
any meeting of Holders of Securities shall be proved in the manner provided in
Section 9.6.
(2) 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.
(3) The principal amount and serial number of any Security held by
any Person, and the date of his holding the same, shall be proved by the
Security Register.
(4) The fact and date of execution of any such instrument or writing
and the authority of the Person executing the same may also be proved in any
other manner which the Trustee deems sufficient; and the Trustee may in any
instance require further proof with respect to any of the matters referred to in
this Section 1.4.
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(5) The Company may, but shall not be obligated to, set any day as
the record date for the purpose of determining the Holders entitled to give or
take any request, demand, authorization, direction, notice, consent, waiver or
other action, or to vote on any action, authorized or permitted by this
Indenture to be given or taken by Holders. Promptly and in any case not later
than ten days after setting a record date, the Company shall notify the Trustee
and the Holders of such record date. If not set by the Company prior to the
first solicitation of a Holder made by any Person in respect of any such action,
or, in the case of any such vote, prior to such vote, the record date for any
such action or vote shall be the 30th day (or, if later, the date of the most
recent list of Holders required to be provided pursuant to Section 15.1) prior
to such first solicitation or vote, as the case may be. With regard to any
record date, the Holders on such date (or their duly appointed agents or
proxies), and only such Persons, shall be entitled to give or take, or vote on,
the relevant action, whether or not such Holders remain Holders after such
record date. Notwithstanding the foregoing, the Company shall not set a record
date for, and the provisions of this paragraph shall not apply with respect to,
any notice, declaration or direction referred to in the next paragraph. Nothing
in this paragraph shall prevent the Company 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 canceled and of no effect), nor shall anything in
this paragraph 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.
(6) Upon receipt by the Trustee from any Holder of (i) any notice of
default or breach referred to in Section 5.1(4), if such default or breach has
occurred and is continuing and the Trustee shall not have given such a notice to
the Company, (ii) any declaration of acceleration referred to in Section 5.2, if
an Event of Default has occurred and is continuing and the Trustee shall not
have given such a declaration to the Company, or (iii) any direction referred to
in Section 5.12, if the Trustee shall not have taken the action specified in
such direction, then, with respect to clauses (ii) and (iii), a record date
shall automatically and without any action by the Company or the Trustee be set
for determining the Holders entitled to join in such declaration or direction,
which record date shall be the close of business on the tenth day (or, if such
day is not a Business Day, the first Business Day thereafter) following the day
on which the Trustee receives such declaration or direction, and, with respect
to clause (i), the Trustee may set any day as a record date for the purpose of
determining the Holders entitled to join in such notice of default. Promptly
after such receipt by the Trustee of any such declaration or direction referred
to in clause (ii) or (iii), and promptly after setting any record date with
respect to clause (i), and as soon as practicable thereafter, the Trustee shall
notify the Company and the Holders of any such record date so fixed. The Holders
on such record date (or their duly appointed agents or proxies), and only such
Persons, shall be entitled to join in such notice, declaration or direction,
whether or not such Holders remain Holders after such record date; provided
that, unless such notice, declaration or direction shall have become effective
by virtue of Holders of the requisite principal amount of Securities on such
record date (or their duly
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appointed agents or proxies) having joined therein on or prior to the 90th day
after such record date, such notice, declaration or direction shall
automatically and without any action by any Person be canceled and of no further
effect. Nothing in this paragraph shall be construed to prevent a Holder (or a
duly appointed agent or proxy thereof) from giving, before or after the
expiration of such 90-day period, a notice, declaration or direction contrary to
or different from, or, after the expiration of such period, identical to, the
notice, declaration or direction to which such record date relates, in which
event a new record date in respect thereof shall be set pursuant to this
paragraph. In addition, nothing in this paragraph shall be construed to render
ineffective any notice, declaration or direction of the type referred to in this
paragraph given at any time to the Trustee and the Company by Holders (or their
duly appointed agents or proxies) of the requisite principal amount of
Securities on the date such notice, declaration or direction is so given.
(7) Except as provided in Sections 5.12 and 5.13, any request,
demand, authorization, direction, notice, consent, election, 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 Company in
reliance thereon, whether or not notation of such action is made upon such
Security.
(8) The provisions of this Section 1.4 are subject to the provisions
of Section 9.5.
SECTION 1.5 Notices, Etc. to Trustee and Company.
------------------------------------
Any request, demand, authorization, direction, notice, consent, election,
waiver or other Act of Holders of Securities 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 of Securities or by the Company shall
be sufficient for every purpose hereunder if made, given, furnished or filed in
writing to or with a Responsible Officer of the Trustee and received at its
Corporate Trust Office, Attention: Corporate Trust Administration (Exodus
Communications, Inc., 4 3/4% Convertible Subordinated Notes due July 15, 2008).
(2) the Company by the Trustee or by any Holder of Securities shall
be sufficient for every purpose hereunder (unless otherwise herein expressly
provided) if in writing, mailed, first-class postage prepaid, or telecopied and
confirmed by mail, first-class postage prepaid, or delivered by hand or
overnight courier, addressed to the Company at 2831 Mission College Boulevard,
Santa Clara, California 95054, Attention: General Counsel, or at any other
address previously furnished in writing to the Trustee by the Company.
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SECTION 1.6 Notice to Holders of Securities; Waiver.
---------------------------------------
Except as otherwise expressly provided herein, where this Indenture
provides for notice to Holders of Securities of any event, such notice shall be
sufficiently given to Holders if in writing and mailed, first-class postage
prepaid or delivered by an overnight delivery service, to each Holder of a
Security affected by such event, at the address of such Holder as it appears in
the Security Register, not earlier than the earliest date and not later than the
latest date prescribed for the giving of such notice.
Neither the failure to mail such notice, nor any defect in any notice so
mailed, to any particular Holder of a Security shall affect the sufficiency of
such notice with respect to other Holders of Securities. 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 to Holders
of Securities as shall be made with the approval of the Trustee, which approval
shall not be unreasonably withheld, shall constitute a sufficient notification
to such Holders for every purpose hereunder.
Such notice shall be deemed to have been given when such notice is mailed.
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 of Securities 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.
SECTION 1.7 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 1.8 Successors and Assigns.
----------------------
All covenants and agreements in this Indenture by the Company shall bind
its successors and assigns, whether so expressed or not.
SECTION 1.9 Separability Clause.
-------------------
In case any provision in this Indenture or 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.
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SECTION 1.10 Benefits of Indenture.
---------------------
Except as provided in the next sentence, nothing in this Indenture or in
the Securities, express or implied, shall give to any Person, other than the
parties hereto and their successors assigns hereunder and the Holders of
Securities, any benefit or legal or equitable right, remedy or claim under this
Indenture. The provisions of Article XIII are intended to be for the benefit of,
and shall be enforceable directly by, the holders of Senior Indebtedness.
SECTION 1.11 Governing Law.
-------------
THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, THE UNITED STATES OF AMERICA,
WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS.
SECTION 1.12 Legal Holidays.
--------------
In any case where any Interest Payment Date, Redemption Date, Repurchase
Date or Stated Maturity of any Security or the last day on which a Holder of a
Security has a right to convert his Security shall not be a Business Day at a
Place of Payment or Place of Conversion, as the case may be, then
(notwithstanding any other provision of this Indenture or of the Securities)
payment of principal of, premium, if any, or interest on, or the payment of the
Repurchase Price (whether the same is payable in cash or in shares of Common
Stock) with respect to, or delivery for conversion of, such Security need not be
made at such Place of Payment or Place of Conversion, as the case may be, on or
by such day, but may be made on or by the next succeeding Business Day at such
Place of Payment or Place of Conversion, as the case may be, with the same force
and effect as if made on the Interest Payment Date, Redemption Date or
Repurchase Date, or at the Stated Maturity or by such last day for conversion;
provided, however, that in the case that payment is made on such succeeding
Business Day, no interest shall accrue on the amount so payable for the period
from and after such Interest Payment Date, Redemption Date, Repurchase Date,
Stated Maturity or last day for conversion, as the case may be.
SECTION 1.13 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 a 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 Company and the Trustee shall
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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.
ARTICLE II
SECURITY FORMS
SECTION 2.1 Form Generally.
--------------
The Securities shall be in substantially the form 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, the Internal Revenue Code of 1986, as amended, and
regulations thereunder (the "Code"), or as may, consistent herewith, be
determined by the officers executing such Securities, as evidenced by their
execution thereof. All Securities shall be in fully registered form.
The Trustee's certificates of authentication shall be in substantially the
form set forth in Section 2.3.
Conversion notices shall be in substantially the form set forth in Section
2.4.
Repurchase notices shall be substantially in the form set forth in Section
2.2.
The Securities shall be printed, lithographed, typewritten or engraved or
produced by any combination of these methods or may be produced in any other
manner permitted by the rules of any automated quotation system or securities
exchange (including on steel engraved borders if so required by any securities
exchange upon which the Securities may be listed) on which the Securities may be
quoted or listed, as the case may be, all as determined by the officers
executing such Securities, as evidenced by their execution thereof.
Upon their original issuance, Securities issued as contemplated by the
Purchase Agreement to Qualified Institutional Buyers in reliance on Rule 144A
shall be issued in the form of one or more Global Securities in definitive,
fully registered form without interest coupons and bearing the Restricted
Securities Legend. Such Global Security shall be 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 Security, together with its Successor Securities which are Global
Securities, are collectively herein called the "Restricted Global Security".
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SECTION 2.2 Form of Security.
----------------
[FORM OF FACE]
[THE FOLLOWING LEGEND SHALL APPEAR ON THE FACE OF EACH RESTRICTED SECURITY:
THIS SECURITY AND ANY COMMON STOCK ISSUABLE UPON THE CONVERSION OF THIS
SECURITY HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN
THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH
PURCHASER OF THIS SECURITY THAT IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED
IN RULE 144A UNDER THE SECURITIES ACT) IS HEREBY NOTIFIED THAT THE SELLER OF
THIS SECURITY MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5
OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER.
THIS SECURITY AND ANY SHARES OF COMMON STOCK ISSUABLE UPON ITS CONVERSION
MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (I) TO A
PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER
ACQUIRING FOR ITS OWN ACCOUNT OR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER
IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (II) TO AN INSTITUTION
THAT IS AN "ACCREDITED INVESTOR" WITHIN THE MEANING OF RULE 501(a)(1), (2), (3)
OR (7) UNDER THE SECURITIES ACT IN A TRANSACTION EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT, (III) PURSUANT TO THE EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF
AVAILABLE), OR (IV) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT, AND IN EACH OF CASES (I) THROUGH (IV) IN ACCORDANCE WITH ALL
APPLICABLE SECURITIES LAWS OF THE STATES AND OTHER JURISDICTION OF THE UNITED
STATES.
THIS SECURITY, ANY SHARES OF COMMON STOCK ISSUABLE UPON ITS CONVERSION AND
ANY RELATED DOCUMENTATION MAY BE AMENDED OR SUPPLEMENTED FROM TIME TO TIME TO
MODIFY THE RESTRICTIONS ON RESALES AND OTHER TRANSFERS OF THIS SECURITY AND ANY
SUCH SHARES TO REFLECT ANY CHANGE IN APPLICABLE LAW OR REGULATION (OR THE
INTERPRETATION THEREOF) OR IN PRACTICES RELATING TO THE RESALE OR
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TRANSFER OF RESTRICTED SECURITIES GENERALLY. THE HOLDER OF THIS SECURITY AND ANY
SUCH SHARES SHALL BE DEEMED BY THE ACCEPTANCE OF THIS SECURITY AND ANY SUCH
SHARES TO HAVE AGREED TO ANY SUCH AMENDMENT OR SUPPLEMENT.]
[THE FOLLOWING LEGEND SHALL APPEAR ON THE FACE OF EACH GLOBAL SECURITY:
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE DEPOSITARY OR A
NOMINEE OF THE DEPOSITARY, WHICH MAY BE TREATED BY THE COMPANY, THE TRUSTEE AND
ANY AGENT THEREOF AS OWNER AND HOLDER OF THIS SECURITY FOR ALL PURPOSES.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
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.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN
DEFINITIVE REGISTERED FORM IN THE LIMITED CIRCUMSTANCES REFERRED TO IN THE
INDENTURE, THIS GLOBAL SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE
DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO
THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY
SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR
DEPOSITARY.]
-20-
<PAGE>
EXODUS COMMUNICATIONS, INC.
4 3/4% CONVERTIBLE SUBORDINATED NOTE DUE JULY 15, 2008
No._________ $ __________
CUSIP NO. ___________
EXODUS COMMUNICATIONS, INC., a corporation duly organized and existing
under the laws of the State of Delaware (herein called the "Company", which term
includes any successor Person under the Indenture referred to on the reverse
hereof), for value received, hereby promises to pay to _________________, or
registered assigns, the principal sum of ___________ United States Dollars
($_______) [if this Security is a Global Security, then insert -- (which
principal amount may from time to time be increased or decreased to such other
principal amounts (which, taken together with the principal amounts of all other
Outstanding Securities, shall not exceed $500,000,000 in the aggregate at any
time) by adjustments made on the records of the Trustee hereinafter referred to
in accordance with the Indenture)] on July 15, 2008 and to pay interest thereon,
from December 8, 1999, or from the most recent Interest Payment Date (as defined
below) to which interest has been paid or duly provided for, semi-annually in
arrears on January 15 and July 15 in each year (each, an "Interest Payment
Date"), commencing July 15, 2000, at the rate of 4 3/4% per annum, until the
principal hereof is due, and at the rate of 6 3/4% per annum on any overdue
principal and premium, if any, and, to the extent permitted by law, on any
overdue interest. The interest so payable, and punctually paid or duly provided
for, on any Interest Payment Date will, as provided in the Indenture, be paid to
the Person in whose name this 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 January 1 or July 1 (whether or not a Business
Day), as the case may be, next preceding such Interest Payment Date. Except as
otherwise provided in the Indenture, any such interest not so punctually paid or
duly provided for will forthwith cease to be payable to the Holder on such
Regular Record Date and may either be paid to the Person in whose name this
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 Company, notice whereof shall be given to Holders of Securities
not less than 10 days prior to the Special Record Date, or be paid at any time
in any other lawful manner not inconsistent with the requirements of any
automated quotation system or securities exchange on which the Securities may be
quoted or listed, and upon such notice as may be required by such exchange, all
as more fully provided in the Indenture. Payments of principal shall be made
upon the surrender of this Security at the option of the Holder at the Corporate
Trust Office of the Trustee, or at such other office or agency of the Company as
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<PAGE>
may be designated by it for such purpose in the Borough of Manhattan, The City
of New York, in such coin or currency of the United States of America as at the
time of payment shall be legal tender for the payment of public and private
debts, or at such other offices or agencies as the Company may designate, by
United States Dollar check drawn on, or transfer to, a United States Dollar
account (such a transfer to be made only to a Holder of an aggregate principal
amount of Securities in excess of $2,000,000, and only if such Holder shall have
furnished wire instructions in writing to the Trustee no later than 15 days
prior to the relevant payment date). Payment of interest on this Security may be
made by United States Dollar check mailed to the address of the Person entitled
thereto as such address shall appear in the Security Register, or, upon written
application by the Holder to the Security Registrar setting forth wire
instructions not later than the relevant Record Date, by transfer to a United
States Dollar account (such a transfer to be made only to a Holder of an
aggregate principal amount of Securities in excess of $2,000,000 and only if
such Holder shall have furnished wire instructions in writing to the Trustee no
later than 15 days prior to the relevant payment date).
Except as specifically provided herein and in the Indenture, the
Company shall not be required to make any payment with respect to any tax,
assessment or other governmental charge imposed by any government or any
political subdivision or taxing authority thereof or therein.
Reference is hereby made to the further provisions of this 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 referred to on the reverse hereof or an Authenticating Agent by the
manual signature of one of their respective authorized signatories, this
Security shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
-22-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Security to be duly
executed.
EXODUS COMMUNICATIONS, INC.
By:___________________________
Name:
Title:
Attest:_______________________
Name:
Title:
CERTIFICATE OF AUTHENTICATION
This is one of the 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
-23-
<PAGE>
[FORM OF REVERSE]
This Security is one of a duly authorized issue of securities of the
Company designated as its "4 3/4% Convertible Subordinated Notes due July 15,
2008" (herein called the "Securities"), limited in aggregate principal amount to
$500,000,000, issued and to be issued under an Indenture, dated as of December
1, 1999 (herein called the "Indenture"), between the Company 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 Company, the Trustee, the holders of Senior
Indebtedness and the Holders of the Securities and of the terms upon which the
Securities are, and are to be, authenticated and delivered. As provided in the
Indenture and subject to certain limitations therein set forth, Securities are
exchangeable for a like aggregate principal amount of Securities of any
authorized denominations as requested by the Holder surrendering the same upon
surrender of the Security or Securities to be exchanged, at the Corporate Trust
Office of the Trustee. The Trustee upon such surrender by the Holder will issue
the new Securities in the requested denominations.
No sinking fund is provided for the Securities. The Securities will not
be subject to redemption prior to January 20, 2002 and will be redeemable on and
after that date at the option of the Company, in whole or in part, upon not less
than 30 nor more than 60 days notice to the Holders prior to the Redemption Date
at the Redemption Prices (expressed as percentages of the principal amount) set
forth below; provided, however, that the Securities will not be redeemable at
the option of the Company 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.
The following table sets forth the Redemption Prices (expressed as
percentages of the principal amount) if such Security is redeemed during the 12-
month periods beginning on January 15 of the years indicated below (other than
2002 which period will be from January 20, 2002 to January 14, 2003 and 2008
which period will be from January 15, 2008 through July 14, 2008):
YEAR REDEMPTION PRICE
---- ----------------
2002 103.632%
2003 103.074%
2004 102.515%
2005 101.956%
2006 101.397%
2007 100.838%
2008 100.279%
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<PAGE>
and thereafter at a Redemption Price equal to 100% of the principal amount,
together, in each case, with accrued interest to the Redemption Date; provided,
however, that interest installments on Securities whose Stated Maturity is on or
prior to such Redemption Date will be payable to the Holders of such Securities,
or one or more Predecessor Securities, of record at the close of business on the
relevant Record Dates referred to on the face hereof, all as provided in the
Indenture.
In the event of a redemption of the Securities, the Company will not be
required (a) to register the transfer or exchange of Securities for a period of
15 days immediately preceding the date notice is given identifying the serial
numbers of the Securities called for such redemption or (b) to register the
transfer or exchange of any Security, or portion thereof, called for redemption.
In any case where the due date for the payment of the principal of,
premium, if any, interest, or Liquidated Damages on any Security or the last day
on which a Holder of a Security has a right to convert his Security shall be, at
any Place of Payment or Place of Conversion as the case may be, a day on which
banking institutions at such Place of Payment or Place of Conversion are
authorized or obligated by law or executive order to close, then payment of
principal, premium, if any, interest, or Liquidated Damages, or delivery for
conversion of such Security need not be made on or by such date at such place
but may be made on or by the next succeeding day at such place which is not a
day on which banking institutions are authorized or obligated by law or
executive order to close, with the same force and effect as if made on the date
for such payment or the date fixed for redemption or repurchase, or by such last
day for conversion, and no interest shall accrue on the amount so payable for
the period after such date.
Subject to and upon compliance with the provisions of the Indenture,
the Holder of this Security is entitled, at his option, at any time following
the initial issuance date of the Securities and on or before the close of
business on the date of Maturity, or in case this Security or a portion hereof
is called for redemption or the Holder hereof has exercised his right to require
the Company to repurchase this Security or such portion hereof, then in respect
of this Security until and including, but (unless the Company defaults in making
the payment due upon redemption or repurchase, as the case may be) not after,
the close of business on the Redemption Date or the Repurchase Date, as the case
may be, to convert this Security (or any portion of the principal amount hereof
that is an integral multiple of $1,000, provided that the unconverted portion of
such principal amount is $1,000 or any integral multiple of $1,000 in excess
thereof) into fully paid and nonassessable shares of Common Stock of the Company
at an initial Conversion Rate of 7.1017 shares of Common Stock for each $1,000
principal amount of Securities (or at the current adjusted Conversion Rate if an
adjustment has been made as provided in the Indenture) by surrender of this
Security, duly endorsed or assigned to the Company or in blank, with the
conversion notice hereon duly executed and, in case such surrender shall be made
during the period from the close of business on any Regular Record Date next
preceding any Interest Payment Date to the opening of business on such Interest
Payment Date (except if this Security or portion thereof has been called for
redemption on a Redemption Date
-25-
<PAGE>
during the period from such Regular Record Date through the date that is three
Business Days following such Interest Payment Date), also accompanied by payment
in New York Clearing House or other funds acceptable to the Company of an amount
equal to the interest payable on such Interest Payment Date on the principal
amount of this Security then being converted, to the Company at the Corporate
Trust Office of the Trustee, or at such other office or agency of the Company,
subject to any laws or regulations applicable thereto and subject to the right
of the Company to terminate the appointment of any Conversion Agent (as defined
below) as may be designated by it for such purpose in the Borough of Manhattan,
The City of New York, or at such other offices or agencies as the Company may
designate (each a "Conversion Agent"). Subject, in the case of a conversion
after the close of business on the Regular Record Date next preceding any
Interest Payment Date and on or before the close of business on such Interest
Payment Date, to the right of the Holder of this Security (or any Predecessor
Security of record as of such Regular Record Date) to receive the related
installment of interest to the extent and under the circumstances provided in
the Indenture, no cash payment or adjustment is to be made on conversion for
interest accrued hereon from the Interest Payment Date next preceding the day of
conversion, or for dividends on the Common Stock issued on conversion hereof.
The Company shall thereafter deliver to the Holder the fixed number of shares of
Common Stock (together with any cash adjustment, as provided in the Indenture)
into which this Security is convertible and such delivery will be deemed to
satisfy the Company's obligation to pay the principal amount of this Security.
No fractions of shares or scrip representing fractions of shares will be issued
on conversion, but instead of any fractional interest (calculated to the nearest
1/100th of a share) the Company shall pay a cash adjustment as provided in the
Indenture. The Conversion Rate is subject to adjustment as provided in the
Indenture. In addition, the Indenture provides that in case of certain
consolidations or mergers to which the Company is a party (other than a
consolidation or merger that does not result in any reclassification,
conversion, exchange or cancellation of the Common Stock) or the conveyance,
transfer, sale or lease of all or substantially all of the property and assets
of the Company, the Indenture shall be amended, without the consent of any
Holders of Securities, so that this Security, if then Outstanding, will be
convertible thereafter, during the period this Security shall be convertible as
specified above, only into the kind and amount of securities, cash and other
property receivable upon such consolidation, merger, conveyance, transfer, sale
or lease by a holder of the number of shares of Common Stock of the Company into
which this Security could have been converted immediately prior to such
consolidation, merger, conveyance, transfer, sale or lease (assuming such holder
of Common Stock is not a Constituent Person or an Affiliate of a Constituent
Person, failed to exercise any rights of election and received per share the
kind and amount received per share by a plurality of Non-electing Shares). No
adjustment in the Conversion Rate will be made until such adjustment would
require an increase or decrease of at least one percent of such rate, provided
that any adjustment that would otherwise be made will be carried forward and
taken into account in the computation of any subsequent adjustment.
-26-
<PAGE>
If this Security is a Registrable Security (as defined in this
Indenture), then the Holder of this Security [if this security is a global
security, then insert -- (including any Person that has a beneficial interest in
this Security)] and the Common Stock of the Company issuable upon conversion
hereof is entitled to the benefits of the Registration Rights Agreement, dated
as of December 1, 1999 (the "Registration Rights Agreement"), between the
Company and the Initial Purchasers, as such agreement may be amended from time
to time. Pursuant to the Registration Rights Agreement, the Company has agreed
for the benefit of the Holders from time to time of the Registrable Securities
that it will, at its expense, (a) within 90 days after the Issue Date file a
shelf registration statement (the "Shelf Registration Statement") with the
Commission with respect to resales of the Registrable Securities, (b) use all
reasonable efforts to cause such Shelf Registration Statement to be declared
effective by the Commission within 180 days after the Issue Date of the
Securities, provided, however, that the Company may, upon written notice to all
the Holders, postpone having the Shelf Registration Statement declared effective
for a reasonable period not to exceed 90 days if the Company possesses material
non-public information, the disclosure of which would have a material adverse
effect on the Company and its subsidiaries taken as a whole, and (c) use all
reasonable efforts to maintain such Shelf Registration Statement effective under
the Securities Act of 1933, as amended, until the second annual anniversary of
the date it is declared effective or such earlier date as is provided in the
Registration Rights Agreement (the "Effectiveness Period"). The Company will be
permitted to suspend the use of the prospectus which is part of the Shelf
Registration Statement during certain periods of time as provided in the
Registration Rights Agreement.
If (i) on or prior to 90 days following the Issue Date, a Shelf
Registration Statement has not been filed with the Commission, or (ii) on or
prior to the 180th day following the Issue Date, such Shelf Registration
Statement is not declared effective (each, a "Registration Default"), additional
interest ("Liquidated Damages") will accrue on this Restricted Security from and
including the day following such Registration Default to but excluding the day
on which such Registration Default has been cured. Liquidated Damages will be
paid semi-annually in arrears, with the first semi-annual payment due on the
first Interest Payment Date, as applicable, in respect of the Restricted
Securities following the date on which such Liquidated Damages begin to accrue,
and will accrue at a rate per annum equal to an additional one-quarter of one
percent (0.25%) of the principal amount of the Restricted Securities to and
including the 90th day following such Registration Default and at a rate per
annum equal to one-half of one percent (0.50%) thereof from and after the 91st
day following such Registration Default. Pursuant to the Registration Rights
Agreement, in the event that the Shelf Registration Statement ceases to be
effective (or the Holders of Registrable Securities are otherwise prevented or
restricted by the Company from effecting sales pursuant thereto) (an "Effective
Failure") during the Effectiveness Period for more than 45 days, whether or not
consecutive, during any 90 day period, or for more than 90 days, whether or not
consecutive, during any 12-month period, then the interest rate borne by the
Restricted Securities shall increase by an additional
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<PAGE>
one-half of one percent (0.50%) per annum from the 46th day of the applicable 90
day period or the 91/st/ day of the applicable 12-month period, as the case may
be, until such time as the Effective Failure is cured.
Whenever in this Security there is a reference, in any context, to the
payment of the principal of, premium, if any, or interest on, or in respect of,
any Security, such mention shall be deemed to include mention of the payment of
Liquidated Damages payable as described in the preceding paragraph to the extent
that, in such context, Liquidated Damages are, were or would be payable in
respect of such Security and express mention of the payment of Liquidated
Damages (if applicable) in any provisions of this Security shall not be
construed as excluding Liquidated Damages in those provisions of this Security
where such express mention is not made.
[If this Security is a Registrable Security and the Holder of this
Security [if this security is a global security, then insert -- (including any
Person that has a beneficial interest in this Security)] elects to sell this
Security pursuant to the Shelf Registration Statement then, by its acceptance
hereof, such Holder of this Security agrees to be bound by the terms of the
Registration Rights Agreement relating to the Registrable Securities which are
the subject of such election.]
If a Change in Control occurs, the Holder of this Security, at the
Holder's option, shall have the right, in accordance with the provisions of the
Indenture, to require the Company to repurchase this Security (or any portion of
the principal amount hereof that is an integral multiple of $1,000 for cash at a
Repurchase Price equal to 100% of the principal amount thereof plus interest
accrued to the Repurchase Date. At the option of the Company, the Repurchase
Price may be paid in cash or, subject to the conditions provided in the
Indenture, by delivery of shares of Common Stock having a fair market value
equal to the Repurchase Price. For purposes of this paragraph, the fair market
value of shares of Common Stock shall be determined by the Company and shall be
equal to 95% of the average of the Closing Prices Per Share for the five
consecutive Trading Days immediately preceding and including the third Trading
Day prior to the Repurchase Date. Whenever in this Security there is a
reference, in any context, to the principal of any Security as of any time, such
reference shall be deemed to include reference to the Repurchase Price payable
in respect of such Security to the extent that such Repurchase Price is, was or
would be so payable at such time, and express mention of the Repurchase Price in
any provision of this Security shall not be construed as excluding the
Repurchase Price so payable in those provisions of this Security when such
express mention is not made; provided, however, that, for the purposes of the
second succeeding paragraph, such reference shall be deemed to include reference
to the Repurchase Price only to the extent the Repurchase Price is payable in
cash.
[The following paragraph shall appear in each Global Security:
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<PAGE>
In the event of a deposit or withdrawal of an interest in this
Security, including an exchange, transfer, redemption, repurchase or conversion
of this Security in part only, the Trustee, as custodian of the Depositary,
shall make an adjustment on its records to reflect such deposit or withdrawal in
accordance with the Applicable Procedures.]
[The following paragraph shall appear in each Security that is not a
Global Security:
In the event of redemption, repurchase or conversion of this Security
in part only, a new Security or Securities for the unredeemed, unrepurchased or
unconverted portion hereof will be issued in the name of the Holder hereof.]
The indebtedness evidenced by this Security is, to the extent and in
the manner provided in the Indenture, subordinate and subject in right of
payment to the prior payment in full of all Senior Indebtedness of the Company,
and this Security is issued subject to such provisions of the Indenture with
respect thereto. Each Holder of this Security, by accepting the same, (a) agrees
to and shall be bound by such provisions, (b) authorizes and directs the Trustee
on his behalf to take such action as may be necessary or appropriate to
effectuate the subordination so provided and (c) appoints the Trustee his
attorney-in-fact for any and all such purposes.
If an Event of Default shall occur and be continuing, the principal of
all the Securities, together with accrued interest to the date of declaration,
may be declared due and payable in the manner and with the effect provided in
the Indenture. Upon payment (i) of the amount of principal so declared due and
payable, together with accrued interest to the date of declaration, and (ii) of
interest on any overdue principal and, to the extent permitted by applicable
law, overdue interest, all of the Company's obligations in respect of the
payment of the principal of and interest on the Securities shall terminate.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities under the Indenture at
any time by the Company and the Trustee with either (a) the written consent of
the Holders of not less than a majority in principal amount of the Securities at
the time Outstanding, or (b) by the adoption of a resolution, at a meeting of
Holders of the Outstanding Securities at which a quorum is present, by the
Holders of at least 66-2/3% in aggregate principal amount of the Outstanding
Securities represented and entitled to vote at such meeting. The Indenture also
contains provisions permitting the Holders of specified percentages in principal
amount of the Securities at the time Outstanding, on behalf of the Holders of
all the Securities, to waive compliance by the Company with certain provisions
of the Indenture and certain past defaults under the Indenture and their
consequences. Any such consent or waiver by the Holder of this Security shall be
conclusive and binding upon such Holder and upon all future Holders of this
Security and of any
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<PAGE>
Security issued in exchange therefore or in lieu hereof whether or not notation
of such consent or waiver is made upon this Security or such other Security.
As provided in and subject to the provisions of the Indenture, the
Holder of this 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, 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 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 the Securities 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 any suit instituted by the Holder of this Security for the enforcement
of any payment of principal hereof, premiums if any, or interest (including
Liquidated Damages) hereon on or after the respective due dates expressed herein
or for the enforcement of the right to convert this Security as provided in the
Indenture.
No reference herein to the Indenture and no provision of this Security
or of the Indenture shall alter or impair the obligation of the Company, which
is absolute and unconditional, to pay the principal of, premium, if any, and
interest (including Liquidated Damages) on this Security at the times, places
and rate, and in the coin or currency, herein prescribed or to convert this
Security as provided in the Indenture.
As provided in the Indenture and subject to certain limitations therein
set forth, the transfer of this Security is registrable on the Security Register
upon surrender of this Security for registration of transfer at the Corporate
Trust Office of the Trustee or at such other office or agency of the Company as
may be designated by it for such purpose in the Borough of Manhattan, The City
of New York (which shall initially be an office or agency of the Trustee), or at
such other offices or agencies as the Company may designate, duly endorsed by,
or accompanied by a written instrument of transfer in form satisfactory to the
Company and the Security Registrar duly executed by, the Holder thereof or his
attorney duly authorized in writing, and thereupon one or more new Securities,
of authorized denominations and for the same aggregate principal amount, will be
issued to the designated transferee or transferees by the Registrar. No service
charge shall be made for any such registration of transfer or exchange, but the
Company may require payment of a sum sufficient to recover any tax or other
governmental charge payable in connection therewith.
Prior to due presentation of a this Security for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name such Security is registered, as the owner
thereof for all purposes, whether or not such Security be overdue, and neither
the Company, the Trustee nor any such agent shall be affected by notice to the
contrary.
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<PAGE>
No recourse for the payment of the principal (and premium, if any) or
interest on this Security and no recourse under or upon any obligation, covenant
or agreement of the Company in the Indenture or any indenture supplemental
thereto or in any Security, or because of the creation of any indebtedness
represented thereby, shall be had against any incorporator, stockholder,
employee, agent, officer or director or subsidiary, as such, past, present or
future, of the Company or of any successor corporation, either directly or
through the Company or any successor corporation, whether by virtue of any
constitution, statute or rule of law or by the enforcement of any assessment or
penalty or otherwise, all such liability being, by the acceptance hereof and as
part of consideration for the issue hereof, expressly waived and released.
THE INDENTURE AND THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, UNITED STATES OF AMERICA,
WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS.
All terms used in this Security which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
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<PAGE>
ABBREVIATIONS
The following abbreviations, when used in the inscription of the face of
this Security, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C> <C> <C>
TEN COM as tenant in common UNIF GIFT MIN ACT ____ Custodian _____
TEN ENT as tenants by the entireties (Cust) (Cust) (Minor)
JT TEN as joint tenants with right under Uniform Gifts to
of survivorship and not as Minors Act _______
tenants in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
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<PAGE>
ELECTION OF HOLDER TO REQUIRE REPURCHASE
(1) Pursuant to Article 14.1 of the Indenture, the undersigned hereby
elects to have this Security repurchased by the Company.
(2) The undersigned hereby directs the Trustee or the Company to pay it or
______________ an amount in cash or, at the Company's election, Common Stock
valued as set forth in the Indenture, equal to 100% of the principal amount to
be repurchased (as set forth below), plus interest accrued to the Repurchase
Date, as provided in the Indenture.
Dated:
Signature(s)
Signature(s) must be guaranteed by an
Eligible Guarantor Institution with
membership in an approved signature
guarantee program pursuant to Rule 17Ad-15
under the Securities Exchange Act of 1934.
Signature Guaranteed
Principal amount to be repurchased (at least
$5,000 or an integral multiple of $1,000
in excess thereof): ___________________
Remaining principal amount following such
repurchase (not less than $1,000):
______________
NOTICE: The signature to the foregoing Election must correspond to the Name as
written upon the face of this Security in every particular, without alteration
or any change whatsoever.
SECTION 2.3 Form of Certificate of Authentication. The Trustee's certificate
-------------------------------------
of authentication shall be in substantially the following form:
This is one of the Securities referred to in the within-mentioned
Indenture.
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<PAGE>
Dated:________________
CHASE MANHATTAN BANK AND TRUST COMPANY,
NATIONAL ASSOCIATION, as Trustee
By:___________________________________
Authorized Signatory
SECTION 2.4 Form of Conversion Notice. CONVERSION NOTICE
-------------------------
The undersigned Holder of this Security hereby irrevocably exercises the
option to convert this Security, or any portion of the principal amount hereof
(which is $1,000 or an integral multiple of $1,000 in excess thereof, provided
that the unconverted portion of such principal amount is $1,000 or any integral
multiple of $1,000 in excess thereof) below designated, into shares of Common
Stock in accordance with the terms of the Indenture referred to in this
Security, and directs that such shares, together with a check in payment for any
fractional share and any Securities representing any unconverted principal
amount hereof, be delivered to and be registered in the name of the undersigned
unless a different name has been indicated below. If shares of Common Stock or
Securities are to be registered in the name of a Person other than the
undersigned, (a) the undersigned will pay all transfer taxes payable with
respect thereto and (b) signature(s) must be guaranteed by an Eligible Guarantor
Institution with membership in an approved signature guarantee program pursuant
to Rule 17Ad-15 under the Securities Exchange Act of 1934. Any amount required
to be paid by the undersigned on account of interest accompanies this Security.
Dated:____________ ----------------------------
Signature(s)
If shares or Securities are to be
registered in the name of a Person
other than the Holder, please print
such Person's name and address:
(Name)
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<PAGE>
(Address)
Social Security or other Identification
Number, if any
[Signature Guaranteed]
If only a portion of the Securities is to be converted, please indicate:
1. Principal amount to be converted: $ ___________
2. Principal amount and denomination of
Securities representing unconverted
principal amount to be issued:
Amount: $___________ Denominations: $____________
($1,000 or any integral multiple of $1,000 in excess thereof, provided that the
unconverted portion of such principal amount is $1,000 or any integral multiple
of $1,000 in excess thereof)
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<PAGE>
SECTION 2.5 Form of Assignment. For value received ________________ hereby
------------------
sell(s), assign(s) and transfer(s) unto ________________ (Please insert social
security or other identifying number of assignee) the within Security, and
hereby irrevocably constitutes and appoints ____________________as attorney to
transfer the said Security on the books of the Company, with full power of
substitution in the premises.
Dated:____________
Signature(s)
Signature(s) must be guaranteed by an Eligible
Guarantor Institution with membership in an
approved signature guarantee program pursuant
to Rule 17Ad - 15 under the Securities
Exchange Act of 1934.
Signature Guarantee
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<PAGE>
ARTICLE III
THE SECURITIES
SECTION 3.1 Title and Terms.
---------------
The aggregate principal amount of Securities which may be authenticated and
delivered under this Indenture is limited to $500,000,000, except for Securities
authenticated and delivered pursuant to Section 3.4, 3.5, 3.6, 8.5, 11.7, 12.2
or 14.3(5) in exchange for, or in lieu of, other Securities previously
authenticated and delivered under this Indenture.
The Securities shall be known and designated as the "4 3/4% Convertible
Subordinated Notes due July 15, 2008 of the Company. Their Stated Maturity shall
be July 15, 2008 and they shall bear interest on their principal amount from
December 8, 1999, payable semi-annually in arrears on January 15 and July 15 in
each year, commencing July 15, 2000, at the rate of 4 3/4% per annum until the
principal thereof is due and at the rate of 6 3/4% per annum on any overdue
principal and, to the extent permitted by law, on any overdue interest;
provided, however, that payments shall only be made on a Business Day as
provided in Section 1.12.
The principal of, premium, if any, and interest on the Securities shall be
payable as provided in the form of Securities set forth in Section 2.2, and the
Repurchase Price, whether payable in cash or in shares of Common Stock, shall be
payable at such places as are identified in the Offer to Purchase given pursuant
to Section 14.3 (any city in which any Paying Agent is located being herein
called a "Place of Payment").
The Registrable Securities are entitled to the benefits of a Registration
Rights Agreement as provided by Section 10.11 and in the form of Security set
forth in Section 2.2. The Securities are entitled to the payment of Liquidated
Damages as provided by Section 10.11.
The Securities shall be redeemable at the option of the Company at any time
on or after January 20, 2002, in whole or in part, subject to the conditions and
as otherwise provided in Article XI and in the form of Security set forth in
Section 2.2.
The Securities shall be convertible as provided in Article XII (any city in
which any Conversion Agent is located being herein called a "Place of
Conversion").
The Securities shall be subordinated in right of payment to Senior
Indebtedness of the Company as provided in Article XIII.
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<PAGE>
The Securities shall be subject to repurchase by the Company at the option
of the Holders as provided in Article XIV.
SECTION 3.2 Denominations.
-------------
The Securities shall be issuable only in registered form, without coupons,
in denominations of $1,000 and integral multiples of $1,000 in excess thereof.
SECTION 3.3 Execution, Authentication, Delivery and Dating.
----------------------------------------------
The Securities shall be executed on behalf of the Company by its Chairman
of the Board, its Vice Chairman of the Board, its Chief Executive Officer, its
President, one of its Executive Vice Presidents or one of its Vice Presidents,
and attested by its Chief Financial Officer, Secretary or one of its Assistant
Secretaries. Any such signature may be manual or facsimile.
Securities bearing the manual or facsimile signature of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to 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 Company may deliver Securities executed by the Company to the
Trustee or to its order for authentication, together with a Company Order for
the authentication and delivery of such Securities, and the Trustee in
accordance with such Company Order shall authenticate and make available for
delivery such Securities as in this Indenture provided.
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 by manual signature of an authorized signatory, 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 3.4 Global Securities; Non-global Securities; Book-entry Provisions.
---------------------------------------------------------------
(1) Global Securities
(i) Each Global Security authenticated under this Indenture
shall be registered in the name of the Depositary designated by the Company 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.
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<PAGE>
(ii) Except for exchanges of Global Securities for definitive,
non-Global Securities at the sole discretion of the Company, 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 (A) such Depositary (i) has notified the Company that it is unwilling or
unable to continue as Depositary for such Global Security or (ii) has ceased to
be a clearing agency registered as such under the Exchange Act or announces an
intention permanently to cease business or does in fact do so, and a successor
Depositary is not appointed by the Company within 90 days after it receives
notice or becomes aware of such ineligibility, or (B) there shall have occurred
and be continuing an Event of Default with respect to such Global Security. In
such event, the Company will execute, and the Trustee, upon receipt of an
Officers' Certificate directing the authentication and delivery of Securities,
will authenticate and deliver, Securities, in any authorized denominations in an
aggregate principal amount equal to the principal amount of such Global Security
in exchange for such Global Security.
(iii) If any Global Security is to be exchanged for other
Securities or canceled 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 III. If any Global Security is to be
exchanged for other Securities or canceled in part, or if another Security is to
be exchanged in whole or in part for a beneficial interest in any Global
Security, in each case, as provided in Section 3.5, then either (A) such Global
Security shall be so surrendered for exchange or cancellation, as provided in
this Article III, or (B) the principal amount thereof shall be reduced or
increased by an amount equal to the portion thereof to be so exchanged or
canceled, 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 3.5(3) and as
otherwise provided in this Article III, 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
connection with the occurrence of any of the events specified in the preceding
paragraph, the Company 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
III if such order, direction or request is given or made in accordance with the
Applicable Procedures.
(iv) 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
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<PAGE>
pursuant to this Article III or otherwise, shall be authenticated and delivered
in the form of, and shall be, a registered 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, in which case such Security shall be
authenticated and delivered in definitive, fully registered form, without
interest coupons.
(v) The Depositary or its nominee, as registered owner of a
Global Security, shall be the Holder of such Global Security for all purposes
under the 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 and
such owners of beneficial interests in a Global Security will not be considered
the owners or holders thereof.
(2) Non-Global Securities. Securities issued upon the events
---------------------
described in Section 3.4(l)(ii) shall be in definitive, fully registered form,
without interest coupons, and shall bear the Restricted Securities Legend if and
as required by this Indenture.
SECTION 3.5 Registration; Registration of Transfer and Exchange; Restrictions
-----------------------------------------------------------------
on Transfer. (1) The Company shall cause to be kept at the Corporate Trust
- -----------
Office of the Trustee a register (the register maintained in such office
referred to as the "Security Register") in which, subject to such reasonable
regulations as it may prescribe, the Company shall provide for the registration
of Securities and of transfers of Securities. The Trustee is hereby appointed
"Security Registrar" for the purpose of registering Securities and transfers and
exchanges of Securities as herein provided.
Upon surrender for registration of transfer of any Security at an office or
agency of the Company designated pursuant to Section 10.2 for such purpose, the
Company shall execute, and the Trustee shall authenticate and deliver, in the
name of the designated transferee or transferees, one or more new Securities of
any authorized denominations and of a like 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 3.5, Securities may be exchanged for other Securities of any authorized
denomination and of a like aggregate principal amount, upon surrender of the
Securities to be exchanged at any such office or agency. Whenever any Securities
are so surrendered for exchange, and subject to the other provisions of this
Section 3.5, the Company shall execute, and the Trustee shall authenticate and
deliver, the Securities which the Holder making the exchange is entitled to
receive. Every Security presented or surrendered for registration of transfer or
for exchange shall (if so required by the Company or the Security Registrar) be
duly endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Company, the Trustee and the Security Registrar duly
executed, by the Holder thereof or his attorney duly authorized in writing.
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<PAGE>
All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Company, evidencing the same
debt and entitled to the same benefits under this Indenture as the Securities
surrendered upon such registration of transfer or exchange.
No service charge shall be made to a Holder for any registration of
transfer or exchange of Securities except as provided in Section 3.6, but the
Company 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 Section
3.4, 8.5, 12.2 or 14.3 (other than where the shares of Common Stock are to be
issued or delivered in a name other than that of the Holder of the Security) not
involving any transfer and other than any stamp and other duties, if any, which
may be imposed in connection with any such transfer or exchange by the United
States or any political subdivision thereof or therein, which shall be paid by
the Company.
In the event of a redemption of the Securities, neither the Company nor the
Securities Registrar will be required (a) to register the transfer of or
exchange Securities for a period of 15 days immediately preceding the date
notice is given identifying the serial numbers of the Securities called for such
redemption or (b) to register the transfer of or exchange any Security, or
portion thereof, called for redemption.
(2) 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 3.5(2) shall be made only in accordance with this Section
3.5(2).
(i) Restricted Global Security to Restricted Non-global
---------------------------------------------------
Security. In the event that non-Global Securities are to be issued pursuant to
- --------
Section 3.4(1)(ii) in connection with any transfer of Securities, such transfer
may be effected only in accordance with the provisions of this Clause (2)(i) and
subject to the Applicable Procedures. Upon receipt by the Trustee, as Security
Registrar, of (A) a Company Order from the Company directing the Trustee, as
Security Registrar, to (x) authenticate and deliver one or more Securities of
the same aggregate principal amount as the beneficial interest in the Restricted
Global Security to be transferred, such instructions to contain the name or
names of the designated transferee or transferees, the authorized denomination
or denominations of the Securities to be so issued and appropriate delivery
instructions and (y) decrease the beneficial interest of a specified Agent
Member's account in a Restricted Global Security by a specified principal amount
not greater than the principal amount of such Restricted Global Security, and
(B) such other certifications, legal opinions or other information as the
Company or the Trustee may reasonably require to confirm that such transfer is
being made pursuant to an exemption from, or in a transaction not subject to,
the registration requirements of the Securities Act, then the Trustee, as
Security Registrar, shall decrease the principal amount of the Restricted Global
Security by the
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<PAGE>
specified amount and authenticate and deliver Securities in accordance with such
instructions from the Company as provided in Section 3.4(1)(iii).
(ii) Restricted Non-global Security to Restricted Global
---------------------------------------------------
Security. If the Holder of a Restricted Security (other than a Global Security)
- --------
wishes at any time to transfer all or any portion of such Restricted Security to
a Person who wishes to take delivery thereof in the form of a beneficial
interest in the Restricted Global Security, such transfer may be effected only
in accordance with the provisions of this Clause (2)(ii) and subject to the
Applicable Procedures. Upon receipt by the Trustee, as Security Registrar, of
(A) such Restricted Security as provided in Section 3.5(1) and instructions from
the Company directing that a beneficial interest in the Restricted Global
Security in a specified principal amount not greater than the principal amount
of such Security be credited to a specified Agent Member's account and (B) a
Restricted Securities Certificate, satisfactory to the Trustee and duly executed
by such Holder or his attorney duly authorized in writing, then the Trustee, as
Security Registrar, shall cancel such Restricted Security (and issue a new
Restricted Security in respect of any untransferred portion thereof) as provided
in Section 3.5(1) and increase the principal amount of the Restricted Global
Security by the specified principal amount as provided in Section 3.4(1)(iii).
(iii) 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 only as provided in Section 3.4 and only if such
exchange occurs in connection with a transfer effected in accordance with Clause
2(i) above, provided that, if such interest is a beneficial interest in the
Restricted Global Security, then such interest shall be exchanged for a
Restricted Security (subject in each case to Section 3.5(3)). A Security that is
not a Global Security may be exchanged for a beneficial interest in a Global
Security only if such exchange occurs in connection with a transfer effected in
accordance with Clause (2)(ii) above.
(3) Securities Act Legends. All Securities issued pursuant to this
Indenture, and all Successor Securities, shall bear the Restricted Securities
Legend, subject to the following:
(i) subject to the following Clauses of this Section 3.5(3), a
Security or any portion thereof which is exchanged, upon transfer or otherwise,
for a Global Security or any portion thereof shall bear the Restricted
Securities Legend borne by such Global Security for which the Security was
exchanged;
(ii) subject to the following Clauses of this Section 3.5(3), 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 Restricted Securities Legend borne by the
Security for which the new Security was exchanged;
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(iii) any Securities which are sold or otherwise disposed of
pursuant to an effective registration statement under the Securities Act
(including the Shelf Registration Statement), together with their Successor
Securities shall not bear a Restricted Securities Legend; the Company shall
inform the Trustee in writing of the effective date of any such registration
statement registering the Securities under the Securities Act and shall notify
the Trustee at any time when prospectuses must be delivered with respect to
Securities to be sold pursuant to such registration statement. The Trustee shall
not be liable for any action taken or omitted to be taken by it in good faith in
accordance with the aforementioned registration statement;
(iv) 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 Restricted Securities 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
Security bearing a Restricted Securities Legend or his attorney duly authorized
in writing, and after such date and receipt of such certificate, the Trustee
shall authenticate and deliver such new Security in exchange for or in lieu of
such other Security as provided in this Article III;
(v) a new Security which does not bear a Restricted Securities
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
Company'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, at the direction of the Company, shall
authenticate and deliver such a new Security as provided in this Article III;
and
(vi) notwithstanding the foregoing provisions of this Section
3.5(3), a Successor Security of a Security that does not bear a Restricted
Securities Legend shall not bear such legend unless the Company has reasonable
cause to believe that such Successor Security is a "restricted security" within
the meaning of Rule 144, in which case the Trustee, at the direction of the
Company, shall authenticate and deliver a new Security bearing a Restricted
Securities Legend in exchange for such Successor Security as provided in this
Article III.
(4) Any stock certificate representing shares of Common Stock issued
upon conversion of the Securities shall bear the Restricted Securities Legend
borne by such Securities, to the extent required by this Indenture, unless such
shares of Common Stock have been sold pursuant to a registration statement that
has been declared effective under the Securities Act (and which continues to be
effective at the time of such transfer) or sold pursuant to Rule 144 of the
Securities Act, or unless otherwise agreed by the Company in writing with
written notice thereof to the transfer agent for the Common Stock. With respect
to the transfer of shares of Common Stock issued upon
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<PAGE>
conversion of the Securities that are restricted hereunder, any deliveries of
certificates, legal opinions or other instruments that would be required to be
made to the Security Registrar in the case of a transfer of Securities, as
described above, shall instead be made to the transfer agent for the Common
Stock.
(5) Neither the Trustee, the Paying Agent nor any of their agents
shall (i) have any duty to monitor compliance with or with respect to any
federal or state or other securities or tax laws or (ii) have any duty to obtain
documentation on any transfers or exchanges other than as specifically required
hereunder.
SECTION 3.6 Mutilated, Destroyed, Lost or Stolen Securities. (1) If any
-----------------------------------------------
mutilated Security is surrendered to the Trustee, the Company shall execute and
the Trustee shall authenticate and deliver in exchange therefor a new Security
of like tenor and principal amount and bearing a number not contemporaneously
outstanding.
If there be delivered to the Company and to the Trustee:
(1) evidence to their satisfaction of the destruction, loss or theft
of any Security, and
(2) such security or indemnity as may be satisfactory to the Company
and the Trustee to save each of them and any agent of either of them harmless,
then, in the absence of actual notice to the Company or the Trustee that such
Security has been acquired by a bona fide purchaser, the Company shall execute
and the Trustee shall authenticate and deliver, in lieu of any such destroyed,
lost or stolen Security, a new Security of like tenor and principal amount and
bearing a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has become
or is about to become due and payable, the Company in its discretion, but
subject to any conversion rights, may, instead of issuing a new Security, pay
such Security, upon satisfaction of the conditions set forth in the preceding
paragraph.
Upon the issuance of any new Security under this Section 3.6, the Company
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto (other than any
stamp and other duties, if any, which may be imposed in connection therewith by
the United States or any political subdivision thereof or therein, which shall
be paid by the Company) and any other expenses (including the fees and expenses
of the Trustee) connected therewith.
Every new Security issued pursuant to this Section 3.6 in lieu of any
mutilated, destroyed, lost or stolen Security shall constitute an original
additional contractual obligation of the Company,
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<PAGE>
whether or not the mutilated, destroyed, lost or stolen Security shall be at any
time enforceable by anyone, and such new Security 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 3.6 are exclusive and shall preclude (to the
extent lawful) all other rights and remedies of any Holder with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Securities.
SECTION 3.7 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, and such Defaulted
Interest may be paid by the Company, at its election in each case, as provided
in Clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted Interest
to the Persons in whose names the Securities (or their 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 Company shall notify the Trustee in writing of the amount of
Defaulted Interest proposed to be paid on each Security, the date of the
proposed payment and the Special Record Date, and at the same time the Company
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. The Special Record Date for the payment of such Defaulted Interest
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, in the name and at the
expense of the Company, 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 such Holder's 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 their 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).
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<PAGE>
(2) The Company 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 notice given by the Company to the Trustee
of the proposed payment pursuant to this Clause, such manner of payment shall be
deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section and Section 3.5, 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.
Interest on any Security which is converted in accordance with Section 12.2
during a Record Date Period shall be payable in accordance with the provisions
of Section 12.2.
SECTION 3.8 Persons Deemed Owners. Prior to due presentment of a Security
---------------------
for registration of transfer, the Company, the Trustee, any Paying Agent or the
Security Registrar, and any agent of the Company, the Trustee or any Paying
Agent or the Security Registrar, 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, premium, if any, and (subject to Section 3.7)
interest on such Security and for all other purposes whatsoever, whether or not
such Security be overdue, and neither the Company, the Trustee, any Paying
Agent, the Security Registrar nor any agent of the Company, the Trustee or any
Paying Agent or the Security Registrar shall be affected by notice to the
contrary.
None of the Company, the Trustee, any Paying Agent or the Security
Registrar will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests of a Global Security or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests, and each shall be
protected in acting on any such information provided by the Depositary.
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SECTION 3.9 Cancellation. All Securities surrendered for payment,
------------
redemption, repurchase, registration of transfer or exchange or conversion
shall, if surrendered to any Person other than the Trustee, be delivered to the
Trustee. All Securities so delivered to the Trustee shall be canceled promptly
by the Trustee (or its agent). No Securities shall be authenticated in lieu of
or in exchange for any Securities canceled as provided in this Section 3.9. The
Trustee shall dispose of all canceled Securities in accordance with applicable
law and its customary practices in effect from time to time.
SECTION 3.10 Computation of Interest. Interest on the Securities (including
-----------------------
any interest upon overdue interest or Liquidated Damages) shall be computed on
the basis of a 360-day year of twelve 30-day months.
SECTION 3.11 Cusip Numbers. The Company in issuing Securities may use "CUSIP"
-------------
numbers (if then generally in use) in addition to serial numbers; if so, the
Trustee shall use such CUSIP numbers in addition to serial numbers in notices of
redemption and repurchase as a convenience to Holders; provided that any such
notice may state that no representation is made as to the correctness of such
CUSIP numbers either as printed on the Securities or as contained in any notice
of a redemption or repurchase and that reliance may be placed only on the serial
or other identification numbers printed on the Securities, and any such
redemption or repurchase shall not be affected by any defect in or omission of
such CUSIP numbers.
ARTICLE IV
SATISFACTION AND DISCHARGE
SECTION 4.1 Satisfaction And Discharge of Indenture. This Indenture shall
---------------------------------------
upon Company Request cease to be of further effect (except as to any surviving
rights of conversion, or registration of transfer or exchange, or replacement of
Securities herein expressly provided for and any right to receive Liquidated
Damages as provided in Section 10.11 and in the form of Securities set forth in
Section 2.2 and the Company's obligations to the Trustee pursuant to Section
6.7), and the Trustee, at the expense of the Company, shall execute proper
instruments in form and substance satisfactory to the Trustee acknowledging
satisfaction and discharge of this Indenture, when
(1) either
(i) all Securities theretofore authenticated and delivered
(other than (A) Securities which have been destroyed, lost or stolen and which
have been replaced or paid as provided in Section 3.6 and (B) Securities for
whose payment money has theretofore been deposited in trust or segregated and
held in trust by the Company and thereafter repaid to the Company or discharged
from such trust, as provided in Section 10.3) have been delivered to the Trustee
for cancellation; or
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(ii) all such Securities not theretofore delivered to the
Trustee or its agent for cancellation (other than Securities referred to in
clauses (A) and (B) of clause (1)(i) above)
(a) have become due and payable, or
(b) will have become due and payable at their Stated
Maturity within one year, or
(c) 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 expense, of the Company, and the Company,
in the case of clause (a), (b) or (c) above, has deposited or caused to be
deposited with the Trustee as trust funds (immediately available to the Holders
in the case of clause (a)) in trust for the purpose an amount in cash sufficient
to pay and discharge the entire indebtedness on such Securities not theretofore
delivered to the Trustee for cancellation, for principal, premium, if any, and
interest (including any interest upon overdue interest and Liquidated Damages)
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 Company has paid or caused to be paid all other sums payable
hereunder by the Company, including without limitation the payment of all fees
and expenses of the Trustee, its agents and counsel ; and
(3) the Company 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, the
obligations of the Company to the Trustee under Section 6.7, the obligations of
the Company to any Authenticating Agent under Section 6.12, the obligation of
the Company to pay Liquidated Damages, if money shall have been deposited with
the Trustee pursuant to clause (1)(ii) of this Section 4.1, the obligations of
the Trustee under Section 4.2 and the last paragraph of Section 10.3 and the
obligations of the Company and the Trustee under Section 3.5 and Article XII
shall survive.
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SECTION 4.2 Application of Trust Money. Subject to the provisions of the
--------------------------
last paragraph of Section 10.3, all money deposited with the Trustee pursuant to
Section 4.1 and in accordance with the provisions of Article XIII shall be held
in trust for the sole benefit of the Holders and not be subject to the
subordination provisions of Article XIII, and such monies shall be applied by
the Trustee, in accordance with the provisions of the Securities and this
Indenture, to the payment, either directly or through any Paying Agent, to the
Persons entitled thereto, of the principal, premium, if any, and interest for
whose payment such money has been deposited with the Trustee.
All moneys deposited with the Trustee pursuant to Section 4.1 (and held by
it or any Paying Agent) for the payment of Securities subsequently converted
shall be returned to the Company upon Company Request.
The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed or assessed against all money deposited with the Trustee
pursuant to Section 4.1 (other than income taxes and franchise taxes incurred or
payable by the Trustee and such other taxes, fees or charges incurred or payable
by the Trustee that are not directly the result of the deposit of such money
with the Trustee).
ARTICLE V
REMEDIES
SECTION 5.1 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 occasioned by the provisions of Article XIII or
be voluntary or involuntary or be effected by operation of law or pursuant to
any judgment, decree or order of any court or any order, rule or regulation of
any administrative or governmental body):
(1) default in the payment of the principal of or premium, if any, on
any Security at its Maturity, whether or not such payment is prohibited by the
subordination provisions of the Securities or of this Indenture; or
(2) default in the payment of any interest (including any interest
upon overdue interest or Liquidated Damages) upon any Security when it becomes
due and payable, and continuance of such default for a period of 30 days,
whether or not such payment is prohibited by the subordination provisions of the
Securities or of this Indenture; or
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(3) failure by the Company to provide an Offer to Purchase in
accordance with Section 14.3 whether or not such Offer to Purchase is prohibited
by the subordination provisions of the Securities or the Indenture; or
(4) default in the performance, or breach, of any covenant or
warranty of the Company in this Indenture (other than a covenant or warranty a
default in the performance or breach of which is specifically dealt with
elsewhere in this Section), and continuance of such default or breach for a
period of 60 days after there has been given, by registered or certified mail,
to the Company by the Trustee or to the Company and the Trustee by the Holders
of at least 25% in principal amount of the Outstanding Securities a written
notice (a "Notice of Default") specifying such default or breach and requiring
it to be remedied and stating that such notice is a Notice of Default hereunder;
or
(5) (i) any default by the Company or any Significant 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 Indebtedness 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 holder of such Indebtedness shall
have the right to accelerate such Indebtedness, or (ii) any event of default as
defined in any agreement, indenture or instrument of the Company or any
Significant Subsidiary evidencing Indebtedness in excess of $10.0 million shall
have occurred and the Indebtedness thereunder, if not already matured at its
final maturity in accordance with its terms, shall have been accelerated; or
(6) the entry by a court having jurisdiction in the premises of (A) a
decree or order for relief in respect of the Company or any Significant
Subsidiary in an involuntary case or proceeding under any applicable Federal or
State bankruptcy, insolvency, reorganization or other similar law or (B) a
decree or order adjudging the Company or any Significant Subsidiary a bankrupt
or insolvent, or approving as properly filed a petition seeking reorganization,
arrangement, adjustment or composition of or in respect of the Company or any
Significant Subsidiary under any applicable Federal or State law, or appointing
a custodian, receiver, liquidator, assignee, trustee, sequestrator or other
similar official of the Company or any Significant Subsidiary or of any
substantial part of the property of either, or ordering the winding up or
liquidation of its affairs, and the continuance of any such decree or order for
relief or any such other decree or order unstayed and in effect for a period of
60 consecutive days; or
(7) the commencement by the Company or any Significant Subsidiary of
a voluntary case or proceeding under any applicable Federal or State 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 either
to the entry of a decree or order for relief in respect of the
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Company or any Significant Subsidiary in an involuntary case or proceeding under
any applicable Federal or State bankruptcy, insolvency, reorganization or other
similar law or to the commencement of any bankruptcy or insolvency case or
proceeding against either, or the filing by either of a petition or answer or
consent seeking reorganization or similar relief under any applicable Federal or
State law, or the consent by either to the filing of such petition or to the
appointment of or taking possession by a custodian, receiver, liquidator,
assignee, trustee, sequestrator or other similar official of the Company or any
Significant Subsidiary or of any substantial part of the property of either, or
the making by either of an assignment for the benefit of creditors, or the
admission by either in writing of its inability to pay its debts generally as
they become due, or the taking of corporate action by the Company or any
Significant Subsidiary in furtherance of any such action.
SECTION 5.2 Acceleration of Maturity; Rescission and Annulment. If an Event of
--------------------------------------------------
Default (other than an Event of Default specified in Section 5.1(6) or 5.1(7)
with respect to the Company) occurs and is continuing, then in every such case
the Trustee or the Holders of not less than 25% in principal amount of the
Outstanding Securities may, subject to the provisions of Article XIII, declare
the principal of all the Securities to be due and payable immediately, by a
notice in writing to the Company (and to the Trustee if given by the Holders),
and upon any such declaration such principal and all accrued interest thereon
shall become immediately due and payable. If an Event of Default specified in
Section 5.1(6) or 5.1(7) with respect to the Company occurs, the principal of,
and accrued interest on, all the Securities shall, subject to the provisions of
Article XIII, ipso facto become immediately due and payable without any
declaration or other Act of the Holders or any act on the part of the Trustee.
At any time after such 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 V provided, the Holders of a majority in
principal amount of the Outstanding Securities, by written notice to the Company
and the Trustee, may, on behalf of all Holders, rescind and annul such
declaration and its consequences if:
(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay
(i) all overdue interest on all Securities,
(ii) the principal of and premium, if any, on any Securities
which have become due otherwise than by such declaration of acceleration and any
interest thereon at the rate borne by the Securities,
(iii) to the extent permitted by applicable law, interest upon
overdue interest at a rate of 6 3/4% per annum, and
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(iv) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel;
(2) all Events of Default, other than the nonpayment of the principal
of and any premium and interest on, Securities which have become due solely by
such declaration of acceleration, have been cured or waived as provided in
Section 5.13; and
(3) such rescission and annulment would not conflict with any judgment
or decree issued in appropriate judicial proceedings regarding the payment by
the Trustee to the Holders of the amounts referred to in 5.2(1).
No rescission or annulment referred to above shall affect any subsequent
default or impair any right consequent thereon.
SECTION 5.3 Collection of Indebtedness and Suits for Enforcement by Trustee.
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The Company covenants that if:
(1) default is made in the payment of any interest (including any
interest upon overdue interest or Liquidated Damages) on any Security when it
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,
the Company will, upon demand of the Trustee but subject to the provisions of
Article XIII 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 interest
(including any Liquidated Damages) and interest on any overdue principal and
premium, if any, and, to the extent permitted by applicable law, any interest
upon overdue interest (including any Liquidated Damages), at a rate of 6 3/4%
per annum, and in addition thereto, such further amount as shall be sufficient
to cover the reasonable costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel.
If the Company 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 Company 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 Company or any other obligor upon the Securities, wherever
situated.
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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 of Securities by such appropriate judicial proceedings as the Trustee
shall deem most effectual to protect and enforce any such rights, whether for
the 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 5.4 Trustee May File Proofs of Claim. In case of the pendency of any
--------------------------------
receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement,
adjustment, composition or other judicial proceeding relative to the Company or
any other obligor upon the Securities or the property of the Company or of such
other obligor or the creditors of either, the Trustee (irrespective of whether
the principal of, and any interest on, the Securities shall then be due and
payable as therein expressed or by declaration or otherwise and irrespective of
whether the Trustee shall have made any demand on the Company for the payment of
overdue principal or interest) shall be entitled and empowered, by intervention
in such proceeding or otherwise,
(1) to file and prove a claim for the whole amount of principal,
premium, if any, and interest owing and unpaid in respect of the Securities and
take such other actions, including participating as a member, voting or
otherwise, of any official committee of creditors appointed in such matter, and
to file such other papers or documents, in each of the foregoing cases, as may
be necessary or advisable in order to have the claims of the Trustee (including
any claim for the reasonable compensation, expenses, disbursements and advances
of the Trustee, its agents and counsel) and of the Holders of Securities allowed
in such judicial proceeding, and
(2) to collect and receive any moneys or other property payable or
deliverable on any such claim 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 of
Securities 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 of
Securities, to pay to the Trustee any amount due to 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 6.7.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder of a Security
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 of a Security in any such proceeding;
provided, however, that the Trustee may, on behalf of such Holders, vote for the
election of a trustee in bankruptcy or similar official.
SECTION 5.5 Trustee May Enforce Claims Without Possession of Securities. All
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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
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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, be
for the ratable benefit of the Holders of the Securities in respect of which
judgment has been recovered.
SECTION 5.6 Application of Money Collected. Subject to Article XIII, any money
------------------------------
collected by the Trustee pursuant to this Article V 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, 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 due the Trustee under Section 6.7;
SECOND: To the payment of the amounts then due and unpaid for principal
of, premium, if any, or interest (including Liquidated Damages, if any) on, the
Securities in respect of which or for the benefit of which such money has been
collected, ratably, without preference or priority of any kind, according to the
amounts due and payable on such Securities for principal, premium, if any, and
interest (including Liquidated Damages, if any), respectively;
THIRD: To such other Person or Persons, if any, to the extent entitled
thereto; and
FOURTH: Any remaining amounts shall be repaid to the Company.
SECTION 5.7 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 in respect of such Event of Default in its own name as
Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee, and if
requested, shall have provided, reasonable indemnity against the costs, expenses
and liabilities to be incurred in compliance with such request;
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(4) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity (or if requested, receipt of indemnity) has failed to
institute any such proceeding; and
(5) no direction 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 of such 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 of such Holders, or to obtain or
seek to obtain priority or preference over any other of such Holders or to
enforce any right under this Indenture, except in the manner herein provided and
for the equal and ratable benefit of all such Holders.
SECTION 5.8 Unconditional Right of Holders to Receive Principal, Premium and
----------------------------------------------------------------
Interest and to Convert. Notwithstanding any other provision in this Indenture,
- -----------------------
but subject to the provisions of Article XIII, the Holder of any Security shall
have the right, which is absolute and unconditional, to receive payment of the
principal of, premium, if any, and (subject to Section 3.7) interest (including
Liquidated Damages, if any) on such Security on the respective Stated Maturities
expressed in such Security (or, in the case of redemption or repurchase, on the
Redemption Date or Repurchase Date, as the case may be), and to convert such
Security in accordance with Article XII, and to institute suit for the
enforcement of any such payment and right to convert, and such rights shall not
be impaired without the consent of such Holder.
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SECTION 5.9 Restoration of Rights and Remedies. If the Trustee or any Holder
----------------------------------
of a Security 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 or to such Holder, then
and in every such case, subject to any determination in such proceeding, the
Company, the Trustee and the Holders of Securities shall be restored severally
and respectively to their former positions hereunder and thereafter all rights
and remedies of the Trustee and such Holders shall continue as though no such
proceeding had been instituted.
SECTION 5.10 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 3.6, no right or remedy herein
conferred upon or reserved to the Trustee or to the Holders of Securities 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 5.11 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 any acquiescence therein. Every right and
remedy given by this Article V or by law to the Trustee or to the Holders of
Securities may be exercised from time to time, and as often as may be deemed
expedient, by the Trustee or (subject to the limitations contained in this
Indenture) by the Holders of Securities as the case may be.
SECTION 5.12 Control by Holders of Securities. Subject to Section 6.3, 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) such direction shall not be in conflict with any rule of law or
with this Indenture, and
(2) the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction, and
(3) the Trustee need not take any action which might involve it in
personal liability or be unjustly prejudicial to the Holders of Securities not
consenting.
SECTION 5.13 Waiver of Past Defaults. The Holders, either (i) through the
-----------------------
written consent of not less than a majority in principal amount of the
Outstanding Securities or (ii) by the adoption of a
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resolution, at a meeting of Holders of the Outstanding Securities at which a
quorum is present, by the Holders of at least 66-2/3% in principal amount of the
Outstanding Securities represented at such meeting, may on behalf of the Holders
of all the Securities waive any past default hereunder and its consequences,
except a default (A) in the payment of the principal of, premium, if any, or
interest (including Liquidated Damages) on any Security, or (B) in respect of a
covenant or provision hereof which under Article VIII cannot be modified or
amended without the consent of the Holder of each Outstanding Security affected.
Upon any such waiver, such default 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.
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SECTION 5.14 Undertaking for Costs. All parties to this Indenture agree, and
---------------------
each Holder of any Security by his acceptance thereof shall be deemed to have
agreed, that any court may in its discretion require, in any suit for the
enforcement of any right or remedy under this Indenture, or any suit against the
Trustee for any action taken, suffered or omitted by it as Trustee, the filing
by any party litigant in such suit of an undertaking to pay the costs of such
suit, and that such court may in its discretion assess reasonable costs,
including reasonable attorneys' fees, against any party litigant in such suit,
having due regard to the merits and good faith of the claims or defenses made by
such party litigant; but the provisions of this Section 5.14 shall not apply to
any suit instituted by the Company, to any suit instituted by the Trustee, to
any suit instituted by any Holder, or group of Holders, holding in the aggregate
more than 10% in principal amount of the Outstanding Securities, or to any suit
instituted by any Holder of any Security for the enforcement of the payment of
the principal of, premium, if any, or interest on any Security on or after the
respective Stated Maturity or Maturities expressed in such Security (or, in the
case of redemption or repurchase, on or after the Redemption Date or Repurchase
Date, as the case may be) or for the enforcement of the right to convert any
Security in accordance with Article XII.
SECTION 5.15 Waiver of Stay, Usury or Extension Laws. The Company covenants (to
---------------------------------------
the extent that it may lawfully do so) that it will not at any time insist upon,
or plead, or in any manner whatsoever claim or take the benefit or advantage of,
any stay, usury 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 Company (to the extent that it may lawfully do so) hereby expressly
waives all benefit or advantage of any such law and covenants that it will not
hinder, delay or impede by reason of such law 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 VI
THE TRUSTEE
SECTION 6.1 Certain Duties and Responsibilities. Except during the continuance
-----------------------------------
of an Event of Default,
(i) the Trustee undertakes to perform such duties and only such
duties as are specifically set forth in this Indenture, and no implied covenants
or obligations shall be read into this Indenture against the Trustee; and
(ii) 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, but in the case of
any such certificates or opinions which by any provision hereof are specifically
required to be furnished to the Trustee, the Trustee shall be under a duty to
examine the
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same to determine whether or not they conform to the requirements of this
Indenture, but not to verify the contents thereof (or to confirm or investigate
the accuracy of mathematical calculations or other facts stated therein).
(2) In case 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 their exercise, as a
prudent man would exercise or use under the circumstances in the conduct of his
own affairs.
(3) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act, or its own willful misconduct, except that
(i) this paragraph (3) shall not be construed to limit the
effect of paragraph (1) of this Section;
(ii) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it shall be proved that the
Trustee was negligent in ascertaining the pertinent facts;
(iii) the Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in good faith in accordance with the
direction of the Holders of a majority in principal amount of the Outstanding
Securities relating to the time, method and place of conducting any proceeding
for any remedy available to the Trustee, or exercising any trust or power
conferred upon the Trustee, under this Indenture; and
(iv) 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.
(4) Whether or not therein expressly so provided, every provision of
this Indenture relating to the conduct or affecting the liability of or
affording protection to the Trustee shall be subject to the provisions of this
Section.
SECTION 6.2 Notice of Defaults. Within 90 days after the occurrence of any
------------------
default hereunder as to which the Trustee has received written notice, the
Trustee shall give to all Holders of Securities, in the manner provided in
Section 1.6, notice of such default, unless such default shall have been cured
or waived; provided, however, that, except in the case of a default in the
payment of the principal of, premium, if any, or interest on any Security the
Trustee shall be protected in
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withholding such notice if and so long as the board of directors, the executive
committee or a trust committee of directors or Responsible Officers of the
Trustee in good faith determines that the withholding of such notice is in the
interest of the Holders; and provided, further, that in the case of any default
of the character specified in Section 5.1(4), no such notice to Holders of
Securities shall be given until at least 60 days after the occurrence thereof
or, if applicable, the cure period specified therein. 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.
SECTION 6.3 Certain Rights of Trustee. Subject to the provisions of Section
-------------------------
6.1:
(1) the Trustee may conclusively rely, and shall be protected in
acting or refraining from acting, upon any resolution, Officers' Certificate,
other certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, coupon, other evidence of
indebtedness or other paper or document (collectively, the "Documents") believed
by it to be genuine and to have been signed or presented by the proper party or
parties, and the Trustee need not investigate any fact or matter stated in such
Documents;
(2) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any resolution
of the Board of Directors shall be sufficiently evidenced by a Board Resolution;
(3) 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 the one specifically prescribed) may, in the absence of bad faith on its
part, request and rely upon an Officers' Certificate or Opinion of Counsel;
(4) 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;
(5) 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 of Securities pursuant to this Indenture, unless such Holders
shall have offered, and, if requested by the Trustee, delivered, to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
which might be incurred by it in compliance with such request or direction;
(6) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any Document, but the Trustee 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 Company,
personally or by agent or attorney;
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(7) 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;
(8) the Trustee shall not be liable for any action it takes, suffers
to be taken or omits in good faith; and
(9) 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 6.4 Not Responsible for Recitals or Issuance of Securities. The
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recitals contained herein and in the Securities (except the Trustee's
certificates of authentication) shall be taken as the statements of the Company,
and the Trustee assumes no responsibility for their correctness. The Trustee
makes no representations as to the validity or sufficiency of this Indenture, of
the Securities or of the Common Stock issuable upon the conversion of the
Securities. The Trustee shall not be accountable for the use or application by
the Company of Securities or the proceeds thereof.
SECTION 6.5 May Hold Securities, Act as Trustee under Other Indentures. The
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Trustee, any Authenticating Agent, any Paying Agent, any Conversion Agent or any
other agent of the Company or the Trustee, in its individual or any other
capacity, may become the owner or pledgee of Securities and may otherwise deal
with the Company with the same rights it would have if it were not Trustee,
Authenticating Agent, Paying Agent, Conversion Agent or such other agent.
The Trustee is hereby authorized to act as trustee under that certain
indenture between Exodus Communications, Inc. and the Trustee, dated as of July
1, 1998 (the "1998 Senior Indenture"), that certain Indenture dated as of March
1, 1999 (the "1999 Subordinated Indenture"), and that certain Indenture dated as
of the date hereof relating to Senior Notes due 2009 (the "1999 Senior
Indenture" and collectively with the 1998 Senior Indenture and the 1999
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.
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SECTION 6.6 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 no liability for interest on any money received by it
hereunder except as otherwise agreed in writing with the Company.
SECTION 6.7 Compensation and Reimbursement. The Company agrees:
------------------------------
(1) to pay to the Trustee from time to time such reasonable
compensation as the Company and the Trustee shall from time to time agree in
writing for its acceptance of this Indenture and for all services rendered by it
hereunder (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 (including costs and expenses of enforcing this
Indenture and defending itself against any claim (whether asserted by the
Company, any Holder of Securities or any other Person) or liability in
connection with the exercise of any of its powers or duties hereunder) in
accordance with any provision of this Indenture (including the reasonable
compensation and the expenses and disbursements of its agents 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 its directors, officers, employees
and agents) for, and to hold it harmless against, any loss, damage, claim,
liability or expense incurred without negligence or bad faith on its part,
arising out of or in connection with the acceptance or administration of this
trust, including without limitation the reasonable costs, expenses and
reasonable attorneys' fees and expenses of defending itself against any claim or
liability in connection with the exercise or performance of any of its powers or
duties hereunder.
When the Trustee incurs expenses or renders services in connection with an
Event of Default specified in Section 5.1(6) or Section 5.1(7), the expenses
(including the reasonable fees and expenses of its agents and counsel) and the
compensation for the services are intended to constitute expenses of the
administration under any applicable Federal or state bankruptcy, insolvency or
other similar law.
If the Company shall default in the payment of any amount owing to the
Trustee pursuant to this Section 6.7, the Trustee shall be entitled to payment
of such amount out of all property and funds held by it hereunder prior to
payment to the Holders of any amount owing to them under the Notes.
The provisions of this Section shall survive the termination of this
Indenture or the earlier resignation or removal of the Trustee.
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SECTION 6.8 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 $50,000,000, subject to supervision
or examination by federal or state authority, and in good standing. The Trustee
or an Affiliate of the Trustee shall maintain an established place of business
in the Borough of Manhattan, The City of New York. If such corporation 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 corporation 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 and a
successor shall be appointed pursuant to Section 6.9.
SECTION 6.9 Resignation and Removal; Appointment of Successor. 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 in accordance with the applicable requirements of Section
6.10.
(1) The Trustee may resign at any time by giving written notice
thereof to the Company. If the instrument of acceptance by a successor Trustee
required by Section 6.10 shall not have been delivered to the Trustee within 30
days after the giving of such notice of resignation, the resigning Trustee may
petition any court of competent jurisdiction for the appointment of a successor
Trustee.
(2) The Trustee may be removed at any time by an Act of the Holders of
a majority in principal amount of the Outstanding Securities, delivered to the
Trustee and the Company. If the instrument of acceptance by a successor Trustee
required by Section 6.10 shall not have been delivered to the Trustee within 30
days after the giving of such notice of removal, the removed Trustee may
petition any court of competent jurisdiction for the appointment of a successor
Trustee.
(3) If at any time:
(i) the Trustee shall cease to be eligible under Section 6.8 and
shall fail to resign after written request therefor by the Company or by any
Holder of a Security who has been a bona fide Holder of a Security for at least
six months, or
(ii) 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
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officer 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 Company by a Board Resolution may remove the Trustee, or
(ii) subject to Section 5.14, any Holder of a Security 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.
(4) 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
Company, by a Board Resolution, shall promptly appoint a successor Trustee and
shall comply with the applicable requirements of this Section and Section 6.10.
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 Company and the retiring Trustee, the successor Trustee so
appointed shall, forthwith upon its acceptance of such appointment in accordance
with the applicable requirements of Section 6.10, become the successor Trustee
and supersede the successor Trustee appointed by the Company. If no successor
Trustee shall have been so appointed by the Company or the Holders of Securities
and accepted appointment in the manner required by this Section and Section
6.10, any Holder of a Security 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.
(5) The Company shall give notice of each resignation and each removal
of the Trustee and each appointment of a successor Trustee to all Holders of
Securities in the manner provided in Section 1.6. Each notice shall include the
name of the successor Trustee and the address of its Corporate Trust Office.
SECTION 6.10 Acceptance of Appointment by Successor. Every successor Trustee
--------------------------------------
appointed hereunder shall execute, acknowledge and deliver to the Company and to
the retiring Trustee an 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 the request of the Company or the successor Trustee, such retiring
Trustee shall, upon payment of its charges, 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 Company shall execute any and all
instruments for more fully and
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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 6.10, the Company's obligations under Section 6.7 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 eligible under this Article.
SECTION 6.11 Merger, Conversion, Consolidation or Succession to Business. Any
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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 of the corporate trust business of the
Trustee (including the trust created by this Indenture), shall be the successor
of the Trustee hereunder, provided such corporation shall be otherwise 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
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 6.12 Authenticating Agents. The Trustee may, with the consent of the
---------------------
Company, appoint an Authenticating Agent or Agents acceptable to the Company
with respect to the Securities which shall be authorized to act on behalf of the
Trustee to authenticate Securities issued upon exchange or substitution pursuant
to this Indenture.
Securities authenticated by an Authenticating Agent 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, and every reference in
this Indenture to the authentication and delivery of Securities by the Trustee
or the Trustee's certificate of authentication 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 subject to acceptance
by the Company and shall at all times be a corporation organized and doing
business under the laws of the United States of America, any State thereof or
the District of Columbia, authorized under such laws to act as Authenticating
Agent and subject to supervision or examination by government or other fiscal
authority. If at any time an Authenticating Agent shall cease to be eligible in
accordance with the provisions of this Section 6.12, such Authenticating Agent
shall resign immediately in the manner and with the effect specified in this
Section 6.12.
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 6.12, 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 Company. 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 Company. 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 6.12, the Trustee may appoint a successor
Authenticating Agent which shall be subject to acceptance by the Company. 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 6.12.
The Company agrees to pay to each Authenticating Agent from time to time
reasonable compensation for its services under this Section 6.12.
If an Authenticating Agent is appointed with respect to the Securities
pursuant to this Section 6.12, the Securities may have endorsed thereon, in
addition to or in lieu of the Trustee's certification of authentication, an
alternative certificate of authentication in the following form:
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This is one of the Securities referred to in the within-mentioned
Indenture.
CHASE MANHATTAN BANK AND TRUST
COMPANY, NATIONAL ASSOCIATION,
as Trustee
By:____________________________
As Authenticating Agent
By:
_______________________________
Authorized Signatory
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SECTION 6.13 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 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 6.14 Preferential Collection of Claims Against Company. If and when the
-------------------------------------------------
Trustee shall be or become a creditor of the Company (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 Company (or any
such other obligor).
ARTICLE VII
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 7.1 Company May Consolidate, Etc., Only on Certain Terms.
----------------------------------------------------
The Company shall not consolidate with or merge into any other Person or
convey, transfer or lease all its properties and assets substantially as an
entirety to any Person, and the Company shall not permit any Person to
consolidate with or merge into the Company or convey, transfer, sell or lease
such Person's properties and assets substantially as an entirety to the Company
unless:
(1) the Person formed by such consolidation or into or with which the
Company is merged or the Person to which the properties and assets of the
Company are so conveyed, transferred, sold or leased shall be a corporation,
limited liability company, partnership or trust organized and validly existing
under the laws of the United States of America, any State thereof or the
District of Columbia and, if other than the Company, shall expressly assume, by
an indenture supplemental hereto, executed and delivered to the Trustee, in form
satisfactory to the Trustee, the due and punctual payment of the principal of,
premium, if any, and interest (including Liquidated Damages, if any) on all of
the Securities as applicable, and the performance or observance of every
covenant of this Indenture on the part of the Company to be performed or
observed and shall have provided for conversion rights in accordance with
Article XII;
(2) immediately after giving effect to such transaction, no Event of
Default, and no event that after notice or lapse of time or both, would become
an Event of Default, shall have occurred and be continuing; and
(3) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that such consolidation, merger,
conveyance, transfer or lease and,
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if a supplemental indenture is required in connection with such transaction,
such supplemental indenture comply with this Article and that all conditions
precedent herein provided for relating to such transaction have been complied
with, together with any documents required under Section 8.3.
SECTION 7.2 Successor Substituted. Upon any consolidation of the Company with,
---------------------
or merger of the Company into any other Person or any conveyance, transfer or
lease of all or substantially all the properties and assets of the Company in
accordance with Section 7.1, the successor Person formed by such consolidation
or into or with which the Company is merged or to which such conveyance,
transfer or lease is made shall succeed to, and be substituted for, and may
exercise every right and power of, the Company under this Indenture with the
same effect as if such successor Person had been named as the Company 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 VIII
SUPPLEMENTAL INDENTURES
SECTION 8.1 Supplemental Indentures Without Consent of Holders of Securities.
----------------------------------------------------------------
Without the consent of any Holders of Securities the Company, 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 for any of the following
purposes:
(1) to evidence the succession of another Person to the Company and
the assumption by any such successor of the covenants and obligations of the
Company herein and in the Securities as permitted by Article VII of this
Indenture; or
(2) to add to the covenants of the Company for the benefit of the
Holders of Securities or to surrender any right or power herein conferred upon
the Company; or
(3) to secure the Securities; or
(4) to make provision with respect to the conversion rights of Holders
of Securities pursuant to Section 12.11 or to make provision with respect to the
repurchase rights of Holders of Securities pursuant to Section 14.5; or
(5) to make any changes or modifications to this Indenture necessary
in connection with the registration of any Registrable Securities under the
Securities Act as
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contemplated by Section 10.11, provided such action pursuant to this clause (5)
shall not adversely affect the interests of the Holders of Securities; or
(6) to comply with the requirements of the Trust Indenture Act or the
rules and regulations of the Commission thereunder in order to effect or
maintain the qualification of this Indenture under the Trust Indenture Act, as
contemplated by this Indenture or otherwise; or
(7) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee; or
(8) subject to Section 13.12, to make any change in Article XIII that
would limit or terminate the benefits available to any holder of Senior
Indebtedness under such Article; or
(9) to cure any ambiguity, to correct or supplement any provision
herein which may be inconsistent with any other provision herein or which is
otherwise defective, or to make any other provisions with respect to matters or
questions arising under this Indenture as the Company and the Trustee may deem
necessary or desirable, provided such action pursuant to this clause (9) shall
not adversely affect the interests of the Holders of Securities in any material
respect.
Upon Company Request, accompanied by a Board Resolution authorizing the
execution of any such supplemental indenture, and subject to and upon receipt by
the Trustee of the documents described in Section 8.3 hereof, the Trustee shall
join with the Company in the execution of any supplemental indenture authorized
or permitted by the terms of this Indenture and to make any further appropriate
agreements and stipulations which may be therein contained.
SECTION 8.2 Supplemental Indentures with Consent of Holders of Securities.
-------------------------------------------------------------
With either (i) the written consent of the Holders of not less than a majority
in principal amount of the Outstanding Securities, by the Act of said Holders
delivered to the Company and the Trustee, or (ii) by the adoption of a
resolution, at a meeting of Holders of the Outstanding Securities at which a
quorum is present, by the Holders of at least 66-2/3% in principal amount of the
Outstanding Securities represented at such meeting, the Company, when authorized
by a Board Resolution, 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 of Securities under this
Indenture; provided, however, that no such supplemental indenture shall, without
the consent or affirmative vote 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 of, or the premium,
if any, or the rate of interest payable thereon, or reduce the amount payable
upon a redemption or mandatory repurchase, or change the place or currency of
payment of the principal of, premium, if any, or interest on any
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Security (including any payment of Liquidated Damages or Redemption Price or
Repurchase Price in respect of such Security) or impair the right to institute
suit for the enforcement of any payment in respect of any Security on or after
the Stated Maturity thereof (or, in the case of redemption or any repurchase, on
or after the Redemption Date or Repurchase Date, as the case may be) or, except
as permitted by Section 12.11, adversely affect the right of Holders to convert
any Security as provided in Article XII, or modify the provisions of this
Indenture with respect to the subordination of the Securities in a manner
adverse to the Holders; or
(2) reduce the requirements of Section 9.4 for quorum or voting, or
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 their
consequences) provided for in this Indenture; or
(3) modify the obligation of the Company to maintain an office or
agency in the Borough of Manhattan, The City of New York, pursuant to Section
10.2; or
(4) modify any of the provisions of this Section or Section 5.13 or
10.13, except to increase any percentage contained herein or therein 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
(5) adversely affect the right of Holders to require the Company to
repurchase any Note other than as provided in Article XIV; or
(6) modify any of the provisions of Section 10.9.
It shall not be necessary for any Act of Holders of Securities 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.
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SECTION 8.3 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 Sections 6.1 and 6.3)
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, and that such supplemental indenture has been duly authorized,
executed and delivered by the Company and constitutes a valid and legally
binding obligation of the Company enforceable against the Company in accordance
with its terms. 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 8.4 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 appertaining thereto shall be
bound thereby.
SECTION 8.5 Reference in Securities to Supplemental Indentures. 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 Company shall so determine, new Securities so
modified as to conform, in the opinion of the Company and the Trustee, to any
such supplemental indenture may be prepared and executed by the Company and
authenticated and delivered by the Trustee in exchange for Outstanding
Securities.
SECTION 8.6 Notice of Supplemental Indentures. Promptly after the execution by
---------------------------------
the Company and the Trustee of any supplemental indenture pursuant to the
provisions of Section 8.1, the Company shall give notice to all Holders of
Securities of such fact, setting forth in general terms the substance of such
supplemental indenture, in the manner provided in Section 1.6. Any failure of
the Company to give such notice, or any defect therein, shall not in any way
impair or affect the validity of any such supplemental indenture.
ARTICLE IX
MEETINGS OF HOLDERS OF SECURITIES
SECTION 9.1 Purposes for Which Meetings May Be Called. A meeting of Holders of
-----------------------------------------
Securities may be called at any time and from time to time pursuant to this
Article to make, give or
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take any request, demand, authorization, direction, notice, consent, waiver or
other action provided by this Indenture to be made, given or taken by Holders of
Securities.
SECTION 9.2 Call, Notice and Place of Meetings. The Trustee may at any time
----------------------------------
call a meeting of Holders of Securities for any purpose specified in Section
9.1, to be held at such time and at such place in the Borough of Manhattan, The
City of New York, as the Trustee shall determine. Notice of every meeting of
Holders of Securities, setting forth the time and the place of such meeting and
in general terms the action proposed to be taken at such meeting, shall be
given, in the manner provided in Section 1.6, not less than 21 nor more than 180
days prior to the date fixed for the meeting.
(1) In case at any time the Company, pursuant to a Board Resolution,
or the Holders of at least 10% in principal amount of the Outstanding Securities
shall have requested the Trustee to call a meeting of the Holders of Securities
for any purpose specified in Section 9.1, by written request setting forth in
reasonable detail the action proposed to be taken at the meeting, and the
Trustee shall not have mailed the notice of such meeting within 21 days after
receipt of such request or shall not thereafter proceed to cause the meeting to
be held as provided herein, then the Company or the Holders of Securities in the
amount specified, as the case may be, may determine the time and the place in
the Borough of Manhattan, The City of New York, for such meeting and may call
such meeting for such purposes by giving notice thereof as provided in paragraph
(1) of this Section.
SECTION 9.3 Persons Entitled to Vote at Meetings. To be entitled to vote at
------------------------------------
any meeting of Holders of Securities, a Person shall be (i) a Holder of one or
more Outstanding Securities on the date of such meeting, or (ii) a Person
appointed by an instrument in writing as proxy for a Holder or Holders of one or
more Outstanding Securities by such Holder or Holders. The only Persons who
shall be entitled to be present or to speak at any meeting of Holders shall be
the Persons entitled to vote at such meeting and their counsel, any
representatives of the Trustee and its counsel and any representatives of the
Company and its counsel.
SECTION 9.4 Quorum; Action. The Persons entitled to vote a majority in
--------------
principal amount of the Outstanding Securities shall constitute a quorum. In the
absence of a quorum within 30 minutes of the time appointed for any such
meeting, the meeting shall, if convened at the request of Holders of Securities,
be dissolved. In any other case, the meeting may be adjourned for a period of
not less than 10 days as determined by the chairman of the meeting prior to the
adjournment of such meeting. In the absence of a quorum at any such adjourned
meeting, such adjourned meeting may be further adjourned for a period not less
than 10 days as determined by the chairman of the meeting prior to the
adjournment of such adjourned meeting (subject to repeated applications of this
sentence). Notice of the reconvening of any adjourned meeting shall be given as
provided in Section 9.2(1), except that such notice need be given only once not
less than five days prior to the date on
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which the meeting is scheduled to be reconvened. Notice of the reconvening of an
adjourned meeting shall state expressly the percentage of the principal amount
of the Outstanding Securities which shall constitute a quorum.
Subject to the foregoing, at the reconvening of any meeting adjourned for a
lack of a quorum, the Persons entitled to vote 25% in principal amount of the
Outstanding Securities at the time shall constitute a quorum for the taking of
any action set forth in the notice of the original meeting.
At a meeting or an adjourned meeting duly reconvened and at which a quorum
is present as aforesaid, any resolution and all matters (except as limited by
the proviso to Section 8.2 and except to the extent Section 10.13 requires a
different vote) shall be effectively passed and decided if passed or decided by
the lesser of (i) the Holders of not less than a majority in principal amount of
Outstanding Securities and (ii) the Persons entitled to vote not less than 66-
2/3% in principal amount of Outstanding Securities represented and entitled to
vote at such meeting.
Any resolution passed or decisions taken at any meeting of Holders of
Securities duly held in accordance with this Section shall be binding on all the
Holders of Securities whether or not present or represented at the meeting. The
Trustee shall, in the name and at the expense of the Company, notify all the
Holders of Securities of any such resolutions or decisions pursuant to Section
1.6.
SECTION 9.5 Determination of Voting Rights; Conduct and Adjournment of
----------------------------------------------------------
Meetings. Notwithstanding any other provisions of this Indenture, the Trustee
- --------
may make such reasonable regulations as it may deem advisable for any meeting of
Holders of Securities in regard to proof of the holding of Securities and of the
appointment of proxies and in regard to the appointment and duties of inspectors
of votes, the submission and examination of proxies, certificates and other
evidence of the right to vote, and such other matters concerning the conduct of
the meeting as it shall deem appropriate. Except as otherwise permitted or
required by any such regulations, the holding of Securities shall be proved in
the manner specified in Section 1.4 and the appointment of any proxy shall be
proved in the manner specified in Section 1.4 or by having the signature of the
Person executing the proxy guaranteed by any bank, broker or other eligible
institution participating in a recognized medallion signature guarantee program.
(1) The Trustee shall, by an instrument in writing, appoint a
temporary chairman (which may be the Trustee) of the meeting, unless the meeting
shall have been called by the Company or by Holders of Securities as provided in
Section 9.2(1), in which case the Company or the Holders of Securities calling
the meeting, as the case may be, shall in like manner appoint a temporary
chairman. A permanent chairman and a permanent secretary of the meeting shall be
elected by vote of the Persons entitled to vote a majority in principal amount
of the Outstanding Securities represented at the meeting.
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(2) At any meeting, each Holder of a Security or proxy shall be
entitled to one vote for each $1,000 principal amount of Securities held or
represented by him; provided, however, that no vote shall be cast or counted at
any meeting in respect of any Security challenged as not Outstanding and ruled
by the chairman of the meeting to be not Outstanding. The chairman of the
meeting shall have no right to vote, except as a Holder of a Security or proxy.
(3) Any meeting of Holders of Securities duly called pursuant to
Section 9.2 at which a quorum is present may be adjourned from time to time by
Persons entitled to vote a majority in principal amount of the Outstanding
Securities represented at the meeting, and the meeting may be held as so
adjourned without further notice.
SECTION 9.6 Counting Votes and Recording Action of Meetings. The vote upon
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any resolution submitted to any meeting of Holders of Securities shall be by
written ballots on which shall be subscribed the signatures of the Holders of
Securities or of their representatives by proxy and the principal amounts at
Stated Maturity and serial numbers of the Outstanding Securities held or
represented by them. The permanent chairman of the meeting shall appoint two
inspectors of votes who shall count all votes cast at the meeting for or against
any resolution and who shall make and file with the secretary of the meeting
their verified written reports in duplicate of all votes cast at the meeting. A
record, at least in duplicate, of the proceedings of each meeting of Holders of
Securities shall be prepared by the secretary of the meeting and there shall be
attached to said record the original reports of the inspectors of votes on any
vote by ballot taken thereat and affidavits by one or more Persons having
knowledge of the facts setting forth a copy of the notice of the meeting and
showing that said notice was given as provided in Section 9.2 and, if
applicable, Section 9.4. Each copy shall be signed and verified by the
affidavits of the permanent chairman and secretary of the meeting and one such
copy shall be delivered to the Company and another to the Trustee to be
preserved by the Trustee, the latter to have attached thereto the ballots voted
at the meeting. Any record so signed and verified shall be conclusive evidence
of the matters therein stated.
ARTICLE X
COVENANTS
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SECTION 10.1 Payment of Principal, Premium and Interest. The Company covenants
------------------------------------------
and agrees that it will duly and punctually pay the principal of and premium, if
any, and interest (including Liquidated Damages, if any) on the Securities in
accordance with the terms of the Securities and this Indenture. The Company will
deposit or cause to be deposited with the Trustee, no later than the opening of
business on the date of the Stated Maturity of any Security or no later than the
opening of business on the due date for any installment of interest, all
payments so due, which payments shall be in immediately available funds on the
date of such Stated Maturity or due date, as the case may be.
SECTION 10.2 Maintenance of Offices or Agencies. The Company will maintain in
----------------------------------
the Borough of Manhattan, The City of New York, an office or agency where the
Securities may be surrendered for registration of transfer or exchange or for
presentation for payment or for conversion, redemption or repurchase and where
notices and demands to or upon the Company in respect of the Securities and this
Indenture may be served. The Company will give prompt written notice to the
Trustee of the location, and any change in the location, of such office or
agency not designated or appointed by the Trustee. If at any time the Company
shall fail to 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 or the
office or agency of the Trustee in the Borough of Manhattan, The City of New
York, and the Company hereby appoints the Trustee as its agent to receive all
such presentations, surrenders, notices and demands.
The Company may at any time and from time to time vary or terminate the
appointment of any such agent or appoint any additional agents for any or all of
such purposes; provided, however, that until all of the Securities have been
delivered to the Trustee for cancellation, or moneys sufficient to pay the
principal of, premium, if any, and interest on the Securities have been made
available for payment and either paid or returned to the Company pursuant to the
provisions of Section 10.3, the Company will maintain in the Borough of
Manhattan, The City of New York, an office or agency where Securities may be
presented or surrendered for payment and conversion, which shall initially be
the Trustee, where Securities may be surrendered for registration of transfer or
exchange and where notices and demands to or upon the Company in respect of the
Securities and this Indenture may be served. The Company will give prompt
written notice to the Trustee, and notice to the Holders in accordance with
Section 1.6, of the appointment or termination of any such agents and of the
location and any change in the location of any such office or agency.
The Company hereby initially designates the Trustee as Paying Agent,
Security Registrar and Conversion Agent, and each of the Corporate Trust Office
of the Trustee and the office or agency of the Trustee in the Borough of
Manhattan, The City of New York, located at 55 Water Street, Room 234 North,
Corporate Trust Securities Window, New York, New York 10041, attention: Exodus
Communications, Inc. 4 3/4% Convertible Subordinated Notes due July 15, 2008
one such office or agency of the Company for each of the aforesaid purposes.
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SECTION 10.3 Money for Security Payments to Be Held in Trust. If the Company
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shall act as its own Paying Agent, it will, on or before each due date of the
principal of, 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, 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 the Company will promptly notify the Trustee of its action or
failure so to act.
Whenever the Company shall have one or more Paying Agents, it will, no
later than the opening of business on each due date of the principal of,
premium, if any, or interest on any Securities, deposit with the Trustee a sum
in funds immediately payable on the payment date sufficient to pay the
principal, premium, if any, or interest so becoming due, such sum to be held for
the benefit of the Persons entitled to such principal, premium, if any, or
interest, and (unless such Paying Agent is the Trustee) the Company will
promptly notify the Trustee of any failure so to act.
The Company 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:
(1) hold all sums held by it for the payment of the principal of,
premium, if any, or interest on Securities for the benefit of the Persons
entitled thereto until such sums shall be paid to such Persons or otherwise
disposed of as herein provided;
(2) give the Trustee notice of any default by the Company (or any
other obligor upon the Securities) in the making of any payment of principal,
premium, if any, or interest; and
(3) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so held by
such Paying Agent.
The Company may at any time, for the purpose of obtaining the satisfaction
and discharge of this Indenture or for any other purpose, pay, or by Company
Order direct any Paying Agent to pay, to the Trustee all sums held in trust by
the Company 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 Company 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.
Any money deposited with the Trustee or any Paying Agent, or then held by
the Company, in trust for the payment of the principal of, premium, if any, or
interest on any Security and remaining unclaimed for two years after such
principal, premium, if any, or interest has become due and payable shall be paid
to the Company on Company Request, or (if then held by the Company) shall be
discharged from such trust; and the Holder of such Security shall thereafter, as
an unsecured general creditor, look only to the Company for payment thereof, and
all liability of the Trustee or
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such Paying Agent with respect to such trust money, and all liability of the
Company as trustee thereof, shall thereupon cease.
SECTION 10.4 Existence. Subject to Article VII, the Company 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 the Company shall not be required to preserve any such right or franchise
if the Company shall determine that the preservation thereof is no longer
desirable in the conduct of the business of the Company and that the loss
thereof is not disadvantageous in any material respect to the Holders.
SECTION 10.5 Maintenance of Properties. The Company will cause all properties
-------------------------
used or useful in the conduct of its business or the business of any Significant
Subsidiary to be maintained and kept in good condition, repair and working order
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 Company may be necessary so that the business
carried on in connection therewith may be properly and advantageously conducted
at all times; provided, however, that nothing in this Section shall prevent the
Company from discontinuing the operation or maintenance of any of such
properties if such discontinuance is, in the judgment of the Company, desirable
in the conduct of its business or the business of any Significant Subsidiary and
not disadvantageous in any material respect to the Holders.
SECTION 10.6 Payment of Taxes and Other Claims. The Company will pay or
---------------------------------
discharge, or cause to be paid or discharged, before the same may become
delinquent, (i) all taxes, assessments and governmental charges levied or
imposed upon the Company or any Significant Subsidiary or upon the income,
profits or property of the Company or any Significant Subsidiary, (ii) all
claims for labor, materials and supplies which, if unpaid, might by law become a
lien or charge upon the property of the Company or any Significant Subsidiary,
and (iii) all stamps and other duties, if any, which may be imposed by the
United States or any political subdivision thereof or therein in connection with
the issuance, transfer, exchange or conversion of any Securities or with respect
to this Indenture; provided, however, that, in the case of clauses (i) and (ii),
the Company shall not be required to pay or discharge or cause to be paid or
discharged any such tax, assessment, charge or claim (A) if the failure to do so
will not, in the aggregate, have a material adverse impact on the Company, or
(B) if the amount, applicability or validity is being contested in good faith by
appropriate proceedings.
SECTION 10.7 Registration and Listing. The Company (i) will effect all
------------------------
registrations with, and obtain all approvals by, all governmental authorities
that may be necessary under any United States Federal or state law (including
the Securities Act, the Exchange Act and state securities and Blue Sky laws)
before the shares of Common Stock issuable upon conversion of Securities are
issued and delivered, and qualified or listed as contemplated by clause (ii) (it
being understood that
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the Company shall not be required to register the Securities under the
Securities Act, except pursuant to the Registration Rights Agreement referred to
in Section 10.11); and (ii) will qualify the shares of Common Stock required to
be issued and delivered upon conversion of Securities, prior to such issuance or
delivery, for quotation on the Nasdaq National Market or, if the Common Stock is
not then quoted on the Nasdaq National Market, list the Common Stock on each
national securities exchange or quotation system on which outstanding Common
Stock is listed or quoted at the time of such delivery.
Nothing in this Section will limit the application of Section 10.11.
SECTION 10.8 Statement by Officers as to Default. The Company shall deliver to
-----------------------------------
the Trustee, within 120 days after the end of each fiscal year of the Company
ending after the date hereof, an Officers' Certificate, stating whether or not
to the best knowledge of the signers thereof the Company is in default in the
performance and observance of any of the terms, provisions and conditions of
this Indenture (without regard to any period of grace or requirement of notice
provided hereunder) and, if the Company shall be in default, specifying all such
defaults and the nature and status thereof of which they may have knowledge.
The Company will deliver to the Trustee, forthwith upon becoming aware of
any default under this Indenture or any Event of Default, an Officers'
Certificate specifying with particularity such default or Event of Default and
further stating what action the Company has taken, is taking or proposes to take
with respect thereto. For the purpose of this Section, the term "default"
includes any event which is, or after notice or lapse of time or both would
become, an Event of Default.
Any notice required to be given under this Section 10.8 shall be delivered
to the Trustee at its Corporate Trust Office.
SECTION 10.9 Delivery of Certain Information. At any time when the Company is
-------------------------------
not subject to Section 13 or 15(d) of the Exchange Act, upon the request of a
Holder of a Restricted Security or the holder of shares of Common Stock issued
upon conversion thereof, the Company will promptly furnish or cause to be
furnished Rule 144A Information (as defined below) to such Holder of Restricted
Securities or such holder of shares of Common Stock issued upon conversion of
Restricted Securities, or to a prospective purchaser of any such security
designated by any such Holder or holder, as the case may be, to the extent
required to permit compliance by such Holder or holder with Rule 144A under the
Securities Act (or any successor provision thereto) in connection with the
resale of any such security; provided, however, that the Company shall not be
required to furnish such information in connection with any request made on or
after the date which is two years from the later of (i) the date such a security
(or any such predecessor security) was last acquired from the Company or (ii)
the date such a security (or any such predecessor security) was last acquired
from an "affiliate" of the Company within the meaning of Rule 144 under the
Securities Act (or any
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successor provision thereto). "Rule 144A Information" shall be such information
as is specified pursuant to Rule 144A(d)(4) under the Securities Act (or any
successor provision thereto).
SECTION 10.10 Resale of Certain Securities. During the period beginning on the
----------------------------
last date of original issuance of the Securities and ending on the date that is
two years from such date (or such shortened period under Rule 144(k) under the
Securities Act or any successor rule), the Company will not, and will use all
reasonable efforts to ensure that its "affiliates" (as defined under Rule 144
under the Securities Act or any successor provision thereto) do not, resell (i)
any Securities which constitute "restricted securities" under Rule 144 or (ii)
any securities into which the Securities have been converted under this
Indenture which constitute "restricted securities" under Rule 144, that in
either case have been reacquired by any of them. The Trustee shall have no
responsibility in respect of the Company's performance of its agreement in the
preceding sentence.
SECTION 10.11 Registration Rights. The Company agrees that the Holders from
-------------------
time to time of Registrable Securities (as defined below) are entitled to the
benefits of a Registration Rights Agreement. Pursuant to the Registration Rights
Agreement, the Company has agreed for the benefit of the holders from time to
time of the Registrable Securities that it will, at its expense, (i) within 90
days after the Issue Date (as defined below) of the Securities, file a shelf
registration statement (the "Shelf Registration Statement") with the Commission
with respect to resales of the Registrable Securities, (ii) use all reasonable
efforts to cause such Shelf Registration Statement to be declared effective by
the Commission within 180 days after the Issue Date of the Securities, provided,
however that the Company may, upon written notice to all the Holders, postpone
having the Shelf Registration Statement declared effective if the Company
possesses material non-public information, the disclosure of which would have a
material adverse effect on the Company and its subsidiaries taken as a whole and
(iii) use all reasonable efforts to maintain such Shelf Registration Statement
effective under the Securities Act until the second annual anniversary of the
date it is declared effective or such earlier date as is provided in the
Registration Rights Agreement (the "Effectiveness Period"). The Company will be
permitted to suspend the use of the prospectus which is a part of the Shelf
Registration Statement during certain periods of time as provided in the
Registration Rights Agreement.
If (i) on or prior to 90 days following the Issue Date of the Securities, a
Shelf Registration Statement has not been filed with the Commission, or (ii)
subject to the Company's right to postpone effectiveness as set forth in the
immediately preceding paragraph, on or prior to the 180th day following the
Issue Date of the Securities, such Shelf Registration Statement is not declared
effective (each, a "Registration Default"), additional interest ("Liquidated
Damages") will accrue on the Restricted Securities from and including the day
following such Registration Default to but excluding the day on which such
Registration Default has been cured. Liquidated Damages will be paid semi-
annually in arrears, with the first semi-annual payment due on the first
Interest Payment Date, as applicable, in respect of the Restricted Securities
following the date on which such
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Liquidated Damages begin to accrue, and will accrue at a rate per annum equal to
an additional one-quarter of one percent (0.25%) of the principal amount of the
Restricted Securities to and including the 90th day following such Registration
Default and at a rate per annum equal to one-half of one percent (0.50%) thereof
from and after the 91st day following such Registration Default. Pursuant to the
Registration Rights Agreement, in the event that the Shelf Registration
Statement ceases to be effective (or the Holders of Registrable Securities are
otherwise prevented or restricted by the Company from effecting sales pursuant
thereto) (an "Effective Failure") during the Effectiveness Period for more than
45 days, whether or not consecutive, during any 90 day period, or for more than
90 days, whether or not consecutive, during any 12-month period, then the
interest rate borne by the Restricted Securities shall increase by an additional
one-half of one percent (0.50%) per annum from the 46th day of the applicable 90
day period or the 91/st/ day of the applicable 12-month period, as the case may
be, until such time as the Effective Failure is cured.
Whenever in this Indenture there is mentioned, in any context, the payment
of the principal of, premium, if any, or interest on, or in respect of, any
Security, such mention shall be deemed to include mention of the payment of
Liquidated Damages provided for in this Section to the extent that, in such
context, Liquidated Damages are, were or would be payable in respect thereof
pursuant to the provisions of this Section and express mention of the payment of
Liquidated Damages (if applicable) in any provisions hereof shall not be
construed as excluding Liquidated Damages in those provisions hereof where such
express mention is not made.
For the purposes of the Registration Rights Agreement, "Registrable
Securities" means all or any portion of the Restricted Securities issued from
time to time under this Indenture and the shares of Common Stock issuable upon
conversion or repurchase of such Restricted Securities, except any such
Restricted Security or share of Common Stock issuable upon conversion or
repurchase thereof which (i) has been effectively registered under the
Securities Act and sold in a manner contemplated by the Shelf Registration
Statement, (ii) has been transferred in compliance with Rule 144 under the
Securities Act (or any successor provision thereto) or is transferable pursuant
to paragraph (k) of such Rule 144 (or any successor provision thereto) or (iii)
otherwise has been transferred and a new Security or share of Common Stock not
subject to transfer restrictions under the Securities Act has been delivered by
or on behalf of the Company in accordance with Section 3.5 of this Indenture.
If a Security, or the shares of Common Stock issuable upon conversion of a
Security, is a Registrable Security, and the Holder thereof elects to sell such
Registrable Security pursuant to the Shelf Registration Statement then, by its
acceptance thereof, the Holder of such Registrable Security will have agreed to
be bound by the terms of the Registration Rights Agreement relating to the
Registrable Securities which are the subject of such election.
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For the purposes of the Registration Rights Agreement, the term "Holder"
includes any Person that has a beneficial interest in any Restricted Global
Security or any beneficial interest in a global security representing shares of
Common Stock issuable upon conversion of a Security.
SECTION 10.12 Use of Proceeds. The Company shall use the net proceeds of the
---------------
sale of any Securities issued under this Indenture (other than the first $300.0
million of such 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 as may be permitted by the 1998
Indenture (as defined in Section 6.5 hereof). "Restricted Subsidiary" shall mean
any subsidiary of the Company that has not been designated an "Unrestricted
Subsidiary" pursuant to the 1998 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.
SECTION 10.13 Waiver of Certain Covenants. The Company may omit in any
---------------------------
particular instance to comply with any covenant or condition set forth in
Sections 10.4 (other than with respect to the existence of the Company (subject
to Article VII)), 10.5 and 10. 6, inclusive (other than a covenant or condition
which under Article VIII cannot be modified or amended without the consent of
the Holder of each Outstanding Security affected), if before the time for such
compliance the Holders shall, through the written consent of not less than a
majority in principal amount of the Outstanding Securities, or the adoption of a
resolution at a meeting of Holders of the Outstanding Securities at which a
quorum is present by 66-2/3% in principal amount of Outstanding Securities
represented and entitled to vote at such meeting, 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 Company and the duties of the Trustee or any
Paying or Conversion Agent in respect of any such covenant or condition shall
remain in full force and effect.
ARTICLE XI
REDEMPTION OF SECURITIES
SECTION 11.1 Right of Redemption.
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The Securities may be redeemed in accordance with the provisions of the
form of Securities set forth in Section 2.2.
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SECTION 11.2 Applicability of Article. Redemption of Securities at the
------------------------
election of the Company or otherwise, as permitted or required by any provision
of the Securities or this Indenture, shall be made in accordance with such
provision and this Article XI.
SECTION 11.3 Election to Redeem; Notice to Trustee. The election of the
-------------------------------------
Company to redeem any Securities shall be evidenced by a Board Resolution. In
case of any redemption at the election of the Company of any of the Securities,
the Company shall, at least 30 days prior to the Redemption Date fixed by the
Company (unless a shorter notice shall be satisfactory to the Trustee), notify
the Trustee in writing of such Redemption Date.
SECTION 11.4 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 by the Trustee within five Business Days after it receives the
notice described in 11.3, from the Outstanding Securities not previously called
for redemption, by lot or by such other method as the Trustee may deem fair and
appropriate.
If any Security selected for partial redemption is converted in part before
termination of the conversion right with respect to the portion of the Security
so selected, the converted portion of such Security shall be deemed (so far as
may be) to be the portion selected for redemption. Securities which have been
converted during a selection of Securities to be redeemed may be treated by the
Trustee as Outstanding for the purpose of such selection. The Trustee shall
promptly notify the Company 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 11.5 Notice of Redemption. Notice of redemption shall be given in the
--------------------
manner provided in Section 1.6 to the Holders of Securities to be redeemed not
less than 30 nor more than 60 days prior to the Redemption Date, and such notice
shall be irrevocable. Simultaneously with the giving of notice, the Company
shall issue a Press Release including all relevant information set forth in the
notice.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price, and accrued interest (including Liquidated
Damages, if any), if any, to the Redemption Date,
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(3) if less than all Outstanding Securities are to be redeemed, the
aggregate principal amount of Securities to be redeemed and the aggregate
principal amount of Securities which will be outstanding after such partial
redemption,
(4) that on the Redemption Date the Redemption Price, and accrued
interest (including Liquidated Damages, if any), if any, to the Redemption Date,
will become due and payable upon each such Security to be redeemed, and that
interest thereon shall cease to accrue on and after said date,
(5) the Conversion Rate, the date on which the right to convert the
Securities to be redeemed will terminate and the places where such Securities
may be surrendered for conversion, and
(6) the place or places where such Securities are to be surrendered
for payment of the Redemption Price and accrued interest (including Liquidated
Damages, if any), if any, to the Redemption Date.
In case of a partial redemption, the notice shall specify the serial and
CUSIP numbers (if any) and the portions thereof called for redemption and that
transfers and exchanges may occur on or prior to the Redemption Date.
Notice of redemption of Securities to be redeemed at the election of the
Company shall be given by the Company or, at the Company's written request, by
the Trustee in the name of and at the expense of the Company. Notice of
redemption of Securities to be redeemed at the election of the Company received
by the Trustee shall be given by the Trustee to each Paying Agent in the name of
and at the expense of the Company.
SECTION 11.6 Deposit of Redemption Price. On or prior to the Redemption Date,
---------------------------
the Company shall deposit with the Trustee (or, if the Company is acting as its
own Paying Agent, segregate and hold in trust as provided in Section 10.3) an
amount of money (which shall be in immediately available funds on such
Redemption Date) sufficient to pay the Redemption Price of, and (except if the
Redemption Date shall be an Interest Payment Date) accrued interest (including
Liquidated Damages, if any) to the Redemption Date on, all the Securities which
are to be redeemed on that date other than any Securities called for redemption
on that date which have been converted prior to the date of such deposit.
If any Security called for redemption is converted, any money deposited
with the Trustee or so segregated and held in trust for the redemption of such
Security shall (subject to any right of the Holder of such Security or any
Predecessor Security to receive interest as provided in the last paragraph of
Section 3.7) be paid to the Company on Company Request or, if then held by the
Company, shall be discharged from such trust.
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SECTION 11.7 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 after such date (unless the Company shall default in the
payment of the Redemption Price, including accrued interest) such Securities
shall cease to bear interest. Upon surrender of any Security for redemption in
accordance with said notice such Security shall be paid by the Company at the
Redemption Price together with accrued and unpaid interest (including Liquidated
Damages, if any) to the Redemption Date; provided, however, that installments of
interest on Securities 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 on the relevant Record Date according
to their terms and the provisions of Section 3.7.
If any Security called for redemption shall not be so paid upon surrender
thereof for redemption, the principal amount of, premium, if any, and, to the
extent permitted by applicable law, accrued interest on such Security shall,
until paid, bear interest from the Redemption Date at a rate of 6 3/4% per annum
and such Security shall remain convertible until the Redemption Price of such
Security (or portion thereof, as the case may be) shall have been paid or duly
provided for.
Any Security which is to be redeemed only in part shall be surrendered at
the Corporate Trust Office or an office or agency of the Company designated for
that purpose pursuant to Section 10.2 (with, if the Company or the Trustee so
requires, due endorsement by, or a written instrument of transfer in form
satisfactory to the Company and the Trustee duly executed by, the Holder thereof
or his attorney duly authorized in writing), and the Company shall execute, and
the Trustee shall authenticate and make available for delivery to the Holder of
such Security without service 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.
SECTION 11.8 Conversion Arrangement on Call for Redemption. In connection with
---------------------------------------------
any redemption of Securities, the Company may arrange for the purchase and
conversion of any Securities by an agreement with one or more investment bankers
or other purchasers (the "Purchasers") to purchase such securities by paying to
the Trustee in trust for the Holders, on or before the Redemption Date, an
amount not less than the applicable Redemption Price, together with interest
accrued to the Redemption Date, of such Securities. Notwithstanding anything to
the contrary contained in this Article XI, the obligation of the Company to pay
the Redemption Price, together with interest accrued to the Redemption Date,
shall be deemed to be satisfied and discharged to the extent such amount is so
paid by such Purchasers. If such an agreement is entered into (a copy of which
shall be filed with the Trustee prior to the close of business on the Business
Day immediately prior to the Redemption Date), any Securities called for
redemption that are not duly surrendered for conversion by the Holders thereof
may, at the option of the Company, be
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deemed, to the fullest extent permitted by law, and consistent with any
agreement or agreements with such Purchasers, to be acquired by such Purchasers
from such Holders and (notwithstanding anything to the contrary contained in
Article XII) surrendered by such Purchasers for conversion, all as of
immediately prior to the close of business on the Redemption Date (and the right
to convert any such Securities shall be extended through such time), subject to
payment of the above amount as aforesaid. At the direction of the Company, the
Trustee shall hold and dispose of any such amount paid to it by the Purchasers
to the Holders in the same manner as it would monies deposited with it by the
Company for the redemption of Securities. Without the Trustee's prior written
consent, no arrangement between the Company and such Purchasers for the purchase
and conversion of any Securities shall increase or otherwise affect any of the
powers, duties, responsibilities or obligations of the Trustee as set forth in
this Indenture, and the Company agrees to indemnify the Trustee from, and hold
it harmless against, any loss, liability or expense arising out of or in
connection with any such arrangement for the purchase and conversion of any
Securities between the Company and such Purchasers, including the costs and
expenses, including reasonable legal fees, incurred by the Trustee in the
defense of any claim or liability arising out of or in connection with the
exercise or performance of any of its powers, duties, responsibilities or
obligations under this Indenture.
ARTICLE XII
CONVERSION OF SECURITIES
SECTION 12.1 Conversion Privilege and Conversion Rate. Subject to and upon
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compliance with the provisions of this Article, at the option of the Holder
thereof, any Security may be converted into fully paid and nonassessable shares
(calculated as to each conversion to the nearest 1/100th of a share) of Common
Stock of the Company at the Conversion Rate, determined as hereinafter provided,
in effect at the time of conversion. Such conversion right shall commence on the
date the Securities are issued and expire at the close of business on the date
of Maturity, subject, in the case of conversion of any Global Security, to any
Applicable Procedures. In case a Security or portion thereof is called for
redemption at the election of the Company or the Holder thereof exercises his
right to require the Company to repurchase the Security, such conversion right
in respect of the Security, or portion thereof so called, shall expire at the
close of business on the Business Day next preceding such Redemption Date or the
Repurchase Date, as the case may be, unless the Company defaults in making the
payment due upon redemption or repurchase, as the case may be (in each case
subject as aforesaid to any Applicable Procedures with respect to any Global
Security).
The rate at which shares of Common Stock shall be delivered upon conversion
(herein called the "Conversion Rate") shall be initially 7.1017 shares of Common
Stock for each $1,000 principal amount of Securities. The Conversion Rate shall
be adjusted in certain instances as provided in this Article XII.
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SECTION 12.2 Exercise of Conversion Privilege. In order to exercise the
--------------------------------
conversion privilege, the Holder of any Security to be converted shall surrender
such Security, duly endorsed in blank, at any office or agency of the Company
maintained for that purpose pursuant to Section 10.2, accompanied by a duly
signed conversion notice substantially in the form set forth in Section 2.4
stating that the Holder elects to convert such Security or, if less than the
entire principal amount thereof is to be converted, the portion thereof to be
converted. Each Security surrendered for conversion (in whole or in part) during
the Record Date Period shall (except in the case of any Security or portion
thereof which has been called for redemption on a Redemption Date occurring
within the period beginning on such Regular Record Date and ending on the date
three Business Days after the next succeeding Interest Payment Date) be
accompanied by payment in New York Clearing House funds or other funds
acceptable to the Company of an amount equal to the interest payable on such
Interest Payment Date on the principal amount of such Security (or part thereof,
as the case may be) being surrendered for conversion. The interest so payable on
such Interest Payment Date with respect to any Security (or portion thereof, if
applicable) which is surrendered for conversion during the Record Date Period
shall be paid to the Holder of such Security as of such Regular Record Date in
an amount equal to the interest that would have been payable on such Security if
such Security had been converted as of the close of business on such Interest
Payment Date. Interest payable in respect of any Security surrendered for
conversion on or after an Interest Payment Date shall be paid to the Holder of
such Security as of the next preceding Regular Record Date, notwithstanding the
exercise of the right of conversion. Except as provided in this paragraph, no
cash payment or adjustment shall be made upon any conversion on account of any
interest accrued from the Interest Payment Date next preceding the conversion
date, in respect of any Security (or part thereof, as the case may be)
surrendered for conversion, or on account of any dividends on the Common Stock
issued upon conversion. The Company's delivery to the Holder of the number of
shares of Common Stock (and cash in lieu of fractions thereof, as provided in
this Indenture) into which a Security is convertible will be deemed to satisfy
the Company's obligation to pay the principal amount of the Security.
Securities shall be deemed to have been converted immediately prior to the
close of business on the day of surrender of such Securities for conversion in
accordance with the foregoing provisions, and at such time the rights of the
Holders of such Securities as Holders shall cease, and the Person or Persons
entitled to receive the Common Stock issuable upon conversion shall be treated
for all purposes as the record holder or holders of such Common Stock at such
time. As promptly as practicable on or after the conversion date, the Company
shall issue and deliver to the Trustee, for delivery to the Holder, a
certificate or certificates for the number of full shares of Common Stock
issuable upon conversion, together with payment in lieu of any fraction of a
share, as provided in Section 12.3.
All shares of Common Stock delivered upon such conversion of Restricted
Securities shall bear restrictive legends substantially in the form of the
legends required to be set forth on the
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Restricted Securities pursuant to Section 3.5 and shall be subject to the
restrictions on transfer provided in such legends. Neither the Trustee nor any
agent maintained for the purpose of such conversion shall have any
responsibility for the inclusion or content of any such restrictive legends on
such Common Stock; provided, however, that the Trustee or any agent maintained
for the purpose of such conversion shall have provided, to the Company or to the
Company's transfer agent for such Common Stock, prior to or concurrently with a
request to the Company to deliver such Common Stock, written notice that the
Securities delivered for conversion are Restricted Securities.
In the case of any Security which is converted in part only, upon such
conversion the Company shall execute and the Trustee shall authenticate and
deliver to the Holder thereof, at the expense of the Company, a new Security or
Securities of authorized denominations in an aggregate principal amount equal to
the unconverted portion of the principal amount of such Security. A Security may
be converted in part, but only if the principal amount of such Security to be
converted is any integral multiple of $1,000 and the principal amount of such
security to remain Outstanding after such conversion is equal to $1,000 or any
integral multiple of $1,000 in excess thereof.
If shares of Common Stock to be issued upon conversion of a Restricted
Security, or Securities to be issued upon conversion of a Restricted Security in
part only, are to be registered in a name other than that of the beneficial
owner of such Restricted Security, then such Holder must deliver to the
Conversion Agent a Surrender Certificate, dated the date of surrender of such
Restricted Security and signed by such beneficial owner, as to compliance with
the restrictions on transfer applicable to such Restricted Security. Neither the
Trustee nor any Conversion Agent, Registrar or Transfer Agent shall be required
to register in a name other than that of the beneficial owner, shares of Common
Stock or Securities issued upon conversion of any such Restricted Security not
so accompanied by a properly completed Surrender Certificate.
SECTION 12.3 Fractions of Shares.
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No fractional shares of Common Stock shall be issued upon conversion of any
Security or Securities. If more than one Security shall be surrendered for
conversion at one time by the same Holder, the number of full shares which shall
be issuable upon conversion thereof shall be computed on the basis of the
aggregate principal amount of the Securities (or specified portions thereof) so
surrendered. Instead of any fractional share of Common Stock which would
otherwise be issuable upon conversion of any Security or Securities (or
specified portions thereof), the Company shall calculate and pay a cash
adjustment in respect of such fraction (calculated to the nearest 1/100th of a
share) in an amount equal to the same fraction of the Closing Price Per Share at
the close of business on the day of conversion.
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SECTION 12.4 Adjustment of Conversion Rate. The Conversion Rate shall be
-----------------------------
subject to adjustments from time to time as follows:
(1) In case the Company shall pay or make a dividend or other
distribution on shares of any class of Common Stock payable in shares of Common
Stock (including the Announced Split (as hereinafter defined)), the Conversion
Rate in effect at the opening of business on the day following the date fixed
for the determination of shareholders entitled to receive such dividend or other
distribution (except in the case of the Announced Split which shall be at the
opening of business on December 14, 1999) shall be increased by dividing such
Conversion Rate by a fraction of which the numerator shall be the number of
shares of Common Stock outstanding at the close of business on the date fixed
for such determination and the denominator shall be the sum of such number of
shares and the total number of shares constituting such dividend or other
distribution, such increase to become effective immediately after the opening of
business on the day following the date fixed for such determination. If, after
any such date fixed for determination, any dividend or distribution is not in
fact paid, the Conversion Rate shall be immediately readjusted, effective as of
the date the Board of Directors determines not to pay such dividend or
distribution, to the Conversion Rate that would have been in effect if such
determination date had not been fixed. For the purposes of this paragraph (1),
the number of shares of Common Stock at any time outstanding shall not include
shares held in the treasury of the Company but shall include shares issuable in
respect of scrip certificates issued in lieu of fractions of shares of Common
Stock. The Company will not pay any dividend or make any distribution on shares
of Common Stock held in the treasury of the Company. The "Announced Split" shall
be the two-for-one stock split in the form of a stock dividend announced by the
Company on November 19, 1999, payable December 14, 1999 to holders of Common
Stock of the Company of record as of November 30, 1999.
(2) In case the Company shall issue rights, options or warrants to
all holders of its Common Stock entitling them to subscribe for or purchase
shares of Common Stock at a price per share less than the current market price
per share (determined as provided in paragraph (8) of this Section 12.4) of the
Common Stock on the date fixed for the determination of stockholders entitled to
receive such rights, options or warrants (other than any rights, options or
warrants that by their terms will also be issued to any Holder upon conversion
of a Security into shares of Common Stock without any action required by the
Company or any other Person), the Conversion Rate in effect at the opening of
business on the day following the date fixed for such determination shall be
increased by dividing such Conversion Rate by a fraction of which the numerator
shall be the number of shares of Common Stock outstanding at the close of
business on the date fixed for such determination plus the number of shares of
Common Stock which the aggregate of the offering price of the total number of
shares of Common Stock so offered for subscription or purchase would purchase at
such current market price and the denominator shall be the number of shares of
Common Stock outstanding at the close of business on the date fixed for such
determination plus the number of shares of Common Stock so offered for
subscription or purchase, such increase to become effective immediately after
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the opening of business on the day following the date fixed for such
determination. If, after any such date fixed for determination, any such rights,
options or warrants are not in fact issued, or are not exercised prior to the
expiration thereof, the Conversion Rate shall be immediately readjusted,
effective as of the date such rights, options or warrants expire, or the date
the Board of Directors determines not to issue such rights, options or warrants,
to the Conversion Rate that would have been in effect if the unexercised rights,
options or warrants had never been granted or such determination date had not
been fixed, as the case may be. For the purposes of this paragraph (2), the
number of shares of Common Stock at any time outstanding shall not include
shares held in the treasury of the Company but shall include shares issuable in
respect of scrip certificates issued in lieu of fractions of shares of Common
Stock. The Company will not issue any rights, options or warrants in respect of
shares of Common Stock held in the treasury of the Company.
(3) In case outstanding shares of Common Stock shall be subdivided
into a greater number of shares of Common Stock, the Conversion Rate in effect
at the opening of business on the day following the day upon which such
subdivision becomes effective shall be proportionately increased, and,
conversely, in case outstanding shares of Common Stock shall be combined into a
smaller number of shares of Common Stock, the Conversion Rate in effect at the
opening of business on the day following the day upon which such subdivision or
combination becomes effective shall be proportionately reduced, such increase or
reduction, as the case may be, to become effective immediately after the opening
of business on the day following the day upon which such subdivision or
combination becomes effective.
(4) In case the Company shall, by dividend or otherwise, distribute
to all holders of its Common Stock evidences of its indebtedness, shares of any
class of capital stock or other assets (including securities, but excluding (i)
any rights, options or warrants referred to in paragraph (2) of this Section,
(ii) any dividend or distribution paid exclusively in cash, (iii) any dividend
or distribution referred to in paragraph (1) of this Section and (iv) mergers or
consolidations to which Section 12.11 applies), the Conversion Rate shall be
adjusted so that the same shall equal the rate determined by dividing the
Conversion Rate in effect immediately prior to the close of business on the date
fixed for the determination of stockholders entitled to receive such
distribution by a fraction of which the numerator shall be the current market
price per share (determined as provided in paragraph (8) of this Section 12.4)
of the Common Stock on the date fixed for such determination less the then fair
market value (as determined by the Board of directors, whose determination shall
be conclusive and described in a Board Resolution filed with the Trustee) of the
portion of the assets, shares or evidences of indebtedness so distributed
applicable to one share of Common Stock and the denominator shall be such
current market price per share of the Common Stock, such adjustment to become
effective immediately prior to the opening of business on the day following the
date fixed for the determination of stockholders entitled to receive such
distribution. If after any such date fixed for determination, any such
distribution is not in fact made, the Conversion Rate shall be immediately
readjusted, effective as of the date of the Board of Directors determines not to
make
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such distribution, to the Conversion Rate that would have been in effect if such
determination date had not been fixed.
(5) In case the Company shall, by dividend or otherwise, distribute
to all holders of its Common Stock cash (excluding any cash that is distributed
as part of a distribution referred to in paragraph (4) of this Section or cash
distributed upon a merger or consolidation to which Section 12.11 applies) in an
aggregate amount that, combined together with (I) the aggregate amount of any
other all-cash distributions to all holders of its Common Stock made exclusively
in cash within the 12 months preceding the date of payment of such distribution
and in respect of which no adjustment pursuant to this paragraph (5) has been
made and (II) the aggregate of any cash plus the fair market value (as
determined by the Board of Directors, whose determination shall be conclusive
and described in a Board Resolution) of other consideration payable in respect
of any tender offer by the Company or any of its Subsidiaries for all or any
portion of the Common Stock concluded within the 12 months preceding the date of
payment of such distribution and in respect of which no adjustment pursuant to
paragraph (6) of this Section 12.4 has been made (the "combined cash and tender
amount") exceeds 10% of the product of the current market price per share
(determined as provided in paragraph (8) of this Section 12.4) of the Common
Stock on the date for the determination of holders of shares of Common Stock
entitled to receive such distribution times the number of shares of Common Stock
outstanding on such date (the "aggregate current market price"), then, and in
each such case, immediately after the close of business on such date for
determination, the Conversion Rate shall be adjusted so that the same shall
equal the rate determined by dividing the Conversion Rate in effect immediately
prior to the close of business on the date fixed for determination of the
stockholders entitled to receive such distribution by a fraction (i) the
numerator of which shall be equal to the current market price per share
(determined as provided in paragraph (8) of this Section) of the Common Stock on
the date fixed for such determination less an amount equal to the quotient of
(x) the excess of such combined cash and tender amount over such aggregate
current market price divided by (y) the number of shares of Common Stock
outstanding on such date for determination and (ii) the denominator of which
shall be equal to the current market price per share (determined as provided in
paragraph (8) of this Section 12.4) of the Common Stock on such date fixed for
determination.
(6) In case a tender offer made by the Company or any Subsidiary for
all or any portion of the Common Stock shall expire and such tender offer (as
amended upon the expiration thereof) shall require the payment to stockholders
(based on the acceptance (up to any maximum specified in the terms of the tender
offer) of Purchased Shares (as defined below)) of an aggregate consideration
having a fair market value (as determined by the Board of Directors, whose
determination shall be conclusive and described in a Board Resolution) that
combined together with (I) the aggregate of the cash plus the fair market value
(as determined by the Board of Directors, whose determination shall be
conclusive and described in a Board Resolution), as of the expiration of such
tender offer, of consideration payable in respect of any other tender offer by
the Company or
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any Subsidiary for all or any portion of the Common Stock expiring within the 12
months preceding the expiration of such tender offer and in respect of which no
adjustment pursuant to this paragraph (6) has been made and (II) the aggregate
amount of any cash distributions to all holders of the Common Stock within 12
months preceding the expiration of such tender offer and in respect of which no
adjustment pursuant to paragraph (5) of this Section has been made (the
"combined tender and cash amount") exceeds 10% of the product of the current
market price per share of the Common Stock (determined as provided in paragraph
(8) of this Section 12.4) as of the last time (the "Expiration Time") tenders
could have been made pursuant to such tender offer (as it may be amended) times
the number of shares of Common Stock outstanding (including any tendered shares)
as of the Expiration Time, then, and in each such case immediately prior to the
opening of business on the day after the date of the Expiration Time, the
Conversion Rate shall be adjusted so that the same shall equal the rate
determined by dividing the Conversion Rate immediately prior to close of
business on the date of the Expiration Time by a fraction (i) the numerator of
which shall be equal to (A) the product of (I) the current market price per
share of the Common Stock (determined as provided in paragraph (8) of this
Section 12.4) on the date of the Expiration Time multiplied by (II) the number
of shares of Common Stock outstanding (including any tendered shares) on the
Expiration Time less (B) the combined tender and cash amount, and (ii) the
denominator of which shall be equal to the product of (A) the current market
price per share of the Common Stock (determined as provided in paragraph (8) of
this Section 12.4) as of the Expiration Time multiplied by (B) the number of
shares of Common Stock outstanding (including any tendered shares) as of the
Expiration Time less the number of all shares validly tendered and not withdrawn
as of the Expiration Time (the shares deemed so accepted up to any such maximum,
being referred to as the "Purchased Shares").
(7) The reclassification of Common Stock into securities other than
Common Stock (other than any reclassification upon a consolidation or merger to
which Section 12.11 applies) shall be deemed to involve (a) a distribution of
such securities other than Common Stock to all holders of Common Stock (and the
effective date of such reclassification shall be deemed to be "the date fixed
for the determination of stockholders entitled to receive such distribution" and
"the date fixed for such determination" within the meaning of paragraph (4) of
this Section), and (b) a subdivision or combination, as the case may be, of the
number of shares of Common Stock outstanding immediately prior to such
reclassification into the number of shares of Common Stock outstanding
immediately thereafter (and the effective date of such reclassification shall be
deemed to be "the day upon which such subdivision becomes effective" or "the day
upon which such combination becomes effective", as the case may be, and "the day
upon which such subdivision or combination becomes effective" within the meaning
of paragraph (3) of this Section 12.4).
(8) For the purpose of any computation under paragraphs (2), (4), (5)
or (6) of this Section 12.4, the current market price per share of Common Stock
on any date shall be calculated by the Company and be the average of the daily
Closing Prices Per Share for the five consecutive
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Trading Days selected by the Company commencing not more than 10 Trading Days
before, and ending not later than the earlier of the day in question and the day
before the "ex" date with respect to the issuance or distribution requiring such
computation. For purposes of this paragraph, the term "'ex' date", when used
with respect to any issuance or distribution, means the first date on which the
Common Stock trades regular way in the applicable securities market or on the
applicable securities exchange without the right to receive such issuance or
distribution.
(9) No adjustment in the Conversion Rate shall be required unless
such adjustment (plus any adjustments not previously made by reason of this
paragraph (9)) would require an increase or decrease of at least one percent in
such rate; provided, however, that any adjustments which by reason of this
paragraph (9) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment. All calculations under this Article
shall be made to the nearest cent or to the nearest one-hundredth of a share, as
the case may be.
(10) The Company may make such increases in the Conversion Rate, for
the remaining term of the Securities or any shorter term, in addition to those
required by paragraphs (1), (2), (3), (4), (5) and (6) of this Section 12.4, as
it considers to be advisable in order to avoid or diminish any income tax to any
holders of shares of Common Stock resulting from any dividend or distribution of
stock or issuance of rights or warrants to purchase or subscribe for stock or
from any event treated as such for income tax purposes. The Company shall have
the power to resolve any ambiguity or correct any error in this paragraph (10)
and its actions in so doing shall, absent manifest error, be final and
conclusive.
(11) Notwithstanding the foregoing provisions of this Section, no
adjustment of the Conversion Rate shall be required to be made (a) upon the
issuance of shares of Common Stock pursuant to any present or future plan for
the reinvestment of dividends or (b) because of a tender or exchange offer of
the character described in Rule 13e-4(h)(5) under the Exchange Act or any
successor rule thereto.
(12) To the extent permitted by applicable law, the Company from time
to time may increase the Conversion Rate by any amount for any period of time if
the period is at least twenty (20) days, the increase is irrevocable during such
period, and the Board of Directors shall have made a determination that such
increase would be in the best interests of the Company, which determination
shall be conclusive; provided, however, that no such increase shall be taken
into account for purposes of determining (i) whether the Closing Price Per Share
of the Common Stock equals or exceeds 105% of the Conversion Price in connection
with an event which would otherwise be a Change of Control pursuant to Section
14.4, or (ii) whether the Closing Price Per Share of the Common Stock exceeds
140% of the Conversion Price in connection with redemption of the Securities in
accordance with the provisions of the form of Securities set forth in Section
2.2 hereof. Whenever the Conversion Rate is increased pursuant to the preceding
sentence, the Company shall
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give notice of the increase to the Holders in the manner provided in Section 1.6
at least fifteen (15) days prior to the date the increased Conversion Rate takes
effect, and such notice shall state the increased Conversion Rate and the period
during which it will be in effect.
SECTION 12.5 Notice of Adjustments of Conversion Rate. Whenever the Conversion
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Rate is adjusted as herein provided:
(1) the Company shall compute the adjusted Conversion Rate in
accordance with Section 12.4 and shall prepare a certificate signed by the Chief
Financial Officer of the Company setting forth the adjusted Conversion Rate and
showing in reasonable detail the facts upon which such adjustment is based, and
such certificate shall promptly be filed with the Trustee and with each
Conversion Agent; and
(2) upon each such adjustment, a notice stating that the Conversion
Rate has been adjusted and setting forth the adjusted Conversion Rate shall be
required, and as soon as practicable after it is required, such notice shall be
provided by the Company to all Holders in accordance with Section 1.6.
Neither the Trustee nor any Conversion Agent shall be under any duty or
responsibility with respect to any such certificate or the information and
calculations contained therein, except to exhibit the same to any Holder of
Securities desiring inspection thereof at its office during normal business
hours, and shall not be deemed to have knowledge of any adjustment in the
Conversion Rate unless and until a Responsible Officer of the Trustee shall have
received such a certificate. Until a Responsible Officer of the Trustee
receives such a certificate, the Trustee and each Conversion Agent may assume
without inquiry that the last Conversion Rate of which the Trustee has knowledge
of remains in effect.
SECTION 12.6 Notice of Certain Corporate Action. In case:
----------------------------------
(1) the Company shall declare a dividend (or any other distribution)
on its Common Stock payable (i) otherwise than exclusively in cash or (ii)
exclusively in cash in an amount that would require any adjustment pursuant to
Section 12.4; or
(2) the Company shall authorize the granting to all or substantially
all of the holders of its Common Stock of rights, options or warrants to
subscribe for or purchase any shares of capital stock of any class or of any
other rights that would require any adjustment pursuant to Section 12.4; or
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(3) of any reclassification of the Common Stock, or of any
consolidation, merger or share exchange to which the Company is a party and for
which approval of any stockholders of the Company is required, or of the
conveyance, sale, transfer or lease of all or substantially all of the assets of
the Company; or
(4) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company;
Then the Company shall cause to be filed at each office or agency
maintained for the purpose of conversion of Securities pursuant to Section 10.2,
and shall cause to be provided to all Holders in accordance with Section 1.6, at
least 20 days (or 10 days in any case specified in clause (1) or (2) above)
prior to the applicable record or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution, rights, options or warrants, or, if a record is not to
be taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distribution, rights, options or warrants are to be
determined or (y) the date on which such reclassification, consolidation,
merger, conveyance, transfer, sale, lease, dissolution, liquidation or winding
up is expected to become effective, and the date as of which it is expected that
holders of Common Stock of record shall be entitled to exchange their shares of
Common Stock for securities, cash or other property deliverable upon such
reclassification, consolidation, merger, conveyance, transfer, sale, lease,
dissolution, liquidation or winding up. Neither the failure to give such notice
or the notice referred to in the following paragraph nor any defect therein
shall affect the legality or validity of the proceedings described in clauses
(1) through (4) of this Section 12.6. If at the time the Trustee shall not be
the conversion agent, a copy of such notice shall also forthwith be filed by the
Company with the Trustee.
The Company shall cause to be filed at the Corporate Trust Office and each
office or agency maintained for the purpose of conversion of Securities pursuant
to Section 10.2, and shall cause to be provided to all Holders in accordance
with Section 1.6, notice of any tender offer by the Company or any Subsidiary
for all or any portion of the Common Stock at or about the time that such notice
of tender offer is provided to the public generally.
SECTION 12.7 Company to Reserve Common Stock. The Company shall at all times
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reserve and keep available, free from preemptive rights, out of its authorized
but unissued Common Stock, for the purpose of effecting the conversion of
Securities, the full number of shares of Common Stock then issuable upon the
conversion of all Outstanding Securities.
SECTION 12.8 Taxes on Conversions. Except as provided in the next sentence,
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the Company will pay any and all taxes and duties that may be payable in respect
of the issue or delivery of shares of Common Stock on conversion of Securities
pursuant hereto. The Company shall not, however, be required to pay any tax or
duty which may be payable in respect of any transfer involved in the issue and
delivery of shares of Common Stock in a name other than that of the Holder of
the Security or
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Securities to converted, and no such issue or delivery shall be made unless and
until the Person requesting such issue has paid to the Company the amount of any
such tax or duty, or has established to the satisfaction of the Company that
such tax or duty has been paid.
SECTION 12.9 Covenant as to Common Stock. The Company agrees that all shares
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of Common Stock which may be delivered upon conversion of Securities, upon such
delivery, will have been duly authorized and validly issued and will be fully
paid and nonassessable and, except as provided in Section 12.8, the Company will
pay all taxes, liens and charges with respect to the issue thereof.
SECTION 12.10 Cancellation of Converted Securities. All Securities delivered
------------------------------------
for conversion shall be delivered to the Trustee or its agent to be canceled by
or at the direction of the Trustee, which shall dispose of the same as provided
in Section 3.9.
SECTION 12.11 Provision in Case of Consolidation, Merger or Sale of Assets. In
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case of any consolidation or merger of the Company with or into any other
Person, any merger of another Person with or into the Company (other than a
merger which does not result in any reclassification, conversion, exchange or
cancellation of outstanding shares of Common Stock of the Company) or any
conveyance, sale, transfer or lease of all or substantially all of the assets of
the Company, the Person formed by such consolidation or resulting from such
merger or which acquires such assets, as the case may be, shall execute and
deliver to the Trustee a supplemental indenture providing that the Holder of
each Security then Outstanding shall have the right thereafter, during the
period such Security shall be convertible as specified in Section 12.1, to
convert such Security only into the kind and amount of securities, cash and
other property receivable upon such consolidation, merger, conveyance, sale,
transfer or lease by a holder of the number of shares of Common Stock of the
Company into which such Security might have been converted immediately prior to
such consolidation, merger, conveyance, sale, transfer or lease, assuming such
holder of Common Stock of the Company (i) is not (A) a Person with which the
Company consolidated or merged with or into or which merged into or with the
Company or to which such conveyance, sale, transfer or lease was made, as the
case may be (a "Constituent Person"), or (B) an Affiliate of a Constituent
Person and (ii) failed to exercise his rights of election, if any, as to the
kind or amount of securities, cash and other property receivable upon such
consolidation, merger, conveyance, sale, transfer or lease (provided that if the
kind or amount of securities, cash and other property receivable upon such
consolidation, merger, conveyance, sale, transfer, or lease is not the same for
each share of Common Stock of the Company held immediately prior to such
consolidation, merger, conveyance, sale, transfer or lease by others than a
Constituent Person or an Affiliate thereof and in respect of which such rights
of election shall not have been exercised ("Non-electing Share"), then for the
purpose of this Section 12.11 the kind and amount of securities, cash and other
property receivable upon such consolidation, merger, conveyance, sale, transfer
or lease by the holders of each Non-electing Share shall be deemed to be the
kind and amount so receivable per share by a plurality of the Non-electing
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Shares). Such supplemental indenture shall provide for adjustments which, for
events subsequent to the effective date of such supplemental indenture, shall be
as nearly equivalent as may be practicable to the adjustments provided for in
this Article. The above provisions of this Section 12.11 shall similarly apply
to successive consolidations, mergers, conveyances, sales, transfers or leases.
Notice of the execution of such a supplemental indenture shall be given by the
Company to the Holder of each Security as provided in Section 1.6 promptly upon
such execution.
Neither the Trustee nor any Conversion Agent shall be under any
responsibility to determine the correctness of any provisions contained in any
such supplemental indenture relating either to the kind or amount of shares of
stock or other securities or property or cash receivable by Holders of
Securities upon the conversion of their Securities after any such consolidation,
merger, conveyance, transfer, sale or lease or to any such adjustment, but may
accept as conclusive evidence of the correctness of any such provisions, and
shall be protected in relying upon, an Opinion of Counsel with respect thereto,
which the Company shall cause to be furnished to the Trustee upon request.
SECTION 12.12 Rights Issued in Respect of Common Stock. Rights or warrants
----------------------------------------
distributed by the Company to all holders of Common Stock entitling the holders
thereof to subscribe for or purchase shares of the Company's capital stock
(either initially or under certain circumstances), which rights or warrants,
until the occurrence of a specified event or events ("Trigger Event"):
(1) are deemed to be transferred with such shares of Common Stock,
(2) are not exercisable, and
(3) are also issued in respect of future issuances of Common Stock
shall not be deemed distributed for purposes of Section 12.4(2) until the
occurrence of the earliest Trigger Event, whereupon such rights and warrants
shall be deemed to have been distributed and an appropriate adjustment (if any
is required) to the Conversion Price shall be made under this Section 12.4(4).
If any such right or warrant, including any such existing rights or warrants
distributed prior to the date of this Indenture, are subject to events, upon the
occurrence of which such rights or warrants become exercisable to purchase
different securities, evidences of indebtedness or other assets or different
amounts of any of the foregoing, or both, then the date of the occurrence of any
such event shall be deemed to be the date of distribution and record date with
respect to new rights or warrants with such rights (and a termination or
expiration of the existing rights or warrants without exercise by any of the
holders thereof). In addition, in the event of any distribution of rights or
warrants, or any Trigger Event with respect thereto, that shall have resulted in
an adjustment to the Conversion Rate under Section 12.4(2), (1) in the case of
any such rights or warrants which shall all have been redeemed or repurchased
without exercise by any holders thereof, the Conversion Rate shall be readjusted
upon such final redemption or repurchase to give effect to such distribution or
Trigger Event, as the case may be, as though it were a cash distribution, equal
to the per share
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redemption or repurchase price received by a holder of Common Stock with respect
to such rights or warrants (assuming such holder had retained such rights or
warrants), made to all holders of Common Stock as of the date of such redemption
or repurchase, and (2) in the case of any such rights or warrants all of which
shall have expired without exercise by any holder thereof, the Conversion Price
shall be readjusted as if such issuance had not occurred.
SECTION 12.13 Responsibility of Trustee for Conversion Provisions. The
---------------------------------------------------
Trustee, subject to the provisions of Section 6.1, and any Conversion Agent
shall not at any time be under any duty or responsibility to any Holder of
Securities to determine whether any facts exist which may require any adjustment
of the Conversion Rate, or with respect to the nature or extent of any such
adjustment when made, or with respect to the method employed, herein or in any
supplemental indenture provided to be employed, in making the same, or whether a
supplemental indenture need be entered into. Neither the Trustee, subject to the
provisions of Section 6.1, nor any Conversion Agent shall be accountable with
respect to the validity or value (or the kind or amount) of any Common Stock, or
of any other securities or property or cash, which may at any time be issued or
delivered upon the conversion of any Security; and it or they do not make any
representation with respect thereto. Neither the Trustee, subject to the
provisions of Section 6.1, nor any Conversion Agent shall be responsible for any
failure of the Company to make or calculate any cash payment or to issue,
transfer or deliver any shares of Common Stock or share certificates or other
securities or property or cash upon the surrender of any Security for the
purpose of conversion; and the Trustee, subject to the provisions of Section
6.1, and any Conversion Agent shall not be responsible for any failure of the
Company to comply with any of the covenants of the Company contained in this
Article.
ARTICLE XIII
SUBORDINATION OF SECURITIES
SECTION 13.1 Securities Subordinate to Senior Indebtedness. The Company
---------------------------------------------
covenants and agrees, and each Holder of a Security, by its acceptance thereof,
likewise covenants and agrees, that, to the extent and in the manner hereinafter
set forth in this Article (subject to the provisions of Article IV), the
indebtedness represented by the Securities and the payment of the principal of,
or premium, if any, or interest (including Liquidated Damages, if any) on, each
and all of the Securities (including, but not limited to, the Redemption Price
with respect to the Securities to be called for redemption in accordance with
Article XI or the Repurchase Price with respect to Securities submitted for
repurchase in accordance with Article XIV), are hereby expressly made
subordinate and subject in right of payment to the prior payment in full of all
Senior Indebtedness.
SECTION 13.2 No Payment in Certain Circumstances, Payment over of Proceeds upon
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Dissolution, Etc. No payment shall be made with respect to the
----------------
principal of, or
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premium, if any, or interest (including Liquidated Damages, if any) on the
Securities (including, but not limited to, the Redemption Price with respect to
the Securities to be called for redemption in accordance with Article XI or the
Repurchase Price with respect to Securities submitted for repurchase in
accordance with Article XIV), except payments and distributions made by the
Trustee as permitted by Section 13.9, if:
(1) a default in the payment of principal, premium, if any, or
interest (including a default under any repurchase or redemption obligation) or
other amounts with respect to any Designated Senior Debt occurs and is
continuing (or, in the case of Designated Senior Debt for which there is a
period of grace, in the event of such a default that continues beyond the period
of grace, if any, specified in the instrument or lease evidencing such
Designated Senior Debt) unless and until such default shall have been cured or
waived or shall have ceased to exist; or
(2) any other event of default occurs and is continuing with respect
to Designated Senior Debt that then permits holders of such Designated Senior
default (a "Payment Blockage Notice") from a Representative or holder of
Designated Senior Debt or the Company.
If the Trustee receives any Payment Blockage Notice pursuant to clause (ii)
above, no subsequent Payment Blockage Notice shall be effective for purposes of
this Section unless and until (A) at least 365 days shall have elapsed since the
initial effectiveness of the immediately prior Payment Blockage Notice, and (B)
all scheduled payments of principal, premium, if any, and interest on the
Securities that have come due have been paid in full in cash. No nonpayment
default that existed or was continuing on the date of delivery of any Payment
Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent
Payment Blockage Notice.
The Company may and shall resume payments on and distributions in respect
of the Securities upon the earlier of:
(3) in the case of a default referred to in clause (i) above, the
date upon which the default is cured or waived or ceases to exist, or
(4) in the case of a default referred to in clause (ii) above, the
date upon which the default is cured or waived or ceases to exist or 179 days
pass after notice is received if the maturity of such Designated Senior Debt has
not been accelerated.
Unless this Article XIII otherwise prohibits the payment or distribution at
the time of such payment or distribution.
In the event of (a) any insolvency or bankruptcy case or proceeding, or any
receivership, liquidation, reorganization or other similar case or proceeding in
connection therewith, relative to the
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Company or to its creditors, as such, or to its assets, or (b) any liquidation,
dissolution or other winding up of the Company, whether voluntary or involuntary
and whether or not involving insolvency or bankruptcy, or (c) any assignment for
the benefit of creditors or any other marshaling of assets and liabilities of
the Company, then and in any such event the holders of Senior Indebtedness shall
be entitled to receive payment in full of all amounts due or to become due on or
in respect of all Senior Indebtedness in cash before the Holders of the
Securities are entitled to receive any payment on account of principal of (or
premium, if any) or interest (including any Liquidated Damages) on the
Securities or on account of the purchase, redemption or other acquisition of
Securities, and to that end the holders of Senior Indebtedness shall be entitled
to receive, for application to the payment thereof, any payment or distribution
of any kind or character, whether in cash, property or securities, which may be
payable or deliverable in respect of the Securities in any such case,
proceeding, dissolution, liquidation or other winding up or event.
In the event that, notwithstanding the foregoing provisions of this
Section, the Trustee or the Holder of any Security shall have received any
payment or distribution of assets of the Company of any kind or character,
whether in cash, securities or other property, before all Senior Indebtedness is
paid in full, and if such fact shall, at or prior to the time of such payment or
distribution, have been made known to the Trustee or, as the case may be, such
Holder, then and in such event such payment or distribution shall be paid over
or delivered forthwith to the trustee in bankruptcy, receiver, liquidating
trustee, custodian, assignee, agent or other Person making payment or
distribution of assets of the Company for application to the payment of all
Senior Indebtedness remaining unpaid, to the extent necessary to pay all Senior
Indebtedness in full, after giving effect to any concurrent payment or
distribution to or for the holders of Senior Indebtedness.
For purposes of this Article only, the words "cash, property or securities"
shall not be deemed to include shares of capital stock of the Company as
reorganized or readjusted, or securities of the Company or any other corporation
provided for by a plan of reorganization or readjustment, which shares of stock
or securities are subordinated in right of payment to all then outstanding
Senior Indebtedness to substantially the same extent as, or to a greater extent
than, the Securities are so subordinated as provided in this Article. The
consolidation of the Company with, or the merger of the Company into, another
Person or the liquidation or dissolution of the Company following the conveyance
or transfer of its properties and assets substantially as an entirety to another
Person upon the terms and conditions set forth in Article VII shall not be
deemed a dissolution, winding up, liquidation, reorganization, assignment for
the benefit of creditors or marshaling of assets and liabilities of the Company
for the purposes of this Section if the Person formed by such consolidation or
into which the Company is merged or which acquires by conveyance or transfer
such properties and assets substantially as an entirety, as the case may be,
shall, as a part of such consolidation, merger, conveyance or transfer, comply
with the conditions set forth in Article VII.
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In the event that, notwithstanding the foregoing, the Company shall make
any payment to the Trustee or the Holder of any Security prohibited by the
foregoing provisions of this Section, and if such fact shall, at or prior to the
time of such payment, have been made known to the Trustee or, as the case may
be, such Holder, then and in such event such payment shall be paid over and
delivered forthwith to the Company, in the case of the Trustee, or the Trustee,
in the case of such Holder.
SECTION 13.3 Prior Payment to Senior Indebtedness upon Acceleration of
---------------------------------------------------------
Securities. In the event of the acceleration of the Securities because of an
- ----------
Event of Default, no payment or distribution shall be made to the Trustee or any
holder of Securities in respect of the principal of, premium, if any, or
interest (including Liquidated Damages, if any) on the Securities (including,
but not limited to, the Redemption Price with respect to the Securities called
for redemption in accordance with Article XI or the Repurchase Price with
respect to the Securities submitted for repurchase in accordance with Article
XIV), except payments and distributions made by the Trustee as permitted by
Section 13.9, until all Senior Indebtedness has been paid in full in cash or
other payment satisfactory to the holders of Senior Indebtedness or such
acceleration is rescinded in accordance with the terms of this Indenture. If
payment of the Securities is accelerated because of an Event of Default, the
Company shall promptly notify holders of Senior Indebtedness of the
acceleration.
In the event that, notwithstanding the foregoing, the Company shall make
any payment to the Trustee or the Holder of any Security prohibited by the
foregoing provisions of this Section, and if such fact shall, at or prior to the
time of such payment, have been made known to the Trustee or, as the case may
be, such Holder, then and in such event such payment shall be paid over and
delivered forthwith to the Company, in the case of the Trustee, or the Trustee,
in the case of such Holder.
SECTION 13.4 Payment Permitted If No Default. Nothing contained in this Article
-------------------------------
or elsewhere in this Indenture or in any of the Securities shall prevent (a) the
Company, at any time except during the pendency of any case, proceeding,
dissolution, liquidation or other winding up, assignment for the benefit of
creditors or other marshaling of assets and liabilities of the Company referred
to in Section 13.2, or during the circumstances referred to in the first
paragraph of Section 13.2, or under the conditions described in Section 13.3,
from making payments at any time of principal of (and premium, if any) or
interest on the Securities, or (b) the application by the Trustee of any money
deposited with it hereunder to the payment of or on account of the principal of
(and premium, if any) or interest on the Securities or the retention of such
payment by the Holders, if, at the time of such application by the Trustee, it
did not have knowledge that such payment would have been prohibited by the
provisions of this Article.
SECTION 13.5 Subrogation to Rights of Holders of Senior Indebtedness. Subject
-------------------------------------------------------
to the payment in full of all Senior Indebtedness, the Holders of the Securities
shall be subrogated to the extent of the payments or distributions made to the
holders of such Senior Indebtedness pursuant to
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the provisions of this Article (equally and ratably with the holders of all
indebtedness of the Company which by its express terms is subordinated to other
indebtedness of the Company to substantially the same extent as the Securities
are subordinated and is entitled to like rights of subrogation) to the rights of
the holders of such Senior Indebtedness to receive payments and distributions of
cash, property and securities applicable to the Senior Indebtedness until the
principal of (and premium, if any) and interest on the Securities shall be paid
in full. For purposes of such subrogation, no payments or distributions to the
holders of the Senior Indebtedness of any cash, property or securities to which
the Holders of the Securities or the Trustee would be entitled except for the
provisions of this Article, and no payments over pursuant to the provisions of
this Article to the holders of Senior Indebtedness by Holders of the Securities
or the Trustee, shall, as among the Company, its creditors other than holders of
Senior Indebtedness and the Holders of the Securities, be deemed to be a payment
or distribution by the Company to or on account of the Senior Indebtedness.
SECTION 13.6 Provisions Solely to Define Relative Rights. The provisions of
-------------------------------------------
this Article are and are intended solely for the purpose of defining the
relative rights of the Holders of the Securities on the one hand and the holders
of Senior Indebtedness on the other hand. Nothing contained in this Article or
elsewhere in this Indenture or in the Securities is intended to or shall (i)
impair, as among the Company, its creditors other than holders of Senior
Indebtedness and the Holders of the Securities, the obligation of the Company,
which is absolute and unconditional, to pay to the Holders of the Securities the
principal of (and premium, if any) and interest (including Liquidated Damages,
if any) on the Securities as and when the same shall become due and payable in
accordance with their terms; or (ii) affect the relative rights against the
Company of the Holders of the Securities and creditors of the Company other than
the holders of Senior Indebtedness; or (iii) prevent the Trustee or the Holder
of any Security from exercising all remedies otherwise permitted by applicable
law upon default under this Indenture, subject to the rights, if any, under this
Article of the holders of Senior Indebtedness to receive cash, property and
securities otherwise payable or deliverable to the Trustee or such Holder.
SECTION 13.7 Trustee to Effectuate Subordination. Each Holder of a Security by
-----------------------------------
its acceptance thereof authorizes and directs the Trustee on its behalf to take
such action as may be necessary or appropriate to effectuate the subordination
provided in this Article and appoints the Trustee its attorney-in-fact for any
and all such purposes.
SECTION 13.8 No Waiver of Subordination Provisions. No right of any present
-------------------------------------
or future holder of any Senior Indebtedness to enforce subordination as herein
provided shall at any time in any way be prejudiced or impaired by any act or
failure to act on the part of the Company, or by any non-compliance by the
Company with the terms, provisions and covenants of this Indenture, regardless
of any knowledge thereof any such holder may have or be otherwise charged with.
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Without in any way limiting the generality of the foregoing paragraph, the
holders of Senior Indebtedness may, at any time and from time to time, without
the consent of or notice to the Trustee or the Holders of the Securities,
without incurring responsibility to the Holders of the Securities and without
impairing or releasing the subordination provided in this Article or the
obligations hereunder of the Holders of the Securities to the holders of Senior
Indebtedness, do any one or more of the following: (i) change the manner, place
or terms of payment or extend the time of payment of, or renew or alter, Senior
Indebtedness, or otherwise amend or supplement in any manner Senior Indebtedness
or any instrument evidencing the same or any agreement under which Senior
Indebtedness is outstanding; (ii) sell, exchange, release or otherwise deal with
any property pledged, mortgaged or otherwise securing Senior Indebtedness; (iii)
release any Person liable in any manner for the collection of Senior
Indebtedness; and (iv) exercise or refrain from exercising any rights against
the Company and any other Person.
SECTION 13.9 Notice to Trustee. The Company shall give prompt written notice to
-----------------
the Trustee of any fact known to the Company which would prohibit the making of
any payment to or by the Trustee in respect of the Securities. Notwithstanding
the provisions of this Article or any other provision of this Indenture, the
Trustee shall not be charged with knowledge of the existence of any facts which
would prohibit the making of any payment to or by the Trustee in respect of the
Securities, unless and until a Responsible Officer of the Trustee shall have
received written notice thereof from the Company or a Representative or a holder
of Senior Indebtedness (including, without limitation, a holder of Designated
Senior Debt) and, prior to the receipt of any such written notice, the Trustee,
subject to the provisions of Section 6.1, shall be entitled in all respects to
assume that no such facts exist; provided, however, that if the Trustee shall
not have received the notice provided for in this Section 13.9 at least two
Business Days prior to the date upon which by the terms hereof any money may
become payable for any purpose (including, without limitation, the payment of
the principal of (and premium, if any) or interest (including Liquidated
Damages, if any) on any Security), then, anything herein contained to the
contrary notwithstanding, the Trustee shall have full power and authority to
receive such money and to apply the same to the purpose for which such money was
received and shall not be affected by any notice to the contrary which may be
received by it within one Business Day prior to such date.
Notwithstanding anything in this Article XIII to the contrary, nothing
shall prevent any payment by the Trustee to the Holders of monies deposited with
it pursuant to Section 4.1, and any such payment shall not be subject to the
provisions of Section 13.2 or 13.3.
Subject to the provisions of Section 6.1, the Trustee shall be entitled to
rely on the delivery to it of a written notice by a Person representing himself
to be a Representative or a holder of Senior Indebtedness (including, without
limitation, a holder of Designated Senior Debt) to establish that such notice
has been given by a Representative or a holder of Senior Indebtedness
(including, without limitation, a holder of Designated Senior Debt). In the
event that the Trustee determines in
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good faith that further evidence is required with respect to the right of any
Person as a holder of Senior Indebtedness to participate in any payment or
distribution pursuant to this Article, the Trustee may request such Person to
furnish evidence to the reasonable satisfaction of the Trustee as to the amount
of Senior Indebtedness held by such Person, the extent to which such Person is
entitled to participate in such payment or distribution and any other facts
pertinent to the rights of such Person under this Article, and if such evidence
is not furnished, the Trustee may defer any payment to such Person pending
judicial determination as to the right of such Person to receive such payment.
SECTION 13.10 Reliance on Judicial Order or Certificate of Liquidating Agent.
--------------------------------------------------------------
Upon any payment or distribution of assets of the Company referred to in this
Article, the Trustee, subject to the provisions of Section 6.1, and the Holders
of the Securities shall be entitled to rely upon any order or decree entered by
any court of competent jurisdiction in which such insolvency, bankruptcy,
receivership, liquidation, reorganization, dissolution, winding up or similar
case or proceeding is pending, or a certificate of the trustee in bankruptcy,
receiver, liquidating trustee, custodian, assignee for the benefit of creditors,
agent or other Person making such payment or distribution, delivered to the
Trustee or to the Holders of Securities, for the purpose of ascertaining the
Persons entitled to participate in such payment or distribution, the holders of
the Senior Indebtedness and other indebtedness of the Company, the amount
thereof or payable thereon, the amount or amounts paid or distributed thereon
and all other facts pertinent thereto or to this Article.
SECTION 13.11 Trustee Not Fiduciary for Holders of Senior Indebtedness. The
--------------------------------------------------------
Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior
Indebtedness and shall not be liable to any such holders if it shall in good
faith mistakenly pay over or distribute to Holders of Securities or to the
Company or to any other Person cash, property or securities to which any holders
of Senior Indebtedness shall be entitled by virtue of this Article or otherwise.
SECTION 13.12 Reliance by Holders of Senior Indebtedness on Subordination
-----------------------------------------------------------
Provisions. Each Holder by accepting a Security acknowledges and agrees that the
- ----------
foregoing subordination provisions are, and are intended to be, an inducement
and a consideration to each holder of any Senior Indebtedness, whether such
Senior Indebtedness was created or acquired before or after the issuance of the
Securities, to acquire and continue to hold, or to continue to hold, such Senior
Indebtedness and such holder of Senior Indebtedness shall be deemed conclusively
to have relied on such subordination provisions in acquiring and continuing to
hold, or in continuing to hold, such Senior Indebtedness, and no amendment or
modification of the provisions contained herein shall diminish the rights of
such holders of Senior Indebtedness unless such holders shall have agreed in
writing thereto.
SECTION 13.13 Rights of Trustee as Holder of Senior Indebtedness; Preservation
----------------------------------------------------------------
of Trustee's Rights. The Trustee in its individual capacity shall be entitled to
- -------------------
all the rights set forth in this Article with respect to any Senior Indebtedness
which may at any time be held by it,
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to the same extent as any other holder of Senior Indebtedness, and nothing in
this Indenture shall deprive the Trustee of any of its rights as such holder.
Nothing in this Article shall apply to claims of, or payments to, the
Trustee under or pursuant to Section 6.7.
SECTION 13.14 Article Applicable to Paying Agents. In case at any time any
-----------------------------------
Paying Agent other than the Trustee shall have been appointed by the Company and
be then acting hereunder, the term "Trustee" as used in this Article shall in
such case (unless the context otherwise requires) be construed as extending to
and including such Paying Agent within its meaning as fully for all intents and
purposes as if such Paying Agent were named in this Article in addition to or in
place of the Trustee; provided, however, that Section 13.13 shall not apply to
the Company or any Affiliate of the Company if it or such Affiliate acts as
Paying Agent.
SECTION 13.15 Certain Conversions and Repurchases Deemed Payment. For the
--------------------------------------------------
purposes of this Article only, (i) the issuance and delivery of junior
securities upon conversion of Securities in accordance with Article XII or upon
the repurchase of Securities in accordance with Article XIV shall not be deemed
to constitute a payment or distribution on account of the principal of or
premium or interest (including Liquidated Damages, if any) on Securities or on
account of the purchase or other acquisition of Securities, and (ii) the
payment, issuance or delivery of cash (except in satisfaction of fractional
shares pursuant to Section 12.3), property or securities (other than junior
securities) upon conversion of a Security shall be deemed to constitute payment
on account of the principal of such Security. For the purposes of this Section,
the term "junior securities" means (a) shares of any stock of any class of the
Company and securities into which the Securities are convertible pursuant to
Article XII and (b) securities of the Company which are subordinated in right of
payment to all Senior Indebtedness which may be outstanding at the time of
issuance or delivery of such securities to substantially the same extent as, or
to a greater extent than, the Securities are so subordinated as provided in this
Article. Nothing contained in this Article or elsewhere in this Indenture or in
the Securities is intended to or shall impair, as among the Company, its
creditors other than holders of Senior Indebtedness and the Holders of the
Securities, the right, which is absolute and unconditional, of the Holder of any
Security to convert such Security in accordance with Article XII or to exchange
such Security for Common Stock in accordance with Article XIV if the Company
elects to satisfy the obligations under Article XIV by the delivery of Common
Stock.
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ARTICLE XIV
REPURCHASE OF SECURITIES AT THE OPTION OF THE HOLDER
UPON A CHANGE IN CONTROL
SECTION 14.1 Right to Require Repurchase. In the event that a Change in Control
---------------------------
(as hereinafter defined) shall occur, then each Holder shall have the right, at
the Holder's option, but subject to the provisions of Section 14.2, to require
the Company to repurchase, and upon the exercise of such right the Company shall
repurchase, all of such Holder's Securities not theretofore called for
redemption, or any portion of the principal amount thereof that is equal to any
integral multiple of $1,000 (provided that no single Security may be repurchased
in part unless the portion of the principal amount of such Security to be
Outstanding after such repurchase is equal to $1,000 or integral multiples of
$1,000 in excess thereof), on the date (the "Repurchase Date") specified by the
Company that is not less than 40 nor more than 60 days after the date of the
Offer to Purchase (as defined in Section 14.3) at a purchase price equal to 100%
of the principal amount of the Securities to be repurchased plus interest
accrued to the Repurchase Date (the "Repurchase Price"); provided, however, that
installments of interest on Securities whose Stated Maturity is on or prior to
the Repurchase Date shall be payable to the Holders of such Securities, or one
or more Predecessor Securities, registered as such on the relevant Record Date
according to their terms and the provisions of Section 3.7. Such right to
require the repurchase of the Securities shall not continue after a discharge of
the Company from its obligations with respect to the Securities in accordance
with Article IV, unless a Change in Control shall have occurred prior to such
discharge. At the option of the Company, the Repurchase Price may be paid in
cash or, subject to the fulfillment by the Company of the conditions set forth
Section 14.2, by delivery of shares of Common Stock having a fair market value
equal to the Repurchase Price. Whenever in this Indenture (including Sections
2.2, 3.1 , 5.1(1) and 5.8) there is a reference, in any context, to the
principal of any Security as of any time, such reference shall be deemed to
include reference to the Repurchase Price payable in respect of such Security to
the extent that such Repurchase Price is, was or would be so payable at such
time, and express mention of the Repurchase Price in any provision of this
Indenture shall not be construed as excluding the Repurchase Price in those
provisions of this Indenture when such express mention is not made; provided,
however, that for the purposes of Article XIII such reference shall be deemed to
include reference to the Repurchase Price only to the extent the Repurchase
Price is payable in cash.
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SECTION 14.2 Conditions to the Company's Election to Pay the Repurchase Price
----------------------------------------------------------------
in Common Stock. The Company may elect to pay the Repurchase Price by delivery
- ---------------
of shares of Common Stock pursuant to Section 14.1 if and only if the following
conditions shall have been satisfied:
(1) The shares of Common Stock deliverable in payment of the
Repurchase Price shall have a fair market value as of the Repurchase Date of not
less than the Repurchase Price. For purposes of Section 14.1 and this Section
14.2, the fair market value of shares of Common Stock shall be determined by the
Company and shall be equal to 95% of the average of the Closing Prices Per Share
of the Common Stock for the five consecutive Trading Days immediately preceding
and including the third Trading Day prior to the Repurchase Date;
(2) The Repurchase Price shall be paid only in cash in the event any
shares of Common Stock to be issued upon repurchase of Securities hereunder (i)
require registration under any federal securities law before such shares may be
freely transferable without being subject to any transfer restrictions under the
Securities Act upon repurchase and if such registration is not completed or does
not become effective prior to the Repurchase Date, and/or (ii) require
registration with or approval of any governmental authority under any state law
or any other federal law before such shares may be validly issued or delivered
upon repurchase and if such registration is not completed or does not become
effective or such approval is not obtained prior to the Repurchase Date;
(3) Payment of the Repurchase Price may not be made in Common Stock
unless such stock is, or shall have been, approved for quotation on the Nasdaq
National Market or listed on a national securities exchange, in either case,
prior to the Repurchase Date; and
(4) All shares of Common Stock which may be issued upon repurchase of
Securities will be issued out of the Company's authorized but unissued Common
Stock and, will upon issue, be duly and validly issued and fully paid and non-
assessable and free of any preemptive or similar rights.
If all of the conditions set forth in this Section 14.2 are not satisfied
in accordance with the terms thereof, the Repurchase Price shall be paid by the
Company only in cash.
SECTION 14.3 Notices; Method of Exercising Repurchase Right, Etc. Unless the
---------------------------------------------------
Company shall have theretofore called for redemption all of the Outstanding
Securities, on or before the 30th day after the occurrence of a Change in
Control, the Company or, at the request and expense of the Company on or before
the 15th day after such occurrence, the Trustee, shall give to all Holders of
Securities, in the manner provided in Section 1.6, notice (the "Offer to
Purchase") of the occurrence of the Change of Control and of the repurchase
right set forth herein arising as a result thereof. The Company shall also
deliver a copy of such Offer to Purchase to the Trustee. Simultaneously with
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giving such notice, the Company shall issue a Press Release including all
relevant information in such notice.
Each notice of a repurchase right shall state:
(i) the Repurchase Date,
(ii) the date by which the repurchase right must be exercised
pursuant to Section 14.3(2),
(iii) the Repurchase Price, and whether the Repurchase Price
shall be paid by the Company in cash or by delivery of shares of Common Stock,
(iv) a description of the procedure which a Holder must follow
to exercise a repurchase right, and the place or places where such Securities
are to be surrendered for payment of the Repurchase Price and accrued interest
(including Liquidated Damages, if any), if any to the Repurchase Date,
(v) that on the Repurchase Date the Repurchase Price, and
accrued interest (including liquidated Damages, if any), if any to the
Repurchase Date, will become due and payable upon each such Security designated
by the Holder to be repurchased, and that interest thereon shall cease to accrue
on and after said date,
(vi) the Conversion Rate then in effect, the date on which the
right to convert the principal amount of the Securities to be repurchased will
terminate and the place or places where such Securities may be surrendered for
conversion, and
(vii) the place or places that the Security certificate with the
Election of Holder to Require Repurchase as specified in Section 2.2 shall be
delivered, and if the Security is a Restricted Securities Certificate the place
or places that the Surrender Certificate required by Section 14.3(9) shall be
delivered.
No failure of the Company to give the foregoing notices or defect therein
shall limit any Holder's right to exercise a repurchase right or affect the
validity of the proceedings for the repurchase of Securities.
If any of the foregoing provisions or other provisions of this Article XIV
are inconsistent with applicable law, such law shall govern.
(2) To exercise a repurchase right, a Holder shall deliver to the
Trustee on or before the date that is five Business Days prior to the Repurchase
Date of the Offer to Purchase (i) written notice of the Holder's exercise of
such right, which notice shall set forth the name of the
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Holder, the principal amount of the Securities to be repurchased (and, if any
Security is to repurchased in part, the serial number thereof, the portion of
the principal amount thereof to be repurchased and the name of the Person in
which the portion thereof to remain Outstanding after such repurchase is to be
registered) and a statement that an election to exercise the repurchase right is
being made thereby, and, in the event that the Repurchase Price shall be paid in
shares of Common Stock, the name or names (with addresses) in which the
certificate or certificates for shares of Common Stock shall be issued, and (ii)
the Securities with respect to which the repurchase right is being exercised.
Such written notice shall be irrevocable, except that the right of the Holder to
convert the Securities with respect to which the repurchase right is being
exercised shall continue until the close of business on the Repurchase Date.
(3) In the event a repurchase right shall be exercised in accordance
with the terms hereof, the Company shall pay or cause to be paid to the Trustee
the Repurchase Price in cash or shares of Common Stock, as provided above, for
payment to the Holder on the Repurchase Date or, if shares of Common Stock are
to be paid, as promptly after the Repurchase Date as practicable, together with
accrued and unpaid interest to the Repurchase Date payable with respect to the
Securities as to which the repurchase right has been exercised; provided,
however, that installments of interest that mature on or prior to the Repurchase
Date shall be payable in cash to the Holders of such Securities, or one or more
Predecessor Securities, registered as such at the close of business on the
relevant Regular Record Date.
(4) If any Security (or portion thereof) surrendered for repurchase
shall not be so paid on the Repurchase Date, the principal amount of such
Security (or portion thereof, as the case may be) shall, until paid, bear
interest to the extent permitted by applicable law from the Repurchase Date at
the rate of 6 3/4% per annum, and each Security shall remain convertible into
Common Stock until the principal of such Security (or portion thereof, as the
case may be) shall have been paid or duly provided for.
(5) Any Security which is to be repurchased only in part shall be
surrendered to the Trustee (with, if the Company or the Trustee so requires, due
endorsement by, or a written instrument of transfer in form satisfactory to the
Company and the Trustee duly executed by, the Holder thereof or his attorney
duly authorized in writing), and the Company shall execute, and the Trustee
shall authenticate and make available for delivery to the Holder of such
Security without service charge, a new Security or Securities, containing
identical terms and conditions, each in an authorized denomination in aggregate
principal amount equal to and in exchange for the unrepurchased portion of the
principal of the Security so surrendered.
(6) Any issuance of shares of Common Stock in respect of the
Repurchase Price shall be deemed to have been effected immediately prior to the
close of business on the Repurchase Date and the Person or Persons in whose name
or names any certificate or certificates for shares of
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Common Stock shall be issuable upon such repurchase shall be deemed to have
become on the Repurchase Date the holder or holders of record of the shares
represented thereby; provided, however, that any surrender for repurchase on a
date when the stock transfer books of the Company shall be closed shall
constitute the Person or Persons in whose name or names the certificate or
certificates for such shares are to be issued as the record holder or holders
thereof for all purposes at the opening of business on the next succeeding day
on which such stock transfer books are open. No payment or adjustment shall be
made for dividends or distributions on any Common Stock issued upon repurchase
of any Security declared prior to the Repurchase Date.
(7) No fractions of shares shall be issued upon repurchase of
Securities. If more than one Security shall be repurchased from the same Holder
and the Repurchase Price shall be payable in shares of Common Stock, the number
of full shares which shall be issuable upon such repurchase shall be computed on
the basis of the aggregate principal amount of the Securities so repurchased.
Instead of any fractional share of Common Stock which would otherwise be
issuable on the repurchase of any Security or Securities, the Company will
deliver to the applicable Holder its check for the current market value of such
fractional share. The current market value of a fraction of a share is
determined by multiplying the current market price of a full share by the
fraction, and rounding the result to the nearest cent. For purposes of this
Section, the current market price of a share of Common Stock is the Closing
Price Per Share of the Common Stock on the Trading Day immediately preceding the
Repurchase Date.
(8) Any issuance and delivery of certificates for shares of Common
Stock on repurchase of Securities shall be made without charge to the Holder of
Securities being repurchased for such certificates or for any tax or duty in
respect of the issuance or delivery of such certificates or the securities
represented thereby; provided, however, that the Company shall not be required
to pay any tax or duty which may be payable in respect of (i) income of the
Holder or (ii) any transfer involved in the issuance or delivery of certificates
for shares of Common Stock in a name other than that of the Holder of the
Securities being repurchased, and no such issuance or delivery shall be made
unless and until the Person requesting such issuance or delivery has paid to the
Company the amount of any such tax or duty or has established, to the
satisfaction of the Company, that such tax or duty has been paid.
(9) If shares of Common Stock to be delivered upon repurchase of a
Security are to be registered in a name other than that of the beneficial owner
of such Security, then such Holder must deliver to the Trustee a Surrender
Certificate, dated the date of surrender of such Restricted Security and signed
by such beneficial owner, as to compliance with the restrictions on transfer
applicable to such Restricted Security. Neither the Trustee nor any Registrar or
Transfer Agent or other agents shall be required to register in a name other
than that of the beneficial owner shares of Common Stock issued upon repurchase
of any such Restricted Security not so accompanied by a properly completed
Surrender Certificate.
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(10) All Securities delivered for repurchase shall be delivered to the
Trustee to be canceled at the direction of the Trustee, which shall dispose of
the same as provided in Section 3.9.
SECTION 14.4 Certain Definitions. For purposes of this Article XIV,
-------------------
(1) the term "beneficial owner" shall be determined in accordance
with Rule 13d-3, as in effect on the date of the original execution of this
Indenture, promulgated by the Commission pursuant to the Exchange Act;
(2) a "Change in Control" shall be deemed to have occurred at the
time, after the original issuance of the Securities, of:
(i) the acquisition by any Person (including any syndicate or
group deemed to be a "person" under Section 13(d)(3) of the Exchange Act) of
beneficial ownership, directly or indirectly, through a purchase, merger or
other acquisition transaction or series of transactions, of shares of capital
stock of the Company entitling such person to exercise 50% or more of the total
voting power of all shares of capital stock of the Company entitled to vote
generally in the elections of directors, other than any such acquisition by the
Company, any subsidiary of the Company or any employee benefit plan of the
Company; or
(ii) any consolidation of the Company with, or merger of the
Company into, any other Person, any merger of another Person into the Company,
or any conveyance, sale, transfer or lease of all or substantially all of the
assets of the Company to another Person (other than (a) any such transaction (x)
which does not result in any reclassification, conversion, exchange or
cancellation of outstanding shares of capital stock of the Company and (y)
pursuant to which the holders of the Common Stock immediately prior to such
transaction have the entitlement to exercise, directly or indirectly, 50% or
more of the total voting power of all shares of capital stock entitled to vote
generally in the election of directors of the continuing or surviving
corporation immediately after such transaction and (b) any merger which is
effected solely to change the jurisdiction of incorporation of the Company and
results in a reclassification, conversion or exchange of outstanding shares of
Common Stock into solely shares of common stock);
provided, however, that a Change in Control shall not be deemed to have occurred
if (I) the Closing Sales Price Per Share of the Common Stock for any five
Trading Days within the period of 10 consecutive Trading Days ending immediately
after the later of the Change in Control or the public announcement of the
Change in Control (in the case of a Change in Control under clause (i) above) or
the period of 10 consecutive Trading Days ending immediately before the Change
in Control (in the case of a Change in Control under clause (ii) above) shall
equal or exceed 105% of the Conversion Price of the Securities in effect on each
such Trading Day, or (II) all of the consideration (excluding cash payments for
fractional shares and cash payments made pursuant to dissenters' appraisal
rights) in a merger or consolidation constituting a Change of Control consists
of shares of
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common stock traded on a national securities exchange or on the Nasdaq National
Market (or will be so traded or quoted immediately following the Change of
Control).
(3) the term "Conversion Price" shall equal $1,000 divided by the
Conversion Rate (rounded to the nearest cent); and
(4) for purposes of Section 14.4(2)(i), the term "Person" shall
include any syndicate or group which would be deemed to be a "person" under
Section 13(d)(3) of the Exchange Act, as in effect on the date of the original
execution of this Indenture.
SECTION 14.5 Consolidation, Merger, etc. In the case of any merger,
--------------------------
consolidation, conveyance, sale, transfer or lease of all or substantially all
of the assets of the Company to which Section 12.11 applies, in which the Common
stock of the Company is changed or exchanged as a result into the right to
receive shares of stock and other securities or property or assets (including
cash) which includes shares of Common Stock of the Company or common stock of
another Person that are, or upon issuance will be, traded on a United States
national securities exchange or approved for trading on an established automated
over-the-counter trading market in the United States and such shares constitute
at the time such change or exchange becomes effective in excess of 50% of the
aggregate fair market value of such shares of stock and other securities,
property and assets (including cash) (as determined by the Company, which
determination shall be conclusive and binding), then the Person formed by such
consolidation or resulting from such merger or combination or which acquires the
properties or assets (including cash) of the Company, as the case may be, shall
execute and deliver to the Trustee a supplemental indenture (which shall comply
with the Trust Indenture Act as in force at the date of execution of such
supplemental indenture) modifying the provisions of this Indenture relating to
the right of Holders to cause the Company to repurchase the Securities following
a Change in Control, including without limitation the applicable provisions of
this Article XIV and the definitions of the Common Stock and Change in Control,
as appropriate, and such other related definitions set forth herein as
determined in good faith by the Company (which determination shall be conclusive
and binding), to make such provisions apply in the event of a subsequent Change
in Control to the common stock and the issuer thereof if different from the
Company and Common Stock of the Company (in lieu of the Company and the Common
Stock of the Company).
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ARTICLE XV
HOLDERS LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 15.1 Company to Furnish Trustee Names and Addresses of Holders. The
---------------------------------------------------------
Company will furnish or cause to be furnished to the Trustee:
(1) semi-annually, not more than 15 days after the Regular Record
Date, a list, in such form as the Trustee may reasonably require, of the names
and addresses of the Holders of Securities as of such Regular Record Date, and
(2) at such other times as the Trustee may reasonably request in
writing, within 30 days after the receipt by the Company 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;
provided, however, that no such list need be furnished so long as the Trustee is
acting as Security Registrar.
SECTION 15.2 Preservation of Information. 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 15.1 and the names and addresses of Holders received by the Trustee in
its capacity as Security Registrar. The Trustee may destroy any list, if any,
furnished to it as provided in Section 15.1 upon receipt of a new list so
furnished.
(1) After this Indenture has been qualified under the Trust Indenture
Act, the rights of Holders to communicate with other Holders with respect to
their rights under this Indenture or under the Securities, and the corresponding
rights, and duties of the Trustee, shall be as provided by the Trust Indenture
Act.
(2) Every Holder of Securities, by receiving and holding the same,
agrees with the Company and the Trustee that neither the Company nor the Trustee
nor any agent of either of them shall be held accountable by reason of any
disclosure of information as to names and addresses of Holders made pursuant to
the Trust Indenture Act.
SECTION 15.3 Reserved. Reports by Trustee.
--------
(1) After this Indenture has been qualified under the Trust Indenture
Act, the Trustee shall 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.
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(2) After this Indenture has been qualified under the Trust Indenture
Act, a copy of each such report shall, at the time of such transmission to
Holders, be filed by the Trustee with each stock exchange upon which the
Securities are listed, with the Commission and with the Company. The Company
will notify the Trustee when the Securities are listed on any stock exchange or
any delisiting thereof.
SECTION 15.4 Reports by Company. After this Indenture has been qualified under
------------------
the Trust Indenture Act, the Company shall file with the Trustee and the
Commission, and 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 such Act;
provided that any such information, documents or reports required to be filed
with the Commission pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 shall be filed with the Trustee within 15 days after the same is so
required to be filed with the Commission.
ARTICLE XVI
IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS
SECTION 16.1 Indenture and Securities Solely Corporate Obligations. No recourse
-----------------------------------------------------
for the payment of the principal of or premium, if any, or interest on any
Security and no recourse under or upon any obligation, covenant or agreement of
the Company in this Indenture or in any supplemental indenture or in any
Security, or because of the creation of any indebtedness represented thereby,
shall be had against any incorporator, stockholder, employee, agent, officer, or
director or subsidiary, as such, past, present or future, of the Company or of
any successor corporation, whether by virtue of any constitution, statute or
rule of law, or by the enforcement of any assessment or penalty or otherwise; it
being expressly understood that all such liability is hereby waived and released
as a condition of, and as a consideration for, the execution of this Indenture
and the issue of the Securities.
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.
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed all 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
[Signature Page to Indenture]
<PAGE>
ANNEX A -- Form of Restricted Securities Certificate
RESTRICTED SECURITIES CERTIFICATE (For transfers pursuant to Section
3.5(2)(ii) and (iii) of the Indenture)
Chase Manhattan Bank and Trust Company, National Association
101 California Street, Suite 2725,
San Francisco CA 94111.
Re: 4 3/4% CONVERTIBLE SUBORDINATED NOTES DUE JULY 15, 2008 OF EXODUS
COMMUNICATIONS, INC. (THE "SECURITIES")
Reference is made to the Indenture, dated as of December 1, 1999 (the
"Indenture"), from Exodus Communications, Inc. (the "Company") to Chase
Manhattan Bank and Trust Company, National Association, as Trustee. Terms used
herein and defined in the Indenture or Rule 144 under the U.S. Securities Act of
1933 (the "Securities Act") are used herein as so defined.
This certificate relates to $________ principal amount of Securities, which
are evidenced by the following certificate(s) (the "Specified Securities"):
CUSIP No. _______
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. In connection with such transfer, the Owner hereby certifies that,
unless such transfer is being effected pursuant to an effective registration
statement under the Securities Act, it 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:
<PAGE>
(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
(2) RULE 144 TRANSFERS. If the transfer is being effected pursuant to Rule
144:
(A) the transfer is occurring after a holding period of at least one
year (computed in accordance with paragraph (d) of Rule 144) has elapsed since
the date the Specified Securities were acquired from the Company or from an
affiliate (as such term is defined in Rule 144) of the Company, whichever is
later, and is being effected in accordance with the applicable amount, manner of
sale and notice requirements of paragraphs (e), (f) and (h) of Rule 144; or
(B) the transfer is occurring after a period of at least two years
has elapsed since the date the Specified Securities were acquired from the
Company or from an affiliate (as such term is defined in Rule 144) of the
Company, whichever is later, and the Owner is not, and during the preceding
three months has not been, an affiliate of the Company.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company 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.)
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<PAGE>
ANNEX B -- Form of Unrestricted Securities Certificate
UNRESTRICTED SECURITIES CERTIFICATE
(For removal of Restricted Securities Legend pursuant to Section 3.5(3))
Chase Manhattan Bank and Trust Company, National Association
101 California Street, Suite 2725,
San Francisco, CA 94111.
RE: 4 3/4% CONVERTIBLE SUBORDINATED NOTES DUE JULY 15, 2008 OF
EXODUS COMMUNICATIONS, INC. (THE "SECURITIES")
Reference is made to the Indenture, dated as of December 1, 1999 (the
"Indenture"), from Exodus Communications, Inc. (the "Company") to 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 $_______ principal amount of Securities, which
are evidenced by the following certificate(s) (the "Specified Securities"):
CUSIP No. __________
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 exchanged for
Securities bearing no Restricted Securities Legend pursuant to Section 3.5(3) of
the Indenture. In connection with such exchange, the Owner hereby certifies that
the exchange is occurring after a
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<PAGE>
period of at least two years has elapsed since the date the Specified Securities
were acquired from the Company or from an "affiliate" (as such term is defined
in Rule 144) of the Company, whichever is later, and the Owner is not, and
during the preceding three months has not been, an affiliate of the Company. 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 Company 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.)
-2-
<PAGE>
ANNEX C -- Form of Surrender Certificate
In connection with the certification contemplated by Section 12.2
or 14.3(9) relating to compliance with certain restrictions relating to
transfers of Restricted Securities, such certification shall be provided
substantially in the form of the following certificate, with only such changes
thereto as shall be approved by the Company and Goldman, Sachs & Co.:
CERTIFICATE
EXODUS COMMUNICATIONS, INC.
4 3/4% CONVERTIBLE NOTES DUE JULY 15, 2008
This is to certify that as of the date hereof with respect to
$________ principal amount of the above-captioned securities surrendered on the
date hereof (the "Surrendered Securities") for registration of transfer, or for
conversion or repurchase where the securities issuable upon such conversion or
repurchase are to be registered in a name other than that of the undersigned
Holder (each such transaction being a "transfer"), the undersigned Holder (as
defined in the Indenture) certifies that the transfer of Surrendered Securities
associated with such transfer complies with the restrictive legend set forth on
the face of the Surrendered Securities for the reason checked below:
The transfer of the Surrendered Securities complies with Rule 144
under the United States Securities Act of 1933, as amended (the
"Securities Act"); or
The transfer of the Surrendered Securities complies with Rule
144A under the Securities Act; or
The transfer of the Surrendered Securities has been made to an
institution that is an "accredited investor" within the meaning of
Rule 501(a)(1), (2), (3) or (7) under the Securities Act in a
transaction exempt from the registration requirements of the
Securities Act.
[Name of Holder]
Dated:_________________
*To be dated the date of surrender
<PAGE>
EXHIBIT 4.06
Exodus Communications, Inc.
4 3/4% Convertible Subordinated Notes due July 15, 2008
________________
Purchase Agreement
------------------
December 2, 1999
Goldman, Sachs & Co.,
Donaldson, Lufkin & Jenrette
Securities Corporation
Morgan Stanley & Co. Incorporated
As representative of the several Purchasers
named in Schedule I hereto,
c/o Goldman, Sachs & Co.
85 Broad Street,
New York, New York 10004.
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
$400,000,000 principal amount of the 4 3/4% Convertible Subordinated Notes due
July 15, 2008, convertible into Common Stock, $0.001 par value per share
("Stock") of the Company, specified above (the "Firm Securities") and, at the
election of the Underwriters, up to an aggregate of $100,000,000 additional
aggregate principal amount of Securities (the "Optional Securities") (the Firm
Securities and the Optional Securities which the Underwriters elect to purchase
pursuant to Section 2 hereof are herein collectively called the "Securities").
1. The Company represents and warrants to, and agrees with, each of 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"), have been prepared in connection with
the offering of the Securities and shares of the Stock issuable upon
conversion thereof. Additionally, the Company has previously prepared the
following documents: the Company's Special Preliminary Proxy Statements
filed pursuant to Section 14(a) of the United States Securities Exchange
Act of 1934, as amended (the "Exchange Act"), filed January 29, 1999 and
April 23, 1999, the Company's Special Definitive Proxy Statements, pursuant
to Section 14(a) of the Exchange Act, filed February 9, 1999 and May 4,
1999, the Company's Annual Report on Form 10-K for the fiscal year ended
December
<PAGE>
31, 1998, the Company's Quarterly Reports on Form 10-Q for the quarters
ended March 31, 1999, June 30, 1999 and September 30, 1999, each of the
Company's Current Reports on Form 8-K, and any amendments thereto, 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 8A filed November 29, 1999
(together the "Exchange Act Reports"). Any reference (other than in Section
7(a) hereof) to the Preliminary Offering Circular or the Offering Circular
shall be deemed to refer to and include the Exchange Act Reports, and any
reference (other than in Sections 7(a) hereof) to the Preliminary Offering
Circular or 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 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, 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, otherwise than as set forth
or contemplated in the Offering Circular;
(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");
(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
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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) 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;
(f) The Company has an authorized capitalization as set forth in the
Offering Circular, and 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; the shares of Stock initially issuable upon conversion
of the Securities have been duly and validly authorized and reserved for
issuance and, when issued and delivered in accordance with the provisions
of the Securities and the Indenture referred to below, will be duly and
validly issued, fully paid and non-assessable and will conform to the
description of the Stock contained in the Offering Circular; and all of the
issued and outstanding shares of capital stock of each subsidiary of the
Company 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;
(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; 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; 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) That certain Registration Rights Agreement among the Company and
the Purchasers to be dated as of December 1, 1999 (the "Registration Rights
Agreement") has
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been duly authorized and, when executed and delivered by the Company, the
Registration Rights Agreement will constitute a valid and legally binding
instrument, enforceable in accordance with its terms;
(i) 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;
(j) 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) 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;
(k) In the event that the outstanding principal amount of the
Securities exceeds $400,000,000, the Company agrees that it will use the
net proceeds of the sale of the Securities in excess of such amount 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 Note 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 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
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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, the Indenture or the
Registration Rights Agreement except 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 By-laws 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
caption "Description of Notes" and "Description of Common Stock", insofar
as they purport to constitute a summary of the terms of the Securities, the
Indenture, the Registration Rights Agreement and the Stock, under the
caption "Certain United States Federal Income Tax Considerations", and
under the caption "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 best of 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 of 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;
(t) Within the preceding six months, neither the Company nor any
other person acting on behalf of the Company has offered or sold to any
person any Securities, or any securities
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<PAGE>
of the same or a similar class as the Securities, 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 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 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; and
(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
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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
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.
2. Subject to the terms and conditions herein set forth, (a) 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 thereof, plus accrued interest, if any,
from December 8, 1999 to the First Time of Delivery hereunder, the principal
amount of Firm Securities set forth opposite the name of such Purchaser in
Schedule I hereto, and (b) in the event and to the extent that the Underwriters
shall exercise the election to purchase Optional Securities as provided below,
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
the same purchase price set forth in clause (a) of this Section 2, that portion
of the aggregate principal amount of the Optional Securities as to which such
election shall have been exercised (to be adjusted by you so as to eliminate
fractions) determined by multiplying such aggregate principal amount of Optional
Securities by a fraction, the numerator of which is the maximum aggregate
principal amount of Optional Securities which such Purchaser is entitled to
purchase as set forth opposite the name of such Purchaser in Schedule I hereto
and the denominator of which is the maximum aggregate principal amount of
Optional Securities which all of the Purchasers are entitled to purchase
hereunder.
The Company hereby grants to the Purchasers the right to purchase at their
election up to $100,000,000 aggregate principal amount of Optional Securities,
at the same principal amount purchase price set forth in clause (a) of the first
paragraph of this Section 2, for the sole purpose of
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covering sales of Securities in excess of the aggregate principal amount of Firm
Securities. Any such election to purchase Optional Securities may be exercised
by written notice from Goldman, Sachs & Co. to the Company, given within a
period of 30 calendar days after the date of this Agreement, setting forth the
aggregate principal amount of Optional Securities to be purchased and the date
on which such Optional Securities are to be delivered, as determined by you but
in no event earlier than the First Time of Delivery (as defined in Section (4)
hereof) or, unless you and the Company otherwise agree in writing, earlier than
two or later than ten business days after the date of such notice.
3. Upon the authorization by you of the release of the Firm Securities,
the several Purchasers propose to offer the Firm 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 persons who 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;
(b) It is an Institutional Accredited Investor;
(c) Upon request of the Company, it will notify the Company upon
completion of the distribution of the Securities; 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.
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 with The Depository Trust
Company ("DTC") or other appropriate depository, 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 (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 other appropriate depository or its designated custodian (the
"Designated Office"). The time and date of such delivery and payment shall be,
with respect to the Firm Securities, 9:30 a.m., New York City time, on December
8, 1999 or at such other time and date as you and the Company may agree upon in
writing, and, with respect to the Optional Securities, 9:30 a.m., New York City
time, on the date specified by you in the written notice given by you of the
Purchasers' election to purchase the Optional Securities, or at such other time
and date as you and the Company may agree upon in writing. Such time and date
for delivery of the Firm Securities is herein called the "First Time of
Delivery", such time and date for delivery of the Optional Securities, if not
the First Time of Delivery,
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is herein called the "Second Time of Delivery", and each such time and date for
delivery is herein called a "Time of Delivery".
(b) The documents to be delivered at each 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(i) hereof, will be delivered at such time and date at the
offices of Fenwick & West LLP, Two Palo Alto Square, Palo Alto, California 94034
(the "Closing Location"), and the Securities will be delivered at the Designated
Office, all at such 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 such 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 and the shares of Stock issuable upon
conversion of 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;
(c) To furnish the Purchasers with five copies of the Offering Circular
and each amendment or supplement thereto signed by an authorized officer of the
Company 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;
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(d) During the period beginning from the date hereof and continuing until
the date ninety days after the date of the Offering Circular, 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 or
the Stock, including but not limited to any securities that are convertible into
or exchangeable for, or that represent the right to receive, Stock or any such
substantially similar securities (other than (i) pursuant to employee stock and
option plans and agreements existing on, or upon the conversion or exchange of
convertible or exchangeable securities outstanding as of, the date of this
Agreement, or (ii) pursuant to stock option agreements entered into after the
date of this Agreement, provided that no shares shall vest under such new stock
option agreements until after the date ninety days after the date of the
Offering Circular), without your prior written consent; provided, however, that
the Company may issue shares of Stock as consideration for acquisitions of
businesses occurring after the date of the Offering Circular, provided that each
recipient of any such shares agrees in writing for the benefit of the Purchasers
that all such shares shall remain subject to restrictions identical to those
contained in this paragraph.
(e) Not to be or become, at any time prior to the expiration of three
years after the date of the latest 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 Securities to be
eligible for the PORTAL trading system of the National Association of Securities
Dealers, Inc.;
(h) 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), to make available to its stockholders consolidated summary
financial information of the Company and its subsidiaries for such quarter in
reasonable detail;
(i) 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
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generally or to the Commission) provided that you agree to hold in confidence
any confidential or nonpublic information so provided;
(j) During the period of two years after the date of the Offering
Circular, the Company will not, and will use all reasonable efforts to ensure
that its "affiliates" (as defined in Rule 144 under the Securities Act) do not,
resell any of the Securities which constitute "restricted securities" under Rule
144 that have been reacquired by any of them;
(k) To reserve and keep available at all times, free of preemptive rights,
shares of Stock for the purpose of enabling the Company to satisfy any
obligations to issue shares of its Stock upon conversion of the Securities; and
(l) To use its best efforts to list, subject to notice of issuance, the
shares of Stock issuable upon conversion of the Securities on the Nasdaq
National Market.
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 the shares of Stock issuable upon conversion 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
any Agreement among Purchasers, this Agreement, 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 and the shares of Stock issuable upon conversion
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 Securities for trading in PORTAL and the listing on the
Nasdaq National Market of the shares of Stock issuable upon conversion of the
Securities; and 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.
11
<PAGE>
7. The obligations of the Purchasers hereunder shall be subject, as to
the Securities to be delivered at each Time of Delivery, in their discretion, to
the condition that all representations and warranties and other statements of
the Company herein are, at and as of such 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
such 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) shall have furnished to you their written
opinion, dated such 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 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, and the shares of Stock initially
issuable upon conversion of the Securities have been duly and validly
authorized and reserved for issuance and, when issued and delivered in
accordance with the provisions of the Securities and the Indenture, will be
duly and validly issued and fully paid and non-assessable, and will conform
to the description of the Stock contained in the Offering Circular;
(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);
12
<PAGE>
(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 and duly 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;
(viii) The Indenture and the Registration Rights Agreement have been
duly authorized, executed and delivered by the Company and each constitutes
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;
(ix) The issue and sale of the Securities being delivered at such
Time of Delivery 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 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 listed as exhibits to the
Company's or any of its significant subsidiaries' Annual Report on Form 10-
K for the year ended December 31, 1998 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 (collectively, the "Material
Agreements") (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 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, the
Indenture or the Registration Rights Agreement, except (A) such as may be
required under the Securities Act in connection with the shares of Stock
issuable upon conversion of the Securities and such consents, approvals,
authorizations, registrations or
13
<PAGE>
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 By-laws or, to such
counsel's knowledge, in default in the performance or observance of any
material obligation, agreement, covenant or condition contained in any of
the Material Agreements;
(xii) The statements set forth in the Offering Circular under the
caption "Description of Notes", and "Description of Capital Stock", insofar
as they purport to constitute a summary of the terms of the Securities, the
Indenture, the Registration Rights Agreement and the Stock, under the
caption "Certain United States Federal Income Tax Considerations", and
under the caption "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 United States 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 such 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
14
<PAGE>
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 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 each 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 I 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 being delivered at such Time of Delivery 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
15
<PAGE>
the Nasdaq National Market; (ii) a suspension or material limitation in trading
in the Company's securities on the Nasdaq National Market; (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 being delivered at such Time of Delivery 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 Securities have been designated for trading on PORTAL;
(h) At such Time of Delivery, a Listing of Additional Shares Application
shall have been previously received by the Nasdaq National Market for the
purpose of duly listing the shares of Stock issuable upon conversion of the
Securities being delivered at such Time of Delivery;
(i) The Company shall have furnished to you executed copies of the
Indenture and the Registration Rights Agreement; and
(j) The Company shall have furnished or caused to be furnished to you at
such 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 any 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 any 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
16
<PAGE>
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 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 any 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 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
17
<PAGE>
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 Securities 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.
9. (a) If any Purchaser shall default in its obligation to purchase the
Securities which it has agreed to purchase hereunder at a Time of Delivery, 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 such 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
18
<PAGE>
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 to be purchased at such Time of
Delivery, 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 at such Time of Delivery 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 to be purchased at such Time of Delivery, 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 (or, with respect to the Second
Time of Delivery, the obligation of the Purchasers to purchase and of the
Company to sell the Optional Securities) 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 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, any
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 not so delivered but the Company
shall then be under no further liability in respect of the Securities not so
delivered 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.
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<PAGE>
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 10005, 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.
13. 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.
14. Time shall be of the essence of this Agreement.
15. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
16. 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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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
Morgan Stanley & Co. Incorporated
By: /s/ Goldman, Sachs & Co.
-------------------------------------
(Goldman, Sachs & Co.)
On behalf of each of the Purchasers
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
Principal Amount of
Optional Securities
Principal Amount of to be Purchased
Firm Securities if Maximum
Purchaser to be Purchased Option Exercised
--------- --------------- ----------------
<S> <C> <C>
Goldman, Sachs & Co................................ $240,000,000 $ 60,000,000
Donaldson, Lufkin & Jenrette Securities
Corporation....................................... $ 80,000,000 $ 20,000,000
Morgan Stanley & Co. Incorporated.................. $ 80,000,000 $ 20,000,000
------------ ------------
Total $400,000,000 $100,000,000
============ ============
</TABLE>
<PAGE>
ANNEX I
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;
(C) the unaudited financial statements which were not included
in the Offering Circular but from which were derived any unaudited
condensed financial statements
<PAGE>
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 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>
___________, 1999
Dear KPMG:
Goldman, Sachs & Co., as representatives of the Purchasers of 4 3/4%
Convertible Subordinated Notes due July 15, 2008 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.)
25
<PAGE>
EXHIBIT 4.07
EXODUS COMMUNICATIONS, INC.
4 3/4% CONVERTIBLE SUBORDINATED NOTES
DUE JULY 15, 2008
REGISTRATION RIGHTS AGREEMENT
Dated as of December 1, 1999
Goldman, Sachs & Co.
Donaldson, Lufkin & Jenrette
Securities Corporation
Morgan Stanley & Co. Incorporated
As representatives of the several Purchasers
Named in Schedule I hereto
c/o Goldman, Sachs & Co.
85 Broad Street
New York, New York 10004
Ladies and Gentlemen:
Exodus Communications, Inc., a Delaware corporation (the "Company"),
proposes to issue and sell to the Purchasers (as defined herein) upon the terms
set forth in a Purchase Agreement (as defined herein) its 4 3/4% Convertible
Subordinated Notes due July 15, 2008 (the "Securities"). As an inducement to
the Purchasers to enter into the Purchase Agreement and in satisfaction of a
condition to the obligations of the Purchasers thereunder, the Company agrees
with the Purchasers, for the benefit of the Holders (as defined herein) from
time to time of the Registrable Securities (as defined herein), as follows:
1. Definitions. Capitalized terms used herein without definition shall
have their respective meanings set forth in or pursuant to the Purchase
Agreement. As used in this Agreement, the following capitalized defined terms
shall have the following meanings:
"Act" or "Securities Act" means the United States Securities Act of 1933,
as amended.
"Affiliate" of any specified person means any other person which, directly
or indirectly, is in control of, is controlled by, or is under common control
with such specified person. For purposes of this definition, control of a
person means the power, direct or indirect, to direct or cause the direction of
the management and policies of such person whether by contract or otherwise; and
the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Common Stock" means the Company's Common Stock, par value $0.001 per
share.
"Commission" means the United States Securities and Exchange Commission.
"DTC" means The Depository Trust Company.
<PAGE>
"Effective Failure" has the meaning assigned thereto in Section 7 hereof.
"Effective Time" means the date on which the Commission declares the Shelf
Registration Statement effective or on which the Shelf Registration Statement
otherwise becomes effective.
"Effectiveness Period" has the meaning set forth in Section 2(b)(i) hereof.
"Electing Holder" has the meaning assigned thereto in Section 3(a)(3)
hereof.
"Exchange Act" means the United States Securities Exchange Act of 1934, as
amended.
"Expedited Filing" has the meaning assigned thereto in Section 3(a)(1)
hereof.
"Expedited Filing Questionnaire Deadline" has the meaning assigned thereto
in Section 3(a)(1) hereof.
"Holder" means any Person that has a beneficial interest in any Restricted
Global Security or any beneficial interest in a global security representing
shares of Common Stock issuable upon conversion of a Security.
"Indenture" means the Indenture dated as of December 1, 1999 between the
Company and Chase Manhattan Bank and Trust Company, National Association, as
Trustee, as amended and supplemented from time to time.
"Liquidated Damages" has the meaning assigned thereto in Section 7 hereof.
"Managing Underwriters" means the investment banker or investment bankers
and manager or managers that shall administer an underwritten offering, if any,
as set forth in Section 6 hereof.
"NASD Rules" means the Rules of the National Association of Securities
Dealers, Inc., as amended from time to time.
"Notice and Questionnaire" means a Notice of Registration Statement and
Selling Securityholder Questionnaire substantially in the form of Exhibit A
hereto.
"Person" shall mean an individual, partnership, corporation, trust or
unincorporated organization, or a government or agency or political subdivision
thereof.
"Press Release" shall have the meaning given thereto in the Indenture.
"Prospectus" means the prospectus included in any Shelf Registration
Statement (including, without limitation, any preliminary prospectus, any final
prospectus and any prospectus that discloses information previously omitted from
a prospectus filed as part of an effective registration statement in reliance
upon Rule 430A under the Act), included in the Shelf Registration Statement, as
amended or supplemented by any prospectus supplement, with respect to the terms
of the offering
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<PAGE>
of any portion of the Registrable Securities covered by the Shelf Registration
Statement and by all other amendments and supplements to such prospectus,
including all material incorporated by reference in such prospectus and all
documents filed after the date of such prospectus by the Company under the
Exchange Act and incorporated by reference therein.
"Purchase Agreement" means the purchase agreement dated December 2, 1999
between the Company and the Purchasers.
"Purchasers" means you, as the Purchasers named in Schedule I to the
Purchase Agreement.
"Registrable Securities" means all or any portion of the Securities issued
from time to time under the Indenture in registered form and the Common Stock
issuable upon conversion or repurchase of such Securities; provided, however,
that a security ceases to be a Registrable Security when it is no longer a
Restricted Security.
"Registration Default" has the meaning assigned thereto in Section 7
hereof.
"Restricted Security" means any Security or share of Common Stock issuable
upon conversion or repurchase thereof except any such Security or such share of
Common Stock which (i) has been effectively registered under the Securities Act
and sold in a manner contemplated by the Shelf Registration Statement, (ii) has
been transferred in compliance with Rule 144 under the Securities Act (or any
successor provision thereto) or is transferable pursuant to paragraph (k) of
such Rule 144 (or any successor provision thereto), or (iii) has otherwise been
transferred and a new Security or share of Common Stock not subject to transfer
restrictions under the Securities Act has been delivered by or on behalf of the
Company in accordance with Section 3.5 of the Indenture.
"Shelf Registration" means a registration effected pursuant to Section 2
hereof.
"Shelf Registration Statement" means a shelf registration statement of the
Company pursuant to the provisions of Section 2 hereof filed with the Commission
which covers some or all of the Registrable Securities, as applicable, on an
appropriate form under Rule 415 under the Act, or any similar rule that may be
adopted by the Commission, amendments and supplements to such registration
statement, including post-effective amendments, in each case including the
Prospectus contained therein, all exhibits thereto and all material incorporated
by reference therein.
"Underwriter" means any underwriter of Registrable Securities in connection
with an offering thereof under a Shelf Registration Statement.
2. Shelf Registration.
(a) The Company shall, within 90 calendar days following the First
Time of Delivery (as defined in the Purchase Agreement), file with the
Commission a Shelf Registration Statement relating to the offer and sale of the
Registrable Securities by the Holders and, thereafter, shall use all reasonable
efforts to cause such Shelf Registration Statement to be declared effective
under the Securities Act within 180 calendar days after the First Time of
Delivery (as defined in the Purchase
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<PAGE>
Agreement); provided, however, that the Company may, upon written notice to all
the Holders, postpone having the Shelf Registration Statement declared effective
for a reasonable period not to exceed 90 days if the Company possesses material
non-public information, the disclosure of which would have a material adverse
effect on the Company and its subsidiaries taken as a whole; provided, further,
however, that no Holder shall be entitled to have the Registrable Securities
held by it covered by such Shelf Registration unless such Holder is an Electing
Holder.
(b) The Company shall use all reasonable efforts:
(i) To keep the Shelf Registration Statement continuously
effective in order to permit the Prospectus forming part thereof to be usable by
Electing Holders for a period of two years from the date it is declared
effective, or such shorter period that will terminate when there are no
Registrable Securities outstanding (in either case, such period being referred
to herein as the "Effectiveness Period");
(ii) After the Effective Time of the Shelf Registration
Statement, promptly upon the request of any Holder of Registrable 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 thereof for offers and
resales of Registrable Securities, including, without limitation, any action
reasonably necessary to identify such Holder as a selling securityholder in the
Shelf Registration Statement; provided, however, that nothing in this
subparagraph shall relieve such Holder of the obligation to return a completed
and signed Notice and Questionnaire to the Company in accordance with Sections
3(a)(1) or 3(a)(2) hereof; and
(iii) If at any time, the Securities, pursuant to Article XII of
the Indenture, are convertible into securities other than shares of Common
Stock, the Company shall, or shall cause any successor under the Indenture to,
cause such securities to be included in the Shelf Registration Statement no
later than the date on which the Securities may then be convertible into such
securities.
The Company shall be deemed not to have used all reasonable efforts to keep
the Shelf Registration Statement effective during the Effectiveness Period if
the Company voluntarily takes any action that would result in Electing Holders
not being able to offer and sell any of their Registrable Securities during such
period, unless (i) such action is required by applicable law or regulation, (ii)
the Company determines based on the advice of counsel that it is advisable to
disclose in the Shelf Registration Statement a financing, acquisition or other
corporate transaction or other material event or circumstance affecting the
Company or its securities, and the Board of Directors of the Company (or an
executive officer of the Company duly authorized for such purpose) shall have
determined in good faith that such disclosure at such time is not in the best
interests of the Company and its stockholders, and, in the case of clause (i)
above, the Company thereafter promptly complies with the requirements of
paragraph 3(h) below.
3. Registration Procedures. In connection with any Shelf Registration
Statement, the following provisions shall apply:
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<PAGE>
(a) (1) If the Company expects to file and obtain the effectiveness
of a Shelf Registration Statement within 30 days of the date hereof (an
"Expedited Filing"), it shall (x) mail, as promptly as reasonably practicable
after the date hereof to the Holders of Registrable Securities, a Notice and
Questionnaire with a response deadline of 30 days from the date of such Notice
(the "Expedited Filing Questionnaire Deadline"), and (y) as promptly as
reasonably practicable after the response deadline but in any event no later
than 10 days thereafter, prepare a Prospectus supplement (and if required file
an amendment or a supplement to the Shelf Registration Statement) or take such
other measures, if any, as are necessary to include in the Shelf Registration
Statement the Registrable Securities of Electing Holders. If the Company does
not intend to make an Expedited Filing, it shall mail the Notice and
Questionnaire to the Holders of Registrable Securities not less than 30 calendar
days prior to the time the Company intends in good faith to have the Shelf
Registration Statement declared effective. Subject to Section 3(a)(2) hereof, no
Holder of Registrable Securities shall be entitled to be named as a selling
securityholder in the Shelf Registration Statement as of the Effective Time (or
in the first Prospectus supplement filed thereafter in the case of an Expedited
Filing), and no Holder of Registrable Securities shall be entitled to use the
Prospectus forming a part thereof for offers and resales of Registrable
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, that Holders of Registrable 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.
(2) After the Effective Time of the Shelf Registration Statement
(or the Expedited Filing Questionnaire Deadline in the case of an Expedited
Filing), the Company shall, upon the request of any Holder of Registrable
Securities that is not then an Electing Holder, as promptly as reasonably
practicable, send a Notice and Questionnaire to such Holder. The Company shall
not be required to take any action to name such Holder as a selling
securityholder in the Shelf Registration Statement until such Holder has
returned a completed and signed Notice and Questionnaire to the Company.
Following its receipt of such Notice and Questionnaire, the Company will
reasonably promptly include the Registrable Securities covered thereby in the
Shelf Registration Statement (if not previously included).
(3) The term "Electing Holder" shall mean any Holder of
Registrable Securities that has returned a completed and signed Notice and
Questionnaire to the Company in accordance with Section 3(a)(1) or 3(a)(2)
hereof.
(b) The Company shall, as promptly as reasonably practicable, take
such action as may be necessary so that (i) each of the Shelf Registration
Statement and any amendment thereto and any Prospectus forming part thereof and
any amendment or supplement thereto (and each report or other document
incorporated therein by reference in each case) complies in all material
respects with the Securities Act and the Exchange Act and the respective rules
and regulations thereunder, (ii) each of the Shelf Registration Statement and
any amendment thereto does not, when it becomes effective, 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
(iii) each of the Prospectus
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<PAGE>
forming part of the Shelf Registration Statement, and any amendment or
supplement to such Prospectus, does not include 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.
(c) (i) The Company shall, as promptly as reasonably practicable,
advise each Electing Holder and shall confirm such advice in writing if so
requested by any such Electing Holder:
(1) when a Shelf Registration Statement and any amendment
thereto has been filed with the Commission and when the Shelf Registration
Statement or any post-effective amendment thereto has become effective and issue
a Press Release indicating the same;
(2) of any request by the Commission for amendments or
supplements to the Shelf Registration Statement or the Prospectus included
therein or for additional information;
(3) of the issuance by the Commission of any stop order
suspending effectiveness of the Shelf Registration Statement or the initiation
of any proceedings for that purpose; and
(4) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the securities included in the
Shelf Registration Statement for sale in any jurisdiction or the initiation of
any proceeding for such purpose.
(ii) The Company shall, as promptly as reasonably practicable,
advise DTC and the trustee under the Indenture of the happening of any event or
the existence of any state of facts that requires the making of any changes in
the Shelf Registration Statement or the Prospectus included therein so that, as
of such date, the Shelf Registration Statement and the Prospectus do not contain
an untrue statement of a material fact and do not omit to state a material fact
required to be stated therein or necessary to make the statements therein (in
the case of the Prospectus, in light of the circumstances under which they were
made) not misleading (which advice shall be accompanied by an instruction to
suspend the use of the Prospectus until the requisite changes have been made).
(d) The Company shall use all reasonable efforts to prevent the
issuance, and if issued to obtain the withdrawal, of any order suspending the
effectiveness of any Shelf Registration Statement at the earliest possible time.
(e) The Company shall furnish to each Electing Holder, without
charge, at least one copy of such Shelf Registration Statement and any post-
effective amendment thereto, including financial statements and schedules, and,
if the Electing Holder so requests in writing, all reports, other documents and
exhibits that are filed with or incorporated by reference in the Shelf
Registration Statement. The Company shall use all reasonable efforts to take
into account and, if appropriate, reflect in an amendment to the Shelf
Registration Statement such comments on the Shelf
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<PAGE>
Registration Statement as initially filed as the Electing Holders and their
counsel may reasonably propose.
(f) The Company shall, during the Effectiveness Period, deliver to
each Electing Holder, without charge, as many copies of the Prospectus
(including each preliminary Prospectus) included in the Shelf Registration
Statement and any amendment or supplement thereto as such Electing Holder may
reasonably request; and the Company consents (except during the continuance of
any event described in Section 3(c)(ii)) to the use of the Prospectus or any
amendment or supplement thereto by each of the Electing Holders in connection
with the offering and sale of the Registrable Securities covered by the
Prospectus or any amendment or supplement thereto during the Effectiveness
Period. The Company shall use all reasonable efforts to take into account and,
if appropriate, reflect in a Prospectus supplement or amendment such comments as
the Electing Holders and their counsel may reasonably propose.
(g) Prior to any offering of Registrable Securities pursuant to the
Shelf Registration Statement, the Company shall (i) register or qualify or
cooperate with the Electing Holders and their respective counsel in connection
with the registration or qualification of such Registrable Securities for offer
and sale under the securities or blue sky laws of such jurisdictions as any such
Electing Holders reasonably request, (ii) keep such registrations or
qualifications in effect and comply with such laws so as to permit the
continuance of offers and sales in such jurisdictions for so long as may be
necessary to enable any Electing Holder or underwriter, if any, to complete its
distribution of Registrable Securities pursuant to the Shelf Registration
Statement and (iii) take any and all other actions necessary or advisable to
enable the disposition in such jurisdictions of such Registrable Securities;
provided, however, that in no event shall the Company be obligated to (a)
qualify as a foreign corporation or as a dealer in securities in any
jurisdiction where it would not otherwise be required to so qualify but for this
Section 3(g), or (b) file any general consent to service of process in any
jurisdiction where it is not as of the date hereof then so subject.
(h) Upon the occurrence of any event contemplated by paragraph
3(c)(ii) above, the Company shall as promptly as reasonably practicable prepare
a post-effective amendment or supplement to the Shelf Registration Statement or
the Prospectus, or any document incorporated therein be reference, or file any
other required document so that, as thereafter delivered to purchasers of the
Registrable Securities included therein, the Prospectus will not include an
untrue statement of a material fact or omit to state any material fact necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading; provided, however, if the Company determines
based upon the advice of counsel that it is advisable to disclose in the Shelf
Registration Statement a financing, acquisition or other corporate transaction
or other material event affecting the Company or its securities, and the Board
of Directors of the Company (or an executive officer of the Company duly
authorized for such purpose) shall have determined in good faith that such
disclosure would not be in the best interests of the Company and its
stockholders, the Company shall not be required to prepare and file such
amendment, supplement or document for such period as the Board of Directors of
the Company shall have determined in good faith is in the best interests of the
Company and its stockholders. If the Electing Holders are notified of the
occurrence of any
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<PAGE>
event contemplated by paragraph 3(c)(ii) above, the Electing Holders shall
suspend the use of the Prospectus until the requisite changes to the Prospectus
have been made.
(i) Not later than the Effective Time of the Shelf Registration
Statement, the Company shall provide a CUSIP number for the Registrable
Securities that are debt securities.
(j) The Company shall use its best efforts to comply with all
applicable rules and regulations of the Commission and shall make generally
available to its security holders as soon as practicable, but in any event not
later than eighteen months after (i) the effective date (as defined in Rule
158(c) under the Securities Act) of the Shelf Registration Statement and (ii)
the effective date of each post-effective amendment to the Shelf Registration
Statement and (iii) the date of each filing by the Company with the Commission
of an Annual Report on Form 10-K or 10-KSB that is incorporated by reference in
the Shelf Registration Statement, an earnings statement of the Company and its
subsidiaries satisfying the provisions of Section 11(a) of the Securities Act.
(k) The Company shall cause the Indenture and the Securities to be
qualified under the Trust Indenture Act in a timely manner; and in connection
with such qualification, the Company shall cooperate with the Trustee under the
Indenture and the Holders (as defined in the Indenture) to effect such changes
to the Indenture as may be required for such Indenture to be so qualified in
accordance with the terms of the Trust Indenture Act; and the Company shall
execute and use all reasonable efforts to cause the Trustee to execute, all
documents that may be required to effect such changes and all other forms and
documents required to be filed with the Commission to enable such Indenture to
be so qualified in a timely manner.
(l) In the event of an underwritten offering conducted pursuant to
Section 6 hereof, the Company shall, if requested, promptly include or
incorporate in a Prospectus supplement or post-effective amendment to the Shelf
Registration Statement such information as the Managing Underwriters reasonably
agree should be included therein and to which the Company does not reasonably
object and shall make all required filings of such Prospectus supplement or
post-effective amendment as soon as reasonably practicable after it is notified
of the matters to be included or incorporated in such Prospectus supplement or
post-effective amendment.
(m) Upon request, the Company shall enter into such customary
agreements (including underwriting agreements in customary form) and take all
other appropriate actions in order to expedite or facilitate the registration
and disposition of the Registrable Securities, and in connection therewith, if
an underwriting agreement is entered into, cause the same to contain
indemnification and contribution provisions and procedures substantially
identical to those set forth in Section 5 (or such other provisions and
procedures acceptable to the Managing Underwriters, if any) with respect to all
parties to be indemnified pursuant to Section 5 hereof.
(n) The Company shall, upon request:
(i) make reasonably available for inspection by one
representative of the Electing Holders designated in writing by the Holders of a
majority of the Registrable Securities to
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<PAGE>
be registered thereunder, any underwriter participating in any underwritten
offering pursuant to Section 6 hereof, and any attorney, accountant or other
agent retained by such representative or any such underwriter all relevant
financial and other records, pertinent corporate documents and properties of the
Company and its subsidiaries, as is customary for similar due diligence
examinations;
(ii) cause the Company's officers, directors and employees to
make reasonably available for inspection all relevant information reasonably
requested by such representative or any such underwriter, attorney, accountant
or agent in connection with any such Shelf Registration Statement, in each case,
as is customary for similar due diligence examinations; provided, however, that
any information that is designated in writing by the Company, in good faith, as
confidential at the time of delivery of such information shall be kept
confidential by such representative, any Holders or any such underwriter,
attorney, accountant or agent, unless (x) such disclosure is made in connection
with a court proceeding or required by law, or (y) such information becomes
available to the public generally or through a third party without an
accompanying obligation of confidentiality; and provided, further, that as
promptly as reasonably practicable before disclosure is made pursuant to clause
(x) above, the Company is given prior written notice.
(iii) in connection with any underwritten offering conducted
pursuant to Section 6 hereof, make such representations and warranties to the
Electing Holders and the underwriters, if any, in form, substance and scope as
are customarily made by the Company to underwriters in primary underwritten
offerings and covering matters including, but not limited to, those set forth in
the Purchase Agreement;
(iv) in connection with any underwritten offering conducted
pursuant to Section 6 hereof, obtain opinions of counsel to the Company and
updates thereof (which counsel and opinions (in form, scope and substance) shall
be reasonably satisfactory to the Managing Underwriters, if any) addressed to
each Electing Holder and the underwriters, if any, covering such matters as are
customarily covered in opinions requested in underwritten offerings and such
other matters as may be reasonably requested by such Electing Holders and
underwriters (it being agreed that the matters to be covered by such opinion or
written statement by such counsel delivered in connection with such opinions
shall include in customary form, without limitation, as of the date of the
opinion and as of the effective date of the Shelf Registration Statement or most
recent post-effective amendment thereto, as the case may be, the absence from
such Shelf Registration Statement and the Prospectus included therein, as then
amended or supplemented, including the documents incorporated by reference
therein, of an untrue statement of a material fact or the omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading);
(v) in connection with any underwritten offering conducted
pursuant to Section 6 hereof, obtain "cold comfort" letters and updates thereof
from the independent public accountants of the Company (and, if necessary, any
other independent public accountants of any subsidiary of the Company or of any
business acquired by the Company for which financial statements and financial
data are, or are required to be, included in the Shelf Registration Statement),
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<PAGE>
addressed to each Electing Holder and the underwriters, if any, in customary
form and covering matters of the type customarily covered in "cold comfort"
letters in connection with primary underwritten offerings;
(vi) in connection with any underwritten offering conducted
pursuant to Section 6 hereof, deliver such documents and certificates as may be
reasonably requested by any such Electing Holders and the Managing Underwriters,
if any, including those to evidence compliance with Section 3(h) hereof and with
any customary conditions contained in the underwriting agreement or other
agreement entered into by the Company.
(o) The Company will use all reasonable efforts to cause the shares
of Common Stock issuable upon conversion of the Securities to be quoted on the
Nasdaq National Market or other trading system or stock exchange on which the
Common Stock primarily trades on or prior to the Effective Time of any Shelf
Registration Statement hereunder.
(p) In the event that any broker-dealer registered under the Exchange
Act shall be an "affiliate" (as defined in Rule 2720(b)(1) of the NASD Rules (or
any successor provision thereto)) of the Company or has a "conflict of interest"
(as defined in Rule 2720(b)(7) of the NASD Rules (or any successor provision
thereto)) and such broker-dealer shall underwrite, participate as a member of an
underwriting syndicate or selling group or assist in the distribution of any
Registrable Securities covered by the Shelf Registration Statement, whether as a
Holder of such Registrable Securities or as an underwriter, a placement or sales
agent or a broker or dealer in respect thereof, or otherwise, assist such broker
or dealer in respect thereof, or otherwise, the Company shall assist such
broker-dealer in complying with the requirements of the NASD Rules, including,
without limitation, by (A) engaging a "qualified independent underwriter" (as
defined in Rule 2720(b)(15) of the NASD Rules (or any successor provision
thereto)) to participate in the preparation of the Shelf Registration Statement
relating to such Registrable Securities, to exercise usual standards of due
diligence in respect thereto and to recommend the public offering price of such
Registrable Securities, (B) indemnifying any such qualified independent
underwriter to the extent of the indemnification of underwriters provided in
Section 5 hereof, 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 NASD Rules.
(q) The Company shall use all reasonable efforts to take all other
steps necessary to effect the registration, offering and sale of the Registrable
Securities covered by the Shelf Registration Statement contemplated hereby.
4. Registration Expenses. The Company shall bear all fees and expenses
incurred in connection with the performance of its obligations under Sections 2,
3 and 6 hereof and shall bear or reimburse the Electing Holders for the
reasonable fees and disbursements of one firm of counsel designated by the
Company and reasonably acceptable to the Holders of a majority of the
Registrable Securities covered by the Shelf Registration Statement to act as
counsel therefor in connection therewith, subject to the provisions of Section 6
with respect to the payment of fees and expenses in connection with an
underwritten offering.
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<PAGE>
5. Indemnification and Contribution.
(a) Indemnification by the Company. In connection with any Shelf
Registration Statement, the Company shall indemnify and hold harmless each
Electing Holder and each underwriter, selling agent or other securities
professional, if any, who facilitates the disposition of Registrable Securities,
and each of their respective officers and directors and each person, if any, who
controls such Electing Holder, underwriter, selling agent or other securities
professional within the meaning of Section 15 of the Securities Act or Section
20 of the Exchange Act (each such person being sometimes referred to herein as
an "Indemnified Person") against any losses, claims, damages or liabilities,
joint or several, to which such Indemnified Person 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 on any
untrue statement or alleged untrue statement of a material fact contained in any
Shelf Registration Statement (or any amendment thereto) under which such
Registrable Securities are registered under the Securities Act, or any
Prospectus contained therein or furnished by the Company to any Indemnified
Person, or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission therefrom of a material fact required to
be stated therein or necessary to make the statements therein not misleading (in
the case of the Prospectus, in light of the circumstances under which they were
made), and the Company hereby agrees to reimburse such Indemnified Person 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
Indemnified 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 Shelf
Registration Statement or Prospectus, or any amendment or supplement thereto, in
reliance upon and in conformity with written information furnished to the
Company by such Indemnified Person expressly for use therein.
(b) Indemnification by the Holders and Any Agents and Underwriters.
Each Electing Holder agrees, as a consequence of the inclusion of any such
holder's Registrable Securities in such Shelf Registration Statement, and each
underwriter, selling agent or other securities professional, if any, who
facilitates the disposition of Registrable Securities shall agree, as a
consequence of facilitating such disposition of Registrable Securities,
severally and not jointly, to (i) indemnify and hold harmless the Company, its
directors, officers who sign any Shelf Registration Statement and each person,
if any, who controls the Company within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, against any losses, claims,
damages or liabilities to which the Company or such other persons 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 such Shelf Registration Statement or Prospectus, or any amendment
or supplement thereto, or arise out of or are based upon an 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 the case of the
Prospectus, in light of the circumstances under which they were made), 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
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<PAGE>
made in reliance upon and in conformity with written information furnished to
the Company by such Electing Holder, underwriter, selling agent or other
securities professional 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.
(c) Notices and Claims. 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 an indemnifying party under this Section 5, notify such
indemnifying party in writing of the commencement thereof; but the omission to
so notify the indemnifying party shall not relieve it from any liability which
it may have to the indemnified party otherwise than under this Section 5. 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
of its election so to assume the defense thereof, such indemnifying party shall
not be liable to such indemnified party under this Section 5 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 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 the indemnification provided for in this Section
5 is unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) of this Section 5 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
and 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 the
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 contribution pursuant to this Section 5(d)
were determined by pro rata allocation (even if the Electing Holders or any
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<PAGE>
underwriters, selling agents or other securities professionals or all of them
were treated as one entity for such purpose) or by any other method of
allocation that does not take into account the equitable considerations referred
to in this Section 5(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. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The obligations of the Electing
Holders and any underwriters, selling agents or other securities professionals
in this Section 5(d) to contribute shall be several in proportion to the
percentage of principal amount of Registrable Securities registered or
underwritten, as the case may be, by them and not joint.
(e) Notwithstanding any other provision of this Section 5, in no
event shall any Electing Holder be required to undertake liability to any person
under this Section 5 for any amounts in excess of the dollar amount of the
proceeds received by such Electing Holder from the sale of such Electing
Holder's Registrable Securities (after deducting any fees, discounts and
commissions applicable thereto) pursuant to any Shelf Registration Statement
under which such Registrable Securities are registered under the Securities Act.
(f) The obligations of the Company under this Section 5 shall be in
addition to any liability which the Company may otherwise have to any
Indemnified Person and the obligations of any Electing Holder, underwriter,
selling agent or other securities professional under this Section 5 shall be in
addition to any liability which any such Electing Holder, underwriter, selling
agent or other securities professional shall otherwise have to the Company. The
remedies provided in this Section 5 are not exclusive and shall not limit any
rights or remedies which may otherwise be available to an indemnified party at
law or in equity.
6. Underwritten Offering. Any Electing Holder who desires to do so may
sell Registrable Securities (in whole or in part) in an underwritten offering,
provided that (i) the Electing Holders of at least 25% in aggregate principal
amount of the Registrable Securities then covered by the Shelf Registration
Statement shall request such an offering and (ii) at least such aggregate
principal amount of such Registrable Securities shall be included in such
offering, and provided, further, that the Company shall not be obligated to
cooperate with more than one underwritten offering. Upon receipt of such a
request, the Company shall provide all Holders of Registrable Securities written
notice of the request, which notice shall inform such Holders that they have the
opportunity to participate in the offering. In any such underwritten offering,
the investment banker or bankers and manager or managers that will administer
the offering will be selected by, and the underwriting arrangements with respect
thereto will be approved by the Holders of a majority of the Registrable
Securities to be included in such offering; provided, however, that such
investment bankers and managers and underwriting arrangements must be reasonably
satisfactory to the Company. No Holder may participate in any underwritten
offering contemplated hereby unless (a) such Holder agrees to sell such Holder's
Registrable Securities to be included in the underwritten offering in
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<PAGE>
accordance with any approved underwriting arrangements, (b) such Holder
completes and executes all reasonable questionnaires, powers of attorney,
indemnities, underwriting agreements, lock-up letters and other documents
required under the terms of such approved underwriting arrangements, and (c) if
such Holder is not then an Electing Holder, such Holder returns a completed and
signed Notice and Questionnaire to the Company in accordance with Section
3(a)(2) hereof within a reasonable amount of time before such underwritten
offering. The Holders participating in any underwritten offering shall be
responsible for any underwriting discounts and commissions and fees and expenses
of their own counsel. The Company shall pay all expenses customarily borne by
issuers in an underwritten offering, including but not limited to filing fees,
the fees and disbursements of its counsel and accountants and any printing
expenses incurred in connection with such underwritten offering. Notwithstanding
the foregoing or the provisions of Sections 3(l) and 3(m) hereof, upon receipt
of a request from the Managing Underwriter or a representative of Holders of a
majority of the Registrable Securities to be included in an underwritten
offering to prepare and file an amendment or supplement to the Shelf
Registration Statement and Prospectus in connection with an underwritten
offering, the Company may delay the filing of any such amendment or supplement
for up to 60 days if the Board of Directors of the Company (or an executive
officer of the Company duly authorized for such purpose) shall have determined
in good faith that the Company has a valid business reason for such delay.
7. Liquidated Damages. Pursuant to Section 2(a) hereof, the Company may,
upon written notice to all the Holders, postpone having the Shelf Registration
Statement declared effective for a reasonable period not to exceed 90 days if
the Company possesses material non-public information, the disclosure of which
would have a material adverse effect on the Company and its subsidiaries taken
as a whole. Notwithstanding any such postponement, if (i) on or prior to the
90th day following the date of the First Time of Delivery (as defined in the
Purchase Agreement), a Shelf Registration Statement has not been filed with the
Commission or (ii) on or prior to the 180th day following the date of the First
Time of Delivery (as defined in the Purchase Agreement), such Shelf Registration
Statement is not declared effective by the Commission (each, a "Registration
Default"), the Company shall be required to pay liquidated damages ("Liquidated
Damages"), from and including the day following such Registration Default until
such Shelf Registration Statement is either so filed or so filed and
subsequently declared effective, as applicable. Such Liquidated Damages shall be
paid semi-annually in arrears, with the first semi-annual payment due on the
first Interest Payment Date (as defined in the Indenture), as applicable,
following the date of such Registration Default, and will accrue at a rate per
annum equal to an additional one-quarter of one percent (0.25%) of the principal
amount of Restricted Securities, to and including the 90th day following such
Registration Default and one-half of one percent (0.5%) thereof from and after
the 91st day following such Registration Default. In the event that the Shelf
Registration Statement ceases to be effective (or the Holders of Registrable
Securities are otherwise prevented or restricted by the Company from effecting
sales pursuant thereto) (an "Effective Failure") for more than 45 days, whether
or not consecutive, in any 90 day period, and 90 days, whether or not
consecutive, during any twelve-month period, then the Company shall pay
Liquidated Damages in the amount of one-half of one percent (0.5%) per annum
from the 46th day of the applicable 90 day period or the 90th day of the
applicable twelve-month period, as the case may be, that such Shelf Registration
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<PAGE>
Statement ceases to be effective (or the Holders of Registrable Securities are
otherwise prevented or restricted by the Company from effecting sales pursuant
thereto) until such time as the Effective Failure is cured. For the purpose of
determining an Effective Failure, days on which the Company has been obligated
to pay Liquidated Damages in accordance with the foregoing in respect of a prior
Effective Failure within the applicable 90 day or twelve-month period, as the
case may be, shall not be included. The Liquidated Damages as set forth in this
Section 7 shall be the exclusive monetary remedy available to the Holders of
Registrable Securities for such Registration Default or Effective Failure. In no
event shall the Company be required to pay Liquidated Damages in excess of the
applicable maximumamount of one-half of one percent (0.5%) set forth above,
regardless of whether one or multiple Registration Defaults exist.
8. Miscellaneous.
(a) Other Registration Rights. The Company may grant registration
rights that would permit any Person that is a third party the right to piggy-
back on any Shelf Registration Statement, provided that if the Managing
Underwriter, if any, of any underwritten offering conducted pursuant to Section
6 hereof notifies the Company and the Electing Holders that the total amount of
securities which the Electing Holders and the holders of such piggy-back rights
intend to include in any Shelf Registration Statement is so large as to
materially threaten the success of such offering (including the price at which
such securities can be sold), then the amount, number or kind of securities to
be offered for the account of holders of such piggy-back rights will be reduced
to the extent necessary to reduce the total amount of securities to be included
in such offering to the amount, number or kind recommended by the Managing
Underwriter prior to any reduction in the amount of Registrable Securities to be
included in such Shelf Registration Statement.
(b) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this Section 8(b), may be amended, and waivers or
consents to departures from the provisions hereof may be given, only by a
written instrument duly executed by the Company and the Holders of a majority in
aggregate principal amount of Registrable Securities then outstanding. Each
Holder of Registrable Securities outstanding at the time of any such amendment,
waiver or consent or thereafter shall be bound by any amendment, waiver or
consent effected pursuant to this Section 8(b), whether or not any notice,
writing or marking indicating such amendment, waiver or consent appears on the
Registrable Securities or is delivered to such Holder.
(c) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail,
telex, telecopier, or air courier guaranteeing overnight delivery:
(1) if to a Holder, at the most current address given by
such Holder to the Company in accordance with the provisions of this Section
8(c);
(2) if to the Purchasers, initially at the address set
forth in the Purchase Agreement; and
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<PAGE>
(3) if to the Company, initially at its address set forth
in the Purchase Agreement.
All such notices and communications shall be deemed to have been duly given
when received.
The Purchasers or the Company by notice to the other may designate
additional or different addresses for subsequent notices or communications.
(d) Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors and assigns of each of the parties and the
Holders, including, without the need for an express assignment or any consent by
the Company thereto, subsequent Holders of Registrable Securities. The Company
hereby agrees to extend the benefits of this Agreement to any Holder of
Registrable Securities and any such Holder may specifically enforce the
provisions of this Agreement as if an original party hereto.
(e) Counterparts. This agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(f) Headings. The headings in this agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(g) Governing Law. This agreement shall be governed by and construed
in accordance with the laws of the State of New York, without giving effect to
any provisions relating to conflicts of laws.
(h) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions hereof shall not be in any way impaired or affected
thereby, it being intended that all of the rights and privileges of the parties
shall be enforceable to the fullest extent permitted by law.
(i) Survival. The respective indemnities, agreements,
representations, warranties and other provisions set forth in this Agreement or
made pursuant hereto shall remain in full force and effect, regardless of any
investigation (or any statement as to the results thereof) made by or on behalf
of any Electing Holder, any director, officer or partner of such Electing
Holder, any agent or underwriter, any director, officer or partner of such agent
or underwriter, or any controlling person of any of the foregoing, and shall
survive the transfer and registration of the Registrable Securities of such
Holder.
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<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
between the Company and you.
Very truly yours,
Exodus Communications, Inc.
By: /s/ Ellen M. Hancock
-------------------------------------
Name: Ellen M. Hancock
Title: President and CEO
The foregoing Registration Rights Agreement is hereby confirmed and
accepted as of the date first above written.
Goldman, Sachs & Co.
Donaldson, Lufkin & Jenrette
Securities Corporation
Morgan Stanley & Co. Incorporated
By: /s/ Goldman, Sachs & Co.
-------------------------------------
(Goldman, Sachs & Co.)
On behalf of each of the Purchasers
[Signature Page to Registration Rights Agreement]
<PAGE>
Exhibit A
EXODUS COMMUNICATIONS, INC.
INSTRUCTION TO DTC PARTICIPANTS
(DATE OF MAILING)
URGENT -- IMMEDIATE ATTENTION REQUESTED
DEADLINE FOR RESPONSE: (DATE)
The Depository Trust Company ("DTC") has identified you as a DTC
Participant through which beneficial interests in Exodus Communications, Inc.
(the "Company") 4 3/4% Convertible Subordinated Notes due July 15, 2008 (the
"Securities") are held.
The Company is in the process of registering the Securities under the
Securities Act of 1933, as amended, for resale by the beneficial owners thereof.
In order to have their Securities included in the registration statement,
beneficial owners, INCLUDING BENEFICIAL OWNERS RESIDENT OUTSIDE THE UNITED
STATES, must complete and return the enclosed Notice of Registration Statement
and Selling Securityholder Questionnaire.
IT IS IMPORTANT THE 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 [DEADLINE FOR RESPONSE]. Please forward a copy of
the enclosed materials 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 regarding this matter, please contact [Name, address and
telephone number of contact at the Company].
<PAGE>
EXODUS COMMUNICATIONS, INC.
NOTICE OF REGISTRATION STATEMENT AND SELLING SECURITY HOLDER QUESTIONNAIRE
(DATE)
Exodus Communications, Inc. (the "Company") has filed or intends shortly to
file with the United States Securities and Exchange Commission (the
"Commission") a registration statement on form S-3 (the "Shelf Registration
Statement") for the registration and resale under the United States Securities
Act of 1933, as amended (the "Securities Act"), of the Company's 4 3/4%
Convertible Subordinated Notes due July 15, 2008 (CUSIP No. 0________) (the
"Notes"), and Common Stock, par value $0.001 per share, of the Company issuable
upon conversion or repurchase thereof, in accordance with the terms of the
Registration Rights Agreement dated as of December 1, 1999 (the "Registration
Rights Agreement") between the Company and the purchasers named therein (the
"Purchasers"). A copy of the Registration Rights Agreement is attached hereto.
All capitalized terms not otherwise defined herein shall have the meanings
ascribed thereto in the Registration Rights Agreement.
In order to have Registrable Securities included in the Shelf Registration
Statement (or a supplement or amendment thereto), this Notice of Registration
Statement and Selling Securityholder Questionnaire ("Notice and Questionnaire")
must be completed, executed and delivered to the Company at the address set
forth herein for receipt ON OR BEFORE [insert date that is 30 days from the
Notice Date] (the "Questionnaire Deadline"). Unless the Company otherwise
consents, beneficial owners of Registrable 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 (or a
supplement or amendment thereto) and related Prospectus and (ii) may not sell
their Registrable Securities pursuant thereto. Beneficial owners of Registrable
Securities not having returned a Notice and Questionnaire by the Questionnaire
Deadline may, however, receive another Notice and Questionnaire from the Company
upon request. Following its receipt of a completed Notice and Questionnaire in
return, the Company will reasonably promptly include the Registrable Securities
covered thereby in the Shelf Registration Statement.
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 Registrable 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 "Registrable Securities" is defined in the Registration Rights
Agreement to mean all or any portion of the Notes issued under the Indenture and
the Common Stock issuable upon conversion or repurchase thereof; provided,
however, that a security ceases to be a Registrable Security when it is no
longer a Restricted Security.
<PAGE>
The term "Restricted Security" is defined in the Registration Rights
Agreement to mean any Note or share of Common Stock issuable upon conversion or
repurchase thereof except any such Note or share of Common Stock which (i) has
been effectively registered under the Securities Act and sold in a manner
contemplated by the Shelf Registration Statement, (ii) has been transferred in
compliance with Rule 144 under the Securities Act (or any successor provision
thereto) or is transferable pursuant to paragraph (k) of such Rule 144 (or any
successor provision thereto), or (iii) has otherwise been transferred and a new
Security or share of Common Stock not subject to transfer restrictions under the
Securities Act has been delivered by or on behalf of the Company in accordance
with Section 3.5 of the Indenture.
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<PAGE>
ELECTION
The undersigned holder (the "Selling Securityholder") of Registrable
Securities hereby elects to include in the Shelf Registration Statement the
Registrable Securities beneficially owned by it and listed below in Item (3)
(unless otherwise specified under Item (3). The undersigned, by signing and
returning this Notice and Questionnaire, agrees to be bound with respect to such
Registrable Securities by the terms and conditions of this Notice and
Questionnaire and the Registration Rights Agreement, including, without
limitation, Section 5 of the Registration Rights Agreement, as if the
undersigned Selling Securityholder were an original party thereto.
Upon any sale of Registrable Securities pursuant to the Shelf Registration
Statement, the undersigned Selling Securityholder will be required to deliver to
the Company and the Trustee under the Indenture the Notice of Transfer completed
and signed set forth in Appendix I to the Notice and Questionnaire and hereby
undertakes to do so.
The undersigned Selling Securityholder hereby provides the following
information to the Company and represents and warrants that such information is
accurate and complete:
<PAGE>
QUESTIONNAIRE
(1) (a) Full Legal Name of Selling Securityholder:
______________________________________________________________________
(b) Full Legal Name of Registered Holder (if not the same as in (a) above)
of Registrable Securities Listed in (3) Below:
______________________________________________________________________
(c) Full Legal Name of DTC Participant (if applicable and if not the same
as (b) above) Through Which Registrable Securities Listed in (3) Below
are Held:
______________________________________________________________________
(2) Address for Notices to Selling Securityholder:
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
Telephone:_________________________________________________________________
Fax:_______________________________________________________________________
Contact:___________________________________________________________________
(3) Beneficial Ownership of Registrable Securities:
Except as set forth below, the undersigned Selling Securityholder does not
beneficially own any Notes or Common Stock previously issued upon
conversion or repurchase of any Note.
Principal amount of Notes beneficially owned:______________________________
Number of shares of Common Stock beneficially owned and issued to date upon
conversion or repurchase of Notes (if any):________________________________
Principal amount of Notes which the undersigned wishes to be included in
the Shelf Registration Statement:__________________________________________
Number of shares of Common Stock (if any) issued upon conversion or
repurchase of Registrable Securities which are to be included in the Shelf
Registration Statement:____________________________________________________
(4) Other shares of Common Stock or other Notes of the Company Owned by the
Selling Securityholder:
<PAGE>
Except as set forth below, and under Item (3) above, the undersigned
Selling Securityholder is not the beneficial or registered owner of any
shares of Common Stock or any other securities of the Company.
State any exceptions here:
(5) 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:
(6) Plan of Distribution:
Except as set forth below, the undersigned Selling Securityholder intends
to distribute the Registrable Securities listed above in Item (3) only as
follows (if at all): Such Registrable Securities may be sold from time to
time directly by the undersigned Selling Securityholder or, alternatively,
through underwriters, broker-dealer or agents. Such Registrable 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 exchanges or U.S. inter-dealer quotation system of a
registered national securities association on which the Registrable
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 Registrable Securities or
otherwise, the Selling Securityholder may enter into hedging transactions
with broker-dealers, which may in turn engage in short sales of the
Registrable Securities in the course of hedging the positions they assume.
The Selling Securityholder may also sell Registrable Securities short and
deliver Registrable Securities to close out such short position, or loan or
pledge Registrable Securities to broker-dealers that in turn may sell such
securities.
State any exceptions here:
Note: In no event may such method(s) of distribution take the form of an
underwritten offering of the Registrable Securities without the prior
agreement of the Company.
By signing below, the Selling Securityholder acknowledges that it
understands its obligation to comply, and agrees that it will comply, with
the prospectus delivery and other provisions of the Securities Act and
Exchange Act and the respective rules thereunder, particularly Regulation
M.
<PAGE>
In the event that the Selling Securityholder transfers all or any portion
of the Registrable Securities listed in Item (3) 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 Registration Rights Agreement.
By signing below, the Selling Securityholder consents to the disclosure of
the information contained herein in its answers to Items (1) through (6)
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 the
Registration Rights Agreement to provide such information as may be
required by law for inclusion in the Self Registration Statement, the
Selling Securityholder agrees to promptly notify the Company of any
inaccuracies or changes in the information provided herein which may occur
subsequent to the date hereof at any time while the Self Registration
Statement remains in effect. All notices hereunder and pursuant to the
Registration Rights Agreement shall be made in writing by hand delivery,
first-class mail, or air courier guaranteeing overnight delivery as
follows:
To the Company:
Exodus Communications, Inc.
2831 Mission College Blvd.
Santa Clara, CA 95054
Attention: General Counsel and Secretary
Once this Notice and Questionnaire is executed by the Selling
Securityholder and received by the Company, 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
Registrable Securities beneficially owned by such Selling Securityholder
and listed in Item (3) above. This Agreement shall be governed in all
respects by the laws of the State of New York.
<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 Registrable Securities)
By:_________________________________
Name:
Title:
PLEASE RETURN THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE FOR
RECEIPT ON OR BEFORE (DEADLINE FOR RESPONSE) TO THE COMPANY AT:
Exodus Communications, Inc.
2831 Mission College Blvd.
Santa Clara, CA 95054
Attention: General Counsel and Secretary
<PAGE>
APPENDIX I
NOTICE TO TRANSFER PURSUANT TO REGISTRATION STATEMENT
Chase Manhattan Bank and Trust Company,
National Association
101 California Street, Suite 2725
San Francisco, CA 94111
Exodus Communications, Inc.
2831 Mission College Blvd.
Santa Clara, CA 95054
Attention: General Counsel and Secretary
Re Exodus Communications, Inc. 4 3/4% Convertible Subordinated Notes
due July 15, 2008 (the "Notes")
Dear Sirs:
Please be advised that _________________________________ has transferred
$_____ aggregate principal amount of the above-referenced notes or ______ shares
of the Company's Common Stock, issued on conversion, repurchase or redemption of
Notes, pursuant to the Registration Statement Form S-3 (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 with respect to the
transfer described above and that the above-named beneficial owner of the Notes
of Common Stock is named as a selling security holder in the Prospectus dated
____________ or in amendments or supplements thereto, and that the aggregate
principal amount of the Notes of number of Common Stock transferred are [a
portion of] the Notes or Common Stock listed in such Prospectus as amended or
supplemented opposite such owner's name.
Dated:_____________________
Very truly yours,
_________________________________
(Name)
By:______________________________
(Authorized Signature)
<PAGE>
EXHIBIT 5.01
February 1, 2000
Exodus Communications, Inc.
2831 Mission College Boulevard
Santa Clara, CA 95054
Ladies and Gentlemen:
At your request, we have examined the Registration Statement on Form S-3
(the "Registration Statement") to be filed by you with the Securities and
Exchange Commission (the "Commission") on or about February 1, 2000 in
connection with the registration under the Securities Act of 1933, as amended,
of (i) an aggregate of 7,101,700 shares of your Common Stock (the "Stock")
issuable upon conversion of $500,000,000 aggregate principal amount of your 4
3/4% Convertible Subordinated Notes due July 15, 2008 (the "Registrable
Notes"), which Registrable Notes are convertible into such Stock at a
conversion rate of 14.2034 shares of Stock per $1,000 principal amount of
Registrable Notes, subject to adjustment in certain circumstances, and (ii) the
Registrable Notes, all of which Stock and Registrable Notes are being sold by
the selling securityholders that may be specified in the Registration Statement
and the prospectuses associated therewith from time to time (the "Selling
Securityholders").
In rendering this opinion, we have examined the following:
(1) your registration statements on Form 8-A filed with the Commission on
February 13, 1998 and January 29, 1999;
(2) your Annual Report on Form 10-K for the year ended December 31, 1998;
(3) 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;
(4) 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;
(5) the Registration Statement, together with the exhibits filed as a part
thereof or incorporated by reference therein;
(6) the prospectus (the "Prospectus") prepared in connection with the
Registration Statement;
(7) 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;
(8) summary reports from you confirming the number of shares of your
capital stock outstanding as of January 31, 2000 and the number of
options, warrants and any other rights to acquire shares of your
capital stock outstanding as of January 31, 2000;
(9) oral verification from your transfer agent of the number of
outstanding shares of your common stock as of January 31, 2000;
(10) a Management Certificate addressed to us and dated of even date
herewith executed by you containing certain factual and other
representations; and
(11) 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.
We have also confirmed the continued effectiveness of your registration
under the Securities Exchange Act of 1934, as amended, by telephone call to the
offices of the Commission and have confirmed your eligibility to use Form S-3.
<PAGE>
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 and completeness of all documents
submitted to us as originals, the conformity to originals and completeness of
all documents submitted to us as copies, the legal capacity of all natural
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 and have assumed the current
accuracy and completeness of the information obtained from the public officials
and records referred to above. We have made no independent investigation or
other attempt to verify the accuracy of any information set forth in such
documents 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.
In rendering this opinion, we have also assumed that, at the time of any
issuance of any shares of Stock pursuant to the Registration Statement, the
number of shares of Stock so issued will not exceed that number of shares of
Stock obtained by subtracting from the number of shares of Stock then
authorized under your Certificate of Incorporation: (a) the number of shares of
Stock that are then issued and (b) the number of shares of Stock that are then
reserved for issuance pursuant to your then outstanding commitments or
obligations.
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 State of California and,
without reference to case law or secondary sources, 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. In rendering the opinion expressed in clause
(i)(B) 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.
You have informed us that you intend to issue the Stock from time to time on
a delayed or continuous basis. This opinion is limited to the laws, including
the rules and regulations, as in effect on the date hereof. We are basing this
opinion on our understanding that, prior to issuing any Stock, you will advise
us in writing of the terms thereof and other information material thereto, will
afford us an opportunity to review the operative documents pursuant to which
such Stock is to be issued (including the Registration Statement, the
Prospectus and the applicable supplements to the Prospectus, as then in effect)
and will file such supplement or amendment to this opinion (if any) as we may
reasonably consider necessary or appropriate with respect to such Stock.
However, we take no responsibility to monitor your future compliance with
applicable laws, rules or regulations of the Commission or other governmental
body. We also assume you will timely file any and all supplements to the
Registration Statement and Prospectus as are necessary to comply with
applicable laws in effect from time to time.
Based upon the foregoing, it is our opinion that (i) the Registrable Notes
are (A) validly issued, and (B) are your valid and binding obligations and (ii)
upon completion of the proceedings being taken or contemplated by us, upon
conversion of the Registrable Notes in accordance with their terms, the up to
7,101,700 shares of Stock that may be sold by the Selling Securityholders
pursuant to the Registration Statement, when issued and sold in the manner
referred to in the Registration Statement pursuant to the Prospectus, will be
validly issued, fully paid and nonassessable.
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 and the Prospectus constituting a part thereof.
2
<PAGE>
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 sale of the Registrable
Notes and the Stock and is not to be relied upon for any other purpose.
Very truly yours,
Fenwick & West LLP
/s/ Fenwick & West LLP
By: _________________________________
3
<PAGE>
Exhibit 5.02
February 1, 2000
Fenwick & West LLP
Two Palo Alto Square
Palo Alto, California 94306
Re: Exodus Communications, Inc.
$500,000,000 aggregate principal amount of
4 3/4% Convertible Subordinated Notes due 2008
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-3 (the "Registration Statement") under the
Securities Act of 1933 (the "Securities Act") with respect to $500,000,000
aggregate principal amount of the Company's 4 3/4% Convertible Subordinated
Notes due July 15, 2008 (the "Notes") and the shares of common stock of the
Company issuable upon conversion of the Notes. The Notes were issued pursuant
to an Indenture dated as of December 1, 1999 between the Company and Chase
Manhattan Bank and Trust Company, National Association as Trustee (the
"Indenture").
In giving this opinion, we have reviewed copies of the Indenture, the Notes
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 have assumed that the Indenture constitutes
(subject to the same qualifications as are contained in this opinion) the valid
and legally binding agreement of the Trustee
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 Notes have been duly
authorized, executed and delivered by the Company, duly authenticated by the
Trustee and duly paid for at the time of their original issuance, and subject
to the qualifications set forth herein, we are of the opinion that the Notes
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.
We express no opinion as to the shares of common stock of the Company
issuable upon conversion of the Notes.
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.
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 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 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-3 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
reference to our firm under the heading "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-3 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
