20-F
Table of Contents

As filed with the Securities and Exchange Commission on April 30, 2018

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 20-F

 

 

(Mark One)

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934

or

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2017

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from [                    ] to [                    ]

or

 

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report                     

For the transition period from [                    ] to [                    ]

Commission file number: 001-35053

 

 

InterXion Holding N.V.

(Exact name of registrant as specified in its charter)

 

 

The Netherlands

(Jurisdiction of incorporation or organization)

Scorpius 30

2132 LR Hoofddorp

The Netherlands

+31 20 880 7600

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

 

Title of Each Class

 

Name of Each Exchange on Which Registered

Ordinary shares, with a nominal value of €0.10 each   New York Stock Exchange

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

(Title of Class)

 

 

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:

71,414,513 ordinary shares

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act:    Yes  ☒    No  ☐

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.    Yes  ☐    No  ☒

Note—Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☐    No  ☒

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer     Accelerated filer     Non-accelerated filer     Emerging growth company  

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.

 

The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

U.S. GAAP  ☐

  

International Financial Reporting Standards as issued

by the International Accounting Standards Board  ☒

  

Other  ☐

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:    Item 17  ☐    Item 18  ☐

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS) Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.    Yes  ☐    No  ☐

 

 

 


Table of Contents

Introduction

Presentation of Financial Information

Unless otherwise indicated, the financial information in this annual report has been prepared in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board. The significant IFRS accounting policies applied to our financial information in this annual report have been applied consistently.

Financial Information

The financial information included in “Financial Statements” is covered by the auditors’ report included therein. The audit was carried out in accordance with standards issued by the Public Company Accounting Oversight Board (United States).

Non-IFRS Financial Measures

Included in this annual report are certain non-IFRS financial measures, which are measures of our financial performance that are not calculated and presented in accordance with IFRS, within the meaning of applicable SEC rules. These measures are as follows: (i) Adjusted EBITDA; (ii) Recurring revenue and (iii) Cash generated from operations.

Other companies may present Adjusted EBITDA, Recurring revenue and Cash generated from operations differently than we do. Each of these measures are not measures of financial performance under IFRS and should not be considered as an alternative to operating income or as a measure of liquidity or an alternative to Profit for the period attributable to shareholders (“net income”) as indicators of our operating performance or any other measure of performance implemented in accordance with IFRS.

We define Adjusted EBITDA as Operating income adjusted for the following items, which may occur in any period, and which management believes are not representative of our operating performance:

 

    Depreciation, amortization and impairments – property, plant and equipment and intangible assets (except goodwill) are depreciated on a straight-line basis over the estimated useful life. We believe that these costs do not represent our operating performance.

 

    Share-based payments – primarily the fair value at the grant date to employees of equity awards, which are recognized as an employee expense over the vesting period. We believe that this expense does not represent our operating performance.

 

    Income or expense related to the evaluation and execution of potential mergers or acquisitions (“M&A”) – under IFRS, gains and losses associated with M&A activity are recognized in the period in which such gains or losses are incurred. We exclude these effects because we believe they are not reflective of our on-going operating performance.

 

    Adjustments related to terminated and unused data center sites – these gains and losses relate to historical leases entered into for certain brownfield sites, with the intention of developing data centers, which were never developed, and which management has no intention of developing into data centers. We believe the impact of gains and losses related to unused data centers are not reflective of our business activities and our on-going operating performance.

In certain circumstances, we may also adjust for other items that management believes are not representative of our current on-going performance. Examples include: adjustments for the cumulative effect of a change in accounting principle or estimate, impairment losses, litigation gains and losses or windfall gains and losses.

For a reconciliation of Adjusted EBITDA to Operating income and Net income, see “Operating and Financial Review and Prospects—Results of operations” and “Operating and Financial Review and Prospects—Results of operations—Adjusted EBITDA”. Adjusted EBITDA and other key performance indicators may not be indicative of our historical results of operations, nor are they meant to be predictive of future results.

 

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We define Recurring revenue as revenue incurred from colocation and associated power charges, office space, amortized set-up fees and certain recurring managed services (but excluding any ad hoc managed services) provided by us directly or through third parties, excluding rents received for the sublease of unused sites.

Cash generated from operations is defined as net cash flows from operating activities, excluding interest and corporate income tax payments and receipts.

Additional Key Performance Indicators

In addition to Adjusted EBITDA, Recurring revenue and Cash generated from operations, our management also uses the following key performance indicators as measures to evaluate our performance:

 

    Equipped space: the amount of data center space that, on the relevant date, is equipped and either sold or could be sold, without making any significant additional investments to common infrastructure. Equipped space at a particular data center may decrease if either (a) the power requirements of customers at a data center change so that all or a portion of the remaining space can no longer be sold because the space does not have enough power capacity and/or common infrastructure to support it without further investment or (b) if the design and layout of a data center changes to meet among others, fire regulations or customer requirements, and necessitates the introduction of common space (such as corridors), which cannot be sold to individual customers;

 

    Revenue generating space: the amount of Equipped space that is under contract and billed on the relevant date;

 

    Maximum equippable space: the maximum amount of space in our data centers which is designed to be used and sold as Equipped space;

 

    Utilization rate: on the relevant date, Revenue generating space as a percentage of Equipped space. Some Equipped space is not fully utilized because of customers’ specific requirements regarding the layout of their equipment. In practice, therefore, Utilization rate does not reach 100%;

 

    Recurring revenue percentage: Recurring revenue during the relevant period as a percentage of total revenue in the same period;

 

    Monthly recurring revenue: the contracted Recurring revenue over a full month excluding energy usage revenues, amortized set-up fees and the sub-leasing of office space; and

 

    Average monthly churn: the average of the Churn percentage in each month of the relevant period. Churn percentage is the contracted Monthly recurring revenue that came to an end during a month as a percentage of the total contracted Monthly recurring revenue at the beginning of that month.

Adjusted EBITDA, Recurring revenue and Cash generated from operations are all non-IFRS measures. Together with the additional key performance indicators listed above, Adjusted EBITDA, Recurring revenue and Cash generated from operations provide useful supplemental information to investors regarding our on-going operational performance. These measures help us and our investors evaluate the on-going operating performance of the business after removing the impact of our capital structure (primarily interest expense) and our asset base (primarily depreciation and amortization). Management believes that the presentation of Adjusted EBITDA, when combined with the primary IFRS presentation of net income, provides a more complete analysis of our operating performance. Management also believes the use of Adjusted EBITDA facilitates comparisons between us and other data center operators (including other data center operators that are REITs) and other infrastructure-based businesses. Adjusted EBITDA is also a relevant measure used in the financial covenants contained in our €225.0 million unsecured subordinated revolving facility dated March 16, 2018 (the “2018 Subordinated Revolving Facility”), our €100.0 million senior secured revolving facility dated March 9, 2017 (as amended and/or restated from time to time) (the “2017 Senior Secured Revolving Facility”), our €100.0 million super senior revolving facility dated June 17, 2013 (as amended and/or restated from time to time) (the “2013 Super Senior Revolving Facility” and together with the 2018 Subordinated Revolving Facility and the 2017 Senior Secured Revolving Facility, the “Revolving Facilities”) and our €625.0 million 6.00% Senior Secured Notes due 2020 (the “Senior Secured Notes”).

Adjusted EBITDA, Recurring revenue, Cash generated from operations and our other key performance indicators listed above may not be indicative of our historical results of operations, nor are they meant to be predictive of future results.

 

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Currency Presentation and Convenience Translations

Unless otherwise indicated, all references in this annual report to “euro” or “€” are to the currency introduced at the start of the third stage of the European Economic and Monetary Union pursuant to the Treaty establishing the European Community, as amended. All references to “dollars”, “$”, “U.S. $” or “U.S. dollars” are to the lawful currency of the United States. We prepare our financial statements in euro.

Solely for convenience, this annual report contains translation of certain euro amounts into U.S. dollars based on the noon buying rate of €1.00 to U.S. $1.2022 in The City of New York for cable transfers of euro as certified for customs purposes by the Federal Reserve Bank of New York as of December 31, 2017. These translation rates should not be construed as representations that the euro amounts have been, could have been or could be converted into U.S. dollars at that or any other rate. See “Exchange Rate Information”.

Metric Convenience Conversion

This annual report contains certain metric measurements and for your convenience, we provide the conversion of metric units into U.S. customary units. The standard conversion relevant for this annual report is approximately 1 meter = 3.281 feet and 1 square meter = 10.764 square feet.

Rounding

Certain financial data in this annual report, including financial, statistical and operating information have been subject to rounding adjustment. Accordingly, in certain instances, the sum of the numbers in a column or a row in tables contained in this annual report may not conform exactly to the total figure given for that column or row. Percentages in tables have been rounded and accordingly may not add up to 100%.

No Incorporation of Website Information

The contents of our website do not form part of this annual report.

Terminology

The terms the “Group”, “we”, “our” and “us” refer to InterXion Holding N.V. (the “Company”) and its subsidiaries, as the context requires.

MARKET, ECONOMIC AND INDUSTRY DATA

Information regarding markets, market size, market share, market position, growth rates and other industry data pertaining to our business contained in this annual report consists of estimates based on data and reports compiled by professional organizations and analysts, on data from other external sources, and on our knowledge of our sales and markets. Since, in many cases, there is no readily available external information (whether from trade associations, government bodies or other organizations) to validate market-related analyses and estimates, we rely on internally developed estimates. While we have compiled, extracted and reproduced market or other industry data from external sources which we believe to be reliable, including third parties or industry or general publications, we have not independently verified that data. Similarly, our internal estimates have not been verified by any independent sources.

 

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Forward-Looking Statements

This annual report on Form 20-F contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, with respect to all statements other than statements of historical fact regarding our business, financial condition, results of operations and certain of our plans, objectives, assumptions, projections, expectations or beliefs with respect to these items and statements regarding other future events or prospects. These statements include, without limitation, those concerning: our strategy and our ability to achieve it; expectations regarding sales, profitability and growth; plans for the construction of new data centers; our ability to integrate new acquisitions; our possible or assumed future results of operations; research and development, capital expenditure and investment plans; adequacy of capital; and financing plans. The words “aim”, “may”, “will”, “expect”, “anticipate”, “believe”, “future”, “continue”, “help”, “estimate”, “plan”, “schedule”, “intend”, “should”, “shall” or the negative or other variations thereof, as well as other statements regarding matters that are not historical fact, are or may constitute forward-looking statements.

In addition, this annual report includes forward-looking statements relating to our potential exposure to various types of market risks, such as foreign exchange rate risk, interest rate risks and other risks related to financial assets and liabilities. We have based these forward-looking statements on our management’s current view of future events and financial performance. These views reflect the best judgment of our management but involve a number of risks and uncertainties which could cause actual results to differ materially from those predicted in our forward-looking statements and from past results, performance or achievements. Although we believe that the estimates reflected in the forward-looking statements are reasonable, those estimates may prove to be incorrect. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause actual results and developments to differ materially from these expressed or implied by these forward-looking statements. These factors include, among other things:

 

    operating expenses cannot be easily reduced in the short term;

 

    inability to utilize the capacity of newly planned or acquired data centers and data center expansions;

 

    significant competition;

 

    cost and supply of electrical power;

 

    data center industry over-capacity; and

 

    performance under service level agreements.

These and other risks described under “Risk Factors” are not exhaustive. Other sections of this annual report describe additional factors that could adversely affect our business, financial condition or results of operations, including delays in remediating the material weakness in internal control over financial reporting and/or making disclosure controls and procedures effective. For a more complete discussion of the factors that could affect our future performance and the industry in which we operate, we urge you to read the sections of this annual report entitled Item 3 “Key Information–Risk Factors”, Item 4 “Information on the Company”, Item 5 “Operating and Financial Review and Prospects”, Item 15 “Controls Procedures” and Item 18 “Financial Statements”. In addition, new risk factors may emerge from time to time, and it is not possible for us to predict all such risk factors, nor can we assess the impact of all such risk factors to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, you should not place undue reliance on forward-looking statements as a prediction of actual results.

All forward-looking statements included in this annual report are based on information available to us at the date of this annual report. We undertake no obligation to update publicly or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as may be required by applicable law. All subsequent written and oral forward-looking statements attributable to us or to persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained throughout this annual report.

 

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TABLE OF CONTENTS

 

     Page  

PART I

  

ITEM 1: IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS

     7  

ITEM 2: OFFER STATISTICS AND EXPECTED TIMETABLE

     8  

ITEM 3: KEY INFORMATION

     9  

ITEM 4: INFORMATION ON THE COMPANY

     30  

ITEM 4A: UNRESOLVED STAFF COMMENTS

     40  

ITEM 5: OPERATING AND FINANCIAL REVIEW AND PROSPECTS

     41  

ITEM 6: DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

     64  

ITEM 7: MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

     73  

ITEM 8: FINANCIAL INFORMATION

     76  

ITEM 9: THE OFFER AND LISTING

     77  

ITEM 10: ADDITIONAL INFORMATION

     79  

ITEM 11: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     98  

ITEM 12: DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

     99  

PART II

  

ITEM 13: DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

     100  

ITEM  14: MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

     101  

ITEM 15: CONTROLS AND PROCEDURES

     102  

ITEM 16A: AUDIT COMMITTEE FINANCIAL EXPERT

     104  

ITEM 16B: CODE OF ETHICS

     105  

ITEM 16C: PRINCIPAL ACCOUNTANT FEES AND SERVICES

     106  

ITEM 16D: EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

     107  

ITEM  16E: PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

     108  

ITEM 16F: CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

     109  

ITEM 16G: CORPORATE GOVERNANCE

     110  

ITEM 16H: MINE SAFETY DISCLOSURE

     111  

PART III

  

ITEM 17: FINANCIAL STATEMENTS

     112  

ITEM 18: FINANCIAL STATEMENTS

     113  

ITEM 19: EXHIBITS

     114  

 

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PART I

ITEM 1: IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS

For the identity of Directors and Senior Management reference is made to “Item 6: Directors, Senior Management and Employees”. Identification of Advisors is not applicable for this Form 20-F.

 

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ITEM 2: OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

 

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ITEM 3: KEY INFORMATION

Selected Historical Consolidated Financial Data

The following selected financial data as of and for the years ended December 31, 2017, 2016 and 2015 have been derived from our audited consolidated financial statements, which are included elsewhere in this annual report. The selected financial data as of and for the years ended December 31, 2014 and December 31, 2013 have been derived from our audited consolidated financial statements not included in this annual report. Our audited consolidated financial statements included in this annual report have been prepared and presented in accordance with IFRS as issued by the International Accounting Standards Board and have been audited by KPMG Accountants N.V., an independent registered public accounting firm.

You should read the selected financial data in conjunction with our consolidated financial statements and related notes and Item 5 “Operating and Financial Review and Prospects” included elsewhere in this annual report. Our historical results do not necessarily indicate our expected results for any future periods.

 

     Year ended December 31,     Year ended December 31,  
     2017(1)     2017     2016(i)     2015(i)     2014(i)     2013  
    

(U.S. $’000, except per

share amounts and

number of shares in

thousands)

   

(€’000, except per share amounts and number of

shares in thousands)

 

Income statement data

            

Revenue

     588,240       489,302       421,788       386,560       340,624       307,111  

Cost of sales

     (228,985     (190,471     (162,568     (151,613     (139,075     (124,141

Gross profit

     359,255       298,831       259,220       234,947       201,549       182,970  

Other income

     117       97       333       21,288       271       341  

Sales and marketing costs

     (40,232     (33,465     (29,941     (28,217     (24,551     (22,818

General and administrative costs

     (200,996     (167,190     (138,557     (134,391     (99,518     (90,134

Operating income

     118,144       98,273       91,055       93,627       77,751       70,359  

Net finance expense

     (53,338     (44,367     (36,269     (29,022     (27,876     (57,453

Profit before taxation

     64,806       53,906       54,786       64,605       49,875       12,906  

Income tax expense

     (17,840     (14,839     (16,450     (17,925     (15,449     (6,082

Net income

     46,966       39,067       38,336       46,680       34,426       6,824  

Basic earnings per share

     0.66       0.55       0.54       0.67       0.50       0.10  

Diluted earnings per share

     0.66       0.55       0.54       0.66       0.49       0.10  

Number of shares(2)

     71,415       71,415       70,603       69,919       69,317       68,867  

Weighted average number of shares for Basic earnings per share (3)

     71,089       71,089       70,349       69,579       69,048       68,584  

Weighted average number of shares for Diluted earnings per share (3)

     71,521       71,521       71,213       70,474       69,922       69,345  

 

Notes

(i) Comparative figures for the years ended December 31, 2016, 2015 and 2014 were restated for errors referred to in Item 15 “Controls and Procedures”. For further information on these errors, see Notes 2 and 29 of our 2017 consolidated financial statements, starting on page F-1.

 

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     Year ended December 31,     Year ended December 31,  
     2017(1)     2017     2016     2015     2014     2013  
     (U.S. $’000)     (€’000)  

Cash flow statement data

            

Net cash flows from/(used in) operating activities

     186,637       155,246       139,397       127,070       104,418       72,563  

Net cash flows from/(used in) investing activities

     (403,482     (335,620     (251,400     (187,505     (219,135     (142,459

Net cash flows from/(used in) financing activities

     125,747       104,597       173,959       18,190       167,628       47,911  

Capital expenditure including intangibles(4)

     (307,781     (256,015     (250,878     (192,636     (216,277     (143,381

 

     Year ended December 31,      Year ended December 31,  
     2017(1)      2017      2016      2015      2014      2013  
     (U.S. $’000)      (€’000)  

Balance sheet data

                 

Trade and other current assets

     216,138        179,786        147,821        141,936        122,814        97,105  

Cash and cash equivalents

     46,265        38,484        115,893        53,686        94,637        41,612  

Current assets

     262,403        218,270        263,714        195,622        217,451        138,717  

Non-current assets

     1,783,826        1,483,801        1,218,951        1,056,442        955,652        772,058  

Total assets

     2,046,229        1,702,071        1,482,665        1,252,064        1,173,103        910,775  

Current liabilities

     414,609        344,875        188,575        171,835        175,697        140,125  

Non-current liabilities

     914,234        760,468        745,321        572,812        561,261        382,748  

Total liabilities

     1,328,843        1,105,343        933,896        744,647        736,958        522,873  

Shareholders’ equity

     717,386        596,728        548,769        507,417        436,145        387,902  

Total liabilities and shareholders’ equity

     2,046,229        1,702,071        1,482,665        1,252,064        1,173,103        910,775  

 

Notes:

(1) The “Income statement data”, “Cash flow statement data” and “Balance sheet data” as of and for the year ended December 31, 2017 have been translated into U.S. dollars for convenience only based on the noon buying rate in The City of New York for cable transfers of euro as certified for customs purposes by the Federal Reserve Bank of New York as of December 31, 2017, for euros into U.S. dollars at €1.00 = U.S. $1.2022. See “Exchange Rate Information” for additional information.
(2) “Number of shares” is in thousands as of the end of the year.
(3) “Weighted average number of shares for Basic earnings per share” and “Weighted average number of shares for Diluted earnings per share” are in thousands.
(4) Capital expenditure including intangible assets represent payments to acquire property, plant and equipment and intangible assets as recorded on our consolidated statement of cash flows as “Purchase of property, plant and equipment” and “Purchase of intangible assets” respectively.

 

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Exchange Rate Information

We publish our financial statements in euros. The conversion of euros into U.S. dollars in this annual report is solely for the convenience of readers. The exchange rates of euros into U.S. dollars are based on the noon buying rate in The City of New York for cable transfers of euros as certified for customs purposes by the Federal Reserve Bank of New York. Unless otherwise noted, all translations from euros to U.S. dollars and from U.S. dollars to euros in this annual report were made at a rate of €1.00 to U.S. $1.2022, the noon buying rate in effect as of December 31, 2017. We make no representation that any euro or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or euros, as the case may be, at any particular rate, the rates stated below, or at all.

The following table sets out information on exchange rates between the euro and the U.S. dollar for the periods indicated.

 

     Low      High  
     (U.S. $ per €1.00)  

Month:

     

September 2017

     1.1747        1.2041  

October 2017

     1.1580        1.1847  

November 2017

     1.1577        1.1936  

December 2017

     1.1725        1.2022  

January 2018

     1.1922        1.2488  

February 2018

     1.2211        1.2482  

March 2018

     1.2216        1.2440  

April 2018 (through April 20, 2018)

     1.2230        1.2384  

 

     Average for
Period (1)
 
     (U.S. $ per €1.00)  

Year ended December 31,:

  

2013

     1.3303  

2014

     1.3210  

2015

     1.1032  

2016

     1.1029  

2017

     1.1396  

 

Source: Federal Reserve Bank of New York

Note:

(1) Annual averages are calculated from month-end exchange rates by using the average of the exchange rates on the last day of each month during the year.

On April 20, 2018, the noon buying rate was €1.00 to U.S. $1.2282.

 

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Risk Factors

In addition to the other information contained in this annual report on Form 20-F, you should carefully consider the following risk factors. If any of the possible events described below occurs, our business, financial condition, results of operations or prospects could be adversely affected. The risks and uncertainties below are those known to us and that we currently believe may materially affect us.

Risks Related to our Business

We cannot easily reduce our operating expenses in the short term, which could have a material adverse effect on our business in the event of a slowdown in demand for our services or a decrease in revenue for any reason.

Our operating expenses primarily consist of personnel, power and property costs. Personnel and property costs cannot be easily reduced in the short term. Therefore, we are unlikely to be able to reduce significantly our expenses in response to a slowdown in demand for our services or any decrease in revenue. The terms of our leases with landlords for facilities that serve as data centers are typically for a minimum period of 10 to 15 years (excluding our extension options) and do not provide us with an early termination right, while our colocation contracts with customers are initially typically for only three to five years. As of December 31, 2017, 42% of our Monthly recurring revenue was generated by contracts with terms of one year or less remaining. Our personnel costs are fixed due to our contracts with our employees having set notice periods and local law limitations in relation to the termination of employment contracts. In respect of our power costs, there is a minimum level of power required to keep our data centers running irrespective of the number of customers using them so our power costs may exceed the amount of revenue derived from power. We could have higher than expected levels of unused capacity in our data centers if, among other things:

 

    our existing customers’ contracts are not renewed and those customers are not replaced by new customers;

 

    internet and telecommunications equipment becomes smaller and more compact in the future;

 

    there is an unexpected slowdown in demand for our services; or

 

    we are unable to terminate or amend our leases when we have underutilized space at a data center.

If we have higher than expected levels of unused space at a data center at any given time, we may be required to operate a data center at a loss for a period of time. If we have higher than expected levels of unused capacity in our data centers and we are unable to reduce our expenses accordingly, our business, financial condition and results of operations would be materially adversely affected.

Our inability to utilize the capacity of newly planned or acquired data centers and data center expansions in line with our business plan would have a material adverse effect on our business, financial condition and results of operations.

Historically, we have made significant investments in our property, plant and equipment and intangible assets in order to expand our data center footprint and total Equipped space as we have grown our business. In the year ended December 31, 2017 we invested €256.0 million in both property, plant and equipment (€247.2 million) and intangible assets (€8.8 million, excluding acquisition goodwill). In the year ended December 31, 2016 we invested €250.9 million in both property, plant and equipment (€242.0 million) and intangible assets (€8.9 million). Investments in property, plant and equipment includes expansion, upgrade, maintenance and general administrative IT equipment. Investments in intangible assets include power grid rights and software development.

We expect to continue to invest as we expand our data center footprint and increase our Equipped space based on demand in our target markets. Our total annual investment in property, plant and equipment includes maintenance and replacement capital expenditures. Although in any one year the amount of maintenance and other capital expenditures may vary, we expect that such capital expenditures will be between 4% and 6% of total revenue in the long term.

We currently hold title to the AMS3, AMS6, AMS9, BRU1, CPH2, DUB3, FRA8, FRA10, FRA11, MRS1, PAR3, PAR5, and VIE properties, the MAD3 freehold land and additional properties for future sites. We exercised certain purchase options and agreed to purchase the PAR7 freehold land, on which we own the PAR7 data center and the AMS7 freehold land and properties. The PAR7 land and the AMS7 land and properties are currently reported as financial leases, and they continue to be reported as such until the acquisitions are completed.

We also lease space for data centers and typically begin construction before entering into contractual agreements with customers to utilize our data centers under construction. In some cases, we enter into lease agreements for data centers or begin expansions at our

 

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existing data centers without any pre-existing customer commitments to use the additional space that will be created. If we open or acquire a new data center or complete an expansion at an existing data center, we will be required to pay substantial up-front and on-going costs associated with that data center, including leasehold improvements, basic overhead costs and rental payments, regardless of whether or not we have any agreements with customers to utilize those data centers.

As a result of our expansion plans, we will incur capital expenditures, and as a result, an increase in other operating expenses, which will negatively impact our cash flow, and depreciation that together will negatively impact our profitability unless and until these new and expanded data centers generate enough revenue to exceed their operating costs and related capital expenditures.

There can be no guarantee that we will be able to sustain or increase our profitability if our planned expansion is not successful or if there is not sufficient customer demand in the future to realize expected returns on these investments. Any such development would have a material adverse effect on our business, financial condition and results of operations.

If we are unable to expand our existing data centers or locate and secure suitable sites for additional data centers on commercially acceptable terms, our ability to grow our business may be limited.

Our ability to meet the growing needs of our existing customers and to attract new customers depends on our ability to add capacity by expanding existing data centers or by locating and securing suitable sites for additional data centers that meet our specifications, such as proximity to numerous network service providers, access to a significant supply of electrical power and the ability to sustain heavy floor loading. We have reached high utilization levels at some of our data centers and therefore any increase in these locations would need to be accomplished through the lease of additional property that satisfies our requirements. Property meeting our specifications may be scarce in our target markets. If we are unable to identify and enter into leases on commercially acceptable terms on a timely basis for any reason including due to competition from other companies seeking similar sites who may have greater financial resources than us, or if we are unable to expand our space in our current data centers, our rate of growth may be substantially impaired.

Our capital expenditures, together with on-going operating expenses and obligations to service our debt, will be a drain on our cash flow and may decrease our cash balances. The capital markets in the recent past have been and may again become limited for external financing opportunities. Additional debt or equity financing may not be available when needed or, if available, may not be available on satisfactory terms. Our inability to obtain needed debt and/or equity financing or to generate sufficient cash from operations may require us to prioritize projects or curtail capital expenditures which could adversely affect our results of operations.

Failure to renew or maintain real estate leases for our existing data centers on commercially acceptable terms, or at all, could harm our business.

For the leased properties on which our data centers are located, we generally enter into leases for initial minimum periods of 10 to 15 years (excluding renewal options). Including renewal options, the lease properties are generally secured for terms of 20 to 25 years. The majority of our leases are subject to an annual inflation-linked increase in rent and, on renewal (or earlier in some cases), the rent we pay may be reset to the current market rate. There is, therefore, a risk that there will be significant rent increases when the rent is reviewed.

Our leases in France, Ireland and the United Kingdom do not contain contractual options to renew or extend those leases, and we have exhausted or may in the future exhaust such options in other leases. With respect to our operating leases in France, certain landlords may terminate our operating leases following the expiration of the original lease period (being 12 years from the commencement date), and the other leases in France may be terminated by the landlords at the end of each three-year period upon six months prior notice in the event the respective landlord wishes to carry out construction works to the building. The non-renewal of leases for our existing data center locations, or the renewal of such leases on less favorable terms, is a potentially significant risk to our on-going operations. We would incur significant costs if we were forced to vacate one of our data centers due to the high costs of relocating our own and our customers’ equipment, installing the necessary infrastructure in a new data center and, as required by most of our leases, reinstating the vacated data center to its original state. In addition, if we were forced to vacate a data center, we could lose customers that chose our services based on location. If we fail to renew any of our leases, or the renewal of any of our leases is on less favorable terms and we fail to increase revenues sufficiently to offset the higher rental costs, this could have a material adverse effect on our business, financial condition and results of operations.

Our leases may obligate us to make payments beyond our use of the property.

Our leases generally do not give us the right to terminate without penalty. Accordingly, we may incur costs under leases for data center space that is not or no longer is Revenue generating space. Some of our leases do not give us the right to sublet, and even if we have that right, we may not be able to sublet the space on favorable terms or at all. We have incurred moderate costs in relation to such onerous lease contracts in recent years.

 

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We may experience unforeseen delays and expenses when fitting out and upgrading data centers, and the costs could be greater than anticipated.

As we attempt to grow our business, substantial management effort and financial resources are employed by us in fitting out new, and upgrading existing, data centers. In addition, we periodically upgrade and replace certain equipment at our data centers. We may experience unforeseen delays and expenses in connection with a particular client project or data center build-out. In addition, unexpected technological changes could affect customer requirements and we may not have built such requirements into our data centers and may not have budgeted for the financial resources necessary to build out or redesign the space to meet such new requirements. Furthermore, the redesign of existing space is difficult to implement in practice as it normally requires moving existing customers. Although we have budgeted for expected build-out and equipment expenses, additional expenses in the event of unforeseen delays, cost overruns, unanticipated expenses, regulatory changes, unexpected technological changes and increases in the price of equipment may negatively affect our business, financial condition and results of operations.

No assurance can be given that we will complete the build-out of new data centers or expansions of existing data centers within the proposed timeframe and cost parameters or at all. Any such failure could have a material adverse effect on our business, financial condition and results of operations.

We may incur non-cash impairment charges to our assets, in particular to our property, plant and equipment, which could result in a reduction to our earnings.

In accordance with IFRS, we periodically monitor the remaining net book values of our investments, intangible assets and our property, plant and equipment (based on cash generating units) for indications of a material change in balance sheet carrying value, particularly indications of any impairments. It is possible that one or more data centers could begin to under-perform relative to our expectations due to changes in customer requirements or regulatory changes affecting the efficient operation of our data centers which may then also result in a non-cash impairment charge. In addition, capitalized data center development costs may also be subject to impairment due to events or changes in circumstances, such as changing market conditions or any changes in key assumptions, which result in delaying or terminating a data center development project giving rise to a non-cash impairment charge.

We face significant competition and we may not be able to compete successfully against current and future competitors.

Our market is highly competitive. Most companies operate their own data centers and in many cases continue to invest in data center capacity, although there is a trend towards outsourcing. We compete against other carrier and cloud-neutral colocation data center service providers, such as Equinix and Telehouse. We also compete with other types of data centers, including carrier-operated colocation, wholesale and IT outsourcers and managed services provider data centers. The cost, operational risk and inconvenience involved in relocating a customer’s networking and computing equipment to another data center are significant and have the effect of protecting a competitor’s data center from significant levels of customer churn.

Further, the growth of the European data center market has encouraged new, larger companies to consider entering the market, in particular those from the United States who are active in this sector. This growth and other factors have also led to increasing alliances and consolidation. For example, as a result of the acquisition of TelecityGroup by Equinix, we may be subject to increased competition and face a shift in the competitive landscape. In addition, many of these companies may have significantly greater financial, marketing and other resources than we do. Some of our competitors may be willing to, and due to greater financial resources, may be better able to adopt aggressive pricing policies, including the provision of discounted data center services as an encouragement for customers to utilize their other services. Certain of our competitors may also provide our target customers with additional benefits, including bundled communications services, and may do so in a manner that is more attractive to potential customers than obtaining space in our data centers.

In addition, corporations that have already invested substantial resources in in-house data center operations may be reluctant to outsource these services to a third-party, or may choose to acquire space within a wholesale provider’s data center, which would allow them to manage the equipment themselves. If existing customers were to conclude that they could provide the same service in-house at a lower cost, with greater reliability, with increased security or for other reasons, they might move such services in-house and we would lose customers and business.

We may also see increased competition for data center space and customers from wholesale data center providers, such as large

 

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real estate companies. Rather than leasing available space to large single tenants, real estate companies, including certain of our landlords, may decide to convert the space instead to smaller square meter units designed for multitenant colocation use. In addition to the risk of losing customers to wholesale data center providers, this could also reduce the amount of space available to us for expansion in the future. As a result of such competition, we could suffer from downward pricing pressure and the loss of customers (and potential customers), which would have a material adverse effect on our business, financial condition and results of operations.

Our services may have a long sales cycle that may materially adversely affect our business, financial condition and results of operations.

A customer’s decision to take space in one of our data centers typically involves a significant commitment of resources by us and by potential customers, who often require internal approvals. In addition, some customers will be reluctant to commit to locating in our data centers until they are confident that the data center has adequate available carrier connections and network density. As a result, we may have a long sales cycle lasting anywhere from three months for smaller customers to periods in excess of one year for some of our larger customers. Furthermore, we may expend significant time and resources in pursuing a particular sale or customer that does not result in revenue.

Global or regional economic downturns or delayed economic recovery in the regions in which we operate may further impact this long sales cycle by making it extremely difficult for customers to accurately forecast and plan future business activities. This could cause customers to slow spending, or delay decision-making, on our services, which would delay and lengthen our sales cycle.

Delays due to the length of our sales cycle may have a material adverse effect on our business, financial condition and results of operations.

Our business is dependent on the adequate supply of electrical power and could be harmed by prolonged electrical power outages or increases in the cost of power.

The operation of each of our data centers requires an extremely large amount of power and we are among the largest power consumers in certain cities in which we operate data centers. We cannot be certain that there will be adequate power in all of the locations in which we operate, or intend to open additional data centers. We attempt to limit exposure to system downtime caused by power outages by using back-up generators and uninterrupted power supply systems; however, we may not be able to limit our exposure entirely even with these protections in place. We also cannot guarantee that the generators will always provide sufficient power or restore power in time to avoid loss of or damage to our customers’ and our equipment. Any loss of services or damage to equipment resulting from a temporary loss of or reduction in power at any of our data centers could harm our customers, reduce customers’ confidence in our services, impair our ability to attract new customers and retain existing customers, and result in us incurring financial obligations to our customers as they might be eligible for service credits pursuant to their service level agreements with us. Our customers may also seek damages from us.

In addition, we are susceptible to fluctuations in power costs in all of the locations in which we operate. Clients have two options with respect to power usage. They can either (i) pay in advance for power usage in “plugs” (typically included in the total cabinet price), which are contractually defined amounts of power per month, for which the customer must pay in full, regardless of how much power is actually used; or (ii) pay for their actual power usage in arrears on a metered basis. While we are contractually able to recover power cost increases from our customers, some portion of the increased costs may not be recovered or recovered in a delayed fashion based on commercial reasons and as a result, may have a negative impact on our results of operations.

Although we have not experienced any power outages that have had a material impact on our financial condition in the past, power outages or increases in the cost of power to us could have a material adverse effect on our business, financial condition and results of operations.

A general lack of electrical power resources sufficient to meet our customers’ demands may impair our ability to utilize fully the available space at our existing data centers or our plans to open new data centers.

In each of our markets, we rely on third parties to provide a sufficient amount of power for current and future customers. Power and cooling requirements are generally growing on a per customer basis. Some of our customers are increasing and may continue to increase their use of high-density electrical power equipment, such as blade servers, which can significantly increase the demand for power per customer and cooling requirements for our data centers. Future demand for electrical power and cooling may exceed the designed electrical power and cooling infrastructure in our data centers. As the electrical power infrastructure is typically one of the

 

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most important limiting factors in our data centers, our ability to utilize available space fully may be limited. This, as well as any inability to secure sufficient power resources from third-party providers, could have a negative impact on the effective available capacity of a given data center and limit our ability to grow our business.

The ability to increase the power capacity or power infrastructure of a data center, should we decide to, is dependent on several factors including, but not limited to, the local utility’s ability and willingness to provide additional power, the length of time required to provide that power and/or whether it is feasible to upgrade the electrical infrastructure and cooling systems of a data center to deliver additional power to customers.

The availability of sufficient power may also pose a risk to the successful development of future data centers. In cities where we intend to open new data centers, we may face delays in obtaining sufficient power to operate our data centers. Our ability to secure adequate power sources will depend on several factors, including whether the local power supply is at or close to its limit, whether new connections for our data center would require the local power company to install a new substation or feeder and whether new connections for our data center would increase the overall risks of blackouts or power outages in a given geographic area.

If we are unable to utilize fully the physical space available within our data centers or successfully develop additional data centers or expand existing data centers due to restrictions on available electrical power or cooling, we may be unable to accept new customers or increase the services provided to existing customers, which may have a material adverse effect on our business, results of operations and financial condition.

A significant percentage of our Monthly recurring revenue is generated by contracts with terms of one year or less remaining. If those contracts are not renewed, or if their pricing terms are negotiated downwards, our business, financial condition and results of operations would be materially adversely affected.

The majority of our initial customer contracts are entered into on a fixed term basis for periods from three to five years, which, unless terminated in advance, are automatically renewed for subsequent one-year periods. See Item 4 “Information on the Company—Customer Contracts”. As of December 31, 2017, 42% of our Monthly recurring revenue was generated by contracts with terms of one year or less remaining. Consequently, a large part of our customer base could either terminate their contracts with us at relatively short notice, or seek to re-negotiate the pricing of such contracts downwards, which, if either were to occur, would have a material adverse effect on our business, financial condition and results of operations.

Our inability to use all or part of our net deferred tax assets could cause us to pay taxes at an earlier date and in greater amounts than expected.

As of December 31, 2017, we had €3.1 million of recognized net deferred tax assets and no unrecognized net deferred tax assets. We cannot assure you that we will generate sufficient profit in the relevant jurisdictions to utilize these deferred tax assets fully or that the tax loss availability will not expire before we have been able to fully utilize them. In addition, applicable law could change in one or more jurisdictions in which we have deferred tax assets, rendering such assets unusable. Either such event would cause us to pay taxes in greater amounts than would otherwise occur, which may have a material adverse effect on our results of operations.

Our operating results have fluctuated in the past and may fluctuate in the future, which may make it difficult to evaluate our business and prospects.

Our operating results have fluctuated in the past and may continue to fluctuate in the future, due to a variety of factors, which include:

 

    demand for our services;

 

    competition from other data center operators;

 

    the cost and availability of power;

 

    the introduction of new services by us and/or our competitors;

 

    data center expansion by us and/or our competitors;

 

    changes in our pricing policies and those of our competitors;

 

    a change in our customer retention rates;

 

    economic conditions affecting the Internet, telecommunications and e-commerce industries; and

 

    changes in general economic conditions.

 

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Any of the foregoing factors, or other factors discussed elsewhere in this annual report, could have a material adverse effect on our business, results of operations and financial condition. Although we have experienced growth in revenues during the past three financial years, this growth rate is not necessarily indicative of future operating results. In addition, a relatively large portion of our expenses cannot be reduced in the short-term, particularly personnel and property costs and part of our power costs, which means that our results of operations are particularly sensitive to fluctuations in revenues. As such, comparisons to prior reporting periods should not be relied upon as indications of our future performance. In addition, our operating results in one or more future periods may fail to meet the expectations of securities analysts or investors. If this happens, the market price of our ordinary shares may decline significantly.

We are dependent on third-party suppliers for equipment, technology and other services.

We contract with third parties for the supply of equipment (including generators, UPS systems and cabinet equipment) on which we are dependent to operate our business. Poor performance by, or any inability of, our suppliers to provide necessary equipment, products, services and maintenance could have a negative effect on our reputation and harm our business.

We depend on the on-going service of our personnel and senior management team and may not be able to attract, train and retain a sufficient number of qualified personnel to maintain and grow our business.

Our success depends upon our ability to attract, retain and motivate highly-skilled employees, including the data center personnel who are integral to the establishment and running of our data centers, as well as sales and marketing personnel who play a large role in attracting and retaining customers. Due to several factors, including the rapid growth of the Internet, there is aggressive competition for experienced data center employees. We compete intensely with other companies to recruit and hire from this limited pool. In addition, the training of new employees requires a large amount of our time and resources. If we cannot attract, train and retain qualified personnel, we may be unable to expand our business in line with our strategy, compete for new customers or retain existing customers, which could cause our business, financial condition and results of operations to suffer.

Our future performance also depends to a significant degree upon the continued contributions of our senior management team. The loss of any member of our senior management team could significantly harm us. To the extent that the services of members of our senior management team would be unavailable to us for any reason, we would be required to hire other personnel to manage and operate our Company. There can be no assurance that we would be able to locate or employ such personnel on acceptable terms or on a timely basis.

Our failure to maintain competitive compensation packages, including equity incentives, may be disruptive to our business. If one or more of our key personnel resigns from our Company to join or form a competitor, the loss of such personnel and any resulting loss of existing or potential customers to any such competitor could harm our business, financial condition and results of operations. In addition, we may be unable to prevent the unauthorized disclosure or use of our technical knowledge, practices or procedures by departed personnel.

Disruptions to our physical infrastructure could lead to significant costs, reduce our revenues and harm our business reputation and financial results.

Our business depends on providing customers with highly reliable and secure services. A number of factors may disrupt our ability to provide services to our customers, including:

 

    human error;

 

    power loss;

 

    physical or electronic security breaches;

 

    terrorist acts;

 

    interruptions to the fiber network;

 

    hardware and software defects;

 

    fire, earthquake, flood and other natural disasters;

 

    improper maintenance by our landlords; and

 

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    sabotage and vandalism.

The occurrence of any of the foregoing could have a material adverse effect on our business, results of operations and financial condition. Disruptions at one or more of our data centers, whether or not within our control, could result in service interruptions or significant equipment damage, leading to significant costs and revenue reductions. See “Risks Related to our Industry—Terrorist activity throughout the world and military action to counter terrorism could adversely impact our business”.

Our insurance may not be adequate to cover all losses.

The insurance we maintain covers material damage to property, business interruption and third-party liability. This insurance contains limitations on the total coverage for damage due to catastrophic events, such as flooding or terrorism. In addition, there is an overall cap on our general insurance coverage per data center in any one year. There is, therefore, a risk that if one or more data centers were damaged, the total amount of the loss would not be recoverable by us.

Also, our insurance policies include customary exclusions, deductibles and other conditions that could limit our ability to recover losses. In addition, some of our policies are subject to limitations involving co-payments and policy limits that may not be sufficient to cover losses. If we experience a loss that is uninsured or that exceeds policy limits, or if customers consider that there is a significant risk that such an event will occur, this may negatively affect our reputation, business, financial condition and results of operations.

Our failure to meet the performance standards under our service level agreements may subject us to liability to our customers, which could have a material adverse effect on our reputation, business, financial condition or results of operations.

We have service level agreements with substantially all of our customers in which we provide various guarantees regarding our level of service. Our inability to provide services consistent with these guarantees may lead to large losses for our customers, who consequently may be entitled to service credits for their accounts or to terminate their relationship with us. We have issued service credits to customers in the past due to our failure to meet service level commitments and we may do so in the future. We cannot be sure that our customers will accept these service credits as compensation in the future. Our failure or inability to meet a customer’s expectations or any deficiency in the services we provide to customers could result in a claim against us for substantial damages. Provisions contained in our agreements with customers attempting to limit damages, including provisions to limit liability for damages, may not be enforceable in all instances or may otherwise fail to protect us for liability damages.

We could be subject to costs, as well as claims, litigation or other potential liability, in connection with risks associated with the security of our data centers and our information technology systems. We may also be subject to information technology systems failures, network disruptions and breaches of data security, which could have an adverse effect on our reputation and material adverse impact on our business.

One of our key service offerings is our high level of physical premises security. Many of our customers entrust their key strategic IT services and applications to us due, in part, to the level of security we offer. If anyone is able to breach our security, they could physically damage our and our customers’ equipment and/or misappropriate either our proprietary information or the information of our customers or cause interruptions or malfunctions in our operations.

There can be no assurance that the security of any of our data centers will not be breached or the equipment and information of our customers put at risk. Any security breach could have a serious effect on our reputation and could prevent new customers from choosing our services and lead to customers terminating their contracts early and seeking to recover losses suffered, which could have a material adverse effect on our business, financial condition and results of operations. We may incur significant additional costs to protect against physical premises security breaches or to alleviate problems caused by such breaches.

In addition, we can provide no assurance that our IT systems are fully protected against third-party intrusions, viruses, hacker attacks, information or data theft or other similar threats. The risk of a security breach or disruption, particularly through cyber-attack or cyber intrusion, including by computer hackers, foreign governments and cyber terrorists, has risen as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. For example, in December 2015, we became aware that we suffered a breach in our IT security. This resulted in a temporary and localized compromise of the credentials to our customer relationship management system (“CRM”) which allowed unauthorized access to some customer and prospective customer contact details. No financial, personal or other sensitive customer data was accessed, or is stored within this system. This incident only affected our CRM system and did not impact or involve any of the data centers or services that we provide. Upon learning of this

 

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incident, we collaborated with our CRM supplier and have worked closely with our security team to ensure that all CRM information is secure. However, any third-party intrusions, viruses, hacker attacks, information or data theft or similar threats against us and our IT systems may have a material adverse effect on our business, financial condition and results of operations.

We face risks relating to foreign currency exchange rate fluctuations.

Our reporting currency for purposes of our financial statements is the euro. We also, however, earn revenues and incur operating costs in non-euro denominated currencies, such as British pounds, Swiss francs, Danish kroner, Swedish kronor and US dollars. We recognize foreign currency gains or losses arising from our operations in the period incurred. As a result, currency fluctuations between the euro and the non-euro currencies in which we do business will cause us to incur foreign currency translation gains and losses. We cannot predict the effects of exchange rate fluctuations upon our future operating results because of the number of currencies involved, the variability of currency exposure and the potential volatility of currency exchange rates. We do not currently engage in foreign exchange hedging transactions to manage the risk of our foreign currency exposure.

The lingering effects of the European debt crisis or any future slowdown in global economies may have an impact on our business and financial condition in ways that we cannot currently predict.

Any delays in the recovery of the global financial markets from the European debt crisis or future global or regional economic instability could have an adverse effect on our business and our financial condition. If the on-going recovery stalls or if market conditions weaken or become more unstable, some of our customers may have difficulty paying us and we may experience increased churn in our customer base. Our sales cycle could also lengthen as customers slow spending, or delay decision-making, on our services, which could adversely affect our revenue growth. Finally, we could also experience pricing pressure as a result of economic conditions if our competitors lower prices and attempt to lure away our customers.

Additionally, our ability to access the capital markets may be severely restricted at a time when we would like, or need, to do so, which could have an impact on our ability to pursue additional expansion opportunities and maintain our desired level of revenue growth in the future.

Political uncertainty may impact economic conditions which could adversely affect our liquidity and financial condition.

General economic conditions and the cost and availability of capital may be adversely affected in some or all of the metropolitan areas in which we provide our services. Political uncertainty in the U.S. and in Europe may adversely affect our ability, and the ability of our customers, to replace or renew maturing liabilities on a timely basis, access capital markets to meet liquidity and capital expenditure requirements and may result in adverse effects on our business, financial condition and results of operations.

In addition, we cannot assure you that long-term disruptions in the global economy and tighter credit conditions among, and potential failures or nationalizations of, third-party financial institutions as a result of such disruptions will not have an adverse effect on our lenders and our financial condition and results of operations. If the global economy and financial markets deteriorate or continue to face uncertainty, our business, results of operation, cash flows and financial condition could be adversely affected.

If we do not have sufficient cash flow to continue or expand our operations and are unable to borrow additional funds, access our existing lines of credit or raise equity or debt capital, we may need to curtail our development activity and/or to find alternative ways to increase our liquidity. Such alternatives may include, without limitation, disposing of one or more of our properties possibly on disadvantageous terms or entering into or renewing leases on less favorable terms than we otherwise would.

The United Kingdom invoking the process to withdraw from the European Union could have a negative effect on global economic conditions, financial markets and our business, which could adversely affect our results of operations.

We operate data centers across a number of markets in the European Union, including the United Kingdom. On March 29, 2017, the British Prime Minister delivered a notice to the European Council pursuant to Article 50 of the Treaty of the European Union to initiate the formal process of withdrawal from the European Union. The Article 50 notice started a two-year period for the United Kingdom to negotiate the terms of its exit from the European Union, although this period can be extended with the unanimous agreement of the European Council. The United Kingdom and the European Union are currently engaged in negotiations to structure their post-Brexit relationship, but significant uncertainty remains about the future relationship between the United Kingdom and the European Union.

 

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This development has had, and may continue to have, a material adverse effect on global economic conditions and the stability of global financial markets, and could significantly reduce global market liquidity and restrict the ability of key market participants to operate in certain financial markets. Asset valuations, currency exchange rates, and credit ratings may be especially subject to increased market volatility. Lack of clarity about future laws and regulations as the United Kingdom determines which European Union laws to replace or replicate upon withdrawal could depress economic activity and restrict our access to capital in the United Kingdom. If the United Kingdom and the European Union are unable to negotiate acceptable withdrawal terms, barrier-free access between the United Kingdom and other European Union member states could be diminished or eliminated. This may impact our ability to freely move staff and equipment, and it may impact the cost associated with cross-border business, for example, by the re-introduction of import duties. Any of these factors could have a material adverse effect on our business, financial condition, and results of operations.

Acquisitions, business combinations and other transactions present many risks, and we may not realize the financial or strategic goals that were contemplated at the time of any transaction and such transactions may alter our financial or strategic goals.

We have evaluated, and expect to continue to evaluate, potential strategic combinations and acquisitions and other transactions. We may enter into transactions like these at any time, or discussions concerning such transactions, which may include combinations with other companies or businesses, acquisitions of us by third parties, including potential strategic and financial acquirers, and acquisitions by us of businesses, products, services or technologies that we believe to be complementary. These potential transactions expose us to several potential risks, including:

 

    the possible disruption of our on-going business and diversion of management’s attention by acquisition, transition and integration activities and/or entering into discussions that do not result in a transaction;

 

    our potential inability to successfully pursue or realize some or all of the anticipated revenue opportunities associated with an acquisition or investment;

 

    the possibility that we may not be able to successfully integrate acquired businesses, or businesses in which we invest, or achieve anticipated operating efficiencies or cost savings;

 

    the possibility that announced acquisitions or business combinations may not be completed, due to failure to satisfy the conditions to closing or for other reasons;

 

    the dilution of our existing stockholders as a result of any such transaction that involves the issuance of stock;

 

    the possibility of customer dissatisfaction if we are unable to achieve levels of quality and stability on par with past practices or with respect to any business combination with a new party;

 

    the possibility that additional capital expenditures may be required or that transaction expenses associated with acquisitions may be higher than anticipated;

 

    the possibility that required financing to fund the requirements of a transaction may not be available on acceptable terms or at all;

 

    the possibility that governmental approvals under antitrust and competition laws required to complete a transaction may not be obtained on a timely basis or at all, which could, among other things, delay or prevent the completion of a transaction, or limit the ability to realize the expected financial or strategic benefits of a transaction or have other adverse effects on our current business and operations;

 

    the possibility of loss or reduction in value of acquired businesses;

 

    the possibility that carriers may find it cost-prohibitive or impractical to bring fiber and networks into a new data center;

 

    the possibility of litigation or other claims in connection with or as a result of a transaction including claims from terminated employees, customers, former or current stockholders or other third parties;

 

    the possibility of pre-existing undisclosed liabilities, including but not limited to lease or landlord related liability, environmental or asbestos liability, for which insurance coverage may be insufficient or unavailable; and

 

    the possibility there will not be sufficient customer demand to realize expected returns on these transactions.

 

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We may pay for future acquisitions by using our existing cash resources (which may limit other potential uses of our cash), incurring additional debt (which may increase our interest expense, leverage and debt service requirements) and/or issuing shares (which may dilute our existing stockholders and have a negative effect on our earnings per share). The occurrence of any of these risks could have a material adverse effect on our business, results of operations, financial condition or cash flows.

We focus on the development of communities of interest within customer segments and the attraction of magnetic customers. Our failure to attract, grow and retain these communities of interest could harm our business and operating results.

Our ability to maximize revenue growth depends on our ability to develop and grow communities of interest within our target customer segments such as Connectivity Providers, Platform Providers and Enterprises. Within each community, there are certain customers, which we consider to be magnetic customers as we believe they make it attractive to other customers to be in our data centers. Our ability to attract magnetic customers to our data centers will depend on a variety of factors, including the presence of multiple carriers, the mix of our offerings, the overall mix of customers, the presence of other magnetic customers, the data center’s operating reliability and security and our ability to effectively market our offerings. We may not be able to attract magnetic customers and therefore may be unsuccessful in the development of our communities of interest. This may hinder the development, growth and retention of customer communities of interest and adversely affect our business, financial condition and results of operations.

Consolidation may have a negative impact on our business model.

If customers combine businesses, they may require less colocation space, which could lead to churn in our customer base. Competitors in some of our markets may also consolidate, which can make it more difficult for us to compete. Consolidation of our customers and/or our competitors may present a risk to our business model and have a negative impact on our revenues.

Our operations are highly dependent on the proper functioning of our information technology systems. We routinely upgrade our information technology systems. The failure or unavailability of such systems during or after an upgrade process could result in the loss of existing or potential customers and harm our reputation, business and operating results.

We rely heavily on our information technology and back office systems to conduct our business, including for purposes of providing customer fee quotes and maintaining accurate customer service and billings records. Difficulties with our systems may interrupt our ability to accept and deliver customer orders and impact our overall financial operations, including our accounts payable, accounts receivables, general ledger, close processes, internal financial controls, and our ability to otherwise run and track our business. We may need to expend significant attention, time and resources to correct problems or find alternative sources for performing these functions. As a result of any significant investments in on-going upgrades or any future upgrades or modifications, we may be unable to devote adequate financial and other resources to remedy any such delay or technical difficulty in an efficient manner.

Any disruption to our information technology and back office systems, whether caused by upgrade projects or otherwise, may adversely affect our business and operating results.

Substantial indebtedness could adversely affect our financial condition and our ability to operate our business, and we may not be able to generate sufficient cash flows to meet our debt service obligations.

We have a significant amount of debt and may incur additional debt to support our growth. As of December 31, 2017, our total indebtedness was approximately €832.8 million, our stockholders’ equity was €596.7 million, and our cash and cash equivalents totaled €38.5 million. Our substantial amount of debt could have important consequences. For example, it could:

 

    make it more difficult for us to satisfy our debt obligations;

 

    restrict us from making strategic acquisitions;

 

    limit our flexibility in planning for, or reacting to, changes in our business and future business opportunities, thereby placing us at a competitive disadvantage if our competitors are not as highly leveraged;

 

    increase our vulnerability to general adverse economic and industry conditions; or

 

    require us to dedicate a substantial portion of our cash flow from operations to make interest and principal payments on our debt, reducing the availability of our cash flow to fund future capital expenditures, working capital, execution of our expansion strategy and other general corporate requirements;

 

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    limit our ability to borrow additional funds, even when necessary to maintain adequate liquidity, which would also limit our ability to further expand our business; and

 

    make us more vulnerable to increases in interest rates because of the variable interest rates on some of our borrowings to the extent we have not entirely hedged such variable rate debt.

The occurrence of any of the foregoing factors could have a material adverse effect on our business, results of operations and financial condition.

We require a significant amount of cash to service our debt, which may limit available cash to fund working capital and capital expenditures. Our ability to generate sufficient cash depends on many factors beyond our control.

Our ability to make payments on and to refinance our debt, and to fund working capital and capital expenditures, will depend on our future operating performance and ability to generate sufficient cash. This depends, to some extent, on general economic, financial, competitive, market, legislative, regulatory and other factors, many of which are beyond our control, as well as the other factors discussed in these “Risk Factors”.

We cannot assure you that our business will generate sufficient cash flows from operations or that future debt and equity financing will be available to us in an amount sufficient to enable us to pay our debts when due, including our outstanding Senior Secured Notes and borrowings under our Revolving Facilities or to fund our other liquidity needs. See Item 5 “Operating and Financial Review and Prospects”.

If our future cash flows from operations and other capital resources (including current and future borrowings under our Revolving Facilities) are insufficient to pay our obligations as they mature or to fund our liquidity needs, we may be forced to:

 

    reduce or delay our business activities and capital expenditures;

 

    sell assets;

 

    obtain additional debt or equity capital; or

 

    restructure or refinance all or a portion of our debt, including the Senior Secured Notes, on or before maturity.

We cannot assure you that we would be able to accomplish any of these alternatives on a timely basis or on satisfactory terms, if at all. In addition, the terms or our debt, including the Revolving Facilities and the Senior Secured Notes, limit, and any future debt may limit, our ability to pursue any of these alternatives.

We may need to refinance our outstanding debt.

We may need to refinance a portion of our outstanding debt as it matures, such as mortgages with quarterly repayment schedules and the Senior Secured Notes. Furthermore, if prevailing interest rates or other factors at the time of refinancing result in higher interest rates upon refinancing, then the interest expense relating to that refinanced indebtedness would increase. These risks could materially adversely affect our financial condition, cash flows and results of operations.

If we increase our indebtedness by borrowing under the Revolving Facilities or incur other new indebtedness, the risks described above would increase.

We are subject to significant restrictive debt covenants, which limit our operating flexibility.

Our Revolving Facilities and the Indenture (as defined below) governing the Senior Secured Notes contain covenants which impose significant restrictions on the way we and our subsidiaries operate, including but not limited to (as applicable), restrictions on the ability to:

 

    create certain liens;

 

    incur debt and/or guarantees;

 

    enter into transactions other than on arm’s-length basis;

 

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    pay dividends or make certain distributions or payments;

 

    engage, in relation to the Company, in any business activity or own assets or incur liabilities not authorized by the agreements governing the Revolving Facilities;

 

    sell certain kinds of assets;

 

    impair any security interest on the assets serving as collateral for the Senior Secured Notes;

 

    enter into any sale and leaseback transactions;

 

    make certain investments or other types of restricted payments;

 

    substantially change the nature of the Company’s or the Group’s business;

 

    designate unrestricted subsidiaries; and

 

    effect mergers, consolidations or sale of assets.

These covenants could limit our ability to finance our future operations and capital needs and our ability to pursue acquisitions and other business activities that may be in our interest.

Our 2017 Senior Secured Revolving Facility Agreement and 2013 Super Senior Revolving Facility Agreement each requires us to maintain a specified financial ratio. The restrictive covenants are subject to customary exceptions including, in relation to the incurrence of subordinated debt, a consolidated fixed charge ratio (calculated as a ratio of Adjusted EBITDA to consolidated interest expense) to exceed 2.00 to 1.00 on a pro forma basis for the four full fiscal quarters (taken as one period) for which financial statements are available immediately preceding the incurrence of such debt and, if such debt is senior debt, a consolidated senior leverage ratio (calculated as a ratio of outstanding senior debt of the Company and its restricted subsidiaries (on a consolidated basis) to pro forma Adjusted EBITDA) to be less than 4.00 to 1.00 on a pro forma basis for the four full fiscal quarters (taken as one period) for which financial statements are available immediately preceding the incurrence of such debt.

The 2017 Senior Secured Revolving Facility Agreement and 2013 Super Senior Revolving Facility Agreement also each include a leverage ratio financial covenant (tested on a quarterly basis), which requires total net debt (calculated as a ratio to pro forma Adjusted EBITDA) not to exceed 4.75 to 1.00 and, in relation to the 2013 Super Senior Revolving Facility and the 2017 Senior Secured Revolving Facility only, stepping down to 4.00 to 1.00 for each applicable test date after (but not including) June 30, 2018. In addition, the Company must ensure, under the 2017 Senior Secured Revolving Facility Agreement and 2013 Super Senior Revolving Facility Agreement , that the guarantors represent a certain percentage of Adjusted EBITDA of the Group as a whole and a certain percentage of the consolidated net assets of the Group as a whole.

Our ability to meet these covenants may be affected by events beyond our control and, as a result, we cannot assure you that we will be able to meet the covenants. In the event of a continuing default under the 2017 Senior Secured Revolving Facility Agreement and 2013 Super Senior Revolving Facility Agreement, the lenders could terminate their commitments and declare all amounts owed to them to be due and payable. Borrowings under other debt instruments that contain cross acceleration or cross default provisions, including the Senior Secured Notes, may as a result also be accelerated and become due and payable. We may be unable to pay these debts in such circumstances or to the extent we pay such debts, we may not have sufficient cash to fund our working capital expenditure needs.

Risks Related to our Industry

The European data center industry has suffered from over-capacity in the past, and a substantial increase in the supply of new data center capacity and/or a general decrease in demand for data center services could have an adverse impact on industry pricing and profit margins.

The European data center industry has previously suffered from overcapacity. For example, certain Internet-based customers have previously contracted to use more space than necessary to meet their needs and in the periods following adverse market conditions, the number of Internet-related business failures increased significantly, resulting in high levels of customer churn due to the termination or non-renewal of contracts.

A substantial increase in the supply of new data center capacity in the European data center market and/or a general decrease in demand, or in the rate of increase in demand, for data center services could have an adverse impact on industry pricing and profit margins. If there is insufficient customer demand for data center services, our business, financial condition and operating results would be adversely affected.

 

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If we do not keep pace with technological changes, evolving industry standards and customer requirements, our competitive position will suffer.

The Internet and telecommunications industries are characterized by rapidly changing technology, evolving industry standards and changing customer needs. Accordingly, our future success will depend, in part, on our ability to meet the challenge of these changes. Among the most important challenges that we may face are the need to:

 

    continue to develop our strategic and technical expertise;

 

    influence and respond to emerging industry standards and other technological changes;

 

    enhance our current services; and

 

    develop new services that meet changing customer needs.

All of these challenges must be met in a timely and cost-effective manner. Some of our competitors may have greater financial resources, which would allow them to react better or more quickly to changes than we may be able to. We may not effectively meet these challenges as rapidly as our competitors or at all and our failure to do so could harm our business.

Terrorist activity throughout the world and military action to counter terrorism could adversely impact our business.

Due to the high volume of important data that passes through data centers, there is a real risk that terrorists seeking to damage financial and technological infrastructure view data centers generally, and those in concentrated areas specifically, as potential targets. These factors may increase our costs due to the need to provide enhanced security, which would have a material adverse effect on our business, financial condition and results of operations if we are unable to pass such costs on to our customers. These circumstances may also adversely affect the ability of companies, including us, to raise capital. We may not have adequate property and liability insurance to cover terrorist attacks.

In addition, we depend heavily on the physical infrastructure (particularly as it relates to power) that exists in the markets in which we operate. Any damage to such infrastructure, particularly in the major European markets such as Amsterdam, Frankfurt, London and Paris, where we derive a substantial amount of our revenue and which are likely to be more prone to terrorist activities, may materially and adversely affect our business.

Our carrier neutral business model depends on the presence of numerous telecommunications carrier networks in our data centers.

The presence of diverse telecommunications carriers’ fiber networks in our data centers is critical to our ability to retain and attract new customers. We are not a telecommunications carrier and as such we rely on third parties to provide our non-carrier customers with carrier services. We cannot assure you that the carriers operating within our data centers will not cease to do so. For example, as a result of strategic decisions or consolidations, some carriers may decide to downsize or terminate connectivity within our data centers, which could have an adverse effect on our business, financial condition and results of operations.

We may be subject to reputational damage and legal action in connection with the information disseminated by our customers.

We may face potential direct and indirect liability for claims of defamation, negligence, copyright, patent or trademark infringement and other claims, as well as reputational damage, based on the nature and content of the materials disseminated from our data centers, including on the grounds of allegations of the illegality of certain activities carried out by customers through their equipment located in our data centers. For example, lawsuits may be brought against us claiming that content distributed by our customers may be regulated or banned. Our general liability insurance may not cover any such claim or may not be adequate to protect us against all liability that may be imposed. In addition, on a limited number of occasions in the past, businesses, organizations and individuals have sent unsolicited commercial emails (“spam”), which may be viewed as offensive by recipients, from servers hosted at our data centers to a number of people, typically to advertise products or services. We have in the past received, and may in the future receive, letters from recipients of information transmitted by our customers objecting to spam. Although our contracts with our customers prohibit them from spamming, there can be no assurance that customers will not engage in this practice, which could subject us to claims for damages, damage our reputation and have a material adverse effect on our business.

 

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Risks Related to Regulation

Laws and government regulations governing Internet-related services, related communication services and information technology and electronic commerce, across the European countries in which we operate, continue to evolve and, depending on the evolution of such regulations, may adversely affect our business.

Laws and governmental regulations governing Internet-related services, related communications services and information technology and electronic commerce continue to evolve. This is true across the various European countries in which we operate. In particular, the laws regarding privacy and those regarding gambling and other activities that certain countries deem illegal are continuing to evolve.

Changes in laws or regulations (or the interpretation of such laws or regulations) or national or EU policy affecting our activities and/or those of our customers and competitors, including regulation of prices and interconnection arrangements, regulation of access arrangements to types of infrastructure, regulation of privacy requirements through the protection of personal data and regulation of activity considered illegal through rules affecting data center and managed service providers could materially adversely affect our results by decreasing revenue, increasing costs or impairing our ability to offer services.

We and the industry in which we operate are subject to environmental and health and safety laws and regulations and may be subject to more stringent efficiency, environmental and health and safety laws and regulations in the future, including with respect to energy consumption and greenhouse gas emissions.

We are subject to various environmental and health and safety laws and regulations, including those relating to the generation, storage, handling and disposal of hazardous substances and technological equipment, the maintenance of warehouse facilities and the generation and use of electricity. Certain of these laws and regulations are capable of imposing liability for the entire cost of the investigation and remediation of contaminated sites or buildings containing hazardous materials such as asbestos, without regard to fault or the lawfulness of the activity causing the contamination, on current and former owners and occupiers of real property and persons who have disposed of or released hazardous substances at any location. Compliance with these laws and regulations could impose substantial on-going compliance costs and operating restrictions on us.

Hazardous substances or regulated materials of which we are not aware may be present at data centers leased and operated by us. If any such contaminants are discovered at our data centers, we may be responsible under applicable laws, regulations or leases for any required removal or clean-up or other action at substantial cost.

Our facilities contain tanks and other containers for the storage of diesel fuel and significant quantities of lead acid batteries to provide back-up power. We cannot guarantee that our environmental compliance program will be able to prevent leaks or spills in these or other technical installations.

In addition, due to our high levels of energy consumption, we may incur substantial costs purchasing allowances under the CRC Energy Efficiency Scheme and/or in connection with upgrading our data centers to improve the energy efficiency of our operations. This could have an adverse effect on our business, financial condition and results of operations.

Non-compliance with, or liabilities under, existing or future environmental or health and safety laws and regulations, including failure to hold requisite permits, or the adoption of more stringent requirements in the future, could result in fines, penalties, third-party claims and other costs that could have a material adverse effect on us.

Our data centers may also be adversely affected by any future application of additional regulation relating to energy usage, for example, seeking to reduce the power consumption of companies and fees or levies related thereto.

Changes in Dutch or foreign tax laws and regulations, or interpretations thereof may adversely affect our financial position.

We are a Dutch company with European subsidiaries and are subject to income tax in The Netherlands and foreign income tax in the countries we conduct operations, including The Netherlands, France, Germany and the UK. Significant judgment is required in determining our worldwide tax liabilities and obligations. Although we believe that we have adequately assessed and accounted for our potential tax liabilities, and that our tax estimates including our transfer pricing estimates are reasonable, there can be no certainty that additional taxes will not be due upon an audit of our tax returns or as a result of changes to applicable tax laws and interpretations thereof. In addition, several of the governments in which we conduct operations, including The Netherlands, France, Germany and the UK, are actively considering changes to their respective taxation regimes, which may impact the recognition and taxation of worldwide income. The nature and timing of any amendments to tax laws of the jurisdictions in which we operate and the impact on our future tax liabilities cannot be predicted with any certainty, however any such amendments or changes could materially and adversely impact our results of operations and financial position including cash flows.

 

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Laws and government regulations governing the licenses or permits we need across the European countries in which we operate may change, which can adversely affect our business.

We operate data centers and other facilities in 11 countries and as a result of our international operations, we are subject to risks related to the differing legal, political, social and regulatory requirements and economic conditions of many jurisdictions. General economic, political, or social conditions in the countries in which we operate could have an adverse effect on our revenues from operations in those countries. In addition, we may be unable to obtain, renew or retain licenses or permits for our operations, data centers and other facilities for legal, environmental or regulatory reasons. For example, on October 15, 2015, a French administrative court ruled that local authorities failed to perform a sufficiently extensive study of the potential noise impact that operating the PAR7 data center could have on local residents and annulled the permit we had previously received on December 13, 2013. We appealed this ruling and submitted an application for a new permit. We obtained a new permit for our PAR7 data center from the Seine-St-Denis authorities in October 2016. Our inability to obtain, renew or retain licenses or permits for our operations, data centers and other facilities may adversely affect our business, results of operations, financial conditions or cash flows.

Risks Related to Our Ordinary Shares

The market price for our ordinary shares may continue to be volatile.

From January 1, 2017, to December 31, 2017, the closing sale price of our common stock on the New York Stock Exchange (the “NYSE”) ranged from $34.63 to $59.10 per share. The market price for our shares is likely to be volatile and subject to wide fluctuations in response to factors including, but not limited to, the following:

 

    announcements of new products and services by us or our competitors;

 

    technological breakthroughs in the data center, networking or computing industries;

 

    news regarding any gain or loss of customers by us;

 

    news regarding recruitment or loss of key personnel by us or our competitors;

 

    announcements of competitive developments, acquisitions or strategic alliances in our industry;

 

    changes in the general condition of the global economy and financial markets;

 

    general market conditions or other developments affecting us or our industry;

 

    the operating and stock price performance of other companies, other industries and other events or factors beyond our control;

 

    cost and availability of power and cooling capacity;

 

    cost and availability of additional space inventory either through lease or acquisition in our target markets;

 

    regulatory developments in our target markets affecting us, our customers or our competitors;

 

    changes in demand for interconnection and colocation products and services in general or at our facilities in particular;

 

    actual or anticipated fluctuations in our quarterly results of operations;

 

    changes in financial projections or estimates about our financial or operational performance by securities research analysts;

 

    changes in the economic performance or market valuations of other data center companies;

 

    release or expiry of lock-up or other transfer restrictions on our outstanding ordinary shares; and

 

    sales or perceived sales of additional ordinary shares.

In addition, the securities market has from time to time experienced significant price and volume fluctuations that are not related to the operating performance of particular companies. These market fluctuations may also have a material adverse effect on the market price of our ordinary shares.

 

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A substantial portion of our total outstanding ordinary shares may be sold into the market at any time. Such future sales or issuances, or perceived future sales or issuances, could adversely affect the price of our shares.

If our existing shareholders sell, or are perceived as intending to sell, substantial amounts of our ordinary shares, including those issued upon the exercise of our outstanding share options, the market price of our ordinary shares could be adversely impacted. Such sales, or perceived potential sales, by our existing shareholders might make it more difficult for us to issue new equity or equity-related securities in the future at a time and price we deem appropriate. The ordinary shares offered in our initial public offering were eligible for immediate resale in the public market without restrictions. Shares previously held by our existing shareholders may also be sold in the public market in the future if registered under the Securities Act of 1933, as amended (the “Securities Act”), or if such shares qualify for an exemption from registration, including by reason of Rules 144 or 701 under the Securities Act. Additionally, we intend to register all of our ordinary shares that we may issue under our employee stock ownership plans. Once we register those shares, they can be freely sold in the public market upon issuance, unless pursuant to their terms these stock awards have transfer restrictions attached to them.

You may not be able to exercise pre-emptive rights.

Prior to December 29, 2016, and pursuant to our articles of association, our Board of Directors (as defined herein), for a period of 18 months that lasted until December 29, 2016, had the power to (a) limit or exclude pre-emptive rights in respect of any issue and/or (b) grant rights to subscribe for ordinary shares. As of June 30, 2017, our Board of Directors, for a period of 18 months, from June 30, 2017 onwards, has the power to grant rights to subscribe for up to 2,871,542 ordinary shares for the purpose of our employee incentive schemes and to the extent any such shares are granted, they will not include pre-emptive rights for the benefit of shareholders. As a result, we may issue additional shares under this program while excluding any pre-emptive rights. If we issue additional shares without pre-emptive rights, your ownership interests in our Company would be diluted and this in turn could have a material adverse effect on the price of our shares.

We may need additional capital and may sell additional ordinary shares or other equity securities or incur indebtedness, which could result in additional dilution to our shareholders or increase our debt service obligations.

We believe that our current cash and anticipated cash flow from operations will be sufficient to meet our anticipated cash needs for the foreseeable future. We may, however, require additional cash resources due to changed business conditions or other future developments, including any investments or acquisitions we may decide to pursue. If these resources are insufficient to satisfy our cash requirements, we may seek to sell additional equity or debt securities or utilize our existing or obtain a new credit facility. The sale of additional equity securities could result in additional dilution to our shareholders. The incurrence of indebtedness would limit our ability to pay dividends or require us to seek consents for the payment of dividends, increase our vulnerability to general adverse economic and industry conditions, limit our ability to pursue our business strategies, require us to dedicate a substantial portion of our cash flow from operations to service our debt, thereby reducing the availability of our cash flow to fund capital expenditure, working capital requirements and other general corporate needs, and limit our flexibility in planning for, or reacting to, changes in our business and our industry. We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all.

We have never paid, do not currently intend to pay and may not be able to pay any dividends on our ordinary shares.

We have never declared or paid any dividends on our ordinary shares and currently do not plan to declare dividends on our ordinary shares in the foreseeable future. If we were to choose to declare dividends in the future, the payment of cash dividends on our shares is restricted under the terms of the agreements governing our indebtedness and the Implementation Agreement. In addition, because we are a holding company, our ability to pay cash dividends on our ordinary shares may be limited by restrictions on our ability to obtain sufficient funds through dividends from subsidiaries, including restrictions under the terms of the agreements governing our and our subsidiaries’ indebtedness. In that regard, our wholly-owned subsidiaries are limited in their ability to pay dividends or otherwise make distributions to us. Under Dutch law, we may only pay dividends out of profits as shown in our adopted statutory annual accounts. We will only be able to declare and pay dividends to the extent our equity exceeds the sum of the paid and called up portion of our ordinary share capital and the reserves that must be maintained in accordance with provisions of Dutch law and our articles of association. Our Board of Directors will have the discretion to determine to what extent profits shall be retained by way of a reserve. Appropriation and distribution of dividends will be subject to the approval of our general meeting of shareholders. Our Board of Directors, in determining to what extent profits shall be retained by way of a reserve, will consider our ability to declare and pay dividends in light of our future operations and earnings, capital expenditure requirements, general financial conditions, legal and contractual restrictions and other factors that it may deem relevant.

 

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Your rights and responsibilities as a shareholder will be governed by Dutch law and will differ in some respects from the rights and responsibilities of shareholders under U.S. law, and your shareholder rights under Dutch law may not be as clearly established as shareholder rights are established under the laws of some U.S. jurisdictions.

Our corporate affairs are governed by our articles of association and by the laws governing companies incorporated in The Netherlands. The rights of our shareholders and the responsibilities of members of our Board of Directors under Dutch law may not be as clearly established as under the laws of some U.S. jurisdictions. In the performance of its duties, our Board of Directors will be required by Dutch law to consider the interests of our Company, our shareholders, our employees and other stakeholders in all cases with reasonableness and fairness. It is possible that some of these parties will have interests that are different from, or in addition to, your interests as a shareholder. We anticipate that all of our shareholder meetings will take place in The Netherlands.

In addition, the rights of holders of ordinary shares and many of the rights of shareholders as they relate to, for example, the exercise of shareholder rights, are governed by Dutch law and our articles of association and differ from the rights of shareholders under U.S. law. For example, Dutch law does not grant appraisal rights to a company’s shareholders who wish to challenge the consideration to be paid upon a merger or consolidation of the company. See Item 10 “Additional Information—General”.

The provisions of Dutch corporate law and our articles of association have the effect of concentrating control over certain corporate decisions and transactions in the hands of our Board of Directors. As a result, holders of our shares may have more difficulty in protecting their interests in the face of actions by members of our Board of Directors than if we were incorporated in the United States. See Item 10 “Additional Information—General.”

We are a foreign private issuer and, as a result, and as permitted by the listing requirements of the NYSE, we may rely on certain home country governance practices rather than the corporate governance requirements of the NYSE.

Many of the corporate governance rules of the NYSE do not apply to us as a “foreign private issuer”; however, Rule 303A.11 requires foreign private issuers to describe significant differences between their corporate governance standards and the corporate governance standards applicable to U.S. companies listed on the NYSE. While we believe that our corporate governance practices are similar in many respects to those of U.S. NYSE-listed companies and provide investors with protections that are comparable in many respects to those established by the NYSE rules, there have historically been certain key differences which are described below.

Our Nominating Committee and Compensation Committee did not historically (prior to 2016) meet the NYSE independence standard, as one member of each respective committee was not “independent” as defined under Sections 303A.04 and 303A.05 of the NYSE rules, which govern nominating/corporate governance committees and compensation committees, respectively. As of and for the year ended December 31, 2017, each of our Nominating Committee and Compensation Committee was comprised entirely of independent members; however, because of the exemptions available to us as a foreign private issuer, we cannot assure you that we will comply with all of the NYSE corporate governance rules in the future. As a result, you may not have the same protections afforded to stockholders of companies that are not foreign private issuers. For an overview of our corporate governance principles, see Item 16G “Corporate Governance.”

You may be unable to enforce judgments obtained in U.S. courts against us.

We are incorporated under the laws of The Netherlands, and all or a substantial portion of our assets are located outside of the United States and certain of our directors and officers and certain other persons named in this annual report are, and will continue to be, non-residents of the United States. As a result, although we have appointed an agent for service of process in the United States, it may be difficult or impossible for United States investors to effect service of process within the United States upon us or our non-U.S. resident directors and officers or to enforce in the United States any judgment against us or them including for civil liabilities under the United States securities laws. Any judgment obtained in any United States federal or state court against us may, therefore, have to be enforced in the courts of The Netherlands, or such other foreign jurisdiction, as applicable. Because there is no treaty or other applicable convention between the United States and The Netherlands with respect to legal judgments, a judgment rendered by any United States federal or state court will not be enforced by the courts of The Netherlands unless the underlying claim is relitigated before a Dutch court. Under current practice, however, a Dutch court will generally grant the same judgment without a review of the merits of the underlying claim (i) if that judgment resulted from legal proceedings compatible with Dutch notions of due process, (ii) if that judgment does not contravene public policy of The Netherlands and (iii) if the jurisdiction of the United States federal or state court has been based on grounds that are internationally acceptable. Investors should not assume, however, that the courts of The Netherlands, or such other foreign jurisdiction, would enforce judgments of United States courts obtained against us predicated upon the civil liability provisions of the United States securities laws or that such courts would enforce, in original actions, liabilities against us predicated solely upon such laws.

 

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We incur increased costs as a result of being a public company.

As a listed public company, we incur additional legal, accounting, insurance and other expenses than we would have incurred as a private company. We incur costs associated with our public company reporting requirements. In addition, the Sarbanes-Oxley Act and related rules implemented by the U.S. Securities and Exchange Commission (the “SEC”) and the NYSE have imposed increased regulation and required enhanced corporate governance practices for public companies. Our efforts to comply with evolving laws, regulations and standards in this regard are likely to result in increased general and administrative expenses and a diversion of management time and attention from revenue generating activities to compliance activities. We also expect these new rules and regulations to make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage.

Any failure or weakness in our internal controls could materially and adversely affect our financial condition, results of operation and our stock price.

As discussed in Item 15 “Controls and Procedures,” upon an evaluation of the effectiveness of the design and operation of our internal control over financial reporting conducted as of December 31, 2017, we concluded that there was a material weakness such that our internal control over financial reporting was not effective as of December 31, 2017.

Although we have been actively engaged in the development and implementation of a remediation plan to address the material weakness identified and continually review and evaluate our internal control systems to allow management to report on the sufficiency of our internal control over financial reporting, we cannot assure you that we will not discover additional weaknesses in our internal control over financial reporting. Any such weakness or failure to remediate any existing or future weakness could materially and adversely affect our business and operating results as well as our ability to accurately report our financial condition and results of operations in a timely manner. Furthermore, the price of our stock may be adversely affected by related negative market reactions to any such weakness.

 

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ITEM 4: INFORMATION ON THE COMPANY

Overview

We are a leading provider of carrier and cloud-neutral colocation data center services in Europe. We support approximately 1,800 customers through 49 data centers (as of December 31, 2017) in 11 countries enabling them to create value by housing, protecting and connecting their most valuable content and applications. We enable our customers to connect to a broad range of telecommunications carriers, cloud platforms, internet service providers and other customers. Our data centers act as content, cloud and connectivity hubs that facilitate the processing, storage, sharing and distribution of data, between our customers, creating an environment that we refer to as a community of interest.

Our core offering of carrier and cloud-neutral colocation services includes space, power, cooling, connectivity, and a physically secure environment in which to house our customers’ computing, network, storage and IT infrastructures. We enable our customers to reduce operational and capital costs while improving application performance and flexibility. We supplement our core colocation offering with a number of additional services, including network monitoring, remote monitoring of customer equipment, systems management, engineering support services, cross connect, data backup and storage.

Our headquarters are near Amsterdam, The Netherlands, and we operate in major metropolitan areas, including Amsterdam, Frankfurt, Paris and London, Europe’s main data center markets. Our data centers are located in close proximity to the intersection of telecommunications fiber routes, and we house more than 700 individual carriers and internet service providers, 21 European Internet exchanges and all the leading global cloud platforms. Our data centers allow our customers to lower their telecommunications costs and reduce latency, thereby improving the response time of their applications. This high level of connectivity fosters the development of communities of interest.

Strategy

Target New Customers in High Growth Industry Segments to Further Develop our Communities of Interest

We categorize our customers into industry segments, and we will continue to target new and existing customers in high growth industry segments, including Connectivity Providers, Platform Providers and Enterprises. Winning new customers in these target industries enables us to expand existing and build new high value communities of interest within our data centers. We expect the high value and reduced cost benefits of our communities of interest to continue to attract new customers and expansion from existing customers, which will lead to decreased customer acquisition costs for us. For example, customers in the digital media segment benefit from the close proximity to content delivery network providers, Internet exchanges and cloud platforms in order to create and deliver content to consumers reliably and quickly.

Increase Share of Spend from Existing Customers

We focus on increasing revenue from our existing customers in our target-market segments as well. New revenue from our existing customers comprises a substantial portion of our new business, generating the majority of our new bookings. Our sales and marketing teams focus on proactively working with customers to identify expansion opportunities in new or existing markets.

Maintain Connectivity Leadership

We seek to increase the number of carriers in each of our data centers by expanding the presence of our existing carriers into additional data centers and targeting new carriers. We will also continue to develop our relationships with Internet exchanges and work to increase the number of internet service providers in these exchanges. In countries where there is no significant Internet exchange, we will work with internet service providers and other parties to create an appropriate exchange. Our sales and business development teams will continue to work with our existing carriers and internet service providers, and target new carriers and internet service providers, to maximize their presence in our data centers, and to achieve the highest level of connectivity in each of them, with the right connectivity providers to support the requirements of each of our communities of interest.

 

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Continue to Deliver Best-in-Class Customer Service

We will continue to provide a high level of customer service in order to maximize customer satisfaction and minimize churn. Our European Customer Service Center, which operates 24 hours a day, 365 days a year, provides continuous monitoring and troubleshooting and reduces customers’ internal support costs by giving them one-call access to full, multilingual technical support. In addition, we will continue to develop our customer tools, which include an online customer portal to provide our customers with real-time access to information. We will continue to invest in our local service delivery and assurance teams, which provide flexibility and responsiveness to customer needs.

Disciplined Expansion and Prudent Financial Management

We plan to invest in our data center capacity while maintaining our disciplined investment approach and prudent financial policy. We will continue to determine the size of our expansions based on selling patterns, pipeline and trends in existing demand as well as working with our customers to identify future capacity requirements. We normally begin new expansions only once we have identified customers and have the capital to fund the build out fully, with the goal of selling 25% of a data center’s space by the time it opens. In order to reduce risk and improve our return on capital to meet our target internal rates of return, we manage the timing and scale of our capital expenditure obligations by phasing our expansions. Finally, we will continue to manage our capital deployment and financial management decisions based on adhering to our target internal rate of return on new expansions and target leverage ratios. For a description of past and current capital expenditure, see Item 5 “Operating and Financial Review and Prospects”.

Our Services

We offer carrier and cloud neutral colocation data center and managed services to our customers.

Colocation

We provide clients with the space and power to deploy IT infrastructure in world-class data centers. Through a number of redundant subsystems, including power, fiber and cooling, we are able to provide our customers with highly reliable services. Our scalable colocation services enable our customers to upgrade space and power, connectivity and services as their requirements expand and evolve. Our data centers employ a wide range of physical security features, including biometric scanners, man traps, smoke detection, fire suppression systems, and secure access. Our colocation facilities include the following services:

Space

Each of our data centers houses our customers’ IT infrastructure in a highly connected facility, designed and fitted to ensure a high level of network reliability. We provide the space and power for our clients to deploy their own IT infrastructures. Depending on their space and security needs, customers can choose individual cabinets, a secure cage or an individual private room.

Power

Each of our data centers offers our customers high power availability. The majority of our data centers have redundant grid connections and, since power availability is essential to their operation, all have a power backup installation in case of outage. Generators, in combination with uninterrupted power supply (UPS) systems, ensure maximum availability. We provide a full range of output voltages and currents and offer our customers a choice of guaranteed levels of availability between 99.9% and 99.999%.

Connectivity

We provide connectivity services that enable our customers to connect their IT infrastructure to exchange traffic and access cloud platforms. These services, which offer connectivity with more than 700 individual carriers and internet service providers and all the leading cloud providers, enable our customers to reduce costs while improving the reliability and performance associated with the exchange of Internet and cloud data traffic. Our connectivity options offer customers a key strategic advantage by providing direct, high-speed connections to peers, partners, customers, cloud platforms and some of the most important sources of IP data, content and distribution in the world.

 

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Cross Connect

We install and manage physical connections running from our customers’ equipment to the equipment of our telecommunications carrier, internet service providers and Internet exchange customers, as well as to other customers. Cross connects are physically secured in dedicated Meet-Me rooms. Our staff test and install cables and patches and maintain cable trays and patch panels according to industry best practice.

Additional Services

In addition to providing colocation services, we provide a number of additional services, including systems monitoring, systems management and engineering support services. Some managed services are only performed on an ad hoc basis, as and when requested by the customer, while others are more recurring in nature. These services are provided either directly by us, or in conjunction with third parties.

Customers

We categorize our customers into three business segments: Connectivity Providers (including Telecom Operators, Internet Service Providers and Content Delivery Networks), Platform Providers (including Content and Cloud Providers) and Enterprises (including both Direct Enterprise customers and those served through IT Service Providers). We have approximately 1,800 customers. The majority of our customers have entered into contracts with us for an initial three to five-year term, which are typically renewed automatically for successive one-year periods.

In the year ended December 31, 2017, 36% of our revenue came from our top 20 customers, 27% from our top 10 customers and 13% from one customer, which is a Fortune 50 company.

The following table sets forth some of our representative customers by segment:

 

Connectivity Providers

   Platform Providers (Content)    Enterprises (IT Service Providers)
Akamai    Bamtech Media    Atos
Limelight Networks    Fox    CapGemini
AT&T    Netflix    Cognizant
BT    Perform    DXC Technology
China Telecom    Riot Games    Evry
China Unicom    Rubicon Project    IBM
Cogent    Yahoo    NNIT
Colt       Siemens
De-CIX      
Deutsche Telecom    Platform Providers (Cloud)    Enterprises (Direct)
Sprint    Amazon Web Services    AC Hotels
Tata    Barracuda    Bombardier
Telefonica    Cisco    Brunswick
TIM    Cloudgermany.de    Sephora
Verizon    Digital Ocean    Heidelberg Cement
Vodafone    Microsoft Azure    Konica Minolta
Zayo    Oracle    Merger Market
   Salesforce    Saint Gobain
   Softlayer    RBC Capital Markets
   Tencent    Barclays
   Vasco    Citigroup
   VMware    Credit Suisse
      Instinet
      London Metal Exchange
      Nasdaq

 

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Customer service is provided locally by our in-country teams and centrally via our European Customer Service Center (ECSC), which is located in London. The ECSC, which supports five European languages (Dutch, English, French, German and Spanish), is run by technical support staff, operates 24 hours a day, 365 days a year, and provides rapid and cost-effective technical and business support to all our clients. In addition to its service desk functions, the ECSC monitors and manages the performance of our data centers and takes care of network monitoring and other network operations-center functions. It arranges, as necessary, local engineering support and rapid response (out-of-hours emergency) assistance. To ensure efficient and timely support, a customer relationship management system electronically logs each issue that the ECSC is asked to address.

Customer Contracts

Our customers typically sign contracts for the provision of colocation space, together with basic service-level agreements that provide for support services and other managed services. Unless customers notify us of their intention to terminate, which is normally 90 days before the end of the contract period, contracts (a majority of which have an initial term of three to five years) renew automatically for successive one-year periods. Where it is beneficial to us, however, we will seek to re-negotiate and re-sign with a customer (generally for a minimum one-year period), before the contract expires. Our contracts generally allow us the option to increase prices in accordance with each jurisdiction’s local price indices, and we are generally able to adjust the amount charged for power at any time, and as frequently as necessary, during the life of the contract to account for any increases in the costs we are charged for power by our suppliers or government surcharges.

Contracts for colocation services are priced on the basis of a monthly recurring fee that reflects charges for space, cooling, power used in the common parts of the data center, power “plugs”, and metered power usage, with related infrastructure and implementation costs included in an initial set-up fee. Clients have two options on power usage: (i) to pay in advance (typically included in the total cabinet price), for power usage in “plugs”, which are contractually defined amounts of power per month and for which the customer must pay in full, regardless of how much power is actually used; or (ii) to pay for their actual power usage in arrears on a metered basis. The power-plug option is usually sold in shared areas of our data centers where customers pay per cabinet. The metered power usage option is usually sold to customers that take dedicated space such as a cage, suite or private room, for which where they are charged on a per square meter basis.

Similar to our colocation services, our additional services are typically (except for cross connects) contracted on the basis of an annual (or longer where appropriate) contract and the fee generally consists of monthly recurring charges and usage-based charges as appropriate. It may also include an initial set-up fee. If these services are ad hoc, they are invoiced on completion of the service.

For each new customer contract that we enter into, provides that in the event of a power outage or other equivalent service level agreement breach (for example, repeatedly crossing a temperature or humidity benchmark), the customer will receive a service credit in the form of a reduction in its next service fee payment; the credit is on a sliding scale to reflect the seriousness of the breach. Our customer contracts generally exclude liability for consequential or indirect loss suffered as a result of a service level agreement breach and for force majeure. Historically, service credit payments under our service level agreements have been minimal.

Customer Accounts

Fees are normally invoiced quarterly in advance, with the exception of metered power usage which is invoiced monthly in arrears and cross connects which are invoiced quarterly in arrears. On new contracts, we generally require deposits, which we are able to use to cover any non-payment of invoices. If accounts are not paid on time, we ultimately seek recovery through the court system.

Sales and Marketing

Our sales and marketing teams focus on identifying and converting opportunities both for existing customers and for prospects in our target segments, to expand our customers’ space within our data center portfolio and enhance our communities of interest.

Sales

We sell our products and services through local direct sales forces, through a centralized International Accounts Team and by attending tradeshows, networking events and industry seminars. Our International Accounts Team focuses on maximizing revenues from our largest customers across our European footprint and on identifying and developing new major accounts. We use a number of indirect channel partners in the United States to secure referrals and orders from companies based outside the United States.

 

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Marketing

Our corporate marketing organization is responsible for identifying target customer segments, developing the value proposition that will enable us to succeed in our chosen segments, building and communicating a distinct brand, driving qualified leads into the sales pipeline and ensuring strategic alignment with key partners. Our corporate marketing team supports our strategic priorities through the following primary objectives:

Customer Segmentation and Targeting

Our marketing organization is responsible for the identification of high-growth customer segments and associated companies therein that we wish to target in order to build the communities of interest and develop our value proposition to enable success in our chosen markets. Our marketing organization is also responsible for business development of strategic accounts in each segment working with sales in order to build our communities of interest. Strategic customers when present in our data centers, attract other interested members to join the community. A company in one of our segments is considered “strategic” if its presence adds value to the community of interest by increasing the magnetism of the community. This can be achieved as a consequence of the application, data or capability that they place in our data centers or by virtue of its brand and the associated added value to Interxion and the community.

Brand Management and Positioning

This includes brand identity unification, positioning at the corporate and country levels, the development of methodology, marketing assets and brand awareness programs for all our business units.

Lead Generation

To grow our pipeline and deliver our revenue goals, we use online, direct and event marketing, targeted advertising and public relations programs and strategies to design and execute successful lead-generation campaigns that leverage telemarketing and direct sales.

Employees

As of December 31, 2017, we had a total of 658 employees (excluding contractors and interim staff) (as of December 31, 2016: 600; as of December 31, 2015: 533), of which 403 worked in operations and support, 129 in sales and marketing and 126 in general and administrative roles. Of our employees, 477 were employed by our operating companies and 181 worked from our headquarters near Amsterdam or from our corporate offices in London. We believe that relations with our employees are good. Except for collective rights granted by local law, none of our employees is subject to collective bargaining agreements.

Capital expenditure

During 2017, we invested €256.0 million in the business. Of this capital expenditure, 88%, or €225.0 million, was invested in discretionary expansion and upgrade projects resulting in four new data centers and numerous other expansions across our footprint, together with an expansion in our land bank to provide for future growth. Around two thirds of overall capital expenditure was deployed in the Big 4 countries.

Expansions that were ongoing as of December 31, 2017, included, among others, 9,700 square meters of equipped space in Germany, 5,300 square meters of equipped space in The Netherlands, 5,100 square meters of equipped space in France and 3,600 square meters of equipped space in Austria.

Leases

We hold title to certain of our properties and lease the remainder. We exercised certain purchase options and agreed to purchase the PAR7 and AMS7 properties, which we currently report as financial leases and will continue to report as such until the acquisitions are completed. For the other leased properties in which our data centers are located, we generally seek to secure 20- to 25-year leases.

 

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Where possible, we try to mitigate long-term financial commitments by contracting for initial lease terms for a minimum period of 10 to 15 years, with the option to either (i) extend the leases for additional five-year terms, or (ii) terminate the leases upon expiration of the initial 10- to 15-year term. Our leases generally have consumer price index-based annual rent increases over the full term of the lease.

Data Center Operations

We had 49 carrier and cloud neutral colocation data centers in 13 metropolitan areas in 11 countries. The open phases of these data centers represent approximately 130,100 square meters of Maximum equippable space (as of December 31, 2017).

Our data centers are all located in Europe and all our revenues are generated in Europe. For more information on the geographic breakdown of our revenues, see Note 5 of our 2017 consolidated financial statements, included elsewhere herein.

We primarily select sites for our data centers based on expected customer demand, availability of power, access to telecommunications fiber routes, and in our near metropolitan areas. The majority of our data centers are stand-alone structures, close to power sub-stations and telecommunication networks in light industrial areas, rather than in residential areas where more prohibitive environmental regulations exist. Data center design and development is a highly complex process. Construction requires extensive planning and must navigate regulatory procedures which can vary by jurisdiction. We have developed extensive technical experience in building data centers in Europe and are well-positioned to bring new data centers to market rapidly to meet customer demand.

The key characteristics of our data centers are as follows:

 

Country

   Location    Ready for service Quarter    Maximum
equippable space
as of
December 31,
2017
 
               Square meters  

Austria

   Vienna-1    Third Quarter, 2000                      4,700  

Austria(1)

   Vienna-2    Fourth Quarter, 2014      6,500  

Belgium

   Brussels    Third Quarter, 2000      5,100  

Denmark(2)

   Copenhagen-1    Third Quarter, 2000      3,700  

Denmark(3)

   Copenhagen-2    Second Quarter, 2016      1,100  

France

   Marseille-1    Third Quarter, 2014      6,400  

France(4)

   Marseille-2    Third Quarter, 2017      200  

France

   Paris-1    First Quarter, 2000      1,400  

France

   Paris-2    Third Quarter, 2001      2,900  

France

   Paris-3    Third Quarter, 2007      1,900  

France

   Paris-4    Third Quarter, 2007      1,300  

France

   Paris-5    Fourth Quarter, 2009      4,000  

France

   Paris-6    Third Quarter, 2009      1,300  

France(5)

   Paris-7    Second Quarter, 2012      6,800  

Germany

   Dusseldorf-1    Second Quarter, 2000      3,300  

Germany

   Dusseldorf-2    Fourth Quarter, 2015      1,200  

Germany

   Frankfurt-1    First Quarter, 1999      500  

Germany

   Frankfurt-2    Fourth Quarter, 1999      1,100  

Germany

   Frankfurt-3    First Quarter, 2000      2,200  

Germany

   Frankfurt-4    First Quarter, 2001      1,400  

Germany

   Frankfurt-5    Third Quarter, 2008      1,700  

Germany

   Frankfurt-6    Second Quarter, 2010      2,200  

Germany

   Frankfurt-7    First Quarter, 2012      1,500  

Germany

   Frankfurt-8    Second Quarter, 2014      3,700  

Germany

   Frankfurt-9    First Quarter, 2014      800  

Germany

   Frankfurt-10    First Quarter, 2016      4,800  

Germany(6)

   Frankfurt-11    Fourth Quarter, 2017      2,400  

 

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Country

   Location    Ready for service Quarter    Maximum
equippable space
as of
December 31,
2017
 
               Square meters  

Germany(7)

   Frankfurt-12            Third Quarter, 2017                  1,100  

Ireland

   Dublin-1    Second Quarter, 2001      1,100  

Ireland

   Dublin-2    First Quarter, 2010      2,300  

Ireland

   Dublin-3    Fourth Quarter, 2016      1,200  

The Netherlands

   Amsterdam- 1    First Quarter, 1998      600  

The Netherlands

   Amsterdam- 3    Fourth Quarter, 1999      3,000  

The Netherlands

   Amsterdam- 4    Fourth Quarter, 2000      —    

The Netherlands

   Amsterdam- 5    Fourth Quarter, 2008      4,300  

The Netherlands

   Amsterdam- 6    Third Quarter, 2012      4,400  

The Netherlands

   Amsterdam- 7    First Quarter, 2014      7,600  

The Netherlands(8)

   Amsterdam- 8    Fourth Quarter, 2016      2,800  

The Netherlands(9)

   Amsterdam- 9    First Quarter, 2017      2,300  

Spain

   Madrid-1    Third Quarter, 2000      4,000  

Spain

   Madrid-2    Fourth Quarter, 2012      1,700  

Sweden

   Stockholm-1    Third Quarter, 2000      1,900  

Sweden

   Stockholm-2    Second Quarter, 2013      1,200  

Sweden

   Stockholm-3    Third Quarter, 2014      900  

Sweden

   Stockholm-4    Second Quarter, 2015      1,100  

Sweden(10)

   Stockholm-5    Second Quarter, 2017      500  

Switzerland

   Zurich    Fourth Quarter, 2000      7,100  

UK

   London-1    Third Quarter, 2000      5,400  

UK

   London-2    Third Quarter, 2012      1,500  

Total

           130,100  

Notes to provide background on increases compared to prior year:

 

(1) Vienna-2 Maximum equippable space increased by 300 square meters as a result of a new expansion (VIE 2.8, November 2017).
(2) Copenhagen-1 Maximum equippable space decreased by 100 square meters due to reduction in accordance with space reporting definitions.
(3) Copenhagen-2 Maximum equippable space increased by 300 square meters as a result of new expansions (CPH2.2 - January and May 2017).
(4) Marseille-2 Maximum equippable space increased by 150 square meters as a result of new expansions (MRS2.1A/B - September 2017).
(5) Paris-7 Maximum equippable space increased by 1,600 square meters as a result of a new expansion (PAR7.2A - February 2017, PAR7.2B - June 2017).
(6) Frankfurt-11 Maximum equippable space increased by 2,400 square meters as a result of a new expansion (FRA11.1, 11.2 - October 2017).
(7) Frankfurt-12 Maximum equippable space increased by 1,100 square meters as a result of a new expansion (FRA12 - September 2017).
(8) Amsterdam-8 Maximum equippable space increased by 1,300 sqm as a result of a new expansion (AMS8.2 - January 2017).
(9) Amsterdam-9 Maximum equippable space represents the 2,300 sqm added upon acquisition of Interxion Science Park in February 2017.
(10) Stockholm-5 Maximum equippable space increased by 500 square meters as a result of new expansion (STO5.1 - July 2017).

Seasonality

The Company’s operations are not significantly exposed to seasonality.

 

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Competition

We compete directly with all providers of data center services including in-house and outsourced data centers. Our chief competitors among each of the types of competition are listed below.

Carrier and Cloud Neutral Colocation Data Centers

Carrier and cloud neutral colocation data centers in Europe include Equinix and Telehouse.

Wholesale Data Centers

Wholesale data center providers include Digital Realty Trust, NTT, and Global Switch.

Carrier-Operated Data Centers

Carriers that operate their own data centers in Europe include AT&T, BT, Cable & Wireless, Colt, Verizon, Level 3 and Deutsche Telekom, among others.

IT Outsourcers and Managed Services Provider Data Centers

IT outsourcers and managed services providers in Europe include HP, IBM, Rackspace and Sungard.

See Item 3 “Key Information—Risk Factors—We face significant competition and we may not be able to compete successfully against current and future competitors”.

Litigation

We have not been party to any legal proceedings, governmental or arbitration proceedings during the 12 months preceding the date of this annual report which may have, or have in the recent past had, a significant effect on our financial position.

Regulation

Although we are not subject to any financial regulations (such as outsourcing requirements, MiFID or Basel II), our financial services customers commonly are. In their contracts with us, these financial services customers impose access, audit and inspection rights to those parts of our data centers that contain their equipment to enable them to satisfy their regulatory requirements.

In addition, as a consumer of substantial amounts of electricity, we are affected by the CRC Energy Efficiency Scheme (the “CRC Scheme”), which was introduced in 2010, and simplified in May 2013 by the CRC Energy Efficiency Scheme Order 2013. It is a mandatory UK-wide emissions trading scheme based on electricity usage. Phase 2 runs from April 1, 2014 to March 31, 2019. For Phase 2 of the CRC Scheme, organizations qualified if, during the qualification year (that ran from April 1, 2012 until March 31, 2013), they consumed over 6,000 MWh of qualifying electricity through at least one settled half hour meter. We qualified for the CRC Scheme and registered for Phase 2 with the CRC Registry by the deadline of January 31, 2014. Non-compliance with the CRC Scheme may result in criminal and civil penalties.

Once registered for Phase 2, participants have to monitor and report their annual supplies of electricity and gas and then surrender “allowances” equal to the quantity of carbon dioxide emissions associated with that annual CRC Scheme consumption before the end of October. One allowance must be surrendered for each ton of carbon dioxide emitted. Allowances can be bought or traded and participants must submit an annual report on their CRC energy supplies by the end of July each year. The allowance price in the April 2017 “forecast sale” was £16.60 per ton of carbon dioxide and £17.70 in the “buy to comply” sale in June 2018. The prices of allowances for the 2018/19 compliance year are £17.20 in the forecast sale and £18.30 in the compliance sale. Through the annual report publication, the UK Environmental Agency also publishes information on the basis of participants’ annual reports including details the participants submitted when they registered for the CRC Scheme. The potential impacts of the CRC Scheme on our data centers in the UK include the costs of improving energy efficiency in order to reduce electricity consumption and the costs of allowances and administration in complying with the CRC Scheme.

Climate Change Agreements (“CCAs”) are voluntary agreements between the UK Government and energy-intensive sectors that allow a discount from the UK climate change levy (a tax added to electricity and fuel bills) in return for companies meeting carbon saving targets. Data center businesses that provide colocation space (both wholesale and retail) have been eligible for CCAs since July

 

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2014, when the data center sector association, techUK, signed an umbrella agreement with the UK Environmental Agency. From April 1, 2013, participants are entitled to a 90% reduction on the electricity climate change levy and a 65% reduction for other fuels if they agree to and meet their CCA targets. We signed a CCA in February 2015. In December 2016, the UK government confirmed that the buy-out price for 2017/18 and 2019/20 will increase broadly in line with RPI to £14 per ton of carbon dioxide emissions, and also that data centers (added as a new sector to the CCA scheme in 2014) will not be subject to a detailed target review.

Within this CCA framework, the CRC Scheme provides that an electricity or gas supply consumed for the purpose of operating a participating CCA facility will not qualify as an energy supply that requires surrender of carbon dioxide allowance under the CRC Scheme. While we now face costs associated with meeting the target in our CCA, the CCA has reduced our expenditure on CRC Scheme allowances and enables us to qualify for the reduced UK climate change levy (“CCL”) rate under Part IV of Schedule 6 to the Finance Act 2000 (as amended).

Changes to the UK environmental regulations are expected in the future. The UK government had already announced that it will close the CRC Scheme following the 2018-2019 compliance year, with no purchase of allowances required to cover emissions for energy supplied from April 2019. The last CRC report should therefore be submitted by the end of July 2019 and the last surrender of allowances for emissions from energy supplied in the 2018-2019 compliance year should occur by the end of October 2019. The UK government also consulted in October 2017 on a new, simplified energy and carbon reporting framework for introduction by April 2019. The main rates of the CCL will increase from April 2019, but the UK government will keep the existing CCA eligibility criteria in place through at least 2023 and will increase the CCL discount available to CCA participants from April 2019 to ensure that they pay no more than a Retail Price Index level increase. We will continue to analyze all proposed changes fully and will prepare to comply with any new requirement and/or legal obligations.

Pursuant to Article 8(4-6) of the Energy Efficiency Directive 2012 (aiming to encourage investment in energy efficiency improvements, as part of the European Union’s aim to reduce primary energy consumption by 20% by 2020), European Member States are obliged to ensure that undertakings that meet certain thresholds on the number of employees, annual balance sheet total and annual turnover qualify as specified in Energy Efficiency Directive 2012 carry out energy audits. The directive requires the audits to be carried out at least every four years, and set a first compliance deadline of December 5, 2015. The directive allows alternatives to the audit, such as ISO 50001 certification. If a qualifying undertaking does not comply with its obligations under national legislation, the relevant compliance body may issue sanctions (for example, in the UK, the regulator can issue an enforcement notice and seek civil penalties). Costs associated with the Energy Savings Opportunity Scheme (“ESOS”) include the costs of the ESOS assessments and the voluntary costs of implementing any energy efficiency measures identified.

We meet the qualification thresholds in the UK, Germany, France, Denmark, Sweden and The Netherlands.

In Germany, in accordance with national legislation, we are exempt from performing an energy efficiency audit due to our ISO 50001 certification. The audits (with an initial filing deadline of December 5, 2015) for France, Denmark, Sweden, the UK and The Netherlands have been performed and filed with the relevant authorities.

As an operator of data centers, which act as content and connectivity hubs that facilitate the storage, sharing and distribution of data, content and media for customers, we have in place an Acceptable Use Policy, which applies to all our customers that use Internet connectivity services provided by us and which requires our customers to respect all legislation pertaining to the use of Internet services, including email.

We are subject to telecommunications regulation in the various European jurisdictions in which we presently operate, most notably the EU Regulatory Framework. Under these regulations, we are not required to obtain licenses for the provision of our services. We may, however, be required to notify the national telecommunications regulator in certain European jurisdictions about these services. We have made the necessary notifications for such jurisdictions.

By operating data centers, we will process personal data under the EU Data Protection Directive (95/46/EC), which is implemented through adoption in local legislation of the EU member states and under the EU General Data Protection Regulation (2016/679) which will replace the EU Data Protection Directive (95/46/EC) and the local legislation of the EU member states on May 25, 2018. We are subject to this legislation throughout our footprint as processors and controllers in the meaning of this Directive. This may impose obligations on us, such as an obligation to take reasonable steps to protect that information.

Insurance

We have in place what we consider to be reasonable insurance coverage against the type of risks usually insured by companies

 

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carrying on the same or similar types of business as ours in the markets in which we operate. Our insurance broadly falls under the following four categories: professional indemnity, general third-party liability, directors and officers liability and property damage insurance and business interruption insurance.

Our History and Organizational Structure

European Telecom Exchange BV was incorporated on April 6, 1998. After being renamed InterXion Holding B.V. on June 12, 1998, it was converted into InterXion Holding N.V. on January 11, 2000. For further information on the history and development of the Company, see Item 10 “Additional Information—General”. From inception until the acquisition of Interxion Science Park (formerly known as Vancis B.V., “Interxion Science Park”) in 2017, we grew our colocation business organically. Since 2001, we developed our geographic footprint in 13 cities where we have established data center campuses. The only changes to our geographic footprint have been very recent – we added Marseille in 2014 and left Hilversum at the end of 2014. Following the industry downturn that began in 2001 as a result of a sharp decline in demand for Internet-based businesses, we restructured within our geographic base to refocus on a broader and more stable customer base. We have since focused on shifting our customer base from primarily emerging Internet companies and carriers to a wide variety of established businesses that seek to house their IT infrastructure.

Our subsidiaries perform various tasks, such as servicing our clients, operating our data centers, customers support, and providing management, sales and marketing support to the Group. The following table sets forth the name, country of incorporation and (direct and indirect) ownership interest of our subsidiaries as of December 31, 2017:

 

Entity   

Country of

incorporation

  

Ownership

%

    Activity

InterXion HeadQuarters B.V.

   The Netherlands      100   Management

Interxion Europe Ltd

   United Kingdom      100   Management

InterXion Operational B.V.

   The Netherlands      100   Management/Holding

InterXion Participation 1 B.V.

   The Netherlands      100   Holding

InterXion Nederland B.V.

   The Netherlands      100   Provision of co-location services

InterXion Datacenters B.V.

   The Netherlands      100   Data center sales and marketing

InterXion Science Park B.V.

   The Netherlands      100   Provision of co-location services

InterXion Real Estate Holding B.V.

   The Netherlands      100   Real estate management/Holding

InterXion Real Estate I B.V.

   The Netherlands      100   Real estate

InterXion Real Estate IV B.V.

   The Netherlands      100   Real estate

InterXion Real Estate V B.V.

   The Netherlands      100   Real estate

InterXion Real Estate X B.V.

   The Netherlands      100   Real estate

InterXion Real Estate XII B.V.

   The Netherlands      100   Real estate

InterXion Real Estate XIII B.V.

   The Netherlands      100   Real estate

InterXion Real Estate XIV B.V.

   The Netherlands      100   Real estate

InterXion Österreich GmbH

   Austria      100   Provision of co-location services

InterXion Real Estate VII GmbH

   Austria      100   Real estate

InterXion Belgium N.V.

   Belgium      100   Provision of co-location services

InterXion Real Estate IX NV.

   Belgium      100   Real estate

InterXion Danmark ApS

   Denmark      100   Provision of co-location services

InterXion Real Estate VI ApS.

   Denmark      100   Real estate

Interxion France SAS

   France      100   Provision of co-location services

Interxion Real Estate II SARL

   France      100   Real estate

Interxion Real Estate III SARL

   France      100   Real estate

Interxion Real Estate XI SARL

   France      100   Real estate

InterXion Deutschland GmbH

   Germany      100   Provision of co-location services

InterXion Ireland DAC

   Ireland      100   Provision of co-location services

Interxion España SA

   Spain      100   Provision of co-location services

InterXion Sverige AB

   Sweden      100   Provision of co-location services

InterXion (Schweiz) AG

   Switzerland      100   Provision of co-location services

InterXion Real Estate VIII AG.

   Switzerland      100   Real estate

InterXion Carrier Hotel Ltd.

   United Kingdom      100   Provision of co-location services

CT Corporation acts as our agent in the United States. It is located at 111 Eight Avenue, 13th Floor, New York, New York 10011, United States.

 

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ITEM 4A: UNRESOLVED STAFF COMMENTS

Not applicable.

 

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ITEM 5: OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following information should be read in conjunction with the audited consolidated financial statements and notes thereto and with the financial information presented in Item 18 “Financial Statements” included elsewhere in this annual report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Such statements are based upon current expectations that involve risks and uncertainties. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. For example, the words “believes”, “anticipates”, “plans”, “expects”, “intends”, and similar expressions are intended to identify forward-looking statements. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that might cause such a discrepancy include, but are not limited to, those discussed in “—Liquidity and Capital Resources” below and Item 3 “Key Information—Risk Factors” above. All forward-looking statements in this annual report are based on information available to us as of the date of this annual report and we assume no obligation to update any such forward-looking statements.

Overview

We are a leading provider of carrier and cloud neutral colocation data center services in Europe. We support approximately 1,800 customers through 49 data centers (as of December 31, 2017) in 11 countries enabling them to create value by housing, protecting and connecting their most valuable content and applications. We enable our customers to connect to a broad range of telecommunications carriers, internet service providers and other customers. Our data centers act as content, cloud and connectivity hubs that facilitate the processing, storage, sharing and distribution of data, between our customers, creating an environment that we refer to as a community of interest.

Our core offering of carrier and cloud neutral colocation services includes space, power, cooling, connectivity, and a physically secure environment in which to house our customers’ computing, network, storage and IT infrastructures. We enable our customers to reduce operational and capital costs while improving application performance and flexibility. We supplement our core colocation offering with a number of additional services, including network monitoring, remote monitoring of customer equipment, systems management, engineering support services, cross connect, data backup and storage.

Our headquarters are near Amsterdam, The Netherlands, and we operate in major metropolitan areas, including Amsterdam, Frankfurt, Paris and London, Europe’s main data center markets. Our data centers are located in close proximity to the intersection of telecommunications fiber routes, and we house more than 700 individual carriers and internet service providers, 21 European Internet exchanges and all the leading global cloud platforms. Our data centers allow our customers to lower their telecommunications costs and reduce latency, thereby improving the response time of their applications. This high level of connectivity fosters the development of communities of interest.

Growth in Internet traffic, cloud computing and the use of customer-facing hosted applications are driving significant demand for high quality carrier and cloud neutral colocation data center services. This demand results from the need for either more space or more power, or both. These needs, in turn, are driven by, among other factors, decreased cost of Internet access, increased broadband penetration, increased usage of high-bandwidth content, increased number of wireless access points and the growing availability of Internet and network-based applications. If the global economy’s recovery stalls or is reversed, global IP traffic may grow at a reduced rate, which could lead to a slowdown in the increase in demand for our services.

Our ability to meet the demand for high quality carrier and cloud neutral colocation data center services depends on our ability to add capacity by expanding existing data centers or by locating and securing suitable sites for additional data centers that meet our specifications, such as proximity to numerous network service providers, access to a significant supply of electrical power and the ability to sustain heavy floor loading.

Our market is highly competitive. Most companies operate their own data centers and in many cases continue to invest in data center capacity, although there is a trend towards outsourcing. We compete against other carrier and cloud neutral colocation data center service providers, such as Equinix and Telehouse. We also compete with other types of data centers, including carrier-operated colocation, wholesale and IT outsourcers and managed services provider data centers. The cost, operational risk and inconvenience involved in relocating a customer’s networking and computing equipment to another data center are significant and have the effect of protecting a competitor’s data center from significant levels of customer churn.

 

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Key Aspects of Our Financial Model

We offer carrier and cloud neutral colocation services to our customers. Our revenues are mostly recurring in nature and in the last several years, Recurring revenue has consistently represented more than 90% of our total revenue. Our contracted Recurring revenue model together with low levels of Average monthly churn provide significant predictability of future revenue.

Revenue

We generally enter into contracts with our customers for initial terms of three to five years, with annual price escalators and automatic one-year renewals after the end of the initial term. Our cross connect contracts are renewable on a monthly basis. Our customer contracts provide for a fixed monthly recurring fee for our colocation, managed services, cross connects and, in the case of cabinets, fixed amounts of power pre-purchased at a fixed price. These fees are billed monthly, quarterly or bi-annually in advance, together with fees for cross connects that are billed quarterly in arrears. Other services such as the provision of metered power (based on a price per kilowatt hour actually consumed), are billed monthly in arrears, and fees for services such as remote hands and eyes support are billed on an as-incurred basis.

The following table presents our future committed revenues expected to be generated from our fixed term customer contracts as of December 31, 2017, 2016 and 2015.

 

     2017      2016      2015  
     (€’000)  

Within 1 year

     327,500        296,600        275,400  

Between 1 to 5 years

     449,500        434,900        353,600  

After 5 years

     35,600        52,700        76,700  

Total

     812,600        784,200        705,700  

Revenues are recognized when it is probable that future economic benefits will flow to the Group and that these benefits, together with their related costs, can be measured reliably. Revenues are measured at the fair value of the consideration received or receivable taking into account any discounts or volume rebates.

The Group reviews transactions for separately identifiable components of revenue and if necessary applies individual recognition treatment, in which case revenues are allocated to separately identifiable components based on their relative fair values.

The Group earns colocation revenue as a result of providing data center services to customers at its data centers. Colocation revenues and lease income are recognized in profit or loss on a straight-line basis over the term of the customer contract. Incentives granted are recognized as an integral part of the total income, over the term of the customer contract. Customers are usually invoiced quarterly in advance and income is recognized on a straight-line basis over the quarter. Initial setup fees payable at the beginning of customer contracts are deferred at inception and recognized in profit or loss on a straight-line basis over the initial term of the customer contract. Power revenues are recognized based on customers’ usage and are generally matched with the corresponding costs.

Other services revenue, including managed services and customer installation services, including equipment sales, are recognized when the services are rendered. Certain installation services and equipment sales, which by their nature are non-recurring, are presented as Non-recurring revenues and are recognized upon delivery of service.

Deferred revenues relating to invoicing in advance and initial setup fees are carried on the statement of financial position as part of trade payables and other liabilities. Deferred revenues due to be recognized after more than one year are held in non-current liabilities.

Recurring revenue comprises revenue that is incurred monthly from colocation, connectivity and associated power charges, office space, amortized set-up fees and certain recurring managed services (but excluding any ad hoc managed services) provided by us directly or through third parties. Rents received for the sublease of unused sites are excluded.

Costs

Our cost base consists primarily of personnel, power and property costs.

 

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We employ the majority of our personnel in operations and support roles that operate our data centers 24 hours a day, 365 days a year. As of December 31, 2017, we employed 658 employees (excluding contractors and interim staff), of which 403 worked in operations and support, 129 in sales and marketing and 126 in general and administrative roles. A data center typically requires a fixed number of personnel to run, irrespective of customer utilization. Increases in operations and support personnel occur when we bring new data centers into service. Our approach is, where possible, to locate new data centers close to our existing data centers. In addition to other benefits of proximity, in some cases it also enables us to leverage existing personnel within a data center campus.

In 2017, 2016 and 2015, we invested resources in sales and marketing personnel to engage with our existing and potential customers on an industry basis. This has enabled us to establish closer relationships with our customers thereby enabling us to understand and anticipate their needs and to forecast demand, helping us plan the scope and timing of our expansion activities.

Our customers’ equipment consumes significant amounts of power and generates heat. In recent years the amount of power consumed by an individual piece of equipment, or power density, has increased as processing capacity has increased. In maintaining the correct environmental conditions for the equipment to operate most effectively, our cooling and air conditioning infrastructure also consumes significant amounts of power. Our power costs are variable and directly dependent on the amount of power consumed by our customers’ equipment. Our power costs also increase as the Utilization rate of a data center increases. Increases in power costs due to increased usage by our customers are generally matched by corresponding increases in power revenues.

The unit price we pay for our energy also has an impact on our energy costs. We generally enter into contracts with local utility companies to purchase energy at fixed prices for periods of one or two years. Within substantially all of our customer contracts, we have the right to adjust at any time the price we charge for our power services to enable us to recover increases in the unit price we pay.

We currently hold title to the AMS3, AMS6, AMS9, BRU1, CPH2, DUB3, FRA8, FRA10, FRA11, MRS1, PAR3, PAR5 and VIE properties, the MAD3 freehold land and additional properties for future sites. We exercised certain purchase options and agreed to purchase the PAR7 freehold land on which we own the PAR7 data center and the AMS7 freehold land and properties. The PAR7 land and AMS7 land and properties are currently reported as financial leases, and they continue to be reported as such until the acquisitions are completed.

For the other leased properties on which our data centers are located, we generally seek to secure property leases for terms of 20 to 25 years. Where possible, we try to mitigate the long-term financial commitment by contracting for initial lease terms for a minimum period of 10 to 15 years with the option for us either to (i) extend the leases for additional five-year terms or (ii) terminate the leases upon expiration of the initial 10- to 15-year term. Our leases generally have consumer price index based annual rent increases over the full term of the lease.

Larger increases in our property costs occur when we bring new data centers into service. This also has the effect of temporarily reducing our overall Utilization rate while the utilization of the new data center increases as we sell to customers.

In addition, we enter into annual maintenance contracts with our major plant and equipment suppliers. This cost increases as new maintenance contracts are entered into in support of new data center operations.

Operating Leverage

As a result of the relatively fixed nature of our costs, we generally experience margin expansion as our Utilization rate at existing data centers increases. Our margins and the rate of margin expansion will vary based upon the scope and scale of our capacity expansions, which affects our overall Utilization rate.

Adjusted EBITDA

Adjusted EBITDA is a non-IFRS measure. We believe Adjusted EBITDA provides useful supplemental information to investors regarding our on-going operational performance because this measure helps us and our investors evaluate the on-going operating performance of the business after removing the impact of our capital structure (primarily interest expense) and our asset base (primarily depreciation and amortization). Management believes that the presentation of Adjusted EBITDA, when combined with the primary IFRS presentation of net income, provides a more complete analysis of our operating performance. Management also believes the use of Adjusted EBITDA facilitates comparisons between us and other data center operators (including other data center operators that are REITs) and other infrastructure-based businesses. Adjusted EBITDA is also a relevant measure used in the financial covenants contained in our Revolving Facilities.

 

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Other companies may present Adjusted EBITDA differently than we do. This measure is not a measure of financial performance under IFRS. It should not be considered as an alternative to operating income or as a measure of liquidity, or as an alternative to net income as indicators of our operating performance or any other measure of performance implemented in accordance with IFRS.

We define Adjusted EBITDA as operating income adjusted for the following items, which may occur in any period, and which management believes are not representative of our operating performance:

 

    Depreciation and amortization – property, plant and equipment and intangible assets (except goodwill) are depreciated on a straight-line basis over the estimated useful life. We believe that these costs do not represent our operating performance.

 

    Share-based payments – primarily the fair value at the grant date to employees of equity awards, which are recognized as an employee expense over the vesting period. We believe that this expense does not represent our operating performance.

 

    Income or expense related to the evaluation and execution of potential mergers or acquisitions (“M&A”) – under IFRS, gains and losses associated with M&A activity are recognized in the period in which such gains or losses are incurred. We exclude these effects because we believe they are not reflective of our on-going operating performance.

 

    Adjustments related to terminated and unused data center sites – these gains and losses relate to historical leases entered into for certain brownfield sites, with the intention of developing data centers, which were never developed and which management has no intention of developing into data centers. We believe the impact of gains and losses related to unused data centers are not reflective of our business activities and our on-going operating performance.

In certain circumstances, we may also adjust for other items that management believes are not representative of our current on-going performance. Examples include: adjustments for the cumulative effect of a change in accounting principle or estimate, impairment losses, litigation gains and losses or windfall gains and losses.

A reconciliation from net income to Adjusted EBITDA is provided in the section “—Results of operations” and “—Adjusted EBITDA”. Adjusted EBITDA and other key performance indicators may not be indicative of our historical results of operations, nor are they meant to be predictive of future results.

Cash generated from operations

Cash generated from operations is defined as net cash flow from operating activities, excluding interest and corporate income tax payments and receipts. Management believe that the exclusion of these items, provides useful supplemental information to net cash flows from operating activities, to aid investors in evaluating the cash generating performance of our business.

Net Finance Expense

Towards the end of 2006, we started an expansion program of our data centers based on customer demand. This program, closely matched to both customer demand and available capital resources, has since continued. We do not commit to a phase of an expansion or construction of a data center unless we have cash and committed capital available to complete the phase. Since 2006, we have raised debt capital to fund our expansion program, which has contributed to increases in our finance expense. During the period of construction of a data center, we capitalize the borrowing costs as part of the construction costs. We refinanced the Company’s debt in February 2010, when we issued €200.0 million of 9.5% Senior Secured Notes, primarily used to repay existing debt, and a further tap offering of €60.0 million in November 2010. In 2013, we issued €325.0 million of 6.0% Senior Secured Notes. The proceeds were used to purchase, redeem and discharge the €260.0 million of 9.5% Senior Secured Notes, pay fees and expenses incurred in connection with the refinancing, and for other general corporate purposes. In April 2014, we improved our funding to support growth by issuing €150.0 million of 6.00% Senior Secured Notes. This additional financing, combined with a €9.2 million mortgage for our BRU1 data center secured in 2014, was used to repay amounts drawn under our 2013 Super Senior Revolving Facility and to fund further expansion projects. In December 2015, we secured a new €15.0 million mortgage for our FRA8 and FRA10 property, which will be used for further expansion projects. In 2016 we issued an additional €150.0 million of 6.00% Senior Secured Notes due 2020 and secured a €14.6 million mortgage on our VIE property. In addition, in 2017 we entered into a €100.0 million 2017 Senior Secured Revolving Facility, which was fully drawn as of December 31, 2017.

 

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In the year ended December 31, 2017, our net finance expense was €44.4 million, which primarily consisted of interest expense of €41.4 million, foreign currency exchange losses of €1.7 million, €1.2 million amortization of premium received in connection with the issuance and sale in 2016 of the additional €150.0 million 6.00% Senior Secured Notes due 2020, and interest income of €0.2 million in connection with a convertible loan issued to Icolo Ltd. For the full year 2016, our net finance expense was €36.3 million, which primarily consisted of interest expense of €34.9 million, foreign currency exchange losses of €0.8 million, €0.8 million amortization of premium received in connection with the issuance and sale of the additional €150.0 million 6.00% Senior Secured Notes due 2020, and profit of €0.3 million in connection with the sale of a financial asset. For the full year 2015, our net finance expense was €29.0 million, which primarily consisted of interest expense of €30.3 million, profit from sale of a financial asset of €2.3 million and foreign currency exchange gains of €0.9 million.

The increase in net finance expense for the year ended December 31, 2017, was primarily due to the full-year interest expense on the additional €150.0 million 6.00% Senior Secured Notes due 2020, which we issued in April 2016, utilization of the €100.0 million 2017 Senior Secured Revolving Facility, a positive adjustment of a financial lease obligation in France in 2016, additional financing fees, and increased foreign currency exchange losses. We capitalized €3.1 million of borrowing costs in connection with the construction of new data center space in the year ended December 31, 2017, €3.5 million in the year ended December 31, 2016, and €2.6 million in the year ended December 31, 2015.

We discuss our capital expenditure, including intangible assets and our capital expansion program below in “Liquidity and Capital Resources”

Income Tax Expense

Since inception, we generated significant tax loss carry forwards in all our jurisdictions. In 2006, we became taxable income positive and began utilizing our tax loss carry forwards against taxable profits. As of December 31, 2017, we have recognized all our tax loss carry forwards. We expect the cash tax rate to trend up over the next two or three years towards underlying effective tax rate levels.

Segment Reporting

We report our financials in two segments, which we have determined based on our management and internal reporting structure: the first is France, Germany, The Netherlands and UK and the second is the Rest of Europe, which comprises our operations in Austria, Belgium, Denmark, Ireland, Spain, Sweden and Switzerland. Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items are presented as “Corporate and Other” and mainly comprise general and administrative expenses, assets and liabilities associated with our headquarters operations, provisions for onerous contracts (relating to the discounted amount of future losses expected to be incurred in respect of unused data center sites over the term of the relevant leases, as further explained below) and revenue and expenses related to those onerous contracts, loans and borrowings and related expenses and income tax assets and liabilities. Segment capital expenditure, and intangible assets is the total cost directly attributable to a segment incurred during the period to acquire property, plant and equipment.

 

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Results of operations

Operating results for the years ended December 31, 2017, 2016 and 2015:

 

     Year ended
December 31,
     Year ended December 31,  
     2017(1)      2017      2016(i)      2015(i)  
    

(U.S. $’000,

except per

share amounts)

     (€’000, except per share amounts)  

Revenues

     588,240        489,302        421,788        386,560  

Cost of sales

     (228,985      (190,471      (162,568      (151,613

Gross profit

     359,255        298,831        259,220        234,947  

Other income

           

M&A transaction break fee income

     —          —          —          20,923  

Income from sub-leases on unused data center sites

     117        97        95        365  

(Increase)/decrease in provision for site restoration

     —          —          238        —    

Other income

     117        97        333        21,288  

Sales and marketing costs

     (40,232      (33,465      (29,941      (28,217

General and administrative costs

           

Depreciation and amortization

     (130,141      (108,252      (89,835      (78,229

Share-based payments

     (11,937      (9,929      (7,890      (9,047

Increase/(decrease) in provision for onerous lease contracts

     —          —          —          184  

M&A transaction costs

     (5,535      (4,604      (2,429      (11,845

Other general and administrative costs

     (53,383      (44,405      (38,403      (35,454

General and administrative costs

     (200,996      (167,190      (138,557      (134,391

Operating income

     118,144        98,273        91,055        93,627  

Net finance expense

     (53,338      (44,367      (36,269      (29,022

Profit before taxation

     64,806        53,906        54,786        64,605  

Income tax expense

     (17,840      (14,839      (16,450      (17,925

Net income

     46,966        39,067        38,336        46,680  

Basic earnings per share

     0.66        0.55        0.54        0.67  

Adjusted EBITDA(2)

     265,640        220,961        190,876        171,276  

 

Notes:

(i) Comparative figures for the years ended December 31, 2016 and 2015 were restated for errors referred to in Item 15 “Controls and Procedures”. For further information on these errors, see Notes 2 and 29 of our 2017 consolidated financial statements, starting on page F-1.

 

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Operating results as a percentage of revenues for the years ended December 31, 2017, 2016 and 2015:

 

     Year Ended December 31,  
     2017     2016(i)     2015(i)  

Revenues

     100 %     100 %     100 %

Cost of sales

     (39 %)      (39 %)      (39 %) 

Gross profit

     61     61 %     61 %

Other income

      

M&A transaction break fee income

     0 %     0 %     5 %

Income from sub-leases on unused data center sites

     0 %     0 %     0 %

(Increase)/decrease in provision for site restoration

     0 %     0 %     0 %

Other income

     0 %     0 %     5 %

Sales and marketing costs

     (7 %)      (7 %)      (7 %) 

General and administrative costs

      

Depreciation and amortization

     (22 %)      (21 %)      (20 %) 

Share-based payments

     (2 %)      (2 %)      (2 %) 

(Increase)/decrease in provision for onerous lease contracts

     0 %     0 %     0 %

M&A transaction costs

     (1 %)      (1 %)      (3 %) 

Other general and administrative costs

     (9 %)      (9 %)      (9 %) 

General and administrative costs

     (34 %)      (32 %)      (34 %) 

Operating income

     20 %     22 %     24 %

Net finance expense

     (9 %)      (9 %)      (8 %) 

Profit before taxation

     11 %     13 %     16 %

Income tax expense

     (3 %)      (4 %)      (5 %) 

Net income

     8 %     9 %     12 %

Adjusted EBITDA(2)

     45 %     45 %     44 %

 

Notes:

(1) The operating results for the year ended December 31, 2017, have been translated for convenience only based on the noon buying rate in The City of New York for cable transfers of euro as certified for customs purposes by the Federal Reserve Bank of New York as of December 31, 2017, and for euro into U.S. dollars of €1.00 = U.S. 1.2022. See Item 3 “Key Information—Exchange Rate Information” for additional information.
(2) We define Adjusted EBITDA as operating income adjusted for depreciation and amortization, share-based payments, income or expense related to the evaluation and execution of potential mergers or acquisitions (“M&A”), and adjustments related to terminated and unused data center sites. In certain circumstances, we may also adjust for other items that management believes are not representative of our current on-going performance. See “Introduction—Non-IFRS Measures”, “—Key Aspects of Our Financial Model—Adjusted EBITDA” and “—Adjusted EBITDA” for a more detailed description.
(i) Comparative figures for the years ended December 31, 2016 and 2015 were restated for errors referred to in Item 15 “Controls and Procedures”. For further information on these errors, see Notes 2 and 29 of our 2017 consolidated financial statements, starting on page F-1.

 

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Reconciliation of Net income to Adjusted EBITDA, for the periods indicated:

 

     Year Ended
December 31,
     Year Ended December 31,  
     2017*      2017      2016(i)      2015(i)  
     (U.S. $’000)      (€’000)  

Other financial data

           

Net income

     46,966        39,067        38,336        46,680  

Income tax expense

     17,840        14,839        16,450        17,925  

Profit before taxation

     64,806        53,906        54,786        64,605  

Net finance expense

     53,338        44,367        36,269        29,022  

Operating income

     118,144        98,273        91,055        93,627  

Depreciation and amortization

     130,141        108,252        89,835        78,229  

Share-based payments

     11,937        9,929        7,890        9,047  

(Increase)/decrease in provision for onerous lease contracts

     —          —          —          (184

M&A transaction break fee income

     —          —          —          (20,923

M&A transaction costs

     5,535        4,604        2,429        11,845  

Income from sub-leases on unused data center sites

     (117      (97      (95      (365

Increase/(decrease) in provision for site restoration

     —          —          (238      —    

Adjusted EBITDA*

     265,640        220,961        190,876        171,276  

 

Notes:

* References are to the footnotes above.
(1) “(Increase)/decrease in provision for onerous lease contracts” does not reflect the income from subleases on unused data center sites.
(i) Comparative figures for the years ended December 31, 2016 and 2015 were restated for errors referred to in Item 15 “Controls and Procedures”. For further information on these errors, see Notes 2 and 29 of our 2017 consolidated financial statements, starting on page F-1.

 

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Some of our key performance indicators as of the dates indicated:

 

     As of December 31,  
     2017     2016     2015  

Equipped space(1) (square meters)

     122,500       110,800       101,200  

Utilization rate(2) (%)

     81     79     78

 

Notes:

(1) Equipped space is the amount of data center space that, on the date indicated, is equipped and either sold or could be sold, without making any additional investments to common infrastructure. Equipped space at a particular data center may decrease if either (a) the power requirements of customers at such data center change so that all or a portion of the remaining space can no longer be sold because the space does not have enough power and/or common infrastructure to support it without further investment or (b) if the design and layout of a data center changes to meet, among others, fire regulations or customer requirements, and necessitates the introduction of common space, such as corridors, which cannot be sold to individual customers.
(2) Utilization rate is, on the relevant date, Revenue generating space as a percentage of Equipped space; some Equipped space is not fully utilized due to customers’ specific requirements on the layout of their equipment. In practice, therefore, Utilization rate may not reach 100%.

Years Ended December 31, 2017 and 2016

Revenue

Revenue for the years ended December 31, 2017 and 2016:

 

     Year ended December 31,      Change  
     2017      %      2016      %           %  
     (€’000, except percentages)  

Recurring revenue

     462,516        95        399,958        95        62,558        16  

Non-recurring revenue

     26,786        5        21,830        5        4,956        23  

Revenue

     489,302        100        421,788        100        67,514        16  

Revenue increased to €489.3 million for the year ended December 31, 2017, from €421.8 million for the year ended December 31, 2016, an increase of 16%. Recurring revenue increased by 16% and Non-recurring revenue was 5% of total revenue for the year ended December 31, 2017, and 5% of total revenue for the year ended December 31, 2016. The period–over-period growth in Recurring revenue was primarily the result of an increase of approximately 12,600 square meters in Revenue generating space as a result of sales both to existing and new customers in all our regions.

Cost of Sales

Cost of sales increased to €190.5 million for the year ended December 31, 2017, from €162.6 million for the year ended December 31, 2016, an increase of 17%. Cost of sales was 39% of revenue for each of the years ended December 31, 2017, and 2016. The increase in cost of sales related to our overall revenue growth and data center expansion projects, including (i) an increase of €10.6 million in energy usage costs, (ii) an increase of €7.9 million in costs for operation and support personnel, (iii) an increase of €2.0 million in gross rent, (iv) an increase of €1.7 million in security costs, and (v) an increase of €1.3 million in maintenance costs commensurate with growth. Equipped space increased by approximately 11,700 square meters during the year ended December 31, 2017, as a result of expansions to existing data centers in Paris, Marseille, Amsterdam, Vienna, Copenhagen and Stockholm, and to the construction of new data centers in Frankfurt.

 

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Other Income

Other income represents income that we do not consider part of our core business. It includes transaction break-fee income, income from the subleases on unused data center sites, and any increase/(decrease) in provisions for site restoration.

Sales and Marketing Costs

Our sales and marketing costs increased to €33.5 million for the year ended December 31, 2017, from €29.9 million for the year ended December 31, 2016, an increase of 12%. Sales and marketing costs were 7% of revenue for each of the years ended December 31, 2017 and 2016.

The increase in sales and marketing costs was primarily a result of increased compensation and related costs as a result of increases in employee headcount and marketing expenses associated with our continued investment in our go to market strategy.

General and Administrative Costs

General and administrative costs consist of depreciation, amortization and impairments, share-based payments, increase/(decrease) in provision for onerous lease contracts and other general and administrative costs.

Depreciation, amortization and impairments increased to €108.3 million for the year ended December 31, 2017, from €89.8 million for the year ended December 31, 2016, an increase of 20%. Depreciation, amortization and impairments was 22% of revenue for the year ended December 31, 2017, and 21% for the year ended December 31, 2016. The increase was a result of our on-going investment in new data centers and data center expansions.

In determining Adjusted EBITDA we add back share-based payments. For the year ended December 31, 2017, we recorded share-based payments of €9.9 million, an increase of 26% from the year ended December 31, 2016. In determining Adjusted EBITDA we also add back increase/(decrease) in provision for onerous lease contracts and the changes in the provision for site restoration. We also add back M&A transaction related costs and income, which amounted to €4.6 million of expenses in 2017 and €2.4 million in 2016.

Other general and administrative costs increased to €44.4 million for the year ended December 31, 2017, from €38.4 million for the year ended December 31, 2016, an increase of 16%. Other general and administrative costs were 9% of revenue for the years ended December 31, 2017 and December 31, 2016. The increase in the other general and administrative costs was due to increases in professional advisory services, in software licenses, and in salaries associated with a larger headcount and higher external hires.

Net Finance Expense

Net finance expense increased to €44.4 million for the year ended December 31, 2017 from €36.3 million for the year ended December 31, 2016, an increase of 22%. Net finance expense was 9% of revenue for the year ended December 31, 2017 and December 31, 2016. The increase in net finance expense for the year ended December 31, 2017, was primarily due to the full-year interest expense on the additional €150.0 million 6.00% Senior Secured Notes due 2020 which we issued in April 2016, utilization of the €100.0 million 2017 Senior Secured Revolving Facility, a positive adjustment of a financial lease obligation in France in 2016, additional financing fees, and increased foreign currency exchange losses. In the year ended December 31, 2017, we capitalized €3.1 million of borrowing costs during the period of construction of new data center space, compared with €3.5 million in the year ended December 31, 2016.

Income Taxes

Income tax expense was €14.8 million for the year ended December 31, 2017, compared with €16.4 million for the year ended December 31, 2016. The decrease in income tax expense was primarily a result of a change in the mix of profits from countries with a higher tax rate to countries with a lower tax rate. The effective income tax rate of 28% in the year ended December 31, 2017, compared with 30% for the year ended December 31, 2016, was affected by the change in the profit mix noted above and non-significant return to provision adjustments, resulting in a tax benefit in the year ended December 31, 2017, as opposed to an additional tax expense in the year ended December 31, 2016.

We recorded current tax expenses of €13.8 million for the year ended December 31, 2017, and €11.4 million for the year ended December 31, 2016. We recorded a deferred tax expense of €1.0 million for the year ended December 31, 2017, and a deferred tax

 

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expense of €5.0 million for the year ended December 31, 2016. Deferred tax is charged for the annual movements in temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The increase in current tax expenses is mainly due to the decreased availability of carry forward losses to offset taxable profits within the group. The decrease in deferred tax expenses was mainly due to the addition of losses in certain countries, which was partly offset by the full utilization of tax losses in other countries.

Years Ended December 31, 2016 and 2015

Revenue

Revenue for the years ended December 31, 2016 and 2015:

 

     Year ended December 31,      Change  
     2016      %      2015      %           %  
     (€’000, except percentages)  

Recurring revenue

     399,958        95        365,175        94        34,783        10  

Non-recurring revenue

     21,830        5        21,385        6        445        2  

Revenue

     421,788        100        386,560        100        35,228        9  

Revenue increased to €421.8 million for the year ended December 31, 2016, from €386.6 million for the year ended December 31, 2015, an increase of 9%. Recurring revenue increased by 10% and Non-recurring revenue was 5% of total revenue for the year ended December 31, 2016, and 6% of total revenue for the year ended December 31, 2015. The period–over-period growth in Recurring revenue was primarily the result of an increase of approximately 8,100 square meters in Revenue generating space as a result of sales both to existing and new customers in all our regions.

Cost of Sales

Cost of sales increased to €162.6 million for the year ended December 31, 2016, from €151.6 million for the year ended December 31, 2015, an increase of 7%. Cost of sales was 39% of revenue for each of the years ended December 31, 2016, and 2015. The increase in cost of sales related to our overall revenue growth and data center expansion projects, including (i) an increase of €5.8 million in energy usage costs, (ii) an increase of €2.1 million in maintenance costs, and (iii) an increase of €2.1 million in costs for operation and support personnel commensurate with growth. Equipped space increased by approximately 9,600 square meters during the year ended December 31, 2016, as a result of expansions to existing data centers in Dusseldorf, Frankfurt, Marseille, Paris, Stockholm and Vienna, and to the construction of new data centers in Amsterdam, Copenhagen, Dublin and Frankfurt.

Other Income

Other income represents income that we do not consider part of our core business. It includes transaction break-fee income, income from the subleases on unused data center sites, and any increase/(decrease) in provisions for site restoration.

Sales and Marketing Costs

Our sales and marketing costs increased to €29.9 million for the year ended December 31, 2016, from €28.2 million for the year ended December 31, 2015, an increase of 6%. Sales and marketing costs were 7% of revenue for each of the years ended December 31, 2016, and 2015.

The increase in sales and marketing costs was primarily a result of increased compensation and related costs as a result of increases in employee headcount and marketing expenses associated with our continued strategy to invest in our industry-focused customer development and acquisition approach.

General and Administrative Costs

General and administrative costs consist of depreciation, amortization and impairments, share-based payments, increase/(decrease) in provision for onerous lease contracts and other general and administrative costs.

 

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Depreciation, amortization and impairments increased to €89.8 million for the year ended December 31, 2016, from €78.2 million for the year ended December 31, 2015, an increase of 15%. Depreciation, amortization and impairments was 21% of revenue for the year ended December 31, 2016, and 20% for the year ended December 31, 2015. The increase was a result of new data centers and data center expansions.

In determining Adjusted EBITDA we add back share-based payments. For the year ended December 31, 2016, we recorded share-based payments of €7.9 million, a decrease of 13% from the year ended December 31, 2015. In determining Adjusted EBITDA we also add back increase/(decrease) in provision for onerous lease contracts and the changes in the provision for site restoration. Finally, we also add back M&A transaction related costs and income, which included €2.4 million of expenses in 2016 and €9.1 million of income in 2015.

Other general and administrative costs increased to €38.4 million for the year ended December 31, 2016, from €35.5 million for the year ended December 31, 2015, an increase of 8%. Other general and administrative costs were 9% of revenue for the years ended December 31, 2016 and December 31, 2015. The increase in the other general and administrative costs was due to an increase in the costs for professional advisory services, insurance and an increase in salaries associated with a larger headcount and higher external hires.

Net Finance Expense

Net finance expense increased to €36.3 million for the year ended December 31, 2016 from €29.0 million for the year ended December 31, 2015, an increase of 25%. Net finance expense was 9% of revenue for the year ended December 31, 2016 and 8% of revenue for the year ended December 31, 2015. The increase in net finance expense for the year ended December 31, 2016, was primarily due to the impact of the issuance in April 2016 of the €150.0 million 6.00% Senior Secured Notes due 2020, additional mortgage financing for our VIE property, and a new finance lease for our AMS8 data center. In addition, the net finance expense in 2015 was positively affected by the profit from the sale of our iStream shares, amounting to €2.3 million. In the year ended December 31, 2016, we capitalized €3.5 million of borrowing costs during the period of construction of new data center space, compared with €2.6 million in the year ended December 31, 2015.

Income Taxes

Income tax expense was €16.4 million for the year ended December 31, 2016, compared with €17.9 million for the year ended December 31, 2015. The decrease in income tax expense was primarily a result of a decrease in profit before taxation in 2016 due to the net impact of M&A transaction costs and M&A break fee-related income in 2015, but was partly offset by the shift in profits from countries with a lower tax rate to countries with a higher tax rate. The effective income tax rate of 30% in the year ended December 31, 2016, compared with 28% for the year ended December 31, 2015, was affected by the shift in profits from countries with a lower tax rate to countries with a higher tax rate and the recognition of previously unrecognized tax losses.

We recorded current tax expenses of €11.4 million for the year ended December 31, 2016, and €9.2 million for the year ended December 31, 2015. We recorded a deferred tax expense of €5.0 million for the year ended December 31, 2016, and a deferred tax expense of €8.8 million for the year ended December 31, 2015. Deferred tax is charged for the annual movements in temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The increase in current tax expenses is mainly due to the increased contribution from profits in countries with low tax rates to countries with high tax rates. The decrease in deferred tax expenses was mainly due to the use of previously unrecognized tax losses, and the revaluation of deferred tax positions due to the change in certain tax rates.

Liquidity and Capital Resources

As of December 31, 2017, our total indebtedness consisted of (i) €625.0 million 6.00% Senior Secured Notes due 2020, (ii) amounts drawn under our 2017 Senior Secured Revolving Facility totaling €100.0 million (iii) other debt and finance lease obligations totaling €51.1 million and (iv) mortgages totaling €53.6 million. The borrowing requirements of the Company are not subject to significant seasonality. Under our 2017 Senior Secured Revolving Facility and 2013 Super Senior Revolving Facility, interest is based on a floating rate index. The interest expense on the remainder of our outstanding indebtedness is based on a fixed rate, except for our mortgages. Our PAR3, PAR5, BRU1, AMS3, AMS6, FRA8/FRA10 and VIE mortgages are subject to a floating interest rate of EURIBOR plus an individual margin ranging from 195 to 275 basis points. The interest rates on the mortgages secured by our PAR3 and PAR5 properties have been swapped to a fixed rate for approximately 75% of the principal outstanding amounts for a period of ten years.

 

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As of December 31, 2017, the interest payable under the 2013 Super Senior Revolving Facility on (i) any EUR amounts drawn would be at the rate of EURIBOR plus 350 basis points per annum, (ii) any Danish kroner amounts drawn would be at the rate of CIBOR plus 350 basis points per annum, (iii) any Swedish Krona amounts drawn would be at the rate of STIBOR plus 350 basis points per annum and (iv) other applicable currencies, including GBP, amounts drawn at the rate of LIBOR plus 350 basis points per annum. The 2013 Super Senior Revolving Facility was undrawn as of December 31, 2017. As of December 31, 2017, the interest payable under the 2017 Senior Secured Revolving Facility on any EUR amounts drawn was at the rate of EURIBOR (subject to a zero percent floor) plus 225 basis points per annum. The 2017 Senior Secured Revolving Facility was fully drawn as of December 31, 2017.

Historically, we have made significant investments in our property, plant and equipment and intangible assets in order to expand our data center footprint and total Equipped space as we have grown our business. In the year ended December 31, 2017, we invested €256.0 million in both property, plant and equipment (€247.2 million) and intangible assets (€8.8 million, excluding acquisition goodwill). Of our investments in property, plant and equipment, €224.8 million was attributed to expansion capital expenditure and the remainder was attributed to maintenance and other capital expenditure. In addition, we invested €77.5 million in the acquisition of InterXion Science Park B.V., in February 2017. In the year ended December 31, 2016, we invested €250.9 million in both property, plant and equipment (€242.0 million) and intangible assets (€8.9 million). Of our investments in property, plant and equipment, €228.8 million was attributed to expansion capital expenditure and the remainder was attributed to maintenance and other capital expenditure. In the year ended December 31, 2015, we invested €192.6 million in both property, plant and equipment (€186.1 million), and intangible assets (€6.5 million). Of our investments in property, plant and equipment, €175.7 million was attributed to expansion capital expenditure and the remainder was attributed to maintenance and other capital expenditure. Although in any one year the amount of maintenance and replacement capital expenditure may vary, we expect that long-term such expenses will be between 4% and 6% of total revenue.

As of December 31, 2017, we had €38.5 million of cash and cash equivalents. A limited amount of the Company’s total cash balance may be subject to certain restrictions in select countries and cannot be repatriated without a tax implication. The amount of cash that cannot be repatriated without a tax implication is negligible to the total liquidity of our business.

As of December 31, 2017, our 2017 Senior Secured Revolving Facility was fully drawn and our 2013 Super Senior Revolving Facility was undrawn.

In addition, on March 16, 2018, we entered into the 2018 Subordinated Revolving Facility Agreement. For further information, see “—Restrictive Covenants Under Certain Financing Agreements—2018 Subordinated Revolving Facility Agreement”and Item 10 “Additional Information—Material Contracts—The 2018 Subordinated Revolving Facility Agreement dated as of March 16, 2018 (as amended and/or restated from time to time), among InterXion Holding N.V. and the financial institutions party thereto, as Lenders, ABN AMRO Bank N.V. as agent.

Our policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. We monitor the return on capital. See Note 21 to our 2017 consolidated financial statements “Financial instruments” for more details about capital management.

Sources and Uses of Cash

 

     Year ended December 31,  
     2017      2016      2015  
     (€’000)  

Cash generated from operations

     209,013        183,388        169,388  

Net cash flows from/(used in) operating activities

     155,246        139,397        127,070  

Net cash flows from/(used in) investing activities

     (335,620      (251,400      (187,505

Net cash flows from/(used in) financing activities

     104,597        173,959        18,190  

Net cash flows from/(used in) operating activities

The increase in net cash flows from operating activities in the year ended December 31, 2017, compared to the year ended December 31, 2016, was primarily due to our improved operating performance. The increase in net cash flows from operating activities in the year ended December 31, 2016, compared to the year ended December 31, 2015 was primarily due to our improved operating performance combined with improved net working capital movements. In addition, the operating cash flow in 2015 was affected by the €9.1 million net impact of M&A transaction break-fee income and M&A transaction cost.

 

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Net cash flows from/(used in) investing activities

The increase in net cash flows used in investing activities in the year ended December 31, 2017, compared with the year ended December 31, 2016, was primarily the result of the acquisition of Interxion Science Park in February 2017 for €77.5 million. Furthermore, the purchase of property, plant and equipment primarily related to the addition and expansion of data centers in Frankfurt, Paris, Vienna, Amsterdam, Copenhagen and Stockholm contributed to the increase in net cash flows used in investing activities.

The increase in net cash flows used in investing activities in the year ended December 31, 2016, compared with the year ended December 31, 2015, was primarily the result of higher investments in data center assets in 2016. Capital expenditure in the year ended December 31, 2016, primarily related to the addition and expansion of data centers in Frankfurt, Amsterdam, Paris, Dublin, Vienna and Marseille. Capital expenditure in the year ended December 31, 2015, primarily related to the addition and expansion of data centers in Amsterdam, Marseille, Vienna, Frankfurt and Stockholm.

Net cash flows from /(used in) financing activities

Net cash flows from financing activities during the year ended December 31, 2017, were principally the result of €100.0 million net proceeds from our 2017 Senior Secured Revolving Facility. Net cash flows from financing activities during the year ended December 31, 2016, were principally the result of €155.3 million in net proceeds from the offering of the additional €150.0 million 6.00% Senior Secured Notes due 2020 and €14.6 million in gross proceeds drawn under the new mortgage on our VIE property. Net cash flows from financing activities during the year ended December 31, 2015, were principally the result of the €14.9 million proceeds from the new mortgage on our FRA8 and FRA10 data centers, which we drew in December 2015, and €5.7 million proceeds from the exercises of stock options under our Equity-based incentive plan. This was partially offset by repayments on mortgages in The Netherlands, France and Belgium.

We anticipate that cash flows from operating activities and available credit from our Revolving Facilities will be sufficient to meet our operating requirements on a short-term (12 month) and long-term basis, including the repayment of drawings under our €100.0 million 2017 Senior Secured Revolving Facility as of December 31, 2017, of our other debt as it becomes due, and to complete our publicly announced expansion projects.

The Company assesses its capital raising and refinancing needs on an on-going basis and may enter into additional credit facilities and seek to issue equity and/or debt securities in the domestic and international capital markets if market conditions are favorable. Also, depending on market conditions, the Company may elect to repurchase portions of its debt securities in the open market, pursuant to the redemption provisions in the applicable indenture or otherwise.

Optional Redemption of the Senior Secured Notes

At any time on or after July 15, 2016, and before maturity, upon not less than 10 and not more than 60 days’ notice, we may redeem all or part of the Senior Secured Notes. These redemptions will be in amounts of €100,000 or integral multiples of €1,000 in excess thereof at the following redemption prices (expressed as percentages of their principal amount at maturity), plus accrued and unpaid interest, if any, to the redemption date, if redeemed during the 12-month period commencing on July 15 of the years set forth below.

 

Year

   Redemption Price  

2017

     103.000

2018

     101.500

2019 and thereafter

     100.000

Any optional redemption or notice thereof may, at our discretion, be subject to one or more conditions precedent.

Redemption Upon Changes in Withholding Taxes

We may, at our option, redeem the Notes, in whole but not in part, at any time upon giving not less than 10 and not more than 60

 

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days’ notice to the Holders, at a redemption price equal to 100% of the principal amount thereof, together with accrued and unpaid interest thereon, if any, to the redemption date and all Additional Amounts, if any, then due and which will become due on the date of redemption as a result of the redemption or otherwise, if we determine in good faith that we or any guarantor is or, on the next date on which any amount would be payable in respect of the Notes, would be obliged to pay Additional Amounts which are more than a de minimis amount in respect of the Notes or the Guarantees pursuant to the terms and conditions thereof, which we or any guarantor cannot avoid by the use of reasonable measures available to it (including making payment through a paying agent located in another jurisdiction), as a result of:

 

  (a) any change in, or amendment to, the laws (or any regulations or rulings promulgated thereunder) of any relevant taxing jurisdiction affecting taxation, which becomes effective on or after the date of the Indenture or, if the relevant taxing jurisdiction has changed since the date of the Indenture, on or after the date on which the then current relevant taxing jurisdiction became the relevant taxing jurisdiction under the Indenture; or

 

  (b) any change in the official application, administration, or interpretation of the laws, treaties, regulations or rulings of any relevant taxing jurisdiction (including a holding, judgment or order by a court of competent jurisdiction) on or after the date of the Indenture or, if the relevant taxing jurisdiction has changed since the date of the Indenture, on or after the date on which the then current relevant taxing jurisdiction became the relevant taxing jurisdiction under the Indenture (each of the foregoing clauses (a) and (b), a “Change in Tax Law”).

The Notes also contain standard change of control provisions, which require the Company to make an offer to each holder of Notes to purchase such holder’s Notes in cash equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of purchase, upon the occurrence of a change of control (as defined in the indenture for the Notes).

Definitions:

“Additional Amounts” means amounts the Issuer or Guarantor, as the case may be, shall pay as may be necessary so that the net amount received by each Holder of the Notes (including Additional Amounts) after withholding or deduction on account of any such taxes from any payment made under or with respect to the Notes shall be not less than the amount that such Holder would have received if such taxes had not been required to be withheld or deducted.

“Applicable Redemption Premium” means, with respect to any Note on any redemption date, the greater of:

 

  a) 1.0% of the principal amount of the Note; and

 

  b) the excess of:

 

  (i) the present value at such redemption date of: (x) the redemption price of such Note at July 15, 2016 (such redemption price being set forth in the table appearing on the face of the Notes); plus (y) all required interest payments that would otherwise be due to be paid on such Note during the period between the redemption date and July 15, 2016 (excluding accrued but unpaid interest), computed using a discount rate equal to the bund rate plus 50 basis points; over

 

  (ii) the outstanding principal amount of the Note.

For the avoidance of doubt, calculation of the Applicable Redemptions Premium shall not be a duty or obligation of the trustee or any paying agent.

“Holder” means the person in whose name a Note is recorded on the registrar’s books.

“Indenture” means the indenture dated as of July 3, 2013, among InterXion Holding N.V., as Issuer, InterXion Belgium N.V., InterXion Danmark ApS, InterXion Carrier Hotel Limited, InterXion Österreich GmbH, InterXion Datacenters B.V., InterXion Deutschland GmbH, Interxion España S.A., InterXion France SAS, InterXion HeadQuarters B.V., InterXion Ireland DAC, InterXion Nederland B.V. and InterXion Operational B.V., as initial guarantors, The Bank of New York Mellon, London Branch, as trustee, principal paying agent and transfer agent, The Bank of New York Mellon (Luxembourg) S.A., as registrar and Luxembourg paying agent and Barclays Bank PLC, as security trustee, as may be amended or supplemented from time to time.

“Issuer” means InterXion Holding N.V.

“Notes” means the €625.0 million 6.00% Senior Secured Notes due 2020, including Additional Notes issued under the Indenture.

 

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Restrictive Covenants Under Certain Financing Agreements

2013 Super Senior Revolving Facility and 2017 Senior Secured Revolving Facility

The senior secured revolving facility agreement dated as of March 9, 2017 (as amended and/or restated from time to time) (“2017 Senior Secured Revolving Facility Agreement”), among the Company as original borrower, the lenders named therein and Barclays Bank PLC as agent and security trustee, provides for the 2017 Senior Secured Revolving Facility. The super senior revolving facility agreement dated June 17, 2013 (as amended and/or restated from time to time) (the “2013 Super Senior Revolving Facility Agreement” and together with the 2017 Senior Secured Revolving Facility Agreement, the Revolving Facility Agreements), among the Company as original borrower, the lenders named therein and Barclays Bank PLC as agent and security trustee, provides for the 2013 Super Senior Revolving Facility.

Each Revolving Facility Agreement contains various covenants that restrict, among other things and subject to certain exceptions, the ability of the Company and its subsidiaries to:

 

    create certain liens;

 

    incur debt and/or guarantees;

 

    enter into transactions other than at arm’s-length basis;

 

    pay dividends or make certain distributions or payments;

 

    engage, in relation to the Company, in any business activity or own assets or incur liabilities not authorized by the Revolving Facilities Agreement;

 

    sell certain kinds of assets;

 

    enter into any sale and leaseback transactions;

 

    make certain investments or other types of restricted payments;

 

    substantially change the nature of the Company or the Group’s business;

 

    designate unrestricted subsidiaries; and

 

    effect mergers, consolidations or sale of assets.

The restrictive covenants are subject to customary exceptions including, in relation to the incurrence of subordinated debt, a consolidated fixed charge ratio (calculated as a ratio of Adjusted EBITDA to consolidated interest expense) to exceed 2.00 to 1.00 on a pro forma basis for the four full fiscal quarters (taken as one period) for which financial statements are available immediately preceding the incurrence of such debt and, if such debt is senior debt, a consolidated senior leverage ratio (calculated as a ratio of outstanding senior debt of the Company and its restricted subsidiaries (on a consolidated basis) to pro forma Adjusted EBITDA) to be less than 4.00 to 1.00 on a pro forma basis for the four full fiscal quarters (taken as one period) for which financial statements are available immediately preceding the incurrence of such debt.

Each of the Revolving Facility Agreements also includes a leverage ratio financial covenant (tested on a quarterly basis), which requires total net debt (calculated as a ratio to pro forma Adjusted EBITDA) not to exceed 4.75 to 1.00, stepping down to 4.00 to 1.00 for each test date after (but not including) June 30, 2018. In addition, the Company must ensure, under each of the Revolving Facility Agreements, that the guarantors represent a certain percentage of Adjusted EBITDA of the Group as a whole and a certain percentage of the consolidated net assets of the Group as a whole. The breach of any of these covenants by the Company or the failure by the Company to maintain its leverage ratio could result in a default under either of the Revolving Facility Agreements.

On February 20, 2018, the Company received the requisite consents from lenders under its 2013 Super Senior Revolving Facility Agreement to waive, from the date of such consent becoming effective and up to, and including, May 1, 2018, the undertaking requiring certain material subsidiaries of the Company to accede to the 2013 Super Senior Revolving Facility Agreement as additional guarantors and, for the same period, to reduce the guarantor coverage threshold as a percentage of the group’s consolidated adjusted EBITDA (as more fully set out in the 2013 Super Senior Revolving Facility Agreement) from 85% to 80%. On April 19, 2018, the Company received the requisite consents from lenders under its 2013 Super Senior Revolving Facility Agreement to extend the foregoing waivers, up to, and including, July 31, 2018.

On February 19, 2018 the Company also received the requisite consents from lenders under its 2017 Senior Secured Revolving

 

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Facility Agreement to extend the date by which certain subsidiaries of the Company are required to accede to the 2017 Senior Secured Revolving Facility Agreement as guarantors to April 30, 2018. On April 20, 2018, the Company received the requisite consents from lenders under its 2017 Senior Secured Revolving Facility Agreement to extend the foregoing waivers, up to, and including, July 31, 2018.

The Company also received, on March 1, 2018, the requisite consents from lenders under its 2017 Senior Secured Revolving Facility Agreement in relation to entering into the 2018 Subordinated Revolving Facility Agreement (as defined below).

The breach of any of these covenants by the Company or the failure by the Company to maintain its leverage ratio could result in a default under the Revolving Facility Agreements. As of December 31, 2017, the Company was in compliance with all covenants under the Revolving Facility Agreements.

2018 Subordinated Revolving Facility Agreement

The subordinated unsecured revolving facility agreement dated as of March 16, 2018 (the “2018 Subordinated Revolving Facility Agreement”), among the Company as original borrower, the lenders named therein and ABN AMRO Bank N.V. as agent provides for the 2018 Subordinated Revolving Facility.

The 2018 Subordinated Revolving Facility Agreement has an initial maturity date of December 31, 2018, with an option to extend up to December 31, 2019 (subject to satisfying certain conditions therein).

The 2018 Subordinated Revolving Facility is subordinated in right of payment to any debt of the Company or any restricted subsidiary outstanding under each of the 2013 Super Senior Revolving Facility, the 2017 Senior Secured Revolving Facility, the Senior Secured Notes and any other debt of the Company or any restricted subsidiary, unless the instrument under which such debt is incurred expressly provides that it is pari passu or subordinated in right of payment to the 2018 Subordinated Revolving Facility. In addition, the 2018 Subordinated Revolving Facility is subject to customary payment block and enforcement standstill provisions, in each case, with a long stop date of 179 days.

Borrowings under the 2018 Subordinated Revolving Facility, among other things, are subject to an aggregate principal amount of not less than €180,000,000 (or its equivalent) being outstanding under the 2013 Super Senior Revolving Facility and/or the 2017 Senior Secured Revolving Facility on the utilization date of the 2018 Subordinated Revolving Facility.

The 2018 Subordinated Revolving Facility Agreement contains various covenants that restrict, among other things and subject to certain exceptions, the ability of the Company and its subsidiaries to:

 

    create certain liens;

 

    incur debt;

 

    enter into transactions other than at arm’s-length basis;

 

    pay dividends or make certain distributions or payments;

 

    engage, in relation to the Company, in any business activity or own assets or incur liabilities not authorized by the 2018 Subordinated Revolving Facility Agreement;

 

    sell certain kinds of assets;

 

    enter into any sale and leaseback transactions;

 

    make certain investments or other types of restricted payments;

 

    substantially change the nature of the Company or the Group’s business;

 

    designate unrestricted subsidiaries; and

 

    effect mergers, consolidations or sale of assets.

The restrictive covenants are subject to customary exceptions including, in relation to the incurrence of additional debt, a consolidated fixed charge ratio (calculated as a ratio of Adjusted EBITDA to consolidated interest expense) to exceed 2.00 to 1.00 on a pro forma basis for the four full fiscal quarters (taken as one period) for which financial statements are available immediately preceding the incurrence of such debt.

 

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The 2018 Subordinated Revolving Facility Agreement also includes a leverage ratio financial covenant (tested on a quarterly basis), which requires total net debt (calculated as a ratio to pro forma Adjusted EBITDA) not to exceed 4.75 to 1.00.

The 2018 Subordinated Revolving Facility Agreement is unsecured and is not guaranteed.The breach of any of these covenants by the Company or the failure by the Company to maintain its leverage ratio could result in a default under the 2018 Subordinated Revolving Facility Agreement.

Senior Secured Notes Indenture

The Indenture contains covenants for the benefit of the holders of the Notes that restrict, among other things and subject to certain exceptions, the ability of the Company and its subsidiaries to:

 

    incur debt;

 

    enter into certain transactions with, or for the benefit of, an affiliate;

 

    create or incur certain liens;

 

    incur a change in control;

 

    pay dividends or make certain distributions or payments;

 

    engage in any business activity not authorized by the Indenture;

 

    sell certain kinds of assets;

 

    impair any security interest on the assets serving as collateral for the Notes;

 

    enter into any sale and leaseback transaction;

 

    make certain investments or other types of restricted payments;

 

    designate unrestricted subsidiaries;

 

    effect mergers, consolidations or sale of assets; and

 

    guarantee certain debt.

The breach of any of these covenants by the Company could result in a default under the Indenture. As of December 31, 2017, the Company was in compliance with all covenants in the Indenture.

Adjusted EBITDA

Adjusted EBITDA for the years ended December 31, 2017, December 31, 2016, and December 31, 2015, was €221.0 million, €190.9 million and €171.3 million respectively, representing 45%, 45% and 44% of revenue, respectively.

We define Adjusted EBITDA as operating income adjusted to exclude depreciation and amortization, share-based payments, income or expense related to the evaluation and execution of potential mergers or acquisitions, and adjustments related to terminated and unused data center sites. See “Introduction—Non-IFRS Financial Measures” for a more detailed description. Adjusted EBITDA is a non-IFRS measure. We believe Adjusted EBITDA provides useful supplemental information to investors regarding our on-going operational performance because this measure helps us and our investors evaluate the on-going operating performance of the business after removing the impact of our capital structure (primarily interest expense) and our asset base (primarily depreciation and amortization). Management believes that the presentation of Adjusted EBITDA, when combined with the primary IFRS presentation of net income provides a more complete analysis of our operating performance. Management also believes the use of Adjusted EBITDA facilitates comparisons between us and other data center operators (including other data center operators that are REITs) and other infrastructure-based businesses. Adjusted EBITDA is also a relevant measure used in the financial covenants of our Revolving Facilities and our 6.00% Senior Secured Notes due 2020. Other companies may present Adjusted EBITDA differently than we do. This measure is not a measure of financial performance under IFRS and should not be considered as an alternative to operating income or as a measure of liquidity or an alternative to net income as indicators of our operating performance or any other measure of performance implemented in accordance with IFRS.

 

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Contractual Obligations and Off-Balance Sheet Arrangements

We lease a significant proportion of our data centers and certain equipment under non-cancellable lease agreements. The following represents our debt maturities, financings, leases and other contractual commitments as of December 31, 2017:

 

     Total      Less than 1
year
     1 – 3 years      3 – 5 years      More than
5 years
 
     (€’000)  

Long-term debt obligations(1)

     897,184        146,880        719,547        13,602        17,155  

Capital (finance) lease obligations(2)

     70,492        4,389        24,319        5,306        36,478  

Operating lease obligations(3)

     373,692        35,326        70,319        66,722        201,325  

Energy purchase commitments

     83,500        41,500        42,000        —          —    

Other contractual purchase commitments

     30,519        26,195        2,290        1,293        741  

Capital purchase commitments

     285,900        285,900        —          —          —    

Total

     1,741,287        540,190        858,475        86,923        255,699  

Notes:

(1) Long-term debt obligations include the Senior Secured Notes, mortgages, loans from suppliers and/or landlords, including interest related thereto.
(2) Capital (finance) lease obligations include future interest payments, and where we exercised purchase options, the amount payable upon transfer of ownership.
(3) Operating lease obligations include the lease of property and equipment.

We entered into 19 irrevocable bank guarantees totaling €5.1 million with ABN AMRO Bank, BNP Paribas, La Caixa and Frankfurter Sparkasse. These bank guarantees were primarily provided in lieu of cash deposits for lease contracts and either automatically renew in successive one-year periods or, in each case, remain in effect until the final lease expiration date. The bank guarantees are cash collateralized and the collateral is included in other (non-)current assets on our statement of financial position. These contingent commitments are not reflected in the table above.

Primarily as a result of our various data center expansion projects, as of December 31, 2017, we were contractually committed for €285.9 million of unaccrued capital expenditure, primarily for data center equipment not yet delivered and labor not yet provided, in connection with the work necessary to complete construction and open these data centers before making them available to customers for installation. This amount, which is expected to be paid in 2018, is reflected in the table above as “Capital purchase commitments”.

We have other non-capital purchase commitments in place as of December 31, 2017, such as commitments to purchase power in select locations, through the year 2018 and beyond, for a total amount of €83.5 million. In addition, we have committed to purchase goods or services to be delivered or provided during 2018 and beyond. Such other purchase commitments as of December 31, 2017, which totaled €30.5 million, are also reflected in the table above as “Other contractual purchase commitments”.

In addition, although we are not contractually obligated to do so, we expect to incur additional capital expenditure consistent with our disciplined expansion and conservative financial management in our various data center expansion projects during 2018 in order to complete the work needed to open these data centers. Such non-contractual capital expenditure is not reflected in the table above.

On January 18, 2013, the Group entered into a €10.0 million financing agreement, consisting of two loans that are secured by mortgages on the PAR3 land owned by Interxion Real Estate II Sarl and the PAR5 land owned by Interxion Real Estate III Sarl, a pledge on the rights under the intergroup lease agreements between Interxion Real Estate II Sarl and Interxion Real Estate III Sarl, as lessors, and Interxion France SAS, as lessee, and are guaranteed by Interxion France SAS. The principal amounts of the mortgage loans are required to be repaid in quarterly installments collectively amounting to €167,000 commencing April 18, 2013. The mortgage loans have a maturity of 15 years and a variable interest rate based on EURIBOR plus an individual margin ranging from 240 to 280 basis points. The mortgage loan agreement requires the interest rate to be fixed for a minimum of 40% of the principal outstanding amount for a minimum of six years. In April 2013, the interest rate was fixed for approximately 75% of the principal outstanding amount for a period of ten years.

 

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On June 26, 2013, the Group entered into a €6.0 million mortgage financing. The mortgage loan is secured by a mortgage on the AMS3 property owned by Interxion Real Estate V B.V. and a pledge on the rights under the intergroup lease agreement between Interxion Real Estate V B.V., as lessor, and Interxion Nederland B.V., as lessee. The repayment of principal under this mortgage loan is required to be repaid in annual installments of €0.4 million commencing May 1, 2014, and a final repayment of €4.4 million due on May 1, 2018. The mortgage loan agreement includes a variable interest rate based on EURIBOR plus 275 basis points. The mortgage loan contains a minimum debt service capacity ratio of 1:1 based on the operations of Interxion Real Estate V B.V.

On April 1, 2014, the Group completed a €9.2 million mortgage financing with respect to its data center in Belgium. The facility is guaranteed by Interxion Real Estate Holding B.V. and is secured by (i) a mortgage on the data center property in Belgium, which was acquired by Interxion Real Estate IX N.V. on January 9, 2014, and (ii) a pledge over the lease agreement. The facility has a maturity of 15 years and has a variable interest rate based on EURIBOR plus 200 basis points. The principal amount is to be repaid in 59 quarterly installments of €153,330 of which the first quarterly installment was paid on July 31, 2014, and a final repayment of €153,330 due on April 30, 2029. This mortgage does not contain any financial maintenance covenants.

On October 13, 2015, the Group completed a €15.0 million mortgage financing with respect to certain property in Germany. The facility is secured by a mortgage on the real estate property (FRA8 and FRA10) in Germany, which is owned by Interxion Real Estate I B.V., and a pledge over the lease agreement. The facility has a maturity of five years and has a variable interest rate based on EURIBOR plus 225 basis points. The principal amount is to be repaid in four annual installments of €1.0 million of which the first quarterly installment is due on September 30, 2016, and a final repayment of €11.0 million which is due on September 30, 2020.

On April 8, 2016, the Group entered a €14.6 million financing facility guaranteed by Interxion Real Estate I B.V. which is secured by (i) a mortgage on and (ii) a pledge on the lease agreement for the data center property in Vienna, Austria (acquired by Interxion Real Estate VII GmbH in January 2015). The facility has a maturity of 14 years and nine months, and has a variable interest rate based on EURIBOR plus 195 basis points. The principal amount is due in 177 monthly instalments, increasing from €76,000 to €91,750. The first monthly instalment of €76,000 was paid on April 30, 2016, and a final repayment of €91,750 is due on December 31, 2030.

On December 1, 2017, we renewed a €10.0 million mortgage financing entered into in 2012, which was secured by mortgages on the AMS6 property, owned by Interxion Real Estate IV B.V. The principal is to be repaid in annual instalments of €667,000 commencing December, 2018, and a final repayment of €7,332,000 due on December 31, 2022. The mortgage has a variable interest rate based on EURIBOR (subject to a zero percent EURIBOR floor) plus 225 basis points.

Critical Accounting Estimates

Basis of Measurement

We present our financial statements in thousands of euro. They are prepared under the historical cost convention except for certain financial instruments. The financial statements are presented on the going-concern basis. Our functional currency is the euro.

The accounting policies set out below have been applied consistently by us and our wholly-owned subsidiaries and to all periods presented in these consolidated financial statements.

Use of Estimates and Judgments

The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

Judgments, estimates and assumptions applied by management in preparing the financial statements are based on circumstances as of December 31, 2017, and based on Interxion operating as a stand-alone company.

In particular, information about significant areas of estimation uncertainty and critical judgments in applying accounting policies that have the most significant effect on amounts recognized in the financial statements are discussed below.

 

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Property, Plant and Equipment and Depreciation

Estimated remaining useful lives and residual values of property plant and equipment, including assets recognized upon a business combination, are reviewed annually. The carrying values of property, plant and equipment are also reviewed for impairment where there has been a triggering event by assessing the present value of estimated future cash flows and net realizable value compared with net book value. The calculation of estimated future cash flows and residual values is based on our best estimates of future prices, output and costs and is therefore subjective. In addition, the valuation of some of the assets under construction requires judgments, which are related to the probability of signing lease contracts and obtaining planning permits. Regarding the properties acquired as part of the acquisition of InterXion Science Park B.V., we recognized fair value at acquisition date, based on the highest and best use.

Intangible Assets and Amortization

Estimated remaining useful lives of intangible assets, including those recognized upon a business combination, are reviewed annually. The carrying values of intangible assets are also reviewed for impairment where there has been a triggering event by assessing the present value of estimated future cash flows and fair value compared with net book value. The calculation of estimated future cash flows is based on our best estimates of future prices, output and costs and is therefore subjective. The customer portfolio acquired as part of the acquisition of InterXion Science Park B.V. was valued based on the multi-period excess earnings method, which considers the present value of net cash flows expected to be generated by the customer portfolio, excluding any cash flows related to contributory assets.

Goodwill

Goodwill is recognized as the amount by which the purchase price of an acquisition exceeds the fair values of the assets and liabilities identified as part of the purchase price allocation. Goodwill is not being amortized, but subject to an annual impairment test.

Lease Accounting

At inception or modification of an arrangement, the Group determines whether such an arrangement is or contains a lease. Classification of a lease contract (operating versus a finance lease) is based on the extent to which risks and rewards incidental to ownership of a leased asset lie with the lessor or the lessee. The classification of lease contracts includes the use of judgments and estimates.

Costs of Site Restoration

Liabilities in respect of obligations to restore premises to their original condition are estimated at the commencement of the lease and reviewed yearly based on rents, remaining terms, contracted extension possibilities and possibilities of lease terminations. A provision for site restoration is recognized when costs for restoring leasehold premises to their original condition at the end of the lease term is required to be made and the likelihood of this liability is estimated to be probable. The discounted cost of the liability is included in the related assets and is depreciated over the remaining estimated term of the lease. If the likelihood of this liability is estimated to be possible, rather than probable, it is disclosed as a contingent liability.

Provision for Onerous Lease Contracts

Provision is made for the discounted amount of future losses expected to be incurred in respect of unused data center sites over the term of the leases. Where unused sites have been sublet or partly sublet, in arriving at the amount of future losses management has taken account of the contracted rental income to be received over the minimum sublease term. The provision for onerous lease contracts principally relates to two unused data center sites in Germany: one in Munich, which was terminated in March 2016, and one in Dusseldorf, terminated in August 2016.

Deferred Taxation

Provision is made for deferred taxation at the rates of tax prevailing at the period end dates unless future rates have been substantively enacted. Deferred tax assets are recognized where it is probable that they will be recovered based on estimates of future taxable profits for each tax jurisdiction. The actual profitability may be different depending upon local financial performance in each tax jurisdiction.

 

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Share-based Payments

Equity-settled share-based payments are issued to certain employees under the terms of the long term incentive plans. The charges related to equity-settled share-based payments and options to purchase ordinary shares, are measured at fair value at the grant date. Fair values are being redetermined for market conditions as of each reporting date, until final grant date. The fair value at the grant date of options is determined using the Black Scholes model and is expensed over the vesting period. The fair value at grant date of the performance shares is determined using the Monte Carlo model and is expensed over the vesting period. The value of the expense is dependent upon certain assumptions including the expected future volatility of the Company’s share price at the date of the grant.

Senior Secured Notes

The Senior Secured Notes are valued at cost. The Senior Secured Notes indenture includes optional redemption provisions, which allow us to redeem the Notes before their stated maturity. As part of the initial measurement of the amortized cost value of the Senior Secured Notes, we have assumed that the Notes will be held to maturity. If we redeem all or part of the Notes before their stated maturity, the liability will be re-measured based on the original effective interest rate. The difference between the liability of excluding a change in assumed early redemption and the liability compared with including a change in assumed early redemption, will be reflected in our profit and loss.

New Standards and Interpretations not yet adopted

The new standards, amendments to standards and interpretations listed below are available for early adoption in the annual period beginning January 1, 2017, although they are not mandatory until a later period. The Group has decided not to adopt these new standards or interpretations until a later date.

 

Effective date

  

New standard or amendment

Standards

  

January 1, 2018

   IFRS 9 – Financial instruments

January 1, 2018

   IFRS 15 – Revenue from contracts with customers

January 1, 2019

   IFRS 16 – Leases

Amendments

  

Deferred indefinitely

   Amendments to IFRS 10 and IAS 28: Sale or contribution of assets between an investor and its associate or joint venture

January 1, 2018

   Amendments to IFRS 2: Classification and measurement of share-based payment transactions

IFRS 9 – Financial instruments

In 2014, the International Accounting Standards Board (IASB) introduced IFRS 9 – Financial instruments. This standard replaces IAS 39 – Financial Instruments: Recognition and Measurement. See Note 3 of our 2017 consolidated financial statements “New standards and interpretations not yet adopted” for the conclusions on the impact of IFRS 9.

IFRS 15 – Revenue from Contracts with Customers

In 2014, the IASB introduced IFRS 15 – Revenue from contracts with customers. IFRS 15 specifies how and when revenue is recognized together with enhanced disclosure requirements. IFRS 15 replaces existing revenue recognition standards: IAS 11 Construction Contracts and IAS 18 Revenue, and a number of revenue-related interpretations. See Note 3 of our 2017 consolidated financial statements “New standards and interpretations not yet adopted” for the conclusions on the impact of IFRS 15.

IFRS 16 – Leases

In January 2016, the IASB issued IFRS 16 – Leases, which requires most leases to be recognized on-balance for lessees, thereby eliminating the distinction between operating and finance leases. IFRS 16 replaces IAS 17 – Leases and related interpretations. See Note 3 of our 2017 consolidated financial statements “New standards and interpretations not yet adopted” for more details about IFRS 16.

 

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Amendments

The amendments that are not yet adopted, are not expected to have a material impact on the Company’s financial information.

 

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ITEM 6: DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

Introduction

We have a one-tier board structure (“Board of Directors” or the “Board”) composed of directors with the title “Executive Directors” and directors with the title “Non-Executive Directors” (together with the Executive Directors, the “Directors”). The majority of our Directors are independent as required by the NYSE.

Senior Management and Board of Directors

Names, positions and ages of the members of our Senior Management and our Directors:

 

Name

   Age     

Position(1)

   Term Expiration Date(2)  

David Ruberg

     72      President, Chief Executive Officer, Vice-Chairman and Executive Director      2019  

Richard Rowson

     50      Interim Chief Financial Officer   

Giuliano Di Vitantonio

     50      Chief Marketing and Strategy Officer   

Jaap Camman

     51      Senior Vice President, Legal   

Jan Pieter Anten

     45      Senior Vice President, Human Resources   

Adriaan Oosthoek

     49      Senior Vice President, Operations and ICT   

Frank Esser

     59      Non-Executive Director      2020  

Mark Heraghty

     54      Non-Executive Director      2020  

Jean F.H.P. Mandeville

     58      Chairman and Non-Executive Director      2019  

Rob Ruijter

     66      Non-Executive Director      2018  

 

Notes:

(1) All our Directors except our Chief Executive Officer, David Ruberg, are independent.
(2) The term of office expires at the Annual General Meeting of Shareholders held in the year indicated.

The business address of all members of our Senior Management and of our Directors is at our registered offices located at Scorpius 30, 2132 LR Hoofddorp, The Netherlands.

In connection with our entry into the Implementation Agreement, certain members of our Senior Management and our Directors entered into Irrevocable Undertaking Agreements, as further described in Item 7 “Major Shareholders and Related Party Transactions—Irrevocable Undertaking Agreements”. The principal functions and experience of each of the members of our Senior Management and our Directors are set out below:

David Ruberg, President, Chief Executive Officer, Vice-Chairman and Executive Director

Mr. Ruberg joined us as President and Chief Executive Officer in November 2007 and became Vice-Chairman of the Board of Directors when it became a one-tier board in 2011. Mr. Ruberg served as Chairman of the Supervisory Board from 2002 to 2007 and on the Management Board from 2007 until the conversion into a one-tier board. He was affiliated with Baker Capital, a private equity firm from January 2002 to October 2007. From April 1993 to October 2001 he was Chairman, President and CEO of Intermedia Communications, a NASDAQ-listed broadband communications services provider, as well as Chairman of its majority-owned subsidiary, Digex, Inc., a NASDAQ-listed managed web hosting company. He began his career as a scientist at AT&T Bell Labs, contributing to the development of operating systems and computer languages. He holds a Bachelor’s Degree from Middlebury College and a Masters in Computer and Communication Sciences from the University of Michigan.

Richard Rowson, Interim Chief Financial Officer

Mr. Rowson joined Interxion in 2017, as VP of Finance was appointed interim CFO role in January 2018, where he is responsible for all financial policy, funding strategy, financial and treasury planning, reporting and control. He has served in senior financial executive roles in data center, network and telecommunications businesses for more than 20 years. Before joining Interxion, Mr. Rowson served as CFO at two international data center organizations and in his most recent role was at Romonet, a software company utilizing predictive analytics to deliver data center operating efficiencies. Mr. Rowson worked in professional accounting practice for six years, most recently with PWC. He holds a degree in Geography from Bristol University and is a fellow of the Institute of Chartered Accountants in England and Wales.

 

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Giuliano Di Vitantonio, Chief Marketing and Strategy Officer

Mr. Di Vitantonio joined Interxion in January 2015 and is responsible for our market and product strategies, including product management, product marketing, segment strategy and business development. He joined from Cisco Systems, where he held the position of Vice President Marketing, Data Center and Cloud.

Mr. Di Vitantonio has more than 20 years’ experience in the IT industry, including 17 years at Hewlett-Packard, where he held a broad range of positions in R&D, strategy, consulting, business development and marketing. His areas of expertise include IT management software, enterprise applications, data center infrastructure and business intelligence solutions. He has a Master’s Degree in EE/Telecommunications from the University of Bologna and an MBA from the London Business School.

Jaap Camman, Senior Vice President, Legal

Mr. Camman is responsible for all legal and corporate affairs across the Group. He joined us in November 1999 as Manager Legal and has been a member of our Senior Management Team since July 2002. Before joining us, he worked for the Dutch Government from February 1994 to October 1999. His latest position was Deputy Head of the Insurance Division within The Netherlands Ministry of Finance. Mr. Camman holds a Law Degree from Utrecht University.

Jan-Pieter Anten, Senior Vice President, Human Resources

Mr. Anten joined us as Vice President Human Resources in October 2011. Before joining us, he worked for Hay Group, a global management consulting firm, as Director International Strategic Clients Europe, where he led major accounts within the European market. Before that, he held the position of Vice President Human Resources at Synthon, an international organization with worldwide affiliates. He previously worked for Hay Group as a Senior Consultant. Mr. Anten holds a degree from the University of Utrecht.

Adriaan Oosthoek, Senior Vice President, Operations and ICT

Mr. Oosthoek has held senior management positions in the IT and Telecom industry for a number of years. Until 2015 he was responsible for operating Interxion’s UK business. Before joining Interxion, he was the Executive Vice President at Colt, responsible for its global Data Center footprint. Before joining Colt, he spent 11 years at Telecity Group plc, the last seven years as the Managing Director of the UK and Ireland operation for Telecity Group plc where he significantly grew the business. Preceding his tenure in the UK, he ran the Dutch operation of data center operator, Redbus Interhouse, and was a founder and Managing Director of the Dutch subsidiary of Teles AG, a Berlin-headquartered provider of telecoms and data com products.

He studied Information Sciences at the University of Applied Sciences in The Hague and holds marketing certificates NIMA A and NIMA B from The Netherlands Institute of Marketing. In addition to his formal roles, Mr. Oosthoek is also Chairman of the Board of Governors of the Data Center Alliance, a European industry association for the data center industry.

Frank Esser, Non-Executive Director

Mr. Esser serves on our Board of Directors, to which he was appointed in June 2014. Since 2000, he has held various positions with the French telecom operator SFR, where, from 2002 to 2012, he was President and CEO. From 2005 to 2012, he was a member of the Board of Vivendi Management. Before that he was a Senior Vice President of Mannesmann International Operations until 2000. Mr. Esser serves on the board of Dalensys S.A. Furthermore, Mr. Esser serves on the Board of Swisscom AG and is a member of the remuneration committee. Mr. Esser is a Business Administration graduate from Cologne University and he holds a Doctorate in Business Administration from the Cologne University.

Mark Heraghty, Non-Executive Director

Mr. Heraghty serves on our Board of Directors, to which he was appointed in June 2014. His most recent executive role was as Managing Director of Virgin Media Business. In December 2016, he was appointed as Non-Executive Chairman of John Henry Group Ltd. From 2006 to 2009, he was President EMEA for Reliance Globalcom with regional responsibility for the former FLAG Telecom and Vanco businesses which Reliance acquired. From 2000 to 2003, he was the CEO Europe for Cable & Wireless. Mr. Heraghty graduated from Trinity College Dublin with a degree in Mechanical Engineering (1985) and holds an MBA from Warwick University (1992).

 

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Jean F.H.P. Mandeville, Chairman and Non-Executive Director

Mr. Mandeville serves on our Board of Directors, to which he was appointed in January 2011. Since June 8, 2015, Mr. Mandeville has served as the Chairman of the Board. From October 2008 to December 2010, he served as Chief Financial Officer and Board member of MACH S.à.r.l. He served as an Executive Vice President and Chief Financial Officer of Global Crossing Holdings Ltd/Global Crossing Ltd. from February 2005 to September 2008. Mr. Mandeville joined Global Crossing in February 2005, where he was responsible for all of its financial operations. He served as Chief Financial Officer of Singapore Technologies Telemedia Pte. Ltd./ST Telemedia from July 2002 to January 2005. In 1992, he joined British Telecom and served in various capacities covering all sectors of the telecommunications market (including wireline, wireless and multi-media) in Europe, Asia and the Americas. From 1992 to June 2002, Mr. Mandeville served in various capacities at British Telecom PLC, including President of Asia Pacific from July 2000 to June 2002, Director of International Development Asia Pacific from June 1999 to July 2000 and General Manager, Special Projects from January 1998 to July 1999. He was a Senior Consultant with Coopers & Lybrand, Belgium from 1989 to 1992. Mr. Mandeville graduated from the University Saint-Ignatius Antwerp with a Masters in Applied Economics in 1982 and a Special degree in Sea Law in 1985.

Rob Ruijter, Non-Executive Director

Mr. Ruijter serves on our Board of Directors, to which he was appointed in November 2014. He was the Chief Financial Officer of KLM Royal Dutch Airlines from 2001 until its merger with Air France in 2004, and Chief Financial Officer of VNU N.V. (a publicly listed marketing and publishing company, now the Nielsen company), between 2004 and 2007. In 2009 and 2010 he served as the CFO of ASM International N.V. (a publicly listed manufacturer of electronic components), and in 2013 as the interim CEO of Vion Food Group N.V.

Mr. Ruijter currently serves on the Supervisory Board and as Chairman of the Audit Committee of Wavin N.V. (a piping manufacturer). He is a non-executive director of Inmarsat Plc and the Chairman of its Audit Committee. He also serves as member of the Supervisory Board of NN Group N.V. and as a member of the Remuneration Committee and the Audit Committee of that company. Mr. Ruijter is a Certified Public Accountant in the United States and in The Netherlands and a member of the Association of Corporate Treasurers (“ACT”) in the UK.

Board Powers and Function

Our Board is responsible for the overall conduct of our business and has the powers, authorities and duties vested in it by and pursuant to the relevant laws of The Netherlands and our Articles of Association. In all its dealings, our Board is guided by the interests of our Group as a whole, including but not limited to our shareholders. Our Board has the final responsibility for the management, direction and performance of us and of our Group. Our Executive Director is responsible for the day-to-day management of the Company. Our Non-Executive Directors supervise the Executive Director and our general affairs and provide general advice to the Executive Director.

Our CEO is the general manager of our business, subject to the control of the Board, and is entrusted with all the Board’s powers, authorities and discretions (including the power to sub-delegate), delegated by a resolution of the full Board from time to time. Matters expressly delegated to the CEO are validly resolved by the CEO, and no further resolutions, approvals or other involvement of the Board is required. Our Board may also delegate authorities to its committees. Upon any such delegation, the Board supervises the execution of its responsibilities by the CEO and/or the Board committees. It remains ultimately responsible for the fulfillment of its duties by them.

Our Articles of Association provide that in the event that there is a conflict of interest with one or more Directors, we may still be represented by the Board or an Executive Director. In the event of a conflict of interest, however, our General Meeting of Shareholders has the power to designate one or more other persons to represent us. Under Dutch law, a Director is prohibited from participating in any Board discussion or decision-making pertaining to a subject in which such director has a conflict of interest.

Board Meetings and Decisions

All resolutions of the Board are adopted by an absolute majority of votes cast in a meeting at which at least the majority of the Directors are present or represented. A member of the Board may authorize another member of the Board to represent him/her at the Board meeting and vote on his/her behalf. Each Director is entitled to one vote (provided that, for the avoidance of doubt, a member representing one or more absent members of the Board by written power of attorney will be entitled to cast the vote of each such absent member) therein the event of a tie, the Chairman has the casting vote.

 

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The Board meets as often as it deems necessary or appropriate or upon the request of any of its members. The Board has adopted rules, which contain additional requirements for its decision-making process, the convening of meetings and, through separate resolution by the Board, details on the assignment of duties and a division of responsibilities between Executive Directors and Non-Executive Directors. The Board has appointed one of the Directors as Chairman and one of the Directors as Vice-Chairman of the Board. The Board is assisted by a Corporate Secretary, who may be a member of the Board or the Senior Management and is appointed by the Board.

Composition of the Board

The majority of the Directors are independent as required by the NYSE.

Our Board consists of a minimum of one Executive Director and a minimum of three Non-Executive Directors, provided that our Board is composed of a maximum of seven members. The number of Executive Directors and Non-Executive Directors is determined by our General Meeting of Shareholders, provided that the majority of the Board must consist of Non-Executive Directors. Only natural persons can be Non-Executive Directors. The Executive Directors and Non-Executive Directors as such are appointed by the General Meeting of Shareholders, provided that the Board is classified, with respect to the term for which each member will severally be appointed and serve as member, into three classes, as nearly equal in number as is reasonably possible.

The class I Directors serve for a term expiring at the Annual General Meeting of Shareholders in 2020, the class II Directors serve for a term expiring at the Annual General Meeting of Shareholders in 2018 and the class III Directors serve for a term expiring at the Annual General Meeting of Shareholders in 2019. At each Annual General Meeting of Shareholders, Directors appointed to succeed those Directors whose terms expire are appointed to serve for a term of office to expire at the third succeeding Annual General Meeting of Shareholders after their appointment. Notwithstanding the foregoing, the Directors appointed to each class continue to serve their term in office until their successors are duly appointed and qualified or until their earlier resignation, death or removal. If a vacancy occurs, any Director so appointed to fill that vacancy serves its term in office for the remainder of the full term of the class of Directors in which the vacancy occurred.

The Board has nomination rights with respect to the appointment of a Director. Any nomination by the Board may consist of one or more candidates per vacant seat. If a nomination consists of two or more candidates, it is binding and the appointment to the vacant seat concerned will be from the persons placed on the binding list of candidates and will be effected through election. Notwithstanding the foregoing, our General Meeting of Shareholders may, at all times, by a resolution passed with a two-thirds majority of the votes cast representing more than half of our issued and outstanding capital, resolve that such list of candidates will not be binding.

Directors may be suspended or removed at any time by our General Meeting of Shareholders. A resolution to suspend or remove a Director must be adopted by at least a two-thirds majority of the votes cast, provided such majority represents more than half of our issued and outstanding share capital. Executive Directors may also be suspended by the Board.

Directors’ Insurance and Indemnification

To attract and retain qualified and talented persons to serve as members of our Board or our Senior Management, we currently provide, and expect to continue to provide, such persons with protection through a directors’ and officers’ insurance policy. Under this policy, any of our past, present or future Directors and members of our Senior Management will be insured against any claim made against any one of them for any wrongful act in their respective capacities.

Under our Articles of Association, we are required to indemnify each current and former member of the Board who was or is involved, in that capacity, as a party to any actions or proceedings, against all conceivable financial loss or harm suffered in connection with those actions or proceedings, unless it is ultimately determined by a court having jurisdiction that the damage was caused by intent (opzet), willful recklessness (bewuste roekeloosheid) or serious culpability (ernstige verwijtbaarheid) on the part of such member.

Insofar as indemnification of liabilities arising under the Securities Act may be permitted to members of the Board, officers or persons controlling us pursuant to the foregoing provisions, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

 

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Board Committees

The Board has established an Audit Committee, a Compensation Committee and a Nominating Committee. Each of the Audit Committee, Compensation Committee and Nominating Committee were in compliance with the NYSE listed company board committee independence requirements as of and for the year ended December 31, 2017. However, Rule 303A permits us as a foreign private issuer to follow home country practice with regard to, among others, the independence requirement for our Compensation Committee and for our Nominating Committee. The Board may also establish such other committees as it deems appropriate, in accordance with applicable law and regulations, our Articles of Association and any applicable Board rules.

Many of the NYSE corporate governance rules do not apply to us as a “foreign private issuer”; however, Rule 303A.11 requires foreign private issuers to describe significant differences between their corporate governance standards and the corporate governance standards applicable to U.S. companies listed on the NYSE. While we believe that our corporate governance practices are similar in many respects to those of U.S. NYSE-listed companies and provide investors with protections that are comparable in many respects to those established by the NYSE rules, there have been certain key differences, which are described below.

Audit Committee

Our Audit Committee consists of three independent Directors, Rob Ruijter (Chair), Frank Esser and Mark Heraghty. The committee is independent as defined under, and required by, Rule 10A-3 of the U.S. Securities Exchange Act of 1934, as amended (“Rule 10A-3”) and the NYSE. The Board of Directors has determined that Rob Ruijter qualifies as an “audit committee financial expert”, as that term is defined in Item 16A of Form 20-F. The Audit Committee is responsible, subject to Board and shareholder approval, for the appointment, compensation, retention and oversight of the work of our independent registered public accounting firm, KPMG Accountants N.V. In addition, the Audit Committee’s approval is required before our entering into any related-party transaction. It is also responsible for “whistle-blowing” procedures, certain other compliance matters and the evaluation of the Company’s policies with respect to risk assessment and risk management. The Audit Committee also focuses primarily on (i) overseeing our financial reporting process and the disclosure of our financial information, including earnings and press releases, to ensure that financial information is accurate, sufficient and credible, (ii) compliance with accounting standards and changes in accounting policies and procedures, and (iii) major accounting entries involving estimates based on the exercise of judgment by senior management.

Compensation Committee

Our Compensation Committee consists of three independent Directors, Rob Ruijter, Frank Esser and Mark Heraghty (Chair). Until June 5, 2015, John Baker, a former non-independent Director, served as the chairperson of the Compensation Committee. Since June 8, 2015, Mark Heraghty has acted as the independent chairperson of the Compensation Committee. Among other things, the Compensation Committee reviews, and makes recommendations to the Board regarding, the compensation and benefits of our CEO and the Board. The Compensation Committee also administers the issuance of stock options and other awards under our equity incentive plan and evaluates and reviews policies relating to the compensation and benefits of our employees and consultants.

Under Section 303A.05 of the NYSE rules, which govern compensation committees, the Company’s Compensation Committee meets the NYSE independence standard. Before June 5, 2015, however, it included one member who was not “independent” as defined under the applicable NYSE rules.

Nominating Committee

Our Nominating Committee consists of three independent Directors, Jean Mandeville, Frank Esser (Chair) and Mark Heraghty. Until June 5, 2015, John Baker, a former non-independent Director, served as the chairperson of the Nominating Committee. Since June 8, 2015, Frank Esser has acted as the independent chairperson of the Nominating Committee. The Nominating Committee is responsible for, among other things, developing and recommending corporate governance guidelines to the Board, identifying individuals qualified to become Directors, overseeing the evaluation of the performance of the Board, selecting the Director nominees for the next Annual Meeting of Shareholders and selecting director candidates to fill any vacancies on the Board.

Under Section 303A.04 of the NYSE rules, which govern nominating/corporate governance committees, the Company’s Nominating Committee meets the NYSE independence standard. Before June 5, 2015, however, the Company’s Nominating Committee included one member who was not “independent” as defined under the applicable NYSE rules.

 

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Compensation

The aggregate reported compensation expense of our Executive Director and the Non-Executive Directors of the Board for the year ended December 31, 2017, is set forth below. The “Share-based payment charges” and the “Total” numbers included in the following table are calculated in accordance with IFRS and reflect charges for both the shares that vested in the year as well as charges for shares that are scheduled to vest in future years.

 

     Annual
compensation
     Bonus      Share-
based
payment
charges
     Termination /
post-
employment
benefits
     Total  
                          (€’000)         

D.C. Ruberg

     590        668        4,198        —          5,456  

F. Esser

     65        —          40        —          105  

M. Heraghty

     70        —          40        —          110  

J.F.H.P. Mandeville

     90        —          40        —          130  

R. Ruijter

     75        —          40        —          115  

Subtotal

     890        668        4,358        —          5,916  

Senior Management (excluding D.C. Ruberg)1)

     1,512        870        2,189        62        4,633  

Total

     2,402        1,538        6,547        62        10,549  

 

Notes:

(1) The compensation for the Senior Management team (excluding D.C. Ruberg) includes the compensation for J. Camman, J.P. Anten, G. Di Vitantonio, A. Oosthoek and J. Joshi (who resigned with effect January 31, 2018).

None of the non-executive directors is entitled to any contractually agreed benefit upon termination. Upon termination, the Executive Director is entitled to contractually agreed benefit compensation equal to 12 months base salary.

Employee Share Ownership Plans

On May 24, 2013, pursuant to the recommendation of the Compensation Committee, the Board adopted the 2013 International Equity Based Incentive Plan (the “2013 Plan”). The 2013 Plan was implemented to replace the InterXion Holding N.V. 2011 International Stock Option Plan and Incentive Master Award Plan (the “2011 Plan”). Pursuant to further recommendation of our Compensation Committee, the Board amended the 2013 Plan and adopted the 2013 Amended International Equity Based Incentive Plan (the “2013 Amended Plan”) on October 30, 2013. The 2013 Amended Plan was further amended on March 17, 2014 by the Board, pursuant to the recommendation of our Compensation Committee to clarify that the 2013 Amended Plan was adopted by the Board of Directors, instead of just by the Compensation Committee. The 2013 Amended Plan provides the Compensation Committee with the authority to award options, performance shares and restricted shares to certain employees and advisors.

We implemented the 2013 Amended Plan to attract and retain certain employees, advisors and Board members and reward them for their contributions to the Group. The 2013 Amended Plan is designed to act as an incentive scheme, whereby various equity-based instruments may be awarded from time-to-time in accordance with the terms and conditions of the 2013 Amended Plan. The 2013 Plan was discontinued following the implementation of the 2013 Amended Plan, however, outstanding options will continue to be governed by the terms of the 2013 Plan until such options have been exercised in full.

Under the 2011 Plan, the Board could grant options for ordinary shares to certain eligible persons following completion of our initial public offering. The 2011 Plan was discontinued following the implementation of the 2013 Plan.

On May 13, 2017, pursuant to the recommendation of the Compensation Committee, the Board adopted the 2017 Executive Director Long-Term Incentive Plan (the “2017 Plan”). The 2017 Plan was implemented to align the performance share plan for our Executive Director with Executive Compensation best practices.

The terms and conditions of the 2017 plan not only apply to the 2017 conditional performance share award and future awards to our Executive Director, but also retroactively to all shares from the conditional performance share awards made to the Executive Director in 2015 and 2016, that were unvested at the time of the adoption of the 2017 Plan on May 13, 2017.

 

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The total number of shares that may be granted pursuant to the 2013 Amended Plan and the 2017 Plan is 5,273,371 shares (the “Share Pool”). The Share Pool includes grants made under the 2011 Plan, the 2013 Plan, the 2013 Amended Plan and the 2017 Plan. Shares subject to awards that expire, terminate or are otherwise surrendered, canceled or forfeited under the 2011 Plan, the 2013 Plan, the 2013 Amended Plan or the 2017 Plan are returned to the Share Pool. Taking into account the grants made under those plans, as of December 31, 2017, approximately 1.7 million shares are available for grant.

For more information regarding Non-Executive Director, Executive Director and other senior management compensation, including incentive plans and awards, please see Note 27 of our 2017 consolidated financial statements.

Corporate Governance

The Dutch Corporate Governance Code, as revised, became effective on January 1, 2009, and applies to all Dutch companies listed on a government-recognized Stock Exchange, whether in The Netherlands or elsewhere. The Dutch Corporate Governance Code is based on a “comply or explain” principle, under which all companies filing annual reports in The Netherlands must disclose whether or not they are in compliance with the various rules of the Dutch Corporate Governance Code and explain the reasons for any instance of noncompliance.

On December 8, 2016, the revised Dutch Corporate Governance Code was published. Beginning in 2018 Dutch listed companies will be required to report in compliance with this revised Code for the financial years ending December 31, 2017, and beyond. The Company complies with the requirements in the revised Dutch Corporate Governance Code, or explains instances where it is not fully compliant.

For the year ended December 31, 2017, we complied with the applicable NYSE rules and we intend to do so going forward. We also intend to comply with the Dutch Corporate Governance Code, but where the NYSE rules conflict with the Dutch Corporate Governance Code, we intend to comply with the NYSE rules. For further information with respect to the composition of the Board committees, see above under “Board Committees”.

Stock Options, Restricted and Performance Shares

As of April 18, 2018, our directors and senior managers were granted the awards (options, restricted and performance shares outstanding) as set out below. The awards with exercise prices denominated in $ are awards granted under the “2011 Plan”, the “2013 Plan”, the “Amended 2013 Plan” and the “2017 Plan”. The restricted shares have been granted under the “2013 Plan”.

The ordinary shares beneficially owned by our directors and senior managers are disclosed in Item 7, “Major Shareholders and Related Party Transactions”.

 

Name

   Awards granted
outstanding
     Awards granted
outstanding, but
unvested
     Award
Exercise
Price(s)
     Award
Expiration
Date
 

D. Ruberg

     35,432        35,432      $ 0.00        May 4, 2018 (1)(2) 
     60,060        60,060      $ 0.00        January 1, 2019 (1)(3) 
     61,469        61,469      $ 0.00        January 1, 2020 (1)(4) 
     46,808        46,808      $ 0.00        January 1, 2021 (1)(5) 
     45,116        45,116      $ 0.00        January 1, 2022 (1)(6) 

F. Esser

     996        996      $ 0.00        June, 2018 (7) 

M. Heraghty

     996        996      $ 0.00        June, 2018 (7) 

J.F.H.P. Mandeville

     996        996      $ 0.00        June, 2018 (7) 

Rob Ruijter

     996        996      $ 0.00        June, 2018 (7) 

R. Rowson

     9,500        9,500      $ 0.00        May 15, 2021 (8) 

G. Di Vitantonio

     12,078        12,078      $ 0.00        January 1, 2019 (1)(9) 
     23,083        23,083      $ 0.00        January 1, 2020 (1)(10) 
     18,267        18,267      $ 0.00        January 1, 2021 (1)(11) 
     16,255        16,255      $ 0.00        January 1, 2022 (1)(12) 

J. Camman

     2,500        2,500      $ 0.00        May 4, 2018 (1)(8) 

 

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Name

   Awards granted
outstanding
     Awards granted
outstanding, but
unvested
     Award
Exercise
Price(s)
     Award
Expiration
Date
 
     7,500        7,500      $ 0.00        January 1, 2020 (1)(8) 
     4,692        4,692      $ 0.00        May 4, 2018 (1)(2) 
     4,715        4,715      $ 0.00        January 1, 2019 (1)(9) 
     8,748        8,748      $ 0.00        January 1, 2020 (1)(10) 
     8,642        8,642      $ 0.00        January 1, 2021 (1)(11) 
     6,182        6,182      $ 0.00        January 1, 2022 (1)(12) 

J.P. Anten

     2,500        2,500      $ 0.00        May 4, 2018 (1)(8) 
     7,500        7,500      $ 0.00        January 1, 2020 (1)(8) 
     10,000        10,000      $ 0.00        January 1, 2019 (1)(8) 
     4,470        4,470      $ 0.00        May 4, 2018 (1)(2) 
     4,491        4,491      $ 0.00        January 1, 2019 (1)(9) 
     8,655        8,655      $ 0.00        January 1, 2020 (1)(10) 
     8,903        8,903      $ 0.00        January 1, 2021 (1)(11) 
     7,641        7,641      $ 0.00        January 1, 2022 (1)(12) 

A. Oosthoek

     1,436        1,436      $ 0.00        November 1, 2018 (8) 
     2,343        2,343      $ 0.00        November 1, 2019 (8) 
     10,142        10,142      $ 0.00        January 1, 2020 (1)(10) 
     12,908        12,908      $ 0.00        January 1, 2021 (1)(11) 
     9,233        9,233      $ 0.00        January 1, 2022 (1)(12) 

J. Joshi(13)

     6,998        6,998      $ 0.00        May 4, 2018 (1)(2) 
     6,004        6,004      $ 0.00        May 4, 2018 (1)(9) 
     5,612        5,612      $ 0.00        May 4, 2018 (1)(10) 

 

Notes:

(1) Represents awards of performance shares and restricted shares which contractually will vest and any lock up provisions will expire immediately upon a change of control.
(2) Represents performance shares related to the year ended December 31, 2014, after final adjustment in accordance with the applicable long-term incentive (“LTI”) plan.
(3) Represents performance shares related to the year ended December 31, 2015, adjusted for relative total shareholder return (“TSR”) performance over the 2015 – 2017 performance period. This TSR adjustment was approved by the Board in April 2018, but is subject to Shareholder approval at the 2018 Annual General Meeting.
(4) Represents performance shares related to the year ended December 31, 2016, subject to relative TSR performance adjustment (over the 2016 – 2018 performance period), Board approval and Shareholder approval at the 2019 Annual General Meeting.
(5) Represents performance shares related to the year ended December 31, 2017, subject to relative TSR performance adjustment (over the 2017 – 2019 performance period), Board approval and Shareholder approval at the 2020 Annual General Meeting.
(6) Represents performance shares related to the year ending December 31, 2018, subject to relative TSR performance adjustment (over the 2018 – 2020 performance period), Board approval and Shareholder approval at the 2021 Annual General Meeting.
(7) Represent awards of restricted shares to Non-executive Directors that were approved at the General Meeting of Shareholders in June 2017. The awards, subject to the Non-executive Directors having served the entire period between the 2017 and 2018 General meetings of Shareholders, will vest at the next General Meeting of Shareholders, which we anticipate will be held in June 2018. After vesting, these restricted shares are subject to lock-up provisions.
(8) Represent awards of restricted shares.
(9) Represents performance shares related to the year ended December 31, 2015, after final adjustment in accordance with the applicable LTI plan.
(10) Represents performance shares related to the year ended December 31, 2016, after final adjustment (initial adjustment for Mr. Joshi) in accordance with the applicable LTI plan.
(11) Represents performance shares related to the year ended December 31, 2017, after initial adjustment in accordance with the applicable LTI plan.
(12) Represents performance shares related to the year ending December 31, 2018, subject to initial and final adjustment in accordance with the applicable LTI plan and Compensation Committee approval.
(13) Mr. Joshi’s resignation took effect January 31, 2018.

For further disclosure of the vesting schedules of performance share awards, see Note 22 in the consolidated financial statements.

 

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Employees

For a discussion of the number of employees, see Item 4 “Information on the Company—Employees”.

 

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ITEM 7: MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

Major Shareholders

The following table sets forth information with respect to Directors, Senior Management and major shareholders, meaning shareholders that are beneficial owners of 5% or more of our ordinary shares as of April 18, 2018.

Beneficial ownership is determined in accordance with rules of the SEC and generally includes any shares over which a person exercises sole or shared voting and/or investment power. Ordinary shares subject to options and warrants currently exercisable or exercisable within 60 days are deemed outstanding and have therefore been included in the number of shares owned and the calculation of the percentage ownership of the person holding the options but are not deemed outstanding for computing the percentage ownership of any other person.

 

     Shares
Beneficially owned
 

Name of Beneficial Owner

   Number      Percent
(%)
 

5% Shareholders

     

Eminence Capital, LP(1)

     4,342,083        6.08

Principal Real Estate Investors, LLC(2)

     3,874,188        5.42

Norges Bank (Central Bank of Norway)(3)

     3,607,741        5.05

Directors and Senior Management

     

David Ruberg(4)

     1,015,418        1.42

Jean F.H.P. Mandeville(5)

     11,318        *  

Frank Esser(5)

     4,845        *  

Mark Heraghty(5)

     4,845        *  

Rob Ruijter(5)

     4,845        *  

Richard Rowson(6)

     2,375        *  

Giuliano Di Vitantonio(7)

     37,405        *  

Jaap Camman(8)

     15,258        *  

Jan Pieter Anten (9)

     19,889        *  

Adriaan Oosthoek (10)

     13,412        *  

Josh Joshi(11)

     79,604        *  

 

Notes:

(1) Eminence Capital, LP filed a schedule 13G/A on February 14, 2018, in which it reported that 4,342,083 ordinary shares were held by direct and indirect subsidiaries of Eminence Capital, LP in their role as the management company to the Eminence Funds, with respect to ordinary shares directly owned by the Eminence Funds and the investment advisor to Eminence GP, LLC, separately managed accounts (“SMA”), with respect to ordinary shares directly owned by the SMA. Eminence Capital may be deemed to have voting and dispositive power over the shares held for the accounts of the Eminence Funds and the SMA.
(2) Principal Real Estate Investors, LLC filed a schedule 13G on February 15, 2018, in which it reported 3,874,188 ordinary shares were beneficially owned by Principal Real Estate Investors, LLC.
(3) Norges Bank (The Central Bank of Norway) filed a schedule 13G on November 27, 2017, in which it reported 3,607,741 ordinary shares were beneficially owned by Norges Bank.
(4) Mr. Ruberg is our President, Chief Executive Officer, Vice-Chairman and Executive Director. Mr. Ruberg’s shares beneficially owned consist of our ordinary shares and performance shares.
(5) Messieurs Esser, Heraghty, Mandeville, and Ruijter own our shares and restricted shares (subject to lock-up provisions).
(6) Mr. Rowson is our Interim Chief Financial Officer. Mr. Rowson’s shares beneficially owned, consist of restricted shares.
(7) Mr. Di Vitantonio is our Chief Marketing and Strategy Officer. Mr. Di Vitantonio’s total shares beneficially owned consist of ordinary shares and performance shares.
(8) Mr. Camman is our Senior Vice President of Legal and Corporate Secretary. Mr. Camman’s total shares beneficially owned consist of ordinary shares, performance shares and restricted shares.
(9) Mr. Anten is our Senior Vice President of Human Resources. Mr. Anten’s total shares beneficially owned consist of ordinary shares, performance shares and restricted shares.

 

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(10) Mr. Oosthoek is our Senior Vice President Operations and ICT. Mr. Oosthoek’s total shares beneficially owned consist of ordinary shares, performance shares and restricted shares.
(11) Mr. Joshi was our Chief Financial Officer. Mr. Joshi’s total shares beneficially owned consist of ordinary shares and performance shares.
* Indicates beneficial ownership of less than 1 percent of the class of shares.

We effected a registered public offering of our ordinary shares, which began trading on the NYSE on January 28, 2011. Our major shareholders have the same voting rights as our other shareholders. As of April 18, 2018, we had 10 shareholders of record. Two of those, located in the United States, held in aggregate 71,327,554 ordinary shares, representing approximately 99.8% of our outstanding ordinary shares. The United States shareholders of record include, however, Cede & Co., which, as nominee for The Depository Trust Company, is the record holder of 71,308,744 ordinary shares. Accordingly, we believe that the shares held by Cede & Co. include ordinary shares beneficially owned by both holders in the United States and non-United States beneficial owners. As a result, these numbers may not accurately represent the number of beneficial owners in the United States.

As reported on Schedule 13G/A, Amendment No. 1, filed February 14, 2013, by ING Groep N.V. with the SEC, as of that date, ING Groep N.V. and certain of its direct and indirect subsidiaries beneficially owned 4,412,704 ordinary shares of the Company, constituting 6.67% of the outstanding ordinary shares. As reported on Schedule 13G/A, Amendment No. 2, filed on February 14, 2014, by ING Groep N.V. with the SEC, as of that date, ING Groep N.V. and certain of its direct and indirect subsidiaries beneficially owned 2,223,152 ordinary shares of the Company, constituting 3.26% of the outstanding ordinary shares.

As reported on Schedule 13G, filed on April 7, 2014, by Eminence Capital, LLC, Eminence GP, LLC and Ricky C. Sandler with the SEC, as of that date, Eminence Capital, LLC, Eminence GP, LLC and Ricky C. Sandler managed funds and advised accounts with aggregate beneficial ownership of 3,889,362 ordinary shares, 3,486,181 ordinary shares and 3,889,362 ordinary shares of the Company, respectively, constituting 5.6%, 5.1% and 5.6% of the outstanding ordinary shares, respectively. As reported on Schedule 13G/A, Amendment No. 1, filed on February 17, 2015, by Eminence Capital, LP, Eminence GP, LLC and Ricky C. Sandler with the SEC, as of that date, Eminence Capital, LP, Eminence GP, LLC and Ricky C. Sandler managed funds and advised accounts with aggregate beneficial ownership of 6,058,008 ordinary shares, 5,340,840 ordinary shares and 6,063,008 ordinary shares of the Company, respectively, constituting 8.8%, 7.7% and 8.8% of the outstanding ordinary shares, respectively. As reported on Schedule 13G/A, Amendment No. 2, filed on February 16, 2016, by Eminence Capital, LP, Eminence GP, LLC and Ricky C. Sandler with the SEC, as of that date, Eminence Capital, LP, Eminence GP, LLC and Ricky C. Sandler managed funds and advised accounts with aggregate beneficial ownership of 5,356,519 ordinary shares, 4,532,737 ordinary shares and 5,361,519 ordinary shares of the Company, respectively, constituting 7.7%, 6.5% and 7.7% of the outstanding ordinary shares, respectively. As reported on Schedule 13G/A, Amendment No. 3, filed on February 6, 2017, by Eminence Capital, LP, Eminence GP, LLC and Ricky C. Sandler with the SEC, as of that date, Eminence Capital, LP, Eminence GP, LLC and Ricky C. Sandler managed funds and advised accounts with aggregate beneficial ownership of 4,471,424 ordinary shares, 3,542,072 ordinary shares and 4,476,424 ordinary shares of the Company, respectively, constituting 6.3%, 5.0% and 6.3% of the outstanding ordinary shares, respectively. As reported on Schedule 13G/A, Amendment No. 4, filed on February 14, 2018, by Eminence Capital, LP, Eminence GP, LLC and Ricky C. Sandler with the SEC, as of that date, Eminence Capital, LP, Eminence GP, LLC and Ricky C. Sandler managed funds and advised accounts with aggregate beneficial ownership of 4,342,083 ordinary shares, 3,310,807 ordinary shares and 4,342,083 ordinary shares of the Company, respectively, constituting 6.1%, 4.6% and 6.1% of the outstanding ordinary shares, respectively.

As reported on Schedule 13G/A, Amendment No. 2, filed on February 12, 2015, by Lamont Finance N.V., Baker Communications Fund II, L.P., Baker Communications Fund II (Cayman), L.P., Baker Capital Partners II (Anguilla), LLC, Baker Capital Partners II, LLC, John C. Baker, Robert M. Manning and Henry G. Baker with the SEC, as of that date, (i) Lamont Finance N.V., Baker Communications Fund II (Cayman), L.P. and Baker Capital Partners II (Anguilla), LLC beneficially owned 18,642,916 ordinary shares, constituting 27.0% of the outstanding ordinary shares of the Company, (ii) Baker Communications Fund II, L.P. and Baker Capital Partners II, LLC beneficially owned 14,976 ordinary shares and 34,976 ordinary shares of the Company, respectively, constituting 0.0% and 0.1% of the outstanding ordinary shares, respectively, and (iii) John C. Baker, Robert M. Manning and Henry G. Baker beneficially owned 18,745,557 ordinary shares, 18,695,083 ordinary shares and 18,683,643 ordinary shares of the Company, respectively, constituting 27.1%, 27.0% and 27.0% of the outstanding ordinary shares, respectively.

As reported on Form 6-K filed on June 3, 2015 with the SEC, on June 2, 2015, Lamont Finance N.V. and Baker Communications Fund II, L.P. requested that we instruct our Transfer Agent, American Stock Transfer & Trust Company, to remove the restrictive legend on all of the 18,657,592 ordinary shares held by Lamont Finance N.V. and Baker Communications Fund II, L.P. Baker Capital (“Baker”) made a pro rata distribution-in-kind of these shares immediately to the partners of Baker Communications Fund II (Cayman) L.P. and Baker Communications Fund II L.P., which funds initially acquired Interxion shares in 2000. Under the terms of the undertaking executed by Baker in support of the proposed transaction between Interxion and TelecityGroup plc, it was

 

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contemplated that Baker would make a full distribution of its shares to its partners upon the closing of the transaction. The distribution was made following the termination of the proposed transaction with TelecityGroup plc and the related undertaking executed by Baker. As a result of the 18.6 million ordinary share distribution by funds affiliated with Baker, Mr. John Baker (on June 5, 2015) and Mr. Rob Manning (on June 7, 2015), tendered their resignations as Directors, effective immediately. Mr. Jean F.H.P. Mandeville was appointed as the new Chairman of the Board replacing Mr. Baker, effective June 8, 2015.

As reported on Schedule 13G/A, Amendment No. 3, filed on February 11, 2016, by Lamont Finance N.V., Baker Communications Fund II, L.P., Baker Communications Fund II (Cayman), L.P., Baker Capital Partners II (Anguilla), LLC, Baker Capital Partners II, LLC, John C. Baker, Robert M. Manning and Henry G. Baker with the SEC, as of that date, Lamont Finance N.V., Baker Communications Fund II, L.P., Baker Communications Fund II (Cayman), L.P., Baker Capital Partners II (Anguilla), LLC and Baker Capital Partners II, LLC no longer beneficially owned any ordinary shares of the Company and John C. Baker, Robert M. Manning and Henry G. Baker beneficially owned 166,500 ordinary shares, 28,015 ordinary shares and 19,191 ordinary shares of the Company, respectively, constituting 0.2%, 0.0% and 0.0% of the outstanding ordinary shares, respectively.

As reported on Schedule 13G, filed on February 13, 2015, by North Run Capital, LP, North Run Advisors, LLC, Todd B. Hammer and Thomas B. Ellis with the SEC, as of that date, certain private pooled investment vehicles beneficially owned 4,950,300 ordinary shares of the Company, constituting 7.2% of the outstanding ordinary shares. As reported on Schedule 13G/A, Amendment No. 1, filed on February 12, 2016, by North Run Capital, LP, North Run Advisors, LLC, Todd B. Hammer and Thomas B. Ellis with the SEC, as of that date, certain private pooled investment vehicles no longer beneficially owned any ordinary shares of the Company.

As reported on Schedule 13G, filed on February 12, 2016, by Thornburg Investment Management Inc with the SEC, as of that date, Thornburg Investment Management Inc beneficially owned 4,581,372 ordinary shares of the Company, constituting 6.58% of the outstanding ordinary shares. As reported on Schedule 13G/A, Amendment No. 1, filed on February 8, 2017, by Thornburg Investment Management Inc with the SEC, as of that date, Thornburg Investment Management Inc beneficially owned 2,130,044 ordinary shares of the Company, constituting 3.02% of the outstanding ordinary shares.

As reported on Schedule 13G, filed on November 27, 2017, by Norges Bank with the SEC, as of that date, Norges Bank beneficially owned 3,607,741 ordinary shares of the Company, constituting 5.06% of the outstanding ordinary shares.

As reported on Schedule 13G, filed on February 15, 2018, by Principal Real Estate Investors, LLC, with the SEC, as of December 31, 2017, Principal Real Estate Investors, LLC, beneficially owned 3,874,188 ordinary shares of the Company, constituting 5.4% of the outstanding ordinary shares.

To our knowledge, we are not directly or indirectly owned or controlled by any other corporation, by any foreign government or by any other natural or legal person either severally or jointly. As far as is known to us, there are no arrangements the operation of which may, at a subsequent date, result in a change in control of the Company.

Related party transactions

Transactions with related parties are disclosed in note 27 of our Financial Statements.

 

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ITEM 8: FINANCIAL INFORMATION

Reference is made to Item 18 for a list of all financial statements filed as part of this annual report. For information on legal proceedings, please refer to Item 4 “Information on the Company”, above.

Dividends and Dividend Policy

We have never declared or paid cash dividends on our ordinary shares. We currently intend to retain any future earnings to fund the development and growth of our business and do not currently anticipate paying dividends on our ordinary shares. Our Board of Directors has the discretion to determine to what extent profits shall be retained by way of a reserve. The remaining profits will be at the disposal of our General Meeting of Shareholders for distribution of a dividend or to be added to the reserves or for such other purposes as our General Meeting of Shareholders decides, upon a proposal of our Board of Directors. Our Board of Directors, in determining whether to recommend to our shareholders the payment of dividends, will consider our ability to declare and pay dividends in light of our future operations and earnings, capital expenditure requirements, general financial conditions, legal and contractual restrictions and other factors that it may deem relevant. In addition, our outstanding €625.0 million 6.00% Senior Secured Notes due 2020 and our credit agreements limit our ability to pay dividends and we may in the future become subject to debt instruments or other agreements that further limit our ability to pay dividends. To the extent we pay dividends in euro, the amount of U.S. dollars realized by shareholders will vary depending on the rate of exchange between U.S. dollars and euro. Shareholders will bear any costs related to the conversion of euro into U.S. dollars.

We are a holding company incorporated in The Netherlands. Under Dutch law, we may only pay dividends out of our profits or our share premium account subject to our ability to service our debts as they fall due in the ordinary course of our business and subject to Dutch law and our Articles of Association. See Item 10 “Additional Information—General”. We rely on dividends paid to us by our wholly-owned subsidiaries in the United Kingdom, France, Germany, Austria, The Netherlands, Ireland, Spain, Sweden, Switzerland, Belgium and Denmark to fund the payment of dividends, if any, to our shareholders.

 

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ITEM 9: THE OFFER AND LISTING

Markets

Our ordinary shares began trading on the NYSE under the symbol “INXN” on January 28, 2011.

New York Stock Exchange Trading History

The following table shows, for the periods indicated, the high and low sales prices per ordinary share as reported on the NYSE.

 

Yearly highs and lows    High      Low  
     ($ per ordinary share)  

2017

     59.22        34.35  

2016

     38.85        26.75  

2015

     33.16        26.11  

2014

     29.70        22.66  

2013

     27.98        20.56  
Quarterly highs and lows    High      Low  
     ($ per ordinary share)  

2017

  

First quarter

     40.00        34.35  

Second quarter

     46.67        39.00  

Third quarter

     52.15        44.03  

Fourth quarter

     59.22        49.81  

2016

     

First quarter

     34.70        26.75  

Second quarter

     38.70        33.22  

Third quarter

     38.72        35.98  

Fourth quarter

     38.85        32.21  

2015

     

First quarter

     33.16        26.23  

Second quarter

     32.00        27.04  

Third quarter

     29.18        26.11  

Fourth quarter

     31.48        26.25  

2014

     

First quarter

     25.88        22.66  

Second quarter

     27.86        23.50  

Third quarter

     29.70        26.33  

Fourth quarter

     28.78        24.53  

2013

     

First quarter

     26.63        21.90  

Second quarter

     27.98        22.60  

Third quarter

     27.43        21.98  

Fourth quarter

     24.27        20.56  

 

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Monthly highs and lows    High      Low  
     ($ per ordinary share)  

2018

     

January

     63.39        56.72  

February

     64.00        54.35  

March

     63.97        54.87  

April (through April 27 2018)

     65,75        60.41  

2017

     

October

     53.70        49.81  

November

     59.14        53.42  

December

     59.22        54.84  

On April 27, 2018, the closing price of InterXion’s ordinary shares listed on The New York Stock Exchange was $64.85.

 

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ITEM 10: ADDITIONAL INFORMATION

Material contracts

The Intercreditor Agreement dated as of July 3, 2013, among InterXion Holding N.V. and certain of its subsidiaries and Barclays Bank PLC as security trustee.

The intercreditor agreement entered into in connection with the 2013 Super Senior Revolving Facility Agreement and the Indenture is referred to in this description as the “Intercreditor Agreement” and InterXion Holding N.V. and each of its subsidiaries that incurs any liability or provides any guarantee under the 2013 Super Senior Revolving Facility Agreement or the Indenture is referred to in this description as a “Debtor” and are referred to collectively as the “Debtors”.

In connection with the 2013 Super Senior Revolving Facility Agreement, InterXion Holding N.V. and certain of its subsidiaries entered into an English law governed intercreditor agreement governing the relationships and relative priorities among: (i) the lenders under the 2013 Super Senior Revolving Facility Agreement; (ii) original hedge counterparty or other persons that accede to the intercreditor agreement as counterparties (the “Hedge Counterparties”) to certain hedging agreements (the “Hedging Agreements”); (iii) the holders of the Senior Secured Notes; and (iv) intra-group creditors and debtors. In addition, the Intercreditor Agreement regulates the relationship between InterXion Holding N.V. and its subsidiaries, on the one hand, and shareholders of InterXion Holding N.V. and related parties, on the other.

The Intercreditor Agreement, among other things, sets out:

 

    the relative ranking of certain indebtedness of the Debtors (including under the Facility Agreements and the Senior Secured Notes);

 

    the relative ranking of certain security granted by the Debtors;

 

    when payments can be made in respect of certain indebtedness of the Debtors (including the Revolving Facility Agreements and the Senior Secured Notes);

 

    when enforcement actions can be taken in respect of that indebtedness and the distribution of any enforcement proceeds;

 

    the terms pursuant to which that indebtedness will be subordinated upon the occurrence of certain insolvency events;

 

    turnover provisions; and

 

    when security and guarantees will be released to permit a sale of the collateral.

The Intercreditor Agreement allows for the issuance of senior unsecured notes by InterXion Holding N.V., and for such senior unsecured notes to be guaranteed by the Debtors on a subordinated basis, and includes customary provisions in relation to issuance of the senior unsecured notes. By accepting a note, holders of the notes shall be deemed to have agreed to, and accepted the terms and conditions of, the Intercreditor Agreement.

The 2013 Super Senior Revolving Facility Agreement dated as of June 17, 2013 (as amended and/or restated from time to time), among InterXion Holding N.V. and the financial institutions party thereto, as Lenders and Barclays Bank PLC, as agent and security trustee.

On June 17, 2013, we entered into the €100.0 million 2013 Super Senior Revolving Facility Agreement between, among others, InterXion Holding N.V., the lenders named therein and Barclays Bank PLC as agent (for the purpose of this section, the “Agent”) and security trustee, pursuant to which the 2013 Super Senior Revolving Facility has been made available to the Company.

Borrowings under the 2013 Super Senior Revolving Facility will be used to finance our general corporate and working capital needs (including capital expenditure, acquisitions and investments, which are not prohibited by the 2013 Super Senior Revolving Facility Agreement), but not the prepayment, repayment or redemption of bonds, term debt or replacement debt (or any interest in any bonds, term debt or replacement debt) and the purchase of bonds, term debt or replacement debt in open market purchases or otherwise (as such terms are defined in the 2013 Super Senior Revolving Facility Agreement).

The 2013 Super Senior Revolving Facility Agreement initially bears interest at an annual rate equal to EURIBOR (or, for loans

 

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denominated in Sterling, USD, DKK, SEK or CHF, LIBOR, CIBOR or STIBOR) as applicable, plus a margin of 3.50% per annum, subject to a margin ratchet pursuant to which the margin may be reduced by up to a maximum of 1.00% per annum if total net debt (as defined in the 2013 Super Senior Revolving Facility Agreement) at each quarter end to the pro forma Adjusted EBITDA for the 12 months ending on that quarter end (as such terms are defined in the 2013 Super Senior Revolving Facility Agreement) is equal to, or less than, 2.00:1.

We are also required to pay a commitment fee, quarterly in arrears, on available but undrawn commitments under the 2013 Super Senior Revolving Facility Agreement at a rate of 40.0% of the then applicable margin.

The 2013 Super Senior Revolving Facility had a final maturity date of July 3, 2018. On July 31, 2017 we extended the maturity of the 2013 Super Senior Revolving Facility to December 31, 2018. Any amount still outstanding at that time will be immediately due and payable. Subject to certain conditions, any borrower under the 2013 Super Senior Revolving Facility Agreement may voluntarily prepay the utilizations and the borrower may permanently cancel all or part of the available commitments under the 2013 Super Senior Revolving Facility in a minimum amount of €5,000,000 (in relation to a voluntary cancellation) or €1,000,000 (in relation to a voluntary repayment) by giving not less than, in relation to a voluntary cancellation, three business days’ and, in relation to a voluntary repayment, five business days’ (or, in each case, such shorter period as the required majority lenders under the 2013 Super Senior Revolving Facility Agreement agree) prior notice to the Agent.

We may reborrow amounts repaid, subject to certain conditions, until one month before final maturity.

In addition to voluntary prepayments, the 2013 Super Senior Revolving Facility Agreement requires mandatory prepayment (or, as the case may be, an offer to do so) in full or in part in certain circumstances, including:

 

    with respect to any lender, if it becomes unlawful for such lender to perform any of its obligations under the 2013 Super Senior Revolving Facility Agreement or to maintain its participation in any loan under the 2013 Super Senior Revolving Facility;

 

    if a lender so requires in respect of that lender’s participation in an outstanding loan under the 2013 Super Senior Revolving Facility, upon a Change of Control (as defined in the 2013 Super Senior Revolving Facility Agreement); and/or

 

    upon the occurrence of the sale of all or substantially all of the assets of the Group.

Drawdowns under the 2013 Super Senior Revolving Facility are subject to satisfaction of certain conditions precedent on the date the applicable drawdown is requested and on the date such loan is utilized including: (i) no default (or event of default for rollover of existing loans at the end of an interest period) is continuing or would result from such drawdown and (ii) certain repeating representations and warranties specified in the 2013 Super Senior Revolving Facility Agreement being true in all material respects.

The 2013 Super Senior Revolving Facility is guaranteed irrevocably and unconditionally on a joint and several basis by certain members of the Group (subject to applicable local law limitations). Borrowings under the 2013 Super Senior Revolving Facility are secured by certain share pledges over the guarantors (other than the Company) under the 2013 Super Senior Revolving Facility, inter-company loan receivables owed to the Company or any of the guarantors under the 2013 Super Senior Revolving Facility and the bank accounts of the Company and the guarantors under the 2013 Super Senior Revolving Facility.

The 2013 Super Senior Revolving Facility Agreement contains customary operating and restrictive covenants, subject to certain agreed exceptions, qualifications and thresholds as well as customary events of default (subject in certain cases to agreed grace periods, qualifications and thresholds), including a cross default with respect to an event of default under the Indenture (as defined below) governing the Senior Secured Notes (as defined below). The 2013 Super Senior Revolving Facility also requires the Company, each borrower and each guarantor to observe certain customary affirmative covenants (subject to certain agreed exceptions, qualifications and thresholds) and requires the Company to comply with a leverage ratio financial covenant (calculated as the ratio of consolidated total net debt at each quarter end to pro forma Adjusted EBITDA for the 12 months ending on that quarter end).

The 2017 Senior Secured Revolving Facility Agreement dated as of March 9, 2017 (as amended and/or restated from time to time), among InterXion Holding N.V. and the financial institutions party thereto, as Lenders, ABN AMRO Bank N.V. as agent and Barclays Bank PLC as security trustee.

On March 9, 2017, we entered into the €100.0 million 2017 Senior Secured Revolving Facility Agreement by and among InterXion Holding N.V., the guarantors thereunder, ABN AMRO Bank N.V., Bank of America Merrill Lynch International Limited and Citigroup Global Markets Limited as lenders thereunder, ABN AMRO Bank N.V. as agent (for the purpose of this section, the “Agent”) and Barclays Bank PLC as security trustee.

 

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The 2017 Senior Secured Revolving Facility had an initial maturity date of 12 months from the date of the 2017 Senior Secured Revolving Facility Agreement, with the Company having the option to extend the maturity date by a further six-month period in accordance with the terms of the 2017 Senior Secured Revolving Facility. The 2017 Senior Secured Revolving Facility initially bears interest at a rate per annum equal to EURIBOR (subject to a zero percent floor) plus a margin of 2.25% per annum, subject to a margin ratchet, pursuant to which the margin may be increased to a maximum of 3.25% per annum if the 2017 Senior Secured Revolving Facility is extended up to an additional six months after its initial maturity date.

On July 28, 2017, we amended the terms of the 2017 Senior Secured Revolving Facility Agreement to increase the amount available to €100.0 million and to add a second extension option to extend the maturity of the 2017 Senior Secured Revolving Facility to December 31, 2018. We elected, as of March 1, 2018, to extend the maturity of the 2017 Senior Secured Revolving Facility Agreement to September 9, 2018.

Borrowings under the 2017 Senior Secured Revolving Facility will be used to finance our general corporate and working capital needs (including capital expenditure, acquisitions and investments, which are not prohibited by the 2017 Senior Secured Revolving Facility Agreement), but excluding the refinancing of other financial indebtedness and the prepayment, repayment or redemption or purchase of, or payments of interest in respect of, any other financial indebtedness (other than, in each case, to the extent incurred or arising intra-restricted group and under the 2013 Super Senior Revolving Facility).

We are also required to pay a commitment fee, quarterly in arrears, on available but undrawn commitments under the 2017 Senior Secured Revolving Facility Agreement at a rate of 35.0% of the then applicable margin.

Any amount still outstanding at the maturity of the 2017 Senior Secured Revolving Facility will be immediately due and payable. Subject to certain conditions, any borrower under the 2017 Senior Secured Revolving Facility Agreement may voluntarily prepay the utilizations and the borrower may permanently cancel all or part of the available commitments under the 2017 Senior Secured Revolving Facility in a minimum amount of €5,000,000 (in relation to a voluntary cancellation) and €1,000,000 (in relation to a voluntary prepayment) by giving not less than three business days’ (or such shorter period as the required majority lenders under the 2017 Senior Secured Revolving Facility Agreement agree) prior notice to the Agent.

We may reborrow amounts repaid, subject to certain conditions, until one month before final maturity.

In addition to voluntary prepayments, the 2017 Senior Secured Revolving Facility Agreement requires mandatory prepayment (or, as the case may be, an offer to do so) in full or in part in certain circumstances, including:

 

    with respect to any lender, if it becomes unlawful for such lender to perform any of its obligations under the 2017 Senior Secured Revolving Facility Agreement or to maintain its participation in any loan under the 2017 Senior Secured Revolving Facility;

 

    if a lender so requires in respect of that lender’s participation in an outstanding loan under the 2017 Senior Secured Revolving Facility, upon a Change of Control (as defined in the 2017 Senior Secured Revolving Facility Agreement);

 

    upon the occurrence of the sale of all or substantially all of the assets of the Group;

 

    from the net proceeds of certain financing proceeds, insurance proceeds and/or asset sale; and/or

 

    if the 2013 Super Senior Revolving Facility is fully cancelled and repaid or prepaid.

The 2017 Senior Secured Revolving Facility requires, within a specified period of time, for it to be guaranteed irrevocably and unconditionally on a joint and several basis by certain members of the Group (subject to applicable local law limitations) with borrowings thereunder to be secured by certain share pledges over the guarantors (other than the Company) under the 2017 Senior Secured Revolving Facility, inter-company loan receivables owed to the Company or any of the guarantors under the 2017 Senior Secured Revolving Facility and the bank accounts of the Company and the guarantors under the 2017 Senior Secured Revolving Facility.

 

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The 2017 Senior Secured Revolving Facility Agreement contains customary operating and restrictive covenants, subject to certain agreed exceptions, qualifications and thresholds as well as customary events of default (subject in certain cases to agreed grace periods, qualifications and thresholds), including a cross default with respect to an event of default under the Indenture (as defined below) governing the Senior Secured Notes (as defined below). The 2017 Senior Secured Revolving Facility also requires the Company, and each guarantor to observe certain customary affirmative covenants (subject to certain agreed exceptions, qualifications and thresholds) and requires the Company to comply with a leverage ratio financial covenant (calculated as the ratio of consolidated total net debt at each quarter end to pro forma Adjusted EBITDA for the 12 months ending on that quarter end).

The 2018 Subordinated Revolving Facility Agreement dated as of March 16, 2018 (as amended and/or restated from time to time), among InterXion Holding N.V. and the financial institutions party thereto, as Lenders, ABN AMRO Bank N.V. as agent.

On March 16, 2018, we entered into the €225.0 million 2018 Subordinated Revolving Facility Agreement by and among InterXion Holding N.V., the guarantors thereunder, ABN AMRO Bank N.V. and Bank of America Merrill Lynch International Limited as lenders thereunder and ABN AMRO Bank N.V. as agent (for the purpose of this section, the “Agent”).

The 2018 Subordinated Revolving Facility had an initial maturity date of December 31, 2018 (the “Initial Termination Date”), with the Company having the option to extend the maturity date up to December 31, 2019 in accordance with the terms of the 2018 Subordinated Revolving Facility. The 2018 Subordinated Revolving Facility initially bears interest at a rate per annum equal to EURIBOR (subject to a zero percent floor) plus a margin of 3.00% per annum from the date of the 2018 Subordinated Revolving Facility to and including June 30, 2018, subject to a margin ratchet pursuant to which the margin may increase thereafter on a quarterly basis by 25 basis points, to a maximum of 3.50% per annum to and including the Initial Termination Date. If the 2018 Subordinated Revolving Facility is extended after the Initial Termination Date, the margin will increase from January 1, 2019 to and including March 31, 2019 to 3.75% per annum, subject to a further margin ratchet pursuant to which the margin may increase thereafter to 4.00% per annum, subject to a maximum of 4.50% per annum after the Initial Termination Date and up to December 31, 2019.

The 2018 Subordinated Revolving Facility is subordinated in right of payment to any debt of the Company or any restricted subsidiary outstanding under each of the 2013 Super Senior Revolving Facility, the 2017 Senior Secured Revolving Facility, the Senior Secured Notes and any other debt of the Company or any restricted subsidiary, unless the instrument under which such debt is incurred expressly provides that it is pari passu or subordinated in right of payment to the 2018 Subordinated Revolving Facility. In addition, the 2018 Subordinated Revolving Facility is subject to customary payment block and enforcement standstill provisions, in each case, with a long stop date of 179 days.

Borrowings under the 2018 Subordinated Revolving Facility, among other things, is subject to an aggregate principal amount of not less than €180,000,000 (or its equivalent) being outstanding under the 2013 Super Senior Revolving Facility and/or the 2017 Senior Secured Revolving Facility on the utilization date of the 2018 Subordinated Revolving Facility.

Borrowings under the 2018 Subordinated Revolving Facility will be used towards the general corporate and working capital purposes of the restricted group including capital expenditure, acquisitions and investments which are not prohibited by the 2018 Subordinated Revolving Facility Agreement, but excluding refinancing any other financial indebtedness and the prepayment, repayment, redemption or purchase of, or payments of interest in respect of, any other financial indebtedness (other than, in each case, to the extent incurred or arising intra-restricted group).

We are also required to pay a commitment fee, quarterly in arrears, on available but undrawn commitments under the 2018 Subordinated Revolving Facility Agreement at a rate of 40.0% of the then applicable margin.

Any amount still outstanding at the maturity of the 2018 Subordinated Revolving Facility will be immediately due and payable. Subject to certain conditions, the Company may voluntarily prepay the utilizations and the borrower may permanently cancel all or part of the available commitments under the 2018 Subordinated Revolving Facility in a minimum amount of €5,000,000 (in relation to a voluntary cancellation) and €1,000,000 (in relation to a voluntary prepayment) by giving not less than three business days’ (or such shorter period as the required majority lenders under the 2018 Subordinated Revolving Facility Agreement agree) prior notice to the Agent.

We may reborrow amounts repaid, subject to certain conditions, until one month before final maturity.

In addition to voluntary prepayments, the 2018 Subordinated Revolving Facility Agreement requires mandatory prepayment (or, as the case may be, an offer to do so) in full or in part in certain circumstances, including:

 

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    with respect to any lender, if it becomes unlawful for such lender to perform any of its obligations under the 2018 Subordinated Revolving Facility Agreement or to maintain its participation in any loan under the 2018 Subordinated Revolving Facility;

 

    if a lender so requires in respect of that lender’s participation in an outstanding loan under the 2018 Subordinated Revolving Facility, upon a Change of Control (as defined in the 2018 Subordinated Revolving Facility Agreement);

 

    upon the occurrence of the sale of all or substantially all of the assets of the Group;

 

    from the net proceeds of certain financing proceeds, insurance proceeds and/or asset sale; and/or

 

    if the Senior Secured Notes, the 2013 Super Senior Revolving Facility and the 2017 Senior Secured Revolving Facility are refinanced and the aggregate net proceeds thereof (free of any escrow arrangement) are greater than €825,000,000.

The 2018 Subordinated Revolving Facility is unsecured and is not guaranteed.

The 2018 Subordinated Revolving Facility Agreement contains customary operating and restrictive covenants, subject to certain agreed exceptions, qualifications and thresholds as well as customary events of default (subject in certain cases to agreed grace periods, qualifications and thresholds), including a cross default with respect to an event of default under the Indenture (as defined below) governing the Senior Secured Notes (as defined below). The 2018 Subordinated Revolving Facility also requires the Company, to observe certain customary affirmative covenants (subject to certain agreed exceptions, qualifications and thresholds) and requires the Company to comply with a leverage ratio financial covenant (calculated as the ratio of consolidated total net debt at each quarter end to pro forma Adjusted EBITDA for the 12 months ending on that quarter end).

The Indenture dated July 3, 2013, among InterXion Holding N.V., as Issuer, the initial guarantors, the Bank of New York Mellon, London Branch, as trustee, principal paying agent and transfer agent, The Bank of New York Mellon (Luxembourg) S.A., as registrar and Luxembourg paying agent and Barclays Bank PLC, as security trustee.

On July 3, 2013, the Company issued an aggregate principal amount of €325.0 million 6.00% Senior Secured Notes due 2020 (the “Initial Notes”). On April 29, 2014, the Company issued a further €150.0 million aggregate principal amount of 6.00% Senior Secured Notes due 2020. On April 14, 2016, the Company issued a further €150.0 million aggregate principal amount of 6.00% Senior Secured Notes due 2020. The notes issued on April 29, 2014 and April 14, 2016, are defined as the “Additional Notes” and together with the Initial Notes, as the “Senior Secured Notes”. The Additional Notes were issued pursuant to the same indenture as the Initial Notes.

The aggregate €625.0 million Senior Secured Notes due 2020 are governed by an indenture dated July 3, 2013, between the Company, as issuer, and The Bank of New York Mellon, London Branch, as Trustee. The indenture contains customary restrictive covenants, including but not limited to limitations or restrictions on our ability to incur debt, grant liens, make restricted payments and sell assets. The restrictive covenants are subject to customary exceptions and are governed by a consolidated fixed charge ratio to exceed 2.00 and a consolidated senior leverage ratio not to exceed 4.00.

The obligations under the €625.0 million Senior Secured Notes due 2020 are guaranteed by certain of the Company’s subsidiaries.

Optional Redemption

At any time on or after July 15, 2016, and before maturity, upon not less than 10 and not more than 60 days’ notice, we may

 

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redeem all or part of the Senior Secured Notes. These redemptions will be in amounts of €100,000 or integral multiples of €1,000 in excess thereof at the following redemption prices (expressed as percentages of their principal amount at maturity), plus accrued and unpaid interest, if any, to the redemption date, if redeemed during the 12-month period commencing on July 15 of the years set forth below.

 

Year

   Redemption price  

2017

     103.000

2018

     101.500

2019 and thereafter

     100.000

General

Incorporation and Registered Office

We were incorporated on April 6, 1998 as a private company with limited liability (besloten vennootschap met beperkte aansprakelijkheid ) under the laws of The Netherlands. On January 11, 2000, we were converted from a B.V. to a limited liability company (naamloze vennootschap ) under the laws of The Netherlands.

Our corporate seat is in Amsterdam, The Netherlands. We are registered with the Trade Register of the Chamber of Commerce in Amsterdam under number 33301892. Our executive offices are located at Scorpius 30, 2132 LR, Hoofddorp, The Netherlands. Our telephone number is +31 20 880 7600.

Articles of Association and Dutch Law

Set forth below is a summary of relevant information concerning our share capital and of material provisions of our Articles of Association (the “Articles”) and applicable Dutch law. This summary does not constitute legal advice regarding those matters and should not be regarded as such.

Corporate Purpose

Pursuant to Article 3 of our Articles, our corporate purpose is:

 

  (a) to incorporate, to participate in any way whatsoever in, to manage, to supervise businesses and companies;

 

  (b) to finance businesses and companies;

 

  (c) to borrow, to lend and to raise funds, including through the issue of bonds, debt instruments or other securities or evidence of indebtedness as well as to enter into agreements in connection with aforementioned activities;

 

  (d) to render advice and services to businesses and companies, with which the Company forms a group and to third parties;

 

  (e) to grant guarantees, to bind the Company and to pledge its assets for obligations of businesses and companies, with which it forms a group and on behalf of third parties; and

 

  (f) to perform any and all activities of an industrial, financial or commercial nature, and to do all that is connected therewith or may be conducive thereto, all to be interpreted in the broadest sense.

Issue of Ordinary Shares

Our Articles provide that we may issue ordinary shares, or grant rights to subscribe for ordinary shares, pursuant to a resolution of our General Meeting of Shareholders upon a proposal of our Board. Our Articles provide that our General Meeting of Shareholders may, upon a proposal of our Board, designate another body of the Company, which can only be our Board, as the competent body to issue ordinary shares, or grant rights to subscribe for ordinary shares. Pursuant to our Articles and Dutch law, the period of designation may not exceed five years, but may be renewed by a resolution of our General Meeting of Shareholders for periods of up to five years. If not otherwise stated in the resolution approving the designation, such designation is irrevocable. The resolution designating our Board must specify the number of shares that may be issued and, if applicable, any conditions to the issuance.

 

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Pursuant to a decision that was made at our General Meeting of Shareholders held on January 26, 2011, certain amendments were made to our Articles of Association on January 28, 2011. Among others, our Board was designated as the corporate body competent to issue ordinary shares and to grant rights to subscribe for ordinary shares with the power to limit or exclude pre-emptive rights related thereto. This authority is limited to a maximum equal to our authorized share capital from time to time. Our Board’s authority to issue ordinary shares and grant rights to acquire ordinary shares was for a period of five years and expired on January 28, 2016.

On June 24, 2016, our General Meeting of Shareholders designated our Board as the corporate body competent to issue ordinary shares and to grant rights to subscribe for up to 3,501,301 ordinary shares, without pre-emption rights accruing to shareholders for the purpose of our employee incentive schemes, and to issue ordinary shares and to grant rights to subscribe for ordinary shares up to 10% of the authorized share capital at that time. Our Board’s authority to issue ordinary shares and grant rights to acquire ordinary shares was for a period of 18 months, which expired on December 24, 2017. Our General Meeting of Shareholders may extend this period, subject to the limitations as set out above.

On June 30, 2017, our General Meeting of Shareholders designated our Board as the corporate body competent to issue ordinary shares and to grant rights to subscribe for up to 2,871,542 ordinary shares, without pre-emption rights accruing to shareholders for the purpose of our employee incentive schemes, and to issue ordinary shares and to grant rights to subscribe for ordinary shares up to 10% of the authorized share capital at that time. Our Board’s authority to issue ordinary shares and grant rights to acquire ordinary shares was for a period of 18 months expiring on December 29, 2018.

Ordinary shares may not be issued at less than their nominal value and must be fully paid up upon issue.

No resolution of our General Meeting of Shareholders or our Board is required for an issue of ordinary shares pursuant to the exercise of a previously granted right to subscribe for ordinary shares.

Pre-emptive Rights

Dutch law and our Articles generally give our shareholders pre-emptive rights to subscribe in proportion to the aggregate nominal value of the Shares held by the respective shareholder for any issue of new ordinary shares or grant of rights to subscribe for ordinary shares. Exceptions to these pre-emptive rights include: (i) the issue of ordinary shares and the grant of rights to subscribe for ordinary shares to our employees, or a group company in accordance with section 2:24b of the Dutch Civil Code, (ii) the issue of ordinary shares in exchange for non-cash contributions, and (iii) the issue of ordinary shares which are issued to a person exercising a right to subscribe for ordinary shares previously granted.

A shareholder has the legal right to exercise pre-emption rights for at least two weeks after the date of the announcement of the issue or grant. However, our General Meeting of Shareholders, or our Board if so designated by our General Meeting of Shareholders, may restrict or exclude pre-emptive rights. A resolution by our General Meeting of Shareholders to designate another corporate body, which can only be our Board, as the competent authority to exclude or restrict pre-emptive rights requires a proposal by our Board and approval by a majority of at least two-thirds of the valid votes cast at our General Meeting of Shareholders if less than half of our issued and outstanding share capital is present or represented. A simple majority is sufficient if more than half of our issued and outstanding share capital is present or represented. A resolution by our General Meeting of Shareholders to designate our Board as the competent authority to exclude or restrict pre-emptive rights must be for a fixed period not exceeding five years and is only possible if our Board is simultaneously designated as the corporate body authorized to issue ordinary shares. If not otherwise stated in the resolution approving designation, such designation is irrevocable. If our General Meeting of Shareholders has not designated our Board, our General Meeting of Shareholders itself is the corporate body authorized to restrict or exclude pre-emptive rights upon a proposal by our Board.

Our Board was designated as the corporate body authorized to limit or exclude pre-emptive rights, subject to the limited authority it has to issue ordinary shares and grant rights to subscribe for ordinary shares as set out under “—Issue of Ordinary Shares” above, for a period of ending on January 28, 2016. In addition, our Board was designated as the corporate body authorized, subject to the limited authority it has to issue ordinary shares and grant rights to subscribe for ordinary shares, without pre-emption rights accruing to shareholders for the purpose of our employee incentive schemes as set out under “—Issue of Ordinary Shares” above, for a period that ended on December 31, 2017. On June 30, 2017, our General Meeting of Shareholders extended this period to December 29, 2018.

 

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Reduction of Share Capital

Our General Meeting of Shareholders may, subject to Dutch law and our Articles and only upon a proposal of our Board, resolve to reduce our issued share capital by cancellation of ordinary shares or reduction of the nominal value of ordinary shares by amendment of our Articles. A resolution of our General Meeting of Shareholders to reduce the issued share capital must designate the ordinary shares to which the resolution applies and must make provisions for the implementation of such resolution. A resolution to cancel ordinary shares may only be adopted in relation to ordinary shares or depositary receipts for such shares we hold ourselves. A partial repayment or exemption from the obligation to pay up ordinary shares must be made pro rata, unless all our shareholders agree otherwise. A resolution at our General Meeting of Shareholders to reduce our issued share capital requires a majority of at least two-thirds of the votes validly cast at a meeting at which less than half of our issued and outstanding share capital is present or represented. A simple majority is sufficient if more than half of our issued and outstanding share capital is present or represented.

Acquisition of Ordinary Shares

We may acquire our own fully paid up ordinary shares at any time for no consideration or, subject to certain provisions of Dutch law and our Articles, if (i) our shareholders’ equity minus the payment required to make the acquisition, does not fall below the sum of called-up and paid-up share capital and any statutory reserves we must maintain by Dutch law or our Articles, and (ii) we and our subsidiaries would thereafter not hold ordinary shares or rights of pledge over ordinary shares with an aggregate nominal value exceeding 50% of our issued and outstanding share capital.

Dutch law generally and more specifically the Dutch Civil Code, imposes minimum capital and other reserve requirements on legal entities as a way of protecting shareholders and creditors and maintaining the capital of a company. Such minimum capital and reserve requirements include, among other things, complying with certain minimum capital requirements when declaring and paying dividends and repurchasing shares in its own capital, maintaining reserves on the granting of legitimate financial assistance loans by a public limited company and maintaining reserves on the revaluation of assets.

An acquisition of ordinary shares for a consideration must be authorized by our General Meeting of Shareholders. Such authorization may be granted for a maximum period of 18 months and must specify the number of ordinary shares that may be acquired, the manner in which ordinary shares may be acquired and the price limits within which ordinary shares may be acquired. Authorization is not required for the acquisition of ordinary shares in order to transfer them to our employees. The actual acquisition may only be effected by a resolution of our Board.

Any ordinary shares held by us in our own capital may not be voted on or counted for quorum purposes.

Exchange Controls and Other Provisions Relating to Non-Dutch Shareholders

There are no Dutch exchange control restrictions on investments in, or payments on, the ordinary shares. There are no special restrictions in our Articles or Dutch law that limit the right of shareholders who are not citizens or residents of The Netherlands to hold or vote the ordinary shares.

Dividends and Distributions

We may only make distributions to our shareholders in so far as our equity exceeds the sum of our paid-in and called-up share capital plus the reserves we are required to maintain by Dutch law or our proposed Articles. Under our Articles, our Board may determine that a portion of the profits of the current financial year shall be added to our reserves. The remaining profits are at the disposal of our General Meeting of Shareholders.

We may only make distributions of dividends to our shareholders after the adoption of our statutory annual accounts from which it appears that such distributions are legally permitted. Our Board may, however, resolve to pay interim dividends on account of the profits of the current financial year if the equity requirement set out above is met, as evidenced by an interim statement of assets and liabilities relating to the condition of such assets and liabilities on a date no earlier than the first day of the third month preceding the month in which the resolution to distribute interim dividends is made public. Our General Meeting of Shareholders may resolve, upon a proposal to that effect by our Board, to pay distributions at the expense of any of our reserves.

In addition, if we choose to declare dividends, the payment of cash dividends on our shares is restricted under the terms of the agreements governing our indebtedness.

Dividends and other distributions may be made in cash or, but only at all times with the approval of the Board, in ordinary

 

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shares. Dividends and other distributions are due and payable as from the date determined by the corporate body resolving on the distribution. Claims to dividends and other declared distributions lapse after five years from the date that such dividends or distributions became payable and any such amounts not collected within this period revert to us and are allocated to our general reserves.

General Meetings of Shareholders and Voting Rights

Our Annual General Meeting of Shareholders must be held within six months of the end of each of our financial years. It must be held in The Netherlands in Amsterdam, Haarlemmermeer (Schiphol Airport) or Hoofddorp. Our financial year coincides with the calendar year. An Extraordinary General Meeting of Shareholders may be convened whenever our Board or CEO deems necessary. Shareholders representing at least 10% of our issued and outstanding share capital may, pursuant to Dutch law and our Articles, request that a General Meeting of Shareholders be convened, specifying the items for discussion. If our Board has not convened a General Meeting of Shareholders within four weeks of such a request so that a meeting can be held within six weeks following the request, the shareholders requesting the meeting are authorized to call a meeting themselves with due observance of the relevant provisions of our Articles.

The notice convening any General Meeting of Shareholders must include an agenda indicating the items for discussion, or it must state that the shareholders and any holders of depositary receipts for ordinary shares may review such agenda at our main offices in The Netherlands. We will have the notice published by electronic means of communication which is directly and permanently accessible until the meeting and in such other manner as may be required to comply with any applicable rules of the NYSE. The explanatory notes to the agenda must contain all facts and circumstances that are relevant for the proposals on the agenda. Such explanatory notes and the agenda will be placed on our website.

Shareholders holding at least 3% of our issued and outstanding share capital may submit agenda proposals for any General Meeting of Shareholders. Provided we receive such proposals no later than 60 days before the date of the General Meeting of Shareholders, and provided that such proposal does not, according to our Board, conflict with our vital interests, we will have the proposals included in the notice.

Each of the ordinary shares confers the right to cast one vote. Each shareholder entitled to participate in a General Meeting of Shareholders, either in person or through a written proxy, is entitled to attend and address the meeting and, to the extent that the voting rights accrue to him, to exercise his voting rights in accordance with our Articles. The voting rights attached to any ordinary shares, or ordinary shares for which depositary receipts have been issued, are suspended as long as they are held in treasury.

Our Board may allow shareholders to, in person or through a person holding a written proxy, participate in a General Meeting of Shareholders, including to take the floor and, to the extent applicable, to exercise voting rights, through an electronic means of communication. Our Board selects the means of electronic communication and may subject its use to conditions.

To the extent that our Articles or Dutch law do not require a qualified majority, all resolutions of our General Meeting of Shareholders shall be adopted by a simple majority of the votes cast.

The following resolutions of our General Meeting of Shareholders may be adopted only upon a proposal by our Board:

 

  (a) to effect a statutory merger (juridische fusie) or demerger (juridische splitsing);

 

  (b) to issue ordinary shares or to restrict or exclude pre-emption rights on ordinary shares to the extent the authority to issue has not been delegated to our Board;

 

  (c) to designate our Board as the corporate body authorized to issue ordinary shares or rights to subscribe for ordinary shares and to restrict or to exclude the pre-emption rights on ordinary shares or rights to subscribe for ordinary shares;

 

  (d) to reduce our issued share capital;

 

  (e) to make a whole or partial distribution of reserves;

 

  (f) to amend our Articles of Association or change our corporate form; and

 

  (g) to dissolve us.

 

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Amendment of our Articles of Association

Our General Meeting of Shareholders may resolve to amend our Articles upon a proposal made by our Board.

Dissolution and Liquidation

Under our Articles, we may be dissolved by a resolution of our General Meeting of Shareholders upon a proposal of our Board.

In the event of dissolution, our business will be liquidated in accordance with Dutch law and our Articles and the liquidation shall be effected by our Board. During liquidation, the provisions of our Articles will remain in force to the extent possible. Any assets remaining upon completion of the dissolution will be distributed to the holders of ordinary shares in proportion to the aggregate nominal amount of their ordinary shares.

Disclosure of Information

Dutch law contains specific rules intended to prevent insider trading, tipping and market manipulation. We are subject to these rules and accordingly, we have adopted a code of securities dealings in relation to our securities.

Squeeze Out

If a shareholder, alone or together with group companies, (the “Controlling Entity”) holds a total of at least 95% of a company’s issued share capital by nominal value for its own account, Dutch law permits the Controlling Entity to acquire the remaining shares in the controlled entity (the “Controlled Entity”) by initiating proceedings against the holders of the remaining shares. The price to be paid for such shares will be determined by the Enterprise Chamber of the Amsterdam Court of Appeal (the “Enterprise Chamber”). A Controlling Entity that holds less than 95% of the shares in the Controlled Entity, but that in practice controls the Controlled Entity’s General Meeting of Shareholders, could attempt to obtain full ownership of the business of the Controlled Entity through a legal merger of the Controlled Entity with another company controlled by the Controlling Entity, by subscribing to additional shares in the Controlled Entity (for example, in exchange for a contribution of part of its own business), through another form of reorganization aimed at raising its interest to 95% or through other means.

In addition to the general squeeze-out procedure mentioned above, following a public offer, a holder of at least 95% of the outstanding shares and voting rights has the right to require the minority shareholders to sell their shares to it. To the extent there are two or more types of shares, the request can only be made with regard to the type of shares of which the shareholder holds at least 95% in aggregate representing at least 95% of the voting rights attached to those shares. Any request to require the minority shareholders to sell their shares must be filed with the Enterprise Chamber within three months of the end of the acceptance period of the public offer. Conversely, in such a case, each minority shareholder has the right to require the holder of at least 95% of the outstanding shares and voting rights to purchase its shares. The minority shareholders must file such claim with the Enterprise Chamber within three months of the end of the acceptance period of the public offer.

Reporting of Insider Transactions

Pursuant to the European Market Abuse Regulation (EU) 596/2014, the Directors and any other person who has managerial responsibilities or who has the authority to make decisions affecting our future developments and business prospects or who has regular access to inside information relating to us (each an “Insider”), must notify The Netherlands Authority for the Financial Markets (“AFM”) of all transactions conducted for his own account relating to shares or debt instruments of the Company admitted to trading on a regulated market or multilateral trading facility or financial instruments the value of which is determined by the value of such shares or debt instruments. The AFM must be notified within three days following the transaction date. Notification may be postponed until the date the value of the transactions amounts to €5,000 or more per calendar year.

In addition, persons closely associated with an Insider must notify the AFM of any transactions conducted for their own account relating to such aforementioned financial instruments. The Market Abuse Regulation designates the following categories of persons: (i) the spouse or any partner considered by applicable law as equivalent to the spouse, (ii) dependent children, (iii) other relatives who have shared the same household for at least one year at the relevant transaction date, and (iv) any legal person, trust or partnership, among other things, whose managerial responsibilities are discharged by a Director or any other Insider or by a person referred to under (i), (ii) or (iii) above. The AFM keeps a public register of all notifications made pursuant to the Market Abuse Regulation.

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reporting and carrying out of transactions in our securities by the Directors or our employees. Further, we have drawn up a list of those persons working for us who could have access to inside information on a regular or incidental basis and have informed the persons concerned of the rules against insider trading and market manipulation including the sanctions which can be imposed in the event of a violation of those rules.

Non-compliance with the notification obligations under the Market Abuse Regulation could lead to criminal penalties, administrative fines and cease-and-desist orders (and the publication thereof), imprisonment or other sanctions.

Following the introduction on July 3, 2016 of the Market Abuse Regulation (which has replaced the former market abuse rules), the aforementioned notification obligation is limited to transactions involving our Senior Secured Notes and financial instruments the value of which is determined by the value of such Senior Secured Notes.

Comparison of Dutch Corporate Law and U.S. Corporate Law

The following comparison between Dutch corporation law, which applies to us, and Delaware corporation law, the law under which many corporations in the United States are incorporated, discusses additional matters not otherwise described in this annual report.

Duties of directors

The Netherlands

Under Dutch law, the Board of Directors is collectively responsible for the policy and day-to-day management of the Company. The non-executive directors will be assigned the task of supervising the executive directors and providing them with advice. Each director has a duty to the Company to properly perform the duties assigned to him. In addition, each Board member has a duty to act in the corporate interest of the Company. Under Dutch law, the corporate interest extends to the interests of all corporate stakeholders, such as shareholders, creditors, employees, customers and suppliers. The duty to act in the corporate interest of the Company also applies in the event of a proposed sale or break-up of the Company, whereby the circumstances generally dictate how such duty is to be applied. Any board resolution regarding a significant change in the identity or character of the Company or its business requires shareholders’ approval.

Delaware

The Board of Directors of a Delaware corporation bears the ultimate responsibility for managing the business and affairs of a corporation. In discharging this function, directors of a Delaware corporation owe fiduciary duties of care and loyalty to the corporation and to its shareholders. Delaware courts have decided that the directors of a Delaware corporation are required to exercise an informed business judgment in the performance of their duties. An informed business judgment means that the directors have informed themselves of all material information reasonably available to them. Delaware courts have also imposed a heightened standard of conduct upon directors of a Delaware corporation who take any action designed to defeat a threatened change in control of the corporation. In addition, under Delaware law, when the Board of Directors of a Delaware corporation approves the sale or break-up of a corporation, the Board of Directors may, in certain circumstances, have a duty to obtain the highest value reasonably available to the shareholders.

Director terms

The Netherlands

Under Dutch law, a director of a listed company is generally appointed for a maximum term of four years.

 

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Delaware

The Delaware General Corporation Law generally provides for a one-year term for directors, but permits directorships to be divided into up to three staggered classes with up to three-year terms, with the terms for each class expiring in different years, if permitted by the certificate of incorporation, an initial bylaw or a bylaw adopted by the shareholders, with exceptions if the board is classified or if the company has cumulative voting.

Director vacancies

The Netherlands

Under Dutch law, new members of the Board of Directors of a company such as ours are appointed by the General Meeting. Our Articles provide that our Board has nomination rights with respect to the appointment of a new member of our Board. If a nomination consists of a list of two or more candidates, it is binding and the appointment to the vacant seat concerned shall be from the persons placed on the binding list of candidates and shall be effected through election. Notwithstanding the foregoing, our General Meeting of Shareholders may, at all times, by a resolution passed with a two-thirds majority of the votes cast representing more than half of our issued and outstanding capital, resolve that such list of candidates shall not be binding.

Delaware

The Delaware General Corporation Law provides that vacancies and newly created directorships may be filled by a majority of the directors then in office (even though less than a quorum) unless (a) otherwise provided in the certificate of incorporation or by-laws of the corporation or (b) the certificate of incorporation directs that a particular class of stock is to elect such director, in which case any other directors elected by such class, or a sole remaining director elected by such class, will fill such vacancy.

Shareholder proposals

The Netherlands

Pursuant to our Articles, extraordinary shareholders’ meetings will be held as often as our Board or our CEO deems necessary. In addition, shareholders and/or persons with depository receipt holder rights representing in the aggregate at least one-tenth of the issued capital of the Company may request the Board to convene a general meeting, specifically stating the business to be discussed. If our Board has not given proper notice of a general meeting within four weeks of receipt of such request such that the meeting can be held within six weeks of receipt of the request, the applicants shall be authorized to convene a meeting themselves. Pursuant to Dutch law, one or more shareholders representing at least 10% of the issued share capital may request the Dutch Courts to order that a General Meeting be held.

The agenda for a meeting of shareholders must contain such items as our Board or the person or persons convening the meeting decide, including the time and place of the shareholders’ meeting and the procedure for participating in the shareholders’ meeting by way of a written power of attorney. The agenda shall also include such other items as one or more shareholders, representing at least such part of the issued share capital as required by the laws of The Netherlands (currently, 3% of the issued share capital or shares) may request by providing a substantiated written request or a proposal for a resolution to our Board at least 60 days before the date of the meeting.

Delaware

Delaware law does not specifically grant shareholders the right to bring business before an annual or special meeting.

Shareholder suits

The Netherlands

In the event that a third-party is liable to a Dutch company, only the company itself can bring a civil action against that party. The individual shareholders do not have the right to bring an action on behalf of the company. Only in the event that the cause for the liability of a third-party to the company also constitutes a tortious act directly against a shareholder does that shareholder have an

 

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individual right of action against such third-party in its own name. The Dutch Civil Code provides for the possibility to initiate such actions collectively. A foundation or an association, the objective of which is to protect the rights of a group of persons having similar interests can institute a collective action. The collective action itself cannot result in an order for payment of monetary damages but may only result in a declaratory judgment (verklaring voor recht). In order to obtain compensation for damages, the foundation or association and the defendant may reach - often on the basis of such declaratory judgment - a settlement. A Dutch court may declare the settlement agreement binding upon all the injured parties with an opt-out choice for an individual injured party. An individual injured party may also itself institute a civil claim for damages.

Delaware

Under the Delaware General Corporation Law, a shareholder may bring a derivative action on behalf of the corporation to enforce the rights of the corporation. An individual also may commence a class action suit on behalf of himself and other similarly situated shareholders where the requirements for maintaining a class action under Delaware law have been met. A person may institute and maintain such a suit only if that person was a shareholder at the time of the transaction which is the subject of the suit. In addition, under Delaware case law, the plaintiff normally must be a shareholder not only at the time of the transaction that is the subject of the suit, but also throughout the duration of the derivative suit. Delaware law also requires that the derivative plaintiff make a demand on the directors of the corporation to assert the corporate claim and such demand has been refused before the suit may be prosecuted by the derivative plaintiff in court, unless such a demand would be futile.

Anti-takeover provisions

The Netherlands

Neither Dutch law nor our Articles specifically prevent business combinations with interested shareholders. Under Dutch law various protective measures are as such possible and admissible, within the boundaries set by Dutch case law and Dutch law.

Delaware

In addition to other aspects of Delaware law governing fiduciary duties of directors during a potential takeover, the Delaware General Corporation Law also contains a business combination statute that protects Delaware companies from hostile takeovers and from actions following the takeover by prohibiting some transactions once an acquirer has gained a significant holding in the corporation.

Section 203 of the Delaware General Corporation Law prohibits “business combinations”, including mergers, sales and leases of assets, issuances of securities and similar transactions by a corporation or a subsidiary with an interested shareholder that beneficially owns 15% or more of a corporation’s voting stock, within three years after the person becomes an interested shareholder, unless:

 

    the transaction that will cause the person to become an interested shareholder is approved by the Board of Directors of the target before the transactions;

 

    after the completion of the transaction in which the person becomes an interested shareholder, the interested shareholder holds at least 85% of the voting stock of the corporation not including shares owned by persons who are directors and also officers of interested shareholders and shares owned by specified employee benefit plans; or

 

    after the person becomes an interested shareholder, the business combination is approved by the Board of Directors of the corporation and holders of at least 66.67% of the outstanding voting stock, excluding shares held by the interested shareholder.

A Delaware corporation may elect not to be governed by Section 203 by a provision contained in the original certificate of incorporation of the corporation or an amendment to the original certificate of incorporation or to the bylaws of the Company, which amendment must be approved by a majority of the shares entitled to vote and may not be further amended by the Board of Directors of the corporation. Such an amendment is not effective until 12 months following its adoption.

Removal of directors

The Netherlands

Under Dutch law, the General Meeting has the authority to suspend or remove members of the Board of Directors at any time. Under our Articles, a member of our Board may be suspended or removed by our General Meeting of Shareholders at any time by a

 

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resolution passed with a two-thirds majority of the votes cast representing more than half of the issued and outstanding capital. If permitted under the laws of The Netherlands, a member of our Board may also be suspended by our Board itself. Any suspension may not last longer than three months in the aggregate. If, at the end of that period, no decision has been taken on termination of the suspension, the suspension shall end. Currently, Dutch law does not allow directors to be suspended by the Board of Directors. It is, however, expected that Dutch law will be amended to facilitate the suspension of directors by the Board of Directors.

Delaware

Under the Delaware General Corporation Law, any director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors, except (a) unless the certificate of incorporation provides otherwise, in the case of a corporation whose board is classified, shareholders may effect such removal only for cause, or (b) in the case of a corporation having cumulative voting, if less than the entire board is to be removed, no director may be removed without cause if the votes cast against his removal would be sufficient to elect him if then cumulatively voted at an election of the entire Board of Directors, or, if there are classes of directors, at an election of the class of directors of which he is a part.

Taxation

Certain U.S. Federal Income Tax Considerations

This section describes certain material United States federal income tax consequences of owning our ordinary shares. It applies to a U.S. Holder (as defined below) that holds our ordinary shares as capital assets for tax purposes. This section does not apply to a U.S. Holder that is a member of a special class of holders subject to special rules, such as:

 

    a financial institution;

 

    a dealer in securities;

 

    a trader in securities that elects to use a mark-to-market method of accounting for its securities holdings;

 

    a real estate investment trust;

 

    a regulated investment company;

 

    U.S. expatriates;

 

    persons who acquired shares pursuant to the exercise of any employee share option or otherwise as compensation;

 

    a tax-exempt organization;

 

    an insurance company;

 

    a person liable for alternative minimum tax;

 

    a person who actually or constructively owns 10% or more of our stock (by vote or value);

 

    a person who owns shares through a partnership or other pass-through entity;

 

    persons subject to special tax accounting rules as a result of any item of gross income with respect to shares being taken into account in an applicable financial statement;

 

    a person who holds shares as part of a straddle or a hedging or conversion transaction; or

 

    a person whose functional currency is not the U.S. dollar.

This section is based on the Internal Revenue Code of 1986, as amended (the “Code”), its legislative history, existing and proposed regulations, published rulings and court decisions, all as currently in effect. These laws are subject to change, possibly on a retroactive basis.

This section does not describe any tax consequences arising out of the tax laws of any state, local or non-U.S. jurisdiction, any estate or gift tax consequences or the Medicare tax on certain “net investment income”. If any entity or arrangement that is treated as a partnership for United States federal income tax purposes is a beneficial owner of our ordinary shares, the treatment of a partner in the partnership will generally depend on the status of the partner and the activities of the partnership. Partners in such partnerships should consult with their tax advisors.

For purposes of this discussion, a U.S. Holder is a beneficial owner of our ordinary shares that is for United States federal income tax purposes:

 

    a citizen or resident of the United States,

 

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    a US domestic corporation (or other entity taxable as a U.S. domestic corporation for United States federal income tax purposes),

 

    an estate the income of which is subject to United States federal income tax regardless of its source, or

 

    a trust, if a United States court can exercise primary supervision over the trust’s administration and one or more United States persons are authorized to control all substantial decisions of the trust, or if the trust has a valid election in effect to be treated as a United States person.

U.S. Holders should consult their own tax advisor regarding the United States federal, state and local and other tax consequences of owning and disposing of our ordinary shares in their particular circumstances.

Taxation of Dividends

Under the United States federal income tax laws, and subject to the passive foreign investment company, or PFIC, rules discussed below, U.S. Holders will include in gross income the gross amount of any dividend paid by us out of our current or accumulated earnings and profits (as determined for United States federal income tax purposes). The dividend is ordinary income that the U.S. Holder must include in income when the dividend is actually or constructively received. The dividend will not be eligible for the dividends-received deduction generally allowed to United States corporations in respect of dividends received from other United States corporations. The amount of a dividend distribution paid in euros includible in the income of a U.S. Holder will be the US dollar value of the euro payment made, determined at the spot euro/U.S. dollar rate on the date the dividend distribution is includible in the income of the U.S. Holder, regardless of whether the payment is in fact converted into U.S. dollars. Generally, any gain or loss resulting from currency exchange fluctuations during the period from the date the dividend payment is includible in income to the date such payment is converted into U.S. dollars will be treated as ordinary income or loss. Such gain or loss generally will be income or loss from sources within the United States for foreign tax credit limitation purposes. Distributions in excess of current and accumulated earnings and profits, as determined for United States federal income tax purposes, will be treated as a non-taxable return of capital to the extent of the U.S. Holder’s basis in the shares and thereafter as capital gain. We currently do not, and we do not intend to, calculate our earnings and profits under United States federal income tax principles. Therefore, a US Holder should expect that a distribution will generally be reported as a dividend even if that distribution would otherwise be treated as a non-taxable return of capital or as capital gain under the rules described above.

With respect to non-corporate taxpayers, dividends may be taxed at the lower applicable capital gains rate provided that (1) either (a) our ordinary shares are readily tradable on an established securities market in the United States or (b) we are eligible for the benefits of the “Convention between the United States of America and the Kingdom of The Netherlands for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income”, (2) we are not a PFIC (as discussed below) for either our taxable year in which the dividend was paid or the preceding taxable year, and (3) certain holding period requirements are met. Common stock is considered for purposes of clause (1) above to be readily tradable on an established securities market if it is listed on the NYSE. U.S. Holders should consult their tax advisors regarding the availability of the lower rate for dividends paid with respect to our ordinary shares.

For foreign tax credit limitation purposes, the dividend will generally constitute foreign source income and will generally be “passive category income”. If the dividends are taxed as qualified dividend income (as discussed above), the amount of the dividend taken into account for purposes of calculating the foreign tax credit limitation will in general be limited to the gross amount of the dividend, multiplied by the reduced tax rate applicable to qualified dividend income and divided by the highest tax rate normally applicable to dividends.

If Dutch withholding taxes apply to any dividends paid to you with respect to our ordinary shares, the amount of the dividend would include withheld Dutch taxes and, subject to certain conditions and limitations, such Dutch withholding taxes may be eligible for credit against your U.S.-federal income tax liability. The rules relating to the determination of the foreign tax credit are complex, and you should consult your tax advisor regarding the availability of a foreign tax credit in your particular circumstances, including the effects of any applicable income tax treaties.

Taxation of Capital Gains

Subject to the PFIC rules discussed below, upon the sale or other disposition of our ordinary shares, a U.S. Holder will generally recognize capital gain or loss for United States federal income tax purposes equal to the difference between the U.S. Holder’s amount realized and the U.S. Holder’s tax basis in such shares. If a U.S. Holder receives consideration for shares paid in a currency other than

 

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U.S. dollars, the U.S. Holder’s amount realized will be the U.S. dollar value of the payment received. In general, the U.S. dollar value of such a payment will be determined on the date of sale or disposition. On the settlement date, a U.S. Holder may recognize U.S. source foreign currency gain or loss (taxable as ordinary income or loss) equal to the difference (if any) between the U.S. dollar value of the amount received based on the exchange rates in effect on the date of sale or other disposition and the settlement date. However, if our ordinary shares are treated as traded on an established securities market and the U.S. Holder is a cash basis taxpayer or an accrual basis taxpayer who has made a special election, the U.S. dollar value of the amount realized in a foreign currency is determined by translating the amount received at the spot rate of exchange on the settlement date, and no exchange gain or loss would be recognized at that time. Capital gain of a non-corporate U.S. Holder is generally taxed at a reduced rate where the property is held for more than one year. The gain or loss will generally be income or loss from sources within the United States for foreign tax credit limitation purposes.

PFIC Rules

We believe that our ordinary shares should not be treated as stock of a PFIC for United States federal income tax purposes for the taxable year that ended on December 31, 2017. The application of the PFIC rules, however, is subject to uncertainty in several respects, and we cannot assure you that the United States Internal Revenue Service will not take a contrary position. In addition, PFIC status is a factual determination which cannot be made until the close of the taxable year. Accordingly, there is no guarantee that we will not be a PFIC for any future taxable year. In addition, because the total value of our assets for purposes of the asset test generally will be calculated using the market price of our ordinary shares, our PFIC status will depend in large part on the market price of our ordinary shares. Accordingly, fluctuations in the market price of our ordinary shares could render us a PFIC for any year. A non-U.S. corporation is considered a PFIC for any taxable year if either:

 

    at least 75% of its gross income is passive income, or

 

    at least 50% of the value of its assets (based on an average of the quarterly values of the assets during a taxable year) is attributable to assets that produce or are held for the production of passive income (the “asset test”).

In the PFIC determination, we will be treated as owning our proportionate share of the assets and earning our proportionate share of the income of any other corporation in which we own, directly or indirectly, 25% or more (by value) of the stock.

If we were to be treated as a PFIC for any year during a U.S. Holder’s holding period, unless the U.S. Holder elects to be taxed annually on a mark-to-market basis with respect to the shares (which election may be made only if our ordinary shares are “marketable stock” within the meaning of Section 1296 of the Code), the U.S. Holder will be subject to special tax rules with respect to any “excess distribution” received and any gain realized from a sale or other disposition (including a pledge) of that holder’s shares. Distributions a U.S. Holder receives in a taxable year that are greater than 125% of the average annual distributions received during the shorter of the three preceding taxable years or the holder’s holding period for the shares will be treated as excess distributions. Under these special tax rules:

 

    the excess distribution or gain will be allocated ratably over the U.S. Holder’s holding period for the shares;

 

    the amount allocated to the current taxable year, and any taxable year before the first taxable year in which we are treated as a PFIC, will be treated as ordinary income; and

 

    the amount allocated to each other year will be subject to tax at the highest tax rate in effect for that year and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each such year.

The tax liability for amounts allocated to years before the year of disposition or “excess distribution” cannot be offset by any net operating losses for such years, and gains (but not losses) realized on the sale of the shares cannot be treated as capital, even if the shares are held as capital assets. If we were to be treated as a PFIC for any year during which a U.S. Holder holds the shares, we generally would continue to be treated as a PFIC with respect to that U.S. Holder for all succeeding years during which it owns our ordinary shares. If we were to cease to be treated as a PFIC, however, a U.S. Holder may avoid some of the adverse effects of the PFIC regime by making a deemed sale election with respect to our ordinary shares.

If a U.S. Holder holds shares in any year in which we are a PFIC, that US Holder will generally be required by the Code to file an information report with the Internal Revenue Service containing such information as the Internal Revenue Service may require.

 

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Information Reporting and Backup Withholding

Dividend payments with respect to our shares and proceeds from the sale, exchange or redemption of our ordinary shares may be subject to information reporting to the United States Internal Revenue Service and possible United States backup withholding. Backup withholding will not apply, however, to a U.S. Holder that furnishes a correct taxpayer identification number and makes any other required certification or that is otherwise exempt from backup withholding. U.S. Holders that are required to establish their exempt status generally must provide such certification on United States Internal Revenue Service Form W-9. U.S. Holders should consult their tax advisors regarding the application of the U.S. information reporting and backup withholding rules.

Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against your United States federal income tax liability, and you may obtain a refund of any excess amounts withheld under the backup withholding rules by filing the appropriate claim for refund with the United States Internal Revenue Service and furnishing any required information in a timely manner.

Information with respect to Foreign Financial Assets

U.S. individuals that own “specified foreign financial assets” with an aggregate value in excess of certain threshold amounts are generally required to file an information report with respect to such assets with their tax returns. “Specified foreign financial assets” include any financial accounts maintained by foreign financial institutions, as well as any of the following, but only if they are not held in accounts maintained by certain financial institutions: (i) stocks and securities issued by non-U.S. persons, (ii) financial instruments and contracts held for investment that have non-U.S. issuers or counterparties, and (iii) interests in foreign entities. Our shares may be subject to these rules. Under certain circumstances, an entity may be treated as an individual for purposes of these rules. U.S. Holders that are individuals should consult their tax advisers regarding the application of this requirement to their ownership of our shares.

Certain Dutch Tax Considerations

Introduction

This section summarizes the material Dutch tax consequences of the ownership and disposition of our ordinary shares as of the date hereof and is intended as general information only. It does not purport to be a comprehensive description of all Dutch tax considerations that could be relevant for holders of the ordinary shares. This summary is intended as general information only. Each prospective holder should consult a professional tax advisor with respect to the tax consequences of an investment in the ordinary shares. This summary is based on Dutch tax legislation and published case law in force as of the date of this annual report. It does not take into account any developments or amendments thereof after that date, whether or not such developments or amendments have retroactive effect.

For the purpose of this section, “The Netherlands” shall mean the part of the Kingdom of The Netherlands in Europe.

Scope

Regardless of whether or not a holder of ordinary shares is, or is treated as being, a resident of The Netherlands, this summary does not address the Dutch tax consequences for such a holder:

 

  (a) having a substantial interest (aanmerkelijk belang) in our Company (such a substantial interest is generally present if an equity stake, profit stake of at least 5%, or a right to acquire such an equity/profit stake, is held, in each case by reference to our Company’s total issued share capital, or the issued capital of a certain class of shares);

 

  (b) who is a private individual and may be taxed for the purposes of Dutch income tax (inkomstenbelasting) as an entrepreneur (ondernemer) that has an enterprise (onderneming) to which the ordinary shares are attributable, as one who earns income from miscellaneous activities (resultaat uit overige werkzaamheden), which include the performance of activities with respect to the ordinary shares that exceed regular, active portfolio management (normaal, actief vermogensbeheer ), or who may otherwise be taxed as one earning taxable income from work and home (werk en woning) with respect to benefits derived from the ordinary shares;

 

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  (c) which is a corporate entity, and for the purposes of Dutch corporate income tax (vennootschapsbelasting) and Dutch dividend tax (dividendbelasting), has, or is deemed to have, a participation (deelneming) in our Company (such a participation is generally present in the case of an interest of at least 5% of our Company’s nominal paid-in capital); or

 

  (d) which is a corporate entity and an exempt investment institution (vrijgestelde beleggingsinstelling) or investment institution (beleggingsinstelling) for the purposes of Dutch corporate income tax, a pension fund, or otherwise not a taxpayer or exempt for tax purposes.

Dividend tax

Withholding requirement

We are required to withhold 15% Dutch dividend tax in respect of proceeds from the ordinary shares, which include, but is not limited to:

 

  (a) proceeds in cash or in kind, including deemed and constructive proceeds;

 

  (b) liquidation proceeds, proceeds on redemption of the ordinary shares and, as a rule, the consideration for the repurchase of ordinary shares by our Company in excess of its average paid-in capital (gestort kapitaal) as recognized for Dutch dividend tax purposes, unless a particular statutory exemption applies;

 

  (c) the par value of the ordinary shares issued to a holder, or an increase in the par value of the ordinary shares, except when the (increase in the) par value of the ordinary shares is funded out of our paid-in capital as recognized for Dutch dividend tax purposes; and

 

  (d) partial repayments of paid-in capital, if and to the extent there are qualifying profits (zuivere winst), unless the General Meeting of Shareholders has resolved in advance to make such repayment and provided that the nominal value of the ordinary shares concerned has been reduced by an equal amount by way of an amendment of the Articles of Association and the capital concerned is recognized as paid-in capital for Dutch dividend tax purposes.

Resident holders

If a holder of ordinary shares is, or is treated as being, a resident of The Netherlands, Dutch dividend tax which is withheld with respect to proceeds from the ordinary shares, will generally be creditable for Dutch corporate income tax or Dutch income tax purposes if the holder is the beneficial owner (uiteindelijk gerechtigde) of the proceeds concerned. A resident corporate holder of ordinary shares may, under certain conditions, be entitled to an exemption from Dutch dividend withholding tax.

Non-resident holders

If a private individual holder of ordinary shares is, or is treated as being, a resident of a country other than The Netherlands, such holder is generally not entitled to claim full or partial relief at source or a refund, in whole or in part, of Dutch dividend tax with respect to proceeds from the ordinary shares. A non-resident corporate holder of ordinary shares may, under certain conditions, be entitled to an exemption from, reduction or refund of Dutch dividend withholding tax under the provisions of a treaty for the avoidance of double taxation between The Netherlands and its country of residence.

Income tax

Resident holders

A holder who is a private individual and a resident, or treated as being a resident, of The Netherlands for the purposes of Dutch income tax and who does not have a substantial interest in our Company nor otherwise is taxed in relation to the ordinary shares as one earning taxable income from work and home, must record the ordinary shares as assets that are held in box 3. Taxable income with regard to the ordinary shares is then determined on the basis of a deemed return on income from savings and investments (sparen en beleggen), rather than on the basis of income actually received or gains actually realized. This deemed return is fixed at a rate of 4% of the holder’s yield basis (rendementsgrondslag) on January 1 of each year, insofar as the yield basis concerned exceeds a certain threshold. Such yield basis is determined as the fair market value of certain qualifying assets held by the holder of the ordinary shares, less the fair market value of certain qualifying liabilities. The fair market value of the ordinary shares will be included as an asset in the holder’s yield basis. The deemed return of 4% on the holder’s yield basis, being the fair market value of the ordinary shares, is taxed at a rate of 30% (insofar as the yield basis concerned exceeds a certain threshold).

 

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Non-resident holders

A holder who is a private individual and neither a resident, nor treated as being a resident of The Netherlands for the purposes of Dutch income tax, will not be subject to such tax in respect of benefits derived from the ordinary shares.

Corporate income tax

Resident holders or holders having a Dutch permanent establishment

A holder, which is a corporate entity and for the purposes of Dutch corporate income tax a resident (or treated as being a resident) of The Netherlands, or a non-resident having (or treated as having) a permanent establishment in The Netherlands, is generally taxed in respect of benefits derived from the ordinary shares at rates of up to 25%.

Non-resident holders

A holder, which is a corporate entity and for the purposes of Dutch corporate income tax neither a resident, nor treated as being a resident, of The Netherlands, having no permanent establishment in The Netherlands (and is not treated as having such a permanent establishment), will generally not be subject to such tax in respect of benefits derived from the ordinary shares.

Gift and inheritance tax

Resident holders

Dutch gift tax or inheritance tax (schenk- of erfbelasting) will arise in respect of an acquisition (or deemed acquisition) of the ordinary shares by way of a gift by, or on the death of, a holder of ordinary shares who is a resident, or treated as being a resident, of The Netherlands for the purposes of Dutch gift and inheritance tax. A holder is so treated as being a resident of The Netherlands, if one having Dutch nationality has been a resident of The Netherlands during the ten years preceding the relevant gift or death. A holder is further so treated as being a resident of The Netherlands, if one has been a resident of The Netherlands at any time during the 12 months preceding the time of the relevant gift.

Non-resident holders

No Dutch gift tax or inheritance tax will arise in respect of an acquisition (or deemed acquisition) of the ordinary shares by way of a gift by, or on the death of, a holder of ordinary shares who is neither a resident, nor treated as being a resident, of The Netherlands for the purposes of Dutch gift and inheritance tax.

Other taxes

No Dutch sales tax (omzetbelasting) will arise in respect of any payment in consideration for the issue of the ordinary shares, with respect to a distribution of proceeds from the ordinary shares or with respect to a transfer of ordinary shares. In addition, no Dutch registration tax, capital tax, transfer tax or stamp duty (nor any other similar tax or duty) will be payable in connection with the issue or acquisition of the ordinary shares.

Documents on display

We are subject to the information requirements of the Securities Exchange Act of 1934, applicable to foreign private issuers and, in accordance therewith, we file annual reports on Form 20-F within four months of our fiscal year-end and furnish other reports and information on Form 6-K with the Securities and Exchange Commission. These reports and other information can be inspected without charge at the public reference room at the Securities and Exchange Commission at 100 F Street, N.E., Washington, D.C. 20549. You can also obtain copies of such material by mail from the public reference room of the Securities and Exchange Commission at prescribed fees. You may obtain information on the operation of the Securities and Exchange public reference room by calling the Securities and Exchange Commission in the United States at 1-800-SEC-0330. The Securities and Exchange Commission also maintains a web site at www.sec.gov that contains reports, proxy statements and other information regarding registrants that file electronically with the Securities and Exchange Commission.

 

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ITEM 11: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

Under our Revolving Facilities, interest is based on a floating rate index. The interest expense on the remainder of our outstanding indebtedness is based on a fixed rate, except for our mortgages. Our mortgages are subject to a floating interest rate of EURIBOR plus an individual margin ranging from 195 to 275 basis points. We have determined that the impact of a near-term 10% appreciation or depreciation of EURIBOR would not have a significant effect on our financial position, results of operations, or cash flow. The interest rates on our mortgages secured by our PAR3 and PAR5 properties was fixed for approximately 75% of the principal outstanding amounts for a period of ten years.

As of December 31, 2017, the interest payable under the 2017 Senior Secured Revolving Facility on any EUR amounts drawn would be at the rate of EURIBOR (subject to a zero percent EURIBOR floor) plus 225 basis points per annum. The 2017 Senior Secured Revolving Facility was fully drawn as of December 31, 2017. As of December 31, 2017, the interest payable under the 2013 Super Senior Revolving Facility on (i) any EUR amounts drawn would be at the rate of EURIBOR plus 350 basis points per annum, (ii) any Danish kroner amounts drawn would be at the rate of CIBOR plus 350 basis points per annum, (iii) any Swedish Krona amounts drawn would be at the rate of STIBOR plus 350 basis points per annum and (iv) other applicable currencies, including GBP, amounts drawn at the rate of LIBOR plus 350 basis points per annum. The 2013 Super Senior Revolving Facility was undrawn as of December 31, 2017.

Foreign Exchange Rate Risk

Our reporting currency for purposes of our financial statements is the euro. However, we also incur revenue and operating costs in non-euro denominated currencies, such as British pounds, Swiss francs, Danish kroner and Swedish kronor. We recognize foreign currency gains or losses arising from our operations in the period incurred. As a result, currency fluctuations between the euro and the non-euro currencies in which we do business will cause us to incur foreign currency translation gains and losses. We cannot predict the effects of exchange rate fluctuations upon our future operating results because of the number of currencies involved, the variability of currency exposure and the potential volatility of currency exchange rates. We have determined that the impact of a near-term 10% appreciation or depreciation of non-euro denominated currencies relative to the euro would not have a significant effect on our financial position, results of operations, or cash flows.

We do not maintain any derivative instruments to mitigate the exposure to translation and transaction risk. Our foreign exchange transaction gains and losses are included in our results of operations and were not material for all periods presented. We do not currently engage in foreign exchange hedging transactions to manage the risk of our foreign currency exposure.

Commodity Price Risk

We are a significant user of electricity and have exposure to increases in electricity prices. In recent years, we have seen significant increases in electricity prices. We use independent consultants to monitor price changes in electricity and negotiate fixed-price term agreements with the power supply companies where possible.

Approximately 60% of our customers by revenue pay for electricity on a metered basis, while the remainder pay for power “plugs”. While we are contractually able to recover energy cost increases from our customers, some portion of the increased costs may not be recovered. In addition, some portion of the increased costs may be recovered in a delayed fashion based on commercial reasons at the discretion of local management.

See Note 21 of our 2017 consolidated financial statements for quantitative disclosure about market risk.

 

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ITEM 12: DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable.

 

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PART II

ITEM 13: DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

Not applicable.

 

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ITEM 14: MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS

AND USE OF PROCEEDS

Not applicable.

 

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ITEM 15: CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Under the supervision and with the participation of the Chief Executive Officer (CEO) and Interim Chief Financial Officer (Interim CFO), the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), has been evaluated as of December 31, 2017. Based on their evaluation of the Company’s disclosure controls and procedures, our CEO and Interim CFO identified a material weakness in our internal control over financial reporting (as further described below), and consequently concluded that our disclosure controls and procedures were not effective as of December 31, 2017.

Management’s Annual Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act), and for the assessment of the effectiveness of internal control over financial reporting. Internal control over financial reporting includes maintaining records that, in reasonable detail, accurately and fairly reflect our transactions; providing reasonable assurance that transactions are recorded as necessary for preparation of our financial statements; providing reasonable assurance that receipts and expenditure of Company assets are made in accordance with management authorization; and providing reasonable assurance that unauthorized acquisition, use or disposition of Company assets that could have a material effect on our financial statements would be prevented or detected on a timely basis. The Company’s internal control over financial reporting is a process designed to provide reasonable, but not absolute, assurance regarding the reliability of financial reporting and the preparation of the consolidated financial statements in accordance with generally accepted accounting principles. Due to its inherent limitations, however, internal control over financial reporting may not prevent or detect misstatements.

In connection with the preparation of the Company’s annual consolidated financial statements, management has undertaken an assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in the “Internal-Control Integrated Framework (2013)”, established by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO Framework).

The Company acquired Vancis B.V., which was renamed InterXion Science Park B.V. following the acquisition thereof on February 24, 2017. Management excluded InterXion Science Park B.V. from its assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2017. InterXion Science Park B.V. accounted for approximately 1.2% of the Company’s consolidated total assets as of December 31, 2017 and approximately 1.3% of the Company’s consolidated revenues as of and for the year ended December 31, 2017.

Based on this assessment, management identified a deficiency in the internal control over financial reporting, that constitutes a material weakness, and therefore concluded that our internal control over financial reporting was not effective as of December 31, 2017. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.

The material weakness identified pertains to a deficiency in the design of internal controls relating to technical accounting of share-based payments. The design of the review controls relating to the complex process of applying IFRS 2 (Share-based Payments) to the Company’s incentive plan award schemes were not sufficiently precise to detect an error in the application of IFRS 2 with respect to the valuation of incentive plan awards. Specifically, incentive plan awards related to performance shares were incorrectly valued on an aggregate basis rather than by treating each vesting of the incentive plan awards as a separate award. This resulted in an incorrect determination of the IFRS 2 grant date for purposes of determining the fair value of such awards and an incorrect application of graded vesting requirements. The incorrect application of graded vesting resulted in the allocation of share-based payment charges to the incorrect periods. Furthermore, the valuation of awards were based on the total incentive plan awards rather than on a separate valuation based on the underlying instruments and failed to take into account the impact of stock appreciation and performance conditions. Consequently, post grant date changes in service and non-market performance conditions were not reflected in the related share-based payments charges. For further information on the impact of this error, see Notes 2 and 29 of our 2017 consolidated financial statements, included elsewhere herein.

The attestation report of KPMG Accountants N.V., an independent registered public accounting firm, on management’s assessment of our internal control over financial reporting is included on page F-3 in this annual report on Form 20-F.

 

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Remediation Efforts to Address Material Weakness

Management has been actively engaged in the development and implementation of a remediation plan to address the foregoing material weakness in internal control over financial reporting. Our remediation plan includes the following measures:

 

    strengthening our existing review process for the complex area of share-based payments by adding additional independent outside specialists to both evaluate the assumptions applied in the calculations of share-based payments and checking our resulting valuations;

 

    conducting a review of the application of IFRS 2 requirements on individual awards each quarter, as opposed to solely conducting the analysis at the time new incentive plans and/or modifications to existing incentive plans are made and/or implemented;

 

    simplifying the wording of our share award plans to reduce the risk of the incorrect application of IFRS 2; and

 

    strengthening our existing control procedures relating to changes in existing share award plans and the forfeitures of share awards by designing and implementing additional controls.

Management continues to assign the highest priority to the prompt remediation of the foregoing material weakness.

Changes in Internal Control Over Financial Reporting

There were no changes that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. As noted above, we are taking remediation efforts in respect of the foregoing material weakness.

 

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ITEM 16A: AUDIT COMMITTEE FINANCIAL EXPERT

The Board of Directors has determined that Rob Ruijter is the Audit Committee financial expert as defined by the SEC and meets the applicable independence requirements of the SEC and the NYSE.

 

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ITEM 16B: CODE OF ETHICS

Our Board of Directors adopted a code of ethics on January 21, 2013, which applies to our principal executive officer, principal financial officer, principal accounting officers, controllers and employees. The code is posted on our website at www.interxion.com.

 

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ITEM 16C: PRINCIPAL ACCOUNTANT FEES AND SERVICES

KPMG Accountants N.V. has served as the Company’s principal accountant for the fiscal years ended December 31, 2017, 2016 and 2015. The fees for audit and other services rendered by KPMG Accountants N.V. or other KPMG network for the fiscal years ended December 31, 2017, 2016 and 2015 are set out below.

 

     Year ended December 31,  
     2017      2016      2015  
     (€’000)  

Audit fees

     1,949        1,569        1,101  

Audit-related fees

     33        111        124  

Tax fees

     —          —          21  

All other fees

     22        16        77  

Total

     2,004        1,696        1,323  

Historical quarterly review fees have been reclassified from ‘Audit related fees’ to ‘Audit fees’.

        

Audit fees include fees billed for audit services rendered for the Company’s annual consolidated financial statements, filed with regulatory organizations and the review of quarterly financial reports. Audit-related fees relate to the service organization control reports, such as SOC 2 and ISAE 3402 reports. Tax fees include fees billed for tax compliance. All other fees consist of fees for all other services not included in any of the other categories noted above.

All the above fees were pre-approved by the Audit Committee.

Audit Committee’s Policies and Procedures

In accordance with the Securities and Exchange Commission rules regarding auditor independence, the Audit Committee has established Policies and Procedures for Audit and Non-Audit Services Provided by an Independent Auditor. The rules apply to the Company and its consolidated subsidiaries that engage any accounting firms for audit services and the auditor who audits the accounts filed with the Securities and Exchange Commission, or the external auditor, for permissible non-audit services.

When engaging the external auditor for permissible non-audit services (audit-related services, tax services, and all other services), pre-approval is obtained before the commencement of the services.

 

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ITEM 16D: EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

Not applicable.

 

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ITEM 16E: PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

None.

 

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ITEM 16F: CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

Not applicable.

 

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ITEM 16G: CORPORATE GOVERNANCE

Many of the corporate governance rules of the NYSE do not apply to the Company as a “foreign private issuer”. Rule 303A.11, however, requires foreign private issuers to describe significant differences between their corporate governance standards and the corporate governance standards applicable to U.S. companies listed on the NYSE. While the Company’s management believes that its corporate governance practices are similar in many respects to those of U.S. NYSE-listed companies and provide investors with protections that are comparable in many respects to those established by the NYSE, there is one key difference that is described below.

Internal Audit Function

Under Section 303A.07 of the NYSE rules, a domestic listed company must have an internal audit function. In 2017, an internal audit function was not in place.

 

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ITEM 16H: MINE SAFETY DISCLOSURE

Not applicable.

 

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PART III

ITEM 17: FINANCIAL STATEMENTS

The Company has responded to Item 18 in lieu of responding to this item.

 

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ITEM 18: FINANCIAL STATEMENTS

Reference is made to pages F-1 through F-65, which are incorporated herein by reference.

 

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ITEM 19: EXHIBITS

The following instruments and documents are included as Exhibits to this annual report.

 

Exhibit

Number

   Description of Document
1.1‡    Articles of Association of InterXion Holding N.V., as amended, dated as of January 20, 2012.
1.2‡    Bylaws of InterXion Holding N.V. dated as of June 8, 2015.
2.1‡    Indenture dated as of July  3, 2013 among InterXion Holding N.V., as Issuer, InterXion Belgium N.V., InterXion Danmark ApS, InterXion Carrier Hotel Limited, InterXion Datacenters B.V., InterXion Deutschland GmbH, Interxion España S.A., InterXion France SAS, InterXion HeadQuarters B.V., InterXion Ireland Limited, InterXion Nederland B.V. and InterXion Operational B.V., as initial guarantors, The Bank of New York Mellon, London Branch, as trustee, principal paying agent and transfer agent, The Bank of New York Mellon (Luxembourg) S.A., as registrar and Luxembourg paying agent and Barclays Bank PLC, as security trustee.
2.2☐    Supplemental Indenture dated as of December  17, 2013 among InterXion Holding N.V., as Issuer, InterXion Sverige AB, as Guaranteeing Entity, InterXion Belgium N.V., InterXion Danmark ApS, InterXion Carrier Hotel Limited, InterXion Datacenters B.V., InterXion Deutschland GmbH, InterXion España S.A., InterXion France SAS, InterXion HeadQuarters B.V., InterXion Ireland Limited, InterXion Nederland B.V. and InterXion Operational B.V., as guarantors and The Bank of New York Mellon, London Branch, as trustee.
2.3☐    Supplemental Indenture dated as of December  22, 2014 among InterXion Holding N.V., as Issuer, InterXion Österreich GmbH, as Guaranteeing Entity, and The Bank of New York Mellon, London Branch, as trustee.
2.4‡    The Intercreditor Agreement dated July  3, 2013, by and among, InterXion Holding N.V., Barclays Bank PLC, as revolving agent, The Bank of New York Mellon, London Branch, as original Senior Secured Notes trustee, the revolving lenders named therein, the original debtors named therein, and Barclays Bank PLC as security trustee.
2.5☐    Amendment Letter to the Intercreditor Agreement dated December  17, 2013, by and among, InterXion Holding N.V., the original debtors and financial institutions as listed in the Intercreditor Agreement, The Bank of New York Mellon, London Branch, as original Senior Secured Notes trustee and Barclays Bank PLC, as original hedge counterparty, revolving agent and security trustee.
4.1☐    Senior Multicurrency Revolving Facility Agreement dated as of June  17, 2013 among InterXion Holding N.V., ABN AMRO Bank N.V., Barclays Bank PLC, Citigroup Global Markets Limited, Credit Suisse AG, London Branch and Bank of America Securities Limited.
4.2‡    Amendment Letter to the Senior Multicurrency Revolving Facility Agreement dated April  9, 2014, by and among, InterXion Holding N.V., and Barclays Bank PLC, as agent.
4.3☐    Amendment Letter to the Senior Multicurrency Revolving Facility Agreement dated July  17, 2014, by and among, InterXion Holding N.V., and Barclays Bank PLC, as agent.
4.4    Amendment Letter to the Senior Multicurrency Revolving Facility Agreement dated September 12, 2016, by and among, InterXion Holding N.V., and Barclays Bank PLC, as agent.
4.5    Amendment Letter to the Senior Multicurrency Revolving Facility Agreement dated July 18, 2017, by and among, InterXion Holding N.V., and Barclays Bank PLC, as agent.
4.6    Amendment Letter to the Senior Multicurrency Revolving Facility Agreement dated February 9, 2018, by and among, InterXion Holding N.V., and Barclays Bank PLC, as agent.
4.7    Amendment Letter to the Senior Multicurrency Revolving Facility Agreement dated April 10, 2018, by and among, InterXion Holding N.V., and Barclays Bank PLC, as agent.
4.8☐    Accession Letter to the Senior Multicurrency Revolving Facility Agreement dated December  17, 2013 among InterXion Holding N.V. and InterXion Sverige AB, as additional guarantor.
4.9☐    Accession Letter to the Senior Multicurrency Revolving Facility Agreement dated December  22, 2014 among InterXion Holding N.V. and InterXion Österreich GmbH, as additional guarantor.
4.10‡    Directors Remuneration Policy of InterXion Holding N.V. dated January 20, 2012.
4.11☐    Management Agreement Managing Director InterXion Holding N.V. dated July 1, 2016.
4.12§    InterXion Holding N.V. 2008 International Stock Option and Incentive Master Award Plan dated January 2008.

 

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Exhibit

Number

   Description of Document
4.13§    InterXion Holding N.V. 2011 International Stock Option and Incentive Master Award Plan dated May 31, 2011.
4.14‡    InterXion Holding N.V. 2013 Amended International Equity Based Incentive Plan dated October 30, 2013.
4.15‡    InterXion Holding N.V. 2013 Amended International Equity Based Incentive Plan dated March 17, 2014.
4.16☐    Deed of Pledge of Shares among InterXion Holding N.V., InterXion Operational B.V. and Barclays Bank PLC dated July 2, 2013.
4.17‡    Senior secured facility agreement dated April  14, 2014 by and among the Company, the guarantors thereunder, ABN AMRO Bank N.V. and Barclays Bank PLC, as lenders thereunder, Barclays Bank PLC, as agent and Barclays Bank PLC as security trustee.
4.18*†    Lease Agreement between InterXion Holding B.V. and GiP Gewerbe im Park GmbH dated January 29, 1999 as amended by Supplement No.  15 to the Lease Agreement dated November 30, 2009.
4.19*†    Lease Agreement between InterXion France Sarl and ICADE dated December 23, 2008.
4.20*†    Lease Agreement between InterXion Nederland B.V. and VastNed Industrial B.V. dated November 4, 2005.
4.21*†    Lease Agreement between InterXion Nederland B.V. and VA No. 1 (Point of Logistics) B.V. dated May 14, 2007.
4.22*†    Lease Agreement between InterXion Carrier Hotel S.L. and Naves y Urbanas Andalucia S.A. dated March  20, 2000 as amended by the Annex to the Lease Agreement dated March 15, 2006.
4.23*†    Lease Agreement among InterXion Holding N.V., InterXion Carrier Hotel Limited and Eliahou Zeloof, Amira Zeloof, Ofer Zeloof and Oren Zeloof dated February 23, 2000.
4.24*†    Lease/Loan Agreement between Alpine Finanz Immobilien AG, InterXion (Schweiz) AG and InterXion Holding N.V. dated March 13, 2009.
4.25☐†    Lease Agreement among InterXion Holding N.V., InterXion Carrier Hotel Limited and Amira Zeloof, Ofer Zeloof and Oren Zeloof dated November 1, 2011.
4.26☐†    Lease Agreement among InterXion Holding N.V., InterXion France Sas and Corpet Louvet Sas dated January 3, 2011.
4.27☐†    Lease Agreement among InterXion Holding N.V., InterXion España, S.A.U and Chainco Investments Company, S.L. dated October  10, 2011.
4.28☐†    Lease Agreement among InterXion España, S.A.U. and Edificios Alsina Sur, S.A. dated February 27, 2012.
4.29☐†    Lease Agreement between InterXion Holding B.V. and GiP Gewerbe im Park GmbH dated January 29, 1999 as amended by Supplement No.  17 to the Lease Agreement dated September 1, 2011.
4.30†    Lease Agreement between InterXion Netherlands B.V. and ProLogis Netherlands VII SarL dated April 15, 2013.
4.31†    Lease Agreement among InterXion España, S.A.U. and Edificios Alsina Sur, S.A. dated June 5, 2013.
4.32†    Lease Agreement between InterXion Deutschland GmbH and Union Investment Real Estate GmbH date August 2, 2013.
4.33‡    Senior Secured Revolving Facility Agreement dated March 9, 2017, by and among, InterXion Holding N.V., the guarantors thereunder, ABN AMRO Bank N.V., Bank of America Merrill Lynch International Limited and Citigroup Global Markets Limited, as lenders thereunder, ABN AMRO Bank N.V., as agent and Barclays Bank PLC, as security trustee.
4.34    Amendment Letter to 2017 Senior Secured Revolving Facility Agreement dated July 18, 2017, by and among, InterXion Holding N.V., and ABN AMRO Bank N.V., as agent.
4.35    Amendment Letter to 2017 Senior Secured Revolving Facility Agreement dated February 9, 2018, by and among, InterXion Holding N.V., and ABN AMRO Bank N.V., as agent.

 

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Exhibit

Number

   Description of Document
4.36§§    InterXion Holding N.V. 2017 Executive Director Long Term Incentive Plan dated May 13, 2017.
4.37‡    Unsecured Subordinated Facility Agreement dated March 16, 2018, by and among, InterXion Holding N.V., ABN AMRO Bank N.V. and Bank of America Merrill Lynch International Limited as arrangers and original lenders thereunder and ABN AMRO Bank N.V. as agent.
12.1    Certification of Chief Executive Officer.
12.2    Certification of Interim Chief Financial Officer.
13.1    Certification of Chief Executive Officer.
13.2    Certification of Interim Chief Financial Officer.
15.1    Consent of KPMG Accountants N.V.

 

Notes:

* Previously filed as an exhibit to InterXion Holding N.V.’s Registration Statement on Form F-1 (File No. 333-171662) filed with the SEC and hereby incorporated by reference to such Registration Statement.
Confidential treatment has been received for certain portions which are omitted in the copy of the exhibit filed with the SEC. The omitted information has been filed separately with the SEC pursuant to an application for confidential treatment.
†† The omitted information has been filed separately with the SEC pursuant to an application for confidential treatment.
Previously filed as an exhibit on Form 6-K (File No. 001-35053) filed with the SEC and hereby incorporated by reference.
§ Previously filed as an exhibit to InterXion Holding N.V.’s Registration Statement on Form S-8 (File No. 333-175099) filed with the SEC and hereby incorporated by reference to such Registration Statement.
§§ Previously filed as an exhibit to InterXion Holding N.V.’s Registration Statement on Form S-8 (File No. 333-218364) filed with the SEC and hereby incorporated by reference to such Registration Statement.
Previously filed as an exhibit on Form 20-F (File No. 001-35053) filed with the SEC and hereby incorporated by reference.

 

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SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

 

  INTERXION HOLDING N.V.
 

 

/s/ David C. Ruberg

  Name:   David C. Ruberg
  Title:   Chief Executive Officer
  Date:   April 30, 2018

 

 

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INDEX TO FINANCIAL STATEMENTS

Audited financial statements of InterXion Holding N.V. as of and for the years ended December 31, 2017, 2016 and 2015

 

Report of Independent Registered Public Accounting Firm

     F-2  

Consolidated Income Statements

     F-4  

Consolidated Statements of Comprehensive Income

     F-4  

Consolidated Statements of Financial Position

     F-5  

Consolidated Statements of Changes in Shareholders’ Equity

     F-6  

Consolidated Statements of Cash Flows

     F-7  

Notes to the 2017 Consolidated Financial Statements