Exodus Files Chapter 11
Company arranges $200 million in debtor financing from GE Capital;
Shares remain halted as NASDAQ seeks additional information

Sept. 27, 2001 -- The Internet data center industry's most-watched turnaround effort ended in bankruptcy court today, as Exodus Communications filed for Chapter 11 protection.
The company's filing was made in the U.S. Bankruptcy Court for the District of Delaware in Wilmington. Exodus said it has arranged $200 million in debtor-in-possession financing from GE Capital, which will be used to fund operating expenses and pay suppliers and employees.
"It is our intent to operate as an independent company," Exodus said in a memo to employees. "We believe this action affords us the ability to do that."
The Santa Clara, Calif.-based web hosting company said it hoped to emerge from bankruptcy with a "more appropriate capital structure." Exodus accumulated more than $3 billion in debt, and was on track to lose at least $500 million this year.
The move had been anticipated in the wake of press reports Tuesday saying a Chapter 11 filing was imminent. Shares of Exodus, which once traded as high as $86, closed Tuesday at 17 cents.
Trading was halted this morning in advance of the company's announcement, and remained halted through the session's close, as NASDAQ officials apparently found the company's press release insufficient.
"Trading will remain halted until Exodus Communications, Inc. has fully satisfied Nasdaq's request for additional information," the exchange said in a statement.
Exodus' news release made no reference to any plans to consolidate staff and data centers, which had figured prominently in media reports Tuesday. Details of the operational impact of the filing on Exodus' 3,000 employees, 4,500 web hosting and managed services customers and 44 data centers were not immediately clear.
The stakes are high for carrier hotel and data center owners, as Exodus operates more than 5.6 million square feet of data center space worldwide, including nine facilities in Silicon Valley, five in the Washington, D.C. area, four apiece in New York and Los Angeles, and three each in Boston and Seattle.
In a letter to customers, Exodus chairman and CEO Bill Krause said the bankruptcy would have "no material impact" on customers and that debtor financing ensured that Internet data centers will continue to operate.
The company told employees to expect additional layoffs, but gave no numbers and said any cuts "will not impact areas related to the operations or service to our customers.
"We believe we're close to the right size, but we will continue to make reductions on the basis of what is in the best interest of the company," Exodus said in a memo to employees.
Krause was appointed earlier this month to succeed longtime chairman and CEO Ellen Hancock. Under Hancock's leadership, the company grew rapidly during the dot-com boom times, but saw its financial condition deteriorate as the Internet and telecom industries slowed dramatically.
"We sacrificed profitability in exchange for growth and market share, over-expanding in some areas in advance of demand, not anticipating the decline as the dot.com bubble burst and the economy weakened,'' Krause said.
"Exodus is a viable business in a growing market." he added. "We intend to emerge from the restructuring process with a more appropriate capital structure, sufficient cash to fund on-going operations and the ability to access additional capital if needed to fund new growth initiatives.
The bankruptcy filing is likely to accelerate efforts by competing providers to attract Exodus customers who may be anxious about the company's financial stability. Managed hosting provider Loudcloud today announced a "migration program" for customers switching from other providers. Conxion and WorldCom recently announced similar marketing initiatives.
The Santa Clara, Calif.-based company has been a leader in managed hosting with an enviable stable of large corporate "enterprise" customers, which represented 63 percent of Exodus' recurring revenue.
In the memo to Exodus employees, Krause said an employee retention program was being developed, and drew upon recent news events as a rallying point for the company.
"Over these past few weeks we have had to deal with an incredible set of events from a national tragedy to facing up to the financial challenges of Exodus," Krause wrote to employees. "Our President has asked us to get back to work and we will. The best way for us to contribute to restoring our nation is to restore Exodus to the success to which we all aspire."