Equinix
Annual Report 2000

Plain-text annual report

-------------------------------------------------------------------------------------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2000 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 000-31293 ---------------- EQUINIX, INC. (Exact name of registrant as specified in its charter) Delaware 77-0487526(State of incorporation) (IRS Employer Identification No.) 2450 Bayshore Parkway, Mountain View, California 94043 (Address of principal executive offices, including ZIP code) (650) 316-6000 (Registrant's telephone number, including area code) ---------------- Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.001 ---------------- Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days. Yes [X] No [_] Indicate by check mark if disclosure of delinquent filers pursuant to Item405 of Regulation S-K is not contained herein, and will not be contained, tothe best of registrant's knowledge, in definitive proxy or informationstatements incorporated by reference in Part III of this Form 10-K or anyamendment to this Form 10-K. [_] The aggregate market value of voting common stock held by non-affiliates ofthe registrant as of February 28, 2001 was approximately $260.1 million.Shares of common stock held by each officer and director have been excluded inthat such persons may be deemed to be affiliates. This determination ofaffiliate status is not necessarily a conclusive determination for otherpurposes. As of February 28, 2001, a total of 77,099,198 shares of the registrant'scommon stock were outstanding. DOCUMENTS INCORPORATED BY REFERENCE Part III--Portions of the registrant's definitive Proxy Statement to beissued in conjunction with the registrant's Annual Meeting of Stockholders tobe held on June 1, 2001. Except as expressly incorporated by reference, theregistrant's Proxy Statement shall not be deemed to be a part of this reporton Form 10-K. -------------------------------------------------------------------------------------------------------------------------------------------------------------- EQUINIX, INC. FORM 10-K DECEMBER 31, 2000 TABLE OF CONTENTS Item Page No. ---- -------- PART I 1. Business...................................................... 3 2. Properties.................................................... 20 3. Legal Proceedings............................................. 20 4. Submission of Matters to a Vote of Security Holders........... 20 PART II Market for Registrant's Common Equity and Related Stockholder 5. Matters....................................................... 21 6. Selected Financial Data....................................... 22 Management's Discussion and Analysis of Financial Condition 7. and Results of Operations..................................... 23 7A. Quantitative and Qualitative Disclosures About Market Risk.... 29 8. Financial Statements and Supplementary Data................... 30 Changes in and Disagreements with Accountants on Accounting 9. and Financial Disclosure...................................... 30 PART III 10. Directors and Executive Officers of the Registrant............ 31 11. Executive Compensation........................................ 31 Security Ownership of Certain Beneficial Owners and 12. Management.................................................... 31 13. Related Party Transactions.................................... 31 PART IV Exhibits, Financial Statement Schedule, and Reports on Form 8- 14. K............................................................. 32 Signatures.................................................... 35 2 PART I ITEM 1. BUSINESS All statements in this discussion that are not historical are forward-looking statements within the meaning of Section 21E of the Securities ExchangeAct, including statements regarding the Equinix's "expectations", "beliefs","hopes", "intentions", "strategies" or the like. Such statements are based onmanagement's current expectations and are subject to a number of factors anduncertainties that could cause actual results to differ materially from thosedescribed in the forward-looking statements. Equinix cautions investors thatthere can be no assurance that actual results or business conditions will notdiffer materially from those projected or suggested in such forward-lookingstatements as a result of various factors, including, but not limited to, therisk factors discussed in this Annual Report on Form 10-K. Equinix expresslydisclaims any obligation or undertaking to release publicly any updates orrevisions to any forward-looking statements contained herein to reflect anychange in Equinix's expectations with regard thereto or any change in events,conditions, or circumstances on which any such statements are based. Overview Equinix designs, builds and operates neutral IBX centers where enterprisesand Internet businesses place their equipment and their network facilities inorder to interconnect with each other to grow their businesses and to improveInternet performance. Our neutral IBX centers place our customers' operationsat a central location and provide them with the highest level of security,multiple back-up services, flexibility to grow and technical assistance. Ourneutral IBX centers provide enterprises, content providers, ASPs and e-commercecompanies with the ability to directly interconnect with a competitive choiceof bandwidth providers, ISPs, site management companies and contentdistribution companies. Each IBX center provides access to multiple bandwidthproviders and ISPs, including UUNET/Worldcom, AT&T, Excite@Home, Qwest,Williams, InterNAP, Verio, Global Crossing, Cable & Wireless and Level 3, whichcurrently serve over 85% of the world's Internet networks. Equinix IBX centersenable enterprises and Internet companies to quickly, easily and privatelyinterconnect with a choice of business partners and customers as well asaggregate services in order to provide them with the flexibility, speed andscalability they need to accelerate business growth in a more cost effectiveway. Equinix currently has IBX centers in the Washington, D.C., New York, Dallas,Chicago, Los Angeles and Silicon Valley areas. We intend to completeconstruction of an additional IBX center in the New York area in 2001,resulting in a total of seven IBX centers in the U.S. We were incorporated in Delaware in June 1998. Market Opportunity Since the early 1990s, the Internet has experienced tremendous growth and isemerging as a global medium for communications and commerce. According toInternational Data Corporation, worldwide Internet commerce is forecast to growfrom approximately $50 billion at the end of 1998 to approximately $2.6trillion by the end of 2004. In addition, Forrester Research shows WorldwideNet commerce, both business-to-business and business-to-consumer, growing from$657 billion in 2000 to $6.8 trillion in 2004. Cahners In-Stat Group estimatesthat large and mid-sized businesses invested $49 billion in Internet-enablingtechnologies in 2000 which figure will nearly double to $110 billion in 2004.  As a result of competitive pressures, enterprises and Internet businessesare demanding facilities that provide multiple interconnections with a broadcross-section of product and service providers and customers. The tremendousgrowth of Internet usage and e-commerce has aggravated the inefficiencies ofthe current Internet architecture, which has constrained businesses' abilitiesto effectively grow and manage their Internet operations. As the Internet andInternet businesses experienced significant growth and demand, contentproviders emerged and enterprise companies expanded to leverage this growth.Vertically integrated hosting providers then evolved to serve these contentproviders and enterprise companies. Until now, enterprises and Internetbusinesses have had to rely on these vertically integrated hosting providersfor the 3 distribution of content and delivery of services between thousands ofindividual networks. Internet and Internet businesses that choose to colocateequipment at these facilities typically have no choice but to purchasebandwidth, typically known as the rate at which data flows over a network andmeasured in bits per second, from the owner of the facility. This can becostly, given the lack of competition, and a significant risk if the facilityowner's network were to fail or have performance problems. As content becomes more critical, the choice of suppliers and directinterconnection become increasingly important. International Data Corporationpredicts that a combination of rapid Internet growth and increased outsourcingof Internet-related services will create an acute need for Internet-relatedhosting and colocation services, producing U.S. revenue growth fromapproximately $4.0 billion in the year 2000 to over $24.8 billion by 2004. The Equinix Solution Equinix IBX centers provide the environment and services to meet thechallenges facing enterprises and Internet businesses today. Our centersprovide a free market environment where choice stimulates efficient businessgrowth. Because enterprises and Internet companies have a broad choice ofproduct and service providers, they can cost-effectively and reliably managetheir web operations, increase their service offerings, deliver services moreefficiently and have access to a larger potential customer base. As a result,we are able to provide the following key benefits to our customers: Choice. We believe that the ability of customers to choose among a varietyof product and service providers is the fundamental driver of dynamic growth incommerce. By offering this crucial element of choice, our IBX centers aredesigned to serve as a catalyst for our customers that creates synergy amongthem and makes it possible for them to adapt their business models tosuccessfully scale, or keep pace, with the growth of each other and of theInternet. Enterprises and Internet businesses view the IBX center as a forum toattract additional customers and diversify sources of supply for theirbusinesses. Opportunity to Increase Revenues and Reduce Costs. Our customers have accessto a variety of potential business partners. Accordingly, our customers have abetter opportunity to increase the size of their addressable markets,accelerate revenue growth and improve the quality of their services at our IBXcenters. In addition, participants are able to enhance their ability to controlcosts by aggregating their service purchases at a single location and throughimproved purchasing power. Scalability. Our IBX centers both stimulate and support the efficient growthof our customers. From a facility perspective, we construct our IBX centers tobe large enough to accommodate our customers' short- term needs, and our planis to maintain sufficient available expansion space to meet their long-termgrowth needs where possible. On an individual basis, customers are able todesign their own unique cabinet configurations within a shared or private cageenvironment. As the need arises, customers can expand within their originalcage or upgrade into a cage that meets their expanded requirements. Reliability. Our IBX design provides our customers with reliable anddisaster-resistant environments that are necessary for optimum Internetcommerce interconnection. We believe that the level of excellence andconsistency achieved in our IBX architecture and design results in premium,secure, fault-tolerant exchanges. Our IBX centers are designed to offer ourcustomers redundant, high-bandwidth Internet connectivity through multiplethird-party connections. Additionally, our solutions include multiple layers ofphysical security, scalable cabinet space availability, on- site trained staff24 hours per day, 365 days per year, dedicated areas for customer care andequipment staging, redundant AC/DC power systems and multiple other redundant,fault-tolerant infrastructure systems. Equinix Strategy Our objective is to provide enterprises, content providers, ASPs and e-commerce companies with the ability to directly interconnect with a choice ofbandwidth providers, ISPs, site management companies and 4 content distribution companies to grow their business. Equinix IBX centersenable enterprises and Internet companies to quickly, easily and privatelyinterconnect with a choice of business partners and customers, providing themwith the flexibility, speed and adaptability they need to accelerate businessgrowth and to allow a faster, more reliable Internet. To accomplish thisobjective we are employing the following strategies: Provide Customer Choice. We provide our customers with the freedom to choosetheir preferred product and service providers. We call this a neutralenvironment and it is one of the fundamental characteristics of an IBX center.We believe this is a significantly improved approach compared with the currentInternet model because it offers customers increased value and reliabilitybased on the availability of multiple providers of needed services. Intraditional colocation or Web hosting environments, customers are often limitedto a single choice of bandwidth provider, ISP, site management company, orperformance management company. This limited choice can lead to single pointsof failure for customers or a limited number of options to choose from forvalue added services. The Equinix model of choice gives customers a wide rangeof providers to choose from for each of the services they require for increasedInternet performance and reliability. For instance, in each IBX centercustomers can choose from multiple bandwidth providers, ISPs and Web managementcompanies. The ability to choose whom they work with directly leads to betterInternet business performance due to the increased diversity and an improvedoverall total cost of ownership since these suppliers are competing for thecustomers' business within the IBX center. Our customers will benefit from anopen environment that stimulates efficient business growth through acceleratednetwork economics, or the value derived by a provider at an IBX center frombeing able to sell its services to a locally-aggregated set of customers,created by the efficient and rapidly growing interaction between Internetbusinesses. Manage Choice to Create Network Effect. To attract the widest choice ofInternet partners, it is important to provide a robust mix of leading companiesfrom a variety of businesses and services. This allows enterprises, contentproviders, e- commerce companies and ASPs the opportunity to interconnect witha wide variety of companies. As a result of the IBX interconnection model, IBXparticipants encourage their customers, suppliers and business partners to alsocome into the IBX center. These customers, suppliers and business partners mayalso, in turn, encourage their business partners to locate in IBX centersresulting in additional customer growth. For example, a large financial sitethat chooses to locate in an Equinix IBX centers may encourage a bandwidthprovider, a site management company or another content partner, like afinancial news service, to also locate in the same IBX. In turn, thesebandwidth providers or content partners will also bring their business partnersto the IBX center. This network effect enhances the value of an IBX center witheach new customer as interconnections provide monthly recurring revenues. Leverage IBX Centers as Hubs for Internet Exchange. The Equinix IBX model ofnetwork aggregation and choice provides a platform for offering new servicesbeyond those offered by traditional hosting or colocation companies. Equinixprovides customers with direct access to the bandwidth providers and ISPs thatcurrently serve over 85% of the world's Internet networks. This critical massof leading networks that we have assembled across all of our IBX centersuniquely positions Equinix to offer Internet exchange services that areimportant to the scaling and growing of the Internet, such as content peeringand traffic exchange. Equinix will continue to leverage IBX centers as hubs forInternet exchange, extending our model of direct interconnections with newexchange-based services designed to allow faster and more reliable exchange oftraffic. Leverage Strategically Scalable Centers. The network effect created by theEquinix IBX model requires strategic scalability to support the dynamic IBXgrowth environment. Our expansion plans are designed to meet the growth of ourcustomers. Our IBX centers will both stimulate and support the efficient growthof our customers. From a facility perspective, we construct our IBX centers tobe large enough to accommodate our customers' short- term needs, and our planis to maintain sufficient available expansion space to meet their long-termgrowth needs where possible. Expand Globally and Capitalize on First-Mover Advantage. We believe thatcapitalizing on our first mover advantage is essential to establishingleadership in the rapidly developing neutral Internet business exchange market.As a result, we currently plan to open additional IBX centers in the UnitedStates and 5 internationally. We believe the demand for our international IBX centers andservices will be significant due to the early stage of Internet infrastructuredeployment outside of the U.S. Establish Equinix as the Highest Performance Points on the Internet. We planto establish Equinix as the industry standard for the highest quality businessto business Internet exchanges. Through brand awareness and promotion we intendto create a strong following among all top content providers, ASPs and e-commerce companies. We believe that this strong brand awareness, combined withour ability to provide the highest quality business to business marketplacefacilities and professional services will provide us with a competitiveadvantage in our market. Customers Customers typically sign renewable contracts of two or more years in length,often with options on additional space. In addition to bandwidth providers suchas UUNET/Worldcom, AT&T, Excite@Home, Qwest, Williams, InterNAP, Verio, GlobalCrossing, Cable & Wireless and Level 3, our customers include IBM, Loudcloudand Storage Networks. Additionally, approximately 42% of our participant basehave signed multi-site contracts. Historically, Internet businesses have been vertically integrated andprovided all services directly to their customers. These services typicallyincluded marketing, access and Internet backbone connectivity, server hosting,and other services such as e-mail and Usenet newsgroups. Continued rapidgrowth, innovation, competition and scarce human resources have opened the doorfor companies to specialize in core Internet services and outsource otherelements of their business or product to suppliers. These specialized playersinclude: . Enterprises, content providers and e-commerce companies supplying information, education or entertainment content and conducting the sale of goods and services; . ASPs offering hosted applications over the Internet; . ISPs and content distribution companies offering end-users Internet access and content distribution network services and customer support; . bandwidth providers (telecommunications carriers); and . site management companies which integrate and manage a customer's end-to- end web presence and performance. We consider these companies to be the core of our customer base and we offereach customer a choice of business partners and solutions that are designed tomeet their unique and changing needs. We believe our IBX centers provide choice and neutrality that are importantto companies interested in the growth and reliability of the Internet. Equinixoffers choice within each customer segment. We believe most enterprises andInternet companies benefit from the choice of a wide variety of Internetbusiness partners because their business interaction is greatly enhanced, whichin turn can translate to new revenue sources, greater efficiency and growth. We believe the additional benefits to all customer segments include: . Expedited service delivery . Scalable, flexible, fault-tolerant environment . Cost savings through aggregating purchases and sales at a single location . Minimize packet loss and latency, or time that elapses between a request for information and its arrival . Ability to focus on core competencies 6 . Centralized market with access to dozens of potential customers and partners . Proximity to service providers reduces operations, technology and marketing costs, quickens service deployment, and improves performance . Multiple layers of physical security . Elimination of capital investment for facilities . On-site Internet and telecommunications-trained staff 24 hours per day, 365 days per year We believe our IBX centers offer the following additional benefits to ourcustomers: Type of Customer: Benefits: ----------------- --------- Enterprises, Content Providers, ASPs and . Direct interconnection with a choice of E-Commerce Companies multiple bandwidth providers, Internet service providers, site management and content distribution companies. Choice gives participants the ability to decide which suppliers are the most cost- effective and provide the level of service they require. The benefits to enterprises, content providers, ASPs and e-commerce companies include maximized Web presence, increased revenue streams, greater security and increased customer satisfaction. satisfaction. . Simplified outsourcing of various component services including DSL, e-mail, Usenet and content distribution. . Content providers benefit from direct peering, or traffic exchange, with ISPs over private high-speed dedicated interconnections or via a gigabit switching fabric. Internet Service Providers and Content . Direct peering, or traffic exchange, with Distribution Companies other ISPs over private high-speed dedicated interconnections or via a gigabit switching fabric. . Simplified outsourcing of various component services including DSL, e-mail, Usenet and content distribution. . Expedited, flexible, scalable and cost- efficient bandwidth provisioning Bandwidth Providers (Carriers) . Economies of scale with reduced capital costs. . Centralized market with access to dozens of potential customers. Site Management Companies . Direct interconnection with a choice of multiple bandwidth providers, ISPs and other service providers. Choice gives site management companies the ability to decide which suppliers are the most cost- effective and provide the level of service they require. . Centralized market with access to dozens of potential customers. 7 Services Within our IBX centers, customers can place their equipment and interconnectwith a choice of Internet companies. Equinix also provides customized solutionsfor customers looking to resell IBX space component as part of their complete,one-stop shop solution. Cabinets. Customers have several choices for colocating their equipment.They can place the equipment in an Equinix shared or private cage or customizetheir space to build their own data center within an IBX center. Cabinets are84 inches high, suitable for networking and server colocation. Cable trayssupport cables between and among cabinets. Stationary or slide shelves andenclosed cabinets are available upon request. As a customer's colocationrequirements increase, they can expand within their original cage or upgradeinto a cage that meets their expanded requirements. Shared Cages. A shared cage environment is designed for customers needing less than five full cabinets to house their equipment. Each cabinet in a shared cage is individually secured with an advanced trackable electronic locking system and the cage itself is secured with the biometric hand-geometry system. Private Cages. Customers that contract for a minimum of five full cabinets can use a private cage to house their equipment. Private cages are also available in larger full cabinet sizes. Each private cage is individually secured with the biometric hand-geometry system. Outsourced Data Centers. Customers interested in providing a hosting serviceor colocation center have the option of outsourcing the design, constructionand management of the physical facility to Equinix. Each customer can customizethe cabinet configuration within the space they purchase from Equinix in orderto satisfy their specific customers' needs. IBXflex. This service allows customers to deploy mission-critical operationspersonnel and equipment on-site at IBX centers. Because of the close proximityto their end-users, IBXflex customers can offer a faster response and quickertroubleshooting than available in traditional colocation facilities. Interconnection Physical Cross-Connect/Direct Interconnections. Customers needing todirectly connect to another IBX customer can do so for a set price. Thesedirect connections are Any Mode Any Speed, which means they can include single-mode fiber, multi-mode fiber, and other media upon request, as well as handleany speed required by the customer. These cross connections are customized andterminated per customer instructions and may be implemented within 24 hours ofrequest. Equinix Exchange. Customers may choose to connect to our Equinix Exchangecentral switching fabric rather than purchase a direct physical crossconnection. With a connection to this switch, a customer can aggregate multipleinterconnects over one physical connection instead of purchasing individualphysical cross connects. Value-Added Services Our IBX centers are staffed with Internet and telecommunications specialistswho are on-site and available 24 hours per day, 365 days per year. Theseprofessionals are trained to perform installations of customer equipment andcross connections. "Smart Hands" Services. Our customers can take advantage of our professional"Smart Hands" service, which gives customers access to our IBX staff for avariety of tasks, when their own staff is not on site. These tasks may includeequipment installation, power cycling, card swapping, and performing emergencyequipment replacement. Services are available on-demand or by customercontract. 8 Equinix MATRIX Services. MATRIX is a service designed to facilitatetransactions between IBX participants for faster service provisioning and timeto market advantages. The service combines a browser-based automated systemwith dedicated staff to provide a single mechanism to improve the efficiency,scalability and economics of buying and selling Internet infrastructureservices. IBX Design and Staffing Our IBX centers are designed to provide a state-of-the-art, secure, full-service, neutral operating environment. The IBX centers are designed to providespecific and compelling improvements over legacy facilities, includingscalability to meet our customer's ongoing growth, improved security,redundancy of all key infrastructure systems and improved customer care. An IBXcenter is divided into six basic functional areas--access, customer care,colocation, telecommunications access, mechanical and power systems andoperations. Access Area. The access area includes a bullet-resistant guard booth, awelcome area, a hand-geometry enrollment station, and a mantrap to furthercontrol access to the IBX center. All doors and access ways are secured withbiometric hand-geometry readers to ensure absolute identification andauthentication. All customers and Equinix employees entering an Equinix IBXcenter must be cleared through this secured zone. Customer Care Area. The customer care area includes a seating section,conference rooms, Internet workstations, customer equipment preparation workareas, equipment lockers, a game room, bathrooms, showers and a kitchen. Colocation Area. The colocation area is divided into large cages to housenetworking and customer computer equipment that is secured by biometricsecurity access systems. This area includes dual independent AC and DC powerdistribution systems, full-automated CCTV digital camera security surveillance,and a tamper-proof overhead cable-management system with separate trays forfiber and copper data and AC and DC power cables. Secured access to thecolocation area is through the customer care area. Telecommunications Access Area. All IBX centers will have a minimum of twodedicated fiber entry vaults for telecommunications carrier access to thecolocation area. In addition, every IBX center has roof space or a separateplatform for customers who access the IBX center via wireless devices such assatellite dishes, radio antennae and microwave. Mechanical and Power Systems Area. The mechanical and power systems areaincludes machine rooms and space used to house all mechanical, power safety andsecurity equipment. Fully redundant heating, ventilation, air conditioning andpower systems, as well as dual electric utility feeds, support the IBX center.Power systems are designed and periodically tested to transparently handlerapid transition from public utility power to back-up power. The ACuninterruptable power supply and DC battery systems are configured to operate afully occupied IBX center for a minimum of fifteen minutes. If there is autility power failure, the on-site generator system could be brought on-line inless than eight seconds through an automatic transfer switch to supplyseamless, uninterrupted power to the IBX center. The emergency generators,located in a specially equipped area, supply power to the AC and DC systems.On-site fuel tanks store sufficient fuel to power a fully occupied IBX centerfor a minimum of 48 hours. Operations Area. The operations area houses the IBX manager's office, anoperations center for staff technicians and office space for visiting Equinixemployees. It includes consoles for monitoring all IBX environmental systemsand for tracking all activities at the IBX center. In selected IBX centers,this area will house regional operations centers that will monitor theoperations of several IBX centers. Additional Specifications Security System. All access controls and other security functions areconnected to a central security computer system that controls access to theinterior and exterior perimeters of the IBX centers. A security 9 guard located behind the bullet-resistant security console controls access tothe colocation area. The caged sections of the colocation area can only beaccessed through hand-geometry readers located on cage doors. Digital camerasconnected to a central system at the security console monitor and record allactivity within the IBX center, as well as the perimeter and the roof. Staffing. A typical IBX center staff includes by one IBX manager, a chiefengineer, a warehouse coordinator and eight technical service personnel whoprovide coverage for customer support needs 24 hours per day, 365 days peryear. In addition, an IBX center has security guards on duty at all times and24-hour technical support. Other. For security purposes, an Equinix IBX center is anonymous. Noindications of center ownership or function are visible from the exterior. Inaddition, there are no raised floors and all walls are airtight and withoutwindows. Our IBX centers are designed with advanced fire suppression systemswhich are armed with sensory mechanisms to sample the air and raise alarmsbefore pressurization or release. Finally, Equinix IBX centers are built incompliance with location-dependent seismic standards. IBX Rollout Schedule The objective of our rollout strategy is to rapidly establish a leadershipposition in the mission critical Internet infrastructure services and exchangemarket. Equinix currently has IBX centers in the Washington, D.C. New York, Dallas,Chicago, Los Angeles metropolitan areas and in Silicon Valley. We intend tocomplete construction of one additional IBX center in 2001, resulting in atotal of seven IBX centers in the U.S. The scalable nature of our IBX modelenables us to be flexible in response to changing market opportunities. As aresult, the timing and placement of our IBX centers will vary depending onnumerous factors, including customer need and technological and otherdevelopments. Sales and Marketing Sales We use a direct sales force to market our services to Internet and e-commerce related businesses. We are organizing our sales force by customersegments as well as establishing a sales presence in diverse geographicregions, which will enable efficient servicing of the customer base from anetwork of regional offices. A regional office is comprised of a manager, salesrepresentatives and technical support personnel. In addition, our sales teamwill work closely with each customer to foster the natural network effect ofour IBX model, resulting in access to a wider potential customer base via ourexisting customers. As a result of the IBX interconnection model, IBXparticipants encourage their customers, suppliers and business partners to alsocome into the IBX. These customers, suppliers and business partners also, inturn, encourage their business partners to locate in IBX centers resulting inadditional customer growth. This network effect significantly reduces Equinix'scustomer acquisition costs. Before opening an IBX center, we secure key anchor customers and focus ongenerating sales commitments for between at least 10% to 20% of the availablecapacity. Our sales strategy is to target the top 25 companies in our customersegments, which include enterprises, content providers, ASPs, e-commercecompanies, carriers, ISPs and site and performance management companies.Momentum in the selling process and the presence of anchor customers areimportant to attracting additional potential customers who see the IBX centeras an opportunity to generate new customers and revenues, as well as highperformance points for efficient and reliable web operations. We expect asubstantial number of customers to contract for services at multiple IBXcenters and have already received orders from such customers. At each IBXcenter, our sales representatives will screen prospective customers and willmanage the population of the IBX center to ensure an appropriate mix ofcustomer types. 10 Marketing To support our sales effort and to actively promote and solidify the Equinixbrand, we plan to conduct comprehensive marketing programs. Our marketingstrategies will include an active public relations campaign, printadvertisements, online advertisements, trade shows, speaking engagements,strategic partnerships and on-going customer communications programs. We arefocusing our marketing effort on business and trade publications, online mediaoutlets, industry events and sponsored activities. We participate in a varietyof Internet, computer and financial industry conferences and encourage ourofficers and employees to pursue speaking engagements at these conferences. Inaddition to these activities, we intend to build recognition through sponsoringor leading industry technical forums and participating in Internet industrystandard-setting bodies. Competition  Our market is new, rapidly evolving, and likely to have an increasing numberof competitors. To be successful in this emerging market, we must be able tosufficiently differentiate our IBX model from traditional colocation and webhosting companies. We may also face competition from persons seeking toreplicate our IBX concept. We may not be successful in differentiatingourselves or achieving widespread market acceptance of our business.Furthermore, enterprises that have already invested substantial resources inpeering arrangements may be reluctant or slow to adopt our approach that mayreplace, limit or compete with their existing systems. If we are unable tocomplete our IBX centers in a timely manner, other companies will be able toattract the same customers that we are targeting. Once the customers arelocated in our competitors' facilities, it will be very difficult, if notimpossible, to convince them to relocate to our IBX centers. We may encounter competition from a number of sources, some of which mayalso be our customers, including: . vertically integrated Web site hosting, colocation and ISP companies such as AboveNet, Exodus and Globix; . established communications carriers such as AT&T, Level 3, WorldCom and Qwest; and . emerging colocation service providers such as Colo.com, InterNAP, and Telehouse. Potential competitors may bundle their products or incorporate colocationservices in a manner that is more attractive to our potential customers thanpurchasing cabinet space in our IBX centers and utilizing our services.Furthermore, new competitors or alliances among competitors may emerge andrapidly acquire significant market share. Our competitors may be able torespond more quickly to new or emerging technologies and changes in customerrequirements than we can. Some of our potential competitors have longer operating histories andsignificantly greater financial, technical, marketing and other resources thanwe do. In particular, carriers and several hosting and colocation companieshave extensive customer bases and broad customer relationships that they canleverage, including relationships with many of our potential customers. Thesecompanies also have significantly greater customer support and professionalservice capabilities than we do. Because of their greater financial resources,some of these companies have the ability to adopt aggressive pricing policies.As a result, in the future we may have to adopt pricing strategies that competewith such competitors to attract and retain customers. Any such pricingpressures would adversely affect our ability to generate revenues. Employees As of December 31, 2000, we had 316 employees and 56 full-time consultants.We had 211 employees based at our corporate headquarters in Mountain View,California and our regional sales offices in New York, NY and Reston, VA. Ofthose employees, 103 were in engineering and operations, 64 were in sales andmarketing and 44 were in management and finance. We had 4 employees based inEurope. The remaining 101 employees were based at our Washington, D.C., NewYork, NY, Los Angeles, CA, Dallas, TX, Chicago, IL and Silicon Valley IBXcenters. 11 RISK FACTORS In addition to the other information in this report, the following riskfactors should be considered carefully in evaluating our business and us: Risks Related to Our Business Our business model is new and unproven and we may not succeed in generatingsufficient revenue to sustain or grow our business. We were founded in June 1998. We did not recognize any revenue untilNovember 1999. Our limited history and lack of meaningful financial oroperating data makes evaluating our operations and the proposed scale of ourbusiness difficult. Moreover, the neutrality aspect of our business model isunique and largely unproven. We expect that we will encounter challenges anddifficulties frequently experienced by early-stage companies in new and rapidlyevolving markets, such as our ability to generate cash flow, hire, train andretain sufficient operational and technical talent, and implement our plan withminimal delays. We may not successfully address any or all of these challengesand the failure to do so would seriously harm our business plan and operatingresults, and affect our ability to raise additional funds. We have a history of losses, and we expect our operating expenses and losses toincrease significantly. As an early-stage company, we have experienced operating losses sinceinception. As of December 31, 2000, we had cumulative net losses of $141.6million and cumulative cash used in operating activities of $78.8 million sinceinception. We expect to incur significant losses on a quarterly and annualbasis in the foreseeable future. Our losses will increase as we: . increase the number and size of IBX centers; . increase our sales and marketing activities, including expanding our direct sales force; and . enlarge our customer support and professional services organizations. In addition, we may also use significant amounts of cash and equity toacquire complementary businesses, products, services and technologies, whichcould further increase our expenses and losses. We expect our operating results to fluctuate. We have experienced fluctuations in our results of operations on a quarterlyand annual basis. We expect to experience significant fluctuations in theforeseeable future due to a variety of factors, many of which are outside ofour control, including: . the timely completion of our IBX centers; . demand for space and services at our IBX centers; . our pricing policies and the pricing policies of our competitors; . the timing of customer installations and related payments; . customer retention and satisfaction; . the provision of customer discounts and credits; . competition in our markets; . the timing and magnitude of capital expenditures and expenses related to the expansion of sales, marketing, operations and acquisitions, if any, of complementary businesses and assets; . the cost and availability of adequate public utilities, including power; 12 . growth of Internet use; . governmental regulation;  . conditions related to international operations; . economic conditions specific to the Internet industry; and . general economic factors. In addition, a relatively large portion of our expenses are fixed in theshort-term, particularly with respect to real estate and personnel expenses,depreciation and amortization, and interest expenses. Therefore, our results ofoperations are particularly sensitive to fluctuations in revenues. Because our ability to generate enough revenues to achieve profitabilitydepends on numerous factors, we may not become profitable. Our IBX centers may not generate sufficient revenue to achieveprofitability. Our ability to generate sufficient revenues to achieveprofitability will depend on a number of factors, including: . the timely completion of our IBX centers; . demand for space and services at our IBX centers; . our pricing policies and the pricing policies of our competitors; . the timing of customer installations and related payments; . customer retention and satisfaction; . the provision of customer discounts and credits; . competition in our markets; . growth of Internet use; . governmental regulation; . conditions related to international operations; . economic conditions specific to the Internet industry; and . general economic factors. Although we have experienced significant growth in revenues in recentquarters, this growth rate is not necessarily indicative of future operatingresults. It is possible that we may never achieve profitability on a quarterlyor annual basis. We are substantially leveraged and we may not generate sufficient cash flow tomeet our debt service and working capital requirements. We are highly leveraged. As of December 31, 2000, we had total indebtednessof $210.9 million consisting primarily of the following: . our 13% senior notes due 2007; and . outstanding debt facilities and capital lease obligations. We expect to incur further debt to fund our IBX construction plans andoperating losses. Our highly leveraged position could have importantconsequences, including: . impairing our ability to obtain additional financing for working capital, capital expenditures, acquisitions or general corporate purposes; 13 . requiring us to dedicate a substantial portion of our operating cash flow to paying principal and interest on our indebtedness, thereby reducing the funds available for operations; . limiting our ability to grow and make capital expenditures due to the financial covenants contained in our debt arrangements; . impairing our ability to adjust rapidly to changing market conditions, invest in new or developing technologies, or take advantage of significant business opportunities that may arise; and . making us more vulnerable if a general economic downturn occurs or if our business experiences difficulties. In the past, we have experienced unforeseen delays and expenses inconnection with our IBX construction activities. We will need to successfullyimplement our business strategy on a timely basis to meet our debt service andworking capital needs. We may not successfully implement our business strategy,and even if we do, we may not realize the anticipated results of our strategyor generate sufficient operating cash flow to meet our debt service obligationsand working capital needs. In the event our cash flow is inadequate to meet our obligations, we couldface substantial liquidity problems. If we are unable to generate sufficientcash flow or otherwise obtain funds needed to make required payments underindebtedness, or if we breach any covenants under this indebtedness, we wouldbe in default under its terms and the holders of such indebtedness may be ableto accelerate the maturity of such indebtedness, which could cause defaultsunder our other indebtedness. Our ability to draw down additional funds from our senior secured creditfacilities is dependent on our maintaining specific financial ratios andcomplying with covenants in the credit agreement. Our senior secured credit facilities contain financial ratios and covenantsthat must be complied with in order for us to draw down the full amount of thefacilities. These ratios and covenants include minimum quarterly revenuerequirements, maximum EBITDA losses, maximum capital expenditures and maximumdebt to capital ratios. If we are unable to maintain these ratios or complywith these covenants, we will not be able to draw down additional funds fromthe senior secured credit facilities. If we are not able to draw down the fullamount of the senior secured credit facility, we may not be able to meet someof our spending needs and this could harm our business. We are subject to restrictive covenants in our credit agreements that limit ourflexibility in managing our business. Our credit agreements contain numerous restrictions on our ability to incurdebt, pay dividends or make other restricted payments, sell assets, enter intoaffiliate transactions and take other actions. Furthermore, our existingfinancing arrangements are, and future financing arrangements are likely to be,secured by substantially all of our assets. The existing financing arrangementsrequire, and future financing arrangements are likely to require, that wemaintain specific financial ratios and comply with covenants restricting ourability to incur additional debt, specifically including additional debt underthe senior secured credit facilities, pay dividends or make other restrictedpayments, sell assets, enter into affiliate transactions or take other actions. In addition, we are restricted in how we use funds raised in our debtfinancings. As a result, from time to time we may not be able to meet some ofour spending needs and this could harm our business. The success of our business depends on the overall demand for data center spaceand services and internet infrastructure services. Our success depends on the growth of overall demand for data centerservices. In addition, a large percentage of our revenues are and will in thefuture be derived from companies providing internet  14 infrastructure services, such as web hosting companies, managed serviceproviders, storage service providers and performance enhancers. A softening ofdemand for data center services or internet infrastructure services caused by aweakening of the global economy in general and the U.S. economy in particularmay result in decreased revenues or slower growth for us. We may continue to have customer concentration To date, we have relied upon a small number of customers for a majority ofour revenue. We expect that we will continue to rely upon a limited number ofcustomers for a significant percentage of our revenue. As a result of thisconcentration, a loss of or decrease in business from one or more of our largecustomers could have a material and adverse effect on our results ofoperations. Any failure of our physical infrastructure or services could lead tosignificant costs and disruptions that could reduce our revenue and harm ourbusiness reputation and financial results. Our business depends on providing our customers with highly reliableservice. We must protect our IBX infrastructure and our customers' equipmentlocated in our IBX centers. The services we provide are subject to failureresulting from numerous factors, including: . human error; . physical or electronic security breaches; . fire, earthquake, flood and other natural disasters; . water damage; . power loss; and . sabotage and vandalism. Problems at one or more of our centers, whether or not within our control,could result in service interruptions or significant equipment damage. To date,our aggregate customer uptime has been in excess of 99.99% across all ouroperational IBX centers; however, in the past, a very limited number of ourcustomers have experienced temporary losses of power. If we incur significantfinancial commitments to our customers in connection with a loss of power, orour failure to meet other service level commitment obligations, our liabilityinsurance may not be adequate to cover those expenses. In addition, any loss ofservices, equipment damage or inability to meet our service level commitmentobligations, particularly in the early stage of our development, could reducethe confidence of our customers and could consequently impair our ability toobtain and retain customers that would adversely affect our ability to generaterevenues and affect our operating results. Our business could be harmed by prolonged electrical power outages orshortages, or increased costs of energy. Our IBX centers are susceptible to regional costs of power, electrical powershortages and planned or unplanned power outages caused by these shortages,such as those currently occurring in California. The overall power shortage inCalifornia has increased the cost of energy, which we may not be able to passon to our customers. To date, none of our customers have experienced anyinterruption of service in our IBX centers as a result of any power shortage.We attempt to limit exposure to system downtime by using backup generators andpower supplies. Power outages which last beyond our backup and alternativepower arrangements could harm our customers and our business. Our rollout plan is subject to change and we may need to alter our plan andreallocate funds. Our IBX center rollout plan has been developed from our current market dataand research, projections and assumptions. If we are able to secure additionalfunds, we expect to pursue additional IBX projects and to 15 reconsider the timing and approach to IBX projects. We expect to continuallyreevaluate our business and rollout plan in light of evolving competitive andmarket conditions and the availability of suitable sites, financing andcustomer demand. As a result, we may alter our IBX center rollout andreallocate funds, or eliminate segments of our plan entirely if there are: . changes or inaccuracies in our market data and research, projections or assumptions; . unexpected results of operations or strategies in our target markets; . regulatory, technological, and competitive developments, including additional market developments and new opportunities; or . changes in, or discoveries of, specific market conditions or factors favoring expedited development in other markets. We rely upon Bechtel to complete our IBX center rollout plans on time. We have agreed to use Bechtel Corporation exclusively as our contractor toprovide program management, site identification and evaluation and constructionservices to build our IBX centers under mutually agreed upon guaranteedcompletion dates. Problems in our relationship with Bechtel, including Bechtelrendering services to our potential competitors, could have a material adverseaffect on our ability to achieve our business objectives on a timely and cost-effective basis. We depend on third parties to provide Internet connectivity to our IBX centers;if connectivity is not established or continued or is delayed, our operatingresults and cash flow will be adversely affected. The presence of diverse Internet fiber from communications carriers' fibernetworks to an Equinix IBX center is critical to our ability to attract newcustomers. We believe that the availability of such carrier capacity willdirectly affect our ability to achieve our projected results. We are not a communications carrier, and as such we rely on third parties toprovide our customers with carrier facilities. We intend to rely primarily onrevenue opportunities from our customers to encourage carriers to incur theexpenses required to build facilities from their points of presence to our IBXcenters. Carriers will likely evaluate the revenue opportunity of an IBX centerbased on the assumption that the environment will be highly competitive. Therecan be no assurance that, after conducting such an evaluation, any carrier willelect to offer its services within our IBX centers. In addition, there can beno assurance once a carrier has decided to provide Internet connectivity to ourIBX centers that it will continue to do so for any period of time. The construction required to connect multiple carrier facilities to our IBXcenters is complex and involves factors outside of our control, includingregulatory processes and the availability of construction resources. Forexample, in the past carriers have experienced delays in connecting to ourfacilities. If the establishment of highly diverse Internet connectivity to ourIBX centers does not occur or is materially delayed or is discontinued, ouroperating results and cash flow will be adversely affected. We will operate in a new highly competitive market and we may be unable tocompete successfully against new entrants and established companies withgreater resources. In a market that we believe will likely have an increasing number ofcompetitors, we must be able to differentiate ourself from existing providersof space for telecommunications equipment and web hosting companies. Inaddition to competing with other neutral colocation providers, we will competewith traditional colocation providers, including local phone companies, longdistance phone companies, Internet service providers and web hostingfacilities. Most of these companies have longer operating histories andsignificantly greater financial, technical, marketing and other resources thanwe do. We believe our neutrality provides us with an advantage over thesecompetitors. However, these competitors could offer colocation on neutralterms, and may start doing so in the metropolitan areas where we have IBXcenters. In addition, some of these 16 competitors provide our target customers with additional benefits, includingbundled communication services, and may do so at reduced prices or in a mannerthat is more attractive to our potential customers than obtaining space in ourIBX centers. If these competitors were to provide communication services atreduced prices together with colocation space, it may lower the total price ofthese services in a fashion that we cannot match. We may also face competition from persons seeking to replicate our IBXconcept. Our competitors may operate more successfully than we do or formalliances to acquire significant market share. Furthermore, enterprises thathave already invested substantial resources in peering arrangements may bereluctant or slow to adopt our approach that may replace, limit or compete withtheir existing systems. If we are unable to complete our IBX centers in atimely manner, other companies may be able to attract the same customers thatwe are targeting. Once customers are located in our competitors' facilities, itwill be extremely difficult to convince them to relocate to our IBX centers. Because of their greater financial resources, some of these companies havethe ability to adopt aggressive pricing policies. As a result, in the future,we may suffer from pricing pressure that would adversely affect our ability togenerate revenues and affect our operating results. Because we depend on the development and growth of a balanced customer base,failure to attract this base of customers could harm our business and operatingresults. Our ability to maximize revenues depends on our ability to develop and growa balanced customer base, consisting of a variety of companies, includingcontent providers, application service providers, e-commerce companies,bandwidth providers and site and performance management companies. Our abilityto attract customers to our IBX centers will depend on a variety of factors,including the presence of multiple carriers, the overall mix of our customers,our operating reliability and security and our ability to effectively marketour services. Construction delays, our inability to find suitable locations tobuild additional IBX centers, equipment and material shortages or our inabilityto obtain necessary permits on a timely basis could delay our IBX centerrollout schedule and prevent us from developing our anticipated customer base. A customer's decision to lease cabinet space in our IBX centers typicallyinvolves a significant commitment of resources and will be influenced by, amongother things, the customer's confidence that other Internet and e-commercerelated businesses will be located in a particular IBX center. In particular,some customers will be reluctant to commit to locating in our IBX centers untilthey are confident that the IBX center has adequate carrier connections. As aresult, we have a long sales cycle. We generally incur significant expenses insales and marketing prior to getting customer commitments for our services.Delays due to the length of our sales cycle may adversely affect our business,financial condition and results of operations. Our success will also depend upon generating significant interconnectionrevenues from customers which may depend upon a balanced customer base, as wellas upon the success of our IBX centers at facilitating business amongcustomers. In addition, some of our customers will be Internet companies thatface many competitive pressures and that may not ultimately be successful. Ifthese customers do not succeed, they will not continue to use our IBX centers.This may be disruptive to our business and may adversely affect our business,financial condition and results of operations. If not properly managed, our growth and expansion could significantly harm ourbusiness and operating results. We are experiencing, and expect to continue to experience, rapid growth.This growth has placed, and we expect it to continue to place, a significantstrain on our financial, management, operational and other resources. Anyfailure to manage growth effectively could seriously harm our business andoperating results. To succeed, we will need to: . hire, train and retain new employees and qualified engineering personnel at each IBX center; . implement additional management information systems; 17 . locate additional office space for our corporate headquarters; . improve our operating, administrative, financial and accounting systems and controls; and . maintain close coordination among our executive, engineering, accounting, finance, marketing, sales and operations organizations. To date, we have experienced difficulties implementing and upgrading ourmanagement information systems. We do not currently have a permanent ChiefInformation Officer. We intend to hire a permanent Chief Information Officerand additional information technology personnel to upgrade and operate ourmanagement information systems. If we are unable to hire and retain suchpersonnel, and successfully upgrade and operate adequate management informationsystems to support our growth effectively, our business will be materially andadversely affected. We must attract and retain key personnel to maintain and grow our business. We require the services of additional personnel in positions related to ourgrowth. For example, we need to expand our marketing and direct salesoperations to increase market awareness of our IBX centers, market our servicesto a greater number of enterprises and generate increased revenues. We alsorequire highly capable technical personnel to provide the quality services weare promoting. As a result, we plan to hire additional personnel in relatedcapacities. Our success depends on our ability to identify, hire, train andretain additional qualified personnel, including managers, particularly inareas related to our anticipated growth and geographic expansion. We may not be successful in attracting, assimilating or retaining qualifiedpersonnel. In addition, due to generally tight labor markets, our industry, inparticular, suffers from a lack of available qualified personnel. If we loseone or more of our key employees, we may not be able to find a replacement andour business and operating results could be adversely affected. We may make acquisitions, which pose integration and other risks that couldharm our business. We may seek to acquire complementary businesses, products, services andtechnologies. As a result of these acquisitions, we may: . be required to incur additional debt and expenditures; and . issue additional shares of our stock to pay for the acquired business, product, service or technology, which will dilute existing shareholders' ownership interest in the Company. In addition, if we fail to successfully integrate and manage acquiredbusinesses, products, services and technologies, our business and financialresults would be harmed. Currently, we have no present commitments oragreements with respect to any such acquisitions. We face risks associated with international operations that could harm ourbusiness. We intend to construct IBX centers outside of the United States and we willcommit significant resources to our international sales and marketingactivities. Our management has limited experience conducting business outsideof the United States and we may not be aware of all the factors that affect ourbusiness in foreign jurisdictions. We will be subject to a number of risksassociated with international business activities that may increase our costs,lengthen our sales cycles and require significant management attention. Theserisks include: . increased costs and expenses related to the leasing of foreign IBX centers; . difficulty or increased costs of constructing IBX centers in foreign countries; . difficulty in staffing and managing foreign operations; 18 . increased expenses associated with marketing services in foreign countries; . business practices that favor local competition and protectionist laws; . difficulties associated with enforcing agreements through foreign legal systems; . general economic and political conditions in international markets; . potentially adverse tax consequences, including complications and restrictions on the repatriation of earnings; . currency exchange rate fluctuations; . unusual or burdensome regulatory requirements or unexpected changes to those requirements; . tariffs, export controls and other trade barriers; and . longer accounts receivable payment cycles and difficulties in collecting accounts receivable. To the extent that our operations are incompatible with, or not economicallyviable within, any given foreign market, we may not be able to locate an IBXcenter in that particular foreign jurisdiction. Our stock price has been volatile in the past and is likely to continue to bevolatile. The market price of our common stock has been volatile in the past and islikely to continue to be volatile. In addition, the securities markets ingeneral, and Internet stocks in particular, have experienced significant pricevolatility and accordingly the trading price of our common stock is likely tobe affected by this activity. If there is a change of control of Equinix, we may be required under ourindenture and our senior secured credit facilities to repurchase or repay thedebt outstanding under those agreements. Change of control provisions in our indenture and senior secured creditfacilities could limit the price that investors might be willing to pay in thefuture for shares of our common stock and significantly impede the ability ofthe holders of our common stock to change management. Risks Related to Our Industry If use of the Internet and electronic business does not continue to grow, aviable market for our IBX centers may not develop. Rapid growth in the use of and interest in the Internet has occurred onlyrecently. Acceptance and use may not continue to develop at historical ratesand a sufficiently broad base of consumers may not adopt or continue to use theInternet and other online services as a medium of commerce. Demand and marketacceptance for recently introduced Internet services and products are subjectto a high level of uncertainty and there are few proven services and products.As a result, we cannot be certain that a viable market for our IBX centers willemerge or be sustainable. We must respond to rapid technological change and evolving industry standardsin order to meet the needs of our customers. The market for IBX centers will be marked by rapid technological change,frequent enhancements, changes in customer demands and evolving industrystandards. Our success will depend, in part, on our ability to address theincreasingly sophisticated and varied needs of our current and prospectivecustomers. Our failure to adopt and implement the latest technology in ourbusiness could negatively affect our business and operating results. In addition, we have made and will continue to make assumptions about thestandards that may be adopted by our customers and competitors. If thestandards adopted differ from those on which we have based 19 anticipated market acceptance of our services or products, our existingservices could become obsolete. This would have a material adverse effect onour business, financial condition and results of operations. Government regulation may adversely affect the use of the Internet and ourbusiness. Laws and regulations governing Internet services, related communicationsservices and information technologies, and electronic commerce are beginning toemerge but remain largely unsettled, even in areas where there has been somelegislative action. It may take years to determine whether and how existinglaws, such as those governing intellectual property, privacy, libel,telecommunications, and taxation, apply to the Internet and to related servicessuch as ours. In addition, the development of the market for online commerceand the displacement of traditional telephony services by the Internet andrelated communications services may prompt increased calls for more stringentconsumer protection laws or other regulation, both in the United States andabroad, that may impose additional burdens on companies conducting businessonline and their service providers. The adoption or modification of laws orregulations relating to the Internet, or interpretations of existing law, couldhave a material adverse effect on our business, financial condition and resultsof operations. ITEM 2. PROPERTIES Our executive offices are currently located in Mountain View, CA. We haveentered into leases for IBX centers in Ashburn, VA, Newark, NJ, San Jose andLos Angeles, CA, Chicago, IL, Dallas, TX, Secaucus, NJ, Amsterdam, TheNetherlands, Paris, France, London, England and Frankfurt, Germany. We alsohold a ground leasehold interest in certain unimproved real property in SanJose, CA, consisting of approximately 79 acres. Relating to future IBX centers,we do not intend to own real estate or buildings but rather continue to enterinto lease agreements with a minimum term of ten years, renewal options andrights of first refusal on space for expansion. ITEM 3. LEGAL PROCEEDINGS None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted during the fourth quarter of the year endedDecember 31, 2000. 20 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Our common stock is traded on the Nasdaq National Market System under thesymbol of EQIX. The following table sets forth, for the periods indicated, thelow and high bid prices per share for our common stock as reported by theNasdaq National Market. Low High ----- ------ Fiscal 2000 Fourth Fiscal Quarter.......................................... $3.50 $ 9.75 Third Fiscal Quarter (beginning August 11, 2000)............... 8.88 16.19 As of December 31, 2000, there were approximately 255 holders of record ofour common stock. No dividends have been paid on the common stock. We currently intend toretain all future earnings, if any, for use in our business and do notanticipate paying any cash dividends on our common stock in the foreseeablefuture. Other than restrictions that are a part of our various debtinstruments, there are no legal restrictions on paying dividends. The effective date of the Registration Statement for our initial publicoffering, filed on Form S-1 under the Securities Act of 1933 (File No. 333-93749), was August 10, 2000. The class of securities registered was CommonStock. The managing underwriters for the offering were Goldman, Sachs & Co.,Salomon Smith Barney Inc., Chase Securities Inc. and Epoch Securities, Inc. The offering commenced on August 11, 2000 and terminated on September 7,2000 after we had sold 22,704,596 shares out of a total of 23,000,000 shares ofcommon stock registered under the Registration Statement for aggregate grossoffering proceeds of $272,455,152. We incurred expenses of approximately $20,973,000, of which $19,071,860represented underwriting discounts and commissions and approximately $1,901,140represented other expenses related to the offering. The net offering proceedsafter total expenses were $251,482,000. We expect to use the proceeds for general corporate purposes, includingworking capital, and to fund the construction of new IBX centers and existingIBX center expansion projects. A portion of the net proceeds may also be usedfor the acquisition of businesses, products and technologies that arecomplimentary to ours. We have no current agreements or commitments foracquisitions of complementary businesses, products or technologies. Pendingthese uses, the net proceeds have been invested in investment grade andinterest-bearing securities. The use of proceeds from the offering does notrepresent a material change in the use of proceeds described in theRegistration Statement. 21 ITEM 6. SELECTED FINANCIAL DATA The following statement of operations data for the years ended December 31,2000 and 1999, and for the period from our inception on June 22, 1998 toDecember 31, 1998, and the balance sheet data as of December 31, 2000, 1999 and1998 have been derived from our audited consolidated financial statements andthe related notes to the financial statements. Our historical results are notnecessarily indicative of the results to be expected for future periods. Thefollowing selected consolidated financial data should be read in conjunctionwith our consolidated financial statements and the related notes to theconsolidated financial statements and "Management's Discussion and Analysis ofFinancial Condition and Results of Operations" included elsewhere in thisreport. Period from June 22, 1998 Years ended (inception) December 31, to ------------------- December 31, 2000 1999 1998 --------- -------- ------------- (dollars in thousands, except per share data) Statement of Operations Data:Revenues.................................... $ 13,016 $ 37 $ -- --------- -------- -------Costs and operating expenses: Cost of revenues (excludes stock-based compensation of $766, $177 and none for the periods ended December 31, 2000, 1999 and 1998, respectively).................. 42,635 3,091 -- Sales and marketing (excludes stock-based compensation of $6,318, $1,631 and $13 for the periods ended December 31, 2000, 1999 and 1998, respectively)............. 13,821 2,318 34 General and administrative (excludes stock-based compensation of $22,809, $4,819 and $151 for the periods ended December 31, 2000, 1999 and 1998, respectively)............................ 33,776 7,784 751 Stock-based compensation.................. 29,893 6,627 164 --------- -------- ------- Total costs and operating expenses...... 120,125 19,820 949 --------- -------- ------- Loss from operations...................... (107,109) (19,783) (949)Interest income............................. 16,430 2,138 150Interest expense............................ (29,111) (3,146) (220) --------- -------- -------Net loss.................................... $(119,790) $(20,791) $(1,019) ========= ======== =======Net loss per share: Basic and diluted......................... $ (3.48) $ (4.98) $ (1.48) ========= ======== ======= Weighted average shares................... 34,461 4,173 688 ========= ======== ======= As of December 31, ---------------------------------- 2000 1999 1998 --------- -------- ------------- (dollars in thousands) Balance Sheet Data:Cash, cash equivalents and short-term investments................................ $ 207,210 $222,974 $ 9,165Accounts receivable, net.................... 4,925 178 --Restricted cash and short-term investments.. 36,855 38,609 --Property and equipment, net................. 315,380 28,444 482Construction in progress.................... 94,894 18,312 31Total assets................................ 683,485 319,946 10,001Debt facilities and capital lease obligations, excluding current portion..... 6,506 8,808 --Senior notes................................ 185,908 183,955 --Redeemable convertible preferred stock...... -- 97,227 10,436Total stockholders' equity (deficit)........ 375,116 8,472 (846)Other Financial Data:Adjusted EBITDA (1)......................... (62,400) (12,547) (782)Net cash used in operating activities....... (68,073) (9,908) (796)Net cash used in investing activities....... (302,158) (86,270) (5,265)Net cash provided by financing activities... 339,847 295,178 10,226-------(1) Adjusted EBITDA consists of net loss excluding interest, income taxes, depreciation and amortization of capital assets and amortization of deferred stock-based compensation. Adjusted EBITDA is presented to enhance an understanding of our operating results, it is not intended to represent cash flow or results of operations in accordance with generally accepted accounting principles for the period indicated and my be calculated differently than Adjusted EBITDA for other companies. Adjusted EBITDA is not a measure determined under generally accepted accounting principles nor is it a measure of liquidity. 22 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following commentary should be read in conjunction with the financialstatements and related notes contained elsewhere in this Form 10-K. Thediscussion contains forward-looking statements that involve risks anduncertainties. These statements relate to future events or our future financialperformance. In many cases, you can identify forward-looking statements byterminology such as "may," "will," "should," "expects," "plans," "anticipates,""believes," "estimates," "predicts," "potential," "intend" or "continue," orthe negative of such terms and other comparable terminology. These statementsare only predictions. Our actual results may differ materially from thoseanticipated in these forward-looking statements as a result of a variety offactors, including, but not limited to, those set forth under "Risk Factors"and elsewhere in this Form 10-K. Overview Equinix designs, builds and operates neutral IBX centers where Internetbusinesses place their equipment and their network facilities in order tointerconnect with each other to improve internet performance. Our neutral IBXcenters provide content providers, application service providers, or ASPs ande-commerce companies with the ability to directly interconnect with a choice ofbandwidth providers, Internet service providers, or ISPs, and site andperformance management companies. Equinix currently has IBX centers totaling anaggregate of 543,000 gross square feet in the Washington, D.C. metropolitanarea, the New York metropolitan area, Silicon Valley, Dallas, Los Angeles andChicago. We intend to complete construction of one additional IBX center andseveral expansion projects by the end of 2001, resulting in IBX centerscovering seven domestic markets in the United States. Since our inception onJune 22, 1998, our operating activities have consisted primarily of designing,building and operating our IBX centers, developing our management team andraising equity and third party debt. In August 2000, we completed our initial public offering and obtainedaggregate net proceeds of $251.5 million, which included proceeds from theexercise of the underwriters' over-allotment option. In December 2000, wecompleted our $150.0 million senior secured credit facility. We generate recurring revenues primarily from the leasing of cabinet spaceand power. In addition, we offer value-added services and professional servicesincluding direct interconnections between our customers and "Smart Hands"service for customer equipment installations and maintenance. Customercontracts for the lease of cabinet space, power, interconnections and switchports are renewable and typically are for two or more years with payments forservices made on a monthly basis. In addition, we generate non-recurringrevenues, which are comprised of installation charges that are billed uponsuccessful installation of our customer cabinets, power, interconnections andswitch ports. Both recurring and non-recurring revenues are recognized ratablyover the term of the contract. Many of our customers have signed multi-site and multi-year contracts.Assuming completion of our planned IBX projects, the full installation of thecustomer equipment contemplated by these contracts and no incrementalinterconnection revenue beyond the minimum provided for by these contracts,these contracts would provide us with monthly recurring revenue ofapproximately $6.3 million. Because we may alter our rollout schedule and wedepend upon third parties to construct and connect our facilities with fiberand accordingly, the timing of customer installations, Equinix cannot predictwhen and whether we will realize the full value of these contracts. Moreover,many of our customer contracts can be terminated upon requisite written notice. Our cost of revenues consists primarily of lease payments on our existingand proposed IBX centers, site employees' salaries and benefits, utility costs,amortization and depreciation of IBX center build-out costs and equipment andengineering, power, redundancy and security systems support and services. Inaddition, cost of revenues includes certain costs related to real estateobtained for future IBX facilities in the United States and Europe. We willcontinue to fund these costs and these costs will be expensed as incurred. Weexpect our cost of revenues to increase for the foreseeable future. 23 Our selling, general and administrative expenses consist primarily of costsassociated with recruiting, training and managing of employees, salaries andrelated costs of our operations, customer fulfillment and support functionscosts and finance and administrative personnel and related professional fees.Our selling, general and administrative expenses will increase as we continueto expand our operations. We recorded deferred stock-based compensation of approximately $54.5million, $19.4 million and $1.1 million in connection with stock optionsgranted during 2000, 1999 and 1998, respectively, where the deemed fair marketvalue of the underlying common stock was subsequently determined to be greaterthan the exercise price on the date of grant. Approximately $29.9 million, $6.6million and $164,000 was amortized to stock-based compensation expense for theperiods ended December 31, 2000, 1999 and 1998, respectively. The optionsgranted are typically subject to a four-year vesting period. We are amortizingthe deferred stock-based compensation on an accelerated basis over the vestingperiods of the applicable options in accordance with FASB Interpretation No.28. The remaining $38.4 million of deferred stock-based compensation will beamortized over the remaining vesting periods. We expect amortization ofdeferred stock-based compensation expense to impact our reported resultsthrough December 31, 2004. Our adjusted net loss before net interest and other expense, income taxes,depreciation and amortization of capital assets, amortization of stock-basedcompensation and other non-cash charges ("Adjusted EBITDA") is calculated toenhance an understanding of our operating results. Adjusted EBITDA is afinancial measurement commonly used in capital-intensive telecommunication andinfrastructure industries. Other companies may calculate Adjusted EBITDAdifferently than we do. It is not intended to represent cash flow or results ofoperations in accordance with generally accepted accounting principles nor ameasure of liquidity. We measure Adjusted EBITDA at both the IBX center andtotal company level. Since inception, we have experienced operating losses and negative cashflow. As of December 31, 2000 we had an accumulated deficit of $141.6 millionand accumulated cash used in operating and construction activities of $403.1million. Given the revenue and income potential of our service offerings isstill unproven and we have a limited operating history, we may not generatesufficient operating results to achieve desired profitability. We thereforebelieve that we will continue to experience operating losses for theforeseeable future. See "Risk Factors". Results of Operations Years ended December 31, 2000 and December 31, 1999 Revenues. Revenues increased from $37,000 for the year ended December 31,1999 to $13.0 million for the year ended December 31, 2000. Revenues consistedof recurring revenues of $11.6 million, primarily from the leasing of cabinetspace and power, and non-recurring revenues of $1.4 million related to therecognized portion of deferred installation revenue and custom installationrevenues. Installation and service fees are recognized ratably over the term ofthe contract. We anticipate revenues will continue to increase substantially inthe future. Cost of Revenues. Cost of revenues increased from $3.1 million for the yearended December 31, 1999 to $42.6 million for the year ended December 31, 2000.Cost of revenues consists primarily of rental payments for our leased IBXcenters, site employees' salaries and benefits, utility costs, power andredundancy system engineering support services and related costs, securityservices and related costs and depreciation and amortization of our IBX centerbuild-out and other equipment costs. The increase in cost of revenues was dueto the expansion and deployment of our IBX centers throughout the UnitedStates. In addition, cost of revenues include certain costs related to realestate obtained for future IBX facilities in the United States and Europe. Wewill continue to fund these costs as the Company continues to expand its IBXcenters in the United States and Europe. These costs will be expensed asincurred. Furthermore, these amounts exclude $177,000 and $766,000, for theyears ended December 31, 1999 and 2000, respectively, of stock-basedcompensation expense. 24 Sales and Marketing. Sales and marketing expenses increased from $2.3million for the year ended December 31, 1999 to $13.8 million for the yearended December 31, 2000. Sales and marketing expenses consist primarily ofcompensation and related costs for the sales and marketing personnel, salescommissions, marketing programs, public relations, promotional materials andtravel. The increase in sales and marketing expense resulted from the additionof personnel in our sales and marketing organizations, reflecting our increasedselling effort to support our IBX center deployment plan and our efforts todevelop market awareness. These amounts exclude $1.6 million and $6.3 million,for the years ended December 31, 1999 and 2000, respectively, of stock-basedcompensation expense. We anticipate that sales and marketing expenses willincrease in absolute dollars due to continued customer acquisition costs andfurther expansion of our market awareness initiatives. In addition, these costswill increase consistent with our future IBX center deployment and expansionplans. General and Administrative. General and administrative expenses increasedfrom $7.8 million for the year ended December 31, 1999 to $33.8 million for theyear ended December 31, 2000. General and administrative expenses consistprimarily of salaries and related expenses, accounting, legal andadministrative expenses, professional service fees and other general corporateexpenses. The increase in general and administrative expenses was primarily theresult of increased expenses associated with additional hiring of personnel inmanagement, finance and administration, as well as other related costsassociated with supporting the Company's expansion. These amounts exclude $4.8million and $22.8 million, for the years ended December 31, 1999 and 2000,respectively, of stock-based compensation expense. We anticipate that generaland administrative expenses will increase in absolute dollars due to increasedstaffing levels consistent with the growth in our infrastructure and relatedoperating costs. Adjusted EBITDA. Adjusted EBITDA loss increased from $12.5 million for theyear ended December 31, 1999 to $62.4 million for the year ended December 31,2000. Although many factors affect adjusted EBITDA and costs vary from IBXmarket to IBX market, as of December 31, 2000, three of our six IBX centersachieved positive adjusted EBITDA status. We anticipate our adjusted EBITDAlosses to decline as we leverage our existing cost base and expand our revenuegrowth. Interest Income. Interest income increased from $2.1 million for the yearended December 31, 1999 to $16.4 million for the year ended December 31, 2000.Interest income increased substantially due to higher cash, cash equivalent andshort-term investment balances held in interest bearing accounts, resultingfrom the proceeds of the initial public offering and preferred stock financingactivities. Interest Expense. Interest expense increased from $3.1 million for the yearended December 31, 1999 to $29.1 million for the year ended December 31, 2000.The increase in interest expense was attributed to interest on the seniornotes, interest related to our debt facilities and capital lease obligationsand amortization of the senior notes, debt facilities and capital leaseobligations discount. Year Ended December 31, 1999 and Period from Inception (June 22, 1998) throughDecember 31, 1998 Revenues. We recognized revenues of $37,000 for the year ended December 31,1999. In addition, we entered into contracts with other customers and allocatedcabinet space to these customers as of December 31, 1999. Although we enteredinto these customer contracts, we did not recognize such amounts as revenues asthe sales cycle was not yet complete by December 31, 1999. We did not offer IBXcenter colocation or interconnection exchange services from the date ofinception through December 31, 1998, and as such, no revenues were recognizedfrom the date of inception to December 31, 1998. Cost of Revenues. We incurred cost of revenues of $3.1 million for the yearended December 31, 1999. Cost of revenues is primarily comprised of rentalpayments on our leased IBX centers, site employees' salaries and benefits,utilities costs, power and redundancy system engineering support services andrelated costs, security services and related costs and depreciation andamortization of our IBX center build-out and other 25 equipment costs. This amount excludes $177,000 for the year ended December 31,1999 of stock-based compensation expense. We did not offer IBX centercolocation or interconnection exchange services from the date of inceptionthrough December 31, 1998, and as such, no cost of revenues was incurred fromthe date of inception to December 31, 1998. Sales and Marketing. Sales and marketing expenses increased from $34,000 forthe period from the date of inception to December 31, 1998 to $2.3 million forthe year ended December 31, 1999. These expenses consist primarily of salaryand benefit costs from the hiring of both sales and marketing personnel andcertain related recruiting and relocation costs and the establishment of salesand marketing programs. These amounts exclude the recognition of stock-basedcompensation expense in the amount of approximately $13,000 and $1.6 millionfor the period from the date of inception to December 31, 1998 and the yearended December 31, 1999, respectively. In addition, we established two regionalsales offices to support the New York and Washington, D.C. metropolitan areaIBX centers. We anticipate that sales and marketing expenses will increasesubstantially to coincide with the commercial operation of our IBX centers andadditional stock-based compensation expense. General and Administrative. General and administrative expenses increasedfrom $752,000 for the period from the date of inception to December 31, 1998 to$7.8 million for the year ended December 31, 1999. General and administrativeexpenses are primarily comprised of salaries and employee benefits expenses,professional and consultant fees and corporate headquarter operating costs,including facility and other rental costs. These amounts exclude therecognition of stock-based compensation expenses in the amount of approximately$151,000 and $4.8 million for the period from the date of inception to December31, 1998 and the year ended December 31, 1999, respectively. We anticipate thatgeneral and administrative expenses will increase significantly due toincreased staffing levels consistent with the growth in our infrastructure andrelated operating costs associated with our regional and internationalexpansion efforts and additional stock-based compensation expense. Adjusted EBITDA. Adjusted EBITDA loss increased from $782,000 for the periodfrom the date of inception to December 31, 1998 to $12.5 million for the yearended December 31, 1999. As of December 31, 1998, no IBX centers had beenconstructed. We anticipate our adjusted EBITDA losses to increase as we buildour IBX centers and decline as these centers become profitable as we leverageour existing cost base and expand our revenue growth. Interest Income. We recognized interest income of $2.1 million for the yearended December 31, 1999 compared to $150,000 for the period from the date ofinception to December 31, 1998. Interest income increased substantially due tohigher cash, cash equivalent and short-term investment balances resulting fromthe senior notes and preferred stock financing activities. Interest Expense. Interest expense was $3.1 million for the year endedDecember 31, 1999 compared to $220,000 for the period from the date ofinception to December 31, 1998. Interest expense increased due to the issuanceof senior notes, increased debt facilities and capital lease obligations andamortization of the senior notes and debt facilities and capital leaseobligation discount. Interest expense for the period from the date of inceptionto December 31, 1998 consisted of the interest charge from the conversion rightof the convertible loan arrangement, under which the initial lenders to theCompany converted their promissory notes into Series A redeemable convertiblepreferred stock at a more beneficial rate than other Series A investors. Liquidity and Capital Resources Since inception, we have financed our operations and capital requirementsprimarily through the issuance of senior notes, the private sale of preferredstock, our initial public offering and debt financings, excluding our recentlycompleted $150.0 million senior secured credit facility which has not beendrawn upon as of December 31, 2000, for aggregate gross proceeds ofapproximately $686.2 million. As of December 31, 2000, we had approximately$207.2 million in cash, cash equivalents and short-term investments.Furthermore, we 26 have an additional $36.9 million of restricted cash, cash equivalents andshort-term investments to fund interest expense through June 2001 on our 13%senior notes due 2007, provide collateral under a number of separate securityagreements for standby letters of credit and escrow accounts entered into andin accordance with certain lease agreements. Our principal sources of liquidityconsist of our cash, cash equivalent and short-term investment balances andproceeds from our $150.0 million senior secured credit facility. As of December31, 2000, our total indebtedness from our senior notes, debt facilities andcapital lease obligations was $210.9 million. Net cash used in our operating activities was $68.1 million and $9.9 millionfor the years ended December 31, 2000 and 1999, respectively. We used cashprimarily to fund our net loss from operations. Net cash used in investing activities was $302.2 million and $86.3 millionfor the years ended December 31, 2000 and 1999, respectively. Net cash used ininvesting activities was primarily attributable to the construction of our IBXcenters and the purchase of restricted cash and short-term investments. Net cash generated by financing activities was $339.8 million and $295.2million for the years ended December 31, 2000 and 1999, respectively. Net cashgenerated by financing activities during the year ended December 31, 2000 wasprimarily attributable to the proceeds from the initial public offering andissuance of Series C redeemable convertible preferred stock. Net cash generatedby financing activities during the year ended December 31, 1999 was primarilyattributable to the proceeds from the issuance of Series B redeemableconvertible preferred stock and the drawdown on the debt facilities and capitallease obligations. In March 1999, we entered into a loan and security agreement in the amountof $7.0 million, bearing interest at 7.5% to 9.0% per annum, repayable in 36 to42 equal monthly payments with a final interest payment equal to 15% of theadvance amounts due at maturity. The outstanding principal and interest balanceunder this loan and security agreement, including the final interest payment,was repaid in December 2000. In May 1999, we entered into a master lease agreement in the amount of $1.0million. This master lease agreement was increased by addendum in August 1999by $5.0 million. This agreement bears interest at either 7.5% or 8.5% and isrepayable over 42 months in equal monthly payments with a final interestpayment equal to 15% of the advance amounts due on maturity. At December 31,2000, these capital lease financings have been fully drawn. In August 1999, we entered into a loan agreement in the amount of $10.0million. This loan agreement bears interest at 8.5% and is repayable over 42months in equal monthly payments with a final interest payment equal to 15% ofthe advance amounts due on maturity. At December 31, 2000, this debt financinghas been fully drawn. In December 1999, we issued $200.0 million aggregate principal amount of 13%senior notes due 2007 for aggregate net proceeds of $193.4 million, net ofoffering expenses. Of the $200.0 million gross proceeds, $16.2 million wasallocated to additional paid-in capital for the fair market value of the commonstock warrants and recorded as a discount to the senior notes. Senior notes,net of the unamortized discount, are $185.9 million as of December 31, 2000. In December 1999, we completed the private sale of our Series B redeemableconvertible preferred stock, net of issuance costs, in the amount of $81.7million. In May 2000, we entered into a purchase agreement regarding approximately 80acres of real property in San Jose, California. In June 2000, before theclosing on this property, we assigned our interest in the purchase agreement toiStar San Jose, LLC. On the same date, iStar purchased this property andentered into a 20-year lease with us for the property. Under the terms of thelease, we have the option to extend the lease for an additional 60 years, for atotal lease term of 80 years. In addition, we have the option to purchase theproperty from iStar after 10 years. 27 In June 2000, we completed the private sale of our Series C redeemableconvertible preferred stock in the amount of $94.4 million.  In August 2000, we completed an initial public offering of 20,000,000 sharesof common stock. In addition, in September 2000, the underwriters exercisedtheir option to purchase 2,704,596 shares to cover over-allotments of shares.Total net proceeds from the offering and over-allotment were $251.5 million. In December 2000, we entered into a $150.0 million senior secured creditfacility. At December 31, 2000, no proceeds from this facility have been drawn. We expect that our cash on hand and anticipated cash flow from operations,and drawdown of our senior secured credit facility, should be sufficient tobuild our additional IBX center by the end of 2001. Assuming sufficientcustomer demand and the availability of additional financing, we will buildadditional IBX centers and expand certain existing IBX centers. We arecontinually evaluating the location, number and size of our facilities basedupon the availability of suitable sites, financing and customer demand. If wecannot raise additional funds on acceptable terms or our losses exceed ourexpectations, we may delay or permanently reduce our rollout plans. Additionalfinancing may take the form of debt or equity. If we are unable to raiseadditional funds to further our rollout, we anticipate that the cash flowgenerated from the seven IBX centers, for which we will have obtainedfinancing, will be sufficient to meet the working capital, debt service andcorporate overhead requirements associated with those IBX centers. Recent Accounting Pronouncements In September 1998, the Financial Accounting Standards Board issued Statementof Financial Accounting Standards, or SFAS, No. 133, Accounting for DerivativeInstruments and Hedging Activities. In June 1999, the Financial AccountingStandards Board ("FASB") issued Statement of Financial Accounting Standards No.137 ("SFAS 137"), "Accounting for Derivative Instruments and HedgingActivities--Deferral of the Effective Date of FASB Statement No. 133." In June2000, the FASB issued SFAS 138, "Accounting for Certain Derivative Instrumentsand Certain Hedging Activities--an Amendment of FASB Statement No. 133." SFAS133 establishes new standards of accounting and reporting for derivativeinstruments and hedging activities, and requires that all derivatives,including foreign currency exchange contracts, be recognized on the balancesheet at fair value. Equinix will adopt SFAS 133, as amended by SFAS 137 andSFAS 138, in the first fiscal quarter of 2001, and does not expect the adoptionto have a material effect on its financial condition or results of operations. In December 1999, the SEC issued Staff Accounting Bulletin 101, or SAB 101,Revenue Recognition, which outlines the basic criteria that must be met torecognize revenue and provides guidance for presentation of revenue and fordisclosure related to revenue recognition policies in financial statementsfiled with the SEC. The adoption of SAB 101 did not have a material impact onour financial position and results of operations. In March 2000, the FASB issued Interpretation No. 44, or FIN 44, Accountingfor Certain Transactions Involving Stock Compensation--an Interpretation of APB25. This Interpretation clarifies (a) the definition of employee for purposesof applying Opinion 25, (b) the criteria for determining whether a planqualifies as a noncompensatory plan, (c) the accounting consequence of variousmodifications to the terms of a previously fixed stock option or award, and (d)the accounting for an exchange of stock compensation awards in a businesscombination. This Interpretation is effective July 1, 2000, but certainconclusions in this Interpretation cover specific events that occur aftereither December 15, 1998, or January 12, 2000. The adoption of certain of theconclusions of FIN 44 did not have a material effect on the Company's financialposition and results of operations. Impact of the Year 2000 We have not experienced any disruption related to the year 2000 in theoperation of our systems. Although most year 2000 problems should have becomeevident on January 1, 2000, additional problems related to the year 2000 maybecome evident only after that date. 28 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market Risk The following discussion about market risk disclosures involves forward-looking statements. Actual results could differ materially from those projectedin the forward-looking statements. We may be exposed to market risks related tochanges in interest rates and foreign currency exchange rates and to a lesserextent we are exposed to fluctuations in the prices of certain commodities,primarily electricity. Equinix attempts to net individual exposures on a consolidated basis, whenfeasible, to take advantage of natural offsets. In addition, we employ foreigncurrency forward exchange contracts for the purpose of hedging certainspecifically identified net currency exposures. The use of these financialinstruments is intended to mitigate some of the risks associated withfluctuations in currency exchange rates, but does not eliminate such risks. Wedo not use financial instruments for trading or speculative purposes. Interest Rate Risk Our exposure to market risk resulting from changes in interest rates relatesprimarily to our investment portfolio. Our interest income is impacted bychanges in the general level of U.S. interest rates, particularly since themajority of our investments are in short-term instruments. Due to the short-term nature of our investments, we do not believe that we are subject to anymaterial market risk exposure. An immediate 10% increase or decrease in currentinterest rates would not have a material effect on the fair market value of ourinvestment portfolio. We would not expect our operating results or cash flowsto be significantly affected by a sudden change in market interest rates in ourinvestment portfolio. An immediate 10% increase or decrease in current interest rates wouldfurthermore not have a material impact to our debt obligations due to the fixednature of our long-term debt obligations. The fair market value of our longterm fixed interest rate debt is subject to interest rate risk. Generally, thefair market value of fixed interest rate debt will increase as interest ratesfall and decrease as interest rates rise. These interest rate changes mayaffect the fair market value and do impact earnings or cash flows of theCompany. An immediate 10% change in interest rates would not have a materialimpact on future operating results or cash flows. The fair market value of our 13% senior notes due 2007 are based on quotedmarket prices. The estimated fair value of our 13% senior notes due 2007 as ofDecember 31, 2000 is approximately $140.0 million. Foreign Currency Risk To date, all of our recognized revenue has been denominated in U.S. dollars,generated mostly from customers in the United States, and our exposure toforeign currency exchange rate fluctuations has been minimal. We expect thatfuture revenues may be derived from customers outside of the United States andmay be denominated in foreign currency. As a result, our operating results orcash flows may be impacted due to currency fluctuations relative to the U.S.dollar. Furthermore, to the extent we engage in international sales that aredenominated in U.S. dollars, an increase in the value of the U.S. dollarrelative to foreign currencies could make our services less competitive in theinternational markets. Although we will continue to monitor our exposure tocurrency fluctuations, and when appropriate, may use financial hedgingtechniques in the future to minimize the effect of these fluctuations, wecannot assure you that exchange rate fluctuations will not adversely affect ourfinancial results in the future. 29 We have entered into a number of lease agreements in Europe for which ourliabilities are denominated in foreign currency. As of December 31, 2000, wealso had foreign currency commitments relating to the initiation of ourbusiness within Europe. We use forward exchange contracts to hedge a portion ofour liabilities which are denominated in foreign currencies. The Company'sforward exchange contracts as of December 31, 2000, which mature during 2001,are represented below (in thousands): Contract to receive Foreign Currency Contract Amount Change in Fair Market Value currency / Pay US$ Contract amount in US$ as of December 31, 2000 ------------------------------------------------------------------------------------ British Pounds Pounds 28,313 US$41,003 US$1,337 Assuming a 10% increase in the value of the U.S. dollar relative to theBritish Pound, and a 10% decrease in the value of the U.S. dollar relative tothe British Pound, the aggregate fair value of these foreign currencycommitments as hedged would be approximately $36.9 million and $45.1 million,respectively. Commodity Price Risk Certain operating costs incurred by Equinix are subject to pricefluctuations caused by the volatility of underlying commodity prices. Thecommodities most likely to have an impact on our results of operations in theevent of significant price changes are electricity and building materials forthe construction of our IBX centers such as steel. We are closely monitoringthe cost of electricity, particularly in California. To the extent thatelectricity costs continue to rise, we are investigating opportunities to passthese additional power costs onto our customers that utilize this power. Forbuilding materials, we rely on Bechtel's expertise and bulk purchasing power tobest manage the procurement of these required materials for the construction ofour IBX centers. We do not employ forward contracts or other financialinstruments to hedge commodity price risk. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and supplementary data required by this Item 8 arelisted in Item 14(a)(1) and begin at page F-1 of this Report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE On March 7, 2000, KPMG LLP resigned as our independent accountants upondetermining that they may no longer be independent of Equinix as a result ofCisco Systems, Inc.'s investment in both KPMG Consulting, Inc., a subsidiary ofKPMG LLP and Equinix. We subsequently appointed PricewaterhouseCoopers LLP asour principal accountants on March 21, 2000. There were no disagreements withthe former accountants during the fiscal years ended December 31, 1998 and 1999or during any subsequent interim period preceding their replacement on anymatter of accounting principles or practices, financial statement disclosure,or auditing scope or procedures, which disagreements, if not resolved to theformer accountants' satisfaction, would have caused them to make reference tothe subject matter of the disagreement in connection with their reports. Theformer independent accountants issued an unqualified report on the financialstatements as of December 31, 1999 and 1998 and for the year ended December 31,1999 and the period from June 22, 1998 (inception) to December 31, 1998. Forpurposes of this filing, the financial statements as of December 31, 1999 and1998 and for the year ended December 31, 1999 and the period from June 22, 1998(inception) to December 31, 1998 have been audited by PricewaterhouseCoopersLLP. Prior to March 21, 2000, we did not consult with PricewaterhouseCoopersLLP on items that involved our accounting principles or the form of auditopinion to be issued on our financial statements. The change in accountants wasapproved by our board of directors. 30 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information regarding our Directors and Executive Officers isincorporated herein by reference from the section entitled "Election ofDirectors" of our definitive Proxy Statement (the "Proxy Statement") to befiled pursuant to Regulation 14A of the Securities Exchange Act of 1934, asamended, for our Year 2001 Annual Meeting of Stockholders. The Proxy Statementis anticipated to be filed within 120 days after the end of our fiscal yearended December 31, 2000. ITEM 11. EXECUTIVE COMPENSATION Information regarding executive compensation is incorporated herein byreference from the section entitled "Executive Compensation and RelatedInformation" of the Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information regarding security ownership of certain beneficial owners andmanagement is incorporated herein by reference from the section entitled "StockOwnership of Certain Beneficial Owners and Management" of the Proxy Statement. ITEM 13. RELATED PARTY TRANSACTIONS Information regarding certain relationships and related transactions isincorporated herein by reference from the section entitled "Related PartyTransactions" of the Proxy Statement. 31 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K (a)(1) Financial Statements: Report of Independent Accountants...................................... F-1 Consolidated Balance Sheets............................................ F-2 Consolidated Statements of Operations.................................. F-3 Consolidated Statements of Stockholders' Equity (Deficit).............. F-4 Consolidated Statements of Cash Flows.................................. F-5 Notes to Consolidated Financial Statements............................. F-6 (a)(2) All schedules have been omitted because they are not applicable orthe required information is shown in the financial statements or notes thereto. (a)(3) Exhibits: Exhibit Number Description of Document ------- ----------------------- 3.1** Amended and Restated Certificate of Incorporation of the Registrant, as amended to date. 3.2* Bylaws of the Registrant. 4.1 Reference is made to Exhibits 3.1 and 3.2. 4.2** Form of Registrant's Common Stock certificate. 4.6* Common Stock Registration Rights Agreement (See Exhibit 10.3). 4.9* Amended and Restated Investors' Rights Agreement (See Exhibit 10.6). 10.1* Indenture, dated as of December 1, 1999, by and among the Registrant and State Street Bank and Trust Company of California, N.A. (as trustee). 10.2* Warrant Agreement, dated as of December 1, 1999, by and among the Registrant and State Street Bank and Trust Company of California, N.A. (as warrant agent). 10.3* Common Stock Registration Rights Agreement, dated as of December 1, 1999, by and among the Registrant, Benchmark Capital Partners II, L.P., Cisco Systems, Inc., Microsoft Corporation, ePartners, Albert M. Avery, IV and Jay S. Adelson (as investors), and the Initial Purchasers. 10.4* Registration Rights Agreement, dated as of December 1, 1999, by and among the Registrant and the Initial Purchasers. 10.5* Form of Indemnification Agreement between the Registrant and each of its officers and directors. 10.6* Amended and Restated Investors' Rights Agreement, dated as of May 8, 2000, by and between the Registrant, the Series A Purchasers, the Series B Purchasers, the Series C Purchasers and members of the Registrant's management. 10.8* The Registrant's 1998 Stock Option Plan. 10.9*+ Lease Agreement with Carlyle-Core Chicago LLC, dated as of September 1, 1999. 10.10*+ Lease Agreement with Market Halsey Urban Renewal, LLC, dated as of May 3, 1999. 10.11*+ Lease Agreement with Laing Beaumeade, dated as of November 18, 1998. 10.12*+ Lease Agreement with Rose Ventures II, Inc., dated as of September 10, 1999. 10.13*+ Lease Agreement with 600 Seventh Street Associates, Inc., dated as of August 6, 1999. 32 Exhibit Number Description of Document ------- ----------------------- 10.14*+ First Amendment to Lease Agreement with TrizecHahn Centers, Inc. (dba TrizecHahn Beaumeade Corporate Management), dated as of October 28, 1999. 10.15*+ Lease Agreement with Nexcomm Asset Acquisition I, L.P., dated as of January 21, 2000. 10.16*+ Lease Agreement with TrizecHahn Centers, Inc. (dba TrizecHahn Beaumeade Corporate Management), dated as of December 15, 1999. 10.17* Lease Agreement with ARE-2425/2400/2450 Garcia Bayshore LLC, dated as of January 28, 2000. 10.18* Sublease Agreement with Insweb Corporation, dated as of November 1, 1998. 10.19*+ Master Agreement for Program Management, Site Identification and Evaluation, Engineering and Construction Services between Equinix, Inc. and Bechtel Corporation, dated November 3, 1999. 10.20*+ Agreement between Equinix, Inc. and WorldCom, Inc., dated November 16, 1999. 10.21* Customer Agreement between Equinix, Inc. and WorldCom, Inc., dated November 16, 1999. 10.22*+ Lease Agreement with GIP Airport B.V., dated as of April 28, 2000. 10.23* Purchase Agreement between International Business Machines Corporation and Equinix, Inc. dated May 23, 2000. 10.24** 2000 Equity Incentive Plan. 10.25** 2000 Director Option Plan. 10.26** 2000 Employee Stock Purchase Plan. 10.27** Ground Lease by and between iStar San Jose, LLC and Equinix, Inc., dated June 21, 2000. 10.28***+ Lease Agreement with TrizecHahn Beaumeade Technology Center LLC, dated as of July 1, 2000. 10.29***+ Lease Agreement with TrizecHahn Beaumeade Technology Center LLC, dated as of May 1, 2000. 10.30***+ Lease Agreement with 600 Seventh Street Associates, Inc., dated as of August 24, 2000. 10.31***+ Lease Agreement with Burlington Associates III Limited Partnership, dated as of July 24, 2000. 10.32***+ Lease Agreement with Naxos Schmirdelwerk Mainkur GmbH and A.A.A. Aktiengesellschaft Allgemeine Anlageverwaltung vorm. Seilwolff AG von 1890, dated as of August 7, 2000. 10.33***+ Lease Agreement with Quattrocento Limited, dated as of June 1, 2000. 10.34*** Lease Agreement with ARE-2425/2400/2450 Garcia Bayshore, LLC, dated as of March 20, 2000. 10.35*** First Supplement to the Lease Agreement with Naxos Schmirdelwerk Mainkur GmbH and A.A.A. Aktiengesellschaft Allgemeine Anlageverwaltung vorm. Seilwolff AG von 1890, dated as of October 11, 2000. 10.36 Credit and Guaranty Agreement for $150,000,000 Senior Secured Credit Facilities, dated as of December 20, 2000. 10.37+ Lease Agreement with Quattrocentro Limited, dated as of June 9, 2000. 10.38+ Lease Agreement with Compagnie des Entrepots et Magasins Generaux de Paris, dated as of July 28, 2000. 10.39+ Second Supplement to the Lease Agreement with Naxos Schmirdelwerk Mainkur GmbH and A.A.A. Aktiengesellschaft Allgemeine Anlageverwaltung vorm. Seilwolff AG von 1890, dated as of December 22, 2000. 33 Exhibit Number Description of Document ------- ----------------------- 10.40 Third Supplement to the Lease Agreement with Naxos Schmirdelwerk Mainkur GmbH and A.A.A. Aktiengesellschaft Allgemeine Anlageverwaltung vorm. Seilwolff AG von 1890, dated as of March 8, 2001. 16.1* Letter regarding change in certifying accountant. 21.1 Subsidiaries of Equinix. 24.1 Power of Attorney (see page 35).-------- * Incorporated herein by reference to the exhibit of the same number in the Registrant's Registration Statement on Form S-4 (file No. 333-93749). ** Incorporated herein by reference to the exhibit of the same number in the Registrant's Registration Statement in Form S-1 (file No. 333-39752).*** Incorporated herein by reference to the exhibit of the same number in the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2000. + Confidential treatment has been requested for certain portions which are omitted in the copy of the exhibit electronically filed with the Securities and Exchange Commission. The omitted information has been filed separately with the Securities and Exchange Commission pursuant to Equinix's application for confidential treatment. (b) Reports on Form 8-K. None. (c) Exhibits. See (a)(3) above. (d) Financial Statement Schedule. See (a)(2) above. 34 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the SecuritiesExchange Act of 1934, the registrant has caused this Report to be signed on itsbehalf by the undersigned, thereunto duly authorized. EQUINIX, INC. (Registrant) March 27, 2001 /s/ Peter F. Van Camp ___________ Chief Executive Officer and Director POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appearsbelow constitutes and appoints Peter F. Van Camp or Philip J. Koen, or eitherof them, each with the power of substitution, his attorney-in-fact, to sign anyamendments to this Form 10-K (including post-effective amendments), and to filethe same, with exhibits thereto and other documents in connection therewith,with the Securities and Exchange Commission, hereby ratifying and confirmingall that each of said attorneys-in-fact, or his substitute or substitutes, maydo or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, thisreport has been signed below by the following persons on behalf of theregistrant and in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- /s/ Peter F. Van Camp Chief Executive Officer and March 27, 2001_________________________ Director (Principal Peter F. Van Camp Executive Officer) /s/ Albert M. Avery, IV President, Chief Operating March 27, 2001_________________________ Officer and Director Albert M. Avery, IV /s/ Philip J. Koen Chief Financial Officer, March 27, 2001_________________________ Corporate Development Philip J. Koen Officer and Secretary (Principal Financial and Accounting Officer) /s/ Scott Kriens Director March 27, 2001_________________________ Scott Kriens /s/ Dawn G. Lepore Director March 27, 2001_________________________ Dawn G. Lepore /s/ Andrew S. Rachleff Director March 27, 2001_________________________ Andrew S. Rachleff /s/ Michelangelo Volpi Director March 27, 2001_________________________ Michelangelo Volpi 35 INDEX TO EXHIBITS Exhibit Number Description of Document ------- ----------------------- 3.1** Amended and Restated Certificate of Incorporation of the Registrant, as amended to date. 3.2* Bylaws of the Registrant. 4.1 Reference is made to Exhibits 3.1 and 3.2. 4.2** Form of Registrant's Common Stock certificate. 4.6* Common Stock Registration Rights Agreement (See Exhibit 10.3). 4.9* Amended and Restated Investors' Rights Agreement (See Exhibit 10.6). 10.1* Indenture, dated as of December 1, 1999, by and among the Registrant and State Street Bank and Trust Company of California, N.A. (as trustee). 10.2* Warrant Agreement, dated as of December 1, 1999, by and among the Registrant and State Street Bank and Trust Company of California, N.A. (as warrant agent). 10.3* Common Stock Registration Rights Agreement, dated as of December 1, 1999, by and among the Registrant, Benchmark Capital Partners II, L.P., Cisco Systems, Inc., Microsoft Corporation, ePartners, Albert M. Avery, IV and Jay S. Adelson (as investors), and the Initial Purchasers. 10.4* Registration Rights Agreement, dated as of December 1, 1999, by and among the Registrant and the Initial Purchasers. 10.5* Form of Indemnification Agreement between the Registrant and each of its officers and directors. 10.6* Amended and Restated Investors' Rights Agreement, dated as of May 8, 2000, by and between the Registrant, the Series A Purchasers, the Series B Purchasers, the Series C Purchasers and members of the Registrant's management. 10.8* The Registrant's 1998 Stock Option Plan. 10.9*+ Lease Agreement with Carlyle-Core Chicago LLC, dated as of September 1, 1999. 10.10*+ Lease Agreement with Market Halsey Urban Renewal, LLC, dated as of May 3, 1999. 10.11*+ Lease Agreement with Laing Beaumeade, dated as of November 18, 1998. 10.12*+ Lease Agreement with Rose Ventures II, Inc., dated as of September 10, 1999. 10.13*+ Lease Agreement with 600 Seventh Street Associates, Inc., dated as of August 6, 1999. 10.14*+ First Amendment to Lease Agreement with TrizecHahn Centers, Inc. (dba TrizecHahn Beaumeade Corporate Management), dated as of October 28, 1999. 10.15*+ Lease Agreement with Nexcomm Asset Acquisition I, L.P., dated as of January 21, 2000. 10.16*+ Lease Agreement with TrizecHahn Centers, Inc. (dba TrizecHahn Beaumeade Corporate Management), dated as of December 15, 1999. 10.17* Lease Agreement with ARE-2425/2400/2450 Garcia Bayshore LLC, dated as of January 28, 2000. 10.18* Sublease Agreement with Insweb Corporation, dated as of November 1, 1998. 10.19*+ Master Agreement for Program Management, Site Identification and Evaluation, Engineering and Construction Services between Equinix, Inc. and Bechtel Corporation, dated November 3, 1999. 10.20*+ Agreement between Equinix, Inc. and WorldCom, Inc., dated November 16, 1999. 10.21* Customer Agreement between Equinix, Inc. and WorldCom, Inc., dated November 16, 1999. 36 Exhibit Number Description of Document ------- ----------------------- 10.22*+ Lease Agreement with GIP Airport B.V., dated as of April 28, 2000. 10.23* Purchase Agreement between International Business Machines Corporation and Equinix, Inc. dated May 23, 2000. 10.24** 2000 Equity Incentive Plan. 10.25** 2000 Director Option Plan. 10.26** 2000 Employee Stock Purchase Plan. 10.27** Ground Lease by and between iStar San Jose, LLC and Equinix, Inc., dated June 21, 2000. 10.28***+ Lease Agreement with TrizecHahn Beaumeade Technology Center LLC, dated as of July 1, 2000. 10.29***+ Lease Agreement with TrizecHahn Beaumeade Technology Center LLC, dated as of May 1, 2000. 10.30***+ Lease Agreement with 600 Seventh Street Associates, Inc., dated as of August 24, 2000. 10.31***+ Lease Agreement with Burlington Associates III Limited Partnership, dated as of July 24, 2000. 10.32***+ Lease Agreement with Naxos Schmirdelwerk Mainkur GmbH and A.A.A. Aktiengesellschaft Allgemeine Anlageverwaltung vorm. Seilwolff AG von 1890, dated as of August 7, 2000. 10.33***+ Lease Agreement with Quattrocento Limited, dated as of June 1, 2000. 10.34*** Lease Agreement with ARE-2425/2400/2450 Garcia Bayshore, LLC, dated as of March 20, 2000. 10.35*** First Supplement to the Lease Agreement with Naxos Schmirdelwerk Mainkur GmbH and A.A.A. Aktiengesellschaft Allgemeine Anlageverwaltung vorm. Seilwolff AG von 1890, dated as of October 11, 2000. 10.36 Credit and Guaranty Agreement for $150,000,000 Senior Secured Credit Facilities, dated as of December 20, 2000. 10.37+ Lease Agreement with Quattrocentro Limited, dated as of June 9, 2000. 10.38+ Lease Agreement with Compagnie des Entrepots et Magasins Generaux de Paris, dated as of July 28, 2000. 10.39+ Second Supplement to the Lease Agreement with Naxos Schmirdelwerk Mainkur GmbH and A.A.A. Aktiengesellschaft Allgemeine Anlageverwaltung vorm. Seilwolff AG von 1890, dated as of December 22, 2000. 10.40 Third Supplement to the Lease Agreement with Naxos Schmirdelwerk Mainkur GmbH and A.A.A. Aktiengesellschaft Allgemeine Anlageverwaltung vorm. Seilwolff AG von 1890, dated as of March 8, 2001. 16.1* Letter regarding change in certifying accountant. 21.1 Subsidiaries of Equinix. 24.1 Power of Attorney (see page 35).-------- * Incorporated herein by reference to the exhibit of the same number in the Registrant's Registration Statement on Form S-4 (file No. 333-93749). ** Incorporated herein by reference to the exhibit of the same number in the Registrant's Registration Statement in Form S-1 (file No. 333-39752).*** Incorporated herein by reference to the exhibit of the same number in the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2000. + Confidential treatment has been requested for certain portions which are omitted in the copy of the exhibit electronically filed with the Securities and Exchange Commission. The omitted information has been filed separately with the Securities and Exchange Commission pursuant to Equinix's application for confidential treatment. 37 Report of Independent Accountants To Board of Directors andStockholders of Equinix, Inc. In our opinion, the consolidated financial statements listed in the indexappearing under Item 14(a)(1) on page 32, present fairly, in all materialrespects, the financial position of Equinix, Inc. at December 31, 2000 and1999, and the results of its operations and its cash flows for each of the twoyears ended December 31, 2000 and for the period from June 22, 1998 (date ofinception) to December 31, 1998 in conformity with accounting principlesgenerally accepted in the United States of America. These financial statementsare the responsibility of the Company's management; our responsibility is toexpress an opinion on these financial statements based on our audits. Weconducted our audits of these statements in accordance with auditing standardsgenerally accepted in the United States of America, which require that we planand perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements, assessing the accounting principles used andsignificant estimates made by management, and evaluating the overall financialstatement presentation. We believe that our audits provide a reasonable basisfor our opinion. PricewaterhouseCoopers LLP San Jose, CaliforniaFebruary 1, 2001 F-1 EQUINIX, INC. Consolidated Balance Sheets (in thousands) December 31, -------------------- 2000 1999 --------- --------- AssetsCurrent assets: Cash and cash equivalents.............................. $ 174,773 $ 203,165 Short-term investments................................. 32,437 19,809 Accounts receivable, net of allowance for doubtful accounts of $608 and none............................. 4,925 178 Current portion of restricted cash and short-term investments........................................... 15,468 25,111 Prepaids and other current assets...................... 10,373 1,597 --------- --------- Total current assets................................. 237,976 249,860Property and equipment, net.............................. 315,380 28,444Construction in progress................................. 94,894 18,312Restricted cash and short-term investments, less current portion................................................. 21,387 13,498Debt issuance costs, net................................. 11,916 7,125Other assets............................................. 1,932 2,707 --------- ---------Total assets............................................. $ 683,485 $ 319,946 ========= ========= Liabilities, Redeemable Convertible Preferred Stock and Stockholders' EquityCurrent liabilities: Accounts payable and accrued expenses.................. $ 13,717 $ 4,143 Accrued construction costs............................. 89,343 9,772 Current portion of debt facilities and capital lease obligations........................................... 4,426 4,395 Accrued interest payable............................... 2,167 2,167 Other current liabilities.............................. 1,646 205 --------- --------- Total current liabilities............................ 111,299 20,682Debt facilities and capital lease obligations, less current portion......................................... 6,506 8,808Senior notes............................................. 185,908 183,955Other liabilities........................................ 4,656 802 --------- --------- Total liabilities.................................... 308,369 214,247 --------- ---------Commitments and contingencies (Note 8)Redeemable convertible preferred stock................... -- 97,227Stockholders' equity: Common stock, $0.001 par value per share; 300,000,000 and 112,500,000 shares authorized in 2000 and 1999; 76,978,852 and 11,672,196 shares issued and outstanding in 2000 and 1999.......................... 77 12 Additional paid-in capital............................. 553,070 43,962 Deferred stock-based compensation...................... (38,350) (13,706) Accumulated other comprehensive income................. 1,919 14 Accumulated deficit.................................... (141,600) (21,810) --------- --------- Total stockholders' equity........................... 375,116 8,472 --------- --------- Total liabilities, redeemable convertible preferred stock and stockholders' equity...................... $ 683,485 $ 319,946 ========= ========= See accompanying notes to consolidated financial statements. F-2 EQUINIX, INC. Consolidated Statements of Operations (in thousands, except per share data) Period from June 22, 1998 (inception) Year ended Year ended to December 31, December 31, December 31, 2000 1999 1998 ------------ ------------ ------------- Revenues............................... $ 13,016 $ 37 $ -- --------- -------- -------Costs and operating expenses: Cost of revenues (excludes stock-based compensation of $766, $177 and none for the periods ended December 31, 2000, 1999, and 1998 respectively)... 42,635 3,091 -- Sales and marketing (excludes stock- based compensation of $6,318, $1,631, and $13 for the periods ended December 31, 2000, 1999, and 1998 respectively)........................ 13,821 2,318 34 General and administrative (excludes stock-based compensation of $22,809, $4,819, and $151 for the periods ended December 31, 2000, 1999, and 1998, respectively).................. 33,776 7,784 751 Stock-based compensation.............. 29,893 6,627 164 --------- -------- ------- Total costs and operating expenses.......................... 120,125 19,820 949 --------- -------- ------- Loss from operations.................. (107,109) (19,783) (949)Interest income........................ 16,430 2,138 150Interest expense....................... (29,111) (3,146) (220) --------- -------- -------Net loss............................... $(119,790) $(20,791) $(1,019) ========= ======== =======Net loss per share: Basic and diluted..................... $ (3.48) $ (4.98) $ (1.48) ========= ======== ======= Weighted average shares............... 34,461 4,173 688 ========= ======== ======= See accompanying notes to consolidated financial statements. F-3 EQUINIX, INC. Consolidated Statements of Stockholders' Equity (Deficit) Period from June 22, 1998 (inception) to December 31, 2000 (in thousands, except per share data) Accumulated Common stock Additional Deferred other Total ------------------ paid-in stock-based comprehensive Accumulated stockholders' Shares Amount capital compensation income (loss) deficit equity (deficit) ---------- ------ ---------- ------------ ------------- ----------- ---------------- Issuance of common stockfor cash................ 6,060,000 $ 6 $ (2) $ -- $ -- $ -- $ 4Issuance of common stockupon exercise of commonstock options........... 90,000 -- 6 -- -- -- 6Deferred stock-basedcompensation............ -- -- 1,136 (1,136) -- -- --Amortization of stock-based compensation...... -- -- -- 164 -- -- 164Net loss................ -- -- -- -- -- (1,019) (1,019) ---------- --- -------- -------- ------ --------- ---------Balances as of December31, 1998................ 6,150,000 6 1,140 (972) -- (1,019) (845)Issuance of common stockupon exercise of commonstock options........... 5,522,196 6 1,280 -- -- -- 1,286Issuance of common stockwarrants................ -- -- 22,181 -- -- -- 22,181Deferred stock-basedcompensation............ -- -- 19,361 (19,361) -- -- --Amortization of stock-based compensation...... -- -- -- 6,627 -- -- 6,627Comprehensive income(loss):Net loss................ -- -- -- -- -- (20,791) (20,791)Unrealized appreciationon short-terminvestments............. -- -- -- -- 14 -- 14 ---------- --- -------- -------- ------ --------- ---------Net comprehensive loss.. -- -- -- -- 14 (20,791) (20,777) ---------- --- -------- -------- ------ --------- ---------Balances as of December31, 1999................ 11,672,196 12 43,962 (13,706) 14 (21,810) 8,472Issuance of common stockfor cash................ 115,213 -- 1,033 -- -- -- 1,033Issuance of common stockupon exercise of commonstock options........... 1,420,914 1 2,471 -- -- -- 2,472Issuance of common stockupon exercise of commonstock warrants.......... 708,059 -- 353 -- -- -- 353Issuance of common stockfrom initial publicoffering, net........... 22,704,596 23 251,459 -- -- -- 251,482Conversion of redeemableconvertible preferredstock................... 40,704,222 41 191,539 -- -- -- 191,580Issuance/revaluation ofcommon stock warrants... -- -- 7,744 -- -- -- 7,744Repurchase of commonstock................... (346,348) -- (28) -- -- -- (28)Deferred stock-basedcompensation............ -- -- 54,537 (54,537) -- -- --Amortization of stock-based compensation...... -- -- -- 29,893 -- -- 29,893Comprehensive income(loss): Net loss............... -- -- -- -- -- (119,790) (119,790) Foreign currency translation gain....... -- -- -- -- 1,992 -- 1,992 Unrealized depreciation on short-term investments............ -- -- -- -- (87) -- (87) ---------- --- -------- -------- ------ --------- --------- Net comprehensive loss................... -- -- -- -- 1,905 (119,790) (117,885) ---------- --- -------- -------- ------ --------- ---------Balances as of December31, 2000................ 76,978,852 $77 $553,070 $(38,350) $1,919 $(141,600) $ 375,116 ========== === ======== ======== ====== ========= ========= See accompanying notes to consolidated financial statements. F-4 EQUINIX, INC. Consolidated Statements of Cash Flows ( in thousands)  Period from June 22, 1998 (inception) Year ended Year ended to December 31, December 31, December 31, 2000 1999 1998 ------------ ------------ ------------- Cash flows from operating activities: Net loss.............................. $(119,790) $(20,791) $(1,019) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation......................... 14,816 609 4 Interest charge on beneficial conversion of convertible debt...... -- -- 220 Amortization of deferred stock-based compensation........................ 29,893 6,627 164 Amortization of debt-related issuance costs and discounts................. 8,445 1,010 -- Allowance for doubtful accounts...... 608 -- -- Issuance of common stock to charity.. 780 -- --Changes in operating assets and liabilities: Accounts receivable.................. (5,355) (178) -- Prepaids and other current assets.... (8,776) (1,429) (168) Other assets......................... (354) (1,244) (156) Accounts payable and accrued expenses............................ 9,574 4,481 159 Other current liabilities............ 1,441 205 -- Other liabilities.................... 645 802 -- --------- -------- ------- Net cash used in operating activities......................... (68,073) (9,908) (796) --------- -------- -------Cash flows from investing activities: Purchase of short-term investments.... (114,968) (22,812) (5,000) Sales and maturities of short-term investments.......................... 102,253 8,017 -- Purchases of property and equipment... (296,320) (28,241) (486) Additions to construction in progress............................. (74,448) (14,145) (31) Accrued construction costs............ 79,571 9,520 252 Purchase of restricted cash and short- term investments..................... (24,246) (38,609) -- Sale of restricted cash and short-term investments.......................... 26,000 -- -- --------- -------- ------- Net cash used in investing activities......................... (302,158) (86,270) (5,265) --------- -------- -------Cash flows from financing activities: Proceeds from issuance of common stock................................ 254,560 1,286 10 Proceeds from issuance of debt facilities and capital lease obligations.......................... 6,884 16,114 -- Repayment of debt facilities and capital lease obligations............ (9,955) (988) -- Proceeds from issuance of promissory notes................................ -- -- 220 Proceeds from senior notes and common stock warrants, net.................. -- 193,890 -- Repurchase of common and preferred stock................................ (28) (10) -- Proceeds from issuance of redeemable convertible preferred stock, net..... 94,353 84,886 9,996 Debt issuance costs................... (5,967) -- -- --------- -------- ------- Net cash provided by financing activities......................... 339,847 295,178 10,226 --------- -------- -------Effect of foreign currency exchange rates on cash and cash equivalents.... 1,992 -- --Net increase (decrease) in cash and cash equivalents...................... (28,392) 199,000 4,165Cash and cash equivalents at beginning of period............................. 203,165 4,165 -- --------- -------- -------Cash and cash equivalents at end of period................................ $ 174,773 $203,165 $ 4,165 ========= ======== ======= Noncash financing and investing activities: Cash paid for taxes.................. $ -- $ 68 $ -- ========= ======== ======= Cash paid for interest............... $ 28,876 $ 153 $ -- ========= ======== ======= See accompanying notes to consolidated financial statements. F-5 EQUINIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Nature of Business and Summary of Significant Accounting Policies Nature of Business Equinix, Inc. ("Equinix" or the "Company") was incorporated as QuarkCommunications, Inc. in Delaware on June 22, 1998. The Company changed its nameto Equinix, Inc. on October 13, 1998. Equinix designs, builds, and operatesneutral Internet Business Exchange ("IBX") centers where enterprises andInternet businesses place their equipment and their network facilities in orderto interconnect with each other to grow their businesses and to improveInternet performance. The Company's neutral IBX centers place our customers'operations at a central location and provide them with the highest level ofsecurity, multiple back-up services, flexibility to grow and technicalassistance. The Company's neutral IBX centers provide enterprises, contentproviders, ASPs and e-commerce companies with the ability to directlyinterconnect with a competitive choice of bandwidth providers, ISPs, sitemanagement companies and content distribution companies. For the period June 22, 1998 (inception) through December 31, 1998 and theperiod ended September 30, 1999, the Company was a development stageenterprise. Subsequent to this period, the Company opened its second IBX centerfor commercial operation. In addition, the Company began to recognize revenuefrom its IBX centers. Stock Split In January 2000, the Company's stockholders approved a three-for-two stocksplit effective January 19, 2000 whereby three shares of common stock andredeemable convertible preferred stock, respectively, were exchanged for everytwo shares of common stock and redeemable convertible preferred stock thenoutstanding. All share and per share amounts in these financial statements havebeen adjusted to give effect to the stock split. Basis of Presentation The accompanying consolidated financial statements include the accounts ofEquinix and its subsidiaries. All significant intercompany accounts andtransactions have been eliminated in consolidation. Use of Estimates The preparation of consolidated financial statements in conformity withgenerally accepted accounting principles requires management to make estimatesand assumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the consolidatedfinancial statements and the reported amounts of revenues and expenses duringthe reporting period. Actual results could differ from these estimates. Cash, Cash Equivalents and Short-Term Investments The Company considers all highly liquid instruments with a maturity from thedate of purchase of three months or less to be cash equivalents. Cashequivalents consist of money market mutual funds and certificates of depositwith financial institutions with maturities of between 7 and 60 days. Short-term investments generally consist of certificates of deposits with maturitiesof between 90 and 180 days and highly liquid debt and equity securities ofcorporations, municipalities and the U.S. government. Short-term investmentsare classified as "available-for-sale" and are carried at fair value based onquoted market prices, with unrealized gains and losses reported instockholders' equity as a component of comprehensive income. The cost ofsecurities sold is based on the specific identification method. F-6 EQUINIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Restricted Cash and Short-term Investments Restricted cash and short-term investments as of December 31, 2000 consistedof $12,801,000 deposited with an escrow agent to pay the third interest paymenton the Senior Notes (see Note 4) and restricted cash of $24,054,000 ascollateral for the issuance of twelve standby letters of credit, two bonds andthree escrow accounts entered into and pursuant to certain lease agreements.These agreements expire at various dates through 2014. Restricted cash and short-term investments as of December 31, 1999 consistedof $37,079,000 deposited with an escrow agent to pay the first three interestpayments on the Senior Notes and restricted cash of $1,530,000 provided ascollateral under three separate security agreements for standby letters ofcredit entered into and in accordance with certain lease agreements. Theseagreements expire at various dates through 2014. Financial Instruments and Concentration of Credit Risk Financial instruments, which potentially subject the Company toconcentrations of credit risk, consist of cash, cash equivalents and short-terminvestments to the extent these exceed federal insurance limits and accountsreceivable. Risks associated with cash, cash equivalents and short-terminvestments are mitigated by the Company's investment policy, which limits theCompany's investing to only those marketable securities rated at least A-1 orP-1 investment grade, as determined by independent credit rating agencies. The Company's customer base is primarily composed of businesses throughoutthe United States. The Company performs ongoing credit evaluations of itscustomers. Write-offs since inception have been immaterial. As of December 31,2000, two customers accounted for 12% and 11% of revenues and two customersaccounted for 19% and 14% of accounts receivables. No other single customeraccounted for greater than 10% of accounts receivables or revenues. Property and Equipment Property and equipment are stated at original cost. Depreciation is computedusing the straight-line method over the estimated useful lives of therespective assets, generally two to five years for non-IBX center equipment andseven to ten years for IBX center equipment. Leasehold improvements and assetsacquired under capital lease are amortized over the shorter of the lease termor the estimated useful life of the asset or improvement. Construction in Progress Construction in progress includes direct and indirect expenditures for theconstruction of IBX centers and is stated at original cost. The Company hascontracted out substantially all of the construction of the IBX centers toindependent contractors under construction contracts. Construction in progressincludes certain costs incurred under a construction contract including projectmanagement services, site identification and evaluation services, engineeringand schematic design services, design development and construction services andother construction-related fees and services. In addition, the Company hascapitalized certain interest costs during the construction phase. Once an IBXcenter becomes operational, these capitalized costs are depreciated at theappropriate rate consistent with the estimated useful life of the underlyingasset. Included within construction in progress is the value attributed to theunearned portion of warrants issued to certain fiber carriers and ourcontractor totaling $6,270,000 as of December 31, 2000 and $4,136,000 as ofDecember 31, 1999 (see Note 6). F-7 EQUINIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Interest incurred is capitalized in accordance with Statement of FinancialAccounting Standards ("SFAS") No. 34, Capitalization of Interest Costs. Totalinterest cost incurred and total interest capitalized during the year endedDecember 31, 2000 was $34,102,000 and $4,991,000, respectively. Total interestcost incurred and total interest capitalized during the year ended December 31,1999, was $3,324,000 and $177,000, respectively. Fair Value of Financial Instruments The carrying value amounts of the Company's financial instruments, whichinclude cash equivalents, short-term investments, accounts receivable, accountspayable, accrued expenses and long-term obligations approximate their fairvalue due to either the short-term maturity or the prevailing interest rates ofthe related instruments. The fair value of the Company's Senior Notes (see Note4) are based on quoted market prices. The estimated fair value of the SeniorNotes is approximately $140,000,000 as of December 31, 2000. Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of In accordance with SFAS No. 121, Accounting for the Impairment of Long-LivedAssets and for Long-Lived Assets to Be Disposed Of, the Company considers theimpairment of long-lived assets and certain identifiable intangibles wheneverevents or changes in circumstances indicate that the carrying amount of suchassets may not be recoverable. Recoverability of assets to be held and used ismeasured by a comparison of the carrying amount of an asset to future net cashflows expected to be generated by the asset. If such assets are considered tobe impaired, the impairment to be recognized is measured by the amount by whichthe carrying amount of the assets exceeds the fair value of the assets. Assetsto be disposed of are reported at the lower of the carrying amount or fairvalue less costs to sell. No impairment of long-lived assets has been recordedas of December 31, 1999. In December 2000, based on the uncertainty of theCompany's future business relationship with NorthPoint (see Note 6), as aresult of their filing under Chapter 11 bankruptcy protection, the Companydetermined that the future value of the other asset attributed to theunamortized portion of the fully-vested, nonforfeitable warrant wasquestionable and accordingly, the remaining asset totaling approximately$700,000 was written off. Revenue Recognition Revenues consist of monthly recurring fees for colocation andinterconnection services at the IBX centers, service fees associated with thedelivery of professional services and non-recurring installation fees. Revenuesfrom colocation and interconnection services are billed monthly and recognizedratably over the term of the contract, generally one to three years.Professional service fees are recognized in the period in which the serviceswere provided and represent the culmination of the earnings process. Non-recurring installation fees are deferred and recognized ratably over the termof the related contract. Income Taxes Income taxes are accounted for under the asset and liability method.Deferred tax assets and liabilities are recognized for the future taxconsequences attributable to differences between financial statement carryingamounts of existing assets and liabilities and their respective tax bases andoperating loss and tax credit carryforwards. Deferred tax assets andliabilities are measured using enacted tax rates expected to apply to taxableincome in the years in which those temporary differences are expected to berecovered or settled. The effect on deferred tax assets and liabilities of achange in tax rates is recognized in income in the period that includes theenactment date. Valuation allowances are established when necessary to reducetax assets to the amounts expected to be realized. F-8 EQUINIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Stock-Based Compensation The Company accounts for its stock-based compensation plans in accordancewith SFAS No. 123, Accounting for Stock-Based Compensation. As permitted underSFAS No. 123, the Company uses the intrinsic value-based method of AccountingPrinciples Board ("APB") Opinion No. 25, Accounting for Stock Issued toEmployees, to account for its employee stock-based compensation plans. The Company accounts for stock-based compensation arrangements withnonemployees in accordance with the Emerging Issues Task Force Abstract("EITF") No. 96-18, Accounting for Equity Instruments That Are Issued to OtherThan Employees for Acquiring, or in Conjunction with Selling Goods or Services.Accordingly, unvested options and warrants held by nonemployees are subject torevaluation at each balance sheet date based on the then current fair marketvalue. Unearned deferred compensation resulting from employee and nonemployeeoption grants is amortized on an accelerated basis over the vesting period ofthe individual options, in accordance with FASB Interpretation No. 28,Accounting for Stock Appreciation Rights and Other Variable Stock Option orAward Plans ("FASB Interpretation No. 28"). Segment Reporting The Company has adopted the provisions of SFAS No. 131, Disclosures aboutSegments of an Enterprise and Related Information. SFAS No. 131 establishesannual and interim reporting standards for operating segments of a company. Thestatement requires disclosures of selected segment-related financialinformation about products, major customers and geographic areas. Comprehensive Income The Company has adopted the provisions of SFAS No. 130, ReportingComprehensive Income. SFAS No. 130 establishes standards for the reporting anddisplay of comprehensive income and its components; however, the adoption ofthis statement had no impact on the Company's net loss or stockholders' equity.SFAS 130 requires unrealized gains or losses on the Company's available-for-sale securities to be included in other comprehensive income (loss).Comprehensive income (loss) consists of net loss and other comprehensiveincome. Net Loss Per Share The Company computes net loss per share in accordance with SFAS No. 128,Earnings per Share, and SEC Staff Accounting Bulletin ("SAB") No. 98. Under theprovisions of SFAS No. 128 and SAB No. 98 basic and diluted net loss per shareare computed using the weighted average number of common shares outstanding.Options, warrants and preferred stock were not included in the computation ofdiluted net loss per share because the effect would be antidilutive. F-9 EQUINIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The following table sets forth the computation of basic and diluted net lossper share for the periods indicated. Period from June 22, 1998 Year ended Year ended to December 31, December 31, December 31, 2000 1999 1998 ------------- ------------ ------------- Numerator: Net loss...................... $(119,790,000) $(20,791,000) $(1,019,000) ============= ============ =========== Denominator: Weighted average shares....... 40,672,055 8,751,001 3,174,917 Weighted average unvested shares subject to repurchase................... (6,211,392) (4,578,122) (2,486,889) ------------- ------------ ----------- Total weighted average shares..................... 34,460,663 4,172,879 688,028 ============= ============ =========== Net loss per share: Basic and diluted........... $ (3.48) $ (4.98) $ (1.48) ============= ============ =========== The following table sets forth potential shares of common stock that are notincluded in the diluted net loss per share calculation above because to do sowould be anti-dilutive for the periods indicated: Year ended Year ended Year ended Year ended Year ended Year ended December 31, December 31, December 31, 2000 1999 1998 ------------ ------------ ------------ Series A redeemable convertible preferred stock................... -- 18,682,500 15,697,500 Series B redeemable convertible preferred stock................... -- 15,759,561 -- Series A preferred stock warrants.. -- 1,245,000 -- Common stock warrants.............. 3,707,245 1,365,645 -- Common stock options............... 8,893,292 2,780,988 2,074,050 Common stock subject to repurchase........................ 6,211,392 4,578,122 2,486,889 Recent Accounting Pronouncements In September 1998, the Financial Accounting Standards Board issued Statementof Financial Accounting Standards, or SFAS, No. 133, Accounting for DerivativeInstruments and Hedging Activities. In June 1999, the Financial AccountingStandards Board ("FASB") issued Statement of Financial Accounting Standards No.137 ("SFAS 137"), "Accounting for Derivative Instruments and HedgingActivities--Deferral of the Effective Date of FASB Statement No. 133." In June2000, the FASB issued SFAS 138, "Accounting for Certain Derivative Instrumentsand Certain Hedging Activities--an Amendment of FASB Statement No. 133." SFAS133 establishes new standards of accounting and reporting for derivativeinstruments and hedging activities, and requires that all derivatives,including foreign currency exchange contracts, be recognized on the balancesheet at fair value. Equinix will adopt SFAS 133, as amended by SFAS 137 andSFAS 138, in the first fiscal quarter of 2001, and does not expect the adoptionto have a material effect on its financial condition or results of operations. In December 1999, the SEC issued Staff Accounting Bulletin ("SAB") 101,Revenue Recognition, which outlines the basic criteria that must be met torecognize revenue and provides guidance for presentation of revenue and fordisclosure related to revenue recognition policies in financial statementsfiled with the SEC. The adoption of SAB 101 did not have a material impact onthe Company's financial position and results of operations. F-10 EQUINIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) In March 2000, the FASB issued Interpretation No. 44, ("FIN 44"), Accountingfor Certain Transactions Involving Stock Compensation--an Interpretation of APB25. This Interpretation clarifies (a) the definition of employee for purposesof applying Opinion 25, (b) the criteria for determining whether a planqualifies as a noncompensatory plan, (c) the accounting consequence of variousmodifications to the terms of a previously fixed stock option or award, and (d)the accounting for an exchange of stock compensation awards in a businesscombination. This Interpretation is effective July 1, 2000, but certainconclusions in this Interpretation cover specific events that occur aftereither December 15, 1998, or January 12, 2000. The adoption of certain of theconclusions of FIN 44 did not have a material effect on the Company's financialposition and results of operations. 2. Balance Sheet Components Cash, Cash Equivalents and Short-term Investments Cash, cash equivalents and short-term investments consisted of the followingas of December 31 (in thousands):  2000 1999 --------- --------- Money market......................................... $ 72,325 $ 11,144 Municipal bonds...................................... 19,557 -- US government and agency obligations................. 19,049 -- Corporate bonds...................................... 2,024 -- Other debt securities................................ 94,255 211,830 --------- --------- Total available-for-sale securities................ 207,210 222,974 Less amounts classified as cash and cash equivalents....................................... (174,773) (203,165) --------- --------- Total market value of short-term investments....... $ 32,437 $ 19,809 ========= ========= As of December 31, 2000 and 1999, cost approximated market value of cash,cash equivalents and short-term investments; unrealized gains and losses werenot significant. As of December 31, 2000, cash equivalents included investmentsin corporate debt securities with various contractual maturity dates which donot exceed 90 days. Gross realized gains and losses from the sale of securitiesclassified as available-for-sale were not material for the years ended December31, 2000 and 1999. For the purpose of determining gross realized gains andlosses, the cost of securities is based upon specific identification. Property & Equipment Property and equipment is comprised of the following as of December 31 (inthousands): 2000 1999 -------- ------- Leasehold improvements.................................... $243,851 $16,664 IBX plant and machinery................................... 51,305 8,235 Computer equipment and software........................... 12,438 3,126 IBX equipment............................................. 21,960 659 Furniture and fixtures.................................... 1,241 374 -------- ------- 330,795 29,058 Less accumulated depreciation............................. (15,415) (614) -------- ------- $315,380 $28,444 ======== ======= F-11 EQUINIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Leasehold improvements, certain computer equipment, software and furnitureand fixtures recorded under capital leases aggregated $5,999,000 as ofDecember 31, 2000 and $661,000 as of December 31, 1999. Amortization on theassets recorded under capital leases is included in depreciation expense. Included within leasehold improvements is the value attributed to theearned portion of the WorldCom Venture Fund Warrant, the Bechtel Warrant, andthe Fiber Warrant totaling $4,233,000, $758,000, and $770,000, respectively,as of December 31, 2000 and $330,000, none, and none, respectively, as ofas of December 31, 2000 and $330,000, none, and none, respectively, as ofDecember 31, 1999 (see Note 6). Amortization on such warrants is included indepreciation expense. Restricted Cash and Short-term Investments Restricted cash and short-term investments consisted of the following as ofDecember 31 (in thousands): 2000 1999 -------- -------- United States treasury notes: Due within one year..... $ 15,468 $ 25,111 Due after one year through two years...... -- 11,968 Restricted cash in accordance with security agreements............... 21,387 1,530 -------- -------- 36,855 38,609 Less current portion...... (15,468) (25,111) -------- -------- $ 21,387 $ 13,498 ======== ======== As of December 31, 2000 and December 31, 1999, cost approximated marketvalue of restricted cash and short-term investments; unrealized gains andlosses were not significant. Accounts Payable and Accrued Expenses Accounts payable and accrued expenses consisted of the following as ofDecember 31 (in thousands): 2000 1999 ------- ------ Accounts payable............................................. $ 8,270 $1,978 Accrued compensation and benefits............................ 2,613 303 Accrued debt issuance costs.................................. 593 490 Other........................................................ 2,241 1,372 ------- ------ $13,717 $4,143 ======= ====== 3. Debt Facilities and Capital Lease Obligations Debt facilities and capital lease obligations consisted of the following asof December 31 (in thousands): 2000 1999 ------- ------- Comdisco Loan and Security Agreement (net of unamortized discount of none and $901 as of December 31, 2000 and 1999, respectively)..................................... $ -- $ 4,141 Venture Leasing Loan Agreement (net of unamortized discount of $727 and $1,034 as of December 31, 2000 and 1999, respectively) 6,138 8,417 Comdisco Master Lease Agreement and Addendum (net of unamortized discount of $412 and $12 as of December 31, 2000 and 1999, respectively) 4,794 645 ------- ------- 10,932 13,203 Less current portion..................................... (4,426) (4,395) ------- ------- $ 6,506 $ 8,808 ======= ======= F-12 EQUINIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Comdisco Loan and Security Agreement In March 1999, one of the Company's subsidiaries entered into a $7,000,000Loan and Security Agreement with Comdisco, Inc. ("Comdisco" and the "ComdiscoLoan and Security Agreement"). In December 2000, the outstanding principal andinterest balance under this facility, including the final balloon interestpayment, was repaid in full. Under the terms of the Comdisco Loan and SecurityAgreement, Comdisco agreed to lend the Company up to $3,000,000 for equipment(referred to as the "hard" loan) and up to $4,000,000 for software and tenantimprovements ("soft" loan) for the Ashburn, Virginia IBX center buildout. Theloans, which were collateralized by the assets of the Ashburn IBX, wereavailable in minimum advances of $1,000,000 and each loan was evidenced by asecured promissory note. The hard and soft loans issued beared interest atrates of 7.5% and 9% per annum, respectively, and were repayable in 42 and 36equal monthly installments, respectively, plus a final balloon interest paymentequal to 15% of the original advance amount. The Comdisco Loan and SecurityAgreement had an effective interest rate of 18.1% per annum. In connection with the Comdisco Loan and Security Agreement, the Companygranted Comdisco a warrant to purchase 765,000 shares of the Company's Series Aredeemable convertible preferred stock at $0.67 per share (the "Comdisco Loanand Security Agreement Warrant"). This warrant is immediately exercisable andexpires in ten years from the date of grant. The fair value of the warrant,using the Black-Scholes option pricing model with the following assumptions:deemed fair market value per share of $1.80, dividend yield of 0%, expectedvolatility of 80%, risk-free interest rate of 5.0% and a contractual life of 10years, was $1,255,000. Such amount was recorded as a discount to the applicabledebt, and was being amortized to interest expense, using the effective interestmethod, over the life of the agreement. The remaining unamortized discount wasamortized when the loan was paid in full in December 2000. Comdisco Master Lease Agreement In May 1999, the Company entered into a Master Lease Agreement with Comdisco(the "Comdisco Master Lease Agreement"). Under the terms of the Comdisco MasterLease Agreement, the Company sells equipment to Comdisco, which it will thenlease back. The amount of financing to be provided is up to $1,000,000.Repayments are made monthly over 42 months with a final balloon interestpayment equal to 15% of the balance amount due at maturity. Interest accrues at7.5% per annum. The Comdisco Master Lease Agreement has an effective interestrate of 14.6% per annum. As of December 31, 2000, $740,200 was outstandingunder the Comdisco Master Lease Agreement. The Company leases certain leasehold improvements, computer equipment andsoftware and furniture and fixtures under capital leases under the ComdiscoMaster Lease Agreement. These leases were entered into as sales-leasebacktransactions. The Company deferred a gain of $78,000 related to the sale-leaseback in July 1999, and a deferred loss of $19,000 related to the sale-leasebacks in fiscal 2000, which is being amortized in proportion to theamortization of the leased assets. In connection with the Comdisco Master Lease Agreement, the Company grantedComdisco a warrant to purchase 30,000 shares of the Company's Series Aredeemable convertible preferred stock at $1.67 per share (the "Comdisco MasterLease Agreement Warrant"). This warrant is immediately exercisable and expiresin ten years from the date of grant. The fair value of the warrant using theBlack-Scholes option pricing model with the following assumptions: deemed fairmarket value per share of $3.00, dividend yield 0%, expected volatility of 80%,risk-free interest rate of 5.0% and a contractual life of 10 years, was$80,000. Such amount was recorded as a discount to the applicable capital leaseobligation, and is being amortized to interest expense, using the effectiveinterest method, over the life of the agreement. F-13 EQUINIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Comdisco Master Lease Agreement Addendum In August 1999, the Company amended the Comdisco Master Lease Agreement.Under the terms of the Comdisco Master Lease Agreement Addendum, the Companysells equipment (hard items) and software and tenant improvements (soft items)in its San Jose IBX center to Comdisco, which it then leases back. The amountof financing available under the Comdisco Master Lease Agreement Addendum is upto $2,150,000 for hard items and up to $2,850,000 for soft items. Amounts drawnunder this addendum will be collateralized by the underlying hard and softassets of the San Jose IBX center that were funded under the Comdisco MasterLease Agreement Addendum. Repayments are made monthly over the course of 42months. Interest accrues at 8.5% per annum, with a final balloon interestpayment equal to 15% of the original acquisition cost of the property financed.The Comdisco Master Lease Agreement Addendum has an effective interest rate of15.3% per annum. As of December 31, 2000, $4,466,000 was outstanding under theComdisco Master Lease Agreement Addendum. In connection with the Comdisco Master Lease Agreement Addendum, the Companygranted Comdisco a warrant to purchase 150,000 shares of the Company's Series Aredeemable convertible preferred stock at $3.00 per share (the "Comdisco MasterLease Agreement Addendum Warrant"). This warrant is immediately exercisable andexpires in seven years from the date of grant or three years from the effectivedate of the Company's initial public offering, whichever is shorter. The fairvalue of the warrant using the Black-Scholes option pricing model with thefollowing assumptions: deemed fair market value per share of $4.80, dividendyield 0%, expected volatility of 80%, risk-free interest rate of 5.0% and acontractual life of seven years, was $587,000. Such amount was recorded as adiscount to the applicable capital lease obligation, and is being amortized tointerest expense, using the effective interest method, over the life of theagreement. Venture Leasing Loan Agreement In August 1999, the Company entered into a Loan Agreement with VentureLending & Leasing II, Inc. and other lenders ("VLL" and the "Venture LeasingLoan Agreement"). The Venture Leasing Loan Agreement provides financing forequipment and tenant improvements at the Newark, New Jersey IBX center and asecured term loan facility for general working capital purposes. The amount offinancing to be provided is up to $10,000,000, which may be used to finance upto 85% of the projected cost of tenant improvements and equipment for theNewark IBX center and is collateralized by the assets of the Newark IBX. Notesissued bear interest at a rate of 8.5% per annum and are repayable in 42monthly installments plus a final balloon interest payment equal to 15% of theoriginal advance amount due at maturity and are collateralized by the assets ofthe New Jersey IBX. The Venture Leasing Loan Agreement has an effectiveinterest rate of 14.7% per annum. As of December 31, 2000, $6,865,000 wasoutstanding under the Venture Leasing Loan Agreement. In connection with the Venture Leasing Loan Agreement, the Company grantedVLL a warrant to purchase 300,000 shares of the Company's Series A redeemableconvertible preferred stock at $3.00 per share (the "Venture Leasing LoanAgreement"). This warrant is immediately exercisable and expires on June 30,2006. The fair value of the warrant using the Black-Scholes option pricingmodel with the following assumptions: deemed fair market value per share of$4.80, dividend yield 0%, expected volatility of 80%, risk-free interest rateof 5.0% and a contractual life of seven years, was $1,174,000. Such amount wasrecorded as a discount to the applicable debt, and is being amortized tointerest expense, using the effective interest method, over the life of theagreement. F-14 EQUINIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Maturities Combined aggregate maturities for debt facilities and future minimum capitallease obligations as of December 31, 2000 are as follows (in thousands): Capital Debt lease facilities obligations Total ---------- ----------- ------- 2001....................................... $ 2,815 $ 1,611 $ 4,426 2002....................................... 3,063 1,744 4,807 2003....................................... 987 1,716 2,703 2004 and thereafter........................ -- 135 135 ------- ------- ------- 6,865 5,206 12,071 Less amount representing unamortized discount................................ (727) (412) (1,139) ------- ------- ------- 6,138 4,794 10,932 Less current portion..................... (2,815) (1,611) (4,426) ------- ------- ------- $ 3,323 $ 3,183 $ 6,506 ======= ======= ======= 4. Senior Notes On December 1, 1999, the Company issued 200,000 units, each consisting of a$1,000 principal amount 13% Senior Note due 2007 (the "Senior Notes") and onewarrant to purchase 16.8825 shares (for an aggregate of 3,376,500 shares) ofcommon stock for $0.0067 per share (the "Senior Note Warrants"), for aggregatenet proceeds of $193,400,000, net of offering expenses. Of the $200,000,000gross proceeds, $16,207,000 was allocated to additional paid-in capital for thedeemed fair value of the Senior Note Warrants and recorded as a discount to theSenior Notes. The discount on the Senior Notes is being amortized to interestexpense, using the effective interest method, over the life of the debt. TheSenior Notes have an effective interest rate of 14.1% per annum. The fair valueattributed to the Senior Note Warrants was consistent with the Company'streatment of its other common stock transactions prior to the issuance of theSenior Notes. The fair value was based on recent equity transactions by theCompany. The amount of the Senior Notes, net of the unamortized discount, is$185,908,000 as of December 31, 2000. As of December 31, 2000, restricted cash and short-term investments,including accrued interest thereon, includes $12,801,000 deposited with anescrow agent that will be used to pay the third interest payment. Interest ispayable semi-annually, in arrears, on June 1 and December 1 of each year. TheSenior Notes are partially collateralized by the restricted cash and short-terminvestments. Except for this security interest, the notes are unsecured, seniorobligations of the Company and are effectively subordinated to all existing andfuture indebtedness of the Company, whether or not secured. The Senior Notes are governed by the Indenture dated December 1, 1999,between the Company, as issuer, and State Street Bank and Trust Company ofCalifornia, N.A., as trustee (the "Indenture"). Subject to certain exceptions,the Indenture restricts, among other things, the Company's ability to incuradditional indebtedness and the use of proceeds therefrom, pay dividends, incurcertain liens to secure indebtedness or engage in merger transactions. The costs related to the issuance of the Senior Notes were capitalized andare being amortized to interest expense using the effective interest method,over the life of the Senior Notes. Debt issuance costs, net of amortization,are $5,950,000 as of December 31, 2000. F-15 EQUINIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 5. Senior Secured Credit Facility On December 20, 2000 Company, and a newly created, wholly-owned subsidiary,entered into a $150 million Senior Secured Credit Facility ("Credit Facility")with a syndicate of lenders. The Credit Facility consists of the following: . Term loan facility in the amount of $50,000,000. The outstanding term loan amount is required to be paid in quarterly installments beginning in March 2003 and ending in December 2005. None of the term loan facility was drawn down as of December 31, 2000 (see Note 11). . Delayed draw term loan facility in the amount of $75,000,000. The Company is required to borrow the entire facility on or before December 20, 2001. The outstanding delayed draw term loan amount is required to be paid in quarterly installments beginning in March 2003 and ending in December 2005. None of the delayed draw term loan facility was drawn down as of December 31, 2000 (see Note 11). . Revolving credit facility in an amount up to $25,000,000. The outstanding revolving credit facility is required to be paid in full on or before December 15, 2005. None of the revolving credit facility was drawn down as of December 31, 2000. The Credit Facility has a number of covenants, which include reachingcertain minimum revenue targets and limiting cumulative EBITDA losses andmaximum capital spending limits among others. The Company was in compliancewith all covenants as of December 31, 2000. Borrowings under the Credit Facility are collateralized by a first prioritylien against substantially all of the Company's assets. The lenders under theCredit Facility have agreed that the liens which collateralize the CreditFacility may also collateralize an additional $100,000,000 of additionalborrowings in the event the Credit Facility is extended, but the lenders haveno obligation to provide such additional financing. Loans under the Credit Facility bear interest at floating rates, plusapplicable margins, based on either the prime rate or LIBOR. At December 31,2000, had the Company drawn down on the Credit Facility, the effective interestrate would have been approximately 10.82%. The costs related to the issuance of the Credit Facility were capitalizedand are being amortized to interest expense using the effective interestmethod, over the life of the Credit Facility. Debt issuance costs, net ofamortization, are $5,966,000 as of December 31, 2000. 6. Redeemable Convertible Preferred Stock and Stockholders' Equity In August 1999, the Company amended and restated its Certificate ofIncorporation to increase the authorized share capital to 112,500,000 shares ofcommon stock and 45,000,000 shares of redeemable convertible preferred stock,of which 21,000,000 has been designated as Series A and 24,000,000 as Series B. In January 2000, the Company's stockholders approved a three-for-two stocksplit of its common and redeemable convertible preferred stock effectiveJanuary 19, 2000. The Company amended and restated its Certificate ofIncorporation to increase the authorized share capital to 132,000,000 shares ofcommon stock and F-16 EQUINIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 68,000,000 shares of redeemable convertible preferred stock, of which32,000,000 has been designated as Series A and 36,000,000 as Series B, to giveeffect to the three-for-two stock split. The accompanying consolidatedfinancial statements have been adjusted to reflect this stock split. In May 2000, the Company amended and restated its Certificate ofIncorporation to change the authorized share capital to 80,000,000 shares ofcommon stock and 43,000,000 shares of redeemable convertible preferred stock,of which 20,000,000 has been designated as Series A, 16,000,000 has beendesignated as Series B and 7,000,000 has been designated as Series C. In August 2000, the Company amended and restated its Certificate ofIncorporation to change the authorized share capital to 300,000,000 shares ofcommon stock and 10,000,000 shares of preferred stock. Redeemable Convertible Preferred Stock On September 10, 1998, 15,037,500 shares of Series A redeemable convertiblepreferred stock were issued at a price of $0.67 per share. Concurrent with theissuance of the Series A redeemable convertible preferred stock, promissorynotes of $220,000 were converted into 660,000 shares of Series A redeemableconvertible preferred stock. During July 1998, the Company had borrowed$220,000 in the aggregate under a convertible loan arrangement with a number ofindividual investors. The loans accrued interest of 5.83% per annum whileoutstanding, which was paid in cash. During the period ended December 31, 1998,the Company recorded a charge of $220,000 to account for the "in the money"conversion right of the convertible loan arrangement. On January 27, 1999,3,000,000 shares of Series A redeemable convertible preferred stock wereissued, at a price of $0.67 per share in the second closing of the Series Afinancing. Between August and December 1999, the Company completed its Series Bredeemable convertible preferred stock financing. The Company issued 15,759,561shares of Series B redeemable convertible preferred stock, at a price of $5.33per share. As of December 31, 1999, there were 18,682,500 and 15,759,561 shares ofSeries A and B redeemable convertible preferred stock issued and outstanding,respectively, with a total liquidation value of $12,517,000 for Series A and$83,998,000 for Series B. Between May and June 2000, the Company completed its Series C redeemableconvertible preferred stock financing. The Company issued 6,261,161 shares ofSeries C redeemable convertible preferred stock, at a price of $15.08 per share All shares of redeemable convertible preferred stock were converted toshares of common stock on a one-for-one basis upon the closing of the Company'sinitial public offering ("IPO) in August 2000. All outstanding warrants topurchase preferred stock are now exercisable for common stock. Common Stock On August 11, 2000 the Company completed an IPO of 20,000,000 shares of itscommon stock. On September 7, 2000 the underwriters exercised their option topurchase 2,704,596 shares to cover the over-allotment of shares. The Company's founders purchased 6,060,000 shares of stock. Approximately5,454,000 shares are subject to restricted stock purchase agreements wherebythe Company has the right to repurchase the stock upon voluntary or involuntarytermination of the founder's employment with the Company at $0.00033 per share.The Company's repurchase right lapses at a rate of 25% per year. In May 2000,the board of directors F-17 EQUINIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) agreed to waive the repurchase right with respect to one of the founder'sunvested shares. As of December 31, 2000 and 1999, 1,022,625 and 3,408,750shares are subject to repurchase at a price of $0.00033 per share,respectively. Upon the exercise of certain unvested stock options, the Company issued toemployees common stock which is subject to repurchase by the Company at theoriginal exercise price of the stock option. This right lapses over the vestingperiod. As of December 31, 2000 and 1999, there were 3,114,743 and 4,499,518shares, respectively, subject to repurchase. At December 31, 2000, the Company has reserved the following shares ofauthorized but unissued shares of common stock for future issuance: Common stock warrants............................................. 6,746,095 Common stock options.............................................. 13,826,048 Common stock purchase plan........................................ 1,000,000 ---------- 21,572,143 ========== Stock Purchase Plan In May 2000, the Company adopted the Employee Stock Purchase Plan (the"Purchase Plan") under which 1,000,000 shares have been reserved for issuancethereafter. On each January 1, the number of shares in reserve willautomatically increase by 2% of the total number of shares of common stockoutstanding at that time, or, if less, by 600,000 shares. The Puchase Planpermits purchases of common stock via payroll deductions. The maximum payrolldeduction is 15% of the employee's cash compensation. Purchases of the commonstock will occur on February 1 and August 1 of each year. The price of eachshare purchased will be 85% of the lower of:  . The fair market value per share of common stock on the date immediately before the first day of the applicable offering period (which lasts 24 months); or . The fair market value per share of common stock on the purchase date. The value of the shares purchased in any calendar year may not exceed$25,000. As of December 31, 2000 no shares have been issued under the Purchase Plan. Stock Option Plans In September 1998, the Company adopted the 1998 Stock Plan. In May 2000, theCompany adopted the 2000 Equity Incentive Plan and 2000 Director Stock OptionPlan (collectively, the "Plans") under which nonstatutory stock options andrestricted stock may be granted to employees, outside directors, consultants,and incentive stock options may be granted to employees. Accordingly, theCompany has reserved a total of 20,512,810 shares of the Company's common stockfor issuance upon the grant of restricted stock or exercise of options grantedin accordance with the Plans. On each January 1, commencing with the year 2001,the number of shares in reserve will automatically increase by 6% of the totalnumber of shares of common stock that are outstanding at that time or, if less,by 6,000,000 shares for the 2000 Equity Incentive Plan and by 50,000 shares forthe 2000 Director Stock Option Plan. Options granted under the Plans generallyexpire 10 years following the date of grant and are subject to limitations ontransfer. The Plans are administered by the Board of Directors. The Plans provide for the granting of incentive stock options at not lessthan 100% of the fair market value of the underlying stock at the grant date.Nonstatutory options may be granted at not less than 85% of the fair marketvalue of the underlying stock at the date of grant. F-18 EQUINIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Option grants under the Plans are subject to various vesting provisions,all of which are contingent upon the continuous service of the optionee andmay not impose vesting criterion more restrictive than 20% per year. Stockoptions may be exercised at anytime subsequent to grant. Stock obtainedthrough exercise of unvested options is subject to repurchase at the originalpurchase price. The Company's repurchase right decreases as the shares vestunder the original option terms. Options granted to stockholders who own greater than 10% of the outstandingstock must have vesting periods not to exceed five years and must be issued atprices not less than 110% of the fair market value of the stock on the date ofgrant as determined by the Board of Directors. Upon a change of control, allshares granted under the Plans shall immediately vest. A summary of the Plans is as follows: Weighted- average Shares exercise available Number of price per for grant shares share ---------- ---------- --------- Initial shares authorized.................. 8,262,810 -- $ -- Options granted............................ (2,164,050) 2,164,050 0.07 Options exercised.......................... -- (90,000) 0.07 ---------- ---------- Balances, December 31, 1998................ 6,098,760 2,074,050 0.07 Options granted............................ (6,404,040) 6,404,040 0.46 Options exercised.......................... -- (5,522,196) 0.23 Options forfeited.......................... 340,500 (340,500) 0.06 ---------- ---------- Balances, December 31, 1999................ 35,220 2,615,394 0.68 Additional shares authorized............... 12,250,000 -- -- Options granted............................ (8,160,625) 8,160,625 5.48 Options exercised.......................... -- (1,420,914) 1.74 Options forfeited.......................... 461,813 (461,813) 6.43 Shares repurchased......................... 346,348 -- 0.08 ---------- ---------- Balances, December 31, 2000................ 4,932,756 8,893,292 4.62 ========== ========== The following table summarizes information about stock options outstandingas of December 31, 2000: Outstanding Exercisable ------------------------------------ ----------------- Weighted- Weighted- Weighted- average average Number average Number of remaining exercise of exercise Range of exercise prices shares contractual life price shares price ------------------------ --------- ---------------- --------- ------- --------- $0.01 to $0.67.......... 671,469 8.07 $0.15 164,945 $0.13 $0.67 to $1.00.......... 707,250 8.86 1.00 26,172 1.00 $1.01 to $2.67.......... 155,625 8.93 2.67 18,313 2.67 $2.68 to $4.94.......... 4,549,304 9.36 4.39 507,453 4.45 $4.95 to $7.00.......... 2,517,444 9.66 6.94 -- -- $7.01 to $9.75.......... 292,200 9.79 8.33 -- -- --------- ------- 8,893,292 9.31 4.62 716,883 3.28 ========= ======= F-19 EQUINIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The weighted-average remaining contractual life of options outstanding atDecember 31, 2000 and December 31, 1999 was 9.31 years and 9.53 years,respectively. Stock-Based Compensation Employees The Company uses the intrinsic-value method prescribed in APB No. 25 inaccounting for its stock-based compensation arrangements with employees. Stock-based compensation expense is recognized for employee stock option grants inthose instances in which the deemed fair value of the underlying common stockwas subsequently determined to be greater than the exercise price of the stockoptions at the date of grant. The Company recorded deferred stock-basedoptions at the date of grant. The Company recorded deferred stock-basedcompensation related to employees of $53,206,000 and $18,719,000 and for theyears ended December 31, 2000 and 1999, respectively, and $28,796,000,$6,067,000 and $135,000 has been amortized to stock-based compensation expensefor the period and years ended December 31, 2000, 1999 and 1998, respectively,on an accelerated basis over the vesting period of the individual options, inaccordance with FASB Interpretation No. 28. The weighted average estimated fairvalue of employee stock options granted at exercise prices below market priceat grant during 2000, 1999 and 1998 was $8.64, $3.19 and $0.54 per share,respectively. Had compensation costs been determined using the fair value method for theCompany's stock-based compensation plans including the employee stock purchaseplan, net loss would have been changed to the amounts indicated below: Period from June 22, 1998 Year ended Year ended (inception) December 31, December 31, to December 2000 1999 31, 1998 ------------- ------------ ----------- Net loss: As reported...................... $(119,790,000) $(20,791,000) $(1,019,000) Pro forma........................ (122,845,000) (21,128,000) (1,022,000) Net loss per share: As reported...................... $ (3.48) $ (4.98) $ (1.48) Pro forma........................ (3.57) (5.06) (1.48) The Company's calculations for employee grants were made using the minimumvalue method prior to the IPO and the Black-Scholes option pricing model afterthe IPO with the following weighted average assumptions: Period from June 22, 1998 (inception) Year ended Year ended to December 31, December 31, December 31, 2000 1999 1998 ------------ ------------ ------------- Dividend yield....................... 0% 0% 0% Expected volatility.................. 80% 0% 0% Risk-free interest rate.............. 6.14% 5.66% 5.77% Expected life (in years)............. 2.50 2.52 2.67 Non-Employees The Company uses the fair value method to value options granted to non-employees. In connection with its grant of options to non-employees, theCompany has recognized deferred stock-based compensation of F-20 EQUINIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) $1,332,000 and $642,000 for the years ended December 31, 2000 and 1999,respectively, and $1,097,000, $560,000 and $29,000 has been amortized to stock-based compensation expense for the period and years ended December 31, 2000,1999, and 1998, respectively, on an accelerated basis over the vesting periodof the individual options, in accordance with FASB Interpretation No. 28. Theweighted average estimated fair value of non-employee stock options granted atexercise prices below market price at grant during 2000, 1999 and 1998 was$0.34, $2.63 and $0.58 per share, respectively. The Company's calculations for non-employee grants were made using theBlack-Scholes option pricing model with the following weighted averageassumptions: Period from June 22, 1998 (inception) Year ended Year ended to December 31, December 31, December 31, 2000 1999 1998 ------------ ------------ ------------- Dividend yield.......................... 0% 0% 0%Expected volatility..................... 80% 80% 80%Risk-free interest rate................. 5.99% 5.48% 4.99%Expected life (in years)................ 10.00 10.00 10.00 Warrants In August 1999, the Company entered into a strategic agreement withNorthPoint Communications, Inc. ("NorthPoint"). Under the terms of thestrategic agreement, NorthPoint has agreed to use certain of the Company'sdomestic IBX centers and install their operational nodes in such centers. Inexchange, the Company granted NorthPoint a warrant to purchase 338,145 sharesof the Company's common stock at $0.53 per share (the "NorthPoint Warrant").The NorthPoint Warrant was earned upon execution of the strategic agreement asNorthpoint's performance commitment was complete. The NorthPoint Warrant isimmediately exercisable and expires five years from the date of grant. TheNorthPoint Warrant was valued at $1,508,000 using the Black-Scholes option-pricing model, which was capitalized on the accompanying consolidated balancesheet in other assets as a customer acquisition cost and is being amortizedover the term of the agreement as a reduction of revenues recognized. Thefollowing assumptions were used in determining the fair value of the warrant:deemed fair market value per share of $4.80, dividend yield of 0%, expectedvolatility of 80%, risk-free interest rate of 5.0% and a contractual life of 5years. In December 2000, based on the uncertainty of the Company's futurebusiness relationship with NorthPoint, as a result of their filing underChapter 11 bankruptcy protection, the Company determined that the future valueof the other asset attributed to the unamortized portion of the fully-vested,nonforfeitable warrant was questionable and accordingly, the remaining assettotaling approximately $700,000 was written off. In November 1999, the Company entered into a definitive agreement withWorldCom, whereby WorldCom agreed to install high-bandwidth local connectivityservices to the Company's first seven IBX centers by a pre-determined date inexchange for a warrant to purchase 675,000 shares of common stock of theCompany at $0.67 per share (the "WorldCom Warrant"). The WorldCom Warrant isimmediately exercisable and expires five years from the date of grant. As ofDecember 31, 1999, warrants for 600,000 shares are subject to repurchase at theoriginal exercise price if WorldCom's performance commitments are notcompleted. The WorldCom Warrant was valued at $2,969,000 using the Black-Scholes option-pricing model and was recorded to construction in progress onthe accompanying consolidated balance sheet as of December 31, 1999. Under theapplicable guidelines in EITF 96-18, the underlying shares of common stockassociated with the WorldCom Warrant subject to repurchase are revalued at eachbalance sheet date to reflect their current fair value until  F-21 EQUINIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) WorldCom's performance commitment is complete. Any resulting increase in fairvalue of the warrants is recorded as a leasehold improvement. In addition, thefollowing assumptions were used in determining the fair value of the warrant:deemed fair market value per share of $4.80, dividend yield of 0%, expectedvolatility of 80%, risk-free interest rate of 5.5% and a contractual life of 5years. In November 1999, the Company entered into a master agreement with BechtelCorporation, or Bechtel, whereby Bechtel agreed to act as the exclusivecontractor under a Master Agreement to provide program management, siteidentification and evaluation, engineering and construction services to buildapproximately 29 IBX centers over a four year period under mutually agreed uponguaranteed completion dates. As part of the agreement, the Company grantedBechtel a warrant to purchase 352,500 shares of the Company's common stock at$1.00 per share (the "Bechtel Warrant"). The Bechtel Warrant is immediatelyexercisable and expires five years from date of grant. The Bechtel Warrant wasvalued at $1,497,000 using the Black-Scholes option-pricing model and wasrecorded to construction in progress on the accompanying consolidated balancesheet as of December 31, 1999. Under EITF 96-18, the underlying shares ofcommon stock associated with the Bechtel Warrant subject to repurchase arerevalued at each balance sheet date to reflect their current fair value untilBechtel's performance commitment is complete. Any resulting increase in fairvalue of the warrants is recorded as a leasehold improvement. In addition, thefollowing assumptions were used in determining the fair value of the warrant:deemed fair market value per share of $4.80, dividend yield of 0%, expectedvolatility of 80%, risk-free interest rate of 5.5% and a contractual life of 5years. In January 2000, the Bechtel Warrant was exercised. As of December 31,2000, a total of 219,324 shares are subject to repurchase at the originalexercise price, if Bechtel's performance commitments are not complete. In January 2000, the Company entered into an operating lease agreement forits new corporate headquarters facility in Mountain View, California. Inconnection with the lease agreement, the Company granted the lessor a warrantto purchase up to 33,100 shares of the Company's common stock at $6.00 pershare (the "Headquarter Warrant"). The warrant expires 10 years from the dateof grant. The warrant was valued at $186,000 using the Black-Scholes optionpricing model and will be recorded as additional rent expense over the life ofthe lease. The following assumptions were used in determining the fair value ofthe warrants: deemed fair value per share of $6.55, dividend yield of 0%,expected volatility of 80%, risk-free interest rate of 6.0% and a contractuallife of 10 years. In April 2000, the Company entered into a definitive agreement with a fibercarrier whereby the fiber carrier agreed to install high-bandwidth localconnectivity services to a number of the Company's IBX centers in exchange forcolocation space and related benefits in such IBX centers. In connection withthis agreement, the Company granted the fiber carrier a warrant to purchase upto 540,000 shares of the Company's common stock at $4.00 per share (the "FiberWarrant"). The warrant is immediately exercisable and expire five years fromdate of grant. A total of 140,000 shares are immediately vested and theremaining 400,000 shares are subject to repurchase at the original exerciseprice if certain performance commitments are not completed by a pre-determineddate. The fiber carrier is not obligated to install high-bandwidth localconnectivity services and, apart from forfeiting the relevant number ofwarrants and colocation space, will not be penalized for not installing. Thewarrant was valued at $5,372,000 using the Black-Scholes option-pricing modeland has been recorded initially to construction in progress until installationis complete. The following assumptions were used in determining the fair valueof the warrant: deemed fair market value per share of $11.82, dividend yield of0%, expected volatility of 80%, risk-free interest rate of 6.56% and acontractual life of 5 years. Under the applicable guidelines in EITF 96-18, theunderlying shares of common stock associated with these warrants subject torepurchase are revalued at each balance sheet date to reflect their currentfair value until the performance commitment is complete. Any resulting increasein fair value of the warrant will ultimately be recorded as a leaseholdimprovement. F-22 EQUINIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) In June 2000, the Company entered into a memorandum of understanding withCOLT Telecommunications ("Colt") whereby Colt agreed to install high-bandwidthlocal connectivity services to a number of the Company's European IBX centersin exchange for colocation space and related benefits in such IBX centers. Inconnection with this agreement, the Company granted Colt a warrant to purchaseup to 250,000 shares of the Company's common stock at $5.33 per share (the"Colt Warrant"). The warrant is immediately exercisable and expire five yearsfrom the date of grant. The shares are subject to repurchase at the originalexercise price if certain performance commitments are not completed by a pre-determined date. Colt is not obligated to install high-bandwidth localconnectivity services and, apart from forfeiting the relevant number ofwarrants and colocation space, will not be penalized for not installing. Thewarrant was valued at $2,795,000 using the Black-Scholes option-pricing modeland has been recorded initially to construction in progress until installationis complete. The following assumptions were used in determining the fair valueof the warrants: deemed fair market value per share of $13.58, dividend yieldof 0%, expected volatility of 80%, risk-free interest rate of 6.23% and acontractual life of 5 years. Under the applicable guidelines in EITF 96-18, theunderlying shares of common stock associated with this warrant subject torepurchase are revalued at each balance sheet date to reflect their currentfair value until the performance commitment is complete. Any resulting increasein fair value of the warrant will ultimately be recorded as a leaseholdimprovement. In June 2000, the Company entered into a strategic agreement with WorldComand UUNET, an affiliate of WorldCom (the "UUNET Strategic Agreement"), whichamends, supersedes and restates the definitive agreement entered into withWorldCom in November 1999 and the related WorldCom Warrant. Under the UUNETStrategic Agreement, WorldCom agreed to install high-bandwidth localconnectivity services and UUNET agreed to provide high-speed data entrancefacilities to a number of the Company's IBX centers in exchange for colocationservices and related benefits in such IBX centers. In connection with thisstrategic agreement, the Company granted WorldCom Venture Fund a warrant (the"WorldCom Venture Fund Warrant") to purchase up to 650,000 shares of Company'scommon stock at $5.33 per share. All but 37,500 of the shares under the earlierWorldCom Warrant are immediately vested under the UUNET Strategic Agreement.The WorldCom Venture Fund Warrant is immediately exercisable and expires fiveyears from the date of grant. The warrant is subject to repurchase at theoriginal exercise price if certain performance commitments are not completed bya pre-determined date. WorldCom and UUNET are not obligated to install high-bandwidth local connectivity services and provide high-speed data entrancefacilities, respectively, and, apart from forfeiting the relevant number ofwarrants and colocation space, will not be penalized for not performing. Thewarrant was valued at $7,255,000 using the Black-Scholes option-pricing modeland has been recorded initially to construction in progress until installationis complete. The following assumptions were used in determining the fair valueof the warrant: deemed fair market value per share of $13.58, dividend yield of0%, expected volatility of 80%, risk-free interest rate of 6.23% and acontractual life of 5 years. Under the applicable guidelines in EITF 96-18, theunderlying shares of common stock associated with this warrant subject torepurchase are revalued at each balance sheet date to reflect their currentfair value until the performance commitment is complete. Any resulting increasein fair value of the warrant will ultimately be recorded as a leaseholdimprovement. F-23 EQUINIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) In addition, the Company has issued several warrants in connection with itsdebt facilities and capital lease obligations (see Note 3) and the Senior Notes(see Note 4). The Company has the following warrants outstanding as of December31, 2000: Warrants Exercise Common stock warrants outstanding price --------------------- ----------- -------- Comdisco Loan and Security Agreement Warrant............ 765,000 $ 0.67 Comdisco Master Lease Agreement Warrant................. 30,000 1.67 Comdisco Master Lease Agreement Addendum Warrant........ 150,000 3.00 Venture Leasing Loan Agreement Warrant.................. 270,000 3.00 Senior Note Warrants.................................... 3,038,850 0.0067 NorthPoint Warrant...................................... 338,145 0.53 WorldCom Warrant........................................ 675,000 0.67 Headquarter Warrant..................................... 33,100 6.00 Fiber Warrant........................................... 540,000 4.00 Colt Warrant............................................ 250,000 5.33 Worldcom Venture Fund Warrant........................... 650,000 5.33 Other warrant........................................... 6,000 5.00 --------- 6,746,095 ========= 7. Income Taxes No provision for federal income taxes was recorded from inception throughDecember 31, 2000 as the Company incurred net operating losses during theperiod. State tax expense is included in general and administrative expenses. Actual income tax expense differs from the expected tax benefit computed byapplying the statutory federal income tax rate of approximately 34% for theperiods ended December 31, 2000 and 1999, primarily as a result of the changein valuation allowance and stock based compensation. The tax effect of temporary differences that give rise to significantportions of the deferred tax assets as of December 31 is presented as follows(in thousands): 2000 1999 -------- ------- Deferred tax assets: Start-up expenses....................................... $ 4,855 $ 2,551 Net operating loss...................................... 31,614 3,134 Reserves and accruals................................... 3,660 8 -------- ------- Deferred tax assets................................... 40,129 5,693 Deferred tax liability: Depreciation and amortization........................... (3,857) (38) Depreciation and amortization........................... (3,857) (38) -------- ------- Net deferred tax assets............................... 36,272 5,655 Valuation allowance................................... (36,272) (5,655) -------- ------- $ -- $ -- ======== ======= The net change in the total valuation allowance for the year ended December31, 2000 and the year ended December 31, 1999, was an increase of $30,617,000and $5,655,000, respectively. F-24 EQUINIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The Company has established a valuation allowance against that portion ofdeferred tax assets where management has determined that it is more likely thannot that the asset will not be realized. At December 31, 2000, the Company had net operating loss carryforwards ofapproximately $86,269,000 and $39,125,000 for federal and for state taxpurposes, respectively. If not earlier utilized, the federal net operating losscarryforward will expire in 2014 and the state loss carryforward will expire in2004. Under the Tax Reform Act of 1986, the amounts of and the benefit from netoperating losses that can be carried forward may be limited in certaincircumstances. Events that may cause limitations in the utilization of netoperating losses include a cumulative stock ownership change of more than 50%over a three year period and other events. Equinix has not yet determined theextent that its net operating loss benefit will be limited. 8. Commitments and Contingencies Operating Lease Commitments The Company leases its IBX centers and certain equipment under noncancelableoperating lease agreements expiring through 2014. The centers' lease agreementstypically provide for base rental rates which increase at defined intervalsduring the term of the lease. In addition, the Company has negotiated rentexpense abatement periods to better match the phased build-out of its centers.The Company accounts for such abatements and increasing base rentals using thestraight-line method over the life of the lease. The difference between thestraight-line expense and the cash payment is recorded as deferred rent. Minimum future operating lease payments as of December 31, 2000 aresummarized as follows (in thousands): Year ending: 2001.............................................................. $ 28,597 2002.............................................................. 31,818 2003.............................................................. 32,104 2004.............................................................. 32,442 2005.............................................................. 32,874 Thereafter........................................................ 346,954 -------- Total........................................................... $504,789 ========  Total rent expense was approximately $16,157,000 and $1,739,000 and for theyears ended December 31, 2000 and 1999, respectively. Deferred rent included in accrued expenses was none and $18,000 as ofDecember 31, 2000 and 1999, respectively. Deferred rent included in otherliabilities was $3,793,000 and $567,000 as of December 31, 2000 and 1999,respectively. Letter of Credit In connection with the execution of one of the Company's long-term operatingleases, the Company posted a letter of credit in the amount of $10.0 million.This letter of credit shall increase to $35.0 million if the Company does notmeet certain financing targets. This security deposit shall be reduced on a prorata basis based on the status of construction activity. F-25 EQUINIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Employment Agreement The Company has agreed to indemnify an officer of the Company for any claimsbrought by his former employer under an employment and non-compete agreementthe officer had with this employer. Employee Benefit Plan The Company has a 401(k) Plan that allows eligible employees to contributeup to 15% of their compensation, limited to $10,500 in 2000. Employeecontributions and earnings thereon vest immediately. Although the Company maymake discretionary contributions to the 401(k) Plan, none have been made as ofDecember 31, 2000. 9. Related Party Transactions Through December 31, 2000 the Company advanced an aggregate of $1,150,000 tothree officers of the Company, which are evidenced by promissory notes. Theproceeds of these loans were used to fund the purchase of personal residences.The loans are due at various dates through 2005, but are subject to certainevents of acceleration and are secured by a second deed of trust on theofficers' residences. The loans are non-interest bearing. These loans arepresented in other assets on the accompanying consolidated balance sheets as ofDecember 31, 2000 and 1999. In March 1999, the Company entered into an equipment lease facility with apreferred stockholder under which the Company leased $137,000 of equipment fora 24-month term. In August 1999, the Company entered into a strategic agreement withNorthPoint. Under the terms of the strategic agreement, NorthPoint has agreedto use certain of the Company's domestic IBX centers and install theiroperational nodes in such centers. In exchange, the Company granted NorthPointa warrant to purchase 338,145 shares of the Company's common stock at $0.53 pershare. The NorthPoint Warrant was earned upon execution of the strategicagreement as NorthPoint's performance commitment was complete. The NorthPointWarrant is immediately exercisable and expires five years from date of grant.The NorthPoint Warrant was valued at $1,508,000 using the Black-Scholes option-pricing model (see Note 6). 10. Segment Information During the year ended December 31, 1999, the Company adopted the provisionsof SFAS No. 131, Disclosures about Segments of an Enterprise and RelatedInformation. SFAS No. 131 requires disclosures of selected segment-relatedfinancial information about products, major customers and geographic areas. The Company and its subsidiaries are principally engaged in the design,build-out and operation of neutral IBX centers. All revenues result from theoperation of these IBX centers. Accordingly, the Company considers itself tooperate in a single segment for purposes of disclosure under SFAS No. 131. TheCompany's chief operating decision-maker evaluates performance, makes operatingdecisions and allocates resources based on financial data consistent with thepresentation in the accompanying consolidated financial statements. As of December 31, 2000, all of the Company's operations and assets werebased in the United States with the exception of $24,459,000 of the Company'sidentifiable assets based in Europe and $429,000 of the Company's total netloss was attibutable to the development of its European operations. As ofDecember 31, 1999, all of the Company's operations and assets were based in theUnited States. F-26 EQUINIX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 11. Subsequent Events (unaudited) On January 1, 2001, pursuant to the provisions of the Company's stock plans(see Note 6), the number of common shares in reserve automatically increased by4,618,731 shares for the 2000 Equity Incentive Plan, 600,000 shares for theEmployee Stock Purchase Plan and 50,000 shares for the 2000 Director StockOption Plan. On January 2, 2001, the Company drew down $50,000,000 in term loans madeavailable through the Credit Facility entered into by the Company on December20, 2000 (see Note 5). On February 27, 2001, the Company advanced an aggregate of $1,514,000 to anofficer of the Company, which is evidenced by a promissory note. The proceedsof this loan were used to fund the purchase of a principal residence. The loanis due February 27, 2006, but is subject to certain events of acceleration. Theloan is non-interest bearing. On March 5, 2001, the Company drew down $75,000,000 in delayed draw termloans made available through the Credit Facility entered into by the Company onDecember 20, 2000 (see Note 5). 12. Selected Quarterly Financial Data (unaudited) The following table presents selected quarterly information for fiscal 2000and 1999: First Second Third Fourth quarter quarter quarter quarter -------- -------- -------- -------- (in thousands, except per share data) 2000: Revenues........................... $ 136 $ 892 $ 3,933 $ 8,055 Net loss........................... (18,009) (26,811) (32,085) (42,885) Basic and diluted net loss per share............................. (2.40) (2.62) (0.70) (0.57)  1999: Revenues........................... $ -- $ -- $ -- $ 37 Net loss........................... (1,345) (3,120) (6,288) (10,038) Basic and diluted net loss per share............................. (0.74) (1.90) (1.45) (2.11) F-27 EXHIBIT 10.36 EXECUTION CREDIT AND GUARANTY AGREEMENT dated as of December 20, 2000 among EQUINIX OPERATING CO., INC. and EQUINIX, INC., as Borrowers, EQUINIX, INC. AND CERTAIN OF ITS SUBSIDIARIES, as Guarantors, VARIOUS LENDERS, GOLDMAN SACHS CREDIT PARTNERS L.P., as Joint Lead Arranger, Joint Book Runner and Syndication Agent, SALOMON SMITH BARNEY INC., as Joint Lead Arranger and Joint Book Runner, CITICORP USA, INC., as Administrative Agent, and CIT LENDING SERVICES CORPORATION as Collateral Agent, ________________________________________________________ $150,000,000 Senior Secured Credit Facilities ________________________________________________________ TABLE OF CONTENTS Page SECTION 1. DEFINITIONS AND INTERPRETATION..................................................................................... 2 1.1 Definitions......................................................................................................... 2 1.2 Accounting Terms.................................................................................................... 36 1.3 Interpretation, etc................................................................................................. 36SECTION 2 LOANS AND LETTERS OF CREDIT.......................................................................................... 36 2.1 Loans............................................................................................................... 36 2.2 Issuance of Letters of Credit and Purchase of Participations Therein................................................ 41 2.3 Pro Rata Shares; Availability of Funds.............................................................................. 45 2.4 Use of Proceeds..................................................................................................... 45 2.5 Evidence of Debt; Register; Lenders' Books and Records; Notes....................................................... 46 2.6 Interest on Loans................................................................................................... 46 2.7 Conversion/Continuation............................................................................................. 48 2.8 Default Interest.................................................................................................... 49 2.9 Fees................................................................................................................ 49 2.10 Scheduled Payments.................................................................................................. 50 2.11 Voluntary Prepayments/Commitment Reductions......................................................................... 51 2.12 Mandatory Prepayments/Commitment Reductions......................................................................... 53 2.13 Application of Prepayments/Reductions............................................................................... 55 2.14 Allocation of Certain Payments and Proceeds......................................................................... 56 2.15 General Provisions Regarding Payments............................................................................... 56 2.16 Ratable Sharing..................................................................................................... 57 2.17 Making or Maintaining Eurodollar Rate Loans......................................................................... 58 2.18 Increased Costs; Capital Adequacy................................................................................... 60 2.19 Taxes; Withholding, etc............................................................................................. 61 2.20 Obligation to Mitigate.............................................................................................. 63 2.21 Defaulting Lenders.................................................................................................. 63 2.22 Removal or Replacement of a Lender.................................................................................. 64SECTION 3 CONDITIONS PRECEDENT................................................................................................ 65 3.1 Closing Date........................................................................................................ 65 3.2 Conditions to Each Credit Extension................................................................................. 70SECTION 4 REPRESENTATIONS AND WARRANTIES...................................................................................... 72 4.1 Organization; Requisite Power and Authority; Qualification.......................................................... 72 4.2 Capital Stock and Ownership......................................................................................... 72 4.3 Due Authorization................................................................................................... 72 4.4 No Conflict......................................................................................................... 73 4.5 Governmental Consents............................................................................................... 73 4.6 Binding Obligation.................................................................................................. 73 4.7 Historical Financial Statements..................................................................................... 73 4.8 Projections......................................................................................................... 73 4.9 No Material Adverse Change.......................................................................................... 74 i 4.10 No Restricted Junior Payments....................................................................................... 74 4.11 Adverse Proceedings, etc............................................................................................ 74 4.12 Payment of Taxes.................................................................................................... 74 4.13 Properties.......................................................................................................... 74 4.14 Collateral.......................................................................................................... 75 4.15 Environmental Matters............................................................................................... 75 4.16 No Defaults......................................................................................................... 76 4.17 Material Contracts.................................................................................................. 76 4.18 Governmental Regulation............................................................................................. 76 4.19 Margin Stock........................................................................................................ 77 4.20 Employee Matters.................................................................................................... 77 4.21 Employee Benefit Plans.............................................................................................. 77 4.22 Solvency............................................................................................................ 78 4.23 Compliance with Statutes, etc....................................................................................... 78 4.24 Disclosure.......................................................................................................... 78SECTION 5 AFFIRMATIVE COVENANTS............................................................................................... 78 5.1 Financial Statements and Other Reports.............................................................................. 78 5.2 Existence........................................................................................................... 82 5.3 Payment of Taxes and Claims......................................................................................... 82 5.4 Maintenance of Properties........................................................................................... 83 5.5 Insurance........................................................................................................... 83 5.6 Books and Records; Inspections; Lenders Meetings.................................................................... 84 5.7 Compliance with Laws................................................................................................ 84 5.8 Environmental....................................................................................................... 84 5.9 Subsidiaries........................................................................................................ 86 5.10 Post Closing Covenants With Respect to Real Estate Assets........................................................... 86 5.11 Interest Rate Protection............................................................................................ 87 5.12 Post Closing Covenants With Respect to Permitted Equipment Financing Collateral..................................... 87 5.13 Further Assurances.................................................................................................. 87 5.14 Maintenance of Certain Cash......................................................................................... 88 5.15 Notice of Default Under Lease....................................................................................... 88SECTION 6 NEGATIVE COVENANTS.................................................................................................. 88 6.1 Indebtedness........................................................................................................ 88 6.2 Liens............................................................................................................... 90 6.3 No Further Negative Pledges......................................................................................... 91 6.4 Restricted Junior Payments; Restrictions on Investments in Unrestricted Subsidiaries; Restricted Rental and Upkeep Payments.......................................................................................................... 91 6.5 Investments......................................................................................................... 92 6.6 Stage 1 Financial Covenants......................................................................................... 93 6.7 Stage 2 Financial Covenants......................................................................................... 93 6.8 Maximum Cumulative Consolidated Capital Expenditures................................................................ 94 6.9 Fundamental Changes; Disposition of Assets; Acquisitions............................................................ 94 6.10 Disposal of Subsidiary Interests.................................................................................... 95 6.11 Sales and LeaseBacks................................................................................................ 95 ii 6.12 Sale and Discount of Receivables.................................................................................... 96 6.13 Transactions with Shareholders and Affiliates....................................................................... 96 6.14 Conduct of Business................................................................................................. 96 6.15 Permitted IBX Facilities............................................................................................ 96 6.16 Amendments or Waivers of Certain Documents.......................................................................... 97 6.17 Fiscal Year......................................................................................................... 97 6.18 Unrestricted Subsidiaries........................................................................................... 97 6.19 Acquisition and Ownership of Assets by Company...................................................................... 98 6.20 Company Subsidiaries................................................................................................ 98 6.21 San Jose Subsidiary................................................................................................. 98SECTION 7 GUARANTY............................................................................................................ 99 7.1 Guaranty of the Obligations......................................................................................... 99 7.2 Contribution by Guarantors.......................................................................................... 99 7.3 Payment by Guarantors............................................................................................... 100 7.4 Liability of Guarantors Absolute.................................................................................... 100 7.5 Waivers by Guarantors............................................................................................... 102 7.6 Guarantors' Rights of Subrogation, Contribution, etc................................................................ 103 7.7 Subordination of Other Obligations.................................................................................. 103 7.8 Continuing Guaranty................................................................................................. 103 7.9 Authority of Guarantors or Borrower................................................................................. 104 7.10 Financial Condition of Borrower..................................................................................... 104 7.11 Bankruptcy, etc..................................................................................................... 104 7.12 Notice of Events.................................................................................................... 105 7.13 Discharge of Guaranty Upon Sale of Guarantor........................................................................ 105SECTION 8 EVENTS OF DEFAULT................................................................................................... 105 8.1 Events of Default................................................................................................... 105SECTION 9 AGENTS.............................................................................................................. 108 9.1 Appointment of Agents............................................................................................... 108 9.2 Powers and Duties................................................................................................... 109 9.3 General Immunity.................................................................................................... 109 9.4 Agents Entitled to Act as Lender.................................................................................... 110 9.5 Lenders' Representations, Warranties and Acknowledgment............................................................. 110 9.6 Right to Indemnity.................................................................................................. 110 9.7 Successor Administrative Agent and Collateral Agent................................................................. 111 9.8 Collateral Documents and Guaranty................................................................................... 112SECTION 10 MISCELLANEOUS...................................................................................................... 112 10.1 Notices............................................................................................................ 112 10.2 Expenses........................................................................................................... 113 10.3 Indemnity.......................................................................................................... 113 10.4 SetOff............................................................................................................. 114 10.5 Amendments and Waivers............................................................................................. 114 10.6 Successors and Assigns; Participations............................................................................. 116 10.7 Independence of Covenants.......................................................................................... 119 iii 10.8 Survival of Representations, Warranties and Agreements............................................................. 119 10.9 No Waiver; Remedies Cumulative..................................................................................... 120 10.10 Marshalling; Payments Set Aside.................................................................................... 120 10.11 Severability....................................................................................................... 120 10.12 Entire Agreement................................................................................................... 120 10.13 Obligations Several; Independent Nature of Lenders' Rights......................................................... 120 10.14 Headings........................................................................................................... 121 10.15 APPLICABLE LAW..................................................................................................... 121 10.16 CONSENT TO JURISDICTION............................................................................................ 121 10.17 WAIVER OF JURY TRIAL............................................................................................... 121 10.18 Confidentiality.................................................................................................... 122 10.19 Usury Savings Clause............................................................................................... 123 10.20 Counterparts....................................................................................................... 123 10.21 Effectiveness...................................................................................................... 123APPENDICES: A1 Term Loan Commitments A2 Delayed Draw Term Loan Commitments A3 Revolving Loan Commitments B Notice AddressesSCHEDULES: 1.1(a) Permitted IBX Facilities 1.1(b) Closing Date Unrestricted Subsidiaries 3.1(f) Closing Date Mortgaged Properties 3.1(g)(ii) Outstanding UCC Searches 3.2(a)(x) Transferred Assets 3.2(b) Conditions to Funding 4.1 Jurisdictions of Organization and Qualification 4.2 Capital Stock and Ownership 4.5 Governmental Approvals 4.13 Real Estate Assets 4.17(a) Material Contracts 4.17(b) Intellectual Property 4.24 Disclosure 5.5 Insurance 6.1 Certain Indebtedness 6.2 Certain Liens 6.4(b)(i) Restricted Foreign Lease Payments 6.5(i) Employee Loans 6.6(a) Stage 1 Minimum Annualized Consolidated Revenues 6.6(b) Stage 1 Maximum Cumulative Consolidated EBITDA Losses 6.7(a) Stage 2 Senior Secured Debt to Annualized Consolidated EBITDA iv 6.7(b) Stage 2 Total Debt to Annualized Consolidated EBITDA 6.7(c) Stage 2 Minimum Annualized Consolidated EBITDA/Interest Expense Ratio 6.7(d) Stage 2 Pro Forma Debt Service Coverage Ratio 6.8 Stage 1 and 2 Maximum Cumulative Consolidated Capital Expenditures 6.13 Certain Affiliate Transactions 6.15 Restricted Domestic Lease PaymentsEXHIBITS: A1 Funding Notice A2 Conversion/Continuation Notice A3 Issuance Notice B1 Term Loan Note B2 Delayed Draw Term Loan Note B3 Revolving Loan Note B4 New Term Loan Note C Compliance Certificate D Opinions of Counsel E Assignment Agreement F Certificate Re Nonbank Status G1 Closing Date Certificate G2 Solvency Certificate H Counterpart Agreement I-A Master Pledge and Security Agreement I-B Company Pledge and Security Agreement J Mortgage K Landlord Agreement L Joinder Agreement M Borrowing Base Certificate N Form of Confirmation of Grant O Form of Release v CREDIT AND GUARANTY AGREEMENT This CREDIT AND GUARANTY AGREEMENT, dated as of December 20, 2000, isentered into by and among EQUINIX OPERATING CO., INC., a Delaware corporation,as a Borrower ("OpCo"), EQUINIX, INC., a Delaware corporation, as a Borrower andas a Guarantor ("Company"), and CERTAIN SUBSIDIARIES OF THE COMPANY, asGuarantors, the Lenders party hereto from time to time, GOLDMAN SACHS CREDITPARTNERS L.P. ("GSCP"), as Joint Lead Arranger, Joint Book Runner andSyndication Agent (in such capacity,"Syndication Agent"), SALOMON SMITH BARNEYINC., as Joint Lead Arranger (in such capacity, together with GSCP, the "JointLead Arrangers"), and Joint Book Runner (in such capacity, together with GSCP,the "Joint Book Runners"), CITICORP USA, INC., as Administrative Agent (togetherwith its permitted successors in such capacity,"Administrative Agent") and CITLENDING SERVICES CORPORATION, as Collateral Agent (together with its permittedsuccessors in such capacity, "Collateral Agent"). RECITALS: WHEREAS, capitalized terms used in these Recitals shall have the respectivemeanings set forth for such terms in Section 1.1 hereof; WHEREAS, Lenders have agreed to extend certain credit facilities toBorrowers, in an aggregate amount not to exceed $150,000,000, consisting of$50,000,000 aggregate principal amount of Term Loans to be drawn on January 2,2001 (the "Funding Date"), up to $75,000,000 aggregate principal amount ofDelayed Draw Term Loans, and up to $25,000,000 aggregate principal amount ofRevolving Loans, the proceeds of which will be used to (i) to pay TransactionCosts, (ii) to provide financing for the cost of design, development,acquisition, construction, installation, improvement, transportation, and/orintegration of equipment, inventory or facility assets and of leasing andacquiring of real property and (iii) for the working capital and other generalcorporate purposes of the Company and its Restricted Subsidiaries, includingPermitted Acquisitions, as well as for certain limited purposes of itsUnrestricted Subsidiaries; WHEREAS, the Company has agreed to secure all of its obligations hereunderby granting to Collateral Agent, for the benefit of Secured Parties, a FirstPriority Lien on substantially all of its assets, including a pledge of all ofthe Capital Stock of each of its Restricted Subsidiaries; provided, that, any -------- ---- Purchase Money Loans made to the Company shall be secured solely by the assetspurchased with the proceeds of such Loans; WHEREAS, OpCo has agreed to secure all of its obligations hereunder bygranting to Collateral Agent, for the benefit of Secured Parties, a FirstPriority Lien on substantially all of its assets, including a pledge of all ofthe Capital Stock of each of its Restricted Subsidiaries and 65% of all theCapital Stock of each of its firsttier Foreign Subsidiaries; and WHEREAS, Guarantors have agreed to guarantee the obligations of OpCo (and,to the extent not prohibited under the Senior Notes, the Company) hereunder andto secure their respective obligations hereunder by granting to CollateralAgent, for the benefit of Secured Parties, a First Priority Lien on substantially all of their respective assets,including a pledge of all of the Capital Stock of each of their respectiveDomestic Subsidiaries and 65% of all the Capital Stock of each of theirrespective Foreign Subsidiaries. NOW, THEREFORE, in consideration of the premises and the agreements,provisions and covenants herein contained, the parties hereto agree as follows:SECTION 1 DEFINITIONS AND INTERPRETATION 1.1 Definitions. The following terms used herein, including in thepreamble, recitals, exhibits and schedules hereto, shall have the followingmeanings: "Adjusted Eurodollar Rate" means, for any Interest Rate DeterminationDate with respect to an Interest Period for a Eurodollar Rate Loan, the rate perannum obtained by dividing (and rounding upward to the next whole multiple of1/16 of 1%) (i) (a) the rate per annum (rounded to the nearest 1/100 of 1%)equal to the rate determined by Administrative Agent to be the offered ratewhich appears on the page of the Telerate Screen which displays an averageBritish Bankers Association Interest Settlement Rate (such page currently beingpage number 3740 or 3750, as applicable) for deposits (for delivery on the firstday of such period) with a term equivalent to such period in Dollars, determinedas of approximately 11:00 a.m. (London, England time) on such Interest RateDetermination Date, or (b) in the event the rate referenced in the precedingclause (a) does not appear on such page or service or if such page or serviceshall cease to be available, the rate per annum (rounded to the nearest 1/100 of1%) equal to the rate determined by Administrative Agent to be the offered rateon such other page or other service which displays an average British BankersAssociation Interest Settlement Rate for deposits (for delivery on the first dayof such period) with a term equivalent to such period in Dollars, determined asof approximately 11:00 a.m. (London, England time) on such Interest RateDetermination Date, or (c) in the event the rates referenced in the precedingclauses (a) and (b) are not available, the rate per annum (rounded to thenearest 1/100 of 1%) equal to the offered quotation rate to first class banks inthe London interbank market by Administrative Agent for deposits (for deliveryon the first day of the relevant period) in Dollars of amounts in same day fundscomparable to the principal amount of the applicable Loan of AdministrativeAgent, in its capacity as a Lender, for which the Adjusted Eurodollar Rate isthen being determined with maturities comparable to such period as ofapproximately 11:00 a.m. (London, England time) on such Interest RateDetermination Date, by (ii) an amount equal to (a) one minus (b) the Applicable ----- Reserve Requirement. "Administrative Agent" as defined in the preamble hereto. "Adverse Proceeding" means any action, suit, proceeding (whetheradministrative, judicial or otherwise), governmental investigation orarbitration (whether or not purportedly on behalf of Company or any of itsRestricted Subsidiaries) at law or in equity, or before or by any GovernmentalAuthority, domestic or foreign (including any Environmental Claims), whetherpending or, to the knowledge of Company or any of its Restricted Subsidiaries,threatened against or affecting Company or any of its Restricted Subsidiaries orany property of Company or any of its Restricted Subsidiaries. 2 "Affected Lender" as defined in Section 2.17(b). "Affected Loans" as defined in Section 2.17(b). "Affiliate" means, as applied to any Person, any other Person directlyor indirectly controlling, controlled by, or under common control with, thatPerson. For the purposes of this definition, "control" (including, withcorrelative meanings, the terms "controlling", "controlled by" and "under commoncontrol with"), as applied to any Person, means the possession, directly orindirectly, of the power (i) to vote 10% or more of the Securities havingordinary voting power for the election of directors of such Person or (ii) todirect or cause the direction of the management and policies of that Person,whether through the ownership of voting securities or by contract or otherwise.Neither any Agent nor any Lender shall be deemed Affiliates of any Credit Party,by virtue of the security interests granted under the Pledge and SecurityAgreement. "Agent" means each of the Joint Lead Arrangers, Joint Book Runners,Syndication Agent, Administrative Agent, Collateral Agent and DocumentationAgent. "Aggregate Amounts Due" as defined in Section 2.16. "Aggregate Payments" as defined in Section 7.2. "Agreement" means this Credit and Guaranty Agreement, dated as ofDecember 20, 2000, as it may be amended, restated, supplemented or otherwisemodified from time to time. "Annualized Consolidated EBITDA" means, as of any date ofdetermination, Consolidated EBITDA for the most recently completed FiscalQuarter multiplied by four. "Annualized Consolidated Revenues" means, as of any date ofdetermination, Net Revenues for the most recently completed Fiscal Quartermultiplied by four. "Applicable Commitment Fee Percentage" means a percentage per annum,determined by reference to the Facilities Usage from time to time as set forthbelow: Facilities Usage Commitment Fee **1/3 1.50% -------------------------------------------------------- *1/3 **2/3 1.25% -------------------------------------------------------- * 2/3 0.75% ======================================================== "Applicable Margin" means (i) from the Closing Date until the end ofStage 1, (a) with respect to Loans (other than Purchase Money Loans) that areEurodollar Rate Loans, 4.25% per annum and (y) with respect to Purchase MoneyLoans that are Eurodollar Rate Loans, 4.75% per annum, and (b) with respect toLoans that are Base Rate Loans, an amount equal to the Applicable Margin forEurodollar Rate Loans as set forth in clause (i)(a)(x) or (i)(a)(y) above, asapplicable, minus 1.00% per annum; provided, however, on and after the date that ----- -------- ------- 75% of Permitted IBX Facilities shall have achieved positive IBX Facility NetCashflow, each such  * greater than ** less than or equal to 3 Applicable Margin set forth above shall be reduced by 0.25% per annum; and (ii)during Stage 2, (a) with respect to the Loans that are Eurodollar Rate Loans,(x) in the case of Loans (other than Purchase Money Loans), a percentage, perannum, determined by reference to the Total Leverage Ratio in effect from timeto time as set forth below: ========================================================== Total Applicable Margin Leverage For Eurodollar Rate Ratio ---------------------------------------------------------- * 6.0:1.00 3.75% ---------------------------------------------------------- ** 6.0:1.00 3.50% * 4.5:1.00 ---------------------------------------------------------- ** 4.5:1.00 3.25% * 3.0:1.00 ---------------------------------------------------------- ** 3.0:1.00 3.00% ==========================================================and (y) in the case of Purchase Money Loans, 4.75% per annum and (b) withrespect to Loans that are Base Rate Loans, an amount equal to the ApplicableMargin for Eurodollar Rate Loans as set forth in clause (ii)(a) (x) and(ii)(a)(y) minus 1.00% per annum. No change in the Applicable Margin ----- contemplated by clause (ii) above shall be effective until three (3) BusinessDays after the date on which Administrative Agent shall have received theapplicable financial statements and a Compliance Certificate pursuant to Section5.1(d) calculating the Total Leverage Ratio. At any time Company has notsubmitted to Administrative Agent the applicable information as and whenrequired under Section 5.1(d), the Applicable Margin shall be determined as ifthe Total Leverage Ratio were in excess of 6.00:1.00 until such time as theCompany has provided the information required under Section 5.1(d). Within one(1) Business Day of receipt of the applicable information as and when requiredunder Section 5.1(d), Administrative Agent shall give each Lender telefacsimileor telephonic notice (confirmed in writing) of the Applicable Margin in effectfrom such date. The Applicable Margin with respect to any New Term Loans shallbe set forth in the applicable Joinder Agreement.If during Stage 1 or Stage 2 (i) Purchase Money Loans are permitted under theterms of the Senior Notes to share pari passu in the Collateral securing theother Loans and (ii) Purchase Money Loans are permitted to be guaranteed by theRestricted Subsidiaries to the same extent as the other Loans, then from andafter such date, such Purchase Money Loans shall bear interest under theforegoing provisions on the same basis as the other Loans. "Applicable Reserve Requirement" means, at any time, for anyEurodollar Rate Loan, the maximum rate, expressed as a decimal, at whichreserves (including, without limitation, any basic marginal, special,supplemental, emergency or other reserves) are required to be maintained withrespect thereto against "Eurocurrency liabilities" (as such term is defined inRegulation D) under regulations issued from time to time by the Board ofGovernors of the Federal Reserve System or other applicable banking regulator.Without limiting the effect of the foregoing, the Applicable Reserve Requirementshall reflect any other reserves required to be maintained by such member bankswith respect to (i) any category of liabilities which includes deposits byreference to which the applicable Adjusted Eurodollar Rate or any other interestrate of a Loan is to be determined, or (ii) any category of extensions of creditor other assets which  * greater than or equal to ** less than 4 include Eurodollar Rate Loans. A Eurodollar Rate Loan shall be deemed toconstitute Eurocurrency liabilities and as such shall be deemed subject toreserve requirements without benefits of credit for proration, exceptions oroffsets that may be available from time to time to the applicable Lender. Therate of interest on Eurodollar Rate Loans shall be adjusted automatically on andas of the effective date of any change in the Applicable Reserve Requirement. "A/R Sublimit" as defined in Section 2.1(a)(iii) hereof. "A/R Sublimit Measurement Date" means the date of the most recentlyavailable balance sheet of Company filed with the Securities Exchange Commissionor provided pursuant to Section 4.03 of the Senior Notes Indenture to thetrustee thereunder. "Asset Sale" means a sale, lease or sublease (as lessor or sublessor),sale and leaseback, assignment, conveyance, transfer or other disposition (anysuch transaction, a "Disposition") to, or any exchange of property with, anyPerson (other than the Company or any Guarantor Subsidiary), in one transactionor a series of transactions, of all or any part of Company's or any of itsRestricted Subsidiaries' businesses, assets or properties of any kind, whetherreal, personal, or mixed and whether tangible or intangible, whether now ownedor hereafter acquired, including, without limitation, the Capital Stock of anyof Company's Restricted Subsidiaries, other than (i) inventory (or other assets) ---------- sold or leased in the ordinary course of business, (ii) disposals of obsolete,worn out or surplus property, (iii) a Qualifying San Jose Disposition, (iv)Dispositions of other assets for aggregate consideration of less than $50,000with respect to any transaction or series of related transactions and less than$250,000 in the aggregate during any Fiscal Year, (v) sales of Cash Equivalentsin the ordinary course of business, (vi) Permitted Liens, and (vii) sale andleaseback transactions in connection with Permitted Equipment Financing. "Assignment Agreement" means an Assignment Agreement substantially inthe form of Exhibit E, with such amendments or modifications as may be approvedby Administrative Agent. "Authorized Officer" means, as applied to any Person, any individualholding the position of chairman of the board (if an officer), chief executiveofficer, president and one of its vice presidents (or the equivalent thereof),or such Person's chief financial officer and treasurer. "Bankruptcy Code" means Title 11 of the United States Code entitled"Bankruptcy," as now and hereafter in effect, or any successor statute. "Base Rate" means, for any day, a rate per annum equal to the greaterof (i) the Prime Rate in effect on such day and (ii) the Federal Funds EffectiveRate in effect on such day plus 1/2 of 1%. Any change in the Base Rate due toa change in the Prime Rate or the Federal Funds Effective Rate shall beeffective on the effective day of such change in the Prime Rate or the FederalFunds Effective Rate, respectively. "Base Rate Loan" means a Loan bearing interest at a rate determined byreference to the Base Rate. 5 "Basic Upkeep" has the meaning assigned in Section 6.4(b). "Beneficiary" means each Agent, Issuing Bank, Lender and LenderCounterparty. "Borrower" means (y) with respect to Loans (other than Purchase MoneyLoans) and related Obligations, OpCo and (z) with respect to Purchase MoneyLoans and related Obligations, the Company. "Borrowing Base" means, at any time, 60% of Eligible Net PP&E. TheBorrowing Base at any date shall be determined by reference to the BorrowingBase Certificate most recently delivered hereunder on or prior to such date asspecified in Section 5.1(e). "Borrowing Base Certificate" has the meaning specified in Section5.1(e). "Business Day" means (i) any day excluding Saturday, Sunday and anyday which is a legal holiday under the laws of the State of New York or is a dayon which banking institutions located in such state are authorized or requiredby law or other governmental action to close and (ii) with respect to allnotices, determinations, fundings and payments in connection with the AdjustedEurodollar Rate or any Eurodollar Rate Loans, the term "Business Day" shall meanany day which is a Business Day described in clause (i) and which is also a dayfor trading by and between banks in Dollar deposits in the London interbankmarket. "Capital Expenditure" means, for any period, the aggregate of allexpenditures of any Person during such period that, in accordance with GAAP, areor should be included in "purchase of property and equipment" or similar items,including without limitation construction in progress, reflected in thestatement of cash flows of such Person. Notwithstanding the foregoing, the term"Capital Expenditure" shall not include capital expenditures constituting (i)the reinvestment of Net Asset Sale Proceeds or Net Insurance/CondemnationProceeds made in accordance with Sections 2.12(a) and (b), (ii) PermittedAcquisitions and (iii) that portion of any capital expenditure solelyattributable to or deemed paid for through the issuance by Company of a warrantto purchase capital stock of Company. "Capital Lease" means, as applied to any Person, any lease of anyproperty (whether real, personal or mixed) by that Person as lessee that, inconformity with GAAP, is or should be accounted for as a capital lease on thebalance sheet of that Person. "Capital Stock" means any and all shares, interests, participations orother equivalents (however designated) of capital stock of a corporation, anyand all equivalent ownership interests in a Person (other than a corporation),including, without limitation, partnership interests and membership interests,and any and all warrants, rights or options to purchase or other arrangements orrights to acquire any of the foregoing. "Cash" means money, currency or a credit balance in any demand orDeposit Account. "Cash Equivalents" means, as at any date of determination, (i)marketable securities (a) issued or directly and unconditionally guaranteed asto interest and principal by the 6 United States Government or (b) issued by any agency of the United States theobligations of which are backed by the full faith and credit of the UnitedStates, in each case maturing within one year after such date; (ii) marketabledirect obligations issued by any state of the United States of America or anypolitical subdivision of any such state or any public instrumentality thereof,in each case maturing within one year after such date and having, at the time ofthe acquisition thereof, a rating of at least A1 from S&P or at least P1 fromMoody's; (iii) commercial paper maturing no more than one year from the date ofcreation thereof and having, at the time of the acquisition thereof, a rating ofat least A1 from S&P or at least P1 from Moody's; (iv) certificates of depositor bankers' acceptances maturing within one year after such date and issued oraccepted by any Lender or by any commercial bank organized under the laws of theUnited States of America or any state thereof or the District of Columbia that(a) is at least "adequately capitalized" (as defined in the regulations of itsprimary Federal banking regulator) and (b) has Tier 1 capital (as defined insuch regulations) of not less than $100,000,000; (v) repurchase obligations ofany Lender or of any commercial bank that is a member of the Federal ReserveSystem, is organized under the laws of the United States or any State thereofand has combined capital and surplus of at least $1 billion having a term of notmore than 90 days with respect to securities issued or fully guaranteed orinsured by the Government of the United States and (vi) shares of any moneymarket mutual fund that (a) has substantially all of its assets investedcontinuously in the types of investments referred to in clauses (i) and (ii)above, (b) has net assets of not less than $500,000,000, and (c) has the highestrating obtainable from either S&P or Moody's or is operated by Goldman, Sachs &Co. or an Affiliate thereof. "Certificate re NonBank Status" means a certificate substantially inthe form of Exhibit F. "Change of Control" means, at any time, (i) any Person or "group"(within the meaning of Rules 13d3 and 13d5 under the Exchange Act) other thanthe Founders (a) (x) shall have acquired beneficial ownership of 35% or more ona fully diluted basis of the voting and/or economic interest in the CapitalStock of Company and (y) the Founders own, in the aggregate, a lesser percentageof the total voting and/or economic interest in the Capital Stock of the Companythan such Person and do not have the right or ability by voting power, contractor otherwise to elect or designate for election a majority of the board ofdirectors (or similar governing body) of Company or (b) shall have obtained thepower (whether or not exercised) to elect a majority of the members of the boardof directors (or similar governing body) of Company; (ii) the majority of theseats (other than vacant seats) on the board of directors (or similar governingbody) of Company cease to be occupied by Persons who either (a) were members ofthe board of directors of Company on the Closing Date or (b) were nominated forelection by the board of directors of Company, a majority of whom were directorson the Closing Date or whose election or nomination for election was previouslyapproved by a majority of such directors; or (iii) any "change of control" orsimilar event under the Senior Note Indenture or any document evidencing anyPermitted Equipment Financing or Permitted Unsecured Company Debt shall occur. "Class" means (i) with respect to Lenders, each of the followingclasses of Lenders: (a) Lenders having Term Loan Exposure, (b) Lenders havingDelayed Draw Term Loan Exposure, (c) Lenders having Revolving Loan Exposure and(d) Lenders having New Term Loan 7 Exposure, and (ii) with respect to Loans, each of the following classes ofLoans: (a) Term Loans, (b) Delayed Draw Term Loans, (c) Revolving Loans and (d)New Term Loans, if any. "Closing Date" means the date on or before December 20, 2000 on whichthe conditions set forth in Section 3.1 have been satisfied. "Closing Date Certificate" means a Closing Date Certificatesubstantially in the form of Exhibit G1. "Closing Date Mortgaged Property" as defined in Section 3.1(f). "Closing Financial Plan" means the financial plan for Company and itsSubsidiaries set forth in the Confidential Information Memorandum dated November2000. "Collateral" means, collectively, all of the real, personal and mixedproperty (including Capital Stock) in which Liens are purported to be grantedpursuant to the Collateral Documents as security for the Obligations. "Collateral Agent" as defined in the preamble hereto. "Collateral Documents" means the Pledge and Security Agreement, theMortgages, the Landlord Agreements and all other instruments, documents andagreements delivered by any Credit Party pursuant to this Agreement or any ofthe other Credit Documents in order to grant to Collateral Agent, for thebenefit of Secured Parties, a Lien on any real, personal or mixed property ofthat Credit Party as security for the Obligations. "Commitments" means the commitments of Lenders to make Loans as setforth in Section 2.1(a) of this Agreement. The amount of each Lender'sCommitment is set forth on Appendix A or in the applicable Assignment Agreementor Joinder Agreement and is subject to any adjustment or reduction pursuant tothe terms and conditions hereof. "Company" as defined in the preamble hereto. "Complementary Business" means storage services, content distribution,network management, security services, monitoring, site management and similarrelated activities, in each case relating to the operation of Permitted IBXFacilities. "Compliance Certificate" means a Compliance Certificate substantiallyin the form of Exhibit C. "Consolidated Capital Expenditures" means, for any period, theaggregate of all Capital Expenditures of Company and its Restricted Subsidiariesduring such period determined on a consolidated basis, in accordance with GAAP. "Consolidated Cash Interest Expense" means, for any period,Consolidated Interest Expense for such period, excluding any amount not payablein Cash. 8 "Consolidated Current Assets" means, as at any date of determination,the total assets of Company and its Restricted Subsidiaries on a consolidatedbasis that may properly be classified as current assets in conformity with GAAP,excluding Cash and Cash Equivalents. "Consolidated Current Liabilities" means, as at any date ofdetermination, the total liabilities of Company and its Restricted Subsidiarieson a consolidated basis that may properly be classified as current liabilitiesin conformity with GAAP, excluding the current portion of long term debt. "Consolidated EBITDA" means, for any period, an amount determined forCompany and its Restricted Subsidiaries on a consolidated basis equal to (i)the sum, without duplication, of the amounts for such period of (a)Consolidated Net Income, (b) Consolidated Interest Expense, (c) provisions fortaxes based on income, (d) total depreciation expense, (e) total amortizationexpense, and (f) other nonCash items reducing Consolidated Net Income (excludingany such nonCash item to the extent that it represents an accrual or reserve forpotential Cash items in any future period or amortization of a prepaid Cash itemthat was paid in a prior period), minus (ii) other nonCash items increasing ----- Consolidated Net Income for such period (excluding any such nonCash item to theextent it represents the reversal of an accrual or reserve for potential Cashitem in any prior period), (iii) interest income, and (iv) to the extent nototherwise deducted in determining Consolidated EBITDA, any payments made withrespect to the San Jose Ground Lease after transfer thereof to the San JoseSubsidiary, all of the foregoing as determined in conformity with GAAP. "Consolidated Excess Cash Flow" means, for any period, an amount (ifpositive) equal to: (i) the sum, without duplication, of the amounts for suchperiod of (a) Consolidated EBITDA, minus (b) the Consolidated Working Capital ----- Adjustment, minus (ii) the sum, without duplication, of the amounts for such ----- period of (a) repayments of Consolidated Total Debt (excluding repayments ofRevolving Loans except to the extent the Commitments are permanently reduced inconnection with such repayment), (b) Consolidated Capital Expenditures(excluding any Capital Expenditures prohibited by Section 6.8) (net of (i) anyproceeds of any related financings with respect to such expenditures, and (ii)any insurance and condemnation proceeds used to finance the replacement ofdestroyed or appropriated property), (c) Consolidated Cash Interest Expense, and(d) provisions for current taxes based on income of Company and its RestrictedSubsidiaries and payable in cash with respect to such period, and (e) to theextent not otherwise deducted in determining Consolidated Excess Cash Flow, Cashconsideration paid for Permitted Acquisitions and Investments permittedhereunder (in each case, net of any proceeds of related financings and issuancesof Capital Stock incurred to finance such Permitted Acquisitions andInvestments). "Consolidated Interest Expense" means, for any period, total interestexpense (including commitment fees and that portion attributable to CapitalLeases in accordance with GAAP and capitalized interest) of Company and itsRestricted Subsidiaries on a consolidated basis with respect to all outstandingIndebtedness of Company and its Restricted Subsidiaries, including allcommissions, discounts and other fees and charges owed with respect to lettersof credit and bankers' acceptance financing and net costs under Interest RateAgreements, but excluding, however, any amounts referred to in Section 2.9payable on or before the Closing Date. 9 "Consolidated Net Income" means, for any period, (i) the net income(or loss) of Company and its Restricted Subsidiaries on a consolidated basis forsuch period taken as a single accounting period determined in conformity withGAAP, minus (ii) (a) the income (or loss) of any Person (other than a Restricted ----- Subsidiary) in which any other Person (other than Company or any of itsRestricted Subsidiaries) has a joint interest, except to the extent of theamount of dividends or other distributions actually paid to Company or any ofits Restricted Subsidiaries by such Person during such period, (b) the income(or loss) of any Person accrued prior to the date it becomes a RestrictedSubsidiary or is merged into or consolidated with Company or any of itsRestricted Subsidiaries or that Person's assets are acquired by Company or anyof its Restricted Subsidiaries, (c) the income of any Restricted Subsidiary tothe extent that the declaration or payment of dividends or similar distributionsby that Restricted Subsidiary of that income is not at the time permitted byoperation of the terms of its charter or any agreement, instrument, judgment,decree, order, statute, rule or governmental regulation applicable to thatRestricted Subsidiary, (d) any aftertax gains or losses attributable to AssetSales or returned surplus assets of any Pension Plan, and (e) (to the extent notincluded in clauses (a) through (d) above) any net extraordinary gains or netextraordinary losses. "Consolidated Senior Secured Debt" means, as at any time ofdetermination, the aggregate stated balance sheet amount of all outstandingIndebtedness of Company and its Restricted Subsidiaries under (i) thisAgreement, (ii) the Permitted Equipment Financings, (iii) any secured tradepayables and (iv) Capital Leases. "Consolidated Total Capitalization" means the sum of (a) ConsolidatedTotal Debt and (b) paidinequity capital of the Company or any of its RestrictedSubsidiaries (including preferred stock but excluding (i) any additional equityissued as payinkind dividends on issued and outstanding equity securities, (ii)any capital contributed by the Company or any Restricted Subsidiary to any ofthe Unrestricted Subsidiaries and (iii) any accumulated deficits resulting fromoperations). "Consolidated Total Debt" means, as at any date of determination, theaggregate stated balance sheet amount of all Indebtedness (without giving effectto any original issue discount) of Company and its Restricted Subsidiariesdetermined on a consolidated basis in accordance with GAAP. "Consolidated Working Capital" means, as at any date of determination,the excess of Consolidated Current Assets over Consolidated Current Liabilities. "Consolidated Working Capital Adjustment" means, for any period on aconsolidated basis, the amount (which may be a negative number) by whichConsolidated Working Capital as of the end of such period exceeds (or is lessthan) Consolidated Working Capital as of the beginning of such period. "Contractual Obligation" means, as applied to any Person, anyprovision of any Security issued by that Person or of any indenture, mortgage,deed of trust, contract, undertaking, agreement or other instrument to whichthat Person is a party or by which it or any of its properties is bound or towhich it or any of its properties is subject. 10 "Contributing Guarantors" as defined in Section 7.2. "Conversion/Continuation Date" means the effective date of acontinuation or conversion, as the case may be, as set forth in the applicableConversion/Continuation Notice. "Conversion/Continuation Notice" means a Conversion/ContinuationNotice substantially in the form of Exhibit A2. "Counterpart Agreement" means a Counterpart Agreement substantially inthe form of Exhibit H. "Credit Date" means the date of a Credit Extension. "Credit Document" means any of this Agreement, the Notes, if any,Joinder Agreements, if any, the Collateral Documents, any documents orcertificates executed by OpCo in favor of Issuing Bank relating to Letters ofCredit, and all other documents, instruments or agreements executed anddelivered by a Credit Party for the benefit of the Agents, Issuing Bank or anyLender in connection herewith, including Hedge Agreements with any LenderCounterparty, in each case, as may be amended, supplemented or otherwisemodified from time to time. "Credit Extension" means the making of a Loan or the issuing of aLetter of Credit or the amendment or other modification of a Letter of Credit toincrease its stated amount, extend its period of effectiveness, or amend theconditions under which it may be drawn. "Credit Party" means the Company and any of its RestrictedSubsidiaries from time to time party to a Credit Document. "Currency Agreement" means any foreign exchange contract, currencyswap agreement, futures contract, option contract, synthetic cap or othersimilar agreement or arrangement, each of which is for the purpose of hedgingthe foreign currency risk associated with Company's and its RestrictedSubsidiaries' operations. "Default" means a condition or event that, after notice or lapse oftime or both, would constitute an Event of Default. "Default Excess" means, with respect to any Defaulting Lender, theexcess, if any, of such Defaulting Lender's Pro Rata Share of the aggregateoutstanding principal amount of Loans of all Lenders (calculated as if allDefaulting Lenders (other than such Defaulting Lender) had funded all of theirrespective Defaulted Loans) over the aggregate outstanding principal amount ofall Loans of such Defaulting Lender. "Default Period" as defined in Section 2.21. "Defaulting Lender" as defined in Section 2.21. "Defaulted Loan" as defined in Section 2.21. 11 "Delayed Draw Term Loan Commitment" means the Commitment of a Lenderto make or otherwise fund a Delayed Draw Term Loan to OpCo and "Delayed DrawTerm Loan Commitments" means such Commitments of all Lenders in the aggregate.The amount of each Lender's Delayed Draw Term Loan Commitment, if any, is setforth in Appendix A or in the applicable Assignment Agreement, subject to anyadjustment or reduction pursuant to the terms and conditions hereof. Theaggregate amount of the Delayed Draw Term Loan Commitments as of the ClosingDate is $75,000,000. "Delayed Draw Term Loan Commitment Period" means the time periodcommencing on the Closing Date through to and including the Delayed Draw TermLoan Commitment Termination Date. "Delayed Draw Term Loan Commitment Termination Date" means the earlierto occur of (i) the date the Delayed Draw Term Loan Commitments are permanentlyreduced to zero pursuant to Sections 2.11(b) or 2.12, (ii) the date of thetermination of the Commitments pursuant to Section 8.1, and (iii) the dateoccurring twelve (12) months after the Closing Date. "Delayed Draw Term Loan Exposure" means, with respect to any Lender,as of any date of determination, the outstanding principal amount of the DelayedDraw Term Loans of such Lender; provided, at any time prior to the making of the -------- initial Delayed Draw Term Loans, the Delayed Draw Term Loan Exposure of anyLender shall be equal to such Lender's Delayed Draw Term Loan Commitment. "Delayed Draw Term Loan Installment" as defined in Section 2.10(a). "Delayed Draw Term Loan Installment Date" as defined in Section2.10(a). "Delayed Draw Term Loan Lenders" means Lenders having Delayed DrawTerm Loan Exposure. "Delayed Draw Term Loan Maturity Date" means the earlier of (i)December 15, 2005 and (ii) the date that all Delayed Draw Term Loans shallbecome due and payable in full hereunder, whether by acceleration or otherwise. "Delayed Draw Term Loan Note" means a promissory note in the form ofExhibit B2, as it may be amended, supplemented or otherwise modified from timeto time. "Delayed Draw Term Loans" means any Delayed Draw Term Loans made byany Lender to OpCo pursuant to Section 2.1(a)(ii) of this Agreement and any NewDelayed Draw Term Loans made by any Lender to OpCo pursuant to Section2.1(a)(iv) of this Agreement. "Deposit Account" means a demand, time, savings, passbook or likeaccount with a bank, savings and loan association, credit union or likeorganization, other than an account evidenced by a negotiable certificate ofdeposit. "Designation"as defined in Section 6.18(a). 12 "Disposition" as defined within the definition Asset Sale. "Disqualified Stock" means any Equity Interest that, by its terms (orby the terms of any security into which it is convertible, or for which it isexchangeable, in each case at the option of the holder thereof), or upon thehappening of any event, (a) matures or is mandatorily redeemable, pursuant to asinking fund obligation or otherwise, or redeemable at the option of the holderthereof, in whole or in part, on or prior to April 15, 2006; provided, however, -------- ------- that any Equity Interest that would constitute Disqualified Stock solely becausethe holders thereof have the right to require the Company to repurchase suchEquity Interest upon the occurrence of a Change of Control or an Asset Saleshall not constitute Disqualified Stock if the terms of such Equity Interestprovide that the Company may not repurchase or redeem such Equity Interestpursuant to such provisions unless such repurchase or redemption complies withSection 6.4 or (b) requires the payment of cash dividends or other payments tothe holder thereon, unless through December 15, 2005 such cash dividends or ------ other payments are only required to be paid and are only paid from the proceedsof the issuance of such Equity Interest and sums of such proceeds are at thetime of such issuance placed in escrow for the purpose of making such paymentssufficient to make such payments through such date and are at all times prior tosuch date sufficient therefor. "Dollars" and the sign "$" mean the lawful money of the United Statesof America. "Domestic Subsidiary" means any Subsidiary organized under the laws ofthe United States of America, any State thereof or the District of Columbia. "Eligible Assignee" means (i) any Lender, any Affiliate of any Lenderand any Related Fund (any two or more Related Funds being treated as a singleEligible Assignee for all purposes hereof), and (ii) any commercial bank,insurance company, investment or mutual fund or other entity that is an"accredited investor" (as defined in Regulation D under the Securities Act) andwhich extends credit or buys loans as one of its businesses; provided, no -------- Affiliate of Company shall be an Eligible Assignee. "Eligible Net PP&E" means, at any date of determination, an amountequal to (i) the aggregate cost of Company's and its Restricted Subsidiaries'assets located on a Permitted IBX Facility that may properly be classified, inconformity with GAAP, as property, plant and equipment reflected on theconsolidated balance sheet of Company and its Restricted Subsidiaries, which inthe case of any such property, plant and equipment located at Permitted IBXFacilities that are leased by Company or its Restricted Subsidiaries, is locatedat Permitted IBX Facilities with respect to which (x) a Credit Party has takenall such actions and executed and delivered, or caused to be executed anddelivered, all such mortgages, documents, instruments, agreements, opinions andcertificates described in Sections 3.1(f), 3.1(g), 3.1(h), and 3.1(k) to createin favor of Collateral Agent, for the benefit of the Secured Parties, the validand perfected First Priority Liens referred to in such sections or (y) theunderlying leasehold interest is held by OpCo or other Restricted Subsidiaryand the Collateral Agent for the benefit of the Secured Parties has a FirstPriority security interest in all of the Capital Stock of OpCo or such otherRestricted Subsidiary, as applicable, less (ii) the sum of (x) to the extent not ---- otherwise deducted in determining Eligible Net PP&E the accumulated depreciationand any write-down or 13 write-off with respect to such property, plant and equipment, as determined inconformity with GAAP, (y) to the extent not otherwise deducted in determiningEligible Net PP&E, the aggregate cost of any assets otherwise included inEligible Net PP&E subject to security interests securing Permitted EquipmentFinancing, less the accumulated depreciation and any write-down or write-offwith respect to the assets referenced in this clause (y), as determined inconformity with GAAP, and (z) that portion of the aggregate cost of any assetsotherwise included in Eligible Net PP&E to the extent attributable to issuanceby Company of warrants to purchase Capital Stock of Company. "Employee Benefit Plan" means any "employee benefit plan" as definedin Section 3(3) of ERISA which is or was sponsored, maintained or contributed toby, or required to be contributed by, Company, any of its Subsidiaries or any oftheir respective ERISA Affiliates. "Environmental Claim" means any investigation, notice, notice ofviolation, claim, action, suit, proceeding, demand, abatement order or otherorder or directive (conditional or otherwise), by any Governmental Authority orany other Person, arising (i) pursuant to or in connection with any actual oralleged violation of any Environmental Law; (ii) in connection with anyHazardous Material or any actual or alleged Hazardous Materials Activity; or(iii) in connection with any actual or alleged damage, injury, threat or harm tohealth, safety, natural resources or the environment. "Environmental Laws" means any and all current or future foreign ordomestic, federal or state (or any subdivision of either of them), statutes,ordinances, orders, rules, regulations, guidance documents, judgments,Governmental Authorizations, or any other requirements of GovernmentalAuthorities relating to (i) environmental matters, including those relating toany Hazardous Materials Activity; (ii) the generation, use, storage,transportation or disposal of Hazardous Materials; or (iii) occupational safetyand health, industrial hygiene, land use or the protection of human, plant oranimal health or welfare, in any manner applicable to Company or any of itsSubsidiaries or any Facility. "Equity Interests" means Capital Stock of Company and all warrants,options or other rights to acquire Capital Stock of Company (but excluding anydebt security that is convertible into, or exchangeable for, Capital Stock ofCompany). "ERISA" means the Employee Retirement Income Security Act of 1974, asamended from time to time, and any successor thereto. "ERISA Affiliate" means, as applied to any Person, (i) any corporationwhich is a member of a controlled group of corporations within the meaning ofSection 414(b) of the Internal Revenue Code of which that Person is a member;(ii) any trade or business (whether or not incorporated) which is a member of agroup of trades or businesses under common control within the meaning of Section414(c) of the Internal Revenue Code of which that Person is a member; and (iii)any member of an affiliated service group within the meaning of Section 414(m)or (o) of the Internal Revenue Code of which that Person, any corporationdescribed in clause (i) above or any trade or business described in clause (ii)above is a member. Any former ERISA Affiliate of Company or any of itsSubsidiaries shall continue to be considered an ERISA Affiliate of Company orany such Subsidiary within the meaning of this definition with respect 14 to the period such entity was an ERISA Affiliate of Company or such Subsidiaryand with respect to liabilities arising after such period for which Company orsuch Subsidiary could be liable under the Internal Revenue Code or ERISA. "ERISA Event" means (i) a "reportable event" within the meaning ofSection 4043 of ERISA and the regulations issued thereunder with respect to anyPension Plan (excluding those for which the provision for 30day notice to thePBGC has been waived by regulation); (ii) the failure to meet the minimumfunding standard of Section 412 of the Internal Revenue Code with respect to anyPension Plan (whether or not waived in accordance with Section 412(d) of theInternal Revenue Code) or the failure to make by its due date a requiredinstallment under Section 412(m) of the Internal Revenue Code with respect toany Pension Plan or the failure to make any required contribution to aMultiemployer Plan; (iii) the provision by the administrator of any Pension Planpursuant to Section 4041(a)(2) of ERISA of a notice of intent to terminate suchplan in a distress termination described in Section 4041(c) of ERISA; (iv) thewithdrawal by Company, any of its Subsidiaries or any of their respective ERISAAffiliates from any Pension Plan with two or more contributing sponsors or thetermination of any such Pension Plan resulting in liability pursuant to Section4063 or 4064 of ERISA; (v) the institution by the PBGC of proceedings toterminate any Pension Plan, or the occurrence of any event or condition whichmight constitute grounds under ERISA for the termination of, or the appointmentof a trustee to administer, any Pension Plan; (vi) the imposition of liabilityon Company, any of its Subsidiaries or any of their respective ERISA Affiliatespursuant to Section 4062(e) or 4069 of ERISA or by reason of the application ofSection 4212(c) of ERISA; (vii) the withdrawal of Company, any of itsSubsidiaries or any of their respective ERISA Affiliates in a complete orpartial withdrawal (within the meaning of Sections 4203 and 4205 of ERISA) fromany Multiemployer Plan if there is any potential liability therefor, or thereceipt by Company, any of its Subsidiaries or any of their respective ERISAAffiliates of notice from any Multiemployer Plan that it is in reorganization orinsolvency pursuant to Section 4241 or 4245 of ERISA, or that it intends toterminate or has terminated under Section 4041A or 4042 of ERISA; (viii) theoccurrence of an act or omission which could give rise to the imposition onCompany, any of its Subsidiaries or any of their respective ERISA Affiliates offines, penalties, taxes or related charges under Chapter 43 of the InternalRevenue Code or under Section 409, Section 502(c), (i) or (l), or Section 4071of ERISA in respect of any Employee Benefit Plan; (ix) the assertion of amaterial claim (other than routine claims for benefits) against any EmployeeBenefit Plan other than a Multiemployer Plan or the assets thereof, or againstCompany, any of its Subsidiaries or any of their respective ERISA Affiliates inconnection with any Employee Benefit Plan; (x) receipt from the Internal RevenueService of notice of the failure of any Pension Plan (or any other EmployeeBenefit Plan intended to be qualified under Section 401(a) of the InternalRevenue Code) to qualify under Section 401(a) of the Internal Revenue Code, orthe failure of any trust forming part of any Pension Plan to qualify forexemption from taxation under Section 501(a) of the Internal Revenue Code; or(xi) the imposition of a Lien pursuant to Section 401(a)(29) or 412(n) of theInternal Revenue Code or pursuant to ERISA with respect to any Pension Plan. "Escrowed Funds" as defined in Section 2.1(a)(ii). "Eurodollar Rate Loan" means a Loan bearing interest at a ratedetermined by reference to the Adjusted Eurodollar Rate. 15 "Event of Default" means each of the conditions or events set forth inSection 8.1. "Exchange Act" means the Securities Exchange Act of 1934, as amendedfrom time to time, and any successor statute. "Existing Indebtedness" means the Indebtedness listed on Schedule 6.1. "Facilities Usage" means a fraction, calculated as of the last day ofeach Fiscal Quarter (i) prior to the Delayed Draw Term Loan CommitmentTermination Date, the numerator of which is equal to the average daily TotalUtilization of Commitments during such Fiscal Quarter and the denominator ofwhich is equal to the average daily aggregate Commitments for all Lenders duringsuch Fiscal Quarter and (ii) on and after the Delayed Draw Term Loan CommitmentTermination Date, the numerator of which is equal to the average daily TotalUtilization of Revolving Loan Commitments and the denominator of which is equalto the average daily aggregate Revolving Loan Commitments for all Lenders duringsuch Fiscal Quarter. "Facility" means any real property (including all buildings, fixturesor other improvements located thereon) now, hereafter or heretofore owned,leased, operated or used by Company or any of its Subsidiaries or any of theirrespective predecessors or Affiliates. "Fair Share" as defined in Section 7.2. "Fair Share Contribution Amount" as defined in Section 7.2. "Fair Share Shortfall" as defined in Section 7.2. "Federal Funds Effective Rate" means for any day, the rate per annum(expressed, as a decimal, rounded upwards, if necessary, to the next higher1/100 of 1%) equal to the weighted average of the rates on overnight Federalfunds transactions with members of the Federal Reserve System arranged byFederal funds brokers on such day, as published by the Federal Reserve Bank ofNew York on the Business Day next succeeding such day; provided, (i) if such day -------- is not a Business Day, the Federal Funds Rate for such day shall be such rate onsuch transactions on the next preceding Business Day as so published on the nextsucceeding Business Day, and (ii) if no such rate is so published on such nextsucceeding Business Day, the Federal Funds Rate for such day shall be theaverage rate charged to Administrative Agent, in its capacity as a Lender, onsuch day on such transactions as determined by Administrative Agent. "Financial Officer Certification" means, with respect to the financialstatements for which such certification is required, the certification of thechief financial officer of Company that such financial statements fairlypresent, in all material respects, the financial condition of Company and itsSubsidiaries as at the dates indicated and the results of their operations andtheir cash flows for the periods indicated, subject to changes resulting fromaudit and normal yearend adjustments. "Financial Plan" as defined in Section 5.1(k). 16 "First Priority" means, with respect to any Lien purported to becreated in any Collateral pursuant to any Collateral Document, that such Lien isthe only Lien to which such Collateral is subject, other than Permitted Liens. "Fiscal Quarter" means a fiscal quarter of any Fiscal Year. "Fiscal Year" means the fiscal year of Company and its Subsidiariesending on December 31/st/ of each calendar year. "Flood Hazard Property" means any Real Estate Asset subject to amortgage in favor of the Collateral Agent, for the benefit of the SecuredParties, and located in an area designated by the Federal Emergency ManagementAgency as having special flood or mud slide hazards. "Foreign Subsidiary"means, with respect to any Person, any Subsidiarythat is not a Domestic Subsidiary. "Founders" means Benchmark Capital Partners II, L.P., Cisco Systems,Inc., Microsoft Corporation, News Corp., Albert M. Avery, IV, Jay S. Adelson andtheir respective Related Persons. "Funding Date" as defined in the preamble. "Funding Default" as defined in Section 2.21. "Funding Guarantors" as defined in Section 7.2. "Funding Notice" means a notice substantially in the form of ExhibitA1. "GAAP" means, subject to the limitations on the application thereofset forth in Section 1.2, United States generally accepted accounting principlesin effect as of the date of determination thereof. "Governmental Acts" means any act or omission, whether rightful orwrongful, of any present or future de jure or de facto government orGovernmental Authority. "Governmental Authority" means any federal, state, municipal, nationalor other government, governmental department, commission, board, bureau, court,agency or instrumentality or political subdivision thereof or any entity orofficer exercising executive, legislative, judicial, regulatory oradministrative functions of or pertaining to any government or any court, ineach case whether associated with a state of the United States, the UnitedStates, or a foreign entity or government. "Governmental Authorization" means any permit, license, authorization,plan, directive, consent order or consent decree of or from any GovernmentalAuthority. "Grantor" as defined in the Pledge and Security Agreement. 17 "GSCP" as defined in the preamble hereto. "Guaranteed Obligations" as defined in Section 7.1. "Guarantor" means (y) with respect to the Loans (other than PurchaseMoney Loans) and related obligations, the Company and each Domestic Subsidiaryof Company that is a Restricted Subsidiary other than OpCo and (z) to the extentnot prohibited under the Senior Notes, with respect to Purchase Money Loans andrelated obligations, each Domestic Subsidiary of Company that is a RestrictedSubsidiary. "Guarantor Subsidiary" means each Guarantor other than Company. "Guaranty" means the guaranty of each Guarantor set forth in Section7. "Hazardous Materials" means any chemical, material or substance,exposure to which is prohibited, limited or regulated by any GovernmentalAuthority or which may or could pose a hazard to the health and safety of theowners, occupants or any Persons in the vicinity of any Facility or to theindoor or outdoor environment. "Hazardous Materials Activity" means any past, current, proposed orthreatened activity, event or occurrence involving any Hazardous Materials,including the use, manufacture, possession, storage, holding, presence,existence, location, Release, threatened Release, discharge, placement,generation, transportation, processing, construction, treatment, abatement,removal, remediation, disposal, disposition or handling of any HazardousMaterials, and any corrective action or response action with respect to any ofthe foregoing. "Hedge Agreement" means an Interest Rate Agreement or a CurrencyAgreement entered into with a Lender Counterparty in order to satisfy therequirements of this Agreement or otherwise in the ordinary course of Company'sor any of its Subsidiaries' businesses and not for speculative purposes. "Highest Lawful Rate" means the maximum lawful interest rate, if any,that at any time or from time to time may be contracted for, charged, orreceived under the laws applicable to any Lender which are presently in effector, to the extent allowed by law, under such applicable laws which may hereafterbe in effect and which allow a higher maximum nonusurious interest rate thanapplicable laws now allow. "Historical Financial Statements" means as of the Closing Date, (i)the audited financial statements of Company and its Subsidiaries for Fiscal Year1999, 7consisting of balance sheets and the related consolidated statements ofincome, stockholders' equity and cash flows for such Fiscal Year and (ii) theunaudited financial statements of Company and its Subsidiaries as of the FiscalQuarter ending September 30, 2000, consisting of a balance sheet and the relatedconsolidated statements of income and cash flows for the ninemonth period endingon such date, and, in the case of clauses (i) and (ii), certified by the chieffinancial officer of Company that they fairly present, in all material respects,the financial condition of Company and its Subsidiaries as at the datesindicated and the results of their operations and their cash flows for theperiods indicated, subject to changes resulting from audit and normal yearendadjustments. 18 "IBX Facilities" means Internet Business Exchange facilities,including, without limitation, the Permitted IBX Facilities, which are designed,developed (or acquired by) and operated by the Company or one of its RestrictedSubsidiaries for the purpose of providing Internet access, colocation services,telecommunications access, mechanical and power systems and operations andcustomer service and support and is either owned in fee by the Company or one ofits Restricted Subsidiaries or operated under a distinct long term leaseagreement between the Company or one of its Restricted Subsidiaries and alandlord. "IBX Facility Net Cashflow" means, with respect to any Permitted IBXFacility, for any Fiscal Quarter, an amount equal to total revenue of suchPermitted IBX Facility less operating expenses associated with such PermittedIBX Facility plus depreciation, amortization, stock-based compensation of theemployees associated with such Permitted IBX Facility and other noncash charges,all as determined on a basis consistent with the Historical FinancialStatements. "Increased Amount Date" as defined in Section 2.1(a)(iv). "IncreasedCost Lender" as defined in Section 2.22. "Indebtedness", as applied to any Person, means, without duplication,(i) all indebtedness for borrowed money; (ii) that portion of obligations withrespect to Capital Leases that is properly classified as a liability on abalance sheet in conformity with GAAP; (iii) notes payable and drafts acceptedrepresenting extensions of credit whether or not representing obligations forborrowed money; (iv) any obligation owed for all or any part of the deferredpurchase price of property or services (excluding any such obligations incurredunder ERISA and ordinary course trade payables), which purchase price is (a) duemore than six months from the date of incurrence of the obligation in respectthereof or (b) evidenced by a note or similar written instrument; (v) allindebtedness secured by any Lien on any property or asset owned or held by thatPerson regardless of whether the indebtedness secured thereby shall have beenassumed by that Person or is nonrecourse to the credit of that Person; (vi) theface amount of any letter of credit issued for the account of that Person or asto which that Person is otherwise liable for reimbursement of drawings; (vii)the direct or indirect guaranty, endorsement (other than for collection ordeposit in the ordinary course of business), comaking, discounting with recourseor sale with recourse by such Person of the obligation of another; (viii) anyobligation of such Person the primary purpose or intent of which is to provideassurance to an obligee that the obligation of the obligor thereof will be paidor discharged, or any agreement relating thereto will be complied with, or theholders thereof will be protected (in whole or in part) against loss in respectthereof; (ix) any liability of such Person for the obligation of another throughany agreement (contingent or otherwise) (a) to purchase, repurchase or otherwiseacquire such obligation or any security therefor, or to provide funds for thepayment or discharge of such obligation (whether in the form of loans, advances,stock purchases, capital contributions or otherwise) or (b) to maintain thesolvency or any balance sheet item, level of income or financial condition ofanother if, in the case of any agreement described under subclauses (a) or (b)of this clause (ix), the primary purpose or intent thereof is as described inclause (viii) above; and (x) obligations of such Person in respect of anyexchange traded or over the counter derivative transaction, including, withoutlimitation, any Interest Rate Agreement or Currency Agreement, whether enteredinto for hedging or speculative purposes; provided, in no event shall -------- obligations 19 under any Interest Rate Agreement or any Currency Agreement be deemed"Indebtedness" for any purpose under Sections 6.6 or 6.7, as applicable. "Indemnified Liabilities" means, collectively, any and allliabilities, obligations, losses, damages (including natural resource damages),penalties, actions, judgments, suits, claims (including Environmental Claims),costs (including the costs of any investigation, study, sampling, testing,abatement, cleanup, removal, remediation or other response action necessary toremove, remediate, clean up or abate any Hazardous Materials Activity), expensesand disbursements of any kind or nature whatsoever (including the reasonablefees and disbursements of counsel for Indemnitees in connection with anyinvestigative, administrative or judicial proceeding commenced or threatened byany Person, whether or not any such Indemnities shall be designated as a partyor a potential party thereto, and any fees or expenses incurred by Indemnitiesin enforcing this indemnity), whether direct, indirect or consequential andwhether based on any federal, state or foreign laws, statutes, rules orregulations (including securities and commercial laws, statutes, rules orregulations and Environmental Laws), on common law or equitable cause or oncontract or otherwise, that may be imposed on, incurred by, or asserted againstany such Indemnities, in any manner relating to or arising out of (i) thisAgreement or the other Credit Documents or the transactions contemplated herebyor thereby (including Lenders' agreement to make Credit Extensions or the use orintended use of the proceeds thereof, or any enforcement of any of the CreditDocuments (including any sale of, collection from, or other realization upon anyof the Collateral or the enforcement of the Guaranty)); (ii) the statementscontained in the commitment letter delivered by any Lender to Company withrespect to the transactions contemplated by this Agreement; or (iii) anyEnvironmental Claim or any Hazardous Materials Activity relating to or arisingfrom, directly or indirectly, any past or present activity, operation, landownership, or practice of Company or any of its Subsidiaries. "Indemnities" as defined in Section 10.3. "Intellectual Property" as defined in the Pledge and SecurityAgreement. "Intellectual Property Collateral" means all of the IntellectualProperty subject to the Lien of the Pledge and Security Agreement. "Interest Coverage Ratio" means the ratio, as of the last day of anyFiscal Quarter, of (i) Annualized Consolidated EBITDA for the Fiscal Quarterthen ended, to (ii) Consolidated Cash Interest Expense for the fourFiscalQuarter period then ended. "Interest Payment Date" means with respect to (i) any Base Rate Loan,each March 31, June 30, September 30 and December 31 of each year, commencing onthe first such date to occur after the Closing Date and the final maturity dateof such Loan; and (ii) any Eurodollar Rate Loan, the last day of each InterestPeriod applicable to such Loan; provided, in the case of each Interest Period of -------- longer than three months, "Interest Payment Date" shall also include each datethat is three months, or an integral multiple thereof, after the commencement ofsuch Interest Period. 20 "Interest Period" means, in connection with a Eurodollar Rate Loan, aninterest period of one, two, three or sixmonths, as selected by the applicableBorrower in the applicable Funding Notice or Conversion/Continuation Notice, (i)initially, commencing on the Credit Date or Conversion/Continuation Datethereof, as the case may be; and (ii) thereafter, commencing on the day on whichthe immediately preceding Interest Period expires; provided, (a) if an Interest -------- Period would otherwise expire on a day that is not a Business Day, such InterestPeriod shall expire on the next succeeding Business Day unless no furtherBusiness Day occurs in such month, in which case such Interest Period shallexpire on the immediately preceding Business Day; (b) any Interest Period thatbegins on the last Business Day of a calendar month (or on a day for which thereis no numerically corresponding day in the calendar month at the end of suchInterest Period) shall, subject to clauses (c) through (g), of this definition,end on the last Business Day of a calendar month; (c) no Interest Period withrespect to any portion of any Term Loans, Delayed Draw Term Loans or New TermLoans, as the case may be, shall extend beyond such Class's Term Loan MaturityDate; and (d) no Interest Period with respect to any portion of the RevolvingLoans shall extend beyond the Revolving Loan Commitment Termination Date. "Interest Rate Agreement" means any interest rate swap agreement,interest rate cap agreement, interest rate collar agreement, interest ratehedging agreement or other similar agreement or arrangement, each of which isfor the purpose of hedging the interest rate exposure associated with Company'sand its Restricted Subsidiaries' operations. "Interest Rate Determination Date" means, with respect to any InterestPeriod, the date that is two (2) Business Days prior to the first day of suchInterest Period. "Internal Revenue Code" means the Internal Revenue Code of 1986, asamended to the date hereof and from time to time hereafter, and any successorstatute. "International Holdings" means Equinix Europe, Inc., a Delawarecorporation (and/or one or more additional Delaware corporations wholly-ownedby Company) that owns, directly or indirectly, all (other than director'squalifying shares) of the Capital Stock of all Foreign Subsidiaries that areUnrestricted Subsidiaries. "Investment" means (i) any direct or indirect purchase or otheracquisition by Company or any of its Restricted Subsidiaries of, or of abeneficial interest in, any of the Securities of any other Person (other than byCompany or any whollyowned Guarantor Subsidiary with respect to any whollyownedGuarantor Subsidiary); (ii) any direct or indirect redemption, retirement,purchase or other acquisition for value, by any Restricted Subsidiary of Companyfrom any Person (other than Company or any whollyowned Guarantor Subsidiary), ofany Capital Stock of such Restricted Subsidiary; and (iii) any direct orindirect loan, advance (other than advances to employees for moving,entertainment and travel expenses, drawing accounts and similar expenditures inthe ordinary course of business) or capital contribution by Company or any ofits Restricted Subsidiaries to any other Person (other than by Company or anywhollyowned Guarantor Subsidiary to any whollyowned Guarantor Subsidiary),including all indebtedness and accounts receivable from that other Person thatare not current assets or did not arise from sales to that other Person in theordinary course of business. The amount of any Investment shall be the originalcost of such Investment plus the cost of all additions thereto, 21 without any adjustments for increases or decreases in value, or writeups,writedowns or writeoffs with respect to such Investment. "Investment Related Property" as defined in the Pledge and SecurityAgreement. "Issuance Notice" means an Issuance Notice substantially in the formof Exhibit A3. "Issuing Bank" means one of Citicorp USA, Inc. and one or more otherLenders acceptable to the Joint Lead Arrangers, as applicable, as Issuing Bankhereunder, together with its permitted successors and assigns in such capacity. "Joinder Agreement" means a joinder agreement substantially in theform of Exhibit L, or as may be amended, restated supplemented or otherwisemodified from time to time. "Joint Lead Arrangers" as defined in the preamble hereto. "Joint Book Runners" as defined in the preamble hereto. "Joint Venture" means a joint venture, partnership or other similararrangement, whether in corporate, partnership, limited liability company, orother legal form; provided, in no event shall any corporate Subsidiary of any -------- Person be considered to be a Joint Venture to which such Person is a party. "Landlord Agreement" means an agreement duly executed by the landlordof any Leasehold Property substantially in the form of Exhibit K with suchamendments or modifications as may be approved by Collateral Agent. "Leasehold Property" means any leasehold interest (other than San JoseGround Lease) of Company or any of its Restricted Subsidiaries as lessee underany lease of real property, other than any such leasehold interest designatedfrom time to time by Collateral Agent in its sole discretion as not beingrequired to be included in the Collateral. "Lender" means each financial institution that becomes a Lender underthis Agreement as of the Closing Date or pursuant to Section 2.1(a)(iv),together with each such institution's successors and permitted assigns. "Lender Counterparty" means each Lender or any Affiliate of a LenderCounterparty to a Hedge Agreement, including, without limitation, each suchAffiliate that enters into a Joinder Agreement with the Collateral Agent. "Letter of Credit" means a commercial or standby letter of creditissued or to be issued by Issuing Bank pursuant to this Agreement. "Letter of Credit Sublimit" means the lesser of (i) $15,000,000 and(ii) the aggregate unused amount of the Revolving Loan Commitments then ineffect. 22 "Letter of Credit Usage" means, as at any date of determination, thesum of (i) the maximum aggregate amount which is, or at any time thereafter maybecome, available for drawing under all Letters of Credit then outstanding, and(ii) the aggregate amount of all drawings under Letters of Credit honored byIssuing Bank and not theretofore reimbursed by or on behalf of OpCo. "Lien" means (i) any lien, claim, mortgage, pledge, assignment,security interest, charge or encumbrance of any kind (including any agreement togive any of the foregoing, any conditional sale or other title retentionagreement, and any lease in the nature thereof) and any option, trust or otherpreferential arrangement having the practical effect of any of the foregoing and(ii) in the case of Securities, any purchase option, call or similar right of athird party with respect to such Securities. "Loan" means any Loan made by a Lender to a Borrower pursuant toSection 2.1(a)(i), 2(a)(ii), 2.1(a)(iii) or 2.1(a)(iv) of this Agreement. "Margin Stock" as defined in Regulation T, U or X of the Board ofGovernors of the Federal Reserve System as in effect from time to time. "Material Adverse Effect" means a material adverse effect on (i) thebusiness, operations, properties, assets, condition (financial or otherwise) orprospects (with respect to prospects only, based upon the Closing Financial Planand other written business information provided by Company to Lender on or priorto the Closing Date) of Company and its Restricted Subsidiaries taken as awhole; (ii) the ability of any Credit Party to fully and timely perform theObligations; (iii) the legality, validity, binding effect or enforceabilityagainst a Credit Party of a Credit Document to which it is a party; (iv) therights, remedies and benefits available to, or conferred upon, any Agent and anyLender under any Credit Document; or (v) the Collateral Agent's Liens, on behalfof Secured Parties, on the Collateral or the priority of such Liens. "Material Contract" means any contract or other arrangement to whichCompany or any of its Restricted Subsidiaries is a party (other than the CreditDocuments) for which breach, nonperformance, cancellation or failure to renewcould reasonably be expected to have a Material Adverse Effect. "Material Real Estate Asset'' means (i) (a) any feeowned Real EstateAsset located in the United States or Canada having a fair market value inexcess of $250,000 as of the date of the acquisition thereof, (b) any LeaseholdProperty which is a IBX Facility to the extent the failure to comply withSection 5.10 with respect thereto would cause the Collateral Agent to have atany time a perfected First Priority Lien on less than 50% of all LeaseholdProperties which are IBX Facilities and (c) all Leasehold Properties which arenot IBX Facilities (other than the San Jose Ground Lease and existingheadquarter buildings) other than those with respect to which the aggregatepayments under the term of the lease are less than $100,000 per annum or (ii)any Real Estate Asset (other than the San Jose Ground Lease and existingheadquarters) located in the United States or Canada that the Requisite Lendershave determined is material to the business, operations, properties, assets,condition (financial or otherwise) or prospects of Company or any RestrictedSubsidiary thereof taken as a whole. 23 "Moody's" means Moody's Investor Services, Inc. "Mortgage" means a Mortgage substantially in the form of Exhibit J, asit may be amended, restated, supplemented or otherwise modified from time totime. "Multiemployer Plan" means any Employee Benefit Plan which is a"multiemployer plan" as defined in Section 3(37) of ERISA. "NAIC" means The National Association of Insurance Commissioners, andany successor thereto. "Narrative Report" means, with respect to the financial statements forwhich such narrative report is required, a narrative report describing theoperations of Company and its Restricted Subsidiaries in the form prepared forpresentation to senior management thereof for the Fiscal Quarter or Fiscal Yearand for the period from the beginning of the then current Fiscal Year to the endof such period to which such financial statements relate. "Net Accounts Receivable" means as of any A/R Sublimit MeasurementDate, the consolidated net accounts receivable of the Company and its RestrictedSubsidiaries as shown on the consolidated financial statements of the Companyand its Restricted Subsidiaries as of the most recently completed FiscalQuarter; less, to the extent not otherwise deducted in determining net accounts ---- receivable of the Company and its Restricted Subsidiaries, accounts receivable120 days past due and not fully reserved for at the end of such Fiscal Quarter. "Net Asset Sale Proceeds" means, with respect to any Asset Sale, anamount equal to: (i) Cash payments (including any Cash received by way ofdeferred payment pursuant to, or by monetization of, a note receivable or as aresult of the release of any amounts subject to any reserve described in clause(c) below or otherwise, but only as and when so received) received by Company orany of its Restricted Subsidiaries from such Asset Sale, minus (ii) any bona ----- fide direct costs incurred in connection with such Asset Sale, including (a)income or gains taxes payable by the seller as a result of any gain recognizedin connection with such Asset Sale, (b) payment of the outstanding principalamount of, premium or penalty, if any, and interest on any Indebtedness (otherthan the Loans) that is secured by a Lien on the stock or assets in question andthat is required to be repaid under the terms thereof as a result of such AssetSale, (c) attorneys' fees, accountants' fees, investment banking fees and othercustomary costs, fees and expenses and commissions actually incurred inconnection therewith, and (d) a reasonable reserve for any indemnificationpayments (fixed or contingent) attributable to seller's indemnities andrepresentations and warranties to purchaser in respect of such Asset Saleundertaken by Company or any of its Restricted Subsidiaries in connection withsuch Asset Sale. "Net Insurance/Condemnation Proceeds" means an amount equal to: (i)any Cash payments or proceeds received by Company or any of its RestrictedSubsidiaries (a) under any casualty insurance policy in respect of a coveredloss thereunder or (b) as a result of the taking of any assets of Company or anyof its Restricted Subsidiaries by any Person pursuant to the power of eminentdomain, condemnation or otherwise, or pursuant to a sale of any such assets to apurchaser with such power under threat of such a taking, minus (ii) (a) any ----- actual and reasonable costs incurred by Company or any of its RestrictedSubsidiaries in connection with 24 the adjustment or settlement of any claims of Company or such Subsidiary inrespect thereof, and (b) any bona fide direct costs incurred in connection withany sale of such assets as referred to in clause (i)(b) of this definition,including (1) income or gains taxes payable by the seller as a result of anygain recognized in connection with the foregoing, (2) payment of the outstandingprincipal amount of, premium or penalty, if any, and interest on anyIndebtedness (other than the Loans) that is secured by a Lien on the stock orassets in question and that is required to be repaid under the terms thereof asa result of any sale of such assets, (3) attorneys' fees, accountants' fees,investment banking fees and other customary costs, fees and expenses andcommissions actually incurred in connection therewith, and (4) a reasonablereserve for any indemnification payments (fixed or contingent) attributable toseller's indemnities and representations and warranties to purchaser in respectof such asset sale undertaken by Company or any of its Restricted Subsidiariesin connection with such asset sale. "Net Revenues" means, for any period, the net revenues of Company andits Restricted Subsidiaries on a consolidated basis for such period taken as asingle accounting period determined in conformity with GAAP (it being understoodthat, in any event such net revenue shall be net of sales charges anddiscounts). "New Revolving Loan Commitments" as defined in Section 2.1(a)(iv). "New Revolving Loan Lender" as defined in Section 2.1(a)(iv). "New Term Loan" as defined in Section 2.1(a)(iv). "New Term Loan Commitments" as defined in Section 2.1(a)(iv). "New Term Loan Exposure" means, with respect to any Lender as of anydate of determination (i) prior to the funding of the New Term Loans thatLender's New Term Loan Commitment, if any, and (ii) after the funding of the NewTerm Loans, the outstanding principal amount of the New Term Loan of thatLender. "New Term Loan Lender" as defined in Section 2.1(a)(iv). "New Term Loan Maturity Date" means the date that New Term Loans of aSeries shall become due and payable in full hereunder, as specified in theapplicable Joinder Agreement. "New Term Loan Note" means a promissory note in the form of ExhibitB4, as it may be amended, restated, supplemented or otherwise modified from timeto time. "NonConsenting Lender" as defined in Section 2.22. "NonUS Lender" as defined in Section 2.19(c). "Note" means a Term Loan Note, a Delayed Draw Term Loan Note, aRevolving Loan Note or a New Term Loan Note. 25 "Notice" means a Funding Notice, an Issuance Notice, or aConversion/Continuation Notice. "Obligations" means all obligations of every nature of each CreditParty from time to time owed to the Agents, the Lenders or any of them or theirrespective Affiliates (including, without limitation, all former Agents, Lendersor Lender Counterparties), under any Credit Document (including, withoutlimitation, with respect to a Hedge Agreement, net obligations owed thereunderto any person who was a Lender or an Affiliate of a Lender at the time suchHedge Agreement was entered into), whether for principal, interest (includinginterest which, but for the filing of a petition in bankruptcy with respect tosuch Credit Party, would have accrued on any Obligation, whether or not a claimis allowed against such Credit Party for such interest in the related bankruptcyproceeding), reimbursement of amounts drawn under Letters of Credit, paymentsfor early termination of Hedge Agreements, fees, expenses, indemnification orotherwise. "Obligee Guarantor" as defined in Section 7.7. "Organizational Documents" means (i) with respect to any corporation,its certificate or articles of incorporation, as amended, and its bylaws, asamended, (ii) with respect to any limited partnership, its certificate oflimited partnership, as amended, and its partnership agreement, as amended,(iii) with respect to any general partnership, its partnership agreement, asamended, and (iv) with respect to any limited liability company, its certificateof formation or articles of organization, as amended, and its operatingagreement, as amended. In the event any term or condition of this Agreement orany other Credit Document requires any Organizational Document to be certifiedby a secretary of state or similar governmental official, the reference to anysuch "Organizational Document" shall only be to a document of a type customarilycertified by such governmental official. "PBGC" means the Pension Benefit Guaranty Corporation or any successorthereto. "Pension Plan" means any Employee Benefit Plan, other than aMultiemployer Plan, which is subject to Section 412 of the Internal Revenue Codeor Section 302 of ERISA. "Permitted Acquisition" means any acquisition whether by purchase,merger or otherwise, of all or substantially all of the assets of, all of theCapital Stock of, or a business line or unit or a division of, any Person;provided,-------- (i) immediately prior to, and after giving effect thereto, no Default or Event of Default shall have occurred and be continuing or would result therefrom; (ii) all transactions in connection therewith shall be consummated in accordance with all applicable laws and in conformity with all applicable Governmental Authorizations; (iii) in the case of the acquisition of Capital Stock, all of the Capital Stock (except for any such Securities in the nature of directors' qualifying 26 shares required pursuant to applicable law) issued by such Person or any newly formed Restricted Subsidiary of Company in connection with such acquisition shall be owned by Company or a Guarantor Subsidiary thereof, and Company shall have taken, or caused to be taken, as of the date such Person becomes a Subsidiary of Company, each of the actions set forth in Sections 5.9 and/or 5.10, as applicable; (iv) whether the consideration paid in such acquisition is cash or stock, Company shall deliver to Joint Lead Arrangers a Financial Officer's Certificate demonstrating (to the reasonable satisfaction of Joint Lead Arrangers) that Company and its Restricted Subsidiaries shall be in compliance, as of the first day of the most recently ended Fiscal Quarter and after giving pro forma effect on a goingforward basis through December 15, 2005 to such acquisition with the covenants contained in this Agreement; (v) Company shall have delivered to the Joint Lead Arrangers (A) at least ten (10) Business Days prior to such proposed acquisition, a Compliance Certificate evidencing compliance with Sections 6.6, 6.7 or 6.8, as applicable, as required under clause (iv) above, together with all relevant financial information with respect to such acquired assets, including, without limitation, the aggregate consideration for such acquisition and any other information required to demonstrate compliance with Sections 6.6, 6.7 or 6.8, as applicable; and (vi) any Person or assets or division as acquired in accordance herewith shall be in the same business or lines of business in which Company and/or its Subsidiaries are engaged as of the Closing Date, a Complementary Business or such other lines of business as may be consented to by Requisite Lenders. "Permitted Equipment Financing" means (A) the secured equipmentfinancing facilities listed, and designated as such, on Schedule 6.1 and (B) oneor more purchase money, vendor or other equipment financing facilities or leases(i) in an aggregate principal amount not in excess of $50,000,000 outstanding atany time, (ii) pursuant to which Company may be advanced funds principally topurchase or lease IBX Facility equipment or headquarters equipment or servicesand to pay the costs of the engineering, construction, installation,importation, development and improvement of such equipment, and (iii) which maybe secured only by the assets being financed thereby and with respect to whichno Restricted Subsidiary of Company is obligated. "Permitted IBX Facilities" means those IBX Facilities listed onSchedule 1.1(a) with respect to which development has commenced on or before theClosing Date (i) owned or leased by the Company on the Closing Date or (ii)owned or leased by OpCo or a whollyowned Domestic Subsidiary of OpCo on or afterthe Closing Date, in each case having substantially those characteristicscontemplated in the Closing Financial Plan. "Permitted Liens" means each of the Liens permitted pursuant toSection 6.2. 27 "Permitted Unsecured Company Debt" means indebtedness of the Companythat is unsecured (other than funds escrowed from the proceeds of suchindebtedness for the purpose of making interest payments thereon) that is notguaranteed by any Person and that is no less favorable (other than with respectto interest rate or debt service funded from the proceeds of such indebtedness)for the Company or the Lenders than the Senior Notes in any material respect (asdetermined by the Joint Lead Arrangers). "Person" means and includes natural persons, corporations, limitedpartnerships, general partnerships, limited liability companies, limitedliability partnerships, joint stock companies, Joint Ventures, associations,companies, trusts, banks, trust companies, land trusts, business trusts or otherorganizations, whether or not legal entities, and Governmental Authorities. "Pledge and Security Agreement" means each of the Pledge and SecurityAgreements substantially in the form of Exhibit I-A and Exhibit I-B, as each maybe amended, supplemented or otherwise modified from time to time to be executedby the Company, the applicable Borrower and each Guarantor. "Prime Rate" means the rate of interest per annum that theAdministrative Agent announces from time to time as its prime lending rate, asin effect from time to time. The Prime Rate is a reference rate and does notnecessarily represent the lowest or best rate actually charged to any customer.The Administrative Agent or any other Lender may make commercial loans or otherloans at rates of interest at, above or below the Prime Rate. "Principal Office" means, for each of Administrative Agent and IssuingBank, such Person's "Principal Office" as set forth on Appendix B, or such otheroffice as such Person may from time to time designate in writing to theapplicable Borrower, Administrative Agent and each Lender. "Pro Forma Consolidated Debt Service" means, as of any date ofdetermination, the sum, without duplication, of (i) Consolidated Cash InterestExpense and (ii) all scheduled amortization (including any payment or prepaymentof principal of, premium, if any, or interest on, or redemption, purchase,retirement, defeasance (including insubstance or legal defeasance), sinking fundor similar payment) in respect of Indebtedness, in each case payable by Companyand its Restricted Subsidiaries during the immediately succeeding four FiscalQuarters assuming, for purposes of calculating Consolidated Cash InterestExpense for any such succeeding four Fiscal Quarter period, Indebtednessoutstanding as of the date of such calculation shall remain outstanding duringsuch four Fiscal Quarter period (except to the extent of any scheduledamortization, redemption, retirement or similar payment scheduled during suchfour Fiscal Quarter period) and that the average interest rate applicable tooutstanding Indebtedness of the Credit Parties as of the date of suchcalculation applies with respect to Indebtedness outstanding during such fourFiscal Quarter period. "Pro Forma Debt Service Coverage Ratio" means the ratio as of the lastday of any Fiscal Quarter of (i) Annualized Consolidated EBITDA for the FiscalQuarter then ended to (ii) Pro Forma Consolidated Debt Service, in each case asset forth in the most recent 28 Compliance Certificate delivered by Company to Administrative Agent pursuant toSection 5.1(d). "Projections" as defined in Section 4.8. "Pro Rata Share" means (i) with respect to all payments, computationsand other matters relating to the Term Loan of any Lender, the percentageobtained by dividing (x) the Term Loan Exposure of that Lender by (y) theaggregate Term Loan Exposure of all Lenders; (ii) with respect to all payments,computations and other matters relating to the Delayed Draw Term Loan Commitmentor the Delayed Draw Term Loans of any Lender, the percentage obtained bydividing (x) the Delayed Draw Term Loan Exposure of that Lender by (y) theaggregate Delayed Draw Term Loan Exposure of all Lenders; (iii) with respect toall payments, computations and other matters relating to the Revolving LoanCommitment or the Revolving Loans of any Lender, the percentage obtained bydividing (x) the Revolving Loan Exposure of that Lender by (y) the aggregateRevolving Loan Exposure of all Lenders; (iv) with respect to all payments,computations and other matters relating to the New Term Loan Commitments, ifany, or the New Term Loan, if any, of any Lender, the percentage obtained bydividing (x) the New Term Loan Exposure of that Lender with respect to therelevant Series by (y) the sum of the aggregate New Term Loan Exposure of allLenders for such Series; and (v) for all other purposes with respect to eachLender, the percentage obtained by dividing (x) the sum of the Revolving LoanExposure of that Lender plus the Delayed Draw Loan Exposure of that Lender plus ---- ----the Term Loan Exposure of that Lender plus the New Term Loan Exposure of that ---- Lender by (y) the sum of the aggregate Revolving Loan Exposure of all Lenders plus the sum of the aggregate Delayed Draw Term Loan Exposure of all Lenders---- plus the aggregate Term Loan Exposure of all Lenders plus the aggregate New Term---- ---- Loan Exposure of all Lenders, in any such case as the applicable percentage maybe adjusted by assignments permitted pursuant to Section 10.6. The Pro RataShare of each Lender as of the Closing Date for purposes of each of clauses (i),(ii) and (iii) of the preceding sentence is set forth opposite the name of thatLender in Appendices A1, A2 and A3, respectively. "Purchase Money Loans" as defined in Section 2.1(a)(iii). "Qualifying Equity" means any Equity Interest other than DisqualifiedStock issued by Company after the Closing Date. "Qualifying San Jose Disposition" means a Disposition of any portionof the San Jose Property or rights under the San Jose Ground Lease if theproceeds of such Disposition are used exclusively in connection with thedevelopment of the San Jose Property and/or one or more Permitted IBXFacilities. "Real Estate Asset" means, at any time of determination, any interest(fee, leasehold or otherwise) then owned by any Credit Party in any realproperty. "Record Document" means, with respect to any Leasehold Property, (i)the lease evidencing such Leasehold Property or a memorandum thereof, executedand acknowledged by the owner of the affected real property, as lessor, or (ii)if such Leasehold Property was acquired or subleased from the holder of aRecorded Leasehold Interest, the applicable assignment or 29 sublease document, executed and acknowledged by such holder, in each case inform sufficient to give such constructive notice upon recordation and otherwisein form reasonably satisfactory to Collateral Agent. "Recorded Leasehold Interest" means a Leasehold Property with respectto which a Record Document has been recorded in all places necessary ordesirable, in Administrative Agent's reasonable judgment, to give constructivenotice of such Leasehold Property to thirdparty purchasers and encumbrancers ofthe affected real property. "Register" as defined in Section 2.5(b). "Regulation D" means Regulation D of the Board of Governors of theFederal Reserve System, as in effect from time to time. "Reimbursement Date" as defined in Section 2.2(d). "Related Fund" means, with respect to any Lender that is an investmentfund, any other investment fund that invests in commercial loans and that ismanaged or advised by the same investment advisor as such Lender or by anAffiliate of such investment advisor. "Related Person" means any Person who controls, is controlled by or isunder common control with a Founder; provided that for purposes of this -------- definition "control" means the beneficial ownership of more than 50% of thetotal voting power of a Person normally entitled to vote in the election ofdirectors, managers or trustees, as applicable, of a Person; provided, further, -------- ------- that with respect to any natural Person, each member of such Person's immediatefamily shall be deemed to be a Related Person of such Person. "Release" means any release, spill, emission, leaking, pumping,pouring, injection, escaping, deposit, disposal, discharge, dispersal, dumping,leaching or migration of any Hazardous Material into the indoor or outdoorenvironment (including the abandonment or disposal of any barrels, containers orother closed receptacles containing any Hazardous Material), including themovement of any Hazardous Material through the air, soil, surface water orgroundwater. "Replacement Lender" as defined in Section 2.22. "Requisite Class Lenders" means, at any time of determination (i) forthe Class of Lenders having Term Loan Exposure, Lenders having or holding atleast a majority of the sum of the aggregate Term Loan Exposure of all Lenders,(ii) for the Class of Lenders having Delayed Draw Term Loan Exposure, Lendershaving or holding at least a majority of the sum of the aggregate Delayed DrawTerm Loan Exposure of all Lenders, (iii) for the Class of Lenders havingRevolving Loan Exposure, Lenders having or holding at least a majority of thesum of the aggregate Revolving Loan Exposure of all Lenders and (iv) for eachClass of Lenders having New Term Loan Exposure, if any, Lenders having orholding at least a majority of the sum of the aggregate New Term Loan Exposureof such Lenders. "Requisite Lenders" means one or more Lenders having or holding TermLoan Exposure, Delayed Draw Term Loan Exposure, Revolving Loan Exposure and/orNew Term 30 Loan Exposure for a Series representing more than 50% of the sum of (i) theaggregate Term Loan Exposure of all Lenders, (ii) the aggregate Delayed DrawTerm Loan Exposure of all Lenders, (iii) the aggregate Revolving Loan Exposureof all Lenders and (iv) the aggregate New Term Loan Exposure of all Lenders forall Series. "Restricted Junior Payment" means (i) any dividend or otherdistribution, direct or indirect, on account of any shares of any class of stockof Company or OpCo now or hereafter outstanding, except a dividend payablesolely in shares of that class of stock to the holders of that class; (ii) anyredemption, retirement, sinking fund or similar payment, purchase or otheracquisition for value, direct or indirect, of any shares of any class of stockof Company now or hereafter outstanding; except to the extent payable inexchange for shares of Capital Stock of Company, (iii) any payment made toretire, or to obtain the surrender of, any outstanding warrants, options orother rights to acquire shares of any class of stock of Company or OpCo now orhereafter outstanding; except to the extent paid with shares of Capital Stock ofCompany or OpCo or warrants, options or other rights to acquire any such shares,and (iv) any payment or prepayment of principal of, premium, if any, or intereston, or redemption purchase, retirement, defeasance (including in-substance orlegal defeasance), sinking fund or similar payment with respect to, the SeniorNotes any Permitted Unsecured Company Debt or any Permitted Equipment Financing;provided that Restricted Junior Payments shall not include cash dividends made-------- on preferred stock of Company issued after the Closing Date to the extent thatsuch dividends are only required to be paid and are only paid from the proceedsof the issuance of such preferred stock escrowed for such purpose. "Restricted Subsidiaries" means all direct or indirect subsidiaries ofthe Company or OpCo which are not Unrestricted Subsidiaries. "Revolving Loan Commitment" means the commitment of a Lender to makeRevolving Loans pursuant to Section 2.1(a)(iii) and to acquire participations inLetters of Credit hereunder, and "Revolving Loan Commitments" means suchcommitments of all Lenders in the aggregate. The amount of each Lender'sRevolving Loan Commitment, if any, is set forth in Appendix A3 or in theapplicable Assignment Agreement, subject to any adjustment or reduction pursuantto the terms and conditions hereof. The aggregate amount of the Revolving LoanCommitments as of the Closing Date is the lesser of (i) $25,000,000 and (ii) theA/R Sublimit. "Revolving Loan Commitment Period" means the period from the ClosingDate to but excluding the Revolving Loan Commitment Termination Date. "Revolving Loan Commitment Termination Date" means the earliest tooccur of (i) December 15, 2005; (ii) the date the Revolving Loan Commitments arepermanently reduced to zero pursuant to Section 2.11(b) or 2.12, and (iii) thedate of the termination of the Revolving Loan Commitments pursuant to Section8.1. "Revolving Loan Exposure" means, with respect to any Lender as of anydate of determination, (i) prior to the termination of the Revolving LoanCommitments, that Lender's Revolving Loan Commitment; and (ii) after thetermination of the Revolving Loan Commitments, the sum of (a) the aggregateoutstanding principal amount of the Revolving Loans of that Lender, (b) in thecase of Issuing Bank, the aggregate Letter of Credit Usage in respect of 31 all Letters of Credit issued by that Lender (net of any participations byLenders in such Letters of Credit) and (c) the aggregate amount of allparticipations by that Lender in any outstanding Letters of Credit or anyunreimbursed drawing under any Letter of Credit. "Revolving Loan Maturity Date'' means the earlier of (i) December 15,2005 and (ii) the date that all Revolving Loans shall become due and payable infull hereunder, whether by acceleration or otherwise. "Revolving Loans" means any revolving Loans (including, withoutlimitation, Purchase Money Loans) made by Lenders to the applicable Borrowerpursuant to Section 2.1(a)(iii) of this Agreement. "Revolving Loan Note" means a promissory note in the form of ExhibitB3, as it may be amended, supplemented or otherwise modified from time to time. "S&P" means Standard & Poor's Ratings Group, a division of The McGrawHill Corporation. "San Jose Ground Lease" means the Ground Lease by and between iStarSan Jose, LLC, as Lessor, and Company, as Lessee, dated June 21, 2000 as amendedor restated from time to time but not, in any event, such that the amountspayable with respect thereto exceed amounts payable with respect thereto ascontemplated by the Closing Financial Plan or otherwise materially increase theobligations of the Company thereunder. "San Jose Property" the property leased pursuant to the San JoseGround Lease. "San Jose Incremental L/C Amount" means, as of any date ofdetermination, an amount (not to exceed $25,000,000) by which the obligations,contingent or otherwise, of Company to provide a letter of credit under the SanJose Ground Lease (as in existence on the Closing Date) under any circumstancesexceed $10,000,000. "San Jose Subsidiary" means Equinix-DC, Inc., a wholly-ownedUnrestricted Subsidiary of Company, into which the San Jose Ground Lease and/orthe San Jose Property may be contributed and in connection with such transferCompany may retain the obligations in connection with the San Jose Ground Lease;provided that such obligations of Company shall be extinguished upon the earlier-------- of (a) written notice by the Company or (b) receipt by the San Jose Subsidiary(or any Affiliate in a financing for the benefit of San Jose Subsidiary) ofaggregate proceeds from debt, capital leases or equity issuances of (i) $25million in the aggregate for tenant improvements with respect to the San JoseProperty or (ii) $45 million in the aggregate for any expenditure in connectionwith maintenance, use or development of the San Jose Property (exclusive ofproceeds of any Qualifying San Jose Disposition and exclusive of any proceedsapplied to make rental payments under the San Jose Ground Lease) (either suchreceipt, a "San Jose Triggering Event"); provided further, such transfer may -------- ------- not be consummated until such time as the monthly payment obligations withrespect to the San Jose Ground Lease in effect or of the Closing Date have beenreduced by at least $50,000. "San Jose Triggering Event" as defined within the definition of SanJose Subsidiary. 32 "Secured Parties" as defined in the Pledge and Security Agreement. "Securities" means any stock, shares, partnership interests, votingtrust certificates, certificates of interest or participation in anyprofitsharing agreement or arrangement, options, warrants, bonds, debentures,notes, or other evidences of indebtedness, secured or unsecured, convertible,subordinated or otherwise, or in general any instruments commonly known as"securities" or any certificates of interest, shares or participations intemporary or interim certificates for the purchase or acquisition of, or anyright to subscribe to, purchase or acquire, any of the foregoing. "Securities Act" means the Securities Act of 1933, as amended fromtime to time, and any successor statute. "Senior Leverage Ratio" means the ratio, as of the last day of anyFiscal Quarter, of (i) Consolidated Senior Secured Debt as of such date to (ii)Annualized Consolidated EBITDA. "Senior Notes" means the 13% Senior Notes due 2007 issued by Companyin the aggregate principal amount of $200,000,000 pursuant to the Senior NotesIndenture, as in effect on the Closing Date and as such notes may thereafter beamended, restated, supplemented or otherwise modified from time to time to theextent permitted under Section 6.16. "Senior Notes Indenture" means the Senior Notes Indenture dated as ofDecember 1, 1999 between Company and State Street Bank and Trust Company ofCalifornia, N.A., as trustee, pursuant to which the Senior Notes have beenissued, as in effect on the Closing Date and as such indenture may thereafter beamended, restated, supplemented or otherwise modified from time to time to theextent permitted under Section 6.16. "Series" as defined in Section 2.1(a)(iv). "Solvency Certificate" means a Solvency Certificate of the chieffinancial officer of Company substantially in the form of Exhibit G2. "Solvent" means, with respect to any Person, that as of the date ofdetermination both (i) (a) the sum of such Person's debt (including contingentliabilities) does not exceed all of its property, at a fair valuation; (b) thepresent fair saleable value of the property of such Person is not less than theamount that will be required to pay the probable liabilities on such Person'sthen existing debts as they become absolute and matured; (c) such Person'scapital is not unreasonably small in relation to its business or anycontemplated or undertaken transaction; and (d) such Person does not intend toincur, or believe (nor should it reasonably believe) that it will incur, debtsbeyond its ability to pay such debts as they become due; and (ii) such Person is"solvent" within the meaning given that term and similar terms under applicablelaws relating to fraudulent transfers and conveyances. For purposes of thisdefinition, the amount of any contingent liability at any time shall be computedas the amount that, in light of all of the facts and circumstances existing atsuch time, represents the amount that can reasonably be expected to become anactual or matured liability (irrespective of whether such contingent liabilitiesmeet the criteria for accrual under Statement of Financial Accounting StandardNo. 5). 33 "Stage 1" means the period from the Closing Date to and including June30, 2002. "Stage 2" means the period from July 1, 2002 through the later of (i)December 15, 2005 and (ii) any New Term Loan Maturity Date. "Subsidiary" means, with respect to any Person, any corporation,partnership, limited liability company, association, joint venture or otherbusiness entity of which more than 50% of the total voting power of shares ofstock or other ownership interests entitled (without regard to the occurrence ofany contingency) to vote in the election of the Person or Persons (whetherdirectors, managers, trustees or other Persons performing similar functions)having the power to direct or cause the direction of the management and policiesthereof is at the time owned or controlled, directly or indirectly, by thatPerson or one or more of the other Subsidiaries of that Person or a combinationthereof; provided, in determining the percentage of ownership interests of any -------- Person controlled by another Person, no ownership interest in the nature of a"qualifying share" of the former Person shall be deemed to be outstanding. "Syndication Agent" as defined in the preamble hereto. "Tax" means any present or future tax, levy, impost, duty, assessment,charge, fee, deduction or withholding of any nature and whatever called, bywhomsoever, on whomsoever and wherever imposed, levied, collected, withheld orassessed; provided, "Tax on the overall net income" of a Person shall be -------- construed as a reference to a tax imposed by the jurisdiction in which thatPerson is organized or in which that Person's applicable principal office(and/or, in the case of a Lender, its lending office) is located or in whichthat Person (and/or, in the case of a Lender, its lending office) is deemed tobe doing business on all or part of the net income, profits or gains (whetherworldwide, or only insofar as such income, profits or gains are considered toarise in or to relate to a particular jurisdiction, or otherwise) of that Person(and/or, in the case of a Lender, its applicable lending office). "Term Loan" means a Term Loan made by a Lender to OpCo pursuant toSection 2.1(a)(i) of this Agreement and any New Term Loans made by a Lender toOpCo pursuant to Section 2.1(a)(iv) of this Agreement. "Term Loan Commitment" means the commitment of a Lender to make orotherwise fund a Term Loan to OpCo and "Term Loan Commitments" means suchcommitments of all Lenders in the aggregate. The amount of each Lender's TermLoan Commitment, if any, is set forth on Appendix A1 or in the applicableAssignment Agreement, subject to any adjustment or reduction pursuant to theterms and conditions hereof. The aggregate amount of the Term Loan Commitmentsas of the Closing Date is $50,000,000. "Term Loan Commitment Termination Date" means the Funding Date. "Term Loan Exposure" means, with respect to any Lender, as of any dateof determination, the outstanding principal amount of the Term Loans of suchLender; provided, at any time prior to the making of the Term Loans, the Term -------- Loan Exposure of any Lender shall be equal to such Lender's Term LoanCommitment. 34 "Term Loan Installments" as defined in Section 2.10(a). "Term Loan Installment Date" as defined in Section 2.10(a). "Term Loan Maturity Date" means the earlier of (i) December 15, 2005,and (ii) the date that all Term Loans shall become due and payable in fullhereunder, whether by acceleration or otherwise. "Term Loan Note" means a promissory note in the form of Exhibit B1, asit may be amended, restated, supplemented or otherwise modified from time totime. "Term Loan Maturity Date" means the Term Loan Maturity Date, theDelayed Draw Term Loan Maturity Date or any New Term Loan Maturity Date. "Terminated Lender" as defined in Section 2.22. "Total Leverage Ratio" means the ratio as of the last day of anyFiscal Quarter of (a) Consolidated Total Debt to (b) Annualized ConsolidatedEBITDA. "Total Utilization Exposure" means, as at any date of determination,the sum of (i) the aggregate principal amount of all outstanding Term Loans,(ii) the aggregate principal amount of all outstanding Delayed Draw Term Loans,(iii) the aggregate principal amount of all outstanding Revolving Loans (otherthan Revolving Loans made for the purpose of reimbursing Issuing Bank for anyamount drawn under any Letter of Credit, but not yet so applied), (iv) theLetter of Credit Usage and (v) the aggregate principal amount of all outstandingNew Term Loans, if any. "Total Utilization of Commitments" means, as at any date ofdetermination, the sum of (i) the aggregate principal amount of all outstandingDelayed Draw Term Loans, (ii) the aggregate principal amount of all outstandingRevolving Loans (other than Revolving Loans made for the purpose of reimbursingIssuing Bank for any amount drawn under any Letter of Credit, but not yet soapplied), and (iii) the Letter of Credit Usage. "Total Utilization of Revolving Loan Commitments" means, as at anydate of determination, the sum of (i) the aggregate principal amount of alloutstanding Revolving Loans (other than Revolving Loans made for the purpose ofreimbursing Issuing Bank for any amount drawn under any Letter of Credit, butnot yet so applied), and (ii) the Letter of Credit Usage. "Transaction Costs" means the fees, costs and expenses payable byCompany or any of Company's Subsidiaries on or before the Closing Date inconnection with the transactions contemplated by the Credit Documents. "Type of Loan" means with respect to any of the Term Loans, DelayedDraw Term Loans, New Term Loans or Revolving Loans, a Base Rate Loan or aEurodollar Rate Loan. "UCC" means the Uniform Commercial Code (or any similar or equivalentlegislation) as in effect in any applicable jurisdiction. 35 "UCC Questionnaire" means any certificate in form satisfactory to theCollateral Agent that provides information with respect to any personal or mixedproperty of each Credit Party. "Unadjusted Eurodollar Rate Component" means that component of theinterest costs to Company in respect of a Eurodollar Rate Loan that is basedupon the rate obtained pursuant to clause (i) of the definition of AdjustedEurodollar Rate. "Unrestricted Subsidiaries" means (i) each Subsidiary of Companyidentified on Schedule 1.1(b), (ii) each Subsidiary of Company that shall bedesignated an "Unrestricted Subsidiary" pursuant to and in compliance withSection 6.18, and (ii) each Subsidiary of an Unrestricted Subsidiary. 1.2 Accounting Terms. Except as otherwise expressly provided herein, allaccounting terms not otherwise defined herein shall have the meanings assignedto them in conformity with GAAP. Financial statements and other informationrequired to be delivered by Company to Lenders pursuant to Section 5.1(a),5.1(b) and 5.1(c) shall be prepared in accordance with GAAP as in effect at thetime of such preparation (and delivered together with the reconciliationstatements provided for in Section 5.1(f)), if applicable). Subject to theforegoing, calculations in connection with the definitions, covenants and otherprovisions hereof shall utilize accounting principles and policies in conformitywith those used to prepare the Historical Financial Statements. 1.3 Interpretation, etc. Any of the terms defined herein may, unless thecontext otherwise requires, be used in the singular or the plural, depending onthe reference. References herein to any Section, Appendix, Schedule or Exhibitshall be to a Section, an Appendix, a Schedule or an Exhibit, as the case maybe, hereof unless otherwise specifically provided. The use herein of the word"include" or "including", when following any general statement, term or matter,shall not be construed to limit such statement, term or matter to the specificitems or matters set forth immediately following such word or to similar itemsor matters, whether or not nonlimiting language (such as "without limitation" or"but not limited to" or words of similar import) is used with reference thereto,but rather shall be deemed to refer to all other items or matters that fallwithin the broadest possible scope of such general statement, term or matter.SECTION 2 LOANS AND LETTERS OF CREDIT 2.1 Loans. (a) Loans. (i) Term Loans. Subject to the terms and conditions hereof, each ---------- Lender holding a Term Loan Commitment severally agrees to make, on the Funding Date, a Term Loan to OpCo in an amount equal to such Lender's Term Loan Commitment; provided that after giving effect to the making of any -------- Delayed Draw Term Loans in no event shall the Total Utilization Exposure exceed the Borrowing Base as set forth in a Borrowing Base Certificate delivered pursuant to Section 5.1(e) in connection with the making of such Loans. OpCo may make only one borrowing under the Term Loan Commitment which shall be on the 36 Funding Date. Any amount borrowed under this Section 2.1(a)(i) and subsequently repaid or prepaid may not be reborrowed. Subject to Sections 2.10(a), 2.11(a) and 2.12, all amounts owed hereunder with respect to the Term Loans shall be paid in full no later than the Term Loan Maturity Date. Each Lender's Term Loan Commitment shall terminate immediately and without further action on the Funding Date after giving effect to the funding of such Lender's Term Loan Commitment. (ii) Delayed Draw Term Loans. During the Delayed Draw Term Loan ----------------------- Commitment Period, subject to the terms and conditions hereof, each Lender holding a Delayed Draw Term Loan Commitment severally agrees to make Delayed Draw Term Loans to OpCo in the aggregate amount up to but not exceeding such Lender's Delayed Draw Term Loan Commitment; provided that -------- after giving effect to the making of any Delayed Draw Term Loans in no event shall (x) the Total Utilization of the Delayed Draw Term Loan Commitments exceed the Delayed Draw Term Loan Commitments then in effect and (y) the Total Utilization Exposure exceed the Borrowing Base as set forth in a Borrowing Base Certificate delivered pursuant to Section 5.1(e) in connection with the making of such Loans; provided, however, that if, on -------- ------- the date which is twelve (12) months following the Closing Date, any portion of the Delayed Draw Term Loan Commitment is not permitted to be drawn as a result of the application of clause (y) of the immediately preceding proviso, OpCo shall be entitled (but not obligated) to borrow the portion of the Delayed Draw Term Loans which is required to be drawn on such date in accordance with the last sentence of this paragraph, so long as such amount (the "Escrowed Funds") is held in a pledged account included in the Collateral in which the Collateral Agent for the benefit of the Secured Parties has a First Priority Lien on such terms and conditions satisfactory to Administrative Agent until such time as OpCo demonstrates compliance with such proviso in a Borrowing Certificate delivered pursuant to Section 5.1(e). OpCo may make one or more drawings on the Delayed Draw Term Loan Commitments during the Delayed Draw Term Loan Commitment Period. Any amounts borrowed under this Section 2.1(a)(ii) and subsequently repaid or prepaid may not be reborrowed. Subject to Sections 2.10(a), 2.11(a) and 2.12, all amounts owed hereunder with respect to the Delayed Draw Term Loans shall be paid in full no later than the Delayed Draw Term Loan Maturity Date. Each Lender's Delayed Draw Term Loan Commitment shall terminate immediately and without further action upon the funding in full of such Lender's Delayed Draw Term Loan Commitment. The Delayed Draw Term Loan Commitment shall expire immediately and without further action on a date occurring twelve (12) months after the Closing Date, if Delayed Draw Term Loans in an amount equal to the aggregate Delayed Draw Term Loan Commitments are not made on or before such date. (iii) Revolving Loans. During the Revolving Loan Commitment --------------- Period, subject to the terms and conditions hereof, each Lender holding a Revolving Loan Commitment severally agrees to make Revolving Loans to OpCo in the aggregate amount up to but not exceeding such Lender's Revolving Loan 37 Commitment as of the Closing Date; provided that after giving effect to the -------- making of any Revolving Loans in no event shall (x) the Total Utilization of Revolving Loan Commitments exceed the lesser of (i) the Revolving Loan Commitments then in effect and (ii) to the extent required in order to comply with the terms of the Senior Notes, 85% of Net Accounts Receivable (the "A/R Sublimit") determined as of the most recent A/R Sublimit Measurement Date or (y) the Total Utilization Exposure exceed the Borrowing Base as set forth in a Borrowing Base Certificate delivered pursuant to Section 5.1(e) in connection with the making of such Loans provided, -------- further that, notwithstanding the foregoing, the Company may make ------- borrowings otherwise permitted under the Revolving Facility in excess of the A/R Sublimit to finance not greater than 20% of the costs of equipment and software located in Permitted IBX Facilities either owned by the Company or leased by the Company under a lease subject to a leasehold mortgage in favor of the Collateral Agent for the benefit of the Lenders providing such Purchase Money Loans ("Purchase Money Loans"); provided, -------- that, any Purchase Money Loans made to the Company shall be secured solely by the assets purchased with the proceeds of such Loans. Amounts borrowed pursuant to this Section 2.1(a)(iii) may be repaid and reborrowed during the Revolving Loan Commitment Period. Subject to Sections 2.11 and 2.12, each Lender's Revolving Loan Commitment shall expire on the Revolving Loan Commitment Termination Date and all Revolving Loans and all other amounts owed hereunder with respect to the Revolving Loans and the Revolving Loan Commitments shall be paid in full no later than such date. If as of any A/R Sublimit Measurement Date the A/R Sublimit exceeds the amount outstanding under the Revolving Loans (net of any amounts outstanding under the Purchase Money Loans), a portion of the Purchase Money Loans equal to the amount of such excess shall be automatically deemed converted to Revolving Loans outstanding to OpCo and shall, on and after such date be treated for all purposes as such Revolving Loans and not as Purchase Money Loans. (iv) Incremental Facilities. To the extent not prohibited under ---------------------- the Senior Notes, OpCo or Company may by written notice to Syndication Agent elect to request (A) prior to the Revolving Loan Commitment Termination Date, an increase in the existing Revolving Loan Commitments (any such increase, the "New Revolving Loan Commitments") and/or (B) the establishment of one or more new term loan commitments (the "New Term Loan Commitments"), by an amount not in excess of $100,000,000 in the aggregate and not less than $5,000,000 individually (or such lesser amount which shall be approved by Syndication Agent or such lesser amount that shall constitute the difference between $100,000,000 and all such New Revolving Loan Commitments and New Term Loan Commitments), and integral multiples of $5,000,000 in excess of that amount. Each such notice shall specify (A) the date (each, an "Increased Amount Date") on which Company proposes that the New Revolving Loan Commitment or the New Term Loan Commitment, as applicable, shall be effective and that Loans be made pursuant to the New Term Loan Commitments ("New Term Loans"), which shall be a date not less than 10 Business Days after the date on which such notice is delivered to Syndication Agent and (B) the identity of each 38 Lender or other Person (each, a "New Revolving Loan Lender" or a "New Term Loan Lender", as applicable) to whom OpCo or Company, as applicable, proposes any portion of such New Revolving Loan Commitment or New Term Loan Commitment, as applicable, be allocated and the amounts of such allocations; provided that any Lender approached to provide all or a -------- portion of the New Revolving Loan Commitment or New Term Loan Commitment may elect or decline, in its sole discretion, to provide a New Revolving Loan Commitment or a New Term Loan Commitment. Such New Revolving Loan Commitment or New Term Loan Commitment shall become effective, as of such Increased Amount Date; provided that (1) no Default or Event of Default -------- shall exist on such Increased Amount Date before or after giving effect to such New Revolving Loan Commitment or New Term Loan Commitment, as applicable; (2) both before and after giving effect to the making of any Series of New Term Loans each of the conditions set forth in Section 3.2 shall be satisfied; (3) the New Revolving Loan Commitment or New Term Loan Commitment, as applicable, shall be effected pursuant to one or more Joinder Agreements executed and delivered to Administrative Agent, and each shall be recorded in the Register, each of which shall be subject to the requirements set forth in Section 2.19(c); (4) the applicable Borrower shall make any payments required pursuant to Section 2.17(c) in connection with the New Revolving Loan Commitment, and (5) the applicable Borrower shall deliver or cause to be delivered any legal opinions, Notes and/or other documents reasonably requested by Administrative Agent in connection with any such transaction. Any New Term Loans made shall be designated a separate series (each, a "Series") of New Term Loans for all purposes of this Agreement. On any Increased Amount Date on which New Revolving Loan Commitments areeffected, subject to the satisfaction of the foregoing terms and conditions, (a)each of the Lenders holding Revolving Loans shall assign to each of the NewRevolving Loan Lenders, and each of the New Revolving Loan Lenders shallpurchase from each of the Lenders holding Revolving Loans, at the principalamount thereof, such interests in the Revolving Loans outstanding on suchIncreased Amount Date as shall be necessary in order that, after giving effectto all such assignments and purchases, such Revolving Loans will be held byexisting Lenders and New Revolving Loan Lenders ratably in accordance with theirRevolving Loan Commitments after giving effect to the addition of such NewRevolving Loan Commitment to the Revolving Commitments, (b) each New RevolvingCommitment shall be deemed for all purposes a Revolving Commitment and each Loanmade thereunder (a "New Revolving Loan") shall be deemed, for all purposes, aRevolving Loan and (c) each New Revolving Loan Lender shall become a Lender withrespect to the Revolving Commitments and all matters relating thereto. On any Increased Amount Date on which any New Term Loan Commitments of anySeries are effective, subject to the satisfaction of the foregoing terms andconditions, (i) each New Term Loan Lender of any Series shall make a New TermLoan to Company to the extent required to be made under such New Term LoanCommitment on such date, and (ii) each New Term Loan Lender of any Series shallbecome a Lender hereunder with respect to the New Term Loan Commitment of suchSeries and the New Term Loans of such Series made pursuant thereto. 39 The Syndication Agent shall notify the Lenders promptly in writing uponreceipt of the applicable Borrower's notice of each Increased Amount Date and inrespect thereof the New Revolving Loan Commitment and the New Revolving LoanLenders or the Series of New Term Loan Commitments and the New Term Loan Lendersof such Series, as applicable, and, in the case of each notice to any Lenderwith a Revolving Loans Commitment, the respective interests in such Lender'sRevolving Loans subject to the assignments contemplated by this section. The terms and provisions of the New Term Loans of any Series and New TermLoan Commitments of any Series shall be, except as otherwise set forth herein orin the Joinder Agreement, identical to the Term Loans and in any event (i) theamortization of all New Term Loans of any Series, shall occur no sooner than theproportional amortization of the Term Loans, (ii) the final maturity of all NewTerm Loans of any Series shall be no earlier than the Term Loan Maturity Date,(iii) the rate of interest applicable to New Term Loans of any Series shall bedetermined by the applicable Borrower and applicable new Lenders and shall beset forth in each applicable Joinder Agreement and any New Term Loans made tothe Company shall, to the extent necessary to comply with the Senior Notes,otherwise be made on the same basis as the Purchase Money Loans. Each JoinderAgreement may, without the consent of any other Lenders, effect such amendmentsto this Agreement and the other Credit Documents as may be necessary orappropriate, in the opinion of the Syndication Agent and the AdministrativeAgent, to effect the provision of this Section 2.1(a)(iv). (b) Borrowing Mechanics for Loans. ----------------------------- (i) Delayed Draw Term Loans shall be made in minimum amounts of $10,000,000 pursuant to a maximum of seven drawings. (ii) Revolving Loans shall be made in a minimum amount of $1,000,000 and integral multiples of $500,000 in excess thereof. (iii) With respect to Term Loans, OpCo shall deliver to Administrative Agent a fully executed and delivered Closing Date Certificate and a Funding Notice on the Closing Date. Promptly upon receipt by Administrative Agent of such certificate, Administrative Agent shall notify each Lender in writing of the proposed borrowing. (iv) Whenever a Borrower desires that Lenders make Loans, the applicable Borrower shall deliver to Administrative Agent telephonic notice, followed by a fully executed and delivered Funding Notice no later than 10:00 a.m. (New York City time) at least three (3) Business Days in advance of the proposed Credit Date in the case of a Eurodollar Rate Loan, and at least one (1) Business Day in advance of the proposed Credit Date in the case of a Base Rate Loan. Except as otherwise provided herein, a Funding Notice for a Loan that is a Eurodollar Rate Loan shall be irrevocable on and after the related Interest Rate Determination Date, and the applicable Borrower shall be bound to make a borrowing in accordance therewith. 40 (v) Notice of receipt of each Funding Notice in respect of Loans, together with the amount of each Lender's Pro Rata Share thereof, if any, together with the applicable interest rate, shall be provided by Administrative Agent to each applicable Lender by telefacsimile with reasonable promptness, but (provided Administrative Agent shall have received such notice by 12:00 p.m. (New York City time)) not later than 2:00 p.m. (New York City time) on the same day as Administrative Agent's receipt of such notice from the applicable Borrower. (vi) Each Lender shall make the amount of its Loan available to Administrative Agent not later than 12:00 p.m. (New York City time) on the applicable Credit Date by wire transfer of same day funds in Dollars, at the Administrative Agent's Principal Office. Except as provided herein, upon satisfaction or waiver of the conditions precedent specified herein, Administrative Agent shall make the proceeds of such Loans available to the applicable Borrower by 3:00 p.m. New York City time on the applicable Credit Date by causing an amount of same day funds in Dollars equal to the proceeds of all such Loans received by Administrative Agent from Lenders to be credited to the account of the applicable Borrower at the Administrative Agent's Principal Office or such other account as may be designated in writing to Administrative Agent by the applicable Borrower. 2.2 Issuance of Letters of Credit and Purchase of Participations Therein. (a) Letters of Credit. During the Revolving Loan Commitment Period, ----------------- subject to the terms and conditions hereof, Issuing Bank agrees to issueLetters of Credit for the account of OpCo in the aggregate amount up to but notexceeding the Letter of Credit Sublimit; provided, (i) each Letter of Credit -------- shall be denominated in Dollars; (ii) the stated amount of each Letter of Creditshall not be less than $500,000 or such lesser amount as is acceptable toIssuing Bank; (iii) after giving effect to such issuance, in no event shall theTotal Utilization of Revolving Loan Commitments exceed the Revolving LoanCommitments then in effect; (iv) after giving effect to such issuance, to theextent required in order to comply with the terms of the Senior Notes, the TotalUtilization of Revolving Loan Commitments, less the aggregate amount outstandingunder any Purchase Money Loans, shall not exceed the A/R Sublimit; (v) aftergiving effect to such issuance, in no event shall the Letter of Credit Usageexceed the Letter of Credit Sublimit then in effect; (vi) in no event shall anystandby Letter of Credit have an expiration date later than the earlier of theRevolving Loan Commitment Termination Date and the date which is one year fromthe date of issuance of such standby Letter of Credit; and (vii) in no eventshall any commercial Letter of Credit (x) have an expiration date later than theearlier of (1) the Revolving Loan Commitment Termination Date and (2) the datewhich is 180 days from the date of issuance of such commercial Letter of Creditor (y) be issued if such commercial Letter of Credit is otherwise unacceptableto the Issuing Bank in its reasonable discretion. Subject to the foregoing,Issuing Bank may agree that a standby Letter of Credit will automatically beextended for one or more successive periods not to exceed one year each, unlessIssuing Bank elects not to extend for any such additional period; provided, -------- Issuing Bank shall not extend any such Letter of Credit if it has receivedwritten notice that an Event of Default has occurred and is continuing at thetime Issuing Bank must elect to allow such extension; provided -------- 41 further, in the event a Funding Default exists, Issuing Bank shall not be------- required to issue any Letter of Credit unless Issuing Bank has entered intoarrangements satisfactory to it and OpCo to eliminate Issuing Bank's risk withrespect to the participation in Letters of Credit of the Defaulting Lender,including by cash collateralizing such Defaulting Lender's Pro Rata Share of theLetter of Credit Usage. (b) Notice of Issuance. Whenever OpCo desires the issuance of a ------------------ Letter of Credit, it shall deliver to Administrative Agent and Issuing Bank anIssuance Notice no later than 12:00 p.m. (New York City time) at least three (3)Business Days such shorter period as may be agreed to by Issuing Bank in anyparticular instance, in advance of the proposed date of issuance. Uponsatisfaction or waiver of the conditions set forth in Section 3.2, Issuing Bankshall issue the requested Letter of Credit only in accordance with IssuingBank's standard operating procedures. Upon the issuance of any Letter of Creditor amendment or modification to a Letter of Credit, Issuing Bank shall promptlynotify each Lender in writing of such issuance, which notice shall beaccompanied by a copy of such Letter of Credit or amendment or modification to aLetter of Credit and the amount of such Lender's respective participation insuch Letter of Credit pursuant to Section 2.2(e). Within fifteen (15) daysafter the end of each month ending after the Closing Date, so long as any Letterof Credit shall have been outstanding during such month, Issuing Bank shalldeliver to each Lender a report setting forth for such month the daily aggregateamount available to be drawn under the Letters of Credit that were outstandingduring such month. (c) Responsibility of Issuing Bank With Respect to Requests for -----------------------------------------------------------Drawings and Payments. In determining whether to honor any drawing under any--------------------- Letter of Credit by the beneficiary thereof, Issuing Bank shall be responsibleonly to examine the documents delivered under such Letter of Credit withreasonable care so as to ascertain whether they appear on their face to be inaccordance with the terms and conditions of such Letter of Credit. As betweenOpCo and Issuing Bank, OpCo assumes all risks of the acts and omissions of, ormisuse of the Letters of Credit issued by Issuing Bank, by the respectivebeneficiaries of such Letters of Credit. In furtherance and not in limitationof the foregoing, Issuing Bank shall not be responsible for: the form,validity, sufficiency, accuracy, genuineness or legal effect of any documentsubmitted by any party in connection with the application for and issuance ofany such Letter of Credit, even if it should in fact prove to be in any or allrespects invalid, insufficient, inaccurate, fraudulent or forged; the validityor sufficiency of any instrument transferring or assigning or purporting totransfer or assign any such Letter of Credit or the rights or benefitsthereunder or proceeds thereof, in whole or in part, which may prove to beinvalid or ineffective for any reason; failure of the beneficiary of any suchLetter of Credit to comply fully with any conditions required in order to drawupon such Letter of Credit; errors, omissions, interruptions or delays intransmission or delivery of any messages, by mail, cable, telegraph, telex orotherwise, whether or not they be in cipher; errors in interpretation oftechnical terms; any loss or delay in the transmission or otherwise of anydocument required in order to make a drawing under any such Letter of Credit orof the proceeds thereof; the misapplication by the beneficiary of any suchLetter of Credit of the proceeds of any drawing under such Letter of Credit; orany consequences arising from causes beyond the control of Issuing Bank,including any Governmental Acts; none of the above shall affect or impair, orprevent the vesting of, any of Issuing Bank's rights or powers hereunder.Without limiting the foregoing and in furtherance thereof, any action taken oromitted by Issuing Bank under or in connection with the Letters of 42 Credit or any documents and certificates delivered thereunder, if taken oromitted in good faith, shall not put Issuing Bank under any resulting liabilityto OpCo. Notwithstanding anything to the contrary contained in this Section2.2(c), OpCo shall retain any and all rights it may have against Issuing Bankfor any liability arising solely out of the gross negligence or willfulmisconduct of Issuing Bank. (d) Reimbursement by the applicable Borrower of Amounts Drawn or Paid -----------------------------------------------------------------Under Letters of Credit. In the event Issuing Bank has determined to honor a----------------------- drawing under a Letter of Credit, it shall immediately notify OpCo andAdministrative Agent, and OpCo shall reimburse Issuing Bank on or before theBusiness Day immediately following the date on which such drawing is honored(the "Reimbursement Date") in an amount in Dollars and in same day funds equalto the amount of such honored drawing; provided, anything contained herein to -------- the contrary notwithstanding, (i) unless OpCo shall have notifiedAdministrative Agent and Issuing Bank prior to 10:00 a.m. (New York City time)on the date such drawing is honored that OpCo intends to reimburse Issuing Bankfor the amount of such honored drawing with funds other than the proceeds ofRevolving Loans, OpCo shall be deemed to have given a timely Funding Notice toAdministrative Agent requesting Lenders to make Revolving Loans that are BaseRate Loans on the Reimbursement Date in an amount in Dollars equal to the amountof such honored drawing, (and the Administrative Agent shall give promptwritten notice thereof and of the amount of its respective Pro Rata Share of theamount of such honored drawing to each of the Lenders) and (ii) subject tosatisfaction or waiver of the conditions specified in Section 3.2, Lendersshall, on the Reimbursement Date, make Revolving Loans that are Base Rate Loansin the amount of such honored drawing, the proceeds of which shall be applieddirectly by Administrative Agent to reimburse Issuing Bank for the amount ofsuch honored drawing; and provided further, if for any reason proceeds of -------- ------- Revolving Loans are not received by Issuing Bank on the Reimbursement Date in anamount equal to the amount of such honored drawing, OpCo shall reimburse IssuingBank, on demand, in an amount in same day funds equal to the excess of theamount of such honored drawing over the aggregate amount of such RevolvingLoans, if any, which are so received. Nothing in this Section 2.2(d) shall bedeemed to relieve any Lender from its obligation to make Revolving Loans on theterms and conditions set forth herein, and OpCo shall retain any and all rightsit may have against any Lender resulting from the failure of such Lender to makesuch Revolving Loans under this Section 2.2(d). (e) Lenders' Purchase of Participations in Letters of Credit. -------------------------------------------------------- Immediately upon the issuance of each Letter of Credit, each Lender having aRevolving Loan Commitment shall be deemed to have purchased, and hereby agreesto irrevocably purchase, from Issuing Bank a participation in such Letter ofCredit and any drawings honored thereunder in an amount equal to such Lender'sPro Rata Share (with respect to the Revolving Loan Commitments) of the maximumamount which is or at any time may become available to be drawn thereunder. Inthe event that OpCo shall fail for any reason to reimburse Issuing Bank asprovided in Section 2.2(d), Issuing Bank shall promptly notify each Lender inwriting of the unreimbursed amount of such honored drawing and of such Lender'srespective participation therein based on such Lender's Pro Rata Share of theRevolving Loan Commitments. Each Lender shall make available to Issuing Bank anamount equal to its respective participation, in Dollars and in same day funds,at the office of Issuing Bank specified in such notice, not later than 12:00p.m. (New York City time) on the first business day (under the laws of thejurisdiction in which such office of Issuing Bank is located) after the datenotified by Issuing Bank. In the event that any Lender 43 fails to make available to Issuing Bank on such business day the amount of suchLender's participation in such Letter of Credit as provided in this Section2.2(e), Issuing Bank shall be entitled to recover such amount on demand fromsuch Lender together with interest thereon for three (3) Business Days at therate customarily used by Issuing Bank for the correction of errors among banksand thereafter at the Base Rate. Nothing in this Section 2.2(e) shall be deemedto prejudice the right of any Lender to recover from Issuing Bank any amountsmade available by such Lender to Issuing Bank pursuant to this Section 2.2(e) inthe event that it is determined that the payment with respect to a Letter ofCredit in respect of which payment was made by such Lender constituted grossnegligence or willful misconduct on the part of Issuing Bank. In the eventIssuing Bank shall have been reimbursed by other Lenders pursuant to thisSection 2.2(e) for all or any portion of any drawing honored by Issuing Bankunder a Letter of Credit, such Issuing Bank shall distribute to each Lenderwhich has paid all amounts payable by it under this Section 2.2(e) with respectto such honored drawing such Lender's Pro Rata Share of all paymentssubsequently received by Issuing Bank from OpCo in reimbursement of such honoreddrawing promptly when such payments are received. Any such distribution shall bemade to a Lender at its primary address set forth below its name on Appendix Bor at such other address as such Lender may request. (f) Obligations Absolute. The obligation of OpCo to reimburse Issuing -------------------- Bank for drawings honored under the Letters of Credit issued by it and to repayany Revolving Loans made by Lenders pursuant to Section 2.2(d) and theobligations of Lenders under Section 2.2(e) shall be unconditional andirrevocable and shall be paid strictly in accordance with the terms hereof underall circumstances including any of the following circumstances: any lack ofvalidity or enforceability of any Letter of Credit; the existence of any claim,setoff, defense or other right which OpCo or any Lender may have at any timeagainst a beneficiary or any transferee of any Letter of Credit (or any Personsfor whom any such transferee may be acting), Issuing Bank, Lender or any otherPerson or, in the case of a Lender, against OpCo, whether in connectionherewith, the transactions contemplated herein or with any unrelated transaction(including any underlying transaction between OpCo or one of its Subsidiariesand the beneficiary for which any Letter of Credit was procured); any draft orother document presented under any Letter of Credit proving to be forged,fraudulent, invalid or insufficient in any respect or any statement thereinbeing untrue or inaccurate in any respect; payment by Issuing Bank under anyLetter of Credit against presentation of a draft or other document which doesnot substantially comply with the terms of such Letter of Credit; any adversechange in the business, operations, properties, assets, condition (financial orotherwise) or prospects of OpCo or any of its Subsidiaries; any breach hereof orof any other Credit Document by any party thereto; any other circumstance orhappening whatsoever, whether or not similar to any of the foregoing; or thefact that an Event of Default or a Default shall have occurred and becontinuing; provided, in each case, that payment by Issuing Bank under the -------- applicable Letter of Credit shall not have constituted gross negligence orwillful misconduct of Issuing Bank under the circumstances in question. (g) Indemnification. Without duplication of any obligation of OpCo --------------- under Section 10.2 or 10.3, in addition to amounts payable as provided herein,OpCo agrees to protect, indemnify, pay and save harmless Issuing Bank and theother Agents and Lenders from and against any and all claims, demands,liabilities, damages, losses, costs, charges and expenses (including reasonablefees, expenses and disbursements of counsel and allocated costs of internal 44 counsel) which Issuing Bank may incur or be subject to as a consequence, director indirect, of the issuance of any Letter of Credit by Issuing Bank, thewrongful dishonor by Issuing Bank of a proper demand for payment made under anyLetter of Credit issued by it, or the failure of Issuing Bank to honor a drawingunder any such Letter of Credit as a result of any Governmental Act, in eachcase, other than as a result of the gross negligence or willful misconduct ofIssuing Bank. 2.3 Pro Rata Shares; Availability of Funds. (a) Pro Rata Shares. All Loans shall be made, and all participations --------------- purchased, by Lenders concurrently and proportionately to their respective ProRata Shares, it being understood that no Lender shall be responsible for anydefault by any other Lender in such other Lender's obligation to make a Loanrequested hereunder or purchase a participation required hereby nor shall anyCommitment of any Lender be increased or decreased as a result of a default byany other Lender in such other Lender's obligation to make a Loan requestedhereunder or purchase a participation required hereby. (b) Availability of Funds. Unless Administrative Agent shall have --------------------- been notified by any Lender prior to the applicable Credit Date that such Lenderdoes not intend to make available to Administrative Agent the amount of suchLender's Loan requested on such Credit Date, Administrative Agent may assumethat such Lender has made such amount available to Administrative Agent on suchCredit Date and Administrative Agent may, in its sole discretion, but shall notbe obligated to, make available to the applicable Borrower a correspondingamount on such Credit Date. If such corresponding amount is not in fact madeavailable to Administrative Agent by such Lender, Administrative Agent shall beentitled to recover such corresponding amount on demand from such Lendertogether with interest thereon, for each day from such Credit Date until thedate such amount is paid to Administrative Agent, at the customary rate set byAdministrative Agent for the correction of errors among banks for three (3)Business Days and thereafter at the Base Rate. If such Lender does not pay suchcorresponding amount forthwith upon Administrative Agent's demand therefor,Administrative Agent shall promptly notify the applicable Borrower and theapplicable Borrower shall immediately pay such corresponding amount toAdministrative Agent together with interest thereon, for each day from suchCredit Date until the date such amount is paid to Administrative Agent, at therate payable hereunder for Base Rate Loans for such Class of Loans. Nothing inthis Section 2.3(b) shall be deemed to relieve any Lender from its obligation tofulfill its Commitments hereunder or to prejudice any rights that the applicableBorrower may have against any Lender as a result of any default by such Lenderhereunder. 2.4 Use of Proceeds. The proceeds of the Loans shall be used (i) toprovide financing for the cost of design, development, acquisition,construction, installation, improvement, transportation and/or integration ofequipment, inventory or facility assets, inventory or network assets and ofleasing and acquiring of real property, and (ii) for working capital and othergeneral corporate purposes of the Company and its Domestic Subsidiaries,including Permitted Acquisitions; provided that, Purchase Money Loans may only -------- be used to finance not more than 20% of the costs of equipment and softwarelocated in Permitted IBX Facilities either owned by the Company or leased by theCompany under a lease subject to a leasehold mortgage in favor of the CollateralAgent. No portion of the proceeds of any Credit Extension shall be used byCompany or any of its Subsidiaries in any manner that might cause 45 such Credit Extension or the application of such proceeds to violate RegulationT, Regulation U or Regulation X of the Board of Governors of the Federal ReserveSystem or any other regulation thereof or to violate the Exchange Act. 2.5 Evidence of Debt; Register; Lenders' Books and Records; Notes. (a) Lenders' Evidence of Debt. Each Lender shall maintain on its ------------------------- internal records an account or accounts evidencing the Indebtedness of eachBorrower to such Lender, including the amounts of the Loans made by it and eachrepayment and prepayment in respect thereof. Any such recordation shall beconclusive and binding on the Borrowers, absent manifest error; provided, -------- failure to make any such recordation, or any error in such recordation, shallnot affect any Lender's Commitments or either Borrower's Obligations in respectof any applicable Loans; and provided further, in the event of any inconsistency -------- ------- between the Register and any Lender's records, the recordations in the Registershall govern. (b) Register. Administrative Agent shall maintain at its Principal -------- Office a register for the recordation of the names and addresses of Lenders andthe Commitments and Loans of each Lender from time to time (the "Register").The Register shall be available for inspection by either Borrower or any Lenderat any reasonable time and from time to time upon reasonable prior notice.Administrative Agent shall record in the Register the Commitments and the Loans,and each repayment or prepayment in respect of the principal amount of theLoans, and any such recordation shall be conclusive and binding on theapplicable Borrower and each Lender, absent manifest error; provided, failure to -------- make any such recordation, or any error in such recordation, shall not affectany Lender's Commitments or either Borrower's Obligations in respect of anyLoan. Each Borrower hereby designates the Administrative Agent to serve as suchBorrower's agent solely for purposes of maintaining the Register as provided inthis Section 2.5, and each Borrower hereby agrees that, to the extent theAdministrative Agent serves in such capacity, the Administrative Agent and itsofficers, directors, employees, agents and affiliates shall constitute"Indemnitees." (c) Notes. If so requested by any Lender by written notice to a ----- Borrower (with a copy to Administrative Agent) at least two (2) Business Daysprior to the Closing Date, or at any time thereafter, such Borrower shallexecute and deliver to such Lender (and/or, if applicable and if so specified insuch notice, to any Person who is an assignee of such Lender pursuant to Section10.6) on the Closing Date (or, if such notice is delivered after the ClosingDate, promptly after such Borrower's receipt of such notice) a Note or Notes toevidence such Lender's Loans. 2.6 Interest on Loans. (a) Except as otherwise set forth herein, each Loan shall bearinterest on the unpaid principal amount thereof from the date made throughrepayment (whether by acceleration or otherwise) thereof as follows: (i) if a Base Rate Loan, at the Base Rate plus the Applicable ---- Margin; or 46 (ii) if a Eurodollar Rate Loan, at the Adjusted Eurodollar Rate plus the Applicable Margin. ---- (b) The basis for determining the rate of interest with respect to anyLoan, and the Interest Period with respect to any Eurodollar Rate Loan, shall beselected by the applicable Borrower and notified to Administrative Agent andLenders pursuant to the applicable Funding Notice or Conversion/ContinuationNotice, as the case may be; provided, the Loans initially shall be made and -------- maintained as either Base Rate Loans or Eurodollar Rate Loans having an InterestPeriod of no longer than one month until the date which is the earlier of (i)the date which is 60 days following the Closing Date and (ii) the date thatSyndication Agent notifies the applicable Borrower that the primary syndicationof the Loans and Commitments has been completed, as determined by SyndicationAgent. If on any day a Loan is outstanding with respect to which a FundingNotice or Conversion/Continuation Notice has not been delivered toAdministrative Agent in accordance with the terms hereof specifying theapplicable basis for determining the rate of interest, then for that day suchLoan shall be a Base Rate Loan. (c) In connection with Eurodollar Rate Loans there shall be no morethan ten (10) Interest Periods outstanding at any time. In the event a Borrowerfails to specify between a Base Rate Loan or a Eurodollar Rate Loan in theapplicable Funding Notice or Conversion/Continuation Notice, such Loan (ifoutstanding as a Eurodollar Rate Loan) will be automatically converted into aBase Rate Loan on the last day of the thencurrent Interest Period for such Loan(or if outstanding as a Base Rate Loan will remain as, or (if not thenoutstanding) will be made as, a Base Rate Loan). In the event the applicableBorrower fails to specify an Interest Period for any Eurodollar Rate Loan in theapplicable Funding Notice or Conversion/Continuation Notice, the applicableBorrower shall be deemed to have selected an Interest Period of one month. Assoon as practicable after 10:00 a.m. (New York City time) on each Interest RateDetermination Date, Administrative Agent shall determine (which determinationshall, absent manifest error, be final, conclusive and binding upon all parties)the interest rate that shall apply to the Eurodollar Rate Loans for which aninterest rate is then being determined for the applicable Interest Period andshall promptly give notice thereof (in writing or by telephone confirmed inwriting) to the applicable Borrower and each Lender. (d) Interest payable pursuant to Section 2.6(a) shall be computed inthe case of Base Rate Loans on the basis of a 365day or 366day year, as the casemay be, and in the case of Eurodollar Rate Loans, on the basis of a 360day year,in each case for the actual number of days elapsed in the period during which itaccrues. In computing interest on any Loan, the date of the making of such Loanor the first day of an Interest Period applicable to such Loan or, with respectto a Base Rate Loan being converted from a Eurodollar Rate Loan, the date ofconversion of such Eurodollar Rate Loan to such Base Rate Loan, as the case maybe, shall be included, and the date of payment of such Loan or the expirationdate of an Interest Period applicable to such Loan or, with respect to a BaseRate Loan being converted to a Eurodollar Rate Loan, the date of conversion ofsuch Base Rate Loan to such Eurodollar Rate Loan, as the case may be, shall beexcluded; provided, if a Loan is repaid on the same day on which it is made, one -------- day's interest shall be paid on that Loan. (e) Except as otherwise set forth herein, interest on each Loan shallbe payable in arrears (i) on each Interest Payment Date applicable to that Loan;(ii) in the case of 47 any prepayment of that Loan, whether voluntary or mandatory, on the date ofprepayment (to the extent accrued on the amount being prepaid); and (iii) atmaturity, including final maturity; provided, however, with respect to any -------- voluntary prepayment of a Base Rate Loan, accrued interest shall instead bepayable on the applicable Interest Payment Date. (f) OpCo agrees to pay to Issuing Bank, with respect to drawingshonored under any Letter of Credit, interest on the amount paid by Issuing Bankin respect of each such honored drawing from the date such drawing is honored tobut excluding the date such amount is reimbursed by or on behalf of OpCo at arate equal to, for the period from the date such drawing is honored to butexcluding the applicable Reimbursement Date, the rate of interest otherwisepayable hereunder with respect to Revolving Loans that are Base Rate Loans, andthereafter, a rate which is 2% per annum in excess of the rate of interestotherwise payable hereunder with respect to Revolving Loans that are Base RateLoans. (g) Interest payable pursuant to Section 2.6(f) shall be computed onthe basis of a 365/366day year for the actual number of days elapsed in theperiod during which it accrues, and shall be payable on demand or, if no demandis made, on the date on which the related drawing under a Letter of Credit isreimbursed in full. Promptly upon receipt by Issuing Bank of any payment ofinterest pursuant to Section 2.6(f), Issuing Bank shall distribute to eachLender, out of the interest received by Issuing Bank in respect of the periodfrom the date such drawing is honored to but excluding the date on which IssuingBank is reimbursed for the amount of such drawing (including any suchreimbursement out of the proceeds of any Revolving Loans), the amount that suchLender would have been entitled to receive in respect of the letter of creditfee that would have been payable in respect of such Letter of Credit for suchperiod if no drawing had been honored under such Letter of Credit. In the eventIssuing Bank shall have been reimbursed by Lenders for all or any portion ofsuch honored drawing, Issuing Bank shall distribute to each Lender which haspaid all amounts payable by it under Section 2.2(e) with respect to such honoreddrawing such Lender's Pro Rata Share of any interest received by Issuing Bank inrespect of that portion of such honored drawing so reimbursed by Lenders for theperiod from the date on which Issuing Bank was so reimbursed by Lenders to butexcluding the date on which such portion of such honored drawing is reimbursedby OpCo. 2.7 Conversion/Continuation. (a) Subject to Section 2.17 and so long as no Default or Event ofDefault shall have occurred and then be continuing, the applicable Borrowershall have the option: (i) to convert at any time all or any part of any Term Loan or Revolving Loan equal to $1,000,000 and integral multiples of $500,000 in excess of that amount from one Type of Loan to another Type of Loan; provided, a Eurodollar Rate Loan may only be converted on the expiration of -------- the Interest Period applicable to such Eurodollar Rate Loan unless the applicable Borrower shall pay all amounts due under Section 2.17 in connection with any such conversion; or (ii) upon the expiration of any Interest Period applicable to any Eurodollar Rate Loan, to continue all or any portion of such Loan equal to 48 $1,000,000 and integral multiples of $500,000 in excess of that amount as a Eurodollar Rate Loan. (b) The applicable Borrower shall deliver a Conversion/ContinuationNotice to Administrative Agent no later than 10:00 a.m. (New York City time) atleast one (1) Business Day in advance of the proposed conversion date (in thecase of a conversion to a Base Rate Loan) and at least three (3) Business Daysin advance of the proposed conversion/continuation date (in the case of aconversion to, or a continuation of, a Eurodollar Rate Loan). Except asotherwise provided herein, a Conversion/Continuation Notice for conversion to,or continuation of, any Eurodollar Rate Loans (or telephonic notice in lieuthereof) shall be irrevocable on and after the related Interest RateDetermination Date, and the applicable Borrower shall be bound to effect aconversion or continuation in accordance therewith. 2.8 Default Interest. Upon the occurrence and during the continuance ofan Event of Default described in Section 8.1(a), the principal amount of allLoans and, to the extent permitted by applicable law, any interest payments onthe Loans or any fees or other amounts owed hereunder not paid when due, in eachcase whether at stated maturity, by notice of prepayment, by acceleration orotherwise, shall thereafter bear interest (including postpetition interest inany proceeding under the Bankruptcy Code or other applicable bankruptcy laws)payable on demand at a rate that is 2% per annum in excess of the interest rateotherwise payable hereunder with respect to the applicable Loans (or, in thecase of any such fees and other amounts, at a rate which is 2% per annum inexcess of the interest rate otherwise payable hereunder for Base Rate Loans);provided, in the case of Eurodollar Rate Loans, upon the expiration of the-------- Interest Period in effect at the time any such increase in interest rate iseffective, such Eurodollar Rate Loans shall thereupon become Base Rate Loans andshall thereafter bear interest payable upon demand at a rate which is 2% perannum in excess of the interest rate otherwise payable hereunder for Base RateLoans. Payment or acceptance of the increased rates of interest provided for inthis Section 2.8 is not a permitted alternative to timely payment and shall notconstitute a waiver of any Event of Default or otherwise prejudice or limit anyrights or remedies of Administrative Agent, any other Agent or any Lender. 2.9 Fees. (a) Company agrees to pay from the time of the Closing Date to Lendershaving Term Loan Exposure, Delayed Draw Term Loan Exposure and/or RevolvingExposure through Administrative Agent: (i) a commitment fee equal to (1) the average of the daily unused Commitments of such Lender during the preceding Fiscal Quarter multiplied by, (2) the Applicable Commitment Fee Percentage; and (ii) Letter of Credit fees equal to (1) the Applicable Margin for Revolving Loans that are Eurodollar Rate Loans (other than Purchase Money Loans), times (2) the average daily maximum amount available to be drawn under all such Letters of Credit (regardless of whether any conditions for drawing could then be met and determined as of the close of business on any date of determination). 49 (iii) All fees referred to in this Section 2.9(a) shall be paid to Administrative Agent at its Principal Office and upon receipt, Administrative Agent shall promptly distribute to each Lender its Pro Rata Share thereof. (b) OpCo agrees to pay directly to Issuing Bank, for its own account,the following fees: (i) a fronting fee equal to 0.25%, per annum, times the aggregate daily amount available to be drawn under all Letters of Credit (determined as of the close of business on any date of determination); and (ii) such documentary and processing charges for any issuance, amendment, transfer or payment of a Letter of Credit as are in accordance with Issuing Bank's standard schedules for such charges and as in effect at the time of such issuance, amendment, transfer or payment, as the case may be. (c) All fees referred to in Section 2.9(a) and 2.9(b)(i) shall becalculated on the basis of a 360day year and the actual number of days elapsedand shall be payable (i) quarterly in arrears on March 31, June 30, September 30and December 31 of each year, commencing on the first such date to occur afterthe Closing Date, (ii) on the Term Loan Commitment Termination Date (iii) on theDelayed Draw Term Loan Commitment Termination Date and (iv) on the RevolvingLoan Commitment Termination Date. (d) In addition to any of the foregoing fees, Company agrees to pay toAgents such other fees in the amounts and at the times separately agreed upon byCompany and such Agents thereby. (e) In addition, Company agrees to pay such commitment and other feesas may be payable in connection with New Revolving Loan Commitments and New TermLoan Commitments, if any, as set forth in the applicable Joinder Agreement orotherwise agreed to in writing by Company. 2.10 Scheduled Payments. (a) Scheduled Term Loan and Delayed Draw Term Loan Installments. The ----------------------------------------------------------- principal amounts of the Term Loans outstanding and the Delayed Draw Term Loansoutstanding on the Delayed Draw Term Loan Commitment Termination Date,respectively, shall be repaid in the aggregate annual percentages set forthbelow in equal consecutive quarterly installments (each, a "Term LoanInstallment" or a "Delayed Draw Term Loan Installment" as the case may be) onthe last day of each Fiscal Quarter (each, a "Term Loan Installment Date" or a"Delayed Draw Term Loan Installment Date" as the case may be) occurring in eachof the Fiscal Years set forth below, commencing March 31, 2003: 50 ================================================================ Term Loan and Delayed Term Loan and Delayed Draw Term Loan Draw Term Loan Installment Dates Installments ---------------------------------------------------------------- March 31, 2003 5% ---------------------------------------------------------------- June 30, 2003 5% ---------------------------------------------------------------- September 30, 2003 5% ---------------------------------------------------------------- December 31, 2003 5% ---------------------------------------------------------------- March 31, 2004 10% ---------------------------------------------------------------- June 30, 2004 10% ---------------------------------------------------------------- September 30, 2004 10% ---------------------------------------------------------------- December 31, 2004 10% ---------------------------------------------------------------- March 31, 2005 10% ---------------------------------------------------------------- June 30, 2005 10% ---------------------------------------------------------------- September 30, 2005 10% ---------------------------------------------------------------- December 15, 2005 10% ================================================================Notwithstanding the foregoing, (i) such Term Loan Installments or Delayed DrawTerm Loan Installments, as the case may be, shall be reduced in connection withany voluntary or mandatory prepayments of the Term Loans or the Delayed DrawTerm Loans, as the case may be, in accordance with Sections 2.11, 2.12 and 2.13,as applicable; and (ii) the Term Loans or the Delayed Draw Term Loans, togetherwith all other amounts owed hereunder with respect thereto, shall, in any event,be paid in full no later than the Term Loan Maturity Date or the Delayed DrawTerm Loan Maturity Date, as the case may be. (b) No Amortization of Revolving Loans. No interim amortization shall ---------------------------------- be required with respect to the Revolving Loans. (c) Scheduled New Term Loan Installments. Provisions with respect to ------------------------------------ scheduled repayments of New Term Loans shall be as set forth in each applicableJoinder Agreement. 2.11 Voluntary Prepayments/Commitment Reductions. (a) Voluntary Prepayments. --------------------- (i) Any time and from time to time: (1) with respect to Base Rate Loans, the applicable Borrowermay prepay, subject to Section 2.11(c), any such Loans on any Business Day inwhole or in part, in an aggregate minimum amount of $2,000,000 and integralmultiples of $1,000,000 in excess of that amount; and 51 (2) with respect to Eurodollar Rate Loans, the applicableBorrower may prepay, subject to Sections 2.11(c) and 2.17, any such Loans on anyBusiness Day in whole or in part in an aggregate minimum amount of $2,000,000and integral multiples of $1,000,000 in excess of that amount. (ii) All such prepayments shall be made: (1) upon not less than one (1) Business Days' prior writtenor telephonic notice in the case of Base Rate Loans; and (2) upon not less than three (3) Business Days' priorwritten or telephonic notice in the case of Eurodollar Rate Loans,in each case given to Administrative Agent, as the case may be, by 12:00 p.m.(New York City time) on the date required and, if given by telephone, promptlyconfirmed in writing to Administrative Agent (and Administrative Agent willpromptly transmit such telephonic or original notice by telefacsimile ortelephone to each Lender). Upon the giving of any such notice, the principalamount of the Loans specified in such notice shall become due and payable on theprepayment date specified therein. (b) Voluntary Commitment Reductions. ------------------------------- (i) Borrowers may, subject to Section 2.11(c), upon not less than three (3) Business Days' prior written or telephonic notice confirmed in writing to Administrative Agent (which original written or telephonic notice Administrative Agent will promptly transmit by telefacsimile or telephonic notice to each applicable Lender), at any time and from time to time terminate in whole or permanently reduce in part, without premium or penalty, the Revolving Loan Commitments in an amount up to the amount by which the Revolving Loan Commitments exceed the Total Utilization of Revolving Loan Commitments at the time of such proposed termination or reduction; provided, any such partial reduction of the Revolving Loan -------- Commitments shall be in an aggregate minimum amount of $2,000,000 and integral multiples of $1,000,000 in excess of that amount. (ii) OpCo may, subject to Section 2.11(c), upon not less than three (3) Business Days' prior written or telephonic notice confirmed in writing to Administrative Agent (which original written or telephonic notice Administrative Agent will promptly transmit by telefacsimile or telephonic notice to each applicable Lender), at any time and from time to time terminate in whole or permanently reduce in part, without premium or penalty, the Delayed Draw Term Loan Commitments in an amount up to the amount by which the Delayed Draw Term Loan Commitments exceed the Total Utilization of Delayed Draw Term Loan Commitments at the time of such proposed termination or reduction; provided, any such partial reduction of -------- the Delayed Draw Term Loan Commitments shall be in an aggregate minimum amount of $2,000,000 and integral multiples of $1,000,000 in excess of that amount. 52 (iii) the applicable Borrower's notice to Administrative Agent shall designate the date (which shall be a Business Day) of such termination or reduction and the amount of any partial reduction, and such termination or reduction of the Delayed Draw Term Loan Commitments and/or Revolving Loan Commitments, as applicable, shall be effective on the date specified in the applicable Borrower's notice and shall reduce the Delayed Draw Term Loan Commitments and/or Revolving Loan Commitment of each Lender proportionately to its Pro Rata Share thereof. (c) Prepayment/Reduction Premium. Any voluntary prepayment (other ---------------------------- than prepayments of Revolving Loans) and/or Commitment reduction pursuant toSections 2.11(a) and/or 2.11(b), respectively, shall be subject (i) at any timeprior to the first anniversary of the Closing Date, to the payment by theapplicable Borrower of an amount equal to the aggregate amount of the Loansbeing so repaid, prepaid or Commitment reduced multiplied by 1.25%; and (ii) ------------- after the first anniversary of the Closing Date but prior to the secondanniversary thereof, to the payment by the applicable Borrower of an amountequal to the aggregate amount of the Loans being so repaid, prepaid orCommitment reduced multiplied by 1%. ------------- 2.12 Mandatory Prepayments/Commitment Reductions. (a) Asset Sales. If, within the period of one hundred eighty (180) ----------- days after the receipt by Company or any of its Restricted Subsidiaries of NetAsset Sale Proceeds, OpCo (or to the extent such Net Asset Sale Proceeds areproceeds of the sale of assets of Company, Company) has not invested (orcommitted to invest within 180 days and actually invested within a period of 270days) such Net Asset Sale Proceeds in long term productive assets of the generaltype used in the business of the Company and its Restricted Subsidiaries, ascertified to Administrative Agent by Company, then, to the extent Borrowers havenot previously done so, Borrowers shall prepay Loans and the Commitments shallbe permanently reduced as set forth in Section 2.13, in either case in an amountequal to the excess of such Net Asset Sale Proceeds over amounts invested asaforesaid; provided that, notwithstanding the foregoing, any prepayment under -------- this Section 2.12(a) on account of Net Asset Sale Proceeds from the sale orother disposition of assets purchased with the proceeds of Purchase Money Loansshall be used by Company immediately to prepay Purchase Money Loans. Pending adetermination whether any Net Asset Sale Proceeds will be applied to prepayLoans and/or reduce Commitments pursuant to the preceding sentence, such NetAsset Sale Proceeds shall be applied to prepay outstanding Revolving Loans(without a reduction in the Revolving Loan Commitments). (b) Insurance/Condemnation Proceeds. If, within the period of one ------------------------------- hundred eighty (180) days after the receipt by Company or any of its RestrictedSubsidiaries of Net Insurance/Condemnation Proceeds, OpCo (or to the extent suchNet Asset Sale Proceeds are proceeds of the sale of assets of Company, Company)has not invested (or committed to invest within 180 days and actually investedwithin a period of 270 days) such Net Insurance/Condemnation Proceeds in longterm productive assets of general type used in the business of Company and itsRestricted Subsidiaries, as certified to Administrative Agent by Company then,to the extent the applicable Borrower has not previously done so, the applicableBorrower shall prepay Loans and the Commitments shall be permanently reduced asset forth in Section 2.13, in either case in an amount equal to the excess ofsuch Net Insurance/Condemnation 53 Proceeds over amounts invested as aforesaid; provided, that, notwithstanding the -------- foregoing, any prepayment under this Section 2.12(b) arising due to NetInsurance/Condemnation Proceeds in respect of assets purchased with the proceedsof Purchase Money Loans shall be applied by Company to the prepayment ofPurchase Money Loans. Pending a determination on whether any NetInsurance/Condemnation Proceeds shall be applied to prepay outstanding Loansand/or reduce Commitments pursuant to the preceding sentence, such NetInsurance/Condemnation Proceeds shall be applied to prepay outstanding RevolvingLoans (without a reduction in the Revolving Loan Commitments). (c) Consolidated Excess Cash Flow. In the event that there shall be ----------------------------- Consolidated Excess Cash Flow for any Fiscal Year, commencing with Fiscal Year2003, Borrowers shall, no later than ninety (90) days after the end of suchFiscal Year, prepay the Loans and/or the Commitments shall be permanentlyreduced as set forth in Section 2.13 in an aggregate amount equal to 50% of suchConsolidated Excess Cash Flow. (d) Commitment Limits. Borrowers shall from time to time prepay the ----------------- Revolving Loans to the extent necessary so that (i) the Total Utilization ofRevolving Loan Commitments shall not at any time exceed the Revolving LoanCommitments then in effect and (ii) amounts outstanding under the A/R Sublimitshall not at any time exceed 85% of Net Accounts Receivable. Company shall alsofrom time to time prepay the Delayed Draw Term Loans to the extent necessary sothat the Total Utilization of Delayed Draw Term Loan Commitments shall not atany time exceed the Delayed Draw Term Loan Commitments then in effect. (e) Borrowing Base. Borrowers shall from time to time prepay the -------------- Loans to the extent necessary so that the sum of (i) the aggregate principalamount of all outstanding Term Loans plus (ii) the Total Utilization of ---- Revolving Loan Commitments plus (iii) the aggregate amount of all outstanding ---- Delayed Draw Term Loans plus (iv) the aggregate amount of all New Term Loans, if ---- any, shall not at any time exceed the Borrowing Base then in effect. (f) Prepayment Certificate. Concurrently with any prepayment of the ---------------------- Loans and/or reduction of the Commitments pursuant to Sections 2.12(a) through2.12(e), Borrowers shall deliver to Administrative Agent a certificate of anAuthorized Officer (a copy of which Administrative Agent shall promptly provideto each Lender) demonstrating the calculation of the amount of the applicablenet proceeds or Consolidated Excess Cash Flow, as the case may be. In the eventthat Borrowers shall subsequently determine that the actual amount receivedexceeded the amount set forth in such certificate, Borrowers shall promptly makean additional prepayment of the Loans and/or the Commitments shall bepermanently reduced in an amount equal to such excess, and Borrowers shallconcurrently therewith deliver to Administrative Agent (a copy of whichAdministrative Agent shall promptly provide to each Lender) a certificate of anAuthorized Officer demonstrating the derivation of such excess. (g) Prepayment/Reduction Premium. Any prepayment (other than ---------------------------- prepayments of Revolving Loans) and/or Commitment reduction pursuant to Sections2.12(a) through 2.12(e) shall be subject (i) at any time prior to the firstanniversary of the Closing Date, to the payment by the applicable Borrower of anamount equal to the aggregate amount of the Loans being so repaid, prepaid orCommitment reduced multiplied by 1.25%; and (ii) after the ------------- 54 first anniversary of the Closing Date but prior to the second anniversarythereof, to the payment by the applicable Borrower of an amount equal to theaggregate amount of the Loans being so repaid, prepaid or Commitment reducedmultiplied by 1.0%.------------- 2.13 Application of Prepayments/Reductions. (a) Application of Voluntary Prepayments by Type of Loans. Any ----------------------------------------------------- prepayment of any Loan pursuant to Section 2.11(a) shall be applied as specifiedby the applicable Borrower, in the applicable notice of prepayment; provided, -------- that such Borrower shall prepay all outstanding Purchase Money Loans prior toprepaying any other Revolving Loans. In the event a Borrower fails to specifythe Loans to which any such prepayment shall be applied, such prepayment shallbe applied as follows: first, to repay outstanding Purchase Money Loans to the full extentthereof; second, to repay other outstanding Revolving Loans to the full extentthereof; and third, to prepay the Term Loans, the Delayed Draw Term Loans and NewTerm Loans, if any, on a pro rata basis (in accordance with the respectiveoutstanding principal amounts thereof).Any prepayment of Term Loans and Delayed Draw Term Loans pursuant to Section2.13(a) shall be further applied, on a pro rata basis, to the remainingscheduled Term Loan Installments and Delayed Draw Term Loan Installments, asapplicable. (b) Application of Mandatory Prepayments by Type of Loans. (i) Any ----------------------------------------------------- amount required to be prepaid pursuant to Section 2.12(a)(c) and (e) shall beapplied (unless otherwise specified in Section 2.12 with respect to PurchaseMoney Loans) as follows: first, to prepay the Term Loans and Delayed Draw Term Loans (and tofurther reduce any unused Delayed Draw Term Loan Commitments), and New TermLoans, if any, on a pro rata basis (in accordance with the respectiveoutstanding principal amounts thereof) and (x) in the case of the Term Loans andDelayed Draw Term Loans, shall be further applied to the remaining scheduledTerm Loan Installments or Delayed Draw Term Loan Installments, as applicable, ininverse order of maturity and (y) in the case of New Term Loans, if any, shallbe applied pro rata among each outstanding Series and further applied to thescheduled installments of principal of the New Term Loans of such Series ininverse order of maturity; second, to prepay the Revolving Loans (with any Purchase Money Loansbeing prepaid first) and to reduce the Revolving Loan Commitment); third, to prepay outstanding reimbursement obligations with respect toLetters of Credit; and fourth, to cash collateralize Letters of Credit; (ii) Notwithstanding the foregoing, with respect to New Term Loans, a lesser amount may be required to be prepaid or waived if set forth in the 55 applicable Joinder Agreement; provided that, any such amounts waived or not -------- used to prepay New Term Loans shall be used to further prepay first, on a pro rata basis, Delayed Draw Term Loans and Term Loans and, second, Revolving Loans as provided above. (c) Application of Prepayments of Loans to Base Rate Loans and ----------------------------------------------------------Eurodollar Rate Loans. Considering each Class of Loans being prepaid--------------------- separately, any prepayment thereof shall be applied first to Base Rate Loans tothe full extent thereof before application to Eurodollar Rate Loans, in eachcase in a manner which minimizes the amount of any payments required to be madeby the applicable Borrower pursuant to Section 2.17(c). 2.14 Allocation of Certain Payments and Proceeds. If an Event of Defaultshall have occurred and not otherwise be waived, and the maturity of theObligations shall have been accelerated pursuant to Section 8.1, all payments orproceeds received by Agents hereunder in respect of any of the Obligations,shall be applied by Agents in accordance with the application arrangementsdescribed in Section 6.5 of the Pledge and Security Agreement. 2.15 General Provisions Regarding Payments. (a) All payments by a Borrower of principal, interest, fees and otherObligations shall be made in Dollars in same day funds, without defense, setoffor counterclaim, free of any restriction or condition, and delivered toAdministrative Agent not later than 12:00 p.m. (New York City time) on the datedue at the Administrative Agent's Principal Office for the account of Lenders;funds received by Administrative Agent after that time on such due date shall bedeemed to have been paid by the applicable Borrower on the next succeedingBusiness Day. (b) All payments in respect of the principal amount of any Loan (otherthan voluntary prepayments of Revolving Loans) shall include payment of accruedinterest on the principal amount being repaid or prepaid, and all such payments(and, in any event, any payments in respect of any Loan on a date when interestis due and payable with respect to such Loan) shall be applied to the payment ofinterest before application to principal. (c) Administrative Agent shall promptly distribute to each Lender atsuch address as such Lender shall indicate in writing, such Lender's applicablePro Rata Share, giving effect to any adjustment from Pro Rata Shares on andafter the Closing Date, of all payments and prepayments of principal andinterest due hereunder, together with all other amounts due thereto, including,without limitation, all fees payable with respect thereto, to the extentreceived by Administrative Agent. (d) Notwithstanding the foregoing provisions hereof, if anyConversion/Continuation Notice is withdrawn as to any Affected Lender or if anyAffected Lender makes Base Rate Loans in lieu of its Pro Rata Share of anyEurodollar Rate Loans, Administrative Agent shall give effect thereto inapportioning payments received thereafter. (e) Subject to the provisos set forth in the definition of "InterestPeriod", whenever any payment to be made hereunder shall be stated to be due ona day that is not a Business Day, such payment shall be made on the nextsucceeding Business Day and such 56 extension of time shall be included in the computation of the payment ofinterest hereunder or of the Revolving Loan Commitment fees hereunder. (f) Each Borrower hereby authorizes Administrative Agent to charge itsaccounts with Administrative Agent in order to cause timely payment to be madeto Administrative Agent of all principal, interest, fees and expenses duehereunder (subject to sufficient funds being available in its accounts for thatpurpose). (g) Administrative Agent shall deem any payment by or on behalf of aBorrower hereunder that is not made in same day funds prior to 12:00 p.m. (NewYork City time) on or before the due date to be a nonconforming payment. Anysuch payment shall not be deemed to have been received by Administrative Agentuntil the later of (i) the time such funds become available funds, and (ii) theapplicable next Business Day. Administrative Agent shall give prompt telephonicnotice to the applicable Borrower and each applicable Lender (confirmed inwriting) if any payment is nonconforming. Any nonconforming payment mayconstitute or become a Default or Event of Default in accordance with the termsof Section 8.1(a). Interest shall continue to accrue on any principal as towhich a nonconforming payment is made until such funds become available funds(but in no event less than the period from the date of such payment to the nextsucceeding applicable Business Day) at the rate determined pursuant to Section2.8 from the date such amount was due and payable until the date such amount ispaid in full. 2.16 Ratable Sharing. Lenders hereby agree among themselves that, exceptas otherwise provided in the Collateral Documents with respect to amountsrealized from the exercise of rights with respect to Liens on the Collateral, ifany of them shall, whether by voluntary payment (other than a voluntaryprepayment of Loans made and applied in accordance with the terms hereof),through the exercise of any right of setoff or banker's lien, by counterclaim orcross action or by the enforcement of any right under the Credit Documents orotherwise, or as adequate protection of a deposit treated as cash collateralunder the Bankruptcy Code, receive payment or reduction of a proportion of theaggregate amount of principal, interest, amounts payable in respect of Lettersof Credit, fees and other amounts then due and owing to such Lender hereunder orunder the other Credit Documents (collectively, the "Aggregate Amounts Due" tosuch Lender) which is greater than the proportion received by any other Lenderin respect of the Aggregate Amounts Due to such other Lender, then the Lenderreceiving such proportionately greater payment shall notify Administrative Agentand each other Lender of the receipt of such payment and apply a portion of suchpayment to purchase participations (which it shall be deemed to have purchasedfrom each seller of a participation simultaneously upon the receipt by suchseller of its portion of such payment) in the Aggregate Amounts Due to the otherLenders so that all such recoveries of Aggregate Amounts Due shall be shared byall Lenders in proportion to the Aggregate Amounts Due to them; provided, if all -------- or part of such proportionately greater payment received by such purchasingLender is thereafter recovered from such Lender upon the bankruptcy orreorganization of a Credit Party or otherwise, those purchases shall berescinded and the purchase prices paid for such participations shall be promptlyreturned to such purchasing Lender ratably to the extent of such recovery, butwithout interest. Each Borrower expressly consents to the foregoing arrangementand agrees that any holder of a participation so purchased may exercise any andall rights of banker's lien, setoff or counterclaim with respect to any and allmonies owing by the 57 applicable Borrower to that holder with respect thereto as fully as if thatholder were owed the amount of the participation held by that holder. 2.17 Making or Maintaining Eurodollar Rate Loans. (a) Inability to Determine Applicable Interest Rate. In the event ----------------------------------------------- that Administrative Agent shall have determined (which determination shall befinal and conclusive and binding upon all parties hereto), on any Interest RateDetermination Date with respect to any Eurodollar Rate Loans, that by reason ofcircumstances affecting the London interbank market adequate and fair means donot exist for ascertaining the interest rate applicable to such Loans on thebasis provided for in the definition of Adjusted Eurodollar Rate, AdministrativeAgent shall on such date give notice (by telefacsimile or by telephone confirmedin writing) to the applicable Borrower and each Lender of such determination,whereupon no Loans may be made as, or converted to, Eurodollar Rate Loans untilsuch time as Administrative Agent notifies the applicable Borrower and Lenders(by telefacsimile or by telephonic notice confirmed in writing) that thecircumstances giving rise to such notice no longer exist, and any Funding Noticeor Conversion/Continuation Notice given by the applicable Borrower with respectto the Loans in respect of which such determination was made shall be deemed tobe, in the case of a Conversion Notice, rescinded by the applicable Borrowerand, in the case of a Funding Notice, deemed to be a Funding Notice in respectof Base Rate Loans. (b) Illegality or Impracticability of Eurodollar Rate Loans. In the ------------------------------------------------------- event that on any date any Lender shall have determined (which determinationshall be final and conclusive and binding upon all parties hereto but shall bemade only after consultation with the applicable Borrower and AdministrativeAgent) that the making, maintaining or continuation of its Eurodollar Rate Loanshas become unlawful as a result of compliance by such Lender in good faith withany law, treaty, governmental rule, regulation, guideline or order (or wouldconflict with any such treaty, governmental rule, regulation, guideline or ordernot having the force of law even though the failure to comply therewith wouldnot be unlawful), or has become impracticable, as a result of contingenciesoccurring after the date hereof which materially and adversely affect the Londoninterbank market or the position of such Lender in that market, then, and in anysuch event, such Lender shall be an "Affected Lender" and it shall on that daygive notice (by telefacsimile or by telephone confirmed in writing) to theapplicable Borrower and Administrative Agent of such determination (which noticeAdministrative Agent shall promptly transmit to each other Lender and bytelefacsimile or telephonic notice confirmed in writing). Thereafter theobligation of the Affected Lender to make Loans as, or to convert Loans to,Eurodollar Rate Loans shall be suspended until such notice shall be withdrawn bythe Affected Lender, to the extent such determination by the Affected Lenderrelates to a Eurodollar Rate Loan then being requested by the applicableBorrower pursuant to a Funding Notice or a Conversion/Continuation Notice, theAffected Lender shall make such Loan as (or continue such Loan as or convertsuch Loan to, as the case may be) a Base Rate Loan, the Affected Lender'sobligation to maintain its outstanding Eurodollar Rate Loans (the "AffectedLoans") shall be terminated at the earlier to occur of the expiration of theInterest Period then in effect with respect to the Affected Loans or whenrequired by law, and the Affected Loans shall automatically convert into BaseRate Loans on the date of such termination. Notwithstanding the foregoing, tothe extent a determination by an Affected Lender as described above relates to aEurodollar Rate Loan then being requested by the applicable Borrower pursuant toa Funding 58 Notice or a Conversion/Continuation Notice, the applicable Borrower shall havethe option, subject to the provisions of Section 2.17(c), to rescind suchFunding Notice or Conversion/Continuation Notice as to all Lenders by givingnotice (by telefacsimile or by telephone confirmed in writing) to AdministrativeAgent of such rescission on the date on which the Affected Lender gives noticeof its determination as described above (which notice of rescissionAdministrative Agent shall promptly transmit to each other Lender bytelefacsimile or by telephonic notice confirmed in writing). Except as providedin the immediately preceding sentence, nothing in this Section 2.17(b) shallaffect the obligation of any Lender other than an Affected Lender to make ormaintain Loans as, or to convert Loans to, Eurodollar Rate Loans in accordancewith the terms hereof. (c) Compensation for Breakage or NonCommencement of Interest Periods. ---------------------------------------------------------------- The applicable Borrower shall compensate each Lender, upon written request bysuch Lender (which request shall set forth the basis for requesting suchamounts), for all reasonable losses, expenses and liabilities (including anyinterest paid by such Lender to lenders of funds borrowed by it to make or carryits Eurodollar Rate Loans and any loss, expense or liability sustained by suchLender in connection with the liquidation or reemployment of such funds butexcluding loss of anticipated profits) which such Lender may sustain if for anyreason as a result of Borrower's action or omission a borrowing of anyEurodollar Rate Loan does not occur on a date specified therefor in a FundingNotice or a telephonic request for borrowing, or a conversion to or continuationof any Eurodollar Rate Loan does not occur on a date specified therefor in aConversion/Continuation Notice or a telephonic request for conversion orcontinuation; if any prepayment or other principal payment or any conversion ofany of its Eurodollar Rate Loans occurs on a date prior to the last day of anInterest Period applicable to that Loan; or if any prepayment of any of itsEurodollar Rate Loans is not made on any date specified in a notice ofprepayment given by such Borrower or as a consequence of any default by suchBorrower in the repayment of its Eurodollar Rate Loans when required by theterms thereof. (d) Booking of Eurodollar Rate Loans. Any Lender may make, carry or -------------------------------- transfer Eurodollar Rate Loans at, to, or for the account of any of its branchoffices or the office of an Affiliate of such Lender. (e) Assumptions Concerning Funding of Eurodollar Rate Loans. ------------------------------------------------------- Calculation of all amounts payable to a Lender under this Section 2.17 and underSection 2.18 shall be made as though such Lender had actually funded each of itsrelevant Eurodollar Rate Loans through the purchase of a Eurodollar depositbearing interest at the rate obtained pursuant to clause (i) of the definitionof Adjusted Eurodollar Rate in an amount equal to the amount of such EurodollarRate Loan and having a maturity comparable to the relevant Interest Period andthrough the transfer of such Eurodollar deposit from an offshore office of suchLender to a domestic office of such Lender in the United States of America;provided, however, each Lender may fund each of its Eurodollar Rate Loans in any-------- ------- manner it sees fit and the foregoing assumptions shall be utilized only for thepurposes of calculating amounts payable under this Section 2.17 and underSection 2.18. 59 2.18 Increased Costs; Capital Adequacy. (a) Compensation For Increased Costs and Taxes. Subject to the ------------------------------------------ provisions of Section 2.19 (which shall be controlling with respect to thematters covered thereby), in the event that any Lender (which term shall includeIssuing Bank for purposes of this Section 2.18(a)) shall determine (whichdetermination shall, absent manifest error, be final and conclusive and bindingupon all parties hereto) that any law, treaty or governmental rule, regulationor order, or any change therein or in the interpretation, administration orapplication thereof (including the introduction of any new law, treaty orgovernmental rule, regulation or order), or any determination of a court orGovernmental Authority, in each case that becomes effective after the datehereof, or compliance by such Lender with any guideline, request or directiveissued or made after the date hereof by any central bank or other governmentalor quasigovernmental authority (whether or not having the force of law):subjects such Lender (or its applicable lending office) to any additional Tax(other than any Tax on the overall net income of such Lender) with respect tothis Agreement or any of its obligations hereunder or any payments to suchLender (or its applicable lending office) of principal, interest, fees or anyother amount payable hereunder or thereunder; imposes, modifies or holdsapplicable any reserve (including any marginal, emergency, supplemental, specialor other reserve), special deposit, compulsory loan, FDIC insurance or similarrequirement against assets held by, or deposits or other liabilities in or forthe account of, or advances or loans by, or other credit extended by, or anyother acquisition of funds by, any office of such Lender (other than any suchreserve or other requirements with respect to Eurodollar Rate Loans that arereflected in the definition of Adjusted Eurodollar Rate); or imposes any othercondition (other than with respect to a Tax matter) on or affecting such Lender(or its applicable lending office) or its obligations hereunder or under anyother Credit Document or the London interbank market; and the result of any ofthe foregoing is to increase the cost to such Lender of agreeing to make, makingor maintaining Eurodollar Rate Loans hereunder or to reduce any amount receivedor receivable by such Lender (or its applicable lending office) with respectthereto; then, in any such case, the applicable Borrower shall promptly pay tosuch Lender, upon receipt of the statement referred to in the next sentence,such additional amount or amounts (in the form of an increased rate of, or adifferent method of calculating, interest or otherwise as such Lender in itssole discretion shall determine) as may be necessary to compensate such Lenderfor any such increased cost or reduction in amounts received or receivablehereunder or under any other Credit Document. Such Lender shall deliver to theapplicable Borrower (with a copy to Administrative Agent) a written statement,setting forth in reasonable detail the basis for calculating the additionalamounts owed to such Lender under this Section 2.18(a), which statement shall beconclusive and binding upon all parties hereto absent manifest error. (b) Capital Adequacy Adjustment. In the event that any Lender (which --------------------------- term shall include Issuing Bank for purposes of this Section 2.18(b)) shallhave determined that the adoption, effectiveness, phasein or applicability afterthe date hereof of any law, rule or regulation (or any provision thereof)regarding capital adequacy, or any change therein or in the interpretation oradministration thereof by any Governmental Authority, central bank or comparableagency charged with the interpretation or administration thereof, or complianceby any Lender (or its applicable lending office) with any guideline, request ordirective regarding capital adequacy (whether or not having the force of law) ofany such Governmental Authority, central bank or comparable agency, has or wouldhave the effect of reducing the rate of return on 60 the capital of such Lender or any corporation controlling such Lender as aconsequence of, or with reference to, such Lender's Loans or Commitments orLetters of Credit, or participations therein or other obligations hereunder withrespect to the Loans or the Letters of Credit to a level below that which suchLender or such controlling corporation could have achieved but for suchadoption, effectiveness, phasein, applicability, change or compliance (takinginto consideration the policies of such Lender or such controlling corporationwith regard to capital adequacy), then from time to time, within five (5)Business Days after receipt by the applicable Borrower from such Lender of thestatement referred to in the next sentence, the applicable Borrower shall pay tosuch Lender such additional amount or amounts as will compensate such Lender orsuch controlling corporation on an aftertax basis for such reduction. SuchLender shall deliver to the applicable Borrower (with a copy to AdministrativeAgent) a written statement, setting forth in reasonable detail the basis forcalculating the additional amounts owed to Lender under this Section 2.18(b),which statement shall be conclusive and binding upon all parties hereto absentmanifest error. (c) Limitation on Retroactive Effect. Failure or delay on the part of -------------------------------- any Lender to demand compensation pursuant to this Section 2.18 shall notconstitute a waiver of such Lender's right to demand such compensation;provided, however, that the Borrowers shall not be required to compensate a-------- ------- Lender pursuant to this Section 2.18 for any increased costs or reductionsincurred more than 180 days prior to the date that such Lender notifiesBorrowers of the change giving rise to such increased costs or reductions and ofsuch Lender's intention to claim compensation therefor; provided further that if -------- ------- the change giving rise to such increased costs or reductions is retroactive,then the 180-day period referred to above shall be extended to include theperiod of retroactive effective thereof. 2.19 Taxes; Withholding, etc. (a) Payments to Be Free and Clear. All sums payable by any Credit ----------------------------- Party hereunder and under the other Credit Documents shall (except to the extentrequired by law) be paid free and clear of, and without any deduction orwithholding on account of, any Tax (other than a Tax on the overall net incomeof any Lender) imposed, levied, collected, withheld or assessed by or within theUnited States of America or any political subdivision in or of the United Statesof America or any other jurisdiction from or to which a payment is made by or onbehalf of any Credit Party or by any federation or organization of which theUnited States of America or any such jurisdiction is a member at the time ofpayment. (b) Withholding of Taxes. If any Credit Party or any other Person is -------------------- required by law to make any deduction or withholding on account of any such Taxfrom any sum paid or payable by any Credit Party to Administrative Agent or anyLender (which term shall include Issuing Bank for purposes of this Section2.19(b)) under any of the Credit Documents: the applicable Borrower shallnotify Administrative Agent of any such requirement or any change in any suchrequirement as soon as the applicable Borrower becomes aware of it; theapplicable Borrower shall pay any such Tax before the date on which penaltiesattach thereto, such payment to be made (if the liability to pay is imposed onany Credit Party) for its own account or (if that liability is imposed onAdministrative Agent or such Lender, as the case may be) on behalf of and in thename of Administrative Agent or such Lender; the sum payable by such CreditParty in respect of which the relevant deduction, withholding or payment isrequired shall be increased 61 to the extent necessary to ensure that, after the making of that deduction,withholding or payment, Administrative Agent or such Lender, as the case may be,receives on the due date a net sum equal to what it would have received had nosuch deduction, withholding or payment been required or made; and within thirty(30) days after paying any sum from which it is required by law to make anydeduction or withholding, and within thirty (30) days after the due date ofpayment of any Tax which it is required by clause (ii) above to pay, theapplicable Borrower shall deliver to Administrative Agent and the other affectedparties evidence satisfactory to the other affected parties of such deduction,withholding or payment and of the remittance thereof to the relevant taxing orother authority; provided, no such additional amount shall be required to bepaid to any Lender under clause (iii) above except to the extent that any changeafter the date hereof (in the case of each Lender listed on the signature pageshereof on the Closing Date) or after the effective date of the AssignmentAgreement or Joinder Agreement pursuant to which such Lender became a Lender (inthe case of each other Lender) in any such requirement for a deduction,withholding or payment as is mentioned therein shall result in an increase inthe rate of such deduction, withholding or payment from that in effect at thedate hereof or at the date of such Assignment Agreement or Joinder Agreement, asthe case may be, in respect of payments to such Lender. (c) Evidence of Exemption From U.S. Withholding Tax. Each Lender that ----------------------------------------------- is not a United States Person (as such term is defined in Section 7701(a)(30) ofthe Internal Revenue Code) for U.S. federal income tax purposes (a "NonUSLender") shall deliver to Administrative Agent for transmission to theapplicable Borrower, on or prior to the Closing Date (in the case of each Lenderlisted on the signature pages hereof on the Closing Date) or on or prior to thedate of the Assignment Agreement or Joinder Agreement pursuant to which itbecomes a Lender (in the case of each other Lender), and at such other times asmay be necessary in the determination of the applicable Borrower orAdministrative Agent (each in the reasonable exercise of its discretion), twooriginal copies of Internal Revenue Service Form W8BEN or W8ECI (or anysuccessor forms), properly completed and duly executed by such Lender, and suchother documentation required under the Internal Revenue Code and reasonablyrequested by the applicable Borrower to establish that such Lender is notsubject to deduction or withholding of United States federal income tax withrespect to any payments to such Lender of principal, interest, fees or otheramounts payable under any of the Credit Documents, or if such Lender is not a"bank" or other Person described in Section 881(c)(3) of the Internal RevenueCode and cannot deliver either Internal Revenue Service Form W8BEN or W8ECIpursuant to clause (i) above, a Certificate re NonBank Status together with twooriginal copies of Internal Revenue Service Form W8 (or any successor form),properly completed and duly executed by such Lender, and such otherdocumentation required under the Internal Revenue Code and reasonably requestedby the applicable Borrower to establish that such Lender is not subject todeduction or withholding of United States federal income tax with respect to anypayments to such Lender of interest payable under any of the Credit Documents.Each Lender required to deliver any forms, certificates or other evidence withrespect to United States federal income tax withholding matters pursuant to thisSection 2.19(c) hereby agrees, from time to time after the initial delivery bysuch Lender of such forms, certificates or other evidence, whenever a lapse intime or change in circumstances renders such forms, certificates or otherevidence obsolete or inaccurate in any material respect, that such Lender shallpromptly deliver to Administrative Agent for transmission to the applicableBorrower two new original copies of Internal Revenue Service Form W8BEN orW8ECI, or a Certificate re NonBank Status and two original copies of 62 Internal Revenue Service Form W8, as the case may be, properly completed andduly executed by such Lender, and such other documentation required under theInternal Revenue Code and reasonably requested by the applicable Borrower toconfirm or establish that such Lender is not subject to deduction or withholdingof United States federal income tax with respect to payments to such Lenderunder the Credit Documents, or notify Administrative Agent and the applicableBorrower of its inability to deliver any such forms, certificates or otherevidence. The applicable Borrower shall not be required to pay any additionalamount to any NonUS Lender under Section 2.19(b)(iii) if such Lender shall havefailed to deliver the forms, certificates or other evidence referred to in thesecond sentence of this Section 2.19(c), or (2) to notify Administrative Agentand the applicable Borrower of its inability to deliver any such forms,certificates or other evidence, as the case may be; provided, if such Lender -------- shall have satisfied the requirements of the first sentence of this Section2.19(c) on the Closing Date or on the date of the Assignment Agreement orJoinder Agreement pursuant to which it became a Lender, as applicable, nothingin this last sentence of Section 2.19(c) shall relieve the applicable Borrowerof its obligation to pay any additional amounts pursuant to Section 2.18(a) inthe event that, as a result of any change in any applicable law, treaty orgovernmental rule, regulation or order, or any change in the interpretation,administration or application thereof, such Lender is no longer properlyentitled to deliver forms, certificates or other evidence at a subsequent dateestablishing the fact that such Lender is not subject to withholding asdescribed herein. 2.20 Obligation to Mitigate. Each Lender (which term shall include IssuingBank for purposes of this Section 2.21) agrees that, as promptly as practicableafter the officer of such Lender responsible for administering its Loans orLetters of Credit, as the case may be, becomes aware of the occurrence of anevent or the existence of a condition that would cause such Lender to become anAffected Lender or that would entitle such Lender to receive payments underSection 2.17, 2.18 or 2.20, it will, to the extent not inconsistent with theinternal policies of such Lender and any applicable legal or regulatoryrestrictions, (i) use reasonable efforts to make, issue, fund or maintain itsapplicable Commitments or Loans, including any Affected Loans, through anotheroffice of such Lender, or (ii) take such other measures as such Lender may deemreasonable, if as a result thereof the circumstances which would cause suchLender to be an Affected Lender would cease to exist or the additional amountswhich would otherwise be required to be paid to such Lender pursuant to Section2.17, 2.18 or 2.19 would be materially reduced and if, as determined by suchLender in its sole discretion, the making, issuing, funding or maintaining ofsuch Commitments, Loans or Letters of Credit through such other office or inaccordance with such other measures, as the case may be, would not otherwiseadversely affect such Commitments, Loans or Letters of Credit or the interestsof such Lender; provided, such Lender will not be obligated to utilize such -------- other office pursuant to this Section 2.21 unless the applicable Borrower agreesto pay all incremental expenses incurred by such Lender as a result of utilizingsuch other office as described in clause (i) above. A certificate as to theamount of any such expenses payable by the applicable Borrower pursuant to thisSection 2.21 (setting forth in reasonable detail the basis for requesting suchamount) submitted by such Lender to the applicable Borrower (with a copy toAdministrative Agent) shall be conclusive absent manifest error. 2.21 Defaulting Lenders. Anything contained herein to the contrarynotwithstanding, in the event that any Lender defaults (a "Defaulting Lender")in its obligation to fund (a "Funding Default") any Loan or its portion of anyunreimbursed payment under Section 2.2(e) 63 (in each case, a "Defaulted Loan"), then (a) during any such period when suchdefault is continuing with respect to such Defaulting Lender (the "DefaultPeriod"), such Defaulting Lender shall not be deemed to be a "Lender" forpurposes of voting on any matters (including the granting of any consents orwaivers) with respect to any of the Credit Documents; (b) to the extentpermitted by applicable law, until such time as the Default Excess with respectto such Defaulting Lender shall have been reduced to zero, any voluntaryprepayment of the Loans shall, if the applicable Borrower so directs at the timeof making such voluntary prepayment, be applied to the Loans of other Lenders asif such Defaulting Lender had no Loans outstanding and the Delayed Draw TermLoan Exposure and the Revolving Loan Exposure of such Defaulting Lender werezero, and any mandatory prepayment of the Loans shall, if the applicableBorrower so directs at the time of making such mandatory prepayment, be appliedto the Loans of other Lenders (but not to the Loans of such Defaulting Lender),it being understood and agreed that the applicable Borrower shall be entitled toretain any portion of any mandatory prepayment of the Loans that is not paid tosuch Defaulting Lender solely as a result of the operation of the provisions ofthis clause (b); (c) such Defaulting Lender's Delayed Draw Term Loan Commitmentand Revolving Loan Commitment and outstanding Loans and such Defaulting Lender'sPro Rata Share of the Letter of Credit Usage shall be excluded for purposes ofcalculating the commitment fee payable to Lenders in respect of any day duringany Default Period with respect to such Defaulting Lender, and such DefaultingLender shall not be entitled to receive any commitment fee pursuant to Section2.9 with respect to such Defaulting Lender's Revolving Loan Commitment andDelayed Draw Term Loan Commitment in respect of any Default Period with respectto such Defaulting Lender; and (d) the Total Utilization of Commitments as atany date of determination shall be calculated as if such Defaulting Lender hadfunded all Defaulted Loans of such Defaulting Lender. No Revolving LoanCommitment or Delayed Draw Term Loan Commitment of any Lender shall be increasedor otherwise affected, and, except as otherwise expressly provided in thisSection 2.21, performance by the applicable Borrower of its obligationshereunder and the other Credit Documents shall not be excused or otherwisemodified as a result of any Funding Default or the operation of this Section2.21. The rights and remedies against a Defaulting Lender under this Section2.21 are in addition to other rights and remedies which the applicable Borrowermay have against such Defaulting Lender with respect to any Funding Default andwhich Administrative Agent or any Lender may have against such Defaulting Lenderwith respect to any Funding Default. 2.22 Removal or Replacement of a Lender. Anything contained herein to thecontrary notwithstanding, in the event that: (i) any Lender (an "IncreasedCostLender") shall give notice to the applicable Borrower that such Lender is anAffected Lender or that such Lender is entitled to receive payments underSection 2.17, 2.18 or 2.19, the circumstances which have caused such Lender tobe an Affected Lender or which entitle such Lender to receive such paymentsshall remain in effect, and such Lender shall fail to withdraw such noticewithin five (5) Business Days after the applicable Borrower's request for suchwithdrawal; or (ii) any Lender shall become a Defaulting Lender, the DefaultPeriod for such Defaulting Lender shall remain in effect, and such DefaultingLender shall fail to cure the default as a result of which it has become aDefaulting Lender within five (5) Business Days after the applicable Borrower'srequest that it cure such default; or (iii) in connection with any proposedamendment, modification, termination, waiver or consent with respect to any ofthe provisions hereof as contemplated by Section 10.5(b), the consent ofRequisite Lenders shall have been obtained but the consent of one or more ofsuch other Lenders (each a "NonConsenting Lender") whose consent is required 64 shall not have been obtained; then, with respect to each such IncreasedCostLender, Defaulting Lender or NonConsenting Lender (the "Terminated Lender"), theapplicable Borrower may, by giving written notice to Administrative Agent andany Terminated Lender of its election to do so, elect to cause such TerminatedLender (and such Terminated Lender hereby irrevocably agrees) to assign itsoutstanding Loans and its Revolving Loan Commitments, if any, and/or DelayedDraw Term Loan Commitment, if any, in full to one or more Eligible Assignees(each a "Replacement Lender") in accordance with the provisions of Section 10.6and Terminated Lender shall pay any fees payable thereunder in connection withsuch assignment; provided, (1) on the date of such assignment, the Replacement -------- Lender shall pay to Terminated Lender an amount equal to the sum of (A) anamount equal to the principal of, and all accrued interest on, all outstandingLoans of the Terminated Lender, (B) an amount equal to all unreimbursed drawingsthat have been funded by such Terminated Lender, together with all then unpaidinterest with respect thereto at such time and (C) an amount equal to allaccrued, but theretofore unpaid fees owing to such Terminated Lender pursuant toSection 2.9; (2) on the date of such assignment, the applicable Borrower shallpay any amounts payable to such Terminated Lender pursuant to Section 2.17(c),2.18 or 2.19 or otherwise as if it were a prepayment; and (3) in the event suchTerminated Lender is a NonConsenting Lender, each Replacement Lender shallconsent, at the time of such assignment, to each matter in respect of which suchTerminated Lender was a NonConsenting Lender; provided, such Borrower may not -------- make such election with respect to any Terminated Lender that is also an IssuingBank unless, prior to the effectiveness of such election, Company shall havecaused each outstanding Letter of Credit issued thereby to be cancelled. Uponthe prepayment of all amounts owing to any Terminated Lender and the terminationof such Terminated Lender's Revolving Loan Commitments, if any, and/or DelayedDraw Term Loan Commitment, if any, such Terminated Lender shall no longerconstitute a "Lender" for purposes hereof; provided, any rights of such -------- Terminated Lender to indemnification hereunder shall survive as to suchTerminated Lender.SECTION 3 CONDITIONS PRECEDENT 3.1 Closing Date. The obligation of any Lender to make a Credit Extensionon or after the Closing Date is subject to the satisfaction, or waiver inaccordance with Section 10.5, of the following conditions on or before theClosing Date: (a) Credit Documents. Administrative Agent and Syndication Agent ---------------- shall have received sufficient copies of each Credit Document originallyexecuted and delivered by each applicable Credit Party for each Lender. (b) Organizational Documents; Incumbency. Administrative Agent and ------------------------------------ Syndication Agent shall have received (i) sufficient copies of eachOrganizational Document executed (original in the case of Bylaws) and deliveredby each Credit Party, as applicable, and, to the extent applicable, certified asof a recent date by the appropriate governmental official, for each Lender andits counsel, each dated the Closing Date or a recent date prior thereto; (ii)signature and incumbency certificates of the officers of such Person executingthe Credit Documents to which it is a party; (iii) resolutions of the Board ofDirectors or similar governing body of each Credit Party approving andauthorizing the execution, delivery and performance of this Agreement and theother Credit Documents to which it is a party or by which it or its assets maybe bound as of the Closing Date, certified as of the Closing Date by itssecretary or an 65 assistant secretary as being in full force and effect without modification oramendment; (iv) a good standing certificate from the applicable GovernmentalAuthority of each Credit Party's jurisdiction of incorporation, organization orformation and in each jurisdiction in which it is qualified as a foreigncorporation or other entity to do business, each dated a recent date prior tothe Closing Date; and (v) such other documents as Administrative Agent orSyndication Agent may reasonably request. (c) Organizational and Capital Structure. The organizational ------------------------------------ structure and capital structure of Company and its Subsidiaries shall be as setforth on Schedule 4.2. (d) Existing Indebtedness. On the Closing Date, Company and its --------------------- Subsidiaries shall have (other than as identified in Schedule 6.1(i)) repaid infull all Existing Indebtedness, (ii) terminated any commitments to lend or makeother extensions of credit thereunder, (iii) delivered to Syndication Agent andAdministrative Agent all documents or instruments necessary to release all Lienssecuring such Existing Indebtedness or other obligations of Company and itsSubsidiaries thereunder being repaid on the Closing Date, and (iv) madearrangements satisfactory to Syndication Agent and Administrative Agent withrespect to the cancellation of any letters of credit outstanding under ExistingIndebtedness being repaid on the Closing Date or the issuance of Letters ofCredit under Existing Indebtedness being repaid on the Closing Date to supportthe obligations of Company and its Subsidiaries with respect thereto. (e) Governmental Authorizations and Consents. Each Credit Party shall ---------------------------------------- have obtained all Governmental Authorizations and all consents of other Persons,in each case that are necessary or advisable in connection with the transactionscontemplated by the Credit Documents and each of the foregoing shall be in fullforce and effect and in form and substance reasonably satisfactory toSyndication Agent and Administrative Agent. All applicable waiting periodsshall have expired without any action being taken or threatened by any competentauthority which would restrain, prevent or otherwise impose adverse conditionson the transactions contemplated by the Credit Documents and no action, requestfor stay, petition for review or rehearing, reconsideration, or appeal withrespect to any of the foregoing shall be pending, and the time for anyapplicable agency to take action to set aside its consent on its own motionshall have expired. (f) Real Estate Assets. In order to create in favor of Collateral ------------------ Agent, for the benefit of Secured Parties, a valid and, subject to any filingand/or recording referred to herein, perfected First Priority security interestin certain Real Estate Assets, Collateral Agent shall have received from Companyand each applicable Guarantor: (i) fully executed and notarized Mortgages, in proper form for recording in all appropriate places in all applicable jurisdictions, encumbering each Real Estate Asset listed in Schedule 3.1(f) (each, a "Closing Date Mortgaged Property''), which in the case of the Leasehold Properties at which the Permitted IBX Facilities are located, shall include at least 50% of the total number of such Leasehold Properties; 66 (ii) an opinion of counsel (which counsel shall be reasonably satisfactory to Collateral Agent) in each state in which a Closing Date Mortgaged Property is located with respect to the enforceability of the form(s) of Mortgages to be recorded in such state and such other matters as Collateral Agent may reasonably request, in each case in form and substance reasonably satisfactory to Collateral Agent; (iii) in the case of each Leasehold Property that is a Closing Date Mortgaged Property, a Landlord Agreement, and evidence that such Leasehold Property is a Recorded Leasehold Interest; (iv) (a) ALTA mortgagee title insurance policies or unconditional commitments therefor issued by (a) a title company with respect to each Closing Date Mortgaged Property, in amounts not less than the fair market value of each Closing Date Mortgaged Property, together with a title report issued by a title company with respect thereto, dated not more than thirty (30) days prior to the Closing Date and copies of all recorded documents listed as exceptions to title or otherwise referred to therein, each in form and substance reasonably satisfactory to Collateral Agent and Syndication Agent and (B) evidence satisfactory to Collateral Agent and Syndication Agent that such Credit Party has paid to the title company or to the appropriate governmental authorities all expenses and premiums of the title company and all other sums required in connection with the issuance of such title policy and all recording and stamp taxes (including mortgage recording and intangible taxes) payable in connection with recording the Mortgages for each Closing Date Mortgaged Property in the appropriate real estate records; (v) evidence of flood insurance with respect to each Flood Hazard Property that is located in a community that participates in the National Flood Insurance Program, in each case in compliance with any applicable regulations of the Board of Governors of the Federal Reserve System, in form and substance reasonably satisfactory to Collateral Agent and Syndication Agent; and (vi) ALTA surveys of all Closing Date Mortgaged Properties (other than Leasehold Properties consisting of space in a building occupied by more than two additional tenants), certified to Collateral Agent and dated not more than thirty (30) days prior to the Closing Date. (g) Personal and Mixed Property Collateral. In order to create in -------------------------------------- favor of Collateral Agent, for the benefit of Secured Parties, a valid andperfected First Priority security interest in the personal property Collateral,Collateral Agent shall have received: (i) (1) certificates (which certificates shall be accompanied by irrevocable undated stock powers, duly endorsed in blank and otherwise satisfactory in form and substance to Collateral Agent) representing all certificated shares or other interests (however designated) with respect to Capital Stock pledged pursuant to the Pledge and Security Agreement and (2) all instruments and 67 promissory notes (which instruments shall be accompanied by instruments of transfer or assignment duly endorsed in blank and otherwise in form and substance satisfactory to Collateral Agent) evidencing all Indebtedness pledged pursuant to the Pledge and Security Agreement; (ii) a completed UCC Questionnaire dated the Closing Date and executed by an executive officer of each Credit Party, together with all attachments contemplated thereby, including (1) other than as set forth in Schedule 3.1(g)(ii) the results of a recent search, by a Person satisfactory to Syndication Agent and Collateral Agent, of UCC financing statements and fixture filings and all judgment and tax lien filings which may have been made with respect to any personal or mixed property of any Credit Party, together with copies of all such filings disclosed by such search, and (2) UCC termination statements duly executed by all applicable Persons for filing in all applicable jurisdictions as may be necessary to terminate any effective UCC financing statements or fixture filings disclosed in such search (other than any such financing statements or fixture filings in respect of Permitted Liens); (iii) UCC financing statements, duly executed by each applicable Credit Party with respect to all personal and mixed property Collateral of such Credit Party, for filing in all jurisdictions as may be necessary or, in the opinion of Collateral Agent, desirable to perfect the security interests created in such Collateral pursuant to the Collateral Documents under the UCC; (iv) all releases, cover sheets or other documents or instruments required to be filed in order to create or perfect Liens in respect of any Intellectual Property Collateral pursuant to the laws of the United States; (v) opinions of counsel (which counsel shall be reasonably satisfactory to Collateral Agent) with respect to the creation and perfection of the security interests in favor of Collateral Agent in such Collateral and such other matters governed by the laws of each jurisdiction in which any Credit Party or any personal property Collateral is located as Collateral Agent may reasonably request, in each case in form and substance reasonably satisfactory to Collateral Agent; and (vi) evidence that each Credit Party shall have taken or caused to be taken any other action, executed and delivered or caused to be executed and delivered any other agreement (other than agreements required to be entered into prior to the Funding Date and set forth on Schedule 3.2(b)), document and instrument (including, without limitation, any agreements governing deposit and/or security accounts), and made or caused to be made any other filing and recording (other than as set forth herein) required pursuant to the Pledge and Security Agreement or otherwise reasonably required by Collateral Agent. (h) Environmental Reports. Syndication Agent and Administrative Agent --------------------- shall have received such reports and/or other information, in form, scope andsubstance 68 satisfactory to Syndication Agent and Administrative Agent, regardingenvironmental matters relating to the Facilities. (i) Financial Statements; Projections. Lenders shall have received --------------------------------- from Company (i) the Historical Financial Statements, (ii) copies of allmanagement reports and management letters prepared for Company and itsSubsidiaries by independent public accountants; and (iii) a financial forecastfor Company and its Restricted Subsidiaries, for the period from Fiscal Year2000 through and including Fiscal Year 2005 (detailed by Fiscal Quarters foreach such Fiscal Year); and all of the foregoing financial statements and theother information will not be inconsistent, in any material respect, with anyinformation previously provided to Lenders. (j) Evidence of Insurance. Syndication Agent, Collateral Agent and --------------------- Administrative Agent shall have received a certificate from Company's insurancebroker or other evidence satisfactory to them that all insurance required to bemaintained pursuant to Section 5.5 is in full force and effect and thatCollateral Agent, for the benefit of Secured Parties has been named asadditional insured and loss payee thereunder to the extent required underSection 5.5. (k) Opinions of Counsel to Credit Parties. Lenders and their ------------------------------------- respective counsel shall have received originally executed copies of thefavorable written opinions of Gray, Cary, Ware & Freidenrich LLP, DeweyBallantine LLP, Riker, Danzig, Scherer, Hyland & Peretti LLP, Thompson & KnightLLP, Freeborn & Peters, Reed, Smith, Hazel & Thomas LLP, counsel for CreditParties, in the form of Exhibit D and as to such other matters as AdministrativeAgent or Syndication Agent may reasonably request, and otherwise in form andsubstance reasonably satisfactory to each of Administrative Agent, SyndicationAgent and Collateral Agent and their counsel, dated the Closing Date (and eachCredit Party hereby instructs such counsel to deliver such opinions to Agentsand Lenders). (l) Opinions of Counsel to Syndication Agent. Lenders shall have ---------------------------------------- received originally executed copies of one or more favorable written opinions ofSkadden, Arps, Slate, Meagher & Flom LLP, counsel to Syndication Agent andAdministrative Agent and addressed to the Agents and the Lenders dated as of theClosing Date, in form and substance reasonably satisfactory to SyndicationAgent. (m) Fees. Company shall have paid to Syndication Agent, ---- Administrative Agent and Collateral Agent the fees payable on the Closing Datereferred to in Section 2.9(d). (n) Solvency Certificate. On the Closing Date, Syndication Agent, -------------------- Administrative Agent and Lenders shall have received a Solvency Certificate fromCompany. (o) Borrowing Base Certificate and Closing Date Certificate. Company ------------------------------------------------------- shall have delivered to Syndication Agent and Administrative Agent an originallyexecuted Borrowing Base Certificate and Closing Date Certificate, together withall attachments thereto. (p) Material Contracts. Company and its Subsidiaries shall have made ------------------ available to Syndication Agent and Administrative Agent copies of all MaterialContracts in effect on the Closing Date. 69 (q) Material Contract Consents. Company shall have used reasonable -------------------------- best efforts to obtain a consent to the collateral assignment to AdministrativeAgent, Syndication Agent and Lenders of rights existing under all MaterialContracts listed on Schedule 4.17(a), such consent in form and substancereasonably satisfactory to Administrative Agent and Syndication Agent. (r) No Litigation. Syndication Agent and Administrative Agent shall ------------- have received a certificate on behalf of Company from an Authorized Officer ofCompany, in form and substance reasonably satisfactory to Syndication Agent andAdministrative Agent, certifying that there are no actions, suits,investigations, litigations or proceedings or other legal or regulatorydevelopments, pending or threatened in any court or before any arbitrator orGovernmental Authority that, singly or in the aggregate, materially impairs anyof the transactions contemplated by the Credit Documents, or that could have aMaterial Adverse Effect. (s) Completion of Proceedings. All partnership, corporate and other ------------------------- proceedings taken or to be taken in connection with the transactionscontemplated hereby and all documents incidental thereto not previously foundacceptable by Administrative Agent or Syndication Agent and its counsel shall besatisfactory in form and substance to Administrative Agent and Syndication Agentand such counsel, and Administrative Agent, Syndication Agent and such counselshall have received all such counterpart originals or certified copies of suchdocuments as Administrative Agent or Syndication Agent may reasonably request.Each Lender, by delivering its signature page to this Agreement on the ClosingDate, shall be deemed to have acknowledged receipt of, and consented to andapproved, each Credit Document and each other document required to be approvedby any Agent, Requisite Lenders or Lenders, as applicable, on or prior to theClosing Date. 3.2 Conditions to Each Credit Extension. (a) Conditions Precedent. The obligation of each Lender to make any -------------------- Loan, or Issuing Bank to issue any Letter of Credit, on any Credit Date,including the Funding Date, are subject to the satisfaction, or waiver inaccordance with Section 10.5, of the following conditions precedent: (i) Administrative Agent shall have received a fully executed and delivered Funding Notice or Issuance Notice, as the case may be, and a Borrowing Base Certificate; (ii) after making any Loans and/or Letters of Credit requested on such Credit Date, the Total Utilization Exposure shall not exceed the Borrowing Base as set forth in a Borrowing Base Certificate delivered in connection with the making of such Loans; (iii) after making any Revolving Loans and/or Letters of Credit requested on such Credit Date, the Total Utilization of Revolving Loan Commitments shall not exceed the Revolving Loan Commitments then in effect; 70 (iv) after making any Delayed Draw Term Loans requested on such Credit Date, the Total Utilization of Delayed Draw Term Loan Commitments shall not exceed the Delayed Draw Term Loan Commitments then in effect; (v) no injunction or other restraining order shall have been issued and no hearing to cause an injunction or other restraining order to be issued shall be pending or noticed with respect to any action, suit or proceeding seeking to enjoin or otherwise prevent the consummation of, or to recover any damages or obtain relief as a result of, the transactions contemplated hereby or the making of any Loan; (vi) as of such Credit Date, the representations and warranties contained herein and in the other Credit Documents shall be true and correct in all material respects on and as of that Credit Date to the same extent as though made on and as of that date, except to the extent such representations and warranties specifically relate to an earlier date, in which case such representations and warranties shall have been true and correct in all material respects on and as of such earlier date; (vii) as of such Credit Date, no event shall have occurred and be continuing or would result from the consummation of the applicable Credit Extension that would constitute an Event of Default or a Default; (viii) With respect to Purchase Money Loans, Company shall (y) have provided Administrative Agent and Collateral Agent with such information as they may reasonable request confirming the use of proceeds of such Purchase Money Loans in conformity with the requirements of this Agreement and the Senior Notes and (z) taken such actions as Collateral Agent may reasonably request to ensure that such Purchase Money Loans are secured by First Priority Liens on the assets purchased with the proceeds thereof; and (ix) on or before the date of issuance of any Letter of Credit, Administrative Agent shall have received all other information required by the applicable Issuance Notice, and such other documents or information as Issuing Bank may reasonably require in connection with the issuance of such Letter of Credit. (x) Company shall have transferred to (y) OpCo the assets (including, without limitation, cash and leasehold interests) associated with each of the Permitted IBX Facilities and (z) to Unrestricted Subsidiaries certain assets to be used by such Unrestricted Subsidiaries, in each case as set forth on Schedule 3.2(a)(x). (b) Certain Conditions to Loans. The Obligations of each Lender --------------------------- having a Commitment to make a Loan shall be subject to satisfaction, or waiverin accordance with Section 10.5, of the conditions set forth on Schedule 3.2(b)on or before the Funding Date. 71 (c) Notices. Any Notice shall be executed by an Authorized Officer in ------- a writing delivered to Administrative Agent. In lieu of delivering a Notice,Company may give Administrative Agent telephonic notice by the required time ofany proposed borrowing, conversion/continuation or issuance of a Letter ofCredit, as the case may be; provided each such notice shall be promptly -------- confirmed in writing by delivery of the applicable Notice to AdministrativeAgent (and Issuing Bank in the case of a notice with respect to a Letter ofCredit) on or before the applicable date of borrowing, continuation/conversionor issuance. Neither Administrative Agent, Issuing Bank nor any Lender shallincur any liability to Company in acting upon any telephonic notice referred toabove that Administrative Agent believes in good faith to have been given by aduly authorized officer or other person authorized on behalf of Company or forotherwise acting in good faith.SECTION 4 REPRESENTATIONS AND WARRANTIES In order to induce Lenders and Issuing Bank to enter into this Agreementand to make each Credit Extension to be made thereby, each Credit Partyrepresents and warrants to each Lender and Issuing Bank, on the Closing Date andon each Credit Date, that the following statements are true and correct: 4.1 Organization; Requisite Power and Authority; Qualification. Each ofthe Credit Parties (a) is duly organized, validly existing and in good standingunder the laws of its jurisdiction of organization as identified in Schedule4.1, (b) has all requisite power and authority to own and operate itsproperties, to carry on its business as now conducted and as proposed to beconducted, to enter into the Credit Documents to which it is a party and tocarry out the transactions contemplated thereby, and (c) is qualified to dobusiness and in good standing in every jurisdiction where its assets are locatedand wherever necessary to carry out its business and operations, except injurisdictions where the failure to be so qualified or in good standing has nothad, and could not be reasonably expected to have, a Material Adverse Effect. 4.2 Capital Stock and Ownership. The Capital Stock of each of the CreditParties has been duly authorized and validly issued and is fully paid andnonassessable. Except as set forth on Schedule 4.2, as of the date hereof,there is no existing option, warrant, call, right, commitment or other agreementto which any of the Credit Parties, other than the Company, is a partyrequiring, and there is no membership interest or other Capital Stock of any ofthe Credit Parties, other than the Company, outstanding which upon conversion orexchange would require, the issuance by any of the Credit Parties, other thanthe Company, of any additional membership interests or other Capital Stock ofany of the Credit Parties, other than the Company, or other Securitiesconvertible into, exchangeable for or evidencing the right to subscribe for orpurchase, a membership interest or other Capital Stock of any of the CreditParties, other than the Company. Schedule 4.2 correctly sets forth theownership interest of the Credit Parties in their respective Subsidiaries as ofthe Closing Date. 4.3 Due Authorization. The execution, delivery and performance of theCredit Documents have been duly authorized by all necessary action on the partof each Credit Party that is a party thereto. 72 4.4 No Conflict. The execution, delivery and performance by the CreditParties of the Credit Documents to which they are parties and the consummationof the transactions contemplated by the Credit Documents do not and will notviolate any provision of any law or any governmental rule or regulationapplicable to any of the Credit Parties, any of the Organizational Documents ofany of the Credit Parties, or any order, judgment or decree of any court orother agency of government binding on any of the Credit Parties; conflict with,result in a breach of or constitute (with due notice or lapse of time or both) adefault under any Contractual Obligation of any of the Credit Parties; resultin or require the creation or imposition of any Lien upon any of the propertiesor assets of any of the Credit Parties (other than any Liens created under anyof the Credit Documents in favor of Collateral Agent, on behalf of SecuredParties); or require any approval of stockholders, members or partners or anyapproval or consent of any Person under any Contractual Obligation of any of theCredit Parties, except for such approvals or consents which will be obtained onor before the Closing Date and disclosed in writing to Lenders. 4.5 Governmental Consents. The execution, delivery and performance byCredit Parties of the Credit Documents to which they are parties and theconsummation of the transactions contemplated by the Credit Documents do not andwill not require any registration with, consent or approval of, or notice to, orother action to, with or by, any Governmental Authority except as otherwise setforth on Schedule 4.5, and except for filings and recordings with respect to theCollateral to be made, or otherwise delivered to Collateral Agent for filingand/or recordation, as of the Closing Date. 4.6 Binding Obligation. Each Credit Document has been duly executed anddelivered by each Credit Party that is a party thereto and is the legally validand binding obligation of such Credit Party, enforceable against such CreditParty in accordance with its respective terms, except as may be limited bybankruptcy, insolvency, reorganization, moratorium or similar laws relating toor limiting creditors' rights generally or by equitable principles relating toenforceability. 4.7 Historical Financial Statements. The Historical Financial Statementswere prepared in conformity with GAAP and fairly present, in all materialrespects, the financial position, on a consolidated basis, of the Personsdescribed in such financial statements as at the respective dates thereof andthe results of operations and cash flows, on a consolidated basis, of theentities described therein for each of the periods then ended, subject, in thecase of any such unaudited financial statements, to changes resulting from auditand normal yearend adjustments. As of the Closing Date, neither Company nor anyof its Subsidiaries has any contingent liability or liability for taxes,longterm lease or unusual forward or longterm commitment that is not reflectedin the Historical Financial Statements or the notes thereto and which in anysuch case is material in relation to the business, operations, properties,assets, condition (financial or otherwise) or prospects of Company and any ofits Subsidiaries taken as a whole. 4.8 Projections. On and as of the Closing Date, the financial forecast ofCompany and its Restricted Subsidiaries delivered pursuant to Section 3.1(i)(the "Projections") is based on good faith estimates and assumptions made by themanagement of Company; provided, the Projections are not to be viewed as facts -------- and that actual results during the period or periods covered by the Projectionsmay differ from such Projections and that the differences may be 73 material; provided further, as of the Closing Date, management of Company -------- ------- believed that the Projections were reasonable and attainable. 4.9 No Material Adverse Change. Since December 31, 1999, no event orchange has occurred that has caused or evidences, either in any case or in theaggregate, a Material Adverse Effect. 4.10 No Restricted Junior Payments. Since December 31, 1999, none of theCredit Parties has directly or indirectly declared, ordered, paid or made, orset apart any sum or property for, any Restricted Junior Payment or agreed to doso except as permitted pursuant to Section 6.4. 4.11 Adverse Proceedings, etc. There are no Adverse Proceedings,individually or in the aggregate, that could reasonably be expected to have aMaterial Adverse Effect. None of the Credit Parties is in violation of anyapplicable laws (including Environmental Laws) that, individually or in theaggregate, could reasonably be expected to have a Material Adverse Effect, oris subject to or in default with respect to any final judgments, writs,injunctions, decrees, rules or regulations of any court or any federal, state,municipal or other governmental department, commission, board, bureau, agency orinstrumentality, domestic or foreign, that, individually or in the aggregate,could reasonably be expected to have a Material Adverse Effect. 4.12 Payment of Taxes. Except as otherwise permitted under Section 5.3,all tax returns and reports of Company and its Subsidiaries required to be filedby any of them have been timely filed, and all taxes shown on such tax returnsto be due and payable and all assessments, fees and other governmental chargesupon Company and its Subsidiaries and upon their respective properties, assets,income, businesses and franchises which are due and payable have been paid whendue and payable. Company knows of no proposed tax assessment against Company orany of its Subsidiaries which is not being actively contested by Company or suchSubsidiary in good faith and by appropriate proceedings; provided, such reserves -------- or other appropriate provisions, if any, as shall be required in conformity withGAAP shall have been made or provided therefor. 4.13 Properties. (a) Title. Each Credit Party has (i) good, sufficient and legal title ----- to (in the case of fee interests in real property), (ii) valid leaseholdinterests in (in the case of leasehold interests in real or personal property),and (iii) good title to (in the case of all other personal property), all oftheir respective properties and assets reflected in their respective HistoricalFinancial Statements referred to in Section 4.7 and in the most recent financialstatements delivered pursuant to Section 5.1, in each case except for assetsdisposed of since the date of such financial statements in the ordinary courseof business or as otherwise permitted under Section 6.9. Except as permitted bythis Agreement, all such properties and assets are free and clear of Liens. (b) Real Estate. As of the Closing Date, Schedule 4.13 contains a ----------- true, accurate and complete list of (i) all Real Estate Assets, and (ii) allleases, subleases or assignments of leases (together with all amendments,modifications, supplements, renewals or 74 extensions of any thereof) affecting each Real Estate Asset of any Credit Party,regardless of whether such Credit Party is the landlord or tenant (whetherdirectly or as an assignee or successor in interest) under such lease, subleaseor assignment. Except as specified in Schedule 4.13, each agreement listed inclause (ii) of the immediately preceding sentence is in full force and effectand Company does not have knowledge of any default that has occurred and iscontinuing thereunder, and each such agreement constitutes the legally valid andbinding obligation of each applicable Credit Party, enforceable against suchCredit Party in accordance with its terms, except as enforcement may be limitedby bankruptcy, insolvency, reorganization, moratorium or similar laws relatingto or limiting creditors' rights generally or by equitable principles. 4.14 Collateral. (a) Attachment and Perfection. The execution and delivery of the ------------------------- Collateral Documents by Credit Parties, together with the actions taken on orprior to the date hereof pursuant to Sections 3.1(f) and 3.1(g), are effectiveto create in favor of Collateral Agent, on behalf of Secured Parties, assecurity for their respective Obligations, a valid and perfected First PriorityLien on all of the Collateral, and all filings and other actions necessary ordesirable to perfect and maintain the perfection and First Priority status ofsuch Liens have been duly made or taken and remain in full force and effect,other than (i) the filing of any UCC financing statements delivered toCollateral Agent for filing (but not yet filed), (ii) the actions required underfederal law to register and record interests in intellectual property and (iii)the periodic filing of UCC continuation statements in respect of UCC financingstatements filed by or on behalf of Collateral Agent. (b) Governmental Approvals, Etc. No authorization, approval or other ---------------------------- action by, and no notice to or filing with, any Governmental Authority orregulatory body is required for either (i) the pledge or grant by any CreditParty of the Liens purported to be created in favor of Collateral Agent pursuantto any of the Collateral Documents or (ii) the exercise by Collateral Agent ofany rights or remedies in respect of any Collateral (whether specificallygranted or created pursuant to any of the Collateral Documents or created orprovided for by applicable law), except (A) for filings or recordingscontemplated by Sections 3.1(f) and 3.1(g) and (B) as may be required inconnection with the disposition of any Investment Related Property, or by lawsgenerally affecting the offering and sale of Securities. (c) Filings. Except with respect to any Permitted Lien and such as ------- may have been filed in favor of Collateral Agent as contemplated by Section3.1(f) or 3.1(g), no effective UCC financing statement, fixture filing or otherinstrument similar in effect covering all or any part of the Collateral is onfile in any filing or recording office. (d) Disclosure. All information supplied to Collateral Agent by or on ---------- behalf of any Credit Party with respect to any of the Collateral (in each casetaken as a whole with respect to any particular Collateral) is accurate andcomplete in all material respects. 4.15 Environmental Matters. Neither any of the Credit Parties nor any oftheir respective Facilities or operations are subject to any outstanding writtenorder, consent decree or settlement agreement with any Person relating to anyEnvironmental Law, any Environmental 75 Claim, or any Hazardous Materials Activity that, individually or in theaggregate, could reasonably be expected to have a Material Adverse Effect. Noneof the Credit Parties has received any letter or request for information underSection 104 of the Comprehensive Environmental Response, Compensation, andLiability Act (42 U.S.C. (S) 9604) or any comparable state law. There are and,to each of the Credit Parties' knowledge, have been, no conditions, occurrences,or Hazardous Materials Activities which could reasonably be expected to form thebasis of an Environmental Claim against any of the Credit Parties that,individually or in the aggregate, could reasonably be expected to have aMaterial Adverse Effect. Neither any of the Credit Parties nor, to any CreditParty's knowledge, any predecessor of any of the Credit Parties has filed anynotice under any Environmental Law indicating past or present treatment ofHazardous Materials at any Facility, and none of the Credit Parties' operationsinvolves the generation, transportation, treatment, storage or disposal ofhazardous waste, as defined under 40 C.F.R. Parts 260270 or any stateequivalent. Compliance with all current or reasonably foreseeable futurerequirements pursuant to or under Environmental Laws could not be reasonablyexpected to have, individually or in the aggregate, a Material Adverse Effect.No event or condition has occurred or is occurring with respect to any of theCredit Parties or their respective Facilities relating to any Environmental Law,any Release of Hazardous Materials, or any Hazardous Materials Activity whichindividually or in the aggregate has had, or could reasonably be expected tohave, a Material Adverse Effect. 4.16 No Defaults. None of the Credit Parties is in default in theperformance, observance or fulfillment of any of the obligations, covenants orconditions contained in any of its Contractual Obligations, and no conditionexists which, with the giving of notice or the lapse of time or both, couldconstitute such a default, except where the consequences, direct or indirect, ofsuch default or defaults, if any, could not reasonably be expected to have aMaterial Adverse Effect. 4.17 Material Contracts. (a)Schedule 4.17(a) contains a true, correct andcomplete list of all the Material Contracts in effect on the Closing Date, andexcept as described thereon, all such Material Contracts are in full force andeffect and no material defaults currently exist thereunder or under any leasegoverning Leasehold Property. (b) Each Credit Party owns or possesses all the patents, trademarks,service marks, trade names, copyrights and licenses, and all rights with respectto the foregoing, necessary for the conduct of its business as presentlyconducted without any known conflict with the rights of others. Schedule4.17(b) accurately and completely lists all Intellectual Property owned orpossessed by or licensed to such Credit Party. 4.18 Governmental Regulation. None of the Credit Parties is subject toregulation under the Public Utility Holding Company Act of 1935, the FederalPower Act or the Investment Company Act of 1940 or under any other federal orstate statute or regulation which may limit its ability to incur Indebtedness orwhich may otherwise render all or any portion of the Obligations unenforceable.None of the Credit Parties is a "registered investment company" or a company"controlled" by a "registered investment company" or a "principal underwriter"of a "registered investment company" as such terms are defined in the InvestmentCompany Act of 1940. 76 4.19 Margin Stock. None of the Credit Parties is engaged principally, oras one of its important activities, in the business of extending credit for thepurpose of purchasing or carrying any Margin Stock. No part of the proceeds ofthe Loans made to such Credit Party will be used to purchase or carry any suchmargin stock or to extend credit to others for the purpose of purchasing orcarrying any such margin stock or for any purpose that violates, or isinconsistent with, the provisions of Regulation T, U or X of the Board ofGovernors of the Federal Reserve System. 4.20 Employee Matters. None of the Credit Parties is engaged in any unfairlabor practice that could reasonably be expected to have a Material AdverseEffect. There is (a) no unfair labor practice complaint pending against any ofthe Credit Parties, or to the best knowledge of the Credit Parties, threatenedagainst any of them before the National Labor Relations Board and no grievanceor arbitration proceeding arising out of or under any collective bargainingagreement that is so pending against any of the Credit Parties or to the bestknowledge of the Credit Parties, threatened against any of them, (b) no strikeor work stoppage in existence or threatened involving any of the Credit Partiesthat could reasonably be expected to have a Material Adverse Effect, and (c) tothe best knowledge of the Credit Parties, no union representation questionexisting with respect to the employees of any of the Credit Parties and, to thebest knowledge of the Credit Parties, no union organization activity that istaking place, except (with respect to any matter specified in clause (a), (b) or(c) above, either individually or in the aggregate) such as is not reasonablylikely to have a Material Adverse Effect. 4.21 Employee Benefit Plans. Each of the Credit Parties and each of theirrespective ERISA Affiliates are in compliance with all applicable provisions andrequirements of ERISA and the Internal Revenue Code and the regulations andpublished interpretations thereunder with respect to each Employee Benefit Plan,and have performed all their obligations under each Employee Benefit Plan. EachEmployee Benefit Plan which is intended to qualify under Section 401(a) of theInternal Revenue Code is so qualified. No material liability to the PBGC (otherthan required premium payments), the Internal Revenue Service, any EmployeeBenefit Plan or any Trust established under Title IV of ERISA has been or isexpected to be incurred by any of the Credit Parties or any of their ERISAAffiliates. No ERISA Event has occurred or is reasonably expected to occur.Except to the extent required under Section 4980B of the Internal Revenue Codeor similar state laws, no Employee Benefit Plan provides health or welfarebenefits (through the purchase of insurance or otherwise) for any retired orformer employee of any of the Credit Parties or any of their respective ERISAAffiliates. As of the most recent valuation date for any Pension Plan, theamount of unfunded benefit liabilities (as defined in Section 4001(a)(18) ofERISA), individually or in the aggregate for all Pension Plans (excluding forpurposes of such computation any Pension Plans with respect to which assetsexceed benefit liabilities), does not exceed $500,000. As of the most recentvaluation date for each Multiemployer Plan for which the actuarial report isavailable, the potential liability of the Credit Parties and their respectiveERISA Affiliates for a complete withdrawal from such Multiemployer Plan (withinthe meaning of Section 4203 of ERISA), when aggregated with such potentialliability for a complete withdrawal from all Multiemployer Plans, based oninformation available pursuant to Section 4221(e) of ERISA, does not exceed$1,500,000. Each of the Credit Parties and each of their ERISA Affiliates havecomplied with the requirements of Section 515 of ERISA with respect to eachMultiemployer Plan and are not in material "default" (as defined in Section4219(c)(5) of ERISA) with respect to payments to a Multiemployer Plan. 77 4.22 Solvency. Each Credit Party is and, upon the incurrence of anyObligation by such Credit Party on any date on which this representation andwarranty is made, will be, Solvent. 4.23 Compliance with Statutes, etc. Each of the Credit Parties is incompliance with all applicable statutes, regulations and orders of, and allapplicable restrictions imposed by, all Governmental Authorities, in respect ofthe conduct of its business and the ownership of its property (includingcompliance with all applicable Environmental Laws with respect to any RealEstate Asset or governing its business and the requirements of any permitsissued under such Environmental Laws with respect to any such Real Estate Assetor the operations of Company or any of its Subsidiaries), except suchnoncompliance that, individually or in the aggregate, could not reasonably beexpected to result in a Material Adverse Effect. 4.24 Disclosure. No representation or warranty of any Credit Partycontained in any Credit Document or, except as set forth on Schedule 4.24, inany other documents, certificates or written statements furnished to Lenders byor on behalf of any Credit Party for use in connection with the transactionscontemplated hereby contains any untrue statement of a material fact or omits tostate a material fact (known to each Credit Party, in the case of any documentnot furnished by any of them) necessary in order to make the statementscontained herein or therein not misleading in light of the circumstances inwhich the same were made. Any projections and pro forma financial informationcontained in such materials are based upon good faith estimates and assumptionsbelieved by each Credit Party to be reasonable at the time made, it beingrecognized by Lenders that such projections as to future events are not to beviewed as facts and that actual results during the period or periods covered byany such projections may differ from the projected results. There are no factsknown (or which should upon the reasonable exercise of diligence be known) toany Credit Party (other than matters of a general economic nature) that,individually or in the aggregate, could reasonably be expected to result in aMaterial Adverse Effect and that have not been disclosed herein or in such otherdocuments, certificates and statements furnished to Lenders for use inconnection with the transactions contemplated hereby.SECTION 5 AFFIRMATIVE COVENANTS Each Credit Party covenants and agrees that so long as any Commitment is ineffect and until payment in full of all Obligations and cancellation orexpiration of all Letters of Credit, each Credit Party shall perform, and shallcause each of its Subsidiaries to perform, all covenants in this Section 5. 5.1 Financial Statements and Other Reports. Company will deliver toAdministrative Agent and Lenders: (a) Monthly Reports. As soon as available, and in any event within --------------- fortyfive (45) days after the end of each month ending after the Closing Date,the consolidated balance sheet of Company and its Restricted Subsidiaries as atthe end of such month and the related consolidated statements of income and cashflows of Company and its Restricted Subsidiaries together with other statisticaloperating data for such month, setting forth in each case in comparative formreasonably acceptable to the Joint Lead Arrangers the corresponding figures forthe corresponding periods of the previous Fiscal Year and the correspondingfigures from the 78 Financial Plan for the current Fiscal Year, all in reasonable detail, togetherwith a Financial Officer Certification with respect thereto; (b) Quarterly Financial Statements. As soon as available, and in any ------------------------------ event within fortyfive (45) days after the end of each Fiscal Quarter of eachFiscal Year, (i) the consolidated and consolidating balance sheet of Company andits Restricted Subsidiaries as at the end of such Fiscal Quarter and the relatedconsolidated (and with respect to statements of income, consolidating)statements of income and cash flows of Company and its Restricted Subsidiariesfor such Fiscal Quarter, setting forth in each case in comparative formreasonably acceptable to the Joint Lead Arrangers the corresponding figures forthe corresponding periods of the previous Fiscal Year and the correspondingfigures from the Financial Plan for the current Fiscal Year and the ClosingFinancial Plan, and (ii) a schedule setting forth the A/R Sublimit as of thelast day of such Fiscal Quarter all in reasonable detail, together with (1) aFinancial Officer Certification, (2) a supplement, reasonably acceptable to theJoint Lead Arrangers, to the publicly filed Narrative Report discussingadditional material information pertaining specifically to the financialstatements listed in clause (i) as distinguished from the analogous publiclyfiled financial statements of the Company and its Subsidiaries and (3) revisedSchedules 4.1 and 4.2 (if necessary) reflecting all changes in theorganizational structure and capital structure of Company and its RestrictedSubsidiaries since the delivery of the last quarterly financial information,which revised Schedules 4.1 and 4.2 will be deemed to amend the thenexistingSchedules 4.1 and 4.2 for all purposes under this Agreement; (c) Annual Financial Statements. As soon as available, and in any --------------------------- event within ninety (90) days after the end of each Fiscal Year, (i) theconsolidated and consolidating balance sheet of Company and its RestrictedSubsidiaries as at the end of such Fiscal Year and the related consolidated (andwith respect to statements of income, consolidating) statements of income,stockholders' equity and cash flows of Company and its Restricted Subsidiariesfor such Fiscal Year, setting forth in each case in comparative form thecorresponding figures for the previous Fiscal Year and the corresponding figuresfrom the Financial Plan for the Fiscal Year covered by such financial statementsand the Closing Financial Plan, in reasonable detail, together with a FinancialOfficer Certification and a Narrative Report with respect thereto; (ii) withrespect to each consolidated financial statements a report thereon ofPricewaterhouseCoopers LLP or other independent certified public accountants ofrecognized national standing selected by Company, and reasonably satisfactory toAdministrative Agent (which report shall be unqualified as to going concern andscope of audit, and shall state that such consolidated financial statementsfairly present, in all material respects, the consolidated financial position ofCompany and its Restricted Subsidiaries, as at the dates indicated and theresults of their operations and their cash flows for the periods indicated inconformity with GAAP applied on a basis consistent with prior years (except asotherwise disclosed in such financial statements) and that the examination bysuch accountants in connection with such consolidated financial statements hasbeen made in accordance with generally accepted auditing standards) togetherwith a written statement by such independent certified public accountantsstating that their audit examination has included a review of the terms ofSections 6.6 and 6.7 the Credit Documents, whether, in connection therewith,any condition or event that constitutes a Default or an Event of Default underSection 6.6 or 6.7 has come to their attention and, if such a condition or eventhas come to their attention, specifying the nature and period of existencethereof, and that nothing has come to their attention that causes them tobelieve that the 79 information contained in any Compliance Certificate is not correct or that thematters set forth in such Compliance Certificate are not stated in accordancewith the terms hereof and (iii) revised Schedules 4.1 and 4.2 (if necessary)reflecting all changes in the organizational structure and capital structure ofCompany and its Restricted Subsidiaries since the delivery of the last quarterlyfinancial information, which revised Schedules 4.1 and 4.2 will be deemed toamend the then existing Schedules 4.1 and 4.2 for all purposes under thisAgreement; (d) Compliance Certificate. Together with each delivery of financial ---------------------- statements of Company and its Restricted Subsidiaries pursuant to Sections5.1(b) and 5.1(c), a completed Compliance Certificate duly executed by anAuthorized Officer; (e) Borrowing Base Certificate. (i) On the Closing Date, (ii) within -------------------------- fortyfive (45) days after the end of each Fiscal Quarter, (iii) concurrentlywith each Notice of Borrowing and (iv) concurrently with any prepayment pursuantto Section 2.12(e), a duly executed and completed certificate of an AuthorizedOfficer ("Borrowing Base Certificate") in substantially the form of Exhibit Msetting forth the Borrowing Base as of the Closing Date, the last day of eachFiscal Quarter, the date of such Notice of Borrowing, or other date as may bereasonably requested by Administrative Agent, Syndication Agent or CollateralAgent, each such Certificate to be certified as complete and correct on behalfof Company by an Authorized Officer of Company, together with such supportingdocumentation and additional reports with respect to the Borrowing Base asAdministrative Agent shall reasonably request; (f) Statements of Reconciliation after Change in Accounting -------------------------------------------------------Principles. If, as a result of any change in accounting principles and policiesfrom those used in the preparation of the Historical Financial Statements, theconsolidated financial statements of Company and its Restricted Subsidiariesdelivered pursuant to Section 5.1(b) or 5.1(c) will differ in any materialrespect from the consolidated financial statements that would have beendelivered pursuant to such subdivisions had no such change in accountingprinciples and policies been made, then, together with the first delivery ofsuch financial statements after such change, one or more a statements ofreconciliation for all such prior financial statements in form and substancesatisfactory to Administrative Agent; (g) SEC Reports. Promptly upon their becoming available, copies of ----------- (i) all financial statements, reports, notices and proxy statements sent or madeavailable generally by Company to its security holders acting in such capacityor by any Subsidiary of Company to its security holders other than Company oranother Subsidiary of Company, (ii) all regular and periodic reports (but notincluding, unless requested by Administrative Agent, routine reports regularlyfiled with the FCC and state commissions with jurisdiction overtelecommunications matters) and all registration statements (other than on FormS8 or a similar form) and prospectuses, if any, filed by Company or any of itsRestricted Subsidiaries with any securities exchange or with the Securities andExchange Commission or any governmental or private regulatory authority, and(iii) all press releases and other statements made available generally byCompany or any of its Restricted Subsidiaries to the public concerning materialdevelopments in the business of Company or any of its Restricted Subsidiaries; (h) Notice of Default. Promptly upon any officer of Company obtaining ----------------- knowledge (i) of any condition or event that constitutes a Default or an Eventof Default or that 80 notice has been given to Company with respect thereto; (ii) that any Person hasgiven any notice to Company or any of its Subsidiaries or taken any other actionwith respect to any event or condition set forth in Section 8.1(b); (iii) of anycondition or event of a type required to be disclosed in a current report onForm 8K of the Securities and Exchange Commission; or (iv) of the occurrence ofany event or change that has caused or evidences, either in any case or in theaggregate, a Material Adverse Effect, a certificate of its Authorized Officersspecifying the nature and period of existence of such condition, event orchange, or specifying the notice given and action taken by any such Person andthe nature of such claimed Event of Default, Default, default, event orcondition, and what action Company has taken, is taking and proposes to takewith respect thereto; (i) Notice of Litigation. Promptly upon any officer of Company --------------------obtaining knowledge of the institution of, or nonfrivolous threat of, anyAdverse Proceeding not previously disclosed in writing by Company to Lenders, orany material development in any Adverse Proceeding that, in the case of either(i) or (ii) if adversely determined, could be reasonably expected to have aMaterial Adverse Effect, or seeks to enjoin or otherwise prevent theconsummation of, or to recover any damages or obtain relief as a result of, thetransactions contemplated hereby or any of the other Credit Documents, writtennotice thereof together with such other information as may be reasonablyavailable to Company to enable Lenders and their counsel to evaluate suchmatters; (j) ERISA. Promptly upon becoming aware of the occurrence of or ----- forthcoming occurrence of any ERISA Event, a written notice specifying thenature thereof, what action Company, any of its Restricted Subsidiaries or anyof their respective ERISA Affiliates has taken, is taking or proposes to takewith respect thereto and, when known, any action taken or threatened by theInternal Revenue Service, the Department of Labor or the PBGC with respectthereto; and with reasonable promptness, copies of each Schedule B (ActuarialInformation) to the annual report (Form 5500 Series) filed by Company, any ofits Restricted Subsidiaries or any of their respective ERISA Affiliates with theInternal Revenue Service with respect to each Pension Plan; all noticesreceived by Company, any of its Restricted Subsidiaries or any of theirrespective ERISA Affiliates from a Multiemployer Plan sponsor concerning anERISA Event; and copies of such other documents or governmental reports orfilings relating to any Employee Benefit Plan as Administrative Agent shallreasonably request; (k) Financial Plan. As soon as available and in any event no later -------------- than sixty (60) days following the beginning of each Fiscal Year, a consolidatedplan and financial forecast for such Fiscal Year and the lesser of the nextthree (3) succeeding Fiscal Years and the period remaining through December 15,2005 (a "Financial Plan"), including a forecasted consolidated balance sheetand forecasted consolidated statements of income and cash flows of Company andits Restricted Subsidiaries for each such Fiscal Year, together with pro formaCompliance Certificates for each such Fiscal Year and an explanation of theassumptions on which such forecasts are based and forecasted consolidatedstatements of income and cash flows of Company and its Restricted Subsidiariesfor each month of each such Fiscal Year, together with an explanation of theassumptions on which such forecasts are based; (l) Insurance Report. As soon as practicable and in any event by the ---------------- last day of each Fiscal Year, commencing on December 31, 2001, a report in formand substance 81 satisfactory to Administrative Agent and Collateral Agent outlining all materialinsurance coverage maintained as of the date of such report by Company and itsRestricted Subsidiaries and all material insurance coverage planned to bemaintained by Company and its Restricted Subsidiaries in the immediatelysucceeding Fiscal Year; (m) Notice of Change in Board of Directors. With reasonable -------------------------------------- promptness, written notice of any change in the board of directors (or similargoverning body) of Company or OpCo; (n) Annual UCC Questionnaire. By the last day of each Fiscal Year, ------------------------ commencing on December 31, 2001, a completed UCC Questionnaire in form andsubstance satisfactory to Collateral Agent; (o) Notice Regarding Material Contracts. Promptly, and in any event ----------------------------------- within ten (10) Business Days (i) after any Material Contract of Company or anyof its Restricted Subsidiaries is terminated prior to its scheduled term oramended in a manner that is materially adverse to Company or such RestrictedSubsidiary, as the case may be, or (ii) any new Material Contract is enteredinto, a written statement describing such event, with copies of such materialamendments or new contracts, delivered to Administrative Agent (to the extent(1) such information is not disclosed or incorporated by reference in any filingwith the Securities and Exchange Commission, and (2) such delivery is permittedby the terms of any such Material Contract, provided, no such prohibition ondelivery shall be effective if it were bargained for by Company or itsapplicable Restricted Subsidiary with the intent of avoiding compliance withthis Section 5.1(o)), and an explanation of any actions being taken with respectthereto; (p) Environmental Reports and Audits. As soon as practicable -------------------------------- following receipt thereof, copies of all environmental audits and reports withrespect to environmental matters at any Facility or which relate to anyenvironmental liabilities of Company or its Restricted Subsidiaries which, inany such case, individually or in the aggregate, could reasonably be expected toresult in a Material Adverse Effect; (q) Other Information. With reasonable promptness, such other ----------------- information and data with respect to Company or any of its Subsidiaries as fromtime to time may be reasonably requested by Administrative Agent, SyndicationAgent, Collateral Agent or any Lender. 5.2 Existence. Except as otherwise permitted under Section 6.9, eachCredit Party will, and will cause each of its Restricted Subsidiaries to, at alltimes preserve and keep in full force and effect its existence and all rightsand franchises, licenses and permits material to its business; provided, no -------- Credit Party or any of its Restricted Subsidiaries shall be required to preserveany such existence, right or franchise, licenses and permits if such Person'sboard of directors (or similar governing body) shall determine in good faiththat the preservation thereof is no longer desirable in the conduct of thebusiness of such Person, and that the loss thereof is not disadvantageous in anymaterial respect to such Person or to Lenders. 5.3 Payment of Taxes and Claims. Each Credit Party will, and will causeeach of its Subsidiaries to, pay all Taxes imposed upon it or any of itsproperties or assets or in respect of 82 any of its income, businesses or franchises before any penalty or fine accruesthereon, and all claims (including claims for labor, services, materials andsupplies) for sums that have become due and payable and that by law have or maybecome a Lien upon any of its properties or assets, prior to the time when anypenalty or fine shall be incurred with respect thereto; provided, no such Tax or -------- claim need be paid if it is being contested in good faith by appropriateproceedings promptly instituted and diligently conducted, so long as adequatereserve or other appropriate provision, as shall be required in conformity withGAAP shall have been made therefor, and in the case of a charge or claim whichhas or may become a Lien against any of the Collateral, such contest proceedingsconclusively operate to stay the sale of any portion of the Collateral tosatisfy such Tax or claim. No Credit Party will, nor will it permit any of itsSubsidiaries to, file or consent to the filing of any consolidated income Taxreturn with any Person (other than Company or any of its Subsidiaries). 5.4 Maintenance of Properties. Each Credit Party will, and will causeeach of its Subsidiaries to, maintain or cause to be maintained in good repair,working order and condition, ordinary wear and tear excepted, all materialproperties used or useful in the business of any Credit Party and from time totime will make or cause to be made all appropriate repairs, renewals andreplacements thereof, and each Credit Party shall defend any Collateral againstall Persons at any time claiming an interest therein. 5.5 Insurance. Company will maintain or cause to be maintained, withfinancially sound and reputable insurers, such comprehensive general liabilityinsurance, third party property damage insurance, business interruptioninsurance, workers' compensation and employer's liability insurance and casualtyinsurance with respect to liabilities, losses or damage in respect of theassets, properties and businesses of Company and its Restricted Subsidiaries asmay be satisfactory to the Collateral Agent, but in any event not less than asshown on Schedule 5.5 hereto and made a part hereof, and in each case in suchamounts (giving effect to self-insurance in amounts acceptable to the CollateralAgent), with such deductibles and limits, covering such risks and otherwise onsuch terms and conditions as shall be acceptable to the Collateral Agent.Without limiting the generality of the foregoing, Company will maintain or causeto be maintained: (a) flood insurance with respect to each Flood HazardProperty that is located in a community that participates in the National FloodInsurance Program, in each case in compliance with any applicable regulations ofthe Board of Governors of the Federal Reserve System, (b) insurance with respectto property owned by third parties and maintained at IBX Facilities with suchinsurance companies, in such amounts, with such deductibles, and covering suchrisks as are acceptable to the Collateral Agent, Administrative Agent andSyndication Agent and (c) replacement value casualty insurance on an all-risksbasis on the Collateral under such policies of insurance, with such insurancecompanies, in such amounts, with such deductibles, and covering such risks andotherwise on such terms and conditions as are acceptable to the CollateralAgent; (d) with respect to each policy of insurance, a waiver of subrogation infavor of the Collateral Agent and the Lenders; and (e) policies of insurancethat (i) insure the interests of the Collateral Agent and the Lenders and theirrespective Affiliates regardless of any breach of or violation by any CreditParty of any warranties, declarations or conditions contained therein, (ii)contain cross liability clauses, (iii) provide that the insurance shall beprimary and without right of contribution from any other insurance which may beavailable to any of the Collateral Agent or Lenders, (iv) provide that theCollateral Agent and the Lenders have no responsibility, obligation or liabilityfor premiums, commissions, assessments or calls in connection with such 83 insurance. Each such policy of liability insurance shall name each of theCollateral Agent and the Lenders and their respective Affiliates, as additionalinsureds thereunder and in the case of each business interruption and casualtyinsurance policy, contain a standard lender's loss payable clause orendorsement, satisfactory in form and substance to Collateral Agent, that namesCollateral Agent, on behalf of Lenders, as the loss payee thereunder for anycovered loss in excess of $500,000. Each such policy of insurance shall providefor at least thirty (30) days' prior written notice to Collateral Agent of anyreduction of coverage or cancellation of such policy. On the Closing Date andwithin thirty (30) days prior to each anniversary of the policies of insurancerequired to be maintained pursuant to this Section 5.5, the Borrower shalldeliver or cause to be delivered to the Collateral Agent (which shall promptlyfurnish a copy thereof to each of the Lenders) an insurance broker's opinionletter from the Borrowers' independent insurance agent confirming that theinsurance premiums with respect to the policies of insurance required to bemaintained pursuant to this Section 5.5 have been paid, that such policies arein full force and effect, and that such policies meet the insurance requirementsset forth in this Section 5.5. The Borrower shall also furnish or cause to befurnished to the Collateral Agent (which shall promptly furnish a copy or copiesthereof to each of the Lenders) a certificate or certificates of insurance (i)evidencing that all the coverages required to be maintained pursuant to thisSection 5.5 have been renewed and continue to be in full force and effect forsuch period as shall be then stipulated, (ii) specifying the insurers with whomthe insurances are carried and (iii) containing such other certifications andundertakings as are customarily provided to Lenders, as reasonably requested bythe Collateral Agent or any Lender. 5.6 Books and Records; Inspections; Lenders Meetings. Each Credit Partywill, and will cause each of its Restricted Subsidiaries and the San JoseSubsidiary to, keep proper books of record and account in which full, true andcorrect entries are made of all dealings and transactions in relation to itsbusiness and activities. Each Credit Party will, and will cause each of itsSubsidiaries to, permit any authorized representatives designated by any Lender(or, after the occurrence and during the continuance of any Event of Default,any Lender) to visit and inspect any of the facilities of any Credit Party andany of its respective Subsidiaries, to inspect, copy and take extracts from itsand their financial and accounting records, and to discuss its and theiraffairs, finances and accounts with its and their officers and independentpublic accountants, all upon reasonable notice and at such reasonable timesduring normal business hours and as often as may reasonably be requested.Company will, upon the request of Administrative Agent or Requisite Lenders,participate in a meeting of Agents and Lenders once during each Fiscal Year tobe held at Company's corporate offices (or at such other location as may beagreed to by Company and Administrative Agent) at such time as may be agreed toby Company and Administrative Agent. 5.7 Compliance with Laws. Each Credit Party will comply, and shall causeeach of its Subsidiaries and all other Persons, if any, on or occupying anyFacility to comply, with the requirements of all applicable laws, rules,regulations and orders of any Governmental Authority (including allEnvironmental Laws), noncompliance with which could reasonably be expected tohave, individually or in the aggregate, a Material Adverse Effect. 5.8 Environmental. 84 (a) Environmental Disclosure. Company will deliver to Administrative ------------------------ Agent and Lenders: (i) as soon as practicable following receipt thereof, copies of all environmental audits, investigations, analyses and reports of any kind or character, whether prepared by personnel of Company or any of its Subsidiaries or any Unrestricted Subsidiaries or by independent consultants, Governmental Authorities or any other Persons, with respect to significant environmental matters at any Facility or with respect to any Environmental Claims; (ii) promptly upon the occurrence thereof, written notice describing in reasonable detail (A) any Release required to be reported to any federal, state or local governmental or regulatory agency under any applicable Environmental Laws and any remedial action taken by Company or any other Person in response thereto, (B) any Hazardous Materials Activities the existence of which has a reasonable possibility of resulting in one or more Environmental Claims having, individually or in the aggregate, a Material Adverse Effect, (C) any Environmental Claims that, individually or in the aggregate, have a reasonable possibility of resulting in a Material Adverse Effect, and (D) Company's discovery of any occurrence or condition on any real property adjoining or in the vicinity of any Facility that could cause such Facility or any part thereof to be subject to any material restrictions on the ownership, occupancy, transferability or use thereof under any Environmental Laws; (iii) as soon as practicable following the sending or receipt thereof by Company or any of its Subsidiaries or any Unrestricted Subsidiaries, a copy of any and all written communications with respect to (A) any Environmental Claims that, individually or in the aggregate, have a reasonable possibility of giving rise to a Material Adverse Effect, (B) any Release required to be reported to any federal, state or local governmental or regulatory agency, and (C) any request for information from any governmental agency that suggests such agency is investigating whether Company or any of its Subsidiaries or any Unrestricted Subsidiaries may be potentially responsible for any Hazardous Materials Activity; (iv) prompt written notice describing in reasonable detail (A) any proposed acquisition of stock, assets, or property by Company or any of its Subsidiaries or any Unrestricted Subsidiaries that could reasonably be expected to (i) expose Company or any of its Subsidiaries to, or result in, Environmental Claims that could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect or (ii) affect the ability of Company or any of its Subsidiaries or any Unrestricted Subsidiaries to maintain in full force and effect all material Governmental Authorizations required under any Environmental Laws for their respective operations and (B) any proposed action to be taken by Company or any of its Subsidiaries or any Unrestricted Subsidiaries to modify current operations in a manner that could reasonably be expected to subject Company or any of its Subsidiaries or any Unrestricted Subsidiaries to any additional material obligations or requirements under any Environmental Laws; and 85 (v) with reasonable promptness, such other documents and information as from time to time may be reasonably requested by Administrative Agent or Collateral Agent in relation to any matters disclosed pursuant to this Section 5.8(a). (b) Hazardous Materials Activities, Etc. Each Credit Party shall ----------------------------------- promptly take, and shall cause each of its Subsidiaries or any UnrestrictedSubsidiaries promptly to take, any and all actions necessary to cure anyviolation of applicable Environmental Laws by such Credit Party or itsSubsidiaries or any Unrestricted Subsidiaries that could reasonably be expectedto have, individually or in the aggregate, a Material Adverse Effect, and makean appropriate response to any Environmental Claim against such Credit Party orany of its Subsidiaries or any Unrestricted Subsidiaries and discharge anyobligations it may have to any Person thereunder where failure to do so couldreasonably be expected to have, individually or in the aggregate, a MaterialAdverse Effect. 5.9 Subsidiaries. In the event that, after the Closing Date, any Personbecomes a Restricted Subsidiary of Company or a first tier Foreign Subsidiary,Company shall promptly (i) deliver, or cause to be delivered to Collateral Agentcertificates (accompanied by irrevocable undated stock powers, duly endorsed inblank and otherwise satisfactory in form and substance to Collateral Agent)representing the Capital Stock of such Subsidiary, which shall be pledgedpursuant to the Pledge and Security Agreement and deliver, or cause to bedelivered, to Collateral Agent such other additional agreements or instruments,each in form and substance, as may be necessary or desirable to create in favorof Collateral Agent, for the benefit of the Secured Parties, a valid andperfected First Priority security interest in all of the Capital Stock of suchSubsidiary (65% in the case of a Foreign Subsidiary), (ii) cause each suchDomestic Subsidiary to become a Guarantor hereunder and a Grantor under thePledge and Security Agreement by executing and delivering to AdministrativeAgent and Collateral Agent a Counterpart Agreement duly executed by anAuthorized Officer of such Domestic Subsidiary, and (iii) take all such actionsand execute and deliver, or cause to be executed and delivered, all suchdocuments, instruments, agreements, and certificates similar to those describedin Sections 3.1(b), 3.1(f), 3.1(g) and 3.1(k). With respect to each suchSubsidiary, Company shall promptly send to Administrative Agent and CollateralAgent written notice setting forth with respect to such Person (i) the date onwhich such Person became a Subsidiary of Company, and (ii) all of the datarequired to be set forth in Schedule 4.1 with respect to all Subsidiaries ofCompany, and such written notice shall be deemed to supplement Schedule 4.1 forall purposes hereof. 5.10 Post Closing Covenants With Respect to Real Estate Assets. (a)Otherthan in respect to the San Jose Ground Lease, in the event that any Credit Partyacquires a Material Real Estate Asset or a Real Estate Asset owned on theClosing Date becomes a Material Real Estate Asset and such interest has nototherwise been made subject to the Lien of the Collateral Documents in favor ofCollateral Agent, for the benefit of Secured Parties, then such Credit Party,contemporaneously with acquiring such Material Real Estate Asset or (other thanSan Jose Ground Lease) with such real estate asset becoming a Material RealEstate Asset, shall take all such actions and execute and deliver, or cause tobe executed and delivered, all such mortgages, documents, instruments,agreements, opinions and certificates similar to those described in Sections3.1(f), 3.1(g), 3.1(h) and 3.1(k) with respect to each such Material Real EstateAsset that Administrative Agent shall reasonably request to create in favor ofCollateral Agent, for the 86 benefit of Secured Parties, a valid and, subject to any filing and/or recordingreferred to herein, perfected First Priority security interest in such MaterialReal Estate Assets and the personal property located thereon. (b) Company and its Subsidiaries shall at all times with respect toLeasehold Properties which are not Material Real Estate Assets, use reasonablecommercial efforts to comply with Section 5.10 as though such LeaseholdProperties were Material Real Estate Assets. (c) In addition to the foregoing, Company and its RestrictedSubsidiaries shall, at the request of Requisite Lenders, deliver, from time totime, to Administrative Agent such appraisals as are required by law orregulation of Real Estate Assets with respect to which Collateral Agent has beengranted a Lien, such best efforts to include, where possible, best efforts toobtain a Landlord Agreement with the exception of paragraphs 4, 5 and 7 ofExhibit K where a landlord refuses to consent to a leasehold mortgage. 5.11 Interest Rate Protection. No later than ninety (90) days followingthe Closing Date and at all times thereafter, Company shall maintain, or causedto be maintained, in effect one or more Interest Rate Agreements for a term ofnot less than three years and otherwise in form and substance reasonablysatisfactory to Administrative Agent and Syndication Agent, which Interest RateAgreements shall at all times effectively limit the amount of Indebtedness ofthe Company and its Restricted Subsidiaries bearing interest at a floating rateto no more than 50% of the aggregate principal amount of Consolidated Total Debtoutstanding as of any date of determination. 5.12 Post Closing Covenants With Respect to Permitted Equipment FinancingCollateral. Upon termination of all outstanding obligations of the Companyunder any Permitted Equipment Financing, Company, contemporaneously with therepayment of such outstanding obligations, shall (i) terminate any and all Liensgranted in connection with such Permitted Equipment Financing, (ii) be deemed tohave granted to Collateral Agent, for the benefit of Secured Parties, a validsecurity interest and continuing lien on all of Company's right, title andinterest in, to and under such Collateral, (iii) grant to the Collateral Agent,for the benefit of Secured Parties, a security interest and continuing lien onall of Company's right, title and interest in, to and under such Collateral, byexecuting and delivering to the Collateral Agent a Confirmation of Grant,substantially in the form of Exhibit N attached hereto, and (iv) deliver toCollateral Agent duly executed UCC financing statements and all otherinstruments, notices, releases or certificates as Collateral Agent mayreasonably request from time to time. 5.13 Further Assurances. At any time or from time to time upon the requestof Administrative Agent, each Credit Party will, at its expense, promptlyexecute, acknowledge and deliver such further documents and do such other actsand things as Administrative Agent, Syndication Agent or Collateral Agent mayreasonably request in order to effect fully the purposes of the CreditDocuments. In furtherance and not in limitation of the foregoing, each CreditParty shall take such actions as Administrative Agent, Syndication Agent orCollateral Agent may reasonably request from time to time (including, withoutlimitation, the execution and delivery of guaranties, security agreements,pledge agreements, mortgages, deeds of trust, landlord's consents and estoppels,control agreements, stock powers, financing statements and other documents, thefiling or recording of any of the foregoing, title insurance with respect to 87 any of the foregoing that relates to any Real Estate Asset, and the delivery ofstock certificates and other collateral with respect to which perfection isobtained by possession) to ensure that the Obligations are guarantied by theGuarantors and are secured by substantially all of the assets of Company, andits Restricted Subsidiaries and all of the outstanding Capital Stock ofCompany's Subsidiaries (subject to limitations contained in the Credit Documentswith respect to Foreign Subsidiaries). 5.14 Maintenance of Certain Cash. Company and/or International Holdingsshall maintain Cash and/or Cash Equivalents in an aggregate amount equal to theSan Jose Incremental L/C Amount. 5.15 Notice of Default Under Lease. Upon receipt of any notice of defaultunder any lease for domestic Leasehold Property, Company shall immediatelynotify Collateral Agent thereof.SECTION 6 NEGATIVE COVENANTS Each Credit Party covenants and agrees that, so long as any Commitment isin effect and until payment in full of all Obligations and cancellation orexpiration of all Letters of Credit, such Credit Party shall perform, and shallcause each of its Subsidiaries to perform, all covenants in this Section 6. 6.1 Indebtedness. No Credit Party shall, directly or indirectly, create,incur, assume or guaranty, or otherwise become or remain directly or indirectlyliable with respect to any Indebtedness, except: ------ (a) the Obligations, including any Indebtedness under any HedgeAgreement with any Lender Counterparty; (b) (x) Indebtedness (i) of OpCo or any Restricted Subsidiary toCompany or to OpCo or any other Restricted Subsidiary of Company that is aDomestic Subsidiary, or (ii) for so long as no Event of Default has occurred andis continuing under Section 8.1(a) of this Agreement, of Company to OpCo or anyRestricted Subsidiary (and if Purchase Money Loans are outstanding,notwithstanding the occurrence and continuation of such Event of Default); provided that, to the extent that any proceeds used to provide such Indebtedness-------- to Company is subject to a Lien granted pursuant to the Collateral Documents,such proceeds are applied to either ordinary course operating expenses of theCompany or to service Indebtedness of Company to the extent funds for suchpurposes are not otherwise available to Company; provided, that all such -------- Indebtedness shall be evidenced by promissory notes and all such notes shall besubject to a First Priority Lien pursuant to the Pledge and Security Agreement,all such Indebtedness shall be unsecured and subordinated in right of payment tothe payment in full of the Obligations pursuant to the terms of the applicablepromissory notes or an intercompany subordination agreement that in any suchcase, is reasonably satisfactory to Administrative Agent and the CollateralAgent, and any payment by any such Guarantor Subsidiary under any guaranty ofthe Obligations shall result in a pro tanto reduction of the amount of anyIndebtedness owed by such Restricted Subsidiary to Company or to any of itsRestricted Subsidiaries for whose benefit such payment is made; provided further -------- -------that the foregoing 88 restrictions shall not apply to the extent not permitted under the Senior NoteIndenture and (y) Indebtedness of any Subsidiary of Company which is not aGuarantor Subsidiary to any other Subsidiary of Company that is not a GuarantorSubsidiary; (c) Permitted Unsecured Company Debt; provided, (i) immediately prior -------- to, and after giving effect to the incurrence of such Permitted UnsecuredCompany Debt, no Default or Event of Default shall have occurred and becontinuing or would result from such incurrence; (ii) Company and itsSubsidiaries shall be in compliance with, immediately prior to and after givingpro forma effect to the incurrence of such Indebtedness as if such Indebtednesshad been incurred at the beginning of the measurement period for the mostrecently completed Fiscal Quarter, Section 6.6, 6.7, and 6.8, as applicable; (d) Indebtedness incurred by Company or any of its RestrictedSubsidiaries arising from agreements providing for indemnification, adjustmentof purchase price or similar obligations (other than for borrowed money), orfrom guaranties or letters of credit, surety bonds or performance bonds securingthe performance of Company or any such Restricted Subsidiary pursuant to suchagreements, in connection with Permitted Acquisitions or permitted dispositionsof any business, assets or Restricted Subsidiary of Company; (e) Indebtedness which may be deemed to exist pursuant to anyguaranties, performance, surety, statutory, appeal or similar obligationsincurred in the ordinary course of business of Company and its RestrictedSubsidiaries; (f) Indebtedness in respect of netting services, overdraft protectionsand otherwise in connection with Deposit Accounts; (g) guaranties in the ordinary course of business of the obligationsof suppliers, customers, franchisees and licensees of Company and its RestrictedSubsidiaries; (h) Indebtedness described in Schedule 6.1 and refinancings andextensions of any such Indebtedness if the average life to maturity thereof isgreater than or equal to that of the Indebtedness being refinanced or extended;provided, such Indebtedness refinanced or extended (A) does not include-------- Indebtedness of an obligor that was not an obligor with respect to theIndebtedness being extended or refinanced, (B) does not exceed in principalamount the Indebtedness being extended or refinanced (except it may be increasedby an amount to cover the fees and expenses, including consent fees, placementfees and prepayment premiums, relating to such refinancing) and (C) may not beincurred, created or assumed if any Default or Event of Default has occurred andis continuing or would result therefrom; (i) Permitted Equipment Financings; (j) the Senior Notes; and (k) Indebtedness of Company with respect to (x) the retention ofliability with respect to the San Jose Ground Lease after the creation of theSan Jose Subsidiary until the occurrence of a San Jose Triggering Event and (y)Basic Upkeep and guarantees of leases contributed to Foreign Subsidiariespursuant to Section 6.4(b), provided that Company shall use its continuing -------- reasonable best efforts to obtain the release of any such guarantees. 89 6.2 Liens. No Credit Party shall, directly or indirectly, create, incur,assume or permit to exist any Lien on or with respect to any property or assetof any kind (including any document or instrument in respect of goods oraccounts receivable) of Company or any of its Restricted Subsidiaries, whethernow owned or hereafter acquired, or any income or profits therefrom, or file orpermit the filing of, or permit to remain in effect, any financing statement orother similar notice of any Lien with respect to any such property, asset,income or profits under the UCC of any State or under any similar recording ornotice statute, except: ------ (a) Liens in favor of Collateral Agent for the benefit of SecuredParties granted pursuant to any Credit Document; (b) Liens for Taxes not yet due or that are being contested in goodfaith by appropriate proceedings; provided adequate reserves with respect -------- thereto are maintained on the books of the Credit Party as may be required withGAAP; (c) statutory Liens of landlords, banks (and rights of setoff), ofcarriers, warehousemen, mechanics, repairmen, workmen and materialmen, and otherLiens imposed by law (other than any such Lien imposed pursuant to Section 401(a)(29) or 412(n) of the Internal Revenue Code or by ERISA), in each caseincurred in the ordinary course of business for amounts not yet overdue or foramounts that are overdue and that (in the case of any such amounts overdue for aperiod in excess of five days) are being contested in good faith by appropriateproceedings, so long as such reserves or other appropriate provisions, if any,as shall be required by GAAP shall have been made for any such contestedamounts; (d) Liens incurred or deposits made in the ordinary course of businessin connection with workers' compensation, unemployment insurance and other typesof social security, deposits made in the ordinary course of business withutility companies, and Liens incurred or deposits made in the ordinary course ofbusiness to secure the performance of tenders, statutory or regulatoryobligations, surety and appeal bonds, bids, leases, government contracts, tradecontracts, performance and returnofmoney bonds and other similar obligations(exclusive of obligations for the payment of borrowed money or otherIndebtedness), so long as no foreclosure, sale or similar proceedings have beencommenced with respect to any portion of the Collateral on account thereof; (e) easements, rightsofway, restrictions, encroachments, and otherminor defects or irregularities in title, in each case which do not and will notinterfere in any material respect with the ordinary conduct of the business ofCompany or any of its Subsidiaries; (f) any interest or title of a lessor or sublessor under any lease ofreal estate permitted hereunder; (g) Liens solely on any cash earnest money deposits made by Company orany of its Restricted Subsidiaries in connection with any letter of intent orpurchase agreement permitted hereunder entered into by it; (h) Purported Liens evidenced by the filing of precautionary UCCfinancing statements relating solely to operating leases of personal propertyentered into in the ordinary course of business; 90 (i) Liens in favor of customs and revenue authorities arising as amatter of law to secure payment of customs duties in connection with theimportation of goods; (j) any zoning or similar law or right reserved to or vested in anygovernmental office or agency to control or regulate the use of any realproperty; (k) licenses of patents, trademarks and other intellectual propertyrights granted by Company or any of its Subsidiaries in the ordinary course ofbusiness and not interfering in any respect with the ordinary conduct of thebusiness of Company or such Subsidiary; (l) Liens described in Schedule 6.2 or on a title report deliveredpursuant to Section 3.1(f)(iv); (m) Liens in favor of the trustee under the Senior Notes Indentureand/or the trustee or other representative of holders of Permitted UnsecuredCompany Debt with respect to Cash and/or Cash Equivalents funded solely from theproceeds received by Company from the sale of the Senior Notes or PermittedUnsecured Company Debt, as the case may be; (n) Liens consisting of judgment or judicial attachment Liens withrespect to judgments that do not constitute an Event of Default; (o) Liens securing Permitted Equipment Financings; provided, any such -------- Lien shall encumber only the assets acquired with the proceeds of such PermittedEquipment Financings. (p) Liens incurred in connection with the purchase of shipping ofgoods or assets on the related assets and proceeds thereof in favor of theseller or shipper of such goods or assets; (q) Liens on escrowed Cash representing a portion of the proceeds ofpermitted sales of assets by the Company or a Restricted Subsidiary establishedto satisfy contingent post-closing obligations that it owes (including earn-outs, indemnities and working capital adjustments). 6.3 No Further Negative Pledges. Except with respect to (i) specificproperty encumbered to secure payment of particular Indebtedness or to be soldpursuant to an executed agreement with respect to a permitted Asset Sale, and(ii) restrictions by reason of customary provisions restricting assignments,subletting or other transfers contained in leases, licenses and similaragreements entered into in the ordinary course of business (provided that suchrestrictions are limited to the property or assets secured by such Liens or theproperty or assets subject to such leases, licenses or similar agreements, asthe case may be) and (iii) restrictions on transfer with respect to CapitalStock of a second tier Unrestricted Subsidiary that a Credit Party owns, noCredit Party shall enter into any agreement prohibiting the creation orassumption of any Lien upon any of its properties or assets, whether now ownedor hereafter acquired. 6.4 Restricted Junior Payments; Restrictions on Investments inUnrestricted Subsidiaries; Restricted Rental and Upkeep Payments. (a)No CreditParty shall, directly or 91 indirectly, declare, order, pay, make or set apart any sum for any RestrictedJunior Payment except that (i) Company may make payments in an aggregate maximumamount of $1,000,000 to retire, or to obtain the surrender of, shares of itscommon equity issued to its employees, directors or consultants or anyoutstanding warrants, options or other rights to acquire shares of its commonequity issued to any such Persons and Company may acquire fractional shares ofits common equity at fair market value thereof for not in excess of $250,000 inthe aggregate, (ii) Company may make regularly scheduled payments of principaland interest (but not voluntary prepayments other than a voluntary prepaymentmade pursuant to a refinancing permitted under Section 6.1) in respect of theSenior Notes, any Permitted Unsecured Company Debt and Permitted EquipmentFinancings in accordance with the terms of, and only to the extent required by,the indenture or other agreement pursuant to which such Indebtedness was issuedand (iii) so long as no Event of Default under Section 8.01(a) has occurred andis continuing (and if Purchase Money Loans are outstanding, notwithstanding theoccurrence and continuation of such Event of Default), OpCo may makedistributions to Company; provided that, in no event shall OpCo distribute to -------- Company any assets subject to a Lien established under the Collateral Documents. (b) Neither the Company nor any Restricted Subsidiary shall, directlyor indirectly, make any guaranty on behalf of, declare, order, pay, make,transfer or set apart any sum or assets of, for or constituting any contributionof capital or assets to, or payment to or on behalf of (in each case, otherthan, so long as no Event of Default has occurred and is continuing, cashconsisting of the net cash proceeds (or assets purchased with such net cashproceeds) of issuances of Qualifying Equity), any Unrestricted Subsidiary;except that so long as no Event of Default has occurred and is continuing (i)------ Company or any Restricted Subsidiary may make payments of rent, property tax,power and maintenance commitments provided for in the Closing Financial Plan andsimilar expenses related to the basic upkeep (all such expenses listed in thisclause (i) collectively, "Basic Upkeep") of the rental property set forth onSchedule 6.4(b)(i) for so long as, with respect to each lease, no expendituresof any nature have been made for the use or development of the leased site (itbeing understood that expenditures for Basic Upkeep shall not be deemedexpenditures for such use or development); (ii) Company may contribute the SanJose Ground Lease to the San Jose Subsidiary and retain the liability and makepayments associated with the San Jose Ground Lease until the occurrence of a SanJose Triggering Event, (iii) Company or any Restricted Subsidiary may makeinvestments in Unrestricted Subsidiaries in an aggregate amount equal to$25,000,000 less the San Jose Incremental L/C Amount, (iv) Company andRestricted Subsidiaries may contribute to Foreign Subsidiaries leases withrespect to foreign operations in existence on the Closing Date and (v) Companyor any Restricted Subsidiary may make Investments permitted pursuant to Section6.5(g). 6.5 Investments. Except as provided in Section 6.4(b), neither theCompany nor any Restricted Subsidiary shall, directly or indirectly, make or ownany Investment in any Person, including without limitation any Joint Venture,except:------ (a) Cash Equivalents; (b) equity Investments owned as of the Closing Date in any Subsidiaryand equity investments made in Restricted Subsidiaries after the Closing Date; 92 (c) Investments (i) in accounts receivable arising and trade creditgranted in the ordinary course of business and in any Securities received insatisfaction or partial satisfaction thereof from financially troubled accountdebtors and (ii) deposits, prepayments and other credits to suppliers made inthe ordinary course of business consistent with the past practices of Companyand its Restricted Subsidiaries; (d) intercompany loans to the extent permitted under Section 6.1(b); (e) Consolidated Capital Expenditures permitted by Section 6.8; (f) Investments made in connection with Permitted Acquisitionspermitted pursuant to Section 6.9 and Investments in Unrestricted Subsidiariespursuant to Section 6.4(b); (g) So long as no Event of Default has occurred and is continuing,Investments by Company or a Restricted Subsidiary in other Persons in anaggregate amount not to exceed at any time, after giving effect to any proposedInvestment, $10,000,000; provided however, that the net Cash proceeds from the -------- ------- sale or other disposition permitted under Section 6.9 of any previously heldInvestment may be used by Company to make Investments subject to the limits setforth in this Section 6.5(g); (h) Other Investments to the extent made with the proceeds ofissuances of Qualifying Equity; and (i) loans made or commited before the Closing Date as set forth onSchedule 6.5(i) and loans to employees of the Company in an aggregate amount notto exceed $3,000,000 for the purchase of real estate; provided that each such -------- loan shall be secured by a first mortgage on the real estate so purchased. 6.6 Stage 1 Financial Covenants. During Stage 1: (a) Minimum Annualized Revenues. Company shall not permit Annualized --------------------------- Consolidated Revenues for any Fiscal Quarter during Stage 1, beginning December31, 2000, to be less than the correlative amount indicated as set forth onSchedule 6.6(a). (b) Maximum Cumulative Consolidated EBITDA Losses. Company shall not --------------------------------------------- permit Consolidated EBITDA losses (measured on a cumulative basis from October1, 2000) for any Fiscal Quarter during Stage 1, beginning with the FiscalQuarter ending December 31, 2000, to be greater than the correlative amountindicated as set forth on Schedule 6.6(b). (c) Consolidated Senior Secured Debt to Consolidated Total -------------------------------------------------------Capitalization. Company shall not permit the ratio of Consolidated Senior-------------- Secured Debt to Consolidated Total Capitalization at any time during Stage 1 toexceed 0.33:1.00. (d) Consolidated Total Debt to Consolidated Total Capitalization. ------------------------------------------------------------ Company shall not permit the ratio of Consolidated Total Debt to ConsolidatedTotal Capitalization at any time during Stage 1 to exceed 0.66:1.00. 6.7 Stage 2 Financial Covenants. During Stage 2: 93 (a) Senior Leverage Ratio. Company shall not permit the Senior --------------------- Leverage Ratio as of the last day of any Fiscal quarter during Stage 2 to exceedthe correlative ratio indicated as set forth on Schedule 6.7(a). (b) Total Leverage Ratio. Company shall not permit the Total Leverage -------------------- Ratio as of the last day of any Fiscal Quarter during Stage 2 to exceed thecorrelative ratio indicated as set forth on Schedule 6.7(b). (c) Interest Coverage Ratio. Company shall not permit the Interest ----------------------- Coverage Ratio as of the last day of any Fiscal Quarter during Stage 2 to beless than the correlative ratio indicated as set forth on Schedule 6.7(c). (d) Pro Forma Debt Service Coverage Ratio. Company shall not at any ------------------------------------- time during the periods set forth on Schedule 6.7(d) permit the ratio of (i)Annualized Consolidated EBITDA plus up to $15 million of available balance sheetcash (excluding restricted cash) to (ii) required consolidated pro formaamortization and principal payments and consolidated cash interest expense forthe next four consecutive quarters to be less than the correlative ratios setforth on Schedule 6.7(d).With respect to any Fiscal Quarter during which a Permitted Acquisition or anAsset Sale has occurred (each, a "Subject Transaction"), for purposes ofdetermining compliance with the financial covenants set forth in Section 6.6 andthis Section 6.7, the covenants shall be calculated with respect to such periodon a pro forma and projected basis (without giving effect to adjustments toincrease Consolidated Adjusted EBITDA to account for expected improvements inthe operations of the Permitted Acquisition unless approved in writing by theJoint Lead Arrangers and which pro forma adjustments shall be accompanied by aFinancial Officer Certification) using the historical audited financialstatements of any business so acquired or to be acquired or sold or to be soldand the consolidated financial statements of the Company and its RestrictedSubsidiaries which shall be reformulated as if such Subject Transaction, and anyIndebtedness incurred or repaid in connection therewith, had been consummated orincurred or repaid at the beginning of such Fiscal Quarter (and assuming thatsuch Indebtedness bears interest during any portion of the applicablemeasurement period prior to the relevant acquisition at the weighted average ofthe interest rates applicable to outstanding Loans incurred during such FiscalQuarter. 6.8 Maximum Cumulative Consolidated Capital Expenditures. During Stage 1and Stage 2, Company shall not and shall not permit its Restricted Subsidiariesto make or incur Consolidated Capital Expenditures, in any Fiscal Year indicatedon Schedule 6.8, in an aggregate amount for Company and its RestrictedSubsidiaries in excess of the corresponding amount set forth on Schedule 6.8;provided that, a portion, not to exceed 50% of any amount permitted to be-------- expended in a Fiscal Year but not expended during such Fiscal Year, may becarried forward and expended during the immediately succeeding Fiscal Year. 6.9 Fundamental Changes; Disposition of Assets; Acquisitions. Neither theCompany nor any Restricted Subsidiary shall, enter into any transaction ofmerger or consolidation, or liquidate, windup or dissolve itself (or suffer anyliquidation or dissolution), or convey, sell, lease or sublease (as lessor orsublessor), transfer or otherwise dispose of, in one 94 transaction or a series of transactions, all or any part of its business, assetsor property of any kind whatsoever, whether real, personal or mixed and whethertangible or intangible, whether now owned or hereafter acquired, or acquire bypurchase or otherwise (other than purchases or other acquisitions of inventory,materials and equipment in the ordinary course of business) the business,property or fixed assets of, or stock or other evidence of beneficial ownershipof, any Person or any division or line of business or other business unit of anyPerson, except: ------ (a) any Restricted Subsidiary of Company may be merged with or intoany other Restricted Subsidiary, or be liquidated, wound up or dissolved, or allor any part of its business, property or assets may be conveyed, sold, leased,transferred or otherwise disposed of, in one transaction or a series oftransactions, to any Restricted Subsidiary; provided, in the case of such a -------- merger, a Restricted Subsidiary shall be the continuing or surviving Person; (b) sales or other dispositions of assets which do not constituteAsset Sales; (c) Asset Sales, the proceeds of which (valued at the principal amountthereof in the case of nonCash proceeds consisting of notes or other debtSecurities and valued at fair market value in the case of other nonCashproceeds) (i) are less than $250,000 with respect to any single Asset Sale orseries of related Asset Sales and (ii) when aggregated with the proceeds of allother Asset Sales made within the same Fiscal Year, are less than $1,000,000;provided (1) the consideration received for such assets shall be in an amount at-------- least equal to the fair market value thereof (determined in good faith by theboard of directors of Company (or similar governing body)), (2) no less than85% thereof shall be paid in Cash, and (3) the Net Asset Sale Proceeds thereofshall be applied as required by Section 2.12(a); (d) Permitted Acquisitions; provided the aggregate amount of cash -------- consideration for such Permitted Acquisitions during the term of the Facilitiesshall not exceed $25,000,000 (excluding any cash consideration to the extentfunded solely with the proceeds of Qualifying Equity). (e) Investments made in accordance with Section 6.5. 6.10 Disposal of Subsidiary Interests. Except for any sale of 100% of theCapital Stock of any of its Subsidiaries made in compliance with the provisionsof Section 6.9, no Credit Party shall directly or indirectly sell, assign,pledge or otherwise encumber or dispose of any Capital Stock of any of itsRestricted Subsidiaries, except to qualify directors if required by applicablelaw; or permit any of its Restricted Subsidiaries directly or indirectly tosell, assign, pledge or otherwise encumber or dispose of any Capital Stock ofany of its Restricted Subsidiaries or first tier Unrestricted Subsidiaries,except to Company or a whollyowned Guarantor Subsidiary of Company (subject tothe restrictions on such disposition otherwise imposed hereunder), or to qualifydirectors if required by applicable law. 6.11 Sales and LeaseBacks. Except as set forth on Schedule 6.11, no CreditParty shall, directly or indirectly, become or remain liable as lessee or as aguarantor or other surety with respect to any lease of any property (whetherreal, personal or mixed), whether now owned or hereafter acquired, which suchCredit Party has sold or transferred or is to sell or to transfer to any otherPerson (other than Company or any of its Restricted Subsidiaries), or intendsto use 95 for substantially the same purpose as any other property which has been or is tobe sold or transferred by such Credit Party to any Person (other than Company orany of its Restricted Subsidiaries) in connection with such lease. 6.12 Sale and Discount of Receivables. No Credit Party shall, nor shall itpermit any of its Subsidiaries to, directly or indirectly, sell with recourse,or discount or otherwise sell for less than the face value thereof, any of itsnotes or accounts receivable (it being understood that the restriction containedin this Section 6.12 shall not apply to any write-off of bad debt in theordinary course of business consistent with prior practice). 6.13 Transactions with Shareholders and Affiliates. (a) No Credit Partyshall, directly or indirectly, enter into or permit to exist any transaction(including the purchase, sale, lease or exchange of any property or therendering of any service) with any holder of 10% or more of any class of CapitalStock of Company or any of its Subsidiaries or with any Affiliate of Company orof any such holder, on terms that are less favorable to Company or thatSubsidiary, as the case may be, than those that might be obtained at the timefrom a Person who is not such a holder or Affiliate; provided, the foregoing -------- restriction shall not apply to (a) any transaction between Company and anyRestricted Subsidiary or between any of the Guarantor Subsidiaries; (b)reasonable and customary fees paid to members of the board of directors (orsimilar governing body) of Company and its Subsidiaries; (c) compensationarrangements entered into in the ordinary course of business for officers andother employees of Company and its Subsidiaries; and (d) transactions describedin Schedule 6.13. (b) Each Credit Party will (i) maintain entity records and books ofaccount separate from those of any other entity which is an Affiliate of suchCredit Party; (ii) not commingle its funds or assets with those of any otherentity which is an Affiliate of such Credit Party, and (iii) provide that itsboard of directors or other analogous governing body will hold all appropriatemeetings to authorize and approve such Person's entity actions, which meetingswill be separate from those of other Credit Parties. 6.14 Conduct of Business. From and after the Closing Date, no Credit Partyshall, nor shall it permit any of its Subsidiaries to, engage in any businessother than (i) the businesses engaged in by such Credit Party on the ClosingDate and Complementary Businesses and (ii) such other lines of business as maybe consented to by Requisite Lenders. 6.15 Permitted IBX Facilities. Except for the making of payments relatingto Basic Upkeep as provided under Section 6.4(b), Company shall not, nor shallit permit any of its Restricted Subsidiaries to, build out, commence theconstruction of, operate or acquire a IBX Facility (whether in connection with aPermitted Acquisition pursuant to Section 6.9, a Capital Expenditure pursuant toSection 6.8 or otherwise and whether independently or by joint venture) otherthan Permitted IBX Facilities; except that Company or any Restricted Subsidiary ------ may make payments of rent, property tax and similar expenses related to thebasic upkeep of the rental property (x) (i) with respect to domestic propertiesleased by the Company or any of its Restricted Subsidiaries and set forth onSchedule 6.15 or (ii) additional domestic leases approved by the AdministrativeAgent not to exceed $6 million per year in the aggregate and (y) for so long asit is owned by OpCo or other Restricted Subsidiary and no San Jose TriggeringEvent occured, property governed by the San Jose Ground Lease (includingpayments for expenses 96 relating to the San Jose entitlement process specifically reflected in theClosing Financial Plan); in the case of both clauses (x)(ii) and (y), for solong as, with respect to each lease, no expenditures of any nature have beenmade for the use or development of the leased site; provided that, upon the --------occurrence and continuation of an Event of Default (i) no payments may be madeunder this Section 6.15(x)(ii) other than payments under leases or othercontracts entered into prior to the Closing Date and only during the 45-dayperiod following such Event of Default and (ii) no payments may be made underthis Section 6.15(y) after the 45-day period following such Event of Default. 6.16 Amendments or Waivers of Certain Documents. No Credit Party shall, amend or otherwise change the terms of theSenior Notes, any Permitted Unsecured Company Debt or any Permitted EquipmentFinancing, or make any payment consistent with an amendment thereof or changethereto, if the effect of such amendment or change is to increase the interestrate on such Indebtedness, change (to earlier dates) any dates upon whichpayments of principal or interest are due thereon, change any event of defaultor condition to an event of default with respect thereto (other than toeliminate any such event of default or increase any grace period relatedthereto), change the redemption, prepayment or defeasance provisions thereof,change the subordination provisions of such Indebtedness (or of any guarantythereof), or if the effect of such amendment or change, together with all otheramendments or changes made, is to increase materially the obligations of theobligor thereunder or to confer any additional rights on the holders of suchIndebtedness (or a trustee or other representative on their behalf) which wouldbe adverse to any Credit Party or Lenders. 6.17 Fiscal Year. No Credit Party shall change its Fiscal Yearend fromDecember 31. 6.18 Unrestricted Subsidiaries. (a) Company may designate (and shall give prompt notice of suchdesignation to Agents and Lender) (y) a Foreign Subsidiary, wholly-owneddirectly or indirectly by International Holdings and (z) provided that the SanJose Subsidiary has assumed the assets and liabilities under the San Jose GroundLease (it being understood that Company may retain the obligations with respectto the San Jose Ground Lease as contemplated in the definition of San JoseSubsidiary), San Jose Subsidiary, as an Unrestricted Subsidiary under thisAgreement (a "Designation") only if: (i) no Event of Default shall have occurred and be continuing or would result therefrom at the time of or after giving effect to such Designation; (ii) after giving effect to such Designation, Company and its Restricted Subsidiaries would be in compliance with each of the covenants set forth in Sections 6.6, 6.7 and 6.8, as applicable, calculated on a pro forma basis as if such Designation had occurred immediately prior to the first day of the period of four consecutive fiscal quarters most recently ended; 97 (iii) other than San Jose Subsidiary, such Unrestricted Subsidiary and its Subsidiaries shall not have any assets or operations located in the United States of America or Canada; (iv) Company has delivered to the Administrative Agent (x) written notice of such Designation and (y) a certificate, dated the effective date of such Designation, of an Authorized Officer of Company stating that no Event of Default has occurred and is continuing or would result from such Designation and setting forth reasonably detailed calculations, together with all relevant financial information with respect thereto, demonstrating pro forma compliance with each of Sections 6.6, 6.7 and 6.8, as applicable, in accordance with clause (ii) above, and (v) such Subsidiary shall be designated and qualify as an "Unrestricted Subsidiary" for purposes of the Senior Note Indenture. (b) Except as contemplated by the definition of San Jose Subsidiary,neither Company nor any Restricted Subsidiary shall at any time (x) provide anyguaranty of any Indebtedness of any Unrestricted Subsidiary (y) be directly orindirectly liable for any Indebtedness of any Unrestricted Subsidiary or (z) bedirectly or indirectly liable for any other Indebtedness which provides that theholder thereof may (upon notice, lapse of time or both) declare a defaultthereon (or cause such Indebtedness or the payment thereof to be accelerated,payable or subject to repurchase prior to its final scheduled maturity) upon theoccurrence of a default with respect to any other Indebtedness that isIndebtedness of an Unrestricted Subsidiary; provided that Company may remain -------- liable with respect to lease obligations relating to leases contributed toForeign Subsidiaries pursuant to 6.4(b)(iv). (c) Company shall not create or suffer to exist any Foreign Subsidiarythat is not an Unrestricted Subsidiary. 6.19 Acquisition and Ownership of Assets by Company. Except to the extentcontemplated under Section 6.4(a), Company shall not acquire or own anyoperating assets other than (i) replacement assets, (ii) assets owned on theFunding Date following the transfer of assets set forth on Schedule 3.2(a)(x),(iii) assets acquired with the proceeds of Permitted Equipment Financing or aPurchase Money Loan and (iv) assets from a Restricted Subsidiary so long as suchasset is not subject to a Lien under the Collateral Documents. 6.20 Company Subsidiaries. The Company shall not after the Closing Date(i) create any new direct Restricted Subsidiary other than InternationalHoldings or (ii) acquire any equity interest in any other entity unless all suchequity interests are subject to a First Priority Lien in favor of the CollateralAgent for the benefit of Lenders. 6.21 San Jose Subsidiary. Neither the Company nor OpCo shall permit SanJose Subsidiary to dispose of any assets of San Jose Subsidiary, other than inarms-length transactions. Until the occurrence of a San Jose Triggering Event,neither the Company nor OpCo shall, nor shall they permit San Jose Subsidiaryto, effectuate a Disposition (other than a Qualifying San Jose Disposition) ofany portion of the San Jose Property or rights under the San Jose Ground Lease. 98 SECTION 7 GUARANTY 7.1 Guaranty of the Obligations. Subject to the provisions of Section7.2, Guarantors jointly and severally hereby irrevocably and unconditionallyguaranty to Administrative Agent for the ratable benefit of the Beneficiariesthe due and punctual payment in full of all Obligations when the same shallbecome due, whether at stated maturity, by required prepayment, declaration,acceleration, demand or otherwise (including amounts that would become due butfor the operation of the automatic stay under Section 362(a) of the BankruptcyCode, 11 U.S.C. (S) 362(a)) (collectively, the "Guaranteed Obligations");provided that Company's obligations with respect to Purchase Money Loans shall-------- be included in the defined term Guaranteed Obligations only to the extent notviolative of the Senior Notes. 7.2 Contribution by Guarantors. Each Guarantor desires to allocate amongthemselves (collectively, the "Contributing Guarantors"), in a fair andequitable manner, their obligations arising under this Guaranty. Accordingly,in the event any payment or distribution is made on any date by a Guarantor (a"Funding Guarantor") under this Guaranty that exceeds its Fair Share as of suchdate, such Funding Guarantor shall be entitled to a contribution from each ofthe other Contributing Guarantors in the amount of such other ContributingGuarantor's Fair Share Shortfall as of such date, with the result that all suchcontributions will cause each Contributing Guarantor's Aggregate Payments toequal its Fair Share as of such date. "Fair Share" means, with respect to aContributing Guarantor as of any date of determination, an amount equal to theratio of the Fair Share Contribution Amount with respect to such ContributingGuarantor to the aggregate of the Fair Share Contribution Amounts with respectto all Contributing Guarantors multiplied by the aggregate amount paid ordistributed on or before such date by all Funding Guarantors under this Guarantyin respect of the obligations Guaranteed. "Fair Share Shortfall" means, withrespect to a Contributing Guarantor as of any date of determination, the excess,if any, of the Fair Share of such Contributing Guarantor over the AggregatePayments of such Contributing Guarantor. "Fair Share Contribution Amount"means, with respect to a Contributing Guarantor as of any date of determination,the maximum aggregate amount of the obligations of such Contributing Guarantorunder this Guaranty that would not render its obligations hereunder orthereunder subject to avoidance as a fraudulent transfer or conveyance underSection 548 of Title 11 of the United States Code or any comparable applicableprovisions of state law; provided, solely for purposes of calculating the "Fair -------- Share Contribution Amount" with respect to any Contributing Guarantor forpurposes of this Section 7.2, any assets or liabilities of such ContributingGuarantor arising by virtue of any rights to subrogation, reimbursement orindemnification or any rights to or obligations of contribution hereunder shallnot be considered as assets or liabilities of such Contributing Guarantor."Aggregate Payments" means, with respect to a Contributing Guarantor as of anydate of determination, an amount equal to the aggregate amount of all paymentsand distributions made on or before such date by such Contributing Guarantor inrespect of this Guaranty (including, without limitation, in respect of thisSection 7.2), minus the aggregate amount of all payments received on or beforesuch date by such Contributing Guarantor from the other Contributing Guarantorsas contributions under this Section 7.2. The amounts payable as contributionshereunder shall be determined as of the date on which the related payment ordistribution is made by the applicable Funding Guarantor. The allocation amongContributing Guarantors of their obligations as set forth in this Section 7.2shall not be construed in any way 99 to limit the liability of any Contributing Guarantor hereunder. Each Guarantoris a third party beneficiary to the contribution agreement set forth in thisSection 7.2. 7.3 Payment by Guarantors. Subject to Section 7.2, Guarantors herebyjointly and severally agree, in furtherance of the foregoing and not inlimitation of any other right which any Beneficiary may have at law or in equityagainst any Guarantor by virtue hereof, that upon the failure of the applicableBorrower to pay any of the Guaranteed Obligations when and as the same shallbecome due, whether at stated maturity, by required prepayment, declaration,acceleration, demand or otherwise (including amounts that would become due butfor the operation of the automatic stay under Section 362(a) of the BankruptcyCode, 11 U.S.C. (S) 362(a)), Guarantors will upon demand pay, or cause to bepaid, in Cash, to Administrative Agent for the ratable benefit of Beneficiaries,an amount equal to the sum of the unpaid principal amount of all GuaranteedObligations then due as aforesaid, accrued and unpaid interest on suchGuaranteed Obligations (including interest which, but for the applicableBorrower's becoming the subject of a case under the Bankruptcy code, would haveaccrued on such Guaranteed Obligations, whether or not a claim is allowedagainst the applicable Borrower for such interest in the related bankruptcycase) and all other Guaranteed Obligations then owed to Beneficiaries asaforesaid. 7.4 Liability of Guarantors Absolute. Each Guarantor agrees that itsobligations hereunder are irrevocable, absolute, independent and unconditionaland shall not be affected by any circumstance which constitutes a legal orequitable discharge of a guarantor or surety other than payment in full of theGuaranteed Obligations in Cash. In furtherance of the foregoing and withoutlimiting the generality thereof, each Guarantor agrees as follows: (a) this Guaranty is a guaranty of payment when due and not ofcollectability. This Guaranty is a primary obligation of each Guarantor and notmerely a contract of surety; (b) Administrative Agent may enforce this Guaranty upon the occurrenceof an Event of Default notwithstanding the existence of any dispute between theapplicable Borrower and any Beneficiary with respect to the existence of suchEvent of Default; (c) the obligations of each Guarantor hereunder are independent of theobligations of the applicable Borrower and the obligations of any otherguarantor (including any other Guarantor) of the obligations of the applicableBorrower, and a separate action or actions may be brought and prosecuted againstsuch Guarantor whether or not any action is brought against the applicableBorrower or any of such other guarantors and whether or not the applicableBorrower is joined in any such action or actions; (d) payment by any Guarantor of a portion, but not all, of theGuaranteed Obligations shall in no way limit, affect, modify or abridge anyGuarantor's liability for any portion of the Guaranteed Obligations which hasnot been paid. Without limiting the generality of the foregoing, ifAdministrative Agent is awarded a judgment in any suit brought to enforce anyGuarantor's covenant to pay a portion of the Guaranteed Obligations, suchjudgment shall not be deemed to release such Guarantor from its covenant to paythe portion of the Guaranteed Obligations that is not the subject of such suit,and such judgment shall not, except to the extent 100 satisfied by such Guarantor in Cash, limit, affect, modify or abridge any otherGuarantor's liability hereunder in respect of the Guaranteed Obligations; (e) any Beneficiary, upon such terms as it deems appropriate, withoutnotice or demand and without affecting the validity or enforceability hereof orgiving rise to any reduction, limitation, impairment, discharge or terminationof any Guarantor's liability hereunder, from time to time may (i) renew, extend,accelerate, increase the rate of interest on, or otherwise change the time,place, manner or terms of payment of the Guaranteed Obligations; (ii) settle,compromise, release or discharge, or accept or refuse any offer of performancewith respect to, or substitutions for, the Guaranteed Obligations or anyagreement relating thereto and/or subordinate the payment of the same to thepayment of any other obligations; (iii) request and accept other guaranties ofthe Guaranteed Obligations and take and hold security for the payment hereof orthe Guaranteed Obligations; (iv) release, surrender, exchange, substitute,compromise, settle, rescind, waive, alter, subordinate or modify, with orwithout consideration, any security for payment of the Guaranteed Obligations,any other guaranties of the Guaranteed Obligations, or any other obligation ofany Person (including any other Guarantor) with respect to the GuaranteedObligations; (v) enforce and apply any security now or hereafter held by or forthe benefit of such Beneficiary in respect hereof or the Guaranteed Obligationsand direct the order or manner of sale thereof, or exercise any other right orremedy that such Beneficiary may have against any such security, in each case assuch Beneficiary in its discretion may determine consistent herewith or theapplicable Hedge Agreement and any applicable security agreement, includingforeclosure on any such security pursuant to one or more judicial or nonjudicialsales, whether or not every aspect of any such sale is commercially reasonable,and even though such action operates to impair or extinguish any right ofreimbursement or subrogation or other right or remedy of any Guarantor againstthe applicable Borrower or any security for the Guaranteed Obligations; and (vi)exercise any other rights available to it under the Credit Documents or theHedge Agreements; and (f) this Guaranty and the obligations of Guarantors hereunder shall bevalid and enforceable and shall not be subject to any reduction, limitation,impairment, discharge or termination for any reason (other than the indefeasiblepayment in full of the Guaranteed Obligations in Cash), including the occurrenceof any of the following, whether or not any Guarantor shall have had notice orknowledge of any of them: (i) any failure or omission to assert or enforce oragreement or election not to assert or enforce, or the stay or enjoining, byorder of court, by operation of law or otherwise, of the exercise or enforcementof, any claim or demand or any right, power or remedy (whether arising under theCredit Documents or the Hedge Agreements, at law, in equity or otherwise) withrespect to the Guaranteed Obligations or any agreement relating thereto, or withrespect to any other guaranty of or security for the payment of the GuaranteedObligations; (ii) any rescission, waiver, amendment or modification of, or anyconsent to departure from, any of the terms or provisions (including provisionsrelating to events of default) hereof, any of the other Credit Documents, any ofthe Hedge Agreements or any agreement or instrument executed pursuant thereto,or of any other guaranty or security for the Guaranteed Obligations, in eachcase whether or not in accordance with the terms hereof or such Credit Document,such Hedge Agreement or any agreement relating to such other guaranty orsecurity; (iii) the Guaranteed Obligations, or any agreement relating thereto,at any time being found to be illegal, invalid or unenforceable in any respect;(iv) the application of payments received from any source (other than paymentsreceived pursuant to the other Credit Documents 101 or any of the Hedge Agreements or from the proceeds of any security for theGuaranteed Obligations, except to the extent such security also serves ascollateral for indebtedness other than the Guaranteed Obligations) to thepayment of indebtedness other than the Guaranteed Obligations, even though anyBeneficiary might have elected to apply such payment to any part or all of theGuaranteed Obligations; (v) any Beneficiary's consent to the change,reorganization or termination of the corporate structure or existence of Companyor any of its Subsidiaries and to any corresponding restructuring of theGuaranteed Obligations; (vi) any failure to perfect or continue perfection of asecurity interest in any collateral which secures any of the GuaranteedObligations; (vii) any defenses, setoffs or counterclaims which the applicableBorrower may allege or assert against any Beneficiary in respect of theGuaranteed Obligations, including failure of consideration, breach of warranty,payment, statute of frauds, statute of limitations, accord and satisfaction andusury; and (viii) any other act or thing or omission, or delay to do any otheract or thing, which may or might in any manner or to any extent vary the risk ofany Guarantor as an obligor in respect of the Guaranteed Obligations. 7.5 Waivers by Guarantors. Each Guarantor hereby waives, for the benefitof Beneficiaries: any right to require any Beneficiary, as a condition ofpayment or performance by such Guarantor, to proceed against the applicableBorrower, any other guarantor (including any other Guarantor) of the GuaranteedObligations or any other Person, proceed against or exhaust any security heldfrom the applicable Borrower, any such other guarantor or any other Person,proceed against or have resort to any balance of any Deposit Account or crediton the books of any Beneficiary in favor of the applicable Borrower or any otherPerson, or (iv) pursue any other remedy in the power of any Beneficiarywhatsoever; any defense arising by reason of the incapacity, lack of authorityor any disability or other defense of the applicable Borrower or any otherGuarantor including any defense based on or arising out of the lack of validityor the unenforceability of the Guaranteed Obligations or any agreement orinstrument relating thereto or by reason of the cessation of the liability ofthe applicable Borrower or any other Guarantor from any cause other than paymentin full of the Guaranteed Obligations in Cash; any defense based upon anystatute or rule of law which provides that the obligation of a surety must beneither larger in amount nor in other respects more burdensome than that of theprincipal; any defense based upon any Beneficiary's errors or omissions in theadministration of the Guaranteed Obligations, except behavior which amounts tobad faith; any principles or provisions of law, statutory or otherwise, whichare or might be in conflict with the terms hereof and any legal or equitabledischarge of such Guarantor's obligations hereunder, the benefit of any statuteof limitations affecting such Guarantor's liability hereunder or the enforcementhereof, any rights to setoffs, recoupments and counterclaims, and promptness,diligence and any requirement that any Beneficiary protect, secure, perfect orinsure any security interest or lien or any property subject thereto; notices,demands, presentments, protests, notices of protest, notices of dishonor andnotices of any action or inaction, including acceptance hereof, notices ofdefault hereunder, under the Hedge Agreements or under any agreement orinstrument related thereto, notices of any renewal, extension or modification ofthe Guaranteed Obligations or any agreement related thereto, notices of anyextension of credit to the applicable Borrower and notices of any of the mattersreferred to in Section 7.4 and any right to consent to any thereof; and anydefenses or benefits that may be derived from or afforded by law which limit theliability of or exonerate guarantors or sureties, or which may conflict with theterms hereof. 102 7.6 Guarantors' Rights of Subrogation, Contribution, etc. Until theGuaranteed Obligations shall have been indefeasibly paid in full and allCommitments shall have terminated and all Letters of Credit shall have expiredor been cancelled, each Guarantor hereby waives any claim, right or remedy,direct or indirect, that such Guarantor now has or may hereafter have againstthe applicable Borrower or any other Guarantor or any of its assets inconnection with this Guaranty or the performance by such Guarantor of itsobligations hereunder, in each case whether such claim, right or remedy arisesin equity, under contract, by statute, under common law or otherwise andincluding without limitation any right of subrogation, reimbursement orindemnification that such Guarantor now has or may hereafter have against theapplicable Borrower with respect to the Guaranteed Obligations, any right toenforce, or to participate in, any claim, right or remedy that any Beneficiarynow has or may hereafter have against the applicable Borrower, and any benefitof, and any right to participate in, any collateral or security now or hereafterheld by any Beneficiary. In addition, until the Guaranteed Obligations shallhave been indefeasibly paid in full in Cash and the Commitments shall haveterminated and all Letters of Credit shall have expired or been cancelled, eachGuarantor shall withhold exercise of any right of contribution such Guarantormay have against any other guarantor (including any other Guarantor) of theGuaranteed Obligations, including, without limitation, any such right ofcontribution as contemplated by Section 7.2. Each Guarantor further agreesthat, to the extent the waiver or agreement to withhold the exercise of itsrights of subrogation, reimbursement, indemnification and contribution as setforth herein is found by a court of competent jurisdiction to be void orvoidable for any reason, any rights of subrogation, reimbursement orindemnification such Guarantor may have against the applicable Borrower oragainst any collateral or security, and any rights of contribution suchGuarantor may have against any such other guarantor, shall be junior andsubordinate to any rights any Beneficiary may have against the applicableBorrower, to all right, title and interest any Beneficiary may have in any suchcollateral or security, and to any right any Beneficiary may have against suchother guarantor. If any amount shall be paid to any Guarantor on account of anysuch subrogation, reimbursement, indemnification or contribution rights at anytime when all Guaranteed Obligations shall not have been finally andindefeasibly paid in full in Cash, such amount shall be held in trust forAdministrative Agent on behalf of Beneficiaries and shall forthwith be paid overto Administrative Agent for the benefit of Beneficiaries to be credited andapplied against the Guaranteed Obligations, whether matured or unmatured, inaccordance with the terms hereof. 7.7 Subordination of Other Obligations. Any Indebtedness of any Borroweror any Guarantor now or hereafter held by any Guarantor (the "ObligeeGuarantor") is hereby subordinated in right of payment to the GuaranteedObligations, and any such indebtedness collected or received by the ObligeeGuarantor after an Event of Default has occurred and is continuing shall be heldin trust for Administrative Agent on behalf of Beneficiaries and shall forthwithbe paid over to Administrative Agent for the benefit of Beneficiaries to becredited and applied against the Guaranteed Obligations but without affecting,impairing or limiting in any manner the liability of the Obligee Guarantor underany other provision hereof. 7.8 Continuing Guaranty. This Guaranty is a continuing guaranty and shallremain in effect until all of the Guaranteed Obligations shall have been finallyand indefeasibly paid in full in Cash and the Revolving Loan Commitments shallhave terminated and all Letters of Credit shall have expired or been cancelled.Each Guarantor hereby irrevocably waives any right to revoke this Guaranty as tofuture transactions giving rise to any Guaranteed Obligations. 103 7.9 Authority of Guarantors or Borrower. It is not necessary for anyBeneficiary to inquire into the capacity or powers of any Guarantor or theapplicable Borrower or the officers, directors or any agents acting orpurporting to act on behalf of any of them. 7.10 Financial Condition of Borrower. Any Credit Extension may be made toa Borrower or continued from time to time, and any Hedge Agreements may beentered into from time to time, in each case without notice to or authorizationfrom any Guarantor regardless of the financial or other condition of Company atthe time of any such grant or continuation or at the time such Hedge Agreementis entered into, as the case may be. No Beneficiary shall have any obligationto disclose or discuss with any Guarantor its assessment, or any Guarantor'sassessment, of the financial condition of the applicable Borrower. EachGuarantor has adequate means to obtain information from the applicable Borroweron a continuing basis concerning the financial condition of the applicableBorrower and its ability to perform its obligations under the Credit Documentsand the Hedge Agreements, and each Guarantor assumes the responsibility forbeing and keeping informed of the financial condition of the applicable Borrowerand of all circumstances bearing upon the risk of nonpayment of the GuaranteedObligations. Each Guarantor hereby waives and relinquishes any duty on the partof any Beneficiary to disclose any matter, fact or thing relating to thebusiness, operations or conditions of the applicable Borrower now known orhereafter known by any Beneficiary. 7.11 Bankruptcy, etc. So long as any Guaranteed Obligations remainoutstanding, no Guarantor shall, without the prior written consent ofAdministrative Agent acting pursuant to the instructions of Requisite Lenders,commence or join with any other Person in commencing any bankruptcy,reorganization or insolvency case or proceeding of or against the applicableBorrower or any other Guarantor. The obligations of Guarantors hereunder shallnot be reduced, limited, impaired, discharged, deferred, suspended or terminatedby any case or proceeding, voluntary or involuntary, involving the bankruptcy,insolvency, receivership, reorganization, liquidation or arrangement of theapplicable Borrower or any other Guarantor or by any defense which theapplicable Borrower or any other Guarantor may have by reason of the order,decree or decision of any court or administrative body resulting from any suchproceeding. (a) Each Guarantor acknowledges and agrees that any interest on anyportion of the Guaranteed Obligations which accrues after the commencement ofany case or proceeding referred to in clause (a) above (or, if interest on anyportion of the Guaranteed Obligations ceases to accrue by operation of law byreason of the commencement of such case or proceeding, such interest as wouldhave accrued on such portion of the Guaranteed Obligations if such case orproceeding had not been commenced) shall be included in the GuaranteedObligations because it is the intention of Guarantors and Beneficiaries that theGuaranteed Obligations which are guaranteed by Guarantors pursuant hereto shouldbe determined without regard to any rule of law or order which may relieve theapplicable Borrower of any portion of such Guaranteed Obligations. Guarantorswill permit any trustee in bankruptcy, receiver, debtor in possession, assigneefor the benefit of creditors or similar person to pay Administrative Agent, orallow the claim of Administrative Agent in respect of, any such interestaccruing after the date on which such case or proceeding is commenced. (b) In the event that all or any portion of the Guaranteed Obligationsare paid by the applicable Borrower, the obligations of Guarantors hereundershall continue and remain in 104 full force and effect or be reinstated, as the case may be, in the event thatall or any part of such payment(s) are rescinded or recovered directly orindirectly from any Beneficiary as a preference, fraudulent transfer orotherwise (whether by demand, settlement, litigation or otherwise), and any suchpayments which are so rescinded or recovered shall constitute GuaranteedObligations for all purposes hereunder. 7.12 Notice of Events. As soon as any Guarantor obtains knowledge thereof,such Guarantor shall give Administrative Agent written notice of any conditionor event which has resulted in a material adverse change in the financialconditions of any Guarantor or the applicable Borrower or a breach of ornoncompliance with any term, condition or covenant contained herein, any otherCredit Document, any Hedge Agreement or any other document delivered pursuanthereto or thereto. 7.13 Discharge of Guaranty Upon Sale of Guarantor. If all of the CapitalStock of any Guarantor or any of its successors in interest hereunder shall besold or otherwise disposed of (including by merger or consolidation) inaccordance with the terms and conditions hereof, the Guaranty of such Guarantoror such successor in interest, as the case may be, hereunder shall automaticallybe discharged and released without any further action by any Beneficiary or anyother Person effective as of the time of such Asset Sale; provided, as a -------- condition precedent to such discharge and release, Administrative Agent shallhave received evidence satisfactory to it that arrangements satisfactory to ithave been made for delivery to Administrative Agent of the applicable Net AssetSale Proceeds of such disposition pursuant to Section 2.12(a).SECTION 8 EVENTS OF DEFAULT 8.1 Events of Default. If any one or more of the following conditions orevents (each, an Event of Default) shall occur: (a) Failure to Make Payments When Due. Failure by a Borrower to pay --------------------------------- (i) when due any installment of principal of any Loan, whether at statedmaturity, by acceleration, by notice of voluntary prepayment, by mandatoryprepayment or otherwise; (ii) when due any amount payable to Issuing Bank inreimbursement of any drawing under a Letter of Credit; or (iii) any interest onany Loan or any fee or any other amount due hereunder or under any of the otherCredit Documents within five (5) days after the date due; or (b) Default in Other Agreements. Failure of any Credit Party to pay --------------------------- when due any principal of or interest on or any other amount payable in respectof one or more items of Indebtedness (other than Indebtedness referred to inSection 8.1(a)) in an individual principal amount of $250,000 or more or with anaggregate principal amount of $1,000,000 or more, in each case beyond the graceperiod, if any, provided therefor; or (ii) breach or default by any Credit Partywith respect to any other material term of one or more items of Indebtedness inthe individual or aggregate principal amounts referred to in clause (i) above orany loan agreement, mortgage, indenture or other agreement relating to suchitem(s) of Indebtedness, in each case beyond the grace period, if any, providedtherefor, if the effect of such breach or default is to cause, or to permit theholder or holders of that Indebtedness (or a trustee on behalf of such holder orholders), to cause, that Indebtedness to become or be declared due and payable(or 105 redeemable) prior to its stated maturity or the stated maturity of anyunderlying obligation, as the case may be; or (c) Breach of Certain Covenants. Failure of any Credit Party to --------------------------- perform or comply with any term or condition contained in Section 2.4, Section5.1(h), Section 5.2 or Section 6; failure to comply with any material term orcondition governing insurance of Company required pursuant to Section 5.5 for aperiod of 15 days from the time of receipt of notice under the applicableinsurance agreement; (d) Breach of Representations, etc. Any representation, warranty, ------------------------------- certification or other statement made or deemed made by any Credit Party in anyCredit Document or in any statement or certificate at any time given by anyCredit Party or any of its Subsidiaries in writing pursuant hereto or thereto orin connection herewith or therewith shall be false in any material respect as ofthe date made or deemed made; or (e) Other Defaults Under Credit Documents. Any Credit Party shall ------------------------------------- default in the performance of or compliance with any term contained herein orany of the other Credit Documents, other than any such term referred to in anyother Section of this Section 8.1, and such default shall not have been remediedor waived within thirty (30) days after the earlier of (i) an officer of suchCredit Party becoming aware of such default or (ii) receipt by the applicableBorrower of notice from Administrative Agent or any Lender of such default; or (f) Involuntary Bankruptcy; Appointment of Receiver, etc. (i) A court ----------------------------------------------------- of competent jurisdiction shall enter a decree or order for relief in respect ofCompany or any of its Restricted Subsidiaries in an involuntary case under theBankruptcy Code or under any other applicable bankruptcy, insolvency or similarlaw now or hereafter in effect, which decree or order is not stayed; or anyother similar relief shall be granted under any applicable federal or state law;or (ii) an involuntary case shall be commenced against Company or any of itsRestricted Subsidiaries under the Bankruptcy Code or under any other applicablebankruptcy, insolvency or similar law now or hereafter in effect; or a decree ororder of a court having jurisdiction in the premises for the appointment of areceiver, liquidator, sequestrator, trustee, custodian or other officer havingsimilar powers over Company or any of its Restricted Subsidiaries, or over allor a substantial part of its property, shall have been entered; or there shallhave occurred the involuntary appointment of an interim receiver, trustee orother custodian of Company or any of its Restricted Subsidiaries for all or asubstantial part of its property; or a warrant of attachment, execution orsimilar process shall have been issued against any substantial part of theproperty of Company or any of its Restricted Subsidiaries, and any such eventdescribed in this clause (ii) shall continue for sixty (60) days without havingbeen dismissed, bonded or discharged; or (g) Voluntary Bankruptcy; Appointment of Receiver, etc.. (i) Company --------------------------------------------------- or any of its Restricted Subsidiaries shall have an order for relief enteredwith respect to it or shall commence a voluntary case under the Bankruptcy Codeor under any other applicable bankruptcy, insolvency or similar law now orhereafter in effect, or shall consent to the entry of an order for relief in aninvoluntary case, or to the conversion of an involuntary case to a voluntarycase, under any such law, or shall consent to the appointment of or takingpossession by a receiver, trustee or other custodian for all or a substantialpart of its property; or Company 106 or any of its Restricted Subsidiaries shall make any assignment for the benefitof creditors; or (ii) Company or any of its Restricted Subsidiaries shall beunable, or shall fail generally, or shall admit in writing its inability, to payits debts as such debts become due; or the board of directors (or similargoverning body) of Company or any of its Restricted Subsidiaries (or anycommittee thereof) shall adopt any resolution or otherwise authorize any actionto approve any of the actions referred to herein or in Section 8.1(f); or (h) Judgments and Attachments. Any money judgment, writ or warrant of ------------------------- attachment or similar process involving (i) in any individual case an amount inexcess of $250,000 or (ii) in the aggregate at any time an amount in excess of$1,000,000 (in either case to the extent not adequately covered by insurance asto which a solvent and unaffiliated insurance Company has acknowledged coverage)shall be entered or filed against Company or any of its Restricted Subsidiariesor any of their respective assets and shall remain undischarged, unvacated,unbonded or unstayed for a period of sixty (60) days (or in any event later thanfive days prior to the date of any proposed sale thereunder); or (i) Dissolution. Any order, judgment or decree shall be entered ----------- against any Credit Party decreeing the dissolution or split up of such CreditParty and such order shall remain undischarged or unstayed for a period inexcess of thirty (30) days; or (j) Employee Benefit Plans. There shall occur one or more ERISA ---------------------- Events which individually or in the aggregate results in or might reasonably beexpected to result in liability of Company, any of its Restricted Subsidiariesor any of their respective ERISA Affiliates in excess of $1,500,000 during theterm hereof; or there shall exist an amount of unfunded benefit liabilities (asdefined in Section 4001(a)(18) of ERISA), individually or in the aggregate forall Pension Plans (excluding for purposes of such computation any Pension Planswith respect to which assets exceed benefit liabilities), which exceeds$500,000; or (k) Change of Control. A Change of Control shall occur; ----------------- (l) Guaranties, Collateral Documents and other Credit Documents. At ----------------------------------------------------------- any time after the execution and delivery thereof, (i) the Guaranty for anyreason, other than the satisfaction in full of all Obligations in Cash, shallcease to be in full force and effect (other than in accordance with its terms)or shall be declared to be null and void or any Guarantor shall repudiate itsobligations thereunder, (ii) this Agreement or any Collateral Document ceases tobe in full force and effect (other than by reason of a release of Collateral inaccordance with the terms hereof or thereof or the satisfaction in full of theObligations in Cash in accordance with the terms hereof) or shall be declarednull and void, or Collateral Agent shall not have or shall cease to have a validand perfected Lien in any Collateral (other than by reason of a release ofCollateral in accordance with the terms hereof or thereof or willful misconductor the part of the Collateral Agent) purported to be covered by the CollateralDocuments with the priority required by the relevant Collateral Document, ineach case for any reason other than the failure of Collateral Agent or anySecured Party to take any action within its control, or (iii) any Credit Partyshall contest the validity or enforceability of any Credit Document in writingor deny in writing that it has any further liability, including with respect tofuture advances by Lenders, under any Credit Document to which it is a party; or 107 (m) The Company or any Restricted Subsidiary is in default on anyobligation to make base rental payments under at least one lease with respect toeither (i) each of any three Leasehold Properties which are Permitted IBXFacilities or (ii) each of the two Leasehold Properties which are designated as"San Jose IBX" and "Secaucus IBX", respectively, on Schedule 1.1(a).THEN, (1) upon the occurrence of any Event of Default described in Section8.1(f) or 8.1(g), automatically, and (2) upon the occurrence of any other Eventof Default, at the request of (or with the consent of) Requisite Lenders, uponnotice to Company by Administrative Agent, (A) the Revolving Loan Commitmentsand Delayed Draw Term Loan Commitments, if any, of each Lender having suchCommitments and the obligation of Issuing Bank to issue any Letter of Creditshall immediately terminate; each of the following shall immediately become dueand payable, in each case without presentment, demand, protest or otherrequirements of any kind, all of which are hereby expressly waived by eachCredit Party: the unpaid principal amount of and accrued interest on the Loans,an amount equal to the maximum amount that may at any time be drawn under allLetters of Credit then outstanding (regardless of whether any beneficiary underany such Letter of Credit shall have presented, or shall be entitled at suchtime to present, the drafts or other documents or certificates required to drawunder such Letters of Credit), and all other Obligations; provided, the -------- foregoing shall not affect in any way the obligations of Lenders under Section2.2(e); (C) the Administrative Agent may cause the Collateral Agent to enforceany and all Liens and security interests created pursuant to CollateralDocuments; and (D) Administrative Agent shall direct Company to pay (and Companyhereby agrees upon receipt of such notice, or upon the occurrence of any Eventof Default specified in Section 8.1(f) and (g) to pay) to Administrative Agentsuch additional amounts of cash, to be held as security for Company'sreimbursement Obligations in respect of Letters of Credit then outstanding,equal to the Letter of Credit Usage at such time.SECTION 9 AGENTS 9.1 Appointment of Agents. GSCP is hereby appointed a Joint LeadArranger, a Joint Book Runner and Syndication Agent hereunder, and each Lenderhereby authorizes Joint Lead Arranger, Joint Book Runner and Syndication Agentto act as its agents in accordance with the terms hereof and the other CreditDocuments. Salomon Smith Barney Inc. is hereby appointed a Joint Lead Arrangerand a Joint Book Runner. Citicorp USA, Inc. is hereby appointed AdministrativeAgent (for purposes of this Section 9, the terms "Administrative Agent" and"Agent" shall also include CIT Lending Services Corporation in its capacity asCollateral Agent pursuant to the Collateral Documents) hereunder and under theother Credit Documents and each Lender hereby authorizes Administrative Agent toact as its agent in accordance with the terms hereof and the other CreditDocuments. Each Agent hereby agrees to act upon the express conditionscontained herein and the other Credit Documents, as applicable. The provisionsof this Section 9 are solely for the benefit of Agents and Lenders and no CreditParty shall have any rights as a third party beneficiary of any of theprovisions thereof. In performing its functions and duties hereunder, eachAgent shall act solely as an agent of Lenders and does not assume and shall notbe deemed to have assumed any obligation towards or relationship of agency ortrust with or for Company or any of its Subsidiaries. Each of Joint LeadArrangers, Joint Book Runners, Syndication Agent and Documentation Agent,without consent of or notice to any party hereto, may assign any and all of itsrights or obligations 108 hereunder to any of its Affiliates. As of the Closing Date, all the respectiveobligations of GSCP and Salomon Smith Barney Inc., in their respectivecapacities as Joint Lead Arranger and Joint Book Runner and GSCP in its capacityas Syndication Agent CIT Lending Services Corporation, shall terminate. CITLending Services Corporation is hereby appointed as the Collateral Agent underthe Pledge and Security Agreement and the other Collateral Documents and eachAgent and each Lender hereby authorizes CIT Lending Services Corporation to actas Collateral Agent for its benefit and for the benefit of the other SecuredParties hereunder and under the other Credit Documents and each Agent and eachLender hereby authorizes Collateral Agent to act as its agent in accordance withthe terms hereof and the other Credit Documents. Each Lender further authorizesthe Administrative Agent to be the agent in connection with the Guaranty. 9.2 Powers and Duties. Each Lender irrevocably authorizes each Agent totake such action on such Lender's behalf and to exercise such powers, rights andremedies hereunder and under the other Credit Documents as are specificallydelegated or granted to such Agent by the terms hereof and thereof, togetherwith such powers, rights and remedies as are reasonably incidental thereto.Each Agent shall have only those duties and responsibilities that are expresslyspecified herein and the other Credit Documents. Each Agent may exercise suchpowers, rights and remedies and perform such duties by or through its agents oremployees. No Agent shall have, by reason hereof or any of the other CreditDocuments, a fiduciary relationship in respect of any Lender; and nothing hereinor any of the other Credit Documents, expressed or implied, is intended to orshall be so construed as to impose upon any Agent any obligations in respecthereof or any of the other Credit Documents except as expressly set forth hereinor therein. 9.3 General Immunity. (a) No Responsibility for Certain Matters. No Agent shall be ------------------------------------- responsible to any Lender for the execution, effectiveness, genuineness,validity, enforceability, collectibility or sufficiency hereof or any otherCredit Document or for any representations, warranties, recitals or statementsmade herein or therein or made in any written or oral statements or in anyfinancial or other statements, instruments, reports or certificates or any otherdocuments furnished or made by any of Agent to Lenders or by or on behalf of anyCredit Party to any Agent or any Lender in connection with the Credit Documentsand the transactions contemplated thereby or for the financial condition orbusiness affairs of any Credit Party or any other Person liable for the paymentof any Obligations, nor shall any Agent be required to ascertain or inquire asto the performance or observance of any of the terms, conditions, provisions,covenants or agreements contained in any of the Credit Documents or as to theuse of the proceeds of the Loans or as to the existence or possible existence ofany Event of Default or Default. Anything contained herein to the contrarynotwithstanding, Administrative Agent shall not have any liability arising fromconfirmations of the amount of outstanding Loans or the Letter of Credit Usageor the component amounts thereof. (b) Exculpatory Provisions. No Agent nor any of its officers, ---------------------- partners, directors, employees or agents shall be liable to Lenders for anyaction taken or omitted by any Agent under or in connection with any of theCredit Documents except to the extent caused by such Agent's gross negligence orwillful misconduct. Each Agent shall be entitled to refrain from any act or thetaking of any action (including the failure to take an action) in connectionherewith or any of the other Credit Documents or from the exercise of any power,discretion or 109 authority vested in it hereunder or thereunder unless and until such Agent shallhave received instructions in respect thereof from Requisite Lenders (or suchother Lenders as may be required to give such instructions under Section 10.5)and, upon receipt of such instructions from Requisite Lenders (or such otherLenders, as the case may be), such Agent shall be entitled to act or (where soinstructed) refrain from acting, or to exercise such power, discretion orauthority, in accordance with such instructions. Without prejudice to thegenerality of the foregoing, (i) each Agent shall be entitled to rely, and shallbe fully protected in relying, upon any communication, instrument or documentbelieved by it to be genuine and correct and to have been signed or sent by theproper Person or Persons, and shall be entitled to rely and shall be protectedin relying on opinions and judgments of attorneys (who may be attorneys forCompany and its Subsidiaries), accountants, experts and other professionaladvisors selected by it; and (ii) no Lender shall have any right of actionwhatsoever against any Agent as a result of such Agent acting or (where soinstructed) refraining from acting hereunder or any of the other CreditDocuments in accordance with the instructions of Requisite Lenders (or suchother Lenders as may be required to give such instructions under Section 10.5). 9.4 Agents Entitled to Act as Lender. The agency hereby created shall inno way impair or affect any of the rights and powers of, or impose any duties orobligations upon, any Agent in its individual capacity as a Lender hereunder.With respect to its participation in the Loans and the Letters of Credit, eachAgent, in its individual capacity, shall have the same rights and powershereunder as any other Lender and may exercise the same as if it were notperforming the duties and functions delegated to it hereunder, and the term"Lender" shall, unless the context clearly otherwise indicates, include eachAgent in its individual capacity. Any Agent, in its individual capacity, andits Affiliates may accept deposits from, lend money to and generally engage inany kind of banking, trust, financial advisory or other business with eitherBorrower or any of its Affiliates as if it were not performing the dutiesspecified herein, and may accept fees and other consideration from eitherBorrower for services in connection herewith and otherwise without having toaccount for the same to Lenders. 9.5 Lenders' Representations, Warranties and Acknowledgment. Each Lenderrepresents and warrants that it has made its own independent investigation ofthe financial condition and affairs of Company and its Subsidiaries inconnection with Credit Extensions hereunder and that it has made and shallcontinue to make its own appraisal of the creditworthiness of Company and itsSubsidiaries. No Agent shall have any duty or responsibility, either initiallyor on a continuing basis, to make any such investigation or any such appraisalon behalf of Lenders or to provide any Lender with any credit or otherinformation with respect thereto, whether coming into its possession before themaking of the Loans or at any time or times thereafter, and no Agent shall haveany responsibility with respect to the accuracy of or the completeness of anyinformation provided to Lenders. 9.6 Right to Indemnity. Each Lender, in proportion to its Pro Rata Share,severally agrees to indemnify each Agent, to the extent that such Agent shallnot have been reimbursed by any Credit Party, for and against any and allliabilities, obligations, losses, damages, penalties, actions, judgments, suits,costs, expenses (including reasonable counsel fees and disbursements) ordisbursements of any kind or nature whatsoever which may be imposed on, incurredby or asserted against such Agent in exercising its powers, rights and remediesor performing its duties hereunder or under the other Credit Documents orotherwise in its capacity as such Agent in any 110 way relating to or arising out hereof or the other Credit Documents; provided, -------- no Lender shall be liable for any portion of such liabilities, obligations,losses, damages, penalties, actions, judgments, suits, costs, expenses ordisbursements resulting from such Agent's gross negligence or willfulmisconduct. If any indemnity furnished to any Agent for any purpose shall, inthe opinion of such Agent, be insufficient or become impaired, such Agent maycall for additional indemnity and cease, or not commence, to do the actsindemnified against until such additional indemnity is furnished; provided, in --------no event shall this sentence require any Lender to indemnify any Agent againstany liability, obligation, loss, damage, penalty, action, judgment, suit, cost,expense or disbursement in excess of such Lender's Pro Rata Share thereof; andprovided further, this sentence shall not be deemed to require any Lender to-------- ------- indemnify any Agent against any liability, obligation, loss, damage, penalty,action, judgment, suit, cost, expense or disbursement described in the provisoin the immediately preceding sentence. 9.7 Successor Administrative Agent and Collateral Agent. (a) Successor Administrative Agent. Administrative Agent may resign ------------------------------ at any time by giving thirty (30) days' prior written notice thereof to Lendersand the Borrowers, and Administrative Agent may be removed at any time with orwithout cause by an instrument or concurrent instruments in writing delivered tothe Borrowers and Administrative Agent and signed by Requisite Lenders. Uponany such notice of resignation or any such removal, Requisite Lenders shall havethe right, with the Borrowers' consent (which shall not be unreasonably withheldor delayed and wich shall not be required while and Event of Default exists), toappoint a successor Administrative Agent. Upon the acceptance of anyappointment as Administrative Agent hereunder by a successor AdministrativeAgent, that successor Administrative Agent shall thereupon succeed to and becomevested with all the rights, powers, privileges and duties of the retiring orremoved Administrative Agent and the retiring or removed Administrative Agentshall promptly (i) transfer to such successor Administrative Agent all recordsand other documents necessary or appropriate in connection with the performanceof the duties of the successor Administrative Agent under the Credit Documents,and (ii) take such other actions, as may be necessary or appropriate inconnection with the assignment to such successor Administrative Agent, whereuponsuch retiring or removed Administrative Agent shall be discharged from itsduties and obligations hereunder and under the other Credit Documents. (b) Successor Collateral Agent. Collateral Agent may resign at any -------------------------- time by giving thirty (30) days' prior written notice thereof to AdministrativeAgent, Lenders and the Borrowers, and Collateral Agent may be removed at anytime with or without cause by an instrument or concurrent instruments in writingdelivered to the Borrowers, Collateral Agent and Administrative Agent and signedby Requisite Lenders. Upon any such notice of resignation or any such removal,Requisite Lenders shall have the right, upon five (5) Business Days' notice tothe Administrative Agent, following receipt of the Borrowers' consent (whichshall not be unreasonable withheld or delayed and which shall not be requiredwhile an Even5 of Default exists), to appoint a successor Collateral Agent.Upon the acceptance of any appointment as Collateral Agent hereunder by asuccessor Collateral Agent, that successor Collateral Agent shall thereuponsucceed to and become vested with all the rights, powers, privileges and dutiesof the retiring or removed Collateral Agent and the retiring or removedCollateral Agent shall promptly (i) transfer to such successor Collateral Agentall sums, Securities and other items of Collateral held under the CollateralDocuments, together with all records and other documents necessary or 111 appropriate in connection with the performance of the duties of the successorCollateral Agent under the Credit Documents, and (ii) execute and deliver tosuch successor Collateral Agent such amendments to financing statements, andtake such other actions, as may be necessary or appropriate in connection withthe assignment to such successor Collateral Agent of the security interestscreated under the Collateral Documents, whereupon such retiring or removedCollateral Agent shall be discharged from its duties and obligations hereunderand under the other Credit Documents. 9.8 Collateral Documents and Guaranty. (a) Agents under Collateral Documents and Guaranty. Each Lender ---------------------------------------------- hereby further authorizes Administrative Agent or Collateral Agent, asapplicable, on behalf of and for the benefit of Lenders, to be the agent for andrepresentative of Lenders with respect to the Guaranty, the Collateral and theCollateral Documents. Subject to Section 10.5, without further written consentor authorization from Lenders, each of Administrative Agent and CollateralAgent, as applicable may execute any documents or instruments necessary torelease any Lien encumbering any item of Collateral (i) that is the subject of(A) a sale or other disposition of assets (B) a Lien securing a PermittedEquipment Financing or (ii) to which Requisite Lenders (or such other Lenders asmay be required to give such consent under Section 10.5) have otherwiseconsented or release any Guarantor from the Guaranty pursuant to Section 7.13or with respect to which Requisite Lenders (or such other Lenders as may berequired to give such consent under Section 10.5) have otherwise consented;provided that in the case of clause (i)(B) above, such release of Lien shallonly be effectuated by the delivery of a release, substantially in the form ofExhibit O attached hereto, together with any other documents or instrumentsrequired therein, by the Collateral Agent to the Company. (b) Right to Realize on Collateral and Enforce Guaranty. Anything --------------------------------------------------- contained in any of the Credit Documents to the contrary notwithstanding, eachCredit Party, each Agent and each Lender hereby agree that no Lender shall haveany right individually to realize upon any of the Collateral or to enforce theGuaranty, it being understood and agreed that all powers, rights and remedieshereunder may be exercised solely by Administrative Agent for the benefit ofSecured Parties, in accordance with the terms hereof and all powers, rights andremedies under the Collateral Documents may be exercised solely by CollateralAgent, and in the event of a foreclosure by Collateral Agent on any of theCollateral pursuant to a public or private sale, Collateral Agent or any Lendermay be the purchaser of any or all of such Collateral at any such sale andCollateral Agent, as agent for and representative of Secured Parties (but notany Lender or Lenders in its or their respective individual capacities unlessRequisite Lenders shall otherwise agree in writing) shall be entitled, for thepurpose of bidding and making settlement or payment of the purchase price forall or any portion of the Collateral sold at any such public sale, to use andapply any of the Obligations as a credit on account of the purchase price forany collateral payable by Collateral Agent at such sale.SECTION 10 MISCELLANEOUS 10.1 Notices. Unless otherwise specifically provided herein, any notice orother communication herein required or permitted to be given to a Credit Party,Joint Lead Arrangers, Joint Book Runners, Syndication Agent, Collateral Agent,Administrative Agent, Issuing Bank 112 or Documentation Agent, shall be sent to such Person's address as set forth onAppendix B or in the other relevant Credit Document, and in the case of anyLender, the address as indicated on Appendix B or otherwise indicated toAdministrative Agent in writing. Each notice hereunder shall be in writing andmay be personally served, telexed or sent by telefacsimile or United States mailor courier service and shall be deemed to have been given when delivered inperson or by courier service and signed for against receipt thereof, uponreceipt of telefacsimile or telex, or three (3) Business Days after depositingit in the United States mail with postage prepaid and properly addressed;provided, no notice to any Agent shall be effective until received by such -------- Agent. 10.2 Expenses. Whether or not the transactions contemplated hereby shallbe consummated, Company agrees to pay promptly all the actual and reasonablecosts and expenses of Joint Lead Arrangers, Joint Book Runners and SyndicationAgent associated with the syndication of the credit facilities hereunder andexpenses of preparation of the Credit Documents and any consents, amendments,waivers or other modifications thereto; all the costs of furnishing allopinions by counsel for any Credit Party; the reasonable fees, expenses anddisbursements of counsel to Agents (in each case including allocated costs ofinternal counsel) in connection with the negotiation, preparation, execution andadministration of the Credit Documents and any consents, amendments, waivers orother modifications thereto and any other documents or matters requested by anyCredit Party; all the actual costs and reasonable expenses of creating andperfecting Liens in favor of Collateral Agent, for the benefit of SecuredParties pursuant hereto, including filing and recording fees, expenses andtaxes, stamp or documentary taxes, search fees, title insurance premiums andreasonable fees, expenses and disbursements of counsel to each Agent and ofcounsel providing any opinions that any Agent or Requisite Lenders may requestin respect of the Collateral or the Liens created pursuant to the CollateralDocuments; all the actual costs and reasonable fees, expenses and disbursementsof any auditors, accountants, consultants or appraisers; all the actual costsand reasonable expenses (including the reasonable fees, expenses anddisbursements of any appraisers, consultants, advisors and agents employed orretained by Administrative Agent and its counsel) in connection with the custodyor preservation of any of the Collateral; all other actual and reasonable costsand expenses incurred by each Agent in connection with the negotiation,preparation and execution of the Credit Documents and any consents, amendments,waivers or other modifications thereto and the transactions contemplatedthereby; and after the occurrence of a Default or an Event of Default, allcosts and expenses, including reasonable attorneys' fees (including allocatedcosts of internal counsel) and costs of settlement, incurred by any Agent andLenders in enforcing any Obligations of or in collecting any payments due fromany Credit Party hereunder or under the other Credit Documents by reason of suchDefault or Event of Default (including in connection with the sale of,collection from, or other realization upon any of the Collateral or theenforcement of the Guaranty) or in connection with any refinancing orrestructuring of the credit arrangements provided hereunder in the nature of a"workout" or pursuant to any insolvency or bankruptcy cases or proceedings. 10.3 Indemnity. In addition to the payment of expenses pursuant to Section10.2, whether or not the transactions contemplated hereby shall be consummated,each Credit Party agrees to defend (subject to Indemnitees' selection ofcounsel), indemnify, pay and hold harmless, each Agent and Lender and theirrespective Affiliates and each of their and their respective Affiliates'officers, partners, directors, trustees, employees and agents (each, an 113 "Indemnitee"), from and against any and all Indemnified Liabilities; provided, -------- no Credit Party shall have any obligation to any Indemnitee hereunder withrespect to any Indemnified Liabilities to the extent such IndemnifiedLiabilities arise from the gross negligence or willful misconduct of thatIndemnitee, as determined by a court of competent jurisdiction in a final, non-appealable judgment order or decree. To the extent that the undertakings todefend, indemnify, pay and hold harmless set forth in this Section 10.3 may beunenforceable in whole or in part because they are violative of any law orpublic policy, the applicable Credit Party shall contribute the maximum portionthat it is permitted to pay and satisfy under applicable law to the payment andsatisfaction of all Indemnified Liabilities incurred by Indemnitees or any ofthem. 10.4 SetOff. In addition to any rights now or hereafter granted underapplicable law and not by way of limitation of any such rights, upon theoccurrence of any Event of Default each Lender is hereby authorized by eachCredit Party at any time or from time to time subject to the consent ofAdministrative Agent (such consent not to be unreasonably withheld or delayed),without notice to any Credit Party or to any other Person (other thanAdministrative Agent), any such notice being hereby expressly waived, to set offand to appropriate and to apply any and all deposits (general or special,including Indebtedness evidenced by certificates of deposit, whether matured orunmatured, but not including trust accounts) and any other Indebtedness at anytime held or owing by such Lender to or for the credit or the account of anyCredit Party against and on account of the obligations and liabilities of anyCredit Party to such Lender hereunder, the Letters of Credit and participationstherein and under the other Credit Documents, including all claims of any natureor description arising out of or connected hereto, the Letters of Credit andparticipations therein or with any other Credit Document, irrespective ofwhether or not such Lender shall have made any demand hereunder or theprincipal of or the interest on the Loans or any amounts in respect of theLetters of Credit or any other amounts due hereunder or under any other CreditDocuments shall have become due and payable pursuant to Section 2 and althoughsuch obligations and liabilities, or any of them, may be contingent orunmatured. Each Credit Party hereby further grants to Administrative Agent andeach Lender a security interest in all Deposit Accounts maintained withAdministrative Agent or such Lender as security for the Obligations. 10.5 Amendments and Waivers. (a) Requisite Lenders' Consent. Subject to Sections 10.5(b) and -------------------------- 10.5(c), no amendment, modification, termination or waiver of any provision ofthe Credit Documents, or consent to any departure by any Credit Party therefrom,shall in any event be effective without the written concurrence of the RequisiteLenders. (b) Affected Lenders' Consent. Without the written consent of each ------------------------- Lender (other than a Defaulting Lender) that would be affected thereby, noamendment, modification, termination, or consent shall be effective if theeffect thereof would: (i) extend the scheduled final maturity of any Loan or Note; (ii) waive, reduce or postpone any scheduled repayment (but not prepayment), or any reimbursement obligation in connection with any Letter of 114 Credit waive or postpone the Revolving Loan Commitment Termination Date or the Delayed Draw Term Loan Commitment Termination Date; (iii) extend the stated expiration date of any Letter of Credit beyond the Revolving Loan Commitment Termination Date; (iv) reduce the rate of interest on any Loan (other than any waiver of any increase in the interest rate applicable to any Loan pursuant to Section 2.10) or any fee payable hereunder; (v) extend the time for payment of any such interest or fees; (vi) reduce the principal amount of any Loan or any reimbursement obligation in respect of any Letter of Credit; (vii) amend, modify, terminate or waive any provision of this Section 10.5(b) or Section 10.5(c) or Section 10.6(a); (viii) amend the definition of "Requisite Lenders" or "Pro Rata Share"; provided, with the consent of Requisite Lenders (except that such -------- consent shall not be required in the case of Indebtedness incurred or commitments made under Section 2.1(a)(iv) of this Agreement), additional extensions of credit pursuant hereto may be included in the determination of "Requisite Lenders" or "Pro Rata Share" on substantially the same basis as the Term Loan Commitments, the Term Loans, the Delayed Draw Term Loan Commitments, the Delayed Draw Term Loans, the Revolving Loan Commitments, the Revolving Loans, the New Term Loan Commitments and the New Term Loans are included on the Closing Date; (ix) release or otherwise subordinate all or substantially all of the Collateral or all or substantially all of the Guarantors (or Company alone) from the Guaranty except as expressly provided in the Credit Documents; or (x) consent to the assignment or transfer by any Credit Party of any of its rights and obligations under any Credit Document. (c) Other Consents. No amendment, modification, termination or waiver -------------- of any provision of the Credit Documents, or consent to any departure by anyCredit Party therefrom, shall: (i) increase any Commitment of any Lender over the amount thereof then in effect without the consent of such Lender; provided, no -------- amendment, modification or waiver of any condition precedent, covenant, Default or Event of Default shall constitute an increase in any Revolving Loan Commitment of any Lender; (ii) amend the definition of "Requisite Class Lenders" without the consent of Requisite Class Lenders of each Class affected by such amendment; 115 provided, with the consent of the Requisite Lenders, additional extensions -------- of credit pursuant hereto may be included in the determination of such "Requisite Class Lenders" on substantially the same basis as the Term Loan Commitments, the Term Loans, the Delayed Draw Term Loans Commitments, the Delayed Draw Term Loans, the Revolving Loan Commitments, the Revolving Loans and the New Term Loan Commitments and the New Term Loans are included on the Closing Date; (iii) alter the required application of any repayments or prepayments as between Classes pursuant to Section 2.13 without the consent of Requisite Class Lenders of each Class which is being allocated a lesser repayment or prepayment as a result thereof; provided, Requisite Lenders -------- may waive, in whole or in part, any prepayment so long as the application, as between Classes, of any portion of such prepayment which is still required to be made is not altered; (iv) amend, modify, terminate or waive any obligation of Lenders relating to the purchase of participations in Letters of Credit as provided in Section 2.2(e) without the written consent of Administrative Agent and of Issuing Bank; or (v) amend, modify, terminate or waive any provision of Section 9 or Section 10 as the same applies to any Agent, or any other provision hereof as the same applies to the rights or obligations of any Agent, in each case without the consent of such Agent. (d) Execution of Amendments, etc. Administrative Agent may, but shall ----------------------------- have no obligation to, with the concurrence of any Lender, execute amendments,modifications, waivers or consents on behalf of such Lender. Any waiver orconsent shall be effective only in the specific instance and for the specificpurpose for which it was given. No notice to or demand on any Credit Party inany case shall entitle any Credit Party to any other or further notice or demandin similar or other circumstances. Any amendment, modification, termination,waiver or consent effected in accordance with this Section 10.5 shall be bindingupon each Lender at the time outstanding, each future Lender and, if signed by aCredit Party, on such Credit Party. 10.6 Successors and Assigns; Participations. (a) Generally. This Agreement shall be binding upon the parties ---------hereto and their respective successors and assigns and shall inure to thebenefit of the parties hereto and the successors and assigns of Lenders. NoCredit Party's rights or obligations hereunder nor any interest therein may beassigned or delegated by any Credit Party without the prior written consent ofall Lenders. (b) Register. The Borrowers, Administrative Agent and Lenders shall -------- deem and treat the Persons listed as Lenders in the Register as the holders andowners of the corresponding Commitments and Loans listed therein for allpurposes hereof, and no assignment or transfer of any such Commitment or Loanshall be effective, in each case, unless and until an Assignment Agreementeffecting the assignment or transfer thereof shall have been delivered to 116 and accepted by Administrative Agent and recorded in the Register as provided inSection 10.6(e). Prior to such recordation, all amounts owed with respect to theapplicable Commitment or Loan shall be owed to the Lender listed in the Registeras the owner thereof, and any request, authority or consent of any Person who,at the time of making such request or giving such authority or consent, islisted in the Register as a Lender shall be conclusive and binding on anysubsequent holder, assignee or transferee of the corresponding Commitments orLoans. (c) Right to Assign. Each Lender shall have the right at any time to --------------- sell, assign or transfer all or a portion of its rights and obligations underthis Agreement, including, without limitation, all or a portion of itsCommitment or Loans owing to it, Note or Notes held by it, or other Obligation(provided, however, that each such assignment shall be of a uniform, and not -------- ------- varying, percentage of all rights and obligations under and in respect of anyLoan and any related Commitments): (i) to any Person meeting the criteria of clause (i) of the definition of the term of "Eligible Assignee" upon the giving of notice to the applicable Borrower or Borrowers and Administrative Agent; and (ii) to any Person meeting the criteria of clause (ii) of the definition of the term of "Eligible Assignee" and, in the case of assignments of Loans or Commitments to any such Person (except in the case of assignments made by or to GSCP or to another Lender), consented to by each of the applicable Borrower or Borrowers and Administrative Agent (such consent not to be (x) unreasonably withheld or delayed or, (y) in the case of either Borrower, required at any time an Event of Default shall have occurred and then be continuing; provided that, in any event, notice of -------- such assignment shall be given promptly to Borrowers if their consent is not otherwise required); provided, further each such assignment pursuant to -------- this Section 10.6(c)(ii) shall be in an aggregate amount of not less than $5,000,000 (or such lesser amount as may be agreed to by the applicable Borrower or Borrowers and Administrative Agent or as shall constitute the aggregate amount of the Commitments and other Obligations of the assigning Lender); provided, further, that after giving effect to such assignment, -------- -------  the assigning Lender shall have Commitments and Loans aggregating at least $5,000,000 (unless such assigning Lender is assigning all of its Commitments and Loans), in each case unless otherwise agreed to by the applicable Borrower or Borrowers and Administrative Agent. (d) Mechanics. The assigning Lender and the assignee thereof shall --------- execute and deliver to Administrative Agent an Assignment Agreement, togetherwith (i) a processing and recordation fee of $2,000 in the case of allassignments (except that only one fee shall be payable in the case ofcontemporaneous assignments to Related Funds), and (ii) such forms, certificatesor other evidence, if any, with respect to United States federal income taxwithholding matters as the assignee under such Assignment Agreement may berequired to deliver to Administrative Agent pursuant to Section 2.19(c). (e) Notice of Assignment. Upon its receipt of a duly executed and -------------------- completed Assignment Agreement, together with the processing and recordation feereferred to in Section 117 10.6(d) (and any forms, certificates or other evidence required by thisAgreement in connection therewith), Administrative Agent shall record theinformation contained in such Assignment Agreement in the Register, shall giveprompt notice thereof to the applicable Borrower or Borrowers and shall maintaina copy of such Assignment Agreement. (f) Representations and Warranties of Assignee. Each Lender, upon ------------------------------------------ execution and delivery hereof or upon executing and delivering an AssignmentAgreement, as the case may be, represents and warrants as of the Closing Date oras of the applicable Effective Date (as defined in the applicable AssignmentAgreement) that it is an Eligible Assignee; it has experience and expertise inthe making of or investing in commitments or loans such as the applicableCommitments or Loans, as the case may be; and it will make or invest in, as thecase may be, its Commitments or Loans for its own account in the ordinary courseof its business and without a present view to distribution of such Commitmentsor Loans within the meaning of the Securities Act or the Exchange Act or otherfederal securities laws (it being understood that, subject to the provisions ofthis Section 10.6, the disposition of such Commitments or Loans or any intereststherein shall at all times remain within its exclusive control). (g) Effect of Assignment. Subject to the terms and conditions of this -------------------- Section 10.6, as of the "Effective Date" specified in the applicable AssignmentAgreement: the assignee thereunder shall have the rights and obligations of a"Lender" hereunder to the extent such rights and obligations hereunder have beenassigned to it pursuant to such Assignment Agreement and shall thereafter be aparty hereto and a "Lender" for all purposes hereof; the assigning Lenderthereunder shall, to the extent that rights and obligations hereunder have beenassigned thereby pursuant to such Assignment Agreement, relinquish its rights(other than any rights which survive the termination hereof under Section 10.8)and be released from its obligations hereunder (and, in the case of anAssignment Agreement covering all or the remaining portion of an assigningLender's rights and obligations hereunder, such Lender shall cease to be a partyhereto; provided, anything contained in any of the Credit Documents to the -------- contrary notwithstanding, (y) Issuing Bank shall continue to have all rights andobligations thereof with respect to such Letters of Credit until thecancellation or expiration of such Letters of Credit and the reimbursement ofany amounts drawn thereunder) and (z) such assigning Lender shall continue to beentitled to the benefit of all indemnities hereunder as specified herein withrespect to matters arising out of the prior involvement of such assigning Lenderas a Lender hereunder; the Revolving Loan Commitments shall be modified toreflect the Revolving Loan Commitment of such assignee and any remainingRevolving Loan Commitment of such assigning Lender, if any; (i) the Delayed DrawTerm Loan Commitments shall be modified to reflect the Delayed Draw Term LoanCommitment of such assignee and any remaining Delayed Draw Term Loan Commitmentof such assigning Lender, if any; and (ii) if any such assignment occurs afterthe issuance of any Note hereunder, the assigning Lender shall, upon theeffectiveness of such assignment or as promptly thereafter as practicable,surrender its applicable Notes to Administrative Agent for cancellation, andthereupon the applicable Borrower or Borrowers shall issue and deliver newNotes, if so requested by the assignee and/or assigning Lender, to such assigneeand/or to such assigning Lender, with appropriate insertions, to reflect the newCommitments and/or outstanding Loans of the assignee and/or the assigningLender. (h) Participations. Each Lender shall have the right at any time to -------------- sell one or more participations to any Person (other than Company, any of itsSubsidiaries or any of its 118 Affiliates) in all or any part of its Commitments, Loans or in any otherObligation. The holder of any such participation, other than an Affiliate of theLender granting such participation, shall not be entitled to require such Lenderto take or omit to take any action hereunder except with respect to anyamendment modification or waiver that would (i) extend the final scheduledmaturity of any Loan, Note or Letter of Credit (unless such Letter of Credit isnot extended beyond the Revolving Loan Commitment Termination Date) in whichsuch participant is participating, or reduce the rate or extend the time ofpayment of interest or fees thereon (except in connection with a waiver ofapplicability of any postdefault increase in interest rates) or reduce theprincipal amount thereof, or increase the amount of the participant'sparticipation over the amount thereof then in effect (it being understood that awaiver of any Default or Event of Default or of a mandatory reduction in theCommitment shall not constitute a change in the terms of such participation, andthat an increase in any Commitment or Loan shall be permitted without theconsent of any participant if the participant's participation is not increasedas a result thereof), (ii) consent to the assignment or transfer by any CreditParty of any of its rights and obligations under this Agreement or (iii) releaseor subordinate all or substantially all of the Collateral under the CollateralDocuments or the Guarantors (except as expressly provided in the CreditDocuments) supporting the Loans hereunder in which such participant isparticipating. All amounts payable by any Credit Party hereunder, includingamounts payable to such Lender pursuant to Section 2.17(c), 2.18 or 2.19, shallbe determined as if such Lender had not sold such participation. Each CreditParty and each Lender hereby acknowledge and agree that, solely for purposes ofSections 2.16 and 10.4, any participation will give rise to a direct obligationof each Credit Party to the participant and the participant shall be consideredto be a "Lender." (i) Certain Other Assignments. In addition to any other assignment ------------------------- permitted pursuant to this Section 10.6, (i) any Lender may assign and pledgeall or any portion of its Loans, the other Obligations owed to such Lender, andits Notes, if any, to secure obligations of such Lender, including, withoutlimitation, any pledge or assignment to secure obligations to any FederalReserve Bank or as collateral security for any loan or other financingtransaction as in or in connection with any securitization or similartransaction, and this Section 10.6 shall not apply to any such pledge orassignment of a security interest or other transaction described herein;provided, (x) no Lender, as between the applicable Borrower or Borrowers and-------- such Lender, shall be relieved of any of its obligations hereunder as a resultof any such assignment and pledge, and provided further, (y) in no event shall -------- ------- the applicable Federal Reserve Bank or trustee or other financing party beconsidered to be a "Lender" or be entitled to require the assigning Lender totake or omit to take any action hereunder and (z) any transfer of the rights andobligations of a "Lender" hereunder to any Person upon the foreclosure of anypledge or security interest referred to in this clause (i) may only be madepursuant to the provisions of Sections 10.6(c) through (e) governing assignmentsof interests in the Loans. 10.7 Independence of Covenants. All covenants hereunder shall be givenindependent effect so that if a particular action or condition is not permittedby any of such covenants, the fact that it would be permitted by an exceptionto, or would otherwise be within the limitations of, another covenant shall notavoid the occurrence of a Default or an Event of Default if such action is takenor condition exists. 10.8 Survival of Representations, Warranties and Agreements. Allrepresentations, warranties and agreements made herein shall survive theexecution and delivery 119 hereof and the making of any Credit Extension. Notwithstanding anything hereinor implied by law to the contrary, the agreements of each Credit Party set forthin Sections 2.17(c), 2.18, 2.19, 10.2, 10.3 and 10.4 and the agreements ofLenders set forth in Sections 2.16 and 9.6 shall survive the payment of theLoans, the cancellation or expiration of the Letters of Credit and thereimbursement of any amounts drawn thereunder, and the termination hereof. 10.9 No Waiver; Remedies Cumulative. No failure or delay on the part ofany Agent or any Lender in the exercise of any power, right or privilegehereunder or under any other Credit Document shall impair such power, right orprivilege or be construed to be a waiver of any default or acquiescence therein,nor shall any single or partial exercise of any such power, right or privilegepreclude other or further exercise thereof or of any other power, right orprivilege. The rights, powers and remedies given to each Agent and each Lenderhereby are cumulative and shall be in addition to and independent of all rights,powers and remedies existing by virtue of any statute or rule of law or in anyof the other Credit Documents or any of the Hedge Agreements. Any forbearanceor failure to exercise, and any delay in exercising, any right, power or remedyhereunder shall not impair any such right, power or remedy or be construed to bea waiver thereof, nor shall it preclude the further exercise of any such right,power or remedy. 10.10 Marshalling; Payments Set Aside. Neither any Agent nor any Lendershall be under any obligation to marshal any assets in favor of any Credit Partyor any other Person or against or in payment of any or all of the Obligations.To the extent that any Credit Party makes a payment or payments toAdministrative Agent or Lenders (or to Administrative Agent, on behalf ofLenders), or Collateral Agent, Administrative Agent or Lenders enforce anysecurity interests or exercise their rights of setoff, and such payment orpayments or the proceeds of such enforcement or setoff or any part thereof aresubsequently invalidated, declared to be fraudulent or preferential, set asideand/or required to be repaid to a trustee, receiver or any other party under anybankruptcy law, any other state or federal law, common law or any equitablecause (whether by demand, settlement, litigation or otherwise), then, to theextent of such recovery, the obligation or part thereof originally intended tobe satisfied, and all Liens, rights and remedies therefor or related thereto,shall be revived and continued in full force and effect as if such payment orpayments had not been made or such enforcement or setoff had not occurred. 10.11 Severability. In case any Note shall be invalid, illegal orunenforceable in any jurisdiction, the validity, legality and enforceability ofthe remaining provisions or obligations, or of such provision or obligation inany other jurisdiction, shall not in any way be affected or impaired thereby. 10.12 Entire Agreement. This Agreement (together with the Exhibitshereto, the Schedules hereto and the other agreements, documents and instrumentsdelivered in connection herewith) and the Credit Documents constitute the entireagreement among the parties with respect to the subject matter hereof andthereof and supersede all other prior agreements and understandings, bothwritten and verbal, among the parties or any of them with respect to the subjectmatter hereof. 10.13 Obligations Several; Independent Nature of Lenders' Rights. Theobligations of Lenders hereunder are several and no Lender shall be responsiblefor the obligations or 120 Commitment of any other Lender hereunder. Nothing contained herein or in anyother Credit Document, and no action taken by Lenders pursuant hereto orthereto, shall be deemed to constitute Lenders as a partnership, an association,a joint venture or any other kind of entity. The amounts payable at any timehereunder to each Lender shall be a separate and independent debt, and eachLender shall be entitled to protect and enforce its rights arising hereunder andit shall not be necessary for any other Lender to be joined as an additionalparty in any proceeding for such purpose. 10.14 Headings. Section headings herein are included herein forconvenience of reference only and shall not constitute a part hereof for anyother purpose or be given any substantive effect. 10.15 APPLICABLE LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OFTHE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCEDIN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401,SECTION 5-1402 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK) WITHOUTREGARD TO CONFLICTS OF LAWS PRINCIPLES THEREOF. 10.16 CONSENT TO JURISDICTION. ALL JUDICIAL PROCEEDINGS BROUGHT AGAINSTANY CREDIT PARTY ARISING OUT OF OR RELATING HERETO OR ANY OTHER CREDIT DOCUMENT,OR ANY OF THE OBLIGATIONS, MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OFCOMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK. BY EXECUTINGAND DELIVERING THIS AGREEMENT, EACH CREDIT PARTY, FOR ITSELF AND IN CONNECTIONWITH ITS PROPERTIES, IRREVOCABLY ACCEPTS GENERALLY AND UNCONDITIONALLY THENONEXCLUSIVE JURISDICTION AND VENUE OF SUCH COURTS; WAIVES ANY DEFENSE OF FORUMNON CONVENIENS; AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING INANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPTREQUESTED, TO THE APPLICABLE CREDIT PARTY AT ITS ADDRESS PROVIDED IN ACCORDANCEWITH SECTION 10.1; AGREES THAT SERVICE AS PROVIDED IN CLAUSE (c) ABOVE ISSUFFICIENT TO CONFER PERSONAL JURISDICTION OVER THE APPLICABLE CREDIT PARTY INANY SUCH PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE ANDBINDING SERVICE IN EVERY RESPECT; AND AGREES AGENTS AND LENDERS RETAIN THERIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRINGPROCEEDINGS AGAINST ANY CREDIT PARTY IN THE COURTS OF ANY OTHER JURISDICTION. 10.17 WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY AGREES TOWAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTIONBASED UPON OR ARISING HEREUNDER OR UNDER ANY OF THE OTHER CREDIT DOCUMENTS ORANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS LOANTRANSACTION OR THE LENDER/BORROWER RELATIONSHIP THAT IS BEING ESTABLISHED. THESCOPE OF THIS WAIVER IS INTENDED TO BE ALLENCOMPASSING OF ANY AND ALL 121 DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OFTHIS TRANSACTION, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMSAND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. EACH PARTY HERETO ACKNOWLEDGESTHAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP,THAT EACH HAS ALREADY RELIED ON THIS WAIVER IN ENTERING INTO THIS AGREEMENT, ANDTHAT EACH WILL CONTINUE TO RELY ON THIS WAIVER IN ITS RELATED FUTURE DEALINGS.EACH PARTY HERETO FURTHER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THISWAIVER WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITSJURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER ISIRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING(OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY REFERRING TO THIS SECTION10.17 AND EXECUTED BY EACH OF THE PARTIES HERETO), AND THIS WAIVER SHALL APPLYTO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS HERETO ORANY OF THE OTHER CREDIT DOCUMENTS OR TO ANY OTHER DOCUMENTS OR AGREEMENTSRELATING TO THE LOANS MADE HEREUNDER. IN THE EVENT OF LITIGATION, THIS AGREEMENTMAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. 10.18 Confidentiality. Each Lender shall hold all nonpublic informationobtained pursuant to the requirements hereof and sufficiently identified to suchLender as being non-public which has been identified as confidential by eitherBorrower in accordance with such Lender's customary procedures for handlingconfidential information of this nature and in accordance with prudent lendingor investing practices, it being understood and agreed by each Borrower that inany event a Lender may make disclosures to Affiliates of such Lender (and toother persons authorized by a Lender or Agent to organize, present ordisseminate such information in connection with disclosures otherwise made inaccordance with this Section 10.18), disclosures reasonably required by any bonafide or potential assignee, transferee or participant in connection with thecontemplated assignment, transfer or participation by such Lender of any LoansCommitments and other Obligations or any participations therein or by any director indirect contractual counterparties (or the professional advisors thereto) inHedge Agreements (provided, such counterparties and advisors are advised of andagree to be bound by the provisions of this Section 10.18) or disclosuresrequired or requested by any governmental agency or representative thereof or bythe NAIC or pursuant to legal process; provided, unless specifically prohibited -------- by applicable law or court order, each Lender shall make reasonable efforts tonotify the applicable Borrower of any request by any governmental agency orrepresentative thereof (other than any such request in connection with anyexamination of the financial condition or other routine examination of suchLender by such governmental agency) for disclosure of any such nonpublicinformation prior to disclosure of such information; provided, further, that in -------- ------- no event shall any Lender be obligated or required to return any materialsfurnished by Company or any of its Subsidiaries; and provided, further, that -------- ------- notwithstanding the foregoing, each Lender and its Affiliates shall have theright to (i) list the name and logo of each of the Borrowers and the Guarantors,as provided by the Borrowers and the Guarantors from time to time, and describethe transaction that is the subject of this 122 Agreement in their marketing materials and (ii) post such information,including, without limitation, a customary "tombstone", on its web site. 10.19 Usury Savings Clause. Notwithstanding any other provision herein,the aggregate interest rate charged with respect to any of the Obligations,including all charges or fees in connection therewith deemed in the nature ofinterest under applicable law shall not exceed the Highest Lawful Rate. If therate of interest (determined without regard to the preceding sentence) underthis Agreement at any time exceeds the Highest Lawful Rate, the outstandingamount of the Loans made hereunder shall bear interest at the Highest LawfulRate until the total amount of interest due hereunder equals the amount ofinterest which would have been due hereunder if the stated rates of interest setforth in this Agreement had at all times been in effect. In addition, if whenthe Loans made hereunder are repaid in full the total interest due hereunder(taking into account the increase provided for above) is less than the totalamount of interest which would have been due hereunder if the stated rates ofinterest set forth in this Agreement had at all times been in effect, then tothe extent permitted by law, the applicable Borrower shall pay to AdministrativeAgent, for the account of the Lenders, an amount equal to the difference betweenthe amount of interest paid and the amount of interest which would have beenpaid if the Highest Lawful Rate had at all times been in effect.Notwithstanding the foregoing, it is the intention of Lenders and each Borrowerto conform strictly to any applicable usury laws. Accordingly, if any Lendercontracts for, charges, or receives any consideration which constitutes interestin excess of the Highest Lawful Rate, then any such excess shall be cancelledautomatically and, if previously paid, shall at such Lender's option be appliedto the outstanding amount of the Loans made hereunder or be refunded to theapplicable Borrower. 10.20 Counterparts. This Agreement may be executed in any number ofcounterparts, each of which when so executed and delivered shall be deemed anoriginal, but all such counterparts together shall constitute but one and thesame instrument. 10.21 Effectiveness. This Agreement shall become effective upon theexecution of a counterpart hereof by each of the parties hereto and receipt byCompany and Administrative Agent of written or telephonic notification of suchexecution and authorization of delivery thereof. [Remainder of page intentionally left blank] 123 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to beduly executed and delivered by their respective officers thereunto dulyauthorized as of the date first written above. EQUINIX, INC. By:_____________________________ Name: Title: EQUINIX OPERATING CO., INC. By:_____________________________ Name: Title: EQUINIX EUROPE, INC. By:_____________________________ Name: Title: GOLDMAN SACHS CREDIT PARTNERS L.P., as Joint Lead Arranger, Joint Book Runner, Syndication Agent and a Lender By:_____________________________________ Authorized Signatory SALOMON SMITH BARNEY INC., as Joint Lead Arranger and Joint Book Runner By:____________________________________ Authorized Signatory CITICORP USA, INC., as Administrative Agent, an Issuing Bank and a Lender By:____________________________________ Name: Title: Title: CIT LENDING SERVICES CORPORATION, as Collateral Agent and a Lender By:____________________________________ Name: Title: GENERAL ELECTRIC CAPITAL CORPORATION, as a Lender By:____________________________________ Name: Title: BANK OF TOKYO-MITSUBISHI TRUST COMPANY, as a Lender By:____________________________________ Name: Title: THE BANK OF NOVA SCOTIA, as a Lender By:____________________________________ Name: Title: THE CHASE MANHATTAN BANK, as a Lender By:____________________________________ Name: Title: COMERICA BANK, CALIFORNIA, as a Lender By:____________________________________ Name: Title: APPENDIX A1 TO CREDIT AND GUARANTY AGREEMENT Term Loan Commitments======================================================================================================= Pro Lender Term Loan Commitment Rata Share======================================================================================================= Goldman Sachs Credit Partners L.P. $10,000,000.00 20.00000000%------------------------------------------------------------------------------------------------------- Citicorp USA, Inc./Salomon Smith Barney $10,000,000.00 20.00000000% Inc.------------------------------------------------------------------------------------------------------- General Electric Capital Corporation $ 8,333,333.33 16.66666666%------------------------------------------------------------------------------------------------------- The Chase Manhattan Bank $ 6,666,666.67 13.33333334%------------------------------------------------------------------------------------------------------- CIT Lending Services Corporation $ 5,000,000.00 10.00000000%------------------------------------------------------------------------------------------------------- The Bank of Nova Scotia $ 5,000,000.00 10.00000000%------------------------------------------------------------------------------------------------------- Bank of Tokyo-Mitsubishi Trust Company $ 5,000,000.00 10.00000000%------------------------------------------------------------------------------------------------------- Comerica Bank, California $ 0.00 0.00000000%------------------------------------------------------------------------------------------------------- Total $50,000,000.00 100.00000000%======================================================================================================= A-1 APPENDIX A2 TO CREDIT AND GUARANTY AGREEMENT Delayed Draw Term Loan Commitments======================================================================================================= Delayed Draw Pro Lender Term Loan Commitment Rata Share======================================================================================================= Goldman Sachs Credit Partners L.P. $15,000,000.00 20.00000000%------------------------------------------------------------------------------------------------------- Citicorp USA, Inc./Salomon Smith Barney $15,000,000.00 20.00000000% Inc.------------------------------------------------------------------------------------------------------- General Electric Capital Corporation $12,500,000.00 16.66666667%------------------------------------------------------------------------------------------------------- The Chase Manhattan Bank $10,000,000.00 13.33333333%------------------------------------------------------------------------------------------------------- CIT Lending Services Corporation $ 7,500,000.00 10.00000000%------------------------------------------------------------------------------------------------------- The Bank of Nova Scotia $ 7,500,000.00 10.00000000%------------------------------------------------------------------------------------------------------- Bank of Tokyo-Mitsubishi Trust Company $ 7,500,000.00 10.00000000%------------------------------------------------------------------------------------------------------- Comerica Bank, California $ 0.00 0.00000000%------------------------------------------------------------------------------------------------------- Total $75,000,000.00 100.00000000%======================================================================================================= A-2 APPENDIX A3 TO CREDIT AND GUARANTY AGREEMENT Revolving Loan Commitments======================================================================================================= Lender Revolving Loan Commitment Pro Rata Share======================================================================================================= Goldman Sachs Credit Partners L.P. $ 2,500,000.00 10.00000000%------------------------------------------------------------------------------------------------------- Citicorp USA, Inc./Salomon Smith $ 2,500,000.00 10.00000000% Barney Inc.------------------------------------------------------------------------------------------------------- General Electric Capital Corporation $ 4,166,666.67 16.66666667%------------------------------------------------------------------------------------------------------- The Chase Manhattan Bank $ 3,333,333.33 13.33333333%------------------------------------------------------------------------------------------------------- CIT Lending Services Corporation $ 2,500,000.00 10.00000000%------------------------------------------------------------------------------------------------------- The Bank of Nova Scotia $ 2,500,000.00 10.00000000%------------------------------------------------------------------------------------------------------- Bank of Tokyo-Mitsubishi Trust Company $ 2,500,000.00 10.00000000%------------------------------------------------------------------------------------------------------- Comerica Bank, California $ 5,000,000.00 20.00000000%------------------------------------------------------------------------------------------------------- Total $25,000,000.00 100.00000000%======================================================================================================= A-3 APPENDIX B TO CREDIT AND GUARANTY AGREEMENT Notice AddressesEQUINIX, INC. 2450 Bayshore Parkway Mountain View, CA 94043 Attention: Renee Lanam Telecopier: (650) 316-6909EQUINIX OPERATING CO., INC. 2450 Bayshore Parkway Mountain View, CA 94043 Attention: Renee Lanam Telecopier: (650) 316-6909EQUINIX EUROPE, INC. 2450 Bayshore Parkway Mountain View, CA 94043 Attention: Renee Lanam Telecopier: (650) 316-6909in each case, with a copy to: Gray Cary Ware & Freidenrich, LLP 400 Hamilton Avenue Palo Alto, CA 94301 Attention: Craig Tighe Telecopier: (650) 327-3699 B-1 GOLDMAN SACHS CREDIT PARTNERS L.P.,as Joint Lead Arranger, Joint Book Runner,Syndication Agent and a Lender Goldman Sachs Credit Partners L.P. 85 Broad Street New York, New York 10004 Attention: Elizabeth Fischer Telecopier: (212) 3570932 with a copy to: Goldman Sachs Credit Partners L.P. 85 Broad Street New York, New York 10004 Attention: Lisa Perrotto Telecopier: (212) 3462608 B-2 SALOMON SMITH BARNEY INC.,as Joint Lead Arranger and Joint Book Runner 390 Greenwich Street New York, NY 10013 Attention: James Garvin Telecopier: (212) 723-8547 B-3 CITICORP USA, INC.,as Administrative Agent, an Issuing Bank and a LenderAdministrative Agent's and Issuing Bank's Principal Office: 390 Greenwich Street New York, NY 10013 Attention: James Garvin Telecopier: (212) 723-8547 B-4 CIT LENDING SERVICES CORPORATIONas Collateral Agent and a Lender 44 Whippany Road, Suite 160 Morristown, NJ 07960 Attention: Vice-President - Credit Telecopier: (973) 401-6785 B-5 GENERAL ELECTRIC CAPITAL CORPORATION,as a Lender GE Capital Structured Finance Group 120 Long Ridge Road Stamford, CT 06927 Attention: Brian Jack Telecopier: 203-961-2194 B-6 BANK OF TOKYO-MITSUBISHI TRUST COMPANY,as a Lender 1251 Avenue of the Americas New York, NY 10020-1104 Attention: Michael Wiskind - Vice President Telecopier: (212) 782-4935 B-7 THE BANK OF NOVA SCOTIA,as a Lender One Liberty Plaza, 26th Floor New York, New York 10006 Attention: Robert Cole Telecopier: (212) 225-5090 B-8 THE CHASE MANHATTAN BANK,as a Lender Global Media and Telecommunications Group 270 Park Avenue, 36/th/ Floor New York, New York 10017 Attention: Edmond Deforest, Vice President Telecopier: (212) 270-4584 B-9 COMERICA BANK, CALIFORNIA,as a Lender 800 Oak Grove Ave Menlo Park, CA 94025 Attention: Sarah Lewis Telecopier: (650) 462-6058 B-10 EXHIBIT 10.37 * CONFIDENTIAL TREATMENT REQUESTED.CONFIDENTIAL PORTION HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. DATED 9/th/ June 2000(1) QUATTROCENTO LIMITED(2) EQUINIX UK LIMITED================================================================================ AGREEMENT FOR LEASE - relating to - [*] [*] London [*]================================================================================ OLSWANG 90 Long Acre London, WC2E 9TT Tel.: 020 7208 8888 Fax: 020 7208 8800 email: olsmail@olswang.com Ref: MAN/G0015-744/#678682______________________* CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTION HAS BEEN FILEDSEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THIS AGREEMENT is made the 9/th/ day of June, 2000.BETWEEN:QUATTROCENTO LIMITED whose registered office is at 45 The Esplanade St. HelierJersey Channel Islands JE4 8WQ (registered in Jersey under company number 68191)("Landlord") andEQUINIX UK LIMITED (Company Registration No. 3923886) whose registered office isat 100 New Bridge Street London EC4V 6JA ("Tenant")IT IS AGREED AS follows:1. INTERPRETATION1.1 Where a party is placed under a restriction in this Agreement the restriction is to be deemed to include the obligation on that party not to permit or allow the infringement of the restriction by any person1.2 The Clause and paragraph headings in this Agreement are for ease of reference only and are not to be taken into account in the construction or interpretation of any provision to which they refer1.3 Unless the context otherwise requires references: 1.3.1 to numbered Clauses and Schedules are references to the relevant Clause in or Schedule to this Agreement and 1.3.2 to a numbered paragraph in any Schedule are references to the relevant paragraph in that Schedule1.4 Words in this Agreement denoting the singular include the plural meaning and vice versa1.5 References to this Agreement to any statutes or statutory instruments include any statute or statutory instrument amending consolidating or replacing them respectively from time to time and for the time being in force and references to a statute include statutory instruments and regulations made pursuant to it1.6 Words in this Agreement importing any one gender include both other genders and may be used interchangeably and words denoting natural persons where the context allows include corporations and vice versa2. DEFINITIONS In this Agreement the following words and expressions shall have the following meanings unless the context requires otherwise: "Access Date" the date on which the Landlord and the Tenant agree in writing that the Tenant has been given full access to the entirety of the Premises for the purpose of commencing the Tenant's Works "Condition" the Landlord obtaining vacant possession of the Premises "Condition Date" the date upon which the Landlord notifies the Tenant in writing that the Condition has been satisfied "Documents" the scope of works prepared by the Tenant and dated 19 April 2000 and the drawings prepared by Bechtel and numbered 24412-09S-A2-0100-00002, 24412-09S-A1-0100-00016, 24412-09S-A1-0100-00004, 24412-09S-A1-0100-00002, 24412-09S-A1-0100-00003 and 24412-09S-A2-0100-00001 copies of which are attached hereto "End Date" 14 August 2000 "Lease" the lease of the Premises to be granted by the Landlord to the Tenant as hereinafter provided which shall: (i) grant a term of 25 years from the Access Date (ii) reserve an initial rent firstly reserved of [*] POUNDS ((pound)[*]) per annum such rent to commence and be payable from the Rent Commencement Date (iii) reserve the further or additional rents as therein provided which shall be payable from the Access Date (iv) be in the form of the draft lease attached hereto subject only to such amendment as circumstances shall require and shall be agreed by the Landlord and the Tenant and (v) be engrossed (original and counterpart) by the Landlord's solicitors "Lease Completion Date" the date 10 working days after the Condition Date "Necessary Consents" all necessary permissions licenses and approvals under the Town and Country Planning Acts the building and fire regulations and under any other statute bye-law or regulation of any competent authority "Premises" the premises known as [*] London [*] as the same are more particularly described in the Lease "Rent Commencement Date" [*] months after the Access Date "Tenant's Works" such works as the Tenant shall wish to carry out to the Premises (subject to obtaining all Necessary Consents and the approval of the Landlord pursuant to * CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTION HAS BEEN FILEDSEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. 2 the Lease as if the same had been granted) prior to occupying the same as the same are listed in and form part of the Documents and "Termination Date" 24 December 20003. CONDITIONAL AGREEMENT3.1 This Agreement is conditional upon the satisfaction of the Condition and if the Condition has not been satisfied by the End Date then the Tenant may rescind this Agreement by written notice to the Landlord at any time thereafter prior to the Condition being satisfied3.2 If the Condition has not been satisfied by the Termination Date then either party may rescind this Agreement by written notice to the other at any time thereafter prior to the Condition being satisfied3.3 The Landlord shall use its best endeavors to procure the satisfaction of the Condition prior to the End Date and shall (if the Condition remains unsatisfied) continue to use such endeavors until the Termination Date3.4 The remaining provisions of this Agreement shall apply on the Condition being satisfied4. LEASE AND TITLE4.1 On the Lease Completion Date the Lease the licence for alterations the sideletter and the letter of intent (agreed drafts of which are all annexed hereto) shall be completed and the Tenant shall execute a counterpart thereof and the Landlord's solicitors shall place the Land Certificates of the Premises on deposit at HM Land Registry advising the Tenant's solicitors of the deposit numbers immediately the same are to hand4.2 The Landlord will deduce title in accordance with Section 110 of the Land Registration Act 19254.3 Title having been deduced to the Tenant prior to the date hereof (as the Tenant hereby acknowledges) the Tenant shall not raise any objection or make any enquiry or requisition in respect of the Landlord's title4.4 On completion of the Lease vacant possession of the Premises shall be given to the Tenant4.5 So far as may be necessary the National Conditions of Sale (20th Edition) shall be incorporated herein so far as they do not conflict with the express provisions hereof5. TENANT'S WORKS5.1 From the Access Date the Tenant shall have access to the Premises for the purpose of carrying out the Tenant's Works in accordance with the Documents 3 5.2 Subject as aforesaid the Tenant shall commence the Tenant's Works within 14 days after the Access Date (and subject to obtaining all Necessary Consents) and shall thereafter proceed diligently with and complete the Tenant's Works within nine months after the Access Date and shall notify the Landlord in writing immediately the same have been completed5.3 The Tenant shall carry out the Tenant's Works in a good and workmanlike manner in accordance with the approved drawings and specification and any applicable Necessary Consents and to the reasonable satisfaction of the Landlord5.4 On completion of the Lease the parties hereto shall complete a license by deed authorizing the Tenant's Works in the form of the licence attached hereto and in carrying out the Tenant's Works prior to such completion the Tenant shall perform and observe all the provisions of such licence as if the same were herein set out in full6. ACCESS PENDING GRANT OF LEASE6.1 6.1.1 The Landlord shall give to the Tenant not less than three working days' written notice ("Condition Notice") that the Landlord acting properly believes the Condition has been satisfied 6.1.2 Upon receipt of the Condition Notice the Tenant shall either: 6.1.2.1 confirm to the Landlord in writing the Tenant's acceptance of the Condition Notice and the satisfaction of the Condition or 6.1.2.2 notify the Landlord in writing (giving reasons) that in the Tenant's opinion acting properly the Condition has not been satisfied 6.1.3 If the Tenant does not respond to the Landlord within two working days of receipt of the Condition Notice the Condition shall be deemed to be satisfied and the Access Date shall be the date two working days after the date of the Condition Notice 6.1.4 6.1.4.1 If the Tenant notifies the Landlord pursuant so sub- clause 6.1.2.2 above then the parties or their representatives shall jointly reinspect the property to ascertain whether or not the Condition has been satisfied such inspection taking place as soon as possible and in any event within 48 hours of the Tenant's counter-notice 6.1.4.2 In the event that the parties still cannot reach agreement the matter shall be referred to an independent expert agreed between the parties or in default of agreement appointed on the application of either party by the President of the Royal Institution of Chartered 4 Surveyors who shall give his decision within two working days of his appointment and 6.1.4.3 in the event that an independent expert is appointed then the Access Date shall be the date determined by such expert and notified to the parties in writing 6.1.5 Within five working days of the determination of the Access Date the parties shall joint sign a memorandum confirming the Access Date for the purposes of this Agreement and the Lease6.2 If the Tenant shall enter the Premises prior to the grant of the Lease the Tenant shall: 6.2.1 occupy as a licensee only 6.2.2 pay to the Landlord: 6.2.2.1 from the Rent Commencement Date a license fee at the same yearly rate and payable at and in the same manner as the initial yearly rent to be firstly reserved by the Lease and 6.2.2.2 from the Access Date any insurance premiums service charge and other monies in respect of the Premises which would be payable by the Tenant if the Lease had then been granted (all such payments being treated as a discharge for the payment of any rent insurance premium and service charge that would otherwise have been due under the Lease in respect of the same period) and 6.2.3 be subject to the same exceptions reservations, covenants and conditions and to the other provisions contained in the Lease so far as they are not inconsistent with this Agreement and so that the Landlord shall have and be entitled to all remedies by distress action or otherwise for recovering rent in arrears and for any breach of any of the covenants or agreements on the part of the Tenant as if the Lease had been actually granted but nothing in this sub-clause shall vary or affect the application of the next succeeding Clause6.3 Prior to the Access Date the Landlord will give every assistance and use its reasonable endeavors to allow the Tenant partial access to the Premises6.4 Pending completion of the Lease this Agreement shall not be deemed to operate as a demise of the Premises nor shall the Tenant have or be entitled to any estate right title or interest in the Premises7. ALIENATION NON-MERGER7.1 The Tenant shall not assign mortgage charge or otherwise deal with its interest under this Agreement or any part thereof and shall itself take up and complete the Lease save that the foregoing provisions of this Clause shall not prevent the Tenant assigning this 5 Agreement with the consent of the Landlord (such consent not to be unreasonably withheld or delayed) to a group company (as defined by Section 42 of the Landlord and Tenant Act 1954)7.2 Notwithstanding the grant of the Lease all the obligations of the parties hereunder shall continue in full force and effect except so far as they have actually been complied with or incorporated in the Lease until all the terms and conditions hereof have been completely fulfilled8. DETERMINATION8.1 The Landlord may determine this Agreement forthwith if 30 days after giving written notice to the Tenant that the Tenant has failed to pay any installment of the license fee insurance premium or service charge within 21 days after it shall have become due under the provisions of this Agreement or that the Tenant has committed any material breach of its obligations under this Agreement or there has occurred any of the events described in Clause 6.1 of the Lease which has not been remedied within the said 30 day notice period8.2 The determination of this Agreement in any such event shall be without prejudice to any other rights or remedies of the Landlord against the Tenant for the breach non-observance or non-performance of the Tenant's obligations under this Agreement9. NOTICES Any notice served under or in connection with this Agreement shall be properly served if it complies with either the provisions of Section 196 of the Law of Property Act 1925 or Section 23 of the Landlord and Tenant Act 1927 (as amended in each case by the Recorded Delivery Service Act 1962)10. CONTRACTS (RIGHTS OF THIRD PARTIES) ACT 1999 Unless otherwise expressly stated nothing in this Agreement shall create or confer any rights or other benefits pursuant to the Contracts (Rights of Third Parties) Act 1999 in favour of any person other than the parties to this Agreement AS WITNESS the hands of the parties hereto the day and year first before written SIGNED BY for and on behalf of QUATTROCENTO LIMITED 6 EXHIBIT 10.38 * CONFIDENTIAL TREATMENT REQUESTED.CONFIDENTIAL PORTION HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. TABLE OF CONTENTS Page ---- CHAPTER I.. DESCRIPTION.......................................................................................1 CLAUSE 1. SUBJECT OF THE AGREEMENT...................................................................1 CLAUSE 2. DESCRIPTION OF THE PREMISES................................................................1 CLAUSE 3. TERM.......................................................................................1 CLAUSE 4. INVENTORY OF THE PREMISES..................................................................1 CLAUSE 5. AUTHORIZED USE OF THE PREMISES.............................................................1CHAPTER II.. OBLIGATIONS, TERMS AND CONDITIONS................................................................2 CLAUSE 6. GENERAL TERMS AND CONDITIONS OF USE AND POSSESSION.........................................2 CLAUSE 7. WORK, INSTALLATIONS AND IMPROVEMENTS.......................................................6 CLAUSE 8. FURNISHING OF THE PREMISES.................................................................7 CLAUSE 9. TAXES AND LEVIES...........................................................................7 CLAUSE 10. SUPERVISION AND SECURITY OF THE PREMISES..................................................8 CLAUSE 11. INSPECTION OF THE PREMISES................................................................8 CLAUSE 12. INSURANCE AND CLAIMS......................................................................8 CLAUSE 13. SUBLEASE / ASSIGNMENT OF THE LEASE........................................................9 CLAUSE 14. RETURN OF THE PREMISES...................................................................10CHAPTER III. FINANCIAL OBLIGATIONS...........................................................................11 CLAUSE 15. RENT.....................................................................................11 CLAUSE 16. INDEXATION AND ADJUSTMENT CLAUSE.........................................................11 CLAUSE 17. PERSONAL CHARGES.........................................................................11 CLAUSE 18. SITE CHARGES.............................................................................12 CLAUSE 19. VALUE-ADDED TAX..........................................................................12 CLAUSE 20. TERMS OF PAYMENT.........................................................................12 CLAUSE 21. SECURITY DEPOSIT.........................................................................13CHAPTER IV. OTHER OBLIGATIONS................................................................................13 CLAUSE 22. TERMINATION CLAUSE.......................................................................13 CLAUSE 23. CHANGE IN LEGAL FORM.....................................................................14 CLAUSE 25. REPRESENTATION...........................................................................14 CLAUSE 26. ELECTION OF DOMICILE (ADDRESS FOR SERVICE) / JURISDICTION CLAUSE.........................14 CLAUSE 27. REGISTRATION.............................................................................15 CLAUSE 28. COSTS AND EXPENSES.......................................................................15CHAPTER V. SPECIAL TERMS AND CONDITIONS.......................................................................15 BY AND BETWEENCOMPAGNIE DES ENTREPOTS ET MAGASINS GENERAUX DE PARIS, a societe anonyme havinga share capital of 12,047,375.06 euros, with its registered office at [*] ([*])[*], registered with the Registre du Commerce et des Societes de Bobigny(Bobigny Commercial and Corporate Registry) under number [*],Represented by Mr. Bruno KAHAN, Directeur General Adjoint (Deputy ManagingDirector), domiciled at such registered office for the purposes hereofHereinafter referred to as the "LESSOR,"OF THE FIRST PART,-----------------AND---EQUINIX INC., an American company having its registered office at 901 MarshallStreet, Redwood City, California (the United States), and registered in theState of Delaware,Represented by Mr. Chris Birdsong, duly authorized for the purposes hereof undera power of attorney granted by Ms. Renee Lanam, General Counsel, pursuant to aprivate deed dated July 17, 2000, which is attached hereto (SCHEDULE 1).Equinix Inc. is acting as a party hereto while awaiting the incorporation of itsFrench subsidiary, Equinix France, and Equinix Inc. shall assign its right tothis lease to Equinix France, under the terms and conditions set out herein:. Equinix Group shall hold an equity stake of at least 99% in Equinix France,. Equinix France will be incorporated no later than December 31, 2000,. The assignment will be executed in consideration of the payment of one "symbolic" French Franc.Hereinafter referred to as the "LESSEE,"OF THE SECOND PART,------------------THE PARTIES AGREE AS FOLLOWS:----------------------------_____________________* CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTION HAS BEEN FILEDSEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. CHAPTER I - DESCRIPTIONCLAUSE 1 - SUBJECT OF THE AGREEMENTThe LESSOR hereby grants a commercial lease (pursuant to the provisions ofDecree # 53-960 of September 30, 1953, as amended) to the LESSEE, which herebyaccepts, on the premises described below in Chapter V.1.CLAUSE 2 - DESCRIPTION OF THE PREMISESThe LESSEE hereby certifies that it is perfectly familiar with the leasedpremises, including their installations, insofar as it as seen and inspectedthem for the purposes hereof, without any need to provide any furtherdescription thereof than the description provided below in Chapter V.1, and theLESSEE acknowledges that it has approved them in their current condition,together with all their appurtenances.The parties expressly agree that the premises covered by this lease shall forman indivisible whole.CLAUSE 3 - TERMThis lease is hereby granted and accepted for a term of twelve (12) full andconsecutive years. Said term shall begin to run as from the effective datespecified below in Chapter V.2.However, the LESSEE shall have the right to terminate the lease upon theexpiration of each period of three (3) years, subject to giving notice of suchtermination by extra-judicial deed, no less than six (6) months in advance.The LESSOR shall have the same option, in the event that it wishes to assert theprovisions of Articles 10, 13 and 15 of said Decree, in order to build orrebuild the existing structure, to raise its height, or to perform any work thatmay be required or authorized in connection with any real property renovationoperation.CLAUSE 4 - INVENTORY OF THE PREMISESAn inventory of the premises (etat des lieux) shall be jointly prepared by theparties at the time that the LESSEE takes possession thereof. In the event that,for whatever reason, said inventory of the premises is not prepared, and interalia if the LESSEE, after having been duly called to be present, fails to appearfor such purpose, the premises shall be deemed to have been leased in perfectcondition.CLAUSE 5 - AUTHORIZED USE OF THE PREMISESThe LESSEE must utilize the premises covered hereby exclusively for theauthorized use specified below in Chapter V.3, in a peaceful manner and inaccordance with the provisions of Articles 1728 and 1729 of the French CivilCode. The parties expressly agree that the LESSEE shall not perform on the premisesany actions that would involve any sales to customers (actes de venteachalandee) on a wholesale or retail basis, or any auctions of any personalproperty or other items. It is hereby reiterated and specified that, pursuant tothe provisions of Article 30 of the Decree of September 30, 1953 (as amended),the LESSEE shall have the right to add related or similar activities to theactivity specified in this lease.In such case, the LESSEE must give notice of its intention in such connection tothe LESSOR, by an extra-judicial deed, and must indicate those activities thatthe LESSEE plans to conduct. This formality shall operate as notice to the ownerto indicate, within a period of TWO (2) MONTHS (subject to a forfeiture of itsrights), whether the LESSOR disputes the related or similar nature of suchactivities.Pursuant to the provisions of Articles 34.1 et seq. of said Decree, the LESSEEshall have the right to request the LESSOR, by an extra-judicial deed, for anauthorization to conduct, on the leased premises, one or more activities thatare different from the activity specified in this lease. Subject to being nulland void, such request must contain an indication of those activities that theLESSEE plans to conduct and must also must be served by an extra-judicial deedto any creditors having a registered security interest on the going business(fonds de commerce). OBLIGATIONS, TERMS AND CONDITIONSThis lease is being entered into under the ordinary and legal obligations, termsand conditions, and inter alia those set out below, which the LESSEE agrees toperform and to comply with on a strict basis, without any right for the LESSEEto demand any indemnity or any reduction in the rent specified below, and incase of breach, under penalty of the requirement to pay costs and damages, andeven the termination hereof, at the discretion of the LESSOR.CLAUSE 6 - GENERAL TERMS AND CONDITIONS OF USE AND POSSESSION6.1 The LESSEE shall accept the premises covered by this lease in their condition as at the date the LESSEE takes possession thereof, without any right to demand from the LESSOR, whether at such time or at any other time during the term hereof, any work involving any repairs, renovation, consolidation, refurbishing, installation or replacement that is or could at any time become necessary on the leased premises (including the installations made thereto), whatever the cause, nature or extent thereof, and even if such work is due to wear and tear or to deterioration.The LESSEE waives the warranty on hidden defects referred to in Article 1721 ofthe French Civil Code.6.2 At its own expense, risks and perils, and progressively as required, the LESSEE shall perform all the work involving any repairs, renovation, consolidation, refurbishing and replacement that is or could at any time become necessary with regard to the premises and the installations covered hereby, whatever the cause, nature or extent thereof, and even if such work is due to wear and tear or to deterioration. However, and unless otherwise specified below, such work shall include the workreferred to in Article 606 of the French Civil Code only with regard to theelectrical installations, overhead cranes and freight elevators, centralheating, air-conditioning and fire-prevention (equipped fire sprinklers,"pyrodomes," fire-doors, fire-detection systems, etc.), hot-water production andplumbing installations.With regard to the installations, the LESSEE shall also perform, at its ownexpense, risks and perils, progressively as they become necessary, all the worknecessary to ensure compliance with any current or future standards, as well asall the work necessary to ensure compliance with any current or future standardswith regard to environmental protection, health and safety of industrialpremises, warehouses and office space.It is further agreed that in the event that the administrative authorities (orany other authorities) were to require, at any time, any changes to the premisescovered by this lease, and inter alia in connection with the LESSEE's conduct ofits activity and in connection with the use of the leased premises, and even ifsuch requirement were to constitute a case of force majeure, all the costs,expenses and consequences whatsoever resulting from such changes shall be bornein full by the LESSEE, which hereby agrees to pay them, and even where suchchanges were to constitute "major repairs," as such term is defined in Article606 of the French Civil Code.The LESSEE shall also be responsible for the supervision and inspection of suchinstallations, according to the terms, conditions and frequency required underthe current and future regulations in such connection, and it shall execute,with an agency approved by the Plenary Assembly of Property Damage InsuranceCompanies (APSAD), an agreement for the annual inspection of such installations.Their annual verifications and inspections shall be performed at the expense ofthe LESSEE, and it shall send a photocopy of the corresponding reports to theLESSOR, within one month after the receipt of each such report.Failing any performance of the work and/or inspections and verifications listedabove, the LESSOR shall have the right, where such situation has not beencorrected thirty days after an order served by registered letter (except in caseof duly established emergency) to substitute itself for the LESSEE and to haveall such work performed at the exclusive expense of the LESSEE, by any firmselected by the LESSOR, and the LESSEE agrees to reimburse the LESSOR for thecosts thereof within fifteen days of any notice sent to it in such connection.With regard to the heating and/or air-conditioning installations, the LESSEEshall execute a full maintenance agreement with a specialized firm. The LESSEEshall maintain such an agreement in force for the entire term of this lease,shall pay the fees in such connection on their due dates, and shall bear allsuch expenses under its own responsibility.With regard to the premises located in the [*] district, which include a heatingsystem that features a combustion device, the LESSEE must comply (in connectionwith the use thereof) with the provisions of the Ministerial Decision ofSeptember 22, 1978 in relation to the creation of a "special area for theprotection against atmospheric pollution" in the above-specified district,__________________* CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTION HAS BEEN FILEDSEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. so that the LESSOR's liability shall in no event be claimed or incurred in suchconnection. The LESSEE represents that it has examined said MinisterialDecision.Lastly, the LESSEE shall paint the outside doors, latches and locks whenevernecessary. At its own expense and whenever necessary, the LESSEE shall performall the treatments and applications necessary for the extermination of rats andinsects on the leased premises, so that at no time shall any rodents or harmfulinsects be present on the leased premises.6.3 The LESSOR expressly reserves the right to lease (or to use itself), in order to conduct the same activity as the activity specified below in Chapter V.3, and without any right for the LESSEE to issue any claims in such connection, all the premises that form part of the same building or other buildings owned by it, even if such premises or buildings are adjacent to or are located in the immediate vicinity of the premises covered by this lease.The leased premises must be used as warehouse space and for industrialactivities with regard to the provisions of the French Zoning Code that apply topremises located in the Paris Metropolitan Area. If the LESSEE's use of thepremises causes them to be transformed into premises of any different category(under the meaning of such provisions), the LESSEE must reimburse the LESSORimmediately for the fees and increases in relation thereto that may be chargedin the LESSOR's name by reason of such transformation of the premises. Suchreimbursement shall remain the LESSOR's property, even after the return of thepremises by the LESSEE, and shall not entail any waiver by the LESSOR of theright to demand that the LESSEE immediately cease any activities that havecaused the leased premises to be transformed into premises of a differentcategory (under the meaning set out above), even if such activities are notreferred to below in Chapter V.3.6.4 The LESSOR does not offer any warranty with regard to the temperature of the premises serviced by the heating and/or air-conditioning installations that may exist on the leased premises. The LESSEE shall not have the right to issue any claims in such connection. The same provisions shall apply (and the LESSEE shall not have the right to demand any reduction in the rent or any indemnity) in case of any suspension in the operation thereof, whatever the duration, as a result of any maintenance, repair, replacement, suspension or outages of electricity or gas, failures, strikes or any other causes.6.5 In any warehouses with more than one level, and where there are any common freight or other elevators, each of the occupants shall have the right to use such elevators at its own risks and perils, and in compliance with the rights of the other occupants. The LESSEE shall not have the right to issue any claims in case of any improper operation or suspension of the service of the installations as a result of any electricity outage, maintenance work, repairs or work to ensure compliance with standards, or as a result of any other causes.6.6 The LESSEE must comply with all the regulations, requirements and standard practices of the site, and with any changes that the LESSOR may make thereto in the future. In particular, the LESSEE must comply with the opening and closing hours of the site, as well as with the ban on smoking and on setting any fires, and with all the provisions in relation to safety and fire protection. 6.7 The LESSEE must not store any equipment or goods outside the leased premises, and must not park any vehicles outside the leased premises.6.8 The LESSEE must (when necessary) dispose of its commercial waste or refuse outside the perimeter of the site, unless it enters into an agreement with the LESSOR for the removal thereof and (where applicable) the destruction thereof, under terms and conditions (namely the price) to be defined.6.9 For the entrance to and exit from the site, the LESSOR reserves the right to demand the issuance of a pass which must bear the LESSEE's stamp, indicating the vehicle number or (where applicable) the name of its holder. The requirement for such a pass shall in no way cause the LESSOR's liability to be incurred in connection with the movement of any goods of the LESSEE or the operation of its vehicles.6.10 The LESSEE must ensure that no damage is caused by its workers or employees inside the site. The LESSEE shall be liable for any damage and loss that may occur to the premises and installations covered by the lease, even if they occur in a case where no negligence or fault is attributable to the LESSEE.6.11 If it uses any handling equipment (forklifts) on the leased premises, such equipment must be mounted on "pneumatic" wheels as opposed to "banded" wheels6.12 At its own expense, the LESSEE must immediately install portable fire extinguishers on the leased premises and, on a periodic basis, have them maintained and inspected, in order to satisfy (with regard to the frequency, type, number and location of such devices) the provisions of the laws, regulations, requirements by the administrative authorities and those under rule R4 of the Plenary Assembly of Property Damage Insurance Companies. The same shall apply with regard to any subsequent additions or changes that may be made to such provisions and requirements. The LESSEE acknowledges that it has received a copy of said rule R4 and that it is perfectly familiar therewith.If the LESSEE installs any storage facilities (shelves, etc.) on the leasedpremises, such items must be made of non-combustible materials.6.13 Outside the leased premises, the LESSEE shall not have the right to post any industrial or commercial advertisements. However, a simple sign may be authorized either on the door or on the walls of the leased premises. The LESSEE shall ensure that any signs thus installed by it shall remain solidly affixed at all times. The LESSEE alone shall be liable for any accidents that may be caused by their installation or their existence. The LESSOR reserves the right to use the leased premises for any advertising (lighted signs or others), without any right for the LESSEE to claim any indemnity or reduction in the rent in such connection.6.14 Outside the leased premises, the LESSEE shall not have the right to install any displays, stalls or other items of any type, and must not allow any items to remain outside the buildings. The LESSEE shall not have the right to install any marquees, verandas, awnings or other outside shutters without the LESSOR's express written consent and without first having obtained any administrative authorizations that may be necessary. In the event that any such authorization is issued to the LESSEE, it must maintain such items in proper condition with regard to their maintenance, and ensure their solidity in order to avoid any accidents. Any authorizations granted by the LESSOR shall in no event cause the LESSOR's liability to be incurred in connection with any accidents that may occur to any party as a result of such items.6.15 With regard to the public authorities, the LESSEE shall carry out all the legal and regulatory formalities that may be required, at present or in the future, as a result of its occupancy and/or operations, and (for the same purposes) shall obtain any administrative authorizations that may be necessary, so that the LESSOR's liability shall not be claimed in such connection. At its own expense, risks and perils, the LESSEE shall perform all the work, improvements and building work that may be required at present or in the future under any laws or regulations, and namely with regard to environmental protection, health and safety of industrial premises, warehouses and office space.Such work, improvements, installations and building work shall be subject to theprovisions of Clause 7.2 below.CLAUSE 7 - WORK, INSTALLATIONS AND IMPROVEMENTS7.1 Without the right to claim any indemnity or reduction in the rent specified below, the LESSEE shall tolerate all the work that the LESSOR may decide to perform on the leased premises (including any installations made thereon) and within the perimeter of the site, whatever the cause, nature, extent or length thereof, and even if it exceeds forty days.The LESSEE must also tolerate all the work that may be performed on the publicroads or in the buildings in the vicinity of the building containing the leasedpremises, whatever the resulting inconvenience for the operation of itsbusiness, or the entrance of the leased premises, without prejudice to theLESSEE's right to take any available actions against the authorities, thecontractor of the work or the neighboring owners, provided that it shall have noright to assert the LESSOR's liability in such connection.7.2 On the premises covered hereby, the LESSEE shall not have the right to perform any construction or installation work, or any improvements, drilling in the walls or changes in the layout, and in general, no right to make any changes whatsoever to the premises or to the installations contained thereon, unless it has obtained the prior, express and written consent of the LESSOR, at the sole discretion of the LESSOR.The same provision shall apply to the installation or the use of any devices forheating, lighting and/or air-conditioning.As necessary, the LESSEE shall perform any work involving repairs, renovation,refurbishing, consolidation or replacement (including the "major work" referredto in Article 606 of the French Civil Code) that may be required with regard tothe structures, installations and improvements performed by it and which havebeen duly authorized, so that they shall remain in perfect condition at alltimes. The LESSEE shall reimburse the LESSOR for any charges and taxes, including theland tax and any additional taxes in relation to the structures, installationsand improvements performed by the LESSEE on the leased premises and which havebeen duly authorized, in the event that such charges and taxes are collected inthe LESSOR's name.The LESSEE alone shall be liable for any accidents and/or incidents that mayoccur by reason of the performance and existence of any structures,installations and improvements performed by it and which have been dulyauthorized, and the operations to which they may give rise. In particular, theLESSEE shall agree to indemnify the LESSOR (where applicable, as its owninsurer) in connection with any claims that may be made against the LESSOR byreason of any such accidents and/or incidents, or the consequences thereof.Upon the end of this lease, due to the expiration of its term or to itstermination for whatever reason, all the structures, installations, developmentsand, in general, all the improvements and embellishments that may be performedby the LESSEE and (where applicable) all those that may be required under thelegal or regulatory provisions, shall become, without any indemnity (insofar asthe rent has been determined taking this fact into account) the property of theLESSOR, unless the LESSOR opts to demand that all or part of the premises berestored to their original condition, at the LESSEE's expense, and even inrespect of any work that may have been expressly authorized by the LESSOR.The LESSEE shall not have the right to destroy or remove any work thusperformed, even during the term hereof, without the consent of the LESSOR,insofar as such work shall be incorporated into the building by reason of itsperformance, and the LESSEE shall forfeit all property rights in such respect.CLAUSE 8 - FURNISHING OF THE PREMISESThe LESSEE must furnish the leased premises and maintain them furnished at alltimes with goods and equipment of sufficient value and in sufficient quantity inorder to cover, at all times, the payment of the rent specified below and theaccessory charges, as well as the full performance of the obligations, terms andconditions of this lease.CLAUSE 9 - TAXES AND LEVIESAs of the date it takes possession of the premises, the LESSEE shall pay all thetaxes and levies owed by it, and it must submit documentary evidence of theirpayment to the LESSOR, prior to any departure from the premises.As of the date it takes possession of the premises, the LESSEE shall reimbursethe LESSOR for all the taxes, charges, levies and fees to which the premisescovered hereby may give rise, including all the land taxes, according to therental value of the premises (as set out in the land register), as well as theannual tax on office space in the Paris Metropolitan Area, to the extent thatthe premises covered hereby are subject to such tax. In such connection, theLESSEE shall pay to the LESSOR, at the same time as the rent, a quarterlyadvance for which the amount is specified below in Chapter V.6. In the event that the lease begins after the start of a calendar quarter, suchadvance shall be payable on a prorated basis as from the effective date of thelease.The adjustment compared to the final amount owed shall occur at the end of eachcalendar year.The advance referred to above shall be adjusted each year, on January 1,according to the final amount actually owed for the previous year, in connectionwith the reimbursement of the taxes and levies.In the event that the rental value of the leased premises and/or of thestructures, installations and improvements thereto performed by the LESSEE orits contractors are included in the tax base of the LESSOR for the purposes ofthe business tax, the LESSEE must immediately reimburse the LESSOR for thatproportion thereof which corresponds in such connection to the business taxcollected in the LESSOR's name. The same provision shall apply with regard toany related, additional or replacement taxes or levies.CLAUSE 10 - SUPERVISION AND SECURITY OF THE PREMISESThe general supervision performed on the LESSOR's site shall not include thesupervision of the goods stored thereon by the lessees, and accordingly, theLESSEE must ensure the supervision and security of its own goods and equipment.The LESSOR shall not offer any warranty for the benefit of the LESSEE inconnection with any disturbances in its possession due to any third parties,other lessees, occupants or users of the warehouse space, namely in case of anytheft or burglary, with or without any breaking and entering. The LESSEE shallbe personally responsible for taking out any insurance in such connection, withsuch insurance to exclude any direct or indirect claims against the LESSOR orits insurers.CLAUSE 11 - INSPECTION OF THE PREMISESThe LESSOR's agents shall have the right to enter the leased premises as oftenas necessary to verify their condition and to duly note the full performance ofthe obligations, terms and conditions hereof. The LESSOR must give prior noticeto the LESSEE of any exercise of such inspection right.The LESSEE must also allow the premises to be visited by the LESSOR or bypotential lessees in case of any termination of the lease, during the priornotice period.The LESSEE hereby authorizes any agent duly authorized by the LESSOR to enterthe leased premises during said period.CLAUSE 12 - INSURANCE AND CLAIMSThe LESSEE must take out insurance against fire and any explosions, as well asagainst water damage, flooding, or back-up of sewers and pipes, from first rankinsurance companies, and for a sufficient value, to cover the installations,structures and improvements performed by it on the  10 leased premises with the LESSOR's authorization, and to cover the equipment andgoods furnishing the premises, and the rental risks, claims by neighbors andlegal ("civil") liability.The LESSEE shall maintain such insurance in effect for the entire term hereof,and shall adjust such insurance as necessary; it shall pay the premiums andpayments for such insurance on their due dates.In the event that the LESSEE's insurance company requires the LESSEE, at anytime, to install appropriate detection systems (smoke detectors, smokeextraction hatches, etc.), namely by reason of the conduct by the LESSEE of itsactivity and its use of the leased premises, and even if such requirementconstitutes a case of force majeure, the LESSEE expressly agrees to have suchsystems installed and to bear all the expenses and consequences of suchrequirements, even if such requirements constitute "major repairs" under thedefinition specified in Article 606 of the French Civil Code. The LESSEE agreesto notify the LESSOR of any requirements in such connection that may be issuedby its insurance company.In case of any damage due to fire, explosion, water damage, flooding, back-up ofsewers and pipes, the LESSEE waives any direct or indirect claims against theLESSOR, its personnel and its [insurers], and agrees to have the same waiverinserted by its insurers into its own policies.The LESSEE shall submit documentary evidence to the LESSOR or to any agentdesignated by the LESSOR, upon any request, of the fulfillment of its insuranceobligations, by the submission of the policies, any riders thereto and anypremium payment receipts.In addition, the LESSEE must reimburse the LESSOR for any insurance surchargesthat may result from its presence on the leased premises, in the event that suchpresence gives rise to rates that are higher than those charged for the merestorage of goods that are classified as "ordinary" by the insurance companies,with regard to any types of warehouses.In case of any fire, the amounts owed to the LESSEE by the insurance company(companies) shall constitute the LESSOR's security interest, in lieu of thepersonal property and equipment, up until the replacement or the repair of suchitems, and this lease shall operate as an assignment (as a security interest) tothe LESSOR of all the insurance indemnities, for up to the amounts still owed toit, with comprehensive powers being granted to the bearer of an official copy orexcerpt hereof to serve notice of such assignment to any relevant party.CLAUSE 13 - SUBLEASE / ASSIGNMENT OF THE LEASEThe LESSEE shall not have the right to put all or part of the leased premises atthe disposal of anyone, in any form whatsoever, and even in the form of a loan,sublease or business lease.The LESSEE shall not be entitled to assign its rights hereunder except to thesuccessor of its business, for all the premises, and only after having procuredthe LESSOR's express written approval of such successor, with such approval notto be withheld unless such successor fails to present sufficient guarantees withregard to its reputation and solvency.The LESSEE shall remain jointly and severally liable with its assignee and,where applicable, with any successive assignees, for the payment of the rentspecified below, the accessory charges 11 and the value-added tax in relation thereto, and for the full performance of allthe obligations, terms and conditions hereof.Any assignment must be recorded in a notarized or non-notarized deed, for theexecution of which the LESSOR must be called to be present, by means of noticegiven at least fifteen days in advance. Such deed of assignment must contain areference to the assignor's joint and several liability, as referred to in thisclause.Notification of the assignment or any contribution must be served on the LESSORpursuant to the provisions of Article 1690 of the French Civil Code. Suchnotification must contain (in an appendix thereto) an original counterpart ofthe deed of assignment. If the assignment is performed under a notarized deed,an enforceable copy of the deed of assignment must be submitted to the LESSOR,at no charge.CLAUSE 14 - RETURN OF THE PREMISESPrior to its departure or to the removal of any personal property or equipmentfrom the premises, the LESSEE must first have paid all the installments of rentand accessory charges, and submit documentary evidence on the payment of itstaxes, for the previous years and for the year then in progress.No later than the lease's expiration date, the LESSEE must return the leasedpremises in good condition as regards their repairs, to be recorded in aninventory of the premises, after the performance of which the LESSEE shallreturn the keys to the LESSOR. Notwithstanding the return of the keys, the leaseshall continue in force up until the expiration date, as specified herein, withthe rent to continue to be owed up until said date.The inventory of the premises (for which the date shall be set by mutualagreement between the parties) shall include, where applicable, a statement onthe repairs to be performed. The LESSEE must pay for or reimburse the amount ofany repairs that may be owed. Failing any agreement, the inventory of thepremises shall be drawn up on the lease's expiration date.If the LESSEE is not present on the date and time scheduled for the inventory ofthe premises, such inventory may be drawn up (at the LESSOR's discretion) in thepresence of a process server, who may be assisted by a locksmith in order toenter the leased premises, and the corresponding costs shall be borneexclusively by the LESSEE.As specified above in Clause 7.2, upon the end of this lease, due to theexpiration of its term or to its termination for whatever reason, all thestructures, installations, developments and, in general, all the improvementsand embellishments that may be performed by the LESSEE and (where applicable)all those that may be required under the legal or regulatory provisions, shallbecome, without any indemnity (insofar as the rent has been determined takingthis fact into account) the property of the LESSOR, unless the LESSOR opts todemand that all or part of the premises be restored to their original condition,at the LESSEE's expense, and even in respect of any work that may have beenexpressly authorized by the LESSOR. 12 CHAPTER III - FINANCIAL OBLIGATIONSCLAUSE 15 - RENTThe rent specified in the attached special terms and conditions shall constitutean essential and decisive clause for both parties with regard to their consentto execute this lease. This lease is hereby granted and accepted inconsideration of an annual rent for which the base value is indicated below inChapter V.5, and which shall be adjusted under the conditions specified by lawand according to the terms and conditions set out below in Clause 16.CLAUSE 16 - INDEXATION AND ADJUSTMENT CLAUSEThe rent shall also be subject to the following indexation clause: it shall varyautomatically each year, in proportion to the variations in the quarterlyconstruction costs index published by the INSEE [French Statistics Agency]. Forthe first year, the index specified in Chapter V.8 shall be compared with theindex for the same quarter of the next year.For subsequent years, the index used for the previous adjustment and the indexfor the same quarter of the next year shall be compared.In case the index is modified or replaced, the new index shall be substitutedautomatically for the former index, under the conditions and according to the"substitution coefficients" published by the INSEE.Otherwise, the replacement index shall be determined by an expert appointed bythe Chief Judge of the Court of First Instance having jurisdiction at thebuilding's location, upon a petition by the most diligent party, with all thecosts, expenses and fees of the expert to be divided up equally between theLESSOR and the LESSEE.If the selected index or the index substituted therefor is not yet known in duetime, the rent shall be determined and paid on a provisional basis, according tothe price resulting from the most recent implementation of this indexationclause.It is expressly stipulated that this indexation clause constitutes an essentialand decisive condition of this lease, without which the lease would not havebeen executed, and that this clause constitutes a contractual indexation. As aresult, the legal three-year adjustment currently provided for in Articles 26and 27 of the Decree of September 30, 1953 shall also apply.CLAUSE 17 - PERSONAL CHARGESThe LESSEE shall pay for its personal consumption of water, gas and electricity,and the meter rental charges. If any subscription policies exist in suchrespect, the LESSEE shall pay them to the relevant agencies on their due dates,so that the LESSOR's liability shall never be claimed or incurred in suchconnection. Otherwise, the LESSEE shall pay them to the LESSOR, according to themeter readings.In case of any collective heating installation, the LESSEE shall reimburse theLESSOR for its proportional share of the corresponding expenses: fuel andelectricity, repairs, renovation and 13 replacement work (even for the boiler and tank, if the work involves "majorrepairs" referred to in Article 606 of the French Civil Code), supervision andinspection of the operations and, where applicable, the expenses for thepersonnel (including the related tax and social security charges).Such proportional share shall be determined according to the respective size ofthe heated areas. They shall be reimbursed each quarter, at the same time andlocation as the rent.The LESSEE shall reimburse the LESSOR for its proportional share of the expensesfor the collective freight or other elevators: electricity, local maintenance,inspection and, where applicable, the expenses for the personnel (including therelated tax and social security charges). Such proportional share shall bedetermined according to the respective size of the private areas thus serviced,except for the ground floor. The reimbursement shall be made according to theterms and conditions specified above for the heating expenses.CLAUSE 18 - SITE CHARGESIn addition to the rent specified below, the LESSEE shall pay to the LESSOR alump-sum amount equal to [*] PERCENT ([*] % ) of the amount of said rent, forthe charges not specified herein.In such respect, but without limitation, the relevant charges shall includeinter alia the maintenance of the drives, walkways and green areas, fences,gates, cleaning of the drives and walkways, site lighting, site supervision andsecurity, fire protection, signs, amortization of the investments relating tothe common areas, reception and information desks, and optional access to the"inter-company cafeteria."CLAUSE 19 - VALUE-ADDED TAXInsofar as the building is subject to value-added tax, the rent, charges,services and, in general, all the amounts owed to the LESSOR in connection withthe performance hereof shall be expressed exclusive of value-added tax. The sameprovision shall apply with regard to any replacement, additional or similartaxes that may be created.CLAUSE 20 - TERMS OF PAYMENTThe LESSEE agrees to pay the rent to the LESSOR, together with the accessorycharges and the value-added tax in relation thereto, each quarter and inadvance, on the first day of each calendar quarter.However, if the lease begins after the start of a quarter, the rent, accessorycharges and value-added tax shall be payable on the effective date, prorated tothe remaining time until the end of the quarter. They shall then be payable inadvance on the first day of each calendar quarter, for one-fourth of theirannual amount. If the lease ends after the start of a quarter, they shall bepayable on the first day of said quarter, prorated to the time remaining untilthe end of the lease._____________* CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTION HAS BEEN FILED SEPARATELY WITH THE SECURITIES AAND EXCHANGE COMMISSION. 14 All payments must be made at the LESSOR's registered office.In case the LESSEE fails to pay any amount owed hereunder by its due date, suchamount shall automatically bear interest from said due date (the mere occurrenceof which shall operate as a formal notice), provided that this clause shall bewithout prejudice to the application of the termination clause set out below.Any payments made after the due date shall be applied first to such interest,which shall be calculated at the legal rate in force on the due date, plus [*]points and plus value-added tax.CLAUSE 21 - SECURITY DEPOSITTo secure the proper performance of all the LESSEE's obligations under thislease, the LESSEE shall pay to the LESSOR, at the time of execution hereof, anamount equal to [*] months of rent and accessory charges, as a security deposit.Said amount shall be increased or decreased at the same time and in the sameproportion as the rent, each time the rent is modified, with the difference tobe paid together with the first modified rent installment.Said amount shall be retained by the LESSOR for the entire term of the lease,and shall be refunded to the LESSEE at the end of its occupation, after thedeparture from the premises and the return of the keys, and after subtractingtherefrom all the amounts owed to the LESSOR in any connection, and thoseamounts for which the LESSOR could be held liable.The security deposit shall not bear any interest. It shall be remitted to the LESSOR as a "pledge," under the terms of Articles 2071 et seq. of the FrenchCivil Code.If the lease is terminated by reason of any breach of its terms and conditions,or for whatever other cause attributable to the LESSEE, other than notice oftermination given for a date and under the conditions specified herein, andwhatever the remaining term of the lease, the security deposit shall remain theLESSOR's property, as damages, without prejudice to any rent accrued or toaccrue and any work to be borne by the LESSEE. CHAPTER IV - OTHER OBLIGATIONSCLAUSE 22 - TERMINATION CLAUSEFailing the payment of any single installment of rent and accessory charges onthe contractual due date, or the value-added tax in relation thereto, or in caseof any breach by the LESSEE of any of the obligations, terms or conditions ofthis agreement, this lease shall be terminated automatically, at the LESSOR'sdiscretion, without any need for any legal action, where such situation has notbeen cured one month after an order to pay or to perform.__________________* CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTION HAS BEEN FILED SEPARATELY WITH THE SECURITIES AAND EXCHANGE COMMISSION. 15 The eviction may occur pursuant to a summary order rendered by the Chief Judgeof the Court of First Instance of Paris, to the jurisdiction of which theparties agree to submit, and which shall record the mere fact that thetermination clause has been implemented. Said order shall be provisionallyenforceable, and the LESSEE hereby waives, in advance, any right to lodge anappeal there against. Any subsequent offer to pay the delinquent amount or tocomply with the terms and conditions of the lease shall be without prejudice tothe application of this clause.In such case, the amount remitted as a security deposit (as specified above)shall become the LESSOR's property, as a lump-sum indemnity, without prejudiceto any other damages.CLAUSE 23 - CHANGE IN LEGAL FORMThe LESSEE agrees to notify the LESSOR of any amendment to the LESSEE's articlesof incorporation and by-laws (change in legal form, change in name or tradename, change in the address of the registered office, etc.) within one month ofsuch amendment, and to notify the LESSOR, in accordance with the procedurespecified in Article 1690 of the French Civil Code, of any merger or spin-off(partial contribution of assets). In case of any such spin-off, the contributorshall remain jointly and severally liable with the beneficiary of thecontribution for the payment of the rent and for the performance of the termsand conditions of the lease.CLAUSE 24 - AMENDMENTS / FORBEARANCE / JOINT AND SEVERAL LIABILITY /INDIVISIBILITYAny amendment hereto must be made under a written and express document, in theform of a bilateral agreement or an exchange of letters.In no event must such amendment be inferred from the passivity of the either ofthe parties or from any forbearance, whatever the frequency or length thereof.The LESSOR and the LESSEE shall have the right at all times to demand strictcompliance with all the terms and conditions which have not been amendedexpressly or in writing.The obligations under this lease for the LESSEE shall constitute, for all itsassigns, heirs and all the persons liable for its payment and performance, ajoint and several obligation, namely in case of the LESSEE's death prior to theend of the lease. All its heirs and representatives shall be jointly andseverally liable for the fulfillment of such obligations and, where applicable,the obligation to serve the notifications required under Article 877 of theFrench Civil Code, with the costs and expenses of such notifications to be borneby the parties to whom they are made.CLAUSE 25 - REPRESENTATIONAfter having examined all the regulations that apply in the Paris MetropolitanArea, whether they are special or general in nature, and namely Articles L.510-1et seq. of said code, the LESSEE represents that, with regard to this lease,neither itself nor the premises hereby leased are subject to any authorizationor approval of any type.CLAUSE 26 - ELECTION OF DOMICILE (ADDRESS FOR SERVICE) / JURISDICTION CLAUSE 16 For the performance hereof, the LESSOR elects domicile at its registered office(as specified above), and the LESSEE elects domicile on the leased premises. Theparties expressly agree to submit to the jurisdiction of the courts of Paris tohear any difficulties that may arise in connection with the performance, renewalor termination of the lease.CLAUSE 27 - REGISTRATIONThe parties expressly request the registration hereof.CLAUSE 28 - COSTS AND EXPENSESThe costs, expenses, duties and fees hereof, as well as all those that may be aresult or consequence hereof, shall be borne by the LESSEE, which hereby agreesto pay them. CHAPTER V - SPECIAL TERMS AND CONDITIONSThe special terms and conditions hereof have been drawn up with the intent ofdetailing general terms and conditions and, if necessary, completing them,amending them or replacing them. They shall be interpreted restrictively. In theevent of conflict between the special terms and conditions and the general termsand conditions, the special terms and conditions shall prevail.DESCRIPTION-----------The premises being leased under this lease, located on the site of [*], arecomprised of1. 1.1 All of building [*], as it will exist upon completion of the works described at Article 9.2 below, and representing an approximate surface area of [*] m2, as defined in the statement on the surface areas attached hereto (SCHEDULE 6). This surface corresponds to the measured area of the interior, from perimeter wall to perimeter wall, increased by the area of the constructed mezzanines, intermediary landings and the technical platform on the roof. Each of the parties may engage a surveyor at its own expense to verify the foregoing, no later than one month following completion of all of the works set forth at Article 9.2 below. In the event the survey discloses a discrepancy of at least 2% less or 2% more of the aggregate area, the rent shall be readjusted subject to the conditions set forth at Article 5 below. 1.2 A strip of bare fenced-off land along the north side of building [*] having an approximate area of [*] m2.______________* CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTION HAS BEEN FILED SEPARATELY WITH THE SECURITIES AAND EXCHANGE COMMISSION. 17 Being a total surface area of approximately [*] m2. The premises in addition to the strip of land hereunder are described on the attached plans (SCHEDULE 3). TERM ----2. 2.1 Entry into Force This lease shall enter into force subject to fulfillment of the conditions precedent set forth in Article 11 below, on the date of completion of the "Phase 1" work referred to below in Article 9.2, and (whatever the date of completion of said work) no later than April 1, 2001. 2.2 Taking of Possession The LESSEE shall take possession of the leased premises in two phases, subject to fulfillment of the conditions precedent set forth in Article 11 below, progressively as of the completion dates for each of the first two phases of the work specified in Article 9.2 a) below, as follows: . First of all, it shall take possession of the portion corresponding to the offices on the north side of building [*], in the basement of said building (excluding the link-up tunnel) and the strip of land designated in Article 1.1 above, which corresponds to Phase 1 of the work; and . Then, it shall take possession of the remainder of building [*], which corresponds to Phase 2 of the work. 2.3 Fixed Term The parties hereby expressly agree, further to the provisions of Law n(degree) 85-1408 of 30 December 1985, incorporated in Article 3.1 of Decree n(degree) 53-960 of 30 September 1953, that the LESSEE expressly waives the right to terminate the lease prior to expiration of the second three-year period. Consequently, in the event this lease terminates prior to expiry of its sixth year, for any reason whatsoever, save and except a final court order terminating the lease due to the fault of the LESSOR, the LESSEE shall immediately be liable to pay a sum equal to the cumulative amount of fixed rents and charges, in addition to VAT at the current rate in force for the time remaining up until expiry of such six-year period.________________* CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTION HAS BEEN FILED SEPARATELY WITH THE SECURITIES AAND EXCHANGE COMMISSION. 18 USE--- The LESSEE may only use the leased buildings to carry on its business as a supplier of services in relation to telecommunications installation and equipment, connections between telecommunication operator networks, technical support to telecommunication companies, or to transfer and reserve telecommunication capacity and for such purposes to make available to its clients technical switching spaces, and as a result, to receive therein the technicians assigned by such clients to perform the upkeep and maintenance of said areas. From an administrative viewpoint, the buildings are classified for business with complementary offices which shall be exclusively used by the LESSEE, who may not make such offices available to its clients. Load limits for the leased premises are: . for premises located in the basement and on the ground floor and the basement, 1,250 kg/m2, . for premises located on the mezzanine to be created, 1,000 k/m(2), . for premises located on the first and second floors, 300 kg/m(2), . for the technical platform on the roof, 500 kg/m(2). The LESSEE hereby agrees not to exceed such maximum loads.TAX STATUS---------- VAT at the current legal rate in force.ANNUAL BASE RENT----------------5.1 This lease is granted and accepted in consideration of an annual net, pre- tax rent in principal of FF [*] ([*] francs) VAT and charges excluded. As stated in Article 1 of this chapter, each of the parties may have the surface area of building [*] verified at its own expense by a surveyor no later than one month following completion of the works provided for at Article 9.2 a) below. In the event that the survey discloses a discrepancy of at least 2% less or 2% more of the stated surface for the premises described in Article 1.1 above, i.e. [*] m2, the rent shall be readjusted, upwards or downwards, by a pre-charges and pre-VAT net amount of FF [*] m2/year.____________________* CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTION HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. 5.2 The LESSOR grants to the LESSEE, on a commercial basis: . a rent-free period until [*] . in the event that this lease takes effect prior to 1 April 2001, a charge-free period until [*].PROVISION FOR PAYMENT OF CHARGES, TAXES AND DUTIES--------------------------------------------------6.1 Repayment of Charges The provision for payment of water consumption is set at FF 11,065 (eleven thousand sixty-five francs) per quarter. It is also specified that the LESSEE shall directly pay to the utilities companies all the other charges with respect to consumption of utilities (electricity, gas, etc.). 6.2 Property Tax The provision for payment of the property tax is set at FF 163,050 (one hundred sixty-three thousand fifty francs) per quarter. 6.3 Repayment of the Annual Office Tax In the event all or part of the leased buildings are subject to such tax, the LESSEE shall repay the ANNUAL TAX ON OFFICES, COMMERCIAL PREMISES AND STORAGE PREMISES in one lump sum payment, prior to 1 March of each year for the current year, and for the initial payment pro rata temporis upon the effective date hereof.SECURITY DEPOSIT ---------------- The security deposit shall be equivalent to [*] months' pre-tax rent increased by pre-tax site charges equal to [*]% of the net rent, which amount is set at FF [*] ([*] francs and [*] centimes). The foregoing sum shall be paid by the LESSEE in the following manner: . FF [*] by set-off against the sum paid prior to this date by the LESSEE to the LESSOR as an indemnite d'immobilisation (earnest pledge) under an agreement dated 6 April 2000, . The balance, being FF [*], upon execution hereof.REFERENCE INDEX---------------____________________* CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTION HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. The base index for application of the indexation clause stipulated at Article 16 of chapter III above shall be the base index for the 4th quarter 1999, being 1,065. Under the terms of such annual contractual indexation, rent shall only be adjusted upwards.SPECIAL CONDITIONS------------------9.1 Security for payment of rents and performance of lease conditions The parties agree as a material and fundamental term, without which the LESSOR would not have entered into this lease, that the LESSEE shall provide to the LESSOR, no later than 21 days following execution hereof, an autonomous first demand guarantee provided by a reputable financial institution, to secure payment of all sums of any nature whatsoever due and payable by the LESSEE under any provision hereof, for an amount corresponding to [*] months' rent (tax included) increased by charges and incidentals (tax included). Such guarantee shall be granted for a [*] year term commencing on the effective date of this lease, increased by a [*] month period for the purpose of allowing any enforcement of the security. A standard first demand guarantee is attached hereto (SCHEDULE 4). 9.2 WORKS BY THE LESSOR 9.2.1 Description and time limit for completion (a) The LESSOR agrees to perform the works referred to in the attached plans and descriptions (SCHEDULES 3 AND 5). Such works shall be performed such that they are completed within the following time periods, subject to any special provisions of the building permit: . For PHASE 1 works, i.e. those concerning the north side offices of building [*], the basement of building [*] (with the exception of the link-up tunnel) and the strip of land described at Article 1.1 above within four months of the later of the following dates: . availability of building [*], . fulfillment of the last condition precedent set out at Article 11 below, . notice by the Lessee, by registered letter with return receipt requested, of the schedule for the performance of its work referred to below in Article____________________* CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTION HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. 9.3, provided expressly that such notice must be made no later than 1 November 2000. . For PHASE 2 works, i.e. those concerning the remainder of building [*], within six months from the later of the following dates: . availability of building [*], . the fulfillment of the last condition precedent set out at Article 11 below, being provisionally set as 1 January 2001, . notice by the Lessee (as referred to above) of the schedule for the performance of its work referred to below in Article 9.3, provided expressly that such notice must be made no later than 1 November 2000. . In this regard, it is noted that the ground floor and the basement of building [*] is presently occupied under a commercial lease terminated by its beneficiary by acte extra-judiciaire (extra-judicial act) served by Me SIBUET, Huissier de Justice (bailiff) in Saint Ouen, effective on 30 September 2000, it being agreed that such lessee has already consented in principle to an early departure from the premises on 31 August 2000. (b) Furthermore, the LESSOR agrees (subject to the reservations set out below) to perform the renovation work on the north and south sides of building [*], as stated in the plan attached hereto (SCHEDULE 6). The parties expressly agree that the LESSOR shall assume the costs of such works on the building's sides up to a maximum amount of FF 2,000,000 (two million francs) net of taxes and fees, costs of studies and insurance included. Consequently, in the event that it appears that the aggregate cost (net of taxes and fees, costs of studies and insurance included) incurred for such works on the building's sides will exceed FF 2,000,000, the LESSEE agrees to pay any additional costs incurred in connection therewith upon receipt of invoices issued by the LESSOR. In the event of the LESSEE's consent to this project, the LESSOR agrees to perform the corresponding work within two months of the completion of PHASE 2, provisionally set at 1 March 2001. (c) In the event of force majeure or other legitimate cause for suspending works, the projected deadlines for completion of works based on the work schedule shall be extended for a time period ____________________* CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTION HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. equal to that during which such event prevented the continuation of works. Such extension shall be calculated by business day. The following shall be deemed legitimate causes for suspendingthe completion time limit: . Poor weather conditions as defined by Article L 731-2 of the Code du Travail (French Labor Code), . Strikes, . Administrative injunctions to suspend works. 9.2.2 Additional works and modifications In the event the LESSEE wishes to order additional works or changes to be carried out, over and above those set forth in the attached specifications, after the date of filing of the building permit referred to below in Article 11 and prior to completion of the works, the LESSEE shall make such request in writing to the LESSOR. The LESSOR shall review the request and assess whether changes or additional works requested may be practically carried out in view of the state of progress of works. It shall determine the effect of completion of such works on the financial terms and conditions of this lease and on provisional completion dates of works. Any change and its consequences shall be subject to prior approval by both parties, which shall be set forth in a rider to the lease. 9.2.3 Recording of completion Upon completion of each of the two work phases, the LESSOR shall invite the LESSEE to inspect such completion on a date and at a time to be determined, by registered letter with recorded delivery giving advance notice of at least 3 business days. Both parties shall attend such inspection and a completion report shall be drafted for each of the two work phases. Consequently, the LESSEE may include any reservations upon such inspection which shall be accepted or challenged by the LESSOR. The completion of a phase shall mean the premises comply with the specifications attached hereto, so as to allow them to be used in compliance with their intended use. Non-compliance with the planned specifications shall be taken in consideration where it is substantial or where it is material such that use of the building in compliance with its intended use or quiet enjoyment of the premises by the LESSEE. On the date when the LESSEE receives notice to inspect completion of the works, four scenarios are possible:1. Scenario 1 The LESSEE confirms completion as defined above without reservation: keys shall be handed over to it and it shall take possession of the premises. An unqualified completion report shall be prepared.2. Scenario 2 The LESSEE confirms completion as defined above with reservations which shall be accepted or challenged by the LESSOR; the keys shall be handed over and it shall take possession of the premises. A completion report with reservations shall be prepared. The LESSOR shall carry out necessary works in order to remove the reservations accepted within 60 business days from the date of the report. Such time period shall be automatically extended to incorporate supply delivery time. After such time, a report confirming removal of reservations shall be prepared.3. Scenario 3 The LESSEE considers that the works have not been completed as defined above. A report recording non-completion shall be prepared. In such event, and where the parties fail to agree within five days of such report, the parties agree to refer the decision to a third party expert jointly appointed by them or, in default thereof, by the President du Tribunal de Grande Instance de Paris upon application by either party. This Expert shall be responsible for determining whether or not the building has been completed as defined above and, if not, which works are essential such that the building may be deemed completed as defined by such criteria. He shall deliver his report within fifteen days following the date of his appointment. Such report shall bind the parties and be final and conclusive. Upon completion of the works ordered by the Expert, a new delivery shall be conducted in his presence. Expert's fees shall be paid by the LESSEE or the LESSOR, depending on whether the Expert has concluded that the works have or have not been completed further to the above criteria.4. Scenario 4 In the event the LESSEE fails to attend after receipt of notice by the LESSOR, the completion report shall be validly prepared by the LESSOR who shall serve such report to the LESSEE and which shall bind the LESSEE with all effects attached thereto (entry into force of the lease, commencement date for payment of rents pursuant to the terms and conditions of Article 5.2 of this chapter, transfer of risk).9.3 Works of the lessee (a) The LESSOR hereby authorizes the LESSEE to carry out on the leased premises, at its own costs and risks, and subject to obtaining any required regulatory authorizations and permits, the works described in the file attached hereto (SCHEDULE 7). Such works may be performed by the LESSEE on that portion of the premises covered by PHASE 1, after it has taken possession of the premises, as specified in Article 2.2 above, provided that such works do not have any impact on the performance of the works by the LESSOR and subject to compliance by the LESSEE with the rules on coordination in respect of safety matters. In all cases, such works must be performed within 12 months of the completion of the LESSOR's works referred to above in Article 9.2. (b) The LESSEE shall be responsible for obtaining any permits, licenses and approvals necessary for the completion of such works without any recourse against the LESSOR, and the LESSEE may not raise the failure to obtain such authorizations as a defense to enforcement of this lease pursuant to its conditions and terms contained therein. In this regard, the LESSEEE states that the following facilities, which it intends to construct on the leased premises, are subject to prior prefectoral authorization set forth in Law no. 76-663 of 19 July 1976 with respect to facilities classified for the protection of the environment: . Fuel tanks corresponding to no. 1432 of the nomenclature . Electricity generators corresponding to no. 2910 of the nomenclature . Air-conditioning (in the basement, on the ground floor and on the "first" (second) floor of building [*]) corresponding to no. 2920 of the nomenclature . Ondulators corresponding to no. 2925 of the nomenclature (c) Exceptionally, and notwithstanding the foregoing, the parties agree that in the event the relevant regulatory authority does not grant the LESSEE the above-mentioned authorizations provided for by Law no. 76-663 of 19 July 1976 with respect to classified facilities: . the LESSEE shall be entitled to sub-let the premises hereunder to any company in its group, under the meaning of Article 145 of the French General Tax Code, and which pursues the same corporate purposes or a similar corporate purpose, . subject to the express condition that the LESSOR has concluded with another company presenting all guarantees of solvency, a new 12 year lease for all of building [*] subject to the same financial terms as those set out hereunder, this lease shall be amicably terminated in advance. For such purpose, the LESSOR and the LESSEE shall jointly appoint any reputable commercial property consulting firm, it being understood that any costs in connection with such services shall be exclusively borne by the LESSOR. In view of the effects attached to this provision, (i) as stated above, the LESSEE has filed its application with the relevant regulatory authority on 29 May 2000 (SCHEDULE 8), and (ii) the parties expressly agree that the LESSEE, subject to losing the benefit of this clause: . must notify the LESSOR of the state of progress of measures taken and of its application for authorization, upon any demand by the LESSOR, . must immediately notify the LESSOR of the report of the commissaire enqueteur (inspector) (if any exists) and the administrative decision taken in response to the application for authorization, . in the event the application is dismissed, must notify the LESSOR by registered letter with recorded delivery no later than three months following such refusal as to whether it intends to exercise its option to sub-let or intends on presenting a new lessee to the LESSOR. 9.4 Fiber Optics 9.4.1 Connection of the leased premises____________________* CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTION HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. In order to permit the LESSEE to perform the "fiber optics" connection of the leased premises, the LESSOR hereby authorized the LESSEE, under the conditions set out below in Article 9.4.2, as follows: (a) to use (with the option to make them available to the operator designated by it) the existing or future sheaths (fourreaux) of the LESSOR, or (b) to perform or procure the performance by any operator, at its own expense, risks and perils, an infrastructure of fiber optics sheaths and printing rooms (chambres de tirage) to connect building [*] with the entrance points located at the LESSOR's site. 9.4.2 Conditions for this connection 9.4.2.1 The conditions for the use of the sheaths referred to above in Article 9.4.1 a) shall be determined in a specific agreement to be executed by and between (i) the LESSOR or any company that the LESSOR may substitute for itself, and (ii) the LESSEE, in accordance with the framework agreement to be prepared, in the best respective interests of each of the parties, by the LESSOR or the company substituted for the LESSOR. The parties hereby agree as follows with regard to such conditions: (a) the use of the sheaths referred to above in Article 9.4.1 a) shall give rise to the payment by the LESSEE of an annual fee of 60 francs, excluding VAT, per linear meter of each of the sheaths used by the LESSEE (or by the operator designated by it) for the passing of its fiber optics; such fee shall be payable as of the installation of the fiber optic in the sheath in question, in accordance with the same terms as the rent, i.e., by calendar quarter and in advance. Said sum of 60 francs is expressed in its value as at the date hereof; it shall be increased automatically each year, on the anniversary date hereof, according to the increase (if any) in the BT01 index, with the base index being the most recently known index as at the date of execution hereof. (b) the LESSEE shall be responsible for the maintenance, at its own exclusive expense, and for the performance of all the repairs, renovations or replacements involving the equipment that may be necessary,_______________________* CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTION HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. (c) the LESSEE shall bear all the consequences (whatever the extent thereof) of any damage that may be caused to the equipment, without any recourse to the LESSOR; more generally, the liability of the LESSOR may not be claimed by reason of the existence and/or use of such equipment, and the LESSEE further agrees to hold the LESSOR harmless in connection with any claims that may be filed against it in such respect. However, in the event that the damage has been caused for reasons attributable to the LESSOR, the LESSOR shall procure the performance, as quickly as possible, of the work to repair the damaged equipment, provided that this stipulation shall not cause the LESSOR to bear any other financial consequences, insofar as the LESSOR's liability for any consecutive damages (and in particular any intangible or special damages) is expressly excluded. (d) the layout of such sheaths may be modified, namely in order to permit the LESSOR to exercise the prerogatives attached to its status as the owner, and inter alia to perform any construction or improvement work on its site. (e) Any connection between the leased premises and any other building on the sites of the LESSOR or its subsidiaries, except for the other buildings that (where applicable) the LESSEE may lease on said sites, is expressly and formally prohibited, except with the LESSOR's prior consent and, if such consent is given, under the terms and conditions to be jointly defined by the parties. In the same manner, the conditions for the LESSEE's performance of its own infrastructure work, as referred to in Article 9.4.1 b) shall be determined in a specific agreement, which must include the rules set out in paragraphs b) through e) of Article 9.4.2.1, and to be negotiated by the parties in their own respective best interests. 9.4.2.2 The technical terms and conditions for such performance and the layout of such infrastructure. 9.4.2.3 The parties agree to use their best efforts to execute such specific agreements no later than 30 November 2000. To the extent required, it is hereby specified that such agreements shall be separate and autonomous with regard to this lease, and any delay in their execution shall have no impact on this lease, which shall come into effect and be performed under the terms and conditions set out herein. 9.5 Access control for the west ramp The access ramp located on the west side of building [*], and which constitutes an access to said building, is currently being used by the lessee of buildings [*],[*] and [*], adjacent to building [*]. As a result, the LESSEE (wishing to control access to the leased premises) has requested the LESSOR: . to grant it the right to implement the measures necessary to ensure such control, as has been accepted by the LESSOR, provided that such control is exercised in accordance with terms that would permit the continuation (under normal conditions) of the activities of the lessee of buildings [*], [*] and [*], or . to reserve the use of the access ramp exclusively for building [*], which has been accepted by the LESSOR subject to obtaining the prior consent of the lessee of buildings [*] and [*]. Accordingly, the parties agree to determine (i) the solution to be implemented with the consent of the lessee of buildings [*] and [*], and (ii) in the event that such solution would consist of the implementation of a control system, to define the terms and conditions thereof in a specific agreement or an amendment to this lease, to be drawn up during negotiations between the parties, in good faith, in their best respective interests, no later than 30 November 2000. In such respect, it is hereby agreed that in the event that the use of said access ramp by the lessee of buildings [*] and [*] is eliminated, the LESSEE agrees to make payment to the LESSOR, on the date of execution of the agreement or amendment referred to above, of a lump-sum indemnity in an amount of FRF 2,000,000, excluding taxes, to which VAT at the rate in force shall be added. 9.6 Right of first refusal Although the LESSEE has received complete disclosure of the leasing situation, it has expressed its wish to be granted a right of first refusal of a lease in the event that all or part of the buildings appearing in red on the plan attached hereto (SCHEDULE 9) are released by the present tenants. Consequently, the LESSOR has agreed to grant, for a term of six years commencing on the date of execution hereof, a right of first refusal to lease each of such buildings. Thus, in the event that prior to such date all or some of the aforementioned buildings become available, the LESSOR shall offer leasing thereof to the LESSEE as applicable by registered letter with recorded delivery._______________________* CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTION HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. Such offer to lease shall state in a detailed manner the financial terms and conditions of use of the premises. The LESSEE shall have fifteen days from first delivery of the registered letter, to accept or refuse such offer. The terms and conditions of the offer by the LESSOR shall be indivisible, such that the LESSEE shall either accept entirely the offer to lease and the financial terms and conditions proposed or refuse the entire offer. It shall give notice of its response by registered letter with recorded delivery. Where the LESSEE fails to respond within fifteen days, or rejects the offer, the LESSOR may, in its entire discretion, lease the aforementioned premises to the party of its choice. Where the LESSEE accepts such offer, the parties shall sign the corresponding lease within fifteen days. In the event the LESSEE fails to execute the agreement prior to expiry of such time period, the LESSOR may in its entire discretion lease the premises to third parties without prejudice to any recourse, claim or action including claims in damages. 9.7 Indemnity for loss of rent In consideration (inter alia) of the fact that the LESSOR reserved building [*] for the LESSEE (i.e., the building could not be leased by the LESSOR) between the start of their negotiations and the effective date hereof, the LESSEE agrees to make payment to the LESSOR, as an indemnity for loss of rent, of an amount of FRF [*], excluding taxes, plus VAT at the rate in force, which thus corresponds to an amount of FRF [*] including taxes. Said indemnity shall be paid in three equal installments, on the first day of October 2000, November 2000 and December 2000.EXCEPTIONS----------10.1 Where applicable, it is specified that Articles 6.2 and 7.2 of Chapter II above provide as follows, with regard to the obligations concerning the repairs that may become necessary on the leased premises: The LESSOR shall perform on the leased premises all the major works (gros travaux) that come within the scope of Article 606 of the French Civil Code, except for those described below, which shall be the obligation of the LESSEE._______________________* CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTION HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. For its part, the LESSEE shall maintain the leased premises in good condition as regards rental repairs and upkeep. In such connection, the LESSEE shall inter alia supervise and cause to be verified, at least once per year, by approved firms or entities, each of the installations (safety, heating and air-conditioning) that may equip the premises. In such respect, it shall take out a maintenance agreement for each of such installations, and shall submit proof thereof to the LESSOR upon any demand. The LESSEE shall be responsible for all the work for repairs, restoration, refurbishing or replacement (whatever the importance thereof), including that work referred to in Article 606 of the French Civil Code: . which would relate to the installations for electricity, heating or air-conditioning, fire protection, production of hot water (except for the common facilities on the site) and toilets; . which may become necessary as a result of any failure to perform its maintenance obligation referred to above, or as a result of any damage for reasons attributable to the LESSEE, its personnel or its visitors; . that may be required, directly or indirectly, by the public authorities or any other authority in order to enable the LESSEE to conduct its business activity; . that may become necessary for the installations or improvements performed by the LESSEE, and more generally, that may relate to the structures covered by the work performed by it. In addition, in light of the work performed by the LESSOR on the leased premises, the LESSEE agrees, in case of any occurrence during the term of such warranties of any defect under the warranty of two years or ten years in relation thereto, to immediately report them to the LESSOR, in order to enable the LESSOR to implement the corresponding warranties. 10.2 The first paragraph of Article 7.1 of Chapter II above is unconditionally cancelled and replaced with the two following paragraphs: "The LESSEE shall tolerate, without any indemnity or reduction in the rent specified below, any and all work that the LESSOR must caused to be performed on the leased premises, including their installations, as well as within the boundaries of its site, whatever the cause, the nature, the extent or the duration thereof, and even if such duration exceeds forty (40) days. However, the parties agree that, except in a case of clear emergency, in the event that such work is performed inside the building leased to the LESSEE, the parties shall conduct negotiations for the purpose of implementing the solutions that could reduce, to the extent possible, the disturbance caused to the LESSEE as a result of such work." The remainder of said article shall remain unchanged. 10.3 In the third paragraph of Article 7.2 of Chapter II above, the wording " (...) in order that they shall remain in perfect condition at all times" is replaced by "(...) in order that they shall remain in good condition at all times." 10.4 As an exception to the seventh paragraph of Article 7.2 of Chapter II above, the parties agree that the LESSOR shall indicate to the LESSEE, in response to its requests for a work authorization, whether or not it intends to reserve the right to demand that the LESSEE restore the premises to their condition prior to the work covered by the authorization. Where it fails to do so, the provisions of the seventh paragraph of Article 7.2 shall apply. 10.5 The parties hereby agree that in the event that the LESSOR's insurance policy is amended and in such connection would include a reciprocal waiver of recourse in connection with the leased premises, the following provisions (to replace Article 12 of Chapter II above) would be applied: "The LESSEE must take out insurance, on its own, against the risks of fire and any explosions, and against water damage, flooding, back-ups from the sewers and plumbing, from first-rank insurance companies, and for a sufficient value, on the installations, construction work and improvement work performed by it on the leased premises, the equipment and the goods furnishing such premises, as well as on the financial consequences of any legal ("civil") liability that it may incur, namely with regard to neighbors and third parties. The LESSEE shall maintain such insurance in force for the entire term hereof, and adjust such insurance as necessary, and it shall pay the exact amount of the premiums and fees on their exact due dates. In case of any accident or claim, the LESSEE shall waive any direct or indirect recourse to the LESSOR, its personnel and the insurers of said company, and it agrees to cause the same waiver to be inserted in its own policies. The LESSEE shall submit documentary evidence to the LESSOR or to any agent appointed by the LESSOR, upon any request, of the fulfillment of the LESSEE's obligations with regard to insurance, by the submission of an up-to-date certificate of insurance (attestation d'assurance). For its part, the LESSOR shall hold the LESSEE harmless for the financial consequences of the legal ("civil") liability that may be incurred by it in its capacity as the owner, and shall take out insurance on the real property portion of the leased premises, including all the improvements and installations whose nature is deemed to be that of real property that may equip such premises, as of the effective date of this lease, against the risks of fire, explosions and water damage, from a first-rank insurance company, and it shall maintain such insurance in force for the entire term of the lease. On a reciprocal basis, it shall waive any recourse that it may otherwise be entitled to bring against the LESSEE or its insurance in such connection, and the LESSOR's insurer must grant the same waiver of recourse. In consideration thereof, the LESSEE hereby agrees to refund to the LESSOR, each year, its proportional share in the premium under the insurance policy taken out by the LESSOR, and the surcharge (if any) for such waiver of recourse. In addition, the LESSEE must refund to the LESSOR all the insurance surcharges resulting from its presence on the leased premises." 10.6 Where applicable, it is hereby specified that in the event that the LESSOR grants to the LESSEE its authorization for the assignment of its rights under this lease, such authorization shall not be contingent on the payment by the LESSEE to the LESSOR of any indemnity. 10.7 As an exception to Article 23 of Chapter IV above, the parties agree that the notices on any amendments to the LESSEE's articles of incorporation and by-laws may be given within three months of their adoption, by ordinary letter. 10.8 The provisions of Article 27 of Chapter IV above shall be replaced with the following wording: "The registration hereof shall be made at the request of either of the parties, and such request must be issued no later than 15 days after the execution hereof." 10.9 Article 28 of Chapter IV above shall be deleted, provided however that in case of any registration of the lease, the expenses in relation thereto shall be borne by the LESSEE.CONDITIONS PRECEDENT--------------------11. Principle This lease is subject to the following conditions precedent, each of which is material: (a) Obtaining by the LESSOR of "BUILDER" approval as defined at Article R 510-1 of the Code de l'Urbanisme (Urban Planning Code). The LESSOR agrees to file its application with the relevant regulatory authority no later than 15/08/2000 and to provide evidence thereof to the LESSEE upon first demand by the LESSEE. The LESSOR agrees to give notice to the LESSEE of the obtaining or refusal of approval immediately upon receipt thereof from the regulatory authority. (b) Obtaining by the LESSOR of a building permit authorizing completion of the works set forth at Article 9.2. In such respect, it is hereby specified that the LESSOR duly filed its application with the relevant regulatory authority on 6 June 2000. The LESSOR agrees to notify the LESSEE of the response to such application from the regulatory authority immediately upon receipt thereof. This final condition precedent is stipulated for the exclusive and sole benefit of the LESSOR who, in its entire discretion, may waive it by giving notice to the LESSEE by registered letter with recorded delivery prior to expiry of the aforementioned time period or extension of such deadline. 11.1 Completion Deadline These conditions precedent shall be fulfilled no later than 1 October 2000. Such deadline may be extended by mutual agreement of the parties. The parties hereby agree that it shall be automatically extended by any administrative delay due to additional review. In the event of fulfillment of such conditions precedent within the stipulated time period or any extension thereof, this lease shall be firm, final and subject to no further formality. Where the aforementioned conditions precedent are not fulfilled within the stipulated time period or any extension thereof, this lease shall be deemed null and void without requirement of any further formality or compensation payable by either party. Executed at [*], July 28, 2000 In two original counterparts LA COMPAGNIE DES ENTREPOTS EQUINIX ET MAGASINS GENERAUX DE PARIS_______________________* CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTION HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. LIST OF SCHEDULESSCHEDULE 1 Power of attorney issued by Ms. Renee Lanam, and dated July 17, 2000SCHEDULE 2 Table on the surface areasSCHEDULE 3 Plan of leased premisesSCHEDULE 4 Guarantee of due performance of lease conditions - standard formSCHEDULE 5 Description of works of the LESSORSCHEDULE 6 Plan of the renovation work on the building's facadeSCHEDULE 7 Description of works of the LESSEESCHEDULE 8 Filing of the application for an authorization in respect of "classified facilities" by the LESSEESCHEDULE 9 Plan of premises subject to the right of first refusal EXHIBIT 10.39 *CONFIDENTIAL TREATMENT REQUESTED.CONFIDENTIAL PORTION HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. Second Supplement to the Lease Agreement dated August 7, 2000 ("the Lease")by and between1) Naxos Schmirgelwerk Mainkur GmbH, Gutleutstra(beta)e 175, D-60327 Frankfurt, represented by Mr. Gunter Rothenberger and Mr. Sven Rothenberger;2) A.A.A. Aktiengesellschaft Allgemeine Anlageverwaltung vorm. Seilwolff AG von 1890, Gutleutstra(beta)e 175, 60327 Frankfurt/M, represented by Mr. Gunter Rothenberger and Mr. Sven Rothenberger; both companies acting in a German Civil Code Partnership (the Parties at 1. and 2. jointly called: "Landlord"), under the firm name Naxos- Union Grundstucksverwaltungsgesellschaft GbR, Frankfurt/M, and3) Equinix, Inc., a Delaware Corporation, 2450 Bayshore Parkway, Mountain View, CA 94043, USA, represented by Christopher L. Birdsong;as supplemented by the First Supplement to the Lease Agreement, of October 11,2000.The Parties hereto, on this 22nd day of December 2000 agree to modify the Lease,as supplemented by the First Supplement dated October 11, 2000, as follows:1. Pursuant to Sec. 7 ("Handover") of the Summary of Basic Lease Information, the Landlord shall hand over to the Tenant office space ([*] m(2)), First Production Hall ([*] m(2)) and Second Production Hall ([*] m(2)) at the end of six months after the signing of the Agreement. The Agreement was signed on August 7, 2000. February 7, 2001 thus is the Handover date.The Parties hereby agree to move the Handover date from February 7, 2001 by twomonths to Saturday, April 7, 2001.2. Pursuant to Sec. 9(b) ("Rent") of the Summary of Basic Lease Information, the Parties rent-free period before the start of payment of Rent for Premises (Site and Building) is [*] months after Handover, and the start of payment of advance on Service Charges is [*] months after Handover (October 7 and April 7, 2001 respectively).2.1 The Parties hereby agree to commence payment of the Rent from [*]. The monthly Rent will be a fixed amount for 32 (thirty two) months (i.e. until September 30, 2003) based on the following formula, exclusive of VAT : [*] ---------------------------------------------------------------------- [*]__________________*CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTION HAS BEEN FILEDSEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. 2.2 As of October 1, 2003 the Rent plus Service Charges will be re-adjusted per the terms of the Lease agreement for the remaining period of the Lease agreement and will then be the amount shown in Sec. 9a Summary of Basic Lease Information as eventually increased pursuant to Sections 9c Summary and Article 4a.2 Lease.3. With reference to Article 12.1.2, the Parties are in agreement to assign the Lease agreement from Equinix, Inc. to Equinix GmbH, Frankfurt, once it has been formed by registration in the commercial register as a subsidiary of Equinix Netherlands B.V. The transfer of the rights and obligations under the Lease Agreement from Equinix Inc. to GmbH shall be done by another supplement to this Lease Agreement. Landlord agrees to sign a proper supplement to the Lease Agreement after he has been submitted: - Written guaranty by the parent company (Equinix Netherlands B.V.) for all obligations of GmbH under the Lease of the Landlord, and - a guaranty by a European Bank with German banking facilities in the amount of (to be mutually agreed in another supplement to this Lease Agreement) for all obligations of GmbH to Landlord under the Lease. The Landlord simultaneously shall agree that Equinix Inc. is released from all obligations under the Lease and shall return the guaranty given by Equinix Inc. pursuant to Art. 4a.1 (1) Lease.As an alternative to submitting the above-mentioned bank guaranty, GmbH shall beentitled, at its choice, to put an equal amount into a German bank account overwhich the Landlord and GmbH may jointly dispose, as a security for all claims ofthe Landlord under the Lease.4. Pursuant to Art. 13 Lease, Landlord has agreed to register an Easement on the property ranking before all other encumbrances other than encumbrances II 1 and 2. The Landlord faces problems financing the construction of the Leased Premises because of this obligation. For this reason, the Parties agree as follows: Tenant allows Landlord to register a land charge or mortgage of up to DM 15,000,000 (Deutsche Mark fifteen million) in favour of a third party, a Bank and or a Leasing Company with priority over the Easement to be registered for Landlord. The Parties agree to take appropriate steps to assure that any funds drawn by the Landlord under this land charge or mortgage are exclusively used for the purpose of putting the leased object into the state of construction which is required by the Lease. In particular, the Bank shall not make any payments against the land charge or mortgage without the prior written consent by Tenant. The Landlord may only approve ("bewilligen") the registration of the land charge after Tenant and Bank have agreed that the Bank, in case of failure of the Landlord to pay what it owes to the bank under the loan agreement for which the land charge/mortgage serves as collateral shall transfer its rights under the mortgage to the Tenant against payment of the amount of DM 15,000,000 due plus, at most, interest in the amount of DM 400,000 on overdue amounts. The bank must further have agreed to transfer any and all rights that it may have been granted by the Tenant by assignment of the rent and other claims of the Landlord versus the Tenant as well as the assignment of the payment claim for which the land charge or mortgage serves as collateral to the Tenant, simultaneously against payment of the above-mentioned amount. The Landlord hereby agrees that, in such case, it owes all amounts to Tenant that it owed to the Bank prior to his failure to pay. The Parties are in agreement that the Tenant then may cease paying rent and service charges to the Landlord and, instead, may set-off his obligation to pay Rent and Service Charges against his claim against the Landlord for repayment of the amount that the Tenant has paid to the Bank for the Landlord. The Parties are further in agreement that, in such case, the Tenant shall be free to employ another service company to render any Services under the Lease that the Landlord has ceased to render in the contractually agreed quality and quantity, at the expense of the Landlord.All other obligations of the Parties pursuant to the Lease as amended by theFirst and Second Supplements to the Lease shall remain intact.TENANTEquinix, Inc.By: /s/ Christopher L. Birdsong ------------------------------------------- Christopher L. BIRDSONGTitle: Director IBX Development and OperationsDate: 16 Jan 01 -------------------------------------------LANDLORDNaxos Schmirgelwerk Mainkur GmbHBy: /s/ Gunter Rothenberger ------------------------------------------- Gunter ROTHENBERGERTitle: Managing DirectorDate: 18 December 2000 -------------------------------------------A.A.A. Aktiengesellschaft Allgemeine Anlagenverwaltung vorm. Seilwolff AG von1890 By: /s/ Gunter Rothenberger /s/ Sven Rothenberger ----------------------------------- ------------------------------ Gunter ROTHENBERGER Sven ROTHENBERGERTitle: PresidentDate: 18 December 2000 ----------------------------------- EXHIBIT 10.40 Third Supplement to the Lease Agreement dated August 7, 2000 ("The Lease")by and between1) Naxos Schmirgelwerk Mainkur GmbH, Gutleutstra(B)e 175, D-60327 Frankfurt, represented by Mr. Gunter Rothenberger and Mr. Sven Rothenberger;2) A.A.A. Aktiengesellschaft Allgemeine Anlageverwaltung vorm. Seilwolff AG von 1890, Gutleutstra(B)e 175, Frankfurt/M, represented by Mr. Gunter Rothenberger and Mr. Sven Rothenberger; both companies acting in a German Civil Code Partnership (the Parties at 1. and 2. jointly called: "Landlord"), under the firm name Naxos-Union Grundstucksverwal- tungsgesellschaft GbR, Frankfurt/M; and3) Equinix. Inc., a Delaware Corporation, 2450 Bayshore Parkway, Mountain View, CA 94043, USA, represented by Christopher L. Birdsong;as supplemented by the First and the Second Supplements to the Lease Agreement,dated October 11 and December 22, 2000 respectively.The Parties hereto, on this 8th day of March 2001 agree the Lease, as amended bythe First and Second Supplements as follows:1. The First Supplement the Lease Agreement, dated October 11, 2000 is amended as follows: 1.1 Last paragraph under item 1, page 2 of 8 is deleted and replaced with the following; "Landlord is relieved of his duty to perform any works to the existing roofing to the First and Second Production Halls. Tenant to modify and/or replace the existing roofing at their own expense and risk in obtaining the necessary permit to meet their design criteria and schedule. Tenant agrees to complete necessary modifications to the roof by April 30, 2003." 1.2 Page 5 of 8, Lease Exhibit C-1 "Existing Office block Refurbishment" sub-item 5 "Refurbish all floors in cellar and ground floor to take uniformly distributed loads of 7.5 kN/m2; and first floor to take uniformly distributed loads of 5kN/m2" to be deleted in its entirety; 1.3 Page 7 of 8, Lease Exhibit C-l, item 2 "Roofing" section sub-items 1-8 inclusive, 10, 11 and 12 to be carried out by Tenant with sub-item 9 to remain as part of the Landlord scope and to be carried out at the time of Tenant work on the roof. If however, the Tenant encounters difficulties with the public authorities which do not allow to perform the works to the roof in line with the paragraph "Dach" of page 2 of the RKW-letter dated June 13, 2000 (as attached to the Lease), the Landlord shall assist the Tenant and shall, if required, obtain all necessary permits for the roof work.2. With reference to Article 1.3, page 6 of the Lease Agreement, the Parties are in agreement to the following modification: "...Landlord shall obtain all necessary permits for the construction of works associated with Lease Exhibit C-1, at Landlord's expense"3. With reference to Article 2.3, page 9 of the Lease Agreement, delete the last paragraph; "If, after receiving the aforesaid notice. . . for a period of time equivalent to the period of such delay." in its entirety.4. With reference to Article 3.4, page 12 of the Lease Agreement, the Parties are in agreement to the following modification:" "Competitors: For the 3 year Option period, Landlord shall not rent ----------- other parts of the Property to telecommunication companies, telehouses, data centers, Internet businesses, or other direct competitors. If Tenant does not exercise either the first or second option to expand phase 2 (Articles 1.5.1, 1.5.2-b) or both of these options, then this clause becomes invalid and Tenant agrees to release the Easement on the additional property outside the Security Fence for Phase I as depicted in Exhibit C - Landlord Improvements drawing.5. With reference to Article 4.4.1, page 12 of the Lease Agreement, third line, delete ". . . from the Site Building or . . . "6. With reference to Article 7.2 Consent, page 19 of the Lease Agreement, ------- replace the words "five (5)" in the seventh line with "fourteen (14)"7. With reference to Article 9.1, page 20 of the Lease Agreement, replace ". . . one year." In the eighth line with "...five years."8. With reference to Article 13 EASEMENT, page 23 of the Lease Agreement, add -------- the following Article: 13.5 If Tenant does not exercise either the first or second option to expand - phase 2 (Articles 1.5.1, 1.5.2-b) or both of these options, then this clause becomes invalid and Tenant agrees to release the Easement on the additional property outside the Security Fence for Phase 1 as depicted in Exhibit C - Landlord Improvements drawing."9. With reference to Article 20, page 28 of the Lease Agreement, the following modifications are to be incorporated: 9.1 Third bullet item "Written promise by supplier to supply18-24 months after signature of lease)," to be deleted in its entirety; 9.2 Fourth bullet, delete the following wording only "permission (local) authorities regarding approvals and permits for (diesel) generators, fuel tanks, antenna(-s) and satellite dish(-es); including"; 9.3 Delete the sub-heading "Tenant shall also be entitled to cancel this Lease, if" 9.4 Fifth bullet "Landlord does not get permission for. . . options per Art. 1.5 of this Lease." To be deleted in its entirety; 9.5 Sixth bullet item "Landlord is late by one...damages reserved)." To be deleted in its entirety.10. The Parties hereby agree to move the Handover date from Saturday, April 7, 2001 to Wednesday, Apri1 25, 2001.All other obligations of the Parties pursuant to the Lease as amended by theFirst and Second Supplements to the Lease shall remain intact.1. TENANTEquinix, Inc.By: /s/ Christopher L. Birdsong ------------------------------------------- Christopher L. BIRDSONGTitle: Director IBX Development and OperationsDate: 08 March 20012. LANDLORD2.1. Naxos Schmirgelwerk Mainkur GmbHBy: /s/ Gunter Rothenberger ------------------------------------------- Gunter ROTHENBERGERTitle: Managing DirectorDate:_________________________________________ 2.2. A.A.A. Aktiengesellschaft Allgemeine Anlagenverwaltung vorm. Seilwolff AG von 1890By: /s/ Gunter Rothenberger /s/ Sven Rothenberger ------------------------------------------- -------------------------------- Gunter ROTHENBERGER Sven ROTHENBERGERTitle: PresidentDate:_________________________________________ EXHIBIT 21.1 ------------List of Equinix's Subsidiaries Percentage OwnedName Jurisdiction by Equinix-------------------------------- ------------- ----------Equinix Operating Co., Inc. Delaware 100%Equinix Europe, Inc. Delaware 100%Equinix Cayman Islands Holdings Cayman Islands 100%Equinix Dutch Holdings N.V. Netherlands 100%Equinix Netherlands B.V. Netherlands 100%Equinix France SARL France 100%Equinix Germany GmbH Germany 100%Equinix UK Limited United Kingdom 100%

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