-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, H9JFtUhK7eZsj3ddys1S2Mm9db8x8qJfuBBCsknybBxOlHdsIIishpVDoioi913C KFdTvW0iLHZkmqy9Kb/Myw== /in/edgar/work/20000609/0000950149-00-001295/0000950149-00-001295.txt : 20000919 0000950149-00-001295.hdr.sgml : 20000919 ACCESSION NUMBER: 0000950149-00-001295 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 17 FILED AS OF DATE: 20000609 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COLO COM CENTRAL INDEX KEY: 0001102283 STANDARD INDUSTRIAL CLASSIFICATION: [ ] IRS NUMBER: 943272783 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-38906 FILM NUMBER: 651884 BUSINESS ADDRESS: STREET 1: 2000 SIERRA POINT PARKWAY STREET 2: SUITE 600 CITY: BRISBANE STATE: CA ZIP: 94005 BUSINESS PHONE: 6502922656 S-4 1 0001.txt FORM S-4 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 9, 2000 REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ COLO.COM (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) ------------------------ CALIFORNIA 4813 94-3272783 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
COLO.COM 2000 SIERRA POINT PARKWAY, SUITE 601 BRISBANE, CALIFORNIA 94005 (650) 292-2656 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ------------------------ CHARLES M. SKIBO CHIEF EXECUTIVE OFFICER COLO.COM 2000 SIERRA POINT PARKWAY, SUITE 601 BRISBANE, CALIFORNIA 94005 (650) 292-2656 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ------------------------ COPIES TO: MARIO M. ROSATI, ESQ. MICHAEL S. DORF, ESQ. ALEXANDER D. PHILLIPS, ESQ. JUDY G. HAMEL, ESQ. MARK A. METCALF, ESQ. WILSON SONSINI GOODRICH & ROSATI PROFESSIONAL CORPORATION 650 PAGE MILL ROAD PALO ALTO, CA 94304 (650) 493-9300 APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] CALCULATION OF REGISTRATION FEE - --------------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------------- PROPOSED MAXIMUM PROPOSED MAXIMUM TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT(1) PRICE(1) REGISTRATION FEE - --------------------------------------------------------------------------------------------------------------------------------- 13 7/8% Senior Notes due 2010, Series B................................... $300,000,000 100% $300,000,000.00 $79,200.00 - --------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------
(1) Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(f) under the Securities Act of 1933. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933, AS AMENDED OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 The information in this preliminary prospectus is not complete and may be changed. We may not exchange these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell or exchange these securities and it is not soliciting an offer to buy or exchange these securities in any state where the offer or sale is not permitted. SUBJECT TO COMPLETION, DATED JUNE 9, 2000. [colo.com logo] Exchange Offer For $300,000,000 of 13 7/8% Senior Notes Due 2010. Terms of Exchange Offer EXCHANGE OFFER We will exchange new notes that are registered under the Securities Act for old notes that were sold on March 10, 2000. All outstanding notes that are validly tendered and not validly withdrawn will be exchanged. We will receive no proceeds from the exchange offer. EXCHANGE OFFER EXPIRATION , 2000 at 5:00 p.m., New York City time. OLD NOTES On March 10, 2000, we issued and sold $300.0 million of 13 7/8% Senior Notes due 2010. If you tender your old notes in the exchange offer, interest will cease to accrue before your new notes are issued. If you do not tender in the exchange offer, your old notes will continue to be subject to the same terms and restrictions except that we will not be required to register your old notes under the Securities Act. COLO.COM 2000 Sierra Point Parkway, Suite 601, Brisbane, California 94005, (650) 292-2656. NEW NOTES Identical to the old notes except that the new notes will be registered under the Securities Act. - Maturity: March 15, 2010. - Change of Control: You can require us to purchase your notes at 101% of the principal amount. - Interest: Paid every six months on March 15 and September 15, starting September 15, 2000. - Redemption by COLO.COM: Anytime on or after March 15, 2005, except that redemptions for a portion of the notes may be made at any time prior to March 15, 2003 with the cash proceeds of specified capital stock sales. - Ranking: The new notes will be general unsecured obligations, ranking: - equally with all our senior unsecured indebtedness; - senior to all our subordinated indebtedness; and - junior to all our secured indebtedness and liabilities of our subsidiaries. Investment in the notes to be issued in the exchange offer involves risks. See the risk factors section beginning on page 8. This prospectus and the accompanying letter of transmittal are first being mailed to holders of outstanding notes on or about , 2000. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the notes or determined that this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. The date of this prospectus is , 2000. 3 TABLE OF CONTENTS
PAGE ---- Prospectus Summary.......................................... 1 Risk Factors................................................ 8 Forward-Looking Statements.................................. 20 Use of Proceeds............................................. 21 Trademarks.................................................. 21 Capitalization.............................................. 22 Selected Consolidated Financial Data........................ 24 Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 26 Business.................................................... 34 Management.................................................. 46 Related Party Transactions.................................. 53 Principal Stockholders...................................... 55 Description of Other Indebtedness........................... 58 The Exchange Offer.......................................... 59 Description of the Notes.................................... 69 Material United States Federal Income Tax Considerations.... 108 Plan of Distribution........................................ 113 Legal Matters............................................... 113 Experts..................................................... 114 Available Information....................................... 114 Index to Consolidated Financial Statements and Schedule..... F-1
Until , 2000 (90 days after the date of this prospectus), all dealers that buy, sell or trade these securities, whether or not participating in this exchange offer, may be required to deliver a prospectus. This is in addition to dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. 4 PROSPECTUS SUMMARY The following summary highlights information we present more fully elsewhere in this prospectus. This prospectus contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of factors described under the heading "Risk Factors" and elsewhere in this prospectus. COLO.COM We are rapidly deploying an international platform of colocation facilities, called Neutral Optical Hubs, in which our customers can install equipment, connect to a choice of network providers and connect with our other customers. We believe our Neutral Optical Hubs will be best-in-class facilities that will offer a broad choice of network providers and the most flexible technology protocols. Our carrier neutral facilities enable our target customers to use any of the network providers available at our facilities to deliver high quality, broadband services and applications to their end users. We are not a communications carrier, and because our facilities are carrier neutral, our customers will be able to connect their communications equipment located in our facilities to any of the carriers that are connected to our facilities. As of May 31, 2000, we had signed contracts with 53 customers to locate equipment in one or more Neutral Optical Hubs, including: - Internet-based businesses, such as Campsix, Inc., RateXchange Corporation and ShockWave.com, Inc. - Application service providers, such as Evolve Software, Inc. and Musicbank, Incorporated; - Internet service providers, such as InterNAP Network Services Corporation, Madge Networks, N.V., The Masterlink Group, Inc. and SAVVIS Communications Corporation; - Competitive local phone companies, such as Mpower Communications Corp., Telseon Inc. and 2nd Century Communications Inc.; and - Other voice and data communications companies, such as NeuMedia Inc. The deregulation of the telecommunications industry and the significant growth in Internet users and bandwidth intensive applications has increased the demand for the existing communications infrastructure. This demand has strained the performance of the infrastructure, leading to problems with latency, data loss and security. These and other problems are impacting the ability of our target customers to effectively use the Internet for new services such as voice-over-Internet protocol and some applications that use streaming and broadcast capabilities. Content distribution companies and advanced switch providers have been able to improve existing bottlenecks and network congestion through technology, but depend on others to provide facilities and interconnect networks. Internet-based businesses, application service providers, Internet service providers, competitive local phone companies and other voice and data communications companies, which are our target customers, are increasingly turning to colocation options as the need to be close to their end users and the cost of building in-house facilities increases. These target customers have traditionally had limited colocation choices in carrier operated facilities, carrier hotels or web-hosting facilities. International Data Corporation predicts that the U.S. market for Internet hosting, which consists of shared server hosting, several categories of dedicated server hosting and related services, will grow from an estimated $3.7 billion in 2000 to $18.9 billion in 2003. Within this market, IDC predicts that the market for colocation services will be one of the 1 5 fastest growing segments, growing from an estimated $710 million in 2000 to $4.2 billion in 2003. We believe that our carrier neutral colocation solution addresses the limitations of the traditional alternatives. Our customers will be able to purchase a variety of colocation, cross connection and technical support services in all facilities across our broad geographic presence. We believe our solution provides the foundation for building networks that enable customers to locate equipment close to end users, thereby enhancing performance and enabling them to provide more competitive service offerings. Our Neutral Optical Hubs will offer a number of compelling advantages to our customers, including: - International platform and rapid time to market; - Network and service neutrality; - Cost savings; - Best-in-class facilities; and - Superior customer service To achieve our goal of becoming the premier, international, single-source supplier for carrier-neutral colocation facilities to our targeted customer base, our strategy is to: - Be first-to-market with broad geographic presence; - Maintain neutrality; - Strategically deploy multiple Neutral Optical Hubs in certain geographic regions; - Enter into strategic and commercial relationships to extend sales reach; - Expand our service offerings and enable marketplace exchanges; and - Build the COLO.COM brand. We intend to have at least 40 Neutral Optical Hubs generating revenue or ready for carriers and customers to install their equipment by the end of 2000. As of May 31, 2000, we had signed leases for 46 facilities in the United States and Europe totaling more than 1.1 million square feet, of which 11 facilities in the U.S. were ready for carriers and customers to install their equipment. We believe our Neutral Optical Hubs will become the preferred platform for companies that want to enhance service for their end users, will facilitate business-to-business commerce among our customers and will enable the convergence of Internet and telecommunication services. ------------------------ We were incorporated in California under the name Colomotion, Inc. in April 1997 and changed our name to COLO.COM in July 1999. Our principal executive office is located at 2000 Sierra Point Parkway, Brisbane, California 94005, and our telephone number is (650) 292-2656. Our corporate website is www.colo.com. The information contained on our website is not incorporated by reference into this prospectus. 2 6 THE EXCHANGE OFFER SECURITIES OFFERED......... $300.0 million aggregate principal amount of 13 7/8% Senior Notes due 2010, Series B. The terms of the new notes and the old notes are identical except for transfer restrictions and registration rights relating to the old notes that will not be applicable to the new notes. The old notes and the new notes are collectively referred to as the notes. ISSUANCE OF OLD NOTES...... $300.0 million aggregate principal amount of 13 7/8% Senior Notes due 2010, Series A were issued on March 10, 2000 to Goldman, Sachs & Co., Bear, Stearns & Co. Inc., Chase Securities Inc., Deutsche Bank Securities Inc., Warburg Dillon Read, LLC and Jefferies & Company, Inc., which placed the old notes with qualified institutional buyers. THE EXCHANGE OFFER......... We are offering to exchange $1,000 principal amount of new notes for each $1,000 principal amount of old notes. Old notes may only be exchanged in $1,000 principal amount increments. There are $300.0 million aggregate principal amount of old notes outstanding. CONDITIONS TO THE EXCHANGE OFFER.................... The exchange offer is not conditioned upon any minimum principal amount of old notes being tendered for exchange. However, the exchange offer is subject to customary conditions, which may be waived by us. See "The Exchange Offer -- Conditions to the Exchange Offer." PROCEDURES FOR TENDERING... If you want to tender your old notes in the exchange offer, you must complete and sign the letter of transmittal according to the instructions contained in this prospectus and the letter of transmittal. You must then mail, fax or hand deliver the letter of transmittal, together with any other required documents, to the exchange agent, either with the old notes to be tendered or in compliance with the specified procedures for guaranteed delivery of old notes. You should allow sufficient time to ensure timely delivery. Some brokers, dealers, commercial banks, trust companies and other nominees may also effect tenders by book- entry transfer. If you own old notes registered in the name of a broker, dealer, commercial bank, trust company or other nominee, you are urged to contract that person promptly if you wish to tender old notes in the exchange offer. Letters of transmittal and certificates representing the old notes should not be sent to COLO.COM. These documents should be sent only to the exchange agent. Questions regarding how to tender and requests for information should also be directed to the exchange agent. If you hold old notes through The Depositary Trust Company and wish to accept the exchange offer, you must do so pursuant to the book-entry transfer facility's procedures for book-entry transfer (or other applicable procedures), all in accordance with this prospectus and the letter of transmittal. 3 7 See "The Exchange Offer Procedures for Tendering Old Notes." EXPIRATION DATE; WITHDRAWAL............... The exchange offer will expire on the earlier of 5:00 p.m. New York City time, on , 2000 or the date when all old notes have been tendered, or a later date and time to which it may be extended. However, it may not be extended beyond , 2000. We will accept for exchange any and all old notes that are validly tendered in the exchange offer prior to 5:00 p.m., New York City time, on the expiration date. The tender of old notes may be withdrawn at any time prior to the expiration date. Any old note not accepted for exchange for any reason will be returned without expense to the tendering holder as promptly as practicable after the expiration or termination of the exchange offer. The new notes issued in the exchange offer will be delivered promptly following the expiration date. See "The Exchange Offer -- Terms of the Exchange Offer; Period for Tendering Old Notes" and "-- Withdrawals of Tenders." GUARANTEED DELIVERY PROCEDURES............... If you wish to tender your old notes and (1) your old notes are not immediately available or (2) you cannot deliver your old notes together with the letter of transmittal to the exchange agent prior to the expiration date, you may tender your old notes according to the guaranteed delivery procedures contained in the letter of transmittal. See "The Exchange Offer -- Procedures for Tendering Old Notes -- Guaranteed Delivery Procedures." TAX CONSIDERATIONS......... For U.S. federal income tax purposes, the exchange of old notes for new notes should not be considered a sale or exchange or otherwise a taxable event to the holders of notes. See "Material United States Federal Income Tax Considerations." USE OF PROCEEDS............ We will receive no proceeds from the exchange offer. APPRAISAL RIGHTS........... Holders of old notes will not have dissenters' rights or appraisal rights in connection with the exchange offer. EXCHANGE AGENT............. State Street Bank & Trust Company of California, National Association is serving as exchange agent in connection with the exchange offer for the notes. RESALES OF NEW NOTES....... Based on an interpretation by the Securities and Exchange Commission set forth in no-action letters issued to third parties, we believe that you may resell or otherwise transfer new notes issued in the exchange offer in exchange for old notes without restrictions under the federal securities laws. 4 8 However, there are exceptions to this general statement. You may not freely transfer the new notes if: - you are an affiliate of COLO.COM; - you did not acquire the new notes in the ordinary course of your business; - you have engaged in, intend to engage in, or have an arrangement or understanding with any person to participate in the distribution of the new notes; or - you are a broker-dealer who acquired the old notes directly from us. Any holder subject to any of the exceptions above and each participating broker-dealer that receives new notes for its own account in the exchange offer in exchange for old notes that were acquired as a result of market making, must comply with the registration and prospectus delivery requirements of the Securities Act in connection with the resale of the new notes. CONSEQUENCES OF NOT EXCHANGING THE OLD NOTES.................... If you do not tender your old notes or your old notes are not properly tendered, the existing transfer restrictions will continue to apply. The old notes are currently eligible for sale pursuant to Rule 144A through the PORTAL Market. Because we anticipate that most holders will elect to exchange old notes for new notes due to the absence of restrictions on the resale of new notes under the Securities Act in most cases, we anticipate that the liquidity of the market for any old notes remaining after the consummation of the exchange offer will be substantially limited. See "Risk Factors -- There could be negative consequences to you if you do not exchange your old notes for new notes" and "The Exchange Offer -- Consequences of Failure to Exchange Old Notes." 5 9 SUMMARY DESCRIPTION OF THE NEW NOTES The terms of the new notes and the old notes are identical in all respects, except that the terms of the new notes do not include the transfer restrictions and registration rights relating to the old notes. The old notes and the new notes are referred to collectively as the notes. The new notes will bear interest from the most recent date to which interest has been paid on the old notes. Accordingly, registered holders of new notes on the relevant record date for the first interest payment date following the completion of the exchange offer will receive interest accruing from the most recent date on which interest has been paid. Old notes accepted for exchange will cease to accrue interest from and after the date of completion of the exchange offer. Holders of old notes whose old notes are accepted for exchange will not receive any payment in respect of interest on the old notes otherwise payable on any interest payment date that occurs on or after completion of the exchange offer. NOTES OFFERED.............. $300.0 million aggregate principal amount of 13 7/8% Senior Notes due 2010, Series B. MATURITY................... March 15, 2010 INTEREST................... The notes will bear interest at the rate of 13 7/8%. We will pay interest on the notes in cash, semiannually in arrears, on each March 15 and September 15, commencing September 15, 2000. ESCROW PROCEEDS............ We have used a portion of the proceeds from the sale of the old notes to purchase U.S. government securities which were placed in an escrow account. The scheduled interest and principal payments on the U.S. government securities placed in the escrow account will be sufficient to pay the first four scheduled interest payments on the notes. The notes are secured by a lien on the securities in the escrow account. RANKING.................... The notes are unsecured (except as described in "-- Escrow Proceeds" above) senior obligations and: - rank equal in right of payment with all of our existing and future unsecured senior debt; - are effectively subordinated to any of our secured debt to the extent of the value of the assets which secure such debt; and - are effectively subordinated to the existing and future debt and other liabilities (including trade payables) of our subsidiaries or any future subsidiaries. As of March 31, 2000, we had: - no unsecured debt that would have ranked equally with the notes in right of payment; - $3.4 million of secured debt that would have effectively ranked senior to the notes to the extent of the value of the assets securing such debt; and 6 10 - no debt or other liabilities (including trade payables) of our subsidiaries that would have effectively ranked senior to the notes. SINKING FUND............... None. OPTIONAL REDEMPTION........ We may redeem all or a portion of the notes at any time on or after March 15, 2005, at the redemption prices set forth in this prospectus under the caption "Description of the Notes -- Optional Redemption", plus accrued interest, if any, to the date of redemption. In addition, before March 15, 2003, we may redeem up to 35% of the aggregate principal amount of the old notes with the proceeds from certain sales of our capital stock. MANDATORY OFFER TO REPURCHASE............... If we experience specific kinds of changes of control, we must offer to repurchase the notes at a redemption price equal to 101% of the aggregate principal amount of the notes repurchased, plus accrued interest, if any, to the date of repurchase. See "Description of the Notes -- Repurchase at the Option of Holders Upon a Change of Control." BASIC COVENANTS OF THE INDENTURE................ We have issued the notes under an indenture. The indenture, among other things, restricts our ability and the ability of our subsidiaries and any future subsidiaries to: - incur debt and issue certain types of preferred stock; - pay dividends or repurchase stock; - repay subordinated debt; - make certain investments; - create restrictions on the ability of our subsidiaries to make certain payments to us; - enter into transactions with stockholders and affiliates; - create liens; - engage in sale-leaseback transactions; - issue capital stock of our subsidiaries; - transfer or sell assets; and - consolidate, merge or sell all or substantially all of our assets. These covenants are subject to important exceptions, including the right to incur an unlimited amount of purchase money debt. For more details, see "Description of the Notes -- Covenants." For details of the notes, see the section "Description of the Notes" later in this prospectus. 7 11 RISK FACTORS You should carefully consider the following risk factors and all other information contained in this prospectus before tendering your old notes in the exchange offer. Risks and uncertainties, in addition to those we describe below, that are not presently known to us or that we believe are immaterial may also impair our business operations. These risks could, if they occur, harm our business and our operating results. THERE COULD BE NEGATIVE CONSEQUENCES TO YOU IF YOU DO NOT EXCHANGE YOUR OLD NOTES FOR NEW NOTES. Any old notes tendered and exchanged in the exchange offer will reduce the aggregate principal amount of old notes outstanding. Because we anticipate that most holders will elect to exchange their old notes for new notes due to the absence of most restrictions on the resale of new notes, we anticipate that the liquidity of the market for any old notes remaining outstanding after the exchange offer may be substantially limited. Following the consummation of the exchange offer, holders who did not tender their old notes generally will not have any further registration rights under the registration rights agreement, and these old notes will continue to be subject to restrictions on transfer. The old notes are currently eligible for sale under Rule 144A through the PORTAL Market. As a result of making the exchange offer, we will have fulfilled our obligations under the registration rights agreement. Holders who do not tender their old notes generally will not have any further registration rights or rights to receive the liquidated damages specified in the registration rights agreement for our failure to register the new notes. The old notes that are not exchanged for new notes will remain restricted securities. Accordingly, the old notes may be resold only: - to COLO.COM or one of its subsidiaries; - to a qualified institutional buyer; - to an institutional accredited investor; - to a party outside the United States under Regulation S under the Securities Act; - under an exemption from registration provided by Rule 144 under the Securities Act; or - under an effective registration statement. WE ARE A NEW COMPANY AND FACE ALL OF THE RISKS OF A START-UP COMPANY IN A NEW AND RAPIDLY EVOLVING MARKET. We will encounter challenges and difficulties frequently experienced by early-stage companies in new and rapidly evolving markets, including - a lack of operating experience; - increasing net losses and negative cash flows; - lack of sufficient customers; - insufficient revenue or cash flow to be self sustaining; - high capital expenditures; - an unproven business model; and - difficulties in managing rapid growth. We can not assure you that we will ever be successful. 8 12 WE MAY NOT SUCCEED BECAUSE OF OUR LIMITED EXPERIENCE. Because we are a new company, we have limited experience in designing, building and operating Neutral Optical Hubs. As of May 31, 2000, eight of our Neutral Optical Hubs were generating revenue, including our first facility located in San Francisco (Mission Street) that we intend to close. Our buildout plan requires that we identify, lease and construct multiple facilities at the same time. We intend to have at least 40 Neutral Optical Hubs generating revenue or ready for carriers and customers to install their equipment in metropolitan areas by the end of 2000. This business plan is based on our assumption that it will take approximately ten months from the date that we enter into a lease until the date a new Neutral Optical Hub begins generating revenue. Although we have successfully met this time frame for all of our facilities (excluding our first facility located in San Francisco (Mission Street)) which were generating revenue as of May 31, 2000, we have previously experienced and may continue to experience unforeseen delays and expenses in connection with our facility buildout program. In addition, we have not yet demonstrated that we are able to manage the buildout of multiple facilities at the same time. Accordingly, we cannot assure you that we will successfully complete the implementation of our buildout plan within our proposed time frame. In addition, our lack of experience could result in increased operating and capital costs and delays in our expansion strategy. Our lack of operating experience could also result in service interruptions for our customers. In addition, our long-term business strategy calls for us to eventually offer higher margin value-added services to our customers. However, we do not currently provide such services, and have no experience in developing, implementing and marketing such services. Accordingly, we can not assure you that we will be successful at providing these additional services, or that they will not result in additional losses. We may not successfully address any or all of the risks posed by our lack of experience, and our failure to do so would seriously harm our business and operating results. WE MUST BUILD OUT NEW FACILITIES VERY RAPIDLY IN ORDER TO MAKE PAYMENTS ON THE NOTES AND TO EXECUTE OUR BUSINESS PLAN. We have had very low revenues and significant losses to date, and we must build out new facilities very rapidly in order to generate sufficient revenues to be able to make payments on the notes. In addition, we must build out new facilities very rapidly in order to execute our business strategy, which is based upon gaining a first-to-market advantage in the new market for neutral colocation facilities. To accomplish this goal, we intend to have at least 40 Neutral Optical Hubs generating revenue or ready for carriers and customers to install their equipment in metropolitan areas by the end of 2000 and intend to open numerous facilities in subsequent years. Among other things, our aggressive buildout strategy will require us to rapidly: - locate and secure suitable sites for our Neutral Optical Hubs; - acquire and install equipment for each of our facilities, including heat, ventilation and air-conditioning systems, electrical power supply and backup systems, fire detection and suppression systems, equipment monitoring and 24 x 7 security systems; - hire technical personnel for each of our facilities; and - connect a variety of network providers to each of our facilities. We have very limited experience doing this. In addition, our existing and prospective customers expect us to provide broad geographic coverage in the near future. As a result, delays in successfully completing our buildout strategy could impair important relationships, damage our reputation and have a material adverse effect on our results of operations. 9 13 WE HAVE INCURRED LOSSES SINCE INCEPTION AND WE EXPECT FUTURE LOSSES. We have generally experienced increasing quarterly operating losses and negative cash flows since inception. As of March 31, 2000, we had cumulative net losses of $22.4 million and cumulative cash used in operating activities of $14.0 million. We expect that our net losses and negative cash flows will increase significantly for the foreseeable future. We cannot assure you that we will be able to achieve operating income or positive cash flows in the future. If we cannot, we would not be able to meet our working capital requirements or make interest and principal payments on our debt, including the notes. WE WILL NEED SIGNIFICANT ADDITIONAL FUNDS WHICH WE MAY NOT BE ABLE TO OBTAIN. To complete the implementation of our intended buildout plan within our proposed time frame and to fund our anticipated operating losses, we will need to raise funds through additional private or public equity or debt financings. We currently anticipate that our available cash resources will be sufficient to meet our anticipated operating losses, interest expense and capital expenditure requirements through at least the completion of our facilities that are currently under construction. We do not currently have the cash resources to complete all of the facilities for which we have leased sites or to complete our intended 40 facility buildout plan for fiscal year 2000. However, we do not intend to begin construction of facilities that we do not then have sufficient resources to complete. We anticipate that we may incur a substantial amount of additional debt under a credit facility that we may enter into during 2000. Financing may not be available to us at the time we need it, or if it is available, it may only be available on terms that are unfavorable to us. If we cannot raise sufficient additional funds on acceptable terms we may need to delay or abandon some or all of our development and expansion plans or otherwise forego market opportunities, and we may incur additional losses if we need to terminate any leases or abandon or delay the completion of any facilities under construction. Equity financing would dilute the ownership interest of our current stockholders. Debt financing would increase our interest expense. The anticipated timing and amount of our capital requirements is forward-looking and therefore inherently uncertain. It may take longer than we anticipate to build out our Neutral Optical Hubs. We also do not know how long our sales cycle will be, but it is likely to be lengthy. Once a particular facility is generating revenue, we expect that it will take an extended period of time before it will have enough business to provide sufficient revenue to cover its expenses. Growth in the number of our facilities is likely to increase the amount and duration of losses and our financing needs. Our future capital requirements may therefore vary significantly from what we currently project and may be affected by unforeseen delays and expenses and a lengthier than anticipated sales cycle. If we encounter any of these problems or if we have underestimated our working capital, operating losses or capital expenditure requirements, we may require significantly more financing than we currently anticipate. OUR MARKET IS NEW AND WE DO NOT KNOW IF THERE IS SUFFICIENT DEMAND FOR OUR SERVICES. Because the market for neutral colocation facilities is just developing, we do not know whether there will be sufficient demand for our services. Although a number of emerging companies are developing similar businesses, we are not aware of any company that has successfully executed a business plan like ours. We will make large capital expenditures and incur substantial losses before we have much information about the actual level of demand for our services. If there is not as much demand as we expect, our revenues may be insufficient to cover our costs and expenses, we may not be able to make payments on the notes and the value of our common stock could be significantly decreased. 10 14 WE EXPECT COMPETITION TO BE INTENSE. The market for colocation services is expanding. The main barriers to entry are access to capital, the time needed to assemble a management team and build out facilities, and the ability to secure a first-to-market advantage. We have targeted the developing neutral colocation segment of the broader market for colocation services. Although there are a number of companies developing businesses similar to ours, in most metropolitan areas there are currently a limited number of providers of neutral colocation facilities operating. We expect other companies to enter this market segment if there is sufficient demand for neutral colocation services. A substantial portion of the costs and expenses of a neutral colocation facility are fixed. Once a facility is built and staffed, the marginal cost of providing colocation space to a customer is relatively low. Therefore, if there is more than one neutral colocation facility in a metropolitan area, there may be price competition. If there is significant excess capacity in a metropolitan area, this could lead to increased price competition and lower margins. If we are unable to rapidly roll out our Neutral Optical Hubs, we may lose our first-to-market advantage and other companies may be able to attract the same customers that we are targeting. Once a potential customer is located in a competitor's facility, it will be extremely difficult to convince that potential customer to relocate to our Neutral Optical Hubs because moving out of an existing facility could result in service interruptions and significant costs to reconfigure network connections. In addition to competing with other neutral colocation providers, we will compete with traditional colocation providers, including local phone companies, long distance phone companies, Internet service providers and web hosting facilities. Most of these competitors have greater resources, more customers, longer operating histories, greater brand recognition and more established relationships than we have. We believe our neutrality provides us with an advantage over these competitors. However, these competitors could offer colocation on neutral terms, and may start doing so in the metropolitan areas where we establish operations. If this occurs, we could face increased price competition. The Telecommunications Act requires incumbent local exchange carriers to provide non-discriminatory colocation to telecommunications carriers that wish to interconnect with the incumbent local exchange carrier's networks or obtain access to incumbent local exchange carrier-provided unbundled network elements. In 1996, the Federal Communications Commission adopted initial rules to implement this provision and, in 1999, adopted additional rules that should significantly lower the cost and increase the attractiveness of incumbent local exchange carrier-provided colocation facilities. Consequently, colocation offered by incumbent local exchange carriers may become more competitive with our service offerings. Telephone and Internet companies with which we compete will be able to provide our target customers with additional benefits, including bundled communication services, and may do so at reduced prices or in a manner that is more attractive to our potential customers than obtaining space in our Neutral Optical Hubs. If these competitors were to provide communication services at reduced prices together with colocation space, it may lower the total price of these services in a fashion that we cannot match. Our competitors include: - carriers, such as AT&T, Level 3 Communications, MCI WorldCom, Qwest Communications International, Inc. and Sprint, which offer colocation as a byproduct of offering access to their networks; - web-hosting facilities offered by Digital Island, Inc. and Exodus Communications, Inc.; 11 15 - network access points, such as Neutral Nap, PAIX, and Equinix, Inc.; - carrier hotels, such as One Wilshire in Los Angeles, the Westin Building in Seattle and 60 Hudson in New York, which offer physical space for lease, incumbent local exchange carriers; and - other domestic and international companies offering central office-like facilities, such as Switch and Data Facilities Co., CO Space, Inc., InFlow, Inc., Telehouse International Corporation of America and TelePlace in the U.S., CityReach International, DigiPlex S.A., Global Reach, IX Europe, iaxis, InterXion Netherlands BV and Redbus Interhouse in Europe, and iAsiaWorks, Inc. in Asia. Several of our competitors are our customers or our potential customers. WE MUST MANAGE OUR GROWTH AND EXPANSION EFFECTIVELY. We are experiencing, and expect to continue to experience, rapid growth with respect to the buildout of our Neutral Optical Hubs, expansion of our customer base and increasing the number of our employees. This growth has placed, and we expect it will continue to place a significant strain on our financial, management, operational and other systems and resources, and we cannot assure you that our systems, resources, procedures and controls will be adequate to support further expansion of our operations. Any failure to manage growth effectively could seriously harm our business and operating results. To succeed, we will need to: - maintain close coordination among our executive, technical, accounting, finance, marketing, sales, real estate, construction and operations organizations; - improve our operating, administrative, financial and accounting procedures and controls; and - implement sophisticated management information systems, including construction management, billing, budget, sales administration and tracking, human resources and customer support systems, and systems that enable us to monitor our operations. We introduced a new management team and replaced substantially all of our accounting and finance staff in 1999. In connection with the audit of our financial statements for the period from our inception (April 2, 1997) to December 31, 1997 and the year ended December 31, 1998, our independent accountants reported on certain material weaknesses in the system of internal accounting and financial controls maintained by our former management, which included deficiencies in the maintenance of supporting documentation and approvals for disbursements, processes for authorizing significant contracts and reconciliation of general ledger accounts, and also reported certain unauthorized stock transactions. During 1999, in addition to hiring new accounting and financial personnel, our new management team implemented a number of internal accounting polices and procedures to strengthen our system of internal controls. We believe that these new policies and procedures have resolved all of the material weaknesses reported in connection with our 1998 audit. We can not assure you that we will not experience any deficiencies in our system of internal controls in the future. For example, despite our strengthened internal control policies and procedures, we discovered an undocumented transaction involving an option for the purchase of 5,000 shares of our common stock in mid-1999. 12 16 OUR BUSINESS IS DIFFICULT TO EVALUATE BECAUSE WE HAVE A SHORT OPERATING HISTORY. We were founded under prior management in April 1997 and opened our first facility in San Francisco (Mission Street) in January 1998. As of May 31, 2000, this facility was one of eight of our Neutral Optical Hubs generating revenue. Our new management has decided to close this facility because it does not meet our technical best-in-class criteria. Our operating history through December 31, 1999 consists of less than two years of operations of a single facility which has relatively few customers and which is scheduled to be closed. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" for a further description of the costs associated with the closure of this facility. As a result, you have limited financial and operating data about our company upon which to evaluate our business operations and our prospects. Furthermore, the business of providing neutral colocation facilities is a new industry. Although a number of emerging companies are developing similar businesses, we are not aware of any company that has successfully executed a business plan like ours. Accordingly, neither we nor you have the benefit of a comparable historical business model in order to analyze our business plan and prospects. WE HAVE A NEW MANAGEMENT TEAM, AND WE DEPEND ON OUR ABILITY TO ATTRACT AND RETAIN KEY PERSONNEL. Nearly all of our management team joined us in 1999 and 2000. Although our management team has significant business experience, the members of the team have worked together for only a brief period of time. Our ability to effectively execute our business strategy depends in large part on our new management team's ability to operate effectively together. If our executives are unable to do so, our business and results of operations may be materially and adversely affected. Our success also depends in significant part upon the continued services of our key technical, sales and senior management personnel. If we lose one or more of our key employees, we may not be able to find a replacement and our business and operating results could be adversely affected. In particular, our performance depends upon the continued service of Charles M. Skibo, our chairman and chief executive officer. Mr. Skibo joined us in January 1999 and has been instrumental in designing and leading the execution of our business strategy. The loss of Mr. Skibo's services would have a material and adverse effect on our business. Although most of our senior management personnel are in place, we will need to hire additional key personnel in positions related to our strategy of rapid expansion, including mid-level headquarters staff and qualified technical personnel at each of our Neutral Optical Hubs. We estimate that we will need to hire at least 300 additional employees in executive, technical, accounting, finance, marketing, sales, customer service, real estate, construction management and operational positions by the end of 2000. As of May 31, 2000, we had 234 employees, compared to 11 employees at December 31, 1998. Our future success will depend upon our ability to identify, hire, integrate and retain and train these new employees. In addition, due to generally tight labor markets, our industry, in particular, suffers from a lack of available qualified personnel. We may not be successful in attracting, assimilating or retaining qualified personnel. OUR SUBSTANTIAL AMOUNT OF DEBT COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION AND PREVENT US FROM FULFILLING OUR OBLIGATIONS UNDER OUR OUTSTANDING INDEBTEDNESS, INCLUDING THE NOTES. We have a substantial amount of debt, with an approximate total indebtedness of $303.4 million as of March 31, 2000. In addition, we anticipate that we may incur a substantial 13 17 amount of additional debt under a credit facility that we may enter into during 2000. This substantial level of debt could have important consequences to you. For example, it could: - make it more difficult for us to satisfy our obligations with respect to our outstanding debt, including the notes; - increase our vulnerability to general adverse economic and industry conditions or difficulties that our business may experience; - require us to dedicate a substantial portion of our cash flow from operations, if any, to payments on our debt, thereby reducing the availability of funds for working capital, operating losses, capital expenditures and other general corporate requirements; - limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate or in taking advantage of significant business opportunities that may arise; - place us at a competitive disadvantage compared to our competitors that have less debt or leverage; and - limit our ability to engage in certain business activities, including, among other things, our ability to borrow additional funds or make certain investments due to the financial and restrictive covenants in our debt. Any of the above factors could have a material adverse effect on our business, financial condition and results of operations. We and our subsidiaries and any future subsidiaries may incur substantial amounts of additional debt in the future, including an unlimited amount of purchase money debt and up to $200.0 million of debt under credit facilities, which may be secured. The terms of the indenture governing our senior notes limit, but do not prohibit, us or our subsidiaries and any future subsidiaries from doing so. If we or our subsidiaries and any future subsidiaries incur more debt, the related risks described above could intensify, and it could be more difficult for us to satisfy our obligations under our senior notes. See "Capitalization," "Selected Consolidated Financial Data," "Description of Other Indebtedness," and "Description of the Notes." SERVICE AND OTHER INTERRUPTIONS COULD LEAD TO SIGNIFICANT COSTS AND DISRUPTIONS WHICH COULD REDUCE OUR REVENUE AND HARM OUR BUSINESS REPUTATION AND FINANCIAL RESULTS. Service interruptions are a very serious concern for our prospective customers and a service interruption or breach of security could be very costly to us and very damaging to our reputation. Our facilities and customers' equipment are vulnerable to damage from human error, physical or electronic security breaches, power loss, other facility failures, fire, earthquake, water damage, sabotage, vandalism and similar events. In addition, our customers would be adversely affected by the failure of carriers to provide network access to our facilities as a result of any of these events. Moreover, we are using an internally developed, standard facility design and are installing substantially the same equipment at each of our facilities. Any latent flaws in our design or equipment would affect most or all of our facilities. Although we have designed our facilities to exacting standards, any of these events or other unanticipated problems at one or more of our facilities could interrupt our customers' ability to provide their services from our facilities. This could damage our reputation, make it difficult to attract new customers and cause our existing customers to seek to terminate their contracts with us. We face the risk that too many customers may want to enter our facilities at the same time. Our business plan calls for a substantial percentage of available facility space to be occupied within the first year after a facility is operational. However, only a limited number of 14 18 customers will be physically able to install equipment in a facility at the same time. Thus, we may be unable to accommodate our customers' needs as quickly as they would like. This could result in damage to our reputation and a reduction in the amount of, or delay in receiving, revenue from the affected customers. WE DEPEND ON THIRD PARTIES, INCLUDING NETWORK OWNERS WITH WHOM WE COMPETE, TO PROVIDE NETWORK CONNECTIONS TO OUR NEUTRAL OPTICAL HUBS. We are not a communications carrier, and therefore, we rely on third parties to provide our customers with access to voice, data and Internet networks. We need to secure relationships with third party network providers to offer our customers a choice of cost-effective access to networks from our Neutral Optical Hubs. Our facilities will not be attractive to our customers without these connections. We intend to rely primarily on revenue opportunities from our existing and prospective customers to encourage carriers to incur the expenses required to connect from their points of presence to our Neutral Optical Hubs. Carriers will likely evaluate the revenue opportunity of a Neutral Optical Hub based on their estimates of demand. Many of these carriers have their own colocation facilities and may therefore be reluctant to provide network services at our Neutral Optical Hubs. As a result, carriers may elect not to connect their services to our Neutral Optical Hubs. If numerous carriers do not connect to our Neutral Optical Hubs, our business may fail. In order to attract carriers to connect to our facilities, we plan to place circuit orders with multiple carriers prior to completing construction of each facility. These orders will generally require us to pay an installation fee and a minimum monthly charge for periods anticipated to be approximately one to three years. We expect that as customers connect to these carriers, these circuits and the related monthly charges will be assigned to these customers and thereby reduce our obligations to the carriers. However, we cannot assure you that we will be successful in assigning these commitments to our customers or that we will not be required to make substantial payments to carriers before we begin generating revenues from our customers. In addition, we may need to provide additional incentives to attract carriers to connect to our facilities. We believe that once the first carriers connect to any given facility, other carriers will be more likely to do so. In the event that we experience delays in installing customers in our facilities, or those customers do not want services from the carriers which we have brought into a facility, we may be required to make substantial payments to these carriers. As of May 31, 2000, we had placed orders with multiple carriers to connect to 24 of our facilities, with aggregate monthly service charges of approximately $550,000. In addition, 11 of our facilities either had carriers installed or connections on order without monthly service charges. The construction required to connect multiple carriers to our Neutral Optical Hubs is complex and involves factors outside of our control, including the availability of local building permits, regulatory processes and the availability of the carrier's construction resources and vendor equipment. Therefore, there may be delays in obtaining access. OUR ABILITY TO FILL OUR NEUTRAL OPTICAL HUBS IS LIMITED BY THE AVAILABILITY OF ELECTRICAL POWER. The availability of an adequate supply of electrical power and the infrastructure to deliver that power is critical to our ability to attract new customers and achieve our projected results. We rely on third parties to provide electrical power to our Neutral Optical Hubs, and cannot be sure that these parties will provide adequate electrical power to our Neutral Optical Hubs or that we will have the necessary infrastructure to deliver adequate electrical power to our users. Even if the utility company provides adequate power to the building, we still must rely on the landlord to provide adequate electrical power to our Neutral Optical Hub. If the amount of electrical 15 19 power delivered to our facilities is inadequate to support our customer requirements or does not occur in a timely manner, our operating results and cash flow may be materially and adversely affected. In addition, the amount of space required to house generators and batteries limits the amount of sellable space that we have in each of our Neutral Optical Hubs and restricts our ability to expand the facilities. Our electrical power specifications are based upon the expected mix of customers and the expected mix of their equipment. Technological change could also increase the power requirements of customer equipment. As a result, a different mix of customers or equipment or different specifications of our customers equipment than what we expect could cause us to run out of available power before a facility is fully filled thus reducing our anticipated revenue stream or requiring us to incur additional costs to increase the amount of available power and potentially reducing the amount of saleable space. OUR REVENUES FROM EACH NEUTRAL OPTICAL HUB WILL BE AFFECTED BY A MIX OF CUSTOMERS WITH LARGE AND SMALL DEMANDS FOR SPACE. Customers will have specific requirements for the configuration of their space which we may inaccurately predict. We build our sites anticipating roughly an equal mix of custom fit cage space that is designed to meet the specifications of our customers with demands for larger space and pre-configured cabinet and cage space that is designed for customers with demands for small and medium sized space. If we fail to meet our anticipated customer mix, we may incur significant costs to retrofit our facilities. We expect our large customers to purchase large amounts of cage space and outfit it to meet their own specifications. Our preconfigured cage space is available in 10' x 12', 10' x 10' and 8' x 7' sizes, and our cabinets are designed to fit standard size Internet (19-inch) and telecommunications (23-inch) mounts. We expect that some significant larger customers will drive early revenue and occupancy within each of our facilities and help us attract smaller customers. If we fail to attract enough large customers, we may not be able to increase our revenues quickly enough and may fail to establish ourselves as a credible service provider. We also expect that we will be able to fill our custom cage space much more quickly than our pre-configured cabinet and cage space. On the other hand, if we sell more than the expected amount of our space to large customers, we will have less space available to sell, on a potentially higher margin basis, to smaller customers. As a result, if we are unable to achieve a desirable mix of large and small customers, our financial results may be adversely affected. WE MAY CONTINUE TO HAVE CUSTOMER CONCENTRATION. To date, we have relied upon a very small number of customers for most of our revenue. We expect that we will continue to rely upon a limited number of customers for a high percentage of our revenue on a per-facility basis and may also continue to have customer concentration company-wide. As a result of this concentration of our customer base, a loss of or decrease in business from one or more of our customers in any single facility could have a material and adverse effect on that facility, and a loss of or decrease in business from one or more of our significant customers that have entered into contracts covering multiple facilities could have a material and adverse effect on our business, prospects, financial condition and results of operations. In addition, since customers entering into contracts covering multiple facilities will have a significant impact on our revenue, they may force us into concessions that will reduce our profit margins. WE MAY HAVE DIFFICULTY COLLECTING PAYMENTS FROM SOME OF OUR CUSTOMERS. We anticipate that a number of our customers will be start-up companies. There is a risk that these companies will experience difficulty paying their bills, including money owed to us for our services. Although we believe that the difficulties and service interruptions associated with 16 20 relocating communications equipment may lead these customers to give greater priority to paying for our services, we might not be able to collect all of the money owed to us by some of these customers. We intend to remove customers that do not pay us in a timely manner. However, we may have difficulty collecting from or removing these customers. WE MUST RESPOND TO EVOLVING INDUSTRY STANDARDS. The demand for our Neutral Optical Hubs will be affected by evolving industry standards and changes in customer demands. Our success will partially depend on our ability to address the increasingly sophisticated and varied needs of our existing and prospective customers. Future advances in technology may not be beneficial to, or compatible with, our business, and we may not be able to incorporate advances on a cost-effective and timely basis. For example, although we have taken steps to incorporate wireless communications capabilities into our facilities, the further development of this technology could lead to a reduced need for our other products and services. If customer requirements for electrical power increase and we are unable to meet this demand it will have a material and adverse impact on our business. If evolving industry standards result in substantial changes in the standard size specifications of our customers' equipment, and thereby result in the need for different dimensions of cage or cabinet space, we may need to incur additional costs to retrofit our facilities and our financial results may be adversely impacted. WE MUST LOCATE AND SECURE SUITABLE SITES. We need sites that meet specific infrastructure requirements such as access to multiple communication carriers, a significant supply of electrical power, high ceilings, and the capability for heavy floor loading. In many markets, the supply of facilities with these characteristics is very limited and is in very high demand. In addition, the completion of lease transactions requires timely and successful negotiations with landlords. Our ability to secure leases rapidly can be affected by poor landlord responses. If we are not able to locate and secure suitable sites for our Neutral Optical Hubs in the markets that we intend to enter, we will not be able to complete the implementation of our buildout plan within our proposed time frame, and our business and results of operations may be adversely affected. WE FACE RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS THAT COULD HARM OUR BUSINESS. A component of our strategy is to expand into international markets, including Europe and Asia-Pacific. International expansion is important to our customers who want a colocation provider with broad geographic coverage. Because our management has limited experience in conducting business outside the U.S. and may not know particular factors that affect our business in foreign countries, we will be subject to greater risks there. In addition, we anticipate that market and regulatory acceptance of the services provided by our Neutral Optical Hubs will be slower outside the U.S. As a result, we could suffer material harm to our business, including increased costs, longer sales cycles and diversion of management's attention, if we experience difficulty in dealing with some of the risks inherent in conducting our business internationally. Some of these risks include: - increased leasing costs and expenses; - difficulty or increased costs of constructing Neutral Optical Hubs; - longer construction times and sales cycles; - difficulty of securing relationships with third party network owners; - business practices and protectionist laws that favor local competition; - changes in regulatory requirements, tariffs and other trade barriers; 17 21 - challenges in staffing and managing foreign operations, including differences in employment laws and practices; - difficulties associated with enforcing agreements through foreign legal systems; and - fluctuations in currency exchange rates and imposition of currency exchange controls. In addition, in order to develop or expand our international operations, we may acquire complementary businesses or enter into joint ventures or outsourcing agreements with third parties. Thus, we may depend on third parties to be successful in our international operations. WE MAY MAKE ACQUISITIONS, WHICH POSE INTEGRATION AND OTHER RISKS. We may seek to acquire other colocation providers or additional colocation facilities from other companies. As a result of these acquisitions, we may: - pay too much; - be required to incur significant expenditures to retrofit the acquired facility to bring it up to our standards; - have difficulty assimilating customers, technology and personnel from acquired businesses; - create goodwill that would reduce our earnings, if any, as it is amortized; and - have to make write-offs of acquired assets. We may also acquire colocation facilities or operators of colocation facilities in foreign countries to expand our international operations. These acquisitions would also pose the risks discussed above under "We face risks associated with international operations that could harm our business." In addition, we might issue common stock to pay for some or all of the purchase price for acquired businesses. That would dilute the ownership interests of our current stockholders. Currently, we have no present understandings, commitments or agreements with respect to any such acquisitions. LEGISLATION AND GOVERNMENT REGULATION COULD ADVERSELY IMPACT OUR BUSINESS PLAN AND OUR OPERATING RESULTS. Changes in the regulatory environment could affect our operating results by increasing competition, decreasing revenue, increasing costs or impairing our ability to offer services. The provision of basic telecommunications services is subject to significant regulation at the federal and state level. The Federal Communications Commission regulates telecommunications carriers that provide interstate and international common carrier services. State public utilities commissions exercise jurisdiction over intrastate basic telecommunications services but do not regulate most enhanced services, which involve more than the pure transmission of customer provided information. Many of our customers, competitors and vendors, especially incumbent local exchange carriers, are subject to federal and state regulations. These regulations change from time to time in ways that are difficult for us to predict. Although we believe the services we provide today are not subject to any regulation by the Federal Communications Commission or the state public utilities commissions, changes in regulation or new legislation may increase the regulation of our current services. In addition, our intended expansion into international markets could subject us to regulatory requirements of foreign jurisdictions. 18 22 WE MAY BE SUBJECT TO ENVIRONMENTAL RISKS INHERENT IN THE ON-SITE STORAGE OF DIESEL FUEL AND BATTERIES. Our Neutral Optical Hubs contain tanks for the storage of diesel fuel and significant quantities of lead acid batteries to provide back-up power generation and uninterrupted operation of our customers' equipment. We maintain an environmental compliance program that includes the implementation of required technical and operational procedures designed to minimize the potential for leaks and spills, maintenance of records and manufacturer's recommended preventative maintenance. However, we cannot assure you that these systems will at all times remain free from leaks or that the use of these systems will not result in spills. Any leak or spill, depending on such factors as the material involved, quantity and environmental setting, could result in interruptions to our operations and expenditures that could have a material adverse effect on our business, financial condition and results of operations. YOU MAY FIND IT DIFFICULT TO SELL YOUR NOTES. The old notes are eligible for trading in the PORTAL Market. There is no existing trading market for the new notes and we cannot be sure that any market for the new notes will develop, that the holders of the new notes will be able to sell their notes or that the prices at which any sales that are made will be favorable. If a market for the notes were to develop, the notes could trade at prices that may be higher or lower than the exchange tender price of the old notes. Prevailing market prices from time to time will depend on many factors, including then existing interest rates, our operating results and cash flow and the market for similar securities. In addition, the liquidity of, and trading markets for, the new notes may be adversely affected by declines in the market for high-yield securities generally. A decline may aversely affect liquidity and trading markets independent of our financial performance or prospects. OUR SIGNIFICANT STOCKHOLDERS CAN EXERT CONTROL OVER US, AND MAY NOT MAKE DECISIONS THAT ARE IN THE BEST INTERESTS OF HOLDERS OF THE NOTES OR OF OUR STOCKHOLDERS. As of May 31, 2000, our officers, directors and principal stockholders (greater than 5% stockholders) together controlled approximately 58.0% of our outstanding common stock. As a result, these stockholders, if they act together, are able to exert a significant degree of influence over our management and affairs and over matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. This concentration of ownership may have the effect of delaying or preventing a change in control of COLO.COM, even when such a change may be in the best interests of all stockholders. IT MAY BE DIFFICULT FOR A THIRD PARTY TO ACQUIRE US DUE TO ANTI-TAKEOVER PROVISIONS. Provisions of our amended and restated articles of incorporation require approval by holders of a majority of our preferred stock prior to a merger, reorganization, sale of control or any transaction in which more than 50% of our voting power is disposed of, or the sale of all or substantially all of our assets. These provisions could make it more difficult for a third party to acquire us, even if doing so would be beneficial to holders of the notes or our stockholders. In addition, at some point following the exchange offer, we intend to change our state of incorporation from California to Delaware. In the course of this reincorporation, we expect to adopt provisions in our certificate of incorporation and bylaws that would create shares of undesignated preferred stock, create a classified board of directors, eliminate the right of stockholders to call a special meeting of stockholders, require stockholders to comply with advance notice requirements before raising a matter at a meeting of stockholders and eliminate 19 23 the ability of stockholders to take action by written consent. As a Delaware corporation, we would also be subject to the Delaware anti-takeover statute contained in Section 203 of the Delaware General Corporation Law. Any of these provisions, or others that we may adopt, could make it more difficult for a third party to acquire us, even if doing so would be beneficial to holders of the notes or our stockholders. THE NOTES ARE EFFECTIVELY SUBORDINATED TO OUR SECURED DEBT AND ALL OF THE LIABILITIES OF OUR SUBSIDIARIES. The notes are general unsecured senior obligations and rank equally in right of payment with all our existing and future senior indebtedness. The notes are effectively subordinated to our secured debt to the extent of the value of the assets securing that debt. We anticipate that all of the obligations under any credit facility that we may enter into in the future will be secured. In a bankruptcy, liquidation or reorganization of our company, our assets securing other indebtedness will be available to pay obligations on the notes only after all indebtedness secured by these assets has been paid in full, at which point there may not be sufficient proceeds remaining to pay amounts due on the notes then outstanding. The notes are also effectively subordinated to all liabilities, including trade payables and lease obligations, of our subsidiaries or any future subsidiaries. Any right we may have to receive assets of our subsidiaries or future subsidiaries upon liquidation or reorganization will be effectively subordinated to the claims of that subsidiary's creditors, including trade creditors. As of March 31, 2000, we had approximately $3.4 million of outstanding secured debt and our subsidiaries had no outstanding debt. The indenture governing the notes contains limitations on our ability and the ability of our subsidiaries to incur additional debt. However, these limitations are subject to a number of exceptions, and we and our subsidiaries or any future subsidiaries may incur significant additional debt in the future, including debt to which the holders of the notes would be effectively subordinated. FORWARD-LOOKING STATEMENTS This prospectus contains forward-looking statements that relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "intend," "potential" or "continue." In addition, these forward-looking statements include statements regarding the following: - our business strategy; - our future operations; - our financial position and estimated revenues; - our expected cost and timing of leasing, constructing and equipping each new facility; and - our prospects, plans and objectives of management. These statements are only predictions. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of these statements. We are under no duty to update any of the forward-looking statements after the date of this prospectus or to conform these statements to actual results. 20 24 USE OF PROCEEDS We will not receive any proceeds from the issuance of the new notes offered in the exchange offer. In consideration for issuing the new notes, we will receive in exchange old notes in like principal amount, the terms of which are identical in all respects to the new notes except for transfer restrictions and registration rights. The old notes surrendered in exchange for new notes will be retired and canceled and cannot be reissued. Accordingly, issuance of the new notes will not result in any increase in our indebtedness. The net proceeds from the sale of the old notes, after deducting the underwriting discounts and offering expenses, was approximately $290.3 million. We used a portion of the proceeds to purchase U.S. government securities which were placed in an escrow account and pledged for the benefit of the holders of the notes to secure our first four scheduled interest payments on the notes. We expect to use the remaining net proceeds to fund capital expenditures in the leasing and buildout of colocation facilities in the U.S. and internationally, to provide working capital, including expenses associated with sales and marketing activities, to fund operating losses, for general corporate purposes and potentially to fund acquisitions. The amounts that we will actually expend will vary significantly depending on a number of factors, including revenue growth, if any, capital expenditures, the amount of cash generated by our operations, any additional financing that we may obtain and the use of proceeds of any such financing and other factors, many of which are beyond our control. Additionally, if we determine that it would be in our best interests, we may modify the number, selection and timing of entry into various geographic markets that we may enter. Accordingly, we retain broad discretion in the allocation of the net proceeds from the sale of the old notes. Although we may use a portion of the net proceeds to pursue acquisitions of businesses complementary to ours or additional colocation facilities from other companies, there are no present understandings, commitments or agreements with respect to any such acquisitions. Pending use of the net proceeds as outlined above, we will invest these funds in short-term, interest bearing, investment-grade securities to the extent permitted by the covenants governing our outstanding senior notes and our existing debt and any statistical asset tests imposed by the Investment Company Act of 1940. TRADEMARKS We own applications for federal registration and claim rights in the service marks COLO.COM(SM), Neutral Optical Hub(SM) and NOH(SM). This prospectus also refers to service marks, trade names and trademarks of other companies. 21 25 CAPITALIZATION The following unaudited table sets forth the actual cash, investments and capitalization of COLO.COM at March 31, 2000. Please read this table in conjunction with our consolidated financial statements, the notes to those statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included later in this prospectus.
MARCH 31, 2000 -------------- (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE DATA) Cash and cash equivalents................................... $381,010 Restricted cash and cash equivalents........................ 3,765 ======== Restricted investments...................................... 77,729 ======== Current portion of notes payable, net of discount(1)........ 478 ======== Long term obligations, net of current portion: Notes payable, net of discount(1)......................... 1,287 13 7/8% senior notes due 2010, net of discount(1)......... 216,468 -------- Total long-term debt...................................... 217,755 Stockholder's equity: Series A preferred stock, no par value; 5,250,000 shares authorized; 4,261,730 shares issued and outstanding.... 2,079 Series B preferred stock, no par value; 24,500,000 shares authorized; 24,500,000 shares issued and outstanding... 12,219 Series C preferred stock, no par value; 21,000,000 shares authorized; 20,408,164 shares issued and outstanding(2)......................................... 194,056 Common stock, no par value; 81,000,000 shares authorized; 13,557,555 shares issued and outstanding(3)............ 26,003 Warrants(4)................................................. 88,460 Deferred compensation....................................... (19,698) Notes receivable from stockholders.......................... (1,377) Accumulated deficit......................................... (22,410) -------- Total stockholders' equity............................. 279,332 -------- Total capitalization................................... $497,087 ========
- ------------------------- (1) The unamortized portion of the estimated fair value of warrants issued in connection with financing transactions is recorded as a discount to the related note payable. The actual amount payable on these notes as of March 31, 2000 is $303.4 million. (2) Excludes 601,655 shares of Series C preferred stock issuable upon the exercise of currently exercisable warrants outstanding as of March 31, 2000 with a weighted average per share exercise price of $8.35 and per share exercise prices ranging from $6.44 to $10.00. (3) Excludes: - 2,860,550 shares of common stock reserved for issuance upon exercise of outstanding vested and unvested options as of March 31, 2000 with a weighted average per share exercise price of $2.22 and per share exercise prices ranging from $0.05 to $5.00; 22 26 - 530,000 shares of common stock issuable upon the exercise of currently exercisable warrants outstanding as of March 31, 2000 with a per share exercise price of $0.05; and - 5,991,540 shares of common stock reserved for issuance upon exercise of the warrants sold in our senior notes offering in March 2000, with a per share exercise price of $0.01. These warrants will become exercisable upon the earlier of (a) March 10, 2001 or (b) 180 days following the closing of our initial public offering. (4) Reflects the value assigned to warrants issued in connection with our senior notes offering and other financing transactions. The value assigned to the warrants was calculated using the Black-Scholes pricing model (see Notes 6 and 8 to Consolidated Financial Statements). 23 27 SELECTED CONSOLIDATED FINANCIAL DATA The following selected consolidated financial data should be read in conjunction with our consolidated financial statements and the notes to those statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included later in this prospectus. The following selected consolidated financial data for the period from our inception (April 2, 1997) to December 31, 1997 and for the years ended December 31, 1998 and 1999 has been derived from our audited consolidated financial statements included in the back of this prospectus. The statements of operations data for the three months ended March 31, 1999 and 2000 and the balance sheet data as of March 31, 2000 are derived from our unaudited financial statements included in the back of this prospectus. In management's opinion, the unaudited financial statements include all adjustments, consisting of only normal recurring adjustments, which we consider necessary for a fair presentation of our financial position and results of operations as of this date and for these periods. The results of operations for the three months ended March 31, 2000 are not necessarily indicative of the results to be expected for the entire year. In the following table, "EBITDA" consists of net loss excluding net interest, income taxes, depreciation and amortization, and deferred compensation. We have included EBITDA because we believe it is a widely used financial indicator of a company's ability to service debt, fund capital expenditures and expand its business. However, EBITDA is not calculated in the same way by all companies and is neither a measurement required by, nor represents cash flow from operations as defined by, generally accepted accounting principles. We have presented EBITDA to enhance your understanding of our operating results. You should not construe it as an alternative to net loss, as an indicator of operating performance or as an alternative to cash flow as a measure of liquidity. EBITDA in the following table is calculated differently than in the covenants under the indenture governing the notes. With respect to the caption entitled "Deficiency of earnings available to cover fixed charges," earnings available to cover fixed charges consists of net loss before provision for taxes plus fixed charges, and fixed charges consist of interest and amortization of debt discount and expense (including amounts capitalized) and one-third of rental expense, which is the portion of rental expense we believe to be representative of interest.
PERIOD FROM YEAR ENDED THREE MONTHS ENDED INCEPTION DECEMBER 31, MARCH 31, (APRIL 2) TO ------------------ ------------------ DECEMBER 31, 1997 1998 1999 1999 2000 ----------------- ------- -------- ------- -------- (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENTS OF OPERATIONS DATA: Revenue..................................... $ 31 $ 190 $ 218 $ 55 $ 192 Operating costs and expenses: Cost of revenue........................... 92 342 762 164 3,521 Selling, general and administrative......... 14 1,388 6,526 409 5,464 Deferred compensation....................... -- -- 1,248 -- 2,258 Depreciation and amortization............... 2 10 139 50 561 Loss on lease and leasehold improvements.. -- -- 921 610 -- ------ ------- -------- ------- -------- Total operating costs and expenses...... 108 1,740 9,596 1,233 11,804 ------ ------- -------- ------- -------- Loss from operations........................ (77) (1,550) (9,378) (1,178) (11,612) Interest income............................. -- 7 491 2 2,659 Interest expense(1)......................... (1) (10) -- -- (2,939) ------ ------- -------- ------- -------- Net loss.................................... $ (78) $(1,553) $ (8,887) $(1,176) $(11,892) ====== ======= ======== ======= ======== Basic and diluted net loss per share........ $(0.03) $ (0.28) $ (1.86) $ (0.26) $ (1.49) ====== ======= ======== ======= ======== Shares used in computing basic and diluted net loss per share........................ 2,612 5,554 4,771 4,461 7,985 ====== ======= ======== ======= ========
24 28
PERIOD FROM YEAR ENDED THREE MONTHS ENDED INCEPTION DECEMBER 31, MARCH 31, (APRIL 2) TO ------------------ ------------------ DECEMBER 31, 1997 1998 1999 1999 2000 ----------------- ------- -------- ------- -------- (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA) OTHER FINANCIAL DATA: EBITDA...................................... $ (75) $(1,540) $ (7,991) $(1,128) $ (8,793) Depreciation and amortization............... 2 10 139 50 561 Capital expenditures........................ 71 436 12,430 73 35,734 Net cash used in operating activities....... (66) (1,280) (7,739) (485) (4,932) Net cash used in investing activities....... (71) (436) (11,994) (73) (97,489) Net cash provided by financing activities... 172 1,819 218,007 515 285,019 Deficiency of earnings available to cover fixed charges............................. (78) (1,553) (9,900) (1,171) (12,717)
DECEMBER 31, ------------------------- MARCH 31, 1998 1999 2000 ----------- ----------- ----------- (UNAUDITED) (IN THOUSANDS) BALANCE SHEET DATA: Cash and cash equivalents................................... $138 $198,412 $381,010 Property and equipment, net................................. 495 13,195 49,033 Restricted cash and cash equivalents(2)..................... -- 2,162 3,765 Restricted investments(3)................................... -- -- 77,729 Total assets................................................ 888 215,742 525,108 Current portion of notes payable, net of discount(4)........ -- 1,464 478 Non-current liabilities, net of discount on long term notes payable(4)................................................ -- 1,918 219,041 Total stockholders' equity.................................. 476 202,688 279,332
- ------------------------- (1) Excludes interest of $930,000 in 1999 and $591,000 in the three months ended March 31, 2000, which has been capitalized as a component of construction in progress, in accordance with generally accepted accounting principles. (2) Reflects funds set aside as collateral for letters of credit issued under building lease agreements. (3) Reflects investments set aside as collateral for the first four interest payments relating to our senior notes. (4) The unamortized portion of the estimated fair value of warrants issued in connection with financing transactions is recorded as a discount to the related note payable. The actual amount payable on these obligations at March 31, 2000 is $303.4 million. 25 29 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with our consolidated financial statements and the notes to those statements included later in this prospectus. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and elsewhere in this prospectus, particularly in "Risk Factors." OVERVIEW We are creating an international platform of colocation facilities, which we refer to as Neutral Optical Hubs, in which our customers can install equipment, connect to a choice of network providers and connect with our other customers to deliver high quality, broadband services and applications to their end users. We offer our customers best-in-class facilities, which provide environmentally and physically secure centers to deploy their equipment, the opportunity to interconnect with outside carriers and with our other customers, and technical assistance and consulting services. Our colocation, cross connection and service products will scale with our customers' needs both within facilities and across our international solution. We are not a communications carrier, and because our facilities are carrier neutral, our customers will be able to connect their communications equipment located in our facilities to any of the carriers that are connected to our facilities. Since our inception in April 1997, our principal activities have included developing our business plan, raising capital, hiring management and other key personnel, developing our site selection criteria and our standard facility design, locating and securing sites, designing and constructing our Neutral Optical Hubs, and sales and marketing activities. We have generally experienced increasing quarterly operating losses and negative cash flows since inception, and we expect that our net losses and negative cash flows will increase significantly for the foreseeable future. As of May 31, 2000, we had entered into leases for 46 sites in the United States and Europe, of which 15 facilities were under construction and 11 facilities were ready for carriers and customers to install their equipment, of which seven facilities were generating revenue (excluding our first facility located in San Francisco (Mission Street)). We intend to have at least 40 Neutral Optical Hubs generating revenue or ready for carriers and customers to install their equipment in metropolitan areas by the end of 2000. As a result of this buildout strategy, we will significantly increase our cost of revenue and selling, general and administrative expenses. On average, we expect a new domestic facility of 25,000 square feet to cost approximately $10 million to construct and equip. Our business plan assumes that it will take approximately ten months from the date that we enter into a lease until the date a new Neutral Optical Hub begins generating revenue. Although we have successfully met this time frame for all of our facilities (excluding our first facility located in San Francisco (Mission Street)) which were generating revenue as of May 31, 2000, we have previously experienced and may continue to experience unforeseen delays and expenses in connection with our facility buildout program. In addition, we have not yet demonstrated that we are able to manage the buildout of multiple facilities at the same time. We also do not know how long our sales cycle will be, but it is likely to be lengthy. Once a particular facility is generating revenue, we expect that it will take an extended period of time before it will have enough business to provide sufficient revenue to cover its expenses. We expect that it will cost more and take longer to construct, equip and begin generating revenue in international locations. In order to attract carriers to connect to our 26 30 facilities we plan to place circuit orders with approximately three carriers prior to completing construction of a facility. These orders will generally require us to pay an installation fee and a minimum monthly charge for periods anticipated to be approximately one to three years. As of May 31, 2000, we had placed orders with multiple carriers to connect to 24 of our facilities, with aggregate monthly service charges of approximately $550,000. These charges become payable as carriers complete their connections to each facility. We expect that as customers connect to these carriers, these circuits and the related monthly charges will be assigned to these customers and thereby reduce our obligations to the carriers. However, we cannot assure you that we will be successful in assigning these commitments to our customers or that we will not be required to make substantial payments to carriers before we begin generating revenues from our customers. In addition, we may need to provide additional incentives to attract carriers to connect to our facilities. If we accelerate our expansion plans or develop additional facilities, this will likely increase the amount and duration of losses and our financing needs. In addition to the 24 facilities with carrier service orders to be charged, 11 facilities either had carriers installed or connections on order without monthly service charges. In early 1999, our new management team determined that our first facility located in San Francisco (Mission Street) and the adjoining expansion site did not meet our technical criteria and decided to close it. As a result, we recognized a charge of $921,000 in 1999 for the writedown of the leasehold improvements related to this facility, the termination of the lease on the adjacent expansion site and forfeiture of a security deposit and prepaid rent. We have offered to move customers from this facility to either of our new facilities in San Francisco (Townsend Street) or Emeryville, California in the first half of 2000. We have made arrangements with all of the customers at our San Francisco (Mission Street) facility to relocate to other facilities. We accounted for the writedown of leasehold improvements and cancellation of the lease in 1999, but may be required to incur additional expenses in 2000 for costs related to this facility closure and in connection with relocating customers. FACTORS AFFECTING FUTURE OPERATIONS REVENUE. We enter into contracts with our customers that typically have terms between one and ten years with varying renewal periods. Our revenue consists primarily of: - monthly fees for colocation services; - monthly fees for cross connecting our customers to communication carriers and other customers; - fees for technical support services; and - fees for installation services. Our revenue will increase as we open additional Neutral Optical Hubs. Over time, we intend to build upon our present service offerings by providing additional value-added services and eventually enabling customers to buy, sell and exchange services within each facility. Revenue for services other than installation is recognized as services are provided. Advance payments received from customers are deferred and recognized as revenue on a straight-line basis over the period in which service is provided. In December 1999, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial Statements." SAB 101 summarizes the SEC's view in applying generally accepted accounting principles to selected revenue recognition issues. As of January 1, 2000, we began to recognize installation revenue over the life of the customer contract. The cost associated with customer installation and other services is expensed as incurred. There is no material impact on prior years' statements. 27 31 COST OF REVENUE. Cost of revenue has historically consisted primarily of site-related employee salaries and benefits, rental payments on our Neutral Optical Hubs, payments for equipment, connectivity charges and other site-related operating expenses. We expect our cost of revenue to increase both in dollar amounts and as a percentage of revenue for the foreseeable future as a result of our buildout strategy. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses consist primarily of headquarters-related employee salaries and benefits, consulting fees, travel costs, sales commissions, rental payments and other occupancy costs at our headquarters location. We expect our selling, general and administrative expenses to increase both in dollar amounts and as a percentage of revenue for the foreseeable future as we build the infrastructure necessary to support our anticipated growth. However, we expect these expenses to eventually decline as a percentage of our revenue as we roll out additional Neutral Optical Hubs. DEFERRED COMPENSATION. In connection with the grant of certain stock options at various dates in 1999 and 2000, we recorded deferred compensation under stockholders' equity, representing the difference between the estimated fair value for accounting purposes of our stock on the dates of grant and the exercise prices. We are amortizing this deferred compensation amount over the vesting period of the underlying options or upon the lapsing of the restrictions on the applicable shares. We recorded a stock-based compensation expense resulting from the amortization of this deferred compensation amount in 1999 and the first quarter of 2000, and will recognize additional stock-based compensation expense in future periods as we amortize the $19.7 million deferred compensation remaining in stockholders' equity at March 31, 2000. All deferred compensation relates to selling, general and administrative expenses. DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense consists of depreciation of capitalized construction costs, leasehold improvements, site equipment, furniture, fixtures and computer and office equipment and amortization of other assets. Capitalized costs include construction, cabling and on-site construction management costs as well as rent, utilities, direct costs and interest accrued during the construction phase. Depreciation of these costs begins once construction is complete and the facility is ready for carriers and customers to install their equipment. INTEREST INCOME. Interest income has been generated primarily from the unspent proceeds of our common and preferred stock offerings, our senior notes and funds received from various financing arrangements. INTEREST EXPENSE. Interest expense includes interest paid in cash as well as the amortization of the value of warrants issued in connection with our debt facilities and the amortization of deferred financing costs incurred in conjunction with our senior notes offering. We amortize the value of these warrants over the commitment period of the credit facility or the period in which the debt is outstanding. In accordance with generally accepted accounting principles, certain interest expense incurred during construction of our facilities is capitalized as a component of construction in progress. INCOME TAXES. We have operated at a net loss since inception and as a result we do not have a provision for income taxes. Deferred tax assets resulting from net operating losses and other temporary differences have been fully reserved. 28 32 RESULTS OF OPERATIONS QUARTERS ENDED MARCH 31, 1999 AND 2000 REVENUE. Our revenue increased 249% from $55,000 in the three months ended March 31, 1999 to $192,000 in the three months ended March 31, 2000. The increase in revenue resulted primarily from one customer at one of our Neutral Optical Hubs. The majority of this revenue is related to monthly fees for colocation services. COST OF REVENUE. Our cost of revenue increased 2,047% from $164,000 in the three months ended March 31, 1999 to $3.5 million in the three months ended March 31, 2000. This increase was primarily the result of increased headcount and site expenses, consisting of rent, utilities and other related costs at our Neutral Optical Hubs as well as a one-time non cash charge of $2.3 million for warrants issued to NEXTLINK. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Our selling, general and administrative expenses increased 1,236% from $409,000 in the three months ended March 31, 1999 to $5.5 million in the three months ended March 31, 2000. The increase was primarily due to an increase in headcount and related costs. We hired additional personnel in anticipation of future growth and increased the number of employees who perform headquarters-based functions. Our headcount increased from 11 at March 31, 1999 to 161 at March 31, 2000. Our occupancy and rental costs increased as a result of the expansion of our corporate office to accommodate our larger headcount. DEFERRED COMPENSATION. Amortization of deferred compensation increased from $0 in the three months ended March 31, 1999 to $2.3 million in the three months ended March 31, 2000. The increase was due to the increase in deferred compensation in connection with the grant of stock options subsequent to March 31, 1999. All deferred compensation relates to selling, general and administrative expenses. DEPRECIATION AND AMORTIZATION. Our depreciation and amortization expenses have increased 1,022% from $50,000 in the three months ended March 31, 1999 to $561,000 in the three months ended March 31, 2000. The increase was the result of the commencement of depreciation at three additional Neutral Optical Hubs in the first quarter of 2000. The increase is also due to additional computer equipment and office furniture at our expanded corporate office. LOSS ON LEASE AND LEASEHOLD IMPROVEMENTS. Our costs associated with the loss on lease and leasehold improvements decreased from $610,000 in the three months ended March 31, 1999 to $0 in the three months ended March 31, 2000. In early 1999, our new management team determined that our first facility located in San Francisco (Mission Street) and the adjacent expansion site did not meet our technical criteria and decided to close it. As a result, we recognized a charge of $610,000 in the three months ended March 31, 1999. INTEREST INCOME. Our interest income increased 132,850% from $2,000 in the three months ended March 31, 1999 to $2.7 million in the three months ended March 31, 2000. This increase was due to interest earnings on the net proceeds of our Series C preferred stock offering in December 1999 and our senior notes offering in March 2000. INTEREST EXPENSE. Our interest expense increased from $0 in the three months ended March 31, 1999 to $2.9 million in the three months ended March 31, 2000. The increase was due to accrued interest on the $300 million of senior notes issued in March 2000 and our other financing vehicles. An additional $591,000 of interest is capitalized and included as construction in progress in the first quarter of 2000. 29 33 YEARS ENDED DECEMBER 31, 1998 AND 1999 REVENUE. Our revenue increased 15% from $190,000 in 1998 to $218,000 in 1999. This increase came from additional customers at our San Francisco (Mission Street) facility as well as increased technical support services provided to customers. COST OF REVENUE. Our cost of revenue increased 123% from $342,000 in 1998 to $762,000 in 1999. This increase was primarily the result of increased headcount at our new Neutral Optical Hubs and variable costs related to the increased headcount. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Our selling, general and administrative expenses increased 370% from $1.4 million in 1998 to $6.5 million in 1999. This increase was primarily the result of increased salaries and related expenses. We hired additional personnel in anticipation of future growth and increased the number of employees who perform headquarters-based functions from nine at December 31, 1998 to 64 at December 31, 1999. Our occupancy and rental costs increased as a result of the expansion of our corporate office to accommodate our larger headcount. Additionally, consulting costs increased as we developed our site selection criteria and standardized facility design, located and secured sites and evaluated our compensation structure. DEFERRED COMPENSATION. Amortization of deferred compensation increased from $0 in 1998 to $1.2 million in 1999. The increase was due to the increase in deferred compensation in connection with the grant of stock options in 1999. All deferred compensation relates to selling, general and administrative expenses. DEPRECIATION AND AMORTIZATION. Our depreciation and amortization expense increased 1,290% from $10,000 in 1998 to $139,000 in 1999. This increase was primarily the result of depreciation on computer and office furniture and equipment at our expanded corporate office and depreciation associated with leasehold improvements at our existing San Francisco (Mission Street) facility. LOSS ON LEASE AND LEASEHOLD IMPROVEMENTS. Our costs associated with the loss on lease and leasehold improvements increased from $0 in 1998 to $921,000 in 1999. In early 1999, our new management team determined that our first facility located in San Francisco (Mission Street) and the adjacent expansion site did not meet our technical criteria and decided to close it. As a result, we recognized a charge of $921,000 in 1999, which consisted of $449,000 in the writedown of the leasehold improvements related to this facility and $472,000 for the termination of the lease on the expansion site and related legal costs, and forfeiture of a security deposit and prepaid rent. INTEREST INCOME. Our interest income increased 6,914% from $7,000 in 1998 to $491,000 in 1999. This change was primarily the result of interest earnings on the unspent proceeds of our Series B preferred stock offering in April 1999 and Series C preferred stock offering in December 1999. INTEREST EXPENSE. Our interest expense decreased from $10,000 in 1998 to $0 in 1999. This change is primarily the result of capitalizing interest costs incurred during the construction of various Neutral Optical Hubs in 1999. FOR THE PERIOD FROM INCEPTION (APRIL 2, 1997) TO DECEMBER 31, 1997 AND FOR THE YEAR ENDED DECEMBER 31, 1998 REVENUE. Our revenue increased 513% from $31,000 in 1997 to $190,000 in 1998. This increase was due to the fact that our first facility opened in January 1998, and we recognized minimal revenue from consulting services prior to the opening of this facility. 30 34 COST OF REVENUE. Our cost of revenue increased 272% from $92,000 in 1997 to $342,000 in 1998. This increase was primarily the result of increased salaries and consulting costs in connection with the increased headcount concurrent with opening our first facility in January 1998. Rent and other costs have also increased as a result of opening of our first facility in January 1998. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Our selling, general and administrative expenses increased 9,814% from $14,000 in 1997 to $1.4 million in 1998. This increase was primarily the result of increased salaries and related expenses, higher marketing costs associated with our initial marketing efforts and consulting expenses incurred to support our growing business. In anticipation of future growth, we increased the number of employees who perform headquarters-based functions from two at December 31, 1997 to nine at December 31, 1998. Our travel and occupancy costs also increased as a result of the increase in personnel. DEPRECIATION AND AMORTIZATION. Our depreciation and amortization expense increased 400% from $2,000 in 1997 to $10,000 in 1998. This increase was primarily the result of the expansion of our corporate office as well as the purchase of computer equipment necessary to support our business, as well as the depreciation of leasehold improvements related to our San Francisco (Mission Street) facility. INTEREST INCOME. Our interest income increased from $0 in 1997 to $7,000 in 1998. This change was primarily the result of interest earnings on the unspent proceeds of our sale of common stock and short-term borrowings during 1998. INTEREST EXPENSE. Our interest expense increased 900% from $1,000 in 1997 to $10,000 in 1998. This change is primarily the result of additional interest expense on short-term borrowings in 1998. LIQUIDITY AND CAPITAL RESOURCES Since inception, we have financed our business primarily from approximately $498.3 million of net proceeds from the sale of our preferred stock to venture capital firms and other individual, institutional and strategic investors and issuance of our senior notes. In 1998 and 1999, we received approximately $2.0 million in net proceeds from the sale of our Series A preferred stock. In April 1999, we received $12.2 million in net proceeds from the sale of our Series B preferred stock. In December 1999, we received $193.6 million in net proceeds from the sale of our Series C preferred stock. In March 2000, we received $290.3 million of net proceeds from the issuance of our senior notes. Our capital expenditures were approximately $71,000 in 1997, $436,000 in 1998, $12.4 million in 1999 and $35.7 million in the three months ended March 31, 2000. These expenditures were incurred primarily to build out our colocation facilities and corporate office. Our capital expenditures will be substantially higher in future periods in connection with the construction of Neutral Optical Hubs in the U.S. and internationally. As of March 31, 2000, we had committed capital expenditures of approximately $52.7 million relating to the build out of our Neutral Optical Hubs. For fiscal year 2000, we plan to make total capital expenditures estimated in excess of $400 million, primarily to build out 40 Neutral Optical Hubs, to expand our headquarters and to install and upgrade our information systems. We will need to raise additional funds in fiscal year 2000 to complete this capital expenditure program. If we are unable to raise these additional funds, we will have to build out fewer Neutral Optical Hubs. We will also need to fund our net losses, which we expect will increase substantially. As of March 31, 2000, we are obligated to make minimum base payments on non-cancelable leases for 36 Neutral Optical Hub sites and our corporate office of $9.7 million in the 31 35 last nine months of 2000, $17.3 million in 2001, $18.2 million in 2002, $18.7 million in 2003, $18.4 million in 2004 and $122.5 million in subsequent years. Our lease obligations will increase substantially in future periods as we enter into additional leases. In order to attract a carrier to connect to one of our facilities, we plan to place circuit orders with approximately three carriers prior to completing construction of that facility. These orders will generally require us to pay an installation fee and a minimum monthly charge for periods anticipated to be approximately one to three years. In the event that we experience delays in installing customers in our facilities, we may be required to make substantial payments to these carriers. As of May 31, 2000, we had placed orders with multiple carriers to connect to 24 facilities with monthly service charges of approximately $550,000. This monthly cost is subject to decrease as customers move into the Neutral Optical Hubs and assume these obligations. Net cash used in operating activities was $66,000 in 1997, $1.3 million in 1998, $7.7 million in 1999 and $4.9 million in the three months ended March 31, 2000. Net cash used in operating activities in each of these periods was primarily due to our net losses and increases in deposits, prepaid and other current assets, offset in part by depreciation and increases in accounts payable, accrued expenses, deferred compensation and the loss on lease and leasehold improvements. Net cash used in investing activities was $71,000 in 1997, $436,000 in 1998, $12.0 million in 1999 and $97.5 million in the three months ended March 31, 2000. Net cash used in investing activities in each of these periods was primarily used to fund capital expenditures. In 1999 and the three months ended March 31, 2000, we also set aside funds as collateral for letters of credit issued under building lease agreements. In March 2000, we set aside approximately $77.7 million of funds as collateral for the first four interest payments of the senior notes under the terms of that offering. Net cash provided by financing activities was $172,000 in 1997, $1.8 million in 1998, $218.0 million in 1999 and $285.0 million in the three months ended March 31, 2000. In 1997, this amount consisted primarily of $119,000 in net proceeds from our issuance of notes payable and $53,000 from our sale of common stock. In 1998, this amount included primarily $2.0 million in net proceeds from our issuance of Series A preferred stock, offset in part by $160,000 from our repayment of notes payable and $30,000 from our repurchase of common stock. Net cash provided by financing activities in 1999 consisted primarily of $12.2 million in net proceeds from our Series B preferred stock financing, $193.6 million in net proceeds from our Series C preferred stock financing, $6.1 million in net borrowings under our loan facilities and revolving line of credit and $205,000 from our sale of common stock. Net cash provided by financing activities in the three months ended March 31, 2000 consisted primarily of $290.3 million in net proceeds from our senior notes offering, less preferred stock issuance costs of $5.9 million, which were paid during the three months ended March 31, 2000. We have an equipment and tenant improvement financing agreement with MMC/GATX Partnership and other lenders. This agreement provides financing of up to $17.0 million for construction costs and the purchase of equipment at our Los Angeles and Vienna, Virginia, facilities. Amounts may be borrowed under this agreement through December 31, 2001, subject to certain conditions. The interest rate is set at the applicable U.S. treasury note yield to maturity plus 3.93%. The principal and interest on each advance is payable in 42 equal monthly installments commencing on the first day of the month immediately following the advance date, plus a final payment of 10% of the original advance. This agreement is secured by all tangible and intangible assets relating to the specific facilities funded by the lender. As of March 31, 2000, we had outstanding borrowings of $1.2 million under this facility, and $15.7 million was available for future borrowing, subject to certain conditions. We have an equipment and tenant improvement financing agreement with Comdisco, Inc. This agreement provides financing of up to $7.0 million for construction costs and the purchase of equipment at our Chicago and Emeryville, California facilities. Amounts may be borrowed 32 36 under this agreement through August 31, 2000, subject to certain conditions. The credit line bears interest at 8.25%. The principal and interest on each advance is payable in 42 equal monthly installments commencing on the first day of the month immediately following the advance date, plus a final payment of 15% of the original advance. This agreement is secured by all tangible and intangible assets relating to the specific facilities funded by the lender. As of March 31, 2000, we had outstanding borrowings of $2.2 million under this facility, and $4.6 million was available for future borrowing, subject to certain conditions. We currently anticipate that our available cash resources will be sufficient to meet our anticipated operating losses, interest expense and capital expenditure requirements through at least the completion of our facilities that are currently under construction. We do not currently have the cash resources to complete all of the facilities for which we have leased sites or to complete our intended 40 facility buildout plan for fiscal year 2000. We are able to control the deployment of our facilities and do not intend to begin construction on a facility unless we have the capital available to complete construction. We will need to raise additional funds in order to complete our intended buildout plan within our proposed time frame and to fund our anticipated operating losses, to develop new or enhance existing services or applications, or to respond to competitive pressures. We anticipate that we may incur a substantial amount of additional debt under a credit facility that we may enter into during 2000. If we cannot raise sufficient additional funds on acceptable terms, we may need to delay or abandon some or all of our development and expansion plans or otherwise forego market opportunities, and we may incur additional losses if we need to terminate any leases or abandon or delay the completion of any facilities under construction. See "Risk Factors -- We will need significant additional funds, which we may not be able to obtain." QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio. We do not use derivative financial instruments in our investment portfolio. We place our investments with high quality issuing institutions in the U.S. and, by policy, limit the amount of risk by investing primarily in demand deposits and government securities. We do not have a significant amount of floating rate debt, and do not believe that an increase or decrease in interest rates would significantly increase or decrease our interest expense on debt obligations. We do not currently have any significant foreign operations and thus are not currently materially exposed to foreign currency fluctuations. RECENT ACCOUNTING PRONOUNCEMENTS In April 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," which provides guidance on the capitalization of the costs incurred for computer software developed or obtained for internal use. We adopted the new standard in 1999, although the impact on our 1999 financial statements was not significant. In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of Start-Up Activities." SOP 98-5 requires that all start-up costs related to new operations must be expensed as incurred. In addition, all start-up costs that were capitalized in the past must be written off when SOP 98-5 is adopted. Adoption of this statement in fiscal 1999 did not have a material impact on our consolidated financial statements; we have historically expensed all of our startup costs as incurred. In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivatives and Hedging Activities," which establishes accounting and reporting standards of derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. Subsequently, in June 1999, the FASB issued SFAS No. 137, "Accounting for Derivatives and Hedging Activities -- Deferral of the Effective Date of SFAS No. 133," which amended SFAS No. 133. We do not currently engage in derivative activity and do not expect the adoption of this standard to have a material effect on our results of operations, financial position or cash flows. 33 37 BUSINESS We are creating an international platform of colocation facilities, which we refer to as Neutral Optical Hubs, in which our customers can install equipment, connect to a choice of network providers and connect with our other customers to deliver high quality, broadband services and applications to their end users. We believe our Neutral Optical Hubs will be best-in-class facilities that will offer a broad choice of network providers and the most flexible technology protocols that allow our target customers to deliver high quality, broadband services and applications to their end users. We are not a communications carrier, and because our facilities are carrier neutral, our customers will be able to connect their communications equipment located in our facilities to any of the carriers that are connected to our facilities. As of May 31, 2000, we had signed contracts with 53 customers to locate equipment in one or more Neutral Optical Hubs. Our customers currently include: - Internet-based businesses, such as Campsix, Inc., RateXchange Corporation and ShockWave.com, Inc.; - Application service providers, such as Evolve Software, Inc. and Musicbank, Incorporated; - Internet service providers, such as InterNAP Network Services Corporation; Madge Networks, N.V., The Masterlink Group, Inc. and SAVVIS Communications Corporation; - Competitive local phone companies, such as Mpower Communications Corp., Telseon Inc. and 2nd Century Communications Inc.; and - Other voice and data communications companies, such as NeuMedia Inc. We intend to have at least 40 Neutral Optical Hubs generating revenue or ready for carriers and customers to install their equipment in metropolitan areas by the end of 2000, including multiple facilities in certain geographic regions. With this broad footprint and proximity to our customers' end users, we believe our Neutral Optical Hubs will become the preferred platform for companies that want to optimize service for their end users and will facilitate business-to-business commerce among our customers. As of May 31, 2000, we had signed leases for 46 facilities in the United States and Europe totaling more than 1.1 million square feet, of which we had 11 facilities in the U.S. ready for carriers and customers to install their equipment. MARKET OPPORTUNITY The deregulation of the telecommunications industry and the significant growth in Internet users and bandwidth intensive applications has increased the demand for and strained the performance of the existing communications infrastructure. According to International Data Corporation, the number of Internet users worldwide is expected to grow from 160 million at the end of 1998 to 500 million at the end of 2003. This rapid growth has resulted in performance problems across the Internet, including problems with latency, data loss and security. These and other problems are impacting the ability of our target customers to effectively use the Internet for new services such as voice-over-Internet protocol and some applications that use streaming and broadcast capabilities. Content distribution companies and advanced switch providers have been able to improve existing bottlenecks and network congestion through technology, but depend on others to provide facilities and interconnect networks. Internet-based businesses, application service providers, Internet service providers, competitive local phone companies and other voice and data communications companies all face challenges to effectively provide high-quality services due to the inadequacies of the present infrastructure. Internet-based businesses and application service providers need reliable, 34 38 high-performance delivery of their products and services. This need is growing as bandwidth intensive applications increase, end-users become more sophisticated and performance expectations increase. Internet service providers require sophisticated user connections and peering arrangements in order to deliver their services to the broadest array of customers by the most efficient means of transport. Competitive local phone companies need broadly distributed local access to successfully deliver their services and are still dependent on the incumbent local phone companies for access. Other voice and data communications companies need to stay competitive in a market with many emerging providers and technologies. While attempting to keep pace with new technology and deliver quality services, each of these businesses rely on an infrastructure that is not designed for current demands. In order to enhance performance, businesses require a systems architecture and platform that is distributed close to their end users. Our target customers have traditionally had the limited choices of building their own facilities or colocating their equipment in carrier operated facilities, carrier hotels or web-hosting facilities. Building a facility can take a substantial amount of time, capital and expertise that would be better focused on the core business. In an attempt to improve their service performance and focus on their core competencies, many Internet-based businesses, application service providers, Internet service providers, competitive local phone companies and network providers have turned to colocation, which enables them to outsource key components of their operations. The current options available for colocation services all have limitations that restrict our target customers from providing the necessary service offerings that their customers demand. The following are the current colocation alternatives: CARRIERS. Historically, carrier colocation facilities have provided limited support of customers' equipment, limited or no flexibility in carrier choice, and limited availability of space, resulting in dependence on a specific carrier and higher costs. For example, local phone companies' central offices provide interconnection to only their networks and do not provide the scalability essential to our target customers. CARRIER HOTELS. These facilities may offer flexibility in choice of carrier and interconnection among tenants, but typically provide limited support and coordination of network services. In addition, they are typically single site facilities which do not provide our customers a solution for widespread network deployment. WEB-HOSTING FACILITIES. These facilities typically create dependence on the services and the network provided by the facility operator. In addition, these facilities do not typically accommodate customers in the telecommunications industry. In some instances, these operators may require customers to use their services exclusively, which may result in higher prices and limited flexibility in network deployment for our target customers. IDC predicts that the U.S. market for Internet hosting, consisting of shared server hosting, several categories of dedicated server hosting, including the colocation market in which we compete, and related services, will grow from an estimated $3.7 billion in 2000 to $18.9 billion in 2003. Within this market, IDC predicts that the market for colocation services, will be one of the fastest growing segments growing from an estimated $710 million in 2000 to $4.2 billion in 2003. However, all of these estimates include charges for bandwidth, which we do not provide. Although we are not aware of any similar forecast for growth in the overall telecommunications services provider market or in the market for colocation of telecommunications equipment, we expect the growth of these markets to be significant. 35 39 THE COLO.COM SOLUTION We believe that our neutral colocation solution addresses the limitations of the traditional alternatives. We will provide customers with cabinet, pre-configured and custom cage space for their equipment, connections to a choice of carriers and technical services and support in all facilities across our broad geographic presence. Our solution is carrier neutral, cost-effective, flexible and scalable, and our facilities will be widely deployed and staffed with trained Internet and telecommunications technicians. We believe our solution provides the foundation for building networks that enable customers to locate equipment close to end users, thereby enhancing performance and enabling them to provide more competitive service offerings to their end users. Our Neutral Optical Hubs will offer a number of compelling advantages to our customers, including: INTERNATIONAL PLATFORM AND RAPID TIME TO MARKET. We believe that the ability to rapidly deploy equipment close to their end users is a critical success factor for our customers. We intend to have at least 40 Neutral Optical Hubs generating revenue or ready for carriers and customers to install their equipment by the end of 2000, including multiple locations in certain metropolitan areas. With such a broad footprint and proximity to our customers' end users, we offer to our customers the ability to accelerate the deployment and expansion of their services. By using our Neutral Optical Hubs, we enable our customers to better focus on their core competencies. NETWORK AND SERVICE NEUTRALITY. Our Neutral Optical Hub solution is designed to offer our customers choices in network and service providers to enable them to meet current and future market needs and technology demands. Each Neutral Optical Hub will have multiple carrier and connectivity options to provide a solution that meets each customer's network objectives. We will offer connectivity choice and flexibility from longhaul to local, Internet protocol to wireless and dark fiber to gigabit ethernet. We also offer our customers choice in managed services and network integration, both through our own services and those developed through strategic relationships with third party service providers. COST SAVINGS. Because our facilities are neutral and will have a diverse population of carriers and service providers, we expect that our customers will be able to obtain competitive pricing and benefit from the aggregated purchasing power of colocating with many other high bandwidth users. In addition, we expect that our professional service offerings will help our customers manage their equipment in our facilities and reduce their overhead expenses. BEST-IN-CLASS FACILITIES. We believe that our Neutral Optical Hubs will be superior or equal to other colocation alternatives. We have designed our facilities to offer our customers technologically advanced, redundant systems intended to provide uninterruptible electrical power availability, temperature and humidity control, fire detection and suppression systems and security systems. Our facilities are engineered to conform to a high set of standards that define a rigid and extensive set of performance, quality, environmental and safety requirements. SUPERIOR CUSTOMER SERVICE. Substantially all of our facilities have technicians, who are trained in Internet and telecommunications networks and equipment, available on site 24 hours a day, seven days a week. Our technicians are available to assist our customers in diagnosing and repairing customers' network equipment problems and installing customer equipment. We also may offer customers access to experienced network technicians to help configure and test networks as well as for more technically complex tasks. Each of our Neutral Optical Hubs has an operations control center that monitors all aspects of the facility through a comprehensive facility management system. 36 40 OUR STRATEGY To achieve our goal of becoming the premier, international, single-source supplier of carrier neutral colocation facilities to our targeted customer base, our strategy is to: BE FIRST-TO-MARKET WITH BROAD GEOGRAPHIC PRESENCE. Our strategy is to be first-to-market with a broad geographic presence to provide a Neutral Optical Hub solution to Internet-based businesses, application service providers, Internet service providers, competitive local exchange phone companies and other voice and data communications companies. We intend to quickly build Neutral Optical Hubs in metropolitan areas across North America and eventually Europe and Asia to become the first provider of carrier neutral colocation facilities with a broad domestic and international presence. MAINTAIN NEUTRALITY. We are not a communications carrier. We believe that by operating carrier neutral facilities, we will be able to offer our target customers the opportunity to select among many network providers and to negotiate terms with the providers of their choice. We also believe that by remaining neutral, we will be more likely to attract multiple carriers to connect to our facilities. In addition, we intend to continue to offer our customers choice in managed services and network integration through services developed through strategic relationships with third party service providers. STRATEGICALLY DEPLOY MULTIPLE NEUTRAL OPTICAL HUBS IN CERTAIN GEOGRAPHIC REGIONS. We believe that by deploying multiple Neutral Optical Hubs in one geographic region, we will provide the foundation for networks that enable customers to locate equipment in closer proximity to end users, thereby enhancing performance and enabling them to provide more competitive service offerings. We also believe this strategy will enable us to establish a market presence more quickly and provide benefits from being on different power grids and with better access to local telecom facilities. ENTER INTO STRATEGIC AND COMMERCIAL RELATIONSHIPS TO EXTEND OUR SALES REACH. We intend to enter into strategic and commercial relationships with companies such as communications service providers, who may attract additional customers, and communications equipment companies, who may both locate equipment in our sites and resell our space. We believe that such relationships are valuable because they could accelerate our revenue growth, support our Neutral Optical Hub branding process, decrease our cost of sales, extend our sales reach and contribute to further network provider diversity within our facilities. EXPAND OUR SERVICE OFFERINGS AND ENABLE MARKETPLACE EXCHANGES. Over time, we intend to expand upon our current service offerings by providing additional value-added services, either through internal development, acquisitions or partnerships. These future service offerings may include developing switching capabilities among customers, more efficient distribution of content from peering points to end users, and an expanded scope of technical services for network consulting and support. Some of these additional service offerings may eventually enable our customers to efficiently buy, sell and exchange services with other customers within the same facility, thereby making our Neutral Optical Hubs more attractive as commerce centers for growth and interconnection of voice and data networks. In addition, because our Neutral Optical Hubs will house both Internet and telecommunications network equipment, we may eventually provide our customers with a platform on which Internet and telecommunications customers may connect to each other to provide integrated voice, data and Internet services, facilitating future applications. BUILD THE COLO.COM BRAND. We intend to build recognition of the COLO.COM brand through our best-in-class facility design, direct and indirect channel sales, and an aggressive communications strategy including public relations campaigns, industry trade show participation, channel marketing programs and targeted advertising programs. In particular, we have designed 37 41 our Neutral Optical Hubs to provide a standardized layout, color scheme and overall recognizable look and feel. SERVICE OFFERINGS We offer our customers best-in-class colocation facilities, which provide environmentally and physically secure centers to deploy their equipment, the opportunity to interconnect with outside carriers and with our other customers, and technical assistance and consulting services. The colocation, cross connection and service and support offerings can grow with our customers' needs. Our current offerings and their benefits include:
- ---------------------------------------------------------------------------------------------- OFFERINGS DESCRIPTION CUSTOMER BENEFIT - ---------------------------------------------------------------------------------------------- COLOCATION - Cabinets (designed to - Customer controlled, secure - Security fit standard Internet or equipment areas in multiple telecom size equipment) size offerings - Flexibility of size - Cages (available in preconfigured sizes or custom sizes) - ---------------------------------------------------------------------------------------------- CROSS CONNECTIONS - DS-1 - Connects customers to - Choice of carriers and carriers and other customers negotiated terms - DS-3 - Demuxed DS-3 - Single-mode fiber - Multi-mode fiber - 10/100 ethernet - ---------------------------------------------------------------------------------------------- SERVICE AND SUPPORT - Long-term contracts - 24 x 7 on-site technical - No necessity to hire staff support to support equipment located - Hourly service at our Neutral Optical - Technical support services, Hubs including status reporting, cross connection testing, - Fast response to customers' and smart hands equipment and network problems - Installation of colocation equipment and cross connections - Comprehensive tracking of service requests - Conference facilities - ----------------------------------------------------------------------------------------------
Our pre-packaged service options vary based on the number of hours of technical support requested. In the future, we plan to build upon our present offerings by providing additional value-added services, either directly or through partnerships. These future service offerings may include developing switching capabilities among customers, more efficient distribution of content from peering points to end users, web-enabled remote monitoring of customer equipment, and an expanded scope of technical services for network consulting and support. OPERATIONS CONTROL CENTERS AND FACILITIES MONITORING Each Neutral Optical Hub has an operations control center that monitors all aspects of the facility through a comprehensive facility management system. This system collects data on 38 42 more than 200 variables per location and provides real time monitoring of all aspects of facility health, including customer power utilization, power trend analysis and power-based alarming. We are currently developing a web extension of this architecture to provide a common set of customer-viewable facility metrics, power utilization reports, power trend reports, and to allow both distributed and centralized monitoring of our facilities. We believe that this management flexibility will allow individual Neutral Optical Hubs to be self-supporting, supported from a "sister site," or supported from our corporate headquarters in Brisbane, California. CUSTOMER SERVICE We believe that customer satisfaction is a critical component to growing our business. We have designed a comprehensive customer service program that focuses on the customer deployment process and post-deployment requests through our 24 x 7 customer service center. Customer deployment phase: We assign a dedicated account specialist to each customer/account to ensure that the processing of each customer order and installation is handled expeditiously. Account specialists will be highly versed in their assigned accounts and will be personally responsible to support the customer. Customer post-deployment: Once the installation process is complete, customers can make service requests through our customer service center (1-877-FYI-COLO). Based on the nature of the call, a customer service representative will expedite a service request ticket to one of our 24 x 7 on-site support staff. On-site support services: Our Internet and telecommunications network and equipment trained technicians are available at all times to assist our customers in diagnosing and repairing network equipment problems and installing equipment. We also may offer customers access to experienced network technicians to help configure and test networks as well as for more technically complex tasks. CUSTOMERS Our target customers are Internet-based businesses, application service providers, Internet service providers, competitive local phone companies and other voice and data communications companies. Our customers include: INTERNET BASED BUSINESSES - Campsix, Inc., a business-to-business Internet incubator. - RateXchange Corporation, a centralized, online marketplace that brings buyers and sellers of telecom capacity together. - Shockwave.com, Inc., the provider of Shockwave Player, a Web standard for entertaining, engaging and rich media playback. APPLICATION SERVICE PROVIDERS - Evolve Software, Inc., a provider of solutions that automate the service chain. - Musicbank, Incorporated, a streaming music service for major record labels, music retailers, artists and the general public. 39 43 INTERNET SERVICE PROVIDERS - InterNAP Network Services Corporation, a provider of Internet connectivity services targeted at businesses seeking to maximize the performance of Internet-based applications. - Madge Networks N.V., a networking and Internet services provider, specializing in managed networks, Web and application hosting, enterprise local area networking products and video networking. - The Masterlink Group, Inc., an Internet services company, providing professional website development and design services, website hosting, e-commerce development tools, Internet access, and database integration services. - SAVVIS Communications Corporation, a global internetworking solutions provider offering high-quality, high-speed Internet and networking services to corporate users, web centric companies and local/regional Internet service providers. Together with its parent company, Bridge Information Systems, a provider of financial news and information, SAVVIS provides bundled content, security and managed data networking services. COMPETITIVE LOCAL PHONE COMPANIES - Mpower Communications Corp. (formerly MGC Communications, Inc.), a provider of facilities based integrated communication services including Internet, voice over DSL, local phone service, custom calling features and long distance services to small and medium size businesses. - Telseon Inc. (formerly Cmetric), a provider of gigabit bandwidth fiber-based data services to enterprises, Internet service providers, and network provider partners by exploiting ethernet and fiber optics technology. - 2nd Century Communications Inc., a provider of advanced computing applications integrated with voice and data communications over a unified network to small and medium-sized businesses. NETWORK PROVIDERS - NeuMedia Inc., a provider of fiber optic network services. In the three months ended March 31, 2000, our three largest customers were Mpower, IXNet, Inc. and Megawatts, from whom we received approximately 61%, 18% and 5% of our revenue, respectively. In 1999, our three largest customers were IXNet, Megawats and KIVEX, from whom we received approximately 56%, 23% and 11% of our revenue, respectively. In 1998, our three largest customers were MediaOne Group, Inc., Megawats and IXNet from whom we received approximately 34%, 31% and 11% of our revenue, respectively. SALES AND MARKETING DIRECT SALES FORCE. We have a direct sales force to market our Neutral Optical Hub solution to our target customers. We are organizing our sales force along both account-specific and geographic lines. We have six sales regions in the U.S. and intend to establish two additional international sales regions. Each region will have a sales director, sales representatives and sales engineers who handle the technical issues that may arise in our sales process. At May 31, 2000, we employed 62 people in our sales and sales engineering divisions, and we intend to continue to grow our sales force rapidly. 40 44 INDIRECT SALES CHANNELS. We are also building and exploring additional distribution channels, including indirect sales channels for our product offerings by strategically targeting partners that have relationships with prospective customers requiring a colocation solution. For example, we currently have an agreement with Nortel for an option on space in our Neutral Optical Hubs for use by Nortel's customers to place equipment purchased from Nortel. This provides us with an indirect sales channel and allows Nortel to deploy its switches more quickly. Other channel relationships include InterNAP, Band-X, Avcom, Cat Technologies and Extreme Networks. MARKETING. Our marketing efforts are focused on building a world-wide brand through actively communicating a value proposition that establishes COLO.COM as the premier provider of a widely distributed infrastructure where customers can locate their equipment close to end users and partners and quickly and easily deploy applications and services for their customers. We believe that brand recognition is critical in developing market leadership. We intend to build our services into a world class brand through a recognizable standard look and feel of our Neutral Optical Hubs and an aggressive communications strategy including public relation campaigns, trade show participation, channel marketing programs and targeted advertising. STRATEGIC AND COMMERCIAL RELATIONSHIPS We have entered into strategic relationships with NEXTLINK, Nortel, and MasTec and Skanska, each of whom also made equity investments in COLO.COM, and a commercial relationship with InterNAP. NEXTLINK. NEXTLINK has an option to locate its equipment in 20 of our Neutral Optical Hubs and to provide connectivity in the form of both fiber and wireless connections to our customers in these facilities. NEXTLINK also received a warrant to purchase our Series C preferred stock, which became exercisable in the first quarter of 2000 based on NEXTLINK initiating the process of connecting its network to ten of our Neutral Optical Hubs. NEXTLINK purchased approximately $5 million of our Series C preferred stock. NORTEL. Nortel has an option on space in our Neutral Optical Hubs for use by its customers who want to buy Nortel equipment and need a place to locate it. This provides us with an indirect sales channel and allows Nortel to deploy its switches more quickly. Nortel purchased approximately $5 million of our Series C preferred stock and we have agreed to acquire $5 million of equipment from Nortel before December 31, 2001. MASTEC AND SKANSKA. MasTec and Skanska have agreed to build 22 of our Neutral Optical Hubs in North America. In addition, MasTec and Skanska each purchased approximately $2.5 million of our Series C preferred stock in December 1999. INTERNAP. We have also entered into a commercial relationship with InterNAP that gives it reseller rights with respect to its space in our San Francisco (Townsend Street) facility for the purpose of selling value-added services to its customers. InterNAP has also designated COLO.COM as a preferred colocation provider. FACILITY BUILDOUT SITE SELECTION AND LEASING. We have engaged two large commercial real estate brokers, Cushman & Wakefield in the U.S. and Canada, and Jones Lang LaSalle in Europe, to identify and evaluate potential targeted sites for our facilities. To ensure consistent quality and uniform facilities, we have developed an exacting set of standards for the features of the spaces that we lease and a 60-point site selection checklist. One of our most important criteria is proximity to network facilities. Using these standards, our real estate staff evaluates each potential site, 41 45 ranks them and then makes its selection. Detailed proposal requirements and our own lease form with sample lease amendments allow us to expedite the leasing process. FACILITY DESIGN. We have designed a comprehensive facility model based on a rigorous set of standardized engineering specifications that will be applied to each facility we build. We design our facilities to provide exacting environmental controls and physical security as well as fully redundant, technologically advanced electrical power, air conditioning and fire suppression systems. We believe that our design specifications will lead to high quality facilities that we can construct rapidly. FACILITY CONSTRUCTION. We have teamed with leading project management and construction firms to build our facilities in accordance with our construction criteria. These firms include MasTec North America, Inc. of Miami, Florida and Sordoni Skanska Construction Company of Parsippany, New Jersey; DPR Construction of Redwood City, California; and Total Site Solutions of Beltsville, Maryland for facilities in the United States and Jones Lang LaSalle for facilities in Europe. Each of these firms has expertise in architecture, engineering, and the permitting process as well as the skills to manage local contractors. CUSTOMER INSTALLATION AND CONNECTIVITY. Once we have completed construction of a Neutral Optical Hub, some time is required for customers and carriers to stage, configure and install their equipment, and for customers to connect to the carriers. Systems testing and further staff training also occurs during this time. At the end of this period, we expect that the facility will begin generating revenue. On average, we expect a new domestic facility of 25,000 square feet to take approximately ten months from entering into a lease to generating revenue and cost approximately $10 million to construct and equip. On average, we expect a new international facility of 50,000 square feet to take approximately twelve months from entering into a lease to generating revenue and cost approximately $25 million to construct and equip. COMPETITION The market for colocation services is expanding. The main barriers to entry are access to capital, the time needed to assemble a management team and build out facilities, and the ability to secure a first-to-market advantage. We have targeted the developing neutral colocation segment of the broader market for colocation services. Although there are a number of companies developing businesses similar to ours, in most metropolitan areas there are currently a limited number of providers of neutral colocation facilities operating. We expect other companies to enter this market segment if there is sufficient demand for neutral colocation services. In addition to competing with other neutral colocation providers, we will compete with traditional colocation providers, including local phone companies, long distance phone companies, Internet service providers and web-hosting facilities. Most of these competitors have greater resources, more customers, longer operating histories, greater brand recognition and more established relationships than we have. We believe our neutrality provides us with an advantage over these competitors. However, these competitors could offer colocation on neutral terms, and may start doing so in the metropolitan areas where we establish operations. If this occurs, we could face increased price competition. The Telecommunications Act requires incumbent local exchange carriers to provide non-discriminatory colocation to telecommunications carriers that wish to interconnect with the incumbent local exchange carrier's networks or obtain access to incumbent local exchange carrier-provided unbundled network elements. In 1996, the Federal Communications Commission adopted initial rules to implement this provision and, in 1999, adopted additional 42 46 rules that should significantly lower the cost and increase the attractiveness of incumbent local exchange carrier-provided colocation facilities. Consequently, colocation offered by incumbent local exchange carriers may become more competitive with our service offerings. There are a number of companies offering colocation facilities. Many of these competitors could also be our customers. These companies can be categorized as follows: CARRIER OPERATED FACILITIES. Carrier operated facilities are generally operated by the traditional local exchange carriers, long distance providers and some new local phone companies. For example, carriers such as AT&T, Global Center, Level 3 Communications, MCI WorldCom, Qwest Communications International, and Sprint, as a byproduct of offering access to their networks, offer colocation space. By becoming an occupant of a carrier-operated facility, customers are typically limited to purchasing services from that carrier. As a result, customers may be required to pay high prices and might receive poor service, as colocation is ancillary to the carriers' primary business. WEB-HOSTING FACILITIES. Web-hosting facilities such as Digital Island, Exodus Communications and Globix may require their Internet-based customers to use their services exclusively which may result in higher pricing and limited network deployment flexibility. NETWORK ACCESS POINTS. Other network access facilities, such as Neutral Nap, PAIX, and Equinix, tend to be Internet exchange centric and can face difficulties in bringing the right mix of customers and carrier-diversity into their sites, affecting connectivity and time-to-market. OTHER CENTRAL OFFICE-LIKE FACILITIES. Several other companies are offering central office-like facilities. There are a number of domestic and international companies, including Switch and Data Facilities, CO Space, InFlow, Telehouse and TelePlace in the U.S., City Reach, DigiPlex, Global Reach, IX Europe, iaxis, InterXion and Redbus Interhouse in Europe, and iAsiaWorks in Asia. CARRIER HOTELS. Carrier hotels such as the Westin Building in Seattle, One Wilshire in Los Angeles and 60 Hudson in New York City, are buildings that tend to be operated by real estate companies or individuals that expect to lease physical space to telecommunications companies for colocation purposes. Once a customer is located in a facility, it will be difficult to convince that customer to relocate to another colocation facility, because moving out of an existing facility could result in service interruptions and significant costs to reconfigure network connections. One of the key components of our business strategy is to be first-to-market with broad geographic presence, which we believe will provide us with a competitive advantage over later market entrants. GOVERNMENT REGULATION We believe that, because we do not provide transmission, switching, or multiplexing services or facilities, we are not currently subject to regulation by the Federal Communications Commission or state authorities that regulate telecommunications. Telecommunications regulation frequently changes, however, and, particularly at the state level, the line between regulated and non-regulated activities is not always clear. Accordingly, it is possible that a regulatory authority would seek to regulate some of our existing activities. In addition, some new services or products offered by us may be subject to regulation by state public utility commissions, the FCC, or both. 43 47 FACILITIES Our executive offices are located in approximately 36,000 square feet of office space in Brisbane, California under leases expiring in 2004 and 2005. As of May 31, 2000, we had entered into leases for 46 Neutral Optical Hubs in the following metropolitan areas and specific locations, which cover the approximate gross square footage noted below and expire in the indicated years:
SQUARE FEET LEASE METROPOLITAN AREA LOCATION LEASED EXPIRATION ----------------- -------- ----------- ---------- Austin...................... Austin, TX 15,986 2010 Boston...................... Medford, MA 38,416 2010 Chicago..................... Chicago, IL -- Wells St.* 6,800 2009 Oak Brook, IL* 16,780 2009 Chicago, IL -- Cermak Rd. 33,300 2015 Charlotte................... Charlotte, NC 30,324 2010 Cincinnati.................. Cincinnati, OH 22,840 2010 Cleveland................... Cleveland, OH 27,776 2012 Dallas...................... Dallas, TX* 27,370 2010 Ft. Worth, TX* 19,031 2011 Denver...................... Englewood, CO 27,485 2010 Detroit..................... Detroit, MI 28,342 2010 Jacksonville................ Jacksonville, FL 25,910 2010 Kansas City................. Lee's Summit, MO 25,000 2010 Las Vegas................... Las Vegas, NV* 28,560 2010 Los Angeles................. Los Angeles, CA* 34,710 2009 Irvine, CA 23,709 2010 Louisville.................. Louisville, KY 28,000 2010 Madrid...................... Madrid, Spain 37,700 2015 Memphis..................... Cordova, TN 27,298 2010 Miami....................... Miami, FL 26,216 2010 Milwaukee................... Milwaukee, WI* 5,200 2010 Minneapolis................. Minneapolis, MN 38,367 2012 Munich...................... Munich, Germany 111,000 2010 Norfolk..................... Chesapeake, VA 23,424 2010 New York City............... New York, NY -- Hudson St. 33,286 2015 New York, NY -- Broad St. 32,614 2010 Orlando..................... Orlando, FL 27,992 2010 Phoenix..................... Phoenix, AZ 32,000 2010 Pittsburgh.................. Pittsburgh, PA 26,220 2010 Portland.................... Beaverton, OR 23,101 2010 Portland, OR 23,441 2011 Richmond.................... Richmond, VA 33,471 2010 Salt Lake City.............. West Valley, UT 33,947 2010 San Antonio................. San Antonio, TX 34,898 2010 San Diego................... San Diego, CA 22,068 2010 San Francisco............... Emeryville, CA* 14,657 2009 San Francisco, CA -- Townsend St.* 20,576 2010 Santa Clara, CA 25,000 2015 San Ramon, CA 18,677 2010 Seattle..................... Seattle, WA* 19,138 2010 Bothell, WA 66,568 2015
44 48
SQUARE FEET LEASE METROPOLITAN AREA LOCATION LEASED EXPIRATION ----------------- -------- ----------- ---------- St. Louis................... St. Louis, MO -- Walnut St. 9,358 2010 St. Louis, MO -- Tucker Blvd. 28,024 2010 Washington, DC.............. Vienna, VA* 23,715 2009 Sterling, VA 26,534 2010
- ------------------------- * Generating revenue or ready for carriers and customers to install their equipment as of May 31, 2000. We anticipate that our target center in the United States will be approximately 25,000 square feet, subject to space and power availability, and that approximately 50% of the square footage in each of our facilities will be available for our customers' use. Most of our facilities have ten year lease terms, with options for additional lease periods. We are actively negotiating and seeking leases in many additional locations as part of our planned deployment in the U.S., Canada and Europe. EMPLOYEES As of May 31, 2000, we had 234 full-time employees. None of our employees is represented by a labor union, and we consider employee relations to be good. We believe that our future success will depend in part on our continued ability to attract, hire and retain qualified personnel. The competition for such personnel is intense, and we cannot assure you that we will be able to identify, attract and retain such personnel in the future. See "Risk Factors -- We have a new management team, and we depend on our ability to attract and retain key personnel." LEGAL PROCEEDINGS We are not currently a party to any material legal proceedings. 45 49 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS Our executive officers and directors and their ages as of May 31, 2000 are as follows:
NAME AGE POSITION ---- --- -------- Charles M. Skibo.................. 61 Chief Executive Officer and Chairman of the Board Wayne A. Olson.................... 55 Senior Vice President, Operations and Administration H.S. Kullar....................... 47 Senior Vice President, Marketing Stephen I. Robertson.............. 39 Chief Financial Officer James M. Smith.................... 31 Chief Technology Officer David H. Stanley.................. 53 General Counsel and Secretary Robert E. Lamb, Jr. .............. 32 Vice President, Business Development John F. Mevi III.................. 42 Vice President, Sales James H. Strachan................. 26 Vice President, Product Development and Planning Christopher E. Clouser(2)......... 48 Director Young Soo Ha(1)................... 37 Director John W. Jarve(2).................. 44 Director Richard P. Nespola(1)............. 55 Director Arthur Patterson(2)............... 56 Director Kirby G. Pickle, Jr.(1)........... 43 Director
- ------------------------- (1) Member of Audit Committee. (2) Member of Compensation Committee. CHARLES M. SKIBO has served as our Chairman of the Board and Chief Executive Officer since January 1999. Since February 1996, Mr. Skibo has also served as Chairman and Chief Executive Officer of Allied Telecommunications, a communications company. Since February 1990, Mr. Skibo has served as Chairman and Chief Executive Officer of Strategic Enterprises and Communications, Inc., a venture capital firm. From 1985 to 1987, Mr. Skibo was President and CEO of U.S. Sprint and its predecessor company, U.S. Telecom. Mr. Skibo is also a director of iBasis, Inc., a public international Internet telephony services provider; the Chairman of Angstrom, Inc., a privately held telecommunications company; and a director of NexCen, a privately held software company. WAYNE A. OLSON has served as our Senior Vice President of Operations and Administration since March 1999. From July 1993 to March 1999, Mr. Olson was President and Chief Executive Officer of the St. Andrews Group, Ltd., a consulting firm specializing in human systems and organizational services. H.S. KULLAR has served as our Senior Vice President of Marketing since September 1999. From February 1999 to September 1999, Mr. Kullar was an independent consultant. From April 1998 to February 1999, Mr. Kullar served as Vice President of Product Marketing with Fabrik Communications, a provider of service-based enterprise email solutions. From May 1997 to April 1998, Mr. Kullar was Senior Director of Business Development for ICG/Netcom, an Internet services corporation; Senior Director of Strategic and Product Marketing from October 1996 to May 1997; and Director of Market Programs and Development for Business Services from April 1996 to October 1996. From March 1994 to April 1996, Mr. Kullar served as General Manager of AFAX, a messaging services company. STEPHEN I. ROBERTSON has served as our Chief Financial Officer since March 2000. From July 1998 to March 2000, Mr. Robertson served as Chief Financial Officer of InsWeb Corporation, an online insurance marketplace. From November 1997 to July 1998, 46 50 Mr. Robertson was a Senior Vice President of Lehman Brothers, an investment banking firm. From September 1986 to October 1997, Mr. Robertson held various investment banking positions with Salomon Brothers, Smith Barney, and Alex. Brown. JAMES M. SMITH has served as our Chief Technology Officer since July 1999. From April 1999 to June 1999, he was our Director of Operations. From November 1997 to April 1999, Mr. Smith served as Sales Manager with Verio, an Internet service provider. Prior to joining Verio, Mr. Smith founded ATMnet, an Internet service provider, where he served as Sales Manager from February 1996 to November 1997. From August 1994 to January 1996, Mr. Smith attended Oregon State University. DAVID H. STANLEY has served as our General Counsel and Secretary since October 1999. From October 1997 to September 1999, Mr. Stanley served as General Counsel and Member of Executive Staff for Avant! Corporation, a software company. From July 1988 to October 1997, Mr. Stanley served as Vice President, Legal and Corporate Services, General Counsel and Secretary with Informix Corporation, a software company. ROBERT E. LAMB, JR. co-founded COLO.COM in 1997 and has served as our Vice President of Business Development since February 1999. From November 1998 to February 1999, Mr. Lamb served as our President, and from October 1997 to November 1998, as our Vice President of Marketing. From March 1997 to October 1997, Mr. Lamb served as Senior Account Manager at Neural Applications Corporation, a software company. From July 1995 to March 1997, Mr. Lamb served as Regional Sales Director for Ethos Corporation, a web portal development company. From January 1995 to June 1995, Mr. Lamb was an institutional equities salesperson with Genesis Merchant Group Securities, a brokerage firm. JOHN F. MEVI III has served as our Vice President of Sales since May 1999. From March 1998 to May 1999, Mr. Mevi served as Director of Sales with Sentient Networks, a multi-protocol switch manufacturer. Prior to joining Sentient, Mr. Mevi founded ATMnet, an Internet service provider, where he served as Vice President of Sales and Marketing from November 1995 to November 1997. From September 1994 to December 1995, Mr. Mevi was a Senior Account Executive at Teleport Communications Group, a communications company. JAMES H. STRACHAN has served as our Vice President of Product Development and Planning since March 1999. Mr. Strachan served as our Director of Product Development from December 1998 to March 1999, our Vice President of Sales from June 1998 to November 1998 and our Business Development Manager from February 1998 to June 1998. From September 1996 to February 1998, Mr. Strachan served in various sales positions at MCI Communications, a telecommunications company. From 1992 to 1996, Mr. Strachan attended California State University at San Luis Obispo, California, and received his B.S. in Finance, Real Estate and Marketing. CHRISTOPHER E. CLOUSER has served as one of our directors since January 2000. Since May 2000, Mr. Clouser has served as President of CRP Sports and Chief Executive Officer of the Minnesota Twins Baseball Club. From July 1999 to May 2000, Mr. Clouser served as President and Chief Executive Officer and a director of Preview Travel, Inc. From March 1991 to June 1999, Mr. Clouser served as Senior Vice President of Northwest Airlines. Mr. Clouser is also a director of Pepsi Americas, Inc. YOUNG SOO ("PERRY") HA has served as one of our directors since September 1998. From December 1998 to January 1999, Mr. Ha served as our Interim Chief Executive Officer. Since September 1997, Mr. Ha has been a general partner of Athena Technology Ventures, a venture capital firm. From June 1994 to September 1997, he was head of the North American Center of Excellence for the Product Development and Technology Management Practice at Gemini Consulting, a consulting company. 47 51 JOHN W. JARVE has served as one of our directors since April 1999. Since 1985, Mr. Jarve has been employed by Menlo Ventures, a venture capital firm focused on the software, communications, healthcare and Internet sectors, where he currently serves as a general partner and managing director. Mr. Jarve is also a director of Digital Insight Corporation and iBasis, Inc. RICHARD P. NESPOLA has served as one of our directors since January 2000. Since January 1990, Mr. Nespola has served as President, Chief Executive Officer and a director of The Management Network Group, Inc., a consulting firm. ARTHUR PATTERSON has served as one of our directors since April 1999. Since 1983, Mr. Patterson has been a partner of Accel Partners, a venture capital firm. Mr. Patterson is also a director of Actuate Corporation, Weblink Wireless, Inc., Portal Software, Inc. and Viasoft, Inc. KIRBY G. ("BUDDY") PICKLE, JR. has served as one of our directors since January 2000. Since February 1997, Mr. Pickle has served as President and Chief Operating Officer of Teligent, Inc., a telecommunications company. From 1991 to January 1997, Mr. Pickle served as Executive Vice President of MFS Communications Co., a telecommunications company. BOARD OF DIRECTORS Our bylaws authorize a range of from four to seven directors, currently set at seven. Either our board or our stockholders have the power to amend this provision of our bylaws to set the exact number of directors within this range. We currently have seven directors and no vacancies. BOARD COMMITTEES Our board of directors currently has an audit committee and a compensation committee. The audit committee consists of Mr. Nespola, Mr. Ha and Mr. Pickle. The audit committee has a written charter and selects our independent auditors, reviews the scope of audit and other services by our independent auditors, reviews the accounting principles and auditing practices and procedures to be used for our financial statements and reviews the results of our accounting audits. The compensation committee consists of Mr. Clouser, Mr. Patterson and Mr. Jarve. The compensation committee makes recommendations to the board of directors regarding our stock plans and the compensation of officers. DIRECTOR COMPENSATION Our non-employee directors are reimbursed for expenses incurred in connection with attending board and committee meetings but are not compensated for their services as board or committee members. Pursuant to the terms of our stock plan, our board has the discretion to grant options to current and new non-employee directors. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION None of the members of the compensation committee is currently, or has been at any time since our formation, one of our officers or employees. No interlocking relationships exist between our board of directors, compensation committee or officers and the board of directors, compensation committee or officers of any other company, nor has an interlocking relationship existed in the past. 48 52 EXECUTIVE COMPENSATION The following table sets forth a summary of the compensation earned during 1999 by the two individuals who served as our Chief Executive Officers during 1999 and our four other most highly compensated executive officers, whom we collectively refer to as our named executive officers, for services rendered in all capacities to COLO.COM. SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG TERM COMPENSATION ------------------------------- ---------------------------- OTHER SECURITIES ANNUAL UNDERLYING ALL OTHER NAME AND PRINCIPAL POSITIONS SALARY BONUS COMPENSATION OPTIONS COMPENSATION(5) ---------------------------- -------- ------- ------------ ---------- --------------- Charles Skibo(1)................... $206,250 $75,000 -- 4,210,000 -- Chairman of the Board and Chief Executive Officer Young Soo Ha(2).................... -- -- -- -- -- Wayne Olson(3)..................... 118,750 50,000 -- 551,143 -- Senior Vice President, Operations and Administration Robert Lamb, Jr. .................. 117,500 40,000 -- 40,000 $6,346 Vice President, Business Development James Strachan..................... 107,500 45,000 -- 100,000 6,827 Vice President, Product Development and Planning Richard Palomba(4)................. 144,250 -- -- 50,000 -- Vice President, Real Estate Acquisition and Development
- ------------------------- (1) Mr. Skibo began his employment with us on January 25, 1999. (2) Mr. Ha served as our Interim Chief Executive Officer from December 1998 to January 1999, for which he received no compensation. (3) Mr. Olson began his employment with us on March 15, 1999. (4) Mr. Palomba was compensated pursuant to a consulting agreement with Corporate Planning & Property Consulting, Inc., of which Mr. Palomba is a principal. In March 2000, Mr. Palomba became a part-time consultant and no longer serves as a vice president. (5) All other compensation consists of payments for accrued but unused vacation time. 49 53 OPTION GRANTS IN LAST FISCAL YEAR The following table sets forth information relating to stock options granted during 1999 to our named executive officers:
POTENTIAL REALIZABLE NUMBER OF VALUE AT ASSUMED SECURITIES % OF TOTAL ANNUAL RATES OF STOCK UNDERLYING OPTIONS EXERCISE PRICE APPRECIATION FOR OPTIONS GRANTED GRANTED TO OR BASE OPTION TERM(3) GRANTED EMPLOYEES IN PRICE PER EXPIRATION ----------------------- NAME (#)(1) FISCAL YEAR SHARE DATE(2) 5% 10% ---- --------------- ------------ --------- ---------- ---------- ----------- Charles 1,270,000 13.05% $0.05 1/28/2009 $39,935 $101,203 Skibo(4)........ 2,940,000 30.20 0.05 4/12/2009 92,448 234,280 Young Soo Ha...... -- -- -- -- -- -- Wayne Olson....... 551,143 5.67 0.05 6/08/2009 17,331 43,919 Robert Lamb, 40,000 0.41 0.05 6/08/2009 1,258 3,187 Jr. ............ James Strachan.... 40,000 0.41 0.05 6/08/2009 1,258 3,187 60,000 0.62 0.50 11/24/2009 18,867 47,812 Richard Palomba... 50,000 0.51 0.05 6/08/2009 1,572 3,984
- ------------------------- (1) These options are incentive stock options that were granted at fair market value and vest over a 4-year period so long as the optionee is employed by us, except for the options granted to Mr. Skibo which vest over a 3-year period. (2) Each of the options has a ten-year term, subject to earlier termination in the event of the optionee's earlier cessation of service with us. (3) The assumed 5% and 10% rates of stock price appreciation are provided in accordance with rules of the Securities and Exchange Commission and do not represent our estimate or projection of the future price of our common stock. Actual gains, if any, on stock option exercises are dependent on the future performance of the common stock, overall market conditions and the option holder's continued employment through the vesting period. Unless the market price of the common stock appreciates over the option term, no value will be realized from the option grants made to the Named Executive Officers. (4) Under the terms of Mr. Skibo's employment agreement, all of the shares subject to this option will accelerate and become fully vested in the event that either Mr. Skibo's employment with the Company is terminated without cause or there is a material breach by the Company of his employment agreement. See "-- Employment Arrangements." 50 54 AGGREGATE OPTION EXERCISES IN 1999 AND FISCAL YEAR-END OPTION VALUES The following table sets forth information for our named executive officers in 1999 relating to option exercises in 1999 and the number and value of securities underlying exercisable and unexercisable options held at December 31, 1999. All options were granted under our 1998 Incentive Stock Option Plan. These options are immediately exercisable in full at the date of grant, but shares purchased on exercise of unvested options are subject to a repurchase right in our favor that entitles us to repurchase unvested shares at their original exercise price upon termination of the employee's services with us. Except as indicated in the footnotes below, the repurchase rights generally lapse on these shares as to 25% of the shares on the first anniversary of the grant date, and the balance ratably per month over the next three years.
NUMBER SECURITIES UNDERLYING VALUE OF UNEXERCISED SHARES UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT ACQUIRED VALUE DECEMBER 31, 1999 DECEMBER 31, 1999(2) ON EXERCISE REALIZED --------------------------- --------------------------- NAME (#) (1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ---- ----------- ---------- ----------- ------------- ----------- ------------- Charles Skibo(3)... 4,210,000 $8,209,500 -- -- -- -- Young Soo Ha....... -- -- -- -- -- -- Wayne Olson........ 551,143 1,074,729 -- -- -- -- Robert Lamb, Jr. ............. 40,000 78,000 -- -- -- -- James Strachan..... 190,000 370,500 60,000 -- $90,000 -- Richard Palomba.... 50,000 97,500 -- -- -- --
- ------------------------- (1) Based on the fair market value of our common stock at an assumed price of $2.00 per share, less the exercise price payable for such shares. (2) Based on the fair market value of our common stock at December 31, 1999 estimated by our board of directors to be $2.00 per share less the exercise price payable for such shares. (3) Our right of repurchase lapses over a three-year period with respect to 60% of the underlying shares at the first anniversary of the grant date, 20% on the second anniversary and 20% on the third anniversary of the grant date except in the event of termination without cause, our right of repurchase lapses immediately. COMPENSATION PLANS 1998 INCENTIVE STOCK OPTION PLAN Our 1998 Incentive Stock Option Plan was adopted by our board of directors in January 1998 and approved by our stockholders in February 1998. The maximum number of shares that may be issued under the 1998 Incentive Stock Option Plan is 14,047,839 shares of our common stock. As of May 31, 2000, options to purchase 3,208,250 shares of our common stock were outstanding under this plan. The 1998 Incentive Stock Option Plan provides for the grant of incentive stock options, within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, referred to as the Code, to our employees, and for the grant of nonstatutory stock options and stock purchase rights to our employees, directors and consultants. In the event of our merger with or into another corporation or a sale of substantially all of our assets, the successor corporation will assume or substitute each option or stock purchase right. If the outstanding options or stock purchase rights are not assumed or substituted, the administrator will provide notice to the optionee that he or she has the right to exercise the option or stock purchase right as to all of the shares subject to the option or stock purchase right, including shares which would not otherwise be exercisable, for a period of 15 days from the date of the notice. The option or stock purchase right will terminate upon the expiration of the 15-day period. 51 55 401(k) PLAN In 1999, our board of directors adopted a Retirement Savings and Investment Plan covering our full-time employees located in the U.S. This plan is intended to qualify under Section 401(k) of the Internal Revenue Code of 1986, as amended, so that contributions to this plan by employees, and the investment earnings thereon, are not taxable to employees until withdrawn. Pursuant to this plan, employees may elect to reduce their current compensation by up to the lesser of 15% of their annual compensation or the statutorily prescribed annual limit, and to have the amount of such reduction contributed to this plan. We do not currently make additional matching contributions on behalf of plan participants. EMPLOYMENT ARRANGEMENTS Charles M. Skibo. Mr. Skibo entered into an employment agreement with us on January 25, 1999. This agreement is for an initial term of three years, terminating on January 24, 2002, and renewable for one-year periods. Under the agreement, we agreed to pay Mr. Skibo an annual salary of $225,000 for his first year of employment, $250,000 for his second year of employment, and $300,000 for his third year of employment. Upon completion of an initial public offering during the term of agreement, Mr. Skibo's annual salary will immediately increase to $360,000. Mr. Skibo is also eligible to receive target bonuses of up to $75,000 in the first year of employment, 60% of his base salary in the second year of employment and 85% of his base salary in the third year of employment. In connection with his employment, Mr. Skibo was granted options to purchase 4,210,000 shares of our common stock. These options were exercised for shares of restricted stock which vest over a three year period, with 60% of the shares vesting at the end of one year of employment, 20% vesting at the end of two years of employment, and 20% vesting at the end of three years of employment. If Mr. Skibo is terminated without cause, he will be entitled to receive continued payment of his base salary for the remainder of the term of the agreement and the vesting of his restricted stock shall accelerate and become fully vested. Stephen I. Robertson. Mr. Robertson began working as our Chief Financial Officer in March 2000. Under the terms of the offer, Mr. Robertson was granted an option to purchase 560,000 shares of our common stock to vest over four years. If we complete a secondary funding event after our initial public offering prior to the end of Mr. Robertson's first year of employment, 70,000 of the shares will vest at the close of that transaction. If we terminate Mr. Robertson's employment without cause, Mr. Robertson will continue to receive his salary and his options will continue to vest for twelve months following the termination date. In the event that we experience a change in control and Mr. Robertson is terminated without cause or is constructively terminated, his option will continue to vest for two years after the termination date. INDEMNIFICATION AND LIMITATION OF LIABILITY Our amended and restated articles of incorporation provide for the limitation of liability of our directors and for the indemnification of our directors and officers to the fullest extent permissible under California law. However, at some point following the exchange offer, we intend to change our state of incorporation from California to Delaware. Our bylaws provide for the indemnification of our officers, directors and third parties acting on our behalf if these people acted in good faith and in a manner they reasonably believed to be in and not opposed to our best interest, and, with respect to any criminal action or proceeding, the indemnified person had no reason to believe his conduct was unlawful. 52 56 RELATED PARTY TRANSACTIONS PREFERRED STOCK FINANCINGS From June 1998 through April 1999, we issued to various investors a total of 4,261,730 shares of Series A preferred stock at a purchase price of $0.50 per share. In April 1999, we issued to various investors a total of 24,500,000 shares of Series B preferred stock at a purchase price of $0.50 per share. In December 1999, we issued to various investors a total of 20,408,164 shares of Series C Preferred stock at a purchase price of $9.80 per share. Investors in, and beneficial owners of, our preferred stock include, among others, the following directors and holders of more than 5% of our outstanding stock:
PREFERRED STOCK ------------------------------------ PREFERRED STOCKHOLDER SERIES A SERIES B SERIES C --------------------- --------- ---------- --------- HOLDERS OF MORE THAN 5%: Accel Partners Entities...................... -- 10,000,000 816,327 Athena Venture Fund, L.P. ................... 2,500,000 2,500,000 510,204 InvestCorp International Inc. ............... -- -- 3,571,428 Menlo Ventures Entities...................... -- 10,000,000 1,836,735 Meritech Capital Partners Entities........... -- -- 4,081,633 DIRECTORS: Young Soo Ha(1).............................. 2,500,000 2,500,000 510,204 John Jarve(2)................................ -- 10,000,000 1,836,735 Arthur Patterson(3).......................... -- 10,000,000 816,327
- ------------------------- (1) Consists of shares held by Athena Venture Fund, L.P. Mr. Ha is a general partner of Athena Venture Fund, L.P. and disclaims beneficial ownership of these shares except to the extent of his proportionate partnership interest therein. (2) Consists of shares held by Menlo Ventures entities. Mr. Jarve is a general partner of the Menlo Ventures entities and disclaims beneficial ownership of these shares except to the extent of his proportionate partnership interest therein. (3) Consists of shares held by Accel Partners entities. Mr. Patterson is a general partner of the Accel Partners entities and disclaims beneficial ownership of these shares except to the extent of his proportionate partnership interest therein. Holders of our preferred stock are entitled to registration rights with respect to the shares of common stock issuable upon conversion of the preferred stock. See "Description of Capital Stock -- Registration Rights." LOANS TO OFFICERS We have implemented a program under which our directors, executive officers and a number of other key employees are permitted to exercise their outstanding options as to both vested and unvested shares, with unvested shares being subject to a right of repurchase at cost in favor of COLO.COM in the event of termination of employment prior to vesting of the shares. Under this program, the participants paid the exercise price for their outstanding options pursuant to full recourse promissory notes. The notes bear interest at a rate of approximately 6.2% per annum and are due and payable on the earlier of termination of the participant's 53 57 employment with us, or on various dates beginning in November 2003. The principal balance as of March 31, 2000 of each note payable by a director or executive officer is set forth below:
NOTE DIRECTOR OR EXECUTIVE OFFICER AMOUNT ----------------------------- ---------- H.S. Kullar................................................. $ 200,000 David H. Stanley............................................ 200,000 Charles M. Skibo............................................ 84,200 James M. Smith.............................................. 82,000 Wayne A. Olson.............................................. 27,557 John F. Mevi III............................................ 20,000 Robert E. Lamb, Jr. ........................................ 10,000 James H. Strachan........................................... 8,500
The aggregate principal balance as of March 31, 2000 of notes payable by all directors, officers and employees was approximately $1.4 million. CONSULTING AGREEMENT In March 1999, we entered into a consulting agreement with Corporate Planning & Property Consulting, Inc. Mr. Palomba is a Principal of Corporate Planning & Property Consulting, Inc. Under this agreement, Mr. Palomba served as our Vice President, Real Estate Acquisition and Development. In March 2000, Mr. Palomba became a part-time consultant and no longer serves as a vice president. OTHER TRANSACTIONS In December 1998, we repurchased 600,000 shares of common stock for a total of $60,000 from our former Chief Executive Officer, Peter Berns, in connection with his resignation from employment with us. Mario M. Rosati, one of our directors from June 1998 to April 1999, is also a member of Wilson Sonsini Goodrich & Rosati, Professional Corporation, which has served as our outside corporate counsel since January 1998. Mr. Rosati holds 12,000 shares of common stock and WS Investment Company 98B holds 108,000 shares. WS Investment Company 98B is a holding company of Wilson Sonsini Goodrich & Rosati. The spouse of Robert E. Lamb, Jr., our Vice President, Business Development, is the owner of Visual Resources, Inc. Through May 31, 2000, we had purchased approximately $72,000 of business materials and printing supplies from Visual Resources. We believe that all transactions between us and our officers, directors, principal stockholders and other affiliates have been, and it is our intention that they will be, on terms no less favorable to us than could be obtained from unaffiliated third parties. 54 58 PRINCIPAL STOCKHOLDERS The following table sets forth information regarding the beneficial ownership of our common stock (on an as-converted basis), as of May 31, 2000, by the following individuals or groups: - each person, or group of affiliated persons, whom we know beneficially owns more than 5% of our outstanding stock; - each of our named executive officers; - each of our directors; and - all of our directors and executive officers as a group. Unless otherwise indicated, the address for each stockholder on this table is c/o COLO.COM, 2000 Sierra Point Parkway, Suite 601, Brisbane, California 94005-1819. Except as otherwise noted, and subject to applicable community property laws, to the best of our knowledge, the persons named in this table have sole voting and investing power for all of the shares of common stock held by them. This table lists percentage ownership based on 62,881,699 shares of common stock outstanding (assuming the conversion of all preferred stock) as of May 31, 2000. Options to purchase shares of our common stock that are exercisable within 60 days of May 31, 2000 are deemed to be beneficially owned by the persons holding these options for the purpose of computing percentage ownership of that person, but are not treated as outstanding for the purpose of computing any other person's ownership percentage. Shares underlying options that are deemed beneficially owned are included in the number of shares listed in the column labeled "Number." In addition, a portion of the shares held by all of our executive officers listed below are subject to repurchase by us at the original purchase prices under the terms of restricted stock purchase agreements. Under these agreements, these officers exercised unvested options and gave us a right to repurchase these shares, which lapses over time.
SHARES BENEFICIALLY OWNED ------------------------------- PERCENT OF SHARES BENEFICIAL OWNER NUMBER OUTSTANDING ---------------- ---------- ----------------- 5% STOCKHOLDERS: Accel Partners Entities(1)................................ 10,816,327 17.2% 428 University Ave Palo Alto, CA 94301 Athena Venture Fund, L.P.(2).............................. 5,510,204 8.8 310 University Ave., Suite 202 Palo Alto, CA 94301 InvestCorp International Inc.(3).......................... 3,571,428 5.7 280 Park Avenue, 37th Floor New York, NY 10017 Menlo Ventures Entities(4)................................ 11,836,735 18.8 3000 Sand Hill Road Building 4, Suite 100 Menlo Park, CA 94025 Meritech Capital Partners Entities(5)..................... 4,081,633 6.5 90 Middlefield Road, Suite 201 Menlo Park, CA 94025
55 59
SHARES BENEFICIALLY OWNED ------------------------------- PERCENT OF SHARES BENEFICIAL OWNER NUMBER OUTSTANDING ---------------- ---------- ----------------- EXECUTIVE OFFICERS AND DIRECTORS: Charles M. Skibo(6)....................................... 4,210,000 6.7% Wayne A. Olson............................................ 551,143 * Robert E. Lamb, Jr. ...................................... 1,366,550 2.2 Richard J. Palomba(7)..................................... 210,000 * James H. Strachan(8)...................................... 270,000 * Christopher E. Clouser(9)................................. 150,000 * Young S. Ha(10)........................................... 5,643,141 9.0 John W. Jarve(11)......................................... 11,836,735 18.8 Richard P. Nespola(12).................................... 150,000 * Arthur Patterson(13)...................................... 10,816,327 17.2 Kirby G. Pickle, Jr.(14).................................. 150,000 * All directors and executive officers as a group (15 persons)(15)....................................... 37,107,896 58.0%
- ------------------------- * Less than 1% of the outstanding shares of common stock. (1) Includes 8,140,000 shares of Series B preferred stock and 664,490 shares of Series C preferred stock held by Accel VI L.P., 1,040,000 shares of Series B preferred stock and 84,898 shares of Series C preferred stock held by Accel Internet Fund II L.P., 690,000 shares of Series B preferred stock and 56,327 shares of Series C preferred stock held by Accel Investors '98 L.P. and 130,000 shares of Series B preferred stock and 10,612 shares of Series C preferred stock held by Accel Keiretsu VI L.P. (2) Consists of 2,500,000 shares of Series A preferred stock, 2,500,000 shares of Series B preferred stock and 510,204 shares of Series C preferred stock. (3) Consists of 3,571,428 shares of Series C preferred stock held by Colo.com Equity Limited, a holding company of InvestCorp International Inc. (4) Includes 9,596,929 shares of Series B preferred stock and 783,423 shares of Series C preferred stock held by Menlo Ventures VII, L.P., 403,071 shares of Series B preferred stock and 32,904 shares of Series C preferred stock held by Menlo Entrepreneurs Fund VII, L.P., 971,817 shares of Series C preferred stock held by Menlo Ventures VIII, L.P., 38,484 shares of Series C preferred stock held by Menlo Entrepreneurs Fund VIII, L.P., and 10,107 shares of Series C preferred stock held by MMEF VIII, L.P. (5) Includes 4,016,327 shares of Series C preferred stock held by Meritech Capital Partners, L.P. and 65,306 shares of Series C preferred stock held by Meritech Capital Affiliates, L.P. (6) All of these shares are held by the Skibo Family Limited Partnership, of which Mr. Skibo is a general partner. (7) Includes 40,000 shares of Series A preferred stock held by Mr. Palomba's daughter, Gina K. Palomba UGMA, and 120,000 shares of Series A preferred stock held jointly by Mr. Palomba and Beverly Palomba. (8) Includes 60,000 shares that are subject to unvested options which are immediately exercisable into restricted stock. (9) Includes 150,000 shares that are subject to unvested options which are immediately exercisable into restricted stock. (10) Includes 5,510,204 shares of preferred stock held by Athena Venture Fund, L.P. Mr. Ha, one of our directors, is a general partner of this entity and disclaims beneficial ownership 56 60 of these shares, except to the extent of his proportionate partnership interest therein. Also includes 132,937 shares held by the Ha Family Trust of 1997. (11) Includes 10,380,352 shares of preferred stock held by Menlo Ventures VII, L.P., 435,975 shares of preferred stock held by Menlo Entrepreneurs Fund VII, L.P., 971,817 shares of preferred stock held by Menlo Ventures VIII, L.P., 38,484 shares of preferred stock held by Menlo Entrepreneurs Fund VIII, L.P., and 10,107 shares of preferred stock held by MMEF VIII, L.P. Mr. Jarve, one of our directors, is a managing director of MV Management VII, LLC, the general partner of Menlo Ventures VII, L.P. and Menlo Entrepreneurs Fund VII, L.P., and MV Management VIII, LLC, the general partner of Menlo Ventures VIII, L.P., Menlo Entrepreneurs Fund VIII, L.P. and MMEF VIII, L.P. and disclaims beneficial ownership of these shares, except to the extent of his proportionate partnership interest therein. (12) Includes 150,000 shares that are subject to unvested options which are immediately exercisable into restricted stock. (13) Includes 8,804,490 shares of preferred stock held by Accel VI L.P., 1,124,898 shares of preferred stock held by Accel Internet Fund II L.P., 746,327 shares of preferred stock held by Accel Investors '98 L.P. and 140,612 shares of preferred stock held by Accel Keiretsu VI L.P. Mr. Patterson, one of our directors, is a general partner of each of these entities and disclaims beneficial ownership of these shares, except to the extent of his proportionate partnership interest therein. (14) Includes 150,000 shares that are subject to unvested options which are immediately exercisable into restricted stock. (15) Includes 1,070,000 shares that are subject to unvested options which are immediately exercisable into restricted stock. 57 61 DESCRIPTION OF OTHER INDEBTEDNESS COMDISCO LOAN FACILITY In October 1999, we entered into a $7.0 million loan facility with Comdisco, Inc. Under this facility, which we can draw down through August 31, 2000, Comdisco provides financing for construction costs and equipment for our facilities in Chicago, Illinois and Emeryville, California. This agreement is secured by all tangible and intangible assets relating to the specific facilities funded by the lender. Individual loans bear interest at a rate of 8.25% per annum and will be repaid in 42 equal monthly installments plus a final payment equal to 15% of the original advance. As of March 31, 2000, we had outstanding borrowings of $2.2 million under this facility. In connection with this facility, we issued to Comdisco a warrant to purchase 73,976 shares of our Series C preferred stock at an exercise price of $7.57 per share. The facility restricts our ability to merge or consolidate with another entity. It also restricts our ability to pay dividends or purchase stock. MMC/GATX LOAN FACILITY In November 1999, we entered into a $17.0 million loan facility with MMC/GATX Partnership and other lenders. Under this facility, which we can draw down through December 31, 2001, MMC provides financing for construction costs and equipment for our facilities in Los Angeles, California and Vienna, Virginia. This agreement is secured by all tangible and intangible assets relating to the specific facilities funded by the lender. Individual loans bear interest at a rate equal to the sum of the applicable U.S. Treasury note yield to maturity plus 3.93% per annum and will be repaid in 42 equal monthly installments plus a final payment equal to 10% of the original advance. As of March 31, 2000, we had outstanding borrowings of $1.2 million under this facility. In connection with this facility, we issued to MMC and others warrants to purchase 227,697 shares of our Series C preferred stock at an exercise price of $6.44 per share. The facility restricts our ability to merge or consolidate with another entity. It also restricts our ability to pay dividends or purchase stock. 58 62 THE EXCHANGE OFFER TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES The old notes were sold by us on March 10, 2000 to Goldman, Sachs & Co., Bear, Stearns & Co. Inc., Chase Securities Inc., Deutsche Bank Securities Inc., Warburg Dillon Read LLC and Jefferies & Company, Inc. (the "Purchasers") pursuant to a purchase agreement dated March 3, 2000 between us and the Purchasers. As set forth in this prospectus and in the accompanying letters of transmittal, we will accept for exchange any and all old notes that are properly tendered on or prior to the expiration date and not withdrawn as permitted below. The term "expiration date" means 5:00 p.m., New York City time, on , 2000; provided, however, that if we extend the period of time for which the exchange offer is open, the term "expiration date" means the latest time and date to which the exchange offer is extended. As of the date of this prospectus, $300.0 million aggregate principal amount of the old notes is outstanding. This prospectus, together with the letters of transmittal, is first being sent on or about the date set forth on the cover page to all holders of old notes at the addresses set forth in the security register maintained by the trustee or other applicable registrar. Our obligation to accept old notes for exchange is subject to conditions as set forth under "-- Conditions to the Exchange Offer" below. We expressly reserve the right, at any time or from time to time, to extend the period of time during which the exchange offer is open, and thereby delay acceptance for exchange of any old notes, by mailing written notice of an extension to the holders of old notes as described below. During any extension, all old notes previously tendered will remain subject to the exchange offer and may be accepted for exchange by us. Any old notes not accepted for exchange for any reason will be returned without expense to the tendering holder as promptly as practicable after the expiration or termination of the exchange offer. Old notes tendered in the exchange offer must be $1,000 in principal amount or any integral multiple of $1,000. We will mail written notice of any extension, amendment, non-acceptance or termination to the holders of the old notes as promptly as practicable. This notice will be mailed to the holders of record of the old notes no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled expiration date of other event giving rise to the notice requirement. REGISTRATION COVENANT; EXCHANGE OFFER Under our registration rights agreement with the Purchasers, we have agreed to file with the Commission the exchange offer registration statement on the appropriate form under the Securities Act with respect to the new notes. Upon the effectiveness of the exchange offer registration statement, we will offer to the holders of the old notes who are able to make required representations the opportunity to exchange their old notes for new notes. Alternatively, we will file with the Commission a shelf registration statement to cover resales of transfer restricted securities (as defined below) by the holders of old notes who satisfy specific conditions relating to the provision of information in connection with the shelf registration statement if: - we are not permitted to consummate the exchange offer because it is not permitted by applicable law or Commission policy; or 59 63 - any holder of old notes notifies us prior to the 20th day following consummation of the exchange offer that: - it is prohibited by law or Commission policy from participating in the exchange offer; - it may not resell the old notes acquired by it in the exchange offer to the public without delivering a prospectus and the prospectus contained in the exchange offer registration statement is not appropriate or available for resales; or - it is a broker-dealer and owns old notes acquired directly from us or one of our affiliates. We will use our best efforts to cause the applicable registration statement to be declared effective as promptly as possible by the Commission. "Transfer restricted securities" means each old note until the earliest of: - the date on which the old note has been exchanged by a person other than a broker-dealer for a new note in the exchange offer; - following the exchange by a broker-dealer in the exchange offer of an old note for a new note, the date on which the new note is sold to a purchaser who received from the broker-dealer, on or prior to the date of the sale, a copy of the prospectus contained in the exchange offer registration statement; - the date on which the old note has been effectively registered under the Securities Act and disposed of in accordance with the shelf registration statement; or - the date on which the old note is distributed to the public pursuant to Rule 144 under the Securities Act. The registration rights agreement provides that: - we will file an exchange offer registration statement with the Commission on or prior to 90 days after March 10, 2000, which is the date of the original issuance of the old notes; - we will use our best efforts to have the exchange offer registration statement declared effective by the Commission on or prior to 180 days after March 10, 2000; - unless the exchange offer would not be permitted by applicable law or Commission policy , we will commence the exchange offer and use our best efforts to issue, on or prior to 30 business days after the date on which the exchange offer registration statement was declared effective by the Commission, new notes in exchange for all old notes tendered in the exchange offer; and - if obligated to file the shelf registration statement, we will use our best efforts to file the shelf registration statement with the Commission on or prior to 60 days after the filing obligations arises, but in no event less than 90 days after March 10, 2000, and to cause the shelf registration to be declared effective by the Commission on or prior to 150 days after this obligation arises, but in no event less than 180 days after March 10, 2000. If a registration default (as defined below) occurs, we will pay liquidated damages to each holder of transfer restricted securities, with respect to the first 90-day period immediately following the occurrence of the first registration default in and amount equal to 0.25%. The amount of the liquidated damages will increase to 0.50% for the second 90-day period, 0.75% for the third 90-day period and 1.00% for the remainder of that period. On each interest payment date we will pay all accrued liquidated damages to the holders of the old notes by wire 60 64 transfer of immediately available funds or by federal funds check and to holders of certificated securities by wire transfer to the accounts specified by them or by mailing checks to their registered addresses if no accounts have been specified. Following the cure of all registration defaults, accrual of liquidated damages will cease. A "registration default" means the occurrence of one of the following events: - we fail to file any of the registration statements required by the registration rights agreement on or before the date specified for the filing; - any of the registration statements is not declared effective by the Commission on or prior to the date specified for the effectiveness; - we fail to completed the exchange offer within 30 business days of the date of effectiveness of the exchange offer registration statement; or - the shelf registration statement or the exchange offer registration statement is declared effective but thereafter ceases to be effective or usable in connection with resales (except in specified circumstances) of transfer restricted securities during the period specified in the registration rights agreement. This summary of the provisions of the registration rights agreement is not complete and is subject to, and is qualified by reference to, all provisions of the registration rights agreement. A copy of this agreement is filed as an exhibit to the registration statement of which this prospectus is a part. INTEREST ON NEW NOTES Each new note will bear interest from the most recent date to which interest has been paid or duly provided for on the old note surrendered in exchange for a new note, or, if no interest has been paid or duly provided for on the old note, from March 10, 2000, the date of issuance of the old note. Holders of the old notes whose old notes are accepted for exchange will not receive accrued interest on the old notes for any period from and after the last interest payment date to which interest has been paid or duly provided for on the old notes prior to the original issue date of the new notes, or, if no interest has been paid or duly provided for, will not receive any accrued interest on the old notes. These holders will be deemed to have waived the right to receive any interest on the old notes accrued from and after that interest payment date, or, if no interest has been paid or fully provided for, from and after March 10, 2000. Interest on the notes is payable semi-annually in arrears on each March 15 and September 15. PROCEDURES FOR TENDERING OLD NOTES To tender in the exchange offer, a holder must complete, sign and date the letter of transmittal, or a facsimile of the letter of transmittal, have the signatures guaranteed if required by the letter of transmittal, and mail or otherwise deliver the letter of transmittal or a facsimile, together with the old notes and any other required documents, to the exchange agent. The exchange agent must receive these documents at the address set forth below prior to 5:00 p.m., New York City time on the expiration date. Delivery of the old notes may be made by book-entry transfer in accordance with the procedures described below. Confirmation of book-entry transfers must be received by the exchange agent prior to the expiration date. By executing a letter of transmittal, each holder will make to use the representations set forth below in the fourth paragraph under the heading "-- Resale of New Notes." 61 65 The tender by a holder and the acceptance by us will constitute an agreement between the holder and us in accordance with the terms subject to the conditions set forth in this prospectus and in the letter of transmittal. The method of delivery of old notes and the letter of transmittal and all other required documents to the exchange agent is at the election and risk of the holder. Instead of delivery by mail, it is recommended that holders use an overnight or hand delivery service. In all cases, sufficient time should be allowed to assure delivery to the exchange agent before the expiration date. No letter of transmittal or notes should be sent to us. Holders may request their brokers, dealers, commercial banks, trust companies or nominees to effect the above transactions for them. Any beneficial owner whose old notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact the registered holder promptly and instruct the registered holder to tender on the beneficial owner's behalf. Signatures on a letter of transmittal or a notice of withdrawal, as the case may be, must be guaranteed by an eligible institution (as defined below) unless the old notes tendered: - are signed by the registered holder, unless the holder has completed the box entitled "special exchange instructions" or "special delivery instructions" on the applicable letter of transmittal; or - are tendered for the account of an eligible institution. In the event that signatures on a letter of transmittal or a notice of withdrawal, as the case may be, are required to be guaranteed, the guarantee must be by a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., a commercial bank or trust company having an office or correspondent in the United States, or an "eligible guarantor institution" within the meaning of Rule 17Ad-15 under the Exchange Act (an "eligible institution"). If a letter of transmittal is signed by a person other than the registered holder of any old notes listed on the letter of transmittal, the old notes must be endorsed or accompanied by a properly completed bond power, signed by the registered holder as the registered holder's name appears on the old notes, with the signature guaranteed by an eligible institution. If a letter of transmittal or any old notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or other acting in a fiduciary or representative capacity, the persons should so indicate when signing. Unless waived by us, evidenced satisfactory to us of their authority to so act must be submitted with the letter of transmittal. All questions as to the validity, form, eligibility, including time or receipt, acceptance of tendered old notes and withdrawal of tendered old notes will be determined by us in our sole discretion. This determination will be final and binding. We reserve the absolute right to reject any and all old notes that are not properly tendered or any old notes our acceptance of which would, in the opinion of our counsel, be unlawful. We also reserve the right to waive any defects, irregularities or conditions of tender as to particular old notes. Our interpretation of the terms and conditions of the exchange offer, including the instructions in the letters of transmittal, will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of old notes must be cured within the time period we determine. Although we intend to notify holders of defects or irregularities with respect to tenders of old notes, none of COLO.COM, the exchange agent or any other person will incur any liability for failure to give this notification. Tenders of old notes will not be deemed to have been made until 62 66 defects or irregularities have been cured or waived. Any old notes received by the exchange agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned by the exchange agent to the tendering holders, unless otherwise provided in the letter of transmittal, as soon as practicable following the expiration date. BOOK-ENTRY DELIVERY PROCEDURES Promptly after the date of this prospectus, the exchange agent for the old notes will establish accounts with respect to the old notes at DTC (DTC is referred to as the "book-entry transfer facility") for purposes of the exchange offer. Any financial institution that is a participant in the book-entry transfer facility's systems may make book-entry delivery of the old notes by causing the book-entry transfer facility to transfer old notes into the exchange agent's account at the book-entry transfer facility in accordance with the book-entry transfer facility's procedures for transfers. Timely book-entry delivery of old notes pursuant to the exchange offer, however, requires receipt of a book-entry confirmation prior to the expiration date. In addition, to receive new notes for tendered old notes, the letter of transmittal, or a mutually signed facsimile, together with any required signature guarantees and any other required documents, or an agent's message in connection with a book-entry transfer, must, in any case, be delivered or transmitted to and received by the exchange agent at its address set forth under "-- Exchange Agent" below prior to the expiration date. Alternatively, the guaranteed delivery procedures described below must be complied with. Tender will not be considered made until the documents are received by the exchange agent. Delivery of documents to any of the book-entry transfer facilities does not constitute delivery to the exchange agent. TENDER OF OLD NOTES HELD THROUGH BOOK-ENTRY TRANSFER FACILITY The exchange agent and the book-entry transfer facility have confirmed that the exchange offer is eligible for the book-entry transfer facility's Automated Tender Offer Program, or ATOP. Accordingly, participants in the book-entry transfer facility's ATOP may, in lieu of physically completing and signing the letter of transmittal and delivering it to the exchange agent, electronically transmit their acceptance of the exchange offer by causing the book-entry transfer facility to transfer old notes to the exchange agent in accordance with the book-entry transfer facility's ATOP procedures for transfer. The book-entry transfer facility will then send an agent's message to the exchange agent. The term "agent's message" means a message transmitted by a book-entry transfer facility, received by exchange agent and forming party of the book-entry confirmation, which states that: - the book-entry transfer facility has received an expressed acknowledgement from a participant in its ATOP that is tendering old notes which are the subject of the book-entry conformation; - the participant has received and agrees to be bound by the terms of the letter of transmittal or, in the case of an agent's message relating to guaranteed delivery, the participant has received and agrees to be bound by the notice of guaranteed delivery; and - we may enforce the agreement against the participant. 63 67 GUARANTEED DELIVERY PROCEDURE Holders who wish to tender their old notes and (1) whose old notes are not immediately available, (2) who cannot deliver their old notes, the letter of transmittal or any other required documents to the exchange agent or (3) who cannot complete the procedures for book-entry transfer, prior to the expiration date, may effect a tender if: - the tender is made through an eligible institution; - prior to the expiration date, the agent receives from the eligible institution a properly completed and duly executed notice of guaranteed delivery by facsimile transmission, mail or hand delivery; - setting forth the name and address of the holder; - setting forth the certificate number(s) of the old notes and the principal amount of old notes tendered, stating that the tender is being made; and - guaranteeing that, within three New York Stock Exchange trading days after the expiration date, the letter of transmittal or facsimile together with the certificate(s) representing the old notes or a book-entry confirmation of the old notes into the exchange agent's account at the book-entry transfer facility and any other documents required by the letter of transmittal, will be deposited by the eligible institution with the exchange agent; and - a properly completed and executed letter of transmittal for facsimile, as well as the certificate(s) representing all tendered old notes in proper form for transfer or a book-entry confirmation transfer of the old notes into the exchange agent's account at the book-entry transfer facility and all other documents required by the letter of transmittal, are received by the exchange agent within New York Stock Exchange trading days after the expiration date. Upon request to the exchange agent, a notice of guaranteed delivery will be sent to holders who wish to tender their old notes according to the guaranteed delivery procedures set forth above. WITHDRAWALS OF TENDERS Except as otherwise provided in this prospectus, tenders of old notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the expiration date. To withdraw a tender of old notes in the exchange offer, a written or facsimile transmission notice of withdrawal must be received by the exchange agent at the address set forth below prior to 5:00 p.m., New York City time, on the expiration date. Any notice of withdrawal must: - specify the name of the person having deposited the old notes to be withdrawn (the "depositor"); - identify the old notes to be withdrawn, including the certificates number(s) and principal amount of the old notes, or, in the case of old notes transferred by book-entry transfer, the name and number of the account at the book-entry transfer facility to be credited; - be signed by the holder in the same manner as the original signature on the letter of transmittal by which the old notes were tendered, including any required signature guarantees, or be accompanied by documents of transfer sufficient to have the trustee or other applicable registrar register transfer of the old notes into the name of the person withdrawing the tender; and 64 68 - specify the name in which any of the old notes are to be registered, if different from that of the depositor. All questions as to the validity, form and eligibility, including time or receipt, of the notices will be determined by us. Our determination will be final and binding on all parties. Any old notes so withdrawn will be deemed not to have been validly tendered for purposes of the exchange offer and no new notes will be issued in exchange unless the old notes so withdrawn are validly retendered. Any old notes which have been tendered but which are not accepted for exchange will be returned to their holder without cost to the holder as soon as practicable after withdrawal, rejection of tender or termination of the exchange offer. Properly withdrawn old notes may be retendered by following one of the procedures described above under "-- Procedures for Tendering Old Notes" at any time prior to the expiration date. CONDITIONS TO THE EXCHANGE OFFER Notwithstanding any other terms of the exchange offer, we will not be required to accept for exchange, or exchange new notes for, any old notes, and may terminate the exchange offer before the acceptance of the old notes if, in our sole judgment, the exchange offer would violate any law, statute, rule or regulation or an interpretation thereof of the Staff of the Commission. If we determine in our sole discretion that this condition is not satisfied, we may: - refuse to accept any old notes and return all tendered old notes to the tendering holders; - extend the exchange offer and retain all old notes tendered prior to the expiration date, subject, however, to the rights of holders to withdraw the old notes (see "-- Withdrawals of Tender"); or - waive the unsatisfied conditions with respect to the exchange offer and accept all validly tendered old notes which have not been withdrawn. If the waiver constitutes a material change to the exchange offer, we will promptly disclose the waiver by means of a prospectus supplement that will be distributed to the registered holders, and we will extend the exchange offer for a period of five to ten business days, depending upon the significance of the waiver and the manner of disclosure to the registered holders, if the exchange offer would otherwise expire during that five to ten business-day period. EXCHANGE AGENT State Street Bank & Trust Company of California, National Association has been appointed as the exchange agent for the exchange offer of the old notes. All executed letters of transmittal should be directed to the exchange agent at the address set forth below. Questions and requests for assistance, requests for additional copies of this prospectus or of the letter of transmittal and requests for notices of guaranteed delivery should be directed to the exchange agent, addressed as follows: If to the State Street Bank & Trust Company of California, National Association: By mail or by hand: State Street Bank & Trust Company of California, National Association, Exchange Agent 633 West 5th Street, 12th Floor Los Angeles, CA 90071 Attn: Corporate Trust Division By Facsimile: (213) 362-7357 Confirm Facsimile by Telephone: (213) 362-7369 65 69 Delivery of a letter of transmittal to an address other than that for the exchange agent as set forth above or transmission of instructions via facsimile other than as set forth above does not constitute a valid delivery of a letter of transmittal. FEES AND EXPENSES We will not make any payment to brokers, dealers or other soliciting acceptances of the exchange offer. TRANSFER TAXES Holders who tender their old notes for exchange generally will not be obligated to pay any transfer tax in connection with the exchange. However, holders who instruct us to register new notes in the name of a person other than the registered tendering holders, or request that old notes not tendered or not accepted in the exchange offer be returned to a person other than the registered tendering holder, will be responsible for the payment of any applicable transfer tax. ACCOUNTING TREATMENT The new notes will be recorded at the same carrying value as the old notes. This is the aggregate principal amount of the old notes, as reflected in our accounting records on the date of exchange. Accordingly, no gain or loss for accounting purposes will be recognized in connection with the exchange offer. The expenses of the exchange offer will be amortized over the term of the new notes. APPRAISAL RIGHTS Holders of old notes will not have dissenters' rights or appraisal rights in connection with the exchange offer. RESALE OF NEW NOTES The new notes are being offered to satisfy our obligations contained in the registration rights agreement. We are making the exchange offer in reliance on the position of the Staff of the Commission as set forth in the Exxon Capital No-Action Letter, the Morgan Stanley No-Action Letter, the Shearman & Sterling No-Action Letter, and other interpretive letters addressed to third parties in other transactions. However, we have not sought our own interpretive letter addressing these matters and there can be no assurance that the Staff would make a similar determination with respect to the exchange offer as it has in those interpretive letters to third parties. Based on these interpretations by the Staff, and subject to the two immediately following sentences, we believe that new notes issued pursuant to this exchange offer in exchange for old notes may be offered for resale, resold and otherwise transferred by holders, other than a holder who is a broker-dealer, without further compliance with the registration and prospectus delivery requirements of the Securities Act, provided that: - the new notes are acquired in the ordinary course of the holder's business; and - the holder is not participating, and has no arrangement or understanding with any person to participate, in a distribution within the meaning of the Securities Act of the new notes. However, any holder who: - is an "affiliate" of us, within the meaning of Rule 405 under the Securities Act; - does not acquire new notes in the ordinary course of its business; 66 70 - intends to participate in the exchange offer for the purpose of distributing new notes; or - is a broker-dealer who purchased old notes directly from us, will not be able to rely on the interpretations of the Staff set forth in the above-mentioned interpretive letters; will not be permitted or entitled to tender old notes in the exchange offer; and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any sale or other transfer of old notes unless the sale is made pursuant to an exemption from those requirements. In addition, as described below, if any broker-dealer holds old notes acquired for its own account as a result of market-making or other trading activities and exchanges the old notes for new notes (a "participating broker-dealer"), the participating broker-dealer may be deemed to be a statutory "underwriter" within the meaning of the Securities Act and must deliver a prospectus meeting the requirements of the Securities Act in connection with any resales of new notes. See "Plan of Distribution." Each holder who wishes to exchange old notes for new notes in the exchange offer will be required to represent that: - it is not an affiliate of us; - any new notes to be received by it are being acquired in the ordinary course of its business; and - it has no arrangement or understanding with any person to participate in a distribution, within the meaning of the Securities Act, of new notes. Each broker-dealer that receives new notes for its own account pursuant to the exchange offer must: - acknowledge that it acquired the old notes for its own account as a result of market-making activities or other trading activities, and not directly from us, and - must agree that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of new notes. The letters of transmittal state that by so acknowledging and by delivering a prospectus, a participating broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. Based on the position taken by the Staff in the interpretive letters referred to above, we believe that participating broker-dealers may fulfill their prospectus delivery requirements with respect to the new notes received upon exchange of old notes with a prospectus meeting the requirements of the Securities Act, which may be the prospectus prepared for an exchange offer so long as it contains a description of the plan of distribution with respect to the resale of new notes. Accordingly, this prospectus, as it may be amended or supplemented from time to time, may be used by a participating broker-dealer during the period referred to below in connection with the resales of new notes received in exchange for old notes where the old notes were acquired by the participating broker-dealer for its own account as a result of market-making or other trading activities. Subject to provisions set forth in the registration rights agreement, we shall use our best efforts to: - keep the exchange offer registration statement continuously effective, supplemented and amended to the extent necessary to ensure that it is available for sales of new notes by participating broker-dealers; and - ensure that the exchange offer registration statement conforms with the requirements of the Securities Act and the policies, rules and regulations of the Commission as announced from time to time, for a period ending upon the earlier of 180 days after the 67 71 exchange offer has been completed or at the time the participating broker-dealers no longer own any transfer restricted securities. See "Plan of Distribution." Any participating broker-dealer who is an affiliate of us may not rely on the interpretive letters and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. Each participating broker-dealer who surrenders old notes pursuant to the exchange offer will be deemed to have agreed, by execution of a letter of transmittal, that, upon receipt of notice from us of the occurrence of any event or the discovery of any fact which makes any statement contained or incorporated by reference in this prospectus untrue in any material respect or which causes this prospectus to omit to state a material fact necessary in order to make the statements contained or incorporated by reference herein, in light of the circumstances under which they were made, not misleading or of the occurrence of other events specified in the registration rights agreement, the participating broker-dealer will suspend the sale of new notes pursuant to this prospectus until we have amended or supplemented this prospectus to correct the misstatement or omission and have furnished copies of the amended or supplemented prospectus to the participating broker-dealer or we have given notice that the sale of the new notes may be resumed, as the case may be. CONSEQUENCES OF FAILURE TO EXCHANGE OLD NOTES Any old notes tendered and exchanged in the exchange offer will reduce the aggregate principal amount of old notes outstanding. Following the consummation of the exchange offer, holders who did not tender their old notes generally will not have any further registration rights under the registration rights agreement, and these old notes will continue to be subject to restrictions on transfer. Accordingly, the liquidity of the market for the old notes could be adversely affected. The old notes are currently eligible for sale under Rule 144A through the PORTAL Market. Because we anticipate that most holders will elect to exchange their old notes for new notes due to the absence of most restrictions on the resale of new notes, anticipate that the liquidity of the market for any old notes remaining outstanding after the exchange offer may be substantially limited. As a result of the making of the exchange offer, we will have fulfilled our obligations under the registration rights agreement, and holders who do not tender their old notes generally will not have any further registration rights or rights to receive liquidated damages specified in the registration rights agreement for our failure to register the new notes. The old notes that are not exchanged for new notes will remain restricted securities. Accordingly, the old notes may be resold only: - to COLO.COM or one of its subsidiaries; - to a qualified institutional buyer; - to an institutional accredited investor; - to a party outside the United States under Regulation S under the Securities Act; - under an exemption from registration provided by Rule 144 under the Securities Act; or - under an effective registration statement. 68 72 DESCRIPTION OF THE NOTES The old notes were and the new notes will be issued under an Indenture, dated March 10, 2000 (the "Indenture"), among COLO.COM, as issuer, and State Street Bank and Trust Company of California, N.A., as trustee (the "Trustee"). The term "notes" refers to the old notes and the new notes. The terms of the notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939. The following is a summary of the material provisions of the Indenture but does not restate the Indenture in its entirety. You can find the definitions of certain capitalized terms used in the following summary under the subheading "-- Definitions." We urge you to read the Indenture because it, and not this description, defines your rights as Holders of the notes. A copy of the Indenture is available upon request from COLO.COM. For purposes of this "Description of the Notes", the term "COLO.COM" means COLO.COM and its successors under the Indenture, in each case excluding its subsidiaries. GENERAL The notes are unsecured (except to the extent described under "-- Security" below) unsubordinated obligations of COLO.COM. The notes will mature on March 15, 2010. Subject to the covenants described below under "-- Covenants" and applicable law, COLO.COM may issue up to $100.0 million aggregate principal amount of additional notes ("Additional Notes") under the Indenture. The notes and any Additional Notes subsequently issued will be treated as a single class for all purposes under the Indenture. Each note initially bears interest at 13 7/8% per annum from March 10, 2000 or from the most recent Interest Payment Date to which interest has been paid. Interest on the notes will be payable semiannually on March 15 and September 15 of each year, commencing September 15, 2000. Interest will be paid to Holders of record at the close of business on the March 1 or September 1 immediately preceding the Interest Payment Date. Interest is computed on the basis of a 360-day year of twelve 30-day months on a U.S. corporate bond basis. The notes may be exchanged or transferred at the office or agency of COLO.COM in the Borough of Manhattan, the City of New York. Initially, the corporate trust office of the Trustee at State Street Bank and Trust Company of California, N.A., will serve as such office. If any Holder of at least $1.0 million of principal amount of notes gives COLO.COM wire transfer instructions, COLO.COM will make all principal, premium and interest payments on such Holder's notes in accordance with those instructions. Otherwise, COLO.COM will make payments of principal, premium and interest on the notes at the office or agency of the paying agent which will initially be the Trustee, unless COLO.COM elects to make interest payments by check mailed to the Holders at their addresses set forth in the register of Holders. The notes will be issued only in fully registered form, without coupons, in denominations of $1,000 of principal amount and integral multiples of $1,000. See "-- Book-Entry; Delivery and Form." No service charge will be made for any registration of transfer or exchange of notes, but COLO.COM may require payment of a sum sufficient to cover any transfer tax or other similar governmental charge payable in connection therewith, subject to certain exceptions. OPTIONAL REDEMPTION COLO.COM may redeem the notes, in whole or in part, at any time on or after March 15, 2005 at the following Redemption Prices (expressed as percentages of principal amount), plus 69 73 accrued interest to the applicable Redemption Date, if redeemed during the 12-month period commencing March 15 of the years set forth below:
YEAR REDEMPTION PRICE ---- ---------------- 2005.................................................... 106.938% 2006.................................................... 104.625% 2007.................................................... 102.313% 2008 and thereafter..................................... 100.000%
In addition, at any time prior to March 15, 2003, COLO.COM may redeem up to 35% of the principal amount of the notes with the Net Cash Proceeds of one or more sales of Capital Stock (other than Disqualified Stock) of COLO.COM at a Redemption Price (expressed as a percentage of principal amount) of 113.875%, plus accrued interest to the Redemption Date; provided that at least 65% of the aggregate principal amount of notes originally issued on the Closing Date remains outstanding after each such redemption and notice of any such redemption is mailed within 60 days of each such sale of Capital Stock. COLO.COM will give not less than 30 days' nor more than 60 days' notice of any redemption. If less than all of the notes are to be redeemed, selection of the notes for redemption will be made by the Trustee: - in compliance with the requirements of the principal national securities exchange, if any, on which the notes are listed, or, - if the notes are not listed on a national securities exchange, by lot or by such other method as the Trustee in its sole discretion shall deem to be fair and appropriate. However, no note of $1,000 in principal amount or less shall be redeemed in part. If any note is to be redeemed in part only, the notice of redemption relating to such note will state the portion of the principal amount to be redeemed. A new note in principal amount equal to the unredeemed portion will be issued upon cancellation of the original note. RANKING The notes are unsecured (except to the extent described under "-- Security" below) unsubordinated obligations of COLO.COM and are equal in right of payment with all existing and future unsubordinated indebtedness of COLO.COM and senior in right of payment to all existing and future subordinated indebtedness of COLO.COM. The notes are effectively subordinated to (a) any secured indebtedness of COLO.COM to the extent of the value of the assets which secure such indebtedness and (b) any indebtedness and other liabilities (including trade payables) of COLO.COM's Subsidiaries. As of March 31, 2000, COLO.COM had $3.4 million of consolidated indebtedness outstanding (other than the notes), all of which was secured indebtedness which would have effectively ranked senior to the notes to the extent of the value of the assets securing such indebtedness. COLO.COM's Subsidiaries did not have any indebtedness or other material liabilities and COLO.COM did not have any subordinated indebtedness outstanding. 70 74 SINKING FUND There will be no sinking fund payments for the notes. SECURITY On the Closing Date, COLO.COM purchased and pledged to the Trustee for the benefit of the Holders of the notes the Pledged Securities. The amount of the Pledged Securities purchased will be sufficient upon receipt of scheduled interest and principal payments of such securities to provide for payment in full of the first four scheduled interest payments due on the notes. COLO.COM used approximately $77.5 million of the net proceeds from the offering of the old notes to acquire the Pledged Securities. The Pledged Securities were pledged by COLO.COM to the Trustee for the benefit of the Holders of the notes and are held by the Trustee in the Pledge Account. Immediately prior to an Interest Payment Date on the notes, COLO.COM may either deposit with the Trustee from funds otherwise available to COLO.COM cash sufficient to pay the interest scheduled to be paid on such date or COLO.COM may direct the Trustee to release from the Pledge Account proceeds sufficient to pay interest then due on the notes. In the event that COLO.COM exercises the former option, COLO.COM may thereafter direct the Trustee to release to COLO.COM proceeds or Pledged Securities from the Pledge Account in like amount. A failure by COLO.COM to pay interest on the notes within three business days after the first four scheduled interest payment dates will constitute an immediate Event of Default under the Indenture. The notes are secured in part by a first priority security interest in the Pledged Securities and in the Pledge Account. Accordingly, the Pledged Securities and the Pledge Account also secure repayment of the principal amount of the notes to the extent of the security. Once COLO.COM makes the first four scheduled interest payments on the notes, all of the remaining Pledged Securities and any other amounts in the Pledge Account will be released from the Pledge Account and thereafter the notes will be unsecured. COVENANTS OVERVIEW In the Indenture, COLO.COM agreed to covenants that limit its and its Restricted Subsidiaries' ability, among other things, to: - incur additional debt; - pay dividends, acquire shares of capital stock, make payments on subordinated debt or make investments; - place limitations on distributions from Restricted Subsidiaries; - issue or sell capital stock of Restricted Subsidiaries; - issue guarantees; - sell assets; - enter into transactions with shareholders and affiliates; - create liens; and - effect mergers and consolidations. In addition, if a Change of Control occurs, each Holder of notes will have the right to require COLO.COM to repurchase all or a part of the Holder's notes at a price equal to 101% of their principal amount, plus any accrued interest to the date of repurchase. 71 75 LIMITATION ON INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK (a) COLO.COM will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, Incur any Indebtedness (other than the notes, the notes issued in the Exchange Offer and other Indebtedness existing on the Closing Date) and COLO.COM will not issue or Incur any Disqualified Stock and will not permit any of its Restricted Subsidiaries to issue or Incur any shares of Preferred Stock; provided, however, that COLO.COM may Incur Indebtedness or issue or Incur shares of Disqualified Stock and its Restricted Subsidiaries may Incur Acquired Indebtedness or Acquired Preferred Stock if, after giving effect to the Incurrence of such Indebtedness and the receipt and application of the proceeds therefrom, the Consolidated Leverage Ratio would be greater than zero and less than 6:1. Notwithstanding the foregoing, COLO.COM and any Restricted Subsidiary (except as specified below) may Incur each and all of the following: (1) Indebtedness of COLO.COM or any Restricted Subsidiary Incurred under one or more Credit Facilities outstanding at any time in an aggregate principal amount (together with refinancings thereof) not to exceed $200.0 million, less any amount of such Indebtedness permanently repaid as provided under the "Limitation on Asset Sales" covenant; (2) Indebtedness owed: (A) to COLO.COM evidenced by an unsubordinated promissory note or (B) to any Restricted Subsidiary; provided that (x) any event which results in any such Restricted Subsidiary ceasing to be a Restricted Subsidiary or any subsequent transfer of such Indebtedness (other than to COLO.COM or another Restricted Subsidiary) shall be deemed, in each case, to constitute an Incurrence of such Indebtedness not permitted by this clause(2)(B) and (y) if COLO.COM is the obligor on such Indebtedness, such Indebtedness must be unsecured and expressly subordinated in right of payment to the notes; (3) Indebtedness issued in exchange for, or the net proceeds of which are used to refinance or refund, then outstanding Indebtedness of COLO.COM or any of its Restricted Subsidiaries (other than Indebtedness Incurred under clause (1), (2), (5), (6), (8) or (10) of the second paragraph of part (a) of this covenant) and any refinancings thereof in an amount not to exceed the amount so refinanced or refunded (plus premiums, accrued interest, fees and expenses); provided that (A) Indebtedness the proceeds of which are used to refinance or refund the notes or Indebtedness that is pari passu with, or subordinated in right of payment to, the notes shall only be permitted under this clause (3) if (x) in case the notes are refinanced in part or the Indebtedness to be refinanced is pari passu with the notes, such new Indebtedness, by its terms or by the terms of any agreement or instrument pursuant to which such new Indebtedness is outstanding, is expressly made pari passu with, or subordinate in right of payment to, the remaining notes, or (y) in case the Indebtedness to be refinanced is subordinated in right of payment to the notes, such new Indebtedness, by its terms or by the terms of any agreement or instrument pursuant to which such new Indebtedness is issued or remains outstanding, is expressly made subordinate in right of payment to the 72 76 notes at least to the extent that the Indebtedness to be refinanced is subordinated to the notes, (B) such new Indebtedness, determined as of the date of Incurrence of such new Indebtedness, does not have a final maturity prior to the final maturity of the Indebtedness to be refinanced or refunded, and the Average Life of such new Indebtedness is at least equal to the remaining Average Life of the Indebtedness to be refinanced or refunded, and (C) if COLO.COM is the obligor on the Indebtedness to be refinanced or refunded, such new Indebtedness shall not be Incurred by a Restricted Subsidiary; (4) Indebtedness of COLO.COM to the extent the net proceeds thereof are promptly (A) used to purchase notes tendered in an Offer to Purchase made as a result of a Change in Control or (B) deposited to defease the notes as described under "Defeasance"; (5) Guarantees of the notes, if any, and Guarantees of Indebtedness of COLO.COM by any Restricted Subsidiary provided the Guarantee of such Indebtedness is permitted by and made in accordance with the "Limitation on Issuance of Guarantees by Restricted Subsidiaries" covenant; and (6) Indebtedness, (A) in respect of performance, surety or appeal bonds or security deposits provided in the ordinary course of business, (B) under Currency Agreements, Commodity Agreements and Interest Rate Agreements; provided that such agreements, (i) are entered into for the primary purpose of protecting COLO.COM or any of its Restricted Subsidiaries against fluctuations in foreign currency exchange rates or interest rates and (ii) do not increase the Indebtedness of the obligor outstanding at any time other than as a result of fluctuations in foreign currency exchange rates or interest rates or by reason of fees, indemnities and compensation payable thereunder, and (C) arising from agreements providing for indemnification, adjustment of purchase price or similar obligations, or from Guarantees or letters of credit, surety bonds or performance bonds securing any obligations of COLO.COM or any of its Restricted Subsidiaries pursuant to such agreements, in any case Incurred in connection with the disposition of any business, assets or Restricted Subsidiary (other than Guarantees of Indebtedness Incurred by any Person acquiring all or any portion of such business, assets or Restricted Subsidiary for the purpose of financing such acquisition), in a principal amount not to exceed the gross proceeds actually received by COLO.COM or any Restricted Subsidiary in connection with such disposition; (7) Incurrence by COLO.COM or any Restricted Subsidiary of Purchase Money Indebtedness (A) pursuant to the terms of any Purchase Money Indebtedness facility existing and as in effect on the Closing Date or 73 77 (B) to constitute not more than 75% of the cost, including shipping, installation and importation costs and sales, use and similar taxes (collectively "Costs") payable upon acquisition of the subject property (determined in accordance with GAAP in good faith by the Board of Directors of COLO.COM), to COLO.COM or any such Restricted Subsidiary, as applicable, of the property so purchased, developed, acquired, constructed, improved or leased; provided, that with respect to any Purchase Money Indebtedness incurred under clause (B) above, at least 25% of the Costs payable upon acquisition of the subject property shall be funded from Newly Raised Capital; provided, further, that any assets acquired by a Restricted Subsidiary pursuant to this clause (7) are acquired for use in the ordinary course of business of such Restricted Subsidiary. (8) Indebtedness of COLO.COM not to exceed, at any time outstanding, two times the Net Cash Proceeds received by COLO.COM after the Closing Date from the issuance and sale of its Capital Stock (other than Disqualified Stock) to a Person that is not a Subsidiary of COLO.COM, to the extent that the Net Cash Proceeds have not been used pursuant to clause (C)(ii) of part (a) or clause (3), (4) or (6) of part (b) of the "Limitation on Restricted Payments" covenant to make a Restricted Payment; provided that such Indebtedness does not have a final maturity date prior to the final maturity date of the notes and has an Average Life longer than the Average Life of the notes; (9) Indebtedness Incurred for the purpose of paying interest on outstanding Indebtedness in the form of additional Indebtedness with the same terms, and Disqualified Stock or Preferred Stock Issued for the purpose of paying dividends on Disqualified Stock or Preferred Stock in the form of additional shares of the same class of Disqualified Stock or Preferred Stock, as the case may be; and (10) Indebtedness of COLO.COM or any Restricted Subsidiary (in addition to Indebtedness permitted under clauses (1) through (9) above) in an aggregate principal amount outstanding at any time (together with refinancings thereof) not to exceed $25.0 million, less any amount of such Indebtedness permanently repaid as provided under the "Limitation on Asset Sales" covenant. (b) Notwithstanding any other provision of this "Limitation on Incurrence of Indebtedness and Issuance of Preferred Stock" covenant, the maximum amount of Indebtedness that may be Incurred pursuant to this "Limitation on Incurrence of Indebtedness and Issuance of Preferred Stock" covenant will not be deemed to be exceeded, with respect to any outstanding Indebtedness due solely to the result of fluctuations in the exchange rates of currencies. (c) For purposes of determining any particular amount of Indebtedness under this "Limitation on Incurrence of Indebtedness and Issuance of Preferred Stock" covenant, (1) Guarantees, Liens or obligations with respect to letters of credit supporting Indebtedness otherwise included in the determination of such particular amount shall not be included and (2) any Liens granted pursuant to the equal and ratable provisions referred to in the "Limitation on Liens" covenant shall not be treated as Indebtedness. For purposes of determining compliance with this "Limitation on Incurrence of Indebtedness and Issuance of Preferred Stock" covenant, in the event that an item of Indebtedness meets the criteria of more than one of the types of Indebtedness described above, including under the first part (a) of this covenant, COLO.COM, in its sole discretion, shall classify, and from time to time may reclassify, such item of Indebtedness. 74 78 LIMITATION ON RESTRICTED PAYMENTS (a) COLO.COM will not, and will not permit any of its Restricted Subsidiaries to, (1) declare or pay any dividend or make any distribution on or with respect to its Capital Stock (other than (x) dividends or distributions payable solely in shares of its Capital Stock (other than Disqualified Stock) or in options, warrants or other rights to acquire shares of such Capital Stock and (y) pro rata dividends or distributions on Common Stock of Restricted Subsidiaries held by minority stockholders) held by Persons other than COLO.COM or any of its Restricted Subsidiaries, (2) purchase, call for redemption or redeem, retire or otherwise acquire for value any shares of Capital Stock of COLO.COM or any Restricted Subsidiary of COLO.COM (including options, warrants or other rights to acquire such shares of Capital Stock) held by any Person other than COLO.COM or any of its Restricted Subsidiaries, (3) make any voluntary or optional principal payment, or voluntary or optional redemption, repurchase, defeasance, or other acquisition or retirement for value, of Indebtedness of COLO.COM that is subordinated in right of payment to the notes or (4) make any Investment, other than a Permitted Investment, in any Person, (such payments or any other actions described in clauses (1) through (4) above being collectively "Restricted Payments") if, at the time of, and after giving effect to, the proposed Restricted Payment: (A) a Default or Event of Default shall have occurred and be continuing, (B) COLO.COM could not Incur at least $1.00 of Indebtedness under clause (i) of the first paragraph of part (a) of the "Limitation on Incurrence of Indebtedness and Issuance of Preferred Stock" covenant, or (C) the aggregate amount of all Restricted Payments made after the Closing Date shall exceed the sum of (i) the amount of COLO.COM's cumulative Consolidated EBITDA less 150% of Consolidated Interest Expense, during the period (taken as one accounting period) beginning on the first day of the fiscal quarter immediately following the Closing Date and ending on the last day of the last fiscal quarter preceding the Transaction Date for which reports have been filed with the SEC or provided to the Trustee pursuant to the "SEC Reports and Reports to Holders" covenant, plus (ii) the aggregate Net Cash Proceeds received by COLO.COM after the Closing Date from the issuance and sale permitted by the Indenture of its Capital Stock (other than Disqualified Stock) to a Person who is not a Subsidiary of COLO.COM, including an issuance or sale permitted by the Indenture of Indebtedness or Disqualified Stock of COLO.COM for cash subsequent to the Closing Date upon the conversion of such Indebtedness or Disqualified Stock into, or upon the exchange of such Indebtedness or Disqualified Stock for, Capital Stock (other than Disqualified Stock) of COLO.COM, or from the issuance to a Person who is not a Subsidiary of COLO.COM of any options, warrants or other rights to acquire Capital Stock of COLO.COM (in each case, exclusive of any Disqualified Stock or any options, warrants or other rights that are redeemable at the option of the holder, or are required to be redeemed, prior to the final maturity of the notes), in each case except to the extent such Net Cash Proceeds are used to Incur Indebtedness pursuant to clause (8) of the second paragraph of part (a) of the "Limitation on Incurrence of Indebtedness and Issuance 75 79 of Preferred Stock" covenant, which is outstanding on the Transaction Date or used to make a Restricted Payment pursuant to clause (6) of paragraph (b) of this "Limitation on Restricted Payments" covenant, plus (iii) an amount equal to the net reduction in Investments (other than reductions in Permitted Investments) in any Person resulting from payments of interest on Indebtedness, dividends, repayments of loans or advances, or other transfers of assets, in each case to COLO.COM or any Restricted Subsidiary or from the Net Cash Proceeds from the sale to any Person who is not a Subsidiary of COLO.COM of any such Investment (except, in each case, to the extent any such payment or proceeds are included in the calculation of Consolidated EBITDA), or from redesignations of Unrestricted Subsidiaries as Restricted Subsidiaries (valued in each case as provided in the definition of "Investments"). (b) The foregoing provision shall not be violated by reason of: (1) the payment of any dividend or redemption of any Capital Stock within 60 days after the related date of declaration or call for redemption if, at said date of declaration or call for redemption, such payment or redemption would comply with the preceding paragraph (a); (2) the redemption, repurchase, defeasance or other acquisition or retirement for value of Indebtedness that is subordinated in right of payment to the notes, including premium, if any, and accrued interest, with the proceeds of, or in exchange for, Indebtedness Incurred under clause (3) of the second paragraph of part (a) of the "Limitation on Incurrence of Indebtedness and Issuance of Preferred Stock" covenant; (3) the repurchase, redemption or other acquisition of Capital Stock of COLO.COM (or options, warrants or other rights to acquire such Capital Stock) in exchange for, or out of the proceeds of a substantially concurrent offering of, shares of Capital Stock (other than Disqualified Stock) of COLO.COM (or options, warrants or other rights to acquire such Capital Stock); provided that such options, warrants or other rights are not redeemable prior to the Stated Maturity of the notes; (4) the making of any principal payment or the repurchase, redemption, retirement, defeasance or other acquisition for value of Indebtedness which is subordinated in right of payment to the notes in exchange for, or in connection with the conversion of such Indebtedness for, or out of the proceeds of, a substantially concurrent offering of, shares of the Capital Stock (other than Disqualified Stock) of COLO.COM (or options, warrants or other rights to acquire such Capital Stock); provided that such options, warrants or other rights are not redeemable prior to the Stated Maturity of the notes; (5) payments or distributions, to dissenting stockholders pursuant to applicable law, pursuant to or in connection with a consolidation, merger or transfer of assets that complies with the provisions of the Indenture applicable to mergers, consolidations and transfers of all or substantially all of the property and assets of COLO.COM; (6) Investments acquired in exchange for, or out of the proceeds of an offering (that occurred within six months at the time of any such Investment) of, Capital Stock (other than Disqualified Stock) of COLO.COM, to the extent that such proceeds have not been used to make Restricted Payment pursuant to clause (3) or (4) of this paragraph (b) or clause (C)(ii) of paragraph (a) of this "Limitation on Restricted Payments" covenant or to Incur Indebtedness pursuant to clause (8) of the second paragraph of part (a) of the "Limitation on the Incurrence of Indebtedness and Issuance of Preferred Stock" covenant; 76 80 (7) (i) the redemption, repurchase, retirement or other acquisition of any Capital Stock of COLO.COM (or options, warrants or other rights to acquire such Capital Stock) from an employee or former employee of COLO.COM or any of its Subsidiaries (or from such person's estate, heirs or representatives) in connection with such employee's death, disability or termination of employment, provided that the aggregate amount expended pursuant to this clause (7)(i) does not exceed $5.0 million; or (ii) the redemption, repurchase, retirement or other acquisition of any unvested shares of any Capital Stock of COLO.COM (or any unvested options, warrants or other rights to acquire such Capital Stock) from an employee or former employee of COLO.COM or any of its Subsidiaries (or from such person's estate, heirs or representatives) in connection with such employee's death, disability or termination of employment, at a price per share of Capital Stock not to exceed the price per share at which the shares of Capital Stock (or options, warrants or other rights to acquire such Capital Stock) were issued or granted to such employee; (8) the payment of dividends on shares of Disqualified Stock of COLO.COM or shares of Preferred Stock of COLO.COM's Restricted Subsidiaries issued or Incurred in accordance with the "Limitation of Incurrence of Indebtedness and Issuance of Preferred Stock" covenant; (9) the making of any payment on or with respect to, or repurchase, redemption, defeasance or acquisition or retirement for value, of Convertible notes in connection with (i) an optional redemption of Convertible notes pursuant to the terms thereof if at the time COLO.COM sends a notice of redemption to the holders of such Convertible notes, the Closing Price of the Capital Stock into which such Convertible notes are convertible is greater than the conversion price, or (ii) the honoring by COLO.COM of any conversion request by a holder of Convertible notes (including the payment by COLO.COM of any cash in lieu of issuing fractional shares) in accordance with the terms of Convertible notes; (10) the repurchase of Capital Stock or any options, warrants or other rights to acquire Capital Stock of COLO.COM that may be deemed to occur upon the cash-less exercise thereof or the payment by COLO.COM of any cash in lieu of issuing fractional shares of Capital Stock pursuant to the terms of any such options, warrants or other rights; (11) other Restricted Payments in an aggregate amount not to exceed $20.0 million; provided that, except in the case of clauses (1) and (3), no Default or Event of Default shall have occurred and be continuing or occur as a consequence of the actions or payments set forth therein. (c) Each Restricted Payment permitted pursuant to the preceding part (b) (other than the Restricted Payment referred to in clause (2) or (10) thereof, an exchange of Capital Stock for Capital Stock or Indebtedness referred to in clause (3) or (4) thereof and an Investment acquired in exchange for Capital Stock referred to in clause (6) thereof), and the Net Cash Proceeds from any issuance of Capital Stock referred to in clauses (3), (4) and (6), shall be included in calculating whether the conditions of clause (C) of part (a) of this "Limitation on Restricted Payments" covenant have been met with respect to any subsequent Restricted Payments. For purposes of determining compliance with this "Limitation on Restricted Payments" covenant: (i) the amount of all Restricted Payments (other than cash) shall be the fair market value on the date of the Restricted Payment of the asset(s) or securities proposed to be 77 81 transferred or issued by COLO.COM (or such Restricted Subsidiary, as the case may be) pursuant to the Restricted Payment; (ii) the fair market value of any asset(s) or securities that are required to be valued by this covenant shall be determined in good faith by the Board of Directors; provided that such determination shall be supported by the opinion or appraisal of an accounting, appraisal or investment banking firm of national standing if such fair market value would in the good faith determination of the Board of Directors exceed $10 million; (iii) in the event that a Restricted Payment meets the criteria of more than one of the types of Restricted Payments described in the above clauses, including part (a) of this "Limitation on Restricted Payments" covenant, COLO.COM, in its sole discretion, may order and classify, and from time to time may reclassify, such Restricted Payment if it would have been permitted at the time such Restricted Payment was made and at the time of such reclassification; and (iv) The amount of any Investment "outstanding" at any time shall be deemed to be equal to the fair market value of such Investment on the date made, less the return of capital, repayment of loans, return on capital and release of Guarantees, in each case of or to the Company and its Restricted Subsidiaries with respect to such Investment (up to the amount of such Investment on the date made). LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES (a) COLO.COM will not, and will not permit any Restricted Subsidiary to create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction of any kind on the ability of any Restricted Subsidiary to: (1) pay dividends or make any other distributions permitted by applicable law on any Capital Stock of such Restricted Subsidiary owned by COLO.COM or any other Restricted Subsidiary, (2) pay any Indebtedness owed to COLO.COM or any other Restricted Subsidiary, (3) make loans or advances to COLO.COM or any other Restricted Subsidiary or (4) transfer any of its property or assets to COLO.COM or any other Restricted Subsidiary. (b) The foregoing provisions shall not restrict any encumbrances or restrictions: (i) existing on the Closing Date in the Indenture or any other agreements in effect on the Closing Date, and any extensions, refinancings, renewals or replacements of such agreements; provided that the encumbrances and restrictions in any such extensions, refinancings, renewals or replacements taken as a whole are no less favorable in any material respect to the Holders of the notes than those encumbrances or restrictions that are then in effect and that are being extended, refinanced, renewed or replaced; (ii) existing under or by reason of applicable law; (iii) existing with respect to any Person or the property or assets of such Person acquired by COLO.COM or any Restricted Subsidiary, existing at the time of such acquisition and not incurred in contemplation thereof, which encumbrances or restrictions are not applicable to any Person or the property or assets of any Person other than such Person or the property or assets of such Person so acquired; 78 82 (iv) in the case of clause (4) of part (a) of this "Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries" covenant, (A) that restrict in a customary manner the subletting, assignment or transfer of any property or asset that is a lease, license, conveyance or contract or similar property or asset, (B) existing by virtue of any transfer of, agreement to transfer, option or right with respect to, or Lien on, any property or assets of COLO.COM or any Restricted Subsidiary not otherwise prohibited by the Indenture or (C) arising or agreed to in the ordinary course of business, not relating to any Indebtedness, and that do not, individually or in the aggregate, detract from the value of property or assets of COLO.COM or any Restricted Subsidiary in any manner material to COLO.COM or any Restricted Subsidiary; (v) with respect to a Restricted Subsidiary and imposed pursuant to an agreement that has been entered into for the sale or disposition of all or substantially all of the Capital Stock of, or property and assets of, such Restricted Subsidiary; (vi) contained in the terms of any Indebtedness or any agreement pursuant to which such Indebtedness was issued if: (A) the encumbrance or restriction applies only in the event of a payment default or a default with respect to a financial covenant contained in any Indebtedness or agreement, (B) the encumbrance or restriction is not materially more disadvantageous to the Holders of the notes than is customary in comparable financings (as determined by COLO.COM in good faith) and (C) COLO.COM determines that any such encumbrance or restriction will not materially affect COLO.COM's ability to make principal or interest payments on the notes; or (vii) contained in the terms of any Indebtedness of any Restricted Subsidiary of COLO.COM that is a Foreign Subsidiary or any agreement pursuant to which such Indebtedness was issued if: (A) the encumbrance or restriction is not materially more disadvantageous to the Holders of the notes than is customary in comparable financings (as determined by COLO.COM in good faith) and (B) COLO.COM determines that any such encumbrance or restriction will not materially affect COLO.COM'S ability to make principal or interest payments on the notes; or (viii) restrictions or encumbrances imposed at the request of joint venture partners, provided that such joint venture is engaged in a Permitted Business. Nothing contained in this "Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries" covenant shall prevent COLO.COM or any of its Restricted Subsidiaries from (1) creating, incurring, assuming or suffering to exist any Liens otherwise permitted in the "Limitation on Liens" covenant or (2) restricting the sale or other disposition of property or assets of COLO.COM or any of its Restricted Subsidiaries that secure Indebtedness of COLO.COM or any of its Restricted Subsidiaries. 79 83 LIMITATION ON THE ISSUANCE AND SALE OF CAPITAL STOCK OF RESTRICTED SUBSIDIARIES COLO.COM will not sell, and will not permit any Restricted Subsidiary to issue or sell, any shares of Capital Stock of a Restricted Subsidiary (including options, warrants or other rights to purchase shares of such Capital Stock) except: (1) to COLO.COM or a Restricted Subsidiary of COLO.COM; (2) issuances of director's qualifying shares or sales to foreign nationals of shares of Capital Stock of foreign Restricted Subsidiaries, to the extent required by applicable law; or (3) if, immediately after giving effect to such issuance or sale, such Restricted Subsidiary would no longer constitute a Restricted Subsidiary and any Investment in such Person remaining after giving effect to such issuance or sale would have been permitted to be made under the "Limitation on Restricted Payments" covenant if made on the date of such issuance or sale; (4) sales or issuances of Common Stock (including options, warrants or other rights to purchase shares of such Common Stock) of a Restricted Subsidiary by COLO.COM or a Restricted Subsidiary, provided that such sale complies with the "Limitation on Asset Sales" covenant; or (5) Issuances of Preferred Stock made in accordance with the "Limitation on Incurrence of Indebtedness and Issuance of Preferred Stock" covenant. LIMITATION ON ISSUANCES OF GUARANTEES BY RESTRICTED SUBSIDIARIES COLO.COM will not permit any Restricted Subsidiary to Guarantee any Indebtedness of COLO.COM which is equal in right of payment with or subordinate in right of payment to the notes ("Guaranteed Indebtedness"), unless: (1) such Restricted Subsidiary simultaneously executes and delivers a supplemental indenture to the Indenture providing for a Guarantee (a "Note Guarantee") of payment of the notes by such Restricted Subsidiary and (2) such Restricted Subsidiary waives, and will not in any manner whatsoever claim or take the benefit or advantage of, any rights of reimbursement, indemnity or subrogation or any other rights against COLO.COM or any other Restricted Subsidiary as a result of any payment by such Restricted Subsidiary under its Note Guarantee; provided that this paragraph shall not be applicable to (i) any Guarantee of any Restricted Subsidiary that existed at the time such Person became a Restricted Subsidiary and was not Incurred in connection with, or in contemplation of, such Person becoming a Restricted Subsidiary or (ii) any Guarantee of Indebtedness of COLO.COM which Indebtedness would have been permitted to be Incurred by a Restricted Subsidiary pursuant to the "Limitation on Incurrence of Indebtedness and Issuance of Preferred Stock" covenant. If the Guaranteed Indebtedness is (A) equal in right of payment with the notes, then the Guarantee of such Guaranteed Indebtedness shall be equal in right of payment with, or subordinated to, the Note Guarantee or (B) subordinated to the notes, then the Guarantee of such Guaranteed Indebtedness shall be subordinated to the Note Guarantee at least to the extent that the Guaranteed Indebtedness is subordinated to the notes. 80 84 Notwithstanding the foregoing, any Note Guarantee by a Restricted Subsidiary may provide by its terms that it shall be automatically and unconditionally released and discharged upon: (1) any sale, exchange or transfer, to any Person not an Affiliate of COLO.COM, of all of COLO.COM's and each Restricted Subsidiary's Capital Stock in, or all or substantially all the assets of, such Restricted Subsidiary (which sale, exchange or transfer is not prohibited by the Indenture); (2) the release or discharge of the Guarantee which resulted in the creation of such Note Guarantee, except a discharge or release by or as a result of payment under such Guarantee; or (3) upon the designation of such Restricted Subsidiary as an Unrestricted Subsidiary in accordance with the terms of the Indenture. LIMITATION ON TRANSACTIONS WITH AFFILIATES COLO.COM will not, and will not permit any Restricted Subsidiary to, enter into, renew or extend any transaction (including, without limitation, the purchase, sale, lease or exchange of property or assets, or the rendering of any service) with, or for the benefit of, any Affiliate of COLO.COM or any Restricted Subsidiary, except upon fair and reasonable terms no less favorable to COLO.COM or such Restricted Subsidiary than could be obtained, at the time of such transaction or, if such transaction is pursuant to a written agreement, at the time of the execution of the agreement providing therefor, in a comparable arm's-length transaction with a Person that is not such an Affiliate. The foregoing limitation does not limit, and shall not apply to: (1) transactions (A) approved by a majority of the disinterested members of the Board of Directors or (B) for which COLO.COM or a Restricted Subsidiary delivers to the Trustee a written opinion of a nationally recognized investment banking, accounting, valuation or appraisal firm stating that the transaction is fair to COLO.COM or such Restricted Subsidiary from a financial point of view; (2) any transaction solely between COLO.COM and any of its Restricted Subsidiaries or solely among Restricted Subsidiaries; (3) the payment of reasonable and customary regular fees to officers and directors of COLO.COM and indemnification arrangements entered into by COLO.COM in the ordinary course of business and consistent with past practices of COLO.COM; (4) any payments or other transactions pursuant to any tax-sharing agreement between COLO.COM and any other Person with which COLO.COM files a consolidated tax return or with which COLO.COM is part of a consolidated group for tax purposes; (5) any sale of shares of Capital Stock (other than Disqualified Stock) of COLO.COM; or (6) any Permitted Investments or any Restricted Payments not prohibited by the "Limitation on Restricted Payments" covenant. Notwithstanding the foregoing, any transaction or series of related transactions covered by the first paragraph of this "Limitation on Transactions with Shareholders and Affiliates" covenant and not covered by clauses (2) through (6) of this paragraph, (a) the aggregate amount of which exceeds $5 million in value, must be approved or determined to be fair in the manner provided for in clause (1)(A) or (B) above and (b) the aggregate amount of which exceeds 81 85 $10 million in value, must be determined to be fair in the manner provided for in clause (1)(B) above. LIMITATION ON LIENS COLO.COM will not, and will not permit any Restricted Subsidiary to, create, Incur, assume or suffer to exist any Lien securing Indebtedness on any of its assets or properties of any character, or any shares of Capital Stock or Indebtedness of any Restricted Subsidiary, without making effective provision for all of the notes and all other amounts due under the Indenture to be directly secured equally and ratably with (or, if the obligation or liability to be secured by such Lien is subordinated in right of payment to the notes, prior to) the obligation or liability secured by such Lien. The foregoing limitation does not apply to: (1) Liens existing on the Closing Date; (2) Liens granted on or after the Closing Date on any assets or Capital Stock of COLO.COM or its Restricted Subsidiaries created in favor of the Holders of the notes, the Exchange notes or any Additional notes; (3) Liens with respect to the assets of a Restricted Subsidiary granted by such Restricted Subsidiary to COLO.COM or another Restricted Subsidiary to secure Indebtedness owing to COLO.COM or such other Restricted Subsidiary or the Guarantee of any such Indebtedness; (4) Liens securing Indebtedness, which is permitted to be Incurred under clause (3) of the second paragraph of part (a) of the "Limitation on Incurrence of Indebtedness and Issuance of Preferred Stock" covenant, which is Incurred to refinance secured Indebtedness; provided that such Liens do not extend to or cover any property or assets of COLO.COM or any Restricted Subsidiary other than the property or assets securing the Indebtedness being refinanced; (5) Liens securing Indebtedness Incurred under clause (1) of the second paragraph of part (a) of the "Limitation on Incurrence of Indebtedness and Issuance of Preferred Stock" covenant; provided that such Liens only cover property or assets of the obligor, co-obligor or guarantor of such Indebtedness; (6) Liens on cash set aside at the time of the Incurrence of any Indebtedness, or government securities or Temporary Cash Investments purchased with such cash, in either case, to the extent that such cash, government securities or Temporary Cash Investments pre-fund the payment of interest on such Indebtedness and are held in a collateral or escrow account or similar arrangement to be applied to pay such interest when due; (7) Liens arising under the Existing Vendor Finance Agreements as in effect on the Closing Date; (8) Liens on the assets or property of any Restricted Subsidiary of COLO.COM that is a Foreign Subsidiary securing Indebtedness which is permitted to be Incurred by such Restricted Subsidiary under the Indenture; (9) Liens securing Indebtedness not to exceed at any one time outstanding in the aggregate $1.0 million; or (10) Permitted Liens. 82 86 LIMITATION ON SALE-LEASEBACK TRANSACTIONS COLO.COM will not, and will not permit any Restricted Subsidiary to, enter into any sale-leaseback transaction involving any of its assets or properties whether now owned or hereafter acquired, whereby COLO.COM or a Restricted Subsidiary sells or transfers such assets or properties and then or thereafter leases such assets or properties or any part thereof or any other assets or properties which COLO.COM or such Restricted Subsidiary, as the case may be, intends to use for substantially the same purpose or purposes as the assets or properties sold or transferred. The foregoing restriction does not apply to any sale-leaseback transaction if: (1) the lease is for a period, including renewal rights, of not in excess of three years; (2) the lease secures or relates to industrial revenue or pollution control bonds; (3) the transaction is solely between COLO.COM and any Restricted Subsidiary or solely between Restricted Subsidiaries; or (4) such sale-leaseback transaction complies with the "Limitation on Asset Sales" covenant. LIMITATION ON ASSET SALES COLO.COM will not, and will not permit any Restricted Subsidiary to, consummate any Asset Sale, unless: (1) the consideration received by COLO.COM or such Restricted Subsidiary at the time of such Asset Sale is at least equal to the fair market value (as determined in good faith by the Board of Directors (including as to the value of all noncash consideration) and, if determined to be in excess of $5.0 million, as set forth in an Officer's Certificate delivered to the Trustee) of the assets sold or otherwise disposed of (or of the Capital Stock issued, sold or otherwise disposed of); (2) at least 75% of the consideration received consists of: (A) cash or Temporary Cash Investments, (B) the assumption, payment or extinguishment of Indebtedness or other liabilities, in each case not subordinated in right of payment to the notes, of COLO.COM or any Restricted Subsidiary (in each case, other than Indebtedness owed to COLO.COM or any Restricted Subsidiary), provided that COLO.COM or such Restricted Subsidiary is irrevocably and unconditionally released from all liability under such Indebtedness or other liabilities, or (C) Replacement Assets; and (3) (I) the Net Cash Proceeds received by COLO.COM (or such Restricted Subsidiary, as the case may be) from such Asset Sale are applied within 365 days following the receipt of such Net Cash Proceeds, to the extent COLO.COM (or such Restricted Subsidiary, as the case may be) elects: (A) apply an amount equal to such excess Net Cash Proceeds to permanently repay unsubordinated Indebtedness of COLO.COM or Indebtedness of any other Restricted Subsidiary, in each case owing to a Person other than COLO.COM or any of its Restricted Subsidiaries, or 83 87 (B) invest an equal amount, or the amount not so applied pursuant to clause (A) (or enter into a definitive agreement committing to so invest within 365 days after the date of such agreement), in Replacement Assets, or (II) apply such Net Cash Proceeds, to the extent not applied pursuant to clause (3)(I), as provided in the following paragraphs of this "Limitation on Asset Sales" covenant. The amount of such excess Net Cash Proceeds required to be applied (or to be committed to be applied) during such 365-day period as set forth in clause (3)(I) of the preceding sentence and not applied as so required by the end of such period shall constitute "Excess Proceeds". If, as of the first day of any calendar month, the aggregate amount of Excess Proceeds not theretofore subject to an Offer to Purchase pursuant to this "Limitation on Asset Sales" covenant totals at least $10 million, COLO.COM must commence, not later than the fifteenth Business Day of such month, and consummate an Offer to Purchase from the Holders of the notes (and if required by the terms of any Indebtedness that is equal in right of payment with the notes ("Pari Passu Indebtedness"), from the holders of such Pari Passu Indebtedness) on a pro rata basis an aggregate principal amount of notes (and Pari Passu Indebtedness) equal to the Excess Proceeds on such date, at a purchase price equal to 100% of their principal amount, plus, in each case, accrued interest (if any) to the Payment Date. To the extent that any Excess Proceeds remain after consummation of an Asset Sale Offer, COLO.COM may use such Excess Proceeds for any purpose not otherwise prohibited by the Indenture. If the aggregate principal amount of notes and Pari Passu Indebtedness tendered into such Asset Sale Offer surrendered by holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select the notes and Pari Passu Indebtedness to be purchased on a pro rata basis in proportion to the respective principal amounts (or accreted values in the case of Indebtedness issued with an original issue discount) of the notes and such other Indebtedness. Upon completion of such Asst Sale Offer, the amount of Excess Proceeds shall be reset at zero for purposes of the first sentence of this paragraph. BUSINESS ACTIVITIES COLO.COM will not, and will not permit any of its Restricted Subsidiaries to engage, to more than a de minimus extent, in any business other than a Permitted Business. REPURCHASE OF NOTES UPON A CHANGE OF CONTROL COLO.COM must commence, within 60 days of the occurrence of a Change of Control, and consummate an Offer to Purchase for all notes then outstanding, at a purchase price equal to 101% of their principal amount, plus accrued interest (if any) to the Payment Date; provided that COLO.COM shall not be obligated to repurchase notes pursuant to a Change of Control Offer in the event that it has exercised its rights to redeem all of the notes pursuant to the Indenture. There can be no assurance that COLO.COM will have sufficient funds available at the time of any Change of Control to make any debt payment (including repurchases of notes) required by the foregoing covenant or any similar covenant that in other securities of COLO.COM which might be outstanding at the time. The above covenant requiring COLO.COM to repurchase the notes will, unless consents are obtained, require COLO.COM to repay all indebtedness then outstanding which by its terms would prohibit such note repurchase, either prior to or concurrently with such note repurchase. 84 88 SEC REPORTS AND REPORTS TO HOLDERS At all times from and after the date of the commencement of the exchange offer, whether or not COLO.COM is then required to file reports with the SEC, COLO.COM shall file with the SEC all such reports and other information as it would be required to file with the SEC by Section 13(a) or 15(d) under the Securities Exchange Act of 1934 if it were subject thereto. COLO.COM shall supply to the Trustee and to each Holder of notes or shall supply to the Trustee for forwarding to each such Holder, without cost to such Holder, copies of such reports and other information. EVENTS OF DEFAULT The following events will be defined as "Events of Default" in the Indenture: (a) default in the payment of principal of (or premium, if any, on) any note when the same becomes due and payable at maturity, upon acceleration, redemption or otherwise; (b) default in the payment of interest on any note when the same becomes due and payable, and such default continues for a period of 30 days; provided that a failure to make any of the first four scheduled interest payments on the notes within three business days after an interest payment date will constitute an Event of Default with no grace or cure period; (c) default in the performance or breach of the provisions of the Indenture applicable to mergers, consolidations and transfers of all or substantially all of the assets of COLO.COM or the failure by COLO.COM to make or consummate an Offer to Purchase in accordance with the "Limitation on Asset Sales" or "Repurchase of notes upon a Change of Control" covenant; (d) COLO.COM or any Restricted Subsidiary defaults in the performance of or breaches any other covenant or agreement in the Indenture or under the notes (other than a default specified in clause (a), (b) or (c) above) and such default or breach continues for a period of 45 consecutive days after written notice by the Trustee or the Holders of 25% or more in aggregate principal amount of the notes; (e) the default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness of COLO.COM or any of its Significant Subsidiaries (or the payment of which is Guaranteed by COLO.COM or any of its Significant Subsidiaries) whether such Indebtedness or Guarantee now exists or is created after the Closing Date, and either such Indebtedness is already due and payable or such default results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the amount of any such Indebtedness, together with the amount of any other such Indebtedness the maturity of which has been so accelerated or which is already due and payable, aggregates $10 million or more; (f) one or more judgments, orders or decrees for the payment of money in excess of $10 million, individually or in the aggregate (net of applicable insurance coverage which is acknowledged in writing by the insurer), shall be entered against COLO.COM or any of its Significant Subsidiaries or any of their respective properties and shall not be discharged and there shall have been a period of 60 days or more during which a stay of enforcement of such judgment or order, by reason of pending appeal or otherwise, shall not be in effect; 85 89 (g) a court having jurisdiction in the premises enters a decree or order for: (i) relief in respect of COLO.COM or any Significant Subsidiary in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, (ii) appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of COLO.COM or any Significant Subsidiary or for all or substantially all of the property and assets of COLO.COM or any Significant Subsidiary or (iii) the winding up or liquidation of the affairs of COLO.COM or any Significant Subsidiary and, in each case, such decree or order shall remain unstayed and in effect for a period of 45 consecutive days; (h) COLO.COM or any Significant Subsidiary (A) commences a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or consents to the entry of an order for relief in an involuntary case under any such law, (B) consents to the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of COLO.COM or any Significant Subsidiary or for all or substantially all of the property and assets of COLO.COM or any Significant Subsidiary or (C) effects any general assignment for the benefit of creditors; or (i) the Pledge Agreement shall cease to be in full force and effect or enforceable in accordance with its terms, other than in accordance with its terms. If an Event of Default (other than an Event of Default specified in clause (g) or (h) above that occurs with respect to COLO.COM or any Significant Subsidiary) occurs and is continuing under the Indenture, the Trustee or the Holders of at least 25% in aggregate principal amount of the notes, then outstanding, by written notice to COLO.COM (and to the Trustee if such notice is given by the Holders), may, and the Trustee at the request of such Holders shall, declare the principal of, premium, if any, and accrued interest on the notes to be immediately due and payable. Upon a declaration of acceleration, such principal of, premium, if any, and accrued interest shall be immediately due and payable. In the event of a declaration of acceleration because an Event of Default set forth in clause (e) above has occurred and is continuing, such declaration of acceleration shall be automatically rescinded and annulled if the event of default triggering such Event of Default pursuant to clause (e) shall be remedied or cured by COLO.COM or the relevant Restricted Subsidiary or waived by the holders of the relevant Indebtedness within 60 days after the declaration of acceleration with respect thereto. If an Event of Default specified in clause (g) or (h) above occurs with respect to COLO.COM or any Significant Subsidiary, the principal of, premium, if any, and accrued interest on the notes then outstanding shall automatically become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holder. The Holders of at least a majority in principal amount of the outstanding notes by written notice to COLO.COM and to the Trustee, may waive all past defaults and rescind and annul a declaration of acceleration and its consequences if (x) all existing Events of Default, other than the nonpayment of the principal of, premium, if any, and interest on the notes that have become due solely by such declaration of acceleration, have been cured or waived and (y) the rescission would not conflict with any judgment or decree of a court of competent jurisdiction. For information as to the waiver of defaults, see "-- Modification and Waiver". The Holders of at least a majority in aggregate principal amount of the outstanding notes may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee. However, the Trustee 86 90 may refuse to follow any direction that conflicts with law or the Indenture, that may involve the Trustee in personal liability, or that the Trustee determines in good faith may be unduly prejudicial to the rights of Holders of notes not joining in the giving of such direction and may take any other action it deems proper that is not inconsistent with any such direction received from Holders of notes. A Holder may not pursue any remedy with respect to the Indenture or the notes unless: (1) the Holder gives the Trustee written notice of a continuing Event of Default; (2) the Holders of at least 25% in aggregate principal amount of outstanding notes make a written request to the Trustee to pursue the remedy; (3) such Holder or Holders offer the Trustee indemnity satisfactory to the Trustee against any costs, liability or expense; (4) the Trustee does not comply with the request within 60 days after receipt of the request and the offer of indemnity; and (5) during such 60-day period, the Holders of a majority in aggregate principal amount of the outstanding notes do not give the Trustee a direction that is inconsistent with the request. However, such limitations do not apply to the right of any Holder of a note to receive payment of the principal of, premium, if any, or interest on, such note or to bring suit for the enforcement of any such payment, on or after the due date expressed in the notes, which right shall not be impaired or affected without the consent of the Holder. Officers of COLO.COM must certify, on or before a date not more than 90 days after the end of each fiscal year, that a review has been conducted of the activities of COLO.COM and its Restricted Subsidiaries and COLO.COM's and its Restricted Subsidiaries' performance under the Indenture and that COLO.COM has fulfilled all obligations thereunder, or, if there has been a default in the fulfillment of any such obligation, specifying each such default and the nature and status thereof. COLO.COM will also be obligated to notify the Trustee of any default or defaults in the performance of any covenants or agreements under the Indenture. CONSOLIDATION, MERGER AND SALE OF ASSETS COLO.COM will not consolidate with, merge with or into, or sell, assign, convey, transfer, lease or otherwise dispose of all or substantially all of its property and assets (as an entirety or substantially an entirety in one transaction or a series of related transactions) to, any Person or permit any Person to merge with or into it unless: (1) it shall be the continuing Person, or the Person (if other than it) formed by such consolidation or into which it is merged or that acquired or leased such property and assets of (the "Surviving Person") shall be a corporation organized and validly existing under the laws of the United States of America or any jurisdiction thereof and shall expressly assume, by a supplemental indenture, executed and delivered to the Trustee, all of COLO.COM's obligations under the Indenture and the notes; (2) no Default or Event of Default shall exist or shall occur immediately after giving effect on a pro forma basis to such transaction; (3) immediately after giving effect to such transaction on a pro forma basis COLO.COM, or the Surviving Person, as the case may be, could Incur at least $1.00 of Indebtedness under the first paragraph of part (a) of the "Limitation on Incurrence of Indebtedness and Issuance of Preferred Stock" covenant; provided that this clause (3) shall 87 91 not apply to a consolidation, merger or sale of all (but not less than all) of the assets of COLO.COM if all Liens and Indebtedness of COLO.COM or the Surviving Person, as the case may be, and its Restricted Subsidiaries outstanding immediately after such transaction would have been permitted (and all such Liens and Indebtedness, other than Liens and Indebtedness of COLO.COM and its Restricted Subsidiaries outstanding immediately prior to the transaction, shall be deemed to have been Incurred) for all purposes of the Indenture; and (4) it delivers to the Trustee an Officers' Certificate (attaching the arithmetic computations to demonstrate compliance with clause (3)) and Opinion of Counsel, in each case stating that such consolidation, merger or transfer and such supplemental indenture complies with this provision and that all conditions precedent provided for herein relating to such transaction have been complied with; and (5) each Subsidiary Guarantor, if any, unless such Subsidiary Guarantor is the Person with which COLO.COM has entered into a transaction under this "Consolidation, Merger and Sale of Assets" section, shall have by amendment to its Note Guarantee confirmed that its Note Guarantee shall apply to the obligations of COLO.COM or the Surviving Person in accordance with the notes and the Indenture; provided, however, that clause (3) above does not apply if, in the good faith determination of the Board of Directors of COLO.COM, whose determination shall be evidenced by a Board Resolution, the principal purpose of such transaction is to change the state of incorporation of COLO.COM. DEFEASANCE Defeasance and Discharge. The Indenture will provide that COLO.COM will be deemed to have paid and will be discharged from any and all obligations in respect of the notes on the 123rd day after the deposit referred to below, and the provisions of the Indenture will no longer be in effect with respect to the notes (except for, among other matters, certain obligations to register the transfer or exchange of the notes, to replace stolen, lost or mutilated notes, to maintain paying agencies and to hold monies for payment in trust) if, among other things: (A) COLO.COM has deposited with the Trustee, in trust, money and/or U.S. Government Obligations that through the payment of interest and principal in respect thereof in accordance with their terms will provide money in an amount sufficient to pay the principal of, premium, if any, and accrued interest on the notes on the Stated Maturity of such payments in accordance with the terms of the Indenture and the notes, (B) COLO.COM has delivered to the Trustee (1) either (x) an Opinion of Counsel to the effect that Holders will not recognize income, gain or loss for federal income tax purposes as a result of COLO.COM's exercise of its option under this "Defeasance" provision and will be subject to federal income tax on the same amount and in the same manner and at the same times as would have been the case if such deposit, defeasance and discharge had not occurred, which Opinion of Counsel must be based upon (and accompanied by a copy of) a ruling of the Internal Revenue Service to the same effect unless there has been a change in applicable federal income tax law after the Closing Date such that a ruling is no longer required or (y) a ruling directed to the Trustee received from the Internal Revenue Service to the same effect as the aforementioned Opinion of Counsel and (2) an Opinion of Counsel to the effect that the creation of the defeasance trust does not violate the Investment Company Act of 1940 and after the passage of 123 days following the deposit, the trust fund will not be subject to the effect of Section 547 of the United States Bankruptcy Code or Section 15 of the New York Debtor and Creditor Law, 88 92 (C) immediately after giving effect to such deposit on a pro forma basis, no Event of Default, or event that after the giving of notice or lapse of time or both would become an Event of Default, shall have occurred and be continuing on the date of such deposit or during the period ending on the 123rd day after the date of such deposit, and such deposit shall not result in a breach or violation of, or constitute a default under, any other agreement or instrument to which COLO.COM or any of its Subsidiaries is a party or by which COLO.COM or any of its Subsidiaries is bound and (D) if at such time the notes are listed on a national securities exchange, COLO.COM has delivered to the Trustee an Opinion of Counsel to the effect that the notes will not be delisted as a result of such deposit, defeasance and discharge. Defeasance of Certain Covenants and Certain Events of Default. The Indenture further will provide that the provisions of the Indenture will no longer be in effect with respect to clause (3) under "Consolidation, Merger and Sale of Assets" and all the covenants described herein under "Covenants", clause (c) under "Events of Default" with respect to such clause (3) under "Consolidation, Merger and Sale of Assets", clause (d) under "Events of Default" with respect to such other covenants and clauses (e) and (f) under "Events of Default" shall be deemed not to be Events of Default upon, among other things, the deposit with the Trustee, in trust, of money and/or U.S. Government Obligations that through the payment of interest and principal in respect thereof in accordance with their terms will provide money in an amount sufficient to pay the principal of, premium, if any, and accrued interest on the notes on the Stated Maturity of such payments in accordance with the terms of the Indenture and the notes, the satisfaction of the provisions described in clauses (B)(2), (C) and (D) of the preceding paragraph and the delivery by COLO.COM to the Trustee of an Opinion of Counsel to the effect that, among other things, the Holders will not recognize income, gain or loss for federal income tax purposes as a result of such deposit and defeasance of certain covenants and Events of Default and will be subject to federal income tax on the same amount and in the same manner and at the same times as would have been the case if such deposit and defeasance had not occurred. Defeasance and Certain Other Events of Default. In the event COLO.COM exercises its option to omit compliance with certain covenants and provisions of the Indenture with respect to the notes as described in the immediately preceding paragraph and the notes are declared due and payable because of the occurrence of an Event of Default that remains applicable, the amount of money and/or U.S. Government Obligations on deposit with the Trustee will be sufficient to pay amounts due on the notes at the time of their Stated Maturity but may not be sufficient to pay amounts due on the notes at the time of the acceleration resulting from such Event of Default. However, COLO.COM will remain liable for such payments and any Subsidiary Guarantor's Note Guarantee with respect to such payments will remain in effect. MODIFICATION AND WAIVER The Indenture may be amended, without the consent of any Holder, to: (1) cure any ambiguity, defect or inconsistency in the Indenture; (2) comply with the provisions described under "Consolidation, Merger and Sale of Assets" or "Limitation on Issuances of Guarantees by Restricted Subsidiaries"; (3) comply with any requirements of the SEC in connection with the qualification of the Indenture under the Trust Indenture Act; (4) evidence and provide for the acceptance of appointment by a successor Trustee; or 89 93 (5) make any change that, in the good faith opinion of the Board of Directors, does not materially and adversely affect the rights of any Holder. Modifications and amendments of the Indenture may be made by COLO.COM and the Trustee with the consent of the Holders of not less than a majority in aggregate principal amount of the outstanding notes; provided, however, that no such modification or amendment may, without the consent of each Holder affected thereby: (1) change the Stated Maturity of the principal of, or any installment of interest on, any note, (2) reduce the principal amount of, or premium, if any, or interest on, any note, (3) change the optional redemption dates or optional redemption prices of the notes from that stated under the caption "Optional Redemption", (4) change the place or currency of payment of principal of, or premium, if any, or interest on, any note, (5) impair the right to institute suit for the enforcement of any payment on or after the Stated Maturity (or, in the case of a redemption, on or after the Redemption Date) of any note, (6) waive a default in the payment of principal of, premium, if any, or interest on the notes, or (7) release any Subsidiary Guarantor from its Note Guarantee, except as provided in the Indenture, or (8) reduce the percentage or aggregate principal amount of outstanding notes the consent of whose Holders is necessary for waiver of compliance with certain provisions of the Indenture or for waiver of certain defaults. NO PERSONAL LIABILITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS, DIRECTORS, OR EMPLOYEES No recourse for the payment of the principal of, premium, if any, or interest on any of the notes or for any claim based thereon or otherwise in respect thereof, and no recourse under or upon any obligation, covenant or agreement of COLO.COM in the Indenture, or in any of the notes or because of the creation of any Indebtedness represented thereby, shall be had against any incorporator, stockholder, officer, director, employee or controlling person of COLO.COM or of any successor Person thereof. Each Holder, by accepting the notes, waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the notes. Such waiver may not be effective to waive liabilities under the federal securities laws. CONCERNING THE TRUSTEE Except during the continuance of a Default, the Trustee will not be liable, except for the performance of such duties as are specifically set forth in the Indenture. If an Event of Default has occurred and is continuing, the Trustee will use the same degree of care and skill in its exercise of the rights and powers vested in it under the Indenture as a prudent person would exercise under the circumstances in the conduct of such person's own affairs. The Indenture and provisions of the Trust Indenture Act of 1939, as amended, incorporated by reference therein contain limitations on the rights of the Trustee, should it become a creditor of COLO.COM, to obtain payment of claims in certain cases or to realize on certain property received by it in respect of any such claims, as security or otherwise. The 90 94 Trustee is permitted to engage in other transactions; provided, however, that if it acquires any material conflicting interest, it must eliminate such conflict or resign. DEFINITIONS Set forth below is a summary of certain of the defined terms used in the covenants and other provisions of the Indenture. Reference is made to the Indenture for the full definition of all terms as well as any other capitalized term used in this "Description of the Notes" for which no definition is provided. "ACQUIRED INDEBTEDNESS" or "ACQUIRED PREFERRED STOCK" means with respect to any specified Person, Indebtedness or Preferred Stock of any other Person existing at the time such other Person is merged with or into or becomes a Restricted Subsidiary of such specified Person or assumed in connection with an Asset Acquisition by such specified Person; provided that such Indebtedness or Preferred Stock is not incurred in connection with, or in contemplation of, such other Person merging with or into or becoming a Subsidiary of such specified Person; provided that such Indebtedness or Preferred Stock of such other Person which is redeemed, defeased, retired or otherwise repaid at the time of or immediately upon consummation of the transactions by which such Person becomes a Restricted Subsidiary or such Asset Acquisition shall not be Acquired Indebtedness or Acquired Preferred Stock. "ADJUSTED CONSOLIDATED NET INCOME" means, for any period, the aggregate net income (or loss) of COLO.COM and its Restricted Subsidiaries for such period, on a consolidated basis, determined in conformity with GAAP; provided that the following items shall be excluded in computing Adjusted Consolidated Net Income (without duplication): (1) the net income (or loss) of any Person that is not a Restricted Subsidiary, except (x) with respect to net income, to the extent of the amount of dividends or other distributions actually paid to COLO.COM or any of its Restricted Subsidiaries by such Person during such period and (y) with respect to net losses, to the extent of the amount of Investments made by COLO.COM or any Restricted Subsidiary in such Person during such period; (2) the net income (or loss) of any Person accrued prior to the date it becomes a Restricted Subsidiary or is merged into or consolidated with COLO.COM or any of its Restricted Subsidiaries or all or substantially all of the property and assets of such Person are acquired by COLO.COM or any of its Restricted Subsidiaries; (3) the net income of any Restricted Subsidiary to the extent that the declaration or payment of dividends or similar distributions by such Restricted Subsidiary of such net income is not at the time permitted by the operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to such Restricted Subsidiary; (4) any gains or losses (on an after-tax basis) attributable to sales of assets outside the ordinary course of business of COLO.COM and its Restricted Subsidiaries; (5) solely for purposes of calculating the amount of Restricted Payments that may be made pursuant to clause (C) of paragraph (a) of the "Limitation on Restricted Payments" covenant, any amount paid or accrued as dividends on Preferred Stock of COLO.COM owned by Persons other than COLO.COM and any of its Restricted Subsidiaries; and (6) all extraordinary gains and, solely for purposes of calculating the Consolidated Leverage Ratio, extraordinary losses. 91 95 "AFFILIATE" means, as applied to any specified Person, any other Person directly or indirectly controlling, controlled by, or under direct or indirect common control with, such specified Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling", "controlled by" and "under common control with"), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise; provided that beneficial ownership of less than 10% or more of the Voting Stock of a Person shall be deemed not to be control. "ASSET ACQUISITION" means (1) an Investment by COLO.COM or any of its Restricted Subsidiaries in any other Person pursuant to which such Person shall become a Restricted Subsidiary or shall be merged into or consolidated with COLO.COM or any of its Restricted Subsidiaries; provided that such Person is engaged in a Permitted Business or (2) an acquisition by COLO.COM or any of its Restricted Subsidiaries of the property and assets of any Person other than COLO.COM or any of its Restricted Subsidiaries that constitute substantially all of a division or line of business of such Person; provided that the property and assets acquired are related, ancillary or complementary to a Permitted Business. "ASSET DISPOSITION" means the sale or other disposition by COLO.COM or any of its Restricted Subsidiaries (other than to COLO.COM or another Restricted Subsidiary) of (1) all or substantially all of the Capital Stock of any Restricted Subsidiary or (2) all or substantially all of the assets that constitute a division or line of business of COLO.COM or any of its Restricted Subsidiaries. "ASSET SALE" means any sale, transfer or other disposition (including by way of merger, consolidation or sale-leaseback transaction) in one transaction or a series of related transactions by COLO.COM or any of its Restricted Subsidiaries to any Person other than COLO.COM or any of its Restricted Subsidiaries of: (1) all or any of the Capital Stock of any Subsidiary, (2) all or substantially all of the property and assets of an operating unit or business of COLO.COM or any of its Restricted Subsidiaries, or (3) any other property and assets (other than the Capital Stock or other Investment in an Unrestricted Subsidiary) of COLO.COM or any of its Restricted Subsidiaries outside the ordinary course of business of COLO.COM or such Restricted Subsidiary and, in each case, that is not governed by the provisions of the Indenture applicable to mergers, consolidations and sales of assets of COLO.COM; provided that "Asset Sale" shall not include: (a) sales or other dispositions of inventory, receivables and related assets and other current assets, (b) sales, transfers or other dispositions constituting the making or liquidating of a Permitted Investment or Restricted Payment permitted to be made under the "Limitation on Restricted Payments" covenant, (c) sales, transfers or other dispositions of assets with a fair market value not in excess of $1.0 million in any transaction or series of related transactions, (d) any sale, transfer, assignment or other disposition of any property or equipment that has become damaged, worn out, obsolete or otherwise unsuitable for use in connection with the business of COLO.COM or its Restricted Subsidiaries, (e) sales, transfers, assignments or other dispositions constituting the granting of Liens otherwise permitted by the Indenture, 92 96 (f) sales, transfers or assignments of all or substantially all of the assets of COLO.COM or mergers or consolidations in compliance with the "Consolidation, Merger and Sale of Assets" covenant, (g) sales, transfers or other dispositions in the ordinary course of business of such Person, or (h) the licensing by COLO.COM or any Restricted Subsidiary of intellectual property. "AVERAGE LIFE" means, at any date of determination with respect to any debt security, the quotient obtained by dividing (1) the sum of the products of (a) the number of years from such date of determination to the dates of each successive scheduled principal payment of such debt security and (b) the amount of such principal payment by (2) the sum of all such principal payments. "CAPITAL STOCK" means, with respect to any Person, any and all shares, interests, participations or other equivalents (however designated, whether voting or non-voting) in equity of such Person, whether outstanding on the Closing Date or issued thereafter, including, without limitation, all Common Stock and Preferred Stock; provided that the term "Capital Stock" shall not include any Indebtedness Convertible into Capital Stock of such Person. "CAPITALIZED LEASE" means, as applied to any Person, any lease of any property (whether real, personal or mixed) of which the discounted present value of the rental obligations of such Person as lessee, in conformity with GAAP, is required to be capitalized on the balance sheet of such Person. "CAPITALIZED LEASE OBLIGATIONS" means the capitalized portion of a Capitalized Lease in accordance with GAAP. "CHANGE OF CONTROL" means such time as: (1) (a) prior to the occurrence of a Public Market, a "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act), other than an Existing Stockholder, becomes the ultimate "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of Voting Stock representing a greater percentage of the total voting power of the Voting Stock of COLO.COM, on a fully diluted basis, than is held by the Existing Stockholders on such date and (b) on or after the occurrence of a Public Market, a "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act), other than an Existing Stockholder, becomes the ultimate "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of more than 50% of the total voting power of the Voting Stock of COLO.COM on a fully diluted basis and such ownership represents a greater percentage of the total voting power of the Voting Stock of COLO.COM, on a fully diluted basis, than is held by the Existing Stockholders on such date; or (2) individuals who on the Closing Date constitute the Board of Directors (together with any new directors whose election by the Board of Directors or whose nomination by the Board of Directors for election by COLO.COM's stockholders was approved by a vote of at least a majority of the members of the Board of Directors then in office who either were members of the Board of Directors on the Closing Date or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the members of the Board of Directors then in office for a period of two years. "CLOSING DATE" means the date on which the old notes were originally issued under the Indenture, March 10, 2000. 93 97 "CLOSING PRICE" on any Trading Day with respect to the per share price of any shares of Capital Stock means the last reported sale price regular way or, in case no such sale takes place on such day, the average of the reported closing bid and asked prices regular way, in either case on the New York Stock Exchange, or, if such shares of Capital Stock are not listed or admitted to trading on such exchange, on the principal national securities exchange on which such shares are listed or admitted to trading or, if not listed or admitted to trading on any national securities exchange, on the Nasdaq Stock Market, or if such shares are not listed or admitted to trading on any national securities exchange or quoted on the Nasdaq Stock Market, the average of the closing bid and asked prices in the over-the-counter market as furnished by any New York Stock Exchange member firm of national standing that is selected from time to time by COLO.COM for that purpose. "COMMODITY AGREEMENT" means any forward contract, commodity swap agreement, commodity option agreement or other similar agreement or arrangement. "CONSOLIDATED EBITDA" means, for any period, Adjusted Consolidated Net Income for such period plus, to the extent such amount was deducted in calculating such Adjusted Consolidated Net Income: (1) Consolidated Interest Expense, (2) income taxes, (3) depreciation expense, (4) amortization expense and (5) all other non-cash items reducing Adjusted Consolidated Net Income (other than items that will require cash payments and for which an accrual or reserve is, or is required by GAAP to be, made), less all non-cash items increasing Adjusted Consolidated Net Income, all as determined on a consolidated basis for COLO.COM and its Restricted Subsidiaries in conformity with GAAP; provided that, if any Restricted Subsidiary is not a Wholly Owned Restricted Subsidiary, Consolidated EBITDA shall be reduced (to the extent not otherwise reduced in accordance with GAAP) by an amount equal to (A) the amount of the Adjusted Consolidated Net Income attributable to such Restricted Subsidiary multiplied by (B) the percentage ownership interest in the income of such Restricted Subsidiary not owned on the last day of such period by COLO.COM or any of its Restricted Subsidiaries. "CONSOLIDATED INTEREST EXPENSE" means, for any period, the aggregate amount of interest in respect of Indebtedness (including, without limitation, amortization of original issue discount on any Indebtedness and the interest portion of any deferred payment obligation, calculated in accordance with the effective interest method of accounting; all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing; the net costs associated with Interest Rate Agreements; and Indebtedness that is Guaranteed or secured by COLO.COM or any of its Restricted Subsidiaries), one-third of the rental expense of all operating leases of COLO.COM and its Restricted Subsidiaries and all but the principal component of rentals in respect of Capitalized Lease Obligations paid, accrued or scheduled to be paid or to be accrued by COLO.COM and its Restricted Subsidiaries during such period; excluding, however, (1) any amount of such interest of any Restricted Subsidiary if the net income of such Restricted Subsidiary is excluded in the calculation of Adjusted Consolidated Net Income pursuant to clause (3) of the definition thereof (but only in the same proportion 94 98 as the net income of such Restricted Subsidiary is excluded from the calculation of Adjusted Consolidated Net Income pursuant to clause (3) of the definition thereof) and (2) any premiums, fees and expenses (and any amortization thereof) payable in connection with the offering of the Units, all as determined on a consolidated basis (without taking into account Unrestricted Subsidiaries) in conformity with GAAP. "CONSOLIDATED LEVERAGE RATIO" means, with respect to COLO.COM on any Transaction Date, the ratio of: (1) the aggregate amount of Indebtedness of COLO.COM and its Restricted Subsidiaries on a consolidated basis outstanding on such Transaction Date to (2) four times Consolidated EBITDA for the most recently ended fiscal quarter for which financial statements of COLO.COM have been filed with the SEC or provided to the Trustee pursuant to the "SEC Reports and Reports to Holders" covenant. Notwithstanding the definition of Adjusted Consolidated Net Income, for the purposes of calculating the "Consolidated EBITDA" for any fiscal quarter for purposes of this definition, (i) any Subsidiary of COLO.COM that is a Restricted Subsidiary on the Transaction Date shall be deemed to have been a Restricted Subsidiary at all times during such fiscal quarter and (ii) any Subsidiary of COLO.COM that is not a Restricted Subsidiary on the Transaction Date shall be deemed not to have been a Restricted Subsidiary at any time during such fiscal quarter. In addition to and without limitation of the foregoing, for purposes of this definition, "Consolidated EBITDA" shall be calculated after giving effect on a pro forma basis for the applicable fiscal quarter to, without duplication: (A) the Incurrence or repayment of any Indebtedness to be Incurred or repaid on the Transaction Date; (B) Asset Dispositions and Asset Acquisitions (including giving pro forma effect to the application of proceeds of any Asset Disposition) that occur from the beginning of the most recently ended fiscal quarter, for which financial statements of COLO.COM have been filed with the SEC or provided to the Trustee pursuant to the "SEC Reports and Reports to Holders" covenant, through the Transaction Date (the "REFERENCE PERIOD"), as if they had occurred and such proceeds had been applied on the first day of such Reference Period; and (C) asset dispositions and asset acquisitions (including giving pro forma effect to the application of proceeds of any asset disposition) that have been made by any Person that has become a Restricted Subsidiary or has been merged with or into COLO.COM or any Restricted Subsidiary during such Reference Period and that would have constituted Asset Dispositions or Asset Acquisitions had such transactions occurred when such Person was a Restricted Subsidiary as if such asset dispositions or asset acquisitions were Asset Dispositions or Asset Acquisitions that occurred on the first day of such Reference Period; provided that to the extent that clause (B) or (C) of this sentence requires that pro forma effect be given to an Asset Acquisition or Asset Disposition, such pro forma calculation shall be based upon the full fiscal quarter immediately preceding the Transaction Date of the Person, or division 95 99 or line of business of the Person, that is acquired or disposed of for which financial information is available. "CONVERTIBLE NOTES" means notes that are convertible into Capital Stock of COLO.COM at the option of the holders thereof. "CREDIT FACILITY" means any credit facilities, any receivables facilities or programs, or one or more other term loan and/or revolving credit or commercial paper facilities (including any letter of credit subfacilities) entered into with commercial banks or other financial institutions or institutional investors, or any replacement, extension, renewal, refinancing or refunding thereof. "CURRENCY AGREEMENT" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement. "DEFAULT" means any event that is, or after notice or passage of time or both would be, an Event of Default. "DISQUALIFIED STOCK" means any class or series of Capital Stock of any Person that by its terms or otherwise is (1) required to be redeemed prior to the Stated Maturity of the notes, (2) redeemable at the option of the holder of such class or series of Capital Stock at any time prior to the Stated Maturity of the notes or (3) convertible into or exchangeable for Capital Stock referred to in clause (1) or (2) above or Indebtedness having a scheduled maturity prior to the Stated Maturity of the notes; provided that any Capital Stock that would not constitute Disqualified Stock but for provisions thereof giving holders thereof (i) the right to require such Person to repurchase or redeem such Capital Stock upon the occurrence of an "asset sale" or "change of control" occurring prior to the Stated Maturity of the notes shall not constitute Disqualified Stock if the "asset sale" or "change of control" provisions applicable to such Capital Stock are no more favorable to the holders of such Capital Stock than the provisions contained in the "Limitation on Asset Sales" and "Repurchase of notes upon a Change of Control" covenants and such Capital Stock specifically provides that such Person will not repurchase or redeem any such stock pursuant to such provision prior to COLO.COM's repurchase of such notes as are required to be repurchased pursuant to the "Limitation on Asset Sales" and "Repurchase of notes upon a Change of Control" covenants, or (ii) the right to require such Person to repurchase in any other event, if such repurchase right is expressly contingent on the payment in full of the notes. "EXISTING STOCKHOLDERS" means Accel Partners, Athena Venture Fund L.P., Investcorp International, Menlo Ventures and Meritech Capital Partners, and, in each case, affiliated funds. "EXISTING VENDOR FINANCE AGREEMENTS" means, collectively, (i) the equipment and tenant improvement financing agreement with Meier Mitchell & Company providing up to $17 million of credit and (ii) the equipment and tenant improvement financing agreement with Comdisco, Inc. providing up to $17 million of credit, each of which is secured by all of the tangible and intangible assets relating to assets financed by the lender under the applicable agreement. "FAIR MARKET VALUE" means the price that would reasonably be expected to be paid in an arm's-length transaction between an informed and willing seller under no compulsion to sell and an informed and willing buyer under no compulsion to buy, as determined in good faith by the Board of Directors, whose determination shall be conclusive if evidenced by a Board Resolution. 96 100 "FOREIGN SUBSIDIARY" mean any Subsidiary of COLO.COM that is organized under the laws of any jurisdiction, other than under the laws of the United States or any state, territory or political subdivision thereof, and its primary business and operation do not include any of the U.S.-based business and operations conducted by COLO.COM and its Restricted Subsidiaries. "GAAP" means generally accepted accounting principles in the United States of America as in effect as of the Closing Date, including, without limitation, those set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as approved by a significant segment of the accounting profession. All ratios and computations contained or referred to in the Indenture shall be computed in conformity with GAAP applied on a consistent basis, except that calculations made for purposes of determining compliance with the terms of the covenants and with other provisions of the Indenture shall be made without giving effect to (1) the amortization of any expenses incurred in connection with the offering of the notes and (2) except as otherwise provided, the amortization of any amounts required or permitted by Accounting Principles Board Opinion Nos. 16 and 17. "GOVERNMENT SECURITIES" means direct obligations of, obligations fully guaranteed by, or participations in pools consisting solely of obligations of or obligations guaranteed by, the United States of America for the payment of which guarantee or obligations the full faith and credit of the United States of America is pledged and which are not callable or redeemable at the option of the issuer thereof. "GUARANTEE" means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Indebtedness of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (1) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness of such other Person (whether arising by virtue of partnership arrangements, or by agreements to keep-well, to purchase assets, goods, securities or services (unless such purchase arrangements are on arm's-length terms and are entered into in the ordinary course of business), to take-or-pay, or to maintain financial statement conditions or otherwise) or (2) entered into for purposes of assuring in any other manner the obligee of such Indebtedness of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); provided that the term "Guarantee" shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. "INCUR" means, with respect to any Indebtedness, to incur, create, issue, assume, Guarantee or otherwise, directly or indirectly, become liable for or with respect to, or become responsible for, the payment of, contingently or otherwise, such Indebtedness, including an "Incurrence" of Acquired Indebtedness; provided that neither the accrual of interest nor the accretion of original issue discount shall be considered an Incurrence of Indebtedness. "INDEBTEDNESS" means, with respect to any Person at any date of determination (without duplication): (1) all indebtedness of such Person for borrowed money; (2) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments; (3) all obligations of such Person in respect of letters of credit or other similar instruments (including reimbursement obligations with respect thereto, but excluding obligations with respect to letters of credit (including trade letters of credit) securing 97 101 obligations (other than obligations described in (1) or (2) above or (5), (6) or (7) below) entered into in the ordinary course of business of such Person to the extent such letters of credit are not drawn upon or, if drawn upon, to the extent such drawing is reimbursed no later than the third Business Day following receipt by such Person of a demand for reimbursement); (4) all obligations of such Person to pay the deferred and unpaid purchase price of property or services, which purchase price is due more than six months after the date of placing such property in service or taking delivery and title thereto or the completion of such services, except Trade Payables; (5) all Capitalized Lease Obligations; (6) all Indebtedness of other Persons secured by a Lien on any asset of such Person, whether or not such Indebtedness is assumed by such Person; provided that the amount of such Indebtedness shall be the lesser of (A) the fair market value of such asset at such date of determination and (B) the amount of such Indebtedness; (7) all Indebtedness of other Persons Guaranteed by such Person to the extent such Indebtedness is Guaranteed by such Person; (8) to the extent not otherwise included in this definition, obligations under Commodity Agreements, Currency Agreements and Interest Rate Agreements (other than Commodity Agreements, Currency Agreements and Interest Rate Agreements designed solely to protect COLO.COM or its Restricted Subsidiaries against fluctuations in commodity prices, foreign currency exchange rates or interest rates and that do not increase the Indebtedness of the obligor outstanding at any time other than as a result of fluctuations in commodity prices, foreign currency exchange rates or interest rates or by reason of fees, indemnities and compensation payable thereunder); and (9) Disqualified Stock of such Person and Preferred Stock of such Person's Restricted Subsidiaries. The amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and, with respect to contingent obligations, the maximum liability upon the occurrence of the contingency giving rise to the obligation, provided that (A) the amount outstanding at any time of any Indebtedness issued with original issue discount is the face amount of such Indebtedness less the remaining unamortized portion of the original issue discount of such Indebtedness at such time as determined in conformity with GAAP, (B) money borrowed and set aside at the time of the Incurrence of any Indebtedness in order to prefund the payment of the interest on such Indebtedness shall not be deemed to be "Indebtedness" so long as such money is held to secure the payment of such interest and (C) Indebtedness shall not include (v) any liability for federal, state, local or other taxes, (w) performance, surety or appeal bonds provided in the ordinary course of business, (x) agreements providing for indemnification, adjustment of purchase price or similar obligations, or Guarantees or letters of credit, surety bonds or performance bonds securing any obligations of COLO.COM or any of its Restricted Subsidiaries pursuant to such agreements, in any case Incurred in connection with the disposition of any business, assets or Restricted Subsidiary (other than Guarantees of Indebtedness Incurred by any Person acquiring all or any portion of such business, assets or Restricted Subsidiary for the 98 102 purpose of financing such acquisition), so long as the principal amount does not exceed the gross proceeds actually received by COLO.COM or any Restricted Subsidiary in connection with such disposition, (y) liabilities incurred in connection with leases properly classified as operating leases in accordance with GAAP or (z) accrued expenses. "INTEREST RATE AGREEMENT" means any interest rate protection agreement, interest rate future agreement, interest rate option agreement, interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedge agreement, option or future contract or other similar agreement or arrangement. "INVESTMENT" in any Person means any direct or indirect advance, loan or other extension of credit (including, without limitation, by way of Guarantee or similar arrangement; but excluding advances to customers or suppliers in the ordinary course of business that are, in conformity with GAAP, recorded as accounts receivable, prepaid expenses or deposits on the balance sheet of COLO.COM or its Restricted Subsidiaries and endorsements for collection or deposit arising in the ordinary course of business) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition of Capital Stock, bonds, notes, debentures or other similar instruments issued by, such Person and shall include: (1) the designation of a Restricted Subsidiary as an Unrestricted Subsidiary and (2) the retention of the Capital Stock (or any other Investment) by COLO.COM or any of its Restricted Subsidiaries, of (or in) any Person that has ceased to be a Restricted Subsidiary, including, without limitation or by reason of any transaction permitted by clause (3) of the "Limitation on the Issuance and Sale of Capital Stock of Restricted Subsidiaries" covenant. For purposes of the definition of "Unrestricted Subsidiary" and the "Limitation on Restricted Payments" covenant, (a) the amount of or a reduction in an Investment shall be equal to the fair market value thereof at the time such Investment is made or reduced and (b) in the event COLO.COM or a Restricted Subsidiary makes an Investment by transferring assets to any Person and as part of such transaction receives Net Cash Proceeds, the amount of such Investment shall be the fair market value of the assets less the amount of Net Cash Proceeds so received. "LIEN" means any mortgage, pledge, security interest, encumbrance, lien or fixed or floating charge of any kind (including, without limitation, any conditional sale or other title retention agreement or lease in the nature thereof or any agreement to give any security interest); provided, however, that the term "Lien" shall not include any lease, properly classified as an operating lease in accordance with GAAP. "MOODY'S" means Moody's Investors Service, Inc. and its successors. "NET CASH PROCEEDS" means: (a) with respect to any Asset Sale, the proceeds of such Asset Sale in the form of cash or cash equivalents, including payments in respect of deferred payment obligations (to the extent corresponding to the principal, but not interest, component thereof) when received in the form of cash or cash equivalents and proceeds from the conversion of other property received when converted to cash or cash equivalents, net of (1) brokerage commissions and other fees and expenses (including fees and expenses of counsel and investment bankers) related to such Asset Sale; 99 103 (2) provisions for all taxes (whether or not such taxes will actually be paid or are payable) as a result of such Asset Sale without regard to the consolidated results of operations of COLO.COM and its Restricted Subsidiaries, taken as a whole; (3) payments made to repay Indebtedness or any other obligation outstanding at the time of such Asset Sale that either (x) is secured by a Lien on the property or assets sold or (y) is required to be paid as a result of such sale and (4) appropriate amounts to be provided by COLO.COM or any Restricted Subsidiary as a reserve against any liabilities associated with such Asset Sale, including, without limitation, pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Asset Sale, all as determined in conformity with GAAP and (b) (i) with respect to any issuance or sale of Capital Stock, the proceeds of such issuance or sale in the form of cash or cash equivalents, including payments in respect of deferred payment obligations (to the extent corresponding to the principal, but not interest, component thereof) when received in the form of cash or cash equivalents and proceeds from the conversion of other property received when converted to cash or cash equivalents, and (ii) with respect to any Indebtedness that is converted into, or exchanged for, Capital Stock (other than Disqualified Stock), the proceeds of such issuance or sale of Indebtedness in the form of cash or cash equivalents and proceeds from the conversion of other property received when converted to cash or cash equivalents, in each case with respect to clauses (i) and (ii), net of attorney's fees, accountants' fees, underwriters' or placement agents' fees, discounts or commissions and brokerage, consultant and other fees incurred in connection with such issuance or sale and net of taxes paid or payable as a result thereof. "NEWLY RAISED CAPITAL" means funds raised by COLO.COM or its Restricted Subsidiaries after the Closing Date. "NOTE GUARANTEE" means any Guarantee of the obligations of COLO.COM under the Indenture and the notes by any Subsidiary Guarantor. "OFFER TO PURCHASE" means an offer to purchase notes by COLO.COM from the Holders commenced by mailing a notice to the Trustee and each Holder stating: (1) the covenant pursuant to which the offer is being made and that all notes validly tendered will be accepted for payment on a pro rata basis; (2) the purchase price and the date of purchase (which shall be a Business Day no earlier than 30 days nor later than 60 days from the date such notice is mailed) (the "PAYMENT DATE"); (3) that any note not tendered will continue to accrue interest pursuant to its terms; (4) that, unless COLO.COM defaults in the payment of the purchase price, any note accepted for payment pursuant to the Offer to Purchase shall cease to accrue interest on and after the Payment Date; (5) that Holders electing to have a note purchased pursuant to the Offer to Purchase will be required to surrender the note, together with the form entitled "Option of the Holder to Elect Purchase" on the reverse side of the note completed, to the Paying Agent at the address specified in the notice prior to the close of business on the Business Day immediately preceding the Payment Date; 100 104 (6) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than the close of business on the third Business Day immediately preceding the Payment Date, a telegram, facsimile transmission or letter setting forth the name of such Holder, the principal amount of notes delivered for purchase and a statement that such Holder is withdrawing his election to have such notes purchased; and (7) that Holders whose notes are being purchased only in part will be issued new notes equal in principal amount to the unpurchased portion of the notes surrendered; provided that each note purchased and each new note issued shall be in a principal amount of $1,000 or integral multiples of $1,000. On the Payment Date, COLO.COM shall (a) accept for payment on a pro rata basis notes or portions thereof tendered pursuant to an Offer to Purchase; (b) deposit with the Paying Agent money sufficient to pay the purchase price of all notes or portions thereof so accepted; and (c) deliver, or cause to be delivered, to the Trustee all notes or portions thereof so accepted together with an Officers' Certificate specifying the notes or portions thereof accepted for payment by COLO.COM. The Paying Agent shall promptly mail to the Holders of notes so accepted payment in an amount equal to the purchase price, and the Trustee shall promptly authenticate and mail to such Holders a new note equal in principal amount to any unpurchased portion of the note surrendered; provided that each note purchased and each new note issued shall be in a principal amount of $1,000 or integral multiples of $1,000. COLO.COM will publicly announce the results of an Offer to Purchase as soon as practicable after the Payment Date. The Trustee shall act as the Paying Agent for an Offer to Purchase. COLO.COM will comply with Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable, in the event that COLO.COM is required to repurchase notes pursuant to an Offer to Purchase. "PERMITTED BUSINESS" means (1) the business of designing, constructing, owning, operating and leasing colocation facilities for telecommunications, data communications and Internet-based businesses and businesses reasonably related, complementary or incidental thereto; (2) server and other based hosting; (3) the management of computer systems, data networks, or telecommunications systems; (4) providing direct connections, switched interconnections and related services to third parties as well as related operations and businesses; (5) technology services, equipment staging, or software services for Internet Protocol or successor protocol based networks; and (6) other businesses reasonably related, ancillary, supplemental or incidental to any of the foregoing or reasonable extensions thereof. "PERMITTED INVESTMENT" means: (1) an Investment in COLO.COM or a Restricted Subsidiary or a Person which will, upon the making of such Investment, become a Restricted Subsidiary or be merged or 101 105 consolidated with or into or transfer or convey all or substantially all its assets to, COLO.COM or a Restricted Subsidiary; provided that such Person's primary business is related, ancillary or complementary to a Permitted Business; (2) Temporary Cash Investments; (3) payroll, travel and similar advances to cover matters that are expected at the time of such advances ultimately to be treated as expenses in accordance with GAAP, or loans or guarantees to officers, directors and employees approved by the Board of Directors of COLO.COM or any committee thereof, in connection with the relocation of such persons; (4) stock, obligations or securities received in satisfaction of judgments; (5) an Investment in an Unrestricted Subsidiary consisting solely of an Investment in another Unrestricted Subsidiary; (6) Commodity Agreements, Interest Rate Agreements and Currency Agreements designed solely to protect COLO.COM or its Restricted Subsidiaries against fluctuations in commodity prices, interest rates or foreign currency exchange rates; (7) any Investment received (a) in satisfaction of judgments or (b) as payment on a claim made in connection with any bankruptcy, liquidation, receivership or other insolvency proceeding; (8) Investments in (a) prepaid expenses and negotiable instruments held for collection, (b) Investments obtained in exchange or settlement of accounts receivable for which COLO.COM or any Restricted Subsidiary has determined that the collection is questionable and (c) lease, utility and worker compensation, performance and other similar deposits arising in the ordinary course of business; (9) Strategic Investments provided that the aggregate amount of Investments made pursuant to this clause (9) shall not exceed the greater of $20.0 million and 2 1/2% of COLO.COM's Total Common Equity, at any one time outstanding; (10) Investments, to the extent the consideration therefore is the licensing or disclosure of intellectual property or know-how; and (11) other Investments not to exceed $5.0 million at any one time outstanding. "PERMITTED LIENS" means: (1) Liens incurred or deposits made to secure the performance of tenders, bids, leases, statutory or regulatory obligations, bankers' acceptances, surety and appeal bonds, government contracts, performance and return-of-money bonds and other obligations of a similar nature incurred in the ordinary course of business (exclusive of obligations for the payment of borrowed money); (2) Liens (including extensions and renewals thereof) upon real or personal property acquired after the Closing Date; provided that (a) such Lien is created solely for the purpose of securing Indebtedness Incurred pursuant to clause (7) of the second paragraph of part (a) of the "Limitation on Incurrence of Indebtedness and Issuance of Preferred Stock" covenant, and such Lien is created prior to, at the time of or within six months after the later of the acquisition, the completion of construction or the commencement of full operation of such property, 102 106 (b) the principal amount of the Indebtedness secured by such Lien does not exceed 100% of such cost, and (c) any such Lien shall not extend to or cover any property or assets other than such item of property or assets or attachments, accessions or proceeds thereof, and any improvements on such item; (3) any interest or title of a lessor in the property subject to any Capitalized Lease or operating lease; (4) Liens arising from filing Uniform Commercial Code financing statements regarding leases; (5) Liens on property of, or on shares of Capital Stock or Indebtedness of, any Person existing at the time such Person becomes a Restricted Subsidiary of COLO.COM or is merged with or into or consolidated with COLO.COM or any Restricted Subsidiary of COLO.COM; provided that such Liens are not Incurred in contemplation of such acquisition, merger or consolidation and do not extend to or cover any property or assets of COLO.COM or any Restricted Subsidiary other than those of the Person acquired by, merged into or consolidated with COLO.COM or any Restricted Subsidiary; (6) Liens in favor of COLO.COM or any Restricted Subsidiary; (7) Liens on property existing at the time of acquisition thereof by the Company or any Restricted Subsidiary of the Company; provided that such Liens are not incurred in contemplation of such acquisition and do not extend to any asset other than the assets acquired; (8) Liens securing reimbursement obligations with respect to letters of credit that encumber documents and other property relating to such letters of credit and the products and proceeds thereof or any cash collateral; (9) Liens encumbering customary initial deposits and margin deposits, and other Liens that are within the general parameters customary in the industry and incurred in the ordinary course of business, in each case, securing Indebtedness under Commodity Agreements, Interest Rate Agreements and Currency Agreements designed solely to protect COLO.COM or any of its Restricted Subsidiaries from fluctuations in interest rates, currencies or the price of commodities; (10) Liens arising out of conditional sale, title retention, consignment or similar arrangements for the sale of goods entered into by COLO.COM or any of its Restricted Subsidiaries in the ordinary course of business in accordance with the past practices of COLO.COM and its Restricted Subsidiaries prior to the Closing Date; (11) Liens on shares of Capital Stock of any Unrestricted Subsidiary to secure Indebtedness of such Unrestricted Subsidiary; (12) Liens on, or sales of, accounts receivable; and (13) licenses. "PLEDGE ACCOUNT" means an account established with the Trustee pursuant to the terms of the Pledge Agreement for the deposit of the Pledged Securities to be purchased by COLO.COM with a portion of the net proceeds from the sale of the notes. "PLEDGE AGREEMENT" means the Collateral Pledge and Security Agreement, dated as of the Closing Date, made by COLO.COM in favor of the Trustee, governing the disbursement of 103 107 funds from the Pledge Account, as such agreement may be amended, restated, supplemented or otherwise modified from time to time. "PLEDGED SECURITIES" means the Government Securities to be purchased by COLO.COM and held in the Pledge Account in accordance with the Pledge Agreement. "PUBLIC EQUITY OFFERING" means an underwritten primary public offering of Common Stock of COLO.COM pursuant to an effective registration statement under the Securities Act. A "PUBLIC MARKET" shall be deemed to exist if (i) a Public Equity Offering has been consummated and (ii) at least 15% of the total issued and outstanding Common Stock of COLO.COM has been distributed by means of an effective registration statement under the Securities Act or sales pursuant to Rule 144 or Rule 701 under the Securities Act. "PURCHASE MONEY INDEBTEDNESS" means indebtedness (including Acquired Indebtedness, Capital Lease Obligations, mortgage financings and purchase money obligations) Incurred for the purpose of financing all or any part of the cost of the engineering, construction, installation, importation, acquisition, lease, development or improvement of any assets used by COLO.COM or any Restricted Subsidiary in a Permitted Business, including any related notes, Guarantees, collateral documents, instruments and agreements executed in connection therewith, as the same may be amended, supplemented, modified or restated from time to time. COLO.COM in its sole discretion shall determine whether any item of Indebtedness or portion thereof meeting the foregoing criteria shall be classified as Purchase Money Indebtedness for the purposes of the covenant "Limitation on Incurrence of Indebtedness and Issuance of Preferred Stock." "REPLACEMENT ASSETS" means, on any date, property or assets (other than current assets) of a nature or type or that are used in a business (or an Investment in a company having property or assets of a nature or type, or engaged in a business) that is a Permitted Business. "RESTRICTED SUBSIDIARY" means any Subsidiary of COLO.COM other than an Unrestricted Subsidiary. "S&P" means Standard & Poor's Ratings Group, a division of The McGraw-Hill Companies, and its successors. "SIGNIFICANT SUBSIDIARY" means, at any date of determination, any Restricted Subsidiary that, together with its Subsidiaries, (1) for the most recent fiscal year of COLO.COM, accounted for more than 10% of the consolidated revenues of COLO.COM and its Restricted Subsidiaries or (2) as of the end of such fiscal year, was the owner of more than 10% of the consolidated assets of COLO.COM and its Restricted Subsidiaries, all as set forth on the most recently available consolidated financial statements of COLO.COM for such fiscal year. "STATED MATURITY" means, (1) with respect to any debt security, the date specified in such debt security as the fixed date on which the final installment of principal of such debt security is due and payable and (2) with respect to any scheduled installment of principal of or interest on any debt security, the date specified in such debt security as the fixed date on which such installment is due and payable. "STRATEGIC INVESTMENT" means any Investment in any Person (other than an Unrestricted Subsidiary) whose primary business is a Permitted Business, and such Investment is determined by the Board of Directors of COLO.COM to promote or significantly benefit the businesses of COLO.COM and its Restricted Subsidiaries as of the date of such Investment. "SUBSIDIARY" means, with respect to any Person, any corporation, association or other business entity of which more than 50% of the voting power of the outstanding Voting Stock is 104 108 owned, directly or indirectly, by such Person and one or more other Subsidiaries of such Person. "SUBSIDIARY GUARANTOR" means any Restricted Subsidiary which provides a Note Guarantee of COLO.COM's obligations under the Indenture and the notes. "TEMPORARY CASH INVESTMENT" means any of the following: (1) direct obligations of the United States of America or any agency thereof or obligations fully and unconditionally guaranteed by the United States of America or any agency thereof, in each case maturing within one year; (2) time deposit accounts, certificates of deposit and money market deposits maturing (with respect to all such items outstanding at any given time) within an average of 180 days of the date of acquisition thereof (provided that each such item matures within 18 months of the date of acquisition thereof) issued by a bank or trust company which is organized under the laws of the United States of America, any state thereof or any foreign country recognized by the United States of America, and which bank or trust company has capital, surplus and undivided profits aggregating in excess of $100 million (or the foreign currency equivalent thereof) and has outstanding debt which is rated "A" (or such similar equivalent rating) or higher by at least one nationally recognized statistical rating organization (as defined in Rule 436 under the Securities Act) or any money market fund sponsored by a registered broker dealer or mutual fund distributor; (3) repurchase obligations with a term of not more than 30 days for underlying securities of the types described in clause (1) above entered into with a bank or trust company meeting the qualifications described in clause (2) above; (4) commercial paper, maturing not more than one year after the date of acquisition, issued by a corporation (other than an Affiliate of COLO.COM) organized and in existence under the laws of the United States of America, any state thereof or any foreign country recognized by the United States of America with a rating at the time as of which any investment therein is made of "P-1" (or higher) according to Moody's or "A-1" (or higher) according to S&P; (5) securities with maturities of six months or less from the date of acquisition issued or fully and unconditionally guaranteed by any state, commonwealth or territory of the United States of America, or by any political subdivision or taxing authority thereof, and rated at least "A" by S&P or Moody's; and (6) any mutual fund that has at least 95% of its assets continuously invested in investments of the types described in clauses (1) through (5) above. "TOTAL COMMON EQUITY" of any Person means, as of any date of determination the product of (i) the aggregate number of outstanding primary shares of Common Stock of such Person on such day (which shall not include any options or warrants on, or securities convertible or exchangeable into, shares of Common Stock of such Person) and (ii) the average Closing Price of such Common Stock over the 20 consecutive Trading Days immediately preceding such day. If no such Closing Price exists with respect to shares of any such class, the value of such shares for purposes of Clause (ii) of the preceding sentence shall be determined by the Board of Directors of COLO.COM in good faith and evidenced by a resolution of the Board of Directors filed with the Trustee. "TRADE PAYABLES" means, with respect to any Person, any accounts payable or any other indebtedness or monetary obligation to trade creditors created, assumed or Guaranteed by such 105 109 Person or any of its Subsidiaries arising in the ordinary course of business in connection with the acquisition of goods or services. "TRADING DAY" with respect to a securities exchange or automated quotation system means a day on which such exchange or system is open for a full day of trading. "TRANSACTION DATE" means, with respect to the Incurrence of any Indebtedness or Issuance or Incurrence of Preferred Stock, the date such Indebtedness is to be Incurred or such Preferred Stock is to be Issued or Incurred and, with respect to any Restricted Payment, the date such Restricted Payment is to be made. "UNRESTRICTED SUBSIDIARY" means (1) any Subsidiary of COLO.COM that at the time of determination shall be designated an Unrestricted Subsidiary by the Board of Directors in the manner provided below; and (2) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate any Restricted Subsidiary (including any newly acquired or newly formed Subsidiary of COLO.COM) to be an Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock of, or owns or holds any Lien on any property of, COLO.COM or any Restricted Subsidiary; provided that (A) any Guarantee by COLO.COM or any Restricted Subsidiary of any Indebtedness of the Subsidiary being so designated shall be deemed an "Incurrence" of such Indebtedness and an "Investment" by COLO.COM or such Restricted Subsidiary (or both, if applicable) at the time of such designation; (B) either (I) the Subsidiary to be so designated has total assets of $1,000 or less or (II) if such Subsidiary has assets greater than $1,000, such designation would be permitted under the "Limitation on Restricted Payments" covenant; and (C) if applicable, the Incurrence of Indebtedness and the Investment referred to in clause (A) of this proviso would be permitted under the "Limitation on Incurrence of Indebtedness and Issuance of Preferred Stock" and "Limitation on Restricted Payments" covenants. The Board of Directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided that (a) no Default or Event of Default shall have occurred and be continuing at the time of or after giving effect to such designation and (b) all Liens and Indebtedness of such Unrestricted Subsidiary outstanding immediately after such designation would, if Incurred at such time, have been permitted to be Incurred (and shall be deemed to have been Incurred) for all purposes of the Indenture. Any such designation by the Board of Directors shall be evidenced to the Trustee by promptly filing with the Trustee a copy of the Board Resolution giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing provisions. "U.S. GOVERNMENT OBLIGATIONS" means securities that are (1) direct obligations of the United States of America for the payment of which its full faith and credit is pledged or 106 110 (2) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case, are not callable or redeemable at the option of the issuer thereof at any time prior to the Stated Maturity of the notes, and shall also include a depository receipt issued by a bank or trust company as custodian with respect to any such U.S. Government Obligation or a specific payment of interest on or principal of any such U.S. Government Obligation held by such custodian for the account of the holder of a depository receipt; provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the U.S. Government Obligation or the specific payment of interest on or principal of the U.S. Government Obligation evidenced by such depository receipt. "VOTING STOCK" means with respect to any Person, Capital Stock of any class or kind ordinarily having the power to vote for the election of directors, managers or other voting members of the governing body of such Person. "WHOLLY OWNED" means, with respect to any Subsidiary of any Person, the ownership of all of the outstanding Capital Stock of such Subsidiary (other than any director's qualifying shares or Investments by foreign nationals mandated by applicable law) by such Person or one or more Wholly Owned Subsidiaries of such Person. 107 111 MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS The following is a general discussion of material U.S. federal income considerations relevant to holders of the notes including material U.S. federal income tax consequences of the exchange of old notes for new notes pursuant to the exchange offer. This discussion is based upon the Internal Revenue Code of 1986, as amended (the "Code"), Treasury Regulations, Internal Revenue Service ("IRS") rulings and judicial decisions now in effect, all of which are subject to change, possibly with retroactive effect, or different interpretations. There can be no assurance that the IRS will not challenge one or more of the tax consequences described herein, and we have not obtained, nor do we intend to obtain, a ruling from the IRS with respect to the U.S. federal income tax, state tax, local tax, foreign tax or other tax consequences of acquiring or holding notes. This discussion does not purport to deal with all aspects of U.S. federal income taxation that may be relevant to a particular holder in light of the holder's circumstances (for example, persons subject to the alternative minimum tax provisions of the Code). Also, it is not intended to be wholly applicable to all categories of investors, some of which, such as dealers in securities, banks, insurance companies, tax-exempt (employment, charitable or other) organizations, and persons holding notes as part of a hedging or conversion transaction or straddle or persons deemed to sell notes under the constructive sale provisions of the Code, may be subject to special rules. The discussion also does not discuss any aspect of state, local or foreign law, or U.S. federal estate and gift tax law. This discussion is limited to purchasers of notes who hold the notes as "capital assets" within the meaning of Section 1221 of the Code. All purchasers of the notes are advised to consult their own tax advisors regarding the federal, state, local and foreign tax consequences of the purchase, ownership and disposition of the notes. U.S. HOLDERS As used herein, the term "U.S. Holder" means the beneficial owner of a note that for United States federal income tax purposes is: - a citizen or resident (as defined in Section 7701(b) of the Code) of the United States; - a corporation, partnership or other entity formed under the laws of the United States or any political subdivision thereof; - an estate the income of which is subject to U.S. federal income taxation regardless of its source; or - a trust which is subject to the supervision of a court within the United States and the control of a United States person as described in Section 7701(a)(30) of the Code. A "Non-U.S. Holder" is any holder other than a U.S. Holder. INTEREST Stated interest on the notes will generally be includable in a U.S. Holder's gross income and taxable as ordinary income for U.S. federal income tax purposes at the time it is paid or accrued in accordance with the U.S. Holder's regular method of accounting. 108 112 SALE, EXCHANGE OR REDEMPTION Each U.S. Holder generally will recognize capital gain or loss upon the sale, exchange, redemption or other disposition of the notes measured by the difference, if any, between: - the amount of cash and the fair market value of any property received, except to the extent that such cash or other property is attributable to the payment of accrued interest not previously included in income, which amount will be taxable as ordinary income; and - such holder's adjusted tax basis in the notes. Capital gain recognized by an individual U.S. Holder generally will be subject to a maximum United States federal income tax rate of: - 39.6% if the U.S. Holder held the asset for not more than 12 months before the disposition; or - 20% if the U.S. Holder held the asset for more than 12 months before the disposition. A holder's initial tax basis in a note will be the amount paid therefor. The exchange of the old notes for the new notes pursuant to the exchange offer should not be treated as an "exchange" for federal income tax purposes because the new notes should not differ materially in either kind or extent from the old notes and because the exchange will occur by operation of the terms of the old notes. A U.S. Holder's adjusted tax basis in the new notes should be the same as such Holder's adjusted tax basis in the old notes. A U.S. Holder's holding period for the new notes received pursuant to the exchange offer should include its holding period for the old notes surrendered therefor. INFORMATION REPORTING AND BACKUP WITHHOLDING A U.S. Holder of notes may be subject to "backup withholding" at a rate of 31% with respect to "reportable payments," including interest payments, and, under various circumstances, principal payments on the notes and proceeds from the sale, exchange or redemption of the notes. These backup withholding rules apply if the U.S. Holder, among other things: - fails to furnish a social security number or other taxpayer identification number ("TIN") certified under penalties of perjury within a reasonable time after the request therefor; - furnishes a TIN as to which the IRS provides notification that it is an incorrect TIN; - fails to report properly interest; or - under various circumstances, fails to provide a certified statement, signed under penalties of perjury, that the TIN furnished is correct and that such U.S. Holder is not subject to backup withholding. A U.S. Holder who does not provide us with its correct TIN also may be subject to penalties imposed by the IRS. Any amount withheld from a payment to a U.S. Holder under the backup withholding rules is creditable against the U.S. Holder's federal income tax liability, provided that the required information is furnished to the IRS. Backup withholding will not apply, however, with respect to payments made to certain holders, including corporations and tax-exempt organizations, provided their exemptions from backup withholding are properly established. 109 113 We will report to the U.S. Holders of notes and to the IRS the amount of any "reportable payments" for each calendar year and the amount of tax withheld, if any, with respect to such payments. NON-U.S. HOLDERS The following discussion is limited to the U.S. federal income tax consequences relevant to a Non-U.S. Holder. Non-U.S. Holders should consult their own tax advisors concerning the state, local, foreign and other tax consequences of the purchase, ownership and disposition of the notes. For purposes of U.S. federal income tax on interest discussed below, a Non-U.S. Holder (as defined above) includes a non-resident fiduciary of an estate or trust. For purposes of the following discussion, interest and gain on the sale, exchange or other disposition of a note will be considered to be "U.S. trade or business income" if such income or gain is: - effectively connected with the conduct of a trade or business within the U.S. of such Non-U.S. Holder; or - in the case of certain residents of certain countries which have an income tax treaty in force with the U.S., attributable to a permanent establishment or, in the case of an individual, a fixed base, in the United States as such terms are defined in the applicable treaty. STATED INTEREST Generally any interest paid to a Non-U.S. Holder of a note that is not U.S. trade or business income will not be subject to U.S. federal income tax if the interest qualifies as "portfolio interest." Generally interest on the notes will qualify as portfolio interest if: - the Non-U.S. Holder does not actually or constructively own 10% or more of the total combined voting power of all classes of our stock entitled to vote and is not a "controlled foreign corporation" with respect to which we are a "related person" within the meaning of the appropriate provisions of the Code; - the Non-U.S. Holder, under penalty of perjury, certifies in general that the Non-U.S. Holder is not a U.S. person and such certificate provides the Non-U.S. Holder's name and address; - the Non-U.S. Holder is not a bank receiving interest on an extension of credit made pursuant to a loan agreement made in the ordinary course of its trade or business; and - the notes are in registered form. The gross amount of payments of interest to a Non-U.S. Holder that do not qualify for the portfolio interest exemption and that are not U.S. trade or business income will be subject to U.S. federal income tax at the rate of 30%, unless a U.S. income tax treaty applies to reduce or eliminate such tax. Interest payments that are considered as U.S. trade or business income will be taxed at regular U.S. income tax rates rather than the 30% gross rate. In the case of a Non-U.S. Holder that is a corporation, such U.S. trade or business income may also be subject to the branch profits tax (which is generally imposed on a foreign corporation on the actual or deemed repatriation from the United States of earnings and profits attributable to U.S. trade or business income) at a 30% rate unless a U.S. income tax treaty applies to reduce or eliminate such tax. To claim the benefit of a tax treaty or to claim exemption from withholding because the income is U.S. trade or business income, the Non-U.S. Holder must provide a properly 110 114 executed IRS Form 1001 or IRS Form 4224 (or such successor forms as the IRS designates), as applicable, prior to the payment of interest. Under recently issued U.S. Treasury Regulations that will generally be effective on and after January 1, 2001 (the "Withholding Regulations"), the required Forms 1001 and 4224 will be replaced by a new Form W-8. Under the Withholding Regulations, a Non-U.S. Holder may under certain circumstances be required to obtain a U.S. taxpayer identification number and make certain certifications to us. Special procedures are provided in the Withholding Regulations for payments through qualified intermediaries. Investors should consult their tax advisors regarding the effect, if any, of the Withholding Regulations. SALE, EXCHANGE OR REDEMPTION OF NOTES Except as described below and subject to the discussion concerning backup withholding, any gain realized by a Non-U.S. Holder on the sale, exchange or redemption of a note generally will not be subject to U.S. federal income tax, unless: - such gain is U.S. trade or business income; or - the Non-U.S. Holder is subject to tax pursuant to the provisions of U.S. tax law applicable to certain U.S. expatriates, including certain former citizens or residents of the United States. The exchange of the old notes for the new notes pursuant to the exchange offer should not be treated as an "exchange" for federal income tax purposes because the new notes should not differ materially in either kind or extent from the old notes and because the exchange will occur by operation of the terms of the old notes. A Non-U.S. Holder's adjusted tax basis in the new notes should be the same as such Holder's adjusted tax basis in the old notes. A Non-U.S. Holder's holding period for the new notes received pursuant to the exchange offer should include its holding period for the old notes surrendered therefor. INFORMATION REPORTING AND BACKUP WITHHOLDING We must report annually to the IRS and to each Non-U.S. Holder any interest that is subject to withholding, or that is exempt from U.S. withholding tax pursuant to a tax treaty, or interest that is exempt from U.S. tax under the portfolio interest exception or because it is U.S. trade or business income. Copies of these information returns may also be made available under the provisions of a specific treaty or agreement to the tax authorities of the country in which the Non-U.S. Holder resides. We may have to report to the IRS payments of principal. Generally, information reporting and backup withholding of United States federal income tax at a rate of 31% may apply to payments made by us or our agents to Non-U.S. Holders if the payee fails to make the appropriate certification that the holder is a non-U.S. person or if we or our paying agent have actual knowledge that the payee is a United States person. The payment of the proceeds from the disposition of notes to or through a United States office of a United States or foreign broker will be subject to information reporting and backup withholding unless the owner provides certification as to its Non-U.S. Holder status under penalty of perjury or otherwise establishes an exemption, provided that the broker does not have actual knowledge that the holder is a U.S. person or that the conditions of any other exemption are not, in fact, satisfied. The proceeds of the disposition by a Non-U.S. Holder of the notes to or through a foreign office of a broker will generally not be subject to backup withholding. However, if such broker is a U.S. person, a controlled foreign corporation for United States tax purposes, or a foreign person 50% or more of whose gross income from all sources for certain periods is effectively connected with a United States trade or business, or, 111 115 in addition, for periods after December 31, 2000, a foreign partnership that at any time during its tax year either is engaged in the conduct of a trade or business in the United States or has as partners one or more United States persons that, in the aggregate hold more than 50% of the income or capital interest in the partnership, such payments will be subject to information reporting, but not backup withholding, unless such broker has documentary evidence in its records that the holder is a Non-U.S. holder and certain other conditions are met or the holder otherwise establishes an exemption. Any amounts withheld under the backup withholding rules from a payment to a Non-U.S. Holder will be allowed as a refund or a credit against such Non-U.S. Holder's U.S. federal income tax liability, provided that the requisite procedures for claiming such refund or credit are followed. The preceding discussion of material United States federal income tax consequences is for general information only and is not tax advice. Accordingly, each investor should consult its own tax advisers as to particular U.S. federal, state, local, foreign and other tax consequences to it of purchasing, holding and disposing of our notes, including the applicability and effect of any state, local or foreign tax laws, and of any proposed changes in applicable laws. 112 116 PLAN OF DISTRIBUTION We will receive no proceeds in connection with the exchange offer. Each broker-dealer that receives new notes for its own account in connection with the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of new notes. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of new notes received in exchange for old notes where the old notes were acquired as a result of market-making activities or other trading activities. We have agreed that for a period ending upon the earlier of (1) 180 days after the exchange offer has been completed and (2) the date on which broker-dealers no longer own any Transfer restricted securities, we will make available and provide promptly upon reasonable request this prospectus as amended or supplemented, in a form meeting the requirements of the Securities Act to any broker-dealer for use in connection with any resale. New notes received by broker-dealers for their own account in the exchange offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the new notes or a combination of these methods of resale, at market prices prevailing at the time of resale, at prices related to prevailing market prices or negotiated prices. Any resale may be made directly to purchasers or through brokers or dealers who may receive compensation in the form of commissions or concessions from any broker-dealer and/or the purchasers of any new notes. Any broker-dealer that resells new notes that were received by it for its own account in the exchange offer and any broker or dealer that participates in a distribution of new notes may be deemed to be an "underwriter" within the meaning of the Securities Act, and any profit on any such resale of new notes and any commissions or concessions received by these persons may be deemed to be underwriting compensation under the Securities Act. The letter of transmittal states that by acknowledging that it will deliver, and by delivering, a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. We have agreed to indemnify broker-dealers against various liabilities, including liabilities under the Securities Act. For a period of 180 days after the consummation of the exchange offer, we will promptly send additional copies of this prospectus and any amendment or supplement to this prospectus to any broker-dealer that requests such documents in the letter of transmittal. We have agreed to pay all expenses incident to the exchange offer, including the expenses of one counsel for the holders of the new notes, other than the commissions or concessions of any broker-dealers and will indemnify the holders of the new notes, including any broker-dealers, against certain liabilities, including liabilities under the Securities Act. We note, however, that, in the opinion of the SEC, indemnification against liabilities arising under federal securities laws is against public policy and may be unenforceable. LEGAL MATTERS Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto, California, will pass upon the validity of the new notes offered by this prospectus. As of the date of this prospectus, an investment partnership composed of current and former members of and persons associated with Wilson Sonsini Goodrich & Rosati and certain members of and persons associated with Wilson Sonsini Goodrich & Rosati, beneficially owned an aggregate of 123,132 shares of our common stock. 113 117 EXPERTS The consolidated financial statements of COLO.COM and subsidiaries as of December 31, 1998 and 1999 and for the period from inception (April 2, 1997) to December 31, 1997 and for the years ended December 31, 1998 and 1999 included in this prospectus and elsewhere in the registration statement have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their report with respect thereto, and are included herein in reliance upon the authority of said firm as experts in giving said reports. AVAILABLE INFORMATION We have filed with the Securities and Exchange Commission a Registration Statement on Form S-4. This prospectus, which forms a part of the Registration Statement, does not contain all the information included in the Registration Statement. Certain information is omitted and you should refer to the Registration Statement and its exhibits. With respect to references made in this prospectus to any contract or other document of COLO.COM, such references are not necessarily complete and you should refer to the exhibits attached to the Registration Statement for copies of the actual contract or document. You may review a copy of the Registration Statement, including exhibits and schedule filed therewith, at the Securities and Exchange Commission's public reference facilities in Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the Securities and Exchange Commission located at 7 World Trade Center, Suite 1300, New York, New York 10048, and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. You may also obtain copies of such materials from the Public References Section of the Securities and Exchange Commission, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The Securities and Exchange Commission maintains a Web site (http://www.sec.gov) that contains reports and other information regarding registrants, such as COLO.COM, that file electronically with the Securities and Exchange Commission. 114 118 COLO.COM AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Report of Independent Public Accountants.................... F-2 Consolidated Balance Sheets................................. F-3 Consolidated Statements of Operations....................... F-4 Consolidated Statements of Changes in Stockholders' Equity (Deficit)................................................. F-5 Consolidated Statements of Cash Flows....................... F-7 Notes to Consolidated Financial Statements.................. F-8
F-1 119 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of COLO.COM: We have audited the accompanying consolidated balance sheets of COLO.COM (a California corporation) and Subsidiary as of December 31, 1998 and 1999, and the related statements of operations, changes in stockholders' equity (deficit), and cash flows for the period from inception (April 2, 1997) to December 31, 1997, and for the years ended December 31, 1998 and 1999. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of COLO.COM and Subsidiary as of December 31, 1998 and 1999, and the results of their operations and their cash flows for the period from inception (April 2, 1997) to December 31, 1997, and for the years ended December 31, 1998 and 1999, in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP San Francisco, California, January 24, 2000 F-2 120 COLO.COM AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1998 AND 1999, AND MARCH 31, 2000 (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
DECEMBER 31, MARCH 31, ------------------- ----------- 1998 1999 2000 ------- -------- ----------- (UNAUDITED) ASSETS CURRENT ASSETS: Cash and cash equivalents................................. $ 138 $198,412 $381,010 Accounts receivable, net of allowance for doubtful accounts of $5, $25, and $135 (unaudited) at December 31, 1998 and 1999, and March 31, 2000, respectively..... 42 28 521 Prepaids and other current assets......................... 177 704 2,182 ------- -------- -------- Total current assets.................................... 357 199,144 383,713 PROPERTY AND EQUIPMENT, net................................. 495 13,195 49,033 RESTRICTED CASH AND CASH EQUIVALENTS........................ -- 2,162 3,765 RESTRICTED INVESTMENTS...................................... -- -- 77,729 DEPOSITS AND OTHER NONCURRENT ASSETS........................ 36 1,241 10,868 ------- -------- -------- Total assets............................................ $ 888 $215,742 $525,108 ======= ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable.......................................... $ 263 $ 8,911 $ 21,434 Accrued liabilities....................................... 149 761 4,823 Current portion of notes payable, net of discount......... -- 1,464 478 ------- -------- -------- Total current liabilities............................... 412 11,136 26,735 ------- -------- -------- NONCURRENT LIABILITIES: Long-term notes payable, net of discount.................. -- 1,876 217,755 Other noncurrent liabilities.............................. -- 42 1,286 ------- -------- -------- Total noncurrent liabilities............................ -- 1,918 219,041 ------- -------- -------- Total liabilities....................................... 412 13,054 245,776 ------- -------- -------- COMMITMENTS AND CONTINGENCIES (Note 7) STOCKHOLDERS' EQUITY: Series A preferred stock, no par value: Authorized shares -- 5,250,000 Issued and outstanding shares -- 4,255,730 at December 31, 1998, and 4,261,730 at both December 31, 1999, and March 31, 2000................................................ 2,078 2,079 2,079 Series B preferred stock, no par value: Authorized shares -- 24,500,000 Issued and outstanding shares -- 0 at December 31, 1998, and 24,500,000 at both December 31, 1999, and March 31, 2000.................................................... -- 12,219 12,219 Series C preferred stock, no par value: Authorized shares -- 21,000,000 Issued and outstanding shares -- 0 at December 31, 1998 and 20,408,164 at both December 31, 1999, and March 31, 2000.................................................... -- 194,056 194,056 Common stock, no par value: Authorized shares -- 81,000,000 Issued and outstanding shares -- 4,233,888, 13,321,793 and 13,557,555 (unaudited) at December 31, 1998 and 1999, and March 31, 2000 respectively......................... 37 12,826 26,003 Warrants.................................................. -- 2,434 88,460 Deferred compensation..................................... -- (9,306) (19,698) Notes receivable from stockholders........................ (8) (1,102) (1,377) Accumulated deficit....................................... (1,631) (10,518) (22,410) ------- -------- -------- Total stockholders' equity.............................. 476 202,688 279,332 ------- -------- -------- Total liabilities and stockholders' equity.............. $ 888 $215,742 $525,108 ======= ======== ========
The accompanying notes are an integral part of these consolidated financial statements. F-3 121 COLO.COM AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE PERIOD FROM INCEPTION (APRIL 2, 1997) TO DECEMBER 31, 1997, FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1999, AND FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 2000 (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS YEARS ENDED ENDED PERIOD FROM INCEPTION DECEMBER 31, MARCH 31, (APRIL 2, 1997) TO ----------------- ------------------ DECEMBER 31, 1997 1998 1999 1999 2000 --------------------- ------- ------- ------- -------- (UNAUDITED) REVENUE......................................... $ 31 $ 190 $ 218 $ 55 $ 192 ------ ------- ------- ------- -------- OPERATING COSTS AND EXPENSES: Cost of revenue............................... 92 342 762 164 3,521 Selling, general, and administrative.......... 14 1,388 6,526 409 5,464 Deferred compensation......................... -- -- 1,248 -- 2,258 Depreciation and amortization................. 2 10 139 50 561 Loss on lease and leasehold improvements...... -- -- 921 610 -- ------ ------- ------- ------- -------- Total operating costs and expenses.......... 108 1,740 9,596 1,233 11,804 ------ ------- ------- ------- -------- Loss from operations........................ (77) (1,550) (9,378) (1,178) (11,612) INTEREST INCOME................................. -- 7 491 2 2,659 INTEREST EXPENSE................................ (1) (10) -- -- (2,939) ------ ------- ------- ------- -------- Net loss........................................ $ (78) $(1,553) $(8,887) $(1,176) $(11,892) ====== ======= ======= ======= ======== PER SHARE INFORMATION: Net loss per common share: basic and diluted..................................... $(0.03) $ (0.28) $ (1.86) $ (0.26) $ (1.49) ====== ======= ======= ======= ======== Common shares used in computing per share amounts: basic and diluted.................... 2,612 5,554 4,771 4,461 7,985 ====== ======= ======= ======= ========
The accompanying notes are an integral part of these consolidated financial statements. F-4 122 COLO.COM AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) FOR THE PERIOD FROM INCEPTION (APRIL 2, 1997) TO DECEMBER 31, 1997, FOR THE YEARS ENDED DECEMBER 31, 1998, AND 1999, AND FOR THE THREE MONTHS ENDED MARCH 31, 2000 (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK SERIES A SERIES B SERIES C COMMON STOCK ------------------ -------------------- --------------------- -------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT WARRANTS --------- ------ ---------- ------- ---------- -------- ---------- ------- -------- BALANCE, APRIL 2, 1997..... -- $ -- -- $ -- -- $ -- -- $ -- $ -- Issuance of common stock for cash and services... -- -- -- -- -- -- 5,050,000 53 -- Net loss for period....... -- -- -- -- -- -- -- -- -- --------- ------ ---------- ------- ---------- -------- ---------- ------- ------- BALANCE, DECEMBER 31, 1997...................... -- -- -- -- -- -- 5,050,000 53 -- Issuance of Series A preferred stock for cash and services, net of issuance costs.......... 4,255,730 2,078 -- -- -- -- -- -- -- Issuance of common stock in exchange for stockholder notes and cash.................... -- -- -- -- -- -- 3,755,000 188 -- Repurchase of common stock................... -- -- -- -- -- -- (4,571,112) (204) -- Net loss for year......... -- -- -- -- -- -- -- -- -- --------- ------ ---------- ------- ---------- -------- ---------- ------- ------- BALANCE, DECEMBER 31, 1998...................... 4,255,730 2,078 -- -- -- -- 4,233,888 37 -- Issuance of Series A preferred stock for cash, net of issuance costs................... 6,000 1 -- -- -- -- -- -- -- Issuance of Series B preferred stock for cash, net of issuance costs................... -- -- 24,500,000 12,219 -- -- -- -- -- Issuance of Series C preferred stock for cash and debt repayment, net of issuance costs....... -- -- -- -- 20,408,164 194,056 -- -- -- Issuance of common stock for cash and services... -- -- -- -- -- -- 284,366 999 -- Value assigned to issued warrants................ -- -- -- -- -- -- -- -- 2,434 Exercise of employee stock options for stockholder notes and cash.......... -- -- -- -- -- -- 9,785,368 1,285 -- NOTES RECEIVABLE ACCUMU- DEFERRED FROM LATED EQUITY COMPENSATION STOCKHOLDERS DEFICIT (DEFICIT) ------------ ------------ -------- --------- BALANCE, APRIL 2, 1997..... $ -- $ -- $ -- $ -- Issuance of common stock for cash and services... -- -- -- 53 Net loss for period....... -- -- (78) (78) -------- ------ -------- -------- BALANCE, DECEMBER 31, 1997...................... -- -- (78) (25) Issuance of Series A preferred stock for cash and services, net of issuance costs.......... -- -- -- 2,078 Issuance of common stock in exchange for stockholder notes and cash.................... -- (182) -- 6 Repurchase of common stock................... -- 174 -- (30) Net loss for year......... -- -- (1,553) (1,553) -------- ------ -------- -------- BALANCE, DECEMBER 31, 1998...................... -- (8) (1,631) 476 Issuance of Series A preferred stock for cash, net of issuance costs................... -- -- -- 1 Issuance of Series B preferred stock for cash, net of issuance costs................... -- -- -- 12,219 Issuance of Series C preferred stock for cash and debt repayment, net of issuance costs....... -- -- -- 194,056 Issuance of common stock for cash and services... -- -- -- 999 Value assigned to issued warrants................ -- -- -- 2,434 Exercise of employee stock options for stockholder notes and cash.......... -- (1,143) -- 142
F-5 123 COLO.COM AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED) FOR THE PERIOD FROM INCEPTION (APRIL 2, 1997) TO DECEMBER 31, 1997, FOR THE YEARS ENDED DECEMBER 31, 1998, AND 1999, AND FOR THE THREE MONTHS ENDED MARCH 31, 2000 (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK SERIES A SERIES B SERIES C COMMON STOCK ------------------ -------------------- --------------------- -------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT WARRANTS --------- ------ ---------- ------- ---------- -------- ---------- ------- -------- Recognition of deferred compensation............ -- -- -- -- -- -- -- 10,554 -- Deferred compensation..... -- -- -- -- -- -- -- -- -- Repurchase of common stock................... -- -- -- -- -- -- (981,829) (49) -- Net loss for year......... -- -- -- -- -- -- -- -- -- --------- ------ ---------- ------- ---------- -------- ---------- ------- ------- BALANCE, DECEMBER 31, 1999...................... 4,261,730 2,079 24,500,000 12,219 20,408,164 194,056 13,321,793 12,826 2,434 Value assigned to issued warrants (unaudited).... -- -- -- -- -- -- -- -- 86,176 Warrants exercised (unaudited)............. -- -- -- -- -- -- 90,345 200 (150) Exercise of employee stock options for stockholder notes and cash (unaudited)............. -- -- -- -- -- -- 210,000 330 -- Payment of stockholder note.................... -- -- -- -- -- -- -- -- -- Recognition of deferred compensation (unaudited)............. -- -- -- -- -- -- -- 12,650 -- Deferred compensation (unaudited)............. -- -- -- -- -- -- -- -- -- Repurchase of common stock (unaudited)............. -- -- -- -- -- -- (64,583) (3) -- Net loss for period (unaudited)............. -- -- -- -- -- -- -- -- -- --------- ------ ---------- ------- ---------- -------- ---------- ------- ------- BALANCE, MARCH 31, 2000 (unaudited)............... 4,261,730 $2,079 24,500,000 $12,219 20,408,164 $194,056 13,557,555 $26,003 $88,460 ========= ====== ========== ======= ========== ======== ========== ======= ======= NOTES RECEIVABLE ACCUMU- DEFERRED FROM LATED EQUITY COMPENSATION STOCKHOLDERS DEFICIT (DEFICIT) ------------ ------------ -------- --------- Recognition of deferred compensation............ (10,554) -- -- -- Deferred compensation..... 1,248 -- -- 1,248 Repurchase of common stock................... -- 49 -- -- Net loss for year......... -- (8,887) (8,887) -------- ------- -------- -------- BALANCE, DECEMBER 31, 1999...................... (9,306) (1,102) (10,518) 202,688 Value assigned to issued warrants (unaudited).... -- -- -- 86,176 Warrants exercised (unaudited)............. -- -- -- 50 Exercise of employee stock options for stockholder notes and cash (unaudited)............. -- (328) -- 2 Payment of stockholder note.................... -- 53 -- 53 Recognition of deferred compensation (unaudited)............. (12,650) -- -- -- Deferred compensation (unaudited)............. 2,258 -- -- 2,258 Repurchase of common stock (unaudited)............. -- -- -- (3) Net loss for period (unaudited)............. -- -- (11,892) (11,892) -------- ------- -------- -------- BALANCE, MARCH 31, 2000 (unaudited)............... $(19,698) $(1,377) $(22,410) $279,332 ======== ======= ======== ========
The accompanying notes are an integral part of these consolidated financial statements. F-6 124 COLO.COM AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE PERIOD FROM INCEPTION (APRIL 2, 1997) TO DECEMBER 31, 1997, FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1999, AND FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 2000 (UNAUDITED) (IN THOUSANDS)
PERIOD FROM THREE MONTHS INCEPTION YEAR ENDED ENDED (APRIL 2, 1997) TO DECEMBER 31, MARCH 31, DECEMBER 31, ------------------ ------------------ 1997 1998 1999 1999 2000 ------------------ ------- -------- ------- -------- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss................................................ $(78) $(1,553) $ (8,887) $(1,176) $(11,892) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization......................... 2 10 139 50 561 Amortization of warrants.............................. -- -- -- -- 338 Loss on disposal of fixed assets...................... -- -- 465 465 -- Deferred compensation................................. -- 1,248 -- 2,258 Cost of revenues relating to warrants................. -- -- -- -- 2,294 Series A preferred stock exchanged for services....... -- 116 -- -- -- Changes in operating assets and liabilities: Accounts receivable, net............................ (9) (33) 14 3 (494) Prepaids and other current assets................... -- (177) (527) 178 (1,478) Deposits and other noncurrent assets................ -- (36) (955) 32 (209) Accounts payable.................................... 7 256 110 (155) 886 Other noncurrent liabilities........................ -- -- 42 -- 1,170 Accrued liabilities................................. 12 137 612 118 1,634 ---- ------- -------- ------- -------- Net cash used in operating activities............. (66) (1,280) (7,739) (485) (4,932) ---- ------- -------- ------- -------- CASH FLOWS USED IN INVESTING ACTIVITIES: Additions to property and equipment, net................ (71) (436) (12,430) (73) (35,734) Increase in accounts payable related to construction activities............................................ -- -- 2,598 -- 17,577 Restricted investments.................................. -- -- -- -- (77,729) Increase in restricted cash and cash equivalents........ -- -- (2,162) -- (1,603) ---- ------- -------- ------- -------- Net cash used in investing activities............. (71) (436) (11,994) (73) (97,489) ---- ------- -------- ------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of notes payable................. 119 41 9,729 497 290,508 Interest payable........................................ -- -- -- -- 2,502 Repayments of notes payable............................. -- (160) (3,643) -- (2,153) Proceeds from sale of common stock...................... 53 6 205 17 -- Payment of stockholder note............................. -- -- -- -- 53 Warrants and options exercised.......................... -- -- -- -- 52 Proceeds from issuance of Series A preferred stock, net................................................... -- 1,962 1 1 -- Proceeds from issuance of Series B preferred stock, net................................................... -- -- 12,219 -- -- Proceeds from issuance of Series C preferred stock, net................................................... -- -- 199,496 -- -- Preferred stock issuance costs paid..................... -- -- -- -- (5,940) Repurchase of common stock.............................. -- (30) -- -- (3) ---- ------- -------- ------- -------- Net cash provided by financing activities......... 172 1,819 218,007 515 285,019 ---- ------- -------- ------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...... 35 103 198,274 (43) 182,598 CASH AND CASH EQUIVALENTS: Beginning of period..................................... -- 35 138 138 198,412 ---- ------- -------- ------- -------- End of period........................................... $ 35 $ 138 $198,412 $ 95 $381,010 ==== ======= ======== ======= ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for interest................ $ 1 $ 10 $ 63 $ -- $ 106 Notes issued for purchase of common stock............... -- 182 1,143 -- 328 Repurchase of common stock in exchange for stockholder notes................................................. -- 174 49 -- -- Stock issued for assets and services.................... -- -- 936 -- -- Value assigned to warrants.............................. -- -- 2,434 -- 86,176 Warrants exercised...................................... -- -- -- -- 150 Deferred compensation................................... -- -- 10,554 -- 12,650 Issuance of Series C preferred stock in lieu of debt repayment............................................. -- -- 500 -- -- Amortization of debt discount included in capitalized interest.............................................. -- -- 874 -- 591 Accrued preferred stock issuance costs.................. -- -- 5,940 -- --
The accompanying notes are an integral part of these consolidated financial statements. F-7 125 COLO.COM AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999, AND MARCH 31, 2000 (UNAUDITED) 1. NATURE OF BUSINESS: COLO.COM, formerly Colomotion, Inc., was incorporated on April 2, 1997, in the state of California. As of March 31, 2000, COLO.COM had two wholly owned subsidiaries. COLO.COM Limited, was incorporated in the United Kingdom on November 12, 1999. COLO.COM GmbH was incorporated in Germany on February 9, 2000. The Company, which includes COLO.COM, COLO.COM Limited and COLO.COM GmbH, is a rapidly growing provider of colocation facilities in which communications services companies can house their equipment and connect to network providers. The Company's target customers are Internet-based businesses, application service providers, Internet service providers, competitive local phone companies and other voice and data communications companies. The facilities, known as Neutral Optical Hubs, will offer target customers a capital-efficient means to rapidly deploy their networks and applications. As of December 31, 1999, the Company operated one such Neutral Optical Hub in which revenue was generated. As of March 31, 2000, the Company had four Neutral Optical Hubs in which revenue was generated. The Company intends to make its facilities available in many domestic and international locations. The facilities are planned to provide flexible access to multiple communications carriers, allowing customers the opportunity to select a network provider. The facilities will also have technologically advanced systems designed to provide uninterrupted electric power availability, temperature and humidity control, physical security and environmental safety, and on-site services provided by a staff of telecommunication and Internet-trained technicians. The Company is a start-up company in a new and rapidly evolving market. Its success, in part, depends on its ability to generate additional financing, grow its customer base, and manage its relations with the companies that provide connectivity to its Neutral Optical Hubs. The Company's success also depends on its ability to effectively manage growth, develop Neutral Optical Hubs worldwide, penetrate additional international markets, and profitably charge for its services. Additional risks include actual and potential competition from larger, existing service providers and carriers as well as new market entrants, changes in technology, evolving industry standards, development of an effective strategy to secure market acceptance for the Company's services, and retention of qualified personnel. The Company incurred a loss of $8,887,000 and $11,892,000 (unaudited) for the year ended December 31, 1999, and for the three months ended March 31, 2000, respectively, and had an accumulated deficit at March 31, 2000, of $22,410,000 (unaudited). The Company expects to make significant capital expenditures and to continue to incur significant losses in the foreseeable future. Management believes that the Company will be successful in obtaining adequate sources of cash to fund its anticipated operating losses, capital expenditures, and interest expense through the end of 2000 and to follow through with plans for growth and expansion. There can be no assurance that management will be successful in carrying out its plans. If the risks listed above cannot be managed in a timely manner, the Company's operations may be adversely affected. 2. SIGNIFICANT ACCOUNTING POLICIES: INTERIM FINANCIAL STATEMENTS The interim consolidated financial statements as of March 31, 2000, and for the three months ended March 31, 1999 and 2000, are unaudited, and certain information and footnote F-8 126 COLO.COM AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999, AND MARCH 31, 2000 (UNAUDITED) disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary to fairly present the financial position, results of operations and cash flows with respect to the interim financial statements have been included. The results of operations for the interim periods are not indicative of the results for the entire fiscal year. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of COLO.COM and its subsidiaries. All significant intercompany balances and transactions have been eliminated in the consolidated financial statements. RECLASSIFICATIONS Certain reclassifications have been made to the prior year financial statements to conform to the current reporting. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. REVENUE RECOGNITION Through December 31, 1999, all revenue has been generated from the Company's first facility in San Francisco (Mission Street). In the first three months of 2000, revenue has been generated from four of the Company's Neutral Optical Hubs. The Company enters into contracts with its customers for services and use of cabinet and cage space at the Company's Neutral Optical Hubs. These contracts typically have terms between one and ten years, with varying renewal periods. The Company's revenue consists primarily of monthly payments for use of cabinet and cage space in the Company's Neutral Optical Hubs, payments for customer connections to communications carriers, and payments for installation and technical support services. Generally, the Company bills the customer at the beginning of the month for the subsequent month's rent. Any advance collections are deferred and recognized on a straight-line basis over the period in which service is provided. Revenue for services other than installation is recognized as the services are provided. In December 1999, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial Statements." SAB 101 summarizes the SEC's view in applying generally accepted accounting principles to selected revenue recognition issues. As of January 1, 2000, the Company began to recognize installation revenue over the life of a customer contract. The cost associated with customer installation and other services is expensed as incurred. There is no material impact on prior years' statements. F-9 127 COLO.COM AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999, AND MARCH 31, 2000 (UNAUDITED) SIGNIFICANT CUSTOMERS The Company earned approximately 34 percent, 31 percent and 11 percent of its revenue from sales made to its three largest customers during the year ended December 31, 1998. The Company earned approximately 56 percent, 23 percent and 11 percent of its revenue from sales made to its three largest customers during the year ended December 31, 1999. The Company earned approximately 28 percent, 19 percent and 18 percent of its revenues compared to 61 percent, 18 percent and 5 percent of its revenues for sales made to its three largest customers during the three months ended March 31, 1999 and 2000, respectively (unaudited). DEFERRED RENT The Company has certain leases that contain fixed escalations of the minimum annual lease payments during the original term of the lease. The Company recognizes occupancy expense on a straight-line basis, recording the difference between the rental amount charged to expense and the amount payable under the lease as a deferred rent liability. Amounts are included in other noncurrent liabilities. CONCENTRATION OF CREDIT RISK Financial instruments that may potentially subject the Company to concentration of credit risk consist principally of cash, short term securities and accounts receivable. All cash is with financial institutions with strong credit ratings, which minimizes the risk of loss due to nonpayment. The Company has not experienced any losses due to credit impairment related to its financial instruments. The collection of accounts receivable is subject to the credit worthiness of the Company's customers. The Company has experienced minimal losses due to the write-off of uncollectible accounts. INCOME TAXES Upon incorporation, the Company's common stockholders elected to be taxed under the subchapter S corporation provisions of the Internal Revenue Code, whereby stockholders are personally liable for federal income taxes on their proportionate share of the Company's net income or loss. Effective June 26, 1998, with the issuance of Series A preferred stock, the Company became ineligible for S corporation status. As of June 26, 1998, the Company had an accumulated deficit of $567,000 incurred while an S corporation. The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." SFAS No. 109 requires the asset and liability method of accounting for income taxes. Under this method, deferred income taxes are recognized for the tax consequences of "temporary differences" by applying the applicable statutory tax rate to the differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities. SEGMENT REPORTING The Company has adopted the provisions of SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 131 establishes annual and interim F-10 128 COLO.COM AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999, AND MARCH 31, 2000 (UNAUDITED) reporting standards for operating segments of a company. The statement requires disclosures of selected segment-related financial information about products, major customers, and geographic areas. The Company has one reportable segment because it is not organized by multiple segments for purposes of making operating decisions or assessing performance. The Company evaluates performance, makes operating decisions, and allocates resources based on financial data consistent with the presentation in the accompanying consolidated financial statements. As of December 31, 1998 and 1999 and March 31, 2000 (unaudited), substantially all operations and assets were based in the United States. CASH EQUIVALENTS For purposes of reporting cash flows, the Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. RESTRICTED CASH AND CASH EQUIVALENTS Restricted cash and cash equivalents represent funds set aside as collateral for letters of credit issued under building lease agreements. The balance consists of certificates of deposits with terms of 90 days or less. RESTRICTED INVESTMENTS Under the covenants of the offering of the senior notes, the Company is required to pledge securities equal to the amount of the first four interest payments. These securities, which consist of United States Treasury bills with maturities near the date of each interest payment, are held by a Trustee. It is the Company's intent to hold these investments until maturity. PROPERTY AND EQUIPMENT Property and equipment are stated at cost and are depreciated using the straight-line method over estimated useful lives, or related lease terms, if shorter, as follows:
CLASSIFICATIONS ESTIMATED USEFUL LIVES --------------- ---------------------- Computer and office furniture and equipment.......................... 3 - 5 years Site equipment, furniture and fixtures........................... 5 years Leasehold improvements............... The lesser of estimated useful lives or term of lease
LONG-LIVED ASSETS The Company's policy is to record long-lived assets at cost, amortizing their costs over the expected useful life of the related assets. In accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of," assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts of the assets may not be recoverable. F-11 129 COLO.COM AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999, AND MARCH 31, 2000 (UNAUDITED) CONSTRUCTION IN PROGRESS Construction in progress includes direct expenditures for the construction of Neutral Optical Hubs and is stated at cost. Capitalized construction costs include costs incurred under the construction contract, cabling, on-site construction management and rent, utilities, direct costs and interest during the construction phase. Once a Neutral Optical Hub has been constructed and is available for its intended use, capitalized costs are depreciated at an appropriate rate based on Company policy. Interest incurred during construction is capitalized in accordance with SFAS No. 34, "Capitalization of Interest Costs." Total interest capitalized to construction in progress during the year ended December 31, 1999, and the three months ended March 31, 1999 and 2000, was $930,000, $0 and $591,000 (unaudited), respectively. DEFERRED FINANCING COSTS During March 2000, the Company completed an offering of senior notes that raised approximately $290 million (unaudited), net of issuance costs. As of December 31, 1999, and March 31, 2000, costs of $144,000 and $9,680,000 (unaudited), respectively, have been incurred in connection with this offering. These costs are included in other noncurrent assets in the accompanying consolidated balance sheets. These costs are being amortized on a straight-line basis over the life of the notes beginning in March 2000. NET INCOME (LOSS) PER COMMON SHARE The Company computes net income (loss) per common share in accordance with SFAS No. 128, "Earnings Per Share," and SEC Staff Accounting Bulletin No. 98 (SAB No. 98). Under the provisions of SFAS No. 128 and SAB No. 98, basic net income (loss) per common share (Basic EPS) is computed by dividing net income (loss) by the weighted average number of common shares outstanding excluding shares subject to repurchase. Diluted net income (loss) per common share (Diluted EPS) is computed by dividing net income (loss) by the weighted average number of common shares and dilutive common share equivalents then outstanding. Diluted EPS for all periods presented does not include the impact of stock options, shares subject to repurchase, preferred stock, and warrants, as the effect of their inclusion would be antidilutive. PRO FORMA NET LOSS PER SHARE (UNAUDITED) The calculation of pro forma net loss per share assumes that all series of convertible shares have been converted into common stock as of the original issuance date. COST OF REVENUE Cost of revenue consists primarily of site-related employee salaries and benefits, rental payments on the Company's Neutral Optical Hubs, payments for equipment, connectivity charges, utilities, and other direct operating expenses. F-12 130 COLO.COM AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999, AND MARCH 31, 2000 (UNAUDITED) DEFERRED COMPENSATION AND STOCK EXCHANGED FOR SERVICES The Company has elected to follow Accounting Principles Board Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees," and related interpretations in accounting for its employee stock options. Under APB 25, when the exercise price of employee stock options is less than the fair market value of the underlying stock on the date of grant, compensation expense is recorded for the difference between fair market value and the exercise price. Expense associated with stock-based compensation is being amortized over the vesting period of the individual award consistent with the method described in Financial Accounting Standards Board (FASB) Interpretation No. 28. No stock compensation expense was recorded in 1998. The Company has recorded compensation expense of $1,248,000 and $2,258,000 (unaudited) for the year ended December 31, 1999, and for the three months ended March 31, 2000, respectively. All deferred compensation relate to selling, general and administrative expense. The Company has adopted the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." The value of warrants, options or stock exchanged for services is expensed over the period benefited. To calculate the expense, the Company uses either the market value of the equity instrument or the value of the services, whichever is more objectively determinable. RECENTLY ISSUED ACCOUNTING STANDARDS In April 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" (SOP 98-1), which provides guidance on the capitalization of the costs incurred for computer software developed or obtained for internal use. The Company adopted the new standard in 1999, although the impact on the 1999 financial statements was not significant. In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of Start-up Activities." SOP 98-5 requires that all start-up costs related to new operations must be expensed as incurred. In addition, all start-up costs that were capitalized in the past must be written off when SOP 98-5 is adopted. Adoption of this statement in fiscal 1999 did not have an impact on the consolidated financial statements; all start-up costs have historically been expensed as incurred. In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, "Accounting for Derivatives and Hedging Activities," which establishes accounting and reporting standards of derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. Subsequently, in June 1999, the FASB issued SFAS No. 137, "Accounting for Derivatives and Hedging Activities -- Deferral of the Effective Date of SFAS No. 133," which amended SFAS No. 133. The Company does not currently have any derivatives or hedges and does not expect the adoption of this standard to have a material effect on the Company's results of operations, financial position or cash flows. F-13 131 COLO.COM AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999, AND MARCH 31, 2000 (UNAUDITED) 3. PROPERTY AND EQUIPMENT: Property and equipment consisted of the following at December 31, 1998 and 1999, and March 31, 2000 (in thousands):
DECEMBER 31, --------------- MARCH 31, 1998 1999 2000 ---- ------- ----------- (UNAUDITED) Computer and office furniture and equipment....... $ 15 $ 1,487 $ 3,159 Site equipment, furniture, and fixtures........... 24 24 4,275 Leasehold improvements............................ 163 146 6,476 Construction in progress.......................... 305 11,635 35,676 ---- ------- ------- 507 13,292 49,586 Less: Accumulated depreciation.................... (12) (97) (553) ---- ------- ------- $495 $13,195 $49,033 ==== ======= =======
Depreciation and amortization expense for the period from inception (April 2, 1997) to December 31, 1997, for the years ended December 31, 1998 and 1999, and for the three months ended March 31, 1999 and 2000, was $2,000, $10,000, $139,000, $50,000 (unaudited) and $561,000 (unaudited), respectively. During 1997, the Company implemented SFAS No. 121, which requires an entity to assess the recoverability of the carrying amount of an asset if certain events or changes in circumstances occur. During 1999, management determined that the Company would relocate its San Francisco facility to a new site. Consequently, the Company determined that the leasehold improvements related to the current site were impaired and recognized a charge for impairment loss of $449,000, which is included in loss on lease and leasehold improvements in the accompanying consolidated statements of operations. ACQUISITION OF LEASE AND LEASEHOLD IMPROVEMENTS In September 1999, the Company entered into an agreement to acquire a colocation facility lease in Chicago and the related equipment and leasehold improvements, which were under construction. The facility was under construction and not yet producing revenue. A two-year noncompete agreement with the seller was also obtained. Further, the Company agreed to utilize an affiliate of the seller to construct five additional Neutral Optical Hubs and to pay the seller a fee for future customer referrals. The purchase price was $500,000 plus 100,000 shares of the Company's common stock, with 50,000 issued in September 1999 and 50,000 to be issued in increments in 2000 based upon the seller achieving certain milestones. If the milestones are not achieved by the seller, any unissued shares will be issued by the Company on September 1, 2000, for no additional consideration. A value of $250,000 was assigned to the common stock issued in September 1999 and the 50,000 shares that will ultimately be issued in 2000. The Company has assigned a value of $500,000 to the leasehold improvements in process and a $250,000 value to the noncompete covenant and other rights obtained under the agreement. The $500,000 and $250,000 are included in property and equipment, net, and deposits and other noncurrent assets, respectively, in the accompanying consolidated balance sheet. F-14 132 COLO.COM AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999, AND MARCH 31, 2000 (UNAUDITED) 4. ACCRUED LIABILITIES: Accrued liabilities consist of the following at December 31, 1998 and 1999, and March 31, 2000 (in thousands):
DECEMBER 31 ------------ MARCH 31, 1998 1999 2000 ---- ---- ----------- (UNAUDITED) Payroll and payroll related expenses................. $ 20 $622 $ 820 Operating expenses and other......................... 129 139 1,575 Interest payable..................................... -- -- 2,428 ---- ---- ------ $149 $761 $4,823 ==== ==== ======
5. INCOME TAXES: The Company utilizes the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred taxes are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. The Company's primary temporary differences relate to items expensed for financial reporting purposes but not currently deductible for income tax purposes consisting primarily of accrued vacation, capitalized interest, stock-based compensation expense, deferred rent, and other reserves. As of December 31, 1999, the Company had a tax net operating loss (NOL) carryforward of approximately $8,157,000 for both federal and California state income tax purposes. The federal NOL begins to expire in 2018, and the California NOL begins to expire in 2005. A significant change in ownership of the Company may limit the Company's ability to use these NOL carryforwards. SFAS No. 109 requires that the tax benefit of such net operating loss be recorded as an asset. At December 31, 1999, the Company had gross deferred tax assets of approximately $3,432,000 related to the NOL, tax credits, and miscellaneous temporary differences. The Company has recorded a full valuation allowance of $3,432,000 at December 31, 1999, due to uncertainties surrounding the realizability of the deferred tax asset. 6. NOTES PAYABLE: In March 2000, the Company issued $300,000,000 of Senior Notes and 300,000 warrants to purchase 5,991,540 shares of the Company's Common Stock (the Senior Notes) at $.01 per share. The Senior Notes mature on March 15, 2010 and bear interest at 13 7/8% per annum. Interest on the Senior Notes will be payable semiannually on March 15 and September 15 of each year. Approximately $9,680,000 of costs were incurred in connection with this offering. These deferred financing costs are included in other non current assets in the accompanying consolidated balance sheets and are being amortized on a straight-line basis over the life of the notes beginning in March 2000. The Senior Notes indenture restricts, among other things, the Company's ability to incur additional debt and the use of proceeds of such additional debt, pay dividends or make certain other restricted payments, incur certain liens to secure debt or engage in certain merger transactions. In the event of a change of control as defined in the indenture agreement, each note-holder will have the right to require that the F-15 133 COLO.COM AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999, AND MARCH 31, 2000 (UNAUDITED) Company repurchase the notes at a price equal to 101% of the principal amount, plus accrued and unpaid interest. The covenants of the Senior Notes require the Company to pledge investments equal to the first four interest payments due by the Company. These securities are included in restricted investments in the accompanying consolidated balance sheets. The warrants are exercisable any time on or after the earliest to occur of (a) 180 days after the closing date of the Company's initial public offering or (b) the first anniversary of the warrant issuance date. A value of $83,881,560 was assigned to these warrants. In October 1999, the Company entered into a loan agreement (the Comdisco Loan Agreement) with Comdisco, Inc. (Comdisco). The Comdisco Loan Agreement provides financing for up to $7 million for construction costs and equipment at the Company's Chicago, Illinois, and Emeryville, California, sites. The commitment for this financing terminates on August 31, 2000. Individual notes bear interest at a rate of 8.25 percent per annum and are repayable in 42 monthly installments plus a final payment of 15 percent of the original advance. The Comdisco Loan Agreement includes a prepayment option available after 12 months with a premium equal to 1 percent of the unpaid principal plus the present value of the final payment. Comdisco's security interest includes all tangible and intangible assets relating to the specific facilities funded by the lender. The agreement contains restrictive covenants including limitations on future acquisitions or the payment of dividends or stock purchases. As part of the Comdisco Loan Agreement, the Company granted Comdisco warrants to purchase 73,976 shares of the Company's Series C preferred stock at an exercise price of $7.57 per share. The warrants are exercisable from the date of grant and expire 10 years after this date. A value of $548,000 was assigned to these warrants. In November 1999, the Company borrowed $2.4 million under the Comdisco Loan Agreement. As of December 31, 1999, and March 31, 2000, $2.3 million and $2.2 million (unaudited), respectively, was outstanding. Comdisco is also a holder of Series C preferred stock. In November 1999, the Company entered into a loan agreement (the MMC Loan Agreement) with MMC/GATX Partnership (MMC) and other lenders (Others). The MMC Loan Agreement provides financing of up to $17 million for eligible construction costs and equipment at the Company's Los Angeles, California, and Vienna, Virginia, sites. The commitment for this financing terminates on December 31, 2001. Individual notes bear interest at a per annum rate equal to the sum of the applicable U.S. Treasury note yield to maturity plus 3.93 percent. These notes are repayable in 42 equal monthly installments plus a final payment of 10 percent of the original advance. MMC's security interest includes substantially all tangible and intangible assets relating to the specific facilities funded by the lenders. The MMC Loan Agreement includes a prepayment option declining from 10 percent to 2 percent of the unpaid principal over the loan period plus the present value of the final payment. The agreement contains restrictive covenants including limitations on future acquisitions or the payment of dividends or stock purchases. As part of the MMC Loan Agreement, the Company granted MMC and Others warrants to purchase 227,697 shares of the Company's Series C preferred stock at an exercise price of $6.44 per share. The warrants are exercisable from the date of grant and expire 10 years after this date. A value of $1.7 million was assigned to these warrants. In December 1999, the Company borrowed $1.3 million under the MMC Loan Agreement. As of December 31, 1999, and March 31, 2000, $1.3 million and $1.2 million (unaudited), respectively, was outstanding. In November 1999, the Company entered into a one-year Revolving Line of Credit Agreement (Revolver) with a bank. The Revolver provides credit of up to $2 million, including F-16 134 COLO.COM AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999, AND MARCH 31, 2000 (UNAUDITED) amounts outstanding under letters of credit. Advances bear interest at a rate equal to the prime rate plus 1.25 percent per annum. The borrowings are secured by substantially all personal property of the Company, including accounts receivable, deposit accounts, inventory, and intellectual property other than assets pledged to the Company's other lenders. The agreement contains restrictive covenants including limitations on future acquisitions or the payment of dividends or stock purchases. Additionally, the agreement contains covenants requiring certain minimum quarterly consolidated revenue amounts. As part of the Revolver, the Company entered into a stock purchase agreement giving the bank the right to purchase 24,845 shares of the Company's common stock at a price of $2.00 per share. A value of $150,000 was assigned to these stock purchase rights. In December 1999, the Company borrowed $2 million under the Revolver. In March 2000, the Revolver was paid in full and cancelled (unaudited). The value assigned to the above warrants or options was calculated using the Black-Scholes pricing model with the following assumptions: a risk-free weighted average interest rate of 6.0 percent, expected dividend yield of 0 percent, the expected lives of four to seven years from the date of the grant, and an expected volatility of 70 percent. This amount is accounted for as a discount on the related note and is being amortized as interest expense ratably over either the life of the commitment period of the credit facility or the life of the Senior Notes (10 to 120 months). In December 1999, the Company entered into a loan agreement (the Lighthouse Loan Agreement) with Lighthouse Capital Partners (Lighthouse). The Lighthouse Loan Agreement provides bridge financing of up to $6 million. Notes issued bear interest at a rate of 10 percent per annum and mature on January 31, 2000. The agreement contains covenants including limitations on future investments or loan agreements. As part of the Lighthouse Loan Agreement, the Company entered into a stock purchase agreement whereby Lighthouse purchased 91,429 shares of the Company's common stock at a price of $0.50 per share. In December 1999, the Company borrowed $4 million under the Lighthouse Loan Agreement. This note was repaid on December 30, 1999, with cash of $3.5 million and the issuance of 51,020 shares of Series C preferred stock at a value $9.80 per share. The differences between the fair value of the common stock used for accounting purposes and the purchase price of $0.50 was $686,000 and was accounted for as a discount on the related note and was fully amortized in 1999 upon the repayment of the note. Lighthouse is also a holder of Series C preferred stock. The unamortized portion of the value assigned to warrants issued in connection with the above notes payable agreements is recorded as a discount to the related note payable. F-17 135 COLO.COM AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999, AND MARCH 31, 2000 (UNAUDITED) As of December 31, 1999 and March 31, 2000 (unaudited), the payments due on long-term debt for the next five years and thereafter were as follows (in thousands):
DECEMBER 31, MARCH 31, YEAR ENDING 1999 2000 ----------- ------------ ---------- 2000........................................... $ 2,829 $ 676 2001........................................... 996 996 2002........................................... 1,103 1,103 2003........................................... 658 658 Thereafter..................................... -- 300,000 ------- -------- Total notes payable.......................... 5,586 303,433 Less: Discount related to warrants, net of amortization................................. (2,246) (85,200) ------- -------- Total notes payable, net of discount......... 3,340 218,233 Less: Current portion of notes payable, net of discount..................................... (1,464) (478) ------- -------- Long term notes payable, net of discount..... $ 1,876 $217,755 ======= ========
7. COMMITMENTS AND CONTINGENCIES: FACILITY OPERATING LEASES The Company is committed under long-term operating leases for various facilities expiring at various dates through 2014 with varying renewal options and escalating rent clauses. The Company generally pays for real estate taxes, insurance, and specified maintenance costs under real property leases. The minimum rental commitments under these lease agreements as of December 31, 1999, are as follows:
LEASED YEAR ENDING DECEMBER 31, FACILITIES ------------------------ -------------- (IN THOUSANDS) 2000........................................................ $ 6,686 2001........................................................ 7,420 2002........................................................ 7,570 2003........................................................ 7,703 2004........................................................ 7,476 Thereafter.................................................. 47,990 ------- $84,845 =======
Rent expense, net of amounts capitalized to construction in progress, for the period from inception (April 2, 1997) to December 31, 1997, and for the years ended December 31, 1998 and 1999 (excluding the expansion site abandoned in 1999), and for the three months ended March 31, 1999 and 2000, was approximately $26,000, $121,000, $338,000, $14,000 (unaudited) and $388,000 (unaudited), respectively. These amounts are included in operating expenses in the accompanying statements of operations. F-18 136 COLO.COM AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999, AND MARCH 31, 2000 (UNAUDITED) PURCHASE COMMITMENTS The Company has entered into certain capital expenditure commitments associated with construction of future facilities and equipment purchases. As of December 31, 1999, and March 31, 2000, purchase commitments were $42 million and $53 million (unaudited), respectively, excluding the commitments described in Note 8. CARRIER COMMITMENTS To attract carriers to connect to our facilities, the Company plans to place circuit orders with up to three carriers prior to completing construction of a facility. These orders generally require the Company to pay an installation fee and a minimum monthly charge for periods anticipated to be approximately one to three years. As of March 31, 2000, the Company had placed orders with multiple carriers to connect to six facilities. As of March 31, 2000, the Company had the following commitments associated with these contracts:
MARCH 31, 2000 -------------- (UNAUDITED) 2000........................................................ $ 910 2001........................................................ 1,468 2002........................................................ 1,407 2003........................................................ 610 ------ $4,395 ======
The table above excludes amounts payable under month to month carrier commitments. As customers connect to carriers, it is anticipated that the related monthly charges will be assigned to the customers, thereby reducing the Company's obligation. ABANDONED LEASES In 1998, the Company leased its original San Francisco facility and an adjacent expansion site under operating leases with original expiration dates in 1999 and 2007, respectively. In the first quarter of 1999, management determined that the original facility and the expansion site adjacent to the San Francisco facility would not be used, and thus it was anticipated that the lease would be terminated. On October 5, 1999, the Company entered into an agreement to terminate its expansion site lease whereby the Company paid the owner approximately $286,000 and forfeited its security deposit. Additionally, the Company wrote off rent that was prepaid through August and paid certain legal costs associated with terminating the lease. For the year ended December 31, 1999, the Company has recorded a $472,000 provision for loss associated with terminating the lease. This provision is included in loss on lease and leasehold improvements in the accompanying consolidated statements of operations. F-19 137 COLO.COM AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999, AND MARCH 31, 2000 (UNAUDITED) 8. TRANSACTIONS WITH PREFERRED STOCK INVESTORS: AGREEMENT WITH NEXTLINK In December 1999, the Company entered into a Definitive Agreement and Warrant (the NEXTLINK Agreement) with NEXTLINK Communications, Inc. (NEXTLINK). Among other items, the NEXTLINK Agreement specifies a minimum number of facilities the Company must open by December 31, 2001, and provides for the connection of NEXTLINK's network at up to 20 of the Company's Neutral Optical Hubs within two years. As part of the NEXTLINK Agreement, the Company granted NEXTLINK a warrant to purchase up to 300,000 shares of the Company's Series C preferred stock at an exercise price of $10.00 per share. The warrants are issued in increments of 30,000 for up to 10 facilities. The warrants become exercisable when specific performance measures in the first quarter of 2000 are achieved and expire five years from the warrant issuance. As of December 31, 1999, measurement dates had not yet occurred, and no warrants had been earned. In the first quarter of 2000, NEXTLINK met the performance measures of initiating connections into 10 facilities and earned the warrants to purchase 300,000 shares of the Company's Series C Preferred stock. The value associated with these warrants of $2,294,000 was included in cost of revenues in the three months ended March 31, 2000 (unaudited). This agreement also provides NEXTLINK with available space provisions at the Company's Neutral Optical Hubs and grants NEXTLINK certain rental rights. The terms of the agreement are for five years and provide NEXTLINK with two five-year renewal options. The value assigned to the above warrants was calculated using the Black-Scholes pricing model with the following assumptions: risk free interest rate of 6.6 percent, no expected dividend yield, expected life of four years from the grant date, and expected volatility of 70 percent. AGREEMENT WITH MASTEC AND SKANSKA In December 1999, the Company entered into a Project Management and Construction Services Agreement (the Construction Agreement) with Mastec North America, Inc. (Mastec) and Sordoni Skanska Construction Company (Skanska). The Construction Agreement provides for the construction of 22 Neutral Optical Hubs and the related project management at specified prices. Skanska will perform the construction work, and Mastec will provide project management services. Management estimates the Company's obligation under this agreement to be approximately $120 million, depending on the building specifications. Mastec and Skanska are holders of Series C preferred stock. AGREEMENT WITH NORTEL In December 1999, the Company entered into a Strategic Alliance Agreement with Nortel Networks, Inc. (Nortel). The agreement requires the Company to purchase Nortel equipment in an amount of no less than $5 million before December 31, 2001, and gives Nortel the right of first refusal on a percentage of space in future Neutral Optical Hubs. Contemporaneous with the execution of the Strategic Alliance Agreement, Nortel purchased Series C preferred stock. F-20 138 COLO.COM AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999, AND MARCH 31, 2000 (UNAUDITED) 9. STOCKHOLDERS' EQUITY: The Company's amended and restated articles of incorporation allow for the issuance of 81,000,000 shares of common stock, 5,250,000 shares of Series A preferred stock (Series A Stock), 24,500,000 shares of Series B preferred stock (Series B Stock), and 21,000,000 shares of Series C preferred stock (Series C Stock). COMMON STOCK The holders of common stock are entitled to one vote per share. Subject to preferences on outstanding preferred stock, the holders of common stock are entitled to receive ratably such dividends as may be declared by the Board of Directors. In the event of a liquidation, the holders of common stock are entitled to share ratably in all assets remaining after payment of liabilities, subject to prior distribution rights of preferred stock. Certain holders of common stock have entered into repurchase agreements allowing the Company the exclusive option to repurchase the unreleased shares as defined in the stock purchase agreement in the event of termination of the stockholder's employment with the Company. The repurchase option extends for 90 days after termination and grants the right to the Company to repurchase the shares at the original purchase price per share. The number of shares subject to repurchase is reduced over a four-year vesting period. The Company has the right to repurchase 88,889, 35,556 and 22,224 (unaudited) unreleased shares as of December 31, 1998 and 1999, and March 31, 2000, respectively, at the stock issuance price if the holders' service with the Company terminates. For the year ended December 31, 1999, the Company issued 9,785,368 shares of common stock as a result of the exercise of stock options and repurchased 981,829 shares (see Note 11). The Company has the right to repurchase 7,551,976 unvested shares as of December 31, 1999, at the stock issuance price if the holders' service with the Company terminates PREFERRED STOCK Significant rights and preferences attaching to the Series A Stock are as follows: DIVIDENDS -- The holders of Series A Stock are entitled, when and if declared by the Board of Directors, to receive noncumulative dividends out of the remaining assets of the Company after payment of liabilities, payable in preference and priority to any dividend to common stockholders, at the rate of $0.04 per share per annum. To date, no dividends have been declared by the Board of Directors. PREFERENCE IN LIQUIDATION -- In the event of any liquidation, dissolution, or winding up of the Company, the holders of Series A Stock are entitled to receive, prior and in preference to any distribution of any assets or surplus funds to the holders of common stock, an amount equal to $0.50 per share plus a further amount equal to any dividends declared but unpaid on such shares. VOTING RIGHTS -- The holders of Series A Stock are entitled to the number of votes equal to the number of shares of common stock into which each share of preferred stock is convertible on the record date for the vote. F-21 139 COLO.COM AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999, AND MARCH 31, 2000 (UNAUDITED) CONVERSION -- Each share of Series A Stock is convertible, at the option of the holder, into the number of fully paid and nonassessable shares of common stock on a one-for-one basis, subject to certain adjustments. All preferred stock will convert upon the closing of a public offering of the Company's common stock in which the public offering price equals or exceeds $15.00 per share and the aggregate proceeds raised equal or exceed $40 million. During 1998, the Company issued 231,000 shares of Series A Stock to individuals at no cost in exchange for services. The value of $116,000 was assigned to the stock and has been expensed as selling, general, and administrative expenses in the accompanying statements of operations. SERIES B PREFERRED STOCK In April 1999, the Company issued 24,500,000 shares of Series B Stock at $0.50 per share. The sale of Series B Stock raised $12,219,000, net of issuance costs. The Series B Stock has essentially the same rights and preferences as the Series A Stock. SERIES C PREFERRED STOCK In December 1999, the Company issued 20,408,164 shares of Series C Stock at $9.80 per share. The sale of Series C Stock raised $194,056,000, net of issuance costs. The Series C Stock has essentially the same rights and preferences as the Series A Stock, except that (1) dividends are payable at a rate of $0.784 per share per annum and (2) in the event of any liquidation, dissolution, or winding up of the Company, the holders of Series C Stock are entitled to receive, prior and in preference to any distribution of assets or surplus funds to the holders of Series A Stock, Series B Stock or common stock an amount equal to $9.80 per share plus a further amount equal to any dividends declared but unpaid on such shares. NOTES RECEIVABLE FROM STOCKHOLDERS The Company has implemented a program under which directors, officers, and a number of key employees are permitted to exercise their outstanding options as to both the vested and unvested shares. The Company has the right to repurchase any unvested shares at the original option price in the event of termination of employment prior to vesting of all shares. Under this program, the participants paid the exercise price for their outstanding options through a full-recourse promissory note. These notes bear interest at a rate of 6.2 percent per annum and are due and payable on the earlier of termination of employment or on various dates beginning in November 2003. As of December 31, 1998 and 1999, and March 31, 2000 (unaudited), there were one stockholder, fifteen stockholders and seventeen stockholders, respectively, with loans outstanding. Stockholder loans are classified as a contra account within stockholders' equity. 10. WARRANTS TO PURCHASE STOCK: In conjunction with the issuance of Series A Stock in March 1998, the Company issued warrants to purchase 545,500 shares of the Company's common stock at an exercise price of F-22 140 COLO.COM AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999, AND MARCH 31, 2000 (UNAUDITED) $0.05 per share to certain individuals involved in identifying Series A Stock investors. The purchase rights under the warrants expire in March 2002 unless terminated earlier in accordance with the stock warrant purchase agreement. See Notes 6 and 8 for a description of Series C Stock and common stock warrants issued to various lenders and a related party, respectively. Warrants outstanding have the following contractual lives (in years):
MARCH 31, 2000 DECEMBER 31, 1999 (UNAUDITED) ----------------------------------------- ------------------------------ NUMBER OF WEIGHTED AVERAGE NUMBER OF WEIGHTED AVERAGE EXERCISE WARRANTS REMAINING WARRANTS REMAINING PRICE OUTSTANDING CONTRACTUAL LIFE OUTSTANDING CONTRACTUAL LIFE -------- ----------- ---------------- ----------- ---------------- Common stock............ $ 0.01 -- -- 5,991,540 10.0 Common stock............ 0.05 545,500 3.2 530,000 3.0 Common stock............ 2.00 24,845 * -- -- Series C Stock.......... 7.57 73,976 9.8 73,976 9.5 Series C Stock.......... 6.44 227,679 9.8 227,679 9.6 Series C Stock.......... 10.00 300,000 5.0 300,000 4.7 --------- --------- Total................. 1,172,000 7,123,195 ========= =========
- ------------------------- * This warrant had no stated expiration date and was exercised during the three months ended March 31, 2000. All of the warrants outstanding at December 31, 1999, are exercisable except the 300,000 Series C Stock warrants related to NEXTLINK (see Note 8). A holder of any of the warrants described above will not be entitled to any rights as a stockholder of the Company, including, without limitation, the right to vote the underlying shares of preferred stock until the holder has exercised the warrants. All of the warrants outstanding at March 31, 2000 are exercisable except the 5,991,541 common stock warrants related to the Senior Notes (unaudited). 11. STOCK OPTION PLAN: The Company's 1998 Stock Option Plan (the Plan) provides for the grant of incentive stock options and nonstatutory stock options to employees, directors, and consultants of the Company. The Plan also allows for the issuance of stock purchase rights and an option exchange program. As of December 31, 1999 and March 31, 2000 (unaudited), there were no stock purchase rights outstanding and no activity in the option exchange program. Stock options granted under the Plan generally vest over a four-year period, with 25 percent vesting after one year of the grant date and an additional one forty-eighth of the total number of shares becoming exercisable on each monthly anniversary thereafter. Options expire ten years after the grant date. The terms of the Plan allow certain individuals to exercise their options prior to full vesting. In the event that an individual's service to the Company terminates before his/her options become fully vested, the Company has the right to repurchase the unvested shares at the original option price. The maximum aggregate number of shares authorized for options under the Plan was 3,490,000 at December 31, 1998 and 14,047,839 at both December 31, 1999 and March 31, 2000 (unaudited). F-23 141 COLO.COM AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999, AND MARCH 31, 2000 (UNAUDITED) The Company accounts for stock options granted to employees and directors under APB Opinion No. 25. For the year ended December 31, 1998, no compensation expense was recognized. Stock-based compensation expense of $1,248,000, $0 (unaudited) and $2,258,000 (unaudited) was recognized for the year ended December 31, 1999, and for the three months ended March 31, 1999 and 2000, respectively. Options issued to consultants were valued using the Black-Scholes option pricing model consistent with SFAS No. 123. Expense is being recognized over the vesting period of the options. Had compensation cost for the stock options issued to employees and directors been determined consistently with SFAS No. 123, the Company's net loss and basic and diluted loss per share would have been changed to the following pro forma amounts:
YEARS ENDED THREE MONTHS ENDED PERIOD FROM INCEPTION DECEMBER 31, MARCH 31, (APRIL 2, 1997) TO ------------------ --------------------- DECEMBER 31, 1997 1998 1999 1999 2000 --------------------- ------- ------- -------- --------- (IN THOUSANDS, EXCEPT PER SHARE DATA) (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) Net loss: As reported......... $ (78) $(1,553) $(8,887) $(1,176) $(11,892) Pro forma........... (78) (1,554) (9,040) (1,182) (12,343) Basic and diluted net loss per common share: As reported......... $(0.03) $ (0.28) $ (1.86) (0.26) $ (1.49) Pro forma........... (0.03) (0.28) (1.89) (0.26) (1.55)
F-24 142 COLO.COM AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999, AND MARCH 31, 2000 (UNAUDITED) A summary of the status of the Company's stock option plan is as follows:
WEIGHTED RANGE OF AVERAGE EXERCISE EXERCISE OPTIONS PRICES PRICE ---------- ------------- -------- Outstanding at December 31, 1997........ -- $ -- $ -- Granted............................... 2,472,500 0.03 - 0.055 0.05 Exercised............................. -- -- -- Canceled.............................. -- -- -- ---------- ------------- ----- Outstanding at December 31, 1998........ 2,472,500 0.03 - 0.055 0.05 Granted............................... 9,735,072 0.05 - 2.00 0.21 Exercised............................. (9,785,368) 0.03 - 1.00 0.13 Canceled.............................. (963,854) 0.05 - 0.50 0.06 ---------- ------------- ----- Outstanding at December 31, 1999........ 1,458,350 0.05 - 2.00 0.54 Granted (unaudited)................... 1,629,500 2.00 - 5.00 3.63 Exercised (unaudited)................. (210,000) 0.05 - 2.00 1.57 Canceled (unaudited).................. (17,300) 0.05 - 2.00 1.00 ---------- ------------- ----- Outstanding at March 31, 2000 (unaudited)........................... 2,860,550 $0.05 - 2.00 $2.22 ========== ============= =====
The weighted average fair value of options granted as of December 31, 1998 and 1999, and March 31, 2000, is $0.007, $1.190 and $8.42 (unaudited), respectively. Of the options outstanding at December 31, 1998 and 1999, and March 31, 2000, 850,000, 250,000 and 250,000 (unaudited), respectively, are vested. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants in 1998, 1999 and 2000: risk-free weighted-average interest rates of between 4.5 and 6.5 percent, expected dividend yield of 0 percent, expected life of between three and four years from the grant date, and expected volatility of 0 percent in 1998 and 70 percent in 1999 and 2000. Included in the options exercised above for the year ended December 31, 1999, was 981,829 of unvested options where the Company repurchased the stock upon the individuals' leaving the Company. F-25 143 COLO.COM AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1999, AND MARCH 31, 2000 (UNAUDITED) The options outstanding have the following contractual lives:
DECEMBER 31, 1998 DECEMBER 31, 1999 MARCH 31, 2000 - ------------------------------------ ------------------------------------ --------------------------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE NUMBER OF REMAINING NUMBER OF REMAINING NUMBER OF REMAINING OPTIONS EXERCISE CONTRACTUAL OPTIONS EXERCISE CONTRACTUAL OPTIONS EXERCISE CONTRACTUAL OUTSTANDING PRICE LIFE OUTSTANDING PRICE LIFE OUTSTANDING PRICE LIFE - ----------- -------- ----------- ----------- -------- ----------- ----------- ----------- ----------- (UNAUDITED) 150,000... 0.030 9.07 -- 0.030 N/A -- 0.030 -- 1,472,500.. 0.050 9.76 479,000 0.050 9.58 440,000 0.050 9.33 850,000... 0.055 9.79 250,000 0.055 8.71 250,000 0.055 8.48 - --........ 0.500 N/A 478,050 0.500 9.81 456,750 0.500 9.58 - --........ 2.000 N/A 251,300 2.000 9.96 827,600 2.000 9.80 - --........ 5.000 N/A -- 5.000 886,200 5.000 9.85 --------- --------- --------- 2,472,500.. 1,458,350 2,860,550 ========= ========= =========
12. 401(K) RETIREMENT PLAN: The Company established a 401(k) retirement plan in May 1999 for which all full-time employees are eligible after one month of employment. Pursuant to this plan, employees may elect to reduce their current compensation by up to the lesser of 15% of their annual compensation or the statutorily prescribed annual limit, and to have the amount of such reduction contributed to the plan. Company contributions to the plan are at the discretion of the Board of Directors, begin to vest upon completion of one year of employment, and become fully vested after five years of employment. As of both December 31, 1999 and March 31, 2000 (unaudited) the Company has not declared or paid any contributions to the plan. 13. SUBSEQUENT EVENTS: Subsequent to March 31, 2000, the Company has formed three new subsidiaries, COLOCOM Iberia, S.A. in Spain, COLO.COM Limited in Canada, and COLO.COM B.V. in the Netherlands. Each of these subsidiaries are wholly owned by the Company. In April 2000, the Company authorized 1,724,439 shares of Series D preferred stock. No shares have been issued. F-26 144 $300,000,000 COLO.COM EXCHANGE OFFER FOR ALL OUTSTANDING 13 7/8% SENIOR NOTES DUE 2010 145 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS Our articles of incorporation and our bylaws provide for indemnification of our directors, officers, employees and other agents to the extent and under the circumstances permitted by the California Corporations Code. ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) EXHIBITS
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT - ------- ----------------------- 3.1 Amended and Restated Articles of Incorporation 3.2 Bylaws of COLO.COM *4.1 Purchase Agreement, dated March 3, 2000, by and among COLO.COM and Goldman, Sachs & Co., Bear, Stearns & Co. Inc., Chase Securities Inc., Deutsche Bank Securities Inc., Warburg Dillon Read LLC and Jefferies & Company Inc. (as representatives of the Purchasers) 4.2 Senior Notes Indenture by COLO.COM as Issuer and State Street Bank and Trust Company, N.A. as Trustee, dated March 10, 2000 4.3 Registration Rights Agreement dated March 10, 2000 between COLO.COM and Goldman, Sachs & Co., Bear, Stearns & Co. Inc., Chase Securities Inc., Deutsche Bank Securities Inc., Warburg Dillon Read LLC and Jefferies & Company Inc. (as representatives of the Purchasers) *5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation 10.1 Amended and Restated Investors Rights Agreement dated December 17, 1999 *10.2 1998 Incentive Stock Option Plan and forms of agreements thereunder 10.3 Office Lease by and between COLO.COM and Hitachi America, LTD, dated December , 1999 10.4 Office Building Net Lease by and between COLO.COM and BEP-Emeryville, LP, dated July 16, 1999 10.5 Strategic Alliance Agreement by and between COLO.COM and Nortel Networks Inc., dated December 23, 1999 10.6 Definitive Agreement by and between COLO.COM and NextLINK Communications, Inc., dated December 23, 1999 10.7 Employment Agreement by and between COLO.COM and Charles Skibo, with Addendum, dated January 25, 1999 10.8 Loan and Security Agreement by and between COLO.COM and Comdisco, Inc., dated October 22, 1999 10.9 Loan and Security Agreement by and among COLO.COM and MMC/GATX Partnership No. 1, Silicon Valley Bank, Venture Lending and Leasing II, Inc., Transamerica Business Credit Corporation and Lighthouse Capital Partners, dated November 9, 1999
II-1 146
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT - ------- ----------------------- 10.10 Retail Lease between Telehub, Inc. and Mauswerks, Inc., dated November 7, 1996 and related assignment by Mauswerks, Inc. to COLO.COM dated July 8, 1997 *10.11 Office Lease by and between COLO.COM and Sierra Point One Trust, dated June 8, 2000. 21.1 List of Subsidiaries 23.1 Consent of Arthur Andersen LLP, Independent Auditors *23.2 Consent of Counsel (included in exhibit 5.1) 24.1 Power of Attorney (included on signature page) *25.1 Statement of Eligibility of Trustee 27.1 Financial Data Schedule *99.1 Form of Letter of Transmittal *99.2 Form of Notice of Guaranteed Delivery
- ------------------------- * To be filed by amendment (b) FINANCIAL STATEMENT SCHEDULES All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. ITEM 22. UNDERTAKINGS Insofar as indemnification by COLO.COM for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of COLO.COM, we have been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by COLO.COM of expenses incurred or paid by a director, officer or controlling person of COLO.COM in the successful defense of any action, suit or proceeding) is asserted by a director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by COLO.COM is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. We hereby undertake: (a) to file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement (1) to include any prospectus required by Section 10(a)(3) of the Securities Act of 1933, as amended (the "Act"); (2) to reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; and (3) to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; II-2 147 (b) that, for the purpose of determining any liability under the Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof; (c) to remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering; (d) that prior to any public reoffering of the securities registered hereunder through use of a prospectus which is part of this registration statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), COLO.COM undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition the information called for by the other items of the applicable form; and (e) that every prospectus (1) that is filed pursuant to paragraph d immediately preceding, or (2) that purports to meet the requirements of Section 10(a)(3) of the Act and is used in connection with an offering of securities subject to Rule 415, will be filed as a part of an amendment to the registration statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Act, each such post-effective amendment shall be deemed to be a new registration statement, relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-3 148 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, COLO.COM has duly caused this Registration Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Brisbane, State of California, on the 8th day of June, 2000. COLO.COM By: /s/ CHARLES M. SKIBO --------------------------------------- Charles M. Skibo Chief Executive Officer POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Charles M. Skibo and Stephen I. Robertson and each of them, his attorneys-in-fact, each with the power of substitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, and to sign any registration statement for the same Offering covered by this Registration Statement that is to be effective upon filing pursuant to Rule 462(b) promulgated under the Securities Act of 1933, and all post-effective amendments thereto, and to file the same, with all exhibits thereto in all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every Act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that such attorneys-in-fact and agents or any of them, or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, as amended this Registration Statement on Form S-4 has been signed by the following persons in the capacities and on the dates indicated:
SIGNATURE TITLE DATE --------- ----- ---- /s/ CHARLES M. SKIBO Chief Executive Officer and June 8, 2000 - --------------------------------------------- Chairman of the Board Charles M. Skibo (Principal Executive Officer) /s/ STEPHEN I. ROBERTSON Chief Financial Officer (Principal June 8, 2000 - --------------------------------------------- Financial and Accounting Officer) Stephen I. Robertson /s/ CHRISTOPHER E. CLOUSER Director June 8, 2000 - --------------------------------------------- Christopher E. Clouser /s/ YOUNG SOO HA Director June 8, 2000 - --------------------------------------------- Young Soo Ha
II-4 149
SIGNATURE TITLE DATE --------- ----- ---- /s/ JOHN W. JARVE Director June 8, 2000 - --------------------------------------------- John W. Jarve /s/ RICHARD P. NESPOLA Director June 8, 2000 - --------------------------------------------- Richard P. Nespola /s/ ARTHUR PATTERSON Director June 8, 2000 - --------------------------------------------- Arthur Patterson /s/ KIRBY G. PICKLE, JR. Director June 8, 2000 - --------------------------------------------- Kirby G. Pickle, Jr.
II-5 150 EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION OF DOCUMENT - ------ ------------------------------------------------------------ 3.1 Amended and Restated Articles of Incorporation 3.2 Bylaws of COLO.COM *4.1 Purchase Agreement, dated March 3, 2000, by and among COLO.COM and Goldman, Sachs & Co., Bear, Stearns & Co. Inc., Chase Securities Inc., Deutsche Bank Securities Inc., Warburg Dillon Read LLC and Jefferies & Company Inc. (as representatives of the Purchasers) 4.2 Senior Notes Indenture by COLO.COM as Issuer and State Street Bank and Trust Company, N.A. as Trustee, dated March 10, 2000 4.3 Registration Rights Agreement dated March 10, 2000 between COLO.COM and Goldman, Sachs & Co., Bear, Stearns & Co. Inc., Chase Securities Inc., Deutsche Bank Securities Inc., Warburg Dillon Read LLC and Jefferies & Company Inc. (as representatives of the Purchasers) *5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation 10.1 Amended and Restated Investors Rights Agreement dated December 17, 1999 *10.2 1998 Incentive Stock Option Plan and forms of agreements thereunder 10.3 Office Lease by and between COLO.COM and Hitachi America, LTD, dated December , 1999 10.4 Office Building Net Lease by and between COLO.COM and BEP-Emeryville, LP, dated July 16, 1999 10.5 Strategic Alliance Agreement by and between COLO.COM and Nortel Networks Inc., dated December 23, 1999 10.6 Definitive Agreement by and between COLO.COM and NextLINK Communications, Inc., dated December 23, 1999 10.7 Employment Agreement by and between COLO.COM and Charles Skibo, with Addendum, dated January 25, 1999 10.8 Loan and Security Agreement by and between COLO.COM and Comdisco, Inc., dated October 22, 1999 10.9 Loan and Security Agreement by and among COLO.COM and MMC/GATX Partnership No. 1, Silicon Valley Bank, Venture Lending and Leasing II, Inc., Transamerica Business Credit Corporation and Lighthouse Capital Partners, dated November 9, 1999 10.10 Retail Lease between Telehub, Inc. and Mauswerks, Inc., dated November 7, 1996 and related assignment by Mauswerks, Inc. to COLO.COM dated July 8, 1997 *10.11 Office Lease by and between COLO.COM and Sierra Point One Trust, dated June 8, 2000. 21.1 List of Subsidiaries 23.1 Consent of Arthur Andersen LLP, Independent Auditors *23.2 Consent of Counsel (included in exhibit 5.1) 24.1 Power of Attorney (included on signature page) *25.1 Statement of Eligibility of Trustee 27.1 Financial Data Schedule *99.1 Form of Letter of Transmittal *99.2 Form of Notice of Guaranteed Delivery
- ------------------------- * To be filed by amendment EX-3.1 2 0002.txt AMENDED & RESTATED ARTICLES OF INCORPORATION 1 EXHIBIT 3.1 AMENDED AND RESTATED ARTICLES OF INCORPORATION OF COLO.COM David H. Stanley and Denise St.Onge certify that: 1. They are the duly elected and acting Secretary and Vice President - Finance, respectively, of COLO.COM, a California corporation. 2. The Articles of Incorporation of this corporation are hereby restated in full to read as set forth in Exhibit A attached hereto. 3. The attached restatement of the Articles of Incorporation of this corporation has been duly approved by the Board of Directors of this corporation. 4. The attached restatement of the Articles of Incorporation has been approved by the holders of the requisite number of shares of this corporation in accordance with Section 902 of the California Corporations Code. The total number of outstanding shares of each class entitled to vote with respect to the attached restatement was 13,617,138 shares of Common Stock, 4,261,730 shares of Series A Preferred Stock, 24,500,000 shares of Series B Preferred Stock and 20,408,164 shares of Series C Preferred Stock. The number of shares voting in favor of the attached restatement equaled or exceeded the vote required, such required vote being a majority of the outstanding shares of Common Stock, a majority of the outstanding shares of Preferred Stock and a majority of the outstanding shares of Series C Preferred Stock. No shares of Series D Preferred Stock were outstanding. The undersigned further declare under penalty of perjury that the matters set forth in this certificate are true and correct of their own knowledge. Executed at Brisbane, California on April 14, 2000. /s/ David H. Stanley ------------------------------------ David H. Stanley, Secretary /s/ Denise St. Onge ------------------------------------ Denise St. Onge, Vice President - Finance 2 EXHIBIT A AMENDED AND RESTATED ARTICLES OF INCORPORATION OF COLO.COM I. The name of this corporation is COLO.COM II. The purpose of this corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code. III. This corporation is authorized to issue two classes of stock, to be designated, respectively, "Common Stock" and "Preferred Stock." The total number of shares that this corporation is authorized to issue is 152,474,439 shares, without par value, of which 100,000,000 shares are Common Stock and 52,474,439 shares are Preferred Stock. The first series of Preferred Stock shall be designated Series A Preferred Stock ("Series A Preferred Stock") and shall consist of 5,250,000 shares. The second series of Preferred Stock shall be designated Series B Preferred Stock ("Series B Preferred Stock") and shall consist of 24,500,000 shares. The third series of Preferred Stock shall be designated Series C Preferred Stock ("Series C Preferred Stock") and shall consist of 21,000,000 shares. The fourth Series of Preferred Stock shall be designated Series D Preferred Stock ("Series D Preferred Stock") and shall consist of 1,724,439 shares. IV. The rights, preferences, privileges and restrictions granted to or imposed upon the Common Stock and Preferred Stock are as follows: A. Dividends. The holders of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock shall be entitled, when and if declared by the board of directors of the corporation, to dividends out of assets of the corporation legally available therefor at the rate of $0.04 per share of Series A Preferred Stock, $0.04 per share of Series B Preferred Stock, $0.784 per share of Series C Preferred Stock and $1.20 per share of Series D Preferred Stock per annum (8%). Dividends on the Preferred Stock shall be payable in preference -1- 3 and prior to any payment of any dividend on the Common Stock of the corporation. Thereafter, the holders of Common Stock and Preferred Stock shall be entitled, when and if declared by the board of directors of the corporation, to dividends out of assets of the corporation legally available therefor, provided, however, that no such dividend may be declared or paid on any shares of Common Stock or Preferred Stock unless at the same time an equivalent dividend is declared or paid on all outstanding shares of Common Stock and Preferred Stock, and provided further that the dividend on any series of any Preferred Stock shall be payable at the same rate per share as would be payable on the shares of Common Stock or other securities into which such series of Preferred Stock is convertible immediately prior to the record date of such dividend. The right to dividends on shares of the Common Stock and Preferred Stock shall not be cumulative, and no right shall accrue to holders of Common Stock or Preferred Stock by reason of the fact that dividends on said shares are not declared in any prior period. B. Liquidation Preference. 1. Preference. In the event of any liquidation, dissolution or winding up of the corporation, either voluntarily or involuntarily, the holders of the Series C Preferred Stock and Series D Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the corporation to the holders of the Series A Preferred Stock, the Series B Preferred Stock or the Common Stock an amount equal to $9.80 per share of Series C Preferred Stock (the "Series C Original Purchase Price") and $15.00 per share of Series D Preferred Stock (the "Series D Original Purchase Price"), plus a further amount equal to any dividends declared but unpaid on such shares. The Series C Preferred Stock and Series D Preferred Stock shall rank on a parity as to the receipt of the respective preferential amounts for each such series upon the occurrence of such event. After the payment of such amounts to the holders of the Series C Preferred Stock and Series D Preferred Stock, the holders of Series A Preferred Stock and Series B Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the corporation to the holders of Common Stock, an amount equal to $0.50 per share of Series A Preferred Stock (the "Series A Original Purchase Price") and $0.50 per share of Series B Preferred Stock (the "Series B Original Purchase Price"), respectively, plus a further amount equal to any dividends declared but unpaid on such shares. The Series A Preferred Stock and Series B Preferred Stock shall rank on a parity as to the receipt of the respective preferential amounts for each such series upon the occurrence of such event. If upon such liquidation, dissolution or winding up of the corporation, the assets of the corporation are insufficient to provide for the cash payment described above to the holders of the Series C Preferred Stock and Series D Preferred Stock, then the entire amount of the assets and funds of the corporation legally available for distribution shall be distributed ratably among the holders of the Series C Preferred Stock and Series D Preferred Stock in such a manner that the amount to be distributed to each holder of Series C Preferred Stock and Series D Preferred Stock shall equal the amount obtained by multiplying the entire remaining assets and funds of the corporation legally available for distribution to such holders by a fraction, the numerator of which shall be the sum of the products obtained by multiplying the number of shares of Series C Preferred Stock and Series D Preferred Stock then held by the holder by the respective liquidation preference of each such series of Preferred Stock, and the denominator of which shall be the sum of the products obtained by -2- 4 multiplying the total then outstanding number of shares of Series C Preferred Stock and Series D Preferred Stock by the respective liquidation preference of each such series of Preferred Stock. If upon such liquidation, dissolution or winding up of the corporation, and after the cash payment described above to the holders of the Series C Preferred Stock and Series D Preferred Stock, the remaining assets of the corporation are insufficient to provide for the cash payment described above to the holders of the Series A Preferred Stock and the Series B Preferred Stock, then the remaining assets shall be distributed ratably among the holders of the Series A Preferred Stock and Series B Preferred Stock in such a manner that the amount to be distributed to each holder of Series A Preferred Stock and Series B Preferred Stock shall equal the amount obtained by multiplying the entire remaining assets and funds of the corporation legally available for distribution to such holders by a fraction, the numerator of which shall be the sum of the products obtained by multiplying the number of shares of Series A Preferred Stock and Series B Preferred Stock then held by the holder by the respective liquidation preference of each such series of Preferred Stock, and the denominator of which shall be the sum of the products obtained by multiplying the total then outstanding number of shares of Series A Preferred Stock and Series B Preferred Stock by the respective liquidation preference of each such series of Preferred Stock. 2. Distribution after Payment of Liquidation Preference. After payment has been made to the holders of the Preferred Stock of the full preferential amount set forth in Section B.1 above, the entire remaining assets and funds of the corporation legally available for distribution, if any, shall be distributed ratably among the holders of Common Stock in a manner such that the amount distributed to each holder of Common Stock shall equal the amount obtained by multiplying the entire assets and funds of the corporation legally available for distribution pursuant to this Section B.2 by a fraction, the numerator of which shall be the sum of the number of shares of Common Stock then held by the holder, and the denominator of which shall be the sum of the total number of shares of Common Stock then outstanding. 3. Shares not Treated as Both Preferred Stock and Common Stock in any Distribution. Shares of Preferred Stock shall not be entitled to be converted into shares of Common Stock in order to participate in any distribution, or series of distributions, as shares of Common Stock, without first foregoing participation in the distribution, or series of distributions, as shares of Preferred Stock. 4. Consolidation or Merger. A consolidation or merger of the corporation with or into any other corporation or corporations or other entity or person, or any consolidation or merger of any other entity into the corporation, or a sale of all or substantially all of the assets of the corporation, or any other corporate reorganization, transaction or series of related transactions in which the holders of the corporation's voting securities prior to such transaction or series of related transactions hold less than 50% of the corporation's voting securities upon the closing of such transaction or series of related transactions, shall be deemed to be a liquidation, dissolution or winding up within the meaning of this Section B. 5. Noncash Distributions. If any of the assets of the corporation are to be distributed other than in cash under this Section B or for any purpose, then the board of directors of the corporation shall promptly engage independent competent appraisers to determine the value of -3- 5 the assets to be distributed to the holders of Preferred Stock. The corporation shall, upon receipt of such appraiser's valuation, give prompt written notice to each holder of shares of Preferred Stock of the appraiser's valuation. Notwithstanding the above, any securities to be distributed to the stockholders shall be valued as follows: (A) If traded on a securities exchange or the Nasdaq National Market, the value shall be deemed to be the average of the closing prices of the securities on such exchange, or the last reported sale prices on the Nasdaq National Market as the case may be, over the 30-day period ending three (3) trading days prior to the closing; (B) If actively traded over-the-counter (other than on the Nasdaq National Market), the value shall be deemed to be the average of the closing bid prices over the 30-day period ending three (3) trading days prior to the closing; and (C) If there is no active public market, the value shall be the fair market value thereof, as mutually determined by the corporation and the holders of not less than a majority of the outstanding shares of Preferred Stock, provided that if the corporation and the holders of a majority of the outstanding shares of Preferred Stock are unable to reach an agreement, then by independent appraisal by an investment banker hired and paid by the corporation, but acceptable to the holders of at least a majority of the outstanding shares of Preferred stock. 6. Repurchase of Shares. In connection with repurchases by this corporation of its Common Stock, pursuant to its agreements with certain employees, directors or consultants, Section 502 and 503 of the California General Corporation Law shall not apply in all or in part with respect to such repurchases. C. Conversion. The holders of the Preferred Stock shall have conversion rights as follows (the "Conversion Rights"): 1. Right to Convert. Each share of Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share at the office of the corporation or any transfer agent for the Preferred Stock. Each share of each series of Preferred Stock shall be convertible into the number of fully paid and nonassessable shares of Common Stock that results from dividing the Conversion Price (as hereinafter defined) per share in effect for such series at the time of conversion into the per share Conversion Value (as hereinafter defined) of such series. The initial Conversion Price per share of Series A Preferred Stock shall be $0.50 and the per share Conversion Value of Series A Preferred Stock shall be $0.50. The initial Conversion Price per share of Series B Preferred Stock shall be $0.50 and the per share Conversion Value of Series B Preferred Stock shall be $0.50. The initial Conversion Price per share of Series C Preferred Stock shall be $9.80 and the per share Conversion Value of Series C Preferred Stock shall be $9.80. The initial Conversion Price per share of Series D Preferred Stock shall be $15.00 and the per share conversion Value of Series D Preferred Stock shall be $15.00. The initial Conversion Price of each series shall be subject to adjustment from time to time as provided below. The number of shares of Common Stock into which a series of Preferred Stock is convertible is hereinafter referred to as the "Conversion Rate" of such series. -4- 6 2. Automatic Conversion. Each share of Preferred Stock shall automatically be converted into shares of Common Stock at its then effective Conversion Rate immediately (a) in the event that the holders of at least 75% of the outstanding Preferred Stock vote in favor of such conversion, or (b) upon the closing of an underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, the aggregate gross proceeds to the corporation of which exceed $40,000,000 and the per share price to the public of which is at least $15.00 (as adjusted for stock splits, dividends and the like) prior to deduction of underwriting commissions and offering expenses. 3. Mechanics of Conversion. Before any holder of Preferred Stock shall be entitled to convert the same into shares of Common Stock, such holder shall surrender the certificate or certificates therefor, duly endorsed, at the office of the corporation or of any transfer agent for the Preferred Stock and shall give written notice to the corporation at such office that he elects to convert the same (except that no such written notice of election to convert shall be necessary in the event of an automatic conversion pursuant to paragraph C(2) hereof). The corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Preferred Stock a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled. Such conversion shall be deemed to have been made immediately before the close of business on the date of such surrender of the shares of Preferred Stock to be converted, (except that in the case of an automatic conversion pursuant to paragraph C(2) such conversion shall be deemed to have been made immediately before the closing of the offering referred to in paragraph C(2)) and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock at such time. 4. Fractional Shares. In lieu of any fractional shares to which the holder of Preferred Stock would otherwise be entitled, the corporation shall pay cash equal to such fraction multiplied by the fair market value of one share of Preferred Stock as determined by the board of directors of the corporation. Whether or not fractional shares are issuable upon such conversion shall be determined on the basis of the total number of shares of Preferred Stock of each holder at the time converting into Common Stock and the number of shares of Common Stock issuable upon such aggregate conversion. 5. Adjustment of Conversion Price. (A) Special Definitions. For purposes of this subsection C.5, the following definitions shall apply: (1) "Option" shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire either Common Stock or Convertible Securities. (2) "Original Issue Date" shall mean the date on which the first share of Series D Preferred Stock was issued. (3) "Convertible Securities" shall mean any evidences of indebtedness, shares or other securities convertible into or exchangeable for Common Stock. -5- 7 (4) "Additional Shares of Common Stock" shall mean all shares of Common Stock issued (or, pursuant to Section C.5(C), deemed to be issued) by the corporation after the Original Issue Date, other than shares of Common Stock issued or issuable: (a) upon conversion of shares of Preferred Stock; (b) as a dividend or distribution on Preferred Stock or any event for which adjustment is made pursuant to subparagraph C.5(F) hereof; (c) pursuant to lending or equipment lease financing transactions approved by the Board of Directors; (d) to directors and employees of, and consultants to, the corporation in a manner determined by the Board of Directors; (e) with the consent of the holders of 75% of the then outstanding shares of Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock, voting together as one class, provided that such consent expressly provides that such issuance shall not be deemed to include Additional Shares of Common Stock; or (f) by way of dividend or other distribution on shares of Common Stock excluded from the definition of Additional Shares of Common Stock by the foregoing clause(s) (a), (b), (c), (d), (e) or this clause (f). (B) No Adjustment of Conversion Price. No adjustment in the number of shares of Common Stock into which Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock is convertible shall be made, by adjustment in the Conversion Prices of Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock, as applicable, in respect of the issuance of Additional Shares of Common Stock or otherwise, unless the consideration per share for an Additional Share of Common Stock issued or deemed to be issued by the corporation is less than the Conversion Prices of Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock, respectively, in effect on the date of, and immediately prior to, the issue of such Additional Share of Common Stock. (C) Deemed Issuances of Additional Shares of Common Stock. (1) Options and Convertible Securities. In the event the corporation at any time or from time to time after the Original Issue Date shall issue any Options or Convertible Securities or shall fix a record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities, then the maximum number of shares (as set forth in the instrument relating thereto without regard to any provisions contained therein for a subsequent adjustment of such number) of Common Stock issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue or, in the case such a record date shall have been fixed, as of the close of business on such record date, provided that Additional Shares of Common Stock shall not be deemed to have been issued with respect to an adjustment of the Conversion Prices for Series B -6- 8 Preferred Stock, Series C Preferred Stock or Series D Preferred Stock unless the consideration per share (determined pursuant to subsection C.5(E) hereof) of such Additional Shares of Common Stock would be less than the Conversion Prices of Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock, respectively, in effect on the date of and immediately prior to such issue, or such record date, as the case may be, and provided further that in any such case in which Additional Shares of Common Stock are deemed to be issued: (a) no further adjustment in the Conversion Prices shall be made upon the subsequent issue of Convertible Securities or shares of Common Stock upon the exercise of such Options or conversion or exchange of such Convertible Securities; (b) if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any increase or decrease in the consideration payable to the corporation, or decrease or increase in the number of shares of Common Stock issuable, upon the exercise, conversion or exchange thereof, the Conversion Prices computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon any such increase or decrease becoming effective, be recomputed to reflect such increase or decrease insofar as it affects such Options or the rights of conversion or exchange under such Convertible Securities; (c) upon the expiration of any such Options or any rights of conversion or exchange under such Convertible Securities that shall not have been exercised, the Conversion Prices computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto) and any subsequent adjustments based thereon shall, upon such expiration, be recomputed as if: 1. in the case of Convertible Securities or Options for Common Stock only the Additional Shares of Common Stock issued were the shares of Common Stock, if any, actually issued upon the exercise of such Options or the conversion or exchange of such Convertible Securities and the consideration received therefor was the consideration actually received by the corporation for the issue of such exercised Options plus the consideration actually received by the corporation upon such exercise or for the issue of all such Convertible Securities that were actually converted or exchanged, plus the additional consideration, if any, actually received by the corporation upon such conversion or exchange, and 2. in the case of Options for Convertible Securities only the Convertible Securities, if any, actually issued upon the exercise thereof were issued at the time of issue of such Options, and the consideration received by the corporation for the Additional Shares of Common Stock deemed to have been then issued was the consideration actually received by the corporation for the issue of such exercised Options, plus the consideration deemed to have been received by the corporation (determined pursuant to subsection C.5(E)) upon the issue of the Convertible Securities with respect to which such Options were actually exercised; (d) no readjustment pursuant to clause (b) or (c) above shall have the effect of increasing the Conversion Prices to an amount that exceeds the lower of (i) the Conversion Prices on the original adjustment date, or (ii) the Conversion Prices that would -7- 9 have resulted from any issuance of Additional Shares of Common Stock between the original adjustment date and such readjustment date; (e) in the case of any Options that expire by their terms not more than 30 days after the date of issue thereof, no adjustment of the Conversion Prices shall be made until the expiration or exercise of all such Options issued on the same date, whereupon such adjustment shall be made in the same manner provided in clause (c) above; and (f) if such record date shall have been fixed and such Options or Convertible Securities are not issued on the date fixed therefor, the adjustment previously made in the Conversion Prices that became effective on such record date shall be canceled as of the close of business on such record date, and thereafter the Conversion Prices shall be adjusted pursuant to this subsection C.5(C) as of the actual date of their issuance. (2) Stock Dividends, Stock Distributions and Subdivisions. In the event the corporation at any time or from time to time after the Original Issue Date shall declare or pay any dividend, or make any other distribution on the Common Stock, payable in Common Stock, or effect a subdivision of the outstanding shares of Common Stock (by reclassification or other than by payment of a dividend in Common Stock), then and in any such event, Additional Shares of Common Stock shall be deemed to have been issued: (a) in the case of any such dividend or distribution, immediately after the close of business on the record date for the determination of holders of any class of securities entitled to receive such dividend or distribution, or (b) in the case of any such subdivision, at the close of business on the date immediately prior to the date upon which such corporate action becomes effective. If such record date shall have been fixed and such dividend shall not have been paid on the date fixed therefor, the adjustment previously made in the Conversion Prices that became effective on such record date shall be cancelled as of the close of business on such record date, and thereafter the Conversion Prices shall be adjusted pursuant to this subsection C.5(C) as of the time of actual payment of such dividend. (D) Adjustment of Conversion Price upon Issuance of Additional Shares of Common Stock. In the event the corporation shall issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to subsection C.5(C), but excluding Additional Shares of Common Stock issued pursuant to subsection C.5(C)(2), which event is dealt with in subsection C.5(F) hereof), without consideration or for a consideration per share less than the Conversion Prices of Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock, respectively, in effect on the date of and immediately prior to such issue, then and in such event, the Conversion Prices of Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock, respectively, shall be reduced, concurrently with such issue, to prices (calculated to the nearest cent) determined by multiplying each such Conversion Price by a fraction (x) the numerator of which shall be (1) the number of shares of -8- 10 Common Stock outstanding immediately prior to such issue, plus (2) the number of shares of Common Stock that the aggregate consideration received by the corporation for the total number of Additional Shares of Common Stock so issued would purchase at that Conversion Price, and (y) the denominator of which shall be (1) the number of shares of Common Stock outstanding immediately prior to such issue plus (2) the number of such Additional Shares of Common Stock so issued, provided that for the purposes of this subsection C.5(D), all shares of Common Stock issuable upon exercise, conversion or exchange of outstanding Options or Convertible Securities, as the case may be, shall be deemed to be outstanding, and immediately after any Additional Shares of Common Stock are deemed issued pursuant to subsection C.5(C) above, such Additional Shares of Common Stock shall be deemed to be outstanding, and provided further that the Conversion Price shall not be so reduced at such time if the amount of such reduction would be an amount less than $0.01, but any such amount shall be carried forward and reduction with respect thereto made at the time of and together with any subsequent reduction that, together with such amount and any other amount or amounts so carried forward, shall aggregate $0.01 or more. (E) Determination of Consideration. For purposes of this subsection C.5, the consideration received by the corporation for the issue of any Additional Shares of Common Stock shall be computed as follows: (1) Cash and Property. Such consideration shall: (a) insofar as it consists of cash, be computed at the aggregate amount of cash received by the corporation excluding amounts paid or payable for accrued interest or accrued dividends; (b) insofar as it consists of property other than cash, be computed at the fair value thereof at the time of such issue, as determined in good faith by the Board of Directors; and (c) in the event Additional Shares of Common Stock are issued together with other shares or securities or other assets of the corporation for consideration that covers both, be the proportion of such consideration so received, computed as provided in clauses (b) and (c) above, as determined in good faith by the Board of Directors. (2) Options and Convertible Securities. The consideration per share received by the corporation for Additional Shares of Common Stock deemed to have been issued pursuant to subsection C.5(C)(1), relating to Options and Convertible Securities, shall be determined by dividing (a) the total amount, if any, received or receivable by the corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the -9- 11 exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities, by (b) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities. (F) Adjustments for Subdivisions, Combinations or Consolidation of Common Stock. In the event the outstanding shares of Common Stock shall be subdivided (by stock split, or otherwise), into a greater number of shares of Common Stock, the Conversion Price for each series of Preferred Stock then in effect shall, concurrently with the effectiveness of such subdivision, be proportionately decreased. In the event the outstanding shares of Common Stock shall be combined or consolidated, by reclassification or otherwise, into a lesser number of shares of Common Stock, the Conversion Price for each series of Preferred Stock then in effect shall, concurrently with the effectiveness of such combination or consolidation, be proportionately increased. (G) Adjustments for Other Distributions. In the event the corporation at any time or from time to time makes, or fixes a record date for the determination of holders of Common Stock entitled to receive any distribution payable in securities of the corporation other than shares of Common Stock and other than as otherwise adjusted in this Section C.5, then and in each such event provision shall be made so that the holders of Preferred Stock shall receive upon conversion thereof, in addition to the number of shares of Common Stock receivable thereupon, the amount of securities of the corporation that they would have received had their Preferred Stock been converted into Common Stock on the date of such event and had they thereafter, during the period from the date of such event to and including the date of conversion, retained such securities receivable by them as aforesaid during such period, subject to all other adjustments called for during such period under this Section C.5 with respect to the rights of the holders of the Preferred Stock. (H) Adjustments for Reclassification, Exchange and Substitution. If the Common Stock issuable upon conversion of the Preferred Stock shall be changed into the same or a different number of shares of any other class or classes of stock, whether by capital reorganization, reclassification or otherwise (other than a subdivision or combination of shares provided for above), the Conversion Price then in effect shall, concurrently with the effectiveness of such reorganization or reclassification, be proportionately adjusted such that the Preferred Stock shall be convertible into, in lieu of the number of shares of Common Stock that the holders would otherwise have been entitled to receive, a number of shares of such other class or classes of stock equivalent to the number of shares of Common Stock that would have been subject to receipt by the holders upon conversion of the Preferred Stock immediately before that change. (I) Reorganization, Mergers, Consolidations, or Sales of Assets. Subject to Section B hereof, if at any time or from time to time there shall be a capital reorganization of the Common Stock (other than a subdivision, combination, reclassification, or exchange of shares provided for elsewhere in this Section C) or a merger or consolidation of this corporation with or -10- 12 into another corporation, or the sale of all or substantially all of this corporation's properties and assets to any other person, then, as a part of such reorganization, merger, consolidation, or sale, provision shall be made so that the holders of the Preferred Stock shall thereafter be entitled to receive upon conversion of the Preferred Stock held by them, the number of shares of stock or other securities or property of this corporation, or of the successor corporation resulting from such merger or consolidation or sale, to which a holder of Common Stock deliverable upon conversion would have been entitled to on such capital reorganization, merger, consolidation, or sale. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section C with respect to the rights of the holders of the Preferred Stock after the reorganization, merger, consolidation, or sale to the end that the provisions of this Section C (including adjustment of the Conversion Prices then in effect and the number of shares purchasable upon conversion of the Preferred Stock) shall be applicable after that event as nearly equivalent as may be practicable. 6. No Impairment. The corporation shall not, through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the corporation, but will at all times in good faith assist in the carrying out of all the provisions of this Section C and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of the Preferred Stock against impairment. This provision shall not restrict the corporation's right to amend its Article of Incorporation with the requisite shareholder consent. 7. Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment of the Conversion Rate pursuant to this Section C, the corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The corporation shall, upon written request at any time of any holder of Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustments and readjustments, (ii) the Conversion Rate at the time in effect, and (iii) the number of shares of Common Stock and the amount, if any, of other property that at the time would be received upon the conversion of Preferred Stock. 8. Notices of Record Date. In the event of any taking by the corporation of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend) or other distribution, any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property or to receive any other right, the corporation shall mail to each holder of Preferred Stock at least twenty (20) days prior to such record date, a notice specifying the date on which any such record is to be taken for the purpose of such dividend or distribution or right, and the amount and character of such dividend, distribution or right. 9. Reservation of Stock Issuable upon Conversion. The corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock solely for the purpose of effecting the conversion of the shares of the Preferred Stock such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all -11- 13 outstanding shares of the Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Preferred Stock, the corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose. 10. Notices. Any notice required by the provisions of this Section C to be given to the holder of shares of the Preferred Stock shall be deemed given if deposited in the United States mail, postage prepaid, and addressed to each holder of record at his address appearing on the books of the corporation. D. Redemption of Preferred Stock. 1. At the election of the holders of more than 50% of the Preferred Stock, voting as a single class, the corporation shall redeem the outstanding Preferred Stock in three equal installments; on December 31, 2003, December 31, 2004, and December 31, 2005 (the "Redemption Dates"). Such redemptions shall be at a purchase price equal to the Original Purchase Price (as defined in Section B.1) for such series of Preferred Stock plus declared and unpaid dividends. The corporation shall have no obligation to redeem shares of the Preferred Stock as long as all 13 7/8% Senior Notes due 2010 that the corporation has issued are still outstanding. 2. In the event insufficient funds are available to redeem all shares of Preferred Stock, the corporation shall effect each such redemption ratably among the holders of the Preferred Stock in such a manner that the amount to be distributed to each holder of Preferred Stock shall equal the amount obtained by multiplying the entire assets and funds of the corporation legally available for redemption by a fraction, the numerator of which shall be the sum of the products obtained by multiplying the number of shares of Preferred Stock then held by the holder by the respective Original Purchase Prices of each such series of Preferred Stock (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like) plus declared and unpaid dividends, if any (the "Redemption Prices"), and the denominator of which shall be the sum of the products obtained by multiplying the total then outstanding number of shares of Preferred Stock by the respective Redemption Price of each such series of Preferred Stock. 3. In the event sufficient funds are not available to the corporation at any time to meet the corporation's redemption obligations pursuant to this Section D, then the corporation's obligation to redeem shares of Preferred Stock shall be carried over to the succeeding year (subject to the same limitations on payment as set forth above) until all shares of Preferred Stock are redeemed. Any such carried over redemption amount shall be in addition to the redemption amounts otherwise due hereunder. In the event that insufficient funds are available to redeem all shares of Preferred Stock in the three payments contemplated hereby, then the corporation shall continue to make payments, equal to the entire assets and funds of the corporation legally available for redemption, on the 31st day of December of each subsequent year until all such shares have been redeemed. The shares of each series of Preferred Stock that have not been redeemed shall continue to be entitled to the dividend, conversion and other rights, preferences, privileges and restrictions of such series of Preferred Stock until such shares have been redeemed and the redemption price has been paid or set aside with respect thereto. -12- 14 4. At least 30 days but no more than 60 days prior to the first Redemption Date, the corporation shall send a notice (a "Redemption Notice") to all holders of Preferred Stock to be redeemed setting forth (A) the Redemption Price for the shares to be redeemed; and (B) the place at which such holders may obtain payment of the Redemption Price upon surrender of their share certificates. 5. On or prior to each Redemption Date, the corporation shall deposit the Redemption Price of all shares to be redeemed on such Redemption Date with a bank or trust company having aggregate capital and surplus in excess of $100,000,000, as a trust fund, with irrevocable instructions and authority to the bank or trust company to pay, on and after such Redemption Date, the Redemption Price of the shares to their respective holders upon the surrender of their share certificates. Any moneys deposited by the corporation pursuant to this Section D.5 for the redemption of shares thereafter converted into shares of Common Stock pursuant to Section C hereof no later than the fifth day preceding the Redemption Date shall be returned to the corporation forthwith upon such conversion. The balance of any funds deposited by the corporation pursuant to this Section D.5 remaining unclaimed at the expiration of one year following such Redemption Date shall be returned to the corporation promptly upon its written request. 6. On or after such Redemption Date, each holder of shares of Preferred Stock to be redeemed shall surrender such holder's certificate(s) representing such shares to the corporation in the manner and at the place designated in the Redemption Notice, and thereupon the Redemption Price of such shares shall be payable to the order of the person whose name appears on such certificate or certificates as the owner thereof and each surrendered certificate shall be canceled. In the event that less than all the shares represented by such certificates are redeemed, a new certificate shall be issued representing the unredeemed shares. From and after such Redemption Date, unless there shall have been a default in payment of the Redemption Price or the corporation is unable to pay the Redemption Price due to not having sufficient legally available funds all rights of the holder of such shares as holder of Preferred Stock (except the right to receive the Redemption Price without interest upon surrender of their certificates), shall cease and terminate with respect to such shares; provided that in the event that shares of Preferred Stock are not redeemed due to a default in payment by the corporation or because the corporation does not have sufficient legally available funds, such shares of Preferred Stock shall remain outstanding and shall be entitled to all of the rights and preferences provided herein. E. Voting Rights. 1. General. The holder of each share of Preferred Stock shall be entitled to the number of votes equal to the number of shares of Common Stock into which each share of Preferred Stock could be converted on the record date for the vote or consent of shareholders and, except as otherwise required by law, shall have voting rights and powers equal to the voting rights and powers of the Common Stock. The holder of each share of Preferred Stock shall be entitled to notice of any shareholders' meeting in accordance with the bylaws of the corporation and shall vote with holders of the Common Stock upon the election of directors and upon any other matter submitted to a vote of shareholders, except those matters required by law to be submitted to a class vote. Fractional votes shall not, however, be permitted and any fractional voting rights resulting from the above formula (after aggregating all shares of Common Stock into which shares of -13- 15 Preferred Stock held by each holder could be converted) shall be rounded to the nearest whole number (with one-half rounded upward to one). 2. Election of Directors. At each election of directors, (i) the holders of Series A Preferred Stock, voting as a separate class, shall be entitled to elect one member of the corporation's board of directors, (ii) the holders of Series B Preferred Stock, voting as a separate class, shall be entitled to elect two members of the corporation's board of directors, (iii) the holders of Common Stock, voting as a separate class, shall be entitled to elect one member of the corporation's board of directors and (iv) the remaining directors shall be elected by the holders of Preferred Stock and Common Stock, voting together as a single class. Subject to Section 302 and Section 303 of the California Corporations Code, any director who shall have been elected by a specified group of shareholders may be removed during the aforesaid term of office, either for or without cause, by, and only by, the affirmative vote of the holders of a majority of the shares of such specified group, given at a special meeting of such shareholders duly called or by an action by written consent for that purpose. Any vacancy in the board of directors caused by the removal, resignation or death of any such director who shall have been elected by a specified group of shareholders or the declaration by the board of directors that the office of such director is vacant because such director has been declared of unsound mind by a court or convicted of a felony may be filled by, and only by, the vote of the holders of a majority of the shares of such specified group given at a special meeting of such shareholders or by an action by written consent. F. Protective Provisions. 1. Preferred Stock. So long as 4,000,000 shares of Preferred Stock shall be outstanding, the corporation shall not, without first obtaining the approval of the holders of at least 50% of the outstanding Preferred Stock, take any action that: (A) Increases or decreases the authorized number of shares of Common Stock or Preferred Stock; (B) Results in the redemption of any shares of Common Stock (other than pursuant to equity incentive agreements with service providers giving the corporation the right to repurchase shares upon the termination of services); (C) Results in any merger, other corporate reorganization, sale of control, or other transaction in which holders of the corporation's voting securities prior to such transaction or series of related transactions hold less than 50% of the corporation's voting securities upon the closing of such transaction or series of related transactions, or a sale of all or substantially all of the assets of the corporation; or (D) Results in the payment or declaration of any dividend (other than in Common Stock) on any shares of Common Stock. 2. Series C Preferred Stock and Series D Preferred Stock. So long as an aggregate of 2,000,000 shares of Series C Preferred Stock and Series D Preferred Stock shall be outstanding, the corporation shall not, without first obtaining the approval of the holders of at least -14- 16 50% of the outstanding Series C Preferred Stock and Series D Preferred Stock, voting together as one class, take any action that: (A) Alters or changes the rights, preferences or privileges of the Series C Preferred Stock and Series D Preferred Stock; (B) Creates (by reclassification or otherwise) any new class or series of shares having rights, preferences or privileges senior to or on a parity with the Series C Preferred Stock and Series D Preferred Stock; or (C) Amends or waives any provision of the corporation's Articles of Incorporation or Bylaws relative to the Series C Preferred Stock and Series D Preferred Stock. 3. No Waiver of Section 903. Nothing in this subsection F shall be construed as a waiver of any rights set forth in Section 903 of the California Corporations Code. G. Residual Rights. All rights accruing to the outstanding shares of the corporation not expressly provided for to the contrary herein shall be vested with the Common Stock. V. A. Limitation of Directors' Liability. The liability of the directors of this corporation for monetary damages shall be eliminated to the fullest extent permissible under California law. B. Indemnification of Directors and Officers. This corporation is authorized to indemnify the directors and officers of the corporation to the fullest extent permissible under California law. C. Repeal or Modification. Any repeal or modification of the foregoing provisions of this Article V shall not adversely affect any right of indemnification or limitation of liability of a director or officer of this corporation relating to acts or omissions occurring prior to such repeal of modification. -15- EX-3.2 3 0003.txt BYLAWS OF COLO.COM 1 EXHIBIT 3.2 BYLAWS OF COLO.COM -22- 2 BYLAWS OF COLO.COM TABLE OF CONTENTS
Page ---- ARTICLE I CORPORATE OFFICES 1 1.1 PRINCIPAL OFFICE 1 1.2 OTHER OFFICES 1 ARTICLE II MEETINGS OF SHAREHOLDERS 1 2.1 PLACE OF MEETINGS 1 2.2 ANNUAL MEETING 1 2.3 SPECIAL MEETING 2 2.4 NOTICE OF SHAREHOLDERS' MEETINGS 2 2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE 3 2.6 QUORUM 3 2.7 ADJOURNED MEETING; NOTICE 3 2.8 VOTING 4 2.9 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT 5 2.10 SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING 5 2.11 RECORD DATE FOR SHAREHOLDER NOTICE; VOTING; GIVING CONSENTS 6 2.12 PROXIES 7 2.13 INSPECTORS OF ELECTION 7 ARTICLE III DIRECTORS 8 3.1 POWERS 8
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Page ---- 3.2 NUMBER OF DIRECTORS 8 3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS 8 3.4 RESIGNATION AND VACANCIES 9 3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE 9 3.6 REGULAR MEETINGS 10 3.7 SPECIAL MEETINGS; NOTICE 10 3.8 QUORUM 10 3.9 WAIVER OF NOTICE 10 3.10 ADJOURNMENT 11 3.11 NOTICE OF ADJOURNMENT 11 3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING 11 3.13 FEES AND COMPENSATION OF DIRECTORS 11 3.14 APPROVAL OF LOANS TO OFFICERS 11 ARTICLE IV COMMITTEES 12 4.1 COMMITTEES OF DIRECTORS 12 4.2 MEETINGS AND ACTION OF COMMITTEES 12 ARTICLE V OFFICERS 13 5.1 OFFICERS 13 5.2 ELECTION OF OFFICERS 13 5.3 SUBORDINATE OFFICERS 13 5.4 REMOVAL AND RESIGNATION OF OFFICERS 13 5.5 VACANCIES IN OFFICES 14 5.6 CHAIRMAN OF THE BOARD 14 5.7 PRESIDENT 14
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Page ---- 5.8 VICE PRESIDENTS 14 5.9 SECRETARY 14 5.10 CHIEF FINANCIAL OFFICER 15 ARTICLE VI INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS 15 6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS 15 6.2 INDEMNIFICATION OF OTHERS 16 6.3 PAYMENT OF EXPENSES IN ADVANCE 16 6.4 INDEMNITY NOT EXCLUSIVE 16 6.5 INSURANCE INDEMNIFICATION 17 6.6 CONFLICTS 17 ARTICLE VII RECORDS AND REPORTS 17 7.1 MAINTENANCE AND INSPECTION OF SHARE REGISTER 17 7.2 MAINTENANCE AND INSPECTION OF BYLAWS 18 7.3 MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS 18 7.4 INSPECTION BY DIRECTORS 18 7.5 ANNUAL REPORT TO SHAREHOLDERS; WAIVER 19 7.6 FINANCIAL STATEMENTS 19 7.7 REPRESENTATION OF SHARES OF OTHER CORPORATIONS 20 ARTICLE VIII GENERAL MATTERS 20 8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING 20 8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS 20 8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED 20
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Page ---- 8.4 CERTIFICATES FOR SHARES 21 8.5 LOST CERTIFICATES 21 8.6 CONSTRUCTION; DEFINITIONS 21 ARTICLE IX AMENDMENTS 22 9.1 AMENDMENT BY SHAREHOLDERS 22 9.2 AMENDMENT BY DIRECTORS 22
-25- 6 BYLAWS OF COLO.COM ARTICLE I CORPORATE OFFICES 1.1 PRINCIPAL OFFICE The board of directors shall fix the location of the principal executive office of the corporation at any place within or outside the State of California. If the principal executive office is located outside such state and the corporation has one or more business offices in such state, then the board of directors shall fix and designate a principal business office in the State of California. 1.2 OTHER OFFICES The board of directors may at any time establish branch or subordinate offices at any place or places where the corporation is qualified to do business. ARTICLE II MEETINGS OF SHAREHOLDERS 2.1 PLACE OF MEETINGS Meetings of shareholders shall be held at any place within or outside the State of California designated by the board of directors. In the absence of any such designation, shareholders' meetings shall be held at the principal executive office of the corporation. 2.2 ANNUAL MEETING The annual meeting of shareholders shall be held each year on a date and at a time designated by the board of directors. In the absence of such designation, the annual meeting of shareholders shall be held on the Second Tuesday of April in each year at 10:00 a.m.. However, if such day falls on a legal holiday, then the meeting shall be held at the same time and place on the next succeeding full business day. At the meeting, directors shall be elected, and any other proper business may be transacted. 2.3 SPECIAL MEETING A special meeting of the shareholders may be called at any time by the board of directors, or by the chairman of the board, or by the president, or by one or more shareholders holding shares in the aggregate entitled to cast not less than ten percent (10%) of the votes at that meeting. 7 If a special meeting is called by any person or persons other than the board of directors or the president or the chairman of the board, then the request shall be in writing, specifying the time of such meeting and the general nature of the business proposed to be transacted, and shall be delivered personally or sent by registered mail or by telegraphic or other facsimile transmission to the chairman of the board, the president, any vice president or the secretary of the corporation. The officer receiving the request shall cause notice to be promptly given to the shareholders entitled to vote, in accordance with the provisions of Sections 2.4 and 2.5 of these bylaws, that a meeting will be held at the time requested by the person or persons calling the meeting, so long as that time is not less than thirty-five (35) nor more than sixty (60) days after the receipt of the request. If the notice is not given within twenty (20) days after receipt of the request, then the person or persons requesting the meeting may give the notice. Nothing contained in this paragraph of this Section 2.3 shall be construed as limiting, fixing or affecting the time when a meeting of shareholders called by action of the board of directors may be held. 2.4 NOTICE OF SHAREHOLDERS' MEETINGS All notices of meetings of shareholders shall be sent or otherwise given in accordance with Section 2.5 of these bylaws not less than ten (10) (or, if sent by third-class mail pursuant to Section 2.5 of these bylaws, thirty (30)) nor more than sixty (60) days before the date of the meeting. The notice shall specify the place, date, and hour of the meeting and (i) in the case of a special meeting, the general nature of the business to be transacted (no business other than that specified in the notice may be transacted) or (ii) in the case of the annual meeting, those matters which the board of directors, at the time of giving the notice, intends to present for action by the shareholders (but subject to the provisions of the next paragraph of this Section 2.4 any proper matter may be presented at the meeting for such action). The notice of any meeting at which directors are to be elected shall include the name of any nominee or nominees who, at the time of the notice, the board intends to present for election. If action is proposed to be taken at any meeting for approval of (i) a contract or transaction in which a director has a direct or indirect financial interest, pursuant to Section 310 of the Corporations Code of California (the "Code"), (ii) an amendment of the articles of incorporation, pursuant to Section 902 of the Code, (iii) a reorganization of the corporation, pursuant to Section 1201 of the Code, (iv) a voluntary dissolution of the corporation, pursuant to Section 1900 of the Code, or (v) a distribution in dissolution other than in accordance with the rights of outstanding preferred shares, pursuant to Section 2007 of the Code, then the notice shall also state the general nature of that proposal. 2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE Written notice of any meeting of shareholders shall be given either (i) personally or (ii) by first-class mail or (iii) by third-class mail but only if the corporation has outstanding shares held of record by five hundred (500) or more persons (determined as provided in Section 605 of the Code) on the record date for the shareholders' meeting, or (iv) by telegraphic or other written communication. Notices not personally delivered shall be sent charges prepaid and shall be addressed to the shareholder at the address of that shareholder appearing on the books of the corporation or given -2- 8 by the shareholder to the corporation for the purpose of notice. If no such address appears on the corporation's books or is given, notice shall be deemed to have been given if sent to that shareholder by mail or telegraphic or other written communication to the corporation's principal executive office, or if published at least once in a newspaper of general circulation in the county where that office is located. Notice shall be deemed to have been given at the time when delivered personally or deposited in the mail or sent by telegram or other means of written communication. If any notice addressed to a shareholder at the address of that shareholder appearing on the books of the corporation is returned to the corporation by the United States Postal Service marked to indicate that the United States Postal Service is unable to deliver the notice to the shareholder at that address, then all future notices or reports shall be deemed to have been duly given without further mailing if the same shall be available to the shareholder on written demand of the shareholder at the principal executive office of the corporation for a period of one (1) year from the date of the giving of the notice. An affidavit of the mailing or other means of giving any notice of any shareholders' meeting, executed by the secretary, assistant secretary or any transfer agent of the corporation giving the notice, shall be prima facie evidence of the giving of such notice. 2.6 QUORUM The presence in person or by proxy of the holders of a majority of the shares entitled to vote thereat constitutes a quorum for the transaction of business at all meetings of shareholders. The shareholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum. 2.7 ADJOURNED MEETING; NOTICE Any shareholders' meeting, annual or special, whether or not a quorum is present, may be adjourned from time to time by the vote of the majority of the shares represented at that meeting, either in person or by proxy. In the absence of a quorum, no other business may be transacted at that meeting except as provided in Section 2.6 of these bylaws. When any meeting of shareholders, either annual or special, is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place are announced at the meeting at which the adjournment is taken. However, if a new record date for the adjourned meeting is fixed or if the adjournment is for more than forty-five (45) days from the date set for the original meeting, then notice of the adjourned meeting shall be given. Notice of any such adjourned meeting shall be given to each shareholder of record entitled to vote at the adjourned meeting in accordance with the provisions of Sections 2.4 and 2.5 of these bylaws. At any adjourned meeting the corporation may transact any business which might have been transacted at the original meeting. 2.8 VOTING -3- 9 The shareholders entitled to vote at any meeting of shareholders shall be determined in accordance with the provisions of Section 2.11 of these bylaws, subject to the provisions of Sections 702 through 704 of the Code (relating to voting shares held by a fiduciary, in the name of a corporation or in joint ownership). The shareholders' vote may be by voice vote or by ballot; provided, however, that any election for directors must be by ballot if demanded by any shareholder at the meeting and before the voting has begun. Except as provided in the last paragraph of this Section 2.8, or as may be otherwise provided in the articles of incorporation, each outstanding share, regardless of class, shall be entitled to one vote on each matter submitted to a vote of the shareholders. Any shareholder entitled to vote on any matter may vote part of the shares in favor of the proposal and refrain from voting the remaining shares or, except when the matter is the election of directors, may vote them against the proposal; but, if the shareholder fails to specify the number of shares which the shareholder is voting affirmatively, it will be conclusively presumed that the shareholder's approving vote is with respect to all shares which the shareholder is entitled to vote. If a quorum is present, the affirmative vote of the majority of the shares represented and voting at a duly held meeting (which shares voting affirmatively also constitute at least a majority of the required quorum) shall be the act of the shareholders, unless the vote of a greater number or a vote by classes is required by the Code or by the articles of incorporation. At a shareholders' meeting at which directors are to be elected, a shareholder shall be entitled to cumulate votes (i.e., cast for any candidate a number of votes greater than the number of votes which such shareholder normally is entitled to cast) if the candidates' names have been placed in nomination prior to commencement of the voting and the shareholder has given notice prior to commencement of the voting of the shareholder's intention to cumulate votes. If any shareholder has given such a notice, then every shareholder entitled to vote may cumulate votes for candidates in nomination either (i) by giving one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which that shareholder's shares are normally entitled or (ii) by distributing the shareholder's votes on the same principle among any or all of the candidates, as the shareholder thinks fit. The candidates receiving the highest number of affirmative votes, up to the number of directors to be elected, shall be elected; votes against any candidate and votes withheld shall have no legal effect. 2.9 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT The transactions of any meeting of shareholders, either annual or special, however called and noticed, and wherever held, shall be as valid as though they had been taken at a meeting duly held after regular call and notice, if a quorum be present either in person or by proxy, and if, either before or after the meeting, each person entitled to vote, who was not present in person or by proxy, signs a written waiver of notice or a consent to the holding of the meeting or an approval of the minutes thereof. The waiver of notice or consent or approval need not specify either the business to be transacted or the purpose of any annual or special meeting of shareholders, except that if action is taken or -4- 10 proposed to be taken for approval of any of those matters specified in the second paragraph of Section 2.4 of these bylaws, the waiver of notice or consent or approval shall state the general nature of the proposal. All such waivers, consents, and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Attendance by a person at a meeting shall also constitute a waiver of notice of and presence at that meeting, except when the person objects at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. Attendance at a meeting is not a waiver of any right to object to the consideration of matters required by the Code to be included in the notice of the meeting but not so included, if that objection is expressly made at the meeting. 2.10 SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING Any action which may be taken at any annual or special meeting of shareholders may be taken without a meeting and without prior notice, if a consent in writing, setting forth the action so taken, is signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take that action at a meeting at which all shares entitled to vote on that action were present and voted. In the case of election of directors, such a consent shall be effective only if signed by the holders of all outstanding shares entitled to vote for the election of directors. However, a director may be elected at any time to fill any vacancy on the board of directors, provided that it was not created by removal of a director and that it has not been filled by the directors, by the written consent of the holders of a majority of the outstanding shares entitled to vote for the election of directors. All such consents shall be maintained in the corporate records. Any shareholder giving a written consent, or the shareholder's proxy holders, or a transferee of the shares, or a personal representative of the shareholder, or their respective proxy holders, may revoke the consent by a writing received by the secretary of the corporation before written consents of the number of shares required to authorize the proposed action have been filed with the secretary. If the consents of all shareholders entitled to vote have not been solicited in writing and if the unanimous written consent of all such shareholders has not been received, then the secretary shall give prompt notice of the corporate action approved by the shareholders without a meeting. Such notice shall be given to those shareholders entitled to vote who have not consented in writing and shall be given in the manner specified in Section 2.5 of these bylaws. In the case of approval of (i) a contract or transaction in which a director has a direct or indirect financial interest, pursuant to Section 310 of the Code, (ii) indemnification of a corporate "agent," pursuant to Section 317 of the Code, (iii) a reorganization of the corporation, pursuant to Section 1201 of the Code, and (iv) a distribution in dissolution other than in accordance with the rights of outstanding preferred shares, pursuant to Section 2007 of the Code, the notice shall be given at least ten (10) days before the consummation of any action authorized by that approval. -5- 11 2.11 RECORD DATE FOR SHAREHOLDER NOTICE; VOTING; GIVING CONSENTS For purposes of determining the shareholders entitled to notice of any meeting or to vote thereat or entitled to give consent to corporate action without a meeting, the board of directors may fix, in advance, a record date, which shall not be more than sixty (60) days nor less than ten (10) days before the date of any such meeting nor more than sixty (60) days before any such action without a meeting, and in such event only shareholders of record on the date so fixed are entitled to notice and to vote or to give consents, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date, except as otherwise provided in the Code. If the board of directors does not so fix a record date: (a) the record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the business day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held; and (b) the record date for determining shareholders entitled to give consent to corporate action in writing without a meeting, (i) when no prior action by the board has been taken, shall be the day on which the first written consent is given, or (ii) when prior action by the board has been taken, shall be at the close of business on the day on which the board adopts the resolution relating to that action, or the sixtieth (60th) day before the date of such other action, whichever is later. The record date for any other purpose shall be as provided in Article VIII of these bylaws. 2.12 PROXIES Every person entitled to vote for directors, or on any other matter, shall have the right to do so either in person or by one or more agents authorized by a written proxy signed by the person and filed with the secretary of the corporation. A proxy shall be deemed signed if the shareholder's name is placed on the proxy (whether by manual signature, typewriting, telegraphic transmission or otherwise) by the shareholder or the shareholder's attorney-in-fact. A validly executed proxy which does not state that it is irrevocable shall continue in full force and effect unless (i) the person who executed the proxy revokes it prior to the time of voting by delivering a writing to the corporation stating that the proxy is revoked or by executing a subsequent proxy and presenting it to the meeting or by voting in person at the meeting, or (ii) written notice of the death or incapacity of the maker of that proxy is received by the corporation before the vote pursuant to that proxy is counted; provided, however, that no proxy shall be valid after the expiration of eleven (11) months from the date of the proxy, unless otherwise provided in the proxy. The dates contained on the forms of proxy presumptively determine the order of execution, regardless of the postmark dates on the envelopes in which they are mailed. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Sections 705(e) and 705(f) of the Code. -6- 12 2.13 INSPECTORS OF ELECTION Before any meeting of shareholders, the board of directors may appoint an inspector or inspectors of election to act at the meeting or its adjournment. If no inspector of election is so appointed, then the chairman of the meeting may, and on the request of any shareholder or a shareholder's proxy shall, appoint an inspector or inspectors of election to act at the meeting. The number of inspectors shall be either one (1) or three (3). If inspectors are appointed at a meeting pursuant to the request of one (1) or more shareholders or proxies, then the holders of a majority of shares or their proxies present at the meeting shall determine whether one (1) or three (3) inspectors are to be appointed. If any person appointed as inspector fails to appear or fails or refuses to act, then the chairman of the meeting may, and upon the request of any shareholder or a shareholder's proxy shall, appoint a person to fill that vacancy. Such inspectors shall: (a) determine the number of shares outstanding and the voting power of each, the number of shares represented at the meeting, the existence of a quorum, and the authenticity, validity, and effect of proxies; (b) receive votes, ballots or consents; (c) hear and determine all challenges and questions in any way arising in connection with the right to vote; (d) count and tabulate all votes or consents; (e) determine when the polls shall close; (f) determine the result; and (g) do any other acts that may be proper to conduct the election or vote with fairness to all shareholders. ARTICLE III DIRECTORS 3.1 POWERS Subject to the provisions of the Code and any limitations in the articles of incorporation and these bylaws relating to action required to be approved by the shareholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the board of directors. 3.2 NUMBER OF DIRECTORS -7- 13 The number of directors of the corporation shall be not less than four (4) nor more than seven (7). The exact number of directors shall be seven (7) until changed, within the limits specified above, by a bylaw amending this Section 3.2, duly adopted by the board of directors or by the shareholders. The indefinite number of directors may be changed, or a definite number may be fixed without provision for an indefinite number, by a duly adopted amendment to the articles of incorporation or by an amendment to this bylaw duly adopted by the vote or written consent of holders of a majority of the outstanding shares entitled to vote; provided, however, that an amendment reducing the fixed number or the minimum number of directors to a number less than five (5) cannot be adopted if the votes cast against its adoption at a meeting, or the shares not consenting in the case of an action by written consent, are equal to more than sixteen and two-thirds percent (16-2/3%) of the outstanding shares entitled to vote thereon. No amendment may change the stated maximum number of authorized directors to a number greater than two (2) times the stated minimum number of directors minus one (1). No reduction of the authorized number of directors shall have the effect of removing any director before that director's term of office expires. 3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS Directors shall be elected at each annual meeting of shareholders to hold office until the next annual meeting. Each director, including a director elected to fill a vacancy, shall hold office until the expiration of the term for which elected and until a successor has been elected and qualified. 3.4 RESIGNATION AND VACANCIES Any director may resign effective on giving written notice to the chairman of the board, the president, the secretary or the board of directors, unless the notice specifies a later time for that resignation to become effective. If the resignation of a director is effective at a future time, the board of directors may elect a successor to take office when the resignation becomes effective. Vacancies in the board of directors may be filled by a majority of the remaining directors, even if less than a quorum, or by a sole remaining director; however, a vacancy created by the removal of a director by the vote or written consent of the shareholders or by court order may be filled only by the affirmative vote of a majority of the shares represented and voting at a duly held meeting at which a quorum is present (which shares voting affirmatively also constitute a majority of the required quorum), or by the unanimous written consent of all shares entitled to vote thereon. Each director so elected shall hold office until the next annual meeting of the shareholders and until a successor has been elected and qualified. A vacancy or vacancies in the board of directors shall be deemed to exist (i) in the event of the death, resignation or removal of any director, (ii) if the board of directors by resolution declares vacant the office of a director who has been declared of unsound mind by an order of court or convicted of a felony, (iii) if the authorized number of directors is increased, or (iv) if the shareholders fail, at any meeting of shareholders at which any director or directors are elected, to elect the number of directors to be elected at that meeting. -8- 14 The shareholders may elect a director or directors at any time to fill any vacancy or vacancies not filled by the directors, but any such election other than to fill a vacancy created by removal, if by written consent, shall require the consent of the holders of a majority of the outstanding shares entitled to vote thereon. 3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE Regular meetings of the board of directors may be held at any place within or outside the State of California that has been designated from time to time by resolution of the board. In the absence of such a designation, regular meetings shall be held at the principal executive office of the corporation. Special meetings of the board may be held at any place within or outside the State of California that has been designated in the notice of the meeting or, if not stated in the notice or if there is no notice, at the principal executive office of the corporation. Any meeting, regular or special, may be held by conference telephone or similar communication equipment, so long as all directors participating in the meeting can hear one another; and all such directors shall be deemed to be present in person at the meeting. 3.6 REGULAR MEETINGS Regular meetings of the board of directors may be held without notice if the times of such meetings are fixed by the board of directors. 3.7 SPECIAL MEETINGS; NOTICE Special meetings of the board of directors for any purpose or purposes may be called at any time by the chairman of the board, the president, any vice president, the secretary or any two directors. Notice of the time and place of special meetings shall be delivered personally or by telephone to each director or sent by first-class mail or telegram, charges prepaid, addressed to each director at that director's address as it is shown on the records of the corporation. If the notice is mailed, it shall be deposited in the United States mail at least four (4) days before the time of the holding of the meeting. If the notice is delivered personally or by telephone or telegram, it shall be delivered personally or by telephone or to the telegraph company at least forty-eight (48) hours before the time of the holding of the meeting. Any oral notice given personally or by telephone may be communicated either to the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly communicate it to the director. The notice need not specify the purpose or the place of the meeting, if the meeting is to be held at the principal executive office of the corporation. 3.8 QUORUM A majority of the authorized number of directors shall constitute a quorum for the transaction of business, except to adjourn as provided in Section 3.10 of these bylaws. Every act or decision done or made by a majority of the directors present at a duly held meeting at which a quorum is -9- 15 present shall be regarded as the act of the board of directors, subject to the provisions of Section 310 of the Code (as to approval of contracts or transactions in which a director has a direct or indirect material financial interest), Section 311 of the Code (as to appointment of committees), Section 317(e) of the Code (as to indemnification of directors), the articles of incorporation, and other applicable law. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for that meeting. 3.9 WAIVER OF NOTICE Notice of a meeting need not be given to any director (i) who signs a waiver of notice or a consent to holding the meeting or an approval of the minutes thereof, whether before or after the meeting, or (ii) who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to such directors. All such waivers, consents, and approvals shall be filed with the corporate records or made part of the minutes of the meeting. A waiver of notice need not specify the purpose of any regular or special meeting of the board of directors. 3.10 ADJOURNMENT A majority of the directors present, whether or not constituting a quorum, may adjourn any meeting to another time and place. 3.11 NOTICE OF ADJOURNMENT Notice of the time and place of holding an adjourned meeting need not be given unless the meeting is adjourned for more than twenty-four (24) hours. If the meeting is adjourned for more than twenty-four (24) hours, then notice of the time and place of the adjourned meeting shall be given before the adjourned meeting takes place, in the manner specified in Section 3.7 of these bylaws, to the directors who were not present at the time of the adjournment. 3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING Any action required or permitted to be taken by the board of directors may be taken without a meeting, provided that all members of the board individually or collectively consent in writing to that action. Such action by written consent shall have the same force and effect as a unanimous vote of the board of directors. Such written consent and any counterparts thereof shall be filed with the minutes of the proceedings of the board. 3.13 FEES AND COMPENSATION OF DIRECTORS Directors and members of committees may receive such compensation, if any, for their services and such reimbursement of expenses as may be fixed or determined by resolution of the board of directors. This Section 3.13 shall not be construed to preclude any director from serving the -10- 16 corporation in any other capacity as an officer, agent, employee or otherwise and receiving compensation for those services. 3.14 APPROVAL OF LOANS TO OFFICERS(1) The corporation may, upon the approval of the board of directors alone, make loans of money or property to, or guarantee the obligations of, any officer of the corporation or its parent or subsidiary, whether or not a director, or adopt an employee benefit plan or plans authorizing such loans or guaranties provided that (i) the board of directors determines that such a loan or guaranty or plan may reasonably be expected to benefit the corporation, (ii) the corporation has outstanding shares held of record by 100 or more persons (determined as provided in Section 605 of the Code) on the date of approval by the board of directors, and (iii) the approval of the board of directors is by a vote sufficient without counting the vote of any interested director or directors. ARTICLE IV COMMITTEES 4.1 COMMITTEES OF DIRECTORS The board of directors may, by resolution adopted by a majority of the authorized number of directors, designate one (1) or more committees, each consisting of two or more directors, to serve at the pleasure of the board. The board may designate one (1) or more directors as alternate members of any committee, who may replace any absent member at any meeting of the committee. The appointment of members or alternate members of a committee requires the vote of a majority of the authorized number of directors. Any committee, to the extent provided in the resolution of the board, shall have all the authority of the board, except with respect to: (a) the approval of any action which, under the Code, also requires shareholders' approval or approval of the outstanding shares; (b) the filling of vacancies on the board of directors or in any committee; (c) the fixing of compensation of the directors for serving on the board or any committee; (d) the amendment or repeal of these bylaws or the adoption of new bylaws; (e) the amendment or repeal of any resolution of the board of directors which by its express terms is not so amendable or repealable; -11- - -------- (1) This section is effective only if it has been approved by the shareholders in accordance with Sections 315(b) and 152 of the Code. 17 (f) a distribution to the shareholders of the corporation, except at a rate or in a periodic amount or within a price range determined by the board of directors; or (g) the appointment of any other committees of the board of directors or the members of such committees. 4.2 MEETINGS AND ACTION OF COMMITTEES Meetings and actions of committees shall be governed by, and held and taken in accordance with, the provisions of Article III of these bylaws, Section 3.5 (place of meetings), Section 3.6 (regular meetings), Section 3.7 (special meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice), Section 3.10 (adjournment), Section 3.11 (notice of adjournment), and Section 3.12 (action without meeting), with such changes in the context of those bylaws as are necessary to substitute the committee and its members for the board of directors and its members; provided, however, that the time of regular meetings of committees may be determined either by resolution of the board of directors or by resolution of the committee, that special meetings of committees may also be called by resolution of the board of directors, and that notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The board of directors may adopt rules for the government of any committee not inconsistent with the provisions of these bylaws. ARTICLE V OFFICERS 5.1 OFFICERS The officers of the corporation shall be a president, a secretary, and a chief financial officer. The corporation may also have, at the discretion of the board of directors, a chairman of the board, one or more vice presidents, one or more assistant secretaries, one or more assistant treasurers, and such other officers as may be appointed in accordance with the provisions of Section 5.3 of these bylaws. Any number of offices may be held by the same person. 5.2 ELECTION OF OFFICERS The officers of the corporation, except such officers as may be appointed in accordance with the provisions of Section 5.3 or Section 5.5 of these bylaws, shall be chosen by the board, subject to the rights, if any, of an officer under any contract of employment. 5.3 SUBORDINATE OFFICERS The board of directors may appoint, or may empower the president to appoint, such other officers as the business of the corporation may require, each of whom shall hold office for such period, have such authority, and perform such duties as are provided in these bylaws or as the board of directors may from time to time determine. -12- 18 5.4 REMOVAL AND RESIGNATION OF OFFICERS Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by the board of directors at any regular or special meeting of the board or, except in case of an officer chosen by the board of directors, by any officer upon whom such power of removal may be conferred by the board of directors. Any officer may resign at any time by giving written notice to the corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party. 5.5 VACANCIES IN OFFICES A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in these bylaws for regular appointments to that office. 5.6 CHAIRMAN OF THE BOARD The chairman of the board, if such an officer be elected, shall, if present, preside at meetings of the board of directors and exercise and perform such other powers and duties as may from time to time be assigned to him by the board of directors or as may be prescribed by these bylaws. If there is no president, then the chairman of the board shall also be the chief executive officer of the corporation and shall have the powers and duties prescribed in Section 5.7 of these bylaws. 5.7 PRESIDENT Subject to such supervisory powers, if any, as may be given by the board of directors to the chairman of the board, if there be such an officer, the president shall be the chief executive officer of the corporation and shall, subject to the control of the board of directors, have general supervision, direction, and control of the business and the officers of the corporation. He shall preside at all meetings of the shareholders and, in the absence or nonexistence of a chairman of the board, at all meetings of the board of directors. He shall have the general powers and duties of management usually vested in the office of president of a corporation, and shall have such other powers and duties as may be prescribed by the board of directors or these bylaws. 5.8 VICE PRESIDENTS In the absence or disability of the president, the vice presidents, if any, in order of their rank as fixed by the board of directors or, if not ranked, a vice president designated by the board of directors, shall perform all the duties of the president and when so acting shall have all the powers of, and be subject to all the restrictions upon, the president. The vice presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the board of directors, these bylaws, the president or the chairman of the board. -13- 19 5.9 SECRETARY The secretary shall keep or cause to be kept, at the principal executive office of the corporation or such other place as the board of directors may direct, a book of minutes of all meetings and actions of directors, committees of directors and shareholders. The minutes shall show the time and place of each meeting, whether regular or special (and, if special, how authorized and the notice given), the names of those present at directors' meetings or committee meetings, the number of shares present or represented at shareholders' meetings, and the proceedings thereof. The secretary shall keep, or cause to be kept, at the principal executive office of the corporation or at the office of the corporation's transfer agent or registrar, as determined by resolution of the board of directors, a share register, or a duplicate share register, showing the names of all shareholders and their addresses, the number and classes of shares held by each, the number and date of certificates evidencing such shares, and the number and date of cancellation of every certificate surrendered for cancellation. The secretary shall give, or cause to be given, notice of all meetings of the shareholders and of the board of directors required to be given by law or by these bylaws. He shall keep the seal of the corporation, if one be adopted, in safe custody and shall have such other powers and perform such other duties as may be prescribed by the board of directors or by these bylaws. 5.10 CHIEF FINANCIAL OFFICER The chief financial officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings, and shares. The books of account shall at all reasonable times be open to inspection by any director. The chief financial officer shall deposit all money and other valuables in the name and to the credit of the corporation with such depositaries as may be designated by the board of directors. He shall disburse the funds of the corporation as may be ordered by the board of directors, shall render to the president and directors, whenever they request it, an account of all of his transactions as chief financial officer and of the financial condition of the corporation, and shall have such other powers and perform such other duties as may be prescribed by the board of directors or these bylaws. ARTICLE VI INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS 6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS The corporation shall, to the maximum extent and in the manner permitted by the Code, indemnify each of its directors and officers against expenses (as defined in Section 317(a) of the -14- 20 Code), judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with any proceeding (as defined in Section 317(a) of the Code), arising by reason of the fact that such person is or was an agent of the corporation. For purposes of this Article VI, a "director" or "officer" of the corporation includes any person (i) who is or was a director or officer of the corporation, (ii) who is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, or (iii) who was a director or officer of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. 6.2 INDEMNIFICATION OF OTHERS The corporation shall have the power, to the extent and in the manner permitted by the Code, to indemnify each of its employees and agents (other than directors and officers) against expenses (as defined in Section 317(a) of the Code), judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with any proceeding (as defined in Section 317(a) of the Code), arising by reason of the fact that such person is or was an agent of the corporation. For purposes of this Article VI, an "employee" or "agent" of the corporation (other than a director or officer) includes any person (i) who is or was an employee or agent of the corporation, (ii) who is or was serving at the request of the corporation as an employee or agent of another corporation, partnership, joint venture, trust or other enterprise, or (iii) who was an employee or agent of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. 6.3 PAYMENT OF EXPENSES IN ADVANCE Expenses incurred in defending any civil or criminal action or proceeding for which indemnification is required pursuant to Section 6.1 or for which indemnification is permitted pursuant to Section 6.2 following authorization thereof by the Board of Directors shall be paid by the corporation in advance of the final disposition of such action or proceeding upon receipt of an undertaking by or on behalf of the indemnified party to repay such amount if it shall ultimately be determined that the indemnified party is not entitled to be indemnified as authorized in this Article VI. 6.4 INDEMNITY NOT EXCLUSIVE The indemnification provided by this Article VI shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any bylaw, agreement, vote of shareholders or disinterested directors or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office, to the extent that such additional rights to indemnification are authorized in the Articles of Incorporation. 6.5 INSURANCE INDEMNIFICATION The corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation against any liability -15- 21 asserted against or incurred by such person in such capacity or arising out of such person's status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of this Article VI. 6.6 CONFLICTS No indemnification or advance shall be made under this Article VI, except where such indemnification or advance is mandated by law or the order, judgment or decree of any court of competent jurisdiction, in any circumstance where it appears: (1) That it would be inconsistent with a provision of the Articles of Incorporation, these bylaws, a resolution of the shareholders or an agreement in effect at the time of the accrual of the alleged cause of the action asserted in the proceeding in which the expenses were incurred or other amounts were paid, which prohibits or otherwise limits indemnification; or (2) That it would be inconsistent with any condition expressly imposed by a court in approving a settlement. ARTICLE VII RECORDS AND REPORTS 7.1 MAINTENANCE AND INSPECTION OF SHARE REGISTER The corporation shall keep either at its principal executive office or at the office of its transfer agent or registrar (if either be appointed), as determined by resolution of the board of directors, a record of its shareholders listing the names and addresses of all shareholders and the number and class of shares held by each shareholder. A shareholder or shareholders of the corporation who holds at least five percent (5%) in the aggregate of the outstanding voting shares of the corporation or who holds at least one percent (1%) of such voting shares and has filed a Schedule 14B with the Securities and Exchange Commission relating to the election of directors, may (i) inspect and copy the records of shareholders' names, addresses, and shareholdings during usual business hours on five (5) days' prior written demand on the corporation, (ii) obtain from the transfer agent of the corporation, on written demand and on the tender of such transfer agent's usual charges for such list, a list of the names and addresses of the shareholders who are entitled to vote for the election of directors, and their shareholdings, as of the most recent record date for which that list has been compiled or as of a date specified by the shareholder after the date of demand. Such list shall be made available to any such shareholder by the transfer agent on or before the later of five (5) days after the demand is received or five (5) days after the date specified in the demand as the date as of which the list is to be compiled. The record of shareholders shall also be open to inspection on the written demand of any shareholder or holder of a voting trust certificate, at any time during usual business hours, for a -16- 22 purpose reasonably related to the holder's interests as a shareholder or as the holder of a voting trust certificate. Any inspection and copying under this Section 7.1 may be made in person or by an agent or attorney of the shareholder or holder of a voting trust certificate making the demand. 7.2 MAINTENANCE AND INSPECTION OF BYLAWS The corporation shall keep at its principal executive office or, if its principal executive office is not in the State of California, at its principal business office in California the original or a copy of these bylaws as amended to date, which bylaws shall be open to inspection by the shareholders at all reasonable times during office hours. If the principal executive office of the corporation is outside the State of California and the corporation has no principal business office in such state, then the secretary shall, upon the written request of any shareholder, furnish to that shareholder a copy of these bylaws as amended to date. 7.3 MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS The accounting books and records and the minutes of proceedings of the shareholders, of the board of directors, and of any committee or committees of the board of directors shall be kept at such place or places as are designated by the board of directors or, in absence of such designation, at the principal executive office of the corporation. The minutes shall be kept in written form, and the accounting books and records shall be kept either in written form or in any other form capable of being converted into written form. The minutes and accounting books and records shall be open to inspection upon the written demand of any shareholder or holder of a voting trust certificate, at any reasonable time during usual business hours, for a purpose reasonably related to the holder's interests as a shareholder or as the holder of a voting trust certificate. The inspection may be made in person or by an agent or attorney and shall include the right to copy and make extracts. Such rights of inspection shall extend to the records of each subsidiary corporation of the corporation. 7.4 INSPECTION BY DIRECTORS Every director shall have the absolute right at any reasonable time to inspect all books, records, and documents of every kind as well as the physical properties of the corporation and each of its subsidiary corporations. Such inspection by a director may be made in person or by an agent or attorney. The right of inspection includes the right to copy and make extracts of documents. 7.5 ANNUAL REPORT TO SHAREHOLDERS; WAIVER The board of directors shall cause an annual report to be sent to the shareholders not later than one hundred twenty (120) days after the close of the fiscal year adopted by the corporation. Such report shall be sent at least fifteen (15) days (or, if sent by third-class mail, thirty-five (35) -17- 23 days) before the annual meeting of shareholders to be held during the next fiscal year and in the manner specified in Section 2.5 of these bylaws for giving notice to shareholders of the corporation. The annual report shall contain (i) a balance sheet as of the end of the fiscal year, (ii) an income statement, (iii) a statement of changes in financial position for the fiscal year, and (iv) any report of independent accountants or, if there is no such report, the certificate of an authorized officer of the corporation that the statements were prepared without audit from the books and records of the corporation. The foregoing requirement of an annual report shall be waived so long as the shares of the corporation are held by fewer than one hundred (100) holders of record. 7.6 FINANCIAL STATEMENTS If no annual report for the fiscal year has been sent to shareholders, then the corporation shall, upon the written request of any shareholder made more than one hundred twenty (120) days after the close of such fiscal year, deliver or mail to the person making the request, within thirty (30) days thereafter, a copy of a balance sheet as of the end of such fiscal year and an income statement and statement of changes in financial position for such fiscal year. If a shareholder or shareholders holding at least five percent (5%) of the outstanding shares of any class of stock of the corporation makes a written request to the corporation for an income statement of the corporation for the three-month, six-month or nine-month period of the then current fiscal year ended more than thirty (30) days before the date of the request, and for a balance sheet of the corporation as of the end of that period, then the chief financial officer shall cause that statement to be prepared, if not already prepared, and shall deliver personally or mail that statement or statements to the person making the request within thirty (30) days after the receipt of the request. If the corporation has not sent to the shareholders its annual report for the last fiscal year, the statements referred to in the first paragraph of this Section 7.6 shall likewise be delivered or mailed to the shareholder or shareholders within thirty (30) days after the request. The quarterly income statements and balance sheets referred to in this section shall be accompanied by the report, if any, of any independent accountants engaged by the corporation or by the certificate of an authorized officer of the corporation that the financial statements were prepared without audit from the books and records of the corporation. 7.7 REPRESENTATION OF SHARES OF OTHER CORPORATIONS The chairman of the board, the president, any vice president, the chief financial officer, the secretary or assistant secretary of this corporation, or any other person authorized by the board of directors or the president or a vice president, is authorized to vote, represent, and exercise on behalf of this corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of this corporation. The authority herein granted may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by such person having the authority. -18- 24 ARTICLE VIII GENERAL MATTERS 8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING For purposes of determining the shareholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the shareholders entitled to exercise any rights in respect of any other lawful action (other than action by shareholders by written consent without a meeting), the board of directors may fix, in advance, a record date, which shall not be more than sixty (60) days before any such action. In that case, only shareholders of record at the close of business on the date so fixed are entitled to receive the dividend, distribution or allotment of rights, or to exercise such rights, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date so fixed, except as otherwise provided in the Code. If the board of directors does not so fix a record date, then the record date for determining shareholders for any such purpose shall be at the close of business on the day on which the board adopts the applicable resolution or the sixtieth (60th) day before the date of that action, whichever is later. 8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS From time to time, the board of directors shall determine by resolution which person or persons may sign or endorse all checks, drafts, other orders for payment of money, notes or other evidences of indebtedness that are issued in the name of or payable to the corporation, and only the persons so authorized shall sign or endorse those instruments. 8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED The board of directors, except as otherwise provided in these bylaws, may authorize any officer or officers, or agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation; such authority may be general or confined to specific instances. Unless so authorized or ratified by the board of directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount. 8.4 CERTIFICATES FOR SHARES A certificate or certificates for shares of the corporation shall be issued to each shareholder when any of such shares are fully paid. The board of directors may authorize the issuance of certificates for shares partly paid provided that these certificates shall state the total amount of the consideration to be paid for them and the amount actually paid. All certificates shall be signed in the name of the corporation by the chairman of the board or the vice chairman of the board or the president or a vice president and by the chief financial officer or an assistant treasurer or the secre- -19- 25 tary or an assistant secretary, certifying the number of shares and the class or series of shares owned by the shareholder. Any or all of the signatures on the certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed on a certificate ceases to be that officer, transfer agent or registrar before that certificate is issued, it may be issued by the corporation with the same effect as if that person were an officer, transfer agent or registrar at the date of issue. 8.5 LOST CERTIFICATES Except as provided in this Section 8.5, no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the corporation and cancelled at the same time. The board of directors may, in case any share certificate or certificate for any other security is lost, stolen or destroyed, authorize the issuance of replacement certificates on such terms and conditions as the board may require; the board may require indemnification of the corporation secured by a bond or other adequate security sufficient to protect the corporation against any claim that may be made against it, including any expense or liability, on account of the alleged loss, theft or destruction of the certificate or the issuance of the replacement certificate. 8.6 CONSTRUCTION; DEFINITIONS Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the Code shall govern the construction of these bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term "person" includes both a corporation and a natural person. ARTICLE IX AMENDMENTS 9.1 AMENDMENT BY SHAREHOLDERS New bylaws may be adopted or these bylaws may be amended or repealed by the vote or written consent of holders of a majority of the outstanding shares entitled to vote; provided, however, that if the articles of incorporation of the corporation set forth the number of authorized directors of the corporation, then the authorized number of directors may be changed only by an amendment of the articles of incorporation. 9.2 AMENDMENT BY DIRECTORS Subject to the rights of the shareholders as provided in Section 9.1 of these bylaws, bylaws, other than a bylaw or an amendment of a bylaw changing the authorized number of directors (except to fix the authorized number of directors pursuant to a bylaw providing for a variable number of directors), may be adopted, amended or repealed by the board of directors. -20- EX-4.2 4 0004.txt EXHIBIT 4.2 1 EXHIBIT 4.2 Execution Copy ================================================================================ COLO.COM, as Issuer and STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A., as Trustee Senior Notes Indenture Dated as of March 10, 2000 up to $400,000,000 13 7/8% Senior Notes due 2010 2 CROSS-REFERENCE TABLE
TIA Sections Indenture Sections - ------------ ------------------ SECTION 310(a)(1)......................................... 7.10 (a)(5).............................................. 7.10 (b)................................................. 7.03; 7.08 SECTION 311............................................... 7.03 SECTION 313(a)............................................ 7.06 (c)................................................. 7.05; 7.06 SECTION 314(a)............................................ 4.17 (b)................................................. 10.01 (c)(1).............................................. 1.01 (d)................................................. 10.01 (e)................................................. 1.01 SECTION 315(a)............................................ 7.02 (b)................................................. 7.05; 10.02 SECTION 316(a)............................................ 6.06
Note: The Cross-Reference Table shall not for any purpose be deemed to be a part of this Indenture. 3 TABLE OF CONTENTS
Page ---- RECITALS OF THE COMPANY..................................................................... 1 ARTICLE ONE DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01. Definitions.................................................................. 2 SECTION 1.02. Incorporation by Reference of Trust Indenture Act............................ 23 SECTION 1.03. Rules of Construction........................................................ 23 ARTICLE TWO THE NOTES SECTION 2.01. Form and Dating.............................................................. 24 SECTION 2.02. Restrictive Legends.......................................................... 25 SECTION 2.03. Execution, Authentication and Denominations.................................. 26 SECTION 2.04. Registrar and Paying Agent................................................... 27 SECTION 2.05. Paying Agent to Hold Money in Trust.......................................... 28 SECTION 2.06. Transfer and Exchange........................................................ 28 SECTION 2.07. Book-Entry Provisions for Global Notes....................................... 29 SECTION 2.08. Special Transfer Provisions.................................................. 31 SECTION 2.09. Replacement Notes............................................................ 33 SECTION 2.10. Outstanding Notes............................................................ 33 SECTION 2.11. Temporary Notes.............................................................. 34 SECTION 2.12. Cancellation................................................................. 34 SECTION 2.13. CUSIP Numbers................................................................ 35 SECTION 2.14. Defaulted Interest........................................................... 35 SECTION 2.15. Issuance of Additional Notes................................................. 35 ARTICLE THREE REDEMPTION SECTION 3.01. Right of Redemption.......................................................... 35 SECTION 3.02. Notices to Trustee........................................................... 36 SECTION 3.03. Selection of Notes to Be Redeemed............................................ 36 SECTION 3.04. Notice of Redemption......................................................... 36 SECTION 3.05. Effect of Notice of Redemption............................................... 37 SECTION 3.06. Deposit of Redemption Price.................................................. 38 SECTION 3.07. Payment of Notes Called for Redemption....................................... 38 SECTION 3.08. Notes Redeemed in Part....................................................... 38 ARTICLE FOUR COVENANTS SECTION 4.01. Payment of Notes............................................................. 38 SECTION 4.02. Maintenance of Office or Agency.............................................. 39 SECTION 4.03. Limitation on the Incurrence of Indebtedness and the Issuance of Preferred Stock........................................................................ 40
- -------- Note: The Table of Contents shall not for any purposes be deemed to be a part of this Indenture. 4 SECTION 4.04. Limitation on Restricted Payments............................................ 44 SECTION 4.05. Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries................................................................. 48 SECTION 4.06. Limitation on the Issuance and Sale of Capital Stock of Restricted Subsidiaries................................................................. 50 SECTION 4.07. Limitation on Issuances of Guarantees by Restricted Subsidiaries............. 51 SECTION 4.08. Limitation on Transactions with Affiliates................................... 52 SECTION 4.09. Limitation on Liens.......................................................... 53 SECTION 4.10. Limitation on Sale-Leaseback Transactions.................................... 54 SECTION 4.11. Limitation on Asset Sales.................................................... 55 SECTION 4.12. Repurchase of Notes upon a Change of Control................................. 56 SECTION 4.13. Business Activities.......................................................... 57 SECTION 4.14. Existence.................................................................... 57 SECTION 4.15. Payment of Taxes and Other Claims............................................ 57 SECTION 4.16. Maintenance of Properties and Insurance...................................... 57 SECTION 4.17. Notice of Defaults........................................................... 58 SECTION 4.18. Compliance Certificates...................................................... 58 SECTION 4.19. Commission Reports and Reports to Holders.................................... 58 SECTION 4.20. Waiver of Stay, Extension or Usury Laws...................................... 59 ARTICLE FIVE SUCCESSOR CORPORATION SECTION 5.01. When Company May Merge, Etc.................................................. 59 SECTION 5.02. Successor Substituted........................................................ 60 ARTICLE SIX DEFAULT AND REMEDIES SECTION 6.01. Events of Default............................................................ 60 SECTION 6.02. Acceleration................................................................. 62 SECTION 6.03. Other Remedies............................................................... 63 SECTION 6.04. Waiver of Past Defaults...................................................... 63 SECTION 6.05. Control by Majority.......................................................... 63 SECTION 6.06. Limitation on Suits.......................................................... 63 SECTION 6.07. Rights of Holders to Receive Payment......................................... 64 SECTION 6.08. Collection Suit by Trustee................................................... 64 SECTION 6.09. Trustee May File Proofs of Claim............................................. 65 SECTION 6.10. Priorities................................................................... 65 SECTION 6.11. Undertaking for Costs........................................................ 65 SECTION 6.12. Restoration of Rights and Remedies........................................... 66 SECTION 6.13. Rights and Remedies Cumulative............................................... 66 SECTION 6.14. Delay or Omission Not Waiver................................................. 66 ARTICLE SEVEN TRUSTEE SECTION 7.01. General...................................................................... 66 SECTION 7.02. Certain Rights of Trustee.................................................... 67 SECTION 7.03. Individual Rights of Trustee................................................. 68
5 SECTION 7.04. Trustee's Disclaimer......................................................... 68 SECTION 7.05. Notice of Default............................................................ 68 SECTION 7.06. Reports by Trustee to Holders................................................ 69 SECTION 7.07. Compensation and Indemnity................................................... 69 SECTION 7.08. Replacement of Trustee....................................................... 70 SECTION 7.09. Successor Trustee by Merger, Etc............................................. 71 SECTION 7.10. Eligibility.................................................................. 71 SECTION 7.11. Money Held in Trust.......................................................... 71 SECTION 7.12. Withholding Taxes............................................................ 71 ARTICLE EIGHT DISCHARGE OF INDENTURE SECTION 8.01. Termination of the Company's Obligations..................................... 71 SECTION 8.02. Defeasance and Discharge of Indenture........................................ 72 SECTION 8.03. Defeasance of Certain Obligations............................................ 74 SECTION 8.04. Application of Trust Money................................................... 74 SECTION 8.05. Repayment to Company......................................................... 75 SECTION 8.06. Reinstatement................................................................ 75 SECTION 8.07. Defeasance and Certain Other Events of Default............................... 75 ARTICLE NINE AMENDMENTS, SUPPLEMENTS AND WAIVERS SECTION 9.01. Without Consent of Holders................................................... 76 SECTION 9.02. With Consent of Holders...................................................... 76 SECTION 9.03. Revocation and Effect of Consent............................................. 77 SECTION 9.04. Notation on or Exchange of Notes............................................. 78 SECTION 9.05. Trustee to Sign Amendments, Etc.............................................. 78 SECTION 9.06. Conformity with Trust Indenture Act.......................................... 78 ARTICLE TEN SECURITY SECTION 10.01. Security.................................................................... 79 ARTICLE ELEVEN MISCELLANEOUS SECTION 11.01. Trust Indenture Act of 1939................................................. 80 SECTION 11.02. Notices..................................................................... 80 SECTION 11.03. Certificate and Opinion as to Conditions Precedent.......................... 82 SECTION 11.04. Statements Required in Certificate or Opinion............................... 82 SECTION 11.05. Rules by Trustee, Paying Agent or Registrar................................. 83 SECTION 11.06. Payment Date Other Than a Business Day...................................... 83 SECTION 11.07. Governing Law; Submission to Jurisdiction; Agent for Service................ 83 SECTION 11.08. No Adverse Interpretation of Other Agreements............................... 83 SECTION 11.09. No Recourse Against Others.................................................. 83 SECTION 11.10. Successors.................................................................. 84 SECTION 11.11. Duplicate Originals......................................................... 84 SECTION 11.12. Separability................................................................ 84 SECTION 11.13. Table of Contents, Headings, Etc............................................ 84
6
Page ---- EXHIBIT A Form of Global Note......................................................... A-1 EXHIBIT B Form of Certificated Note................................................... B-1 EXHIBIT C Form of Certificate to Be Delivered in Connection with Transfers to Non-QIB Accredited Investors................................... C-1
7 INDENTURE, dated as of March 19, 1999, between COLO.COM, a California corporation, as issuer (the "Company"), and STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A., a national banking association, as trustee (the "Trustee"). RECITALS OF THE COMPANY The Company has duly authorized the execution and delivery of this Indenture to provide for the issuance from time to time of 13 7/8% Senior Notes due 2010 (the "Notes") issuable as provided in this Indenture. Pursuant to the terms of a Purchase Agreement dated as of March 3, 2000 (the "Purchase Agreement") between the Company and Goldman, Sachs & Co., as the manager for itself and the several initial purchasers named on Schedule I thereto, the Company has agreed to issue and sell an aggregate of 300,000 Units (the "Units"), each of which consists of a Note with a principal amount of $1,000 and one warrant (each a "Warrant"), each Warrant entitling the holder thereof to purchase 19.9718 shares of Common Stock, par value $0.01 per share, of the Company. The Notes and Warrants included in each Unit will become separately transferable upon the earliest to occur of (i) the date that is one year following the Closing Date, (ii) 180 days after the closing of the date of the Company's initial public offering (iii) the commencement of the Exchange Offer pursuant to the Registration Rights Agreement, (iv) the date the Shelf Registration Statement (as defined herein) is declared effective, (v) the commencement of an Offer to Purchase (as defined herein) the Notes upon a Change of Control (as defined herein) or (vi) such date as determined by Goldman, Sachs & Co. in its sole discretion (the "Separation Date"). All things necessary to make this Indenture a valid agreement of the Company, in accordance with its terms, have been done, and the Company has done all things necessary to make the Notes, when executed by the Company and authenticated and delivered by the Trustee hereunder and duly issued by the Company, the legal, valid and binding obligations of the Company as hereinafter provided. This Indenture will, upon the effectiveness of the registration statement provided for under the Registration Rights Agreement, be subject to, and governed by, the provisions of the Trust Indenture Act of 1939, as amended, that are required to be a part of and to govern indentures qualified under the Trust Indenture Act of 1939, as amended. For and in consideration of the premises and the purchase of the Notes by the Holders thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders, as follows. ARTICLE ONE DEFINITIONS AND INCORPORATION BY REFERENCE 8 2 SECTION 1.01. Definitions. "Acquired Indebtedness" or "Acquired Preferred Stock" means, with respect to any specified Person, Indebtedness or Preferred stock of any other Person existing at the time such other Person is merged with or into or becomes a Restricted Subsidiary of such specified Person or assumed in connection with an Asset Acquisition by such specified Person; provided that such Indebtedness or Preferred Stock is not incurred in connection with, or in contemplation of, such other Person merging with or into or becoming a Subsidiary of such specified Person; provided that such Indebtedness or Preferred Stock of such other Person which is redeemed, defeased, retired or otherwise repaid at the time of or immediately upon consummation of the transactions by which such Person becomes a Restricted Subsidiary or such Asset Acquisition shall not be Acquired Indebtedness or Acquired Preferred Stock. "Adjusted Consolidated Net Income" means, for any period, the aggregate net income (or loss) of the Company and its Restricted Subsidiaries for such period, on a consolidated basis, determined in conformity with GAAP; provided that the following items shall be excluded in computing Adjusted Consolidated Net Income (without duplication): (i) the net income (or loss) of any Person that is not a Restricted Subsidiary, except (x) with respect to net income, to the extent of the amount of dividends or other distributions actually paid to the Company or any of its Restricted Subsidiaries by such Person during such period and (y) with respect to net losses, to the extent of the amount of Investments made by the Company or any Restricted Subsidiary in such Person during such period; (ii) the net income (or loss) of any Person accrued prior to the date it becomes a Restricted Subsidiary or is merged into or consolidated with the Company or any of its Restricted Subsidiaries or all or substantially all of the property and assets of such Person are acquired by the Company or any of its Restricted Subsidiaries; (iii) the net income of any Restricted Subsidiary to the extent that the declaration or payment of dividends or similar distributions by such Restricted Subsidiary of such net income is not at the time permitted by the operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to such Restricted Subsidiary; (iv) any gains or losses (on an after-tax basis) attributable to sales of assets outside the ordinary course of business of the Company and its Restricted Subsidiaries; (v) solely for purposes of calculating the amount of Restricted Payments that may be made pursuant to clause (C) of the first paragraph of Section 4.04 hereof, any amount paid or accrued as dividends on Preferred Stock of the Company or any Restricted Subsidiary owned by Persons other than the Company and any of its Restricted Subsidiaries; and (vi) all extraordinary gains and, solely for the purpose of calculating the Consolidated Leverage Ratio, extraordinary losses. "Affiliate" means, as applied to any specified Person, any other Person directly or indirectly controlling, controlled by, or under direct or indirect common control with, such specified Person. For purposes of this definition, "control" (including, with correlative 9 3 meanings, the terms "controlling," "controlled by" and "under common control with"), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise; provided that beneficial ownership of less than 10% of the Voting Stock of a Person shall be deemed not to be control. "Agent" means any Registrar, Paying Agent, authenticating agent or co-Registrar. "Agent Members" has the meaning provided in Section 2.07(a) hereof. "Asset Acquisition" means (i) an investment by the Company or any of its Restricted Subsidiaries in any other Person pursuant to which such Person shall become a Restricted Subsidiary or shall be merged into or consolidated with the Company or any of its Restricted Subsidiaries; provided that such Person is engaged in a Permitted Business or (ii) an acquisition by the Company or any of its Restricted Subsidiaries of the property and assets of any Person other than the Company or any of its Restricted Subsidiaries that constitute substantially all of a division or line of business of such Person; provided that the property and assets acquired are related, ancillary or complementary to a Permitted Business. "Asset Disposition" means the sale or other disposition by the Company or any of its Restricted Subsidiaries (other than to the Company or another Restricted Subsidiary) of (i) all or substantially all of the Capital Stock of any Restricted Subsidiary or (ii) all or substantially all of the assets that constitute a division or line of business of the Company or any of its Restricted Subsidiaries. "Asset Sale" means any sale, transfer or other disposition (including by way of merger, consolidation or sale-leaseback transaction) in one transaction or a series of related transactions by the Company or any of its Restricted Subsidiaries to any Person other than the Company or any of its Restricted Subsidiaries of (i) all or any of the Capital Stock of any Subsidiary, (ii) all or substantially all of the property and assets of an operating unit or business of the Company or any of its Restricted Subsidiaries or (iii) any other property and assets (other than the Capital Stock or other Investment in an Unrestricted Subsidiary) of the Company or any of its Restricted Subsidiaries outside the ordinary course of business of the Company or such Restricted Subsidiary and, in each case, that is not governed by Article Five hereof; provided that "Asset Sale" shall not include (a) sales or other dispositions of inventory, receivables and related assets and other current assets, (b) sales, transfers or other dispositions constituting the making or liquidating of a Permitted Investment or a Restricted Payment permitted to be made under Section 4.04 hereof, (c) sales, transfers or other dispositions of assets with a fair market value (as certified in an Officers' Certificate) not in excess of $1.0 million in any transaction or series of related transactions, (d) any sale , transfer, assignment or other disposition of any property or equipment that has become damaged, worn out, obsolete or otherwise unsuitable for use in 10 4 connection with the business of the Company or its Restricted Subsidiaries, (e) sales, transfers, assignments or other dispositions constituting the granting of Liens otherwise permitted by this Indenture, (f) sales, transfers or assignments of all or substantially all of the assets of the Company or mergers or consolidations in compliance with Section 4.11, (g) sales, transfers or other dispositions in the ordinary course of business of such Person, or (h) the licensing by the Company or any Restricted Subsidiary of intellectual property. "Average Life" means, at any date of determination with respect to any debt security, the quotient obtained by dividing (i) the sum of the products of (a) the number of years from such date of determination to the dates of each successive scheduled principal payment of such debt security and (b) the amount of such principal payment by (ii) the sum of all such principal payments. "Board of Directors" means the Board of Directors of the Company as required by the context or any committee of such Board of Directors duly authorized to act under this Indenture. "Board Resolution" means a copy of a resolution, certified by the Secretary or Assistant Secretary of the Company as required by the context to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Business Day" means any day except a Saturday, Sunday or other day on which commercial banks in the City of New York, in the city of the Corporate Trust Office of the Trustee or in the city in which any Paying Agent or Registrar is located are authorized or required by law to close. "Capital Stock" means, with respect to any Person, any and all shares, interests, participations or other equivalents (however designated, whether voting or non-voting) in equity of such Person, whether outstanding on the Closing Date or issued thereafter, including, without limitation, all Common Stock and Preferred Stock; provided that the term "Capital Stock" shall not include any Indebtedness Convertible into Capital Stock of such Person. "Capitalized Lease" means, as applied to any Person, any lease of any property (whether real, personal or mixed) of which the discounted present value of the rental obligations of such Person as lessee, in conformity with GAAP, is required to be capitalized on the balance sheet of such Person. "Capitalized Lease Obligations" means the capitalized portion of a Capitalized Lease in accordance with GAAP. 11 5 "Certificated Notes" has the meaning provided in Section 2.01 hereof. "Change of Control" means such time as (i) (a) prior to the occurrence of a Public Market, a "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act), other than an Existing Stockholder, becomes the ultimate "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of Voting Stock representing a greater percentage of the total voting power of the Voting Stock of the Company, on a fully diluted basis, than is held by the Existing Stockholders on such date and (b) on or after the occurrence of a Public Market, a "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act), other than an Existing Stockholder, becomes the ultimate "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of more than 50% of the total voting power of the Voting Stock of the Company on a fully diluted basis or (ii) individuals who on the Closing Date constitute the Board of Directors (together with any new directors whose election by the Board of Directors or whose nomination by the Board of Directors for election by the Company's stockholders was approved by a vote of at least a majority of the members of the Board of Directors then in office who either were members of the Board of Directors on the Closing Date or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the members of the Board of Directors then in office for a period of two years. "Closing Date" means the date on which the Notes are originally issued under this Indenture. "Closing Price" on any Trading Day with respect to the per share price of any shares of Capital Stock means the last reported sale price regular way or, in case no such sale takes place on such day, the average of the reported closing bid and asked prices regular way, in either case on the New York Stock Exchange, or, if such shares of Capital Stock are not listed or admitted to trading on such exchange, on the principal national securities exchange on which such shares are listed or admitted to trading on any national securities exchange, on the Nasdaq Stock Market, or if such shares are not listed or admitted to trading or, if not listed or admitted to trading on any national securities exchange or quoted on the Nasdaq Stock Market, the average of the closing bid and asked prices in the over-the-counter market as furnished by any New York Stock Exchange member firm of national standing that is selected from time to time by the Company for that purpose. "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act or, if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the TIA, then the body performing such duties at such time. 12 6 "Commodity Agreement" means any forward contract, commodity swap agreement, commodity option agreement or other similar agreement or arrangement. "Common Stock" means, with respect to any Person, any and all shares, interests, participations or other equivalents (however designated, whether voting or non-voting) of such Person's common stock, whether now outstanding or issued after the date of this Indenture, including, without limitation, all series and classes of such common stock. "Company" means the party named as such in the first paragraph of this Indenture until a successor replaces it pursuant to the applicable provisions of this Indenture and thereafter means the successor. "Company Order" means a written request or order signed in the name of the Company (i) by its Chairman of the Board, the Vice Chairman of the Board, its President or a Vice President or (ii) by its Chief Financial Officer, Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary and delivered to the Trustee. "Consolidated EBITDA" means, for any period, Adjusted Consolidated Net Income for such period plus, to the extent such amount was deducted in calculating such Adjusted Consolidated Net Income, (i) Consolidated Interest Expense, (ii) income taxes, (iii) depreciation expense, (iv) amortization expense and (v) all other non-cash items reducing Adjusted Consolidated Net Income (other than items that will require cash payments and for which an accrual or reserve is, or is required by GAAP to be, made), less all non-cash items increasing Adjusted Consolidated Net Income, all as determined on a consolidated basis for the Company and its Restricted Subsidiaries in conformity with GAAP; provided that, if any Restricted Subsidiary is not a Wholly Owned Restricted Subsidiary, Consolidated EBITDA shall be reduced (to the extent not otherwise reduced in accordance with GAAP) by an amount equal to (A) the amount of the Adjusted Consolidated Net Income attributable to such Restricted Subsidiary multiplied by (B) the percentage ownership interest in the income of such Restricted Subsidiary not owned on the last day of such period by the Company or any of its Restricted Subsidiaries. "Consolidated Interest Expense" means, for any period, the aggregate amount of interest in respect of Indebtedness (including, without limitation, amortization of original issue discount on any Indebtedness and the interest portion of any deferred payment obligation, calculated in accordance with the effective interest method of accounting; all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing; the net costs associated with Interest Rate Agreements; and Indebtedness that is Guaranteed or secured by the Company or any of its Restricted Subsidiaries), one-third of the rental expense of all operating leases of the Company and its Restricted Subsidiaries and all but the principal component of rentals in respect of Capitalized Lease Obligations paid, accrued 13 7 or scheduled to be paid or to be accrued by the Company and its Restricted Subsidiaries during such period; excluding, however, (1) any amount of such interest of any Restricted Subsidiary if the net income of such Restricted Subsidiary is excluded in the calculation of Adjusted Consolidated Net Income pursuant to clause (iii) of the definition thereof (but only in the same proportion as the net income of such Restricted Subsidiary is excluded from the calculation of Adjusted Consolidated Net Income pursuant to clause (iii) of the definition thereof) and (2) any premiums, fees and expenses (and any amortization thereof) payable in connection with the offering of the Units, all as determined on a consolidated basis (without taking into account Unrestricted Subsidiaries) in conformity with GAAP. "Consolidated Leverage Ratio" means, with respect to the Company on any Transaction Date, the ratio of (1) the aggregate amount of Indebtedness of the Company and its Restricted Subsidiaries on a consolidated basis outstanding on such Transaction Date to (2) four times Consolidated EBITDA for the most recently ended fiscal quarter for which financial statements of the Company have been filed with the Commission or provided to the Trustee pursuant to Section 4.18 hereof. Notwithstanding the definition of Adjusted Consolidated Net Income, for the purposes of calculating the "Consolidated EBITDA" for any fiscal quarter for purposes of this definition, (i) any Subsidiary of the Company that is a Restricted Subsidiary on the Transaction Date shall be deemed to have been a Restricted Subsidiary at all times during such fiscal quarter and (ii) any Subsidiary of the Company that is not a Restricted Subsidiary on the Transaction Date shall be deemed not to have been a Restricted Subsidiary at any time during such fiscal quarter. In addition to and without limitation of the foregoing, for purposes of this definition, "consolidated EBITDA" shall be calculated after giving effect on a pro forma basis for the applicable fiscal quarter to, without duplication: (A) the Incurrence or repayment of any Indebtedness to be Incurred or repaid on the Transaction Date; (B) Asset Dispositions and Asset Acquisitions (including giving pro forma effect to the application of proceeds of any Asset Disposition) that occur from the beginning of the most recently ended fiscal quarter, for which financial statements of the Company have been filed with the SEC or provided to the Trustee pursuant to Section 4.19, through the Transaction Date (the "Reference Period"), as if they had occurred and such proceeds had been applied on the first day of such Reference Period; and (C) asset dispositions and asset acquisitions (including giving pro forma effect to the application of proceeds of any asset disposition) that have been made by any Person that has become a Restricted Subsidiary or has been merged with or into the Company or any Restricted Subsidiary during such Reference Period and that would have constituted Asset Dispositions or Asset Acquisitions had such transactions occurred when such Person was a Restricted Subsidiary as if such asset dispositions or asset acquisitions were Asset Dispositions or Asset Acquisitions that occurred on the first day of such Reference Period; provided that to the extent that clause (B) or (C) of this sentence requires that pro forma effect be given to an Asset Acquisition or Asset Disposition, such pro forma calculation shall be based upon the full fiscal quarter immediately preceding the Transaction Date of the Person, or division or line of business of the Person, that is acquired or disposed of for which financial information is available. 14 8 "Convertible Notes" means notes that are convertible into Capital Stock of the Company at the option of the holders thereof. "Credit Facility" means any credit facilities, any receivables facilities or programs, or one or more other term loan and/or revolving credit or commercial paper facilities (including any letter of credit subfacilities) entered into with commercial banks or other financial institutions or institutional investors, or any replacement, extension, renewal, refinancing or refunding thereof. "Corporate Trust Office" means the office of the Trustee at which the corporate trust business of the Trustee shall, at any particular time, be principally administered, which office is, at the date of this Indenture, located at 633 West 5th Street, 12th Floor, Los Angeles, CA 90071, Attention: Corporate Trust Department. "Currency Agreement" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement. "Default" means any event that is, or after notice or passage of time or both would be, an Event of Default. "Depository" shall mean DTC. "Disqualified Stock" means any class or series of Capital Stock of any Person that by its terms or otherwise is (i) required to be redeemed prior to the Stated Maturity of the Notes, (ii) redeemable at the option of the holder of such class or series of Capital Stock at any time prior to the Stated Maturity of the Notes or (iii) convertible into or exchangeable for Capital Stock referred to in clause (i) or (ii) above or Indebtedness having a scheduled maturity prior to the Stated Maturity of the Notes; provided that any Capital Stock that would not constitute Disqualified Stock but for provisions thereof giving holders thereof (a) the right to require such Person to repurchase or redeem such Capital Stock upon the occurrence of an "asset sale" or "change of control" occurring prior to the Stated Maturity of the Notes shall not constitute Disqualified Stock if the "asset sale" or "change of control" provisions applicable to such Capital Stock are no more favorable to the holders of such Capital Stock than the provisions contained in Sections 4.11 and 4.12 hereof, and such Capital Stock, or the agreements or instruments governing the redemption rights thereof, specifically provides that such Person will not repurchase or redeem any such stock pursuant to such provision prior to the Company's repurchase of such Notes as are required to be repurchased pursuant to Sections 4.11 and 4.12 hereof or (b) the right to require such Person to repurchase in any other event, if such repurchase right is expressly contingent on the payment in full of the Notes. 15 9 "DTC" means The Depository Trust Company, its nominees, and their respective successors. "Event of Default" has the meaning provided in Section 6.01 hereof. "Excess Proceeds" has the meaning provided in Section 4.11 hereof. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exchange Notes" means any notes of the Company containing terms identical to the Notes (except that such Exchange Notes (i) shall be registered under the Securities Act, (ii) will not provide for an increase in the rate of interest (other than with respect to overdue amounts) and (iii) will not contain terms with respect to transfer restrictions) that are issued and exchanged for the Notes pursuant to the Registration Rights Agreement and this Indenture. "Existing Stockholders" means Accel Partners, Athena Venture Fund L.P., Investcorp International, Menlo Ventures and Meritech Capital Partners, and, in each case, affiliated funds. "Existing Vendor Finance Agreements" means, collectively, (i) the equipment and tenant improvement financing agreement with Meier Mitchell & Company providing up to $17 million of credit and (ii) the equipment and tenant improvement financing agreement with Comdisco, Inc. providing up to $17 million of credit, each of which is secured by all of the tangible and intangible assets relating to assets financed by the lender under the applicable agreement. "fair market value" means the price that would be paid in an arm's-length transaction between an informed and willing seller under no compulsion to sell and an informed and willing buyer under no compulsion to buy, as determined in good faith by the Board of Directors, whose determination shall be conclusive if evidenced by a Board Resolution. "Foreign Subsidiary" mean any Subsidiary of the Company that is organized under the laws of any jurisdiction, other than under the laws of the United States or any state, territory or political subdivision thereof, and its primary business and operation do not include any of the U.S.-based business and operations conducted by the Company and its Restricted Subsidiaries. "GAAP" means generally accepted accounting principles in the United States of America as in effect as of the Closing Date, including, without limitation, those set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting 16 10 Standards Board or in such other statements by such other entity as approved by a significant segment of the accounting profession. All ratios and computations contained or referred to in this Indenture shall be computed in conformity with GAAP applied on a consistent basis, except that calculations made for purposes of determining compliance with the terms of the covenants and with other provisions of this Indenture shall be made without giving effect to (i) the amortization of any expenses incurred in connection with the offering of the Units and (ii) except as otherwise provided, the amortization of any amounts required or permitted by Accounting Principles Board Opinion Nos. 16 and 17. "Government Securities" means the direct obligations of, obligations fully guaranteed by, or participations in pools consisting solely of obligations of or obligations guaranteed by the United States of America for the payment of which guarantee or obligations the full faith and credit of the United States of America is pledged and which are not callable or redeemable at the option of the issuer thereof. "Guarantee" means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Indebtedness of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness of such other Person (whether arising by virtue of partnership arrangements, or by agreements to keep-well, to purchase assets, goods, securities or services (unless such purchase arrangements are on arm's-length terms and are entered into in the ordinary course of business), to take-or-pay, or to maintain financial statement conditions or otherwise) or (ii) entered into for purposes of assuring in any other manner the obligee of such Indebtedness of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); provided that the term "Guarantee" shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. "Guaranteed Indebtedness" has the meaning provided in Section 4.07 hereof. "Holder" or "Noteholder" means the registered holder of any Note. "Incur" means, with respect to any Indebtedness, to incur, create, issue, assume, Guarantee or otherwise, directly or indirectly, become liable for or with respect to, or become responsible for, the payment of, contingently or otherwise, such Indebtedness, including an "Incurrence" of Acquired Indebtedness; provided that neither the accrual of interest nor the accretion of original issue discount shall be considered an Incurrence of Indebtedness. "Indebtedness" means, with respect to any Person at any date of determination (without duplication), (i) all indebtedness of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person in respect of letters of credit or other similar instruments (including 17 11 reimbursement obligations with respect thereto, but excluding obligations with respect to letters of credit (including trade letters of credit) securing obligations (other than obligations described in (i) or (ii) above or (v), (vi) or (vii) below) entered into in the ordinary course of business of such Person to the extent such letters of credit are not drawn upon or, if drawn upon, to the extent such drawing is reimbursed no later than the third Business Day following receipt by such Person of a demand for reimbursement), (iv) all obligations of such Person to pay the deferred and unpaid purchase price of property or services, which purchase price is due more than six months after the date of placing such property in service or taking delivery and title thereto or the completion of such services, except Trade Payables, (v) all Capitalized Lease Obligations of such Person, (vi) all Indebtedness of other Persons secured by a Lien on any asset of such Person, whether or not such Indebtedness is assumed by such Person; provided that the amount of such Indebtedness shall be the lesser of (A) the fair market value of such asset at such date of determination and (B) the amount of such Indebtedness, (vii) all Indebtedness of other Persons Guaranteed by such Person to the extent such Indebtedness is Guaranteed by such Person, (viii) to the extent not otherwise included in this definition, obligations under Currency Agreements and Interest Rate Agreements (other than Commodity Agreements, Currency Agreements and Interest Rate Agreements designed solely to protect the Company or its Restricted Subsidiary against fluctuations in commodity prices, foreign currency exchange rates or interest rates and that do not increase the Indebtedness of the obligor outstanding at any time other than as a result of fluctuations in commodity prices, foreign currency exchange rates or interest rates or by reason of fees, indemnities and compensation payable thereunder); and (ix) Disqualified Stock of such Person and Preferred Stock of such Person's Restricted Subsidiaries. The amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all unconditional obligations, as described above and, with respect to contingent obligations, the maximum liability upon the occurrence of the contingency giving rise to the obligation, provided that (A) the amount outstanding at any time of any Indebtedness issued with original issue discount is the face amount of such Indebtedness less the remaining unamortized portion of the original issue discount of such Indebtedness at the time as determined in conformity with GAAP, (B) money borrowed and set aside at the time of the Incurrence of any Indebtedness in order to prefund the payment of the interest on such Indebtedness shall not be deemed to be "Indebtedness" so long as such money is held to secure the payment of such interest and (C) Indebtedness shall not include (v) any liability for federal, state, local or other taxes, (w) performance, surety or appeal bonds provided in the ordinary course of business, (x) agreements providing for indemnification, adjustment of purchase price or similar obligations, or Guarantees or letters of credit, surety bonds or performance bonds securing any obligations of the Company or any of its Restricted Subsidiaries pursuant to such agreements, in any case Incurred in connection with the disposition of any business, assets or Restricted Subsidiary (other than Guarantees of Indebtedness Incurred by any Person acquiring all or any portion of such business, assets or Restricted Subsidiary for the purpose of financing such acquisition), so long as the principal amount does not exceed the gross proceeds actually received by the Company or any Restricted Subsidiary in connection with such disposition, (y) liabilities 18 12 incurred in connection with leases properly classified as operating leases in accordance with GAAP or (z) accrued expenses. "Indenture" means this Indenture as originally executed or as it may be amended or supplemented from time to time by one or more indentures supplemental to this Indenture entered into pursuant to the applicable provisions of this Indenture. "Institutional Accredited Investor" shall mean an "accredited investor" of the type described in Rule 501(a)(1), (2), (3) or (7) under the Securities Act. "Interest Payment Date" means each semiannual interest payment date on March 15 and September 15 of each year, commencing September 15, 2000. "Interest Rate Agreement" means any interest rate protection agreement, interest rate future agreement, interest rate option agreement, interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedge agreement, option or future contract or other similar agreement or arrangement. "Investment" in any Person means any direct or indirect advance, loan or other extension of credit (including, without limitation, by way of Guarantee or similar arrangement; but excluding advances to customers or suppliers in the ordinary course of business that are, in conformity with GAAP, recorded as accounts receivable on the balance sheet of the Company or its Restricted Subsidiaries and endorsements for collection or deposit arising in the ordinary course of business) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition of Capital Stock, bonds, notes, debentures or other similar instruments issued by, such Person and shall include (i) the designation of a Restricted Subsidiary as an Unrestricted Subsidiary and (ii) the retention of the Capital Stock (or any other Investment) by the Company or any of its Restricted Subsidiaries, of (or in) any Person that has ceased to be a Restricted Subsidiary, including, without limitation or by reason of any transaction permitted by clause (iii) of Section 4.06 hereof. For purposes of the definition of "Unrestricted Subsidiary" and Section 4.04, (a) the amount of or a reduction in an Investment shall be equal to the fair market value thereof at the time such Investment is made or reduced and (b) in the event the Company or a Restricted Subsidiary makes an Investment by transferring assets to any Person and as part of such transaction receives Net Cash Proceeds, the amount of such Investment shall be the fair market value of the assets less the amount of Net Cash Proceeds so received. "Lien" means any mortgage, pledge, security interest, encumbrance, lien or fixed or floating charge of any kind (including, without limitation, any conditional sale or other title retention agreement or lease in the nature thereof or any agreement to give any security interest); provided, however, that the term "Lien" shall not include any Lease, properly classified as an operating lease in accordance with GAAP. 19 13 "Moody's" means Moody's Investors Service, Inc. and its successors. "Net Cash Proceeds" means, (a) with respect to any Asset Sale, the proceeds of such Asset Sale in the form of cash or cash equivalents, including payments in respect of deferred payment obligations (to the extent corresponding to the principal, but not interest, component thereof) when received in the form of cash or cash equivalents and proceeds from the conversion of other property received when converted to cash or cash equivalents, net of (i) brokerage commissions and other fees and expenses (including fees and expenses of counsel and investment bankers) related to such Asset Sale, (ii) provisions for all taxes (whether or not such taxes will actually be paid or are payable) as a result of such Asset Sale without regard to the consolidated results of operations of the Company and its Restricted Subsidiaries, taken as a whole, (iii) payments made to repay Indebtedness or any other obligation outstanding at the time of such Asset Sale that either (A) is secured by a Lien on the property or assets sold or (B) is required to be paid as a result of such sale, and (iv) appropriate amounts to be provided by the Company or any Restricted Subsidiary as a reserve against any liabilities associated with such Asset Sale, including, without limitation, pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Asset Sale, all as determined in conformity with GAAP, and (b) (i) with respect to any issuance or sale of Capital Stock, the proceeds of such issuance or sale in the form of cash or cash equivalents, including payments in respect of deferred payment obligations (to the extent corresponding to the principal, but not interest, component thereof) when received in the form of cash or cash equivalents and proceeds from the conversion of other property received when converted to cash or cash equivalents, and (ii) with respect to any Indebtedness that is converted into, or exchanged for, Capital Stock (other than Disqualified Stock), the proceeds of such issuance or sale of Indebtedness in the form of cash or cash equivalents and proceeds from the conversion of other property received when converted to cash or cash equivalents, in each case with respect to clauses (i) and (ii), net of attorney's fees, accountants' fees, underwriters' or placement agents' fees, discounts or commissions and brokerage, consultant and other fees incurred in connection with such issuance or sale and net of taxes paid or payable as a result thereof. "Note Guarantee" has the meaning provided in Section 4.07. "Note Register" has the meaning provided in Section 2.04. "Notes" means any of the Notes, as defined in the first paragraph of the recitals hereof, that are authenticated and delivered under this Indenture. For all purposes of this Indenture, the term "Notes" shall include any Exchange Notes to be issued and exchanged for any Notes pursuant to the Registration Rights Agreement and this Indenture and, for purposes of this Indenture, all Notes and Exchange Notes shall vote together as one series of Notes under this Indenture. 20 14 "Offer to Purchase" means an offer to purchase Notes by the Company from the Holders commenced by mailing a notice to the Trustee and each Holder stating: (i) the covenant pursuant to which the offer is being made and that all Notes validly tendered will be accepted for payment on a pro rata basis; (ii) the purchase price and the date of purchase (which shall be a Business Day no earlier than 30 days nor later than 60 days from the date such notice is mailed) (the "Payment Date"); (iii) that any Note not tendered will continue to accrue interest pursuant to its terms; (iv) that, unless the Company defaults in the payment of the purchase price, any Note accepted for payment pursuant to the Offer to Purchase shall cease to accrue interest on and after the Payment Date; (v) that Holders electing to have a Note purchased pursuant to the Offer to Purchase will be required to surrender the Note, together with the form entitled "Option of the Holder to Elect Purchase" on the reverse side of the Note completed, to the Paying Agent at the address specified in the notice prior to the close of business on the Business Day immediately preceding the Payment Date; (vi) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than the close of business on the third Business Day immediately preceding the Payment Date, a telegram, facsimile transmission or letter setting forth the name of such Holder, the principal amount of Notes delivered for purchase and a statement that such Holder is withdrawing his election to have such Notes purchased; and (vii) that Holders whose Notes are being purchased only in part will be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered; provided that each Note purchased and each new Note issued shall be in a principal amount of $1,000 or integral multiples of $1,000. On the Payment Date, the Company shall (i) accept for payment on a pro rata basis Notes or portions thereof tendered pursuant to an Offer to Purchase; (ii) deposit with the Paying Agent money sufficient to pay the purchase price of all Notes or portions thereof so accepted; and (iii) deliver, or cause to be delivered, to the Trustee all Notes or portions thereof so accepted together with an Officers' Certificate specifying the Notes or portions thereof accepted for payment by the Company. The Paying Agent shall promptly mail to the Holders of Notes so accepted payment in an amount equal to the purchase price, and the Trustee shall promptly authenticate and mail to such Holders a new Note equal in principal amount to any unpurchased portion of the Note surrendered; provided that each Note purchased and each new Note issued shall be in a principal amount of $1,000 or an integral multiple thereof. The Company will publicly announce the results of an Offer to Purchase as soon as practicable after the Payment Date. The Trustee shall act as the Paying Agent for an Offer to Purchase. The Company will comply with Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable, in the event that the Company is required to repurchase Notes pursuant to an Offer to Purchase. "Officer" means, with respect to the Company, (i) the Chairman of the Board, the Vice Chairman of the Board, the President, the Chief Executive Officer, the Chief Financial Officer or a Vice President, and (ii) the Treasurer or any Assistant Treasurer, or the Secretary or any Assistant Secretary of the Company. 21 15 "Officers' Certificate" means a certificate signed by one Officer listed in clause (i) of the definition thereof and one Officer listed in clause (ii) of the definition thereof; provided, however, that any such certificate may be signed by any two of the Officers listed in clause (i) of the definition thereof in lieu of being signed by one Officer listed in clause (i) of the definition thereof and one Officer listed in clause (ii) of the definition thereof. Each Officers' Certificate (other than certificates provided pursuant to TIA Section 314(a)(4)) shall include the statements provided for in TIA Section 314(e). "Opinion of Counsel" means a written opinion signed by legal counsel who may be an employee of or counsel to the Company. Each such Opinion of Counsel shall include the statements provided for in TIA Section 314(e). "Participant" means, with respect to DTC, a Person who has an account with DTC (and, with respect to DTC, shall include Euroclear and Cedel). "Paying Agent" has the meaning provided in Section 2.04, except that, for the purposes of Article Eight, the Paying Agent shall not be the Company or a Subsidiary of the Company or an Affiliate of any of them). "Payment Date" means the date of purchase, which shall be a Business Day no earlier than 30 days nor later than 60 days from the date of notice is mailed pursuant to an Offer to Purchase. "Permitted Business" means (i) the business of designing, constructing, owning, operating and leasing colocation facilities for telecommunications, data communications and Internet-based businesses and businesses reasonably related, complementary or incidental thereto; (ii) server and other based hosting; (iii) the management of computer systems, data networks, or telecommunications systems; (iv) providing direct connections, switched interconnections and related services to third parties as well as related operations and businesses; (v) technology services, equipment staging, or software services for Internet Protocol or successor protocol based networks; and (vi) other businesses reasonably related, ancillary, supplemental or incidental to any of the foregoing or reasonable extensions thereof. "Permitted Investment" means (i) an Investment in the Company or a Restricted Subsidiary or a Person which will, upon the making of such Investment, become a Restricted Subsidiary or be merged or consolidated with or into or transfer or convey all or substantially all its assets to the Company or a Restricted Subsidiary; provided that such Person's primary business is related, ancillary or complementary to a Permitted Business; (ii) Temporary Cash Investments; (iii) payroll, travel and similar advances to cover matters that are expected at the time of such advances ultimately to be treated as expenses in accordance with GAAP, or loans or guarantees to officers, directors and employees approved by the Board of Directors of the Company or any committee thereof, in connection with the relocation of such persons; (iv) stock, 22 16 obligations or securities received in satisfaction of judgments;(v) an Investment in an Unrestricted Subsidiary consisting solely of an Investment in another Unrestricted Subsidiary; (vi) Commodity Agreements, Interest Rate Agreements and Currency Agreements designed solely to protect the Company or its Restricted Subsidiaries against fluctuations in commodity prices, interest rates or foreign currency exchange rates; (vii) any Investment received (a) in satisfaction of judgments or (b) as payment on a claim made in connection with any bankruptcy, liquidation, receivership or other insolvency proceeding; (viii) Investments in (a) prepaid expenses and negotiable instruments held for collection, (b) Investments obtained in exchange or settlement of accounts receivable for which the Company or any Restricted Subsidiary has determined that the collection is questionable and (c) lease, utility and worker compensation, performance and other similar deposits arising in the ordinary course of business; (ix) Strategic Investments provided that the aggregate amount of Investments made pursuant to this clause (ix) shall not exceed the greater of $20.0 million and 2 1/2% of the Company's Total Common Equity, at any one time outstanding; (x) Investments, to the extent the consideration therefore is the licensing or disclosure of intellectual property or know-how; and (xi) other Investments not to exceed $5.0 million at any one time outstanding. "Permitted Liens" means: (i) Liens incurred or deposits made to secure the performance of tenders, bids, leases, statutory or regulatory obligations, bankers' acceptances, surety and appeal bonds, government contracts, performance and return-of-money bonds and other obligations of a similar nature incurred in the ordinary course of business (exclusive of obligations for the payment of borrowed money); (ii) Liens (including extensions and renewals thereof) upon real or personal property acquired after the Closing Date; provided that (a) such Lien is created solely for the purpose of securing Indebtedness Incurred pursuant to clause (7) of the second paragraph of part (a) of Section 4.03, and such Lien is created prior to, at the time of or within six months after the later of the acquisition, the completion of construction or the commencement of full operation of such property, (b) the principal amount of the Indebtedness secured by such Lien does not exceed 100% of such cost, and (c) any such Lien shall not extend to or cover any property or assets other than such item of property or assets or attachments, accessions or proceeds thereof, and any improvements on such item; (iii) any interest or title of a lessor in the property subject to any Capitalized Lease or operating lease; (iv) Liens arising from filing Uniform Commercial Code financing statements regarding leases; (v) Liens on property of, or on shares of Capital Stock or Indebtedness of, any Person existing at the time such Person becomes a Restricted Subsidiary of the Company or is merged with or into or consolidated with the Company or any Restricted Subsidiary of the Company; provided that such Liens are not Incurred in contemplation of such acquisition, merger or consolidation and do not extend to or cover any property or assets of the Company or any Restricted Subsidiary other than those of the Person acquired by, merged into or consolidated with the Company or any Restricted Subsidiary; (vi) Liens in favor of the Company or any Restricted Subsidiary; (vii) Liens on property existing at the time of acquisition thereof by the Company or any Restricted Subsidiary of the Company; provided that such Liens are not incurred in contemplation of such acquisition and do not extend to any asset other than the assets acquired; (viii) Liens securing reimbursement obligations with 23 17 respect to letters of credit that encumber documents and other property relating to such letters of credit and the products and proceeds thereof or any cash collateral; (ix) Liens encumbering customary initial deposits and margin deposits, and other Liens that are within the general parameters customary in the industry and incurred in the ordinary course of business, in each case, securing Indebtedness under Commodity Agreements, Interest Rate Agreements and Currency Agreements designed solely to protect the Company or any of its Restricted Subsidiaries from fluctuations in interest rates, currencies or the price of commodities; (x) Liens arising out of conditional sale, title retention, consignment or similar arrangements for the sale of goods entered into by the Company or any of its Restricted Subsidiaries in the ordinary course of business in accordance with the past practices of the Company and its Restricted Subsidiaries prior to the Closing Date; (xi) Liens on shares of Capital Stock of any Unrestricted Subsidiary to secure Indebtedness of such Unrestricted Subsidiary; (xii) Liens on, or sales of, accounts receivable; and (xiii) licenses. "Person" means an individual, a corporation, a partnership, a limited liability company, a joint venture, an association, a trust, an unincorporated organization or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. "Pledge Account" means an account established with the Trustee pursuant to the terms of the Pledge Agreement for the deposit of the Pledged Securities purchased by the Company with a portion of the proceeds from the sale of the Notes. "Pledge Agreement" means the Collateral Pledge and Security Agreement, dated as of the Closing Date, made by the Company in favor of the Trustee, governing the disbursement of funds from the Pledge Account, as such agreement may be amended, restated, supplemented or otherwise modified from time to time. "Pledged Securities" means the Government Securities to be purchased by the Company and held in the Pledge Account in accordance with the Pledge Agreement. "Preferred Stock" or "preferred stock" means, with respect to any Person, any and all shares, interests, participation or other equivalents (however designated, whether voting or non-voting) of such Person's preferred or preference stock, whether now outstanding or issued after the date of this Indenture, including, without limitation, all series and classes of such preferred or preference stock. "principal" of a debt security, including the Notes, means the principal amount due on the Stated Maturity as shown on such debt security. "Private Placement Legend" means the legend initially set forth on the Notes in the form set forth in Section 2.02(a). 24 18 "Public Equity Offering" means an underwritten primary public offering of Common Stock of the Company pursuant to an effective registration statement under the Securities Act. A "Public Market" shall be deemed to exist if (i) a Public Equity Offering has been consummated and (ii) at least 15% of the total issued and outstanding Common Stock of the Company has been distributed by means of an effective registration statement under the Securities Act or sales pursuant to Rule 144 or Rule 701 under the Securities Act. "Purchase Agreement" has the meaning provided in the recitals to this Indenture. "QIB" means a "qualified institutional buyer" as defined in Rule 144A. "Redemption Date" when used with respect to any Note or part thereof to be redeemed, means the date fixed for such redemption by or pursuant to the terms of the Notes and this Indenture. "Redemption Price" when used with respect to any Note or part thereof to be redeemed, means the price at which such Note is to be redeemed pursuant to the terms of the Notes and this Indenture. "Registrar" has the meaning provided in Section 2.04. "Registration Rights Agreement" means the Registration Rights Agreement, dated as of March 10, 2000, between the Company and Goldman, Sachs & Co., on behalf of itself and Bear, Stearns & Co. Inc., Chase Securities Inc., Deutsche Bank Securities Inc., Warburg Dillon Read LLC and Jefferies & Company, Inc. relating to the Notes. "Registration Statement" means any registration statement of the Company that covers any of the Exchange Notes, and all amendments and supplements to any such Registration Statement, including post-effective amendments, in each case including the prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. "Regular Record Date" for the interest payable on any Interest Payment Date means March 1 or September 1 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. "Replacement Assets" means, on any date, property or assets (other than current assets) of a nature or type or that are used in a business (or an Investment in a company having property or assets of a nature or type, or engaged in a business) that is a Permitted Business. 25 19 "Responsible Officer", when used with respect to the Trustee, means any officer of the Trustee with direct responsibility for the administration of this Indenture, and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his or her knowledge of and familiarity with the particular subject. "Global Note" has the meaning provided in Section 2.01. "Restricted Payments" has the meaning provided in Section 4.04. "Restricted Subsidiary" means any Subsidiary of the Company other than an Unrestricted Subsidiary. "Rule 144A" means Rule 144A under the Securities Act. "Securities Act" means the Securities Act of 1933, as amended. "Separation Date" has the meaning provided in the recitals to this Indenture. "Shelf Registration Statement" means the Shelf Registration Statement as defined in the Registration Rights Agreement. "Significant Subsidiary" means, at any date of determination, any Restricted Subsidiary that, together with its Subsidiaries, (i) for the most recent fiscal year of the Company, accounted for more than 10% of the consolidated revenues of the Company and its Restricted Subsidiaries or (ii) as of the end of such fiscal year, was the owner of more than 10% of the consolidated assets of the Company and its Restricted Subsidiaries, all as set forth on the most recently available consolidated financial statements of the Company for such fiscal year. "S&P" means Standard & Poor's Ratings Group, a division of The McGraw-Hill Corporation, and its successors. "Stated Maturity" means (i) with respect to any debt security, the date specified in such debt security as the fixed date on which the final installment of principal of such debt security is due and payable and (ii) with respect to any scheduled installment of principal of or interest on any debt security, the date specified in such debt security as the fixed date on which such installment is due and payable. "Strategic Investment" means any Investment in any Person (other than an Unrestricted Subsidiary) whose primary business is a Permitted Business, and such Investment is determined by the Board of Directors of the Company to promote or significantly benefit the businesses of the Company and its Restricted Subsidiaries as of the date of such Investment. 26 20 "Subsidiary" means, with respect to any Person, any corporation, association or other business entity of which more than 50% of the voting power of the outstanding Voting Stock is owned, directly or indirectly, by such Person and one or more other Subsidiaries of such Person. "Subsidiary Guarantor" means any Restricted Subsidiary which provides a Note Guarantee of the Company's obligations under this Indenture and Notes. "Temporary Cash Investment" means any of the following: (i) direct obligations of the United States of America or any agency thereof or obligations fully and unconditionally guaranteed by the United States of America or any agency thereof, in each case maturing within one year; (ii) time deposit accounts, certificates of deposit and money market deposits maturing (with respect to all such items outstanding at any given time) within an average of 180 days of the date of acquisition thereof (provided that each such item matures within 18 months of the date of acquisition thereof) issued by a bank or trust company which is organized under the laws of the United States of America, any state thereof or any foreign country recognized by the United States of America, and which bank or trust company has capital, surplus and undivided profits aggregating in excess of $100 million (or the foreign currency equivalent thereof) and has outstanding debt which is rated "A" (or such similar equivalent rating) or higher by at least one nationally recognized statistical rating organization (as defined in Rule 436 under the Securities Act) or any money market fund sponsored by a registered broker dealer or mutual fund distributor; (iii) repurchase obligations with a term of not more than 30 days for underlying securities of the types described in clause (i) above entered into with a bank or trust company meeting the qualifications described in clause (ii) above; (iv) commercial paper, maturing not more than one year after the date of acquisition, issued by a corporation (other than an Affiliate of the Company) organized and in existence under the laws of the United States of America, any state thereof or any foreign country recognized by the United States of America with a rating at the time as of which any investment therein is made of "P-1" (or higher) according to Moody's or "A-1" (or higher) according to S&P; (v) securities with maturities of six months or less from the date of acquisition issued or fully and unconditionally guaranteed by any state, commonwealth or territory of the United States of America, or by any political subdivision or taxing authority thereof, and rated at least "A" by S&P or Moody's; and (vi) any mutual fund that has at least 95% of its assets continuously invested in investments of the types described in clauses (i) through (v) above. "TIA" or "Trust Indenture Act" means the Trust Indenture Act of 1939, as amended (15 U.S. Code SECTIONS 77aaa-77bbb), as in effect on the date this Indenture was executed, except as provided in Section 9.06; provided, however, that, in the event the Trust Indenture Act of 1939 is amended after such date, "TIA" or "Trust Indenture Act" means, to the extent required by any such amendment, the Trust Indenture Act of 1939 as so amended. 27 21 "Total Common Equity" of any Person means, as of any date of determination the product of (i) the aggregate number of outstanding primary shares of Common Stock of such Person on such day (which shall not include any options or warrants on, or securities convertible or exchangeable into, shares of Common Stock of such Person) and (ii) the average Closing Price of such Common Stock over the 20 consecutive Trading Days immediately preceding such day. If no such Closing Price exists with respect to shares of any such class, the value of such shares for purposes of Clause (ii) of the preceding sentence shall be determined by the Board of Directors of the Company in good faith and evidenced by a resolution of the Board of Directors filed with the Trustee. "Trade Payables" means, with respect to any Person, any accounts payable or any other indebtedness or monetary obligation to trade creditors created, assumed or Guaranteed by such Person or any of its Subsidiaries arising in the ordinary course of business in connection with the acquisition of goods or services. "Trading Day" with respect to a securities exchange or automated quotation system means a day on which such exchange or system is open for a full day of trading. "Transaction Date" means, with respect to the Incurrence of any Indebtedness or Issuance of Incurrence of Preferred Stock, the date such Indebtedness is to be Incurred or such Preferred Stock is to be issued or Incurred and, with respect to any Restricted Payment, the date such Restricted Payment is to be made. "Trustee" means the party named as such in the first paragraph of this Indenture until a successor replaces it in accordance with the provisions of Article Seven of this Indenture, and thereafter means such successor. "Unit" has the meaning provided in the recitals to this Indenture. "United States Bankruptcy Code" means the Bankruptcy Reform Act of 1978, as amended and as codified in Title 11 of the United States Code, as amended from time to time hereafter, or any successor federal bankruptcy law. "Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at the time of determination shall be designated an Unrestricted Subsidiary by the Board of Directors in the manner provided below; and (ii) any Subsidiary of an Unrestricted Subsidiary. 28 22 The Board of Directors may designate any Restricted Subsidiary (including any newly acquired or newly formed Subsidiary of the Company) to be an Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock of, or owns or holds any Lien on any property of, the Company or any Restricted Subsidiary; provided that (A) any Guarantee by or the Company or any Restricted Subsidiary of any Indebtedness of the Subsidiary being the Company so designated shall be deemed an "Incurrence" of such Indebtedness and an "Investment" by the Company or such Restricted Subsidiary (or both, if applicable) at the time of such designation; (B) either (I) the Subsidiary to be so designated has total assets of $1,000 or less or (II) if such Subsidiary has assets greater than $1,000, such designation would be permitted under Section 4.04; and (C) if applicable, the Incurrence of Indebtedness and the Investment referred to in clause (A) of this provision would be permitted under Section 4.03 and Section 4.04. The Board of Directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided that (a) no Default or Event of Default shall have occurred and be continuing at the time of or after giving effect to such designation and (b) all Liens and Indebtedness of such Unrestricted Subsidiary outstanding immediately after such designation would, if Incurred at such time, have been permitted to be Incurred (and shall be deemed to have been Incurred) for all purposes of this Indenture. Any such designation by the Board of Directors shall be evidenced to the Trustee by promptly filing with the Trustee a copy of the Board Resolution giving effect to such designation and an Officers' Certificate certifying that such designation complied with the forgoing provisions. "U.S. Government Obligations" means securities that are (i) direct obligations of the United States of America for the payment of which its full faith and credit is pledged or (ii) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case, are not callable or redeemable at the option of the issuer thereof at any time prior to the Stated Maturity of the Notes, and shall also include depository receipts issued by a bank or trust company as custodian with respect to any such U.S. Government Obligation or a specific payment of interest on or principal of any such U.S. Government Obligation held by such custodian for the account of the holder of a depository receipt; provided that (except as required by law) such custodian is not 29 23 authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the U.S. Government Obligation or the specific payment of interest on or principal of the U.S. Government Obligation evidenced by such depository receipt. "Voting Stock" means, with respect to any Person, Capital Stock of any class or kind ordinarily having the power to vote for the election of directors, managers or other voting members of the governing body of such Person. "Warrant" has the meaning provided in the recitals to this Indenture. "Wholly Owned" means, with respect to any Subsidiary of any Person, the ownership of all of the outstanding Capital Stock of such Subsidiary (other than any director's qualifying shares or Investments by foreign nationals mandated by applicable law) by such Person or one or more Wholly Owned Subsidiaries of such Person. SECTION 1.02. Incorporation by Reference of Trust Indenture Act. Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "indenture securities" means the Notes; "indenture security holder" means a Holder or a Noteholder; "indenture to be qualified" means this Indenture; "indenture trustee" or "institutional trustee" means the Trustee; and "obligor" on the indenture securities means the Company or any other obligor on the Notes. All other TIA terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by a rule of the Commission and not otherwise defined herein have the meanings assigned to them therein. SECTION 1.03. Rules of Construction. Unless the context otherwise requires: (i) a term has the meaning assigned to it; (ii) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; 30 24 (iii) "or" is not exclusive; (iv) words in the singular include the plural, and words in the plural include the singular; (v) provisions apply to successive events and transactions; (vi) "herein," "hereof" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision; and (vii) all references to Sections or Articles refer to Sections or Articles of this Indenture unless otherwise indicated. ARTICLE TWO THE NOTES SECTION 2.01. Form and Dating. The Notes and the Trustee's certificate of authentication with respect thereto shall be substantially in the form annexed hereto as Exhibit A, in the case of the Global Note, and Exhibit B, in the case of a Certificated Note. The Notes may have such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture and may have letters, notations, legends or endorsements required by law, stock exchange agreements to which the Company is subject or usage. Any portion of the text of any Note may be set forth on the reverse thereof, with an appropriate reference thereto on the face of the Note. The Company shall approve the form of the Notes and any notation, legend or endorsement on the Notes. Each Note shall be dated the date of its authentication. The terms and provisions contained in the form of the Notes annexed hereto as Exhibits A and B shall constitute, and are hereby expressly made, a part of this Indenture. Each of the Company and the Trustee, by its execution and delivery of this Indenture, expressly agrees to the terms and provisions of the Notes applicable to it and to be bound thereby. Notes offered and sold in reliance on Rule 144A shall be issued initially in the form of one or more permanent global Notes in registered form, substantially in the form set forth in Exhibit A (the "Global Note"), registered in the name of a nominee of the Depository, deposited with the Trustee, as custodian for the Depository, duly executed by the Company and authenticated by the Trustee as hereinafter provided. The aggregate principal amount of a Global Note may from time to time be increased or decreased by adjustments made on the records of the Registrar as hereinafter provided. Notes which are transferred to Institutional Accredited Investors which are not QIBs shall be issued in the form of permanent certificated Notes in registered form in 31 25 substantially the form set forth in Exhibit B (the "Certificated Notes"). Notes issued pursuant to Section 2.07 in exchange for interests in the Global Note shall be in the form of the Certificated Note. The definitive Notes shall be typed, printed (commercially or otherwise), lithographed or engraved or produced by any combination of these methods or may be produced in any other manner permitted by the rules of any securities exchange on which the Notes may be listed, all as determined by the officers executing such Notes, as evidenced by their execution of such Notes. SECTION 2.02. Restrictive Legends. (a) Note Legends. Unless and until a Note is exchanged for an Exchange Note or otherwise disposed of in connection with an effective Registration Statement pursuant to the Registration Rights Agreement, each Global Note and Certificated Note shall bear the legend set forth below on the face thereof. THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (1) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (2) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), (3) TO AN INSTITUTIONAL ACCREDITED INVESTOR IN A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS UNDER REGULATION D UNDER THE SECURITIES ACT OR (4) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH CASE, IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES. (b) Global Note Legend. Each Global Note, whether or not an Exchange Note, shall also bear the following legend on the face thereof: UNLESS THIS GLOBAL NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY NOTE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY OR SUCH OTHER REPRESENTATIVE 32 26 OF THE DEPOSITORY TRUST COMPANY OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTION 2.08 OF THE INDENTURE. Prior to the Separation Date, each Note shall bear the following legend on the face thereof: THIS NOTE IS INITIALLY ISSUED AS PART OF AN ISSUANCE OF UNITS, EACH OF WHICH CONSISTS OF ONE NOTE AND ONE WARRANT INITIALLY ENTITLING THE HOLDER THEREOF TO PURCHASE 19.9718 SHARES OF COMMON STOCK, PAR VALUE $0.01 PER SHARE, OF COLO.COM (A "WARRANT"). PRIOR TO THE CLOSE OF BUSINESS UPON THE EARLIEST TO OCCUR OF (i) MARCH 10, 2001, (ii) 180 DAYS AFTER THE CLOSING DATE OF THE COMPANY'S INITIAL PUBLIC OFFERING, (iii) THE COMMENCEMENT OF AN EXCHANGE OFFER WITH RESPECT TO THE NOTES, (iv) THE EFFECTIVENESS OF A SHELF REGISTRATION STATEMENT WITH RESPECT TO THE NOTES, (v) THE COMMENCEMENT OF AN OFFER TO PURCHASE THE NOTES UPON A CHANGE OF CONTROL OR (vi) SUCH DATE AS DETERMINED BY GOLDMAN, SACHS & CO. IN ITS SOLE DISCRETION, THE NOTES EVIDENCED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED OR EXCHANGED SEPARATELY FROM, BUT MAY BE TRANSFERRED OR EXCHANGED ONLY TOGETHER WITH, THE WARRANTS. SECTION 2.03. Execution, Authentication and Denominations. Subject to Article Four and except as provided for in Section 2.15, the aggregate principal amount of Notes (including Exchange Notes) which may be authenticated and delivered under this Indenture is limited to $300,000,000. The Notes shall be executed by two Officers of the Company, by facsimile or manual signature, in the name and on behalf of the Company. 33 27 If an Officer whose signature is on a Note no longer holds that office at the time the Trustee or authenticating agent authenticates the Note, the Note shall be valid nevertheless. A Note shall not be valid until the Trustee or authenticating agent manually signs the certificate of authentication on the Note. The signature shall be conclusive evidence that the Note has been authenticated under this Indenture. At any time and from time to time after the execution of this Indenture, the Trustee or an authenticating agent shall, upon receipt of a Company Order, authenticate for original issue Notes in the aggregate principal amount specified in such Company Order. Such Company Order shall specify the amount of Notes to be authenticated, the date on which the issue of Notes is to be authenticated and, in case of an issuance of Notes pursuant to Section 2.15, shall certify that such issuance is in compliance with Article Four. The Trustee may appoint an authenticating agent reasonably acceptable to the Company to authenticate Notes. Unless limited by the terms of such appointment, an authenticating agent may authenticate Notes whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such authenticating agent. An authenticating agent has the same rights as an Agent to deal with the Company or an Affiliate of the Company. The Notes shall be issuable only in registered form without coupons in principal amount of $1,000 and any integral multiple of $1,000 in excess thereof. SECTION 2.04. Registrar and Paying Agent. The Company shall maintain an office or agency in the City of New York where Notes may be presented for registration of transfer or for exchange (the "Registrar"), an office or agency in the City of New York where Notes may be presented for payment (the "Paying Agent"), and an office or agency where notices and demands to or upon the Company in respect of the Notes and this Indenture may be served, which shall be in the City of New York. The Company shall cause the Registrar to keep a register of the Notes and of their transfer and exchange (the "Note Register"). The Company may have one or more co-Registrars and one or more additional Paying Agents. The Company shall enter into an appropriate agency agreement with any Agent not a party to this Indenture. The agreement shall implement the provisions of this Indenture that relate to such Agent. The Company shall give prompt written notice to the Trustee of the name and address of any such Agent and any change in the address of such Agent. If the Company fails to maintain a Registrar, Paying Agent and/or agent for service of notices and demands, the Trustee shall act as such Registrar, Paying Agent and/or agent for service of notices and demands for so long as such failure shall continue. The Company may remove any Agent upon written notice to such Agent and the Trustee; provided that no such removal shall become effective until (i) the acceptance of an appointment by a successor Agent to such Agent as evidenced by an 34 28 appropriate agency agreement entered into by the Company and such successor Agent and delivered to the Trustee or (ii) notification to the Trustee that the Trustee shall serve as such Agent until the appointment of a successor Agent in accordance with clause (i) of this proviso. The Company, any Subsidiary of the Company, or any Affiliate of any of them may act as Paying Agent, Registrar or co-Registrar, and/or agent for service of notice and demands; provided, however, that neither the Company, a Subsidiary of the Company nor an Affiliate of any of them shall act as Paying Agent in connection with the defeasance of the Notes or the discharge of this Indenture under Article Eight. The Company initially appoints the Trustee as Registrar, Paying Agent, authenticating agent and agent for service of notice and demands. If, at any time, the Trustee is not the Registrar, the Registrar shall make available to the Trustee on or before each Interest Payment Date and at such other times as the Trustee may reasonably request, the names and addresses of the Holders as they appear in the Note Register. SECTION 2.05. Paying Agent to Hold Money in Trust. Not later than 12:00 noon New York City time on each due date of the principal, premium, if any, or interest on any Notes, the Company shall deposit with the Paying Agent money in immediately available funds sufficient to pay such principal, premium, if any, or interest so becoming due. The Company shall require each Paying Agent, if any, other than the Trustee to agree in writing that such Paying Agent shall hold in trust for the benefit of the Holders or the Trustee all money held by the Paying Agent for the payment of principal of, premium, if any, or interest on the Notes (whether such money has been paid to it by the Company or any other obligor on the Notes), and that such Paying Agent shall promptly notify the Trustee of any default by the Company (or any other obligor on the Notes) in making any such payment. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee and account for any funds disbursed, and the Trustee may at any time during the continuance of any payment default, upon written request to a Paying Agent, require such Paying Agent to pay all money held by it to the Trustee and to account for any funds disbursed. Upon doing so, the Paying Agent shall have no further liability for the money so paid over to the Trustee. If the Company or any Subsidiary of the Company or any Affiliate of any of them acts as Paying Agent, it will, on or before each due date of any principal of, premium, if any, or interest on the Notes, segregate and hold in a separate trust fund for the benefit of the Holders a sum of money sufficient to pay such principal, premium, if any, or interest so becoming due until such sum of money shall be paid to such Holders or otherwise disposed of as provided in this Indenture, and will promptly notify the Trustee of its action or failure to act as required by this Section 2.05. SECTION 2.06. Transfer and Exchange. The Notes are issuable only in registered form. The Notes shall initially be issued as part of an issue of Units, each of which consists of one Note and one Warrant. Prior to the Separation Date, the Notes may not be transferred or exchanged separately from, but may be transferred or exchanged only together with, the Warrants issued in connection with the Notes. A Holder may transfer a Note by written 35 29 application to the Registrar stating the name of the proposed transferee and otherwise complying with the terms of this Indenture. No such transfer shall be effected until, and such transferee shall succeed to the rights of a Holder only upon registration of the transfer by the Registrar in the Note Register. Prior to the registration of any transfer by a Holder as provided herein, the Company, the Trustee, and any agent of the Company or the Trustee shall treat the Person in whose name the Note is registered as the owner thereof for all purposes whether or not the Note shall be overdue, and neither the Company, the Trustee, nor any such agent shall be affected by notice to the contrary. Furthermore, any Holder of a Global Note shall, by acceptance of such Global Note, agree that transfers of beneficial interests in such Global Note may be effected only through a book-entry system maintained by the Depository (or its agent), and that ownership of a beneficial interest in the Note shall be required to be reflected in a book entry. When Notes are presented to the Registrar or a co-Registrar with a request to register the transfer or to exchange them for an equal principal amount of Notes of other authorized denominations (including an exchange of Notes for Exchange Notes), the Registrar shall register the transfer or make the exchange as requested if its requirements for such transactions are met; provided that no exchanges of Notes for Exchange Notes shall occur until a Registration Statement shall have been declared effective by the Commission and that any Notes that are exchanged for Exchange Notes shall be cancelled by the Trustee. To permit registrations of transfers and exchanges in accordance with the terms, conditions and restrictions hereof, the Company shall execute and the Trustee shall authenticate Notes at the Registrar's request. No service charge shall be made to any Holder for any registration of transfer or exchange or redemption of the Notes, but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer taxes or other similar governmental charge payable upon transfers, exchanges or redemptions pursuant to Section 2.11, 3.08, 4.11, 4.12 or 9.04). The Registrar shall not be required (i) to issue, register the transfer of or exchange any Note during a period beginning at the opening of business 15 days before the day of the mailing of a notice of redemption of Notes selected for redemption under Section 3.03 or Section 3.08 and ending at the close of business on the day of such mailing, or (ii) to register the transfer of or exchange any Note so selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part. SECTION 2.07. Book-Entry Provisions for Global Notes. (a) Each Global Note initially shall (i) be registered in the name of the Depository for such Global Note or the nominee of such Depository, (ii) be delivered to the Trustee as custodian for such Depository and (iii) bear legends as set forth in Section 2.02 hereof. Members of, or Participants in, the Depository ("Agent Members") shall have no rights under this Indenture with respect to any Global Note held on their behalf by the Depository, or the Trustee as its custodian, or under any Global Note, and the Depository may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute 36 30 owner of such Global Note for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depository or impair, as between the Depository and its Agent Members, the operation of customary practices governing the exercise of the rights of a beneficial owner of any Note. (b) Transfers of a Global Note shall be limited to transfers of such Global Note in whole, but not in part, to the Depository, its successors or their respective nominees. Transfers of interests in one Global Note to parties who will hold the interests through the same Global Note will be effected in the ordinary way in accordance with the respective rules and operating procedures of the DTC and the provisions of Section 2.08 hereof. In addition, Certificated Notes shall be transferred to all beneficial owners in exchange for their beneficial interests in a Global Note if (i) the Depository with respect to such Global Note notifies the Company that it is unwilling or unable to continue as Depository for the Global Note and a successor depository is not appointed by the Company within 90 days of such notice or (ii) an Event of Default has occurred and is continuing and the Registrar has received a request to the foregoing effect from the Depository or the Trustee. (c) In connection with any transfer pursuant to paragraph (b) of this Section 2.07 of a portion of the beneficial interests in a Global Note to beneficial owners who are required to hold Certificated Notes, the Registrar shall reflect on its books and records the date and a decrease in the principal amount of such Global Note in an amount equal to the principal amount of the beneficial interest in such Global Note to be transferred, and the Company shall execute, and the Trustee shall authenticate and deliver, one or more Certificated Notes of like tenor and amount. (d) In connection with the transfer of all the beneficial interests in a Global Note to beneficial owners pursuant to paragraph (b) of this Section 2.07, the Global Note shall be deemed to be surrendered to the Trustee for cancellation, and the Company shall execute, and the Trustee shall authenticate and deliver, to each beneficial owner identified by the Depository in exchange for its beneficial interest in the Global Note an equal aggregate principal amount of Certificated Notes of authorized denominations. (e) Any Certificated Note delivered in exchange for an interest in a Global Note pursuant to paragraph (b), (d) or (e) of this Section 2.07 shall, except as otherwise provided by paragraphs (f)(i)(x) and (d) of Section 2.08 hereof, bear the legend regarding transfer restrictions applicable to the Certificated Note set forth in Section 2.02. (f) The registered holder of a Global Note may grant proxies and otherwise authorize any Person, including Agent Members and Persons that may hold interests through Agent Members, to take any action which a Holder is entitled to take under this Indenture or the Notes. 37 31 (g) QIBs that are beneficial owners of interests in a Global Note may receive Certificated Notes (which shall bear the Private Placement Legend if required by Section 2.02) in accordance with the procedures of the Depository. In connection with the execution, authentication and delivery of such Certificated Notes, the Registrar shall reflect on its books and records a decrease in the principal amount of the relevant Global Note equal to the principal amount of such Certificated Notes and the Company shall execute and the Trustee shall authenticate and deliver one or more Certificated Notes having an equal aggregate principal amount. (h) All Notes issued upon any transfer or exchange of Notes shall be valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Notes surrendered upon such transfer or exchange. SECTION 2.08. Special Transfer Provisions. Unless and until a Note is exchanged for an Exchange Note in connection with an effective Registration Statement pursuant to the Registration Rights Agreement, the following provisions shall apply: (a) Transfers to QIBs. The following provisions shall apply with respect to the registration of any proposed transfer of a Certificated Note or an interest in a Global Note to a QIB: (i) If the Note to be transferred consists of (x) Certificated Notes, the Registrar shall register the transfer if such transfer is being made by a proposed transferor who has checked the box provided for on the form of Note stating, or has otherwise advised the Company and the Registrar in writing, that the sale has been made in compliance with the provisions of Rule 144A to a transferee who has signed the certification provided for on the form of Note stating, or has otherwise advised the Company and the Registrar in writing, that it is purchasing the Note for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a QIB within the meaning of Rule 144A, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as it has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon its foregoing representations in order to claim the exemption from registration provided by Rule 144A or (y) an interest in a Global Note, the transfer of such interest may be effected only through the book-entry system maintained by the Depository. (ii) If the proposed transferee is an Agent Member, and the Note to be transferred consists of Certificated Notes, upon receipt by the Registrar of the documents referred to in clause (i) and instructions given in accordance with the Depository's and 38 32 the Registrar's procedures, the Registrar shall reflect on its books and records the date and an increase in the principal amount of such Global Note in an amount equal to the principal amount of the Certificated Notes to be transferred, and the Trustee shall cancel the Certificated Note so transferred. (b) Private Placement Legend. Upon the registration of transfer, exchange or replacement of Notes not bearing the Private Placement Legend, the Registrar shall deliver Notes that do not bear the Private Placement Legend. Upon the registration of transfer, exchange or replacement of Notes bearing the Private Placement Legend, the Registrar shall deliver only Notes that bear the Private Placement Legend unless either (i) the Private Placement Legend is no longer required by Section 2.02 or (ii) there is delivered to the Registrar an Opinion of Counsel reasonably satisfactory to the Company and the Trustee to the effect that neither such legend nor the related restrictions on transfer are required in order to maintain compliance with the provisions of the Securities Act. (c) General. By its acceptance of any Note bearing the Private Placement Legend, each Holder of such a Note acknowledges the restrictions on transfer of such Note set forth in this Indenture and in the Private Placement Legend and agrees that it will transfer such Note only as provided in this Indenture. The Registrar shall not register a transfer of any Note unless such transfer complies with the restrictions on transfer of such Note set forth in this Indenture. In connection with any transfer of Notes to an Institutional Accredited Investor, each Holder agrees by its acceptance of the Notes to furnish the Registrar or the Company such certifications, legal opinions or other information as either of them may reasonably require to confirm that such transfer is being made pursuant to an exemption from, or a transaction not subject to, the registration requirements of the Securities Act; provided that the Registrar shall not be required to determine (but may rely on a determination made by the Company with respect to) the sufficiency of any such certifications, legal opinions or other information. The Registrar shall retain, in accordance with its customary procedures, copies of all letters, notices and other written communications received pursuant to Section 2.07 or this Section 2.08. The Company shall have the right to inspect and make copies of all such letters, notices or other written communications at any reasonable time upon the giving of reasonable written notice to the Registrar. (d) Transfers to Non-QIB Institutional Accredited Investors. The following provisions shall apply with respect to the registration of any proposed transfer of a Note to any Institutional Accredited Investor which is not a QIB: (i) The Registrar shall register the transfer of any Note, whether or not such Note bears the Private Placement Legend, if (x) the requested transfer is after the time period referred to in Rule 144(k) under the Securities Act as in effect with respect to such transfer or (y) the proposed transferee has delivered to the Registrar (A) a certificate 39 33 substantially in the form of Exhibit C hereto and (B) if the aggregate principal amount of the Notes being transferred is less than $100,000 at the time of such transfer, an Opinion of Counsel acceptable to the Company that such transfer is in compliance with the Securities Act. (ii) If the proposed transferor is an Agent Member holding a beneficial interest in a Global Note, upon receipt by the Registrar and the Company of (x) the documents, if any, required by paragraph (i) and (y) instructions given in accordance with the Depository's and the Registrar's procedures, the Registrar shall reflect on its books and records the date and a decrease in the principal amount of such Global Note in an amount equal to the principal amount of the beneficial interest in the Global Note to be transferred, and the Company shall execute, and the Trustee shall authenticate and deliver, one or more Certificated Notes of like tenor and amount. SECTION 2.09. Replacement Notes. If a mutilated Note is surrendered to the Trustee or if the Holder claims that the Note has been lost, destroyed or wrongfully taken, the Company shall issue and the Trustee shall authenticate a replacement Note of like tenor and principal amount and bearing a number not contemporaneously outstanding; provided that the requirements of this Section 2.09 and the second paragraph of Section 2.10 are met. If required by the Trustee or the Company, an indemnity bond must be furnished that is sufficient in the judgment of both the Trustee and the Company to protect the Company, the Trustee or any Agent from any loss that any of them may suffer if a Note is replaced. The Company may charge such Holder for its expenses and the expenses of the Trustee in replacing a Note. In case any such mutilated, lost, destroyed or wrongfully taken Note has become or is about to become due and payable, the Company in its discretion may pay such Note instead of issuing a new Note in replacement thereof. Every replacement Note is an additional obligation of the Company and shall be entitled to the benefits of this Indenture. SECTION 2.10. Outstanding Notes. Notes outstanding at any time are all Notes that have been authenticated by the Trustee except for those cancelled by it, those delivered to it for cancellation and those described in this Section 2.10 as not outstanding. If a Note is replaced pursuant to Section 2.09, it ceases to be outstanding unless and until the Trustee and the Company receive proof reasonably satisfactory to them that the replaced Note is held by a bona fide purchaser. 40 34 If the Paying Agent (other than the Company or an Affiliate of the Company) holds on the maturity date or a redemption date money sufficient to pay all principal, premium, if any, and interest payable on that date with respect to the Notes (or portions thereof) to be redeemed or payable on that date, then on and after that date such Notes cease to be outstanding and interest on them shall cease to accrue. A Note does not cease to be outstanding because the Company or one of its Affiliates holds such Note; provided, however, that, in determining whether the Holders of the requisite principal amount of the outstanding Notes have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Notes owned by the Company or any other obligor upon the Notes or any Affiliate of the Company or of such other obligor shall be disregarded and deemed not to be outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Notes which a Responsible Officer of the Trustee knows to be so owned shall be so disregarded. Notes so owned which have been pledged in good faith may be regarded as outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Notes and that the pledgee is not the Company or any other obligor upon the Notes or any Affiliate of the Company or of such other obligor. SECTION 2.11. Temporary Notes. Until definitive Notes are ready for delivery, the Company may prepare and the Trustee shall authenticate temporary Notes. Temporary Notes shall be substantially in the form of definitive Notes but may have insertions, substitutions, omissions and other variations determined to be appropriate by the Officers executing the temporary Notes, as evidenced by their execution of such temporary Notes. If temporary Notes are issued, the Company will cause definitive Notes to be prepared without unreasonable delay. After the preparation of definitive Notes, the temporary Notes shall be exchangeable for definitive Notes upon surrender of the temporary Notes at the office or agency of the Company designated for such purpose pursuant to Section 4.02, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Notes, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a like principal amount of definitive Notes of authorized denominations. Until so exchanged, the temporary Notes shall be entitled to the same benefits under this Indenture as definitive Notes. SECTION 2.12. Cancellation. The Company at any time may deliver to the Trustee for cancellation any Notes previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and may deliver to the Trustee for cancellation any Notes previously authenticated hereunder which the Company has not issued and sold. The Registrar and the Paying Agent shall forward to the Trustee any Notes surrendered to them for registration of transfer, exchange, purchase or payment. The Trustee shall cancel all Notes surrendered for registration of transfer, exchange, purchase, payment or cancellation and shall return all such Notes to the Company. The Company shall not issue Notes to replace Notes it has paid in full or delivered to the Trustee for cancellation. 41 35 SECTION 2.13. CUSIP Numbers. The Company in issuing the Notes may use "CUSIP," "CINS," or "ISIN" numbers, or common codes (if then generally in use), as the case may be, in notices of redemption or exchange as a convenience to Holders; provided that any such notice shall state that no representation is made as to the correctness of such numbers either as printed on the Notes or as contained in any notice of redemption or exchange and that reliance may be placed only on the other identification numbers printed on the Notes. The Company shall promptly advise the Trustee of any change in the CUSIP, CINS or ISIN numbers or common codes for the Notes. SECTION 2.14. Defaulted Interest. If the Company defaults in a payment of interest on the Notes, it shall pay, or shall deposit with the Paying Agent money in immediately available funds sufficient to pay, the defaulted interest, plus (to the extent lawful) interest on the defaulted interest, to the Persons who are Holders on a subsequent special record date. A special record date, as used in this Section 2.14 with respect to the payment of any defaulted interest, shall mean the 15th day next preceding the date fixed by the Company for the payment of defaulted interest, whether or not such day is a Business Day. At least 15 days before the subsequent special record date, the Company shall mail to each Holder and to the Trustee a notice that states the subsequent special record date, the payment date and the amount of defaulted interest to be paid. SECTION 2.15. Issuance of Additional Notes. The Company may, subject to Article Four of this Indenture, issue up to $100,000,000 aggregate principal amount of additional Notes under this Indenture. The Notes issued on the Closing Date and any additional Notes subsequently issued shall be treated as a single class for all purposes under this Indenture. ARTICLE THREE REDEMPTION SECTION 3.01. Right of Redemption. The Notes may be redeemed at the election of the Company, in whole or in part, at any time and from time to time on or after March 15, 2005 and prior to maturity, upon not less than 30 nor more than 60 days' prior notice mailed by first-class mail to each Holder's last address as it appears in the Note Register, at the following Redemption Prices (expressed as percentages of their principal amount), plus accrued interest, to the Redemption Date if redeemed during the 12-month period commencing on March 15 of the applicable year set forth below:
YEAR REDEMPTION PRICE - ---- ---------------- 2005........................................................ 106.938% 2006........................................................ 104.625%
42 36 2007........................................................ 102.313% 2008 and thereafter......................................... 100.000%
(b) In addition, at any time prior to March 15, 2003, the Company may, at its option, redeem up to 35% of the aggregate principal amount of the Notes with the Net Cash Proceeds of one or more sales of Capital Stock (other than Disqualified Stock) of the Company, at any time or from time to time in part, at a Redemption Price (expressed as a percentage of the principal amount) of 113.875% plus accrued interest to the Redemption Date, provided (i) that Notes representing at least 65% of the principal amount of the Notes initially issued on the Closing Date remain outstanding immediately after each such redemption and (ii) that notice of each such redemption is mailed within 60 days of each such sale of Capital Stock. SECTION 3.02. Notices to Trustee. If the Company elects to redeem Notes pursuant to Section 3.01, it shall notify the Trustee in writing of the Redemption Date and the principal amount of Notes to be redeemed. The Company shall give each notice provided for in this Section 3.02 in an Officers' Certificate at least 45 days before the Redemption Date (unless a shorter period shall be satisfactory to the Trustee). SECTION 3.03. Selection of Notes to Be Redeemed. If less than all of the Notes are to be redeemed at any time, the Trustee shall select the Notes to be redeemed in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed or if the Notes are not listed on a national securities exchange, by lot or by such other method as the Trustee in its sole discretion shall deem to be fair and appropriate; provided that no Notes of $1,000 in principal amount or less shall be redeemed in part. The Trustee shall make the selection from the Notes outstanding and not previously called for redemption. Notes in denominations of $1,000 in principal amount may only be redeemed in whole. The Trustee may select for redemption portions (equal to $1,000 in principal amount or any integral multiple thereof) of Notes that have denominations larger than $1,000 in principal amount. Provisions of this Indenture that apply to Notes called for redemption also apply to portions of Notes called for redemption. The Trustee shall notify the Company and the Registrar promptly in writing of the Notes or portions of Notes to be called for redemption. SECTION 3.04. Notice of Redemption. With respect to any redemption of Notes pursuant to Section 3.01, at least 30 days but not more than 60 days before a Redemption Date, the Company, or at the Company's request the Trustee, shall mail a notice of redemption by first class mail to each Holder whose Notes are to be redeemed. The notice shall identify the Notes to be redeemed and shall state: 43 37 (i) the Redemption Date; (ii) the Redemption Price; (iii) the name and address of the Paying Agent; (iv) that Notes called for redemption must be surrendered to the Paying Agent in order to collect the Redemption Price; (v) that, unless the Company defaults in making the redemption payment, interest on Notes (or portions thereof) called for redemption ceases to accrue on and after the Redemption Date and the only remaining right of the Holders is to receive payment of the Redemption Price plus accrued interest to the Redemption Date upon surrender of the Notes to the Paying Agent; (vi) that, if any Note is being redeemed in part, the portion of the principal amount (equal to $1,000 in principal amount or any integral multiple thereof) of such Note to be redeemed and that, on and after the Redemption Date, upon surrender of such Note, a new Note or Notes in principal amount equal to the unredeemed portion thereof, will be reissued; and (vii) that, if any Note contains a CUSIP, CINS or ISIN number or a common code, as provided in Section 2.13, no representation is being made as to the correctness of the CUSIP, CINS or ISIN number or the common code either as printed on the Notes or as contained in the notice of redemption. At the Company's request (which request may be revoked by the Company at any time prior to the time at which the Trustee shall have given such notice to the Holders), made in writing to the Trustee at least 45 days (or such shorter period as shall be satisfactory to the Trustee) before a Redemption Date, the Trustee shall give the notice of redemption in the name and at the expense of the Company. If, however, the Company gives such notice to the Holders, the Company shall concurrently deliver to the Trustee a copy of such notice of redemption. SECTION 3.05. Effect of Notice of Redemption. Once notice of redemption is mailed, Notes called for redemption become due and payable on the Redemption Date and at the Redemption Price. Upon surrender of any Notes to the Paying Agent, such Notes shall be paid at the Redemption Price, plus accrued interest, if any, to the Redemption Date. Notice of redemption shall be deemed to be given when mailed, whether or not the Holder receives the notice. In any event, failure to give such notice, or any defect therein, shall not affect the validity of the proceedings for the redemption of Notes held by Holders to whom such notice was properly given. 44 38 SECTION 3.06. Deposit of Redemption Price. On or prior to any Redemption Date, the Company shall deposit with the Paying Agent by 10:00 a.m. New York City time (or, if the Company, one of its Subsidiaries or any of their Affiliates is acting as Paying Agent, shall segregate and hold in trust as provided in Section 2.05) money sufficient to pay the Redemption Price of and accrued interest on all Notes to be redeemed on that date other than Notes or portions thereof called for redemption on that date that have been delivered by the Company to the Trustee for cancellation. SECTION 3.07. Payment of Notes Called for Redemption. If notice of redemption has been given in the manner provided above, the Notes or portion of Notes specified in such notice to be redeemed shall become due and payable on the Redemption Date at the Redemption Price stated therein, together with accrued interest to such Redemption Date, and on and after such date (unless the Company shall default in the payment of such Notes at the Redemption Price and accrued interest to the Redemption Date, in which case the principal, until paid, shall bear interest from the Redemption Date at the rate prescribed in the Notes), such Notes shall cease to accrue interest. Upon surrender of any Note for redemption in accordance with a notice of redemption, such Note shall be paid and redeemed by the Company at the Redemption Price, together with accrued interest, if any, to the Redemption Date; provided that installments of interest whose Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders registered as such at the close of business on the relevant Regular Record Date. SECTION 3.08. Notes Redeemed in Part. Upon surrender of any Note that is redeemed in part, the Company shall execute and the Trustee shall authenticate and deliver to the Holder a new Note equal in principal amount to the unredeemed portion of such surrendered Note. ARTICLE FOUR COVENANTS SECTION 4.01. Payment of Notes. The Company shall pay the principal of, premium, if any, and interest on the Notes on the dates and in the manner provided in the Notes and this Indenture. An installment of principal, premium, if any, or interest shall be considered paid on the date due if the Trustee or Paying Agent (other than the Company, a Subsidiary of the Company, or any Affiliate of any of them) holds on that date money designated for and sufficient to pay the installment by the time of day such installment is required to be received by the Trustee or Paying Agent. If the Company or any Subsidiary of the Company or any Affiliate of any of them, acts as Paying Agent, an installment of principal, premium, if any, or interest shall be considered paid on the due date if the entity acting as Paying Agent complies with the last sentence of Section 2.05. As provided in Section 6.09, upon any bankruptcy or reorganization 45 39 procedure relative to the Company, the Trustee shall serve as the Paying Agent and conversion agent, if any, for the Notes. The Company shall pay interest on overdue principal, premium, if any, and interest on overdue installments of interest, to the extent lawful, at the rate per annum specified in the Notes. SECTION 4.02. Maintenance of Office or Agency. The Company will maintain an office or agency in the Borough of Manhattan, the City of New York, where Notes may be surrendered for registration of transfer or exchange or for presentation for payment and where notices and demands to or upon the Company in respect of the Notes and this Indenture may be served. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the address of the Trustee set forth in Section 11.02 hereof. The Company may also from time to time designate one or more other offices or agencies (in or outside the City of New York) where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, the City of New York, for such purposes. The Company will give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. The Company hereby initially designates the Corporate Trust Office or the office of an agent of the Trustee, located in the Borough of Manhattan, the City of New York, which shall initially be located at State Street Bank and Trust Company, N.A., 61 Broadway, New York, NY 10006 Attention: Corporate Trust Department, as such office of the Company in accordance with Section 2.04. SECTION 4.03. Limitation on the Incurrence of Indebtedness and the Issuance of Preferred Stock. (a) The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, Incur any Indebtedness (other than the Notes issued on the Closing Date, the Exchange Notes issued in the Exchange Offer and other Indebtedness existing on the Closing Date) and the Company will not issue or Incur any Disqualified Stock and will not permit any of its Restricted Subsidiaries to issue or Incur any shares of Preferred Stock; provided, however, that the Company may Incur Indebtedness or issue or Incur shares of Disqualified Stock and its Restricted Subsidiaries may Incur Acquired Indebtedness or Acquired Preferred Stock if, after giving effect to the Incurrence of such Indebtedness and the receipt and application of the proceeds therefrom, the Consolidated Leverage Ratio would be greater than zero and less than 6:1. 46 40 Notwithstanding the foregoing, the Company and any Restricted Subsidiary (except as specified below) may Incur each and all of the following: (i) Indebtedness of the Company or any Restricted Subsidiary Incurred under one or more Credit Facilities outstanding at any time in an aggregate principal amount (together with refinancings thereof) not to exceed $200.0 million, less any amount of such Indebtedness permanently repaid as provided under Section 4.11. (ii) Indebtedness owed: (A) to the Company evidenced by an unsubordinated promissory note or (B) to any Restricted Subsidiary; provided that (x) any event which results in any such Restricted Subsidiary ceasing to be a Restricted Subsidiary or any subsequent transfer of such Indebtedness (other than to the Company or another Restricted Subsidiary) shall be deemed, in each case, to constitute an Incurrence of such Indebtedness not permitted by this clause (2)(B) and (y) if the Company is the obligor on such Indebtedness, such Indebtedness must be unsecured and expressly subordinated in right of payment to the Notes; (iii) Indebtedness issued in exchange for, or the net proceeds of which are used to refinance or refund, then outstanding Indebtedness of the Company or any of its Restricted Subsidiaries (other than Indebtedness Incurred under clause (i), (ii), (v), (vi), (viii) or (x) of this Section 4.03(a)) and any refinancings thereof in an amount not to exceed the amount so refinanced or refunded (plus premiums, accrued interest, fees and expenses); provided that (A) Indebtedness the proceeds of which are used to refinance or refund the Notes or indebtedness that is pari passu with, or subordinated in right of payment to, the Notes shall only be permitted under this clause (iii) if (x) in case the Notes are refinanced in part or the Indebtedness to be refinanced is pari passu with the Notes, such new Indebtedness, by its terms or by the terms of any agreement or instrument pursuant to which such new Indebtedness is outstanding, is expressly made pari passu with, or subordinate in right of payment to, the remaining Notes, or 47 41 (y) in case the Indebtedness to be refinanced is subordinated in right of payment to the Notes, such new Indebtedness, by its terms or by the terms of any agreement or instrument pursuant to which such new Indebtedness is issued or remains outstanding, is expressly made subordinate in right of payment to the Notes at least to the extent that the Indebtedness to be refinanced is subordinated to the Notes, (B) such new Indebtedness, determined as of the date of Incurrence of such new Indebtedness, does not have a final maturity prior to the final maturity of the Indebtedness to be refinanced or refunded, and the Average Life of such new Indebtedness is at least equal to the remaining Average Life of the Indebtedness to be refinanced or refunded, and (C) if the Company is the obligor on the Indebtedness to be refinanced or refunded, such new Indebtedness shall not be Incurred by a Restricted Subsidiary; (iv) Indebtedness of the Company to the extent the net proceeds thereof are promptly (A) used to purchase Notes tendered in an Offer to Purchase made as a result of a Change in Control or (B) deposited to defease the Notes as described under "Defeasance"; (v) Guarantees of the Notes, if any, and Guarantees of Indebtedness of the Company by any Restricted Subsidiary provided the Guarantee of such Indebtedness is permitted by and made in accordance with Section 4.07; and (vi) Indebtedness, (A) in respect of performance, surety or appeals bonds or security deposits provided in the ordinary course of business, (B) under Currency Agreements, Commodity Agreements and Interest Rate Agreements; provided that such agreements, (i) are entered into for the primary purpose of protecting the Company or any of its Restricted Subsidiaries against fluctuations in foreign currency exchange rates or interest rates and 48 42 (ii) do not increase the Indebtedness of the obligor outstanding at any time other than as a result of fluctuations in foreign currency exchange rates or interest rates or by reason of fees, indemnities and compensation payable thereunder, and (C) arising from agreements providing for indemnification, adjustment of purchase price or similar obligations, or from Guarantees or letters of credit, surety bonds or performance bonds securing any obligations of the Company or any of its Restricted Subsidiaries pursuant to such agreements, in any case Incurred in connection with the disposition of any business, assets or Restricted Subsidiary (other than Guarantees of Indebtedness Incurred by any Person acquiring all or any portion of such business, assets or Restricted Subsidiary for the purpose of financing such acquisition), in a principal amount not to exceed the gross proceeds actually received by the Company or any Restricted Subsidiary in connection with such disposition; (vii) Indebtedness Incurred to finance the purchase, construction or other acquisition after the Closing Date of any property, inventory, asset or business directly or indirectly, by the Company or any Restricted Subsidiary used in, or to be used in, a Permitted Business; (viii) Indebtedness of the Company not to exceed, at any time outstanding, two times the Net Cash Proceeds received by the Company after the Closing Date from the issuance and sale of its Capital Stock (other than Disqualified Stock) to a Person that is not a Subsidiary of the Company, to the extent that the Net Cash Proceeds have not been used pursuant to clause (C)(ii) of part (a) or clause (iii), (iv) or (vi) of part (b) of Section 4.04 to make a Restricted Payment; provided that such Indebtedness does not have a final maturity date prior to the final maturity date of the Notes and has an Average Life longer than the Average Life of the Notes; (ix) Indebtedness Incurred for the purpose of paying interest on outstanding Indebtedness in the form of additional Indebtedness with the same terms, and Disqualified Stock or Preferred Stock Issued for the purpose of paying dividends on Disqualified Stock or Preferred Stock in the form of additional shares of the same class of Disqualified Stock or Preferred Stock, as the case may be; and (x) Indebtedness of the Company or any Restricted Subsidiary (in addition to Indebtedness permitted under clauses (i) through (ix) above) in an aggregate principal amount outstanding at any time (together with refinancings thereof) not to exceed $25.0 million, less any amount of such Indebtedness permanently repaid as provided under Section 4.11. 49 43 (b) Notwithstanding any other provision of this Section 4.03, the maximum amount of Indebtedness that may be Incurred pursuant to this Section 4.03 will not be deemed to be exceeded, with respect to any outstanding Indebtedness due solely to the result of fluctuations in the exchange rates of currencies. (c) For purposes of determining any particular amount of Indebtedness under this Section 4.03, (1) Guarantees, Liens or obligations with respect to letters of credit supporting Indebtedness otherwise included in the determination of such particular amount shall not be included and (2) any Liens granted pursuant to the equal and ratable provisions referred to in Section 4.09 shall not be treated as Indebtedness. For purposes of determining compliance with this Section 4.03, in the event that an item of Indebtedness meets the criteria of more than one of the types of Indebtedness described above, including under the first part (a) of this covenant, the Company, in its sole discretion, shall classify, and from time to time may reclassify, such item of Indebtedness. SECTION 4.04. Limitation on Restricted Payments. The Company will not, and will not permit any Restricted Subsidiary to (i) declare or pay any dividend or make any distribution on or with respect to its Capital Stock (other than (1) dividends or distributions payable solely in shares of its Capital Stock (other than Disqualified Stock) or in options, warrants or other rights to acquire shares of such Capital Stock and (2) pro rata dividends or distributions on Common Stock of Restricted Subsidiaries held by minority stockholders) held by Persons other than the Company or any of its Restricted Subsidiaries, (ii) purchase, call for redemption or redeem, retire or otherwise acquire for value any shares of Capital Stock of the Company or any Restricted Subsidiary of the Company (including options, warrants or other rights to acquire such shares of Capital Stock) held by any Person other than the Company or any of its Restricted Subsidiaries, (iii) make any voluntary or optional principal payment, or voluntary or optional redemption, repurchase, defeasance, or other acquisition or retirement for value, of Indebtedness of the Company that is subordinated in right of payment to the Notes or (iv) make any Investment other than a Permitted Investment, in any Person (such payments or any other actions described in clauses (i) through (iv) above being collectively "Restricted Payments") 50 44 if, at the time of, and after giving effect to, the proposed Restricted Payment: (A) a Default or Event of Default shall have occurred and be continuing, (B) the Company could not Incur at least $1.00 of Indebtedness under clause (i) of Section 4.03 hereof or (C) the aggregate amount of all Restricted Payments made after the Closing Date shall exceed the sum of: (i) the amount of the Company's cumulative Consolidated EBITDA less 150% of Consolidated Interest Expense, during the period (taken as one accounting period) beginning on the first day of the fiscal quarter immediately following the Closing Date and ending on the last day of the last fiscal quarter preceding the Transaction Date for which reports have been filed with the SEC or provided to the Trustee pursuant to Section 4.19, plus (ii) the aggregate Net Cash Proceeds received by the Company after the Closing Date from the issuance and sale permitted by this Indenture of its Capital Stock (other than Disqualified Stock) to a Person who is not a Subsidiary of the Company, including an issuance or sale permitted by this Indenture of Indebtedness or Disqualified Stock of the Company for cash subsequent to the Closing Date upon the conversion of such Indebtedness or Disqualified Stock into, or upon the exchange of such Indebtedness or Disqualified Stock for, Capital Stock (other than Disqualified Stock) of the Company, or from the issuance to a Person who is not a Subsidiary of the Company of any options, warrants or other rights to acquire Capital Stock of the Company (in each case, exclusive of any Disqualified Stock or any options, warrants or other rights that are redeemable at the option of the holder, or are required to be redeemed, prior to the final maturity of the Notes), in each case except to the extent such Net Cash Proceeds are used to Incur Indebtedness pursuant to clause (8) of the second paragraph of part (a) of Section 4.03, which is outstanding on the Transaction Date or used to make a Restricted Payment pursuant to clause (6) of paragraph (b) of this Section 4.04, plus (iii) an amount equal to the net reduction in Investments (other than reductions in Permitted Investments) in any Person resulting from payments of interest on Indebtedness, dividends, repayments of loans or advances, or other transfers of assets, in each case to the Company or any Restricted Subsidiary or from the Net Cash Proceeds from the sale to any Person who is not a Subsidiary of the Company of any such Investment (except, in each case, to the extent any such payment or proceeds are included in the calculation of Consolidated EBITDA), or from redesignations of Unrestricted Subsidiaries as Restricted Subsidiaries (valued in each case as provided in the definition of "Investments"). The foregoing provision shall not be violated by reason of: (i) the payment of any dividend or redemption of any Capital Stock within 60 days after the related date of declaration or call for redemption if, at said date of 51 45 declaration or call for redemption, such payment or redemption would comply with the preceding paragraph (a); (ii) the redemption, repurchase, defeasance or other acquisition or retirement for value of Indebtedness that is subordinated in right of payment to the Notes, including premium, if any, and accrued interest, with the proceeds of, or in exchange for, Indebtedness Incurred under clause (3) of the second paragraph of part (a) of Section 4.03; (iii) the repurchase, redemption or other acquisition of Capital Stock of the Company (or options, warrants or other rights to acquire such Capital Stock) in exchange for, or out of the proceeds of a substantially concurrent offering of, shares of Capital Stock (other than Disqualified Stock) of the Company (or options, warrants or other rights to acquire such Capital Stock); provided that such options, warrants or other rights are not redeemable prior to the Stated Maturity of the Notes; (iv) the making of any principal payment or the repurchase, redemption, retirement, defeasance or other acquisition for value of Indebtedness which is subordinated in right of payment to the Notes in exchange for, or in connection with the conversion of such Indebtedness for, or out of the proceeds of, a substantially concurrent offering of, shares of the Capital Stock (other than Disqualified Stock) of the Company (or options, warrants or other rights to acquire such Capital Stock); provided that such options, warrants or other rights are not redeemable prior to the Stated Maturity of the Notes; (v) payments or distributions, to dissenting stockholders pursuant to applicable law, pursuant to or in connection with a consolidation, merger or transfer of assets that complies with the provisions of this Indenture applicable to mergers, consolidations and transfers of all or substantially all of the property and assets of the Company; (vi) Investments acquired in exchange for, or out of the proceeds of an offering (that occurred within six months at the time of any such Investment) of, Capital Stock (other than Disqualified Stock) of the Company, to the extent that such proceeds have not been used to make Restricted Payment pursuant to clause (iii) or (iv) of this paragraph (b) or clause (C)(ii) of paragraph (a) of this Section 4.04 or to Incur Indebtedness pursuant to clause (viii) of the second paragraph of part (a) of Section 4.03. (vii) (a) the redemption, repurchase, retirement or other acquisition of any Capital Stock of the Company (or options, warrants or other rights to acquire such Capital Stock) from an employee or former employee of the Company or any of its Subsidiaries (or from such person's estate, heirs or representatives) in connection with such 52 46 employee's death, disability or termination of employment, provided that the aggregate amount expended pursuant to this clause (vii) (a) does not exceed $5.0 million; or (b) the redemption, repurchase, retirement or other acquisition of any unvested shares of any Capital Stock of the Company (or any unvested options, warrants or other rights to acquire such Capital Stock) from an employee or former employee of the Company or any of its Subsidiaries (or from such person's estate, heirs or representatives) in connection with such employee's death, disability or termination of employment, at a price per share of Capital Stock not to exceed the price per share at which the shares of Capital Stock (or options, warrants or other rights to acquire such Capital Stock) were issued or granted to such employee; (viii) the payment of dividends on shares of Disqualified Stock of the Company or shares of Preferred Stock of the Company's Restricted Subsidiaries issued or Incurred in accordance with Section 4.03; (ix) the making of any payment on or with respect to, or repurchase, redemption, defeasance or acquisition or retirement for value, of Convertible Notes in connection with (i) an optional redemption of Convertible Notes pursuant to the terms thereof if at the time the Company sends a notice of redemption to the holders of such Convertible Notes, the Closing Price of the Capital Stock into which such Convertible Notes are convertible is greater than the conversion price, or (ii) the honoring by the Company of any conversion request by a holder of Convertible Notes (including the payment by the Company of any cash in lieu of issuing fractional shares) in accordance with the terms of Convertible Notes: (x) the repurchase of Capital Stock or any options, warrants or other rights to acquire Capital Stock of the Company that may be deemed to occur upon the cash-less exercise thereof or the payment by the Company of any cash in lieu of issuing fractional shares of Capital Stock pursuant to the terms of any such options, warrants or other rights; (xi) other Restricted Payments in an aggregate amount not to exceed $20.0 million; provided that, except in the case of clauses (i) and (iii), no Default or Event of Default shall have occurred and be continuing or occur as a consequence of the actions or payments set forth therein. (c) Each Restricted Payment permitted pursuant to the preceding part (b) (other than the Restricted Payment referred to in clause (ii) or (x) thereof, an exchange of capital Stock for Capital Stock or Indebtedness referred to in clause (iii) or (iv) thereof and an 53 47 Investment acquired in exchange for Capital Stock referred to in clause (vi) thereof), and the Net Cash Proceeds from any issuance of Capital Stock referred to in clauses (iii), (iv) and (vi), shall be included in calculating whether the conditions of clause (C) of part (a) of this Section 4.04 have been met with respect to any subsequent Restricted Payments. For purposes of determining compliance with this Section 4.04: (i) the amount of all Restricted Payments (other than cash) shall be the fair market value on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued by the Company (or such Restricted Subsidiary, as the case may be) pursuant to the Restricted Payment; (ii) the fair market value of any asset(s) or securities that are required to be valued by this covenant shall be determined in good faith by the Board of Directors; provided that such determination shall be supported by the opinion or appraisal of an accounting, appraisal or investment banking firm of national standing if such fair market value would in the good faith determination of the Board of Directors exceed $10 million; (iii) in the event that a Restricted Payment meets the criteria of more than one of the types of Restricted Payments described in the above clauses, including part (a) of this Section 4.04, the Company, in its sole discretion, may order and classify, and from time to time may reclassify, such Restricted Payment if it would have been permitted at the time such Restricted Payment was made and at the time of such reclassification; and (iv) The amount of any Investment "outstanding" at any time shall be deemed to be equal to the fair market value of such Investment on the date made, less the return of capital, repayment of loans, return on capital and release of Guarantees, in each case of or to the Company and its Restricted Subsidiaries with respect to such Investment (up to the amount of such Investment on the date made). SECTION 4.05. Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries. (a) The Company will not, and will not permit any Restricted Subsidiary to create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction of any kind on the ability of any Restricted Subsidiary to: (1) pay dividends or make any other distributions permitted by applicable law on any Capital Stock of such Restricted Subsidiary owned by the Company or any other Restricted Subsidiary, (2) pay any Indebtedness owed to the Company or any other Restricted Subsidiary, 54 48 (3) make loans or advances to the Company or any other Restricted Subsidiary or (4) transfer any of its property or assets to the Company or any other Restricted Subsidiary. (b) The foregoing provisions shall not restrict any encumbrances or restrictions: (i) existing on the Closing Date in this Indenture or any other agreements in effect on the Closing Date, and any extensions, refinancings, renewals or replacements of such agreements; provided that the encumbrances and restrictions in any such extensions, refinancings, renewals or replacements taken as a whole are no less favorable in any material respect to the Holders of the Notes than those encumbrances or restrictions that are then in effect and that are being extended, refinanced, renewed or replaced; (ii) existing under or by reason of applicable law; (iii) existing with respect to any Person or the property or assets of such Person acquired by the Company or any Restricted Subsidiary, existing at the time of such acquisition and not incurred in contemplation thereof, which encumbrances or restrictions are not applicable to any Person or the property or assets of any Person other than such Person or the property or asset of such Person so acquired; (iv) in the case of clause (4) of part (a) of this Section 4.05, (A) that restrict in a customary manner the subletting, assignment or transfer of any property or asset that is a lease, license, conveyance or contract or similar property or asset, (B) existing by virtue of any transfer of, agreement to transfer, option or right with respect to, or Lien on, any property or assets of the Company or any Restricted Subsidiary not otherwise prohibited by this Indenture or (C) arising or agreed to in the ordinary course of business, not relating to any Indebtedness, and that do not, individually or in the aggregate, detract from the value of property or assets of the Company or any Restricted Subsidiary in any manner material to the Company or any Restricted Subsidiary; (v) with respect to a Restricted Subsidiary and imposed pursuant to an agreement that has been entered into for the sale or disposition of all or substantially all of the Capital Stock of, or property and assets of, such Restricted Subsidiary; (vi) contained in the terms of any Indebtedness or any agreement pursuant to which such Indebtedness was issued if: 55 49 (A) the encumbrance or restriction applies only in the event of a payment default or a default with respect to a financial covenant contained in any Indebtedness or agreement, (B) the encumbrance or restriction is not materially more disadvantageous to the Holders of the Notes than is customary in comparable financings (as determined by the Company in good faith) and (C) the Company determines that any such encumbrance or restriction will not materially affect the Company's ability to make principal or interest payments on the Notes; or (vii) contained in the terms of any Indebtedness of any Restricted Subsidiary of the Company that is a Foreign Subsidiary or any agreement pursuant to which such Indebtedness was issued if: (A) the encumbrance or restriction is not materially more disadvantageous to the Holders of the Notes than is customary in comparable financings (as determined by the Company in good faith) and (B) the Company determines that any such encumbrance or restriction will not materially affect the Company's ability to make principal or interest payments on the Notes; or (viii) restrictions or encumbrances imposed at the request of joint venture partners, provided that such joint venture is engaged in a Permitted Business. Nothing contained in this Section 4.05 shall prevent the Company or any of its Restricted Subsidiaries from (1) creating, incurring, assuming or suffering to exist any Liens otherwise permitted in Section 4.09 or (2) restricting the sale or other disposition of property or assets of the Company or any of its Restricted Subsidiaries that secure Indebtedness of the Company or any of its Restricted Subsidiaries. SECTION 4.06. Limitation on the Issuance and Sale of Capital Stock of Restricted Subsidiaries. The Company will not sell, and will not permit any Restricted Subsidiary to issue or sell, any shares of Capital Stock of a Restricted Subsidiary (including options, warrants or other rights to purchase shares of such Capital Stock) except (i) to the Company or a Restricted Subsidiary of the Company; (ii) issuances of director's qualifying shares or sales to foreign nationals of shares of Capital Stock of foreign Restricted Subsidiaries, to the extent required by applicable law; (iii) if, immediately after giving effect to such issuance or sale, such Restricted Subsidiary would no longer constitute a Restricted Subsidiary and any Investment in such Person remaining after giving effect to such issuance or sale would have been permitted to be made under Section 4.04 hereof if made on the date of such issuance or sale; 56 50 (iv) sales or issuances of Common Stock (including options, warrants or other rights to purchase shares of such Common Stock) of a Restricted Subsidiary by the Company or a Restricted Subsidiary, provided that such sale complies with Section 4.11; or (v) Issuances of Preferred Stock made in accordance with Section 4.03. SECTION 4.07. Limitation on Issuances of Guarantees by Restricted Subsidiaries. The Company will not permit any Restricted Subsidiary to Guarantee any Indebtedness of the Company which is equal in right of payment with or subordinate in right of payment to the Notes ("Guaranteed Indebtedness"), unless (1) such Restricted Subsidiary simultaneously executes and delivers a supplemental indenture to this Indenture providing for a Guarantee (a "Note Guarantee") of payment of the Notes by such Restricted Subsidiary and (2) such Restricted Subsidiary waives, and will not in any manner whatsoever claim or take the benefit or advantage of, any rights of reimbursement, indemnity or subrogation or any other rights against the Company or any other Restricted Subsidiary as a result of any payment by such Restricted Subsidiary under its Note Guarantee; provided that this paragraph shall not be applicable to (i) any Guarantee of any Restricted Subsidiary that existed at the time such Person became a Restricted Subsidiary and was not Incurred in connection with, or in contemplation of, such Person becoming a Restricted Subsidiary or (ii) any Guarantee of Indebtedness of the Company which Indebtedness would have been permitted to be Incurred by a Restricted Subsidiary pursuant to Section 4.03. If the Guaranteed Indebtedness is (A) equal in right of payment with the Notes, then the Guarantee of such Guaranteed Indebtedness shall be equal in right of payment with, or subordinated to, the Note Guarantee or (B) subordinated to the Notes, then the Guarantee of such Guaranteed Indebtedness shall be subordinated to the Note Guarantee at least to the extent that the Guaranteed Indebtedness is subordinated to the Notes. Notwithstanding the foregoing, any Note Guarantee by a Restricted Subsidiary may provide by its terms that it shall be automatically and unconditionally released and discharged upon: (1) any sale, exchange or transfer, to any Person not an Affiliate of the Company, of all of the Company's and each Restricted Subsidiary's Capital Stock in, or 57 51 all or substantially all the assets of, such Restricted Subsidiary (which sale, exchange or transfer is not prohibited by this Indenture); (2) the release or discharge of the Guarantee which resulted in the creation of such Note Guarantee, except a discharge or release by or as a result of payment under such Guarantee; or (3) upon the designation of such Restricted Subsidiary as an Unrestricted Subsidiary in accordance with the terms of this Indenture. SECTION 4.08. Limitation on Transactions with Affiliates. The Company will not, and will not permit any Restricted Subsidiary to, enter into, renew or extend any transaction (including, without limitation, the purchase, sale, lease or exchange of property or assets, or the rendering of any service) with, or for the benefit of, any Affiliate of the Company or any Restricted Subsidiary, except upon fair and reasonable terms no less favorable to the Company or such Restricted Subsidiary than could be obtained, at the time of such transaction or, if such transaction is pursuant to a written agreement, at the time of the execution of the agreement providing therefor, in a comparable arm's-length transaction with a Person that is not such an Affiliate. The foregoing limitation does not limit, and shall not apply to: (i) transactions (A) approved by a majority of the disinterested members of the Board of Directors or (B) for which the Company or a Restricted Subsidiary delivers to the Trustee a written opinion of a nationally recognized investment banking, accounting, valuation or appraisal firm stating that the transaction is fair to the Company or such Restricted Subsidiary from a financial point of view; (ii) any transaction solely between the Company and any of its Restricted Subsidiaries or solely among Restricted Subsidiaries; (iii) the payment of reasonable and customary regular fees to officers and directors of the Company and indemnification arrangements entered into by the Company in the ordinary course of business and consistent with past practices of the Company; (iv) any payments or other transactions pursuant to any tax-sharing agreement between the Company and any other Person with which the Company files a consolidated tax return or with which the Company is part of a consolidated group for tax purposes; (v) any sale of shares of Capital Stock (other than Disqualified Stock) of the Company; or 58 52 (vi) any Permitted Investments or any Restricted Payments not prohibited by Section 4.04. Notwithstanding the foregoing, any transaction or series of related transactions covered by the first paragraph of this Section 4.08 and not covered by clauses (ii) through (iv) of this paragraph, (a) the aggregate amount of which exceeds $5 million in value, must be approved or determined to be fair in the manner provided for in clause (i)(A) or (B) above and (b) the aggregate amount of which exceeds $10 million in value, must be determined to be fair in the manner provided for in clause (i) (B) above. SECTION 4.09. Limitation on Liens. The Company will not, and will not permit any Restricted Subsidiary to, create, Incur, assume or suffer to exist any Lien securing Indebtedness on any of its assets or properties of any character, or any shares of Capital Stock or Indebtedness of any Restricted Subsidiary, without making effective provision for all of the Notes and all other amounts due under this Indenture to be directly secured equally and ratably with (or, if the obligation or liability to be secured by such Lien is subordinated in right of payment to the Notes, prior to) the obligation or liability secured by such Lien. The foregoing limitation does not apply to: (i) Liens existing on the Closing Date; (ii) Liens granted after the Closing Date on any assets or Capital Stock of the Company or its Restricted Subsidiaries created in favor of the Holders of the Notes, the Exchange Notes or any Additional Notes; (iii) Liens with respect to the assets of a Restricted Subsidiary granted by such Restricted Subsidiary to the Company or another Restricted Subsidiary to secure Indebtedness owing to the Company or such other Restricted Subsidiary or the Guarantee of any such Indebtedness; (iv) Liens securing Indebtedness, which is permitted to be Incurred under clause (iii) of the second paragraph of part (a) of Section 4.03 hereof which is Incurred to refinance secured Indebtedness; provided that such Liens do not extend to or cover any property or assets of the Company or any Restricted Subsidiary other than the property or assets securing the Indebtedness being refinanced; (v) Liens securing Indebtedness Incurred under clause (i) of the second paragraph of part (a) of Section 4.03; provided that such Liens only cover property or assets of the obligor, co-obligor or guarantor of such Indebtedness; 59 53 (vi) Liens on cash set aside at the time of the Incurrence of any Indebtedness, or government securities or Temporary Cash Investments purchased with such cash, in either case, to the extent that such cash, government securities or Temporary Cash Investments pre-fund the payment of interest on such Indebtedness and are held in a collateral or escrow account or similar arrangement to be applied to pay such interest when due; (vii) Liens arising under the Existing Vendor Finance Agreements as in effect on the Closing Date; (viii) Liens on the assets or property of any Restricted Subsidiary of the Company that is a Foreign Subsidiary securing Indebtedness which is permitted to be Incurred by such Restricted Subsidiary under this Indenture; (ix) Liens securing Indebtedness not to exceed at any one time outstanding in the aggregate $1.0 million; or (x) Permitted Liens. SECTION 4.10. Limitation on Sale-Leaseback Transactions. The Company will not, and will not permit any Restricted Subsidiary to, enter into any sale-leaseback transaction involving any of its assets or properties whether now owned or hereafter acquired, whereby the Company or a Restricted Subsidiary sells or transfers such assets or properties and then or thereafter leases such assets or properties or any part thereof or any other assets or properties which the Company or such Restricted Subsidiary, as the case may be, intends to use for substantially the same purpose or purposes as the assets or properties sold or transferred. The foregoing restriction does not apply to any sale-leaseback transaction if: (i) the lease is for a period, including renewal rights, of not in excess of three years; (ii) the lease secures or relates to industrial revenue or pollution control bonds; (iii) the transaction is solely between the Company and any Restricted Subsidiary or solely between Restricted Subsidiaries; or (iv) such sale-leaseback transaction complies with Section 4.11. SECTION 4.11. Limitation on Asset Sales. The Company will not, and will not permit any Restricted Subsidiary to, consummate any Asset Sale, unless: 60 54 (i) the consideration received by the Company or such Restricted Subsidiary is at least equal to the fair market value (as determined in good faith by the Board of Directors (including as to the value of all noncash consideration) and, if determined to be in excess of $5.0 million, as set forth in an Officers' Certificate delivered to the Trustee) of the assets sold or disposed of (or of the Capital Stock issued, sold or otherwise disposed of); (ii) at least 75% of the consideration received consists of: (A) cash or Temporary Cash Investments, (B) the assumption, payment or extinguishment of Indebtedness or other liabilities, in each case not subordinated in right of payment to the Notes, of the Company or any Restricted Subsidiary (in each case, other than Indebtedness owed to the Company or any Restricted Subsidiary), provided that the Company or such Restricted Subsidiary is irrevocably and unconditionally released from all liability under such Indebtedness or other liabilities, or (C) Replacement Assets; and (iii) (I) the Net Cash Proceeds received by the Company (or such Restricted Subsidiary, as the case may be) from such Asset Sale are applied within 365 days following the receipt of such Net Cash Proceeds, to the extent the Company (or such Restricted Subsidiary, as the case may be) elects: (A) apply an amount equal to such excess Net Cash Proceeds to permanently repay unsubordinated Indebtedness of the Company or Indebtedness of any other Restricted Subsidiary, in each case owing to a Person other than the Company or any of its Restricted Subsidiaries, or (B) invest an equal amount, or the amount not so applied pursuant to clause (A) (or enter into a definitive agreement committing to so invest within 365 days after the date of such agreement), in Replacement Assets, or (II) apply such Net Cash Proceeds, to the extent not applied pursuant to clause (iii)(I), as provided in the following paragraphs of this Section 4.11. The amount of such excess Net Cash Proceeds required to be applied (or to be committed to be applied) during such 365-day period as set forth in clause (iii)(I) of the preceding sentence and not applied as so required by the end of such period shall constitute "Excess Proceeds". 61 55 If, as of the first day of any calendar month, the aggregate amount of Excess Proceeds not theretofore subject to an Offer to Purchase pursuant to this Section 4.11 totals at least $10 million, the Company must commence, not later than the fifteenth Business Day of such month, and consummate an Offer to Purchase from the Holders of the Notes (and if required by the terms of any Indebtedness that is equal in right of payment with the Notes ("Pari Passu Indebtedness"), from the holders of such Pari Passu Indebtedness) on a pro rata basis an aggregate principal amount of Notes (and Pari Passu Indebtedness) equal to the Excess Proceeds on such date, at a purchase price equal to 100% of their principal amount, plus, in each case, accrued interest (if any) to the Payment Date. To the extent that any Excess Proceeds remain after consummation of an Asset Sale Offer, the Company may use such Excess Proceeds for any purpose not otherwise prohibited by this Indenture. If the aggregate principal amount of Notes and Pari Passu Indebtedness tendered into such Asset Sale Offer surrendered by holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select the Notes and Pari Passu Indebtedness to be purchased on a pro rata basis in proportion to the respective principal amounts (or accreted values in the case of Indebtedness issued with an original issue discount) of the Notes and such other Indebtedness. Upon completion of such Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero for purposes of the first sentence of this paragraph. SECTION 4.12. Repurchase of Notes upon a Change of Control. The Company must commence, within 60 days of the occurrence of a Change of Control, and consummate an Offer to Purchase for all the Notes then outstanding, at a purchase price equal to 101% of the principal amount, plus accrued interest (if any) to the Payment Date; provided that the Company shall not be obligated to repurchase Notes pursuant to a Change of Control Offer in the event that it has exercised its rights to redeem all of the Notes pursuant to this Indenture. There can be no assurance that the Company will have sufficient funds available at the time of any Change of Control to make any debt payment (including repurchases of Notes) required by the first paragraph of this Section 4.12 or any similar covenant that in other securities of the Company which might be outstanding at the time). The first paragraph of this Section 4.12 requiring the Company to repurchase the Notes will, unless consents are obtained, require the Company to repay all indebtedness then outstanding which by its terms would prohibit such Note repurchase, either prior to or concurrently with such Note repurchase. SECTION 4.13. Business Activities. The Company will not, and will not permit any of its Restricted Subsidiaries to engage, to more than a de minimus extent, in any business other than a Permitted Business. SECTION 4.14. Existence. Except as otherwise provided or permitted in Articles Four and Five of this Indenture, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect its existence and the existence of each of its Restricted 62 56 Subsidiaries in accordance with the respective organizational documents of the Company and each such Subsidiary (as the same may be amended from time to time) and the rights (whether pursuant to charter, partnership certificate, agreement, statute or otherwise), material licenses and franchises of the Company and each such Subsidiary; provided that the Company shall not be required to preserve any such right, license or franchise, or the existence of any Restricted Subsidiary, if the maintenance or preservation thereof is no longer desirable in the conduct of the business of the Company and its Restricted Subsidiaries taken as a whole. SECTION 4.15. Payment of Taxes and Other Claims. The Company will pay or discharge and shall cause each of its Subsidiaries to pay or discharge, or cause to be paid or discharged, before the same shall become delinquent (i) all material taxes, assessments and governmental charges levied or imposed upon (a) the Company or any such Subsidiary, (b) the income or profits of any such Subsidiary which is a corporation or (c) the property of the Company or any such Subsidiary and (ii) all material lawful claims for labor, materials and supplies that, if unpaid, might by law become a Lien upon the property of the Company or any such Subsidiary; provided that the Company shall not be required to pay or discharge, or cause to be paid or discharged, any such tax, assessment, charge or claim the amount, applicability or validity of which is being contested in good faith by appropriate proceedings, for which adequate reserves have been established. SECTION 4.16. Maintenance of Properties and Insurance. The Company will cause all properties used or useful in the conduct of its business or the business of any of its Restricted Subsidiaries, to be maintained and kept in good condition, repair and working order (ordinary wear and tear excepted) and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Company may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided that nothing in this Section 4.16 shall prevent the Company or any such Subsidiary from discontinuing the use, operation or maintenance of any of such properties or disposing of any of them, if such discontinuance or disposal is, in the judgment of the Company, desirable in the conduct of the business of the Company or such Subsidiary. The Company will provide or cause to be provided, for itself and its Restricted Subsidiaries, insurance (including appropriate self-insurance) against loss or damage of the kinds customarily insured against by corporations similarly situated and owning like properties, with reputable insurers or with the government of the United States of America, or an agency or instrumentality thereof, in such amounts, with such deductibles and by such methods as shall be customary for corporations similarly situated in the industry in which the Company or such Restricted Subsidiary, as the case may be, is then conducting business. SECTION 4.17. Notice of Defaults. In the event that the Company becomes aware of any Default or Event of Default, the Company, promptly after it becomes aware thereof, will give written notice thereof to the Trustee. 63 57 SECTION 4.18. Compliance Certificates. The principal accounting officer and the principal financial officer of the Company shall certify in the form of an Officer's Certificate delivered to the Trustee, on or before a date not more than 90 days after the end of each fiscal year of the Company, that a review has been conducted of the activities of the Company and its Restricted Subsidiaries and the Company's and its Restricted Subsidiaries' performance under this Indenture and that the Company has fulfilled all obligations hereunder, or, if there has been a default in the fulfillment of any such obligation, specifying each such default and the nature and status thereof. The Company shall also notify the Trustee of any default or defaults in the performance of any covenants or agreements under this Indenture. The Company shall also comply with the other provisions of Section 314(a) of the TIA. SECTION 4.19. Commission Reports and Reports to Holders. At all times from and after the earlier of (i) the date of the commencement of an Exchange Offer, the effectiveness of a Shelf Registration Statement of the effectiveness or a registration statement with respect to its Capital Stock (in either case, a "Registration"), (ii) the date that is six months after the Closing Date or (iii) in either case, whether or not the Company is then required to file reports with the Commission, the Company shall file with the Commission all such reports and other information as it would be required to file with the Commission by Sections 13(a) or 15(d) under the Securities Exchange Act of 1934 if it were subject thereto. The Company shall supply the Trustee and each Holder or shall supply to the Trustee for forwarding to each such Holder, without cost to such Holder, copies of such reports and other information. In addition, at all times prior to the earlier of the date of the Registration and the date that is six months after the Closing Date, the Company shall, at its cost, deliver to each Holder of the Notes quarterly and annual reports substantially equivalent to those which would be required by the Exchange Act. In addition, at all times prior to the Registration, upon the request of any Holder or any prospective purchaser of the Notes designated by a Holder, the Company shall supply to such Holder or such prospective purchaser the information required under Rule 144A under the Securities Act. SECTION 4.20. Waiver of Stay, Extension or Usury Laws. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law or any usury law or other law that would prohibit or forgive the Company from paying all or any portion of the principal of, premium, if any, or interest on the Notes as contemplated herein, wherever enacted, now or at any time hereafter in force, or that may affect the covenants or the performance of this Indenture; and (to the extent that it may lawfully do so) the Company hereby expressly waives all benefit or advantage of any such law and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. 64 58 ARTICLE FIVE SUCCESSOR CORPORATION SECTION 5.01. When Company May Merge, Etc. The Company shall not consolidate with, merge with or into, or sell, assign, convey, transfer, lease or otherwise dispose of all or substantially all of its property and assets (as an entirety or substantially an entirety in one transaction or a series of related transactions) to, any Person or permit any Person to merge with or into the Company unless: (i) the Company shall be the continuing Person, or the Person (if other than the Company) formed by such consolidation or into which the Company is merged or that acquired or leased such property and assets of (the "Surviving Person") shall be a corporation organized and validly existing under the laws of the United States of America or any jurisdiction thereof and shall expressly assume, by a supplemental indenture, executed and delivered to the Trustee, all of the obligations of the Company under this Indenture and the Notes; (ii) no Default or Event of Default shall exist or shall occur immediately after giving effect on a pro forma basis to such transaction; (iii) immediately after giving effect to such transaction on a pro forma basis, the Company, or the Surviving Person, as the case may be, could Incur at least $1.00 of Indebtedness under the first paragraph of Section 4.03 hereof; provided that this clause (iii) shall not apply to a consolidation, merger or sale of all (but not less than all) of the assets of the Company if all Liens and Indebtedness of the Company or the Surviving Person, as the case may be, and its Restricted Subsidiaries outstanding immediately after such transaction would have been permitted (and all such Liens and Indebtedness, other than Liens and Indebtedness of the Company and its Restricted Subsidiaries outstanding immediately prior to the transaction, shall be deemed to have been Incurred) for all purposes of this Indenture; (iv) the Company delivers to the Trustee an Officers' Certificate (attaching the arithmetic computations to demonstrate compliance with clause (iii) of this Section 5.01) and Opinion of Counsel, in each case stating that such consolidation, merger or transfer and such supplemental indenture complies with this provision and that all conditions precedent provided for herein relating to such transaction have been complied with; and (v) each Subsidiary Guarantor, if any, unless such Subsidiary Guarantor is the Person with which the Company has entered into a transaction under this Section 5.01, shall have by amendment to its Note Guarantee confirmed that its Note Guarantee shall 65 59 apply to the obligations of the Company or the Surviving Person in accordance with the Notes and this Indenture; provided, however, that clause (iii) of this Section 5.01 does not apply if, in the good faith determination of the Board of Directors of the Company, whose determination shall be evidenced by a Board Resolution, the principal purpose of such transaction is to change the state of incorporation of the Company. SECTION 5.02. Successor Substituted. Upon any consolidation or merger, or any sale, conveyance, transfer or other disposition of all or substantially all of the property and assets of the Company in accordance with Section 5.01 of this Indenture, the successor Person formed by such consolidation or into which the Company is merged or to which such sale, conveyance, transfer or other disposition is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein. ARTICLE SIX DEFAULT AND REMEDIES SECTION 6.01. Events of Default. An "Event of Default" shall occur with respect to the Notes if: (a) default in the payment of principal of (or premium, if any, on) any Note when the same becomes due and payable at maturity, upon acceleration, redemption or otherwise; (b) default in the payment of interest on any Note when the same becomes due and payable, and such default continues for a period of 30 days; provided that a failure to make any of the first four scheduled interest payments on the Notes within three business days after an interest payment date will constitute an Event of Default with no grace or cure period; (c) default in the performance or breach of the provisions of this Indenture applicable to mergers, consolidations and transfers of all or substantially all of the assets of the Company or the failure by the Company to make or consummate an Offer to Purchase in accordance with Section 4.11 or Section 4.12; (d) the Company or any Restricted Subsidiary defaults in the performance of or breaches any other covenant or agreement in this Indenture or under the Notes (other than a default specified in clause (a), (b) or (c) above) and such default or breach 66 60 continues for a period of 45 consecutive days after written notice by the Trustee or the Holders of 25% or more in aggregate principal amount of the Notes; (e) the default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness of the Company or any of its Significant Subsidiaries (or the payment of which is Guaranteed by the Company or any of its Significant Subsidiaries) whether such Indebtedness or Guarantee now exists or is created after the Closing Date, and either such Indebtedness is already due and payable or such default results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the amount of any such Indebtedness, together with the amount of any other such Indebtedness the maturity of which has been so accelerated or which is already due and payable, aggregates $10 million or more; (f) one or more judgments, orders or decrees for the payment of money in excess of $10 million, individually or in the aggregate (net of applicable insurance coverage which is acknowledged in writing by the insurer), shall be entered against the Company or any of its Significant Subsidiaries or any of their respective properties and shall not be discharged and there shall have been a period of 60 days or more during which a stay of enforcement of such judgment or order, by reason of pending appeal or otherwise, shall not be in effect; (g) a court having jurisdiction in the premises enters a decree or order for: (i) relief in respect of the Company or any Significant Subsidiary in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, (ii) appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of the Company or any Significant Subsidiary or for all or substantially all of the property and assets of the Company or any Significant Subsidiary or (iii) the winding up or liquidation of the affairs of the Company or any Significant Subsidiary and, in each case, such decree or order shall remain unstayed and in effect for a period of 45 consecutive days; (h) the Company or any Significant Subsidiary (A) commences a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or consents to the entry of an order for relief in an involuntary case under any such law, (B) consents to the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of the Company or any Significant Subsidiary or for all or substantially all of the property and assets of the 67 61 Company or any Significant Subsidiary or (C) effects any general assignment for the benefit of creditors; or (i) the Pledge Agreement shall cease to be in full force and effect or enforceable in accordance with its terms, other than in accordance with its terms. SECTION 6.02. Acceleration. If an Event of Default (other than an Event of Default specified in clause (g) or (h) of Section 6.01 that occurs with respect to the Company or any Significant Subsidiary) occurs and is continuing under this Indenture, the Trustee or the Holders of at least 25% in aggregate principal amount of the Notes then outstanding, by written notice to the Company (and to the Trustee if such notice is given by the Holders), may, and the Trustee at the request of such Holders shall, declare the principal amount of, premium, if any, and accrued interest on the Notes to be immediately due and payable. Upon a declaration of acceleration, such principal of, premium, if any, and accrued interest shall be immediately due and payable. In the event of a declaration of acceleration because an Event of Default set forth in clause (e) of Section 6.01 has occurred and is continuing, such declaration of acceleration shall be automatically rescinded and annulled if the event of default triggering such Event of Default pursuant to clause (e) shall be remedied or cured by the Company or the relevant Restricted Subsidiary or waived by the holders of the relevant Indebtedness within 60 days after the declaration of acceleration with respect thereto. If an Event of Default specified in clause (g) or (h) of Section 6.01 occurs with respect to the Company or any Significant Subsidiary, the principal amount of, premium, if any, and accrued interest on the Notes then outstanding shall automatically become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holder. The Holders of at least a majority in principal amount of the outstanding Notes, by written notice to the Company and to the Trustee, may waive all past defaults and rescind and annul a declaration of acceleration and its consequences if (i) all existing Events of Default, other than the nonpayment of the principal of, premium, if any, and interest on the Notes that have become due solely by such declaration of acceleration, have been cured or waived and (ii) the rescission would not conflict with any judgment or decree of a court of competent jurisdiction. SECTION 6.03. Other Remedies. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy by proceeding at law or in equity to collect the payment of principal of, premium, if any, or interest on the Notes or to enforce the performance of any provision of the Notes or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding. SECTION 6.04. Waiver of Past Defaults. Subject to Section 9.02, at any time after such a declaration of acceleration, but before a judgment or decree for the payment of the 68 62 money due has been obtained by the Trustee, the Holders of at least a majority in aggregate principal amount of the outstanding Notes by written notice to the Company and to the Trustee may waive all past Defaults and rescind and annul a declaration of acceleration and its consequences (except a Default in the payment of principal of premium, if any, or interest on any Note as specified in clause (a) or (b) of Section 6.01 (but not as a result of such acceleration) or in respect of a covenant or provision of this Indenture which cannot be modified or amended without the consent of the Holder of each outstanding Note affected) if (i) all existing Events of Default, other than the nonpayment of the principal amount of, premium, if any, and interest on the Notes that have become due solely by such declaration of acceleration, have been cured or waived and (ii) the rescission would not conflict with any judgment or decree of a court of competent jurisdiction. Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or Event of Default or impair any right consequent thereto. SECTION 6.05. Control by Majority. The Holders of at least a majority in aggregate principal amount of the outstanding Notes may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture, that may involve the Trustee in personal liability, or that the Trustee determines in good faith may be unduly prejudicial to the rights of Holders of the Notes not joining in the giving of such direction and may take any other action it deems proper that is not inconsistent with any such direction received from Holders of the Notes. SECTION 6.06. Limitation on Suits. A Holder may not pursue any remedy with respect to this Indenture or the Notes unless: (i) the Holder gives the Trustee written notice of a continuing Event of Default; (ii) the Holders of at least 25% in aggregate principal amount of outstanding Notes make a written request to the Trustee to pursue the remedy; (iii) such Holder or Holders offer the Trustee indemnity satisfactory to the Trustee against any costs, liability or expense; (iv) the Trustee does not comply with the request within 60 days after receipt of the request and the offer of indemnity; and (v) during such 60-day period, the Holders of a majority in aggregate principal amount of the outstanding Notes do not give the Trustee a direction that is inconsistent with the request. 69 63 For purposes of Section 6.05 of this Indenture and this Section 6.06, the Trustee shall comply with TIA Section 316(a) in making any determination of whether the Holders of the required aggregate principal amount of outstanding Notes have concurred in any request or direction of the Trustee to pursue any remedy available to the Trustee or the Holders with respect to this Indenture or the Notes or otherwise under the law. A Holder may not use this Indenture to prejudice the rights of another Holder or to obtain a preference or priority over such other Holder. SECTION 6.07. Rights of Holders to Receive Payment. Notwithstanding any other provision of this Indenture, the right of any Holder of a Note to receive payment of principal of, premium, if any, or interest on such Holder's Note on or after the respective due dates expressed on such Note, or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder. SECTION 6.08. Collection Suit by Trustee. If an Event of Default in payment of principal, premium or interest specified in clause (a) or (b) of Section 6.01 of this Indenture occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Company or any other obligor of the Notes for the whole amount of principal, premium, if any, and accrued interest remaining unpaid, together with interest on overdue principal, premium, if any, and, to the extent that payment of such interest is lawful, interest on overdue installments of interest, in each case at the rate specified in the Notes, and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof. SECTION 6.09. Trustee May File Proofs of Claim. The Trustee may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07) and the Holders allowed in any judicial proceedings relative to the Company (or any other obligor of the Notes), its creditors or its property and the Trustee shall be entitled and empowered to collect and receive any monies, securities or other property payable or deliverable upon conversion or exchange of the Notes or upon any such claims and to distribute the same, and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agent and counsel, and any other amounts due the Trustee under Section 7.07. Nothing herein contained shall be deemed to empower the Trustee to authorize or consent to, or accept or adopt on behalf 70 64 of any Holder, any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. SECTION 6.10. Priorities. If the Trustee collects any money pursuant to this Article Six, it shall pay out the money in the following order: First: to the Trustee for all amounts due under Section 7.07; Second: to Holders for amounts then due and unpaid for principal of, premium, if any, and interest on the Notes in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Notes for principal, premium, if any, and interest, respectively; and Third: to the Company as its interests may appear. The Trustee, upon prior written notice to the Company, may fix a record date and payment date for any payment to Holders pursuant to this Section 6.10. SECTION 6.11. Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court may require any party litigant in such suit to file an undertaking to pay the costs of the suit, and the court may assess reasonable costs, including reasonable attorneys' fees and expenses, against any party litigant in the suit having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.07 of this Indenture, or a suit by Holders of more than 10% in principal amount of the outstanding Notes. SECTION 6.12. Restoration of Rights and Remedies. If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then, and in every such case, subject to any determination in such proceeding, the Company, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Company, the Trustee and the Holders shall continue as though no such proceeding had been instituted. SECTION 6.13. Rights and Remedies Cumulative. Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or wrongfully taken Notes in Section 2.09, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy 71 65 shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. SECTION 6.14. Delay or Omission Not Waiver. No delay or omission of the Trustee or of any Holder to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article Six or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be. ARTICLE SEVEN TRUSTEE SECTION 7.01. General. The duties and responsibilities of the Trustee shall be as provided by the TIA and as set forth herein. Notwithstanding the foregoing, no provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Article Seven. SECTION 7.02. Certain Rights of Trustee. Subject to TIA Sections 315(a) through (d): (i) the Trustee may conclusively rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document (whether in its original or facsimile form) believed by it to be genuine and to have been signed or presented by the proper person. The Trustee need not investigate any fact or matter stated in the document and may in good faith conclusively rely as to the truth of the statements and the correctness of the opinions therein; (ii) before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel, which shall conform to Section 10.04 of this Indenture. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such certificate or opinion; 72 66 (iii) the Trustee may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care; (iv) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders, unless such Holders shall have offered to the Trustee security or indemnity reasonably satisfactory to it against the costs, expenses and liabilities that might be incurred by it in complying with such request or direction; (v) the Trustee shall not be liable for any action it takes or omits to take in good faith that it believes to be authorized or within its rights or powers or for any action it takes or omits to take in accordance with the direction of the Holders of a majority in principal amount of the outstanding Notes relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture; provided that the Trustee's conduct does not constitute negligence or bad faith; (vi) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting to take any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officers' Certificate; (vii) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled at the sole cost of the Company to examine the books, records and premises of the Company personally or by agent or attorney and shall incur no liability or additional liability of any kind by reason of such inquiry or investigation; (viii) the Trustee shall not be charged with knowledge of any Default or Event of Default, the identity of any Restricted Subsidiary or of the existence of any Change of Control or Asset Sale unless either (i) a Responsible Officer shall have actual knowledge thereof, or (ii) the Trustee shall have received written notice thereof from the Company or any Holder of the Notes; and (ix) the Trustee may consult with counsel of its selection and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and 73 67 protection in respect of any action taken, suffered or omitted to be taken by it hereunder in good faith and in reliance thereon. SECTION 7.03. Individual Rights of Trustee. The Trustee, in its individual or any other capacity, may become the owner or pledgee of Notes and may otherwise deal with the Company or its Affiliates with the same rights it would have if it were not the Trustee. Any Agent may do the same with like rights. However, the Trustee is subject to TIA Sections 310(b) and 311. SECTION 7.04. Trustee's Disclaimer. The Trustee (a) makes no representation as to the validity or adequacy of this Indenture or the Notes, (b) shall not be accountable for the Company's use or application of the proceeds of the Notes and (c) shall not be responsible for any statement in the Notes other than its certificate of authentication. SECTION 7.05. Notice of Default. If any Default or any Event of Default occurs and is continuing and if such Default or Event of Default is known to a Responsible Officer of the Trustee, the Trustee shall mail to each Holder in the manner and to the extent provided in TIA Section 313(c) notice of the Default or Event of Default within 90 days after it occurs, unless such Default or Event of Default has been cured; provided, however, that, except in the case of a default in the payment of the principal of, premium, if any, or interest on any Note, the Trustee shall be protected in withholding such notice if and as long as the board of directors, the executive committee or a trust committee of directors and/or Responsible Officers of the Trustee in good faith determine that the withholding of such notice is in the interest of the Holders. If an Event of Default has occurred and is continuing, the Trustee shall use the same degree of care and skill in its exercise of the rights and powers invested in it under this Indenture as a prudent person would exercise under the circumstances in the conduct of such person's own affairs. SECTION 7.06. Reports by Trustee to Holders. Within 60 days after each May 15, beginning with May 15, 2000, the Trustee shall mail to each Holder as provided in TIA Section 313(c) a brief report that complies with TIA Section 313(a) dated as of such May 15, if required by TIA Section 313(a). SECTION 7.07. Compensation and Indemnity. The Company shall pay to the Trustee such compensation as shall be agreed upon from time to time in writing for its services. The compensation of the Trustee shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee upon request for all reasonable out-of-pocket expenses and advances incurred or made by the Trustee. Such expenses shall include the reasonable compensation and expenses of the Trustee's agents and counsel. The Company shall indemnify the Trustee and any predecessor trustee for, and hold it harmless against, any and all loss, claim, damage or liability or expense (including taxes other than taxes based upon the income of the Trustee) incurred by it without negligence or bad 74 68 faith on its part in connection with the acceptance or administration of this Indenture and its duties under this Indenture and the Notes, including the costs and expenses of defending itself against any claim or liability and of complying with any process served upon it or any of its officers in connection with the exercise or performance of any of its powers or duties under this Indenture and the Notes. The Trustee shall notify the Company promptly of any claim asserted against the Trustee for which it may seek indemnity. The Company shall defend the claim and the Trustee shall provide reasonable cooperation at the Company's expense in the defense. The Trustee may have separate counsel of its selection and the Company shall pay the reasonable fees and expenses of such counsel; provided, that the Company will not be required to pay such fees and expenses if it assumes the Trustee's defense and counsel selected by Company shall be diligently and competently representing the Trustee's interests and in the opinion of the Trustee there is no conflict of interest between the Company and the Trustee in connection with such defense. The Company need not pay for any settlement made without its written consent. To secure the Company's payment obligations in this Section 7.07, the Trustee shall have a lien prior to the Noteholders on all money or property held or collected by the Trustee, in its capacity as Trustee, except money or property held in trust to pay principal of, premium, if any, and interest on particular Notes. If the Trustee incurs expenses or renders services after the occurrence of an Event of Default specified in clause (h) or (i) of Section 6.01, the expenses and the compensation for the services will be intended to constitute expenses of administration under Title 11 of the United States Bankruptcy Code or any applicable federal or state law for the relief of debtors. The rights, privileges, protections and benefits given to the Trustee, including, without limitation, its rights to be indemnified, are extended to, and shall be enforceable by, the Trustee in each of its capacities hereunder. The provisions of this Section 7.07 shall survive the resignation or removal of the Trustee and the defeasance or other termination of this Indenture. SECTION 7.08. Replacement of Trustee. A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee's acceptance of its appointment as provided in this Section 7.08. The Trustee may resign at any time by so notifying the Company in writing at least 30 days prior to the date of the proposed resignation. The Holders of a majority in principal amount of the outstanding Notes may remove the Trustee by so notifying the Trustee in writing and may appoint a successor Trustee with the consent of the Company. The Company may at any time remove the Trustee, by Company Order given at least 30 days prior to the date of the proposed removal; provided that, at such date, no Event of Default shall have occurred and be continuing. 75 69 If the Trustee resigns or is removed, or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the outstanding Notes may appoint a successor Trustee to replace the successor Trustee appointed by the Company. If the successor Trustee does not deliver its written acceptance required by the next succeeding paragraph of this Section 7.08 within 30 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company or the Holders of a majority in principal amount of the outstanding Notes may petition at the expense of the Company any court of competent jurisdiction for the appointment of a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Immediately after the delivery of such written acceptance, subject to the lien provided in Section 7.07 of this Indenture, (i) the retiring Trustee shall transfer all property held by it as Trustee to the successor Trustee, (ii) the resignation or removal of the retiring Trustee shall become effective and (iii) the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. A successor Trustee shall mail notice of its succession to each Holder. If the Trustee is no longer eligible under Section 7.10 of this Indenture, any Holder who satisfies the requirements of TIA Section 310(b) may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. The Company shall give notice of any resignation and any removal of the Trustee and each appointment of a successor Trustee to all Holders. Each notice shall include the name of the successor Trustee and the address of its Corporate Trust Office. SECTION 7.09. Successor Trustee by Merger, Etc. If the Trustee consolidates with, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation or national banking association, the resulting, surviving or transferee corporation or national banking association without any further act shall be the successor Trustee with the same effect as if the successor Trustee had been named as the Trustee herein. SECTION 7.10. Eligibility. This Indenture shall always have a Trustee who satisfies the requirements of TIA Sections 310(a)(1) and 310(a)(5). The Trustee shall have, or if such Trustee is a member of a bank holding company system, its bank holding company shall have, a combined capital and surplus of at least $50,000,000 as set forth in its most recent published annual report of condition. SECTION 7.11. Money Held in Trust. The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree with the Company in writing. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law and except for money held in trust under Article Eight of this Indenture. 76 70 SECTION 7.12. Withholding Taxes. The Trustee, as agent for the Company, shall exclude and withhold from each payment of principal and interest and other amounts due hereunder or under the Notes any and all withholding taxes applicable thereto as required by law. The Trustee agrees to act as such withholding agent and, in connection therewith, whenever any present or future taxes or similar charges are required to be withheld with respect to any amounts payable in respect of the Notes, to withhold such amounts and timely pay the same to the appropriate authority in the name of and on behalf of the Holders of the Notes, that it will file any necessary withholding tax returns or statements when due, and that, as promptly as possible after the payment thereof, it will deliver to each Holder of a Note appropriate documentation evidencing the payment thereof, together with such additional documentary evidence as such Holders may reasonably request from time to time. ARTICLE EIGHT DISCHARGE OF INDENTURE SECTION 8.01. Termination of the Company's Obligations. Except as otherwise provided in this Section 8.01, the Company may terminate its obligations under the Notes and this Indenture if: (i) all Notes previously authenticated and delivered (other than destroyed, lost or stolen Notes that have been replaced or Notes that are paid pursuant to Section 4.01 hereof or Notes for whose payment money or securities have theretofore been held in trust and thereafter repaid to the Company, as provided in Section 8.05 hereof) have been delivered to the Trustee for cancellation and the Company has paid all sums payable by it hereunder; or (ii) (A) all of the Notes mature within one year or all of them are to be called for redemption within one year under arrangements satisfactory to the Trustee for giving the notice of redemption, (B) the Company deposits in trust with the Trustee during such one-year period, under the terms of an irrevocable trust agreement in form and substance satisfactory to the Trustee, as trust funds solely for the benefit of the Holders for that purpose, money or U.S. Government Obligations sufficient to pay principal, premium, if, any, and interest on the Notes to maturity or redemption, as the case may be, and to pay all other sums payable by it hereunder, (C) no Default or Event of Default with respect to the Notes shall have occurred and be continuing on the date of such deposit, (D) such deposit will not result in a breach or violation of, or constitute a default under, this Indenture or any other agreement or instrument to which the Company is a party or by which it is bound, (E) if at such time the Notes are listed on a national securities exchange, the Notes will not be delisted as a result of such deposit, defeasance or discharge and (F) the Company has delivered to the Trustee an Officers' Certificate and 77 71 an Opinion of Counsel, in each case stating that all conditions precedent provided for herein relating to the satisfaction and discharge of this Indenture have been complied with. With respect to the foregoing clause (i), the Company's obligations under Section 7.07 hereof shall survive. With respect to the foregoing clause (ii), the Company's obligations in Sections 2.02, 2.03, 2.04, 2.05, 2.06, 2.07, 2.08, 2.09, 2.14, 4.01, 4.02, 7.07, 7.08, 8.04, 8.05 and 8.06 of this Indenture shall survive until the Notes are no longer outstanding. Thereafter, only the Company's obligations in Sections 7.07, 8.05 and 8.06 of this Indenture shall survive. After any such irrevocable deposit, the Trustee upon request shall acknowledge in writing the discharge of the Company's obligations, as the case may be, under the Notes and this Indenture, except for those surviving obligations specified above. SECTION 8.02. Defeasance and Discharge of Indenture. The Company will be deemed to have paid and will be discharged from any and all obligations in respect of the Notes on the 123rd day after the deposit referred to below, and the provisions of this Indenture will no longer be in effect with respect to the Notes (except for, among other matters, certain obligations to register the transfer or exchange of the Notes, to replace stolen, lost or mutilated Notes, to maintain paying agencies and to hold monies for payment in trust) if, among other things: (A) the Company has deposited with the Trustee, in trust, money and/or U.S. Government Obligations that through the payment of interest and principal in respect thereof in accordance with their terms will provide money in an amount sufficient in the opinion of a nationally recognized independent public accounting firm to pay the principal of, premium, if any, and accrued interest on the Notes on the Stated Maturity of such payments in accordance with the terms of this Indenture and the Notes; (B) the Company has delivered to the Trustee (i) either (x) an Opinion of Counsel to the effect that Holders will not recognize income, gain or loss for federal income tax purposes as a result of the Company's exercise of its option under this Section 8.02 and will be subject to federal income tax on the same amount and in the same manner and at the same times as would have been the case if such deposit, defeasance and discharge had not occurred, which Opinion of Counsel must be based upon (and accompanied by a copy of) a ruling of the Internal Revenue Service to the same effect unless there has been a change in applicable federal income tax law after the Closing Date such that a ruling is no longer required or (y) a ruling directed to the Trustee received from the Internal Revenue Service to the same effect as the aforementioned Opinion of Counsel and (ii) an Opinion of Counsel to the effect that the creation of the defeasance trust does not violate the Investment Company Act of 1940 and after the passage of 123 days following the deposit, the trust fund will not be subject to the effect of Section 547 of the United States Bankruptcy Code or Section 15 of the New York Debtor and Creditor Law; 78 72 (C) immediately after giving effect to such deposit on a pro forma basis, no Event of Default, or event that after the giving of notice or lapse of time or both would become an Event of Default, shall have occurred and be continuing on the date of such deposit or during the period ending on the 123rd day after the date of such deposit, and such deposit shall not result in a breach or violation of, or constitute a default under, any other agreement or instrument to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; and (D) if at such time the Notes are listed on a national securities exchange, the Company has delivered to the Trustee an Opinion of Counsel to the effect that the Notes will not be delisted as a result of such deposit, defeasance and discharge. Notwithstanding the foregoing, prior to the end of the 123-day period referred to in clause (B)(ii) of this Section 8.02, none of the Company's obligations under this Indenture shall be discharged. Subsequent to the end of such 123-day period with respect to this Section 8.02, the Company's obligations in Sections 2.02, 2.03, 2.04, 2.05, 2.06, 2.07, 2.08, 2.09, 2.14, 4.01, 4.02, 4.17, 7.07, 7.08, 8.05 and 8.06 shall survive until the Notes are no longer outstanding. Thereafter, only the Company's obligations in Sections 7.07, 8.05 and 8.06 shall survive. If and when a ruling from the Internal Revenue Service or an Opinion of Counsel referred to in clause (B)(i) of this Section 8.02 may be provided specifically without regard to, and not in reliance upon, the continuance of the Company's obligations under Section 4.01, then the Company's obligations under such Section 4.01 shall cease upon delivery to the Trustee of such ruling or Opinion of Counsel and compliance with the other conditions precedent provided for herein relating to the defeasance contemplated by this Section 8.02. After the 123 day period referred to in clause (B)(ii) of this Section 8.02, the Trustee upon Company Order shall acknowledge in writing the discharge of the Company's obligations under the Notes and this Indenture except for those surviving obligations in the immediately preceding paragraph. SECTION 8.03. Defeasance of Certain Obligations. The Company may omit to comply with any term, provision or condition set forth in clause (iii) of Section 5.01, Sections 4.03 through 4.13 and Section 4.19 of this Indenture, and clause (c) of Section 6.01 with respect to clause (iii) of Section 5.01 of this Indenture, clause (d) of Section 6.01 with respect to Sections 4.01, 4.02, 4.14 through 4.18 and Section 4.20 hereof, and clauses (e) and (f) of Section 6.01 hereof shall be deemed not to be Events of Default, upon: (a) the deposit, in trust, with the Trustee (or another trustee satisfying the requirements of Section 7.10 hereof) of money and/or U.S. Government Obligations that, through the payment of interest and principal in respect thereof in accordance with their terms, will provide money in an amount sufficient in the opinion of a nationally 79 73 recognized independent public accounting firm to pay the principal of, premium, if any, and accrued interest on the Notes on the Stated Maturity of such payments in accordance with the terms of this Indenture and the Notes; (b) the satisfaction of the provisions described in clauses B(ii), (C) and (D) of Section 8.02 hereof; (c) delivery by the Company to the Trustee of an Opinion of Counsel to the effect that, the Holders will not recognize income, gain or loss for federal income tax purposes as a result of such deposit and defeasance and will be subject to federal income tax on the same amount and in the same manner and at the same times as would have been the case if such deposit and defeasance had not occurred; and (d) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, in each case stating that all conditions precedent provided for herein relating to the defeasance contemplated by this Section 8.03 have been complied with. SECTION 8.04. Application of Trust Money. Subject to Section 8.06, the Trustee or Paying Agent shall hold in trust money or U.S. Government Obligations deposited with it pursuant to Section 8.01, 8.02 or 8.03, as the case may be, and shall apply the deposited money and the money from U.S. Government Obligations in accordance with the Notes and this Indenture to the payment of principal of, premium, if any, and interest on the Notes; but such money need not be segregated from other funds except to the extent required by law. SECTION 8.05. Repayment to Company. Subject to Sections 7.07, 8.01, 8.02 and 8.03, the Trustee and the Paying Agent shall promptly pay to the Company any excess money, as determined by a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, and held by them at any time and thereupon shall be relieved from all liability with respect to such money. The Trustee and the Paying Agent shall pay to the Company upon request, subject to applicable state escheatment laws, any money held by them for the payment of principal, premium, if any, or interest that remains unclaimed for two years; provided that the Trustee or such Paying Agent before being required to make any payment may cause to be published at the expense of the Company once in a newspaper of general circulation in the City of New York or mail to each Holder entitled to such money at such Holder's address (as set forth in the Note Register) notice that such money remains unclaimed provided that the Trustee or such Paying Agent before being required to make any payment may give notice in accordance with Section 11.02(b) that such money remains unclaimed and that after a date specified therein (which shall be at least 30 days from the date of such publication or mailing) any unclaimed balance of such money then remaining will be repaid to the Company. After payment to the Company, Holders entitled to such money must look to the Company for payment as general creditors unless an applicable law designates another 80 74 Person, and all liability of the Trustee and such Paying Agent with respect to such money shall cease. SECTION 8.06. Reinstatement. If the Trustee or the Paying Agent is unable to apply any money or U.S. Government Obligations in accordance with Section 8.01, 8.02 or 8.03, as the case may be, by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company's obligations under this Indenture and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.01, 8.02 or 8.03, as the case may be, until such time as the Trustee or Paying Agent is permitted to apply all such money or U.S. Government Obligations in accordance with Section 8.01, 8.02 or 8.03, as the case may be; provided that, if the Company has made any payment of principal of, premium, if any, or interest on any Notes because of the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money or U.S. Government Obligations held by the Trustee or Paying Agent. SECTION 8.07. Defeasance and Certain Other Events of Default. In the event that the Company exercises its option to omit compliance with certain covenants and provisions of this Indenture with respect to the Notes pursuant to Section 8.03 and such Notes are declared due and payable because of the occurrence of an Event of Default that remains applicable, the amount of money and/or U.S. Government Obligations on deposit with the Trustee will be sufficient to pay amounts due on such Notes at the time of their Stated Maturity. If, in the event the Company exercises its option to omit compliance with certain covenants and provisions of this Indenture with respect to the Notes pursuant to Section 8.03 and such Notes are declared due and payable because of the occurrence of an Event of Default that remains applicable, the amount of money and/or U.S. Government Obligations on deposit with the Trustee is insufficient to pay amounts due on the Notes at the time of the acceleration resulting from such Events of Default pursuant to Section 6.02, the Company will remain liable for such payments. ARTICLE NINE AMENDMENTS, SUPPLEMENTS AND WAIVERS SECTION 9.01. Without Consent of Holders. The Company, when authorized by resolutions of its Board of Directors (as evidenced by a Board Resolution), and the Trustee may amend or supplement this Indenture or the Notes without notice to, or the consent of, any Holder: (a) to cure any ambiguity, defect or inconsistency in this Indenture; (b) to comply with Section 4.07 or Article Five; 81 75 (c) to comply with any requirements of the Commission in connection with the qualification of this Indenture under the TIA; (d) to evidence and provide for the acceptance of appointment by a successor Trustee; or (e) to make any change that, in the good faith opinion of the Board of Directors, does not materially and adversely affect the rights of any Holder (including, without limitation, allowing resales of the Notes under and in accordance with Regulation S of the U.S. securities laws). SECTION 9.02. With Consent of Holders. Subject to Sections 6.07 and without prior notice to the Holders, the Company, when authorized by its Board of Directors (as evidenced by a Board Resolution), and the Trustee may amend this Indenture and the Notes with the written consent of the Holders of a majority in aggregate principal amount of the Notes then outstanding, and the Holders of a majority in aggregate principal amount of the Notes then outstanding by written notice to the Trustee may waive compliance by the Company with any provision of this Indenture or the Notes. Notwithstanding the provisions of this Section 9.02, without the consent of each Holder affected thereby, an amendment or waiver, including a waiver pursuant to Section 6.04 hereof, may not: (a) change the Stated Maturity of the principal of, or any installment of interest on, any Note; (b) reduce the principal amount of, or premium, if any, or interest on, any Note; (c) change the optional redemption dates or optional redemption prices of the Notes from that stated in Section 3.01; (d) change the place or currency of payment of principal of, or premium if any, or interest on, any Note; (e) impair the right to institute suit for the enforcement of any payment on or after the Stated Maturity (or, in the case of a redemption, on or after the Redemption Date) of any Note; (f) waive a default in the payment of principal of, premium, if any, or interest on the Notes; 82 76 (g) release any Subsidiary Guarantor from its Note Guarantee, except as provided in this Indenture; or (h) reduce the percentage or aggregate principal amount of outstanding Notes the consent of whose Holders is necessary for waiver of compliance with certain provisions of this Indenture or for waiver of certain defaults. It shall not be necessary for the consent of the Holders under this Section 9.02 to approve the particular form of any proposed amendment, supplement or waiver, but it shall be sufficient if such consent approves the substance thereof. After an amendment, supplement or waiver under this Section 9.02 becomes effective, the Trustee shall mail to the Holders affected thereby a notice briefly describing the amendment, supplement or waiver. The Company will mail supplemental indentures to Holders upon request. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture or waiver. SECTION 9.03. Revocation and Effect of Consent. Until an amendment or waiver becomes effective, a consent to it by a Holder is a continuing consent by the Holder and every subsequent Holder of a Note or portion of a Note that evidences the same debt as the Note of the consenting Holder, even if notation of the consent is not made on any Note. However, any such Holder or subsequent Holder may revoke the consent as to its Note or portion of its Note. Such revocation shall be effective only if the Trustee receives the notice of revocation before the date the amendment, supplement or waiver becomes effective. An amendment, supplement or waiver shall become effective on receipt by the Trustee of written consents from the Holders of the requisite percentage in principal amount of the outstanding Notes. The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Holders entitled to consent to any amendment, supplement or waiver. If a record date is fixed, then, notwithstanding the last two sentences of the immediately preceding paragraph, those Persons who were Holders at such record date (or their duly designated proxies) and only those Persons shall be entitled to consent to such amendment, supplement or waiver or to revoke any consent previously given, whether or not such Persons continue to be Holders after such record date. No such consent shall be valid or effective for more than 90 days after such record date. After an amendment, supplement or waiver becomes effective, it shall bind every Holder unless it is of the type described in any of clauses (i) through (vii) of Section 9.02. In case of an amendment or waiver of the type described in clauses (i) through (vii) of Section 9.02, the amendment or waiver shall bind each Holder who has consented to it and every subsequent Holder of a Note that evidences the same indebtedness as the Note of the consenting Holder. 83 77 SECTION 9.04. Notation on or Exchange of Notes. If an amendment, supplement or waiver changes the terms of a Note, the Trustee may require the Holder to deliver it to the Trustee. The Trustee may place an appropriate notation on the Note about the changed terms and return it to the Holder and the Trustee may place an appropriate notation on any Note thereafter authenticated. Alternatively, if the Company or the Trustee so determines, the Company in exchange for the Note shall issue and the Trustee shall authenticate a new Note that reflects the changed terms. SECTION 9.05. Trustee to Sign Amendments, Etc. The Trustee shall be entitled to receive, and shall be fully protected in relying upon, in addition to the documents required by Section 11.03, an Opinion of Counsel stating that the execution of any amendment, supplement or waiver authorized pursuant to this Article Nine is authorized or permitted by this Indenture. Subject to the preceding sentence, the Trustee shall sign such amendment, supplement or waiver if the same does not adversely affect the rights of the Trustee. The Trustee may, but shall not be obligated to, execute any such amendment, supplement or waiver that affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. SECTION 9.06. Conformity with Trust Indenture Act. Every supplemental indenture executed pursuant to this Article Nine shall conform to the requirements of the TIA as then in effect. ARTICLE TEN SECURITY SECTION 10.01. Security. (a) On the Closing Date, the Company shall (i) enter into the Pledge Agreement and comply with the terms and provisions thereof and (ii) purchase the Pledged Securities to be pledged to the Trustee for the benefit of the Holders in such amount as will be sufficient upon receipt of scheduled interest and/or principal payments of such Pledged Securities to provide for payment in full of the first four scheduled interest payments due on the Notes. The Pledged Securities shall be pledged by the Company to the Trustee for the benefit of the Holders and shall be held by the Trustee in the Pledge Account pending disposition pursuant to the Pledge Agreement. (b) Each Holder, by its acceptance of a Note, consents and agrees to the terms of the Pledge Agreement (including, without limitation, the provisions providing for foreclosure and release of the Pledged Securities) as the same may be in effect or may be amended from time to time in accordance with its terms, and authorizes and directs the Trustee to enter into the Pledge Agreement and to perform its respective obligations and exercise its respective rights thereunder in accordance therewith. The Company will do or cause to be done all such acts and things as may be necessary or reasonably requested by the Trustee, or as may be required by the provisions of the Pledge Agreement, to assure and confirm to the Trustee the security interest in 84 78 the Pledged Securities contemplated hereby, by the Pledge Agreement or any part thereof, as from time to time constituted, so as to render the same available for the security and benefit of this Indenture and of the Notes secured hereby, according to the intent and purposes herein and therein expressed. The Company shall take, or shall cause to be taken, upon request of the Trustee, any and all actions reasonably required to cause the Pledge Agreement to create and maintain, as security for the obligations of the Company under this Indenture and the Notes, valid and enforceable first priority liens in and on all the Pledged Securities, in favor of the Trustee, superior to and prior to the rights of third Persons and subject to no other Liens. (c) The release of any Pledged Securities pursuant to the Pledge Agreement will not be deemed to impair the security under this Indenture in contravention of the provisions hereof if and to the extent the Pledged Securities are released pursuant to this Indenture and the Pledge Agreement. To the extent applicable, the Company shall cause TIA Section 314(d) relating to the release of property or securities from the Lien and security interest of the Pledge Agreement and relating to the substitution therefor of any property or securities to be subjected to the Lien and security interest of the Pledge Agreement to be complied with. Any certificate or opinion required by TIA Section 314(d) may be made by an Officer of the Company, except in cases where TIA Section 314(d) requires that such certificate or opinion be made by an independent Person, which Person shall be an independent engineer, appraiser or other expert selected by the Company. (d) The Company shall cause TIA Section 314(b), relating to opinions of counsel regarding the Lien under the Pledge Agreement, to be complied with. The Trustee may accept, to the extent permitted by Sections 4.18 and 7.06 as conclusive evidence of compliance with the foregoing provisions, the appropriate statements contained in such instruments. (e) The Trustee may, in its sole discretion and without the consent of the Holders, on behalf of the Holders, take all reasonable actions in accordance with the Pledge Agreement necessary or appropriate in order to (i) enforce any of the terms of the Pledge Agreement and (ii) collect and receive any and all amounts payable in respect of the obligations of the Company thereunder. The Trustee shall have power to institute and to maintain such suits and proceedings as the Trustee may reasonably deem expedient to preserve or protect its interests and the interests of the Holders in the Pledged Securities (including power to institute and maintain suits or proceedings to restrain the enforcement of or compliance with any legislative or other governmental enactment, rule or order that may be unconstitutional or otherwise invalid if the enforcement of, or compliance with, such enactment, rule or order would impair the security interest hereunder or be prejudicial to the interests of the Holders or of the Trustee). ARTICLE ELEVEN MISCELLANEOUS 85 79 SECTION 11.01. Trust Indenture Act of 1939. Prior to the effectiveness of the Registration Statement, this Indenture shall incorporate and be governed by the provisions of the TIA that are required or deemed to be part of and to govern indentures qualified under the TIA. After the effectiveness of the Registration Statement, this Indenture shall be subject to the provisions of the TIA that are required or deemed to be a part of this Indenture and shall, to the extent applicable, be governed by such provisions. SECTION 11.02. Notices. (a) Any notice or communication shall be sufficiently given if in writing and delivered in person or mailed by first class mail, commercial courier service or telecopier communication, addressed as follows: if to the Company: COLO.COM 2000 Sierra Point Parkway Brisbane, California 94005 Telecopier Number: (650) 244-7727 Attention: David H. Stanley With, in the case of any notice given pursuant to Article Six, a copy to: Wilson Sonsini Goodrich & Rosati 650 Page Mill Road Palo Alto, California 94304-1050 Telecopier Number: (650) 493-6811 Attention: Michael Dorf if to the Trustee: State Street Bank and Trust Company of California, N.A. 633 West 5th Street, 12th Floor Los Angeles, CA 90071 Telecopier Number: (213) 362-7357 Attention: Corporate Trust Department, COLO.COM 137/8% Senior Notes due 2010 86 80 With a copy to: Robert M. Borden, Esq. Bingham Dana LLP One State Street Hartford, CT 06103 Telecopier Number: (860) 240-2800 The Company, the Trustee, or the Depository by notice to the others may designate additional or different addresses for subsequent notices or communications. All notices and communications (other than those sent to Holders) shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when receipt acknowledged, if telecopied; and the next Business Day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery. (b) Any notice or communication mailed to a Holder shall be mailed to him at his address as it appears on the Note Register by first class mail and shall be sufficiently given to him if so mailed within the time prescribed. Copies of any such communication or notice to a Holder shall also be mailed to the Trustee and each Agent at the same time. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. Except for a notice to the Trustee, which is deemed given only when received, and except as otherwise provided in this Indenture, if a notice or communication is mailed in the manner provided in this Section 11.02, it is duly given, whether or not the addressee receives it. (c) Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. In case by reason of the suspension of regular mail service or by reason of any other cause it shall be impracticable to give such notice by mail, then such notification as shall be made with the approval of the Trustee shall constitute a sufficient notification for every purpose hereunder. SECTION 11.03. Certificate and Opinion as to Conditions Precedent. Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee: 87 81 (a) an Officers' Certificate stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with; and (b) an Opinion of Counsel stating that, in the opinion of such Counsel, all such conditions precedent have been complied with. SECTION 11.04. Statements Required in Certificate or Opinion. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include: (a) a statement that each person signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statement or opinion contained in such certificate or opinion is based; (c) a statement that, in the opinion of each such person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether or not, in the opinion of each such person, such condition or covenant has been complied with; provided, however, that, with respect to matters of fact, an Opinion of Counsel may rely on an Officers' Certificate or certificates of public officials. SECTION 11.05. Rules by Trustee, Paying Agent or Registrar. The Trustee may make reasonable rules for action by or at a meeting of Holders. The Paying Agent or Registrar may make reasonable rules for its functions. SECTION 11.06. Payment Date Other Than a Business Day. If an Interest Payment Date, Redemption Date, Payment Date, Stated Maturity or date of maturity of any Note shall not be a Business Day, then payment of principal of, premium, if any, or interest on such Note, as the case may be, need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the Interest Payment Date, Payment Date, or Redemption Date, or at the Stated Maturity or date of maturity of such Note; provided that no interest shall accrue for the period from and after such Interest Payment Date, Payment Date, Redemption Date, Stated Maturity or date of maturity, as the case may be. 88 82 SECTION 11.07. Governing Law; Submission to Jurisdiction; Agent for Service. This Indenture and the Notes shall be governed by the laws of the State of New York. The Trustee, the Company and the Holders agree to submit to the jurisdiction of the courts of the State of New York in any action or proceeding arising out of or relating to this Indenture or the Notes. SECTION 11.08. No Adverse Interpretation of Other Agreements. This Indenture may not be used to interpret another indenture, loan or debt agreement of the Company or any Subsidiary of the Company. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. SECTION 11.09. No Recourse Against Others. No recourse for the payment of the principal of, premium, if any, or interest on any of the Notes, or for any claim based thereon or otherwise in respect thereof, and no recourse under or upon any obligation, covenant or agreement of the Company contained in this Indenture, or in any of the Notes, or because of the creation of any Indebtedness represented thereby, shall be had against any incorporator or against any past, present or future partner, stockholder, other equity holder, officer, director, employee or controlling person, as such, of the Company or of any successor Person, either directly or through the Company or any successor Person, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise; it being expressly understood that all such liability is hereby expressly waived and released as a condition of, and as a consideration for, the execution of this Indenture and the issue of the Notes. SECTION 11.10. Successors. All agreements of the Company in this Indenture and the Notes shall bind its successors. All agreements of the Trustee in this Indenture shall bind its successors. SECTION 11.11. Duplicate Originals. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. SECTION 11.12. Separability. In case any provision in this Indenture or in the Notes shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 11.13. Table of Contents, Headings, Etc. The Table of Contents, Cross-Reference Table and headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part hereof and shall in no way modify or restrict any of the terms and provisions hereof. 89 SIGNATURES IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, all as of the date first written above. COLO.COM By: /s/ Charles M. Skibo ------------------------------------ Name: Charles M. Skibo Title: President and Chief Executive Officer STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A. as Trustee By: /s/ Scott C. Emmons ------------------------------------ Name: Scott C. Emmons Title: Vice President 90 EXHIBIT A FORM OF GLOBAL NOTE FACE OF NOTE THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (1) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (2) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), (3) TO AN INSTITUTIONAL ACCREDITED INVESTOR IN A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS UNDER REGULATION D UNDER THE SECURITIES ACT OR (4) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH CASE, IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES. UNLESS THIS GLOBAL NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY TO COLO.COM OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY NOTE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY OR SUCH OTHER REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTION 2.08 OF THE INDENTURE. THIS NOTE IS INITIALLY ISSUED AS PART OF AN ISSUANCE OF UNITS, EACH OF WHICH CONSISTS OF ONE NOTE AND ONE WARRANT INITIALLY ENTITLING THE 91 A-2 HOLDER THEREOF TO PURCHASE 19.9718 SHARES OF COMMON STOCK, PAR VALUE $0.01 PER SHARE, OF COLO.COM (A "WARRANT"). PRIOR TO THE CLOSE OF BUSINESS UPON THE EARLIEST TO OCCUR OF (i) MARCH 10, 2001, (ii) 180 DAYS AFTER THE CLOSING DATE OF THE COMPANY'S INITIAL PUBLIC OFFERING, (iii) THE COMMENCEMENT OF AN EXCHANGE OFFER WITH RESPECT TO THE NOTES, (iv) THE EFFECTIVENESS OF A SHELF REGISTRATION STATEMENT WITH RESPECT TO THE NOTES, (v) THE COMMENCEMENT OF AN OFFER TO PURCHASE THE NOTES UPON A CHANGE OF CONTROL OR (vi) SUCH DATE AS DETERMINED BY GOLDMAN, SACHS & CO. IN ITS SOLE DISCRETION, THE NOTES EVIDENCED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED OR EXCHANGED SEPARATELY FROM, BUT MAY BE TRANSFERRED OR EXCHANGED ONLY TOGETHER WITH, THE WARRANTS. 92 A-3 COLO.COM 13 7/8% Senior Note Due 2010 [CUSIP][CINS][ISIN][___] No. __________ $[_______] Issue date: _______, ____ COLO.COM, a California corporation (the "Company", which term includes any successor under the Indenture hereinafter referred to), for value received, promises to pay to ________________, or its registered assigns, upon surrender hereof the principal sum of $___________ on March 15, 2010. Interest Payment Dates: March 15 and September 15, commencing September 15, 2000. Record Dates: March 1 and September 1. Reference is hereby made to the further provisions of this Note set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. 93 IN WITNESS WHEREOF, the Company has caused this Note to be signed manually or by facsimile by its duly authorized officers. Date: __________ COLO.COM By: ------------------------------------ Name: Title: (Trustee's Certificate of Authentication) This is one of the 13 7/8% Senior Notes due 2010 described in the within-mentioned Indenture. Date: ___________ STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A., as Trustee By: ------------------------------------ Authorized Signatory 94 A-5 [REVERSE SIDE OF NOTE] COLO.COM 13 7/8% Senior Note due 2010 1. Principal and Interest. The Company will pay the principal of this Note on March 15, 2010. The Company promises to pay interest on the principal amount of this Note on each Interest Payment Date, as set forth below, at the rate per annum shown above. Interest will be payable semiannually in cash (to the holders of record of the Notes at the close of business on the March 15 or September 15 immediately preceding the Interest Payment Date) on each Interest Payment Date, commencing September 15, 2000. Interest will be computed on the basis of a 360-day year of twelve 30-day months. If an exchange offer registered under the Securities Act is not consummated, and a shelf registration statement under the Securities Act with respect to resales of the Notes is not declared effective by the Commission, on or before the date that is six months after the Closing Date in accordance with the terms of the Registration Rights Agreement, dated March 10, 2000, between the Company and Goldman, Sachs & Co., as the manager for itself and the several initial purchasers named on Schedule I to the Purchase Agreement, dated March 3, 2000, annual interest (in addition to interest otherwise due on the Notes) will accrue, at an annual rate equal to 0.25% for the first 90 days thereafter, 0.50% for the second 90 days thereafter, 0.75% for the third 90 days thereafter and 1.00% thereafter until the consummation of a registered exchange offer or the effectiveness of a shelf-registration statement with respect to resale of this Note. The Holder of this Note is entitled to the benefits of such Registration Rights Agreement. The Holder of this Note is entitled to the benefits of a Pledge Agreement, dated March 10, 2000, between the Company and State Street Bank and Trust Company of California, N.A., as trustee (the "Trustee"), pursuant to which the Company has placed in the Pledge Account cash or Government Securities sufficient to provide for the payment of the first four interest payments on this Note. The Company shall pay interest on overdue principal and premium, if any, and interest on overdue installments of interest, to the extent lawful, at a rate per annum that is 13 7/8% per annum. 95 A-6 2. Method of Payment. The Company will pay principal as provided above and interest (except defaulted interest) on the principal amount of the Notes as provided above on each March 15 and September 15 to the Persons who are Holders (as reflected in the Note Register at the close of business on such March 1 and September 1, immediately preceding the Interest Payment Date), in each case, even if the Note is cancelled on registration of transfer or registration of exchange after such record date; provided that, with respect to the payment of principal, the Company will not make payment to the Holder unless this Note is surrendered to a Paying Agent. The Company will pay principal, premium, if any, and as provided above, interest in the currency of the United States that at the time of payment is legal tender for the payment of public and private debts. However, the Company may pay principal, premium, if any, and interest by its check payable in such currency. It may mail an interest check to a Holder's registered address (as reflected in the Note Register). If a payment date is a date other than a Business Day at a place of payment, payment may be made at that place on the next succeeding day that is a Business Day and no interest shall accrue for the intervening period. 3. Paying Agent and Registrar. Initially, the Trustee will act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar without notice. The Company, any Subsidiary or any Affiliate of any of them may act as Paying Agent, Registrar or co-Registrar. 4. Indenture; Issuance of Additional Notes. This Note is one of a duly authorized issue of Notes of the Company designated its 13 7/8% Senior Notes due 2010, issued and to be issued under an Indenture, dated as of March 10, 2000 (the "Indenture"), between the Company and the Trustee. Capitalized terms used herein are used as defined in the Indenture unless otherwise indicated. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act. The Notes are subject to all such terms, and Holders are referred to the Indenture and the Trust Indenture Act for a statement of all such terms. To the extent permitted by applicable law, in the event of any inconsistency between the terms of this Note and the terms of the Indenture, the terms of the Indenture shall control. 5. Redemption. The Notes will be redeemable, at the Company's option, in whole or in part, at any time and from time to time on or after March 15, 2005 and prior to maturity, upon not less than 30 nor more than 60 days' prior notice mailed by first-class mail to each Holders' last address as it appears in the Note Register, at the following Redemption Prices (expressed in percentages of their 96 A-7 principal amount), plus accrued and unpaid interest, if any, to the Redemption Date (subject to the right of Holders of record on the relevant Regular Record Date that is on or prior to the Redemption Date to receive interest due on an Interest Payment Date), if redeemed during the 12-month period commencing on March 15 of the years set forth below:
Redemption Year Price ---- ---------- 2005 106.938% 2006 104.625% 2007 102.313% 2008 and thereafter 100.000%
In addition, at any time or from time to time on or prior to March 15, 2003, the Company may, at its option, redeem up to 35% of the aggregate principal amount of the Notes with the net proceeds of one or more sales of Capital Stock, at a Redemption Price (expressed as a percentage of principal amount) of 113.875% plus accrued interest to the Redemption Date, provided, (i) that Notes representing at least 65% of the aggregate principal amount of the Notes originally issued remain outstanding after each such redemption and (ii) that notice of each such redemption is mailed within 60 days of each such sale of Capital Stock. 6. Notice of Redemption. Notice of any optional redemption will be mailed at least 30 days but not more than 60 days before the Redemption Date to each Holder of Notes to be redeemed at such Holder's last address as it appears in the Note Register. Notes in original denominations larger than $1,000 of principal amount may be redeemed in part. On and after the Redemption Date, interest ceases to accrue on Notes or portions of Notes called for redemption, unless the Company defaults in the payment of the Redemption Price. 7. Repurchase upon Change in Control. Upon the occurrence of any Change of Control, each Holder shall have the right to require the repurchase of its Notes by the Company in cash pursuant to the offer described in the Indenture at a purchase price equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase (the "Change of Control Payment"). A notice of such Change of Control will be mailed within 30 days after any Change of Control occurs to each Holder at his last address as it appears in the Note Register. Notes in original denominations larger than $1,000 of principal amount may be sold to the Company in part. On and after the date of the Change of Control Payment, interest ceases to accrue on Notes or portions of Notes surrendered for purchase by the Company, unless the Company defaults in the payment of the Change of Control Payment. 97 A-8 8. Registration Rights Pursuant to the Registration Rights Agreement, the Company will be obligated, within 180 days after the issue date of this Note, to consummate an exchange offer pursuant to which the Holder of this Note shall have the right to exchange this Note for the Company's Exchange Notes (as defined in the Registration Rights Agreement) which have been registered under the Securities Act, in like principal amount and having terms identical in all material respects as the initial Notes. The Holders of the initial Notes shall be entitled to receive certain additional interest payments in the event such exchange offer is not consummated and upon certain other conditions, all pursuant and in accordance with the terms of the Registration Rights Agreement. 9. Denominations; Transfer; Exchange. The Notes are in registered form without coupons in denominations of $1,000 of principal amount and any integral multiples of $1,000 in excess thereof. A Holder may register the transfer or exchange of Notes in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not register the transfer or exchange of any Notes selected for redemption. Also, it need not register the transfer or exchange of any Notes for a period of 15 days before a selection of Notes to be redeemed is made. 10. Persons Deemed Owners. A Holder shall be treated as the owner of a Note for all purposes. 11. Unclaimed Money. If money for the payment of principal, premium, if any, or interest remains unclaimed for two years, subject to applicable state escheatment laws, the Trustee and the Paying Agent will pay the money back to the Company at its request. After that, Holders entitled to the money must look to the Company for payment, unless an abandoned property law designates another Person, and all liability of the Trustee and such Paying Agent with respect to such money shall cease. 12. Discharge Prior to Redemption or Maturity. If the Company deposits with the Trustee money and/or U.S. Government Obligations sufficient, in the opinion of a nationally recognized independent public accounting firm, to pay the then outstanding principal of, premium, if any, and accrued interest on the Notes (a) to redemption or maturity, the Company will be discharged from the Indenture and the Notes, except in certain circumstances for certain sections thereof, and (b) to Stated Maturity, the Company will be discharged from certain covenants set forth in the Indenture. 98 A-9 13. Amendment; Supplement; Waiver. Subject to certain exceptions, the Indenture or the Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the Notes then outstanding, and any existing default or compliance with any provision may be waived with the consent of the Holders of at least a majority in principal amount of the Notes then outstanding. Without notice to or the consent of any Holder, the parties thereto may amend or supplement the Indenture or the Notes to, among other things, cure any ambiguity, defect or inconsistency and make any change that does not materially and adversely affect the rights of any Holder. 14. Restrictive Covenants. The Indenture imposes certain limitations on the ability of the Company and its Restricted Subsidiaries, among other things, to Incur Indebtedness, make Restricted Payments, use the proceeds from Asset Sales, engage in transactions with Affiliates or, with respect to the Company, merge, consolidate or transfer substantially all of its assets. Within 90 days after the end of the last fiscal quarter of each year, the Company must report to the Trustee on compliance with the terms of the Indenture. 15. Successor Persons. When a successor Person or other entity assumes all the obligations of its predecessor under the Notes and the Indenture, the predecessor Person will be released from those obligations. 16. Defaults and Remedies. The following events constitute "Events of Default" under the Indenture: (a) default in the payment of principal of (or premium, if any, on) any Note when the same becomes due and payable at maturity, upon acceleration, redemption or otherwise; (b) default in the payment of interest on any Note when the same becomes due and payable, and such default continues for a period of 30 days; provided that a failure to make any of the first four scheduled interest payments on the Notes within three business days after an interest payment date will constitute an Event of Default with no grace or cure period; (c) default in the performance or breach of the provisions of the Indenture applicable to mergers, consolidations and transfers of all or substantially all of the assets of the Company or the failure by the Company to make or consummate an Offer to Purchase in accordance with Section 4.11 or Section 4.12; (d) the Company or any Restricted Subsidiary defaults in the performance of or breaches any other covenant or agreement in the Indenture or under the Notes (other than a default specified in clause (a), (b) or (c) above) and such default or breach continues for a period of 45 consecutive days after written notice by the Trustee or the Holders of 25% or more in aggregate principal amount of the Notes; (e) the default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness of the Company or any of its Significant Subsidiaries (or the payment 99 A-10 of which is Guaranteed by the Company or any of its Significant Subsidiaries) whether such Indebtedness or Guarantee now exists or is created after the Closing Date, and either such Indebtedness is already due and payable or such default results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the amount of any such Indebtedness, together with the amount of any other such Indebtedness the maturity of which has been so accelerated or which is already due and payable, aggregates $10 million or more; (f) one or more judgments, orders or decrees for the payment of money in excess of $10 million, individually or in the aggregate (net of applicable insurance coverage which is acknowledged in writing by the insurer), shall be entered against the Company or any of its Significant Subsidiaries or any of their respective properties and shall not be discharged and there shall have been a period of 60 days or more during which a stay of enforcement of such judgment or order, by reason of pending appeal or otherwise, shall not be in effect; (g) a court having jurisdiction in the premises enters a decree or order for: (i) relief in respect of the Company or any Significant Subsidiary in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, (ii) appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of the Company or any Significant Subsidiary or for all or substantially all of the property and assets of the Company or any Significant Subsidiary, or (iii) the winding up or liquidation of the affairs of the Company or any Significant Subsidiary and, in each case, such decree or order shall remain unstayed and in effect for a period of 45 consecutive days; (h) the Company or any Significant Subsidiary (A) commences a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or consents to the entry of an order for relief in an involuntary case under any such law, (B) consents to the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of the Company or any Significant Subsidiary or for all or substantially all of the property and assets of the Company or any Significant Subsidiary or (C) effects any general assignment for the benefit of creditors; or (i) the Pledge Agreement shall cease to be in full force and effect or enforceable in accordance with its terms, other than in accordance with its terms. If an Event of Default (other than an Event of Default specified in clause (g) or (h) above that occurs with respect to the Company or a Significant Subsidiary) occurs and is continuing under the Indenture, the Trustee or the Holders of at least 25% in aggregate principal amount of the Notes, then outstanding, by written notice to the Company (and to the Trustee if such notice is given by the Holders), may, and the Trustee at the request of such Holders shall, declare the principal amount of, premium, if any, and accrued interest on the Notes to be immediately due and payable. If an Event of Default, as defined in the Indenture, occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of the Notes then outstanding may declare all the Notes to be due and payable. If a bankruptcy or insolvency default with respect to the Company or any Restricted Subsidiary occurs and is continuing, the Notes automatically become due and payable. Holders may not enforce the Indenture or the Notes except as provided in the Indenture. The Trustee may require indemnity satisfactory to it before it enforces the 100 A-11 Indenture or the Notes. Subject to certain limitations, Holders of at least a majority in principal amount of the Notes then outstanding may direct the Trustee in its exercise of any trust or power. 17. Trustee Dealings with Company. The Trustee under the Indenture, in its individual or any other capacity, may make loans to, accept deposits from and perform services for the Company or its Affiliates and may otherwise deal with the Company or its Affiliates as if it were not the Trustee. 18. No Recourse Against Others. No incorporator or any past, present or future partner, stockholder, other equity holder, officer, director, employee or controlling person as such, of the Company or of any successor Person shall have any liability for any obligations of the Company under the Notes or the Indenture or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. 19. Authentication. This Note shall not be valid until the Trustee or authenticating agent signs the certificate of authentication on the other side of this Note. 20. Abbreviations. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors Act). THIS NOTE SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. The Company will furnish to any Holder upon written request and without charge a copy of the Indenture. Requests may be made to COLO.COM, 2000 Sierra Point Parkway, Suite 601, Brisbane, CA 94005-1819, Attention: David H. Stanley. 101 A-12 SCHEDULE OF PRINCIPAL AMOUNT OF INDEBTEDNESS EVIDENCED BY THIS NOTE The initial principal amount of indebtedness evidenced by this Note shall be $ [_______]. The following decreases/increases in the principal amount evidenced by this Note have been made:
Decrease in Increase in Total Principal Principal Principal Amount of this Global Notation Made Date of Amount of Amount of Note Following such by or on Decrease/ this Global this Global Decrease/Increase Behalf of Increase Note Note Trustee - ---------------- ------------- -------------- ----------------------- ---------------------- - ---------------- ------------- -------------- ----------------------- ---------------------- - ---------------- ------------- -------------- ----------------------- ---------------------- - ---------------- ------------- -------------- ----------------------- ---------------------- - ---------------- ------------- -------------- ----------------------- ---------------------- - ---------------- ------------- -------------- ----------------------- ---------------------- - ---------------- ------------- -------------- ----------------------- ---------------------- - ---------------- ------------- -------------- ----------------------- ---------------------- - ---------------- ------------- -------------- ----------------------- ---------------------- - ---------------- ------------- -------------- ----------------------- ---------------------- - ---------------- ------------- -------------- ----------------------- ---------------------- - ---------------- ------------- -------------- ----------------------- ---------------------- - ---------------- ------------- -------------- ----------------------- ---------------------- - ---------------- ------------- -------------- ----------------------- ---------------------- - ---------------- ------------- -------------- ----------------------- ---------------------- - ---------------- ------------- -------------- ----------------------- ---------------------- - ---------------- ------------- -------------- ----------------------- ---------------------- - ---------------- ------------- -------------- ----------------------- ----------------------
102 A-13 [FORM OF TRANSFER NOTICE] FOR VALUE RECEIVED the undersigned registered holder hereby sell(s), assign(s) and transfer(s) unto Insert Taxpayer Identification No. - ------------------------------------------------------------------------- Please print or typewrite name and address including zip code of assignee - ------------------------------------------------------------------------- the within Note and all rights thereunder, hereby irrevocably constituting and appointing attorney to transfer said Note on the ------------------------ books of the Company with full power of substitution in the premises. [THE FOLLOWING PROVISION TO BE INCLUDED ON ALL NOTES OTHER THAN EXCHANGE NOTES] In connection with any transfer of this Note occurring prior to the date which is the earlier of (i) the date of an effective Registration or (ii) the end of the period referred to in Rule 144(k) under the Securities Act, the undersigned confirms that without utilizing any general solicitation or general advertising that: [Check One] [ ] (a) this Note is being transferred in compliance with the exemption from registration under the Securities Act of 1933, as amended, provided by Rule 144A thereunder. or [ ] (b) this Note is being transferred other than in accordance with (a) above and documents are being furnished which comply with the conditions of transfer set forth in this Note and the Indenture. If none of the foregoing boxes is checked, the Trustee or other Registrar shall not be obligated to register this Note in the name of any Person other than the Holder hereof unless and until the conditions to any such transfer of registration set forth herein and in Section 2.08 of the Indenture shall have been satisfied. Date: --------- -------------------------------------------- 103 A-14 NOTICE: The signature to this assignment must correspond with the name as written upon the face of the within-mentioned instrument in every particular, without alteration or any change whatsoever. TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED. The undersigned represents and warrants that it is purchasing this Note for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act of 1933, as amended, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Dated: ------------------ ----------------------------------------------- NOTICE: To be executed by an executive officer 104 A-15 OPTION OF HOLDER TO ELECT PURCHASE If you wish to have this Note purchased by the Company pursuant to Section 4.11 or Section 4.12 of the Indenture, check the Box: [ ] If you wish to have a portion of this Note purchased by the Company pursuant to Section 4.11 or Section 4.12 of the Indenture, state the amount (in principal amount): $_____________. Date:___________ Your Signature:_________________________________________________________________ (Sign exactly as your name appears on the other side of this Note) Signature Guarantee (by an institution that is a member of the Signature Guarantee Medallion Program): ______________________________ 105 EXHIBIT B FORM OF CERTIFICATED NOTE [FACE OF NOTE] THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (1) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (2) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), (3) TO AN INSTITUTIONAL ACCREDITED INVESTOR IN A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS UNDER REGULATION D UNDER THE SECURITIES ACT OR (4) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH CASE, IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES. THIS NOTE IS INITIALLY ISSUED AS PART OF AN ISSUANCE OF UNITS, EACH OF WHICH CONSISTS OF ONE NOTE AND ONE WARRANT INITIALLY ENTITLING THE HOLDER THEREOF TO PURCHASE 19.9718 SHARES OF COMMON STOCK, PAR VALUE $0.01 PER SHARE, OF COLO.COM (A "WARRANT"). PRIOR TO THE CLOSE OF BUSINESS UPON THE EARLIEST TO OCCUR OF (i) MARCH 10, 2001, (ii) 180 DAYS AFTER THE CLOSING DATE OF THE COMPANY'S INITIAL PUBLIC OFFERING, (iii) THE COMMENCEMENT OF AN EXCHANGE OFFER WITH RESPECT TO THE NOTES, (iv) THE EFFECTIVENESS OF A SHELF REGISTRATION STATEMENT WITH RESPECT TO THE NOTES, (v) THE COMMENCEMENT OF AN OFFER TO PURCHASE THE NOTES UPON A CHANGE OF CONTROL OR (vi) SUCH DATE AS DETERMINED BY GOLDMAN, SACHS & CO. IN ITS SOLE DISCRETION, THE NOTES EVIDENCED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED OR EXCHANGED SEPARATELY FROM, BUT MAY BE TRANSFERRED OR EXCHANGED ONLY TOGETHER WITH, THE WARRANTS. 106 B-2 COLO.COM 13 7/8% Senior Note Due 2010 [CUSIP][CINS][ISIN][___] No. __________ $[_______] Issue date: _______, ____ COLO.COM, a California corporation (the "Company", which term includes any successor under the Indenture hereinafter referred to), for value received, promises to pay to ________________, or its registered assigns, upon surrender hereof the principal sum of $___________ on March 15, 2010. Interest Payment Dates: March 15 and September 15, commencing September 15, 2000. Record Dates: March 1 and September 1. Reference is hereby made to the further provisions of this Note set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. 107 IN WITNESS WHEREOF, the Company has caused this Note to be signed manually or by facsimile by its duly authorized officers. Date: __________ COLO.COM By ------------------------------------ Name: Title: (Trustee's Certificate of Authentication) This is one of the 13 7/8% Senior Notes due 2010 described in the within-mentioned Indenture. Date: _________ STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A., as Trustee By ------------------------------------ Authorized Signatory 108 B-4 [REVERSE SIDE OF NOTE] COLO.COM 13 7/8% Senior Note due 2010 1. Principal and Interest. The Company will pay the principal of this Note on March 15, 2010. The Company promises to pay interest on the principal amount of this Note on each Interest Payment Date, as set forth below, at the rate per annum shown above. Interest will be payable semiannually in cash (to the holders of record of the Notes at the close of business on the March 15 or September 15 immediately preceding the Interest Payment Date) on each Interest Payment Date, commencing September 15, 2000. Interest will be computed on the basis of a 360-day year of twelve 30-day months. If an exchange offer registered under the Securities Act is not consummated, and a shelf registration statement under the Securities Act with respect to resales of the Notes is not declared effective by the Commission, on or before the date that is six months after the Closing Date in accordance with the terms of the Registration Rights Agreement, dated March 10, 2000, between the Company and Goldman, Sachs & Co., as the manager for itself and the several initial purchasers named on Schedule I to the Purchase Agreement, dated March 3, 2000, annual interest (in addition to interest otherwise due on the Notes) will accrue, at an annual rate equal to 0.25% for the first 90 days thereafter, 0.50% for the second 90 days thereafter, 0.75% for the third 90 days thereafter and 1.00% thereafter until the consummation of a registered exchange offer or the effectiveness of a shelf-registration statement with respect to resale of this Note. The Holder of this Note is entitled to the benefits of such Registration Rights Agreement. The Holder of this Note is entitled to the benefits of a Pledge Agreement, dated March 10, 2000, between the Company and State Street Bank and Trust Company of California, N.A., as trustee (the "Trustee"), pursuant to which the Company has placed in the Pledge Account cash or Government Securities sufficient to provide for the payment of the first four interest payments on this Note. The Company shall pay interest on overdue principal and premium, if any, and interest on overdue installments of interest, to the extent lawful, at a rate per annum that is 13 7/8% per annum. 109 B-5 2. Method of Payment. The Company will pay principal as provided above and interest (except defaulted interest) on the principal amount of the Notes as provided above on each March 15 and September 15 to the Persons who are Holders (as reflected in the Note Register at the close of business on such March 1 and September 1, immediately preceding the Interest Payment Date), in each case, even if the Note is cancelled on registration of transfer or registration of exchange after such record date; provided that, with respect to the payment of principal, the Company will not make payment to the Holder unless this Note is surrendered to a Paying Agent. The Company will pay principal, premium, if any, and as provided above, interest in the currency of the United States that at the time of payment is legal tender for the payment of public and private debts. However, the Company may pay principal, premium, if any, and interest by its check payable in such currency. It may mail an interest check to a Holder's registered address (as reflected in the Note Register). If a payment date is a date other than a Business Day at a place of payment, payment may be made at that place on the next succeeding day that is a Business Day and no interest shall accrue for the intervening period. 3. Paying Agent and Registrar. Initially, the Trustee will act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar without notice. The Company, any Subsidiary or any Affiliate of any of them may act as Paying Agent, Registrar or co-Registrar. 4. Indenture; Issuance of Additional Notes. This Note is one of a duly authorized issue of Notes of the Company designated its 13 7/8% Senior Notes due 2010, issued and to be issued under an Indenture, dated as of March 10, 2000 (the "Indenture"), between the Company and the Trustee. Capitalized terms used herein are used as defined in the Indenture unless otherwise indicated. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act. The Notes are subject to all such terms, and Holders are referred to the Indenture and the Trust Indenture Act for a statement of all such terms. To the extent permitted by applicable law, in the event of any inconsistency between the terms of this Note and the terms of the Indenture, the terms of the Indenture shall control. 5. Redemption. The Notes will be redeemable, at the Company's option, in whole or in part, at any time and from time to time on or after March 15, 2005 and prior to maturity, upon not less than 30 nor more than 60 days' prior notice mailed by first-class mail to each Holders' last address as it appears in the Note Register, at the following Redemption Prices (expressed in percentages of their 110 B-6 principal amount), plus accrued and unpaid interest, if any, to the Redemption Date (subject to the right of Holders of record on the relevant Regular Record Date that is on or prior to the Redemption Date to receive interest due on an Interest Payment Date), if redeemed during the 12-month period commencing on March 15 of the years set forth below:
Redemption Year Price ---- ---------- 2005 106.938% 2006 104.625% 2007 102.313% 2008 and thereafter 100.000%
In addition, at any time or from time to time on or prior to March 15, 2003, the Company may, at its option, redeem up to 35% of the aggregate principal amount of the Notes with the net proceeds of one or more sales of Capital Stock, at a Redemption Price (expressed as a percentage of principal amount) of 113.875% plus accrued interest to the Redemption Date, provided, (i) that Notes representing at least 65% of the aggregate principal amount of the Notes originally issued remain outstanding after each such redemption and (ii) that notice of each such redemption is mailed within 60 days of each such sale of Capital Stock. 6. Notice of Redemption. Notice of any optional redemption will be mailed at least 30 days but not more than 60 days before the Redemption Date to each Holder of Notes to be redeemed at such Holder's last address as it appears in the Note Register. Notes in original denominations larger than $1,000 of principal amount may be redeemed in part. On and after the Redemption Date, interest ceases to accrue on Notes or portions of Notes called for redemption, unless the Company defaults in the payment of the Redemption Price. 7. Repurchase upon Change in Control. Upon the occurrence of any Change of Control, each Holder shall have the right to require the repurchase of its Notes by the Company in cash pursuant to the offer described in the Indenture at a purchase price equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase (the "Change of Control Payment"). A notice of such Change of Control will be mailed within 30 days after any Change of Control occurs to each Holder at his last address as it appears in the Note Register. Notes in original denominations larger than $1,000 of principal amount may be sold to the Company in part. On and after the date of the Change of Control Payment, interest ceases to accrue on Notes or portions of Notes surrendered for purchase by the Company, unless the Company defaults in the payment of the Change of Control Payment. 111 B-7 8. Registration Rights Pursuant to the Registration Rights Agreement, the Company will be obligated, within 180 days after the issue date of this Note, to consummate an exchange offer pursuant to which the Holder of this Note shall have the right to exchange this Note for the Company's Exchange Notes (as defined in the Registration Rights Agreement) which have been registered under the Securities Act, in like principal amount and having terms identical in all material respects as the initial Notes. The Holders of the initial Notes shall be entitled to receive certain additional interest payments in the event such exchange offer is not consummated and upon certain other conditions, all pursuant and in accordance with the terms of the Registration Rights Agreement. 9. Denominations; Transfer; Exchange. The Notes are in registered form without coupons in denominations of $1,000 of principal amount and any integral multiples of $1,000 in excess thereof. A Holder may register the transfer or exchange of Notes in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not register the transfer or exchange of any Notes selected for redemption. Also, it need not register the transfer or exchange of any Notes for a period of 15 days before a selection of Notes to be redeemed is made. 10. Persons Deemed Owners. A Holder shall be treated as the owner of a Note for all purposes. 11. Unclaimed Money. If money for the payment of principal, premium, if any, or interest remains unclaimed for two years, subject to applicable state escheatment laws, the Trustee and the Paying Agent will pay the money back to the Company at its request. After that, Holders entitled to the money must look to the Company for payment, unless an abandoned property law designates another Person, and all liability of the Trustee and such Paying Agent with respect to such money shall cease. 12. Discharge Prior to Redemption or Maturity. If the Company deposits with the Trustee money and/or U.S. Government Obligations sufficient, in the opinion of a nationally recognized independent public accounting firm, to pay the then outstanding principal of, premium, if any, and accrued interest on the Notes (a) to redemption or maturity, the Company will be discharged from the Indenture and the Notes, except in certain circumstances for certain sections thereof, and (b) to Stated Maturity, the Company will be discharged from certain covenants set forth in the Indenture. 112 B-8 13. Amendment; Supplement; Waiver. Subject to certain exceptions, the Indenture or the Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the Notes then outstanding, and any existing default or compliance with any provision may be waived with the consent of the Holders of at least a majority in principal amount of the Notes then outstanding. Without notice to or the consent of any Holder, the parties thereto may amend or supplement the Indenture or the Notes to, among other things, cure any ambiguity, defect or inconsistency and make any change that does not materially and adversely affect the rights of any Holder. 14. Restrictive Covenants. The Indenture imposes certain limitations on the ability of the Company and its Restricted Subsidiaries, among other things, to Incur Indebtedness, make Restricted Payments, use the proceeds from Asset Sales, engage in transactions with Affiliates or, with respect to the Company, merge, consolidate or transfer substantially all of its assets. Within 90 days after the end of the last fiscal quarter of each year, the Company must report to the Trustee on compliance with the terms of the Indenture. 15. Successor Persons. When a successor Person or other entity assumes all the obligations of its predecessor under the Notes and the Indenture, the predecessor Person will be released from those obligations. 16. Defaults and Remedies. The following events constitute "Events of Default" under the Indenture: (a) default in the payment of principal of (or premium, if any, on) any Note when the same becomes due and payable at maturity, upon acceleration, redemption or otherwise; (b) default in the payment of interest on any Note when the same becomes due and payable, and such default continues for a period of 30 days; provided that a failure to make any of the first four scheduled interest payments on the Notes within three business days after an interest payment date will constitute an Event of Default with no grace or cure period; (c) default in the performance or breach of the provisions of the Indenture applicable to mergers, consolidations and transfers of all or substantially all of the assets of the Company or the failure by the Company to make or consummate an Offer to Purchase in accordance with Section 4.11 or Section 4.12; (d) the Company or any Restricted Subsidiary defaults in the performance of or breaches any other covenant or agreement in the Indenture or under the Notes (other than a default specified in clause (a), (b) or (c) above) and such default or breach continues for a period of 45 consecutive days after written notice by the Trustee or the Holders of 25% or more in aggregate principal amount of the Notes; (e) the default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness of the Company or any of its Significant Subsidiaries (or the payment 113 B-9 of which is Guaranteed by the Company or any of its Significant Subsidiaries) whether such Indebtedness or Guarantee now exists or is created after the Closing Date, and either such Indebtedness is already due and payable or such default results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the amount of any such Indebtedness, together with the amount of any other such Indebtedness the maturity of which has been so accelerated or which is already due and payable, aggregates $10 million or more; (f) one or more judgments, orders or decrees for the payment of money in excess of $10 million, individually or in the aggregate (net of applicable insurance coverage which is acknowledged in writing by the insurer), shall be entered against the Company or any of its Significant Subsidiaries or any of their respective properties and shall not be discharged and there shall have been a period of 60 days or more during which a stay of enforcement of such judgment or order, by reason of pending appeal or otherwise, shall not be in effect; (g) a court having jurisdiction in the premises enters a decree or order for: (i) relief in respect of the Company or any Significant Subsidiary in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, (ii) appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of the Company or any Significant Subsidiary or for all or substantially all of the property and assets of the Company or any Significant Subsidiary, or (iii) the winding up or liquidation of the affairs of the Company or any Significant Subsidiary and, in each case, such decree or order shall remain unstayed and in effect for a period of 45 consecutive days; (h) the Company or any Significant Subsidiary (A) commences a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or consents to the entry of an order for relief in an involuntary case under any such law, (B) consents to the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of the Company or any Significant Subsidiary or for all or substantially all of the property and assets of the Company or any Significant Subsidiary or (C) effects any general assignment for the benefit of creditors; or (i) the Pledge Agreement shall cease to be in full force and effect or enforceable in accordance with its terms, other than in accordance with its terms. If an Event of Default (other than an Event of Default specified in clause (g) or (h) above that occurs with respect to the Company or a Significant Subsidiary) occurs and is continuing under the Indenture, the Trustee or the Holders of at least 25% in aggregate principal amount of the Notes, then outstanding, by written notice to the Company (and to the Trustee if such notice is given by the Holders) , may, and the Trustee at the request of such Holders shall, declare the principal amount of, premium, if any, and accrued interest on the Notes to be immediately due and payable. If an Event of Default, as defined in the Indenture, occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of the Notes then outstanding may declare all the Notes to be due and payable. If a bankruptcy or insolvency default with respect to the Company or any Restricted Subsidiary occurs and is continuing, the Notes automatically become due and payable. Holders may not enforce the Indenture or the Notes except as provided in the Indenture. The Trustee may require indemnity satisfactory to it before it enforces the 114 B-10 Indenture or the Notes. Subject to certain limitations, Holders of at least a majority in principal amount of the Notes then outstanding may direct the Trustee in its exercise of any trust or power. 17. Trustee Dealings with Company. The Trustee under the Indenture, in its individual or any other capacity, may make loans to, accept deposits from and perform services for the Company or its Affiliates and may otherwise deal with the Company or its Affiliates as if it were not the Trustee. 18. No Recourse Against Others. No incorporator or any past, present or future partner, stockholder, other equity holder, officer, director, employee or controlling person as such, of the Company or of any successor Person shall have any liability for any obligations of the Company under the Notes or the Indenture or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. 19. Authentication. This Note shall not be valid until the Trustee or authenticating agent signs the certificate of authentication on the other side of this Note. 20. Abbreviations. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors Act). THIS NOTE SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. The Company will furnish to any Holder upon written request and without charge a copy of the Indenture. Requests may be made to COLO.COM, 2000 Sierra Point Parkway, Suite 601, Brisbane, CA 94005-1819, Attention: David H. Stanley. 115 B-11 [FORM OF TRANSFER NOTICE] FOR VALUE RECEIVED the undersigned registered holder hereby sell(s), assign(s) and transfer(s) unto Insert Taxpayer Identification No. - ------------------------------------------------------------------------- Please print or typewrite name and address including zip code of assignee - ------------------------------------------------------------------------- the within Note and all rights thereunder, hereby irrevocably constituting and appointing attorney to transfer said Note on the ------------------------ books of the Company with full power of substitution in the premises. [THE FOLLOWING PROVISION TO BE INCLUDED ON ALL NOTES OTHER THAN EXCHANGE NOTES] In connection with any transfer of this Note occurring prior to the date which is the earlier of (i) the date of an effective Registration or (ii) the end of the period referred to in Rule 144(k) under the Securities Act, the undersigned confirms that without utilizing any general solicitation or general advertising that: [Check One] [ ] (a) this Note is being transferred in compliance with the exemption from registration under the Securities Act of 1933, as amended, provided by Rule 144A thereunder. or [ ] (b) this Note is being transferred other than in accordance with (a) above and documents are being furnished which comply with the conditions of transfer set forth in this Note and the Indenture. If none of the foregoing boxes is checked, the Trustee or other Registrar shall not be obligated to register this Note in the name of any Person other than the Holder hereof unless and until the conditions to any such transfer of registration set forth herein and in Section 2.08 of the Indenture shall have been satisfied. Date: --------- -------------------------------------------- 116 \ B-12 NOTICE: The signature to this assignment must correspond with the name as written upon the face of the within-mentioned instrument in every particular, without alteration or any change whatsoever. TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED. The undersigned represents and warrants that it is purchasing this Note for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act of 1933, as amended, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Dated: --------------------- ----------------------------------------------- NOTICE: To be executed by an executive officer 117 B-13 OPTION OF HOLDER TO ELECT PURCHASE If you wish to have this Note purchased by the Company pursuant to Section 4.11 or Section 4.12 of the Indenture, check the Box: [ ] If you wish to have a portion of this Note purchased by the Company pursuant to Section 4.11 or Section 4.12 of the Indenture, state the amount (in principal amount): $______________. Date: --------------- Your Signature: ----------------------------------------------------------------- (Sign exactly as your name appears on the other side of this Note) Signature Guarantee (by an institution that is a member of the Signature Guarantee Medallion Program): ______________________________ 118 EXHIBIT C Form of Certificate to Be Delivered in Connection with Transfers to Non-QIB Institutional Accredited Investors State Street Bank and Trust [DATE] Company of California, N.A. 633 West 5th Street, 12th Floor Los Angeles, CA 90071 Attention: Corporate Trust Department Re: COLO.COM (the "Company") [ ]% Senior Notes due 2010 (the "Notes") Dear Sirs: In connection with our proposed purchase of $___________ aggregate principal amount of the Notes, we confirm that: 1. We understand that any subsequent transfer of the Notes is subject to certain restrictions and conditions set forth in the Indenture dated as of __________, 2000 relating to the Notes (the "Indenture") and the undersigned agrees to be bound by, and not to resell, pledge or otherwise transfer the Notes except in compliance with, such restrictions and conditions and the Securities Act of 1933, as amended (the "Securities Act"). 2. We understand that the offer and sale of the Notes have not been registered under the Securities Act, and that the Notes may not be reoffered, resold, pledged or otherwise transferred except as permitted in the following sentence. We agree, on our own behalf and on behalf of any accounts for which we are acting as hereinafter stated, that if we should sell any Notes, we will do so only (A) (i) to a person whom we reasonable believe is "qualified institutional buyer" in a transaction meeting the requirements of Rule 144A under the Securities Act, (ii) pursuant to an exemption from registration under the Securities Act provided by Rule 144 thereunder, (iii) an institutional accredited investor exempted from the registration requirements under Regulation D under the Securities Act and (B) in accordance with all applicable securities laws of the states of the United States, and we further agree to 119 provide to any person purchasing any of the Notes from us a notice advising such purchaser that resales of the Notes are restricted as stated herein. 3. We understand that, on any proposed resale of any Notes, we will be required to furnish to you and the Company such certifications, legal opinions and other information as you and the Company may reasonably require to confirm that the proposed sale complies with the foregoing restrictions. We further understand that the Notes purchased by us will bear a legend to the foregoing effect. 4. We are an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of our investment in the Notes, and we and any accounts for which we are acting are each able to bear the economic risk of our or its investment. 5. We are acquiring the Notes purchased by us for our own account or for one or more accounts (each of which is an institutional "accredited investor") as to each of which we exercise sole investment discretion. You and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. Very truly yours, [Name of Transferee] By: ------------------------------------ Authorized Signature EX-4.3 5 0005.txt 13 7/8% NOTES REGISTRATION RIGHTS AGREEMENT 1 EXHIBIT 4.3 Execution Copy COLO.COM 13 7/8% SENIOR NOTES DUE 2010 REGISTRATION RIGHTS AGREEMENT March 10, 2000 Goldman, Sachs & Co., Bear, Stearns & Co. Inc. Chase Securities Inc. Deutsche Bank Securities Inc. Warburg Dillon Read LLC Jefferies & Company, Inc. As representatives of the several Purchasers named in Schedule I to the Purchase Agreement c/o Goldman, Sachs & Co. 85 Broad Street New York, New York 10004 Ladies and Gentlemen: COLO.COM, a California corporation (the "Company"), proposes to issue and sell to the Purchasers (as defined herein) upon the terms set forth in the Purchase Agreement (as defined herein) its 13 7/8% Senior Notes due 2010. As an inducement to the Purchasers to enter into the Purchase Agreement and in satisfaction of a condition to the obligations of the Purchasers thereunder, the Company agrees with the Purchasers for the benefit of holders (as defined herein) from time to time of the Transfer Restricted Securities (as defined herein) as follows: 1. Certain Definitions. For purposes of this Registration Rights Agreement, the following terms shall have the following respective meanings: "Base Interest" means the interest that would otherwise accrue on the Securities under the terms thereof and the Indenture, without giving effect to the provisions of this Agreement. The term "broker-dealer" means any broker or dealer registered with the Commission under the Exchange Act. "Closing Date" means the date on which the Securities are initially issued. 2 "Commission" means the United States Securities and Exchange Commission, or any other federal agency at the time administering the Exchange Act or the Securities Act, whichever is the relevant statute for the particular purpose. "Effective Time," in the case of (i) an Exchange Registration, means the time and date as of which the Commission declares the Exchange Registration Statement effective or as of which the Exchange Registration Statement otherwise becomes effective and (ii) a Shelf Registration, means the time and date as of which the Commission declares the Shelf Registration Statement effective or as of which the Shelf Registration Statement otherwise becomes effective. "Electing Holder" means any holder of Transfer Restricted Securities that has returned a completed and signed Notice and Questionnaire to the Company in accordance with Section 3(d)(ii) or 3(d)(iii) hereof. "Exchange Act" means the Securities Exchange Act of 1934, or any successor thereto, as the same shall be amended from time to time. "Exchange Offer" has the meaning assigned thereto in Section 2(a) hereof. "Exchange Registration" has the meaning assigned thereto in Section 3(c) hereof. "Exchange Registration Statement" has the meaning assigned thereto in Section 2(a) hereof. "Exchange Securities" has the meaning assigned thereto in Section 2(a) hereof. The term "holder" means each of the Purchasers and other Persons who acquire Transfer Restricted Securities from time to time (including any successors or assigns), in each case for so long as such Person owns any Transfer Restricted Securities. "Indenture" means the Indenture, dated as of March 10, 2000, between the Company and State Street Bank and Trust Company of California, N.A., as Trustee, as the same shall be amended from time to time. "Notice and Questionnaire" means a Notice of Registration Statement and Selling Securityholder Questionnaire substantially in the form of Exhibit A hereto. "Person" means a corporation, association, partnership, organization, business, individual, government or political subdivision thereof or governmental agency. "Purchase Agreement" means the Purchase Agreement, dated as of March 3, 2000, between the Purchasers and the Company relating to the Securities. "Purchasers" means the Purchasers named in Schedule I to the Purchase Agreement. 2 3 "Registration Default" has the meaning assigned thereto in Section 2(c) hereof. "Registration Expenses" has the meaning assigned thereto in Section 4 hereof. "Resale Period" has the meaning assigned thereto in Section 2(a) hereof. "Restricted Holder" means a holder that (i) is prohibited by law or by Commission policy from participating in the Exchange Offer; (ii) may not resell the Exchange Securities acquired by it in the Exchange Offer to the public without delivering a prospectus and the prospectus contained in the Exchange Registration Statement is not appropriate or available for such resales; or (iii) is a broker-dealer and owns Securities acquired directly from the Company or an affiliate of the Company. "Rule 144," "Rule 405" and "Rule 415" means, in each case, such rule promulgated under the Securities Act (or any successor provision), as the same shall be amended from time to time. "Securities" means, collectively, the 13 7/8% Senior Notes due 2010 of the Company to be issued and sold to the Purchasers, and securities issued in exchange therefor or in lieu thereof pursuant to the Indenture. "Securities Act" means the Securities Act of 1933, or any successor thereto, as the same shall be amended from time to time. "Shelf Registration" has the meaning assigned thereto in Section 2(b) hereof. "Shelf Registration Statement" has the meaning assigned thereto in Section 2(b) hereof. "Special Interest" has the meaning assigned thereto in Section 2(c) hereof. "Transfer Restricted Securities" means each Security until (i) the date on which such Security has been exchanged by a Person other than a broker-dealer for an Exchange Security in the Exchange Offer; (ii) following the exchange by a broker-dealer in the Exchange Offer of a Security for an Exchange Security, until the date on which such Exchange Security is sold to a purchaser who receives from such broker-dealer on or prior to the date of such sale a copy of the prospectus contained in the Exchange Registration Statement; (iii) the date on which such Security has been effectively registered under the Securities Act and disposed of in accordance with the Self Registration Statement; or (iv) the date on which such Security is, or may be, distributed to the public pursuant to Rule 144 under the Securities Act. 3 4 "Trust Indenture Act" means the Trust Indenture Act of 1939, or any successor thereto, and the rules, regulations and forms promulgated thereunder, all as the same shall be amended from time to time. Unless the context otherwise requires, any reference herein to a "Section" or "clause" refers to a Section or clause, as the case may be, of this Registration Rights Agreement, and the words "herein," "hereof" and "hereunder" and other words of similar import refer to this Registration Rights Agreement as a whole and not to any particular Section or other subdivision. 2. Registration Under the Securities Act. (a) Except as set forth in Section 2(b) below, the Company agrees to use its commercially reasonable efforts to file under the Securities Act, as soon as practicable, but no later than 90 days after the Closing Date, a registration statement relating to an offer to exchange (such registration statement, the "Exchange Registration Statement", and such offer, the "Exchange Offer") any and all of the Securities for a like aggregate principal amount of debt securities issued by the Company, which debt securities are substantially identical to the Securities (and are entitled to the benefits of a trust indenture which is substantially identical to the Indenture or is the Indenture and which has been qualified under the Trust Indenture Act), except that they have been registered pursuant to an effective registration statement under the Securities Act and do not contain provisions for the additional interest contemplated in Section 2(c) below (such new debt securities hereinafter called "Exchange Securities"); provided that if at the end of such 90-day period the Company has filed with the Commission a registration statement with respect to an initial public offering of its common stock which has not been declared effective by the Commission at such time, the Company will have an additional 30 days to file an Exchange Registration Statement. The Company agrees to use its commercially reasonable efforts to cause the Exchange Registration Statement to become effective under the Securities Act as soon as practicable, but not later than 180 days after the Closing Date; provided that if the proviso of the preceding sentence is applicable, then the Company shall have an additional 30 days to have the Exchange Registration Statement declared effective. The Exchange Offer will be registered under the Securities Act on the appropriate form and will comply with all applicable tender offer rules and regulations under the Exchange Act. The Company further agrees to use its commercially reasonable efforts to complete the Exchange Offer on or prior to 30 business days, or longer, if required by the federal securities laws, after the date on which the Exchange Registration Statement is declared effective by the Commission. The Exchange Offer will be deemed to have been "completed" only if the debt securities received by holders other than Restricted Holders in the Exchange Offer for Transfer Restricted Securities are, upon receipt, transferable by each such holder without restriction under the Securities Act and the Exchange Act and without material restrictions under the blue sky or securities laws of a substantial majority of the States of the United States of America. The Exchange Offer shall be deemed to have been completed upon the earlier to occur of (i) the Company having exchanged the Exchange Securities for all outstanding Transfer Restricted Securities pursuant to the Exchange Offer and (ii) the Company having exchanged, pursuant to the Exchange Offer, Exchange Securities for all Transfer Restricted Securities that 4 5 have been properly tendered and not withdrawn before the expiration of the Exchange Offer, which shall be on a date that is at least 30 days following the commencement of the Exchange Offer. Upon the request of any of the Purchasers, the Company agrees (x) to include in the Exchange Registration Statement a prospectus for use in any resales by any holder of Exchange Securities that is a broker-dealer and (y) to keep such Exchange Registration Statement effective for a period (the "Resale Period") beginning when Exchange Securities are first issued in the Exchange Offer and ending upon the earlier of the expiration of the 180th day after the Exchange Offer has been completed or such time as such broker-dealers no longer own any Transfer Restricted Securities. With respect to such Exchange Registration Statement, such holders shall have the benefit of the rights of indemnification and contribution set forth in Sections 6(a), (c), (d) and (e) hereof. (b) If (i) the Company is not permitted to consummate the Exchange Offer because the Exchange Offer is not permitted by applicable law or Commission policy or (ii) any holder of Securities notifies the Company prior to the 20th day following consummation of the Exchange Offer that such holder is a Restricted Holder, the Company shall, in lieu of (or, in the case of clause (ii), in addition to) conducting the Exchange Offer contemplated by Section 2(a), use its commercially reasonable efforts to file under the Securities Act as soon as practicable, but not later than 60 days after the time such obligation to file arises (but in no event earlier than 90 days (or, in the event the proviso of the first sentence of Section 2(a) is applicable, 120 days) after the Closing Date), a "shelf" registration statement providing for the registration of, and the sale on a continuous or delayed basis by the holders of, all Transfer Restricted Securities, pursuant to Rule 415 or any similar rule that may be adopted by the Commission (such filing, the "Shelf Registration" and such registration statement, the "Shelf Registration Statement"). The Company agrees to use its commercially reasonable efforts (x) to cause the Shelf Registration Statement to become or be declared effective as soon as practicable, but not later than 150 days after such obligation arises (but in no event earlier than 180 days (or, in the event that the proviso in the first sentence of Section 2(a) is applicable, 210 days) after the Closing Date) and to keep such Shelf Registration Statement continuously effective for a period ending on the earlier of the second anniversary of the Effective Time or such time as there are no longer any Transfer Restricted Securities outstanding, except during a period that a material nonpublic transaction would be required to disclosed in the Shelf Registration Statement under the Securities Act and the rules and regulations promulgated thereunder and such disclosure would have adverse effects on business of the Company (provided that such period shall not exceed 30 consecutive business days), provided, however, that no holder shall be entitled to be named as a selling securityholder in the Shelf Registration Statement or to use the prospectus forming a part thereof for resales of Transfer Restricted Securities unless such holder is an Electing Holder, and (y) after the Effective Time of the Shelf Registration Statement, promptly upon the request of any holder of Transfer Restricted Securities that is not then an Electing Holder, to take any action reasonably necessary to enable such holder to use the prospectus forming a part thereof for resales of Transfer Restricted Securities, including, without limitation, any action necessary to identify such holder as a selling securityholder in the Shelf Registration Statement, provided, however, that nothing in this Clause (y) shall relieve any such holder of the 5 6 obligation to return a completed and signed Notice and Questionnaire to the Company in accordance with Section 3(d)(iii) hereof. The Company further agrees to supplement or make amendments to the Shelf Registration Statement, as and when required by the rules, regulations or instructions applicable to the registration form used by the Company for such Shelf Registration Statement or by the Securities Act or rules and regulations thereunder for shelf registration, and the Company agrees to furnish to each Electing Holder copies of any such supplement or amendment prior to its being used or promptly following its filing with the Commission. (c) In the event that (i) the Company has not filed the Exchange Registration Statement or Shelf Registration Statement on or before the date on which such registration statement is required to be filed pursuant to Section 2(a) or 2(b), respectively, or (ii) such Exchange Registration Statement or Shelf Registration Statement has not become effective or been declared effective by the Commission on or before the date on which such registration statement is required to become or be declared effective pursuant to Section 2(a) or 2(b), respectively, or (iii) the Company fails to consummate the Exchange Offer within 30 business days of the date of effectiveness of the Exchange Registration Statement (other than with respect to any Securities for which the holder has failed to tender) or (iv) any Shelf Registration Statement or the Exchange Registration Statement required by Section 2(a) or 2(b) hereof is filed and declared effective but thereafter ceases to be effective or usable in connection with resales of Transfer Restricted Securities during the periods specified in Section 2(a) or 2(b) hereof (each such event referred to in clauses (i) through (iv), a "Registration Default" and each period during which a Registration Default has occurred and is continuing, a "Registration Default Period"), then, as liquidated damages for such Registration Default, subject to the provisions of Section 9(b), special interest ("Special Interest"), in addition to the Base Interest, shall accrue at a per annum rate of 0.25% for the first 90 days of the Registration Default Period, at a per annum rate of 0.50% for the second 90 days of the Registration Default Period, at a per annum rate of 0.75% for the third 90 days of the Registration Default Period and at a per annum rate of 1.00% thereafter for the remaining portion of the Registration Default Period. The Special Interest shall be payable in cash semiannually in arrears on each Interest Payment Date (as defined in the Indenture). (d) The Company shall take all actions necessary or advisable to be taken by it to ensure that the transactions contemplated herein are effected as so contemplated. (e) Any reference herein to a registration statement as of any time shall be deemed to include any document incorporated, or deemed to be incorporated, therein by reference as of such time and any reference herein to any post-effective amendment to a registration statement as of any time shall be deemed to include any document incorporated, or deemed to be incorporated, therein by reference as of such time. 3. Registration Procedures. If the Company files a registration statement pursuant to Section 2(a) or Section 2(b), the following provisions shall apply: 6 7 (a) At or before the Effective Time of the Exchange Offer or the Shelf Registration, as the case may be, the Company shall qualify the Indenture under the Trust Indenture Act of 1939. (b) In the event that such qualification would require the appointment of a new trustee under the Indenture, the Company shall appoint a new trustee thereunder pursuant to the applicable provisions of the Indenture. (c) In connection with the Company's obligations with respect to the registration of Exchange Securities as contemplated by Section 2(a) (the "Exchange Registration"), if applicable, the Company shall, as soon as practicable (or as otherwise specified): (i) prepare and file with the Commission, as soon as reasonably practicable but in any case within the time periods specified in Section 2(a), an Exchange Registration Statement on any form which may be utilized by the Company and which shall permit the Exchange Offer and resales of Exchange Securities by broker-dealers during the Resale Period to be effected as contemplated by Section 2(a), and use its commercially reasonable efforts to cause such Exchange Registration Statement to become effective as soon as practicable but in any case within the time periods specified in Section 2(a); (ii) as soon as reasonably practicable prepare and file with the Commission such amendments and supplements to such Exchange Registration Statement and the prospectus included therein as may be necessary to effect and maintain the effectiveness of such Exchange Registration Statement for the periods and purposes contemplated in Section 2(a) hereof and as may be required by the applicable rules and regulations of the Commission and the instructions applicable to the form of such Exchange Registration Statement, and promptly provide each broker-dealer holding Exchange Securities with such number of copies of the prospectus included therein (as then amended or supplemented), in conformity in all material respects with the requirements of the Securities Act and the Trust Indenture Act and the rules and regulations of the Commission thereunder, as such broker-dealer reasonably may request prior to the expiration of the Resale Period, for use in connection with resales of Exchange Securities; (iii) promptly notify each broker-dealer that has requested or received copies of the prospectus included in such registration statement, and confirm such advice in writing, (A) when such Exchange Registration Statement or the prospectus included therein or any prospectus amendment or supplement or post-effective amendment has been filed, and, with respect to such Exchange Registration Statement or any post-effective amendment, when the same has become effective, (B) of any comments by the Commission and by the blue sky or securities commissioner or regulator of any state with respect thereto or any 7 8 request by the Commission for amendments or supplements to such Exchange Registration Statement or prospectus or for additional information, (C) of the issuance by the Commission of any stop order suspending the effectiveness of such Exchange Registration Statement or the initiation or threatening of any proceedings for that purpose, (D) if at any time the representations and warranties of the Company contemplated by Section 5 cease to be true and correct in all material respects, (E) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Exchange Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose, or (F) at any time during the Resale Period when a prospectus is required to be delivered under the Securities Act, that such Exchange Registration Statement, prospectus, prospectus amendment or supplement or post-effective amendment does not conform in all material respects to the applicable requirements of the Securities Act and the Trust Indenture Act and the rules and regulations of the Commission thereunder or contains an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing; (iv) in the event that the Company would be required, pursuant to Section 3(e)(iii)(F) above, to notify any broker-dealers holding Exchange Securities, without delay prepare and furnish to each such holder a reasonable number of copies of a prospectus supplemented or amended so that, as thereafter delivered to purchasers of such Exchange Securities during the Resale Period, such prospectus shall conform in all material respects to the applicable requirements of the Securities Act and the Trust Indenture Act and the rules and regulations of the Commission thereunder and shall not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing; (v) use its commercially reasonable efforts to obtain the withdrawal of any order suspending the effectiveness of such Exchange Registration Statement or any post-effective amendment thereto at the earliest practicable date; (vi) use its commercially reasonable efforts to (A) register or qualify the Exchange Securities under the securities laws or blue sky laws of such jurisdictions as are contemplated by Section 2(a) no later than the commencement of the Exchange Offer, (B) keep such registrations or qualifications in effect and comply with such laws so as to permit the continuance of offers, sales and dealings therein in such jurisdictions until the expiration of the Resale Period and (C) take any and all other actions as may be reasonably necessary or advisable to enable each broker-dealer holding Exchange Securities to consummate the disposition thereof in such jurisdictions; provided, however, that the Company 8 9 shall not be required for any such purpose to (1) qualify as a foreign corporation in any jurisdiction wherein it would not otherwise be required to qualify but for the requirements of this Section 3(c)(vi), (2) consent to general service of process in any such jurisdiction or (3) make any changes to its certificate of incorporation or by-laws or any agreement between it and its stockholders; (vii) use its commercially reasonable efforts to obtain the consent or approval of each governmental agency or authority, whether federal, state or local, which may be required to effect the Exchange Registration, the Exchange Offer and the offering and sale of Exchange Securities by broker-dealers during the Resale Period; (viii) provide a CUSIP number for all Exchange Securities, not later than the applicable Effective Time; (ix) comply with all applicable rules and regulations of the Commission, and make generally available to its securityholders as soon as practicable but no later than eighteen months after the effective date of such Exchange Registration Statement, an earning statement of the Company and its subsidiaries complying with Section 11(a) of the Securities Act (including, at the option of the Company, Rule 158 thereunder). (d) In connection with the Company's obligations with respect to the Shelf Registration, if applicable, the Company shall, as soon as reasonably practicable (or as otherwise specified): (i) prepare and file with the Commission, as soon as reasonably practicable but in any case within the time periods specified in Section 2(b), a Shelf Registration Statement on any form which may be utilized by the Company and which shall register all of the Transfer Restricted Securities for resale by the holders thereof in accordance with such method or methods of disposition as may be specified by such of the holders as, from time to time, may be Electing Holders and use its best efforts to cause such Shelf Registration Statement to become effective as soon as practicable but in any case within the time periods specified in Section 2(b); (ii) not less than 30 calendar days prior to the Effective Time of the Shelf Registration Statement, mail the Notice and Questionnaire to the holders of Transfer Restricted Securities; no holder shall be entitled to be named as a selling securityholder in the Shelf Registration Statement as of the Effective Time, and no holder shall be entitled to use the prospectus forming a part thereof for resales of Transfer Restricted Securities at any time, unless such holder has returned a completed and signed Notice and Questionnaire to the Company by the deadline for response set forth therein; provided, however, holders of Transfer Restricted 9 10 Securities shall have at least 28 calendar days from the date on which the Notice and Questionnaire is first mailed to such holders to return a completed and signed Notice and Questionnaire to the Company; (iii) after the Effective Time of the Shelf Registration Statement, upon the request of any holder of Transfer Restricted Securities that is not then an Electing Holder, promptly send a Notice and Questionnaire to such holder; provided that the Company shall not be required to take any action to name such holder as a selling securityholder in the Shelf Registration Statement or to enable such holder to use the prospectus forming a part thereof for resales of Transfer Restricted Securities until such holder has returned a completed and signed Notice and Questionnaire to the Company; (iv) as soon as practicable prepare and file with the Commission such amendments and supplements to such Shelf Registration Statement and the prospectus included therein as may be necessary to effect and maintain the effectiveness of such Shelf Registration Statement for the period specified in Section 2(b) hereof and as may be required by the applicable rules and regulations of the Commission and the instructions applicable to the form of such Shelf Registration Statement, and furnish to the Electing Holders copies of any such supplement or amendment simultaneously with or prior to its being used or filed with the Commission; (v) comply with the provisions of the Securities Act with respect to the disposition of all of the Transfer Restricted Securities covered by such Shelf Registration Statement in accordance with the intended methods of disposition by the Electing Holders provided for in such Shelf Registration Statement; (vi) provide (A) the Electing Holders, (B) the underwriters (which term, for purposes of this Registration Rights Agreement, shall include a Person deemed to be an underwriter within the meaning of Section 2(a)(11) of the Securities Act), if any, thereof, (C) any sales or placement agent therefor, (D) counsel for any such underwriter or agent and (E) not more than one counsel for all the Electing Holders the opportunity to participate in the preparation of such Shelf Registration Statement, each prospectus included therein or filed with the Commission and each amendment or supplement thereto; (vii) for a reasonable period prior to the filing of such Shelf Registration Statement, and throughout the period specified in Section 2(b), make available at reasonable times at the Company's principal place of business or such other reasonable place for inspection by the Persons referred to in Section 3(d)(vi) who shall certify to the Company that they have a current intention to sell the Transfer Restricted Securities pursuant to the Shelf Registration such financial and other information and books and records of the Company, and cause the officers, 10 11 employees, counsel and independent certified public accountants of the Company to respond to such inquiries, as shall be reasonably necessary, in the judgment of the respective counsel referred to in such Section, to conduct a reasonable investigation within the meaning of Section 11 of the Securities Act; provided, however, that each such party shall be required to maintain in confidence and not to disclose to any other Person any information or records reasonably designated by the Company as being confidential, until such time as (A) such information becomes a matter of public record (whether by virtue of its inclusion in such registration statement or otherwise), or (B) such Person shall be required so to disclose such information pursuant to a subpoena or order of any court or other governmental agency or body having jurisdiction over the matter (subject to the requirements of such order, and only after such Person shall have given the Company prompt prior written notice of such requirement), or (C) such information is required to be set forth in such Shelf Registration Statement or the prospectus included therein or in an amendment to such Shelf Registration Statement or an amendment or supplement to such prospectus in order that such Shelf Registration Statement, prospectus, amendment or supplement, as the case may be, complies with applicable requirements of the federal securities laws and the rules and regulations of the Commission and does not contain an untrue statement of a material fact or omit to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing; (viii) promptly notify each of the Electing Holders, any sales or placement agent therefor and any underwriter thereof (which notification may be made through any managing underwriter that is a representative of such underwriter for such purpose) and confirm such advice in writing, (A) when such Shelf Registration Statement or the prospectus included therein or any prospectus amendment or supplement or post-effective amendment has been filed, and, with respect to such Shelf Registration Statement or any post-effective amendment, when the same has become effective, (B) of any comments by the Commission and by the blue sky or securities commissioner or regulator of any state with respect thereto or any request by the Commission for amendments or supplements to such Shelf Registration Statement or prospectus or for additional information, (C) of the issuance by the Commission of any stop order suspending the effectiveness of such Shelf Registration Statement or the initiation or threatening of any proceedings for that purpose, (D) if at any time the representations and warranties of the Company contemplated by Section 3(d)(xvii) or Section 5 cease to be true and correct in all material respects, (E) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Transfer Restricted Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose, or (F) if at any time when a prospectus is required to be delivered under the Securities Act, that such Shelf Registration Statement, prospectus, prospectus amendment or supplement or post-effective 11 12 amendment does not conform in all material respects to the applicable requirements of the Securities Act and the Trust Indenture Act and the rules and regulations of the Commission thereunder or contains an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing; (ix) use its commercially reasonable efforts to obtain the withdrawal of any order suspending the effectiveness of such registration statement or any post-effective amendment thereto at the earliest practicable date; (x) if requested by any managing underwriter or underwriters, any placement or sales agent or any Electing Holder, promptly incorporate in a prospectus supplement or post-effective amendment such information as is required by the applicable rules and regulations of the Commission and as such managing underwriter or underwriters, such agent or such Electing Holder specifies should be included therein relating to the terms of the sale of such Transfer Restricted Securities, including information with respect to the principal amount of Transfer Restricted Securities being sold by such Electing Holder or agent or to any underwriters, the name and description of such Electing Holder, agent or underwriter, the offering price of such Transfer Restricted Securities and any discount, commission or other compensation payable in respect thereof, the purchase price being paid therefor by such underwriters and with respect to any other terms of the offering of the Transfer Restricted Securities to be sold by such Electing Holder or agent or to such underwriters; and make all required filings of such prospectus supplement or post-effective amendment promptly after notification of the matters to be incorporated in such prospectus supplement or post-effective amendment; (xi) furnish to each Electing Holder, each placement or sales agent, if any, therefor, each underwriter, if any, thereof and the respective counsel referred to in Section 3(d)(vi) an executed copy (or, in the case of an Electing Holder, a conformed copy) of such Shelf Registration Statement, each such amendment and supplement thereto (in each case including all exhibits thereto (in the case of an Electing Holder of Transfer Restricted Securities, upon request) and documents incorporated by reference therein) and such number of copies of such Shelf Registration Statement (excluding exhibits thereto and documents incorporated by reference therein unless specifically so requested by such Electing Holder, agent or underwriter, as the case may be) and of the prospectus included in such Shelf Registration Statement (including each preliminary prospectus and any summary prospectus), in conformity in all material respects with the applicable requirements of the Securities Act and the Trust Indenture Act and the rules and regulations of the Commission thereunder, and such other documents, as such Electing Holder, agent, if any, and underwriter, if any, may reasonably request in 12 13 order to facilitate the offering and disposition of the Transfer Restricted Securities owned by such Electing Holder, offered or sold by such agent or underwritten by such underwriter and to permit such Electing Holder, agent and underwriter to satisfy the prospectus delivery requirements of the Securities Act; and the Company hereby consents to the use of such prospectus (including such preliminary and summary prospectus) and any amendment or supplement thereto by each such Electing Holder and by any such agent and underwriter, in each case in the form most recently provided to such Person by the Company, in connection with the offering and sale of the Transfer Restricted Securities covered by the prospectus (including such preliminary and summary prospectus) or any supplement or amendment thereto; (xii) use its commercially reasonable efforts to (A) register or qualify the Transfer Restricted Securities to be included in such Shelf Registration Statement under such securities laws or blue sky laws of such jurisdictions as any Electing Holder and each placement or sales agent, if any, therefor and underwriter, if any, thereof shall reasonably request, (B) keep such registrations or qualifications in effect and comply with such laws so as to permit the continuance of offers, sales and dealings therein in such jurisdictions during the period the Shelf Registration is required to remain effective under Section 2(b) above and for so long as may be necessary to enable any such Electing Holder, agent or underwriter to complete its distribution of Securities pursuant to such Shelf Registration Statement and (C) take any and all other actions as may be reasonably necessary or advisable to enable each such Electing Holder, agent, if any, and underwriter, if any, to consummate the disposition in such jurisdictions of such Transfer Restricted Securities; provided, however, that the Company shall not be required for any such purpose to (1) qualify as a foreign corporation in any jurisdiction wherein it would not otherwise be required to qualify but for the requirements of this Section 3(d)(xii), (2) consent to general service of process in any such jurisdiction or (3) make any changes to its certificate of incorporation or by-laws or any agreement between it and its stockholders; (xiii) use its commercially reasonable efforts to obtain the consent or approval of each governmental agency or authority, whether federal, state or local, which may be required to effect the Shelf Registration or the offering or sale in connection therewith or to enable the selling holder or holders to offer, or to consummate the disposition of, their Transfer Restricted Securities; (xiv) Unless any Transfer Restricted Securities shall be in book-entry only form, cooperate with the Electing Holders and the managing underwriters, if any, to facilitate the timely preparation and delivery of certificates representing Transfer Restricted Securities to be sold, which certificates, if so required by any securities exchange upon which any Transfer Restricted Securities are listed, shall be penned, lithographed or engraved, or produced by any combination of such 13 14 methods, on steel engraved borders, and which certificates shall not bear any restrictive legends; and, in the case of an underwritten offering, enable such Transfer Restricted Securities to be in such denominations and registered in such names as the managing underwriters may request at least two business days prior to any sale of the Transfer Restricted Securities; (xv) provide a CUSIP number for all Transfer Restricted Securities, not later than the applicable Effective Time; (xvi) enter into one or more underwriting agreements, engagement letters, agency agreements, "best efforts" underwriting agreements or similar agreements, as appropriate, including customary provisions relating to indemnification and contribution, and take such other actions in connection therewith as any Electing Holders aggregating at least 20% in aggregate principal amount of the Transfer Restricted Securities at the time outstanding shall request in order to expedite or facilitate the disposition of such Transfer Restricted Securities; (xvii) whether or not an agreement of the type referred to in Section 3(d)(xvi) hereof is entered into and whether or not any portion of the offering contemplated by the Shelf Registration is an underwritten offering or is made through a placement or sales agent or any other entity, (A) make such representations and warranties to the Electing Holders and the placement or sales agent, if any, therefor and the underwriters, if any, thereof in form, substance and scope as are customarily made in connection with an offering of debt securities pursuant to any appropriate agreement or to a registration statement filed on the form applicable to the Shelf Registration; (B) obtain an opinion of counsel to the Company in customary form and covering such matters, of the type customarily covered by such an opinion, as the managing underwriters, if any, or as any Electing Holders of at least 20% in aggregate principal amount of the Transfer Restricted Securities at the time outstanding may reasonably request, addressed to such Electing Holder or Electing Holders and the placement or sales agent, if any, therefor and the underwriters, if any, thereof and dated the effective date of such Shelf Registration Statement (and if such Shelf Registration Statement contemplates an underwritten offering of a part or all of the Transfer Restricted Securities, dated the date of the closing under the underwriting agreement relating thereto) (it being agreed that the matters to be covered by such opinion shall include the due incorporation and good standing of the Company and its subsidiaries; the qualification of the Company and its subsidiaries to transact business as foreign corporations; the due authorization, execution and delivery of the relevant agreement of the type referred to in Section 3(d)(xvi) hereof; the due authorization, execution, authentication and issuance, and the validity and enforceability, of the Securities; the absence of material legal or governmental 14 15 proceedings involving the Company; the absence of a breach by the Company or any of its subsidiaries of, or a default under, material agreements binding upon the Company or any subsidiary of the Company; the absence of governmental approvals required to be obtained in connection with the Shelf Registration, the offering and sale of the Transfer Restricted Securities, this Registration Rights Agreement or any agreement of the type referred to in Section 3(d)(xvi) hereof, except such approvals as may be required under state securities or blue sky laws; the material compliance as to form of such Shelf Registration Statement and any documents incorporated by reference therein and of the Indenture with the requirements of the Securities Act and the Trust Indenture Act and the rules and regulations of the Commission thereunder, respectively; and, as of the date of the opinion and of the Shelf Registration Statement or most recent post-effective amendment thereto, as the case may be, the absence from such Shelf Registration Statement and the prospectus included therein, as then amended or supplemented, and from the documents incorporated by reference therein (in each case other than the financial statements and other financial information contained therein) of an untrue statement of a material fact or the omission to state therein a material fact necessary to make the statements therein not misleading (in the case of such documents, in the light of the circumstances existing at the time that such documents were filed with the Commission under the Exchange Act)); (C) obtain a "cold comfort" letter or letters from the independent certified public accountants of the Company addressed to the selling Electing Holders, the placement or sales agent, if any, therefor or the underwriters, if any, thereof, dated (i) the effective date of such Shelf Registration Statement and (ii) the effective date of any prospectus supplement to the prospectus included in such Shelf Registration Statement or post-effective amendment to such Shelf Registration Statement which includes unaudited or audited financial statements as of a date or for a period subsequent to that of the latest such statements included in such prospectus (and, if such Shelf Registration Statement contemplates an underwritten offering pursuant to any prospectus supplement to the prospectus included in such Shelf Registration Statement or post-effective amendment to such Shelf Registration Statement which includes unaudited or audited financial statements as of a date or for a period subsequent to that of the latest such statements included in such prospectus, dated the date of the closing under the underwriting agreement relating thereto), such letter or letters to be in customary form and covering such matters of the type customarily covered by letters of such type; (D) deliver such documents and certificates, including officers' certificates, as may be reasonably requested by any Electing Holders of at least 20% in aggregate principal amount of the Transfer Restricted Securities at the time outstanding or the placement or sales agent, if any, therefor and the managing underwriters, if any, thereof to evidence the accuracy of the representations and warranties made pursuant to clause (A) above or those contained in Section 5(a) hereof and the compliance with or satisfaction of any agreements or conditions contained in the underwriting agreement or other agreement entered into by the Company; and (E) undertake 15 16 such obligations relating to expense reimbursement, indemnification and contribution as are provided in Section 6 hereof; (xviii)notify in writing each holder of Transfer Restricted Securities of any proposal by the Company to amend or waive any provision of this Registration Rights Agreement pursuant to Section 9(h) hereof and of any amendment or waiver effected pursuant thereto, each of which notices shall contain the text of the amendment or waiver proposed or effected, as the case may be; (xix) in the event that any broker-dealer registered under the Exchange Act shall underwrite any Transfer Restricted Securities or participate as a member of an underwriting syndicate or selling group or "assist in the distribution" (within the meaning of the Conduct Rules (the "Conduct Rules) of the National Association of Securities Dealers, Inc. ("NASD") or any successor thereto, as amended from time to time) thereof, whether as a holder of such Transfer Restricted Securities or as an underwriter, a placement or sales agent or a broker or dealer in respect thereof, or otherwise, assist such broker-dealer in complying with the requirements of such Conduct Rules, including by (A) if such Conduct Rules shall so require, engaging a "qualified independent underwriter" (as defined in such Conduct Rules) to participate in the preparation of the Shelf Registration Statement relating to such Transfer Restricted Securities, to exercise usual standards of due diligence in respect thereto and, if any portion of the offering contemplated by such Shelf Registration Statement is an underwritten offering or is made through a placement or sales agent, to recommend the yield of such Transfer Restricted Securities, (B) indemnifying any such qualified independent underwriter to the extent of the indemnification of underwriters provided in Section 6 hereof (or to such other customary extent as may be requested by such underwriter), and (C) providing such information to such broker-dealer as may be required in order for such broker-dealer to comply with the requirements of the Conduct Rules; and (xx) comply with all applicable rules and regulations of the Commission, and make generally available to its securityholders as soon as practicable but in any event not later than eighteen months after the effective date of such Shelf Registration Statement, an earning statement of the Company and its subsidiaries complying with Section 11(a) of the Securities Act (including, at the option of the Company, Rule 158 thereunder). (e) In the event that the Company would be required, pursuant to Section 3(d)(viii)(F) above, to notify the Electing Holders, the placement or sales agent, if any, therefor and the managing underwriters, if any, thereof, the Company shall without delay prepare and furnish to each of the Electing Holders, to each placement or sales agent, if any, and to each such underwriter, if any, a reasonable number of copies of a prospectus 16 17 supplemented or amended so that, as thereafter delivered to purchasers of Transfer Restricted Securities, such prospectus shall conform in all material respects to the applicable requirements of the Securities Act and the Trust Indenture Act and the rules and regulations of the Commission thereunder and shall not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing. Each Electing Holder agrees that upon receipt of any notice from the Company pursuant to Section 3(d)(viii)(F) hereof, such Electing Holder shall forthwith discontinue the disposition of Transfer Restricted Securities pursuant to the Shelf Registration Statement applicable to such Transfer Restricted Securities until such Electing Holder shall have received copies of such amended or supplemented prospectus, and if so directed by the Company, such Electing Holder shall deliver to the Company (at the Company's expense) all copies, other than permanent file copies, then in such Electing Holder's possession of the prospectus covering such Transfer Restricted Securities at the time of receipt of such notice. (f) In the event of a Shelf Registration, in addition to the information required to be provided by each Electing Holder in its Notice Questionnaire, the Company may require such Electing Holder to furnish to the Company such additional information regarding such Electing Holder and such Electing Holder's intended method of distribution of Transfer Restricted Securities as may be required in order to comply with the Securities Act. Each such Electing Holder agrees to notify the Company as promptly as practicable of any inaccuracy or change in information previously furnished by such Electing Holder to the Company or of the occurrence of any event in either case as a result of which any prospectus relating to such Shelf Registration contains or would contain an untrue statement of a material fact regarding such Electing Holder or such Electing Holder's intended method of disposition of such Transfer Restricted Securities or omits to state any material fact regarding such Electing Holder or such Electing Holder's intended method of disposition of such Transfer Restricted Securities required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing, and promptly to furnish to the Company any additional information required to correct and update any previously furnished information or required so that such prospectus shall not contain, with respect to such Electing Holder or the disposition of such Transfer Restricted Securities, an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing. (g) Until the expiration of two years after the Closing Date, the Company will not, and will not permit any of its "affiliates" (as defined in Rule 144) it controls to, resell any of the Securities that have been reacquired by any of them except pursuant to an effective registration statement under the Securities Act. 4. Registration Expenses. The Company agrees to bear and to pay or cause to be paid promptly all expenses incident to the Company's performance of or compliance with 17 18 this Registration Rights Agreement, including (a) all Commission and any NASD registration, filing and review fees and expenses including fees and disbursements of counsel for the placement or sales agent or underwriters in connection with such registration, filing and review, (b) all fees and expenses in connection with the qualification of the Securities for offering and sale under the State securities and blue sky laws referred to in Section 3(d)(xii) hereof and determination of their eligibility for investment under the laws of such jurisdictions as any managing underwriters or the Electing Holders may designate, including any fees and disbursements of counsel for the Electing Holders or underwriters in connection with such qualification and determination, (c) all expenses relating to the preparation, printing, production, distribution and reproduction of each registration statement required to be filed hereunder, each prospectus included therein or prepared for distribution pursuant hereto, each amendment or supplement to the foregoing, the expenses of preparing the Securities for delivery and the expenses of printing or producing any underwriting agreements, agreements among underwriters, selling agreements and blue sky or legal investment memoranda and all other documents in connection with the offering, sale or delivery of Securities to be disposed of (including certificates representing the Securities), (d) messenger, telephone and delivery expenses relating to the offering, sale or delivery of Securities and the preparation of documents referred in clause (c) above, (e) fees and expenses of the Trustee under the Indenture, any agent of the Trustee and any counsel for the Trustee and of any collateral agent or custodian, (f) internal expenses (including all salaries and expenses of the Company's officers and employees performing legal or accounting duties), (g) fees, disbursements and expenses of counsel and independent certified public accountants of the Company (including the expenses of any opinions or "cold comfort" letters required by or incident to such performance and compliance), (h) reasonable fees, disbursements and expenses of one counsel for the Electing Holders retained in connection with a Shelf Registration, as selected by the Electing Holders of at least a majority in aggregate principal amount of the Transfer Restricted Securities held by Electing Holders (which counsel shall be reasonably satisfactory to the Company), (i) any fees charged by securities rating services for rating the Securities, and (j) fees, expenses and disbursements of any other Persons, including special experts, retained by the Company in connection with such registration (collectively, the "Registration Expenses"). To the extent that any Registration Expenses are incurred, assumed or paid by any holder of Transfer Restricted Securities or any placement or sales agent therefor or underwriter thereof, the Company shall reimburse such Person for the full amount of the Registration Expenses so incurred, assumed or paid promptly after receipt of a request therefor. Notwithstanding the foregoing, the holders of the Transfer Restricted Securities being registered shall pay all agency fees and commissions and underwriting discounts and commissions attributable to the sale of such Transfer Restricted Securities and the fees and disbursements of any counsel or other advisors or experts retained by such holders (severally or jointly), other than the counsel and experts specifically referred to above. 5. Representations and Warranties. The Company represents and warrants to, and agrees with, each Purchaser and each of the holders from time to time of Transfer Restricted Securities that: 18 19 (a) Each registration statement covering Transfer Restricted Securities and each prospectus (including any preliminary or summary prospectus) contained therein or furnished pursuant to Section 3(d) or Section 3(c) hereof and any further amendments or supplements to any such registration statement or prospectus, when it becomes effective or is filed with the Commission, as the case may be, and, in the case of an underwritten offering of Transfer Restricted Securities, at the time of the closing under the underwriting agreement relating thereto, will conform in all material respects to the requirements of the Securities Act and the Trust Indenture Act and the rules and regulations of the Commission thereunder and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; and at all times subsequent to the Effective Time when a prospectus would be required to be delivered under the Securities Act, other than from (i) such time as a notice has been given to holders of Transfer Restricted Securities pursuant to Section 3(d)(viii)(F) or Section 3(c)(iii)(F) hereof until (ii) such time as the Company furnishes an amended or supplemented prospectus pursuant to Section 3(e) or Section 3(c)(iv) hereof, each such registration statement, and each prospectus (including any summary prospectus) contained therein or furnished pursuant to Section 3(d) or Section 3(c) hereof, as then amended or supplemented, will conform in all material respects to the requirements of the Securities Act and the Trust Indenture Act and the rules and regulations of the Commission thereunder and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company by a holder of Transfer Restricted Securities expressly for use therein. (b) Any documents incorporated by reference in any prospectus referred to in Section 5(a) hereof, when they become or became effective or are or were filed with the Commission, as the case may be, will conform or conformed in all material respects to the requirements of the Securities Act or the Exchange Act, as applicable, and none of such documents will contain or contained an untrue statement of a material fact or will omit or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company by a holder of Transfer Restricted Securities expressly for use therein. (c) The compliance by the Company with all of the provisions of this Registration Rights Agreement and the consummation of the transactions herein contemplated will not conflict with or result in a breach of any of the terms or provisions of, or constitute a default under, any material indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any subsidiary of the Company is a party or by which the Company or any subsidiary of the Company is 19 20 bound or to which any of the property or assets of the Company or any subsidiary of the Company is subject, nor will such action result in any violation of the provisions of the certificate of incorporation, as amended, or the by-laws of the Company or any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company or any subsidiary of the Company or any of their properties; and no consent, approval, authorization, order, registration or qualification of or with any such court or governmental agency or body is required for the consummation by the Company of the transactions contemplated by this Registration Rights Agreement, except the registration under the Securities Act of the Securities, qualification of the Indenture under the Trust Indenture Act and such consents, approvals, authorizations, registrations or qualifications as may be required under State securities or blue sky laws in connection with the offering and distribution of the Securities. (d) This Registration Rights Agreement has been duly authorized, executed and delivered by the Company. 6. Indemnification. (a) Indemnification by the Company. The Company will indemnify and hold harmless each of the holders of Transfer Restricted Securities included in an Exchange Registration Statement, each of the Electing Holders of Transfer Restricted Securities included in a Shelf Registration Statement and each Person who participates as a placement or sales agent or as an underwriter in any offering or sale of such Transfer Restricted Securities against any losses, claims, damages or liabilities, joint or several, to which such holder, agent or underwriter may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any Exchange Registration Statement or Shelf Registration Statement, as the case may be, under which such Transfer Restricted Securities were registered under the Securities Act, or any preliminary, final or summary prospectus contained therein or furnished by the Company to any such holder, Electing Holder, agent or underwriter, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse such holder, such Electing Holder, such agent and such underwriter for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such action or claim as such expenses are incurred; provided, however, that the Company shall not be liable to any such Person in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement, or preliminary, final or summary prospectus, or amendment or supplement thereto, in reliance upon and in conformity with written information furnished to the Company by such Person expressly for use therein. (b) Indemnification by the Holders and any Agents and Underwriters. The Company may require, as a condition to including any Transfer Restricted Securities in any 20 21 registration statement filed pursuant to Section 2(b) hereof and to entering into any underwriting agreement with respect thereto, that the Company shall have received an undertaking reasonably satisfactory to it from the Electing Holder of such Transfer Restricted Securities and from each underwriter named in any such underwriting agreement, severally and not jointly, to (i) indemnify and hold harmless the Company, and all other holders of Transfer Restricted Securities, against any losses, claims, damages or liabilities to which the Company or such other holders of Transfer Restricted Securities may become subject, under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in such registration statement, or any preliminary, final or summary prospectus contained therein or furnished by the Company to any such Electing Holder, agent or underwriter, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company by such Electing Holder or underwriter expressly for use therein, and (ii) reimburse the Company for any legal or other expenses reasonably incurred by the Company in connection with investigating or defending any such action or claim as such expenses are incurred; provided, however, that no such Electing Holder shall be required to undertake liability to any Person under this Section 6(b) for any amounts in excess of the dollar amount of the proceeds to be received by such Electing Holder from the sale of such Electing Holder's Transfer Restricted Securities pursuant to such registration. (c) Notices of Claims, Etc. Promptly after receipt by an indemnified party under subsection (a) or (b) above of written notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against an indemnifying party pursuant to the indemnification provisions of or contemplated by this Section 6, notify such indemnifying party in writing of the commencement of such action; but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to any indemnified party otherwise than under the indemnification provisions of or contemplated by Section 6(a) or 6(b) hereof. In case any such action shall be brought against any indemnified party and it shall notify an indemnifying party of the commencement thereof, such indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and, after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, such indemnifying party shall not be liable to such indemnified party for any legal expenses of other counsel or any other expenses, in each case subsequently incurred by such indemnified party, in connection with the defense thereof other than reasonable costs of investigation. No indemnifying party shall, without the written consent of the indemnified party, effect the settlement or compromise of, or consent to the entry of any judgment with respect to, any pending or threatened action or claim in respect of which indemnification or contribution may be 21 22 sought hereunder (whether or not the indemnified party is an actual or potential party to such action or claim) unless such settlement, compromise or judgment (i) includes an unconditional release of the indemnified party from all liability arising out of such action or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party. (d) Contribution. If for any reason the indemnification provisions contemplated by Section 6(a) or Section 6(b) are unavailable to or insufficient to hold harmless an indemnified party in respect of any losses, claims, damages or liabilities (or actions in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative fault of the indemnifying party and the indemnified party in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative fault of such indemnifying party and indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by such indemnifying party or by such indemnified party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The parties hereto agree that it would not be just and equitable if contributions pursuant to this Section 6(d) were determined by pro rata allocation (even if the holders or any agents or underwriters or all of them were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in this Section 6(d). The amount paid or payable by an indemnified party as a result of the losses, claims, damages, or liabilities (or actions in respect thereof) referred to above shall be deemed to include any legal or other fees or expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 6(d), no holder shall be required to contribute any amount in excess of the amount by which the dollar amount of the proceeds received by such holder from the sale of any Transfer Restricted Securities (after deducting any fees, discounts and commissions applicable thereto) exceeds the amount of any damages which such holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission, and no underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Transfer Restricted Securities underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. The holders' and any underwriters' obligations in this Section 6(d) to contribute shall be several in proportion to the principal amount of Transfer Restricted Securities registered or underwritten, as the case may be, by them and not joint. 22 23 (e) The obligations of the Company under this Section 6 shall be in addition to any liability which the Company may otherwise have and shall extend, upon the same terms and conditions, to each officer, director and partner of each holder, agent and underwriter and each Person, if any, who controls any holder, agent or underwriter within the meaning of the Securities Act; and the obligations of the holders and any agents or underwriters contemplated by this Section 6 shall be in addition to any liability which the respective holder, agent or underwriter may otherwise have and shall extend, upon the same terms and conditions, to each officer and director of the Company (including any Person who, with his consent, is named in any registration statement as about to become a director of the Company) and to each Person, if any, who controls the Company within the meaning of the Securities Act. 7. Underwritten Offerings. (a) Selection of Underwriters. If any of the Transfer Restricted Securities covered by the Shelf Registration are to be sold pursuant to an underwritten offering, the managing underwriter or underwriters thereof shall be designated by Electing Holders holding at least a majority in aggregate principal amount of the Transfer Restricted Securities to be included in such offering, provided that such designated managing underwriter or underwriters is or are reasonably acceptable to the Company. (b) Participation by Holders. Each holder of Transfer Restricted Securities hereby agrees with each other such holder that no such holder may participate in any underwritten offering hereunder unless such holder (i) agrees to sell such holder's Transfer Restricted Securities on the basis provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements. 8. Rule 144. The Company covenants to the holders of Transfer Restricted Securities that to the extent it shall be required to do so under the Exchange Act, the Company shall timely file the reports required to be filed by it under the Exchange Act or the Securities Act (including the reports under Section 13 and 15(d) of the Exchange Act referred to in subparagraph (c)(1) of Rule 144 adopted by the Commission under the Securities Act) and the rules and regulations adopted by the Commission thereunder, and shall take such further action as any holder of Transfer Restricted Securities may reasonably request, all to the extent required from time to time to enable such holder to sell Transfer Restricted Securities without registration under the Securities Act within the limitations of the exemption provided by Rule 144 under the Securities Act, as such Rule may be amended from time to time, or any similar or successor rule or regulation hereafter adopted by the Commission. Upon the request of any holder of Transfer Restricted Securities in connection with that holder's sale pursuant to Rule 144, the Company shall deliver to such holder a written statement as to whether it has complied with such requirements. 23 24 9. Miscellaneous. (a) No Inconsistent Agreements. The Company represents, warrants, covenants and agrees that it has not granted, and shall not grant, registration rights with respect to Transfer Restricted Securities or any other securities which would be inconsistent with the terms contained in this Registration Rights Agreement. (b) Specific Performance. The parties hereto acknowledge that there would be no adequate remedy at law if the Company fails to perform any of its obligations hereunder and that the Purchasers and the holders from time to time of the Transfer Restricted Securities may be irreparably harmed by any such failure, and accordingly agree that the Purchasers and such holders, in addition to any other remedy to which they may be entitled at law or in equity, shall be entitled to compel specific performance of the obligations of the Company under this Registration Rights Agreement in accordance with the terms and conditions of this Registration Rights Agreement, in any court of the United States or any State thereof having jurisdiction. (c) Notices. All notices, requests, claims, demands, waivers and other communications hereunder shall be in writing and shall be deemed to have been duly given when delivered by hand, if delivered personally or by courier, or three days after being deposited in the mail (registered or certified mail, postage prepaid, return receipt requested) as follows: If to the Company, to it at COLO.COM, 2000 Sierra Point Parkway, Suite 601, Brisbane, California 94005-1819, Attention: David H. Stanley, and if to a holder, to the address of such holder set forth in the security register or other records of the Company, or to such other address as the Company or any such holder may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. (d) Parties in Interest. All the terms and provisions of this Registration Rights Agreement shall be binding upon, shall inure to the benefit of and shall be enforceable by the parties hereto and the holders from time to time of the Transfer Restricted Securities and the respective successors and assigns of the parties hereto and such holders. In the event that any transferee of any holder of Transfer Restricted Securities shall acquire Transfer Restricted Securities, in any manner, whether by gift, bequest, purchase, operation of law or otherwise, such transferee shall, without any further writing or action of any kind, be deemed a beneficiary hereof for all purposes and such Transfer Restricted Securities shall be held subject to all of the terms of this Registration Rights Agreement, and by taking and holding such Transfer Restricted Securities such transferee shall be entitled to receive the benefits of, and be conclusively deemed to have agreed to be bound by all of the applicable terms and provisions of this Registration Rights Agreement. If the Company shall so request, any such successor, assign or transferee shall agree in writing to acquire and hold the Transfer Restricted Securities subject to all of the applicable terms hereof. (e) Survival. The respective indemnities, agreements, representations, warranties and each other provision set forth in this Registration Rights Agreement or made pursuant hereto shall remain in full force and effect regardless of any investigation (or statement 24 25 as to the results thereof) made by or on behalf of any holder of Transfer Restricted Securities, any director, officer or partner of such holder, any agent or underwriter or any director, officer or partner thereof, or any controlling Person of any of the foregoing, and shall survive delivery of and payment for the Transfer Restricted Securities pursuant to the Purchase Agreement and the transfer and registration of Transfer Restricted Securities by such holder and the consummation of an Exchange Offer. (f) GOVERNING LAW. THIS REGISTRATION RIGHTS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. (g) Headings. The descriptive headings of the several Sections and paragraphs of this Registration Rights Agreement are inserted for convenience only, do not constitute a part of this Registration Rights Agreement and shall not affect in any way the meaning or interpretation of this Registration Rights Agreement. (h) Entire Agreement; Amendments. This Registration Rights Agreement and the other writings referred to herein (including the Indenture and the form of Securities) or delivered pursuant hereto which form a part hereof contain the entire understanding of the parties with respect to its subject matter. This Registration Rights Agreement supersedes all prior agreements and understandings between the parties with respect to its subject matter. This Registration Rights Agreement may be amended and the observance of any term of this Registration Rights Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively) only by a written instrument duly executed by the Company and the holders of at least [a majority] in aggregate principal amount of the Transfer Restricted Securities at the time outstanding. Each holder of any Transfer Restricted Securities at the time or thereafter outstanding shall be bound by any amendment or waiver effected pursuant to this Section 9(h), whether or not any notice, writing or marking indicating such amendment or waiver appears on such Transfer Restricted Securities or is delivered to such holder. (i) Inspection. For so long as this Registration Rights Agreement shall be in effect, this Registration Rights Agreement and a complete list of the names and addresses of all the holders of Transfer Restricted Securities shall be made available for inspection and copying on any business day by any holder of Transfer Restricted Securities for proper purposes only (which shall include any purpose related to the rights of the holders of Transfer Restricted Securities under the Securities, the Indenture and this Agreement) at the offices of the Company at the address thereof set forth in Section 9(c) above and at the office of the Trustee under the Indenture. (j) Counterparts. This agreement may be executed by the parties in counterparts, each of which shall be deemed to be an original, but all such respective counterparts shall together constitute one and the same instrument. 25 26 If the foregoing is in accordance with your understanding, please sign and return to us nine counterparts hereof, and upon the acceptance hereof by you, on behalf of each of the Purchasers, this letter and such acceptance hereof shall constitute a binding agreement between each of the Purchasers and the Company. It is understood that your acceptance of this letter on behalf of each of the Purchasers is pursuant to the authority set forth in a form of Agreement among Purchasers, the form of which shall be submitted to the Company for examination upon request, but without warranty on your part as to the authority of the signers thereof. Very truly yours, COLO.COM By: /s/ Charles M. Skibo ------------------------------- Name: Charles M. Skibo Title: President and Chief Executive Officer Accepted as of the date hereof: Goldman, Sachs & Co. Bear, Stearns & Co. Inc. Chase Securities Inc. Deutsche Bank Securities Inc. Warburg Dillon Read LLC Jefferies & Company, Inc. By: /s/ Goldman, Sachs & Co. ------------------------------- (Goldman, Sachs & Co.) On behalf of each of the Purchasers 26 27 EXHIBIT A COLO.COM INSTRUCTION TO DTC PARTICIPANTS (DATE OF MAILING) URGENT - IMMEDIATE ATTENTION REQUESTED DEADLINE FOR RESPONSE: [DATE]* The Depository Trust Company ("DTC") has identified you as a DTC Participant through which beneficial interests in the COLO.COM (the "Company") 13 7/8% Senior Notes due 2010 (the "Securities") are held. The Company is in the process of registering the Securities under the Securities Act of 1933 for resale by the beneficial owners thereof. In order to have their Securities included in the registration statement, beneficial owners must complete and return the enclosed Notice of Registration Statement and Selling Securityholder Questionnaire. It is important that beneficial owners of the Securities receive a copy of the enclosed materials as soon as possible as their rights to have the Securities included in the registration statement depend upon their returning the Notice and Questionnaire by [Deadline For Response]. Please forward a copy of the enclosed documents to each beneficial owner that holds interests in the Securities through you. If you require more copies of the enclosed materials or have any questions pertaining to this matter, please contact COLO.COM. - -------- * Not less than 28 calendar days from date of mailing. 28 COLO.COM NOTICE OF REGISTRATION STATEMENT AND SELLING SECURITYHOLDER QUESTIONNAIRE (DATE) Reference is hereby made to the Registration Rights Agreement (the " Registration Rights Agreement") between COLO.COM (the "Company") and the Purchasers named therein. Pursuant to the Registration Rights Agreement, the Company has filed with the United States Securities and Exchange Commission (the "Commission") a registration statement on Form [ ] (the "Shelf Registration Statement") for the registration and resale under Rule 415 of the Securities Act of 1933, as amended (the "Securities Act"), of the Company's 13 7/8% Senior Notes due 2010 (the "Securities"). A copy of the Registration Rights Agreement is attached hereto. All capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Registration Rights Agreement. Each beneficial owner of Transfer Restricted Securities (as defined below) is entitled to have the Transfer Restricted Securities beneficially owned by it included in the Shelf Registration Statement. In order to have Transfer Restricted Securities included in the Shelf Registration Statement, this Notice of Registration Statement and Selling Securityholder Questionnaire ("Notice and Questionnaire") must be completed, executed and delivered to the Company's counsel at the address set forth herein for receipt ON OR BEFORE [Deadline for Response]. Beneficial owners of Transfer Restricted Securities who do not complete, execute and return this Notice and Questionnaire by such date (i) will not be named as selling securityholders in the Shelf Registration Statement and (ii) may not use the Prospectus forming a part thereof for resales of Transfer Restricted Securities. Certain legal consequences arise from being named as a selling securityholder in the Shelf Registration Statement and related Prospectus. Accordingly, holders and beneficial owners of Transfer Restricted Securities are advised to consult their own securities law counsel regarding the consequences of being named or not being named as a selling securityholder in the Shelf Registration Statement and related Prospectus. The term "Transfer Restricted Securities" is defined in the Registration Rights Agreement. 2 29 ELECTION The undersigned holder (the "Selling Securityholder") of Transfer Restricted Securities hereby elects to include in the Shelf Registration Statement the Transfer Restricted Securities beneficially owned by it and listed below in Item (3). The undersigned, by signing and returning this Notice and Questionnaire, agrees to be bound with respect to such Transfer Restricted Securities by the terms and conditions of this Notice and Questionnaire and the Registration Rights Agreement, including, without limitation, Section 6 of the Registration Rights Agreement, as if the undersigned Selling Securityholder were an original party thereto. Upon any sale of Transfer Restricted Securities pursuant to the Shelf Registration Statement, the Selling Securityholder will be required to deliver to the Company and Trustee the Notice of Transfer set forth in Appendix A to the Prospectus and as Exhibit B to the Registration Rights Agreement. The Selling Securityholder hereby provides the following information to the Company and represents and warrants that such information is accurate and complete: 3 30 QUESTIONNAIRE (1)(a) Full Legal Name of Selling Securityholder: ----------------------------------------------------------------------- (b) Full Legal Name of Registered Holder (if not the same as in (a) above) of Transfer Restricted Securities Listed in Item (3) below: ----------------------------------------------------------------------- (c) Full Legal Name of DTC Participant (if applicable and if not the same as (b) above) Through Which Transfer Restricted Securities Listed in Item (3) below are Held: ----------------------------------------------------------------------- (2) Address for Notices to Selling Securityholder: Telephone: --------------------------------- Fax: --------------------------------------- Contact Person: ---------------------------- (3) Beneficial Ownership of Securities: Except as set forth below in this Item (3), the undersigned does not beneficially own any Securities. (a) Principal amount of Transfer Restricted Securities beneficially owned: --------------------------------------------------------- CUSIP No(s). of such Transfer Restricted Securities: ----------- (b) Principal amount of Securities other than Transfer Restricted Securities beneficially owned: --------------------------------------------------------------- CUSIP No(s). of such other Securities: (c) Principal amount of Transfer Restricted Securities which the undersigned wishes to be included in the Shelf Registration Statement: ----------------------------------------------------- CUSIP No(s). of such Transfer Restricted Securities to be included in the Shelf Registration Statement: ------------------ (4) Beneficial Ownership of Other Securities of the Company: 1 31 Except as set forth below in this Item (4), the undersigned Selling Securityholder is not the beneficial or registered owner of any other securities of the Company, other than the Securities listed above in Item (3). State any exceptions here: (5) Relationships with the Company: Except as set forth below, neither the Selling Securityholder nor any of its affiliates, officers, directors or principal equity holders (5% or more) has held any position or office or has had any other material relationship with the Company (or its predecessors or affiliates) during the past three years. State any exceptions here: (6) Plan of Distribution: Except as set forth below, the undersigned Selling Securityholder intends to distribute the Transfer Restricted Securities listed above in Item (3) only as follows (if at all): Such Transfer Restricted Securities may be sold from time to time directly by the undersigned Selling Securityholder or, alternatively, through underwriters, broker-dealers or agents. Such Transfer Restricted Securities may be sold in one or more transactions at fixed prices, at prevailing market prices at the time of sale, at varying prices determined at the time of sale, or at negotiated prices. Such sales may be effected in transactions (which may involve crosses or block transactions) (i) on any national securities exchange or quotation service on which the Registered Securities may be listed or quoted at the time of sale, (ii) in the over-the-counter market, (iii) in transactions otherwise than on such exchanges or services or in the over-the-counter market, or (iv) through the writing of options. In connection with sales of the Transfer Restricted Securities or otherwise, the Selling Securityholder may enter into hedging transactions with broker-dealers, which may in turn engage in short sales of the Transfer Restricted Securities in the course of hedging the positions they assume. The Selling Securityholder may also sell Transfer Restricted Securities short and deliver Transfer Restricted Securities to close out such short positions, or loan or pledge Transfer Restricted Securities to broker-dealers that in turn may sell such securities. State any exceptions here: 2 32 By signing below, the Selling Securityholder acknowledges that it understands its obligation to comply, and agrees that it will comply, with the provisions of the Exchange Act and the rules and regulations thereunder, particularly Regulation M. In the event that the Selling Securityholder transfers all or any portion of the Transfer Restricted Securities listed in Item (3) above after the date on which such information is provided to the Company, the Selling Securityholder agrees to notify the transferee(s) at the time of the transfer of its rights and obligations under this Notice and Questionnaire and the Registration Rights Agreement. By signing below, the Selling Securityholder consents to the disclosure of the information contained herein in its answers to Items (1) through (6) above and the inclusion of such information in the Shelf Registration Statement and related Prospectus. The Selling Securityholder understands that such information will be relied upon by the Company in connection with the preparation of the Shelf Registration Statement and related Prospectus. In accordance with the Selling Securityholder's obligation under Section 3(d) of the Registration Rights Agreement to provide such information as may be required by law for inclusion in the Shelf Registration Statement, the Selling Securityholder agrees to promptly notify the Company of any inaccuracies or changes in the information provided herein which may occur subsequent to the date hereof at any time while the Shelf Registration Statement remains in effect. All notices hereunder and pursuant to the Registration Rights Agreement shall be made in writing, by hand-delivery, first-class mail, or air courier guaranteeing overnight delivery as follows: (i) To the Company: ------------------------- ------------------------- ------------------------- ------------------------- ------------------------- (ii) With a copy to: ------------------------- ------------------------- ------------------------- ------------------------- ------------------------- Once this Notice and Questionnaire is executed by the Selling Securityholder and received by the Company's counsel, the terms of this Notice and Questionnaire, and the representations and warranties contained herein, shall be binding on, shall inure to the benefit of and shall be enforceable by the respective successors, heirs, personal representatives, and assigns of the Company and the Selling Securityholder (with respect to the Transfer Restricted Securities 3 33 beneficially owned by such Selling Securityholder and listed in Item (3) above. This Agreement shall be governed in all respects by the laws of the State of New York. 4 34 IN WITNESS WHEREOF, the undersigned, by authority duly given, has caused this Notice and Questionnaire to be executed and delivered either in person or by its duly authorized agent. Dated: ------------------------------- ----------------------------------------------------------------------- Selling Securityholder (Print/type full legal name of beneficial owner of Transfer Restricted Securities) By: -------------------------------------------------------------------- Name: Title: PLEASE RETURN THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE FOR RECEIPT ON OR BEFORE [DEADLINE FOR RESPONSE] TO THE COMPANY'S COUNSEL AT: ------------------------- ------------------------- ------------------------- ------------------------- ------------------------- 5 35 EXHIBIT B NOTICE OF TRANSFER PURSUANT TO REGISTRATION STATEMENT State Street Bank and Trust Company of California, N.A. COLO.COM c/o State Street Bank and Trust Company 2 Avenue de Lafayette Boston, MA 02111-1724 Attention: Sandy Wong Telephone: (617) 662-1545 Fax: (617) 662-1452 Re: COLO.COM (the "Company") 13 7/8% Senior Notes due 2010 Dear Sirs: Please be advised that _____________________ has transferred $____ aggregate principal amount of the above-referenced Notes pursuant to an effective Registration Statement on Form [__] (File No. 333-_____) filed by the Company. We hereby certify that the prospectus delivery requirements, if any, of the Securities Act of 1933, as amended, have been satisfied and that the above-named beneficial owner of the Notes is named as a "Selling Holder" in the Prospectus dated ___________, ____ or in supplements thereto, and that the aggregate principal amount of the Notes transferred are the Notes listed in such Prospectus opposite such owner's name. Dated: Very truly yours, (Name) By: ------------------------------------ (Authorized Signature) EX-10.1 6 0006.txt AMENDED & RESTATED INVESTORS RIGHTS AGREEMENT 1 EXHIBIT 10.1 COLO.COM AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT This Amended and Restated Investors Rights Agreement is made as of December 17, 1999 by and among COLO.COM, a California corporation located at 2000 Sierra Point Parkway, Suite 600, Brisbane, California 94005 (the "Company"), and the Holders (as defined below) listed on Exhibit A attached hereto. This Amended and Restated Investors Rights Agreement supersedes and replaces, in its entirety, the Amended and Restated Investors Rights Agreement dated April 27, 1999 entered into among the Company and certain of the Holders (the "Prior Rights Agreement"). 1. Registration Rights. The Company covenants and agrees as follows: 1.1 Definitions. For purposes of this Section 1: (a) The term "register," "registered," and "registration" refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Securities Act of 1933, as amended (the "Act"), and the declaration or ordering of effectiveness of such registration statement or document; (b) The term "Registrable Securities" means the Common Stock, (i) issuable or issued upon conversion of the Series C Preferred Stock issued pursuant to the Series C Preferred Stock Purchase Agreement of even date herewith (the "Series C Agreement"), (ii) issuable or issued upon the conversion of the Series B Preferred Stock issued pursuant to the Series B Preferred Stock Purchase Agreement dated April 27, 1999 (the "Series B Agreement"), (iii) issuable or issued upon conversion of the Series A Preferred Stock and (iv) any Common Stock of the Company issued as (or issuable upon the conversion or exercise of any warrant, right or other security that is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, such Common Stock referred to in (i), (ii), and (iii) above, excluding in all cases, however, (i) any Registrable Securities sold by a person in a transaction in which such person's rights under this Section 1 are not assigned, or (ii) any Registrable Securities sold to or through a broker or dealer or underwriter in a public distribution or a public securities transaction; (c) The number of shares of "Registrable Securities then outstanding" shall be determined by the number of shares of Common Stock outstanding that are, and the number of shares of Common Stock issuable pursuant to then exercisable or convertible securities that are, Registrable Securities; (d) The term "Holder" means any person owning or having the right to acquire Registrable Securities or any assignee thereof in accordance with Section 1.13 hereof; (e) The term "Form S-3" means such form under the Act as in effect on the date hereof or any registration form under the Act subsequently adopted by the Securities and 2 Exchange Commission (the "SEC") that permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the SEC; and (f) The term "Investor" means each Investor named in the Series B Agreement or named in the Series C Agreement. 1.2 Request for Registration. (a) If the Company shall receive a written request from the Holders of more than 50% of the Registrable Securities (the "Initiating Holders") that the Company file a registration statement under the Act covering the registration of at least 40% of all Registrable Securities (or a lesser amount provided that the aggregate offering price, net of underwriting discounts and commissions, is expected to exceed $10,000,000) then the Company shall, within ten days of the receipt thereof, give written notice of such request to all Holders and shall, subject to the limitations of Section 1.2(b), use its best efforts to effect as soon as practicable the registration under the Act of all Registrable Securities that the Holders request to be registered within 20 days of the mailing of such written notice by the Company; provided, however, that the Company shall not be obligated to take any action to effect any such registration, qualification or compliance pursuant to this Section 1.2(a): (i) During the period starting with the date 90 days prior to the Company's estimated date of filing of, and ending on the date 180 days immediately following the effective date of, any registration statement pertaining to securities of the Company (other than a registration of securities in a Rule 145 transaction or with respect to an employee benefit plan), provided that the Company is actively employing in good faith all reasonable efforts to cause such registration statement to become effective; (ii) During the period starting with the effective date of the first registration statement for a public offering of securities of the Company (other than a registration statement relating either to the sale of securities to employees of the Company pursuant to a stock option, stock purchase or similar plan or a SEC Rule 145 transaction) (the "Initial Registration"), and ending on the date 180 days immediately following the effective date of such registration statement; (iii) After the Company has effected two such registrations pursuant to this Section 1.2(a), and such registrations have been declared or ordered effective; (iv) If the Company shall furnish to such Holders a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors it would be seriously detrimental to the Company or its shareholders for a registration statement to be filed at such time, then the Company's obligation to use its best efforts to register, qualify or comply under this Section 1.2(a) shall be deferred for a period not to exceed 120 days from the date of receipt of written request from the Holders; provided, however, that the Company may not utilize this right more than once in any twelve-month period; or -2- 3 (v) Prior to December 31, 2000. (b) If the Holders initiating the registration request hereunder (the "Initiating Holders") intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to this Section 1.2 and the Company shall include such information in the written notice referred to in Section 1.2(a). In such event, the right of any Holder to include such Holder's Registrable Securities in such registration shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting (unless otherwise mutually agreed by a majority in interest of the Initiating Holders and such Holder) to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company as provided in Section 1.4(e)) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by a majority in interest of the Initiating Holders. Notwithstanding any other provision of this Section 1.2, if the underwriter advises the Initiating Holders in writing that marketing factors require a limitation of the number of shares to be underwritten, then the Initiating Holders shall so advise all Holders of Registrable Securities that would otherwise be underwritten pursuant hereto, and the number of shares of Registrable Securities that may be included in the underwriting shall be allocated first among the Initiating Holders and, after all Registrable Securities owned by the Initiating Holders and included in the request for registration pursuant to Section 1.2 have been included, then among all other Holders of Registrable Securities, in proportion (as nearly as practicable) to the amount of Registrable Securities of the Company owned by each Holder participating in such underwriting; provided, however, that the number of shares of Registrable Securities to be included in such underwriting and registration shall not be reduced unless all other securities of the Company are first entirely excluded from the underwriting and registration. 1.3 Company Registration. If (but without any obligation to do so) the Company proposes to register (including for this purpose a registration effected by the Company for shareholders other than the Holders) any of its stock or other securities under the Act in connection with the public offering of such securities solely for cash (other than a registration relating solely to the sale of securities to participants in a Company stock plan, or a registration on any form that does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Securities), the Company shall, at such time, promptly give each Holder written notice of such registration. Upon the written request of each Holder given within 20 days after mailing of written notice by the Company, the Company shall, subject to the provisions of Section 1.8, cause to be registered under the Act all of the Registrable Securities Shares that each such Holder has requested to be registered. After the date of this Agreement, no shareholder or prospective shareholder of the Company shall be granted piggyback registration rights that would reduce the number of shares of Registrable Securities includable by a Holder in a registration under this Section 1.3 without the written consent of Holders of at least two-thirds of the Registrable Securities. -3- 4 1.4 Obligations of the Company. Whenever required under this Section 1 to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible: (a) Prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its best efforts to cause such registration statement to become effective, and, upon the request of the holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for the earlier of 90 days or until the distribution described in the Registration Statement has been completed. (b) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Act with respect to the disposition of all securities covered by such registration statement. (c) Furnish to the Holders such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them. (d) Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions. (e) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement. (f) Notify each Holder covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. (g) Furnish, at the request of any Holder requesting registration of Registrable Securities pursuant to this Section 1, on the date that such Registrable Securities are delivered to the underwriters for sale in connection with a registration pursuant to this Section 1, if such securities are being sold through underwriters, or, if such securities are not being sold through underwriters, on the date that the registration statement with respect to such securities becomes -4- 5 effective, an opinion, dated such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities. 1.5 Furnish Information. It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 1 with respect to the Registrable Securities of any selling Holder that such Holder shall furnish to the Company such information regarding itself, the Registrable Securities held by it, and the intended method of disposition of such securities as shall be required to effect the registration of such Holder's Registrable Securities. 1.6 Expenses of Demand Registration. All expenses other than underwriting discounts and commissions incurred in connection with registrations, filings or qualifications pursuant to Section 1.2, including (without limitation) all registration, filing and qualification fees, printers' and accounting fees, fees and disbursements of counsel for the Company, and the reasonable fees and disbursements of one counsel for the selling Holders (not to exceed $25,000) shall be borne by the Company; provided, however, that the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section 1.2 if the registration request is subsequently withdrawn at the request of the Holders holding a majority of the Registrable Securities to be registered (in which case all participating Holders shall bear such expenses pro rata on the basis of the number of shares for which registration was requested), unless the Holders holding a majority of the Registrable Securities agree to forfeit their right to one requested demand registration pursuant to Section 1.2; provided further, however, that if at the time of such withdrawal, the Holders have learned of a material adverse change in the condition, business, or prospects of the Company from that known to the Holders at the time of their request, then the Holders shall not be required to pay any of such expenses and shall retain their rights pursuant to Section 1.2. 1.7 Expenses of Company Registration. The Company shall bear and pay all expenses incurred in connection with any registration, filing or qualification of Registrable Securities with respect to the registrations pursuant to Section 1.3 for each Holder (which right may be assigned as provided in Section 1.13), including (without limitation) all registration, filing, and qualification fees, printers and accounting fees relating or apportionable thereto and the fees and disbursements of one counsel for the selling Holders selected by them (not to exceed $25,000), but excluding underwriting discounts and commissions relating to Registrable Securities. 1.8 Underwriting Requirements. In connection with any offering involving an underwriting of shares being issued by the Company, the Company shall not be required under Section 1.3 to include any of the Holders' securities in such underwriting unless they accept the terms of the underwriting as agreed upon between the Company and the underwriters selected by it (or by other persons entitled to select the underwriters), and then only in such quantity as will not, in the opinion of the underwriters, jeopardize the success of the offering by the Company, but in no event will other shareholder's securities (other than Registrable Securities held by Holders or securities being sold by the Company) be included in such offering if the amount of Registrable Securities of any selling Holder included in the offering is reduced or limited, and in no event will the amount of Registrable Securities of the selling Holders included in the -5- 6 offering be reduced below 20% of the total amount of securities included in such offering (the Registrable Securities so included to be apportioned pro rata among the selling Holders according to the total amount of Registrable Securities entitled to be included therein owned by each selling Holder ,or in such other proportions as shall mutually be agreed to by such selling Holders), unless such offering is the initial public offering of the Company's securities, in which case the selling Holders may be excluded entirely if the underwriters make the determination described above and no other shareholder's securities are included. For purposes of apportionment, any selling shareholder that is a Holder of Registrable Securities and that is a partnership, limited liability company or corporation, the partners, retired partners, members, retired members and shareholders of such Holder, or the estates and family members of any such partners, retired partners, members and retired members and any trusts for the benefit of any of the foregoing persons shall be deemed to be a single "selling shareholder," and any pro rata reduction with respect to such "selling shareholder" shall be based upon the aggregate amount of shares carrying registration rights owned by all entities and individuals included in such "selling shareholder," as defined in this sentence. The Company shall have the right to include shares now or hereafter owned by the Company's officers and employee directors that are not already, by virtue of this Agreement, deemed Registrable Securities (the "Management Shares") in any registration pursuant to Section 1.3, provided, however, that all of the Management Shares shall be excluded from such registration before any Registrable Securities are excluded from such registration pursuant to Section 1.8 hereof. If Management Shares are included in a registration pursuant to Section 1.3, each holder of Management Shares will be deemed a "Holder" (as that term is defined in Section 1 of this Agreement) for all purposes under this Agreement pertaining to such registration. 1.9 Delay of Registration. No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any such registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 1. 1.10 Indemnification. In the event any Registrable Securities are included in a registration statement under this Section 1: (a) To the extent permitted by law, the Company will indemnify and hold harmless each Holder, any underwriter (as defined in the Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Act or the Securities Exchange Act of 1934, amended (the "1934 Act"), against any losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Act, the 1934 Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a "Violation"): (i) any untrue statement or alleged untrue statement of a material fact contained in such -6- 7 registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the Company of the Act, the 1934 Act, any state securities law or any rule or regulation promulgated under the Act, the 1934 Act or any state securities law; and the Company will pay to each such Holder, underwriter or controlling person, as incurred, any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this Section 1.10(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability, or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable in any such case for any such loss, claim, damage, liability, or action to the extent that it arises out of or is based upon a Violation that occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by any such Holder, underwriter or controlling person. (b) To the extent permitted by law, each selling Holder will indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the registration statement, each person, if any, who controls the Company within the meaning of the Act, any underwriter, any other Holder selling securities in such registration statement and any controlling person of any such underwriter or other Holder, against any losses, claims, damages, or liabilities (joint or several) to which any of the foregoing persons may become subject, under the Act, the 1934 Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Holder expressly for use in connection with such registration; and each such Holder will pay, as incurred, any legal or other expenses reasonably incurred by any person intended to be indemnified pursuant to this Section 1.10(b), in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this Section 1.10(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; and provided further, that, in no event shall any indemnity under this Section 1.10(b) exceed the net proceeds from the offering received by such Holder. (c) Promptly after receipt by an indemnified party under this Section 1.10 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 1.10, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party shall have the right to retain its own counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party -7- 8 and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, to the extent prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 1.10 to the extent of any liability attributable to the failure to timely deliver such notice, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 1.10. (d) If the indemnification provided for in this Section 1.10 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, claim, damage or expense referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such loss, liability, claim, damage or expense in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions that resulted in such loss, liability, claim, damage or expense as well as any other relevant equitable considerations; provided, that, in no event shall any contribution by a Holder under this Section 1.10(d) exceed the net proceeds from the offering received by such Holder. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. (e) Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control. (f) The obligations of the Company and Holders under this Section 1.10 shall survive the completion of any offering of Registrable Securities in a registration statement under this Section 1, and otherwise. 1.11 Reports Under Securities Exchange Act of 1934. With a view to making available to the Holders the benefits of Rule 144 promulgated under the Act and any other rule or regulation of the SEC that may at any time permit a Holder to sell securities of the Company to the public without registration or pursuant to a registration on Form S-3, the Company agrees to: (a) make and keep public information available, as those terms are understood and defined in SEC Rule 144 or any similar or analogous Rule promulgated under the Securities Act, at all times after the effective date of the first registration statement filed by the Company for the offering of its securities to the general public; (b) take such action, including the voluntary registration of its Common Stock under Section 12 of the 1934 Act, as is necessary to enable the Holders to utilize Form S-3 for -8- 9 the sale of their Registrable Securities, such action to be taken as soon as practicable after the end of the fiscal year in which the first registration statement filed by the Company for the offering of its securities to the general public is declared effective; (c) file with the SEC in a timely manner all reports and other documents required of the Company under the Act and the 1934 Act; and (d) furnish to any Holder, so long as the Holder owns any Registrable Securities, forthwith upon request (i) a written statement by the Company that it has complied with the reporting requirements of SEC Rule 144 (at any time after 90 days after the effective date of the first registration statement filed by the Company), the Act and the 1934 Act (at any time after it has become subject to such reporting requirements), or that it qualifies as a registrant whose securities may be resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the SEC that permits the selling of any such securities without registration or pursuant to such form. 1.12 Form S-3 Registration. In case the Company shall receive from any Holder or Holders of Registrable Securities, a written request or requests that the Company effect a registration on Form S-3 and any related qualification or compliance with respect to all or a part of the Registrable Securities owned by such Holder or Holders, the Company will: (a) promptly give written notice of the proposed registration, and any related qualification or compliance, to all other Holders; and (b) as soon as practicable, effect such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Holder's or Holders' Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other Holder or Holders joining in such request as are specified in a written request given within 15 days after receipt of such written notice from the Company; provided, however, that the Company shall not be obligated to effect any such registration, qualification or compliance, pursuant to this Section 1.12: (1) if Form S-3 is not available for such offering by the Holders; (2) if the Holders, together with the holders of any other securities of the Company entitled to inclusion in such registration, propose to sell Registrable Securities and such other securities (if any) at an aggregate price to the public (net of any underwriters' discounts or commissions) of less than $10,000,000; (3) if the Company shall furnish to the Holders a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its shareholders for such Form S-3 Registration to be effected at such time, in which event the Company shall have the right to defer the filing of the Form S-3 registration statement for a period of not more than 120 days after receipt of the request of the Holder or Holders under this Section 1.12; provided, however, that the Company shall not utilize this right more than once in any 12 month period; (4) more than twice in any 12 month period; (5) more than three times; or (6) in any particular jurisdiction in which the Company would be required to qualify to do business or to -9- 10 execute a general consent to service of process in effecting such registration, qualification or compliance. (c) If the Holders initiating the registration request hereunder (the "Participating Holders") intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as part of their request made pursuant to this Section 1.12 and the Company shall include such information in the written notice referred to in Section 1.12(a). In such event, the right of any Holder to include such Holder's Registrable Securities in such registration shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting (unless otherwise mutually agreed by a majority in interest of the Participating Holders and such Holder) to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company as provided in Section 1.4(e)) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by a majority in interest of the Participating Holders. Notwithstanding any other provision of this Section 1.12, if the underwriter advises the Participating Holders in writing that marketing factors require a limitation of the number of shares to be underwritten, then the Participating Holders shall so advise all Holders of Registrable Securities that would otherwise be underwritten pursuant hereto, and the number of shares of Registrable Securities that may be included in the underwriting shall be allocated first among the Participating Holders and, after all Registrable Securities owned by the Participating Holders and included in the request for registration pursuant to Section 1.12 have been included, then among all other Holders thereof, including the Participating Holders to the extent Registrable Securities held by them were not included in the request for registration pursuant to Section 1.12, in proportion (as nearly as practicable) to the amount of Registrable Securities of the Company owned by each Holder. In no event shall other shareholder's securities (other than Registrable Securities held by Holders) be included in such offering if the amount of Registrable Securities of any selling Holder included in the offering is reduced or limited. (d) Subject to the foregoing, the Company shall file a registration statement covering the Registrable Securities and other securities so requested to be registered as soon as practicable after receipt of the request or requests of the Holders. All expenses incurred in connection with a registration requested pursuant to Section 1.12, including (without limitation) all registration, filing, qualification, printer's and accounting fees and the reasonable fees and disbursements of one counsel for the selling Holder or Holders (not to exceed $25,000) and counsel for the Company, but excluding any underwriters' discounts or commissions associated with Registrable Securities, shall be borne by the Company. Registrations effected pursuant to this Section 1.12 shall not be counted as the demand for registration or registrations effected pursuant to Sections 1.2 or 1.3, respectively. 1.13 Assignment of Registration Rights. The rights to cause the Company to register Registrable Securities pursuant to this Section 1 may be assigned by a Holder to any (a) transferee or assignee who acquires at least 500,000 shares of Registrable Securities (as adjusted for stock splits, combinations and the like), (b) partner or retired partner of any Holder that is a partnership, (c) member or former member of a Holder that is a limited liability company, (d) family -10- 11 member or trust for the benefit of any individual Holder, or (e) any fund, investment vehicle or other affiliated entity controlled by a Holder (each a "Transferee") regardless of the number of shares acquired by such Transferee under clauses (b) through (e), provided the Company is, within a reasonable time after such transfer, furnished with written notice of the name and address of such transferee or assignee and the securities with respect to which such registration rights are being assigned; and provided, further, that such assignment shall be effective only if immediately following such transfer the further disposition of such securities by the transferee or assignee is restricted under the Act. Notwithstanding the above, such rights may be assigned by a Holder to a parent, subsidiary, limited partner, general partner or other affiliate of a Holder ( the "Transferee") regardless of the number of shares acquired by such Transferee. 1.14 "Market Stand-Off" Agreement. Each holder of securities that are or at one time were Registrable Securities (or that are or were convertible into Registrable Securities) hereby agrees that, during a period not to exceed 180 days, following the effective date of the Initial Registration of the Company, it shall not sell or otherwise transfer or dispose of (other than to a donee who agrees to be similarly bound) any Common Stock of the Company held by it at any time during such period except (i) Common Stock included in such registration or (ii) Common Stock acquired in open market transactions following such registration; provided, however, that: (a) such agreement shall be applicable only to the first such registration statement of the Company that covers Common Stock (or other securities) to be sold on its behalf to the public in an underwritten offering; and (b) all executive officers and directors of the Company who hold shares of the Company's voting securities enter into similar agreements. In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to the Registrable Securities of each Holder (and the shares or securities of every other person subject to the foregoing restriction) until the end of such period. 1.15 Termination of Registration Rights. No shareholder shall be entitled to exercise any right provided for in this Section 1 after the earlier of (i) five years following the consummation of the sale of securities pursuant to a registration statement filed by the Company under the Act in connection with the initial firm commitment underwritten offering of its securities to the general public, or (ii) as to a given Holder (together with its affiliates, partners and former partners), when such Holder can sell all of such Holder's Registrable Securities in a 90-day period pursuant to Rule 144 promulgated under the Act. 2. Information Rights. 2.1 Inspection. The Company shall permit each Holder holding, together with its affiliates, an aggregate of 500,000 shares of the Registrable Securities (as adjusted for stock splits and combinations), at such Holder's expense to visit and inspect the Company's properties, to examine its books of account and records and to discuss the Company's affairs, finances and accounts with its officers, all at such reasonable times as may be requested by the Holder; provided, -11- 12 however, that the Company shall not be obligated pursuant to this Section 2.1 to provide access to any information that it reasonably considers to be a trade secret or similar confidential information unless such Holder agrees in writing to hold such information in confidence. 2.2 Delivery of Financial Statements. The Company shall deliver (unless otherwise notified by a Holder that it does not wish to receive such materials) to each Holder that holds, together with its affiliates, an aggregate of 500,000 shares of Registrable Securities (as adjusted for stock splits and combinations): (a) as soon as practicable, but in any event within 90 days after the end of each fiscal year of the Company commencing with the fiscal year ending December 31, 1999, a balance sheet, and statements of operations and cash flow for such fiscal year. Such year-end financial reports are to be in reasonable detail, prepared in accordance with generally accepted accounting principles ("GAAP"), and audited and certified by independent public accountants of nationally recognized standing selected by the Company; (b) within 45 days of the end of each fiscal quarter of the Company commencing with the fiscal quarter ending September 30, 1999, an unaudited statement of operations and balance sheet for and as of the end of such quarter (including, through the fiscal quarter ending December 31, 1999, comparisons to annual financial plans and to comparable fiscal year 1998 periods), in reasonable detail and prepared in accordance with GAAP, subject to year end audit adjustments and the absence of footnotes; and (c) beginning in the first month of the fiscal year ending December 31, 2000, an unaudited monthly financial report comparing the Company's monthly results to those in the Company's annual plan and to the prior year's comparable period. (d) beginning with the fiscal year 2000, (i) not later than 45 days after the beginning of each fiscal year, an annual financial plan in reasonable detail for such fiscal year (and as soon as reasonably available, subsequent revisions thereto); and (ii) as soon as practicable after the end of each month, and in any event within 20 days thereafter, a balance sheet of the Company as of the end of each such month, and a statement of income and a statement of cash flows of the Company for such month and for the current fiscal year to date, including a comparison to plan figures for such period, prepared in accordance with generally accepted accounting principles consistently applied, with the exception that no notes need be attached to such statements and year-end audit adjustments may not have been made. 2.3 Termination of Information Rights. The covenants set forth in this Section 2 shall terminate as to Holders and be of no further force and effect (i) upon the consummation of the sale of securities pursuant to a registration statement filed by the Company under the Act in connection with the initial firm commitment underwritten offering of its securities to the general public or (ii) when the Company first becomes subject to the periodic reporting requirements of Section 12(g) or 15(d) of the Securities Exchange Act of 1934, whichever event shall first occur. 3. Investors' Right of First Refusal. -12- 13 3.1 Right of First Refusal upon Issuances of Securities by the Company. (a) The Company hereby grants, on the terms set forth in this Section 3.1, to each Investor who holds in the aggregate at least 500,000 shares of Common Stock issuable or issued upon conversion of Series B Preferred Stock and Series C Preferred Stock the right of first refusal to purchase all or any part of such Investor's pro rata share of the New Securities (as defined in Section 3.1(b)) that the Company may, from time to time, propose to sell and issue. The Investors may purchase said New Securities on the same terms and at the same price at which the Company proposes to sell the New Securities. The pro rata share of each Investor, for purposes of this right of first refusal, is the ratio of the total number of shares of Common Stock issued or issuable upon conversion of Series B Preferred Stock and Series C Preferred Stock held by such Investor, to the total number of shares of Common Stock outstanding immediately prior to the issuance of the New Securities (including any shares of Common Stock into which outstanding shares of Preferred Stock are convertible). If not all eligible Investors elect to purchase their pro rata share of the New Securities, then the Company shall promptly notify in writing the eligible Investors who do so elect and shall offer such eligible Investors the right to acquire such unsubscribed shares. If all such eligible Investors entitled to such notice, in the aggregate, choose to purchase more than the unsubscribed shares, then such unsubscribed shares shall be allocated among the eligible Investors pro rata on the basis of the number of shares of Common Stock issuable or issued upon conversion of Series B Preferred Stock and Series C Preferred Stock owned by such eligible Investors. For purposes of this Section 3.1, if any "investment company" (as defined in the Investment Company Act of 1940, as amended (the "1940 Act")) together with other investment companies advised by the same investment advisor holds more than 500,000 shares of Common Stock issuable or issued upon conversion of Series B Preferred Stock and Series C Preferred Stock then each such investment company shall have the rights described in this Section 3.1. (b) "New Securities" shall mean any capital stock of the Company, whether now authorized or not, and any rights, options or warrants to purchase said capital stock, and securities of any type whatsoever that are, or may become, convertible into said capital stock; provided that "New Securities" does not include (i) the Registrable Securities, (ii) securities offered pursuant to a registration statement filed under the Act, (iii) securities issued pursuant to the acquisition of another corporation by the Company by merger, purchase of substantially all of the assets of such corporation or other reorganization that have been approved by the board of directors, (iv) 15,086,235 shares of Common Stock or other securities issued or issuable to officers, directors or employees of the Company pursuant to any plan or arrangement approved by the board of directors of the Company, (v) all shares of Common Stock or other securities issued or issuable to scientific advisors or consultants of the Company pursuant to any plan or arrangement approved by the board of directors of the Company, (vi) all securities issued, upon the approval of the board of directors of the Company, pursuant to agreements to license technology and/or provide sponsored research that have been approved by the board of directors, and (vii) all shares of Common Stock or other securities issued in connection with lending, equipment leasing or equipment financing arrangements approved by the board of directors of the Company. -13- 14 (c) In the event the Company proposes to undertake an issuance of New Securities, it shall give to the Investors written notice (the "Notice") of its intention, describing the type of New Securities, the price, the terms upon which the Company proposes to issue the same, and a statement as to the number of days from receipt of such Notice within which the Investors must respond to such Notice. The Investors shall have 30 days from the date of receipt of the Notice to purchase any or all of the New Securities for the price and upon the terms specified in the Notice by giving written notice to the Company and stating therein the quantity of New Securities to be purchased and forwarding payment for such New Securities to the Company if immediate payment is required by such terms, or in any event no later than 30 days after the date of receipt of the Notice. (d) In the event the Investors fail to exercise in full the right of first refusal within said 30 day period, the Company shall have 90 days thereafter to sell or enter into an agreement (pursuant to which the sale of New Securities covered thereby shall be closed, if at all, within 30 days from date of said agreement) to sell the New Securities respecting which the Investors' rights were not exercised, at a price and upon general terms no more favorable to the purchasers thereof than specified in the Notice. In the event the Company has not sold the New Securities within said 90-day period (or sold and issued New Securities in accordance with the foregoing within 30 days from the date of said agreement), the Company shall not thereafter issue or sell any New Securities without first offering such securities to the Investors in the manner provided above. (e) The right of first refusal granted under this Section 3.1 shall expire upon: (i) The closing of the Company's first firm commitment underwritten public offering pursuant to an effective registration statement filed by the Company under the Act. (ii) For each Investor, the date on which such Investor no longer holds a minimum aggregate of 500,000 shares of Series B Preferred Stock and Series C Preferred Stock. 4. Miscellaneous Provisions. -14- 15 4.1 Waivers and Amendments. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the holders of at least a majority of the shares of Registrable Securities. Any amendment or waiver effected in accordance with this Section 4.1 shall be binding upon each person or entity that is granted certain rights under this Agreement and the Company; provided, however, that any amendment to Section 1.14 hereof shall not be effective as to any "investment company" (as defined in the 1940 Act) without the consent of such investment company. 4.2 Notices. All notices and other communications required or permitted hereunder shall be in writing and, except as otherwise noted herein, shall be deemed effectively given upon personal delivery, delivery by nationally recognized courier or upon deposit with the United States Post Office, (by first class mail, postage prepaid) addressed: (a) if to the Company, at the address set forth on the first page of this Agreement (or at such other address as the Company shall have furnished to the Holders in writing) attention of Chief Executive Officer and (b) if to a Holder, at the latest address of such person shown on the Company's records. 4.3 Descriptive Headings. The descriptive headings herein have been inserted for convenience only and shall not be deemed to limit or otherwise affect the construction of any provisions hereof. 4.4 Governing Law. This Agreement shall be governed by and interpreted under the laws of the State of California as applied to agreements among California residents, made and to be performed entirely within the State of California. 4.5 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original and all of which shall constitute the same instrument, but only one of which need be produced. 4.6 Expenses. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorney's fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled. 4.7 Successors and Assigns. Except as otherwise expressly provided in this Agreement, this Agreement shall benefit and bind the successors, assigns, heirs, executors and administrators of the parties to this Agreement. 4.8 Entire Agreement. This Agreement constitutes the full and entire understanding and agreement between the parties with regard to the subject matter of this Agreement. -15- 16 4.9 Separability; Severability. Unless expressly provided in this Agreement, the rights of each Holder under this Agreement are several rights, not rights jointly held with any other Holders. Any invalidity, illegality or limitation on the enforceability of this Agreement with respect to any Holder shall not affect the validity, legality or enforceability of this Agreement with respect to the other Holders. If any provision of this Agreement is judicially determined to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not be affected or impaired. 4.10 Stock Splits. All references to numbers of shares in this Agreement shall be appropriately adjusted to reflect any stock dividend, split, combination or other recapitalization of shares by the Company occurring after the date of this Agreement. 4.11 Aggregation of Stock. All shares of the Preferred Stock held or acquired by affiliated entities or persons (including investment funds, partnerships and other entities managed or controlled by any Holder) shall be aggregated together for the purpose of determining the availability of any rights under this Agreement. [Remainder of page intentionally left blank] -16- 17 IN WITNESS WHEREOF, the parties have executed this Amended and Restated Investors Rights Agreement on the day and year first set forth above. "COMPANY" COLO.COM By: /s/ Charles M. Skibo ------------------------------------------- Charles M. Skibo, Chief Executive Officer 18 "HOLDERS" Name: COLO.COM EQUITY LIMITED ----------------------------------------- Signature: /s/ Sydney J. Coleman ------------------------------------ Title: The Director Ltd., Director ---------------------------------------- 19 "HOLDERS" DUFF ACKERMAN & GOODRICH, L.P. DAG LLC Signature: /s/ John M. Duff, Jr. ------------------------------------ Title: Managing Director ---------------------------------------- DUFF ACKERMAN & GOODRICH QP FUND L.P. DAG LLC Signature: /s/ John M. Duff, Jr. ------------------------------------ Title: Managing Director ---------------------------------------- DUFF ACKERMAN & GOODRICH CD FUND, L.P. DAG LLC Signature: /s/ John M. Duff, Jr. ------------------------------------ Title: Managing Director ---------------------------------------- DAG GP FUND, LLC DAG LLC Signature: /s/ John M. Duff, Jr. ------------------------------------ Title: Managing Director ---------------------------------------- 20 "HOLDERS" MeriTech Capital Partners L.P. By: MeriTech Capital Associates L.L.C. its General Partner By: MeriTech Management Associates L.L.C. a managing member By: /s/ Paul S. Madera ------------------------------------------- Paul S. Madera, a managing member MeriTech Capital Affiliates L.P. By: MeriTech Capital Associates L.L.C. its General Partner By: MeriTech Management Associates L.L.C. a managing member By: /s/ Paul S. Madera ------------------------------------------- Paul S. Madera, a managing member 21 "HOLDERS" Menlo Ventures VIII, L.P. By: MV Management VIII, L.L.C. Its General Partner By: /s/ John L. Jarve ------------------------------------------- Managing Member Menlo Entrepreneurs Fund VIII, L.P. By: MV Management VIII, L.L.C. Its General Partner By: /s/ John L. Jarve ------------------------------------------- Managing Member MMEF VIII, L.P. By: MV Management VIII, L.L.C. Its General Partner By: /s/ John L. Jarve ------------------------------------------- Managing Member Menlo Ventures VII, L.P. By: MV Management VII, L.L.C. Its General Partner By: /s/ John L. Jarve ------------------------------------------- Managing Member Menlo Entrepreneurs Fund VII, L.P. By: MV Management VII, L.L.C. Its General Partner By: /s/ John L. Jarve ------------------------------------------- Managing Member 22 "HOLDERS" PIVOTAL PARTNERS, L.P. By: /s/ Ralph Cechettini ------------------------------------------- Name: Ralph Cechettini ----------------------------------------- Title: Manager ---------------------------------------- 23 "HOLDERS" CALIFORNIA BANK & TRUST AGENT FOR RALPH H. CECHETTINI IRA #1 By: /s/ Novenia R. Baines ------------------------------------------- Name: Novenia R. Baines ----------------------------------------- Title: Trust Officer ---------------------------------------- 24 "HOLDERS" CHRISTOPHER LORD Signature: /s/ Christopher Lord ------------------------------------ 25 "HOLDERS" KEVIN LINKER Signature: /s/ Kevin Linker ------------------------------------ 26 "HOLDERS" SELIGMAN COMMUNICATIONS AND INFORMATION FUND, INC. By: J. & W. Seligman & Co. Incorporated, its investment advisor By: /s/ unreadable ------------------------------------------ Name: Title: SELIGMAN INVESTMENT OPPORTUNITIES (MASTER) FUND-NTV PORTFOLIO By: J. & W. Seligman & Co. Incorporated, its investment advisor By: /s/ unreadable ------------------------------------------ Name: Title: SELIGMAN NEW TECHNOLOGIES FUND, INC. By: J. & W. Seligman & Co. Incorporated, its investment advisor By: /s/ unreadable ------------------------------------------ Name: Title: 27 "HOLDERS" Name: Diablo Capital ----------------------------- Signature: /s/ Kevin J. Senn ------------------------ Name of Signer: Kevin J. Senn ------------------- Title: Member ---------------------------- 28 "HOLDERS" Name: Walnut Creek Ventures, LLC ----------------------------------- Signature: /s/ unreadable, /s/ unreadable ------------------------------ Name of Signer: ------------------------- Title: Member(s) ---------------------------------- 29 "HOLDERS" Name: Michael Hirtenstein ----------------------------- Signature: /s/ Michael Hirtenstein ------------------------ Name of Signer: ------------------- Title: ---------------------------- 30 "HOLDERS" Accel VI L.P. By: Accel VI Associates L.L.C. Its General Partner By: /s/ unreadable --------------------------------- Managing Member Accel Internet Fund II L.P. By: Accel Internet Fund II Associates L.L.C. Its General Partner By: /s/ unreadable --------------------------------- Managing Member Accel Keiretsu VI L.P. By: Accel Keiretsu VI Associates L.L.C. Its General Partner By: /s/ unreadable --------------------------------- Managing Member Accel Investors '98 L.P. By: /s/ unreadable --------------------------------- General Partner 31 Exhibit 10.1 "HOLDERS" Name: Athena Venturefund, LP -------------------------- Signature: /s/ unreadable --------------------- Title: General Partner ------------------------- 32 "HOLDERS" Name: COMDISCO, INC. --------------------------------------- Signature: /s/ James P. Labe ---------------------------------- Name of Signer: James P. Labe ----------------------------- Title: President, Comdisco Ventures Division -------------------------------------- 33 "HOLDERS" Name: Chul S. Ha --------------------------------------- Signature: /s/ Chul S. Ha ---------------------------------- Title: -------------------------------------- 34 "HOLDERS" Name: Daniel A. Duc --------------------------------------- Signature: /s/ Daniel A. Duc ---------------------------------- Title: Individual -------------------------------------- 35 "HOLDERS" Name: Ridgecrest Development Company, Inc., a California corporation --------------------------------------- Signature: /s/ Pamela J. Bishop ---------------------------------- Name of Signer: Pamela J. Bishop ----------------------------- Title: Secretary/Treasurer -------------------------------------- 36 "HOLDERS" HENRY KOERNER III Signature: /s/ Henry Koerner III ---------------------------------- 37 "HOLDERS" Name: MasTec, Inc. --------------------------------------- Signature: /s/ unreadable ---------------------------------- Title: Vice President -------------------------------------- 38 "HOLDERS" Highland Capital Partners IV Limited Partnership By: Highland Management Partners IV LLC, Its General Partner By: /s/ unreadable ------------------------------------- Member Highland Entrepreneurs' Fund IV Limited Partnership By: Highland Entrepreneurs' Fund IV LLC, Its General Partner By: /s/ unreadable ------------------------------------- Member 39 "HOLDERS" Name: Power Co Partnership --------------------------------------- Signature: /s/ unreadable ---------------------------------- Title: Partner -------------------------------------- 40 "HOLDERS" Name: Skanska (USA) Inc. --------------------------------------- Signature: /s/ Stuart E. Graham ---------------------------------- Name of Signer: Stuart E. Graham ----------------------------- Title: President, C.E.O. -------------------------------------- 41 "HOLDERS" Name: SF Ventures I, LLC --------------------------------------- Signature: /s/ Brent N. Folland ---------------------------------- Name of Signer: Brent N. Folland ----------------------------- Title: Manager -------------------------------------- 42 "HOLDERS" Name: Vertex Capital II LLC --------------------------------------- Signature: /s/ unreadable ---------------------------------- Title: -------------------------------------- 43 "HOLDERS" Name: Amerindo Technology Growth Fund II --------------------------------------- Signature: /s/ Gary A. Tanaka ---------------------------------- Name of Signer: Gary A. Tanaka ----------------------------- Title: Director -------------------------------------- Name: Litton Master Trust --------------------------------------- Signature: /s/ Gary A. Tanaka ---------------------------------- Title: Attorney in Fact Gary A. Tanaka -------------------------------------- 44 "HOLDERS" Name: James Stableford --------------------------------------- Signature: /s/ James Stableford ---------------------------------- Title: -------------------------------------- 45 "HOLDERS" Name: Matthew O. Fitzmaurice --------------------------------------- Signature: /s/ Matthew O. Fitzmaurice ---------------------------------- Title: -------------------------------------- 46 "HOLDERS" Name: Emeric J. McDonald --------------------------------------- Signature: /s/ Emeric J. McDonald ---------------------------------- Title: -------------------------------------- 47 "HOLDERS" Name: Jun Woo Bae --------------------------------------- Signature: /s/ Bae Jun Woo ---------------------------------- Title: -------------------------------------- 48 "HOLDERS" Name: GC&H Investments --------------------------------------- Signature: /s/ John L. Cardoza ---------------------------------- Name of Signer: John L. Cardoza ----------------------------- Title: Executive Partner -------------------------------------- 49 "HOLDERS" Name: Hikari Tsushin Partners, L.P. --------------------------------------- By: Its General Partner Hikari Tsushin Partners, L.P. Signature: /s/ Tetsuya Yamada ---------------------------------- Name of Signer: Tetsuya Yamada ----------------------------- Title: Director of Domestic Investment Division -------------------------------------- 50 "HOLDERS" Name: Nicholas C. Stevenson --------------------------------------- Signature: /s/ Nicholas S. Stevenson ---------------------------------- Title: Partner -------------------------------------- 51 "HOLDERS" Name: Beijing Technology Development Fund (Cayman) LDC --------------------------------------- Signature: /s/ unreadable ---------------------------------- Title: Chairman -------------------------------------- Name: International Network Capital Corp. & LDC --------------------------------------- Signature: /s/ unreadable ---------------------------------- Title: Chairman -------------------------------------- Name: WIH LTS Investment Ltd. --------------------------------------- Signature: /s/ unreadable ---------------------------------- Title: Chairman -------------------------------------- 52 "HOLDERS" Name: Tailwind Capital Partners, L.P. By: Thomas Weisel Capital Partners LLC General Partner ---------------------------------------- Signature: /s/ David Baylor ---------------------------------- Name of Signer: David Baylor ----------------------------- Title: General Counsel -------------------------------------- 53 "HOLDERS" Name: TSS Investment Associates, LLC --------------------------------------- Signature: /s/ Donald E. Franklin ---------------------------------- Name of Signer: Donald E. Franklin ----------------------------- Title: Managing Partner -------------------------------------- 54 "HOLDERS" Name: Imperial Ventures, Inc. --------------------------------------- Signature: /s/ James B. Rutter ---------------------------------- Name of Signer: James B. Rutter ----------------------------- Title: President -------------------------------------- 55 "HOLDERS" Name: BT Investment Partners, Inc. --------------------------------------- Signature: /s/ Kristine Cicardo ---------------------------------- Name of Signer: Kristine Cicardo ----------------------------- Title: Vice President -------------------------------------- 56 "HOLDERS" Name: USB Capital II, LLC --------------------------------------- Signature: /s/ Charles W. Moore ---------------------------------- Name of Signer: Charles W. Moore ----------------------------- Title: Principal -------------------------------------- By: /s/ Justin S. Marcarone ---------------------------------------- Name: Justin S. Marcarone --------------------------------------- Title: Partner -------------------------------------- 57 "HOLDERS" Name: Lighthouse Capital Partners III, L.P. By: Lighthouse Management Partners III, LLC, Its General Partner ---------------------------------------- Signature: /s/ Richard D. Stubblefield ---------------------------------- Name of Signer: Richard D. Stubblefield ----------------------------- Title: Managing Member -------------------------------------- 58 "HOLDERS" Name: Blake Warner --------------------------------------- Signature: /s/ Blake Warner ---------------------------------- Title: -------------------------------------- 59 "HOLDERS" Name: TeleSoft Partners IA, L.P. By: TeleSoft IA-GP, Inc. Its General Partner ---------------------------------------- Signature: /s/ Arjun Gupta ---------------------------------- Name of Signer: Arjun Gupta ----------------------------- Title: President -------------------------------------- TeleSoft Strategic Side Fund I, L.L.C. By: TeleSoft Management, L.L.C. Its Manager ---------------------------------------- By: /s/ Arjun Gupta ----------------------------------------- Arjun Gupta, Executive Manager 60 "HOLDERS" BRAD PERRY CAPITAL, L.P. Signature: /s/ Brad Perry ---------------------------------- Title: General Partner -------------------------------------- BRAD PERRY INTERNATIONAL Signature: /s/ Brad Perry ---------------------------------- Title: Advisor -------------------------------------- BRAD PERRY CAPITAL VENTURES, L.P. Signature: /s/ Brad Perry ---------------------------------- Title: General Partner -------------------------------------- BRAD PERRY CAPITAL, INC. Signature: /s/ Brad Perry ---------------------------------- Title: Chairman -------------------------------------- 61 "HOLDERS" Name: William S. Slattery --------------------------------------- Signature: /s/ William S. Slattery ---------------------------------- Title: -------------------------------------- 62 "HOLDERS" Name: Alexander D. Phillips --------------------------------------- Signature: /s/ Alexander D. Phillips ---------------------------------- Title: -------------------------------------- 63 "HOLDERS" Name: Michael Dorf --------------------------------------- Signature: /s/ Michael Dorf ---------------------------------- Title: -------------------------------------- 64 "HOLDERS" Name: NEXTLINK Communications, Inc. --------------------------------------- Signature: /s/ unreadable ---------------------------------- Title: Vice Chairman - Strategic Development -------------------------------------- 65 "HOLDERS" Name: Nortel Networks Inc. --------------------------------------- Signature: /s/ James Bartoszewicz ---------------------------------- Name of Signer: James Bartoszewicz ----------------------------- Title: Vice-President -------------------------------------- EX-10.3 7 0007.txt OFFICE LEASE 1 EXHIBIT 10.3 OFFICE LEASE THIS LEASE is entered into by and between Landlord and Tenant effective as of this ____ day of December, 1999. SECTION 1. TERMS AND DEFINITIONS The following terms as used herein shall have the meanings as set forth below: A. "Landlord" means HITACHI AMERICA, LTD., a New York corporation, and its successors and assigns. B. "Tenant" means COLO.COM, INC., a California corporation. C. "Building" means the building in which the Premises are located, which Building has approximately 266,606 square feet of Rentable Area and is located at 2000 Sierra Point Parkway, in the City of Brisbane, California. D. "Project" means the Building, the Premises, the Common Areas and the legal parcel on which the Building is located. E. "Premises" means the entire 10th floor of the Building and consists of approximately eighteen thousand two hundred sixteen (18,216) square feet of Rentable Area, as more particularly shown on Exhibit A attached hereto and incorporated herein by this reference. F. "Term" means the approximately sixty (60) month period commencing on the Lease Commencement Date and expiring on the Expiration Date. G. "Lease Commencement Date" means the earlier to occur of (1) March 1, 2000 and (2) the date Tenant commences operation of its business from the Premises; provided, however, that if the Lease Commencement Date stated in this subsection is amended pursuant to Section 3(C) below, Landlord and Tenant shall execute and attach hereto as a new Exhibit D an Amendment of Lease Commencement Date in the form of Exhibit D hereto, which shall specify such amended Lease Commencement Date and, if applicable, an amended Expiration Date. H. "Expiration Date" means February 28, 2005 unless amended as provided in an Amendment of Lease Commencement Date executed as provided above. 1 2 I. "Monthly Rental" means the following:
Period Monthly Rental ------ -------------- Lease Commencement Date - February 28, 2001 $67,399.20 March 1, 2001 - February 28, 2002 $70,131.60 March 1, 2002 - February 28, 2003 $72,864.00 March 1, 2003 - February 29, 2004 $75,778.56 March 1, 2004 - Expiration Date $78,875.25
J. "Rentable Area" means: (1) As to each floor of the Building on which the entire space rentable to tenants is or will be leased to one tenant (hereinafter referred to as a Single Tenant Floor), Rentable Area shall be the entire area bounded by the inside surface of the four exterior glass walls (or in the inside surface of the permanent exterior wall(s) where there is no glass) on such floor, including all areas used for elevator lobbies, corridors, special stairways, or elevators, restrooms, mechanical rooms, electrical rooms and telephone closets without deduction for columns and other structural portions of the Building or vertical penetrations that are included for the special use of the tenant of such floor together with a portion of the covered or enclosed common facilities which constitute a part of the Building and which are maintained by Landlord for the common benefit of all tenants of the Building which bears the same proportion to the total area of such common facilities as the Rentable Area of each Single Tenant Floor bears to the Rentable Area of the Building (excluding such common facilities), but excluding the area contained within the exterior walls of the Building stairs, fire towers, vertical ducts, elevator shafts, flues, vents, stacks and pipe shafts. (2) As to each floor of the Building on which space is or will be leased to more than one tenant, Rentable Area attributable to each such lease shall be the total of (a) the entire area included within the premises covered by such lease, being the area bounded by the inside surface of any exterior glass walls (or the inside surface of the permanent exterior wall(s) where there is no glass) of the Building bounding such premises, the exterior of all walls separating such premises from any public corridors or other public areas on such floor, and the centerline of all walls separating such premises from other areas leased or to be leased to other tenants on such floor, (b) that portion outside the Premises but within space intended for use or occupancy as premises by another tenant utilized by Tenant for wiring, ducts, vents or other requirements of Tenant's operations in the Premises, (c) that portion of the covered or enclosed common facilities which constitute a part of the Building and which are maintained by Landlord for the common benefit of all tenants of the Building which bears the same proportion to the total area of such common facilities as the Rentable Area of such Premises bears to the Rentable Area of the Building (excluding such common facilities), and (d) a pro rata portion of any area of the Building devoted to common features such as elevator 2 3 lobbies, corridors, restrooms, mechanical rooms, electrical rooms and telephone closets, but excluding any area contained within the exterior walls of the Building for stairs, fire towers, vertical ducts, elevator shafts, flues, vents, stacks and pipe shafts. K. "Security Deposit" means $134,798.40. L. "Permitted Use" means commercial office use. M. "Brokers" means Cornish & Carey Commercial. N. "Landlord's Address for Notice" means 2000 Sierra Point Parkway, MS 550, Brisbane, California 94005, Attention: Facilities Manager. O. "Tenant's Address for Notice" means the address of the Premises. P. "Parking Spaces" means 3.3 unreserved parking spaces per 1000 square feet of Rentable Area in the Premises in the area of the Project designated by Landlord for vehicle parking. Q. "Fitness Center Memberships" means eighteen (18) memberships in the fitness center located on the first floor of the Building ("Fitness Center"). SECTION 2. PROPERTY LEASED A. Premises. Upon and subject to the terms, covenants and conditions hereinafter set forth, Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, the Premises; reserving to Landlord, however, (1) the use of the exterior walls, roof, return air plenum and the area under the Premises floor and (2) the rights to make structural (building) modifications and the right to install, maintain, use, repair and replace pipes, ducts, conduits, and wires to serve or serving other tenant premises in the Building through the Premises in locations which will not materially interfere with Tenant's use thereof. B. Common Areas. Subject to the terms, covenants and conditions of this Lease, Tenant shall have the right, for the benefit of Tenant and its employees and invitees, to the non-exclusive use of all of the Common Areas as hereinafter defined. C. Minor Variations In Area. The Rentable Area of the Premises contained in Section 1(E) is agreed to be the Rentable Area of the Premises regardless of minor variations resulting from construction of the Building and/or tenant improvements. SECTION 3. COMMENCEMENT OF TERM AND POSSESSION OF PREMISES A. Lease Commencement Date. The Term of the Lease shall commence on the Lease Commencement Date (as extended only pursuant to Section 3(C) below, if applicable), and shall continue, subject to earlier termination as provided herein, until the Expiration 3 4 Date (as extended only pursuant to Section 3(C) below). B. Completion of Tenant Improvements and Possession of Premises. Upon execution of this Lease by the parties, Tenant shall have the right to enter the Premises solely for purposes of performing and completing all tenant improvements described as "Tenant's Work" in Exhibit B hereto, and Tenant shall open the Premises for business, on or before the Lease Commencement Date. Tenant's occupancy of the Premises prior to the Lease Commencement Date shall be subject to all of the terms and conditions of this Lease; provided, however, Tenant's obligation to pay Monthly Rental shall not commence until the Lease Commencement Date. All tenant improvements constructed in the Premises, whether by Landlord or by (or on behalf of) Tenant and whether at Landlord's or Tenant's expense, shall become part of the Premises and shall be and remain the property of Landlord unless Landlord specifically agrees otherwise in writing. C. Extension of Lease Commencement Date. If the Premises are not ready for occupancy by Tenant on the original Lease Commencement Date specified in Section 1(G) due to one or more delays caused by Landlord or caused by matters beyond the control of Landlord, this Lease and the obligations of Landlord and Tenant hereunder shall nevertheless continue in full force and effect. However, in such event Landlord and Tenant shall agree on an amendment of the original Lease Commencement Date to reflect such delay or delays and shall, in each instance, within thirty (30) days after the amended Lease Commencement Date, execute and attach hereto an amendment in the form of that attached as Exhibit D hereto stating such amended Lease Commencement Date and, if applicable, an amended Expiration Date and no rental shall be payable by Tenant hereunder until the amended Lease Commencement Date. The delay in commencement of the Term and in the accrual of rent described in the foregoing sentence shall constitute full settlement of all claims that Tenant might otherwise have by reason of the Premises not being ready for occupancy on the original Lease Commencement Date specified in Section 1(G) above. If the Premises are not ready for occupancy by Tenant on the Lease Commencement Date due to one or more delays caused by Tenant, or anyone acting under or for Tenant, Landlord shall have no liability for such delay and the Lease Commencement Date shall nevertheless begin as of the Lease Commencement Date stated in Section 1(G) (as extended only because of Landlord's delay pursuant to this Section 3(C), if applicable). D. Acceptance and Suitability. Tenant hereby agrees to accept the Premises in its "AS IS" condition. Tenant agrees that by taking possession of the Premises it will conclusively be deemed to have inspected the Premises and found the Premises in satisfactory condition. Tenant acknowledges that neither Landlord, nor any agent, employee or servant of Landlord, has made any representation with respect to the Premises, the Building, or the Project or with respect to the suitability of them for the conduct of Tenant's business, nor has Landlord agreed to undertake any modifications, alterations, or improvements of the Premises or Building, except as specifically provided in this Lease. TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, LANDLORD 4 5 HEREBY DISCLAIMS, AND TENANT WAIVES THE BENEFIT OF, ANY AND ALL IMPLIED WARRANTIES, INCLUDING IMPLIED WARRANTIES OF HABITABILITY, FITNESS OR SUITABILITY FOR PURPOSE, OR THAT THE BUILDING OR THE IMPROVEMENTS IN THE PREMISES HAVE BEEN CONSTRUCTED IN A GOOD AND WORKMANLIKE MANNER. ----------------- Tenant's Initials SECTION 4. RENT A. Monthly Rental. Commencing on the Lease Commencement Date, Tenant shall pay to Landlord during the Term the amount set forth in Section 1(I) in monthly installments (the "Monthly Rental"), which sum shall be payable by Tenant on or before the first day of each month, in advance, without further notice, at the address specified for Landlord in Section 1(N), or such other place as Landlord shall designate, without any prior demand therefor and without any abatement, demand, counterclaim, deduction or setoff whatsoever. If the Lease Commencement Date should occur on a day other than the first day of a calendar month, or the Expiration Date should occur on a day other than the last day of a calendar month, then the rental for such fractional month shall be prorated on a daily basis upon a thirty (30) day calendar month. B. Rent and Additional Rent. As used in this Lease, the term "rent" shall mean Monthly Rental and additional rent, and the term "additional rent" shall mean all other amounts payable by Tenant to Landlord pursuant to this Lease other than Monthly Rental. All Monthly Rental and additional rent shall be paid without any abatement, demand, deduction, setoff or counterclaim whatsoever in lawful money of the United States which shall be legal tender at the time of payment. Where no other time is stated herein for payment, payment of any amount payable from Tenant to Landlord hereunder shall be due and made, within ten (10) days after Tenant's receipt of Landlord's invoice or statement therefor. Tenant expressly acknowledges that Tenant's covenant to pay rent under this Lease is separate and independent from Landlord's covenant to provide services and other amenities hereunder. SECTION 5. COMMON AREAS A. Definitions. "Common Areas" means all areas, space, equipment and special services provided by Landlord for the common or joint use and benefit of Landlord, the tenants and other occupants of the Building, and their respective employees, agents, servants, suppliers, customers and other invitees, including, by way of illustration, but not limitation, retaining walls, fences, landscaped areas, parks, curbs, sidewalks, private roads, the cafeteria on the first floor of the Building, common restrooms, stairways, elevators, lobbies, common hallways, patios, service quarters, parking areas and all common areas and other areas within the exterior of the Building and in the Project. B. Control of Common Areas. Landlord shall maintain the Common Areas, including 5 6 lobbies,stairs, elevators, corridors, restrooms, windows, mechanical, plumbing and electrical equipment, and the structure itself in reasonably good order and condition except for damage occasioned by the act of Tenant, its employees, agents, contractors or invitees, which damage shall be repaired by Landlord at Tenant's expense. Landlord shall have the sole and exclusive control of the Common Areas, as well as the right to make changes to the Common Areas. Notwithstanding the preceding sentence, Landlord is not responsible for any harm or damage to any of Tenant's officers, agents, employees, servants, suppliers, customers or other invitees as a result of their use of the Common Areas. Landlord's rights to make changes shall include, but not be limited to, the right to (a) restrain the use of the Common Areas by unauthorized persons, (b) utilize from time to time any portion of the Common Areas for promotional and related matters, (c) temporarily close any portion of the Common Areas for repairs, improvements or alterations, (d) change the shape and size of the Common Areas or change the location of improvements within the Common Areas, including, without limitation, parking areas, roadways and curb cuts, and (e) prohibit access to or use of Common Areas that are designated for the storage of supplies or operation of equipment necessary to operate the Project or Building. Landlord may determine the nature, size and extent of the Common Areas as well as make changes to the Common Areas from time to time which, in its opinion, are deemed desirable. Noise, dust, dirt or vibration or other incidents to new construction of improvements on lands adjacent or proximate to the Building, whether or not owned by Landlord, shall in no way affect this Lease or impose any liability on Landlord. SECTION 6. SECURITY DEPOSIT Upon execution of this Lease, Tenant shall deposit with Landlord the Security Deposit defined in Section 1(K) above, which shall be held by Landlord as security for the performance by Tenant of all terms, covenants and conditions of this Lease. It is expressly understood and agreed that such Security Deposit is not an advance rental deposit or a measure of Landlord's damages in case of Tenant's default. If Tenant defaults with respect to any provision of this Lease, including, but not limited to, the provisions relating to the payment of rent or the obligation to repair and maintain the Premises or to perform any other term, covenant or condition contained herein, Landlord may (but shall not be required to), without prejudice to any other remedy provided herein or provided by law and without notice to Tenant, use the Security Deposit, or any portion of it, to cure the default or to compensate Landlord for all damages sustained by Landlord resulting from Tenant's default. Tenant shall immediately on demand pay to Landlord a sum equivalent to the portion of the Security Deposit so expended or applied by Landlord as provided in this Section so as to maintain the Security Deposit in the sum initially deposited with Landlord. Although the Security Deposit shall be deemed the property of Landlord, if Tenant is not in default at the expiration or termination of this Lease, Landlord shall return the Security Deposit (or applicable portion thereof) to Tenant. Landlord shall not be required to keep the Security Deposit separate from its general funds and Landlord, not Tenant, shall be entitled to all interest, if any, accruing on any such Security Deposit. Upon any sale or transfer of its interest in the Building, Landlord shall transfer the Security Deposit to its successor in interest and thereupon, Landlord shall be released from any liability or obligation with respect thereto. 6 7 SECTION 7. TENANT'S TAXES Tenant shall be liable for any tax (now or hereafter imposed by any governmental entity) applicable to or measured by or on the rents or any other charges payable by Tenant under this Lease, including (but not limited to) any gross income tax, gross receipts tax or excise tax with respect to the receipt of such rent or other charges or the possession, leasing or operation, use or occupancy of the Premises, but not including any net income, franchise, capital stock, estate or inheritance taxes. If any such tax is required to be paid to the governmental taxing entity directly by Landlord, then Landlord shall pay the amount due and, upon demand, shall be fully reimbursed by Tenant for such payment. Tenant shall also be liable for all taxes levied against the leasehold held by Tenant or against any personal property, leasehold improvements, additions, alterations and fixtures placed by or for Tenant in, on or about the Premises, Building and Project or constructed by Landlord for Tenant in the Premises; and if any such taxes are levied against Landlord or Landlord's property, or if the assessed value of such property is increased (whether by special assessment or otherwise) by the inclusion therein of value placed on such leasehold, personal property, leasehold improvements, additions, alterations and fixtures, and Landlord pays any such taxes (which Landlord shall have the right to do regardless of the validity thereof), Tenant, upon demand, shall fully reimburse Landlord for the taxes so paid by Landlord or for the proportion of such taxes resulting from such increase in any assessment. SECTION 8. USE OF PREMISES A. Permitted Uses. Tenant shall use the Premises solely for the Permitted Use specified in Section 1(L) above, and for no other use, and under the name specified in Section 1(B) above. Tenant shall, at its own cost and expense, obtain any and all licenses and permits necessary for any such use. Tenant shall not do or permit anything to be done in or about the Premises, Common Areas, Building or Project which will in any way obstruct or interfere with the rights of Landlord or other tenants or occupants of the Building or injure or annoy them or use or allow the Premises to be used for any unlawful purpose, nor shall Tenant cause, maintain or permit any nuisance in, on or about the Premises and Common Areas or permit any odors to emanate from the Premises and intrude upon the Common Areas or the premises of Landlord or other tenants. Tenant shall not commit or suffer to be committed any waste in or upon the Premises, Common Areas, Building or Project. Tenant shall not do or permit anything to be done in or about the Premises, Common Areas, Building or Project which may render the insurance thereon void or increase the insurance risk thereon. If an increase in any fire and extended coverage insurance premiums paid by Landlord for the Building and Project is caused by Tenant's use and occupancy of the Premises, then Tenant shall pay as additional rental the amount of such increase to Landlord. B. Compliance with Laws. Tenant shall not use the Premises, Building, Project or Common Areas in any way (or permit or suffer anything to be done in or about the same) which will conflict with any law, statute, ordinance or governmental rule or regulation or any covenant, condition or restriction (whether or not of public record) affecting the 7 8 Premises, Project or Building, now in force or which may hereafter be enacted or promulgated including, but not limited to, the provisions of any city or county zoning codes regulating the use thereof. Tenant shall, at its sole cost and expense, promptly comply with (i) all laws, statutes, ordinances and governmental rules and regulations, now in force or which may hereafter be in force, applicable to Tenant or its use of or business or operations in the Premises including structural, utility system and life safety system changes necessitated by Tenant's acts, use of the Premises or by improvements made by or for Tenant, (ii) all requirements, and other covenants, conditions and restrictions, now in force or which may hereafter be in force, which affect the Premises, and (iii) all requirements, now in force or which may hereafter be in force, of any board of fire underwriters or other similar body now or hereafter constituted relating to or affecting the condition, use or occupancy of the Premises, Building or Project. The judgment of any court of competent jurisdiction or the admission by Tenant in any action against Tenant, whether Landlord be a party thereto or not, that Tenant has violated any law, statute, ordinance, governmental rule or regulation or any requirement, covenant, condition or restriction shall be conclusive of the fact as between Landlord and Tenant. Tenant agrees to fully indemnify Landlord against any liability, claims or damages arising as a result of a breach of the provisions of this Section 8(B) by Tenant, and against all costs, expenses, fines or other charges arising therefrom, including, without limitation, reasonable attorneys' fees and related costs incurred by Landlord in connection therewith, which indemnity shall survive the expiration or earlier termination of this Lease. Without limiting the generality of the foregoing, it is expressly understood and agreed that Tenant is accepting the Premises "AS IS," in its present state and condition, without any representations or warranties from Landlord of any kind whatsoever, either express or implied, with respect to the Premises or the Building, including without limitation the compliance of the Premises or the Building with The Americans With Disabilities Act and the rules and regulations promulgated thereunder, as amended from time to time (the "ADA"). Tenant shall be responsible for insuring that the Premises and Tenant's use thereof and operations therein fully and completely comply with the ADA. If Tenant's use of the Premises or operations therein cause Landlord to incur any obligation under the ADA, as reasonably determined by Landlord, then Tenant shall reimburse Landlord for Landlord's costs and expenses in connection therewith. If Tenant's initial use of the Premises is not a "place of public accommodation" within the meaning of the ADA, then Tenant may not thereafter change the use of the Premises to cause the Premises to become a "place of public accommodation." In the event that Tenant desires or is required hereby to make Alterations (as defined below) to the Premises in order to satisfy its obligations under the ADA, then all such Alterations shall be subject to any requirements in this Lease with respect to Alterations of the Premises, and shall be performed at Tenant's sole cost and expense. C. Hazardous Materials. (1) Tenant covenants and agrees that it shall not cause or permit any Hazardous Materials (as defined below) to be brought upon, kept, or used in or about the Premises, Building or Project by Tenant, its agents, employees, contractors or invitees. The foregoing covenant shall not extend to substances typically found or 8 9 used in general office applications so long as (a) such substances and any equipment which generates such substances are maintained only in such quantities as are reasonably necessary for Tenant's operations in the Premises, (b) such substances are used strictly in accordance with the manufacturers' instructions therefor, (c) such substances are not disposed of in or about the Project in a manner which would constitute a release or discharge thereof, and (d) all such substances and any equipment which generates such substances are removed from the Project by Tenant upon the expiration or earlier termination of this Lease. Any use, storage, generation, disposal, release or discharge by Tenant of Hazardous Materials in or about the Project as is permitted pursuant to this Section shall be carried out in compliance with all applicable federal, state and local laws, ordinances, rules and regulations, including without limitation any labeling standards established by state regulations. Moreover, no hazardous waste resulting from any operations by Tenant shall be stored or maintained by Tenant in or about the Project for more than ninety (90) days prior to removal by Tenant. Tenant shall, annually within thirty (30) days after Tenant's receipt of Landlord's written request therefor, provide to Landlord a written list identifying any Hazardous Materials then maintained by Tenant in the Project, the use of each such Hazardous Material and the approximate quantity of each such Hazardous Material so maintained by Tenant, together with written certification by Tenant stating, in substance, that neither Tenant nor any person for whom Tenant is responsible has released or discharged any Hazardous Materials in or about the Project. (2) In the event that Tenant proposes to conduct any use or to operate any equipment which will or may utilize or generate a Hazardous Material other than as specified in Section 8(C)(1) above, Tenant shall first in writing submit such use or equipment to Landlord for approval. No approval by Landlord shall relieve Tenant of any obligation of Tenant pursuant to this Section 8(C), including the removal, clean-up and indemnification obligations imposed upon Tenant by this Section 8(C). Tenant shall, within five (5) days after receipt thereof, furnish to Landlord copies of all notices or other communications received by Tenant with respect to any actual or alleged release or discharge of any Hazardous Material in or about the Premises or the Project and shall, whether or not Tenant receives any such notice or communication, notify Landlord in writing of any discharge or release of Hazardous Material by Tenant or anyone for whom Tenant is responsible in or about the Premises or the Project. In the event that Tenant is required to maintain any Hazardous Materials license or permit in connection with any use conducted by Tenant or any equipment operated by Tenant in the Premises, copies of each such license or permit, each renewal or revocation thereof and any communication relating to suspension, renewal or revocation thereof shall be furnished to Landlord within five (5) days after receipt thereof by Tenant. Compliance by Tenant with the two immediately preceding sentences shall not relieve Tenant of any other obligation of Tenant pursuant to this Section 8(C). 9 10 (3) Upon any violation of the foregoing covenants, Tenant shall be obligated, at Tenant's sole cost, to clean-up and remove from the Project all Hazardous Materials introduced into the Project by Tenant or any person or entity for whom Tenant is responsible. Such clean-up and removal shall include all testing and investigation required by any governmental authorities having jurisdiction and preparation and implementation of any remedial action plan required by any governmental authorities having jurisdiction. All such clean-up and removal activities of Tenant shall, in each instance, be conducted to the satisfaction of Landlord and all governmental authorities having jurisdiction. Landlord's right of entry pursuant to Section 11 below shall include the right to enter and inspect the Premises for violations of Tenant's covenants in this Section 8(C). (4) Tenant shall indemnify, defend and hold harmless Landlord, and its successors, assigns, partners, officers, employees, agents, lenders and attorneys from and against any and all claims, liabilities, losses, actions, costs and expenses (including attorneys' fees and costs of defense) incurred by such indemnified persons, or any of them, as the result of (a) the introduction into or about the Project by Tenant or anyone for whom Tenant is responsible of any Hazardous Materials, (b) the usage, storage, maintenance, generation, disposition or disposal by Tenant or anyone for whom Tenant is responsible of Hazardous Materials in or about the Project, (c) the discharge or release in or about the Project by Tenant or anyone for whom Tenant is responsible of any Hazardous Materials, (d) any injury to or death of persons or damage to or destruction of property resulting from the use, introduction, maintenance, storage, generation, disposal, disposition, release or discharge by Tenant or anyone for whom Tenant is responsible of Hazardous Materials in or about the Project, and (e) any failure of Tenant or anyone for whom Tenant is responsible to observe the foregoing covenants of this Section 8(C). (5) Upon any violation of the foregoing covenants, Landlord shall be entitled to exercise all remedies available to a landlord against a defaulting tenant, including but not limited to those set forth in Section 20. Without limiting the generality of the foregoing, Tenant expressly agrees that upon any such violation Landlord may, at its option, (a) immediately terminate this Lease or (b) continue this Lease in effect until compliance by Tenant with its clean-up and removal covenant notwithstanding any earlier expiration date of the term of this Lease. No action by Landlord hereunder shall impair the obligations of Tenant pursuant to this Section 8(C). (6) As used in this Section 8(C), "Hazardous Materials" is used in its broadest sense and shall include any petroleum based products, pesticides, paints and solvents, polychlorinated biphenyl, lead, cyanide, DDT, acids, ammonium compounds and other chemical products and any substance or material defined or designated as hazardous or toxic, or other similar term, by any federal, state or local environmental statute, regulation, or ordinance affecting the Premises, Building or Project presently in effect or that may be promulgated in the future, as such 10 11 statutes, regulations and ordinances may be amended from time to time, including but not limited to the statutes listed below: Resource Conservation and Recovery Act of 1976, 42 U.S.C. Section 6901 et seq. Comprehensive Environmental Response, Compensation, and Liability Act of 1980, 42 U.S.C. Section 9601 et seq. Clean Air Act, 42 U.S.C. Sections 7401-7626. Water Pollution Control Act (Clean Water Act of 1977), 33 U.S.C. Section 1251 et seq. Insecticide, Fungicide, and Rodenticide Act (Pesticide Act of 1987), 7 U.S.C. Section 135 et seq. Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq. Safe Drinking Water Act, 42 U.S.C. Section 300(f) et seq. National Environmental Policy Act (NEPA) 42 U.S.C. Section 4321 et seq. Refuse Act of 1899, 33 U.S.C. Section 407 et seq. California Health and Safety Code Section 25316 et seq. California Code of Federal Regulations, Title 8 Section 5194 California Code of Federal Regulations, Title 22 Section 12601 (7) By its signature to this Lease, Tenant confirms that it has conducted its own examination of the Premises and the Project with respect to Hazardous Materials and accepts the same "AS IS" and with no Hazardous Materials present thereon. (8) Tenant acknowledges that incorporation of any material containing asbestos into the Premises is absolutely prohibited. Tenant agrees, represents and warrants that it shall not incorporate or permit or suffer to be incorporated, knowingly or unknowingly, any material containing asbestos into the Premises. D. Landlord's Rules and Regulations. Tenant shall, and Tenant agrees to cause its agents, servants, employees, invitees and licensees to, observe and comply fully and faithfully with the rules and regulations attached hereto as Exhibit C or such rules and regulations which may hereafter be adopted by Landlord (the "Rules") for the care, protection, cleanliness, and operation of the Premises, Building and Project, and any modifications or additions to the Rules adopted by Landlord, provided that, Landlord shall give written notice thereof to Tenant. Landlord shall not be responsible to Tenant for the failure of any other party to observe or comply with any of the Rules. E. Traffic and Energy Management; Recycling. Tenant agrees to cooperate and use its best efforts to participate in governmentally mandated or voluntary traffic management and recycling programs generally applicable to businesses located in the area in which the Project is situated or to the Project and, initially, shall encourage and support van and car pooling by employees and shall encourage and support staggered and flexible working hours for employees to the fullest extent permitted by the requirements of Tenant's business. Landlord shall offer, for the benefit of Tenant and other occupants of the Building and their respective employees only, the non-exclusive use of a shuttle service from the Project to a Caltrain station and a BART station at times designated by Landlord. Landlord shall have the option to discontinue such shuttle service at any time. 11 12 Neither this Section 8(E) nor any other provision in this Lease, however, is intended to or shall create any rights or benefits in any other person, firm, company, governmental entity or the public. Landlord and Tenant agree to cooperate and use their best efforts to comply with any and all guidelines or controls imposed upon either Landlord or Tenant by federal or state governmental organizations or by any energy conservation association to which Landlord is a party concerning energy management. Landlord will provide recycling containers for Tenant's use at the Premises. Tenant agrees to use its best efforts to encourage its employees to recycle all recyclable material. Any costs, fees, fines or other levies assessed against Landlord as the result of failure of Tenant to comply with this Section 8(E) shall be reimbursed by Tenant to Landlord as additional rent. SECTION 9. SERVICE AND UTILITIES A. Standard Building Services. So long as Tenant is not in default hereunder (including any default of a type described in clauses (4) - (6) of Section 20(A) below), Landlord agrees to make available to the Premises, during the Building's normal business hours of 8:00 a.m. to 6:00 p.m. Monday through Friday (holidays excepted), which hours are subject to change from time to time as reasonably determined by Landlord, such heat and air conditioning (hereinafter "HVAC"), water and electricity, as may be required in Landlord's judgment for the comfortable use and occupation of the Premises for general office purposes and at a level which is usual and customary in similar office buildings in the area where the Building is located, all of which shall be subject to the Rules of the Building as well as any governmental requirements or standards relating to, among other things, energy conservation. B. After-Hours Charges. During non-business hours Landlord shall keep the public areas of the Building and Project lighted and shall provide elevator service with at least (1) elevator, but shall not be obligated to furnish HVAC to the Premises. If Tenant requires HVAC during non-business hours, Tenant shall give Landlord at least twenty-four (24) hours prior notice of such requirement or shall follow such other procedure for activating the building energy management system as Landlord may advise Tenant, and Tenant shall pay Landlord for such extra service at Landlord's standard rates. Such rates are subject to increase from time to time based on increase in Landlord's costs associated with providing such extra services. All payments required for such charges shall be deemed to be additional rent and Landlord shall have the same remedies for a default in payment thereof as for a default in payment of rent. If the Building is designed for individual tenant operation of the HVAC, Tenant agrees to pay the cost of operating the HVAC at any time other than the schedule of hours for providing the same set forth above, which cost may include the operation of the HVAC for space located outside the Premises when such space is serviced concurrently with the operation of the HVAC for the benefit of the Premises. C. Limitation on Landlord's Obligations. Landlord shall not be in breach of its obligations under this Section 9 unless Landlord fails to make any repairs or perform maintenance which it is obligated to perform hereunder and such failure persists for an unreasonable time after written notice of a need for such repairs or maintenance is given to Landlord by 12 13 Tenant. Landlord shall not be liable for and Tenant shall not be entitled to any abatement or reduction of rent by reason of Landlord's failure to furnish or the interruption or termination of any of the foregoing when such failure, interruption or termination is caused by accidents, breakage, repairs, strikes, brownouts, blackouts, lockouts or other labor disturbances or labor disputes of any character, or by any other cause, similar or dissimilar, beyond the actual or reasonable control of Landlord, nor shall such failure, interruption or termination under such circumstances be construed as a constructive or actual eviction of Tenant. Landlord shall not be liable under any circumstances for loss or injury to property or business, however occurring, through or in connection with or incidental to Landlord's failure to furnish or the interruption or termination of any of said service or utilities. D. Excess Service. Tenant shall not, without the written consent of Landlord, use any apparatus or device in the Premises, including, without limitation, electronic data processing machines, punch card machines or machines using in excess of one hundred twenty (120) volts or which consumes more electricity than is usually furnished or supplied for the Permitted Use of the Premises, as determined by Landlord. Tenant shall not consume water or electric current in excess of that usually furnished or supplied for the use of the Premises (as determined by Landlord), without first procuring the written consent of Landlord, which Landlord may refuse. The excess cost (including any penalties for excess usage) for such water and electric current shall be established by an estimate made by a utility company or independent engineer hired by Landlord at Tenant's expense and Tenant shall pay such excess costs each month with the Monthly Rental. All costs and expenses of modifying existing equipment, cables, lines, etc. or installing additional equipment, cables, lines, etc. to accommodate such excess usage or use by Tenant of such apparatus or device shall be borne by Tenant. E. Security Services. Certain security measures (both by electronic equipment and personnel) may be provided by Landlord in connection with the Building and Common Areas. However, Tenant hereby acknowledges that such security is intended to be only for the benefit of the Landlord in protecting its property from fire, theft, vandalism and similar perils and while certain incidental benefits may accrue to Tenant therefrom, such security is not for the purpose of protecting either the property of Tenant or the safety of its officers, employees, servants or invitees. By providing such security, Landlord assumes no obligation to Tenant and shall have no liability arising therefrom and Tenant hereby releases Landlord from all liability relating thereto. If, as a result of Tenant's occupancy of the Premises, Landlord in its sole discretion determines that it is necessary to provide security or implement additional security measures or devices in or about the Building or the Common Areas, Tenant shall be required to pay, as additional rent, the cost or increased cost, as the case may be, of such security. SECTION 10. MAINTENANCE AND REPAIRS A. Landlord's Obligations. Except for special or non-standard systems and equipment installed for Tenant's exclusive use, Landlord shall keep in good condition and repair, at Landlord's initial cost and expense, HVAC systems which service the Premises as well as 13 14 other premises within the Building, the foundations, exterior walls, structural condition of interior bearing walls and roof of the Premises, interior walls, interior surfaces of exterior walls, ceilings, windows, doors, cabinets, draperies, electrical and lighting facilities within the Premises, window coverings, carpeting and other floor coverings, plate glass and skylights located within the Premises and the Building, as well as the parking lots, walkways, driveways, landscaping, fences, signs, and utility installations of the Project. Janitorial services to the Premises shall be provided in accordance with specifications established by Landlord, which specifications are subject to change from time to time in the reasonable discretion of Landlord. Landlord shall also provide elevator service, restroom supplies and window washing with reasonable frequency. Landlord shall not be required to make any repairs that are the obligation of any other tenant or occupant within the Building or Project or repairs for damage caused by any negligent or intentional act or omission of Tenant or any person claiming through or under Tenant or any of Tenant's employees, suppliers, shippers, customers or invitees, in which event Tenant shall repair such damage at its sole cost and expense. Tenant hereby waives and releases its right to make repairs at Landlord's expense under any law, statute, ordinance, rule or regulation now or hereafter in effect in any jurisdiction in which the Project is located. B. Tenant's Obligations. Tenant shall, at its sole cost and expense, make all repairs and replacements as and when Landlord deems reasonably necessary to preserve in good working order and condition any special or supplementary HVAC systems located within the Premises and installed for the exclusive use of the Premises, Tenant's cabling and telephone lines and all other non-standard utility facilities and systems exclusively serving the Premises, and all of Tenant's trade fixtures located within the Premises; provided, however, at Tenant's written request, Landlord will maintain such non-standard improvements at Tenant's expense, at a cost or charge equal to the costs incurred in such maintenance plus an additional overhead charge of fifteen percent (15%). Tenant shall not commit or permit any waste in or about the Premises, the Building or the Project. Tenant shall reimburse Landlord on demand for all repairs to the Premises, Building and Project which are required, in the reasonable opinion of Landlord, as a result of any misuse, neglect, negligent or intentional act or omission committed or permitted by Tenant or by any subtenant, agent, employee, supplier, shipper, customer, invitee or servant of Tenant. C. Landlord's Right to Make Repairs. In the event that Tenant fails to maintain the Premises in good and sanitary order, condition and repair as required by this Lease, then, following written notification to Tenant (except in the case of an emergency, in which case no prior notification shall be required), Landlord shall have the right, but not the obligation, to enter the Premises and to do such acts and expend such funds at the expense of Tenant as are required to place the Premises in good, safe and sanitary order, condition and repair. Any amount so expended by Landlord plus an overhead charge of fifteen percent (15%) of the expended amount shall be paid by Tenant promptly upon demand as additional rent. D. Condition of Premises Upon Surrender. Except as otherwise provided in this Lease, Tenant shall, upon the expiration or earlier termination of the Term, surrender the 14 15 Premises to Landlord in the same condition as on the date Tenant took possession, reasonable wear and tear excepted. All appurtenances, fixtures, improvements, additions and other property attached to or installed in the Premises whether by Landlord or by or on behalf of Tenant, and whether at Landlord's expense or Tenant's expense, shall be and remain the property of Landlord unless Landlord specifically agrees otherwise in writing. Any furnishings and personal property of Tenant located in the Premises, whether the property of Tenant or leased by Tenant (including the fixtures, improvements and other items agreed, in writing, by Landlord to belong to the Tenant as provided in the preceding sentence and, unless Landlord elects to require Tenant to leave the same in the Premises, which Landlord shall have the right to do, all data, telephone or other cabling or wiring installed by or on behalf of Tenant in the Premises, including the plenum area above the ceiling of the Premises), shall be and remain the property of Tenant and shall be removed by Tenant at Tenant's sole cost and expense at the expiration of the Term. Tenant shall promptly repair any damage to the Premises or the Building resulting from such removal. Any of Tenant's property not removed from the Premises upon the expiration of the Term shall, at Landlord's option, either become the property of Landlord or may be removed by Landlord and Tenant shall pay to Landlord the cost of such removal within ten (10) days after delivery of a bill therefor or Landlord, at its option, may deduct such amount from the Security Deposit. Any damage to the Premises, including any structural damage, resulting from Tenant's use or from the removal of Tenant's fixtures, furnishings and equipment, shall be repaired by Tenant at Tenant's expense. SECTION 11. ENTRY BY LANDLORD Landlord reserves and shall at any and all times have the right to enter the Premises at reasonable times during normal business hours and at any time in case of an emergency to inspect the same to determine whether Tenant is complying with its obligations hereunder; to supply janitorial service and any other service to be provided by Landlord hereunder; and, upon reasonable notice to Tenant, may exhibit the Premises to prospective purchasers, mortgagees or prospective tenants; to post notices of nonresponsibility; and to alter, improve or repair the Premises and any portion of the Building and Project, without abatement of rent, and may for that purpose erect scaffolding and other necessary structures that are reasonably required by the character of the work to be performed by Landlord, provided that the business of Tenant shall not be interfered with unreasonably. For each of the aforesaid purposes, Landlord shall at all times have and retain a key with which to unlock all of the doors in, upon and about the Premises, excluding Tenant's vaults and safes, and Landlord shall have the right to use any and all means which Landlord may deem proper to open such doors in the event of an emergency. Any entry to the Premises or portions thereof obtained by Landlord by any of said means, or otherwise, shall not under any circumstances be construed or deemed to be a forcible or unlawful entry into, or a detainer of, the Premises, or an eviction, actual or constructive, of Tenant from the Premises, or any portion thereof. Tenant hereby waives any claim for damages for any injury or inconvenience to or interference with Tenant's business and any loss of occupancy or quiet enjoyment of the Premises by reason of Landlord's exercise of its right of entry in accordance with this Section 11, and Tenant shall not be entitled to an abatement or reduction of rent in connection therewith. 15 16 SECTION 12. ALTERATIONS, ADDITIONS AND TRADE FIXTURES Except to the extent provided for in Exhibit B hereto, Tenant shall not make any alterations, additions or improvements to the Premises, or any part thereof, whether structural or nonstructural (hereafter "Alterations"), without Landlord's prior written consent. If Tenant does not use Landlord's architect or contractor to design or perform Alterations, Tenant shall pay to Landlord, as additional rent, a management fee equal to ten percent (10%) of the cost of the Alterations plus any professional fees or other costs and expenses incurred by Landlord in reviewing such plans and specifications or inspecting progress of any such work. In order to obtain Landlord's preliminary consent, which preliminary consent may be given or denied in Landlord's sole discretion, Tenant shall submit such information as Landlord may require, including without limitation plans and specifications for the Alterations. After Landlord gives preliminary consent, in order to obtain Landlord's final consent, which consent may not be unreasonably withheld, Tenant shall then submit (a) permits, licenses, bonds, and the construction contract, all in conformance with the plans and specifications preliminarily approved by Landlord; (b) evidence of insurance coverage in such types and amounts and from such insurers as Landlord deems satisfactory; and (c) such other information as Landlord deems reasonably necessary. The construction contract shall, at a minimum, require the general contractor and all subcontractors to obey the rules and regulations of the Building and Project. All Alterations shall be done in a good workmanlike manner by qualified and licensed contractors or mechanics, as approved by Landlord. Except for Alterations to the Premises, Tenant shall have no right whatsoever to make any alterations or modifications to any portion of the Building or its appurtenant facilities nor shall any Alterations affect the structure of the Building or its exterior appearance. All Alterations made by or for Tenant (other than Tenant's moveable trade fixtures), shall, unless Landlord expressly requires or agrees otherwise in writing, immediately become the property of Landlord, without compensation to Tenant, but Landlord has no obligation to repair, maintain or insure those Alterations. Carpeting, shelving and cabinetry are considered improvements of the Premises and not movable trade fixtures, regardless of how or where affixed. No Alterations will be removed by Tenant from the Premises either during or at the expiration or earlier termination of the Term, and they shall be surrendered as a part of the Premises unless Landlord has required that Tenant remove them. At Landlord's discretion, Alterations are subject to removal by Tenant and at Tenant's sole cost and expense. Upon any such removal, Tenant shall repair any damage caused to the Premises thereby, and shall return the Premises to the condition they were in prior to installation of such Alterations so removed. Tenant shall indemnify, defend and keep Landlord free and harmless from and against all liability, loss, damage, cost, attorneys' fees and any other expense incurred on account of claims by any person performing work or furnishing materials or supplies for Tenant or any person claiming under Tenant. Landlord may require Tenant to provide Landlord, at Tenant's sole cost and expense, a lien and completion bond in an amount equal to one and one-half times the estimated cost of such improvements, to insure Landlord against any liability for mechanic's liens and to insure completion of the work. Landlord shall have the right at all times to post on the Premises any notices permitted or required by law, or that Landlord shall deem proper, for the protection of Landlord, the Premises, the Building and the Project, and any other party having an interest therein, from mechanics' and materialmen's liens, and Tenant shall give to Landlord written notice of the commencement of any construction in or on the Premises at 16 17 least thirty (30) days prior thereto. Prior to the commencement of any such construction, Landlord shall be furnished certificates of insurance, naming Landlord as an additional insured, evidencing that each contractor performing work has insurance acceptable to Landlord, including but not limited to general liability insurance of not less that Two Million Dollars ($2,000,000.00) and worker's compensation insurance in the statutorily required amount. SECTION 13. MECHANIC'S LIENS Tenant shall keep the Premises, the Building and the Project free from any liens arising out of any work performed, material furnished or obligation incurred by or for Tenant or any person or entity claiming through or under Tenant. In the event that Tenant shall not, within ten (10) days following the imposition of any such lien, cause the same to be released of record by payment or posting of a proper bond, Landlord shall have, in addition to all other remedies provided herein and by law, the right, but not the obligation, to cause such lien to be released by such means as Landlord deems proper, including payment of the claim giving rise to such lien. All such sums paid and all expenses incurred by Landlord in connection therewith shall be due and payable to Landlord by Tenant on demand. SECTION 14. INSURANCE A. Tenant. During the Term hereof, Tenant shall keep in full force and effect the following insurance and shall provide appropriate insurance certificates to Landlord prior to the Lease Commencement Date and annually thereafter before the expiration of each policy: (1) Commercial general liability insurance for the benefit of Tenant and Landlord as an additional insured, with a limit of not less than Two Million Dollars ($2,000,000.00) combined single limit per occurrence, against claims for personal injury liability including, without limitation, bodily injury, death or property damage liability and covering (a) the business(es) operated by Tenant and by any subtenant of Tenant on the Premises, (b) operations of independent contractors engaged by Tenant for services or construction on or about the Premises, and (c) contractual liability; (2) All risk property insurance, insuring the personal property, furniture, furnishings and fixtures belonging to Tenant located on the Premises for not less than one hundred percent (100%) of the actual replacement value thereof; (3) Workers' compensation in the amount required by law; and (4) Business interruption or loss of income insurance in amounts satisfactory to Landlord, with a rental interruption rider assuring Landlord that the rent due hereunder will be paid for a period of not less than twelve (12) months or the remaining term of this Lease, whichever is shorter, if the Premises are destroyed or rendered inaccessible by a risk insured against by a policy of all risk insurance. Each insurance policy obtained by Tenant pursuant to this Lease shall contain a clause 17 18 that the insurer will provide Landlord with at least thirty (30) days' prior written notice of any material change, non-renewal or cancellation of the policy, shall be in a form satisfactory to Landlord and shall be taken out with an insurance company authorized to do business in the State in which the Project is located and rated not less than Best's Financial Class X and Best's Policy Holder Rating "A". In addition, any insurance policy obtained by Tenant shall be written as a primary policy, and shall not be contributing with or in excess of any coverage which Landlord may carry. The liability limits of the above described insurance policies shall in no manner limit the liability of Tenant under the terms of Section 15 below. Not more frequently than every two (2) years, if, in the reasonable opinion of Landlord, the amount of liability insurance specified in this Section 14 is not adequate, the above-described limits of coverage shall be adjusted by Landlord, by written notification to Tenant, in order to maintain the level of insurance protection at least equal to the protection afforded on the date the Term commences. If Tenant fails to maintain and secure the insurance coverage required under this Section 14, then Landlord shall have, in addition to all other remedies provided herein and by law, the right, but not the obligation, to procure and maintain such insurance, the cost of which shall be due and payable to Landlord by Tenant on demand. If, on account of the failure of Tenant to comply with the provisions of this Section, Landlord is deemed a co-insurer by its insurance carrier, then any loss or damage which Landlord shall sustain by reason thereof shall be borne by Tenant and shall be immediately paid by Tenant as additional rent upon receipt of a bill therefor and evidence of such loss. B. Landlord. During the Term hereof, Landlord shall keep in full force and effect the following insurance: (1) All risk property insurance (including flood and earthquake) insuring the Building and Landlord's improvements in an amount not less than the full replacement cost thereof; and (2) Such other insurance as Landlord deems necessary in its sole and absolute discretion. All insurance policies shall be issued in the names of Landlord and Landlord's lender, if any, and any other party reasonably designated by Landlord as an additional insured, as their interests appear. The insurance policies shall provide that any proceeds shall be made payable to Landlord, or to the holders of mortgages or deeds of trust encumbering Landlord's interest in the Premises, Building, and Project, or to any other party reasonably designated by Landlord as an additional insured, as their interests shall appear. C. Waiver of Subrogation. Landlord and Tenant each hereby waives any and all rights of recovery against the other, and against any other tenant or occupant of the Building and 18 19 against the officers, employees, agents, representatives, customers and business visitors of such other party and of each such other tenant or occupant of the Building, for loss of or damage to such waiving party or its property or the property of others under its control, arising from any cause insured against under any policy of property insurance required to be carried by such waiving party pursuant to the provisions of this Lease (or any other policy of property insurance carried by such waiving party in lieu thereof) at the time of such loss or damage. The foregoing waiver shall be effective whether or not a waiving party actually obtains and maintains such insurance which such waiving party is required to obtain and maintain pursuant to this Lease (or any substitute therefor). Landlord and Tenant shall, upon obtaining the policies of insurance which they are required to maintain hereunder, give notice (if required) to their respective insurance carrier or carriers that the foregoing mutual waiver of subrogation is contained in this Lease. SECTION 15. INDEMNITY A. Indemnification by Tenant. Tenant agrees to indemnify, defend and hold Landlord and its officers, directors, partners, agents and employees (collectively, "Indemnitees") entirely harmless from and against all liabilities, losses, demands, actions, expenses or claims, including reasonable attorneys' fees and court costs, for injury to or death of any person or for damages to any property or for violation of law arising out of or in any manner connected with (i) the use, occupancy or enjoyment of the Premises, Building or Project by Tenant or Tenant's agents, employees, invitees or contractors (the "Tenant's Agents") or any work, activity or other things allowed or suffered by Tenant or Tenant's Agents to be done in or about the Premises, Building or Project, (ii) any breach or default in the performance of any obligation of Tenant under this Lease, and (iii) any act or failure to act, whether negligent or otherwise tortious, by Tenant or Tenant's Agents in or about the Premises, Building or Project; provided, however, that Tenant shall not be required to indemnify Landlord in respect of any loss or damage arising by reason of the gross negligence or willful misconduct of Landlord. B. Limitation on Landlord's Liability; Release of Directors, Officers and Partners of Landlord. Tenant agrees that, in the event Tenant shall have any claim against Landlord under this Lease arising out of the subject matter of this Lease, Tenant's sole recourse shall be against the Landlord's interest in the Building, for the satisfaction of any claim, judgment or decree requiring the payment of money by Landlord as a result of a breach hereof or otherwise in connection with this Lease, and no other property or assets of Landlord, its officers, directors, employees, successors or assigns, shall be subject to the levy, execution or other enforcement procedure for the satisfaction of any such claim, judgment, injunction or decree. MOREOVER, TENANT AGREES THAT LANDLORD SHALL IN NO EVENT AND UNDER NO CIRCUMSTANCES BE RESPONSIBLE FOR ANY CONSEQUENTIAL, SPECIAL, INCIDENTAL OR PUNITIVE DAMAGES INCURRED OR SUSTAINED BY TENANT, OR ITS EMPLOYEES, AGENTS, CONTRACTORS OR INVITEES AS A RESULT OF OR IN ANY WAY CONNECTED TO TENANT'S OCCUPANCY OF THE PREMISES. None of the Indemnitees shall be liable to Tenant for, and, as such assumption and waiver do not 19 20 violate public policy, Tenant assumes all risk of, and waives any and all right to assert claims against, or obtain any damages from, the Indemnitees with respect to, loss, injury, or damages which may be sustained by the person, goods, wares, merchandise or property of Tenant, Tenant's Agents, or any other person in or about the Premises from any cause whatsoever, whether such damage or injury results from conditions arising within the Premises or from other sources and whether known, unknown, foreseen, unforeseen, patent or latent. Tenant understands and acknowledges the significance and consequence of such specific assumption of risk and waiver. C. No Landlord Liability for Force Majeure Events. Landlord shall not be liable or responsible to Tenant for any loss or damage to any property or person occasioned by theft, fire, act of God, public enemy, injunction, riot, strike, insurrection, war, court order, requisition, or order of governmental body or authority, or for any damage or inconvenience that may arise through repair or alteration of any part of the Project, the Building or the Premises, or a failure to make any such repairs, except as expressly provided in this Lease. D. Indemnification by Landlord. Landlord shall indemnify, defend, protect and save Tenant harmless from all losses, costs, damages, claims and liability whatsoever on account of any damage or liability of any kind or for any injury to or death of persons arising in the Common Areas if caused by or resulting from any negligent or willful act or omission of Landlord or its employees or agents; provided, however, that Landlord's obligation to indemnify and hold harmless Tenant pursuant to the foregoing provisions is made for the purpose of providing any benefit from time to time available to Tenant under policies of insurance carried by Landlord, and further provided that the foregoing provisions shall in no event require Landlord to provide any defense to Tenant or pay any sum to or on behalf of Tenant in addition to that which may be provided and paid pursuant to such policies of insurance as may be carried by Landlord from time to time. SECTION 16. ASSIGNMENT AND SUBLETTING BY TENANT A. Consent Required. Tenant shall not, directly or indirectly, voluntarily or by operation of law, sell, assign, encumber, pledge or otherwise transfer or hypothecate all or any part of the Premises or Tenant's leasehold estate hereunder (collectively "Assignment"), or permit the Premises to be occupied by anyone other than Tenant or sublet the Premises ("Sublease") or any portion thereof without Landlord's prior written consent being had and obtained in each instance, subject to the terms and conditions contained in this Section. In no event will Landlord's consent be unreasonably withheld. Any sale or other transfer, including transfer by consolidation, merger or reorganization, of twenty-five percent (25%) or more of the voting stock of Tenant, if Tenant is a corporation, or any sale or other transfer of twenty-five percent (25%) or more of the partnership interest in Tenant, if Tenant is a partnership, shall be an Assignment for purposes of this Section. As used in this subsection, the term "Tenant" shall also mean any entity that has guaranteed Tenant's obligation under this Lease, and the prohibition hereof shall be applicable to any sales or transfers of stock or partnership interests of said guarantor. 20 21 B. Tenant's Request for Consent. If Tenant desires at any time to enter into an Assignment of this Lease or a Sublease of the Premises or any portion thereof, Tenant shall request, in writing, at least sixty (60) days prior to the effective date of the Assignment or Sublease, Landlord's consent to the Assignment or Sublease, and shall provide Landlord with the following information: (1) The name of the proposed assignee, subtenant or occupant; (2) The nature of the proposed assignee's, subtenant's or occupant's business to be carried on in the Premises; (3) The terms and provisions of the proposed Assignment or Sublease and a copy of such documents; and (4) Such financial information concerning the proposed assignee, subtenant or occupant which Landlord shall have requested following its receipt of Tenant's request for consent. C. Landlord's Election. At any time within fifteen (15) business days after Landlord's receipt of the notice specified above, Landlord may by written notice to Tenant elect either to (1) consent to the proposed Assignment or Sublease, (2) refuse to consent to the proposed Assignment or Sublease, or (3) terminate this Lease in full with respect to an Assignment or terminate in part with respect to a Sublease. Any such termination of this Lease shall be conditioned on Landlord successfully entering into a new lease covering the Premises or a portion thereof with the intended assignee or subtenant on such terms as Landlord and such person may agree, or entering into a new lease covering the Premises or a portion thereof with any other person. In such event, Tenant shall not be entitled to any portion of the profit, if any, which Landlord may realize on account of such termination and reletting. Landlord's exercise of its aforesaid option shall not be construed to impose any liability upon Landlord with respect to any real estate brokerage commission(s) or any other proposed subletting or assignment. D. Landlord's Factors. Landlord and Tenant agree (by way of example and without limitation) that Landlord shall be entitled to take into account any fact or factor which Landlord reasonably deems relevant to its decision to consent or not consent to an Assignment or Sublease, including but not necessarily limited to the following, all of which Tenant hereby agrees are reasonable factors for Landlord's consideration: (1) The financial strength of the proposed assignee or subtenant (which shall be at least equal to that of Tenant as of the date of execution of this Lease), including the adequacy of its working capital to pay all expenses anticipated in connection with any remodeling of the Premises. (2) The quality and nature of the business and/or services to be conducted in or from the Premises by the proposed assignee or subtenant and in any other locations which it has. 21 22 (3) Violation of exclusive use rights previously granted by Landlord to other tenants of the Building. (4) The quality of the appearance of the Premises resulting from any remodeling or renovation to be conducted by the proposed assignee or subtenant, and the compatibility of such quality with that of other premises in the Building. (5) Whether the business in the Premises is, and whether the business to be operated by the proposed assignee or subtenant will be, a "destination business" (i.e., a business which draws patrons to the Building specifically to obtain services from such business). (6) Whether the proposed tenant is a direct competitor of Landlord. (7) Whether there then exists any default by Tenant pursuant to this Lease or any non-payment or non-performance by Tenant under this Lease which, with the passage of time and/or the giving of notice, would constitute a default under this Lease. Moreover, Landlord shall be entitled to be reasonably satisfied that each and every covenant, condition or obligation imposed upon Tenant by this Lease and each and every right, remedy or benefit afforded Landlord by this Lease is not impaired or diminished by such Assignment or Sublease. In no event shall there be any substantial change in the use of the Premises in connection with any Assignment or Sublease except as expressly approved in writing by Landlord in advance. Landlord and Tenant acknowledge that the express standards and provisions set forth in this Lease dealing with Assignment and Sublease, including those set forth in Sections 16(E) through 16(H) have been freely negotiated and are reasonable at the date hereof taking into account Tenant's proposed use of the Premises and the nature and quality of the Building and Project. No withholding of consent by Landlord for any reason deemed sufficient by Landlord shall give rise to any claim by Tenant or any proposed assignee or subtenant or entitle Tenant to terminate this Lease or to any abatement of rent. Approval of any Assignment of Tenant's interest shall, whether or not expressly so stated, be conditioned upon such assignee assuming in writing all obligations of Tenant hereunder by a written instrument satisfactory to Landlord. E. Granting of Consent. If Landlord consents to the Sublease or Assignment within said thirty (30) day period, Tenant may enter into such Assignment or Sublease of the Premises or portion thereof, but only upon the terms and conditions set forth in the notice furnished by Tenant to Landlord pursuant to Section 16(B) above. F. Assignment and Sublease Profit. In connection with any Assignment or Sublease, as a condition to Landlord's consent, seventy-five percent (75%) of any sums or other economic consideration received by Tenant directly or indirectly in connection with any assignment or sublease hereunder (except to the extent of assignment or sublease 22 23 commissions paid by Tenant to a licensed broker at prevailing rates for comparable space) from assignee or sublessee and leasehold improvement costs whether described as rental or otherwise which exceed, in the aggregate, the total sums which Tenant is obligated to pay Landlord hereunder (prorated to reflect obligations allocable to that portion of the Premises assigned or sublet) shall be payable to Landlord as additional rent under this Lease. Within fifteen (15) days after written request therefor by Landlord, Tenant shall at any time and from time to time at Landlord's request certify to Landlord the amount of all such sums or other economic consideration received and all such commissions and improvement costs incurred, or expected to be received or incurred. G. Tenant Remains Liable. No consent by Landlord to any Assignment or Sublease by Tenant shall relieve Tenant of any obligation to be performed by Tenant under this Lease, whether arising before or after the Assignment or Sublease. The consent by Landlord to any Assignment or Sublease shall not relieve Tenant of the obligation to obtain Landlord's express written consent to any other Assignment or Sublease. Any Assignment or Sublease that is not in compliance with this Section 16 shall be void and, at the option of Landlord, shall constitute a material default by Tenant under this Lease. The acceptance of rent by Landlord or payment to Landlord of any other monetary obligation by a proposed assignee or sublessee shall not constitute the consent by Landlord to such Assignment or Sublease. Tenant shall promptly provide to Landlord a copy of the fully executed Sublease or Assignment. H. Assignee Becomes Liable. Each assignee, sublessee or other transferee, other than Landlord, shall assume, as provided in this Section 16(H), all obligations of Tenant under this Lease and shall be and remain liable jointly and severally with Tenant for the payment of Monthly Rental and all other monetary obligations hereunder, and for the performance of all the terms, covenants, conditions and agreements herein contained on Tenant's part to be performed for the Term; provided, however, that the assignee, sublessee, or other transferee shall be liable to Landlord for rent only in the amount set forth in the Assignment or Sublease. No Assignment shall be binding on Landlord unless the assignee or Tenant shall deliver to Landlord a counterpart of the Assignment and an instrument in recordable form that contains a covenant of assumption by the assignee satisfactory in substance and form to Landlord, consistent with the requirements of this Section 16(H) but the failure or refusal of the assignee to execute such instrument of assumption shall not release or discharge the assignee from its liability as set forth above. I. Bankruptcy. If this Lease is assigned to any person or entity pursuant to the provisions of the Bankruptcy Code, 11 U.S.C. Section 101 et seq., (the "Bankruptcy Code"), any and all monies or other consideration payable or otherwise to be delivered in connection with such assignment shall be paid or delivered to Landlord, shall be and remain the exclusive property of Landlord and shall not constitute property of Tenant or of the estate of Tenant within the meaning of the Bankruptcy Code. Any and all monies or other considerations constituting Landlord's property under the preceding sentence not paid or delivered to Landlord shall be held in trust for the benefit of Landlord and be promptly paid or delivered to Landlord. Any person or entity to which this Lease is assigned pursuant to the provisions of the Bankruptcy Code, shall be deemed, without further act or deed, to 23 24 have assumed all of the obligations arising under this Lease on and after the date of such Assignment. Any such assignee shall upon demand execute and deliver to Landlord an instrument confirming such assumption. J. Landlord's Fees. Tenant shall pay Landlord's expenses and attorneys' fees incurred in processing an Assignment or Sublease, but in no event less than Five Hundred Dollars ($500.00) for each such proposed transfer to cover the legal review and processing expenses of Landlord, whether or not Landlord shall grant its consent to such proposed transfers. K. Certain Rights Personal to Tenant. All options to extend, renew or expand, if any, contained in this Lease are personal to Tenant. Consent by Landlord to any Assignment or Sublease shall not include consent to the assignment or transfer of any such rights with respect to the Premises or any special privileges or extra services granted to Tenant by this Lease, or any addendum or amendment hereto or letter of agreement. All such options, rights, privileges and extra services shall terminate upon the effective date of such Assignment or Sublease unless Landlord specifically grants in writing such options, rights, privileges and extra services to such assignee or subtenant. Similarly, any allowance, abatement or monetary concession provided to Tenant as an inducement to execute this Lease is personal to Tenant and shall be amortized (on a straight line basis) over the term of this Lease. Upon the effective date of any Assignment or Sublease, the then unamortized portion thereof shall be paid by Tenant to Landlord in cash on or before the effective date of such Assignment or Sublease. L. Sublease Rents. Tenant immediately and irrevocably assigns to Landlord, as security for Tenant's obligations under this Lease, all rent from any subletting of all or part of the Premises, and appoints Landlord, as assignee and as attorney-in-fact for Tenant for purposes hereof. Landlord, or a receiver for Tenant appointed on Landlord's application, may collect such rents and apply same toward Tenant's obligations under this Lease; except that, until the occurrence of an act of default by Tenant, Tenant shall have the right and license to collect such rents. SECTION 17. TRANSFER OF LANDLORD'S INTEREST In the event Landlord shall sell or otherwise convey its title to the Building, then, after the effective date of such sale or conveyance, Landlord shall have no further liability under this Lease to Tenant except as to matters of liability which have accrued and are unsatisfied as of the date of sale or conveyance, and Tenant shall seek performance solely from Landlord's purchaser or successor in title. In connection with such sale or transfer, Landlord may assign its interest under this Lease without notice to or consent by Tenant. In such event, Tenant agrees to be bound to any successor Landlord. SECTION 18. DAMAGE AND DESTRUCTION A. Minor Insured Damage. In the event the Premises or the Building, or any portion thereof, is damaged or destroyed by any casualty that is covered by the insurance maintained by 24 25 Landlord pursuant to Section 14 above, then Landlord shall rebuild, repair and restore the damaged portion thereof, provided that (1) the amount of insurance proceeds available to Landlord equals or exceeds the cost of such rebuilding, restoration and repair, (2) such rebuilding, restoration and repair can be completed within one hundred eighty (180) days after the work commences in the opinion of a registered architect or engineer appointed by Landlord, (3) the damage or destruction has occurred more than twelve (12) months before the expiration of the Term, and (4) such rebuilding, restoration or repair is then permitted, under applicable governmental laws, rules and regulations, to be done in such a manner as to return the damaged portion thereof to substantially its condition immediately prior to the damage or destruction, including, without limitation, substantially the same Rentable Area on each of the damaged floors. To the extent that insurance proceeds must be paid to a mortgagee or beneficiary under, or must be applied to reduce any indebtedness secured by, a mortgage or deed of trust encumbering the Premises, Building or Project, such proceeds, for the purposes of this Section 18(A), shall be deemed not available to Landlord unless such mortgagee or beneficiary permits Landlord to use such proceeds for the rebuilding, restoration and repair of the damaged portion thereof. Notwithstanding the foregoing, Landlord shall have no obligation to repair any damage to, or to replace any of, Tenant's personal property, furnishings, trade fixtures, equipment or other such property or effects of Tenant. B. Major or Uninsured Damage. In the event the Premises or the Building, or any portion thereof, is damaged or destroyed by any casualty to the extent that Landlord is not obligated, under Section 18(A) above, to rebuild, repair or restore the damaged portion thereof, then Landlord shall, within sixty (60) days after such damage or destruction, notify Tenant of its election, at its option, to either (1) rebuild, restore and repair the damaged portions thereof, in which case Landlord's notice shall specify the time period within which Landlord estimates such repairs or restoration can be completed; or (2) terminate this Lease effective as of the date the damage or destruction occurred. If Landlord does not give Tenant written notice within sixty (60) days after the damage or destruction occurs of its election to rebuild or restore and repair the damaged portions thereof, Landlord shall be deemed to have elected to terminate this Lease. C. Abatement of Rent. There shall be an abatement of rent by reason of damage to or destruction of the Premises or the Building, or any portion thereof, to the extent that Landlord receives insurance proceeds for loss of rental income attributable to the Premises, commencing on the date that the damage to or destruction of the Premises or Building has occurred. Such abatement shall be determined by reference to the area of the Premises rendered untenantable, except that if so much of the Premises shall be untenantable that it is not commercially practicable for Tenant to use any portion thereof, rent shall entirely abate during restoration of the casualty. D. Waiver. Tenant shall have no claim against Landlord for any damage suffered by Tenant by reason of any such damage, destruction, repair or restoration. Tenant waives the provisions of California Civil Code Sections 1932(2) and 1933(4) and any present or future laws or case decisions to the same effect. Upon completion of such repair or restoration, Tenant shall promptly refixture the Premises substantially to the condition 25 26 they were in prior to the casualty and shall reopen for business if closed by the casualty. SECTION 19. CONDEMNATION A. Total or Partial Taking. If all or substantially all of the Premises is condemned or taken in any manner for public or quasi-public use, including but not limited to, a conveyance or assignment in lieu of the condemnation or taking, this Lease shall automatically terminate as of the earlier of the date on which actual physical possession is taken by the condemnor or the date of dispossession of Tenant as a result of such condemnation or other taking. If less than all or substantially all of the Premises is so condemned or taken, this Lease shall automatically terminate only as to the portion of the Premises so taken as of the earlier of the date on which actual physical possession is taken by the condemnor or the date of dispossession of Tenant as a result of such condemnation or taking. If a portion of the Building not including the Premises is condemned or otherwise taken so as to require, in the opinion of Landlord, a substantial alteration or reconstruction of the remaining portions thereof, this Lease may be terminated by Landlord, as of the date on which actual physical possession is taken by the condemnor or dispossession of Tenant as a result of such condemnation or taking, by written notice to Tenant delivered within sixty (60) days following notice to Landlord of the date on which such physical possession is taken or dispossession will occur. B. Award. Landlord shall be entitled to the entire award in any condemnation proceeding or other proceeding for taking for public or quasi-public use, including, without limitation, any award made for the value of the leasehold estate created by this Lease. No award for any partial or total taking shall be apportioned, and Tenant hereby assigns to Landlord any award that may be made in such condemnation or other taking, together with any and all rights of Tenant now or hereafter arising in or to the same or any part thereof. Although all damages in the event of any condemnation are to belong to Landlord whether such damages are awarded as compensation for diminution in value of the leasehold or to the fee of the Premises, Tenant shall have the right to claim and recover from the condemnor, but not from Landlord, such compensation as may be separately awarded or recoverable by Tenant in Tenant's own right on account of damages to Tenant's business by reason of the condemnation and for or on account of any cost or loss to which Tenant might be put in removing Tenant's merchandise, furniture and other personal property, fixtures, and equipment, for the interruption of or damage to Tenant's business or for Tenant's relocation expenses. C. Abatement in Rent. In the event of a partial condemnation or other taking that does not result in a termination of this Lease as to the entire Premises pursuant to this Section 19, the rent and all other charges shall abate in proportion to the portion of the Premises taken by such condemnation or other taking. If this Lease is terminated, in whole or in part, pursuant to any of the provisions of this Section 19, all rentals and other charges payable by Tenant to Landlord hereunder and attributable to the Premises taken shall be paid up to the date upon which actual physical possession shall be taken by the condemnor. Landlord shall be entitled to retain all of the Security Deposit until such time as this Lease is terminated as to all of the Premises. 26 27 D. Temporary Taking. If all or any portion of the Premises is condemned or otherwise taken for public or quasi-public use for a limited period of time, this Lease shall remain in full force and effect and Tenant shall continue to perform all terms, conditions and covenants of this Lease; provided, however, the rent and all other charges payable by Tenant to Landlord hereunder shall abate during such limited period in proportion to the portion of the Premises that is rendered untenantable and unusable as a result of such condemnation or other taking. Landlord shall be entitled to receive the entire award made in connection with any such temporary condemnation or other taking. Tenant shall have the right to claim and recover from the condemnor, but not from Landlord, such compensation as may be separately awarded or recoverable by Tenant in Tenant's own right on account of damages to Tenant's business by reason of the condemnation and for or on account of any cost or loss to which Tenant might be put in removing Tenant's merchandise, furniture and other personal property, fixtures and equipment or for the interruption of or damage to Tenant's business. E. Transfer of Landlord's Interest to Condemnor. Landlord may, without any obligation to Tenant, agree to sell and/or convey to the condemnor the Premises, the Building, the Project or any portion thereof, sought by the condemnor, free from this Lease and the rights of Tenant hereunder, without first requiring that any action or proceeding be instituted or, if instituted, pursued to a judgment. SECTION 20. DEFAULT A. Tenant's Default. The failure by Tenant to perform any one or more of the following obligations shall constitute a default hereunder by Tenant: (1) If Tenant abandons all or a substantial portion of the Premises; (2) If Tenant fails to pay any rent or other charges required to be paid by Tenant under this Lease and such failure continues for five (5) days after such payment is due and payable; provided, however, that the obligation of Tenant to pay a late charge or interest pursuant to this Lease below shall commence as of the due date of the rent or such other monetary obligation and not on the expiration of such five (5) day grace period; (3) If Tenant involuntarily transfers Tenant's interest in this Lease or voluntarily transfers (attempted or actual) its interest in this Lease, without Landlord's prior written consent; (4) If Tenant files a voluntary petition for relief or if a petition against Tenant in a proceeding under the Federal Bankruptcy Laws or other insolvency laws is filed and not withdrawn or dismissed within forty-five (45) days thereafter, or if under the provisions of any law providing for reorganization or winding up of corporations, any court of competent jurisdiction assumes jurisdiction, custody or control of Tenant or any substantial part of the Premises or any of Tenant's 27 28 personal property located at the Premises and such jurisdiction, custody or control remains in force unrelinquished, unstayed or unterminated for a period of forty-five (45) days; (5) If in any proceeding or action in which Tenant is a party, a trustee, receiver, agent or custodian is appointed to take charge of the Premises or any of Tenant's personal property located at the Premises (or has the authority to do so) for the purpose of enforcing a lien against the Premises or Tenant's personal property; (6) If Tenant shall make any general assignment for the benefit of creditors or convene a meeting of its creditors or any class thereof for the purpose of effecting a moratorium upon or composition of its debts, or any class thereof; (7) If Tenant fails to discharge any lien placed upon the Premises, the Building or the Project by Tenant or any person claiming under, by or through Tenant within ten (10) days of the imposition of such lien; (8) If Tenant fails to promptly and fully perform any other covenant, condition or agreement contained in this Lease (other than subparagraphs (1) through (7) above) and such failure continues for ten (10) days after written notice thereof from Landlord to Tenant, or if such failure cannot be completely cured within such ten (10) day period, then if Tenant fails to commence such cure within such ten (10) day period and thereafter proceed to completely cure such failure within thirty (30) days after such written notice; or (9) If Tenant is a partnership or consists of more than one (1) person or entity, if any partner of the partnership or other person or entity is involved in any of the acts or events described in subparagraphs (1) through (8) above. B. Remedies. Any notice given by Landlord pursuant to Section 20(A) above may be the notice required or permitted pursuant to Section 1161 et seq. of the California Code of Civil Procedure or successor statutes, and the provisions of this Lease shall not require the giving of a notice in addition to such statutory notice to terminate this Lease and Tenant's right to possession of the Premises. The periods specified in Section 20(A) within which Tenant is permitted to cure any default following notice from Landlord shall run concurrently with any cure period provided by applicable laws. Upon the occurrence of a default by Tenant that is not cured by Tenant within any applicable grace period specified above, Landlord shall have the following rights and remedies in addition to all other rights and remedies available to Landlord at law or in equity, which shall be cumulative and non-exclusive: (1) Without further notice or demand of any kind to Tenant or any other person, the right to declare this Lease and the term of this Lease terminated; re-enter the Premises and the improvements located thereon, with or without process of law; to eject all parties in possession thereof therefrom; repossess and enjoy the Premises together with all said improvements; and to recover from Tenant all of 28 29 the following: (a) The worth at the time of award of the unpaid rent which had been earned at the time of termination; plus (b) The worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; plus (c) The worth at the time of award of the amount by which the unpaid rent for the balance of the Term after the time of award exceeds the amount of rental loss that Tenant proves could be reasonably avoided; plus (d) Any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant's failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, including, but not limited to, any attorneys' fees, broker's commissions or finder's fees (not only in connection with the reletting of the Premises, but also that portion of any leasing commission paid by Landlord in connection with this Lease which is applicable to that portion of the Term which is unexpired as of the date on which this Lease is terminated); the then unamortized cost of any tenant improvements constructed for or on behalf of Tenant by or at the expense of Landlord or of any moving allowance or other concession made available to Tenant and/or paid by Landlord pursuant to this Lease; any costs for repairs, clean-up, refurbishing, removal (including the repair of any damage caused by such removal) and storage (or disposal) of Tenant's personal property, equipment, fixtures, and anything else that Tenant is required (under this Lease) to remove but does not remove; any costs for alterations, additions and renovations; and any other costs and expenses, including reasonable attorneys' fees and costs, incurred by Landlord in regaining possession of and reletting (or attempting to relet) the Premises. (2) The right to continue this Lease in effect and to enforce all of Landlord's rights and remedies under this Lease, including the right to recover rent and any other additional monetary charges as they become due, for as long as Landlord does not terminate Tenant's right to possession. Acts of maintenance or preservation, efforts to relet the Premises, the appointment of a receiver upon Landlord's initiative to protect its interest under this Lease or Landlord's withholding of consent to an Assignment or Subletting pursuant to the terms and conditions of Section 16 above shall not constitute a termination of Tenant's right to possession. (3) The foregoing provisions of clause (2) shall apply even though Tenant has breached the Lease and abandoned the Premises, in which case Landlord shall have the right to re-enter the Premises with or without process of law to eject 29 30 therefrom all parties in possession thereof, and, without terminating this Lease, at any time and from time to time, but without obligation to do so, to relet the Premises and the improvements located therein or any part or parts of any thereof for the account of Tenant, or otherwise, on such conditions as Landlord in its discretion may deem proper, with the right to make alterations and repairs to the Premises in connection therewith, and to receive and collect the rents therefor, and apply the same (a) first to the payment of such costs and expenses as Landlord may have paid, assumed or incurred: (I) in recovering possession of the Premises and said improvements, including attorneys' fees, and costs; (II) on expenses for placing the Premises and said improvements in good order and condition, for decorating and preparing the Premises for reletting; (III) for making any alterations, repairs, changes or additions to the Premises that may be necessary or convenient; and (IV) for all other costs and expenses, including leasing and subleasing commissions, and charges paid, assumed or incurred by Landlord in or upon reletting the Premises and said improvements, or in fulfillment of the covenants of Tenant under this Lease; (b) then to the payment of Monthly Rental and other monetary obligations due and unpaid hereunder; and (c) any balance shall be held by Landlord and applied in payment of future amounts as the same may become due and payable hereunder. Any such reletting may be for the remainder of the term of this Lease or for a longer or shorter period. Landlord may execute any lease or sublease made pursuant to the terms of this clause (3) either in its own name or in the name of Tenant as its agent, as Landlord may see fit. The tenant(s) or subtenant(s) thereunder shall be under no obligation whatsoever with regard to the application by Landlord of any rent collected by Landlord from such tenant or subtenant to any and all sums due and owing or which may become due and owing under the provisions of this Lease, nor shall Tenant have any right or authority whatever to collect any rent whatever from such tenant(s) or subtenant(s). If Tenant has been credited with any rent received by such reletting and such rent shall not be promptly paid to Landlord by the tenant(s) or subtenant(s), or if such rentals received from reletting during any month are less than those to be paid during that month by Tenant hereunder, Tenant shall pay any such deficiency to Landlord. Such deficiency shall be calculated and paid monthly. Tenant shall also pay to Landlord as soon as ascertained, any costs and expenses incurred by Landlord in such reletting or in making such alterations and repairs not covered by the rentals received from such reletting. For all purposes set forth in this clause (3), Landlord is hereby irrevocably appointed as agent for Tenant. No taking of possession of the Premises by Landlord shall be construed as Landlord's acceptance of a surrender of the Premises by Tenant or an election on Landlord's part to terminate this Lease unless written notice of such intention is given to Tenant. Notwithstanding any such subletting without termination, Landlord may at any time thereafter elect to terminate this Lease for such previous breach. Election by Landlord to proceed pursuant to this clause (3) shall be made upon written notice to Tenant and shall be deemed an election of the remedy described in California Civil Code Section 1951.4 (providing that a lessor of real property may continue a lease in effect after a lessee's breach or abandonment and recover rent as it becomes due, if the lessee 30 31 has the right to sublet or assign, subject only to reasonable limitations). If Landlord elects to pursue such remedy, unless Landlord relets the Premises, Tenant shall have the right to sublet the Premises and to assign its interest in this Lease, subject to all of the standards and conditions set forth in Section 16. Landlord may elect to terminate the prosecution of such remedy at any time by written notice to Tenant, and the right of Tenant to sublet or assign shall terminate upon receipt by Tenant of such notice. (4) The right to have a receiver appointed for Tenant, upon application by Landlord, to take possession of the Premises and to apply any rental collected from the Premises and to exercise all other rights and remedies granted to Landlord pursuant to this subsection. C. Relief From Forfeiture. Tenant hereby waives all rights under California Code of Civil Procedure Section 1179 and California Civil Code Section 3275 providing for relief from forfeiture, and any other right now or hereafter existing to redeem the Premises or reinstate this Lease after termination pursuant to this Section 20 or by order or judgment of any court or by any legal process. SECTION 21. LATE PAYMENTS/INTEREST AND LATE CHARGES A. [Intentionally Omitted] B. Interest. Any amount due from Tenant to Landlord which is not paid when due shall bear interest at the rate of one percent (1%) per month or, if less, the maximum rate permitted by law from the date such payment is due until paid, except that amounts spent by Landlord on behalf of Tenant shall bear interest at such rate from the date of disbursement by Landlord which Tenant agrees is to compensate Landlord for Tenant's use of Landlord's money after it is due. Payment of such interest shall not excuse or cure any default by Tenant pursuant to this Lease. Such rate shall remain in effect after the occurrence of any breach or default hereunder by Tenant to and until payment of the entire amount due. C. Late Charges. TENANT HEREBY ACKNOWLEDGES THAT IN ADDITION TO LOST INTEREST, THE LATE PAYMENT BY TENANT TO LANDLORD OF RENT OR ANY OTHER SUMS DUE HEREUNDER WILL CAUSE LANDLORD TO INCUR OTHER COSTS NOT CONTEMPLATED IN THIS LEASE, THE EXACT AMOUNT OF WHICH WILL BE EXTREMELY DIFFICULT AND IMPRACTICABLE TO ASCERTAIN. SUCH OTHER COSTS INCLUDE, BUT ARE NOT LIMITED TO, PROCESSING, ADMINISTRATIVE AND ACCOUNTING COSTS, AND LATE CHARGES WHICH MAY BE IMPOSED UPON LANDLORD BY THE TERMS OF ANY ENCUMBRANCE COVERING THE PREMISES. ACCORDINGLY, IF ANY INSTALLMENT OF RENT OR ANY ADDITIONAL RENT OR OTHER SUM DUE FROM TENANT SHALL NOT BE RECEIVED BY LANDLORD WHEN SUCH AMOUNT SHALL BE DUE (WITHOUT REGARD TO ANY GRACE PERIOD GRANTED IN THIS LEASE), TENANT SHALL PAY TO LANDLORD AS 31 32 ADDITIONAL RENT HEREUNDER A LATE CHARGE EQUAL TO THE LESSER OF FIVE PERCENT (5%) OF SUCH OVERDUE AMOUNT OR $1,500.00. THE PARTIES HEREBY AGREE THAT (i) SUCH LATE CHARGE REPRESENTS A FAIR AND REASONABLE ESTIMATE OF THE COSTS LANDLORD WILL INCUR IN PROCESSING SUCH DELINQUENT PAYMENT BY TENANT, (ii) SUCH LATE CHARGE SHALL BE PAID TO LANDLORD AS LIQUIDATED DAMAGES FOR EACH DELINQUENT PAYMENT, AND (iii) THE PAYMENT OF THE LATE CHARGE IS TO COMPENSATE LANDLORD FOR THE ADDITIONAL ADMINISTRATIVE EXPENSE INCURRED BY LANDLORD IN HANDLING AND PROCESSING DELINQUENT PAYMENTS. ------------------- ----------------- Landlord's Initials Tenant's Initials D. No Waiver. Neither assessment nor acceptance of partial payments, interest or late charges by Landlord shall constitute a waiver of Tenant's default with respect to such overdue amount, nor prevent Landlord from exercising any of its other rights and remedies under this Lease. Nothing contained in this Section shall be deemed to condone, authorize, sanction or grant to Tenant an option for the late payment of rent, additional rent or other sums due hereunder, and Tenant shall be deemed in default with regard to any such payments should the same not be made by the date on which they are due. SECTION 22. [INTENTIONALLY OMITTED]. SECTION 23. HOLDING OVER Any holding over by Tenant in the possession of the Premises, or any portion thereof, after the expiration or earlier termination of the Term, with the prior written consent of Landlord, shall be construed to be a tenancy from month to month at one hundred fifty percent (150%) of the Monthly Rental herein specified for the last month in the Term (prorated on a monthly basis) unless Landlord shall specify a lesser amount for rent in its sole discretion, and shall otherwise be on the terms and conditions herein specified as far as applicable. Any holding over without Landlord's consent shall constitute a default by Tenant and shall entitle Landlord to pursue all remedies provided in this Lease and Tenant shall be liable for any and all direct or consequential damages or losses of Landlord resulting from Tenant's holding over without Landlord's consent. SECTION 24. ATTORNEYS' FEES Tenant shall pay to Landlord all amounts for costs and expenses, including, but not limited to, reasonable attorneys' fees and amounts paid to any collection agency, incurred by Landlord in connection with any breach or default by Tenant under this Lease or incurred in order to enforce or interpret the terms or provisions of this Lease. Tenant shall also pay to Landlord all such amounts, including attorneys' fees, incurred by Landlord in responding to any request by Tenant (a) to amend or modify this Lease or (b) to prepare any statement or document in connection with this Lease, including without limitation estoppel certificates or subordination agreements or 32 33 the like. Such amounts shall be payable upon demand. In addition, if any action shall be instituted by either Landlord or Tenant for the enforcement or interpretation of any of its rights or remedies in or under this Lease, the prevailing party shall be entitled to recover from the losing party all costs incurred by the prevailing party in said action and any appeal therefrom, including reasonable attorneys' fees and court costs to be fixed by the court therein. In the event Landlord is made a party to any litigation between Tenant and any third party, then Tenant shall pay all costs and attorneys' fees incurred by or imposed upon Landlord in connection with such litigation; provided, however, if Landlord is ultimately held to be liable, then Landlord shall reimburse Tenant for the cost of any attorneys' fees paid by Tenant on behalf of Landlord. SECTION 25. MORTGAGE PROTECTION/SUBORDINATION A. Subordination. The rights of Tenant under this Lease are and shall be, at the option of Landlord, either subordinate or superior to any mortgage or deed of trust (including a consolidated mortgage or deed of trust) constituting a lien on the Premises, Building or Project, or Landlord's interest therein or any part thereof, whether such mortgage or deed of trust has heretofore been, or may hereafter be, placed upon the Premises by Landlord, and to any ground or master lease if Landlord's title to the Premises or any part thereof is or shall become a leasehold interest. To further assure the foregoing subordination or superiority, Tenant shall, upon Landlord's request, together with the request of any mortgagee under a mortgage or beneficiary under a deed of trust or ground or master lessor, execute any instrument (including without limitation an amendment to this Lease that does not materially and adversely affect Tenant's rights or materially increase Tenant's obligations under this Lease) or instruments intended to subordinate this Lease, or at the option of Landlord, to make it superior to any mortgage, deed of trust, or ground or master lease. Notwithstanding any such subordination, Tenant's right to occupy the Premises pursuant to this Lease shall remain in effect for the full Term as long as Tenant is not in default hereunder. B. Attornment. Notwithstanding Section 25(A) above, Tenant agrees (1) to attorn to any mortgagee of a mortgage or beneficiary of a deed of trust encumbering the Premises and to any party acquiring title to the Premises by judicial foreclosure, trustee's sale, or deed in lieu of foreclosure, and to any ground or master lessor, as the successor to Landlord hereunder, (2) to execute any attornment agreement reasonably requested by a mortgagee, beneficiary, ground or master lessor, or party so acquiring title to the Premises, and (3) that this Lease, subject to the rights under any outstanding non-disturbance agreement, at the option of such mortgagee, beneficiary, or ground or master lessor, or other party, shall remain in force notwithstanding any such judicial foreclosure, trustee's sale, deed in lieu of foreclosure, or merger of titles. Notwithstanding the foregoing, neither a mortgagee of a mortgage or beneficiary of a deed of trust encumbering the Premises, any party acquiring title to the Premises by judicial foreclosure, trustee sale, or deed in lieu of foreclosure, or any ground lessor or master lessor, as the successor to Landlord hereunder, shall be liable or responsible for any breach of a covenant contained in this Lease that occurred before such party acquired its interest in the Premises or for any continuing breach thereof until after the successor Landlord has received the notice and right to cure as provided herein, and no such party 33 34 shall be liable or responsible for any security deposits held by Landlord hereunder which have not been transferred or actually received by such party, and such party shall not be bound by any payment of rent or additional rent for more than two (2) months in advance. C. Amendment. If any lending institution with which Landlord has negotiated or may negotiate for financing for the Building or Project requires any changes to this Lease, Tenant shall promptly execute and deliver an amendment to this Lease prepared by Landlord and embodying such changes, so long as such changes do not materially and adversely affect Tenant's rights or materially increase Tenant's obligations hereunder. In the event that Tenant shall fail to execute and deliver such amendment within twenty (20) days after receipt thereof by Tenant, such failure shall constitute a default hereunder by Tenant and shall entitle Landlord to all remedies available to a landlord against a defaulting tenant pursuant to a written lease, including but not limited to those remedies set forth in Section 20. SECTION 26. ESTOPPEL CERTIFICATE/FINANCIAL STATEMENTS A. Estoppel Certificate. Tenant, at any time and from time to time upon not less than ten (10) days' prior written notice from Landlord, agrees to execute and deliver to Landlord a statement in the form provided by Landlord (1) certifying that this Lease is unmodified and in full force and effect, or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect and the date to which the rent and other charges are paid in advance, if any; (2) acknowledging that there are not, to Tenant's knowledge, any uncured defaults on the part of Landlord hereunder, or specifying such defaults if they are claimed evidencing the status of this Lease; (3) acknowledging the amount of the Security Deposit held by Landlord; and (4) containing such other information regarding this Lease or Tenant as Landlord reasonably requests. Tenant's failure to deliver an estoppel certificate within such time shall be conclusive upon Tenant that (i) this Lease is in full force and effect without modification except as may be represented by Landlord, (ii) to Tenant's knowledge there are no uncured defaults in Landlord's performance, (iii) no rent has been paid in advance except as set forth in this Lease, and (iv) such other information regarding this Lease and Tenant set forth therein by Landlord is true and complete. B. Furnishing of Financial Statements. Landlord has reviewed the financial statements, if any, requested of Tenant and has relied upon the truth and accuracy thereof with Tenant's knowledge and representations of the truth and accuracy of such statements and that said statements accurately and fairly depict the financial condition of Tenant. Said financial statements are an inducing factor and consideration for the entering into of this Lease by Landlord with this particular Tenant. At each of the times provided below, Tenant shall furnish Landlord with Tenant's most recent audited financial statements, including a balance sheet and income statement, or a document in which Tenant states that its books are not independently audited accompanied by Tenant's most recent unaudited financial statements, including a balance sheet and income statement, signed by Tenant's chief financial officer. Such information shall be provided at Landlord's request by Tenant on 34 35 each and all of the following dates (or if Landlord's request is not made at least ten (10) days before such date, within ten (10) days of Landlord's request): July 1, 2000; January 1, 2001; July 1, 2001; July 1, 2002; July 1, 2003 and July 1, 2004. SECTION 27. PARKING A. Landlord's Obligations. Landlord agrees to maintain or cause to be maintained an automobile parking area and to maintain and operate, or cause to be maintained and operated, said automobile parking area during the Term of this Lease for the benefit and non-exclusive use by Tenant and the customers, service suppliers, other invitees and employees of Tenant. Whenever the words "automobile parking area" or "parking area" are used in this Lease, it is intended that the same shall include, whether in a surface parking area or a parking structure, the automobile parking stalls, driveways, loading docks, truck areas, service drives, entrances and exits and sidewalks, landscaped areas, pedestrian passageways in conjunction therewith and other areas designated for parking. Landlord shall keep said automobile parking area in a neat, clean and orderly condition, lighted and landscaped, and shall repair any damage to the facilities thereof. Nothing contained herein shall be deemed to impose liability upon Landlord for personal injury or theft, for damage to any motor vehicle, or for loss of property from within any motor vehicle, which is suffered by Tenant or any of its employees, customers, service suppliers or other invitees in connection with their use of said automobile parking area. Landlord shall also have the right to establish such reasonable rules and regulations as may be deemed desirable, at Landlord's sole discretion, for the proper and efficient operation and maintenance of said automobile parking area. Such rules and regulations may include, without limitation, (i) restrictions on the hours during which the automobile parking area shall be open for use and (ii) the establishment on a non-discriminatory basis of charges for parking therein (on either a reserved or unreserved basis, at Landlord's sole discretion) by tenants of the Building as well as by their employees, customers and service suppliers. B. Tenant's Rights and Obligations. Tenant shall be entitled to use the number of vehicle parking spaces allocated to Tenant in Section 1(P) without paying any additional rent therefor. Tenant and its employees shall park their vehicles only in those portions of the Common Areas or other locations designated and provided for that purpose by Landlord. Tenant's parking shall not be reserved and shall be limited to vehicles no longer than standard size automobiles or pickup or sport utility vehicles. Tenant shall not cause large trucks or other large vehicles to be parked within the Project or on the adjacent public streets except in accordance with the Rules. Vehicles shall be parked only in striped parking spaces and not in driveways or other locations not specifically designated for parking. Handicapped spaces shall only be used by those legally permitted to use them. Tenant shall not use or permit the use of loading areas, any spaces which have been specifically assigned by Landlord to employees of Landlord or other tenants or for such other uses as visitor parking or which have been designated by governmental entities as being restricted to certain uses. Tenant shall not permit or allow any vehicles that belong to or are controlled by Tenant or Tenant's employees, suppliers, shippers, customers, or invitees to be loaded, unloaded, or parked in areas other than those designated by 35 36 Landlord for such activities. The parking area shall not be used to provide car wash, oil changes, detailing, automotive repair or other services unless otherwise approved or furnished by Landlord. Tenant shall furnish Landlord with its and its employees' license plate numbers within fifteen (15) days after taking possession of the Premises, and Tenant shall thereafter notify Landlord of any changes within five (5) days after such change occurs. If Tenant or its employees fail to park their cars in designated parking areas, then Landlord may charge Tenant Fifteen Dollars ($15.00) per day for each day or partial day that any such car is parked in any area other than those designated. Overnight and weekend parking shall not be permitted unless Tenant has provided Landlord with advance written notice thereof. If Tenant permits or allows any of the prohibited activities described herein, Landlord shall have the right, without notice, in addition to any other rights it may have, to remove or tow away the vehicle. If Landlord shall tow any vehicles of Tenant or its employees, suppliers, shippers, customers, or invitees, Tenant shall pay to Landlord the costs and expenses incurred by Landlord in connection therewith, within ten (10) days after Landlord sends Tenant an invoice therefor. C. Control of Parking Area. Landlord shall at all times during the Term hereof have the sole and exclusive control of the automobile parking area, and may at any time during the Term hereof exclude and restrain any person from use or occupancy thereof; excepting, however, Tenant and employees, customers, service suppliers and other invitees of Tenant and of other tenants in the Building who make use of said area in accordance with any rules and regulations established by Landlord from time to time with respect thereto. The rights of Tenant and its employees, customers, service suppliers and invitees referred to in this Section 27 shall at all times be subject to (i) the rights of Landlord and other tenants in the Building and their customers, employees, licensees, invitees, successors and assigns to use the same in common with Tenant and its employees, customers, service suppliers and invitees, (ii) the availability of parking spaces in said automobile parking area, and (iii) Landlord's right to assign reserved parking spaces and to change the location of any assigned reserved parking spaces in such instances as shall be determined at Landlord's sole discretion. Notwithstanding Landlord's exclusive control and obligations to provide a parking area, Landlord is not responsible or liable for any damage to any automobiles or persons in the parking area. SECTION 28. SIGNS; NAME OF BUILDING A. Signs. Landlord shall enter Tenant's name in the Building directory located in the main lobby of the Building and in the elevator lobby of the floor on which the Premises is located. Tenant shall not have the right to place, construct, or maintain on or about the Premises, Building or Project, or in any interior portions of the Premises that may be visible from the exterior of the Building or Common Areas, any signs, names, insignia, trademark, advertising placard, descriptive material or any other similar item ("Sign") without Landlord's prior written consent, which consent may be withheld in Landlord's sole discretion; provided, however, any Signs are further subject to approval of any applicable governmental authority and/or compliance with applicable governmental requirements and covenants, conditions and restrictions applicable to the Building or the Project. In the event Landlord consents to Tenant placing a Sign on or about the 36 37 Premises, Building or Project, any such Sign shall be subject to Landlord's approval of the color, size, style and location of such Sign, and shall conform to any current or future Sign criteria established by Landlord for the Building or Project. If Landlord enacts a Sign criteria or revises an existing Sign criteria, after Tenant has erected a Sign to which Landlord has granted its consent, if Landlord so elects, Tenant agrees, at Landlord's expense, subject to Landlord's prior approval of the cost thereof, to make the necessary changes to its Sign in order to conform the Sign to Landlord's Sign criteria, as enacted or revised, provided that such changes shall be limited to the color, size, style and location of Tenant's Sign and that Tenant shall not be required to change the content of its Sign. In the event Landlord consents to Tenant's placement of a Sign on the Building, Tenant shall, at its sole cost, remove such Sign from the Building at the end of the Term, restore the Building to the same condition as before the installation of the Sign, ordinary wear and tear excepted and remove any discoloration of the Building caused by the presence of such sign. B. Building Identification. Landlord reserves the right at any time it deems necessary or appropriate to (1) place Signs at any location on the Building and Project as it deems necessary and (2) change the name, address or designation of the Building and Project. SECTION 29. QUIET ENJOYMENT Upon payment by Tenant of the rents herein provided, and upon the observance and performance of all the covenants, terms and conditions on Tenant's part to be observed and performed, Tenant shall peaceably and quietly hold and enjoy the Premises for the Term without hindrance or interruption by Landlord or any other person or persons lawfully or equitably claiming by, through or under Landlord, subject, nevertheless, to the terms and conditions of this Lease, and any mortgage and/or deed of trust to which this Lease is subordinate. SECTION 30. ADDITIONAL FACILITIES AVAILABLE TO TENANT A. Conference Rooms. Tenant shall have the right to reserve the use of (1) the Bay Conference Room located on the second floor of the Building without paying any additional rent therefor, (2) the Pacific Conference Room located on the second floor of the Building free of charge once each calendar quarter and at other times at a fee of $100.00 per day or partial day (plus a set-up fee based on Landlord's standard hourly rates to be determined from time to time) and (3) any other conference room located on the second floor of the Building at Landlord's standard hourly rates to be determined from time to time. Tenant shall pay Landlord for any audio/visual, video conferencing or other equipment available in any such conference room a fee to be determined by Landlord from time to time; provided however, Tenant acknowledges that Landlord does not guarantee that any such equipment will be available or in working order at any time. Landlord shall notify Tenant of any discretionary fees described above at such time as Tenant requests use of any such conference room or equipment. Such use of the conference rooms on the second floor of the Building shall be on a non-exclusive basis during normal business hours (as designated by Landlord from time to time) and shall in all other respects be subject to the same obligations set forth in this Lease regarding 37 38 Tenant's use of the Common Areas. If Tenant desires to reserve a conference room, Tenant shall notify Landlord on Landlord's standard reservation form or in another manner acceptable to Landlord at least ten (10) business days before the desired date of use. Landlord shall notify Tenant within five (5) business days after receipt of Tenant's request whether the requested conference room is available for Tenant's use in accordance with the rules of Landlord from time to time in effect, which may include rules to ensure that Tenant's use of conference facilities is not disproportionate to the Rental Area of the Premises. If not, Tenant may request the use of another conference room, however Tenant agrees that Landlord shall have no obligation to respond to such request within less than five (5) business days after receipt of Tenant's request. Tenant hereby waives any claims it may have against Landlord due to the unavailablility of a conference room at any time, regardless whether Landlord has notified Tenant that a particular conference room is available for Tenant's use, except for claims due to Landlord's willful misconduct. Landlord shall not be required to make conference facilities available to Tenant if Landlord elects, in its discretion, to cease to maintain and operate shared conference facilities in the Building. B. Fitness Center. Tenant shall be entitled to use the number of Fitness Center Memberships allocated to Tenant in Section 1(Q) without paying any additional rent therefor. Such use of the Fitness Center at the Building shall be on a non-exclusive basis during the standard hours of operation of the Fitness Center (as designated by Landlord from time to time) and shall in all other respects be subject to the same obligations set forth in this Lease regarding Tenant's use of the Common Areas. Tenant shall have the right to purchase additional Fitness Center Memberships at $50 per Membership per month. Such amounts shall be payable to Landlord as additional rent and shall be subject to increase on written notice from Landlord. Memberships may only be used by employees of Tenant and not spouses or friends of Tenant's employees or customers, consultants, vendors or agents of Tenant. Tenant shall assign Memberships to specific employees and shall arrange for the security badges of such employees to allow them access to the Fitness Center. Tenant shall notify Landlord of the names of such employees at such time or times as Tenant allocates Memberships to its employees. Tenant shall ensure that the assigned employees do not allow other individuals to use the assigned Memberships. Memberships shall be granted by Landlord only to Tenant; Landlord shall not have any obligation to grant Memberships directly to employees of Tenant. Prior to using the Fitness Center for the first time, each employee of Tenant shall sign a written waiver on Landlord's standard form releasing Landlord from all liability for personal injury or theft or for loss of property from within the Fitness Center. Nothing contained herein shall be deemed to impose, and Tenant hereby waives on behalf of itself and all users of the Fitness Center Memberships (authorized or unauthorized, paid or unpaid), liability against Landlord for personal injury or theft or for loss of property from within the Fitness Center, which is suffered by Tenant or any of its employees or other parties. Tenant further agrees to indemnify, defend and hold Landlord and its officers, directors, partners, agents and employees (collectively, "Indemnitees") entirely harmless from and against all liabilities, losses, demands, actions, expenses or claims, including reasonable attorneys' fees and court costs, for injury to or death of any person or for damages to any property or for violation of law arising out of or in any manner connected with the use, occupancy or 38 39 enjoyment of the Fitness Center by Tenant or and users of the Fitness Center Memberships (authorized or unauthorized, paid or unpaid). Landlord shall not be required to make the Fitness Center available as provided above if Landlord elects, in its discretion, to discontinue operation of the Fitness Center. C. Fees. All amounts payable to Landlord pursuant to this Section 30 shall be deemed additional rent. All fees described herein shall be payable by Tenant regardless whether Tenant or its employees use the conference room(s) that have been reserved or the paid Fitness Center Memberships, as applicable. SECTION 31. NOTICES Any notice, demand, approval, consent, bill, statement or other communication ("Notice") required or desired to be given under this Lease shall be in writing, shall be directed to Tenant at Tenant's Address for Notice or to Landlord at Landlord's Address for Notice and shall be personally served or given by pre-paid certified U.S. Mail or "overnight" delivery service. In the case of personal delivery, any Notice shall be deemed to have been given when delivered; in the case of service by certified mail, any Notice shall be deemed delivered of the date of receipt, refusal or non-delivery indicated on the return receipt; and in the case of overnight delivery service, any Notice shall be deemed given when delivered as evidenced by a receipt. If more than one Tenant is named under this Lease, service of any Notice upon any one of said Tenants shall be deemed as service upon all of such Tenants. The parties hereto and their respective heirs, successors, legal representatives, and assigns may from time to time change their respective addresses for Notice by giving at least fifteen (15) days' written notice to the other party, delivered in compliance with this Section. SECTION 32. NOTICE AND CURE TO LANDLORD AND MORTGAGEE On any act or omission by Landlord which might give, or which Tenant claims or intends to claim gives, Tenant the right to damages from Landlord or the right to terminate this Lease by reason of a constructive or actual eviction from all or part of the Premises, or otherwise, Tenant shall not sue for damages or attempt to terminate this Lease until it has given written notice of the act or omission to Landlord and to the holder(s) of the indebtedness or other obligations secured by any mortgage or deed of trust affecting the Premises as identified by Landlord, and a reasonable period of time for remedying the act or omission has elapsed following the giving of the notice, during which time Landlord and the lienholder(s), or either of them, their agents or employees, may enter upon the Premises and do therein whatever is necessary to remedy the act or omission. During the period after the giving of notice and during the remedying of the act or omission, the Monthly Rental payable by Tenant shall not be abated and apportioned except to the extent that the Premises are untenantable. SECTION 33. GENERAL A. Paragraph Headings. The paragraph headings used in this Lease are for the purposes of convenience only. They shall not be construed to limit or to extend the meaning of any part of this Lease. 39 40 B. Incorporation of Prior Agreements; Amendments. This Lease contains all agreements of Landlord and Tenant with respect to any matter mentioned, or dealt with, herein. No prior agreement or understanding pertaining to any such matter shall be binding upon Landlord. Any amendments to or modifications of this Lease shall be in writing, signed by the parties hereto, and neither Landlord nor Tenant shall be liable for any oral or implied agreements. LANDLORD HAS NOT MADE, AND TENANT MAY NOT RELY ON, ANY REPRESENTATIONS OR WARRANTIES, EXPRESSED OR IMPLIED, WITH REGARD TO THE PROJECT, THE BUILDING, THE PREMISES OR OTHERWISE OR THE SUITABILITY THEREOF FOR TENANT'S BUSINESS, EXCEPT AS EXPRESSLY STATED IN THIS LEASE. IN PARTICULAR, LANDLORD HAS NOT AUTHORIZED ANY AGENT OR BROKER TO MAKE A REPRESENTATION OR WARRANTY INCONSISTENT WITH THE TERMS OF THIS LEASE AND TENANT MAY NOT RELY ON ANY SUCH INCONSISTENT REPRESENTATION OR WARRANTY. C. Waiver. Any waiver by Landlord of any breach of any term, covenant, or condition contained in this Lease shall not be deemed to be a waiver of such term, covenant, or condition or of any subsequent breach of the same or of any other term, covenant, or condition contained in this Lease. Landlord's consent to, or approval of, any act shall not be deemed to render unnecessary the obtaining of Landlord's consent to, or approval of, any subsequent act by Tenant. The acceptance of rent or other sums payable hereunder by Landlord shall not be a waiver of any preceding breach by Tenant of any provision hereof, other than failure of Tenant to pay the particular rent or other sum so accepted, regardless of Landlord's knowledge of such preceding breach at the time of acceptance of such rent, or sum equivalent to rent. D. Short Form or Memorandum of Lease. Tenant agrees, at the request of Landlord, to execute, deliver, and acknowledge a short form or memorandum of this Lease satisfactory to counsel for Landlord, and Landlord may, in its sole discretion, record such short form or memorandum in the county where the Premises are located. Tenant shall not record this Lease, or a short form or memorandum of this Lease, without Landlord's prior written consent. E. Time of Essence. Time is of the essence in the performance of each provision of this Lease. F. Examination of Lease. Submission of this instrument for examination or signature by Tenant does not constitute a reservation of or option for lease, and it is not effective as a lease or otherwise until execution by and delivery to both Landlord and Tenant. G. Severability. If any term or provision of this Lease or the application thereof to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each term and provision of this Lease shall be valid and be enforced to the fullest 40 41 extent permitted by law. H. Surrender of Lease Not Merger. Neither the voluntary or other surrender of this Lease by Tenant nor the mutual cancellation thereof shall cause a merger of the titles of Landlord and Tenant, but such surrender or cancellation shall, at the option of Landlord, either terminate all or any existing subleases or operate as an assignment to Landlord of any such subleases. The delivery of keys to the Premises to Landlord or its agent shall not, of itself, constitute a surrender and termination of this Lease. I. Authority. If Tenant is a corporation, each individual executing this Lease on behalf of Tenant represents and warrants (1) that he or she is duly authorized to execute and deliver this Lease on behalf of Tenant in accordance with a duly adopted resolution of the Board of Directors of Tenant in accordance with the By-laws of Tenant and (2) that this Lease is binding upon and enforceable by Landlord against Tenant in accordance with its terms. If Tenant is a corporation, Tenant shall, concurrently with delivery of an executed Lease to Landlord, deliver to Landlord a certified copy of a resolution of its Board of Directors authorizing or ratifying the execution of this Lease. If Tenant is a partnership, joint venture, or other unincorporated association, each individual executing this Lease on behalf of Tenant warrants that this Lease is binding on Tenant and that each and both of the persons signing on behalf of Tenant were authorized to do so. J. Governing Law. This Lease and the rights and obligations of the parties hereto shall be interpreted, construed and enforced in accordance with the local laws of the State in which the Building is located. K. Force Majeure. If the performance by Landlord of any provision of this Lease is delayed or prevented by any act of God, strike, lockout, shortage of material or labor, restriction by any governmental authority, civil riot, flood, and any other cause not within the control of Landlord, then the period for Landlord's performance of the provision shall be automatically extended for the same time Landlord is so delayed or hindered. L. Use of Language. Words of gender used in this Lease include any other gender, and words in the singular include the plural, unless the context otherwise requires. M. Successors. The terms, conditions and covenants contained in the Lease inure to the benefit of and are binding on, the parties hereto and their respective successors in interest, assigns and legal representatives, except as otherwise herein expressly provided. All rights, privileges, immunities and duties of Landlord under this Lease, including without limitation, notices required or permitted to be delivered by Landlord to Tenant hereunder, may, at Landlord's option, be exercised or performed by Landlord's agent or attorney. N. No Reduction of Rental. Except as otherwise expressly and unequivocally provided in this Lease, Tenant shall not for any reason withhold or reduce the amounts payable by Tenant under this Lease, it being understood that the obligations of Landlord hereunder are independent of Tenant's obligations. If Landlord is required by governmental authority to reduce energy consumption or impose a parking or similar charge with 41 42 respect to the Premises, Building or Project, to restrict the hours of operation of, limit access to, or reduce parking spaces available at the Building, or take other limiting actions, then Tenant is not entitled to abatement or reduction of rent or to terminate this Lease. O. No Partnership. Notwithstanding anything else to the contrary, Landlord is not, and under no circumstances shall it be considered to be, a partner of Tenant, or engaged in a joint venture with Tenant. P. Exhibits. All exhibits attached hereto are made a part hereof and are incorporated herein by this reference. A complete list of said exhibits is set forth in the Table of Contents. Q. Indemnities. The obligations of the indemnifying party under each and every indemnification and hold harmless provision contained in this Lease shall survive the expiration or earlier termination of this Lease to and until the last to occur of (1) the last date permitted by law for the bringing of any claim or action with respect to which indemnification may be claimed by the indemnified party against the indemnifying party under such provision or (2) the date on which any claim or action for which indemnification may be claimed under such provision is fully and finally resolved and, if applicable, any compromise thereof or judgment or award thereon is paid in full by the indemnifying party and the indemnified party is reimbursed by the indemnifying party for any amounts paid by the indemnified party in compromise thereof or upon a judgment or award thereon and in defense of such action or claim, including reasonable attorneys' fees incurred. Payment shall not be a condition precedent to recovery upon any indemnification provision contained herein. R. Nondisclosure of Lease Terms. Landlord and Tenant agree that the terms of this Lease are confidential and constitute proprietary information of the parties hereto. Disclosure of the terms hereof could adversely affect the ability of Landlord to negotiate with other tenants of the Building. Each of the parties hereto agrees that such party, and its respective partners, officers, directors, employees, agents, brokers and attorneys, shall not disclose the terms and conditions of this Lease to any other person without the prior written consent of the other party hereto except pursuant to an order of a court of competent jurisdiction. Provided, however, that Landlord may disclose the terms hereof to any prospective purchaser of the Building or any lender now or hereafter having a lien on Landlord's interest in the Building or the Project, or any portion thereof, and either party may disclose the terms hereof to its respective independent accountants who review its respective financial statements or prepare its respective tax returns, to any prospective transferee of all or any portions of their respective interests hereunder (including a prospective sublessee or assignee of Tenant), to its respective real estate brokers, to any lender or prospective lender to such party, to any governmental entity, agency or person to whom disclosure is required by applicable law, regulation or duty of diligent inquiry and in connection with any action brought to enforce the terms of this Lease, on account of the breach or alleged breach hereof or to seek a judicial determination of the rights and obligations of the parties hereunder. 42 43 S. No Light, Air or View Easement. Any diminution or shutting of light, air or view by any structure which may be erected on lands adjacent to the Building shall in no way affect this Lease or impose any liability on Landlord. T. Brokers. Tenant warrants and represents that it has not dealt with any real estate broker or agent in connection with this Lease or its negotiation except the Brokers identified in Section 1(M). Tenant shall indemnify and hold Landlord harmless from any cost, expense or liability (including costs of suit and reasonable attorneys' fees) for any compensation, commission or fees claimed by any other real estate broker or agent in connection with this Lease or its negotiation by reason of any act of Tenant. U. Counterparts. This Lease may be executed in several duplicate counterparts, each of which shall be deemed an original of this Lease for all purposes. SECTION 34. DEFAULT UNDER 6TH FLOOR LEASE Tenant agrees that any default by Tenant under the Lease dated May 18, 1999, as amended from time to time, between Landlord and Tenant governing Tenant's occupancy of the 6th floor of the Building (the "6th Floor Lease") will be deemed a default under this Lease, entitling Landlord to pursue all of its rights and remedies under this Lease. Tenant further agrees that any default by Tenant under this Lease will be deemed a default under the 6th Floor Lease, entitling Landlord to pursue all of its rights and remedies under the 6th Floor Lease. IN WITNESS WHEREOF, the parties have executed this Lease, consisting of the foregoing provisions, any typed addenda appended hereto and all Exhibits appended hereto, on the dates indicated below, the later of which shall be deemed the date of execution of this Lease. "TENANT" "LANDLORD" COLO.COM, INC., HITACHI AMERICA, LTD., a California corporation a New York corporation By: /s/ Richard J. Palomba By: /s/ unreadable ----------------------------- --------------------------------- Name: Richard J. Palomba Name: Title: VP Real Estate Title: Dated: December 23, 1999 Dated: , 1999 --------------- ------------------------ 43 44 SECOND AMENDMENT TO OFFICE LEASE THIS SECOND AMENDMENT TO OFFICE LEASE (this "Amendment"), made as of the 23rd day of December, 1999, by and between HITACHI AMERICA, LTD., a New York corporation ("Landlord") and COLO.COM, a California corporation formerly known as Colomotion, Inc. ("Tenant"). WHEREAS, Landlord and Tenant entered into that certain Office Lease (the "Lease") captioned "OFFICE LEASE," dated as of May 18, 1999, as amended on August 31, 1999, providing for, among other matters, the lease of certain space by Landlord to Tenant known as Suite 601 in that certain building located at 2000 Sierra Point Parkway, Brisbane, CA (the "Premises"); and WHEREAS, simultaneously herewith, Landlord and Tenant are entering into a new lease for the 10th floor of the Building (the "New Lease") and desire to amend this Lease (a) to increase the rent for the months of January 2000 trough June 2000 and (2) in certain respects related to the New Lease. NOW, THEREFORE, in consideration of the Premises and the respective undertakings of the parties hereinafter set forth, it is hereby agreed that the Lease shall be amended as follows: 1. Defined Terms. Capitalized terms used herein and not defined herein shall have the meaning for the same set forth in the Lease. 2. Monthly Rent. Section 1(I) is hereby deleted in its entirety and replaced by the following: I. "Monthly Rental" for the sixth (6th) floor mans the following: PERIOD MONTHLY RENTAL ------ -------------- Lease Commencement Date - 08/31/99 $18,720.00 09/01/1999 - 12/31/1999 $27,577.96 01/01/2000 - 06/30/2001 $59,019.84 07/01/2001 - 06/30/2002 $61,387.92 07/01/2002 - 06/30/2003 $63,938.16 07/01/2003 - 06/30/2004 $66,488.40 3. Phased Occupancy. The last two sentences of Section 2(A) of the Lease are hereby deleted in their entirety. 4. Default Under New Lease. Any default by Tenant under the New Lease will be deemed a default under this Lease, entitling Landlord to pursue all of its rights and remedies under this Lease. Any default by Tenant under this Lease will be deemed a default under the New Lease, entitling Landlord to pursue all of its rights and remedies under the New Lease. 45 5. Lease in Effect. This Amendment shall be effective as of the date set forth above. Except as amended by this Amendment, the Lease shall remain in full force and effect. IN WITNESS WHEREOF, the parties have executed this Amendment as of the day and year first above written. HITACHI AMERICA, LTD. COLO.COM By: /s/ [Signature Illegible] By: /s/ DAVID STANLY ---------------------------- ----------------------------- Name: [Name Illegible] Name: David Stanly -------------------------- --------------------------- Its: President Its: General Counsel -------------------------- --------------------------- 2 EX-10.4 8 0008.txt EMERYVILLE OFFICE BLDG. NET LEASE INFORMATION 1 EXHIBIT 10.4 o 1400 65th STREET, EMERYVILLE, CALIFORNIA o o OFFICE BUILDING NET LEASE o BASIC LEASE INFORMATION DATE OF LEASE: July 16, 1999 LANDLORD: BEP-EMERYVILLE, L.P. LANDLORD'S ADDRESS: c/o Ellis Partners, Inc. 433 California Street, Suite 610 San Francisco, California 94104 Attention: James F. Ellis TENANT: COLO.COM, INC. TENANT'S ADDRESS: 1400 65th Street Emeryville, CA 94608 Attn: Richard Palomba, Vice President, Real Estate BUILDING: 1400 65th Street, Emeryville, California LEASED PREMISES: Approximately 14,657 rentable square feet on the ground floor on the north office area of the Building. RENTABLE AREA: Approximately 14,657 rentable square feet TERM COMMENCEMENT DATE: The earlier of (i) November 15, 1999, or (ii) the date the Tenant Improvements are Substantially Complete TERM EXPIRATION DATE: The last day of the one hundred twentieth (120th) month after the Term Commencement Date OPTION TO EXTEND: Number of Extension Periods: Two(2) Years per Extension Period: Five(5) 2 BASE RENT (NNN): For months 1 - 12: $1.75 per rentable square foot of Rentable Area per month. Beginning in the second (2nd) year of the Lease, Base Rent shall increase two and one-half percent (2 1/2%) annually. TENANT'S PROPORTIONATE SHARE: approximately 9.78% PARKING SPACES: ten (10) spaces SECURITY DEPOSIT: $375,000.00 GUARANTOR: None LANDLORD'S BROKER: CB Richard Ellis TENANT'S BROKER: None 3 The foregoing BASIC LEASE INFORMATION is incorporated herein and made a part of the LEASE to which it is attached. If there is any conflict between the BASIC LEASE INFORMATION and the LEASE, the BASIC LEASE INFORMATION shall control. "LANDLORD": BEP-EMERYVILLE, L.P., a Delaware limited partnership By: EPI Investors, 103 LLC, a California limited liability company Its: General Partner By: Ellis Partners, Inc., a California corporation Its: Managing Member By: /s/ HAROLD A. ELLIS, JR. ------------------------------------ Typed Name: Harold A. Ellis, Jr. ---------------------------- Title: President ---------------------------------- "TENANT" COLO.COM, INC., a California corporation By: /s/ RICHARD J. PALOMBA ------------------------------------ Typed Name: Richard J. Palomba ---------------------------- Title: VP Real Estate ---------------------------------- 4 OFFICE BUILDING NET LEASE THIS LEASE, made as of the date specified in the BASIC LEASE INFORMATION sheet, by and between the landlord specified in the BASIC LEASE INFORMATION sheet ("Landlord") and the tenant specified in the BASIC LEASE INFORMATION sheet ("Tenant"). ARTICLE 1. DEFINITIONS 1.01. DEFINITIONS: Terms used herein shall have the following meanings: 1.02. "ADDITIONAL RENT" shall mean all monetary obligations of Tenant under this Lease other than the obligation for payment of Net Rent. 1.03. "BASE RENT" shall mean the sums due from time to time as rental for the Leased Premises. 1.04. "BASIC OPERATING COST" shall have the meaning given in Section 3.05. 1.05. "BUILDING" shall mean the building and other improvements associated therewith identified on the Basic Lease Information sheet. 1.06. "BUILDING STANDARD IMPROVEMENTS" shall mean the standard materials ordinarily used by Landlord in the improvement of the Leased Premises. 1.07. "COMMON AREAS" shall mean (a) the areas on individual floors of the Building devoted to non-exclusive uses such as common corridors, lobbies, fire vestibules, elevator foyers, stairways, elevators, electric and telephone closets, restrooms, mechanical closets, janitor closets and other similar facilities for the benefit of all tenants (and invitees) on the particular floor and other floors and (b) the parking areas in the Project, sidewalks and landscaped areas in the Project and other areas of the Project available for the use and benefit of all tenants (and invitees). 1.08. "COMPUTATION YEAR" shall mean a fiscal year consisting of the calendar year commencing January 1st of each year during the Term, commencing in 1999 and continuing through the Term with a short or stub fiscal year in (i) 1999 for the period between the Term Commencement Date and December 31 of such year and (ii) any partial fiscal year in which the Lease expires or is terminated for the period between January 1 of such year and the date of lease termination or expiration. 1.09. "LANDLORD'S BROKER" shall mean the individual or corporate broker identified on the Basic Lease Information sheet as the broker for Landlord. 1.10. "LANDLORD'S CONTRIBUTION" shall have the meaning given in EXHIBIT B. 1.11. "LANDLORD'S IMPROVEMENTS" shall mean the improvements to the Leased Premises to be installed at Landlord's expense and paid for with Landlord's Contribution pursuant to EXHIBIT B attached hereto. 1 5 1.12. "LEASED PREMISES" shall mean the floor area more particularly shown on the floor plan attached hereto as EXHIBIT A, containing the Rentable Area (as such term is defined in Section 1.18 below) specified on the Basic Lease Information sheet. 1.13. "NET RENT" shall mean the total of Base Rent and Tenant's Proportionate Share of Basic Operating Cost. 1.14. "PERMITTED USE" shall mean general office and administrative services for a telecommunications related business, and any other related lawful use; provided, however, that Permitted Use shall not include (a) offices or agencies of any foreign government or political subdivision thereof; (b) offices of any agency or bureau of any state, county or city government; (c) offices of any health care professionals; (d) schools or other training facilities which are not ancillary to corporate, executive or professional office use; or (e) retail or restaurant uses. 1.15. "PROJECT" shall mean the Building situated at 1400 65th Street, Emeryville, California, the parking areas affiliated therewith, and the real property on which the Building and the parking areas are located. 1.16. "RENT" shall mean Net Rent plus Additional Rent. 1.17. "RENTABLE AREA" shall mean the area or areas of space in the Building determined in accordance with the Standard Method for Measuring Floor Area in Office Buildings as most recently published by the Building Owners and Managers Association International and including a proportionate allocation of the square footage of the Building's elevator and mechanical equipment areas, telephone and electrical rooms, loading dock, janitorial service areas, public lobbies and corridors, which method of measurement shall be subject to reasonable revision by Landlord from time to time. The Rentable Area of the Leased Premises has been calculated on the basis of the foregoing definition and is agreed for all purposes of this Lease to be the amount stated on the Basic Lease Information sheet, subject to remeasurement by Landlord only in the event of a change in method of measurement for the Building or the Project as hereinabove provided. 1.18. "SECURITY DEPOSIT" shall mean the amount specified on the Basic Lease Information sheet to be paid by Tenant to Landlord immediately prior to occupancy and held and applied pursuant to Section 5.14. 1.19. "SUBSTANTIAL COMPLETION" shall mean (and the Leased Premises shall be deemed "Substantially Complete") when (i) installation of Tenant Improvements has occurred; (ii) Tenant has direct access from the street to the Leased Premises; (iii) basic services (as described in Section 4.01) are available to the Leased Premises; (iv) an architect has issued a certificate of Substantial Completion with respect to the Leased Premises; and (v) a certificate of occupancy or its equivalent or a temporary occupancy permit for the Leased Premises has been issued by appropriate governmental authorities. Substantial Completion shall be deemed to have occurred notwithstanding a requirement to complete "punchlist" items or similar corrective work. 1.20. "TENANT EXTRA IMPROVEMENTS" shall mean the improvements to the Leased Premises approved by Landlord and to be installed at Tenant's expense pursuant to EXHIBIT B, if any. 1.21. "TENANT IMPROVEMENTS" shall mean the Landlord's Improvements and the Tenant Extra Improvements (if any) installed or to be installed for Tenant pursuant to EXHIBIT B. 2 6 1.22. "TENANT'S BROKER" shall mean the individual or corporate broker identified on the Basic Lease Information sheet as the broker for Tenant. 1.23. "TENANT'S PHYSICAL POSSESSION DATE" shall mean October 1, 1999. 1.24. "TENANT'S PROPORTIONATE SHARE" is specified on the Basic Lease Information sheet and is based on the percentage which the Rentable Area of the Leased Premises bears to the total Rentable Area of the Project, subject to adjustment in the event of the remeasurement of the Building or the Project as permitted under Section 1.17 above. 1.25. "TERM" shall mean the period commencing with the Term Commencement Date and ending at midnight on the Term Expiration Date. 1.26. "TERM COMMENCEMENT DATE" shall mean the date specified on the Basic Lease Information sheet. 1.27. "TERM EXPIRATION DATE" shall mean the date specified on the Basic Lease Information sheet, unless sooner terminated pursuant to the terms of this Lease or unless extended pursuant to the provisions of Section 8.01. 1.28. OTHER TERMS. Other terms used in this Lease and on the Basic Lease Information sheet shall have the meanings given to them herein and thereon. ARTICLE 2. LEASED PREMISES 2.01. LEASE. Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the Leased Premises upon all of the terms, covenants and conditions set forth in this Lease. 2.02. ACCEPTANCE OF LEASED PREMISES. Tenant acknowledges that: (a) it has been advised by Landlord, Landlord's Broker and Tenant's Broker, if any, to satisfy itself with respect to the condition of the Leased Premises (including, without limitation, the HVAC, electrical, plumbing and other mechanical installations, fire sprinkler systems, security, environmental aspects, and compliance with applicable laws, ordinances, rules and regulations) and the present and future suitability of the Leased Premises for Tenant's intended use; (b) Tenant has made such inspection and investigation as it deems necessary with reference to such matters and assumes all responsibility therefor as the same relate to Tenant's occupancy of the Leased Premises and the term of this Lease; and (c) neither Landlord nor Landlord's Broker nor any of Landlord's agents has made any oral or written representations or warranties with respect to the condition, suitability or fitness of the Leased Premises other than as may be specifically set forth in this Lease. Tenant accepts the Leased Premises in its AS IS condition existing on the date Tenant executes this Lease, subject to all matters of record and applicable laws, ordinances, rules and regulations. Tenant acknowledges that neither Landlord nor Landlord's Broker nor any of Landlord's agents has agreed to undertake any alterations or additions or to perform any maintenance or repair of the Leased Premises except for the routine maintenance and janitorial work specified herein and except as may be expressly set forth in EXHIBIT B. 2.03. RIGHT TO RELOCATE LEASED PREMISES. [Intentionally Deleted]. 2.04. RESERVATION OF RIGHTS. Landlord reserves the right from time to time, so long as reasonable access and basic services to the Leased Premises remain available, to install, use, maintain, repair, relocate 3 7 and/or replace pipes, conduits, wires and equipment within and around the Building and to do and perform such other acts and make such other changes in, to or with respect to the Building or the Project (including without limitation with respect to the driveways, parking areas, walkways and entrances to the Project) as Landlord may, in the exercise of sound business judgment, deem to be appropriate. In connection therewith, Landlord shall have the right to close temporarily any of the Common Areas so long as reasonable access to the Leased Premises remains available. The Landlord shall provide Tenant with not less than twenty-four (24) hours prior notice (except in cases of emergency) and shall endeavor to conduct its activities in a manner which is least disruptive to Tenant's use. 2.05 ASSOCIATED RIGHTS GRANTED TO TENANT. (a) Tenant shall have the right (collectively the "Associated Rights") to install at Tenant's cost the following equipment in the areas (the "Associated Rights Area") located within the Project as designated by Landlord, in the exercise of its discretion, as provided below: (1) Generator and Fuel Tank. Subject to the provisions of Article VI, Tenant shall have the right to install, operate, and maintain a standby power generator (the "Generator") together with associated cabling and equipment in the area (the "Generator Area") and a 2,000 gallon diesel fuel tank (the "Fuel Tank") in the area (the "Fuel Tank Area") approved by Landlord in its reasonable discretion (the Generator Area and the Fuel Tank Area will most likely be located on the western end of the Building), together with a jack suitable to connect the Generator to Tenant's telecommunications facilities. (2) Rooftop Antenna Areas and Roof Access. Subject to Landlord's reasonable approval, Tenant shall have the right to install, operate and maintain one antenna and associated supporting and mounting brackets and associated cabling equipment and facilities one the roof of the Building, provided that Landlord has, in its reasonable discretion, approved the design and weight of such antenna and equipment. Tenant shall also have access to the roof through a roof access, all in the locations (the "Rooftop Antenna Area" and "Roof Access") approved by Landlord in its reasonable discretion. (b) Tenant shall, at its cost, immediately repair and restore to its prior condition any damage to the Leased Premises, the Building or the Project caused by the installation, operation or maintenance of any equipment, fixtures and cables pursuant to this Section 2.05. If Tenant fails to repair and restore damage caused to the Leased Premises, the Building or the Project within a reasonable time to effect such repair or restoration, Landlord shall have the right to repair and restore such damage and receive reimbursement from Tenant of all costs incurred by Landlord. Landlord reserves the right to relocate any equipment, fixtures or cables installed pursuant to Tenant's Associated Rights within the Project at any time during the Term at Landlord's cost. (c) No installation of equipment, fixtures or cables pursuant to Tenant's Associated Rights, alterations, additions, or improvements shall made by Tenant without the prior written consent of Landlord. Tenant shall obtain all necessary governmental permits required for any installation, alteration, addition, or improvement approved by Landlord and shall comply with all applicable governmental law, regulations, ordinances, and codes. Any installation, alteration, addition, or improvement not including removable equipment (which removable equipment shall include the Generator and the Fuel Tank) made by Tenant, pursuant to subsections 2.05(a)(1) above, after consent has been given and any fixtures installed as part of the construction, shall at Landlord's option become the property of Landlord on the Term Expiration Date or other earlier termination of this Lease; provided, however, that Landlord shall have the right to require Tenant to remove the equipment, fixtures and cables at Tenant's cost pursuant to Section 5.15(b) of this Lease at Tenant's cost. If Tenant is required by Landlord to remove the fixtures on termination of this Lease, Tenant 4 8 shall repair and restore any damages to the Leased Premises, the Building or the Project caused by such removal. ARTICLE 3. TERM, USE AND RENT 3.01. TERM. Except as otherwise provided in this Lease, the Term shall commence on the Term Commencement Date, and shall continue in full force for the Term. Notwithstanding any other provision of this Lease to the contrary, if possession of the Leased Premises is not delivered to Tenant within ninety (90) days after Tenant's Physical Possession Date, excluding from such tally each day of delay caused by factors entirely beyond the reasonable control of Landlord, then Tenant may, at its option, by notice in writing to Landlord within ten (10) days thereafter, cancel this Lease in which event neither Landlord nor Tenant shall have any further obligations hereunder. If written notice of cancellation is not received by Landlord within such ten (10)-day period, Tenant's right to cancel this Lease shall terminate and be of no further force or effect. When the Term Commencement Date and the Term Expiration Date have been ascertained, the parties shall promptly execute a Confirmation of Term of Lease substantially in the form attached as EXHIBIT C. Tenant shall be given physical possession of the Leased Premises on the Tenant's Physical Possession Date in order for Tenant to install the Tenant Improvements, furniture, equipment, cabling and fixtures, and to otherwise prepare the Leased Premises for occupancy. From the Tenant's Physical Possession Date through the Term Commencement Date, Tenant shall be subject to all of the covenants in this Lease, except that Tenant shall not be obligated to pay Rent. Tenant's obligation to pay Rent shall commence in accordance with Section 3.03 below. 3.02. USE. Tenant shall use the Leased Premises solely for the Permitted Use and for no other use or purpose, except as permitted by Landlord pursuant to Landlord's written consent, which consent will not be unreasonably withheld. It shall not be deemed unreasonable for Landlord to withhold its consent to a proposed change of use if the proposed use is one set forth in Section 1.14(a) through (e). 3.03. BASE RENT. (a) Tenant shall pay the Base Rent to Landlord in accordance with the Basic Lease Information sheet and in the manner described below. Tenant shall pay the Base Rent for the first (1st) month of the Term upon execution of this Lease. Commencing with the first day of the second (2nd) calendar month of the Term, Tenant shall pay the Net Rent (consisting of Base Rent plus, when applicable in accordance with Section 3.04 below, Tenant's Proportionate Share of Basic Operating Cost) in monthly installments on or before the first day of each calendar month during the Term and any extensions or renewals thereof, in advance without demand and without any reduction, abatement, counterclaim or setoff, in lawful money of the United States at Landlord's address specified on the Basic Lease Information sheet or at such other address as may be designated by Landlord in the manner provided for giving notice under Section 9.11 hereof. (b) If the Term commences on other than the first day of a month, then the Base Rent provided for such partial month shall be prorated based upon a thirty (30)-day month and the prorated installment shall be paid on the first day of the calendar month next succeeding the Term Commencement Date together with the other amounts payable on that day. If the Term terminates on other than the last day of a calendar month, then the Net Rent provided for such partial month shall be prorated based upon a thirty (30)-day month and the prorated installment shall be paid on the first day of the calendar month in which the date of termination occurs. 5 9 3.04. TENANT'S PROPORTIONATE SHARE OF BASIC OPERATING COST. (a) Commencing with the Term Commencement Date and continuing through the remainder of the Term, Tenant shall pay to Landlord Tenant's Proportionate Share of the Basic Operating Cost attributable to each Computation Year. (b) During the first Computation Year, on or before the first day of each month during such Computation Year, Tenant shall pay to Landlord one-twelfth (1/12th) of Landlord's estimate of the amount payable by Tenant under Section 3.04(a) as set forth in Landlord's written notice to Tenant delivered on or before the Term Commencement Date. During the last month of each Computation Year (or as soon thereafter as practicable), Landlord shall give Tenant notice of Landlord's estimate of the amount payable by Tenant under Section 3.04(a) for the following Computation Year. On or before the first day of each month during the following Computation Year, Tenant shall pay to Landlord one-twelfth (1/12) of such estimated amount, provided that if Landlord fails to give such notice in the last month of the prior year, then Tenant shall continue to pay on the basis of the prior year's estimate until the first day of the calendar month next succeeding the date such notice is given by Landlord; and from the first day of the calendar month following the date such notice is given, Tenant's payments shall be adjusted so that the estimated amount for that Computation Year will be fully paid by the end of that Computation Year. If at any time or times Landlord determines that the amount payable under Section 3.04(a) for the current Computation Year will vary from its estimate given to Tenant, Landlord, by not less than ten (10) business days' notice to Tenant, may revise its estimate for such Computation Year, and subsequent payments by Tenant for such Computation Year shall be based upon such revised estimate. (c) Within ninety (90) days of the end of each Computation Year, Landlord shall deliver to Tenant a statement of amounts payable under Section 3.04(a) for such Computation Year prepared by Landlord's agent. If such statement shows an amount owing by Tenant that is less than the payments for such Computation Year previously made by Tenant, and if no event of default (as defined below) is outstanding at the time such statement is delivered, Landlord shall credit such amount to the next payment(s) of Net Rent falling due under this Lease. If such statement shows an amount owing by Tenant that is more than the estimated payments for such Computation Year previously made by Tenant, Tenant shall pay the deficiency to Landlord within ten (10) business days after delivery of such statement. If, within sixty (60) days of Tenant's receipt of Landlord's statement, Tenant notifies Landlord that Tenant desires to audit or review Landlord's statement, Landlord shall cooperate with Tenant to permit such audit or review during normal business hours, Landlord shall make available in the San Francisco Bay Area at Landlord's, or at Landlord's election at Landlord's property manager's, place of business, such books and records as are reasonably necessary for Tenant to conduct and complete such audit. Tenant shall have the right to make copies of such books and records at Tenant's sole cost and expense. Tenant shall bear all other costs and expenses associated with Tenant's audit (including fees of Tenant's auditor). Within five (5) business days of completion of the audit, if Tenant desires to challenge Landlord's statement, then Tenant shall provide Landlord with a copy of Tenant's auditor's report. Within thirty (30) days of Landlord's receipt of Tenant's auditor's report, Landlord shall notify Tenant as to whether Landlord agrees or disagrees with the conclusions reached in Tenant's auditor's report. Landlord's failure to respond shall be deemed to constitute a disagreement with the Tenant's auditor's report. After Landlord's notice, Landlord and Tenant shall endeavor to resolve any disagreements regarding Tenant's auditor's report. In the event such audit reveals a discrepancy in Tenant's favor, and Landlord agrees with the conclusions of Tenant's auditor, then Landlord shall credit the amount of such discrepancy to the next payment(s) of Net Rent falling due under this Lease. In the event such audit reveals a discrepancy in Landlord's favor, Tenant shall pay the amount of the discrepancy to Landlord within ten (10) business days of completion of the audit. If the discrepancy in Tenant's favor, as agreed to by Landlord, or determined by the arbitrator, is greater than five percent (5%) of Tenant's Proportionate Share of Basic Operating Cost paid by Tenant for the Computation Year being audited, Landlord shall reimburse Tenant for 6 10 all reasonable costs and expenses associated with Tenant's audit (including fees of Tenant's auditor). Any such audit may only be conducted by an independent nationally recognized accounting firm or a nationally recognized real estate management or consulting firm that is not being compensated by Tenant on a contingency fee basis. The failure of Tenant to notify Landlord that Tenant desires an audit within sixty (60) days of Tenant's receipt of Landlord's statement under this Section 3.04(c) shall constitute an acceptance by Tenant of Landlord's statement and a waiver by Tenant of its right to audit for such Computation Year. If Tenant commences an audit in accordance with this Section 3.04(c), then such audit and the Tenant's auditor's report must be completed within thirty (30) days of Tenant's notice to Landlord of Tenant's desire to audit. Failure of Tenant to complete the audit within such thirty (30) day period shall constitute an acceptance by Tenant of Landlord's statement for such Computation Year. The respective obligations of Landlord and Tenant under this Section 3.04(c) shall survive the Term Expiration Date, and, if the Term Expiration Date is a day other than the last day of a Computation Year, the adjustment in Tenant's Proportionate Share of Basic Operating Cost pursuant to this Section 3.04(c) for the Computation Year in which the Term Expiration Date occurs shall be prorated in the proportion that the number of days in such Computation Year preceding the Term Expiration Date bears to three hundred sixty-five (365). (d) Landlord shall have the same remedies for a default in the payment of Tenant's Proportionate Share of Basic Operating Cost as for a default in the payment of Base Rent. (e) If the parties cannot agree on the results of Tenant's audit within sixty (60) days following delivery of Tenant's auditor's report to Landlord, then either party may commence arbitration with respect to the matters disputed in Tenant's audit by notice to the other party ("Arbitration Notice"). The failure of Tenant to provide an Arbitration Notice within one hundred twenty (120) days of Tenant's delivery of the Tenant's auditor's report to Landlord shall constitute a waiver by Tenant of its right to arbitrate hereunder, and except for such adjustments as have been agreed to by Landlord, Landlord's statement provided under Section 3.04(c) shall be conclusive and binding to Tenant. Within thirty (30) days of the Arbitration Notice, Landlord and Tenant shall jointly select an arbitrator, who shall be unaffiliated in any manner with either Landlord or Tenant and shall have been active over the five (5) year period ending on the date of such appointment in the leasing of comparable commercial properties in the vicinity of the Building. Neither Landlord nor Tenant shall consult with such arbitrator as to his or her opinion as to the disputed matters prior to the appointment. The determination of the arbitrator shall be limited solely to issues raised by Tenant's auditor's report or by Landlord's response to Tenant's auditor's report. Such arbitrator may hold hearings and require such briefs as the arbitrator, in his or her sole discretion, determines is necessary. In addition, Landlord or Tenant may submit to the arbitrator with a copy to the other party within ten (10) business days after the appointment of the arbitrator any data and additional information that such party deems relevant to the determination by the arbitrator and the other party may submit a reply in writing within ten (10) business days after receipt of such data and additional information. The arbitrator shall conduct such evidentiary hearings as the arbitrator deems necessary or appropriate. (1) The arbitrator shall, within thirty (30) days of his or her appointment, reach a decision as to the disputed matters in Tenant's auditor's report, and shall notify Landlord and Tenant of such determination. (2) The decision of the arbitrator shall be binding upon Landlord and Tenant. (3) If Landlord and Tenant fail to agree upon and appoint such arbitrator, then the appointment of the arbitrator shall be made by the American Arbitration Association. (4) If Landlord and Tenant fail to agree upon other matters relating to the arbitration, then the rules of the American Arbitration Association shall govern such arbitration. 7 11 (5) The cost of arbitration shall be paid equally by each party. (6) The arbitration proceeding and all evidence given or discovered pursuant thereto shall be maintained in confidence by all parties. (7) Judgment upon the award rendered by the arbitrator may be entered by either party into any court having jurisdiction, or application may be made to such court for a judicial recognition of the award or an order of enforcement thereof, as the case may be. 3.05. BASIC OPERATING COST. (a) Basic Operating Cost shall mean all expenses and costs (but not specific costs which are separately billed to and paid by particular tenants of the Project of every kind and nature which Landlord shall pay or become obligated to pay because of or in connection with the direct management, ownership, maintenance, repair, preservation and operation of the Project and its supporting facilities directly servicing the Project (determined in accordance with generally accepted accounting principles, consistently applied) including, but not limited to, the following: (1) Wages, salaries and related expenses and benefits of all on-site and off-site employees and personnel engaged in the operation, maintenance, repair and security of the Project, to the extent such charges are directly allocable to services rendered by the employees and personnel for the benefit of the Project. (2) Costs of Landlord's office (including the property management office) and office operation in the Project, as well as the costs of operation of a room for delivery and distribution of mail to tenants of the Building. (3) All supplies, materials, equipment and equipment rental used in the operation, maintenance, repair and preservation of the Project. (4) Utilities, including water, sewer and power, telephone, communication and cable television facilities, lighting, heating, air conditioning and ventilating the entire Project (but excluding any power to the Leased Premises which is separately metered to Tenant or any power for rentable space within the Building which is not Common Area provided that Tenant has separately metered power). (5) All maintenance, janitorial and service agreements for the Project, if any, and the equipment therein, including, without limitation, alarm and/or security service, sidewalks, landscaping, Building exterior and service areas, except to the extent Tenant elects to provide such services directly at its cost pursuant to Section 4.01(b)(iii). (6) A management cost recovery in an amount not to exceed five percent (5%) of all Rent (excluding such management cost recovery) derived from the Project. (7) Legal and accounting services for the Project, including the costs of audits by certified public accountants; provided, however, that legal expenses shall not include the cost of lease negotiations, termination of leases, extension of leases or legal costs incurred in proceedings by or against any specific tenant. (8) All insurance costs, including, but not limited to, the cost of all risk property and liability coverage and rental income and earthquake insurance applicable to the Project and Landlord's 8 12 personal property used in connection therewith, as well as commercially reasonable deductible amounts applicable to such insurance; provided, however, that Landlord may, but shall not be obligated to, carry earthquake insurance. (9) Repairs, replacements and general maintenance (except for repairs paid by proceeds of insurance or by Tenant or other tenants of the Project or third parties, and alterations attributable solely to tenants of the Project other than Tenant). (10) All real estate or personal property taxes, possessory interest taxes, business or license taxes or fees, service payments in lieu of such taxes or fees, annual or periodic license or use fees, excises, transit charges, housing fund assessments, open space charges, assessments, bonds, levies, fees or charges, general and special, ordinary and extraordinary, unforeseen as well as foreseen, of any kind which are assessed, levied, charged, confirmed or imposed by any public authority upon the Project (or any portion or component thereof), its operations, this Lease, or the Rent due hereunder (or any portion or component thereof), except: (i) inheritance or estate taxes imposed upon or assessed against the Project, or any part thereof or interest therein, and (ii) Landlord's personal or corporate income, gift or franchise taxes. (11) Amortization (together with reasonable financing charges) of capital improvements made to the Project subsequent to the Term Commencement Date which are designed to improve and actually improve the operating efficiency of the Project, or which may be required by governmental authorities, including those improvements required for energy conservation and for the benefit of individuals with disabilities ("ADA Improvements") or for energy conservation. (b) With respect to subsection 3.05(a)(11) above, to the best of Landlord's knowledge, the Project is in compliance with the Americans with Disabilities Act ("ADA"). ADA Improvements, as defined in subsection 3.05(a)(11) above, includes ADA compliance work in any part of the Project required by governmental authorities due to changes in law, rules or regulations after the date of this Lease. ADA Improvements, for the purposes of Section 3.05(a)(11), shall not include any ADA compliance work in other tenant's spaces in the Project which is triggered by virtue of tenant improvement work in such space. Tenant shall be responsible for one hundred percent (100%) of the cost of ADA compliance work triggered by the Tenant Improvements (or any subsequent alterations or additions made by Tenant). Tenant shall promptly reimburse Landlord for any costs incurred by Landlord with respect thereto. (c) In the event any of the Basic Operating Costs are not allocable solely to the Building or are not provided on a uniform basis, Landlord shall make a commercially reasonable and equitable adjustment, in Landlord's sole and absolute discretion, to the relevant cost allocations to the Building and Tenant shall pay its proportionate share of such Basic Operating Costs allocable solely to the Building and 100% of such Basic Operating Costs allocable solely to the Leased Premises. (d) Notwithstanding any other provision of this Lease to the contrary, in the event that the Project is not fully occupied during any year of the Term, an adjustment shall be made in computing Basic Operating Cost for such year so that Basic Operating Cost shall be computed as though the Project had been 95% occupied during such year. (e) The following items shall be excluded from Basic Operating Costs: (i) depreciation on the Building and the Project; (ii) debt service; (iii) rental under any ground or underlying lease; (iv) attorneys' fees and expenses incurred in connection with lease negotiations with prospective Project tenants or alleged defaults with other Project tenants; (v) the cost of any improvements or equipment which would be properly classified as capital expenditures (except for any capital expenditures expressly included in Section 3.05(a), including, without limitation, Section 3.05(a)(11)); (vi) the cost of decorating, improving for tenant 9 13 occupancy, painting or redecorating portions of the Building or Project to be demised to tenants; (vii) advertising expenses relating to vacant space; (viii) real estate brokers' or other leasing commissions, or (ix) janitorial services for the Project, to the extent that such services are provided to the Leased Premises by Tenant pursuant to Section 4.01(b)(iii). ARTICLE 4. LANDLORD'S COVENANTS 4.01 BASIC SERVICES. Landlord shall operate the Project to a standard of quality consistent with that of other similar-class office projects in the immediate geographical area, and, subject to Tenant's obligation to pay Tenant's Proportionate Share of Basic Operating Cost, Landlord shall: (a) Administer improvement of the Leased Premises in accordance with EXHIBIT B (if any). (b) Furnish Tenant during Tenant's occupancy of the Leased Premises the following basic services: (i) Hot and cold water at those points of supply provided for general use of other tenants in the Project; central heat and air conditioning in season, during the Building hours of operation specified in the rules and regulations for the Project adopted pursuant to Section 5.17 and at such temperatures and in such amounts as are considered by Landlord to be standard for the comfortable use and occupancy of the Leased Premises or, in all events, as may be permitted or controlled by applicable laws, ordinances, rules and regulations. (ii) Structural and exterior maintenance (including exterior glass and glazing) and routine maintenance, repairs and electric lighting service for all public areas and service areas of the Project in the manner and to the extent deemed by Landlord to be standard. (iii) Janitorial service on a five (5) day per week basis, excluding holidays, except that Tenant may elect effective upon no less than thirty (30) days' prior written notice to Landlord, to provide, at its sole cost and expense, all such janitorial, window cleaning, and other cleaning and maintenance services to the Leased Premises. (iv) Electric lighting service throughout the Leased Premises and electrical facilities. Landlord acknowledges that the operation of Tenant's business requires electrical services and power for computer, telecommunications and switching equipment, and Landlord agrees to provide power for such operation in amounts as Landlord and Tenant may mutually and in good faith agree, but in no event to exceed 1500 amps 480 volts. The electrical expenses described in this clause (iv) shall not be included in Tenant's Proportionate Share of Basic Operating Cost; instead, Tenant's consumption of the such electrical services shall be separately metered (which cost shall be paid for by Tenant or as a cost deducted from the Landlord's Contribution for Tenant Improvements) and the cost of such electricity shall be billed directly to Tenant by the local public utility. (v) Building Standard lamps, bulbs, starters and ballasts used in the Leased Premises. 10 14 (vi) Public and handicap elevator service serving the floors on which the Leased Premises are situated, including freight elevator service when prearranged with Landlord, subject to such rules and regulations as Landlord shall promulgate from time to time. (c) Landlord shall not be liable for damages to either person or property, nor shall Landlord be deemed to have evicted Tenant, nor shall there be any abatement of Rent, nor shall Tenant be relieved from performance of any covenant on its part to be performed under this Lease by reason of any (i) deficiency in the provision of basic services; (ii) breakdown of equipment or machinery utilized in supplying services; or (iii) curtailment or cessation of services due to causes or circumstances beyond the reasonable control of Landlord or by the making of the necessary repairs or improvements, unless such deficiency, breakdown, curtailment or cessation is due to the active gross negligence or willful misconduct of Landlord. Landlord shall use reasonable diligence to make such repairs as may be required to machinery or equipment within the Project to provide restoration of services and, where the cessation or interruption of service has occurred due to circumstances or conditions beyond Project boundaries, to cause the same to be restored, by diligent application or request to the provider thereof. In no event shall any mortgagee or the beneficiary under any deed of trust referred to in Section 5.12 be or become liable for any default of Landlord under this Section 4.01(c). 4.02. EXTRA SERVICES. Landlord shall provide to Tenant at Tenant's sole cost and expense (and subject to the limitations hereinafter set forth) the following extra services: (a) Such extra cleaning and janitorial services required if Tenant Improvements necessitate extra cleaning efforts or are not consistent in quality and quantity with Building Standard Improvements; (b) Additional air conditioning and ventilating capacity required by reason of any electrical, data processing or other equipment, facilities or services required to support the same, in excess of that which would be required for Building Standard Improvements, when prearranged with Landlord; (c) Heating, ventilation, air conditioning or extra electrical service provided by Landlord to Tenant (i) during hours other than the Building hours of operation specified in the rules and regulations for the Project adopted pursuant to Section 5.17, which shall provide for Building hours of operation of 7:00 A.M. to 6:00 P.M., Monday through Friday (excluding holidays) and from 8:00 A.M. to 1:00 P.M. on Saturday, or (ii) on Saturdays after 1:00 P.M., Sundays, or holidays, all said heating, ventilation and air conditioning or extra electrical service to be furnished solely upon the prior written request of Tenant submitted during business hours to Landlord at least 24 hours in advance of the time such service is needed, or pursuant to such other procedures as may be established from time to time by Landlord for the Building or the Project; (d) Maintaining and replacing non-Building Standard lamps, bulbs, starters and ballasts (whether or not the light fixtures were installed by Landlord as part of the Tenant Improvements); (e) Repair and maintenance service which is the obligation of Tenant under this Lease; (f) Repair, maintenance or janitorial service to the Leased premises, the Common Areas or the Project parking area which is required as a result of the acts or omissions of Tenant, its agents, employees, contractors, invitees or licensees; and (g) Any basic service in amounts determined by Landlord to exceed the amounts required to be provided under Section 4.01(b), but only if Landlord elects to provide such additional or excess service. 11 15 For the purposes of this Section 4.02, if, in Landlord's reasonable opinion, Tenant's use of electrical and/or water service at the Leased Premises is excessive, Landlord may install a separate meter(s) at the Leased Premises to measure the amount of electricity and/or water consumed by Tenant therein. The cost of such installation and of such excess electricity and/or water (at the rates charged for such services by the local public utility) shall be paid by Tenant to Landlord upon receipt by Tenant of a bill therefor. The cost chargeable to Tenant for all extra services shall constitute Additional Rent and shall include a management fee payable to Landlord of fifteen percent (15%). Additional Rent shall be paid monthly by Tenant to Landlord concurrently with the payment of Base Rent. 4.03 WINDOW COVERINGS. All window coverings for the Leased Premises shall be those provided by Landlord as Building Standard Improvements. Tenant shall not place or maintain any window coverings, blinds, curtains or drapes other than those supplied by Landlord on any exterior window without Landlord's prior written approval, which Landlord shall have the right to grant or withhold in its absolute and sole discretion. 4.04 GRAPHICS AND SIGNAGE. Landlord shall provide identification of Tenant's name and suite numerals (i) on a building directory in the Building lobby and (ii) at the main entrance door to the Leased Premises. Landlord reserves the right to exclude any other names from the building directory. All signs, notices, advertisements and graphics of every kind or character, visible in or from the Common Areas or the exterior of the Leased Premises shall be subject to Landlord's prior written approval, which Landlord shall have the right to withhold in its absolute and sole discretion. Landlord may remove, without notice to and at the expense of Tenant, any sign, notice, advertisement or graphic of any kind inscribed, displayed or affixed in violation of the foregoing requirement. All approved signs, notices, advertisements or graphics shall be printed, affixed or inscribed at Tenant's expense by a person selected by Landlord. Landlord shall be entitled to revise the Project graphics and signage standards at any time. 4.05 TENANT EXTRA IMPROVEMENTS. All Tenant Extra Improvements (if any) shall be installed at Tenant's cost, such installation to be made and paid for pursuant to the provisions of EXHIBIT B. For purposes hereof, "costs" shall include, without limitation, all building permit fees for Tenant Extra Improvements (not already included in the permit fees paid with respect to the Landlord's Improvements); payments to architects, engineers and other design consultants for services and disbursements; and such reasonable inspection fees as Landlord may incur (not to exceed $200.00). Landlord shall not seek the benefits of depreciation deductions or income tax credit allowances for federal or state income tax reporting purposes with respect to any Tenant Extra Improvements for which Tenant has fully reimbursed Landlord under this Section 4.05. 4.06 REPAIR OBLIGATION. Subject to Tenant's obligations under Section 3.04 to pay Tenant's Proportionate Share of Basic Operating Cost, Landlord's obligation with respect to maintenance and repair shall be limited to (i) the structural portions of the Building; (ii) the exterior walls of the Building, including exterior glass and glazing; (iii) the roof; (iv) mechanical (including the HVAC system), electrical, plumbing and life safety systems; (v) the Common Areas; (vi) the Project parking area; and (vii) landscaped areas (if any). However, Landlord shall not have any obligation to repair damage caused by Tenant, its agents, employees, contractors, invitees or licensees. Landlord shall have the right, but not the obligation, to undertake work of repair which Tenant is required to perform under this Lease and which Tenant fails or refuses to perform in a timely and efficient manner. Tenant shall reimburse Landlord upon demand, as Additional Rent, for all costs incurred by Landlord in performing any such repair for the account of Tenant, together with an amount equal to ten percent (10%) of such costs to reimburse Landlord for its administration and managerial effort. Except as specifically set forth in this Lease, Landlord shall have no obligation whatsoever to maintain or repair the Leased Premises or the Project. The parties intend that the terms of this Lease govern their 12 16 respective maintenance and repair obligations. Tenant expressly waives the benefit of any statute now or hereafter in effect to the extent it is inconsistent with the terms of this Lease with respect to such obligations or which affords Tenant the right to make repairs at the expense of Landlord or terminate this Lease by reason of the condition of the Leased Premises or any needed repairs. 4.07. PEACEFUL ENJOYMENT. Landlord covenants with Tenant that upon Tenant paying the Rent and all other charges required under this Lease and performing all of Tenant's covenants and agreements herein contained, Tenant shall peacefully have, hold and enjoy the Leased Premises subject to all of the terms of this Lease and to any deed of trust, mortgage, ground lease or other agreement to which this Lease may be subordinate. This covenant and the other covenants of Landlord contained in this Lease shall be binding upon Landlord and its successors only with respect to breaches occurring during its or their respective ownerships of Landlord's interest hereunder. ARTICLE 5. TENANT'S COVENANTS 5.01. PAYMENTS BY TENANT. Tenant shall pay Rent at the times and in the manner provided in this Lease. All obligations of Tenant hereunder to make payments to Landlord shall constitute Rent and failure to pay the same when due shall give rise to the rights and remedies provided for in Section 7.08. If there is more than one Tenant, the obligations imposed under this Lease upon Tenant shall be joint and several. 5.02. TENANT IMPROVEMENTS. The Tenant Improvements shall be installed and constructed by Tenant pursuant to EXHIBIT B. All Landlord's Improvements shall become the property of Landlord upon installation and shall be surrendered to Landlord without compensation to Tenant upon termination of this Lease by lapse of time or otherwise, subject to Landlord's right to require their removal in the same manner as provided in Section 5.07. All Tenant Extra Improvements installed pursuant to Section 4.05 (if any) shall become the property of Landlord upon installation and shall be surrendered to Landlord without compensation to Tenant upon termination of this Lease by lapse of time or otherwise, subject to Landlord's right to require their removal in the same manner as provided in Section 5.07. 5.03. TAXES ON PERSONAL PROPERTY AND TENANT EXTRA IMPROVEMENTS. In addition to, and wholly apart from its obligation to pay Tenant's Proportionate Share of Basic Operating Costs, Tenant shall be responsible for, and shall pay prior to delinquency, all taxes or governmental service fees, possessory interest taxes, fees or charges in lieu of any such taxes, capital levies, and any other charges imposed upon, levied with respect to, or assessed against Tenant's personal property, on the value of its Tenant Extra Improvements (if any) and on its interest pursuant to this Lease. To the extent that any such taxes are not separately assessed or billed to Tenant, Tenant shall pay the amount thereof as invoiced to Tenant by Landlord. 5.04. REPAIRS BY TENANT. Tenant shall be obligated to maintain and repair the Leased Premises, to keep the same at all times in good order, condition and repair, and, upon expiration of the Term, to surrender the same to Landlord in the same condition as on the Term Commencement Date, reasonable wear and tear, taking by condemnation, and damage that is Landlord's responsibility under Section 7.07 not caused by Tenant, its agents, employees, contractors, invitees and licensees excepted. Tenant's obligations shall include, without limitation, the obligation to maintain and repair all walls, floors, ceilings and fixtures and to repair all damage caused by Tenant, its agents, employees, contractors, invitees and others using the Leased Premises with Tenant's expressed or implied permission. At the request of Tenant, Landlord shall perform the work of maintenance and repair constituting Tenant's obligation under this Section 5.04 at Tenant's sole cost and expense and as an extra service to be rendered pursuant to Section 4.02(e). Any work of repair and maintenance performed by or for the account of Tenant by persons other than Landlord shall be performed by 13 17 contractors approved by Landlord and in accordance with procedures Landlord shall from time to time establish. Tenant shall give Landlord prompt notice of any damage to or defective condition in any part of the Building's mechanical, electrical, plumbing, life safety or other system servicing, located in or passing through the Leased Premises. 5.05. WASTE. Tenant shall not commit or allow any waste or damage to be committed in any portion of the Leased Premises or the Project. 5.06. ASSIGNMENT OR SUBLEASE. (a) Tenant shall not voluntarily or by operation of law assign, transfer or encumber (collectively "Assign") or sublet all or any part of Tenant's interest in this Lease or in the Leased Premises without Landlord's prior written consent (which consent shall not be unreasonably withheld) given under and subject to the terms of this Section 5.06. A change in the control of Tenant shall constitute an assignment requiring Landlord's consent. Any transfer of the voting control of Tenant shall constitute a change in control for this purpose. Notwithstanding the foregoing, the Tenant may, upon notice to the Landlord, in whole or in part, sublet the Leased Premises, or Assign this Lease to an affiliate or subsidiary of the Tenant, provided, however, no such permitted subletting or assignment shall relieve the Tenant of liability under this Lease. (b) Except as permitted in Section 5.06(a) for an assignment to Tenant's affiliate or subsidiary, if Tenant desires to Assign this Lease or any interest herein or sublet the Leased Premises or any part thereof, Tenant shall give Landlord written notice of such intent. Tenant's notice shall specify the date the proposed assignment or sublease would be effective and be accompanied by information pertinent to Landlord's determination as to the financial and operational responsibility and appropriateness of the proposed assignee or subtenant, including, without limitation, its name, business and financial condition, financial details of the proposed transfer, the intended use (including any modification) of the Leased Premises, and exact copies of all of the proposed agreement(s) between Tenant and the proposed assignee or subtenant. Tenant shall promptly provide Landlord with (i) such other or additional information or documents reasonably requested (within ten (10) days after receiving Tenant's notice) by Landlord, and (ii) an opportunity to meet and interview the proposed assignee or subtenant, if requested by Landlord. (c) Landlord shall have a period of fourteen (14) days following such interview and receipt of such additional information (or thirty (30) days from the date of Tenant's original notice if Landlord does not request additional information or an interview) within which to notify Tenant in writing that Landlord elects either (i) to terminate this Lease as to the space so affected as of the effective date specified by Tenant, in which event Tenant will be relieved of all further obligations hereunder as to such space, or (ii) to permit Tenant to Assign this Lease or sublet such space, subject, however, to prior written approval of the proposed assignee or sublessee by Landlord, such consent not to be unreasonably withheld so long as the use of the Leased Premises by such proposed assignee or sublessee would be a Permitted Use, the proposed assignee or sublessee is of sound financial condition as determined by Landlord in its absolute and sole discretion, the proposed assignee or sublessee executes such reasonable assumption documentation as Landlord shall require, and the proposed assignee or sublessee is not (x) already a tenant in the Building or (y) a party with whom Landlord has been discussing the leasing of space in the Building. If Landlord fails to notify Tenant in writing of such election within said period, Landlord shall be deemed to have waived option (i) above. Failure by Landlord to approve a proposed subtenant or assignee shall not cause a termination of this Lease. (d) In the event Tenant shall request the consent of Landlord to any assignment or subletting hereunder, Tenant shall pay Landlord a processing fee of $250.00 and shall reimburse Landlord for 14 18 Landlord's reasonable attorneys' fees (up to $2,000.00) incurred in connection therewith. All such fees shall be deemed Additional Rent under this Lease. (e) Any rent or other consideration realized by Tenant under any such sublease or assignment in excess of the Rent payable hereunder, after amortization of the reasonable cost of Tenant Extra Improvements for which Tenant has paid and reasonable subletting and assignment costs, shall be divided and paid as follows: (i) so long as after such assignment or subletting, the original Tenant named in the Basic Lease Information sheet occupies not less than eighty-five percent (85%) of the Rentable Area of the Leased Premises, fifty percent (50%) to Tenant and fifty percent (50%) to Landlord; and (ii) in all other cases, twenty-five percent (25%) to Tenant and seventy-five percent (75%) to Landlord; provided, however, that in either instance, if Tenant is in default hereunder beyond any applicable cure period, Landlord shall be entitled to all such excess rent, provided, further, that if the Tenant exercises an option to extend the term under Section 8.02, then Landlord shall be entitled to all such excess rent during the Option Term. (f) In any subletting undertaken by Tenant, Tenant shall diligently seek to obtain not less than fair market rent for the space to sublet. In any assignment of this Lease in whole or in part, Tenant shall seek to obtain from the assignee consideration reflecting a value of not less than fair market rent for the space subject to such assignment. (g) The consent of Landlord to any assignment or subletting shall not constitute a consent to any subsequent assignment or subletting by Tenant or to any subsequent or successive assignment or subletting by the assignee or subtenant. Such action shall not relieve Tenant or any such other party from liability under this Lease or a sublease. (h) No assignment or subletting by Tenant shall relieve Tenant of any obligation under this Lease. In the event of default by an assignee or subtenant of Tenant or any successor of Tenant in the performance of any of the terms hereof, Landlord may proceed directly against Tenant without the necessity of exhausting remedies against such assignee, subtenant or successor. Any assignment or subletting which conflicts with the provisions hereof shall be void and, at Landlord's option, shall constitute a default under this Lease. 5.07. ALTERATIONS, ADDITIONS AND IMPROVEMENTS. (a) Tenant shall not make or allow to be made any alterations or additions in or to the Leased Premises without first obtaining the written consent of Landlord. Landlord's consent will not be unreasonably withheld with respect to proposed alterations and additions which (i) comply with all applicable laws, ordinances, rules and regulations; (ii) are compatible with and does not adversely affect the Building and its mechanical, electrical, HVAC and life safety systems; (iii) will not affect the structural portions of the Building; (iv) will not interfere with the use and occupancy of any other portion of the Building by any other tenant, its employees or invitees; and (v) will not trigger any additional costs to Landlord. Specifically, but without limiting the generality of the foregoing, Landlord's right of consent shall encompass plans and specifications for the proposed alterations or additions, construction means and methods, the identity of any contractor or subcontractor to be employed on the work of alterations or additions, and the time for performance of such work. Tenant shall supply to Landlord any additional documents and information requested by Landlord in connection with Tenant's request for consent hereunder. (b) Any consent given by Landlord under this Section 5.07 shall be deemed conditioned upon: (i) Tenant's acquiring all applicable permits required by governmental authorities; (ii) Tenant's furnishing to Landlord copies of such permits, together with copies of the approved plans and specifications, 15 19 prior to commencement of the work thereon; and (iii) the compliance by Tenant with the conditions of all applicable permits and approvals in a prompt and expeditious manner. (c) Tenant shall provide Landlord with not less than ten (10) days prior written notice of commencement of the work so as to enable Landlord to post and record appropriate notices of non-responsibility. All alterations and additions permitted hereunder shall be made and performed by Tenant without cost or expense to Landlord. Tenant shall pay the contractors and suppliers all amounts due to them when due and keep the Leased Premises and the Project free from any and all mechanics', materialmen's and other liens and claims arising out of any work performed, materials furnished or obligations incurred by or for Tenant. Landlord may require, at its sole option, that Tenant provide to Landlord, at Tenant's expense, a lien and completion bond in an amount equal to at least one and one half (1 1/2) times the total estimated cost of any alterations, additions or improvements to be made in or to the Leased Premises, to protect Landlord against any liability for mechanics', materialmen's and other liens and claims, and to ensure timely completion of the work. In the event any alterations or additions to the Leased Premises are performed by Landlord hereunder, whether by prearrangement or otherwise, Landlord shall be entitled to charge Tenant a ten percent (10%) administration fee in addition to the actual costs of labor and materials provided. Such costs and fees shall be deemed Additional Rent under this Lease, and may be charged and payable prior to the commencement of the work. (d) Any and all alterations, additions or improvements made to the Leased Premises by Tenant shall become the property of Landlord upon installation and shall be surrendered to Landlord without compensation to Tenant upon the termination of this Lease by lapse of time or otherwise unless (i) Landlord conditioned its approval of such alterations, additions or improvements on Tenant's agreement to remove them, or (ii) Landlord notifies Tenant prior to (or promptly after) the Term Expiration Date that the alterations, additions and/or improvements must be removed, in which case Tenant shall, by the Term Expiration Date (or promptly thereafter), remove such alterations, additions and improvements, repair any damages resulting from such removal and restore the Leased Premises to their condition existing prior to the date of installation of such alterations, additions and improvements. Notwithstanding anything to the contrary set forth above, this clause shall not apply to movable equipment or furniture owned by Tenant. Tenant shall repair at its sole cost and expense all damage caused to the Leased Premises and the Project by removal of Tenant's movable equipment or furniture and such other alterations, additions and improvements as Tenant shall be required or allowed by Landlord to remove from the Leased Premises. (e) All alterations, additions and improvements permitted under this Section 5.07 shall be constructed diligently, in a good and workmanlike manner with new, good and sufficient materials and in compliance with all applicable laws, ordinances, rules and regulations (including, without limitation, building codes and those related to accessibility and use by individuals with disabilities). Tenant shall, promptly upon completion of the work, furnish Landlord with "as built" drawings for any alterations, additions or improvements performed under this Section 5.07. 5.08. COMPLIANCE WITH LAWS AND INSURANCE STANDARDS. Tenant shall not occupy or use, or permit any portion of the Leased Premises to be occupied or used in a manner that violates any applicable law, ordinance, rule, regulation, order, permit, covenant, easement or restriction of record, or the recommendations of Landlord's engineers or consultants, relating in any manner to the Project, or for any business or purpose which is disreputable, objectionable or productive of fire hazard. Tenant shall not do or permit anything to be done which would result in the cancellation, or in any way increase the cost, of the all risk property insurance coverage on the Project and/or its contents. If Tenant does or permits anything to be done which increases the cost of any insurance covering or affecting the Project, then Tenant shall reimburse Landlord, upon demand, as Additional Rent, for such additional costs. Landlord shall deliver to Tenant a written statement setting forth 16 20 the amount of any such insurance cost increase and showing in reasonable detail the manner in which it has been computed. Tenant shall, at Tenant's sole cost and expense, comply with all laws, ordinances, rules, regulations and orders (state, federal, municipal or promulgated by other agencies or bodies having or claiming jurisdiction) related to the use, condition or occupancy of the Leased Premises now in effect or which may hereafter come into effect including, but not limited to, (a) accessibility and use by individuals with disabilities, and (b) environmental conditions in, on or about the Leased Premises. If anything done by Tenant in its use or occupancy of the Leased Premises shall create, require or cause imposition of any requirement by any public authority for structural or other upgrading of or alteration or improvement to the Project, Tenant shall, at Landlord's option, either perform the upgrade, alteration or improvement at Tenant's sole cost and expense or reimburse Landlord upon demand, as Additional Rent, for the cost to Landlord of performing such work. The judgment of any court of competent jurisdiction or the admission by Tenant in any action against Tenant, whether Landlord is a party thereto or not, that Tenant has violated any law, ordinance, rule, regulation, order, permit, covenant, easement or restriction shall be conclusive of that fact as between Landlord and Tenant. 5.09. NO NUISANCE; NO OVERLOADING. Tenant shall use and occupy the Leased Premises, and control its agents, employees, contractors, invitees and visitors in such manner so as not to create any nuisance, or interfere with, annoy or disturb (whether by noise, odor, vibration or otherwise) any other tenant or occupant of the Project or Landlord in its operation of the Project. Tenant shall not place or permit to be placed any loads upon the floors, walls or ceilings in excess of the maximum designed load specified by Landlord or which might damage the Leased Premises, the Building, or any portion thereof. 5.10. FURNISHING OF FINANCIAL STATEMENTS; TENANT'S REPRESENTATIONS. In order to induce Landlord to enter into this Lease, Tenant agrees that it shall promptly furnish Landlord, once a year, within twenty (20) business days of receipt of Landlord's written request therefor, with financial statements in form and substance reasonably satisfactory to Landlord reflecting Tenant's current financial condition. Tenant represents and warrants that all financial statements, records and information furnished by Tenant to Landlord in connection with this Lease are true, correct and complete in all respects. 5.11. ENTRY BY LANDLORD. Landlord, its employees, agents and consultants, shall have the right to enter the Leased Premises at any time, in cases of an emergency, and otherwise at reasonable times (with 8 hours prior notice) to inspect the same, to clean, to perform such work as may be permitted or required under this Lease, to make repairs to or alterations of the Leased Premises or other portions of the Project or other tenant spaces therein, to deal with emergencies, to post such notices as may be permitted or required by law to prevent the perfection of liens against Landlord's interest in the Project or to show the Leased Premises to prospective tenants, purchasers, encumbrancers or others, or for any other purpose as Landlord may deem necessary or desirable; provided, however, that Landlord shall use its best efforts to minimize interference with Tenant's business operations in the Leased Premises. Tenant shall not be entitled to any abatement of Rent or damages by reason of the exercise of any such right of entry. 5.12. NONDISTURBANCE AND ATTORNMENT. (a) This Lease and the Rights of Tenant hereunder shall be subject and subordinate to the lien of any deed of trust, mortgage or other hypothecation or security instrument (collectively, "Security Device") now or hereafter placed upon, affecting or encumbering the Project or any part thereof or interest therein, and to any and all advances made thereunder, interest thereon or costs incurred and any modifications, renewals, supplements, consolidations, replacements and extensions thereof. With respect to any Security Device entered into by Landlord after execution of this Lease, Landlord agrees to use reasonable, good faith efforts to obtain assurance (a "nondisturbance agreement") from the holder of or beneficiary under such encumbrance that Tenant's possession will not be disturbed so long as Tenant is not in default under this Lease 17 21 and attorns to the record owner of the Leased Premises. Without the consent of Tenant, the holder of any such Security Device or the beneficiary thereunder shall have the right to elect to be subject and subordinate to this Lease, such subordination to be effective upon such terms and conditions as such holder or beneficiary may direct which are not inconsistent with the provisions hereof. Tenant agrees to attorn to and recognize as the Landlord under this Lease the holder or beneficiary under a Security Device or any other party that acquires ownership of the Leased Premised by reason of a foreclosure or sale under any Security Device (or deed in lieu thereof). The new owner following such foreclosure, sale or deed shall not be (i) liable for any act or omission of any prior landlord or with respect to events occurring prior to acquisition of ownership; (ii) subject to any offsets or defenses which Tenant might have against any prior landlord; (iii) bound by prepayment of more than one (1) month's Rent; or (iv) liable to Tenant for any security deposit not actually received by such new owner. (b) Tenant shall not unreasonably withhold its consent to changes or amendments to this Lease requested by the holder of a Security Device so long as these changes do not alter the basic business terms of this Lease or otherwise materially diminish any rights or materially increase any obligations of Tenant hereunder. If, within fifteen (15) business days after notice from Landlord, Tenant fails or refuses to execute with Landlord the amendment(s) to this Lease accomplishing the change(s) or amendment(s) which are requested by such holder, Landlord, at its sole option, shall have the right either to (i) immediately terminate this Lease or (ii) execute any instrument for or on behalf of Tenant as its attorney-in-fact. In acknowledgment thereof, Tenant hereby appoints Landlord as its irrevocable attorney-in-fact solely to execute any instruments required to carry out the intent of this Section 5.12(b) on behalf of Tenant. 5.13. ESTOPPEL CERTIFICATE. Within ten (10) days following Landlord's request, Tenant shall execute, acknowledge and deliver written estoppel addressed to (i) any mortgagee or prospective mortgagee of Landlord, or (ii) any purchaser or prospective purchaser of all or any portion of, or interest in, the Project, on a form specified by Landlord, certifying as to such facts (if true) and agreeing to such notice provisions and other matters as such mortgagee(s) or purchaser(s) may reasonably require, including, without limitation, the following: (a) that this Lease is unmodified and in full force and effect (or in full force and effect as modified, and stating the modifications); (b) the amount of, and date to which Rent and other charges have been paid in advance; (c) the amount of any Security Deposit; and (d) acknowledging that Landlord is not in default under this Lease (or, if Landlord is claimed to be in default, stating the nature of the alleged default). However, in no event shall any such estoppel certificate require an amendment of the provisions of this Lease or otherwise affect or abridge Tenant's rights hereunder. Any such estoppel certificate may be relied upon by any such mortgagee or purchaser. Failure by Tenant to execute and deliver any such estoppel certificate within the time requested shall, at Landlord's election, constitute a default hereunder and shall be conclusive upon Tenant that (1) this Lease is in full force and effect and has not been modified except as represented by Landlord; (2) not more than one month's Rent has been paid in advance; and (3) Landlord is not in default under this Lease. 5.14. SECURITY DEPOSIT. (a) Concurrently with the execution of this Lease, Tenant shall pay to Landlord immediately prior to occupancy the agreed upon Security Deposit as security for the full and faithful performance of Tenant's obligations under this Lease. If at any time during the Term, Tenant shall be in default in the payment of Rent or in default for any reason, Landlord may use, apply or retain all or part of the Security Deposit for payment of any amount due Landlord or to cure such default or to reimburse or compensate Landlord for any liability, loss, cost, expense or damage (including attorneys' fees) which Landlord may suffer or incur by reason of Tenant's defaults. If Landlord uses or applies all or any part of the Security Deposit, Tenant shall, on demand, pay to Landlord a sum sufficient to restore the Security Deposit to the full amount required by this Lease. Any time the Base Rent increased during the Term, Tenant shall (within ten 18 22 (10) business days of receipt of a request therefor from Landlord) deposit additional monies with Landlord sufficient to maintain the same ratio between the Security Deposit and Base Rent as those amounts are specified in the Basic Lease Information sheet. Upon expiration of the Term or earlier termination of this Lease and after Tenant has vacated the Leased Premises, Landlord shall return the Security Deposit to Tenant, reduced by such amounts as may be required by Landlord to remedy defaults on the part of Tenant in the payment of Rent, to repair damages to the Leased Premises caused by Tenant and to clean the Leased Premises. The portion of the deposit not so required shall be paid over to Tenant (or, at Landlord's option, to the last assignee of Tenant's interest in this Lease) within thirty (30) days after expiration of the Term or earlier termination hereof. Landlord shall hold the Security Deposit for the foregoing purposes; provided, however, that Landlord shall have no obligation to segregate the Security Deposit from its general funds or to pay interest in respect thereof. No part of the Security Deposit shall be considered to be held in trust, or to be prepayment of any monies to be paid by Tenant under this Lease. (b) In lieu of a cash deposit, Tenant may deliver the Security Deposit to Landlord in the form of a clean and irrevocable letter of credit (the "Letter of Credit") issued by and drawable upon (said issuer being referred to as the "Issuing Bank") a financial institution which is approved by Landlord, provided that Landlord shall not unreasonably withhold its consent to an Issuing Bank which has outstanding unsecured, uninsured and unguaranteed indebtedness, or shall have issued a letter of credit or other credit facility that constitutes the primary security for any outstanding indebtedness (which is otherwise uninsured and unguaranteed), that is then rated, without regard to qualification of such rating by symbols such as "+" of "-" or numerical notation, "Aa" or better by Moody's Investors Service and "AA" or better by Standard & Poor's Rating Service, and has combined capital, surplus and undivided profits of not less than $100,000,000. Such Letter of Credit shall (a) name Landlord as beneficiary, (b) be in the amount of the Security Deposit, (c) have a term of not less than one year, (d) permit multiple drawings, (e) be fully transferable by Landlord, and (f) otherwise be in form and content reasonably satisfactory to Landlord. If upon any transfer of the Letter of Credit, any fees or charges shall be so imposed, then such fees or charges shall be payable solely by Tenant and the Letter of Credit shall so specify. The Letter of Credit shall provide that it shall be deemed automatically renewed, without amendment, for consecutive periods of one year each thereafter during the Term unless the Issuing Bank sends a notice (the "Non-Renewal Notice") to Landlord by certified mail, return receipt requested, not less than 45 days next preceding the then expiration date of the Letter of Credit stating that the Issuing Bank has elected not to renew the Letter of Credit. Landlord shall have the right, upon receipt of the Non-Renewal Notice, to draw the full amount of the Letter of Credit, by sight draft on the Issuing Bank, and shall thereafter hold or apply the cash proceeds of the Letter of Credit pursuant to the terms of this Article. The Issuing Bank shall agree with all drawers, endorsers and bona fide holders that drafts drawn under and in compliance with the terms of the Letter of Credit will be duly honored upon presentation to the Issuing Bank at an office location in San Francisco, California. The Letter of Credit shall be subject in all respects to the Uniform Customs and Practice for Documentary Credits (1993 revision), International Chamber of Commerce Publication No. 500. 5.15 SURRENDER. (a) Subject to the provisions of Section 5.07 hereof, on the Term Expiration Date (or earlier termination of this Lease), Tenant shall quit and surrender possession of the Leased Premises to Landlord in as good order and condition as they were in on the Tenant's Physical Possession Date, reasonable wear and tear, act of God, taking by condemnation and repairs which are Landlord's responsibility excepted. Reasonable wear and tear shall not include any damage or deterioration that would have been prevented by good maintenance practice if required to be maintained by Tenant under this Lease or by Tenant performing all of its obligations under this Lease. Tenant shall, without cost to Landlord, remove all furniture, equipment, trade fixtures, debris and articles of personal property owned by Tenant in the Leased Premises, and shall repair any 19 23 damage to the Project resulting from such removal. Any such property not removed by Tenant by the Term Expiration Date (or earlier termination of this Lease) shall be considered abandoned, and Landlord may remove any or all of such items and dispose of same in any lawful manner or store same in a public warehouse or elsewhere for the account and at the expense and risk of Tenant. If Tenant shall fail to pay the cost of storing any such property after storage for thirty (30) days or more, Landlord may sell any or all of such property at public or private sale, in such manner and at such times and places as Landlord may deem proper, without notice to or demand upon Tenant. Landlord shall apply the proceeds of any such sale as follows: first, to the costs of such sale; second, to the costs of storing any such property; third, to the payment of any other sums of money which may then or thereafter be due to Landlord from Tenant under any of the terms of this Lease; and fourth, the balance, if any, to Tenant. (b) Prior to the Term Expiration Date (or earlier termination of this Lease), all equipment, fixtures and cables installed pursuant to Section 2.05 (collectively, the "Associated Rights Equipment") shall be removed by Tenant, and the Leased Premises, the Generator Area, the Fuel Tank Area and all areas used for cables and equipment serving the foregoing locations shall be repaired or restored by Tenant in as good order and condition as they were in on the Tenant's Physical Possession Date, reasonable wear and tear and act of God excepted. Reasonable wear and tear shall not include any damage or deterioration that would have been prevented by good maintenance practice if required to be maintained by Tenant under this Lease or by Tenant performing all of its obligations under this Lease. Tenant shall repair any damage to the Leased Premises, the Building or the Project resulting from such removal. 5.16. TENANT'S REMEDIES. Landlord shall not be deemed in breach of this Lease unless Landlord fails within a reasonable time to perform an obligation required to be performed by Landlord. For purposes of this Section 5.16, a reasonable time shall in no event, be less than thirty (30) days after receipt by Landlord, and by the holders of any ground lease, deed of trust or mortgage covering the Leased Premises whose name and address shall have been furnished Tenant in writing for such purpose, of written notice specifying wherein such obligation of Landlord has not been performed; provided, however, that if the nature of Landlord's obligation is such that more than thirty (30) days after such notice are reasonably required for its performance, then Landlord shall not be in breach of this Lease if performance is commenced within said thirty (30)-day period and thereafter diligently pursued to completion. If Landlord fails to cure such default within the time provided for in this Lease, the holder of any such ground lease, deed of trust or mortgage shall have an additional thirty (30) days to cure such default; provided that if such default cannot reasonably be cured within that thirty (30) day period, then such holder shall have such additional time to cure the default as is reasonably necessary under the circumstances. Tenant shall look solely to Landlord's interest in the Project for recovery of any judgment from Landlord. Neither Landlord nor any of its trustees, directors, officers, agents, employees or representatives (or, if Landlord is a partnership, its partners, whether general or limited) shall ever be personally liable for any such judgment. Any lien obtained to enforce any such judgment and any levy of execution thereon shall be subject and subordinate to any lien, deed of trust or mortgage to which Section 5.12 applies or may apply. Tenant shall not have the right to terminate this Lease or withhold, reduce or offset any amount against any payments of Rent due and payable under this Lease by reason of a breach of this Lease by Landlord. 5.17. RULES AND REGULATIONS. Tenant shall comply with the rules and regulations for the Project attached as EXHIBIT D and such reasonable amendments thereto as Landlord may adopt from time to time with prior notice to Tenant. ARTICLE 6. ENVIRONMENTAL MATTERS 20 24 6.01 HAZARDOUS MATERIALS PROHIBITED. (a) Tenant shall not cause or permit any Hazardous Material (as defined in Section 6.01(c) below) to be brought, kept, used, generated, released or disposed in, on, under or about the Leased Premises or the Project by Tenant, its agents, employees, contractors or invitees; provided, however, that Tenant may use, store and dispose of, in accordance with applicable Laws, limited quantities of standard office and janitorial supplies, but only to the extent reasonably necessary for Tenant's operations in the Leased Premises. Tenant hereby indemnifies Landlord from and against (i) any breach by Tenant of the obligations stated in the preceding sentence, (ii) any breach of the obligations stated in Section 6.01(b) below, or (iii) any claims or liability resulting from Tenant's use of Hazardous Materials. Tenant hereby agrees to defend and hold Landlord harmless from and against any and all claims, liability, losses damages, costs and/or expenses (including, without limitation, diminution in value of the Project, or any portion thereof, damages for the loss or restriction on use of rentable or usable space or of any amenity of the Project, damages arising from any adverse impact on marketing of space in the Project, and sums paid in settlement of claims, fines, penalties, attorneys' fees, consultants' fees and experts' fees) which arise during or after the term as a result of any breach of the obligations stated in Sections 6.01(a) or 6.01(b) or otherwise resulting from Tenant's use of Hazardous Materials. This indemnification of Landlord by Tenant includes, without limitation, death of or injury to person, damage to any property or the environment and costs incurred in connection with any investigation of site conditions or any cleanup, remedial, removal, or restoration work required by any federal, state or local governmental agency or political subdivision because of any Hazardous Material present in, on, under or about the Leased Premises or the Project (including soil and ground water contamination) which results from such a breach. Without limiting the foregoing, if the presence of any Hazardous Material present in, on, under or about the Leased Premises or the Project, Tenant shall promptly take all actions at its sole expense as are necessary to return the same to the condition existing prior to the introduction of such Hazardous Material; provided that Landlord's approval of such actions, and the contractors to be used by Tenant in connection therewith, shall first be obtained. This indemnification of Landlord by Tenant shall survive the expiration or sooner termination of this Lease. (b) Tenant covenants and agrees that Tenant shall at all times be responsible and liable for, and be in compliance with, all federal, state, local and regional laws, ordinances, rules, codes and regulations, as amended from time to time ("Governmental Requirements"), relating to health and safety and environmental matters, arising, directly or indirectly, out of the use of Hazardous Materials (as defined in Section 6.01(c) below) in the Project. Health and safety and environmental matters for which Tenant is responsible under this paragraph include, without limitation (i) notification and reporting to governmental agencies, (ii) the provision of warnings of potential exposure to Hazardous Materials to Landlord and Tenant's agents, employees, licensees, contractors and others, (iii) the payment of taxes and fees, (iv) the proper off-site transportation and disposal of Hazardous Materials, and (v) all requirements, including training, relating to the use of equipment. Immediately upon discovery of a release of Hazardous Materials associated with Tenant's activities, Tenant shall give written notice to Landlord, whether or not such release is subject to reporting under Governmental Requirements. The notice shall include information on the nature and conditions of the release and Tenant's planned response. Tenant shall be liable for the cost of any clean-up of the release of any Hazardous Materials by Tenant on the Project. (c) As used in this Lease, the term "Hazardous Material" means any hazardous or toxic substance, material or waste which is or becomes regulated by any local governmental authority, the State of California or the United States Government. The term "Hazardous Material" includes, without limitation, any substance, material or waste which is (i) defined as a "hazardous waste" or similar term under the laws of the jurisdiction where the Project is located, (ii) designated as a "hazardous substance" pursuant to Section 311 of the Federal Water Pollution Control Act (33 U.S.C. Section 1317); (iii) defined as a "hazardous waste" pursuant 21 25 to Section 1004 of the Federal Resource, Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq. (42 U.S.C. Section 6903); (iv) defined as a "hazardous substance" pursuant to Section 101 of the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601 et seq. (42 U.S.C. Section 9601); (v) hydrocarbons, petroleum, gasoline, crude oil or any products, by-products or fractions thereof; or (vi) asbestos in any form or condition. (d) As Used in this Article 6, the term "Laws" means any applicable federal, state or local laws, ordinances, rules or regulations relating to any Hazardous Material affecting the Project, including, without limitation, the specific laws, ordinances and regulations referred to in Section 6.01(c) above. References to specific Laws shall also be references to any amendments thereto and to any applicable successor Laws. 6.02. LIMITATIONS ON ASSIGNMENT AND SUBLETTING. It shall not be unreasonable for Landlord to withhold its consent to any proposed assignment or subletting of the Leased Premises if the proposed transferee's anticipated use of the Leased Premises involves the generation, storage, use, treatment, or disposal of Hazardous Material (excluding standard office and janitorial supplies; in limited quantities as hereinabove provided). 6.03. LIMITATIONS ON ASSIGNMENT AND SUBLETTING. It shall not be unreasonable for Landlord to withhold its consent to any proposed assignment or subletting of the Leased Premises if (i) the proposed transferee's anticipated use of the Leased Premises involves the generation, storage, use, treatment, or disposal of Hazardous Material (excluding standard office and janitorial supplies; in limited quantities as hereinabove provided); (ii) the proposed transferee has been required by any prior landlord, lender or governmental authority to take remedial action in connection with Hazardous Material contaminating a property if the contamination resulted from such transferee's actions or use of the property in question; or (iii) the proposed transferee is subject to an enforcement order issued by any governmental authority in connection with the generation, storage, use, treatment or disposal of a Hazardous Material. 6.04. RIGHT OF ENTRY. Landlord, its employees, agents and consultants, shall have the right to enter the Leased Premises at any time, in case of an emergency, and otherwise during reasonable hours and upon reasonable notice to Tenant, in order to conduct periodic environmental inspections and tests to determine whether any Hazardous Materials are present. The costs and expenses of such inspections shall be paid by Landlord unless a default or breach of this Lease, violation of Laws or contamination caused or permitted by Tenant is found to exist. In such event, Tenant shall reimburse Landlord upon demand, as Additional Rent, for the costs and expenses of such inspections. 6.05. NOTICE TO LANDLORD. Tenant shall immediately notify Landlord in writing of: (i) any enforcement, clean-up, removal or other governmental or regulatory action instituted or threatened regarding the Leased Premises or the Project pursuant to any Laws; (ii) any claim made or threatened by any person against Tenant or the Leased Premises relating to damage, contribution, cost recovery, compensation, loss or injury resulting from or claimed to result from any Hazardous Material; and (iii) any reports made to or received from any governmental agency arising out of or in connection with any Hazardous Material in or removed from the Leased Premises or the Project, including any complaints, notices, warnings or asserted violations in connection therewith. Tenant shall also supply to Landlord as promptly as possible, and in any event within three (3) business days after Tenant first receives or sends the same, copies of all claims, reports, complaints, notices, warnings, asserted violations or other communications relating in any way to the Leased Premises or Tenant's use thereof. 22 26 ARTICLE 7. INSURANCE, INDEMNITY, CONDEMNATION, DAMAGE AND DEFAULT 7.01. LANDLORD'S INSURANCE. Subject to Tenant's obligations under Section 3.04 to pay Tenant's Proportionate Share of Basic Operating Cost, Landlord shall secure and maintain policies of insurance for the Project (including the Leased Premises) covering loss of or damage to the Project, including the Tenant Improvements (as shown on the "as-built" plans provided to Landlord after completion of construction of the Tenant Improvements), but excluding all subsequent alterations, additions and improvements to the Leased Premises, with loss payable to Landlord and to the holders of any deeds of trust, mortgages or ground leases on the Project. Landlord shall not be obligated to obtain insurance for Tenant's trade fixtures, equipment, furnishings, machinery or other property. Such policies shall provide protection against fire and extended coverage perils and such additional perils as Landlord deems suitable, and with such deductible(s) as Landlord shall deem reasonably appropriate. Landlord shall further secure and maintain commercial general liability insurance with respect to the Project in such amount as Landlord shall determine, such insurance to be in addition to, and not in lieu of, the liability insurance required to be maintained by Tenant. In addition, Landlord may secure and maintain rental income insurance. Landlord may elect to self-insure for the coverages required under this Section 7.01. If the annual cost to Landlord for any such insurance exceeds the standard rates because of the nature of Tenant's operations, Tenant shall, upon receipt of appropriate invoices, reimburse Landlord for such increases in cost, which amounts shall be deemed Additional Rent hereunder. Tenant shall not be named as an additional insured on any policy of insurance maintained by Landlord. 7.02. TENANT'S LIABILITY INSURANCE. (a) Tenant (with respect to both the Leased Premises and the Common Areas) shall secure and maintain, at its own expense, at all times during the Term, a policy or policies of commercial general liability insurance with the premiums thereon fully paid in advance, protecting Tenant and naming Landlord, the holders of any deeds of trust, mortgages or ground leases on the Project, and Landlord's representatives (which term, whenever used in this Article 7, shall be deemed to include Landlord's partners, trustees, ancillary trustees, officers, directors, shareholders, beneficiaries, agents, employees and independent contractors) as additional insureds against claims for bodily injury, personal injury, advertising injury and property damage (including attorneys' fees) based upon, involving or arising out of Tenant's operations, assumed liabilities or Tenant's use, occupancy or maintenance of the Leased Premises and the Common Areas of the Project. Such insurance shall provide for a minimum amount of Two Million Dollars ($2,000,000.00) for property damage or injury to or death of one or more than one person in any one accident or occurrence, with an annual aggregate limit of at least Four Million Dollars ($4,000,000.00). The coverage required to be carried shall include fire legal liability, blanket contractual liability, personal injury liability (libel, slander, false arrest and wrongful eviction), broad form property damage liability, products liability and completed operations coverage (as well as owned, non-owned and hired automobile liability if an exposure exists) and the policy shall contain an exception to any pollution exclusion which insures damage or injury arising out of heat, smoke or fumes from a hostile fire. Such insurance shall be written on an occurrence basis and contain a separation of insureds provision or cross-liability endorsement acceptable to Landlord. Tenant shall provide Landlord with a certificate evidencing such insurance coverage. The certificate shall indicate that the insurance provided specifically recognizes the liability assumed by Tenant under this Lease (including without limitation performance by Tenant under Section 7.04) and that Tenant's insurance is primary to and not contributory with any other insurance maintained by Landlord, whose insurance shall be considered excess insurance only. Not more frequently than every two (2) years, if, in the opinion of any mortgagee of Landlord or of the insurance broker retained by Landlord, the amount of liability insurance coverage at that time is not adequate, then Tenant shall increase its liability insurance coverage as required by either any mortgagee of Landlord or Landlord's insurance broker. 23 27 (b) Tenant shall, at Tenant's expense, comply with (i) all insurance company requirements pertaining to the use of the Leased Premises and (ii) all rules, orders, regulations or requirements of the American Insurance Association (formerly the National Board of Fire Underwriters) and with any similar body. 7.03. TENANT'S ADDITIONAL INSURANCE REQUIREMENTS. (a) Tenant shall secure and maintain, at Tenant's expense, at all times during the Term, a policy of physical damage insurance on all of Tenant's fixtures, furnishings, equipment, machinery, merchandise and personal property in the Leased Premises and on any Tenant Extra Improvements and alterations, additions or improvements made by or for Tenant upon the Leased Premises, all for the full replacement cost thereof without deduction for depreciation of the covered items and in amounts that meet any co-insurance clauses of the policies of insurance. Such insurance shall insure against those risks customarily covered in an "all risk" policy of insurance covering physical loss or damage. Tenant shall use the proceeds from such insurance for the replacement of fixtures, furnishings, equipment and personal property and for the restoration of Tenant Extra Improvements and alterations, additions or improvements to the Leased Premises. Landlord shall be named as loss payee to the extent of the value of any Tenant Extra Improvements. In addition, Tenant shall secure and maintain, at all times during the Term, loss of income, business interruption and extra expense insurance in such amounts as will reimburse Tenant for direct or indirect loss of earnings and incurred costs attributable to all perils commonly insured against by prudent tenants or attributable to prevention of access to the Leased Premises or to the Building as a result of such perils; such insurance shall be maintained with Tenant's property insurance carrier. Further, Tenant shall secure and maintain at all times during the Term workers' compensation insurance in such amounts as are required by law, employer's liability insurance in the amount of One Million Dollars ($1,000,000.00) per occurrence, and all such other insurance as may be required by applicable law or as may be reasonably required by Landlord. In the event Tenant makes any alterations, additions or improvements to the Leased Premises, prior to commencing any work in the Leased Premises, Tenant shall secure "builder's all risk" insurance which shall be maintained throughout the course of construction, such policy being an all risk builder's risk completed value form, in an amount approved by Landlord, but not less than the total contract price for the construction of such alterations, additions or improvements and covering the construction of such alterations, additions or improvements, and such other insurance as Landlord may require, it being understood and agreed that all of such alterations, additions or improvements shall be insured by Tenant pursuant to this Section 7.03 immediately upon completion thereof. Tenant shall provide Landlord with certificates of all such insurance. The property insurance certificate shall confirm that the waiver of subrogation required to be obtained pursuant to Section 7.05 is permitted by the insurer. Tenant shall, at least thirty (30) days prior to the expiration of any policy of insurance required to be maintained by Tenant under this Lease, furnish Landlord with an "insurance binder" or other satisfactory evidence of renewal thereof. (b) All policies required to be carried by Tenant under this Lease shall be issued by and binding upon a reputable insurance company of good financial standing licensed to do business in the State of California with a rating of at least A-VII, or such other rating as may be required by a lender having a lien on the Project, as set forth in the most current issue of "Best's Insurance Reports." Tenant shall not do or permit anything to be done that would invalidate the insurance policies referred to in this Article 7. Evidence of insurance provided to Landlord shall include an endorsement showing that Landlord, its representatives and the holders of any deeds of trust, mortgages or ground leases on the Project are included as additional insureds on general liability insurance, and as loss payees for property insurance, to the extent required hereunder, and an endorsement whereby the insurer agrees not to cancel, non-renew or materially alter the policy without at least thirty (30) days prior written notice to Landlord, its representatives and any mortgagee of Landlord. (c) In the event that Tenant fails to provide evidence of insurance required to be provided by Tenant under this Lease, prior to commencement of the Term, and thereafter during the Term, within ten 24 28 (10) days following Landlord's request therefor, and thirty (30) days prior to the expiration date of any such coverage, Landlord shall be authorized (but not required) to procure such coverage in the amounts stated with all costs thereof (plus a fifteen percent (15%) administrative fee) to be chargeable to Tenant and payable upon written invoice therefor, which amounts shall be deemed Additional Rent hereunder. (d) The minimum limits of insurance required by this Lease, or as carried by Tenant, shall not limit the liability of Tenant nor relieve Tenant of any obligation hereunder. 7.04. INDEMNITY AND EXONERATION. (a) To the extent not prohibited by law, Landlord and Landlord's representatives shall not be liable for any loss, injury or damage to person or property of Tenant, Tenant's agents, employees, contractors, invitees or any other person, whether caused by theft, fire, act of God, acts of the public enemy, riot, strike, insurrection, war, court order, requisition or order of governmental body or authority or which may arise through repair, alteration or maintenance of any part of the Project or failure to make any such repair or from any other cause whatsoever, except as expressly otherwise provided in Sections 7.06 and 7.07. Landlord shall not be liable for any loss, injury or damage arising from any act or omission of any other tenant or occupant of the Project, nor shall Landlord be liable under any circumstances (excluding Landlord's negligence) for damage or inconvenience to Tenant's business or for any loss of income or profit therefrom. (b) Tenant shall indemnify, protect, defend and hold the Project, Landlord and its representatives, harmless of and from any and all claims, liability, costs, penalties, fines, damages, injury, judgments, forfeiture, losses (including without limitation diminution in the value of the Leased Premises) or expenses (including without limitation attorneys' fees, consultant fees, testing and investigation fees, expert fees and court costs) arising out of or in any way related to or resulting directly or indirectly from (i) the use or occupancy of the Leased Premises, (ii) the activities of Tenant, its agents, employees, contractors or invitees in or about the Leased Premises or the Project (where not covered by Landlord's insurance), (iii) any failure to comply with any applicable law, and (iv) any default or breach by Tenant in the performance of any obligation of Tenant under this Lease; provided, however, that the foregoing indemnity shall not be applicable to claims arising by reason of the negligence or willful misconduct of Landlord. (c) Tenant shall indemnify, protect, defend and hold the Project, Landlord and its representatives, harmless of and from any and all claims, liability, costs, penalties, fines, damages, injury, judgments, forfeiture, losses (including without limitation diminution in the value of the Leased Premises) or expenses (including without limitation attorneys' fees, consultants fee, testing and investigation fees, expert fees and court costs) arising out of or in any way related to or resulting directly or indirectly from work or labor performed, materials or supplies furnished to or at the request of Tenant or in connection with obligations incurred by or performance of any work done for the account of Tenant in the Leased Premises or the Project. (d) The provisions of this Section 7.04 shall survive the expiration or sooner termination of this Lease. BY SIGNING ITS INITIALS BELOW, TENANT ACKNOWLEDGES THAT IT HAS READ AND UNDERSTANDS THE MEANING AND RAMIFICATIONS OF THE PROVISIONS SET FORTH IN THIS SECTION 7.04 AND FURTHER ACKNOWLEDGES THAT SUCH PROVISIONS WERE SPECIFICALLY NEGOTIATED. /s/ RP /s/ HE - ------------------- Tenant's Initials 25 29 7.05. WAIVER OF SUBROGATION. Anything in this Lease to the contrary notwithstanding, Landlord and Tenant each waives all rights of recovery, claim, action or cause of action against the other, its agents (including partners, both general and limited), trustees, officers, directors, and employees, for any loss or damage that may occur to the Leased Premises, or any improvements thereto, or the Project or any personal property of such party therein, by reason of any cause required to be insured against under this Lease to the extent of the coverage required, regardless of cause or origin, provided that such party's insurance is not invalidated thereby; and each party covenants that, to the fullest extent permitted by law, no insurer shall hold any right of subrogation against such other party. Tenant shall advise its insurers of the foregoing and such waiver shall be a part of each policy maintained by Tenant which applies to the Leased Premises, any part of the Project or Tenant's use and occupancy of any part thereof. 7.06. CONDEMNATION. (a) If the Leased Premises are taken under the power of eminent domain or sold under the threat of the exercise of such power (all of which are referred to herein as "condemnation"), this Lease shall terminate as to the part so taken as of the date the condemning authority takes title or possession, whichever first occurs (the "date of taking"). If the Leased Premises or any portion of the Project is taken by condemnation to such an extent as to render the Leased Premises untenantable as reasonably determined by Landlord, this Lease shall, at the option of either party to be exercised in writing within thirty (30) days after receipt of written notice of such taking, forthwith cease and terminate as of the date of taking. All proceeds from any condemnation of the Leased Premised shall belong and be paid to Landlord, subject to the rights of any mortgagee of Landlord's interest in the Project or the beneficiary of any deed of trust which constitutes an encumbrance thereon; provided that Tenant shall be entitled to any compensation separately awarded to Tenant for Tenant's relocation expenses or, loss of Tenant's trade fixtures. If this Lease continues in effect after the date of taking pursuant to the provisions of this Section 7.06(a), Landlord shall proceed with reasonable diligence to repair, at its expense, the remaining parts of the Project and the Leased Premises (other than any Tenant Extra Improvements, except to the extent that there are proceeds adequate for such repair and for all other restoration purposes) to substantially their former condition to the extent that the same is feasible (subject to reasonable changes which Landlord shall deem desirable) and so as to constitute a complete and tenantable Project and Leased Premises. Net Rent shall abate to the extent appropriate during the period of restoration, and Net Rent shall thereafter be equitably adjusted according to the remaining Rentable Area of the Leased Premises and the Building. (b) In the event of a temporary taking of all or a portion of the Leased Premises, there shall be no abatement of Rent and Tenant shall remain fully obligated for performance of all of the covenants and obligation on its part to be performed pursuant to the terms of this Lease. All proceeds awarded or paid with respect thereto shall belong to Tenant. 7.07. DAMAGE OR DESTRUCTION. In the event of a fire or other casualty in the Leased Premises, Tenant shall immediately give notice thereof to Landlord. The following provisions shall then apply: (a) If the damage is limited solely to the Lease Premises and the Leased Premises can, in Landlord's opinion, be made tenantable with all damage repaired within six (6) months from the date of damage, then Landlord shall be obligated to rebuild the same to substantially their former condition to the extent that the same is feasible (subject to reasonable changes which Landlord shall deem desirable and such changes as may be required by applicable law) and shall proceed with reasonable diligence to do so and this Lease shall remain in full force and effect; provided, however, that Landlord shall have no obligation to repair or restore any Tenant Extra Improvements except to the extent that Landlord realizes insurance proceeds, if any, sufficient for such purpose and for all other restoration and repair purposes. 26 30 (b) If portions of the Project outside the boundaries of the Leased Premises are damaged or destroyed (whether or not the Leased Premises are also damaged or destroyed) and the Leased Premises and the Project can, in Landlord's opinion, both be made tenantable with all damage repaired within six (6) months from the date of damage or destruction, and provided that Landlord determines that it is economically feasible, then Landlord shall be obligated to rebuild the same to substantially their former condition to the extent that the same is feasible (subject to reasonable changes which Landlord shall deem desirable and such changes as may be required by applicable law) and shall proceed with reasonable diligence to do so and this Lease shall remain in full force and effect; provided, however, that Landlord shall have no obligation to repair or restore any Tenant Extra Improvements except to the extent that Landlord realizes insurance proceeds, if any, sufficient for such purpose and for all other restoration and repair purposes. (c) Notwithstanding anything to the contrary contained in Sections 7.07(a) or 7.07(b) above, Landlord shall not have any obligation whatsoever to repair, reconstruct or restore the Leased Premises when any damage thereto or to the Project occurs during the last eighteen (18) months of the Term and Tenant has not effectively exercised any option granted to Tenant to extend the Term. Under such circumstances, Landlord shall promptly notify Tenant of its decision not to rebuild, whereupon the Lease shall terminate as of the date of such notice. (d) If neither Section 7.07(a) nor 7.07(b) above applies, Landlord shall so notify Tenant within sixty (60) days after the date of the damage or destruction and either Tenant or Landlord may terminate this Lease within thirty (30) days after the date of such notice, such termination notice to be immediately effective; provided, however, that Landlord shall have the right to elect to reconstruct the Project and the Leased Premises, in which event (i) Landlord shall notify Tenant of such election within said sixty (60) day period and Tenant shall thereupon have no right to terminate this Lease, and (ii) Landlord shall proceed with reasonable diligence to rebuild the Project and the Leased Premises to substantially their former condition to the extent that the same is feasible (subject to reasonable changes which Landlord shall deem desirable and such changes as may be required by applicable law); provided further, however, that Landlord shall have no obligation to repair or restore any Tenant Extra Improvements except to the extent that Landlord realizes insurance proceeds, if any, sufficient for such purpose and for all other restoration and repair purposes. (e) During any period when Tenant's use of the Leased Premises is significantly impaired by damage or destruction, Net Rent shall abate in proportion to the degree to which Tenant's use of the Leased Premises is impaired until such time as the Leased Premises are made tenantable as reasonably determined by Landlord; provided that no such rental abatement shall be permitted if the casualty is the result of the negligence or willful misconduct of Tenant or Tenant's employees, agents, contractors or invitees. (f) The proceeds from any insurance paid by reason of damage to or destruction of the Project or any part thereof insured by Landlord shall belong to and be paid to Landlord, subject to the rights of any mortgagee of Landlord's interest in the Project or the beneficiary of any deed of trust which constitutes an encumbrance thereon. Tenant shall be responsible at its sole cost and expense for the repair, restoration and replacement of (i) its fixtures, furnishings, equipment, machinery, merchandise and personal property in the Leased Premises, (ii) its alteration, additions and improvements, and (iii) subject to Sections 7.07(a), (b) and (d) above, its Tenant Extra Improvements; provided, however, that Landlord shall have the option of requiring Tenant to assign to Landlord (or any party designated by Landlord) some or all of the proceeds payable to Tenant under this Article 7, whereupon Landlord shall be responsible for the repair or restoration of such insured property. (g) Landlord's repair and restoration obligations under this Section 7.07 shall not impair or otherwise affect the rights and obligations of the parties set forth elsewhere in this Lease. Subject to Section 7.07(e), Landlord shall not be liable for any inconvenience or annoyance to Tenant, its employees, agents, 27 31 contractors or invitees, or injury to Tenant's business resulting in any way from such damage or the repair thereof. Landlord and Tenant agree that the terms of this Lease shall govern the effect of any damage to or destruction of the Leased Premises or the Project with respect to the termination of this Lease and hereby waive the provisions of any present or future statute or law to the extent inconsistent therewith. 7.08. DEFAULT BY TENANT. (a) Events Of Default. The occurrence of any of the following shall constitute an event of default on the part of Tenant: (1) Abandonment. Vacating the Leased Premises without the intention to reoccupy same, or abandonment of the Leased Premises for a continuous period of fourteen (14) days; (2) Nonpayment Of Rent. Failure to pay any installment of Rent due and payable hereunder on the date when payment is due, such failure continuing for a period of ten (10) business days after written notice of such failure; provided, however, that Landlord shall not be required to provide such notice more than two (2) times during the Term with respect to non-payment of Net Rent or Additional Rent, the third such non-payment constituting default without requirement of notice; furthermore, if Tenant shall be served with a demand for the payment of past due Rent, any payment(s) tendered thereafter to cure any default by Tenant shall be made only by cashier's check, wire-transfer or direct deposit of immediately available funds; (3) Other Obligations. Failure to perform any obligation, agreement or covenant under this Lease other than those matters specified in subsections 7.08(a)(1) and 7.08(a)(2), such failure continuing for a period of fifteen (15) business days after written notice of such failure (or such longer period as is reasonably necessary to remedy such default, provided that Tenant commences the remedy within such fifteen (15)-day period and continuously and diligently pursues such remedy at all times until such default is cured); (4) General Assignment. Any general arrangement or assignment by Tenant for the benefit of creditors; (5) Bankruptcy. The filing of any voluntary petition in bankruptcy by Tenant, or the filing of an involuntary petition against Tenant, which involuntary petition remains undischarged for a period of sixty (60) days. In the event that under applicable law the trustee in bankruptcy or Tenant has the right to affirm this Lease and continue to perform the obligations of Tenant hereunder, such trustee or Tenant shall, within such time period as may be permitted by the bankruptcy court having jurisdiction, cure all defaults of Tenant hereunder outstanding as of the date of the affirmance of this Lease and provide to Landlord such adequate assurances as may be necessary to ensure Landlord of the continued performance of Tenant's obligations under this Lease; (6) Receivership. The appointment of a trustee or receiver to take possession of all or substantially all of Tenant's assets or the Leased Premises, where possession is not restored to Tenant within ten (10) business days; (7) Attachment. The attachment, execution or other judicial seizure of all or substantially all of Tenant's assets or the Leased Premises, if such attachment or other seizure remains undismissed or undischarged for a period of ten (10) business days after the levy thereof; (8) Insolvency. The admission by Tenant in writing of its inability to pay its debts as they become due; the filing by Tenant of a petition seeking any reorganization, arrangement, 28 32 composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation; the filing by Tenant of an answer admitting or failing timely to contest a material allegation of a petition filed against Tenant in any such proceeding; or, if within sixty (60) days after the commencement of any proceeding against Tenant seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation, such proceeding shall not have been dismissed; (9) Guarantor. If the performance of Tenant's obligations under this Lease is guaranteed: (i) the death of a guarantor; (ii) the termination of a guarantor's liability with respect to this Lease other than in accordance with the terms of such guaranty; (iii) a guarantor's becoming insolvent or the subject of a bankruptcy filing; (iv) a guarantor's refusal to honor the guaranty; or (v) a guarantor's breach of its guaranty obligation on an anticipatory breach basis, and Tenant's failure, within sixty (60) days following written notice by or on behalf of Landlord to Tenant of any such event, to provide Landlord with written alternative assurance or security, which, when coupled with the then existing resources of Tenant, equals or exceeds the combined financial resources of Tenant and the guarantor(s) that existed at the time of execution of this Lease; or (10) Partner. If Tenant is a partnership or consists of more than one (1) person or entity, if any partner of the partnership or any person or entity constituting Tenant is involved in any of the events or acts described in subsections 7.08(a)(4) through (8). (11) Misrepresentation. The discovery by Landlord that any representation, warranty or financial statement given to Landlord by Tenant or any guarantor of Tenant's obligations under this Lease was materially false or misleading. (b) Remedies Upon Default: (1) Termination. If an event of default occurs, Landlord shall have the right, with or without notice or demand, immediately (after expiration of any applicable grace period specified herein) to terminate this Lease, and at any time thereafter recover possession of the Leased Premises or any part thereof and expel and remove therefrom Tenant and any other person occupying the same, by any lawful means, and again repossess and enjoy the Leased Premises without prejudice to any of the remedies that Landlord may have under this Lease, or at law or in equity by reason of Tenant's default or of such termination. (2) Continuation After Default. Even though Tenant has breached this Lease and/or abandoned the Leased Premises, this Lease shall continue in effect for so long as Landlord does not terminate Tenant's right to possession under subsection 7.08(b)(1) hereof in writing, and Landlord may enforce all of its rights and remedies under this Lease, including (but without limitation) the right to recover Rent as it becomes due, and Landlord, without terminating this Lease, may exercise all of the rights and remedies of a landlord under Section 1951.4 of the Civil Code of the State of California or any amended or successor code section. Acts of maintenance or preservation, efforts to relet the Leased Premises or the appointment of a receiver upon application of Landlord to protect Landlord's interest under this Lease shall not constitute an election to terminate Tenant's right to possession. If Landlord elects to relet the Leased Premises for the account of Tenant, the rent received by Landlord from such reletting shall be applied as follows: first, to the payment of any indebtedness other than Rent due hereunder from Tenant to Landlord; second, to the payment of any costs of such reletting; third, to the payment of the cost of any alterations or repairs to the Leased Premises; fourth, to the payment of Rent due and unpaid hereunder; and the balance, if any, shall be held by Landlord and applied in payment of future Rent as it becomes due. If that portion of rent received from the reletting which is applied against the Rent due hereunder is less than the amount of the Rent due, Tenant shall pay the deficiency to Landlord promptly upon demand by Landlord. Such deficiency shall be calculated and 29 33 paid monthly. Tenant shall also pay to Landlord, as soon as determined, any costs and expenses incurred by Landlord in connection with such reletting or in making alterations and repairs to the Leased Premises, which are not covered by the rent received from the reletting. (c) Damages Upon Termination. Should Landlord terminate this Lease pursuant to the provisions of subsection 7.08(b)(1) hereof, Landlord shall have all the rights and remedies of a landlord provided by Section 1951.2 of the Civil Code of the State of California. Upon such termination, in addition to any other rights and remedies to which Landlord may be entitled under applicable law, Landlord shall be entitled to recover from Tenant: (i) the worth at the time of award of the unpaid Rent and other amounts which had been earned at the time of termination; (ii) the worth at the time of award of the amount by which the unpaid Rent which would have been earned after termination until the time of award exceeds the amount of such Rent loss that Tenant proves could have been reasonably avoided; (iii) the worth at the time of award of the amount by which the unpaid Rent for the balance of the Term after the time of award exceeds the amount of such Rent loss that Tenant at proves could be reasonably avoided; and (iv) any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant's failure to perform its obligations under this Lease or which, in the ordinary course of things, would be likely to result therefrom. The "worth at the time of award" of the amounts referred to in clauses (i) and (ii) shall be computed with interest at the lesser of eighteen percent (18%) per annum or the maximum rate then allowed by law. The "worth at the time of award" of the amount referred to in clause (iii) shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of the award plus one percent (1%). (d) Computation of Rent for Purposes of Default. For purposes of computing unpaid Rent which would have accrued and become payable under this Lease pursuant to the provisions of Section 7.08(c), unpaid Rent shall consist of the sum of: (1) the total Base Rent for the balance of the Term, plus (2) a computation of Tenant's Proportionate Share of Basic Operating Cost for six (6) months, the assumed amount for the Computation Year of the default and each future Computation Year in the Term to be equal to Tenant's Proportionate Share of Basic Operating Cost for the Computation Year immediately prior to the year in which default occurs, compounded at a per annum rate equal to the mean average rate of inflation for the preceding five (5) calendar years as determined by the United States Department of Labor, Bureau of Labor Statistics Consumer Price Index (All Urban Consumers, all items (1982-84=100)) for the Metropolitan Area or Region in which the Project is located. If such Index is discontinued or revised, the average rate of inflation shall be determined by reference to the index designated as the successor or substitute index by the government of the United States. (e) Late Charge. If any payment required to be made by Tenant under this Lease is not received by Landlord within five (5) business days of the date the same is due, Tenant shall pay to Landlord an amount equal to five percent (5%) of the delinquency. (f) Interest on Past-Due Obligations. Except as expressly otherwise provided in this Lease, any Rent due Landlord hereunder, other than late charges, which is not received by Landlord on the date on which it was due, shall bear interest from the day after it was due at the maximum rate then allowed by law, in addition to the late charge provided for in Section 7.08(e). (g) Landlord's Right to Perform. Notwithstanding anything to the contrary set forth elsewhere in this Lease, in the event Tenant fails to perform any affirmative duty or obligation of Tenant under this Lease, then within five (5) business days after written notice to Tenant (and without notice in case of an emergency) Landlord may (but shall not be obligated to) perform such duty or obligation on Tenant's behalf, 30 34 including, without limitation, the obtaining of insurance policies or governmental licenses, permits or approvals. Tenant shall reimburse Landlord upon demand for the costs and expenses of any such performance (including penalties, interest and attorneys' fees incurred in connection therewith). Such costs and expenses incurred by Landlord shall be deemed Additional Rent hereunder. (h) Remedies Cumulative. All rights, privileges and elections or remedies of Landlord are cumulative and not alternative with all other rights and remedies at law or in equity to the fullest extent permitted by law. (i) Waiver. Tenant waives any right of redemption or relief from forfeiture under California Code of Civil Procedure Sections 1174 and 1179, or under any other present or future law in the event Tenant is evicted and Landlord takes possession of the Leased Premises by reason of a default. ARTICLE 8. OPTION TO RENEW 8.01. OPTION TO RENEW. (a) Landlord hereby grants to Tenant two (2) options (respectively, the "First Option" and "Second Option," collectively, the "Options") to extend the term of this Lease for additional periods of five (5) years (respectively, the "First Option Term" and "Second Option Term"), all on the following terms and conditions: (1) An Option must be exercised, if at all, by written notice irrevocably exercising the applicable Option ("Option Notice") delivered by Tenant or Landlord not later than nine (9) months prior to the Term Expiration Date with respect to the First Option and not later than nine (9) months prior to the expiration date of the First Option Term ("First Option Expiration Date") with respect to the Second Option. Further, an Option shall not be deemed to be properly exercised if, as of the date of the Option Notice or at the Term Expiration Date or at the First Option Expiration Date, as the case may be, (i) Tenant is in default under this Lease, (ii) Tenant has assigned this Lease or its interest therein (other than to an affiliate or subsidiary of Tenant), or (iii) Tenant, or Tenant's affiliate or subsidiary, is in possession of less than fifty percent (50%) of the square footage of the Leased Premises. Provided Tenant has properly and timely exercised the First Option (or the Second Option), the term of this Lease shall be extended for the period of the First Option Term (or the Second Option Term), and all terms, covenants and conditions of this Lease shall remain unmodified and in full force and effect, except that the Base Rent shall be modified as set forth in subsection 8.01(a)(2) below. (2) The Base Rent payable for the First Option Term and the Second Option Term shall be the greater of (i) the Base Rent payable on the Term Expiration Date or the First Option Expiration Date, as the case may be, or (ii) ninety-five percent (95%) of the then-current net rental rate per rentable square foot (as further defined below, "FMRR") for the First Option Term, and one hundred percent (100%) of the FMRR for the Second Option Term, being agreed to in new leases by the Landlord and other landlords of buildings in the Emeryville, California area which are comparable in quality, location and prestige to the Building ("Comparable Buildings") and tenants leasing space in the Building or Comparable Buildings. Annual increases in Base Rent during the First Option Term and the Second Option Term shall be the annual increases being agreed to in leases by the Landlord and other landlords of Comparable Buildings and tenants. As used herein, "FMRR" shall mean the net rental rate per rentable square foot for which Landlord and other landlords are entering into new leases within the time period of twelve (12) to nine (9) months prior to the Term Expiration Date or the First Option Expiration Date, as the case may be ("Market Determination Period"), with new tenants leasing from Landlord and/or other landlords office space in the Building and/or Comparable 31 35 Buildings ("Comparative Transactions"). To the extent such other Comparable Buildings have historically received lower or higher rents from the rents in the Building, then for the purpose of arriving at the FMRR, such rates when used to establish the FMRR in the Building shall be increased or decreased as appropriate to reflect such historical differences. Landlord shall provide its determination of the FMRR to Tenant within fifteen (15) days after Landlord receives the Option Notice for the First Option. Tenant shall have fifteen (15) days ("Tenant's Review Period") after receipt of Landlord's notice of the FMRR within which to accept such FMRR or to reasonably object thereto in writing. In the event Tenant objects to the FMRR submitted by Landlord, Landlord and Tenant shall attempt to agree upon such FMRR. If Landlord and Tenant fail to reach agreement on such FMRR within ten (10) days following Tenant's Review Period (the "Outside Agreement Date"), then each party shall place in a separate sealed envelope its final proposal as to FMRR and such determination shall be submitted to arbitration in accordance with subparagraph 8.01(b) below. (b) Landlord and Tenant shall meet with each other within ten (10) business days of the Outside Agreement Date and exchange the sealed envelopes and then open such envelopes in each other's presence. If Landlord and Tenant do not mutually agree upon the FMRR within one (1) business day of the exchange and opening of envelopes, then, within ten (10) business days of the exchange and opening of envelopes, Landlord and Tenant shall agree upon and jointly appoint one arbitrator who shall by profession be a real estate appraiser or broker who shall have been active over the five (5) year period ending on the date of such appointment in the leasing of comparable commercial properties in the vicinity of the Building. Neither Landlord nor Tenant shall consult with such broker or appraiser as to his or her opinion as to FMRR prior to the appointment. The determination of the arbitrator shall be limited solely to the issue of whether Landlord's or Tenant's submitted FMRR for the Premises is the closer to the actual rental rate per rentable square foot for new leases within the Market Determination Period for Comparative Transactions. Such arbitrator may hold such hearings and require such briefs as the arbitrator, in his or her sole discretion, determines is necessary. In addition, Landlord or Tenant may submit to the arbitrator with a copy to the other party within five (5) business days after the appointment of the arbitrator any data and additional information that such party deems relevant to the determination by the arbitrator ("Data") and the other party may submit a reply in writing within five (5) business days after receipt of such Data. (1) The arbitrator shall, within thirty (30) days of his or her appointment, reach a decision as to whether the parties shall use Landlord's or Tenant's submitted FMRR, and shall notify Landlord and Tenant of such determination. (2) The decision of the arbitrator shall be binding upon Landlord and Tenant. (3) If Landlord and Tenant fail to agree upon and appoint such arbitrator, then the appointment of the arbitrator shall be made by the American Arbitration Association. (4) The cost of arbitration shall be paid by Landlord and Tenant equally. (5) The arbitration proceeding and all evidence given or discovered pursuant thereto shall be maintained in confidence by all parties. ARTICLE 9. MISCELLANEOUS MATTERS 9.01. PARKING. (a) Provided Tenant is not in default of any term or provision of this Lease, Landlord agrees to provide Tenant for use by the employees, agents, customers and invitees of Tenant the number of 32 36 parking spaces designated on the Basic Lease Information sheet on an unreserved and unassigned basis on those portions of the Project designated by Landlord for parking. Tenant shall not use more parking spaces than said number of parking spaces. The parking spaces will not be separately identified and Landlord shall have no obligation to monitor the use of the parking area, however, entrance to the Building garage shall be through a card-key system implemented by Landlord. If a parking density problem occurs during the Term, Landlord may address the problem, in its discretion, which solution may include initiating a parking permit system or a reserved parking system and any costs associated therewith (including, without limitation, costs of patrolling the Building garage and/or parking area outside of the Building for compliance with the parking system) shall constitute a Basic Operating Cost. All parking shall be subject to any and all rules and regulations adopted by Landlord in its discretion from time to time. Only automobiles no larger than full size passenger automobiles or pick-up trucks or standard business use vehicles (which do not require parking spaces larger than full size passenger automobiles) may be parked in the Project parking area. Tenant shall not permit or allow any vehicles that belong to or are controlled by Tenant or Tenant's employees, agents, customers or invitees to be loaded, unloaded or parked in areas other than those designated by Landlord for such activities. A failure by Tenant or any of its employees, agents, customers or invitees to comply with the foregoing provisions shall afford Landlord the right, but not the obligation, without notice, in addition to any other rights and remedies available under this Lease, to remove and to tow away the vehicles involved and to charge the cost to Tenant, which cost shall be immediately due and payable upon demand by Landlord. (b) Landlord reserves the right to charge a per-car parking fee during the Term if such parking fees are mandated or otherwise imposed by applicable law. Rates to be charged by Landlord or its operator for such parking shall be the then-prevailing market rate for parking in such area as established by Landlord or its operator from time to time. If a parking fee is charged, Tenant's right to use of the Building garage and/or a parking area shall be subject to timely payment of the established parking fees. 9.02. BROKERS. Landlord has been represented in this transaction by Landlord's Broker. Tenant hat been represented in this transaction by Tenant's Broker. Upon full execution of this Lease by both parties, Landlord shall pay to Landlord's Broker a fee for brokerage services rendered by it in this transaction if provided for in a separate written agreement between Landlord and Landlord's Broker. Nothing contained in this Lease shall impose on Landlord any obligation to pay a commission or fee to any party other than Landlord's Broker and Tenant acknowledges that Landlord will not pay any commission or fee to Tenant's Broker. Tenant represents and warrants to Landlord that the brokers named in the Basic Lease Information sheet are the only agents, brokers, finders or other similar parties with whom Tenant has had any dealings in connection with the negotiation of this Lease and the consummation of the transaction contemplated hereby. Tenant hereby agrees to indemnify, defend and hold Landlord free and harmless from and against liability for compensation or charges which may be claimed by any agent, broker, finder or other similar party by reason of any dealings with or actions of Tenant in connection with the negotiation of this Lease and the consummation of this transaction, including any costs, expenses and attorneys' fern; incurred with respect thereto- 9.03. NO WAIVER. No waiver by either party of the default or breach of any term, covenant or condition of this lease by the other shall be deemed a waiver of any other term, covenant or condition hereof, or of any subsequent default or breach by the other of the same or of any other term, covenant or condition hereof. Landlord's consent to, or approval of, any act shall not be deemed to render unnecessary the obtaining of Landlord's consent to, or approval of, any subsequent or similar act by Tenant, or be construed as the basis of an estoppel to enforce the provision or provisions of this Lease requiring such consent. Regardless of Landlord's knowledge of a default or breach at the time of accepting Rent, the acceptance of Rent by Landlord shall not be a waiver of any preceding default or breach by Tenant of any provision hereof, other than the 33 37 failure of Tenant to pay the particular Rent to accepted. Any payment given Landlord by Tenant may be accepted by Landlord on account of monies or damages due Landlord, notwithstanding any qualifying statements or conditions made by Tenant in connection therewith, which statements and/or conditions shall be of no force or effect whatsoever unless specifically agreed to in writing by Landlord at or before the time of deposit of such payment. 9.04. RECORDING. Neither this Lease nor a memorandum thereof shall be recorded without the prior written consent of Landlord, which consent may be withheld in Landlord's sole discretion 9.05. HOLDING OVER. If Tenant holds over after expiration or termination of this Lease without the written consent of Landlord, Tenant shall pay for each month of hold-over tenancy one and one-half times the Net Rent which Tenant was obligated to pay for the month immediately preceding the end of the Term for each month or any part thereof of any such hold-over period, together with such other amounts as may become due hereunder. No holding over by Tenant after the Term shall operate to extend the Term. In the event of any unauthorized holding over, Tenant shall indemnify, defend and hold Landlord harmless from and against all claims, demands, liabilities, losses, costs, expenses (including attorneys' fees), injury and damages incurred by Landlord as a result of Tenant's delay in vacating the Leased Premises. Any holding over with the consent of Landlord in writing shall thereafter constitute this Lease a lease from month-to-month, terminable upon thirty (30) days' notice from either party, at a monthly rental rate of one and one-half the Net Rent which Tenant was obligated to pay for the month immediately preceding the end of the Term, together with such other amounts as may become due hereunder. 9.06. TRANSFERS BY LANDLORD. The term "Landlord" as used in this Lease shall mean the owner(s) at the time in question of the fee title to the Leased Premises or, if this is a sublease, of the Tenant's integration in the master lease. If Landlord transfers, in whole or in part, its rights and obligations under this Lease or in the Project, upon its transferee's assumption of Landlord's obligations hereunder and delivery to such transferee of any unused Security Deposit then held by Landlord, no further liability or obligations shall thereafter accrue against the transferring or assigning person as Landlord hereunder. Subject to the foregoing, the obligations and/or covenants in this Lease to be performed by the Landlord shall be binding only upon the Landlord as defined in this Section 9.06. 9.07. ATTORNEYS' FEES. In the event either party places the enforcement of this Lease, or any part of it, or the collection of any Rent due, or to become due, hereunder, or recovery of the possession of the Leased Premises, in the hands of an attorney, or files suit upon the same, the prevailing party shall recover its reasonable attorneys' fees, costs and expenses, including those which may be incurred on appeal. Such fees may be awarded in the same suit or recovered in a separate suit, whether or not suit is filed or any suit that may be filed is pursued to decision or judgment. The term "prevailing party" shall include, without limitation, a party who substantially obtains or defeats the relief sought, as the case may be, whether by compromise, settlement, judgment, or the abandonment by the other party of its claim or defense. The attorneys' fee award shall not be computed in accordance with any court fee schedule, but shall be such as to fully reimburse all attorneys' fees reasonably incurred. 9.08. TERMINATION; MERGER. No act or conduct of Landlord, including, without limitation, the acceptance of keys to the Leased Premises, shall constitute an acceptance of the surrender of the Leased Premises by Tenant before the scheduled Term Expiration Date. Only a written notice barn Landlord to Tenant shall constitute acceptance of the surrender of the Leased Premises and accomplish a termination of this Lease. Unless specifically stated otherwise in writing by Landlord, the voluntary or other surrender of this Lease by Tenant, the mutual termination or cancellation hereof or a termination hereof by Landlord for default by Tenant, shall automatically terminate any sublease or lesser estate in the Leased Premises; provided 34 38 however, Landlord shall, in the event of any such surrender, termination or cancellation, have the option to continue any one or all of any existing subtenancies. Landlord's failure within thirty (30) days following any such event to make any written election to the contrary by written notice to the holder of any such lesser interest, shall constitute Landlord's election to have such event constitute the termination of such interest. 9.09. AMENDMENTS; INTERPRETATION. This Lease may not be altered, changed or amended, EXCEPT by an instrument in writing signed by the parties in interest at the time of the modification. The captions of this Lease are for convenience only and shall not be used to define or limit any of its provisions. 9.10. SEVERABILITY. If any term or provision of this Lease, or the application thereof to any person or circumstances, shall to any extent be invalid or unenforceable, the remainder of this Lease, or the application of such provision to persons or circumstances other than those as to which it is invalid or unenforceable, shall not be affected thereby, and each provision of this Lease shall be valid and shall be enforceable to the fullest extent permitted by law. 9.11. NOTICES. All notices, demands, consents and approvals which are required or permitted by this Lease to be given by either party to the other shall be in writing and shall be deemed to have bees fully given by personal delivery or by recognized overnight courier service or when deposited in the United States mail, certified or registered, with postage prepaid, and addressed to the party to be notified at the address for such party specified on the Basic Lease Information sheet, or to such other place as the parry to be notified may from time to time designate by at least fifteen (15) days' notice to the notifying party given in accordance with this Section 9.11, except that upon Tenant's taking possession of the Leased Premises, the Leased Premises shall constitute Tenant's address for notice purposes. A copy of all notices given to Landlord under this Lease shall be concurrently transmitted to such party or parties at such addresses as Landlord may from time to time hereafter designate by notice to Tenant. Any notice sent by registered or certified mail, return receipt requested, shall be deemed given on the date of delivery shown on the receipt card, or if no delivery date is shown, the postmark thereon. Notices delivered by recognized overnight courier shall be deemed given twenty-four (24) hours after delivery of the same to the courier. If notice is received on a Saturday, Sunday or legal holiday, it shall be deemed received on the next business day. Tenant hereby appoints as its agent to receive the service of all default notices and notice of commencement of unlawful detainer proceedings the person in charge of or apparently in charge of or occupying the Leased Premises at the time, and, if there is no such person, then such service may be made by attaching the same on the main entrance of the Leased Premises. 9.12. FORCE MAJEURE. Any prevention, delay or stoppage of work to be performed by Landlord or Tenant which is due to strikes, labor disputes, inability to obtain labor, materials, equipment or reasonable substitutes therefor, acts of God, governmental restrictions or regulations or controls, judicial orders, enemy or hostile government actions, civil commotion, or other causes beyond the reasonable control of the party obligated to perform hereunder, shall excuse performance of the work by that party for a period equal to the duration of that prevention, delay or stoppage. Nothing in this Section 9.12 shall excuse or delay Tenant's obligation to pay Rent or other charges due under this Lease. 9.13. GUARANTOR. If there are to be any guarantors of this Lease, the guarantee shall be on a form provided by Landlord, and each such guarantor shall have the same obligations as Tenant under this Lease, including, but not limited to, the obligation to provide the estoppel certificate and information called for by Section 5.13. It shall constitute a default of Tenant under this Lease if any such guarantor fails or refuses, upon reasonable request by Landlord, to give: (a) evidence of the due execution of the guarantee called for by this Lease, including the authority of the guarantor (and of the party signing on guarantor's behalf) to obligate 35 39 such guarantor on said guarantee, and including, in the case of a corporate guarantor, a certified copy of a resolution of the board of directors of guarantor authorizing the making of such guarantee, together with a certificate of incumbency showing the signatures of the persons authorized to sign on its behalf, (b) current financial statements of guarantor as may be requested annually by Landlord; (c) an estoppel certificate; or (d) written confirmation that the guarantee is still in effect 9.14. SUCCESSORS AND ASSIGNS. This lease shall be binding upon and inure to the benefit of Landlord, its successors and assigns (subject to the provisions hereof including, without limitation, Section 5.15), and shall be binding upon and inure to the benefit of Tenant, its successors, and to the extent assignment or subletting, if required to be approved may be approved by Landlord hereunder, Tenant's assigns or subtenants. 9.15. FURTHER ASSURANCES. Landlord and Tenant each agree to promptly sign all documents reasonably requested to give effect to the provisions of this Lease. 9.16. INCORPORATION OF PRIOR AGREEMENTS. This Lease, including the exhibits and addenda attached to it, contains all agreements of Landlord and Tenant with respect to any matter referred to herein. No prior agreement or understanding pertaining to such matters shall be effective. 9.17. APPLICABLE LAW. This Lease shall be governed by, construed and enforced in accordance with the laws of the State of California. 9.18. TIME OF THE ESSENCE. Time is of the essence of each and every covenant of this Lease. Each and every covenant, agreement or other provision of this lease on Tenant's part to be performed shall be deemed and construed as a separate and independent covenant of Tenant, not dependent on any other provision of this Lease or on any other covenant or agreement set forth herein. 9.19. NO JOINT VENTURE. This Lease shall not be deemed or construed to create or establish any relationship of partnership or joint venture or similar relationship or arrangement between Landlord and Tenant hereunder. 9.20. AUTHORITY. If Tenant is a corporation, trust or general or limited partnership, each individual executing this Lease on behalf of Tenant represents and warrants that he or she is duly authorized to execute and deliver this Lease on Tenant's behalf and that this Lease is binding upon Tenant in accordance with its terms. If Tenant is a corporation, trust or partnership, Tenant shall, within ten (10) business days after request by Landlord, deliver to Landlord evidence satisfactory to Landlord of such authority. 9.21. DECLARATION OF COVENANTS, CONDITIONS AND RESTRICTIONS. Tenant acknowledges that it has received and read the CC&Rs for the Project and agrees to comply with and be bound by all terms, conditions and provisions thereof. Tenant further acknowledges and agrees that a default by Tenant under the CC&Rs shall constitute a default hereunder. All obligations of Landlord hereunder shall be limited to the extent performance of same is prohibited, restricted or limited under the CC&Rs. 9.22. OFFER. Preparation of this Lease by Landlord or Landlord's agent and submission of same to Tenant shall not be deemed an offer to lease to Tenant. This Lease is not intended to be binding and shall not be effective until fully executed by both Landlord and Tenant. 36 40 9.23. EXHIBITS; ADDENDA. The following Exhibits and addenda are attached to, incorporated in and made a part of this Lease: EXHIBIT A Floor Plan of the Leased Premises; EXHIBIT B Initial Improvement of the Leased Premises; EXHIBIT C Confirmation of Term of Lease; and EXHIBIT D Building Rules and Regulations. IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the day and year first written above. "LANDLORD": BEP-EMERYVILLE, L.P., a Delaware limited partnership By: EPI Investors 103 LLC., a California limited liability company Its: General Partner By: Ellis Partners, Inc., a California corporation Its: Managing Member By: /s/ HAROLD A. ELLIS, JR. ------------------------------------- Typed Name: Harold A. Ellis, Jr. ----------------------------- Title: President ---------------------------------- "TENANT": COLO.COM. INC., a California corporation By: /s/ RICHARD J. PALOMBA ------------------------------------- Typed Name: Richard J. Palomba ----------------------------- Title: VP Real Estate ---------------------------------- 37 41 EXHIBIT A FLOOR PLAN OF THE LEASED PREMISES 1 42 [FLOOR PLAN] 43 EXHIBIT B INITIAL IMPROVEMENT OF THE LEASED PREMISES 1. Tenant Improvements. Tenant, through a duly licensed contractor ("Tenant's Contractor") (Tenant's Contractor shall be subject to Landlord's written approval, which approval shall not be unreasonably withheld), shall construct and install the Tenant Improvements in the Leased Premises, substantially in accordance with plans, working drawings and specifications ("Tenant's Plans") prepared by Tenant's architects and engineers and approved by Landlord. The costs of preparing Tenant's Plans and performing the Tenant Improvements shall be allocated between, and paid by, Landlord and Tenant as set forth in this EXHIBIT B. 2. Tenant's Plans. As soon as reasonably possible, Tenant shall submit Tenant's Plans to Landlord for Landlord's written approval (which shall not be unreasonably withheld). Tenant's Plans shall be prepared by qualified licensed architects and engineers retained by Tenant and approved within five (5) business days (if Tenant provides Landlord with at least ten (10) business days prior written notice of the date Tenant's Plans shall be provided to Landlord for its review ("Review Notice")) in writing by Landlord (which approval shall not be unreasonably withheld), shall comply with all applicable codes, laws, ordinances, rules and regulations, shall not adversely affect the Building shell or core or any systems, components or elements of the Building, shall be in a form sufficient to secure the approval of all government authorities with jurisdiction over the Building, and shall be otherwise satisfactory to Landlord in Landlord's reasonable discretion. Landlord shall have ten (10) business days to approve Tenant's Plans in writing if Tenant fails to provide or does not timely provide the Review Notice. Tenant's Plans shall be complete plans, working drawings and specifications for the layout, improvement and finish of the Leased Premises consistent with the design and construction of the Building, including mechanical and electrical drawings and decorating plans, showing the following: (a) Location and type of all partitions; (b) Location and type of all doors, with hardware and keying schedule; (c) Ceiling plans, including light fixtures; (d) Location of telephone equipment room, with all special electrical and cooling requirements; . (e) Location and type of all electrical outlets, switches, telephone outlets, and lights; (f) Location of all sprinklers; (g) Location and type of all equipment requiring special electrical requirements; (h) Location, weight per square foot and description of any heavy equipment or filing system exceeding fifty (50) pounds per square foot live and dead load; (i) Requirements for special air conditioning or ventilation; (j) Type and color of floor covering; 1 44 (k) Location, type and color of wall covering; (1) Location, type and color of paint or finishes; (m) Location and type of plumbing; (n) Location and type of kitchen equipment; (o) Indicate critical dimensions necessary for construction; (p) Details showing all millwork with verified dimensions and dimensions of all equipment to be built in, corridor entrances, bracing or support of special walls or glass partitions, and any other items or information requested by Landlord; and (q) Location of all cabling. 3. Tenant's Plans shall be subject to Landlord's written approval (which shall not be unreasonably withheld). If Landlord disapproves Tenant's Plans, or any portion thereof Landlord shall promptly give notice to Tenant setting forth the reasons for disapproval. As promptly as reasonably possible thereafter, but not later than five (5) business days after Landlord's notice, Tenant shall submit to Landlord revised Tenant's Plans. Such revisions shall be subject to Landlord's written approval within five (5) business days (which approval shall not be unreasonably withheld). Landlord's review and approval of Tenant's Plans shall not constitute, and Landlord shall not be deemed to have made, any representation or warranty as to the compliance of the Tenant Improvements with any laws or as to the suitability of the Leased Premises or the Tenant Improvements for Tenant's needs. 4. Construction. (a) Landlord, at its sole cost and expense and with no deduction from Landlord's Contribution (as defined below), shall provide the "warm shell" of the Leased Premises as further shown on EXHIBIT B-1, which shall include the following: (i) windows, side walls and an entry door, (ii) the restroom core; (iii) HVAC on the roof (one ton of HVAC per 300 rentable square feet), but not distributed; (iv) insulation; (v) line for plumbing, but not distributed; (vi) main sprinkler lines, but not distributed; (vii) a new floor slab in the light well areas; and (viii) extending the second floor deck over the first floor light wells. (b) Tenant's Contractor shall complete the Tenant Improvements in the Leased Premises substantially in accordance with Tenant's Plans and in a good and workmanlike manner. Tenant shall promptly pay when due the entire cost of all of the Tenant Improvements (including the cost of all utilities, permits, fees, taxes, and property and liability insurance in connection therewith) required by Tenant's Plans. Landlord shall have the right to inspect the Tenant Improvements during the course of construction by Landlord's architect, project manager or other agents. Tenant shall be solely responsible for the timely completion of the Tenant improvements, and shall be responsible for all increased costs and expenses attributable to any delays or increases in costs of labor or materials. Landlord shall have no liability to Tenant if the Leased Premises is not suitable for Tenant's occupancy or if Tenant has not obtained all the necessary permits to occupy the Leased Premises by the Term Commencement Date, unless such delay is caused by Landlord's unreasonable delay in review and approval of Tenant's plans, provided that Tenant has its best efforts to obtain occupancy and all necessary permits by the Term Commencement Date. 2 45 5. Landlord's and Tenant's Contributions. As Landlord's contribution for the costs of Tenant Improvements (Landlord is to pay for Landlord's Work, defined as either improvements constructed or paid for by Landlord), Landlord shall give Tenant an allowance in the maximum amount of $10.00 per square foot of Rentable Area, which equals $146,570.00 based upon 14,657 rentable square feet ("Landlord's Contribution"). Landlord's Contribution may be used only for direct hard and soft costs, including construction costs, architect fees, and consultant fees. Any costs of preparing Tenant's Plans and constructing the Tenant Improvements in excess of Landlord's Contribution shall be paid by Tenant and shall constitute Tenant's Extra Improvements. 6. Changes. Except for minor and immaterial changes, if Tenant requests any change in Tenant's Plans, Tenant shall request such change in a written notice to Landlord. Each such request shall be accompanied by proper plans and specifications prepared by Tenant's architects or engineers, at Tenant's expense, necessary to show and explain such change from the previously approved Tenant's Plans. All changes in Tenant's Plans (except for minor and immaterial changes) shall be subject to the prior written approval of Landlord which shall be given within five (5) business days (which shall not be unreasonably withheld). 7. Other Work by Tenant. All work not within the scope of the normal construction trades employed on the Building, such as the furnishing and installing of furniture, telephone equipment, office equipment and wiring, shall be furnished and installed by Tenant at Tenant's expense. 8. Requirements for Work Performed by Tenant. All work performed at the Building or in the Project by Tenant or Tenant's Contractor or subcontractors shall be subject to the following additional requirements: a. Such work shall not proceed until Landlord has approved in writing: (i) Tenant's contractor, (ii) commercially reasonable amount and coverage of public liability and property damage insurance, with Landlord named as an additional insured, carried by Tenant's contractor, (iii) complete and detailed plans and specifications for such work, and (iv) a schedule for the work. b. All work shall be done in conformity with a valid permit when required, a copy of which shall be furnished to Landlord before such work is commenced. In any case, all such work shall be performed in accordance with all applicable laws. Notwithstanding any failure by Landlord to object to any such work, Landlord shall have no responsibility for Tenant's failure to comply with applicable laws. c. Tenant or Tenant's Contractor shall arrange for necessary utility, hoisting and elevator service, on a nonexclusive basis, with Landlord. Landlord shall have the right to require any necessary movement of materials by the elevator to be done after regular working hours. d. Tenant shall be responsible for cleaning the Leased Premises, the Building and the Project and removing all debris in connection with the Tenant Improvements and its other work. All completed work shall be subject to inspection and acceptance by Landlord. Tenant shall reimburse Landlord for the cost of third party supervision of construction of the Tenant Improvements (which may be deducted by Landlord from Landlord's Initial Contribution) upon demand and for all extra expense incurred by Landlord by reason of faulty work done by Tenant or Tenant's Contractor or by reason of inadequate cleanup by Tenant or Tenant's Contractor. Landlord will provide Tenant with copies of third party consultant invoices within five (5) business days of Tenant's request for such invoices. e. Tenant shall be responsible for the cost of separately metering electrical utilities to the Leased Premises. 3 46 EXHIBIT C CONFIRMATION OF TERM OF LEASE This Confirmation of Term of Lease is made by and between BEP-EMERYVILLE, L.P., a Delaware limited partnership, as Landlord, and_____________________, a___________________ as Tenant, who agree as follows: 1. Landlord and Tenant entered into a Lease dated________________, 19_______(the "Lease") in which Landlord leased to Tenant and Tenant leased from Landlord the Leased Premises described in the Basic Lease Information sheet of the Lease (the "Leased Premises"). 2. Pursuant to Section 3.01 of the Lease, Landlord and Tenant agree to confirm the commencement date and expiration date of the Term of the Lease as follows: a. _______________________, 19_____, is the Term Commencement Date; b. _______________________, 19_____, is the Term Expiration Date; c. _______________________, 19____ , is the commencement date of Rent under the Lease. 3. Tenant hereby confirms that the Lease is in full force and effect and: a. It has accepted possession of the Leased Premises as provided in the Lease; b. The improvements and space required to be furnished by Landlord under the Lease have been furnished; c. Landlord has fulfilled all its duties of an inducement nature; d. The Lease has not been modified, altered or amended, except as follows: ____________________________________; and e. There are no setoffs or credits against Rent and no security deposit has been paid except as expressly provided by the Lease. 1 47 4. The provisions of this Confirmation of Term of Lease shall inure to the benefit of, or bind, as the case may require, the parties and their respective successors, subject to the restrictions on assignment and subleasing contained in the Lease. DATED:_____________________________, 19______ "LANDLORD": "TENANT": BEP-EMERYVILLE, L.P., __________________________________, a Delaware limited partnership a_________________________________ By: EPI Investors 103 LLC, By:_______________________________ a California limited liability company Name:_____________________________ Its: General Partner Title:____________________________ By: Ellis Partners, Inc., a California corporation Its: Managing Member By:_______________________________ Typed Name:_______________________ Title:____________________________ By:_______________________________ Typed Name:_______________________ Title:____________________________ 2 48 EXHIBIT D BUILDING RULES AND REGULATIONS 1. The sidewalks, doorways, halls, stairways, vestibules and other similar areas shall not be obstructed by Tenant or used by it for any purpose other than ingress to and egress from the Leased Premises, and for going from one part of the Building to another part. Corridor doors, when not in use, shall be kept closed. Before leaving the Building, Tenant shall ensure that all doors to the Leased Premises are securely locked and all water faucets and electricity are shut off. 2. Plumbing fixtures shall be used only for their designated purpose, and no foreign substances of any kind shall be deposited therein. Damage to any such fixtures resulting from misuse by Tenant or any employee or invitee of Tenant shall be repaired at the expense of Tenant. 3. Nails, screws and other attachments to the Building require prior written consent from Landlord, except for the routine hanging of pictures and diplomas or certifications. Tenant shall not mar or deface the Leased Premises in any way. Tenant shall not place anything on or near the glass of any window, door or wall which may appear unsightly from outside the Leased Premises. 4. All contractors and technicians rendering any installation service to Tenant shall be subject to Landlord's approval and supervision prior to performing services. This applies to all work performed in the Building, including, but not limited to, installation of telephones, telegraph equipment, wiring of any kind, and electrical devices, as well as all installations affecting floors, walls, woodwork, windows, ceilings and any other physical portion of the Building. 5. Movement in or out of the Building of furniture, office equipment, safes or other bulky material which requires the use of elevators, stairways, or the Building entrance and lobby shall be restricted to hours established by Landlord. All such movement shall be under Landlord's supervision, and the use of an elevator for such movements shall be restricted to the Building's freight elevator. Arrangements shall be made at least 24 hours in advance with Landlord regarding the time, method, and routing of such movements. Tenant shall pay for the services of the employees of the elevator service company employed when safes and other heavy articles are moved into or from the Building, and Tenant shall assume all risks of damage and pay the cost of repairing or providing compensation for damage to the Building, to articles moved and injury to persons or property resulting from such moves. Landlord shall not be liable for any acts or damages resulting from any such activity. 6. Landlord shall have the right to limit the weight and size of, and to designate the location of, all safes and other heavy property brought into the Building. 7. Tenant shall cooperate with Landlord in maintaining the Leased Premises. Tenant shall not employ any person for the purpose of cleaning the Leased Premises other than the Building's cleaning and maintenance personnel. Window cleaning shall be done only by Landlord's agents at such times and during such hours as Landlord shall elect. Janitorial services will not be furnished on nights when rooms are occupied after 7:00 P.M. 8. Deliveries of water, soft drinks, newspapers or other such items to the Leased Premises shall be restricted to hours established by Landlord and made by use of the freight elevator if Landlord so directs. 1 49 9. Nothing shall be swept or thrown into the corridors, halts, elevator shafts or stairways. No birds, fish or animals of any kind shall be brought into or kept in, on or about the Leased Premises, with the exception of guide dogs where necessary. 10. No cooking shall be done in the Leased Premises except in connection with a convenience lunch room for the sole use of employees and guests (on a non-commercial basis) in a manner which complies with all of the provisions of the Lease and which does not produce fumes or odors. 11. Food, soft drink or other vending machines shall not be placed within the Leased Premises without Landlord's prior written consent. 12. Tenant shall not install or operate on the Leased Premises any electric heater, stove or similar equipment without Landlord's prior written consent. Tenant shall not use or keep on the Leased Premises any kerosene, gasoline, or inflammable or combustible fluid or material other than limited quantities reasonably necessary for the operation and maintenance of office equipment utilized at the Leased Premises. No explosives shall be brought onto the Project at any time. 13. Tenant shall not waste electricity, water or air conditioning and agrees to cooperate fully with Landlord to assure the most effective operation of the Building's heating and air conditioning and to comply with any governmental energy-saving rules, laws or regulations of which Tenant has actual notice. Tenant shall not tamper with or attempt to adjust temperature control thermostats in the Leased Premises; Landlord shall make reasonable adjustments in thermostats upon request from Tenant. 14. The Building air conditioning system is designed for operation only with all outside Building windows closed; accordingly, Tenant shall not open or allow any outside window to be opened at any time. 15. Tenant, its employees, agents and invitees shall each comply with all requirements necessary for the security of the Leased Premises, including, if implemented by Landlord, the use of service passes issued by Landlord for after-hours movement of office equipment/packages, and the signing of a security register in the Building lobby after hours. Landlord reserves the right to refuse entry to the Building after normal business hours to Tenant, its employees, agents or invitees, or any other person without satisfactory identification showing his or her right of access to the Building at such time. Landlord shall not be liable for any damages resulting from any error in regard to any such identification or from such admission to or exclusion from the Building. Landlord shall not be liable to Tenant for losses due to theft or burglary, or for damage by unauthorized persons in, on or about the Project, and Tenant assumes full responsibility for protecting the Leased Premises from theft, robbery and pilferage, which includes keeping doors locked and other means of entry closed. 16. Landlord will furnish Tenant with a reasonable number of initial keys for entrance doors into the Leased Premises, and may charge Tenant for additional keys thereafter. All such keys shall remain the property of Landlord. No additional locks are allowed on any door of the Leased Premises without Landlord's prior written consent and Tenant shall not make any duplicate keys. Upon termination of this Lease, Tenant shall surrender to Landlord all keys to the Leased Premises, and give to Landlord the combination of all locks for safes and vault doors, if any, in the Leased Premises. 17. Tenant shall not bring into (or permit to be brought into) the Building any bicycle or other type of vehicle. 18. Landlord retains the right at any time without liability to Tenant, to change the name and street address of the Building, except as otherwise expressly provided is the Lease with respect to signage. 2 50 19. Canvassing, peddling, soliciting, and distribution of handbills in or at the Project are prohibited and Tenant will cooperate to prevent these activities. 20. The Building hours of operation are 7:00 A.M. to 6:00 P.M., Monday through Friday, excluding holidays, Landlord reserves the right to close and keep locked all entrance and exit doors of the Building on Saturdays, Sundays and legal holidays, and between the hours of 6:00 P.M. of any day and 7:00 A.M. of the following day, and during such other hours as Landlord may deem advisable for the protection of the Building and the tenants thereof. 21. The requirements of Tenant will be attended to only upon application to the Project manager. Employees will not perform any work or do anything outside of their regular duties unless under specific instruction from the Project manager. 22. Tenant shall cooperate fully with the life safety program of the Building as established and administered by Landlord. This shall include participation by Tenant and its employees in exit drills, fire inspections, life safety orientations and other programs relating to fire and life safety that may be established by Landlord. 23. No smoking shall be permitted in the Building. 24. Landlord reserves the right to rescind any of these rules and regulations and to make future rules and regulations required for the safety, protection and maintenance of the Project, the operation and preservation of the good order thereof and the protection and comfort of the tenants and their employees and visitors. Such rules and regulations, when made and written notice thereof given to Tenant, shall be binding as if originally included herein. Landlord shall not be responsible to Tenant for the non-observance or violation of these rules and regulations, by any other tenant of the Building. Landlord reserves the right to exclude or expel from the Project any person who, in Landlord's judgment, is under the influence of liquor or drugs, or who shall in any manner do any act in violation of any of these rules and regulations. 3 51 EXHIBIT C CONFIRMATION OF TERM OF LEASE This Confirmation of Tern of Lease is made by and between BEP-EMERYVILLE, L.P., a Delaware limited partnership, as Landlord, and COLO.COM, Inc., a California Corporation, as Tenant, who agree as follows: 1. Landlord and Tenant entered into a Lease dated July 16, 1999 (the "Lease"), in which Landlord leased to Tenant and Tenant leased from Landlord the Leased Premises described in the Basic Lease Information sheet of the Lease (the "Leased Premises"). 2. Pursuant to Section 3.01 of the Lease, Landlord and Tenant agree to confirm the commencement date and expiration date of the Term of the Lease as follows: a. November 15, 1999, is the Term Commencement Date; b. November 30, 2009, is the Term Expiration Date; c. November 15, 1999, is the commencement date of Rent under the Lease. 3. Tenant hereby confirms that the Lease is in full force and effect and: a. It has accepted possession of the Leased Premises as provided is the Lease; b. The improvements and space required to be furnished by Landlord under the Lease have been furnished; c. Landlord has fulfilled all its duties of an inducement nature; d. The Lease has not been modified, altered or amended, except as follows: *see below; and e. There are no setoffs or credits against Rent and no security deposit has been paid except as expressly provided by the Lease. *Basic Lease Information Sheet is hereby reduced to seven (7) spaces due to Tenant's use of six (6) spaces for HVAC equipment. 1 52 4. The provisions of this Confirmation of Term of Lease shall inure to the benefit of or bind, as the case may require, the parties and their respective successors, subject to the restrictions on assignment and subleasing contained in the Lease. DATED: 12/15, 1999 "LANDLORD": "TENANT": BEP-EMERYVILLE, L.P., COLO. COM, Inc . a Delaware limited partnership a California Corporation By: EPI Investors 103 LLC, By: /s/ RICHARD J. PALOMBA a California limited liability company Name: Richard J. Palomba Its: General Partner Tide: VP Real Estate By: Ellis Partners, Inc., a California corporation Its: Managing Member By:___________________________________ Typed Name:___________________________ Title:________________________________ By:___________________________________ Typed Name:___________________________ Title:________________________________ 2 EX-10.5 9 0009.txt STRATEGIC ALLIANCE AGREEMENT 1 EXHIBIT 10.5 STRATEGIC ALLIANCE AGREEMENT THIS STRATEGIC ALLIANCE AGREEMENT (the "Agreement") is effective as of December 23, 1999 (the "Effective Date") and is by and between COLO.COM, a California corporation with offices at 2000 Sierra Point Parkway, Suite 600, Brisbane, California 94005 ("COLO.COM") and Nortel Networks Inc., a Delaware corporation with offices at 2350 Lakeside Blvd., Richardson, Texas 75082 ("Nortel"). RECITALS 1. COLO.COM has developed a business plan to prepare site space and neutral central office locations for telecommunication and data service providers. 2. Nortel has developed a broad array of telecommunications and data products and services that enable the development of voice and data networks. 3. COLO.COM and Nortel desire to develop a mutually beneficial relationship whereby Nortel will purchase stock in COLO.COM and COLO.COM will provide Nortel a right of first refusal for a portion of each of its sites and purchase a minimum amount of equipment from Nortel. 4. Contemporaneous with the execution of this Agreement, Nortel and COLO.COM will execute a Series C Stock Purchase Agreement (the "Stock Agreement"), the Amended and Restated Investor Rights Agreement (the "Investor Agreement"), and an Amended and Restated Right-of-First Refusal and Co-Sale Rights Agreement (the "Resale Agreement") (collectively, the "Stock Acquisition Agreements"). NOW THEREFORE, in consideration of the mutual promises and covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which is hereby duly acknowledged by the parties, the parties hereby agree as follows. ARTICLE I - DEFINITIONS The following capitalized terms not otherwise defined herein shall have the following respective meanings: "AFFILIATE" means, with respect to any referenced Person, a Person (i) which directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, such referenced Person. For purposes of this definition, "control" when used with respect to any Person means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; and the terms "affiliated," "controlling" and "controlled" have meanings correlative to the foregoing. Page 1 2 "CONFIDENTIAL INFORMATION" means all information (whether in oral, written or electronic form), including without limitation, business strategy and tactics, specifications, drawings, documentation, know-how, manufacturing costs and pricing information, of every kind or description which may be disclosed by one party to the other party in connection with this Agreement, provided the disclosing party shall clearly mark all such information disclosed in writing as the confidential property of the disclosing party and, in the case of oral disclosure, the disclosing party shall identify the confidential nature of any such information at the time of such oral disclosure and shall provide a written summary labeled as confidential of the orally disclosed confidential information to the recipient within fifteen (15) business days of such disclosure. "PERSON" means an individual, partnership, corporation, limited liability company, trust or unincorporated organization or a government or agency or political subdivision thereof. "PRODUCT(s)" means, individually and collectively, the Network Hardware, Network Software, and the Documentation associated with the Trial Network. ARTICLE II - NORTEL'S OBLIGATIONS 2.1 On the Effective Date, Nortel will execute the Stock Acquisition Agreements and perform its obligations under the Stock Purchase Agreement. 2.2 Nortel shall use commercially reasonable best efforts to negotiate and execute an equipment sale and purchase agreement with COLO.COM by April 1, 2000, whereby Nortel will agree to sell to COLO.COM and COLO.COM will agree to purchase Nortel equipment in an amount of no less than Five Million U.S. Dollars ($5,000,000) before December 31, 2001. Such purchase agreement will provide COLO.COM no less than a 50% discount off of Nortel's published list price. 2.3 Nortel, for every site in which (i) COLO.COM has site space available and (ii) the customer is in the market to procure site space, shall make a strong recommendation to such customer that it solicit a proposal from COLO.COM for the site space. 2.4 Within thirty (30) days after the Effective Date of this Agreement, Nortel will identify and notify COLO.COM of the point of contact for COLO.COM as the Nortel agent to manage the relationship between Nortel and COLO.COM. ARTICLE III - COLO.COM'S OBLIGATIONS 3.1 COLO.COM will issue Nortel 510,204 shares of Series C Preferred Stock of COLO.COM common stock, representing eighty-five one hundredths of one percent (.85%) of the aggregate outstanding shares of COLO.COM on a fully-diluted basis on the Effective Date, substantially in accordance with the terms and conditions of the Stock Purchase Agreement, the form of which is attached hereto as Exhibit A. 3.2 COLO.COM shall use commercially reasonable best efforts to negotiate and execute the equipment sale and purchase agreement with Nortel described in Section 2.2 above by April 1, Page 2 3 2000. 3.3 COLO.COM hereby grants Nortel a right-of-first refusal to lease site space on twenty percent (20%) of the space intended to be leased at each site prepared by COLO.COM. Such right-of-first refusal shall be: (i) transferable to any Affiliate or customer of Nortel, (ii) survive for a period of eighteen months (18) from the date of completion of each site, (iii) be available for floor space and rack space cumulatively. When COLO.COM has leased or committed to lease sixty percent (60%) the site, with the exception of the space reserved for Nortel or its customers, COLO.COM may notify Nortel in writing that COLO.COM has a customer to lease all or part of the reserved space. Upon receipt of such notification, Nortel shall have thirty (30) calendar days to either commence good-faith negotiations to lease the space or provide a customer to commence good-faith negotiations to lease the space. Such lease negotiations shall be completed no later than sixty (60) calendar days from the date of the receipt of the notice. At the expiration of the thirty (30) calendar day period, the sixty (60) calendar day period, or upon written notification by Nortel that it has neither a customer nor the intent to lease the reserved space, COLO.COM in no longer under any obligation to Nortel with respect to the space. Similarly, when COLO.COM has leased or committed to lease sixty percent (70%) the site, with the exception of the remaining space reserved for Nortel or its customers, COLO.COM may notify Nortel in writing that COLO.COM has a customer to lease all or part of the remaining reserved space. Upon receipt of such notification, Nortel shall have thirty (30) calendar days to either commence good-faith negotiations to lease the space or provide a customer to commence good-faith negotiations to lease the space. Such lease negotiations shall be completed no later than sixty (60) calendar days from the date of the receipt of the notice. Such lease negotiations shall be completed no later than sixty (60) calendar days from the date of the receipt of the notice. At the expiration of the thirty (30) calendar day period, the sixty (60) calendar day period, or upon written notification by Nortel that it has neither a customer nor the intent to lease the reserved space, COLO.COM in no longer under any obligation to Nortel with respect to the remaining space. 3.4 For every telecommunications or data equipment bid procurement process whereby COLO.COM solicits bids for pricing and feature specifications, COLO.COM shall provide Nortel adequate notice and opportunity to submit a proposal to COLO.COM for the sale of Nortel equipment. 3.5 If COLO.COM grants similar rights-of-first refusal to any Nortel competitor, as listed on Exhibit B, or any Affiliate or successor of such competitors, until such time as the stock in COLO.COM purchased pursuant to the Stock Purchase Agreement is freely saleable under applicable securities laws on a nationally recognized stock exchange, COLO.COM shall be obligated to repurchase all of the COLO.COM stock held by Nortel at the then fair market value. 3.6 COLO.COM shall issue to Nortel a monthly report delineating the locations available, the percentage vacancy for each site, the tenants and percentage occupancy for such tenants of each site, and estimated completion date for future sites. COLO.COM will also provide to Nortel the briefing package to be provided to each member of the COLO.COM board of directors as well as the minutes of the meeting of the COLO.COM board of directors within fifteen (15) calendar days after the board meeting. In addition, within thirty (30) days after the Effective Date of this Page 3 4 Agreement, COLO.COM will identify and notify Nortel of the point of contact for Nortel as the COLO.COM agent to manage the relationship between COLO.COM and Nortel. 3.7 COLO.COM agrees to, from time to time, designate an appropriate executive to meet with a Nortel designated executive, at a mutually agreeable time and location, to review and discuss the status of COLO.COM and any other related aspects of the business relationship between the parties. 3.8 COLO.COM shall, upon issuing new shares of common stock, make available for purchase by Nortel, a sufficient number of shares of stock to allow Nortel to retain the same percentage ownership in COLO.COM that Nortel has at the time of the issuance of the new shares, and at the same price that the shares are being offered all other investors. 3.9 COLO.COM hereby represents and warrants to Nortel that the Stock Acquisition Agreements are in substantially the same form as the other Investors (as defined by the Stock Purchase Agreement) acquiring the Series C Preferred Stock issued by COLO.COM. ARTICLE IV - MARKETING 4.1 The parties hereby agree to enter into a mutually agreeable co-marketing agreement, including without limitation, provisions covering the extent to which either party may use the other's name, trademarks and service marks in marketing; and how the parties will allocate the costs associated with developing and producing the co-branding marketing material and in marketing and advertising the services. (a) The extent to which either party may use the other's name, trademarks and service marks in marketing the co-branded services; (b) Access to and use of customer lists of each party for marketing the co-branded services and any compensation therefor; and (c) How the parties will allocate the costs associated with developing and producing the co-branding marketing material and in marketing and advertising the services. ARTICLE V - LIABILITY FOR BODILY INJURY AND PROPERTY DAMAGE 5.1 A party hereto shall defend the other party against any suit, claim, or proceeding brought against the other party for direct damages due to bodily injuries (including death) or damage to tangible property which allegedly result from the negligence or willful misconduct of the defending party in the performance of this Agreement. The defending party shall pay all litigation costs, reasonable attorney's fees, settlement payments and such direct damages awarded or resulting from any such suit, claim or proceeding. Each party's indemnification obligation under this Section 5.1 shall include any claims by any of its employees brought against the other party. Page 4 5 ARTICLE VI - REMEDIES AND LIMITATION OF LIABILITY 6.1 In the event of any material breach of this Agreement which shall continue for thirty (30) or more days after written notice of such breach (including a reasonably detailed statement of the nature of such breach) shall have been given to the breaching party by the aggrieved party, the aggrieved party shall be entitled at its option to avail itself of any and all remedies available at law or equity, except as otherwise limited in this Agreement. In addition, if the parties, after good faith negotiations, have not executed an equipment sale and purchase agreement within thirty (30) days of the date specified in Sections 2.2 and 3.2 above, then COLO.COM shall be obligated, at Nortel's option, purchase at Nortel's purchase price or fair market value (whichever is greater), all of the stock in COLO.COM purchased by Nortel under the Stock Purchase Agreement. 6.2 Nothing contained in Section 6.1 or elsewhere in this Agreement shall make Nortel or COLO.COM liable to the other for any indirect, incidental, punitive, special, or consequential damages of any nature whatsoever for any breach of this Agreement whether the claims for such damages arise in tort (including negligence regardless of degree of fault), contract, or otherwise. 6.3 Any action for breach of this Agreement or to enforce any right hereunder shall be commenced within two (2) years after the cause of action accrues or it shall be deemed waived and barred. ARTICLE VII - TERM AND TERMINATION 7.1 This Agreement will be in effect from the Effective Date for period of two (2) years. 7.2 Either party may delay performance under this Agreement or terminate this Agreement, in whole or in part, in the event of a default by the other, provided that the non-defaulting party so advises the defaulting party in writing of the event of alleged default and the defaulting party does not remedy the alleged default within thirty (30) days after written notice thereof. If the alleged default is not capable of being remedied within thirty (30) days, the defaulting party must commence to remedy the alleged default within such thirty (30) day period and provide to the non-defaulting party a plan for timely remedying the alleged default in order to avoid termination. A default shall include: (a) a party's insolvency or initiation of bankruptcy or receivership proceedings by or against a party or the execution of an assignment for the benefit of creditors; or (b) either party's material breach of any of the terms or conditions hereof, including without limitation, the failure to make any payment when due. 7.3 The expiration or termination of this Agreement for any cause shall not release either party from: Page 5 6 (i) any obligations and duties remaining under any other agreement entered into prior to such expiration or termination; (ii) any liability which at the time of expiration or termination has already accrued to the other party, or, which thereafter may accrue in respect to any event prior to expiration or termination; or (iii) any liability from any obligation specified in Section 9.13 below to survive expiration or termination. ARTICLE VIII - CONFIDENTIALITY 8.1 Each party which receives the other party's Confidential Information shall use reasonable care to hold such Confidential Information in confidence and not disclose such Confidential Information to anyone other than to its employees and employees of an COLO.COM Affiliate or Nortel Affiliate, as applicable, with a need to know. A party that receives the other party's Confidential Information shall not reproduce such Confidential Information, except to the extent reasonably required for the performance of its obligations pursuant to this Agreement and in connection with any permitted use of such Confidential Information. 8.2 COLO.COM shall take reasonable care to use Nortel's Confidential Information only for study, operating, or maintenance purposes in connection with COLO.COM's use of Products furnished by Nortel pursuant to this Agreement. 8.3 The obligations of either party pursuant to this Article VIII shall not extend to any Confidential Information which a recipient can demonstrate through written documentation was already known to the recipient prior to its disclosure to the recipient and without confidential obligations was known or generally available to the public at the time of disclosure to the recipient, becomes known or generally available to the public (other than by act of the recipient) subsequent to its disclosure to the recipient, is disclosed or made available in writing to the recipient by a third party having a bona fide right to do so and without similar confidentiality obligations, is independently developed by recipient, or is required to be disclosed by subpoena or other process of law, provided that the recipient shall notify the disclosing party promptly of any such subpoena or other process of law requiring disclosure. 8.4 The parties agree that each will keep the existence and contents of this Agreement completely confidential, and will not publicize or disclose the conditions, or terms or contents of this Agreement in any manner, whether in writing or orally, to any person, whether directly or indirectly, except either party may disclose the terms of this Agreement (a) to its legal counsel and accountants, (b) to the limited extent required by federal securities laws, (c) to prospective investors, or other sources of funding, that are bound to confidentiality provisions at least as restrictive as those contained herein or (d) pursuant to a court order or governmental authority as required by law. The disclosure of the aforementioned information, in violation of this provision, shall be deemed to be a material breach of this Agreement. Page 6 7 ARTICLE IX - MISCELLANEOUS 9.1 Applicable Law - The validity, construction and performance of this Agreement shall be governed by and interpreted in accordance with the laws of the State of California, except for its rules with regard to the conflict of laws of any jurisdiction. 9.2 Effects of Headings - All headings used herein are for index and reference purposes only, and shall not be given any substantive effect. This Agreement has been created jointly by the parties and no rule of construction requiring interpretation against the drafter of this Agreement shall apply in its interpretation. 9.3 Assignment - Other than as explicitly stated below, neither party may assign or transfer this Agreement or any of its rights hereunder without the prior written consent of the other party, such consent not to be unreasonably withheld or delayed. No consent shall be required for any assignment or transfer by a party to its Affiliates of all or any part of this Agreement or of such party's rights hereunder. 9.4 Non-Waiver - The failure by either party hereto at any time to require performance by the other party or to claim a breach of any provision of this Agreement shall not be construed as affecting any subsequent breach or the right to require the performance with respect thereto or to claim a breach with respect thereto. 9.5 Relationship of the Parties - The provisions of this Agreement shall not be construed to establish any form of partnership, agency or joint venture of any kind between Nortel and COLO.COM, nor to constitute either party as the agent, employee or legal representative of the other. All persons furnished by either party to accomplish the intent of this Agreement shall be considered solely as the furnishing party's employees or agents and the furnishing party shall be solely responsible for compliance with respect to its employees with all laws, rules and regulations involving, but not limited to, employment of labor, hours of labor, working conditions, workers' compensation, payment of wages, and withholding and payment of applicable taxes, including without limitation, income taxes, unemployment taxes, and social security taxes. 9.6 Force Majeure - If the performance by a party of any of its obligations under this Agreement shall be interfered with by reason of any circumstances beyond the reasonable control of that party, including without limitation, fire, explosion, acts of God, war, revolution, civil commotion, unavailability of supplies or sources of energy, power failure, breakdown of machinery, delays regarding zoning, easements or deed restrictions, any legal proceedings between parties unrelated to the parties hereto or labor difficulties, including without limitation, strikes, slowdowns, picketing or boycotts, then that party shall be excused from such performance for a period equal to the delay resulting from the applicable circumstances and such additional period as may be reasonably necessary to allow that party to resume its performance. With respect to labor difficulties as described above, a party shall not be obligated to accede to any demands being made by employees or other personnel. 9.7 Expenses - Each party shall bear its own expenses in connection with the drafting and negotiation of this Agreement and the related agreements as contemplated herein. Page 7 8 9.8. Notice - All notices required or permitted to be given hereunder shall be in writing and shall be deemed given when delivered (i) by hand; or (ii) by facsimile transmission (confirming the same by mail); or (iii) by certified or next-day mail addressed as follows: If to COLO.COM: COLO.COM 2000 Sierra Point Parkway, Suite 600 Brisbane, California 94005 Attention: ------------------------------- Facsimile: ------------------------------- If to Nortel: Nortel Networks Inc. 2350 Lakeside Blvd Richardson, Texas 75082 Attention: Mr. James Bartoszewicz Facsimile: 972/684-3994 Either party hereto may change its address by a notice given to the other party hereto in the manner set forth above. 9.9 Information and Documentation - COLO.COM shall provide any information and/or documentation that Nortel reasonably requests from COLO.COM and that is necessary for Nortel to properly perform any of its obligations hereunder. Such information shall be provided in a form reasonably specified by Nortel by the dates reasonably specified by Nortel. 9.10 Severability - If any provision of this Agreement is declared or determined to be invalid or unenforceable under applicable law, the remaining provisions shall continue in full force and effect and the parties shall substitute for the invalid provision a valid provision which most closely approximates the economic effect and intent of the invalid provision. 9.11 Modification of Agreement - No addition to or modification of this Agreement shall be effective or binding on either of the parties hereto unless reduced to writing and executed by the respective duly authorized representatives of each of the parties hereto. 9.12 Entire Agreement - This Agreement, including the Exhibits and Annexes which are attached hereto and incorporated herein, comprises all the terms, conditions and agreements of the parties hereto with respect to the subject matter hereof and supersedes all previous negotiations, proposals, commitments, writings, publications and understandings of any nature whatsoever. No Exhibits or Annexes modified or created subsequent to the execution of this Agreement shall be deemed to be incorporated into this Agreement unless mutually agreed in a writing and executed or initialed by a duly authorized representative of each party. The parties hereby acknowledge and agree that neither has relied on any representations or warranties other than those expressly set forth in this Agreement. Page 8 9 9.13 Survivorship - Any terms of this Agreement, which by their nature are intended to survive, including without limitation, Articles 5, 7, and 8 shall survive the termination or expiration of this Agreement. [Signatures on following page] Page 9 10 IN WITNESS whereof the parties have executed this Agreement effective as of the date first shown above. COLO.COM NORTEL NETWORKS INC. By: By: ------------------------------- ------------------------------- Name: Name: James Bartoszewicz ----------------------------- ----------------------------- Title: Title: Vice-President --------------------------- ---------------------------- 11 EXHIBIT A FORM OF STOCK PURCHASE AGREEMENT 12 EXHIBIT B COMPETITORS OF NORTEL Lucent Technologies Inc. Cisco Systems Inc. Alcatel Nokia Siemens Sonus Taqua Systems EX-10.6 10 0010.txt COLO.COM & NEXTLINK DEFINITIVE AGREEMENT 1 Exhibit 10.6 COLO.COM AND NEXTLINK DEFINITIVE AGREEMENT This Definitive Agreement ("Agreement") is entered into this 23rd day of December 1999 (the "Effective Date") by and between NEXTLINK COMMUNICATIONS, Inc., a Delaware corporation ("NEXTLINK"), and COLO.COM, a California corporation ("COLO"). NEXTLINK and COLO are referred to herein separately as "Party" and together as "Parties." The Effective Date of this Agreement is the same date as the closing date of the COLO Series C preferred stock offering between COLO and NEXTLINK. For good and valuable consideration, COLO and NEXTLINK hereby agree as follows: A. DEFINITIONS. 1. Carrier Termination Equipment Space: means a carrier termination equipment bay for which NEXTLINK has an Option. 2. Colocation Space: means colocation space from 500 to 1,000 square feet for which NEXTLINK has an Option. 3. Customary Services: means those services that COLO provides to its own termination space or to the termination space of its carrier or non-carrier customers, including power (electricity, N+1 UPS system deployed in parallel redundant configuration, and generator backup to 100% of customer peak load), conditioning (data grade HVAC, constant 72 degree ambient air temperature, and constant 45% humidity), state of the art fire suppression system, security and smart hands, and such other services set forth on the attachment to this Agreement. 4. Neutral Central Office ("NCO"): means real property and improvements that are used or planned to be used, as the context of the provision requires, by COLO as a carrier-neutral central office for colocation and for locating and interconnecting servers, routers, data communications equipment, telecommunications equipment and other equipment used by COLO and/or its customers. 5. Network: means the terrestrial telecommunications network of one of the Parties, as the context of the provision requires or as contemplated under this Agreement, including facilities leased or acquired from other carriers. 6. Option: means the option NEXTLINK has under this Agreement to lease each of the Telecommunication Equipment Spaces described in Section F. 7. Prioritized Option/Partners: means a partner that is strategic to COLO and provides substantial economic, business and/or marketing benefit to COLO. 8. Tower Rights: means a annually agreeable amount of wireless communication tower space satisfactory for NEXTLINK's technical needs for which NEXTLINK has an Option. 9. Space Agreement: means an agreement for Telecommunications Equipment Space entered into between the Parties as provided in Section F below, including the Colocation Space and Carrier Termination Equipment Space Agreement (Exhibit A): 10. Telecommunications Equipment Space: means the space COLO shall provide to NEXTLINK in COLO's NCOs as provided in Section F below. B. TERM. The term of this Agreement shall be 5 years commencing on the Effective Date. NEXTLINK shall have the right to renew this Agreement for 2 additional 5-year terms by giving COLO written notice at least 90 days before the then-current term expires. As used herein, the word "Term" shall mean the initial term and any renewal terms. CONFIDENTIAL Page 1 of 12 December 23, 1999 2 C. NEXTLINK EQUITY INVESTMENT. By means of a separate Series C Preferred Stock Purchase Agreement entered into concurrently herewith, NEXTLINK shall agree to invest $5,000,000 in COLO in a private placement of equity securities by purchasing approximately 500,000 shares of COLO's Series C Preferred Stock. D. COLO'S NEUTRAL CENTRAL OFFICES. 1. COLO represents and warrants that, as of the date of this Agreement, it owns or is authorized to control the NCOs listed as "Current NCOs" on Attachment 1 and COLO plans to own or obtain authorization to control the NCOs listed as "Planned NCOs" on Attachment 1. COLO shall notify NEXTLINK promptly after COLO obtains additional NCOs, including a description of each new NCO. In addition, each quarter COLO shall provide an electronic copy of an updated Attachment 1 to NEXTLINK to the e-mail address listed in Section I.12 below. 2. COLO represents and warrants that it shall own or control at least 43 domestic and 13 international operational NCOs by December 31, 2001. In addition, COLO represents and warrants that it has sufficient Colocation Space and Carrier Termination Equipment Space in its Current NCOs to allow NEXTLINK to exercise its Options to such space (with the exception of Colocation Space in the 8619 Westwood, Vienna, VA NCO) and shall have sufficient Colocation Space and Carrier Termination Equipment Space available to NEXTLINK as contemplated under this Agreement at NCOs that become Current NCOs during the term of this Agreement. COLO further represents and warrants that it has not granted any priorities or options superior to NEXTLINK's priorities and Options under this Agreement. 3. COLO represents and warrants that as of the date it notifies NEXTLINK that an NCO is a Current NCO, COLO has good marketable fee simple title or has a valid, enforceable leasehold interest or a valid, enforceable license authorizing COLO to control the NCO and the property upon which the NCO is located to such an extent as permits COLO to perform fully its obligations under this Agreement. E. CONNECTION OF NEXTLINK'S NETWORK TO COLO'S NCOs. 1. COLO shall grant to NEXTLINK a warrant to purchase up to 300,000 shares of COLO's Series C Preferred ("Warrant Shares"), as appropriately adjusted for any future stock splits, stock combinations or stock dividends or similar transactions affecting COLO's capital stock, in a separate Warrant Agreement entered into concurrently herewith (the "Warrant"). The Warrant shall be subject to the following terms: a. The Warrant shall have a term of 5 years from the date the Warrant is issued; b. For each NCO to which NEXTLINK initiates the process of interconnecting to its Network on or prior to March 15, 2000, up to a total of ten (10) NCOs, NEXTLINK shall have the right to exercise its purchase rights represented by the Warrant with respect to 30,000 Warrant Shares. NEXTLINK shall be deemed to have initiated the interconnection process for a NCO upon its delivery to COLO of a copy of the business case prepared by NEXTLINK's National Sales group for the applicable NEXTLINK local operating subsidiary with respect to the interconnection of the NCO in question. COLO agrees and acknowledges that each business case is subject to the approval of, and revision and modification by, the local operating subsidiary. NEXTLINK in good faith will exercise commercially reasonable efforts to complete the interconnection of its Network to each such NCO site within nine (9) months from the date that the interconnection process is deemed to be initiated pursuant to this paragraph. c. The exercise price per share of COLO's Warrant Stock shall be Ten Dollars ($10.00); and d. In lieu of exercising the Warrant for cash, NEXTLINK may, at its option, pay the exercise price on a next exercise or cashless basis. CONFIDENTIAL Page 2 of 12 December 23, 1999 3 2. NEXTLINK in good faith will exercise commercially reasonable efforts to interconnect its Network to ten (10) NCO sites, within two (2) years from the date of this Agreement, in addition to the ten (10) NCOs to which it initiates the interconnection process, pursuant to paragraph 1 of this section. NEXTLINK may choose NCO sites that are listed on Attachment 1 or NCOs established subsequent to the date of this Agreement. COLO will regularly apprise NEXTLINK of newly leased NCO sites and the status of planned NCO sites. For each NCO that NEXTLINK designates for interconnection, the Parties shall mutually agree upon the demarcation point, and COLO shall provide NEXTLINK with reasonable access for NEXTLINK to bring its facilities into the NCO for interconnection and to repair, replace and maintain those facilities. 3. COLO shall use its reasonable efforts to acquire or obtain authorization to control any NCOs in locations selected by NEXTLINK under this Section E that are not Current NCOs as listed on Attachment 1. COLO shall notify NEXTLINK in writing when COLO has acquired or obtained authorization to control an NCO that NEXTLINK has selected, with copies of the documents evidencing such acquisition or authorization. When NEXTLINK receives notice from COLO that COLO has obtained or been authorized to control an NCO that NEXTLINK has requested for interconnection, NEXTLINK shall connect its network to that NCO within 9 months after the date it received such notice. F. COLO'S PROVISION OF TELECOMMUNICATIONS EQUIPMENT SPACE 1. Options. In each of COLO's NCOs (except in the 8619 Westwood, Vienna, VA NCO as to Colocation Space only), NEXTLINK and its affiliates shall have an Option on the each of the following: a. Colocation Space. NEXTLINK may, at its option, take down Colocation Space in increments of 100 square feet; b. Carrier Termination Equipment Space. COLO shall provide, at its sole cost and expense, 4 adjacent, full-height equipment racks in each Carrier Termination Equipment Space; and c. Wireless Communication Tower Space. COLO shall use its reasonable efforts to obtain Wireless Communication Tower Space for NEXTLINK's technical requirements at all NCOs, provided that NEXTLINK has given COLO reasonable advance notice of its wireless communication tower requirements (i.e., technical and space requirements) to COLO. NEXTLINK may, but shall not be obligated to, assist COLO in its efforts to obtain those roof rights. 2. Exercise of Options. a. Available Space. COLO shall give NEXTLINK written notice for each NCO whenever COLO reaches 70% occupancy and/or receives a bona fide offer(s) for 70% of the colocation space in a given site. In that written notice, COLO shall request that NEXTLINK declare within 30 days from the date of the request whether it intends to exercise its right to up to 1000 square feet of Telecommunications Equipment Space. COLO also shall give NEXTLINK written notice for each NCO of the availability of any Tower Rights in that NCO and, subsequently, upon reaching 70% occupancy and/or the receipt of a bona fide offer(s) for 70% of the Tower Rights available at an NCO. If NEXTLINK fails to respond within the 30-day period, NEXTLINK shall be deemed to have waived the Option and COLO shall be free to offer the Equipment and Tower Space to other interested Parties. NEXTLINK's right to last available space under this Section F.2a shall expire three years after execution of this Agreement. b. Last Available Space. COLO shall give NEXTLINK written notice for each NCO whenever COLO shall have received a written request from a carrier seeking to occupy the last Carrier Termination Space (POP Room) in such NCO. COLO shall request that NEXTLINK declare within 30 days from the date of the request whether it intends to exercise its rights to the last Carrier Termination Space. If NEXTLINK fails to respond within the 30-day period, NEXTLINK shall be deemed to have waived the Option and COLO shall be free to offer Carrier Termination space to other interested Parties. NEXTLINK's right to last available space under Section F.2.b shall run for the term of this Agreement. c. Notice of Exercise of Option. NEXTLINK may exercise any Option by giving COLO written notice specifying the NCO and the type and size of the space, provided, however, that the size and configuration of any Tower Rights shall be mutually agreed to by the Parties. CONFIDENTIAL Page 3 of 12 December 23, 1999 4 d. Space Agreements. For each space for which NEXTLINK exercises an Option, the Parties shall enter into the appropriate Space Agreement, as follows, within 10 days of the date NEXTLINK exercises its option. The Colocation Space Agreement and Carrier Termination Equipment Space Agreement is attached hereto as Exhibit A; and the Tower Rights Agreement is attached hereto as Exhibit B (each a "Space Agreement"). 3. Customary Services. COLO shall provide all its Customary Services to Carrier Termination Equipment Space for which NEXTLINK exercises its Option, at no additional charge. Other Telecommunications Equipment Space will be provided with Customary Services at the rates provided in Attachment 2. 4. Payment for Telecommunications Equipment Space. a. Rental Rate. The rental rate for the Telecommunications Equipment Space shall be the rates listed in Attachment 2; provided, however, that if COLO offers or gives a lower rate to a Prioritized Option/Partner, those lower rates shall apply to the Telecommunications Equipment Rate. Within 5 days after NEXTLINK exercises an Option, COLO shall provide NEXTLINK with a list of the rates it has given in the previous 12 months and the rates it is then-currently offering to its Prioritized Option/Partners. NEXTLINK shall have 10 days to notify COLO, either (i) affirming the rental rate (either the rate listed in Attachment 2 or the rate provided to other customers as stated by COLO) or (ii) disputing the rental rate proposed by COLO for the Telecommunications Equipment Space. If NEXTLINK disputes the rental rate provided by COLO, NEXTLINK shall pay the lowest rate proposed by COLO pending resolution of the dispute of COLO provides a better rate to itself or another customer during the terms of a Space Agreement between the Parties, NEXTLINK shall be entitled to that same rate as of the date that better rate is granted. b. Obligations to Pay Rent. NEXTLINK's obligation to pay rent to COLO shall begin: (i) for Colocation Space, the date that is 45 days after the date that NEXTLINK exercises its option to the space, provided that the Parties have timely entered into a Colocation Space Agreement; (ii) for Carrier Termination Equipment Space and Wireless Communication Tower Space, the date that is 30 days after NEXTLINK exercises its option to the space, provided that the Parties have timely entered into the applicable Space Agreement. c. Prepaid Carrier Termination Space. NEXTLINK hereby receives a credit entitling it to free rent for 40 Carrier Termination Equipment Spaces at NCOs selected by NEXTLINK. The rent credit for each space shall apply for 24 months from the date that NEXTLINK first occupies that space ("Rent Credit Period"). Within 25 days before the end of the Rent Credit Period, COLO shall provide NEXTLINK with a list of the rates it has given in the previous 12 months and the rates it is then-currently offering to its Prioritized Option/Partners for Carrier Termination Equipment Spaces. NEXTLINK shall notify COLO within 10 days whether NEXTLINK wishes to terminate a Carrier Termination Equipment Space Agreement after the Rent Credit Period, in which case the applicable Space Agreement shall terminate effective as of the end of the Rent Credit Period. If NEXTLINK does not terminate the Carrier Termination Equipment Space Agreement, Section F.4.a shall apply to finalize the rental rate. G. RESELLER PRIVILEGES. Upon mutual agreement of the Parties, NEXTLINK shall have the right to resell COLO's services under COLO's standard reseller agreement, and under the then-best reseller discounts and/or commissions offered or given by COLO to any of its other customers. H. PREFERRED PROVIDER. In the event that COLO decides to interconnect and internetwork its NCOs or to resell transport and carrier services, COLO will make NEXTLINK its preferred provider for the required transport if NEXTLINK satisfies COLO's technical and operational requirements and offers reasonable installation intervals and market pricing. NEXTLINK shall provide such transport arrangements to COLO pursuant to its then generally applicable terms and conditions for such services. I. MISCELLANEOUS. 1. Confidentiality. Both Parties shall use reasonable and good faith efforts to maintain, except as required by law, the confidentiality of this Agreement (including all Attachments and Exhibits), the transactions proposed in this Agreement, and confidential information shared with each other under this Agreement. Any communications about the transactions contemplated herein other than to key management employees, shall be jointly coordinated between the Parties. CONFIDENTIAL Page 4 of 12 December 23, 1999 5 2. Limitation of Liability. Neither Party shall be liable to the other Party, or to the other Party for any liability to a third party as provided in Section I.3, for any indirect, consequential, special, incidental, reliance, or punitive damages of any kind or nature whatsoever (including but not limited to any lost profits, lost revenues, lost savings, or harm to business) arising out of this Agreement, regardless of the foreseeability thereof. 3. Indemnification. a. COLO shall indemnify, defend and hold harmless NEXTLINK and its subsidiaries, affiliates, employees, directors, officers, and agents from and against all claims, demands, actions, causes of actions, damages, liabilities, losses, and expenses (including reasonable attorney's fees) incurred as a result of (i) claims for libel, slander, infringement of copyright or unauthorized use of trademark, trade name or service mark arising out of the transactions contemplated herein; (ii) claims for patent infringement arising from combining or connection of facilities to NEXTLINK's Network; and (iii) claims for damage to property and/or personal injuries (including death) arising out of COLO's negligence or willful act or omission. b. NEXTLINK shall indemnify, defend and hold harmless COLO and its subsidiaries, affiliates, employees, directors, officers, and agents from and against all claims, demands, actions, causes of actions, damages, liabilities, losses, and expenses (including reasonable attorney's fees) incurred as a result of (i) claims for libel, slander, infringement of copyright or unauthorized use of trademark, trade name or service mark arising out of the transactions contemplated herein; (ii) claims for patent infringement arising from combining or connection of facilities to COLO's Network; and (iii) claims for damage to property and/or personal injuries (including death) arising out of NEXTLINK's negligence or willful act or omission. c. The warranties set forth in this Agreement constitute the only warranties with respect to this Agreement. SUCH WARRANTIES ARE IN LIEU OF ALL OTHER WARRANTIES, WRITTEN OR ORAL, STATUTORY, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, THE WARRANTY OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE OR USE. 4. Organizational Representations and Warranties. NEXTLINK represents and warrants to COLO that it is an entity, duly organized, validly existing and in good standing under the laws of its origin, with all requisite power to enter into and perform its obligations under this Agreement in accordance with its terms. COLO represents and warrants that it is an entity, duly organized, validly existing and in good standing under the laws of its origin, with all requisite power to enter into and perform its obligations under this Agreement in accordance with its terms. 5. Assignment. This Agreement may not be assigned by either Party without the prior written consent of the other Party, which shall not be unreasonably withheld. 6. Amendment. This Agreement shall be amended only by written agreement signed by authorized representatives of both Parties. 7. Governing Law Venue. This Agreement shall be interpreted according to the laws of the state of Delaware, without regard to choice of law principles. Except as otherwise provided in Section I.9 below, venue shall be in the state of California. 8. Attorney Fees. In any claims under this Agreement, each side shall bear its own costs and attorneys fees. 9. Dispute Resolution. In the event of a monetary dispute between COLO and NEXTLINK concerning a principal amount in controversy of less than $50,000 (specifically excluding all nonmonetary claims or disputes) arising out of the Agreement, COLO and NEXTLINK shall attempt to resolve such dispute through negotiations for thirty (30) days. If CONFIDENTIAL Page 5 of 12 December 23, 1999 6 event that any Party shall fail to so appoint an arbitrator, the arbitrator appointed by the other Party shall be the sole arbitrator. If two arbitrators shall be so appointed, such two arbitrators shall, within ten (10) additional days of the appointment of the last appointed arbitrator, select a third arbitrator with the same qualifications. If the two arbitrators are unable to agree concerning the third arbitrator, such matter shall be submitted to the presiding judge of a court of competent jurisdiction in the circuit, district, county (or other comparable geographic designation) in which the Building is located and the selection of the third arbitrator by such presiding judge shall be binding upon COLO and NEXTLINK. Within thirty (30) days of the selection of the third arbitrator (or, if applicable, the sole arbitrator) or within such longer, but reasonable period of time permitted by a majority of arbitrators (or the sole arbitrator, if applicable), each Party shall make a written submission to the arbitrator(s), including the Party's position concerning the dispute and proposed resolution thereof, and, within twenty (20) days of receipt of such submissions, the arbitrator(s) shall select the proposed resolution that is most appropriate, taking into account the terms and provisions of the Agreement, applicable law, and other relevant facts and circumstances. The decision of any two arbitrators (if three arbitrators shall have been selected) shall be binding on COLO and NEXTLINK; if only one arbitrator shall have been selected, the decision of the sole arbitrator shall be binding on COLO and NEXTLINK. The compensation of the arbitrator(s) shall be borne equally by COLO and NEXTLINK. The Parties shall reasonably cooperate to exchange documents or information necessary in order to prepare the submissions required hereunder; provided, however, that the COLO and NEXTLINK acknowledge and agree that a principal purpose of such arbitration is to avoid, if possible, and to minimize the costs of, document and information exchange. In the event of any dispute concerning the exchange of documentation or information necessary in order to prepare the required submissions, such dispute shall be submitted to the arbitrator(s) and the decision of a majority of the arbitrators shall be conclusive on COLO and NEXTLINK. 10. No Waiver. The failure of a Party to insist on compliance with any of the terms and conditions of this Agreement shall not be considered the waiver of any other term or condition of this Agreement. 11. Entire Agreement. This Agreement sets forth the entire understanding of the Parties and supersedes any and all prior agreements, arrangements or understanding relating to the subject matter hereof. 12. Notices. Except as otherwise expressly provided herein, notices under this Agreement shall be in writing and delivered by personal delivery, overnight delivery service, or by certified mail, return receipt requested, to the persons whose names and addresses appear below. Such notice shall be effective on the date of receipt or refusal thereof by the receiving Party. COLO: NEXTLINK COLO.COM NEXTLINK Communications Inc. 2000 Sierra Point Parkway 14811 N. Kirkland Blvd., Suite 100 Brisbane, CA 94005 Scottsdale, AZ 85254 Attn: General Counsel Attn: Vice President, National Sales with a copy to: NEXTLINK Communications, Inc. 14811 Farm Credit Drive McLean, VA 22102 Attn: General Counsel 13. Attachments and Exhibits. The following attachments and exhibits are incorporated in this Agreement. Attachment 1 - COLO's Neutral Central Offices Attachment 2 - Prioritized Option/Partners Rental Rates Exhibit A - Colocation and Carrier Termination Equipment Space Agreement Exhibit B - Tower Rights Agreement IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the day and year first written above. CONFIDENTIAL Page 6 of 12 December 23, 1999 7 NEXTLINK Communications, Inc. COLO.COM By: /s/ [Signature Illegible] By: /s/ [Signature Illegible] ------------------------- -------------------------- Title: Asst. Sec. Title: S.U.P. Operations/Admin ---------------------- ------------------------ Date: 2/23/99 Date: 12-23-95 ------------------------ ------------------------ CONFIDENTIAL Page 7 of 12 December 23, 1999 8 ATTACHMENT 1 COLO's Neutral Central Offices [Insert Lists as previously provided in Due Diligence to Hank Koerner] Current NCOs: 1. Los Angeles (Garland Bldg. 1200 W. 7th Street, Los Angeles CA 90017) 2. Washington DC (8619 Westwood Center Drive, Vienna, VA 22182) 3. Chicago (725 Wells, Chicago, IL 60607) 4. San Francisco (1400 65th Street, Emeryville, CA 94608) 5. Milwaukee (Wells Bldg. 324, E. Wisconsin, Milwaukee, WI 53202) Planned NCOs: 1. Dallas (Infomart, 1950 Stemmons Freeway, Dallas, TX 75207) 2. Chicago (800 Jorie Blvd., Oak Brook, IL 60523) 3. San Francisco (650 Townsend, San Francisco, CA 94103) 4. Fort Worth (Burnett Plaza - 801 Cherry Street, Fort Worth, TX 76102) 5. New York (395 Hudson Street, New York, NY 10014) 6. Las Vegas (7185 Pollock Drive, Las Vegas, NV 89119) Page 8 of 12 9 ATTACHMENT 2 PRIORITIZED OPTION/PARTNERS RENTAL RATES
- --------------------------------------------------------------------------------------- TYPE OF SPACE LOCATION RENTAL RATE PER MONTH - --------------------------------------------------------------------------------------- Prepaid Carrier Termination $700/rack ---------------------------------------------------- ---------------------------------------------------- ---------------------------------------------------- - --------------------------------------------------------------------------------------- Colocation 40% discount off following rates: $1,400 full rack $1,100 half rack 8x7 cage $4,600 10x10 cage $8,000 $55 per sq. ft. of bulk space ---------------------------------------------------- ---------------------------------------------------- ---------------------------------------------------- - --------------------------------------------------------------------------------------- Carrier Termination Equp't Bays $700/rack ---------------------------------------------------- ---------------------------------------------------- ---------------------------------------------------- - --------------------------------------------------------------------------------------- Wireless Communications Tower 40% discount of standard fees ---------------------------------------------------- ---------------------------------------------------- ---------------------------------------------------- - --------------------------------------------------------------------------------------- Cross Connects 65% off standard cross-connect fees ---------------------------------------------------- ---------------------------------------------------- ---------------------------------------------------- ---------------------------------------------------- - ---------------------------------------------------------------------------------------
CONFIDENTIAL Page 9 of 12 December 23, 1999 10 CUSTOMARY SERVICES 1. Ample clean, reliable, redundant, battery backed AC and DC power, and management services of same. 2. Ample reliable, redundant heating, cooling, air filtering and other customary environmental conditioning, and management services of same. 3. Ample reliable, redundant, multi-level security systems and services, including but not limited to 24 x 7 camera surveillance, biometric scanners, secure pass key locking systems, and 24 x 7 on premises security personnel, and management services of same. 4. Ample clean space in the form of partial and whole racks, caged space, and bulk space designed appropriately for telecommunications and server collocation, and management services of same. 5. Ample reliable, redundant, modem cabling plant including but not limited to Car 5 UTP, COAX, and fiber optic cables and associated cross connect services designed appropriately for handling POTS to OC-192 to gigabit ethernet, and management services of same. 6. "Smart hands" services in the form of trained telecommunications and networking engineers who can provide remote services that include but are not limited to equipment unpacking, racking, connecting, initial boot up, diagnostic, troubleshooting, configuration and testing services, and management of same. CONFIDENTIAL Page 10 of 12 December 23, 1999 11 EXHIBIT A Colocation and Carrier Termination Equipment Space Agreement CONFIDENTIAL Page 11 of 12 December 23, 1999 12 EXHIBIT A COLO.COM Terms and Conditions for Delivery of Service. These terms and conditions are applicable to the COLO.COM ("COLO") Service Order Form ("Order Form") and are incorporated in each Order Form. 1. LICENSE. COLO hereby grants and Customer hereby accepts a limited license ("License") to colocate computer and communications equipment ("Equipment") or Carrier Termination Equipment ("Termination Equipment") in a portion of the Supplier controlled space ("Space") located at the premise(s) ("Premise" or "Premises") listed on the Order Form. COLO reserves the right to relocate, change or otherwise substitute the exact location of the Space, at any time during the Term of the License, provided that the substitute space is substantially similar to the original Space allotted and within the same geographic location and that COLO pays all reasonable costs of relocation and assets in the relocation. Provided that, if COLO moves the Carrier Equipment Termination Bay, it shall do so for all customers, including Customer. Customer hereby acknowledges and agrees that it has not been granted any real property interest in the Space or any of the Premises and that Customer has no rights as a tenant under any real property or landlord/tenant laws, regulations or ordinances. Access and Services Provided Where and as available to COLO, COLO will provide Customer, and its contractors or agents, with twenty-four hours a day, seven day a week access to the Space for installation, maintenance, repair, replacement or operation of the Equipment or Termination Equipment. For Termination Equipment, COLO shall provide 4 adjacent full height equipment racks in the primary Space it makes available to carriers for termination of their facilities. COLO will provide electrical power, heating, air conditioning and other environmental services and arrangements necessary to use of the Equipment in the Space. COLO shall permit Customer to cross connect to other facilities or Equipment of Customer or to other Customers in the Space and shall make available necessary facilities and access for such cross connections or related arrangements or shall itself provide cross connections and related services. COLO shall also make available access, Space and other facilities or arrangements necessary for Customer to connect its network to the Equipment or Termination Equipment, including from and to the building demarcation point. 2. USE OF SPACE. Customer agrees to use the Space solely for the installation, maintenance, operation, and removal of Equipment or Termination Equipment. Nothing herein shall transfer ownership of the Equipment or Termination Equipment to COLO and the Equipment or Termination Equipment will remain the property of the Customer. 3. CUSTOMER USE. Customer shall abide by any posted or otherwise communicated policies and procedures relating to COLO's facilities that are reasonable and customary in the industry. 4. COLO. COLO will have the right to terminate Customer's License on sixty (60) days' notice if COLO loses rights to the Premises for reasons outside COLO's control. Provided that, COLO thereafter will make reasonable alternative space available and assist in any necessary transition to alternative Space. 5. SERVICES & FEES. The Order Form lists the basic services and prices thereof ("Services") as of the order date. COLO may increase the amount Customer pays for Services pursuant to the Definitive Agreement. 6. PAYMENT. Customer shall pay COLO when due for all Services ordered or used, including all applicable taxes, surcharges, and other government imposed fees. All Services shall be invoiced on a monthly basis and are due on or before the date appearing on the monthly billing statement. Any invoice not paid by the due date shall be deemed delinquent and is subject to interest charges accruing at a rate 1 13 EXHIBIT A of 1.5% per month, Customer shall be liable for all costs of collection of any delinquency, including any and all collection agency fees, reasonable attorneys' fees, and court costs. 7. PAYMENT DISPUTE. Should Customer dispute any bill or any portion thereof, Customer shall pay the undisputed amount of the outstanding bill by the due date and send COLO a written explanation outlining the basis for the dispute. COLO shall investigate any disputed bill and within a reasonable time notify Customer of the outcome of such investigation. Any dispute that cannot be resolved by agreement shall be resolved by arbitration as provided in Section 16. 8. TERM. The term and Customer's obligation to pay COLO for the use of the Space shall be as provided in the Definitive Agreement or the Order Form. 9. CONFIDENTIALITY. Each Party, for itself, its agents, employees and representatives agrees that it will not divulge any confidential or proprietary information that it receives from the other Party. The terms and conditions of this contract, but not the fact this agreement has been entered shall be considered confidential or proprietary information under this paragraph. Neither Party will use the other's name in marketing materials without prior written consent. Customer hereby grants COLO a limited license to use any of its trade names and / or trademarks or servicemarks in any news release, marketing materials, or on COLO's web site announcing the agreement provided that COLO obtains Customer's prior written approval in each instance. All goodwill associated with Customer's trade names, trademarks or servicemarks will inure solely to Customer. 10. INSURANCE. At all times during the term of the Order Form, and at each party's expense, COLO and Customer, and any contractors or other third parties representing Customer, shall maintain All Risk Property and casualty insurance and comprehensive general liability insurance (collectively "Policy"), insuring against all hazards and risks customarily insured against by persons colocating Equipment in buildings. The Policy should be written on a per-occurrence basis with blanket contractual liability coverage, with respect to use of the Space and operation of business therein, with a combined single-limit coverage of not less than One Million Dollars ($1,000,000) and an aggregate umbrella coverage of not less than an additional One Million Dollars ($1,000,000). A per occurrence limit of ($2,000,000) will be acceptable as well. At all times during the term of the Order Form, COLO requires Customer to name COLO and if requested by COLO in writing the landlord(s) for each Premise as or additional insured on the Policy. All policies shall provide that Customer's insures' waive all rights of subrogation against COLO. COLO and Customer shall maintain property insurance including EDP perils written on a "Special Form" basis at full replacement cost value. The definition of property will include data and media. Customer shall promptly deliver to COLO certificates of insurance issued by the insurance company or its authorized agent for the Policy. The Policy shall provide that it cannot be cancelled or modified unless COLO is given 30 days prior written notice of such cancellation or modification. Customer shall require any contractor, subcontractor, sublicensee entering the Space on its behalf to procure and maintain the same types, amounts and coverage extensions as required of Customer. Customer shall procure and maintain workers' compensation insurance complying with the law of the applicable state or states, whether or not such coverage is required by law, and employer's liability insurance with limits of no less than One Million Dollars ($1,000,000). Customer shall place the Policies required herein with a carrier with an AM Best rating of A- VIII or better. The insurance requirements set forth herein are independent of COLO's and Customer's indemnification and other obligations under and shall not be construed or interpreted in any way to restrict, limit, 2 14 Exhibit A or modify COLO's or Customer's indemnification and other obligations, or to limit COLO's or Customer's liability. 11. SERVICES PERFORMED. At times Customer may direct COLO to perform services that are part of COLO's service packages, installation packages, regular maintenance activities via service requests or under COLO's hourly service rates. These services typically will be associated with maintenance/installation type activities. COLO or where applicable, COLO's contractors, subcontractors etc. will not be responsible for any damage to Customer's equipment during such directed activities; provided COLO or COLO's contractors and subcontractors follow Customer's directions. 12. INDEMNITY. To the fullest extent permitted by law, each Party shall, at that Party's expense, indemnify, defend and hold the other Party, its shareholders, officers, directors, agents, and employees harmless from and against all Claims, as defined below, from any cause arising out of or relating (directly or indirectly) to this Agreement, except claims arising out of or relating to the willful or intentional misconduct or negligence of the other Party. For purposes of this Agreement, "Claims" means any and all claims, causes of action (whether based on tort or contract or principles, law or equity, or otherwise), charges, assessments, fines, and penalties of any kind (including consultant and export expenses, court costs, and reasonable attorneys' fees). This indemnification extends to and includes Claims for: (i) injury to any persons (including death at any time resulting from that injury); (ii) loss of, injury or damage to, or destruction of real or personal property (including all loss of use resulting from that loss, injury, damage, or destruction of the Space or Premises); and (iii) all direct economic losses. The indemnification may not be construed or interpreted as in any way restricting, limiting, or modifying COLO's or Customer's insurance or other obligations under the Order Form and is independent of COLO's and Customer's insurance obligations. The provisions of this paragraph shall survive the expiration or earlier termination of the Order Form until all Claims involving any of the Indemnified matters are fully, finally, and absolutely barred by the applicable statutes of limitation. 13. DISCLAIMER OF WARRANTY. COLO represents that it has full rights and legal authority to grant the rights herein and that COLO is not aware of and will correct any latent defects. Otherwise, Customer accepts the Space and services on an 'as is' basis at its own risk. Unless specifically stated herein, COLO makes no warranties, express or implied, as to the Space, Premises, or services. COLO specifically disclaims any and all express or implied warranties, including without limitation any warranties of merchantability or fitness for a particular purpose. 14. DEFAULT. In the event that Customer fails to perform any material obligation under the Order Form which has not been cured within thirty (30) days of receiving a written notice of default, COLO shall have the right to immediately terminate the License; provided however that in the event that any action or non-action threatens or causes harm to any Space or Premises, COLO shall have the right to immediately request cessation of the action or that Customer take immediate curative action. 15. TERMINATION. Upon expiration or earlier termination of the License; (1) COLO will cease providing Services under the Order Form, or any applicable License; (2) any and all payment obligations of Customer then existing under this Order Form will become due and payable immediately; (3) Customer shall quit and peacefully surrender that portion of the applicable Space it uses to COLO and remove all Equipment or Termination Equipment from all affected Space, at its expense; (4) Customer, at its expense, shall repair, replace, or compensate COLO for any damage to the Space or Premises resulting from the removal of the Equipment or Termination Equipment within thirty (30) days of receiving notice of any such damage; (5) within forty-five (45) days after the expiration or earlier termination date of the Order Form or the appropriate License, if Customer has not removed the Equipment or Termination Equipment from the appropriate Premise(s) and COLO has provided ten (10) 3 15 EXHIBIT A days written notice thereof to Customer, Customer shall be deemed to have abandoned its claim of ownership to the Equipment or Termination Equipment and to have conveyed all of its right, title, and interest to the Equipment or Termination Equipment to COLO without set-off or any other credit of any amount that may be owed to COLO by Customer, and (6) each party shall return all Confidential Information of the other Party in its possession and will not make or retain any copies of such Confidential Information except as required to comply with any applicable legal or accounting record keeping requirement. 16. ARBITRATION. Any disputes arising in connection with the Order Form or this License that cannot be amicably settled by direct negotiations will be submitted to final and binding arbitration in accordance with the then-prevailing commercial rules of the American Arbitration Association. The arbitration will be held in San Francisco, California. Unless otherwise agreed to by the Parties, one (1) arbitrator shall hear the matter. The arbitrator's decision shall be based upon the Terms and Conditions, the Definitive Agreement, Order Form and applicable law giving full force and legal effect to the insurance, indemnity, disclaimer, and limitation of liability provisions. Any court with competent jurisdiction may enter judgment upon the award rendered by the arbitrator. Notwithstanding the foregoing, nothing contained herein shall prohibit either Party from initiating judicial proceedings for the limited purpose of seeking an unlawful detention order or seeking other provisional or equitable remedies. Any such judicial proceedings shall be heard by the state or federal court located in the county where the applicable Space, Premise, or Equipment is located. In all other respects this Section shall govern resolution of any controversy or claim arising in connection with the Order Form. 17. FORCE MAJEURE. Notwithstanding anything to the contrary contained herein, neither party shall be liable for any loss or damage, or deemed to be in breach of the Order Form due to a failure to perform, wholly or in part, if such nonperformance is due to causes beyond that Party's control, including acts of God, fire, explosion, earthquake, hurricane, tornado, wind, flood, storm or other natural occurrences; vandalism; third party theft; computer, voice mail, e-mail, or other telecommunications system failure; any law, order, regulation, direction, action or lawful demand of any Federal, state, local or foreign governments having jurisdiction or of any department, agency, commission, court, bureau, corporation or other instrumentality of any one or more such governments, or of any civil or military authority; national emergency; insurrection; riot; war; strike, lockout, work stoppage or other such labor difficulty. 18. ASSIGNMENT. The Order Form shall not be assigned or delegated without first obtaining the prior written consent of the other Party, which consent shall not be unreasonably withheld. Any purported assignment or delegation without the required consent shall be null and void and of no legal force or effect. 19. GOVERNING LAW. The Order Form shall be governed by and interpreted in accordance with the laws of the State of California. In the event of a dispute or litigation regarding the Order Form, the prevailing party shall be entitled to receive reasonable attorneys fees and costs. 20. NO WAIVER. The failure of either Party at any time to enforce any right or remedy available to it under the Order Form with respect to any breach or failure shall not be construed to be a waiver of such right or remedy with respect to any other breach of failure. 21. LIABILITY. Except for the indemnification provided in Section 12, the liability of COLO for damages arising out of the furnishing of Space or services or the failure to provide Space or services, including but not limited to mistakes, omissions, interruptions, delays, tortious conduct, representations, errors, or other defects, whether by commission or omission, shall be limited to an amount equal to the fees for the use of the applicable Space. Except for the indemnification provided in Section 12, the liability of NEXTLINK for damages under or arising 4 16 Exhibit A from this Agreement shall be limited to an amount equal to the fees for use of the applicable Space. 22. SURVIVAL. The obligations of confidentiality and indemnification shall survive the termination of any applicable Order Form. 23. ENTIRE UNDERSTANDING. The Order Form, these Terms and Conditions for Delivery of Service and the Definitive Agreement constitute the entire understanding of the parties related to the subject matter hereof. The Definitive Agreement shall prevail over these Terms and Conditions or the Order Form and the Terms and Conditions shall prevail over the Order Form. 5 17 EXHIBIT B TOWER RIGHTS AGREEMENT CONFIDENTIAL Page 12 of 12 December 23, 1999 18 TOWER AGREEMENT This Tower Agreement ("Agreement") is made as of this _______ day of __________, 20__ ("Effective Date"), between COLO.COM, a California corporation ("COLO"), and NEXTLINK Communications, Inc. a Delaware corporation ("NEXTLINK"). 1. LICENSE. COLO hereby grants and NEXTLINK hereby accepts a limited license to install, operate and maintain wireless telecommunications equipment and related equipment ("Equipment") on COLO's antenna tower ("Tower") on the roof of the building located at _____________________________ ("Building"). NEXTLINK shall also have the right to install all reasonable wiring related to the Equipment and to connect the same to NEXTLINK's equipment space, its customers or other carriers in the Building, provided that COLO has access to and the right to use risers or other functionally similar portions of the Building. NEXTLINK hereby acknowledges and agrees that it has not been granted any real property interest in the Tower or any of the Building and that NEXTLINK has no rights under this Agreement as a tenant under any real property or landlord/tenant laws, regulations or ordinances. COLO shall make the full rights hereunder available to NEXTLINK upon the Effective Date. 2. ACCESS. Where and as available to COLO, COLO will provide NEXTLINK, and its contractors or agents, with twenty-four hours a day, seven day a week access to the Tower for installation, maintenance, repair, replacement or operation of the Equipment. COLO will provide electrical power for the Equipment on the Tower. 3. PERMITS AND COMPLIANCE WITH LAWS. NEXTLINK shall be solely responsible for obtaining any permits and licenses required to install and operate the Equipment. COLO agrees to reasonably cooperate with NEXTLINK in executing any documents or applications required for NEXTLINK to obtain such permits and licenses needed for NEXTLINK to exercise its rights under this Agreement. NEXTLINK shall comply with all applicable laws with respect to its installation and operation of the Equipment. 4. USE OF SPACE. NEXTLINK agrees to use the Tower and related access solely for the installation, maintenance, operation, and removal of Equipment. Nothing herein shall transfer ownership of the Equipment to COLO and the Equipment will remain the property of the NEXTLINK. NEXTLINK shall abide by any posted or otherwise communicated policies and procedures relating to COLO's Tower that are reasonable and customary in the industry. 5. LOSS OF COLO'S RIGHTS TO TOWER. COLO will have the right to terminate this Agreement on sixty (60) days' notice if COLO loses rights to the Tower for reasons outside COLO's control; provided, however, that COLO thereafter will assist in any necessary transition to an alternative tower, if reasonable alternative antenna towers are available. 6. FEE AND PAYMENT. NEXTLINK shall pay COLO $___________ per month (pro rated for partial months), commencing 20 days after the Effective Date. COLO shall bill NEXTLINK on a monthly basis, and payment shall be due on or before the date appearing on the monthly billing statement. Any invoice not paid by the due date shall be deemed delinquent and is subject to interest charges accruing at a rate of 1.5% per month. NEXTLINK shall be liable for all costs of collection of any delinquency, including any and all collection agency fees, reasonable attorneys' fees, and court costs. NEXTLINK shall pay all taxes and other fees or charges attributable to the Equipment. 7. TERM. The term of this Agreement shall be ___ years from the Effective Date (plus any partial calendar month in which the Effective Date falls). NEXTLINK shall have the option of extending this Agreement, by giving COLO 90 days written notice before the expiration of the then-current term, for an additional ____ term(s) of ____ years upon the same terms and conditions as contained herein. 1 19 8. INSURANCE. At all times during the term of the Agreement, and at each party's expense, COLO and NEXTLINK, and any contractors or other third parties representing NEXTLINK or COLO, shall maintain All Risk Property and casualty insurance and comprehensive general liability insurance (collectively "Policy"), insuring against all hazards and risks customarily insured against by persons installing Equipment on antenna towers. The Policy should be written on a per-occurrence basis with blanket contractual liability coverage, with respect to use of the Tower, with a combined single-limit coverage of not less than One Million Dollars ($1,000,000) and an aggregate umbrella coverage of not less than an additional One Million dollars ($1,000,000). At all times during the term of the Agreement, NEXTLINK shall name COLO and, if requested by COLO in writing, the landlord(s) for the Building, as additional Insured on the Policy. COLO and NEXTLINK shall also maintain property insurance including EDP perils written on a "Special Form" basis at full replacement cost value. The definition of property will include data and media. NEXTLINK shall promptly deliver to COLO certificates of insurance issued by the insurance company or its authorized agent for the Policy. The Policy shall provide that it cannot be cancelled or modified unless COLO is given 30 days prior written notice of such cancellation or modification. NEXTLINK shall require any contractor or subcontractor working on the Tower on its behalf to procure and maintain the same types, amounts and coverage extensions as required of NEXTLINK. NEXTLINK shall procure and maintain workers' compensation insurance complying with the law of the applicable state or states, whether or not such coverage is required by law, and employer's liability insurance with limits of no less than One Million Dollars ($1,000,000). NEXTLINK shall place the Policies required herein with a carrier with an AM Best rating of A-VIII or better. The insurance requirements set forth herein are independent of COLO's and NEXTLINK's indemnification and other obligations under and shall not be construed or interpreted in any way to restrict, limit, or modify COLO's or NEXTLINK's indemnification and other obligations, or to limit COLO's or NEXTLINK's liability under the Agreement. 9. INDEMNITY. To the fullest extent permitted by law, COLO and NEXTLINK shall each, at his expense, indemnify, defend and hold the other, its shareholders, officers, directors, agents, and employees harmless from and against all Claims, as defined below, from any cause arising out of or relating (directly or indirectly) to this Agreement, except claims arising out of or relating to the willful or intentional misconduct or negligence of the other party. For purposes of this Agreement, "Claims" means any and all claims, causes of action (whether based on tort or contract law principles, law or equity, or otherwise), charges, assessments, fines, and penalties of any kind (including consultant and expert expenses, court costs, and reasonable attorneys' fees). This indemnification extends to and includes Claims for: (i) injury to any persons (including death at any time resulting from that injury); (ii) loss of, injury or damage to, or destruction of real or personal property (including all loss of use resulting from that loss, injury, damage, or destruction of the Tower or Premises); and (iii) all direct economic losses. This indemnification may not be construed or interpreted as in any way restricting, limiting, or modifying COLO's or NEXTLINK's insurance or other obligations under this Agreement and is independent of COLO's and NEXTLINK's insurance obligations. The provisions of this paragraph shall survive the expiration or earlier termination of this Agreement and all Claims involving any of the indemnified matters are fully, finally, and absolutely barred by the applicable statutes of limitation. 10. DISCLAIMER OF WARRANTY. COLO represents that it has full rights and legal authority to grant the rights herein and that COLO is not aware of and will promptly correct any latent defects. Otherwise, NEXTLINK accepts the Tower on an 'as is' basis at its own risk. Unless specifically stated herein or in the Definitive Agreement between the parties, COLO makes no warranties, express or implied, as to the Tower or the Building. COLO specifically disclaims any and all express or implied warranties, including without limitation any warranties of merchantability or fitness for a particular purpose. 2 20 11. DEFAULT. In the event that NEXTLINK fails to perform any material obligation under this Agreement that is not cured within thirty (30) days of receiving a written notice of default, COLO shall have the right to immediately terminate the Agreement; provided, however, that in the event that any action or non-action of NEXTLINK threatens to or causes harm to the Tower or the Building, COLO shall have the right to immediately request cessation of the action or that NEXTLINK take immediate curative action. 12. TERMINATION. Upon expiration or earlier termination of the Agreement: (1) any and all NEXTLINK's payment obligations then accrued under this Agreement will become due and payable immediately; (2) NEXTLINK shall quit and peacefully surrender that portion of the Tower it uses to COLO and remove all Equipment from the Tower, at NEXTLINK's expense; (3) NEXTLINK, at its expense, shall repair, replace, or compensate COLO for any damage to the Tower or Building resulting from the removal of the Equipment within 30 days of receiving notice of any such damage; (4) within 45 days after the expiration or earlier termination date of the Agreement, if NEXTLINK has not removed the Equipment from the Tower, NEXTLINK shall be deemed to have abandoned its claim of ownership to the Equipment and to have conveyed all of its right, title, and interest to the Equipment to COLO without setoff or any other credit of any amount that may be owed to COLO by NEXTLINK; provided, however, that COLO shall have given NEXTLINK at least 10 days prior written notice of the end of the 45 day period and (5) each party shall return all confidential or proprietary information of the other party in its possession and will not make or retain any copies of such confidential information except as required to comply with any applicable legal or accounting record keeping requirement. 13. DISPUTE RESOLUTION. Any dispute arising between COLO and NEXTLINK under this Agreement shall be governed by the dispute resolution provision in the Definitive Agreement between the parties. 14. FORCE MAJEURE. Notwithstanding anything to the contrary contained here, neither party shall be liable for any loss or damage, or deemed to be in breach of the Agreement due to a failure to perform, wholly or in part, if such nonperformance is due to causes beyond that party's control, including acts of God, fire, explosion, earthquake, hurricane, tornado, wind, flood, storm or other natural occurrences; vandalism; third party that computer, voice mail, e-mail, or other telecommunications system failure; any law, order, regulation, direction, action or lawful demand of any Federal, state, local or foreign governments having jurisdiction or of any department, agency, commission, court, bureau, corporation or other instrumentality of any one or more such governments, or of any civil or military authority, national emergency; insurrection; riot; war; strike, lockout, work stoppage or other such labor difficulty. 15. ASSIGNMENT AND AMENDMENT. Assignment and amendment of this Agreement shall be governed by the assignment and amendment provisions in the Definitive Amendment between the parties. 16. GOVERNING LAW. The Agreement shall be governed by and interpreted in accordance with the laws of the State of California. Except as otherwise provided in Paragraph 13, venue shall be in the state of California. In the event of a dispute or litigation regarding the Agreement, the prevailing party shall be entitled to receive reasonable attorney's fees and costs. 17. LIABILITY. Except for the indemnification provided in Paragraph 9, the liability of COLO for damages arising out of the furnishing or failure to furnish the Tower and other obligations under the Agreement, including but not limited to mistakes, omissions, interruptions, delays, tortious conduct, representations, errors, or other defects, whether by commission or omission, shall be limited to an amount equal to the fees for the use of the Tower. Except for the indemnification provided in Paragraph 9, the liability of NEXTLINK for damages under or arising from this Agreement shall be limited to an amount equal to the fees for use of the Tower. 3 21 18. NOTICES. Any notice required or permitted to be given hereunder must be in writing and may made by personal delivery (including by overnight service), or by registered or certified mail, postage prepaid, return receipt requested, as provided below: COLO: NEXTLINK: With a copy to: NEXTLINK Communications, Inc. 500 -- 108th Avenue, Suite 2200 Bellevue, WA 98004 Attn: General Counsel Either party may, by written notice to the other, specify a different address for notice purposes. Notices shall be deemed received when delivered or when delivery is refused. 19. ENTIRE UNDERSTANDING. The Agreement and the Definitive Agreement between the parties constitute the entire understanding of the parties related to the subject matter hereof. In the event of an inconsistency, the Definitive Agreement shall prevail over this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first written above. COLO.COM By: ____________________________________ Title: _________________________________ Date: __________________________________ NEXTLINK Communications, Inc. By: ____________________________________ Title: _________________________________ Date: __________________________________ 4 EX-10.7 11 0011.txt EMPLOYMENT AGREEMENT (SKIBO) 1 EXHIBIT 10.7 EMPLOYMENT AGREEMENT This Employment Agreement (the "Agreement") dated this 25th day of January, 1 999 between Colomotion, Inc., a California corporation (the "Company") and Charles M. Skibo, General Partner for the Skibo Family Limited Partnership (the "Executive"). W I T N E S S E T H : WHEREAS, the Company is engaged in and seeks to expand its business in the telecommunications industry. And the Executive has substantial experience in managing and operating businesses or being a senior management executive in the telecommunications industry that would be very beneficial to the Company's operations and future profitability. WHEREAS, the Company believes its progress and its prospects for future development and growth are significantly enhanced if the Executive were to serve as the Company's Chairman and Chief Executive Officer. WHEREAS, the Board of Directors of the Company (the "Board") has authorized this Agreement with the Executive and has approved its terms and conditions, all of which the Board has found to be reasonable, proper, and in the best interest of the Company; WHEREAS, the Company and the Executive desire to set forth the terms and conditions pursuant to which the Executive will be employed by the Company; and WHEREAS, the Executive is willing to be employed by the Company pursuant to the terms and conditions set forth herein; NOW THEREFORE, in consideration of the foregoing premises and of the mutual covenants and undertakings contained herein, the parties to this agreement hereby agree as follows: ARTICLE I EMPLOYMENT DUTIES AND COMPENSATION 1.01 (a) Initial Term of Employment and Duties: The Company and the Executive hereby agree that for a three (3) year period beginning January 25,1999 and terminating on January 24, 2002 (the "Termination Date"), the Company shall employ the Executive and the Executive shall perform services for the Company at the Company's headquarters location. A 120 day transition period will be provided to Executive so that Executive may complete projects outside the scope of Executive's responsibilities with the Company. It is estimated that these activities will consume approximately 25% of Executive's time. 2 (b) Renewal of Term: Unless the Company shall have given the Executive written notice at least 180 days poor to the Termination Date, this Agreement shall renew and continue in effect for additional one-year periods (and all provisions of this Agreement shall continue in full force and effect), and each successive anniversary from such original Termination Date shall thereafter be designated as the "Termination Date" for all purposes under this Agreement, provided, however, that the Company may, at its election at any time after the expiration of the initial term of this Agreement, give the Executive notice of termination, in which event the Executive shall continue to receive, as severance pay, his base compensation and benefits set forth in Paragraphs (d) and (f) below for 12 full months following such notice of termination. During such 12 month severance period, the Board may modify the Executive's duties as described in Paragraph (c) below without triggering the provisions of Section 2.03 below. The Company agrees that it will not unreasonably withhold any annual renewals of this Agreement. (c) Duties: As the Executive shall be entitled to exercise all rights and power and shall have all the privileges and authorities commensurate with his offices, including without limitation (i) the fall authority for the operations and conduct of the business of the Company; (ii) general decision-making authority with respect to the day-to-day operations of the business of the Company; (iii) the engagement, retention, and termination of employees and independent contractors of the Company, the setting of the compensation and other material terms of employment or engagement of employees and independent contractors and the establishment of work rules for employees; and (iv) the initiation, development, and implementation of new business, subject only to the supervision of the Board. The Executive shall reader his services hereunder in the headquarters city (or other headquarters location approved by the Board) subject to such reasonable travel as may be required to perform his duties hereunder. During the term of employment, the Executive shall devote such time as is required to perform his services hereunder. (d) Compensation: During the initial term of this Agreement and for each renewal term thereafter, the Executive's annual gross base salary pursuant to this agreement shall be as set forth below: (i) for the first year period immediately following the beginning date above, $225,000, payable at a rate of $18,750 per month; such monthly salary to be accrued until Company secures a second round of financing at which time a lump sum payment of accrued salary will be paid and subsequent salary will be payable in accordance with the Company's regular payroll practices. (ii) for the second year period, $250,000, payable at a rate of $20,833.33 per month. -2- 3 (iii) for the third year period, $300,000, payable at a rate of $25,000 per month. (iv) upon completion of an IPO during the initial or subsequent period, the Executive's gross annual base salary shall automatically increase to $360,000, payable $30,000 per month. Nothing herein shall be deemed to restrict the right of the Board to increase the Executive annual gross base salary, bonuses and fringe benefits or grant stock options at any time in its discretion. (e) Bonuses: The Executive shall be entitled to such bonuses as are described in Exhibit A attached hereto. (f) Fringe Benefits: The Company shall provide to the Executive, during the term of this employment hereunder: (i) All so-called "fringe benefits" including, but not limited to, participation in pension plans, profit sharing plans, hospitalization insurance, medical insurance, dental insurance, disability insurance, life insurance, and the like that are granted to or provided for eligible employees of the Company, or that may be granted to or provided for during the term of the Executive's employment under this Agreement; and (ii) Four weeks paid vacation. (g) Initial Options: In consideration for his services hereunder, the Company hereby grants to the Executive an option to acquire the Company's common stock, as described in Exhibit B. (h) Loans: Any loans granted to Executive are detailed in Exhibit C. (i) Travel and Reimbursement of Expenses: The company agrees to pay to on behalf of Executive the cost of travel and other expenses incurred by Executive on the Company's behalf. It is understood -3- 4 that the Company will reimburse executive for reasonable travel expenses between the Company and Executive's primary residences provided that reasonable efforts are made to manage the costs associated with travel. ARTICLE II RIGHTS ON TERMINATION OF EMPLOYMENT 2.01 Rights to Terminate Employment: The Executive may at his option, terminate his employment under this Agreement upon not less than 60 days notice to the Company given at any time, provided, however, that the Board of Directors may accept the Executive's resignation, or may reduce his duties and responsibilities, at any time following receipt of such notice and this Agreement shall terminate immediately upon such acceptance except that the provisions of Article 3.01 and 3.02 below shall survive any such termination for the periods provided therein. 2.02 Disability: If, because of mental or physical disability, the Executive shall be incapable for a period of six consecutive months (the "Disability Period") of performing his obligations and agreements hereunder (hereinafter referred to as a "Disability") during which period the provision of this Agreement will continue to apply in full force and effect, then at the election of the Company expressed to the Executive in writing, this Agreement shall terminate at the end of such Disability Period, except that the Executive's benefits shall continue until the end of this Agreement, and the Executive shall receive one-half of his base salary then in effect until the end of this Agreement, together with the bonuses described on Exhibit A hereto. Additionally, any stock options that are vested or any stock previously exercised but not granted shall be vested and granted to the Executive upon termination by the Company. The determination of whether the Executive has suffered a Disability shall be made by three licensed medical doctors: one chosen by the Company, one chosen by the Executive, and one chosen by the two doctors so chosen. 2.03 Rights Upon Termination of Employment Without Cause Prior to the Termination: The company may terminate the executive's services without Cause (as defined in Section 4.20 below) by delivering written notice of such termination to the Executive. In addition, any (i) material change of the Executive's title, responsibilities, or authority by the Board without the Elective's concurrence which is not cured within 30 days after notice by the Executive; or (ii) material breach by the Company of this Agreement which continues for 30 days after notice by the Executive (provided that the Executive shall not also be in breach of this Agreement). shall be deemed termination by the Company without cause. In the event of termination pursuant to clauses (i) or (ii) of the preceding sentence, the Executive shall be entitled to give notice of termination, which notice shall have the same effect as a notice delivered by the Company. -4- 5 If, prior to the Termination Date, the Company terminates the Executive's employment for any reason other than Cause or Disability, then the Company shall: (i) continue to pay the Executive (in the same manner as prior to such termination) after the date of such termination the compensation provided under Section 1.01 above through the Termination Date as if the Executive had been employed hereunder during such period; (ii) pay of all bonuses quarterly as if the mutually agreed upon targets were met; and (iii) provide the Executive with continued coverage through the Termination Date under any employee benefit plan (as such term is defined in Section 3(3) of the Date Executive Retirement Income Security Action of 1974, as amended) then maintained by the Company and which the Executive then participates or any successor plan thereof. Notwithstanding, 2.03 iii above, the Company hereby agrees to maintain the Executive's hospitalization/ medical/dental/disability and life insurance policy in effect at the time of termination through the full period of this Agreement, to continue to pay any premium to maintain the policy through the full period of this Agreement, and the Executive may, at his option and his expense at the end of this Agreement or termination, continue the policy without interruption until his death; and (iv) all stock options will immediately vest and the stock granted to the Executive upon his exercise of such options, such stock to be unrestricted except for any governmental restrictions and registered if the Company is a public company at the time of termination or subsequently becomes public. 2.04 Right Upon Termination of Employment For Cause: The Company shall have the right at any time, by giving written notice to Executive to terminate Executive's employment for cause: Cause shall be deemed to have occurred if the Executive is convicted of a felony or a crime involving fraud, gross negligence or significant mismanagement of the business. Upon such termination for cause, Executive shall be paid his current monthly salary, any bonuses earned up to that point and Executive may exercise any unexercised options that are vested. 2.05 Beneficiaries of Payments: If the Executive shall die before receiving all payments to be made by the Company to him pursuant to any of the provisions of this Agreement, all such payments or any remaining payments, as the case may be, shall be made by the Company to such beneficiary or beneficiaries as the Executive may designate from time to time by notice in writing filed with the Company, or if the -5- 6 Executive shall fail or fail effectively to designate a beneficiary, or if no beneficiary shall survive the date when the last payment is to be made, any remaining payments shall be made to the Executive's estate. ARTICLE III PROTECTIONS/CONFIDENTIALITY 3.01 Covenants Regarding Protections: The Executive hereby agrees and covenants to the following: (a) Solicitation of Customers and Registered Primary Vendors: During the term of this Agreement and for a period of 12 months following the termination of this Agreement by either party (other than a termination of this Agreement by the Company's failure to renew it pursuant to Section 1.01(b) above), the Executive hereby agrees not to solicit or contact in any manner that could be reasonably construed as a solicitation, any past or current customer or registered primary vendor of the Company for purposes of encouraging such customer to refrain from purchasing products or services from the Company or for purposes of encouraging such vendor to refrain from providing services or selling products to the Company. Notwithstanding the above, if the Executive should leave the Company and join a competitive company, it is recognized by the parties that the industry utilizes a variety of marketing and sales techniques such as direct mail, telemarketing, advertising, etc. and the customer might be contacted by the company that the Executive joins as a matter of course and in this event this practice would not be considered a violation of this Agreement. (b) Solicitation of Executives: During the term of this Agreement and for a period of 6 months following the termination of this Agreement by either party (other than a termination of this Agreement by the Company's failure to renew it pursuant to Section 1.01 (b) above), the Executive hereby agrees not to employ, either directly or indirectly through any entity in which the Executive is an executive officer, and agrees not to solicit, or contact in any manner that could reasonably be construed as a solicitation, any executive officer or director of the Company for purposes of encouraging such person to leave or terminate his employment with the Company. 3.02 Confidentiality: Competitive or Personal Disparagement: The Executive and the Company hereby agree that neither will, during the term of the Executive's employment or at any time following the termination hereof for any reason, do or cause to have done any of the following: -6- 7 (i) without the prior written consent of the other party, use for its own purposes or disclosure to any person or other entity any confidential and/or proprietary information of the Company or the Executive; (ii) each party agrees that it will not disparage the other parry; and (iii) at the termination of this Agreement, each party will present to the other party a written statement of exactly what can be said about each party upon third- party inquiry about the Executive or the Company. Each party will name a spokesperson to handle all inquiries about the Company or the Executive and only the named spokesperson is allowed to comment unless changed by mutual written consent. ARTICLE IV 4.01 Indemnifications: The parties agree that the Executive shall be indemnified by the Company against any liability asserted against the Executive (and expenses, including without limitations, reasonable attorney's fees, court costs, and other legal expenses incurred in connection therewith) by reason of his position with the Company or any subsidiary to the full extent a California corporation may indemnify an officer or director under the California General Corporate Law. 4.02 No Obligation to Mitigate Damages: In the event of a termination of employment upon a change in control, the Executive shall not be required to mitigate damages by seeking other employment. 4.03 Arbitration and Remedies: (a) All disputes, differences, or questions between the parties concerning the construction, interpretation, and effect of the Agreement, or the rights, obligations and liabilities of the parties, and which have as their sole remedy monetary damages, will be settled by arbitration in the City of Bethesda, Maryland, or such other place as the parties may mutually agree. In the case of a dispute, difference, or question, one party shall appoint its arbitrator and shall notify the other party in writing (the "Arbitrations Notice") of the appointment and the matter to be determined. If the party receiving the Arbitration Notice fails to appoint an arbitrator and notify the first party of such appointment for 15 days after receipt of such notice, the decision of the arbitrator appointed by the first of the parties shall be final and binding on both of the parries hereto. If two arbitrators are appointed, they shall meet within 30 days after appointment of the second arbitrator. If they do not agree as to their decision, they shall choose a third arbitrator, failing which, third arbitrator shall be selected in accordance with the rules of the American Arbitration Association. The arbitration shall -7- 8 be held as promptly as possible at such time and place in the designated city as the arbitrators may determine. The decision of the arbitrators so appointed, or a majority of them, will be final and binding upon the parties hereto. Judgment upon the award may be entered in any court having jurisdiction, or application may be made to such court for judicial acceptance of the award and an order to enforcement, as the case may be. If the arbitrator appointed refuses to act or is incapable of acting or dies, a substitute for him shall be appointed in the manner provided above. (b) Each of the parties to the Agreement will be entitled to enforce its rights under the Agreement specifically, to recover damages by reason of any breach of any provision of this Agreement and to exercise all other rights existing in its favor. The parties hereto agree and acknowledge that money damages may not be an adequate remedy for any breach of the provisions of the Agreement and that any party may in its sole discretion apply for specific performance and/or injunctive relief in either a federal or state court in order to enforce or prevent any violations of the provisions of this Agreement. 4.04 Legal Cost and Indemnification: The Company shall pay the Executive all reasonable legal fees and expenses incurred by him as a result of his termination without Cause or Disability, including but not limited to, all such fees and expenses, if any, incurred in contesting or disputing any such termination or in seeking to obtain or enforce any right or benefit provided in this Agreement through legal process or arbitration, if the Executive shall be wholly successful on the merits. 4.05 Notices: (a) Any notice to be given concerning this Agreement shall be given in writing and either (i) sent by certified or registered mail, return receipt requested, postage prepaid; or (ii) hand delivered to the recipient personally. In the case of notice sent by mail, the date of the giving of the notice shall be deemed to be (i) the date of the postmark of the executed return receipt; or (ii) the date of actual receipt if not postmarked by the United States Postal Service. In the case of notice being hand delivered, a written dated receipt shall be given therefor. Hand delivery of any notice to the Company shall be delivered to the Company's chief financial officer personally. (b) Notice shall be sent as follows: If to the Executive: Charles M. Skibo, General Partner Skibo Family Limited Partnership 9045 Holly Leaf Lane Bethesda, Maryland 20817 If to the Company: ---------------------------------- ---------------------------------- -8- 9 (c) By giving notice to all other parties, any party may, from time to time, designate a different address to which notice by mail to such party shall be sent. 4.06 Successors d Assigns; Survival in Case of Merger: (a) This Agreement is intended to bind and inure to the benefit of, and be enforceable by, the Executive and the Company and their respective successors and assigns. (b) Without limiting the effect of the foregoing, this Agreement and all of its terms shall survive, and be enforceable by the Executive, notwithstanding any merger, consolidation, combination or reorganization of the Company with or into any other entity or person ("Surviving Entity"), including but not limited to any other corporation, partnership, or other similar organization, whether or not the Company is the Surviving Entity of such merger, consolidation, combination, or reorganization. The Surviving Entity shall be bound by this Agreement to the same extent as if such Surviving Entity had entered into the Agreement with the Executive on the Effective Date. (c) As a condition of any merger, consolidation, combination or reorganization of the Company as discussed in Section 4.06(b) above, the Company agrees to include, as a condition of consummation of such merger, consolidation, combination, or reorganization, an undertaking by the Surviving Entity pursuant to which the Surviving Entity shall agree in writing to be bound by this Agreement. 4.07 Amendment Waiver: No amendment or other modification of this Agreement nor any waiver of any term of this Agreement shall be valid unless it is in writing and signed by the party against whom enforcement of the amendment, modification or waiver is sought. No waiver by any party of the breach of any term contained in this Agreement, whether by conduct or otherwise, in any one or more instances, shall be deemed to be or construed as a further or continuing waiver of any such breach of any other term of this Agreement. 4.08 Further Assurances: Each party hereto agrees to perform any further acts and to execute and deliver any further documents mutually agreed to in writing that may be reasonably necessary to carry out the provisions of this Agreement. 4.09 Severability: In the event that any of the provisions, or portions thereof, of this Agreement are held to be unenforceable or invalid by any court of competent jurisdiction, the validity and enforceability of the remaining provisions, or portions thereof, shall not be affected thereby. -9- 10 4.10 Construction: Whenever used herein, the singular number shall include the plural, and the plural number shall include the singular. 4.11 Gender: Any references herein to the masculine gender, or to the masculine form of any noun, adjective, or possessive, shall be construed to include the feminine or neuter gender and form, and vice versa. 4.12 Headings: The headings contained in this Agreement are for purposes of reference only and shall not limit or otherwise affect the meaning of any of the provisions contained herein. 4.13 Multiple Counterparts: This Agreement may be executed in multiple counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. 4.14 GOVERNING LAW: THIS AGREEMENT HAS BEEN EXECUTED IN AND SHALL BE GOVERNED BY THE LAWS OF THE STATE OF MARYLAND AND THE OBLIGATIONS OF THE PARTIES HERETO SHALL BE PERFORMABLE IN MONTGOMERY COUNTY. 4.15 Inurement: Subject to the restrictions against transfer or assignment as herein contained, the provisions of the Agreement shall inure to the benefit of, and shall be binding on, the assigns, successors in interest, personal representatives, estates, heirs, and legatees of each of the parties hereto. 4.16 Waivers: No waiver of any provision or condition of this Agreement shall be valid unless executed in writing and signed by the party to be bound thereby and then only to the extent specified in such waiver. No waiver of any provision or condition of this Agreement shall be construed as a waiver of any other provision or condition of this Agreement and no present waivers of any provision or condition of this Agreement shall be construed as a future waiver of such provision or condition. -10- 11 4.17 Entire Agreement: This Agreement contains the entire understanding between the parties hereto concerning the subject matter contained herein. IN WITNESS WHEREOF, the parties to the Agreement have set their respective hands hereto as of the date first written above. THE EXECUTIVE CHARLES M. SKIBO, GENERAL PARTNER SKIBO FAMILY LIMITED PARTNERSHIP By: /s/ CHARLES M. SKIBO --------------------------------- THE COMPANY Colomotion, Inc. By: /s/ [SIGNATURE ILLEGIBLE] Its: Director -11- 12 EXHIBIT "A" BONUSES - - FIRST YEAR: Executive will be eligible for a bonus of up to $75,000 payable quarterly based upon the completion of Company objectives and performance criteria to be mutually agreed upon by Executive and the Board of Directors within 60 days from employment start date. - - SECOND YEAR: Same as first year, except bonus amount will be up to 60% of base salary. - - THIRD YEAR: Same as first year, except bonus amount will be up to 85% of base salary. - - NOTE: Regardless of any other objectives established, if the Company is successful in raising $6 to $10 million of equity capital during the first four months of Executive's tenure, the first two quarters' objectives will be met. Furthermore, in the event the Company is successful in raising debt exceeding $25 million for a roll-out, then that year's objectives are met. Moreover, in the event the Company is successful in doing an IPO, then that year's objectives are met. 13 EXHIBIT "B" INITIAL OPTIONS Subject to the approval of the Company's Board of Directors, Executive will be granted a stock option to purchase 2,848,837 shares of the Company Common Stock, priced at the fair market value (5 cents per share) on the date of grant (the "Stock option"). The stock options shall vest over a three year period, with 60% of the shares vesting one year from start of employment, 20% vesting two years from start of employment and the remaining 20% vesting three years from the start of employment. Upon securing of second round financing of at least $6 million, 35% out of the first-anniversary 60% will accelerate and vest immediately. There will be no buy-back rights on such shares and the grant of any options does not imply any right to continued employment except what is provided herein. 14 COLO.COM ADDENDUM 1 TO EMPLOYMENT AGREEMENT As a condition of my employment with COLO.COM, its subsidiaries, affiliates, successors or assigns (together the "Company"), and in consideration of my employment with the Company and my receipt of the compensation now and hereafter paid to me by Company, I agree to the following as Addendum 1 to my Employment Agreement with the Company dated January 25, 1999: 1. Confidential Information. (a) Company Information. I agree at all times during the term of my employment and thereafter, to hold in strictest confidence, and not to use, except for the benefit of the Company, or to disclose to any person, firm or corporation without written authorization of the Board of Directors of the Company, any Confidential Information of the Company. I understand that "Confidential Information" means any Company proprietary information, technical data, trade secrets or know-how, including, but not limited to, research, product plans, products, services, customer lists and customers (including, but not limited to, customers of the Company on whom I called or with whom I became acquainted during the term of my employment), markets, software, developments, inventions, processes, formulas, technology, designs, drawings, engineering, hardware configuration information, marketing, forecasts or other business information disclosed to me by the Company either directly or indirectly, in writing, orally, by drawings, or by observation of parts or equipment. I further understand that Confidential Information does not include any of the foregoing items which has become publicly known and made generally available through no wrongful act of mine or of others who were under confidentiality obligations as to the item or items involved. (b) Former Employer Information. I agree that I will not, during my employment with the Company, improperly use or disclose any proprietary information or trade secrets of any former or concurrent employer or other person or entity and that I will not bring onto the premises of the Company any unpublished document or proprietary information belonging to any such employer, person or entity unless consented to in writing by such employer, person or entity. (c) Third Party Information. I recognize that the Company has received and in the future will receive from third parties their confidential or proprietary information subject to a duty on the Company's part to maintain the confidentiality of such information and to use it only for certain limited purposes. I agree to hold all such confidential or proprietary information in the strictest confidence and not to disclose it to any person, firm or corporation or to use it except as necessary in carrying out my work for the Company consistent with the Company's agreement with such third party. 2. Inventions. (a) Inventions Retained and Licensed. I have attached hereto, as Exhibit A, a list describing all inventions, original works of authorship, developments, improvements, and trade secrets which were made by me prior to my employment with the Company, which belong to me, which relate to the Company's proposed business, products or research and development, and which are not assigned to the Company hereunder (collectively referred to as "Prior Inventions"); or, if such list is attached, I represent that there are no such Prior Inventions. If in the course of my employment with the Company, I incorporate into any invention, improvement, development, product, copyrightable material or trade secret any invention, improvement, development, concept, discovery or other proprietary information owned by me or in which I have an interest, the Company is hereby granted and shall have a nonexclusive, royalty-free, irrevocable, perpetual, worldwide license to make, have made, modify, use and sell such items as part of or in connection with such product, process or machine. (b) Assignment of Inventions. I agree that I will promptly make full written disclosure to the Company, will hold in trust for the sole right and benefit of the Company, and hereby assign to the Company, or its designee, all my right, title, and interest in and to any and all inventions, original works of authorship, developments, concepts, improvements or trade secrets, whether or not patentable or registrable under copyright or similar laws, which I may solely or jointly conceive 15 or develop or reduce to practice, or cause to be conceived or developed or reduced to practice, during the period of time I am in the employ of the Company (collectively referred to as "Inventions"), except as provided in Section 2(f) below. I further acknowledge that all original works of authorship which are made by me (solely or jointly with others) within the scope of and during the period of my employment with the Company and which are protectible by copyright are "works made for hire," as that term is defined in the United States Copyright Act. (c) Inventions Assigned in the United States. I agree to assign to the United States government all my right, title and interest in and to any and all Inventions whenever such full title is required to be in the United States by a contract between the Company and the United States or any of its agencies. (d) Maintenance of Records. I agree to keep and maintain adequate and current written records of all Inventions made by me (solely or jointly with others) during the term of my employment with the Company. The records will be in the form of notes, sketches, drawings, and any other format that may be specified by the Company. The records will be available to and remain the sole property of the Company at all times. (e) Patent and Copyright Registrations. I agree to assist the Company, or its designee, at the Company's expense, in every proper way to secure the Company's rights in the Inventions and any copyrights, patents, mask work rights or other intellectual property rights relating thereto in any and all countries, including the disclosure to the Company of all pertinent information and data with respect thereto, the execution of all applications, specifications, oaths, assignments and all other instruments which the Company shall deem necessary in order to apply for and obtain such rights and in order to assign and convey to the Company, its successors, assigns and nominees the sole and exclusive rights, title and interest in and to such inventions, and any copyrights, patents, mask work rights or other intellectual property rights relating thereto. I further agree that any obligation to execute or cause to be executed, when it is in my power to do so, any such instrument or papers shall continue after the termination of this Agreement. If the Company is unable because of my mental or physical incapacity or for any other reason to secure my signature to apply for or to pursue any application for any United States or foreign patents or copyright registrations covering inventions or original works of authorship assigned to the Company as above, then I hereby irrevocably designate and appoint the Company and its duly authorized officers and agents as my agent and attorney in fact, to act for and in my behalf and stead to execute and file any such applications and to do all other lawfully permitted acts to further the prosecution and issuance of letters patent or copyright registrations thereon with the same legal force and effect as if executed by me. (f) Exception to Assignments. I understand that the provisions of this Agreement requiring assignment of Inventions to the Company do not apply to any invention which qualifies fully under the provisions of California Labor Code Section 2870 (attached hereto as Exhibit B). I will advise the Company promptly in writing of any inventions that I believe meet the criteria in California Labor Code Section 2870 and not otherwise disclosed on Exhibit A. Dated effective as of January 25, 1999 /s/ CHARLES M. SKIBE ------------------------ Charles M. Skibe AGREED AND ACCEPTED: COLO.COM By: /s/ WAYNE OLSON -------------------- Wayne Olson, Senior Vice President -2- EX-10.8 12 0012.txt LOAN & SECURITY AGREEMENT 1 EXHIBIT 10.8 LOAN AND SECURITY AGREEMENT THIS AGREEMENT (the "Agreement"), dated as of October 22, 1999 is entered into by and between COLO.COM, a California corporation having a principal place of business at 2000 Sierra Point, 6th Floor, Brisbane, CA 94005 (the "Borrower) and Comdisco, Inc., a Delaware corporation having a principal place of business at 6111 North River Road, Rosemont, Illinois 60018 (the "Lender"). In consideration of the mutual agreements contained herein, the parties hereto agree as follows: WHEREAS, Borrower desires to borrow from the Lender hereunder the aggregate amount of Seven Million and 00/100 Dollars ($7,000,000)("Committed Principal Amount") in minimum installments of Five Hundred Thousand and 00/100 Dollars ($500,000) each in connection with the Construction Costs (as defined herein) to be incurred by Borrower for co-location facilities located in Chicago, San Francisco or Emeryville in amounts of the aggregate construction costs of the facilities (individually, a "Co-location Facility", collectively, "Co-location Facilities") (as the same may from time to time be amended, modified, supplemented or revised, the "Loan"), which would be evidenced by secured promissory notes(s) executed by borrower substantially in the form of Exhibit A hereto (as the same may from time to time be amended, modified, supplemented or restated the "Note(s)"). "Construction Costs" shall consist of generators, switches, power suppliers, computers, servers, cages, software, tenant improvements, security systems, installation costs, shipping and management fees. WHEREAS, Lender is willing to lend amounts to Borrower in the aggregate of the Loan subject to the terms and conditions set forth herein. NOW, THEREFORE, it is agreed: SECTION 1. DEFINITIONS. Unless otherwise defined herein, the following capitalized terms shall have the following meanings (such meanings being equally applicable to both the singular and plural form of the terms defined); 1.1 "ACCOUNT" means any "account," as such term is defined in SECTION 9106 of the UCC, now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest and, in any event, shall include, without limitation, all accounts receivable, book debts and other forms of obligations (other than forms of obligations evidenced by Chattel Paper, Documents or Instruments) now owned or hereafter received or acquired by or belonging or owing to Borrower (including, without limitation, under any trade name, style or division thereof) whether arising out of goods sold or services rendered by Borrower or from any other transaction, whether or not the same involves the sale of goods or services by Borrower (including, without limitation, any such obligation which may be characterized as an account or contract right under the UCC) and all of Borrower's rights in, to and under all purchase orders or receipts now owned or hereafter acquired by it for goods or services, and all of Borrower's rights to any goods represented by any of the foregoing (including, without limitation, unpaid seller's rights of rescission, replevin, reclamation and stoppage in transit and rights to returned, reclaimed or repossessed goods), and all monies due or to become due to Borrower under all purchase orders and contracts for the sale of goods or the performance of -1- 2 services or both by Borrower (whether or not yet earned by performance on the part of Borrower or in connection with any other transaction), now in existence or hereafter occurring, including, without limitation, the right to receive the proceeds of said purchase orders and contracts, and all collateral security and guarantees of any kind given by any Person with respect to any of the foregoing. 1.2 "ACCOUNT DEBTOR" means any "account debtor," as such term is defined in Section 9105(1)(a) of the UCC. 1.3 "ADVANCE" means each installment made by the Lender to Borrower pursuant to the Loan to be evidenced by the Note(s) secured by the Collateral. 1.4 "ADVANCE DATE" means the funding date of any Advance of the Loan. 1.5. "ADVANCE REQUEST" means the request by Borrower for an Advance under the Loan, each to be substantially in the form of EXHIBIT B attached hereto, as submitted by Borrower to Lender from time to time. 1.6 "CHATTEL PAPER" means any "chattel paper," as such term is defined in SECTION 9105(1)(b) of the UCC, now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest. 1.7 "CLOSING DATE" means the date of this Agreement. 1.8 "COLLATERAL" shall have the meaning assigned to such term in SECTION 3 of this Agreement. 1.9 "CONTRACTS" means all contracts, undertakings, franchise agreements or other agreements (other than rights evidenced by Chattel Paper, Documents or Instruments) in or under which Borrower may now or hereafter have any right, title or interest, including, without limitation, with respect to an Account, any agreement relating to the terms of payment or the terms of performance thereof. 1.10 "COPYRIGHTS" means all of the following now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest: (i) all copyrights, whether registered or unregistered, held pursuant to, the laws of the United States, any State thereof or of any other country; (ii) registrations, applications and recordings in the United States Copyright Office or in any similar office or agency of the United States, any state thereof or any other country; (iii) any continuations, renewals or extensions thereof; and (iv) any registrations to be issued in any pending applications. 1.11 "COPYRIGHT LICENSE" means any written agreement granting any right to use any Copyright or Copyright registration now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest. 1.12 "DOCUMENTS" means any "documents," as such term is defined in SECTION 9105(1)(F) of the UCC, now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest. -2- 3 1.13 "EQUIPMENT" means any "equipment," as such term is defined in SECTION 9109(2) of the UCC, now or hereafter owned or acquired by Borrower or in which Borrower now holds or hereafter acquires any interest and any and all additions, substitutions and replacements of any of the foregoing, wherever located, together with all attachments, components, parts, equipment and accessories installed thereon or affixed thereto. 1.14 "FACILITY FEE" means $7,500 due at the Closing Date which will be deducted from the commitment fee of $20,000 received on August 20, 1999 and thereafter the commitment fee will be applied to payments due under the Loan, 1.15 "FIXTURES" means any "fixtures", as such term is defined in SECTION 9313(1)(a) of the UCC, now or hereafter owned or acquired by Borrower or in which Borrower now holds or hereafter acquires any interest and, now or hereafter attached or affixed to or constituting a part of, or located in or upon, real property wherever located, together with all right, title and interest of Borrower in and to all extensions, improvements, betterments, renewals, substitutes, and replacements of, and all additions and appurtenances to any of the foregoing property, and all conversions of the security constituted thereby, immediately upon any acquisition or release thereof or any such conversion, as the case may be. 1.16 "GENERAL INTANGIBLES" means any "general intangibles," as such term is defined in SECTION 9106 of the UCC, now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest and, in any event, shall include, without limitation, all right, title and interest which Borrower may now or hereafter have in or under any contract, all customer lists, Copyrights, Trademarks, Patents, rights to Intellectual Property, interests in partnerships, joint ventures and other business associations, Licenses, permits, trade secrets, proprietary or confidential information, inventions (whether or not patented or patentable), technical information, procedures, designs, knowledge, know-how, software, data bases, data, skill, expertise, recipes, experience, processes, models, drawings, materials and records, goodwill (including, without limitation, the goodwill associated with any Trademark, Trademark registration or Trademark licensed under any Trademark License), claims in or under insurance policies, including unearned premiums, uncertificated securities, cash and other forms of money or currency, deposit accounts (including as defined in SECTION 9105(e) of the UCC), rights to sue for past; present and future infringement of Copyrights, Trademarks and Patents, rights to receive tax refunds and other payments and rights of indemnification. 1.17 "INSTRUMENTS" means any "instrument" as such term is defined in SECTION 9105(1)(I) of the UCC, now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest. 1.18 "INTELLECTUAL PROPERTY" means all Copyrights, Trademarks, Patents, trade secrets, source codes, customer lists, proprietary or confidential information, inventions (whether or not patented or patentable), technical information, procedures, designs, knowledge, know-how, software, data bases, skill, expertise, experience, processes, models, drawings, materials and records. 1.19 "INVENTORY" means any "inventory," as such term is defined in SECTION 9109(4) of the UCC, wherever located, now or hereafter owned or acquired by Borrower or in which Borrower now holds or hereafter acquires any interest, and, in any event, shall include, without limitation, all inventory, goods and other personal property which are held by or on behalf of -3- 4 Borrower for sale or lease or are furnished or are to be furnished under a contract of service or which constitute raw materials, work in process or materials used or consumed or to be used or consumed in Borrower's business, or the processing, packaging, promotion, delivery or shipping of the same, and all furnished goods whether or not such inventory is listed on any schedules, assignments or reports furnished to Lender from time to time and whether or not the same is in transit or in the constructive, actual or exclusive occupancy or possession of Borrower or is held by Borrower or by others for Borrower's account, including, without limitation, all goods covered by purchase orders and contracts with suppliers and all goods billed and held by suppliers and all inventory which may be located on premises of Borrower or of any carriers, forwarding agents, truckers, warehousemen, vendors, selling agents or other persons. 1.20 "LICENSE" means any Copyright License, Patent License, Trademark License or other license of rights or interests now held or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest and any renewals or extensions thereof. 1.21 "LIEN" means any mortgage, deed of trust, pledge, hypothecation, assignment for security, security interest, encumbrance, levy, lien or charge of any kind, whether voluntarily incurred or arising by operation of law or otherwise, against any property, any conditional sale or other title retention agreement, any lease in the nature of a security interest, and the fling of any financing statement (other than a precautionary financing statement with respect to a lease that is not in the nature of a security interest) under the UCC or comparable law of any jurisdiction. 1.22 "MATERIAL ADVERSE EFFECT" means a material adverse effect upon: (i) the business, operations, properties, assets or conditions (financial or otherwise) of Borrower; or (ii) the ability of Borrower to perform, or of Lender to enforce, the Secured Obligations. 1.23 "MATURITY DATE" means the date forty-two (42) months from the Advance Date of each installment of the Loan. 1.24 "NEXT ROUND" means a private equity financing, Merger (as defined in Section 6.7 hereof), or an initial public offering of Borrower's securities. 1.25 "PATENT LICENSE" means any written agreement granting any right with respect to any invention on which a Patent is in existence now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest. 1.26 "PATENTS" means all of the following now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest: (a) letters patent of, or rights corresponding thereto in, the United States or any other county, all registrations and recordings thereof, and all applications for letters patent of, or rights corresponding thereto in the United States or any other country, including, without limitation, registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country; (b) all reissues, continuations, continuations-in-part or extensions thereof, (c) all petty patents, divisionals, and patents of addition; and (d) all patents to issue in any such applications. -4- 5 1.27 "PROCEEDS" means "proceeds," as such term is defined in SECTION 9306(1) of the UCC and, in any event, shall include, without limitation, (a) any and all Accounts, Chattel Paper, Instruments, cash or other forms of money or currency or other proceeds payable to Borrower from time to time in respect of the Collateral, (b) any and all proceeds of any insurance, indemnity, warranty or guaranty payable to Borrower from time to time with respect to any of the Collateral, (c) any and all payments (in any form whatsoever) made or due and payable to Borrower from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral by any governmental authority (or any Person acting under color of governmental authority), (d) any claim of Borrower against third parties (i) for past, present or future infringement of any Copyright, Patent or Patent License or (ii) for past, present or future infringement or dilution of any Trademark or Trademark License or for injury to the goodwill associated with any Trademark, Trademark registration or Trademark licensed under any Trademark License and (e) any and all other amounts from time to time paid or payable under or in connection with any of the Collateral. 1.28 "RECEIVABLES" shall mean and include all of the Borrowers accounts, instruments, documents, chattel paper and general intangibles whether secured or unsecured, whether now existing or hereafter created or arising, and whether or not specifically sold or assigned to Lender hereunder which relate to each Co-Location Facility. 1.29 "SECURED OBLIGATIONS" shall mean and include all principal, interest, fees, costs, or other liabilities or obligations for monetary amounts owed by Borrower to Lender, whether due or to become due, matured or unmatured, liquidated or unliquidated, contingent or non-contingent, and all covenants and duties regarding such amounts, of any kind of nature, present or future, arising under this Agreement, the Note(s), or any of the other Loan Documents, whether or not evidenced by any Note(s), Agreement or other instrument, as the same may from time to time be amended, modified, supplemented or restated. 1.30 "TRADEMARK LICENSE" means any written agreement granting any right to use any Trademark or Trademark registration now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest. 1.31 "TRADEMARKS" means any of the following now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest: (a) any and all trademarks, trade names, corporate names, business names, trade styles, service marks, logos, other source or business identifiers, prints and labels on which any of the foregoing have appeared or appear, designs and general intangibles of like nature, now existing or hereafter adopted or acquired, all registrations and recordings thereof, and any applications in connection therewith, including, without limitation, registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country or any political subdivision thereof and (b) any reissues, extensions or renewals thereof. 1.32 "UCC" shall mean the Uniform Commercial Code as the same may, from time to time, be in effect in the State of Illinois. Unless otherwise defined herein, terms that are defined in the UCC and used herein shall have the meanings given to them in the UCC. -5- 6 1.33 "WARRANT AGREEMENT" shall mean that agreement entered into in connection with the Loan, substantially in the form attached hereto as Exhibit C pursuant to which Borrower grants Lender the right to purchase that number of shares of preferred stock of Borrower equivalent to eight percent (8%) of the Committed Principal Amount divided by the Exercise Price as more particularly set forth therein. The Exercise Price shall be equal to the Time Weighted Average of .50 per share (the Series B Preferred Stock price) and the price per share of the Next Round. Notwithstanding the foregoing, if the Next Round does not occur on or prior to December 31, 1999, the Exercise Price per share shall be .50 per share (the Series B Preferred Stock price) and the Warrant Agreement shall be for shares of Series B Preferred Stock. "Time Weighted Average" will be calculated from the Closing Date and the date of the Next Round. SECTION 2. THE LOAN 2.1 Subject to the terms and conditions set forth herein, Lender shall lend to Borrower the aggregate original principal amount of each Advance together with interest at the rate of eight and one quarter percent (8.25%), such interest accruing as of the date of the Advance, and payable in forty-two (42) equal monthly installments of principal and interest commencing on the first day of the month immediately following the Advance Date and an additional installment equal to fifteen percent (15%) of the Advance ("Balloon Payment"), as set forth in the Note(s). 2.2 Upon the occurrence of and during an Event of Default (as defined herein), interest shall thereafter be calculated at a rate of five percent (5%) in excess of the rate that would otherwise be applicable ("Default Rate"). All such interest shall be due and payable in arrears, on the first day of the following month. 2.3 Notwithstanding any provision in this Agreement, the Note(s), or any other "Loan Document" (as defined herein), it is not the parties' intent to contract for, charge or receive interest at a rate that is greater than the maximum rate permissible by law which a court of competent jurisdiction shall deem applicable hereto (which under the haws of the State of Illinois shall be deemed to be the laws relating to permissible rates of interest on commercial loans) (the "Maximum Rate"). If the Borrower actually pays Lender an amount of interest, chargeable on the total aggregate principal Secured Obligations of Borrower under this Agreement and the Note(s) (as said rate is calculated over a period of time that is the longer of (i) the time from the date of this Agreement through the maturity time as set forth on the Note(s), or (ii) the entire period of time that any principal is outstanding on the Note(s)), which amount of interest exceeds interest calculated at the Maximum Rate on said principal chargeable over said period of time, then such excess interest actually paid by Borrower shall be applied first, to the, payment of principal outstanding on the Note(s); second, after all principal is repaid, to the payment of Lenders out of pocket costs, expenses, and professional fees which are owed by Borrower to Lender under this Agreement or the Loan Documents; and third, after all principal, costs, expenses, and professional fees owed by Borrower to Lender are repaid, the excess (if any) shall be refunded to Borrower. -6- 7 2.4 In the event any interest is not paid when due hereunder, delinquent interest shall be added to principal and shall bear interest on interest, compounded at the rate set forth in SECTION 2.1. 2.5 Upon and during the continuation of an Event of Default hereunder (as defined herein), all Secured Obligations, including principal, interest, compounded interest and reasonable professional fees, shall bear interest at a rate per annum equal to the Default Rate. 2.6 Borrower shall have the option to prepay the Loan, in whole or in part, after 12 months from the Closing Date by paying (1) the principal amount thereon together with all accrued and unpaid interest with respect to such principal amount, as of the date of such prepayment, (2) the present value of the Balloon Payment, and (3) a prepayment premium equal to one percent (1%) of the unpaid principal. In the event Borrower prepays the Note(s) within 12 months from the Closing Date hereof, Borrower shall pay the principal amount together with all accrued and unpaid interest and a prepayment premium equal to one percent (1%) of the then outstanding principal amount. SECTION 3. SECURITY INTEREST As security for the prompt, complete and indefeasible payment when due (whether at stated payment dates or otherwise) of all the Secured Obligations and in order to induce Lender to make the Loan upon the terms and subject to the conditions of the Note(s), Borrower hereby assigns, conveys, mortgages, pledges, hypothecates and transfers to Lender for security purposes only, and hereby grants to Lender a security interest in, all of Borrower's right, title and interest in, to and under each of the following (all of which being hereinafter collectively called the "Collateral") as to each, and only as to each, Co-location Facility for which Lender provides Advances hereunder: (a) All Receivables; (b) All Equipment; (c) All Fixtures; (d) All General Intangibles (excluding Intellectual Property, customer lists, inventions (whether or not patentable), procedures, designs, knowledge, know-how, skill, expertise, recipes, experience, processes, models, drawings); (e) All Inventory; (f) All other goods and personal property of Borrower whether tangible or intangible and whether now or hereafter owned or existing, leased, consigned by or to, or acquired by, Borrower; and (g) To the extent not otherwise included, all Proceeds of each of the foregoing and all accessions to, substitutions and replacements for, and rents, profits and products of each of the foregoing. -7- 8 The foregoing Collateral excludes Intellectual Property currently held or hereafter obtained, including without limitation, the Borrower's right, title and interest in or licenses to all patents, trademarks, service marks or processes, provided however, in the event Borrower transfers, sell, assigns, hypothecates or otherwise encumbers it Intellectual Property, without Lenders prior written consent, Lender's security interest shall be deemed to include Intellectual Property. SECTION 4. REPRESENTATIONS AND WARRANTIES OF BORROWER The Borrower represents, warrants and agrees that: 4.1 it will have good title in and to the Collateral, free of all liens, security interests, encumbrances and claims whatsoever, except for the interest of the Lender therein prior to the date of the respective Advances; 4.2 it has the full power and authority to, and does hereby grant and convey to the Lender, a valid first priority perfected security interest in the Collateral as security for the Secured Obligations, free of all liens, security interests, encumbrances and claims, and shall execute such Uniform Commercial Code financing statements in connection herewith as the Lender may reasonably request. No other lien, security interest, adverse claim or encumbrance has been created by Borrower or is known by Borrower to exist with respect to any Collateral; 4.3 it is a corporation duly organized, legally existing and in good standing under the laws of the State of California, and is duly qualified as a foreign corporation in all jurisdictions where the failure to so qualify would have a Material Adverse Effect on the Collateral or the business of the Borrower taken as a whole; 4.4 the execution, delivery and performance of the Note(s), this Agreement, the Warrant Agreement, and all financing statements, certificates and other documents required to be delivered or executed in connection herewith (collectively, the "Loan Documents") have been duly authorized by all necessary corporate action of Borrower, the individual or individuals executing the Loan Documents were duly authorized to do so, and the Loan Documents constitute legal, valid and binding obligations of the Borrower, enforceable in accordance with their respective terms, subject to applicable bankruptcy, insolvency, reorganization or other similar laws generally affecting the enforcement of the rights of creditors; 4.5 the Loan Documents do not and will not violate any provisions of its Articles of Incorporation, bylaws or any, contract, agreement, law, regulation, order, injunction, judgment, decree or writ to which the Borrower is subject, or result in the creation or imposition of any lien, security interest or other encumbrance upon the Collateral, other than those created by this Agreement; 4.6 the execution, delivery and performance of the Loan Documents do not require the consent or approval of any other person or entity including, without limitation, any regulatory authority or governmental body of the United States or any state thereof or any political subdivision of the United States or any state thereof. -8- 9 4.7 as of the date hereof no fact or condition exists that would (or could, with the passage of time, the giving of notice, or both) constitute an Event of Default under this Agreement or any of the Loan Documents and no event which has had or could reasonably be expected to have a Material Adverse Effect has occurred and is continuing. SECTION 5. INSURANCE AND RISK OF LOSS 5.1 So long as there are any Secured Obligations outstanding, Borrower shall cause to be carried and maintained commercial general liability insurance against risks customarily insured against in Borrower's line of business. Such risks shall include, without limitation, the risks of death, bodily injury and property damage. So long as there are any Secured Obligations outstanding, Borrower shall also cause to be carried and maintained insurance upon the Collateral and Borrower's business, covering casualty, hazard and such other property risks in amounts equal to the full replacement cost of the Collateral. Borrower shall deliver to Lender lender's loss payable endorsements (Form BFU 438 or equivalent) naming Lender as loss payee and additional insured. Borrower shall use commercially reasonable efforts to cause all policies evidencing such insurance to provide for at least thirty (30) days prior written notice by the underwriter or insurance company to Lender in the event of cancellation or expiration. Such policies shall be issued by such insurers and in such amounts as are reasonably acceptable to Lender. 5.2 Borrower shall and dots hereby indemnify and hold Lender, its agents and shareholders harmless from and against any and all claims, costs, expenses, damages and liabilities (including, without limitation, such claims, costs, expenses, damages and liabilities based on liability in tort, including without limitation, strict liability in tort), including reasonable attorneys' fees, arising out of the disposition or utilization of the Collateral, other than claims arising at or caused by Lender's gross negligence or willful misconduct. SECTION 6. COVENANTS OF BORROWER Borrower covenants and agrees as follows at all times while any of the Secured Obligations remain outstanding: 6.1 Borrower shall furnish to Lender the financial statements listed hereinafter, each prepared in accordance with generally accepted accounting principles consistently applied (the "Financial Statements"): (a) as soon as practicable (and in any event within thirty (30) days) after the end of each month, unaudited interim financial statements as of the end of such month (prepared on a consolidated and consolidating basis, if applicable), including balance sheet and related statements of income and cash flows accompanied by a report detailing any material contingencies (including the commencement of any material litigation by or against Borrower) or any other occurrence that could reasonably be expected to have a Material Adverse Effect, all certified by Borrower's Chief Executive Officer or Chief Financial Officer to be true and correct; (b) as soon as practicable (and in any event within ninety (90) days) after the end of each fiscal year, unqualified audited financial statements as of the end of such year (prepared on a consolidated and consolidating basis, if applicable), including -9- 10 balance sheet and related statements of income and cash flows, and setting forth in comparative form the corresponding figures for the preceding fiscal year, certified by a firm of independent certified public accountants selected by Borrower and reasonably acceptable to Lender, accompanied by any management report from such accountants; (c) promptly after the sending or filing thereof, as the case may be, copies of any proxy statements, financial statements or reports which Borrower has made available to its shareholders and copies of any regular, periodic and special reports or registration statements which Borrower files with the Securities and Exchange Commission or any governmental authority which may be substituted therefor, or any national securities exchange; and (d) promptly, any additional information, financial or otherwise (including, but not limited, to tax returns and names of principal creditors) as Lender reasonably believes necessary to evaluate Borrower's continuing ability to meet its financial obligations. 6.2 Borrower shall permit any authorized representative of Lender and its attorneys and accountants on reasonable notice to inspect, examine and make copies and abstracts of the books of account and records of Borrower at reasonable times during normal business hours. In addition, such representative of Lender and its attorneys and accountants shall have the right to meet with management and officers of the Company to discuss such books of account and records. 6.3 Borrower will from time to time execute, deliver and file, alone or with Lender, any financing statements, security agreements or other documents; procure any instruments or documents as may be requested by Lender; and take all further action that may be necessary or desirable, or that Lender may request, to confirm, perfect, preserve and protect the security interests intended to be granted hereby, and in addition, and for such purposes only, Borrower hereby authorizes Lender to execute and deliver on behalf of Borrower and to file such financing statements, security agreement and other documents without the signature of Borrower either in Lender's name or in the name of Borrower as agent and attorney-in-fact for Borrower. The parties agree that a carbon, photographic or other reproduction of this Agreement shall be sufficient as a financing statement and may be filed in any appropriate office in lieu thereof. 6.4 Borrower shall protect and defend Borrower's title as well as the interest of the Lender against all persons claiming any interest adverse to Borrower or Lender and shall at all times keep the Collateral free and clear from any legal process, liens or encumbrances whatsoever (except any placed thereon by Lender or liens permitted by Lender pursuant to Section 9 hereof) and shall give Lender immediate written notice thereof. 6.5 Without Lender's prior written consent, Borrower shall not (a) grant any material extension of the time of payment of any of the Receivables, (b) to any material extent, compromise, compound or settle the same for less than the full amount thereof, (c) release, wholly or partly, any person liable for the payment thereof, or allow any credit or discount whatsoever thereon other than trade discounts granted in the ordinary course of business of Borrower. -10- 11 6.6 Borrower shall maintain and protect its properties, assets and facilities, including without limitation, its Equipment and Fixtures, in good order and working repair and condition (taking into consideration ordinary wear and tear) and from time to time make or cause to be made all necessary and proper repairs, renewals and replacements thereto and shall competently manage and care for its property in accordance with prudent industry practices. 6.7 Borrower shall not merge with and into any other entity; or sell or convey all or substantially all of its assets or stock to any other person or entity without notifying Lender a minimum of thirty (30) days prior to the closing date and requesting Lenders consent, which consent will not be unreasonably withheld, to the assignment of all of Borrower's Secured Obligations hereunder to the successor entity in form and substance satisfactory to Lender. In the event Lender does not consent to such assignment the parties agree Borrower shall prepay the Loan in accordance with Section 2.6 hereof. For purposes of this Agreement, a "Merger" shall mean any consolidation or merger of the Borrower with or into any other corporation or entity, any sale or conveyance of an or substantially all of the assets or stock of the Borrower by or to any other person or entity in which Borrower is not the surviving entity, 6.8 Borrower shall not, without the prior written consent of Lender, such consent not to be unreasonably withheld, declare or pay any cash dividend or make a distribution on any class of stock, other than pursuant to employee repurchase plans upon an employee's death or termination of employment or transfer, sell, lease, lend or in any other manner convey any equitable, beneficial or legal interest in any material portion of the assets of Borrower (except inventory sold in the normal course of business). 6.9 Upon the request of Lender, Borrower shall, during business hours, make the Inventory and Equipment available to Lender for inspection at the place where it is normally located and shall make Borrower's log and maintenance records pertaining to the Inventory and Equipment available to Lender for inspection. Borrower shall take all action necessary to maintain such logs and maintenance records in a correct and complete fashion. 6.10 Borrower covenants and agrees to pay when due, all taxes, fees or other charges of any nature whatsoever (together with any related interest or penalties) now or hereafter imposed or assessed against Borrower, Lender or the Collateral or upon Borrower's ownership, possession, use, operation or disposition thereof or upon Borrower's rents, receipts or earnings arising therefrom. Borrower shall file on or before the due date therefor all personal property tax returns in respect of the Collateral. Notwithstanding the foregoing, Borrower may contest, in good faith and by appropriate proceedings, taxes for which Borrower maintains adequate reserves therefor. 6.11 Borrower shall not relocate any item of the Collateral (other than sale of inventory in the ordinary course of business) except: (i) with the prior written consent of the Lender not to be unreasonably withheld; and (ii) if such relocation shall be within the continental United States. If permitted to relocate Collateral pursuant to the foregoing sentence, unless otherwise agreed in writing by Lender, Borrower shall first (a) cause to be filed and/or delivered to the Lender all Uniform Commercial Code financing statements, certificates or other documents or instruments necessary to continue in effect the perfected security interest of the -11- 12 Lender in the Collateral, and (b) have given the Lender no less than thirty (30) days prior written notice of such relocation. 6.12 Lender shall have the right to purchase shares of Borrower securities of up to One Million Five Hundred Thousand and 00/100 Dollars ($1,500,000) upon the close of Borrower's Series C Preferred Stock financing at a purchase price to be established by the lead investor. 6.13 Borrower shall not sell, transfer, assign, hypothecate or otherwise encumber its Intellectual Property without Lenders prior written consent. SECTION 7. CONDITIONS PRECEDENT TO LOAN The obligation of Lender to fund the Loan on each Advance Date shall be subject to Lender's discretion and satisfactory completion of its due diligence and approval process, and satisfaction by Borrower or waiver by Lender, in Lender's sole discretion, of the following conditions: 7.1 ADVANCE REQUEST. Borrower, on or prior to each Advance Date; which shall occur on or prior to August 31, 2000, shall have delivered to Lender the following: (a) a minimum of five (5) business days prior to the Advance Date, written notice in the form of an Advance Request, or as otherwise specified by Lender from time to time, specifying amount of such Advance and wire transfer instructions; (b) executed original of the Note(s); (c) any documents reasonably required by Lender to effectuate the liens of Lender with respect to all Collateral; (d) evidence reasonably satisfactory to Lender that Borrower will use the proceeds of this Loan to first finance the Chicago, San Francisco or Emeryville; (e) such other documents as Lender shall reasonably request. 7.2 DOCUMENT DELIVERY. Borrower, on or prior to the Closing Date, shall have delivered to Lender the following: (a) executed originals of the Agreement and the Warrant Agreement; (b) certified copy of resolutions of Borrower's board of directors evidencing approval of the borrowing and other transactions evidenced by the Loan Documents; (c) certified copies of the Articles of Incorporation and the Bylaws of Borrower, as amended through the Closing Date; (d) certificate of good standing for Borrower from its state of incorporation and similar certificates from all other jurisdictions in which it does business and where the failure to be qualified would have a Material Adverse Effect; -12- 13 (e) an opinion of counsel regarding the Borrower's total capitalization and the authority and enforceability of the Loan Documents and Warrant Agreement; and (f) payment of the Facility Fee. 7.3 PERFECTION OF SECURITY INTERESTS. Borrower shall have taken or caused to be taken such actions requested by Lender to grant Lender a first priority perfected security interest in the Collateral. Such actions shall include, without limitation, the delivery to Lender of all appropriate financing statements, executed by Borrower, as to the Collateral granted by Borrower for all jurisdictions as may be necessary or desirable to perfect the security interest of Lender in such Collateral 7.4 ABSENCE OF EVENTS OF DEFAULTS. As of the Closing Date or the Advance Date, no fact or condition exists that would (or would, with the passage of time, the giving of notice, or both) constitute an Event of Default under this Agreement or any of the Loan Documents. 7.5 Material Adverse Effect. As of the Closing Date or the Advance Date, no event which has had or could reasonably be expected to have a Material Adverse Effect has occurred and is continuing. SECTIONS 8. ASSIGNMENT BY LENDER Borrower acknowledges and understands that Lender, with Borrowers prior written consent on at least 30 days written notice, may sell and assign all or a part of its interest hereunder and under the Note(s) and Loan Documents, excluding the purchase right set forth in 6.12 and the Warrants to any person or entity (an "Assignee"). After such assignment the term Lender shall mean such Assignee, and such Assignee shall be vested with all rights, powers and remedies of Lender hereunder with respect to the interest so assigned; but with respect to any such interest not so transferred, the Lender shall retain all rights, powers and remedies hereby given. No such assignment by Lender shall relieve Borrower of any of its obligations hereunder. Borrower shall acknowledge such assignment or assignments as shall be designated BY written notice given by Lender to Borrower. The Lender agrees that in the event of any transfer by a of the Note(s), it will endorse thereon a notation as to the portion of the principal of the Note(s) which shall have been paid at the time of such transfer and as to the date to which interest shall have been last paid thereon. SECTION 9. SUBORDINATION BY LENDER AND INTERCREDITOR AGREEMENT. -13- 14 Lender shall subordinate its interest in Receivables to another debt facility of Borrower pursuant to the terms of a Subordination Agreement substantially the form attached hereto as Exhibit C, subject to the terms set forth in this Section 9. It shall be a condition precedent to Lender's agreement to subordinate its interest pursuant to the preceding sentence that Borrower shall have achieved an average of thirty percent (30%) of the cumulative facilities capacity for all Co-location Facilities for which Lender has provided Advances under this Agreement. Notwithstanding the foregoing, the occupancy rate of thirty percent (30%) is based upon an assumption of Borrower having a positive cash flow (pre-depreciation)at such percentage. In the event such assumption is incorrect, Lender may, in its sole discretion, to adjust the percentage in minimum five percent (5%) increments until such positive cashflow (pre-depreciation)is achieved. Lender acknowledges that Borrower will acquire additional credit facilities (or high yield debt) from other Lenders to finance facilities not encumbered by this Loan. To the extent that such other Lenders require an inter-creditor agreement to exist between the various lending parties, Lender agrees to enter into such agreements so long as the security interest granted herein to Lender in Borrowers certain Co-Location Facilities is not compromised by such agreements. SECTION 10. DEFAULT The occurrence of any one or more of the following events (herein called "Events of Default") shall constitute a default hereunder and under the Note(s): 10.1 The Borrower defaults in the payment of any principal or interest payable under the Note(s) and such default continues for more than five (5) days after the due date thereof; 10.2 The Borrower defaults in the payment or performance of any other covenant or obligation of the Borrower hereunder or under the Note(s) or any other loan Documents for more than ten (10) days after the Lender has given notice of such default to the Borrower; 10.3 Any representation or warranty made herein by the Borrower shall prove to have been false or misleading in any material respect; 10.4 The making of an assignment by Borrower for the benefit of its creditors or the admission by Borrower in writing of its inability to pay its debts as they become due, or the insolvency of Borrower, or the filing by Borrower of a voluntary petition in bankruptcy, or the adjudication of Borrower as a bankrupt, or the filing by Borrower of any petition or answer seeking for itself any reorganization, arrangement, composition, readjustment, liquidation, dissolution, or similar relief under any present or future statute, law or regulation, or the filing of any answer by Borrower admitting, or the failure by Borrower to deny, the material allegations of a petition filed against it for any such relief, or the seeking or consenting by Borrower to, or acquiescence by Borrower in, the appointment of any trustee, receiver or liquidator of Borrower or of all or any substantial part of the properties of Borrower, or the inability of Borrower to pay its debts when due, or the commission by Borrower of any act of bankruptcy as defined in the Federal Bankruptcy Act, as amended; 10.5 The failure by Borrower, within sixty (60) days after the commencement of any proceeding against Borrower seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or -14- 15 regulation, to obtain the dismissal of such proceeding or, within sixty (60) days after the appointment, without the written consent or acquiescence of Lender, of any trustee, receiver or liquidator of Borrower or of all or any substantial part of the properties of Borrower, to vacate such appointment; 10.6 The default by Borrower under any other notes or other agreement for borrowed money, lease or other agreement between Borrower and Lender; or 10.7 The occurrence of any default under any lease or other agreement or obligation of Borrower involving an amount in excess of $100,000.00 or having a Material Adverse Effect; or the entry of any judgment against Borrower involving an award in excess of $100,000.00 that would have a Material Adverse Effect, that has not been bonded or stayed on appeal within thirty (30) days. SECTION 11. REMEDIES Upon the occurrence hereof of any one or more Events of Default, Lender, at its option, may declare the Note(s) to be accelerated and immediately due and payable, (provided, that upon the occurrence of an Event of Default of the type described in 10.4 or 10.5, the Note(s) and all other Secured Obligations shall automatically be accelerated and made due and payable without any further act) whereupon the unpaid principal of and accrued interest on such Note shall become immediately due and payable, and shall thereafter bear interest at the Default Rate and calculated in accordance with Section 2.2. Lender may exercise all rights and remedies with respect to the Collateral granted pursuant hereto for such Note(s), or otherwise available to it under applicable law, including the right to release, hold or otherwise dispose of all or any part of the Collateral and the right to utilize, process and commingle the Collateral. Upon the happening and during the continuance of any Event of Default, Lender may then, or at any time thereafter and from time to time, apply, collect, sell in one or more sales, lease or otherwise dispose of, any or all of the Collateral, in its then condition or following any commercially reasonably preparation or processing, in such order as lender may elect, and any such sale may be made either at public or private sale at its place of business or elsewhere. Borrower agrees that any such public or private sale may occur upon five (5) calendar day's notice to Borrower. Lender may require Borrower to assemble the Collateral and make it available to Lender at a place designated by Lender which is reasonably convenient to Lender and Borrower. The proceeds of any sale, disposition or other realization upon all or any part of the collateral shall be distributed by Lender in the following order of priorities: First, to Lender in an amount sufficient to pay in full Lender's reasonable costs and professionals' and advisors' fees and expenses; Second, to Lender in an amount equal to the then unpaid amount of the Secured Obligations in such order and priority as Lender may choose in its sole discretion; and Finally, upon payment in full of all of the Secured Obligations, to Borrower or its representatives or as a court of competent jurisdiction may direct. The Lender shall return to the Borrower any surplus Collateral remaining after payment of all Secured Obligations. -15- 16 SECTION 12. MISCELLANEOUS 12.1 Borrower shall remain liable to Lender for any unpaid Secured Obligations, advances, costs, charges and expenses, together with interest thereon and shall pay the same immediately to Lender at Lender's offices. 12.2 The powers conferred upon Lender by this Agreement are solely to protect its interest in the Collateral and shall not impose any duty upon Lender to exercise any such powers. 12.3 This is a continuing Agreement and the grant of a security interest hereunder shall remain in full force and effect and all the rights, powers and remedies of Lender hereunder shall continue to exist until the Secured Obligations are paid in full as the same become due and payable. When Borrower has paid in full all Secured Obligations, Lender will, promptly upon request of Borrower, execute a written termination statement, reassigning to Borrower, without recourse, the Collateral and all rights conveyed hereby and return possession (if Lender has possession) of the Collateral to Borrower. The rights, powers and remedies of Lender hereunder shall be in addition to all rights, powers and remedies given by statute or rule of law and are cumulative. The exercise of any one or more of the rights, powers and remedies provided herein shall not be construed as a waiver of any other rights, powers and remedies of Lender. Furthermore, regardless of whether or not the UCC is in effect in the jurisdiction where such rights, powers and remedies are asserted, Lender shall have the rights, powers and remedies of a secured party under the UCC. 12.4 Upon payment in full of all Secured Obligations, the Lender shall cancel the Note(s), this Agreement and all UCC financing statements, if any, and shall promptly deliver all such canceled documents to the Borrower. 12.5 GOVERNING LAW. This Agreement, the Note(s) and the other Loan Documents have been negotiated and delivered to Lender in the State of Illinois and shall not become effective until accepted by Lender in the State of Illinois. Payment to Lender by Borrower of the Secured Obligations is due in the State of Illinois. This Agreement shall be governed by, and construed and enforced in accordance with the laws of the State of Illinois excluding conflict of laws principles that would cause the application of laws of any other jurisdiction. 12.6 CONSENT TO JURISDICTION AND VENUE. All judicial proceedings arising in or under or related to this Agreement, the Note or any of the other Loan Documents may be brought in any state or federal court of competent jurisdiction located in the State of Illinois. By execution and delivery of this Agreement, each party hereto generally and unconditionally; (a) consents to personal jurisdiction in Cook County, State of Illinois; (b) waives any objection as to jurisdiction or venue in the aforesaid courts; and (d) irrevocably agrees to be bound by any judgment rendered thereby in connection with this Agreement, the Note(s) and the other Loan Documents. Service of process on any party hereto in any action arising out of or relating to this Agreement shall be effective if given in accordance with the requirements for notice set forth in SECTION 12.8 below and shall be deemed effective and received as set forth in SECTION 12.8 below. Nothing herein shall affect the right to serve process in any other manner permitted by law or shall limit the right of either party to bring proceedings in the courts of any other jurisdiction. -16- 17 12.7 Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement hall be prohibited by or invalid under such law, such provision shall be ineffective only to the extent and duration of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. 12.8 Except as otherwise provided herein, all notices and service of process required, contemplated, or permitted to have been validly served, or hereunder shall be in writing and shall be deemed given or delivered upon the earlier of: (i) the first business day after transmission by facsimile or hand delivery or deposit with an overnight express service or overnight mail delivery service; or (ii) or three (3) calendar days after mailed, postage prepaid, in each case, and shall be addressed to the designated recipient, as follows: (a) IF TO LENDER: COMDISCO, INC. Legal Department Attention: General Counsel 6111 North River Road Rosemont, Illinois 60018 Facsimile: 847.518.5088 Telephone: 847.518.698.3000 WITH A COPY TO: COMDISCO, INC. Attention: Comdisco Ventures 6111 North River Road Rosemont, Illinois 60018 Facsimile: 847.518.5465 Telephone: 847.518.698.3000 -17- 18 (b) IF TO BORROWER: COLO.COM 2000 Sierra Point Parkway, 6th Floor Brisbane, CA 95005 Attention: Chief Financial Officer Facsimile: 650-244-7727 Telephone: 650-244-7700 WITH A COPY TO: COLO.COM 2000 Sierra Point Parkway, 6th Floor Brisbane, CA 95005 Attention: General Counsel Facsimile:650-244-7277 Telephone:650-244-7700 or to such other address as each party may designate for itself by like notice. 12.9 Lender and Borrower acknowledge that there are no agreements or understandings, written or oral, between Lender and Borrower with respect to the Loan, other than as set forth herein, in the Note(s) and the other Loan Documents and that this Agreement, the Note(s) and the other Loan Documents contain the entire agreement between Lender and Borrower with respect thereto. None of the terms of this Agreement, the Note(s) and the other Loan Documents may be amended except by an instrument executed by each of the parties hereto. 12.10 No omission, or delay, by Lender at any time to enforce any right or remedy reserved to it, or to require performance of any of the terms, covenants or provisions hereof by Borrower at any time designated, shall be a waiver of any such right or remedy to which Lender is entitled, nor shall it in any way affect the right of Lender to enforce such provisions thereafter. 12.11 All agreements, representations and warranties contained in this Agreement or the Note, or in any Loan Documents delivered pursuant hereto or in connection herewith shall be for the benefit of Lender and any Assignee and shall survive the execution and delivery of this Agreement or the Note and the expiration or other termination of this Agreement or the Note. 12.12 This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. -18- 19 IN WITNESS WHEREOF, the Borrower and the Lender have duly executed and delivered this Agreement as of the day and year first above written. BORROWER: COLO.COM By: /s/ GARY J. SANDERS ----------------------------------------- Title: CFO -------------------------------------- Date: 10/25/99 --------------------------------------- ACCEPTED IN ROSEMONT, ILLINOIS: LENDER: COMDISCO, INC. By: /s/ JAMES LABE ----------------------------------------- Title: President, Comdisco Ventures Division -------------------------------------- Date: OCT 29, 1998 --------------------------------------- -19- 20 EXHIBIT A SECURED PROMISSORY NOTE $ __________ Date:_____________ Due:______________ FOR VALUE RECEIVED, COLO.COM, a California corporation (the "Borrower") hereby promises to pay to the order of Comdisco, Inc., a Delaware corporation (the "Lender") at P.O. Box 91744, Chicago, IL 60693 or such other place of payment as the holder of this Secured Promissory Note (this "Note") may specify from time to time in writing, in lawful money of the United States of America, the principal amount of and 00/100 Dollars ($ ) together with interest at eight and one quarter percent (8.25%) per annum from the date of this Note to maturity of each installment on the principal hereof remaining from time to time unpaid, such principal and interest to be paid 42 equal monthly installments of $ each, commencing and on the same day of each month thereafter to and including and an additional installment in the amount of $ (15%) ("Balloon Payment") to be paid on , such installments to be applied first to accrued and unpaid interest and the balance to unpaid principal. Interest shall be computed on the basis of a year consisting of twelve months of thirty days each. This Note is the Note referred to in, and is executed and delivered in connection with, that certain Loan and Security Agreement of even date herewith by and between Borrower and Lender (as the same may from time to time be amended, modified or supplemented in accordance with its terms, the "Loan Agreement"), and is entitled to the benefit and security of the Loan Agreement and the other Loan Documents (as defined in the Loan Agreement), to which reference is made for a statement of all of the terms and conditions thereof. All terms defined in the Loan Agreement shall have the same definitions when used herein, unless otherwise defined herein. The Borrower waives presentment and demand for payment, notice of dishonor, protest and notice of protest and any other notice as permitted under the UCC or any applicable law. This Note has been negotiated and delivered to Lender and is payable in the State of Illinois, and shall not become effective until accepted by Lender in the State of Illinois. This Note shall be governed by and construed and enforced in accordance with, the laws of the State of Illinois, excluding any conflicts of law rules or principles that would cause the application of the laws of any other jurisdiction. BORROWER: COLO.COM 2000 Sierra Point, 6th Floor BRISBANE, CA 84005 Signature: ------------------------------- Print Name: ------------------------------ Title: ----------------------------------- -1- 21 EXHIBIT B ADVANCE REQUEST Date:_________________________________ To: Lender: Comdisco, Inc. c/o Comdisco Ventures 3000 Sand Hill Road Menlo Park, CA 94025 Attention: Vika Tonga Facsimile (650) 854-4026 Borrower hereby requests from Comdisco, Inc. ("Lender") an Advance in the amount of $ under that Loan and Security Agreement between Borrower and Lender dated (the "Agreement"). Please: (a) Issue a check payable to Borrower ________ or (b) Wire Funds to Borrower's account ________ Bank: __________________________________ Address: __________________________________ __________________________________ ABA Number: __________________________________ Account Number: __________________________________ Account Name: __________________________________ Borrower hereby affirms that all Representations and Warranties of Borrower set forth in Section 4 and all Conditions Precedent to Loan set forth in SECTION 7 of the Agreement remain true and correct as of the date hereof. Executed this ___ day of _______, 1999 by: BORROWER: __________________________________ BY: __________________________________ TITLE: __________________________________ PRINT: __________________________________ -20- 22 SUBORDINATION AGREEMENT THIS SUBORDINATION AGREEMENT (this "Agreement") dated as of __________, 1999 is entered into by and between COMDISCO, INC., a Delaware corporation ("Subordinated Creditor"), and _______________ ("Borrower"), a _______________ corporation, for the express benefit of Senior Creditor (as defined in Section 1, below). RECITALS Concurrently herewith, Subordinated Creditor is agreeing to advance to Borrower a secured loan of money in the aggregate original principal amount of ____________ DOLLARS ($____) in ____________ installments, the first installment in the amount of ____________ DOLLARS ($____) and the ____________ installment in the amount ____________ DOLLARS ($____) each which would be evidenced by one or more Subordinated Promissory Note(s), and a Subordinated Loan and Security Agreement, dated as of ____________, 1999 (as the same may from time to time be amended, modified, supplemented, extended, renewed, restated or replaced, the "Subordinated Note(s)" and the "Subordinated Loan Agreement," respectively), made by Borrower in favor of Subordinated Creditor. Borrowers obligations to Subordinated Creditor evidenced by the Subordinated Note(s) are secured by the personal property collateral granted by Borrower to Subordinated Creditor pursuant to the Subordinated Loan Agreement. Borrower has advised Subordinated Creditor that it contemplates entering into a loan agreement (as the same may from time to time be amended, modified, supplemented or restated, the "Senior Loan Agreement") with Senior Creditor, pursuant to which Senior Creditor shall make available to Borrower, on a senior secured basis, certain extensions of credit as described in the Senior Loan Agreement. In contemplation of Borrower obtaining such senior secured financing and the conditions expected to be imposed by Senior Creditor as conditions precedent to making available to Borrower the proceeds of such financing, Subordinated Creditor is entering into this Agreement with Borrower for the express benefit. of Senior Creditor, on the terms and subject to the conditions set forth below. AGREEMENT NOW, THEREFORE, in consideration of Borrower's and Subordinated Creditor's entering into the Subordinated Loan Documents (as defined in Section 1, below), Subordinated Creditor and Borrower hereby severally agree, each on behalf of itself and for the benefit of Senior Creditor, as set forth below. 1. DEFINITIONS As used herein, the following terns shall have the following meanings: "EXCLUDED AGREEMENTS" means: 1 23 (a) the Warrant Agreement of even date herewith between Borrower and Subordinated Creditor pursuant to which Borrower granted Subordinated Creditor the right to purchase certain shares of stock (as the same may from time to time be amended, modified, supplemented or restated, the "Warrant Agreement"), and any other warrants to acquire, or agreements governing the rights of the holders of, any equity security of Borrower, (b) any stock of the Company issued or purchased pursuant to the Warrant Agreement, (c) the Master Lease Agreement dated as of ___, 1999 between Borrower, as lessee, and Subordinated Creditor, as lessor, including, without limitation, any Equipment Schedules and Summary Equipment Schedules to the Master Lease Agreement executed or delivered by Borrower pursuant thereto and any other modifications or amendments thereof whereby Borrower (as lessee) leases equipment, software, or goods from Subordinated Creditor (as lessor). "SENIOR CREDITOR" means a bank, insurance company, pension fund, or other institutional lender to be determined, or a syndicate of such institutional lenders (including, without limitation, any agent or other representative for such syndicate), that provides Senior Debt financing to Borrower; provided, that Senior Creditor shall not include any officer, director, shareholder, venture capital investor, or insider of Borrower, or any affiliate of the foregoing persons, except upon the express written consent of Subordinated Creditor. "SENIOR DEBT" means any and all indebtedness and obligations for borrowed money (including, without limitation, principal, premium (if any), interest, fees, charges, expenses, costs, professional fees and expenses, and reimbursement obligations) at any time owing by Borrower to Senior Creditor under the Senior Loan Documents including but not limited to such amounts as may accrue or be incurred before or after default or workout or the commencement of any liquidation, dissolution, bankruptcy, receivership, or reorganization case by or against Borrower provided, that Senior Debt shall not include the following indebtedness or obligations: (a) obligations incurred after default or workout or the commencement of any liquidation, dissolution, bankruptcy, receivership, or reorganization case by or against Borrower, and (b) debt exceeding __________________ Dollars ($__________) outstanding at any one time. "SENIOR LOAN DOCUMENTS" means the Senior Loan Agreement and any other agreement, security agreement, document, promissory note, UCC financing statement, or instrument executed by Borrower in favor of Senior Creditor pursuant to or in connection with the Senior Debt or the Senior Loan Agreement, as the same may from time to time be amended, modified, supplemented, extended, renewed, restated or replaced. "SUBORDINATED DEBT" means any and all indebtedness and obligations for borrowed money (including, without limitation, principal, premium (if any), interest, fees, charges, expenses, costs, professional fees and expenses, and reimbursement obligations) at any time owing by Borrower to Subordinated Creditor under the Subordinated Loan Documents, including but not limited to such amounts as may accrue or be incurred before or after default or 2 24 workout or the commencement of any liquidation, dissolution, bankruptcy, receivership, or reorganization case by or against Borrower; provided, that notwithstanding anything to the contrary contained in this Agreement, Subordinated Debt shall not include any indebtedness or obligations of Borrower arising under or in connection with any of the Excluded Agreements. "SUBORDINATED LOAN DOCUMENTS" means the Subordinated Note(s), the Subordinated Loan Agreement, and any other agreement, document, promissory note, UCC financing statement, or instrument executed by Borrower pursuant to or in connection with the Subordinated Debt, as the same may from time to time be amended, modified, supplemented, extended, renewed, restated or replaced; provided, that the Subordinated Loan Documents shall not include any of the Excluded Agreements. 2. SUBORDINATION (a) On the terms and conditions set forth below, Subordinated Creditor's right to payment and performance of the Subordinated Debt is hereby subordinated to Senior Creditor's right to full payment and performance of the Senior Debt. Subject to and except as set forth in Section 3, below, Subordinated Creditor shall not ask, demand, sue for, take or receive from Borrower, by setoff or in any other manner, the whole or any part of any monies which may now or hereafter be owing by Borrower to Subordinated Creditor, or be owing by any other person to Subordinated Creditor under a guaranty or similar instrument, on account of the Subordinated Debt, nor any collateral security for any of the foregoing, including, without limitation, any personal property collateral granted to Subordinated Creditor pursuant to the Subordinated Loan Agreement, unless and until all Senior Debt shall have been paid in cash or otherwise provided for in property or securities in the full amount of the allowed claim of the Senior Debt and all commitments to extend credit under the Senior Loan Agreement shall have been terminated (the temporary reduction of outstanding obligations, liabilities and indebtedness of Borrower to Senior Creditor not being deemed to constitute full payment or satisfaction thereof). Nothing herein shall be deemed to subordinate, waive or restrict the payment or performance of the obligations arising under the Excluded Agreements or subordinate the priority of any lien or interest in property securing or evidenced by the Excluded Agreements. (b) Subordinated Creditor expressly understands that Senior Creditor is expected not to permit Subordinated Creditor to create, maintain or perfect any lien on or in any property of Borrower, other than the security interest granted in favor of Subordinated Creditor in certain of Borrowers personal property under and as described in the Subordinated Loan Agreement. If, notwithstanding the foregoing, any lien shall be created or shall arise (including, without limitation, the security interests granted in favor of Subordinated Creditor pursuant to the Subordinated Loan Agreement), whether by operation of law or otherwise, and may from time to time exist in favor of Subordinated Creditor in or on any property of Borrower to secure all or any portion of the Subordinated Debt, then, regardless of the relative times of attachment or perfection thereof or the order of filing of financing statements, mortgages or other documents, any liens granted by Borrower in favor of Senior Creditor to secure the Senior Debt shall in all respects be first and senior liens, superior to any liens in favor of Subordinated Creditor securing the Subordinated Debt, including, without limitation, the security interests granted in favor of Subordinated Creditor pursuant to the Subordinated Security Agreement. to the event Subordinated Creditor has or obtains possession of any such property or forecloses upon or enforces its lien upon any such property, whether by judicial action or otherwise, then all such property shall be immediately delivered in kind to Senior Creditor or, if not deliverable in kind, all cash or non-cash proceeds and profits of such property shall be held in trust for the benefit of 3 25 Senior Creditor and paid over to Senior Creditor, without any deduction or offset, unless and until all of the Senior Debt shall have been paid in cash or otherwise provided for in property or securities in the full amount of the allowed claim of the Senior Debt and all commitments to extend credit under the Loan Agreement shall have been terminated. (c) The subordination contained in this Agreement is intended to define the rights and duties of Subordinated Creditor and Senior Creditor; it is not intended that any third party (including any bankruptcy trustee, receiver, or debtor-in-possession) shall benefit from it. If the effect of the subordination contained in this Agreement would be to give any third party a priority status to which that party would not otherwise be entitled, that provision shall, to the extent necessary to avoid that priority, be given no effect and the rights and priorities of Senior Creditor and Subordinated Creditor shall be determined in accordance with applicable law and this Subordination Agreement. 3. PERMITTED PAYMENTS; PAYMENT BLOCKAGE (a) Notwithstanding anything to the contrary contained in Section 2, above, but subject expressly to Section 3.b, below, Borrower shall be permitted to make, and Subordinated Creditor shall be permitted to accept or receive the following permitted payments ("Permitted Payments"): (i) scheduled repayments of principal when due under the Subordinated Note(s) and Subordinated Loan Agreement, (ii) scheduled payments of accrued interest when due under the Subordinated Note(s) and Subordinated Loan Agreement, (iii) payments of reimbursable expenses, costs and professional fees and expenses as and when due under the Subordinated Note(s) and the other Subordinated Loan Documents, (iv) cancellation of Subordinated Debt in consideration of the Exercise Price for stock purchased by Subordinated Creditor under the Warrant Agreement, and (v) other payments consented to in writing by Senior Creditor. (b) Notwithstanding anything to the contrary contained in this Section 3 or elsewhere in this Agreement, if Senior Creditor delivers to Subordinated Creditor written notice (a "Blockage Notice") which states that either: (i) a specific default by Borrower involving the payment of Senior Debt (a "Payment Default") has occurred under the Senior Loan Documents and continues to exist after the giving of any required notice and the expiration of any applicable grace or cure period, or (ii) a specific default by Borrower not involving the payment of Senior Debt (a "Non-Payment Default") has occurred under the Senior Loan Documents and continues to exist after the giving of any required notice and the expiration of any applicable grace or cure period, and said Non-Payment Default shall have resulted in the Senior Debt becoming or being declared due and payable prior to the date on which it would otherwise have become due and payable (an "Acceleration Notice"), then from and after the date of delivery of any such Blockage Notice, Subordinated Creditor shall not accept or receive any payment of any kind of or on account of the Subordinated Debt (including any Permitted Payment), unless and until (A) in the case of a Blockage Notice with respect to a Payment Default, the earlier of (x) the time such Payment Default shall have been cured by Borrower or waived in writing by Senior Creditor, or (y) the expiration of the Blockage Period (as defined below) for such Blockage Notice, or (B) in the case of a Blockage Notice with 4 26 respect to a Non-Payment Default, the earlier of (x) the time such Acceleration Notice shall have been rescinded in writing by Senior Creditor (whether or not such Non-Payment Default shall have been cured or waived), or (y) the expiration of the Blockage Period for such Blockage Notice. As used herein, "Blockage Period" means a period of time beginning on the date a Blockage Notice is delivered to Subordinated Creditor and terminating on the earlier to occur of: (1) 120 days following such date; provided that if, prior to the expiration of such 120-day period. Senior Lender has commenced a judicial proceeding or nonjudicial actions to collect or enforce the Senior Debt or the collateral for the Senior Debt, or a case or proceeding by or against Borrower is commenced under the federal Bankruptcy Code or any other insolvency law, then such period shall be extended during the continuation of such proceedings and actions until the payment in cash or other property or securities in the full amount of the allowed claim of the Senior Debt; or (2) Senior Creditor's written consent to such termination. Senior Creditor shall not issue more than one (1) Blockage Notice in any period of 365 consecutive days. After the satisfaction of the applicable conditions specified in (A) or (B) above, Subordinated Creditor shall be entitled to receive all Permitted Payments. 4. ENFORCEMENT RIGHTS Any rights of Subordinated Creditor to accelerate the maturity of the Subordinated Debt, enforce any claim (including any default remedy) with respect to the Subordinated Debt or the collateral for the Subordinated Debt, or otherwise to take any action against Borrower or Borrower's property with respect to the Subordinated Debt shall be subject to any Blockage Notice given pursuant to Section 3.b hereof. S. ASSIGNMENT OF SUBORDINATED DEBT Subordinated Creditor hereby covenants to Senior Creditor that prior to the termination of this Agreement in accordance with Section 10, below, the entire Subordinated Debt created in favor of Subordinated Creditor shall continue to be owing only to Subordinated Creditor, and any collateral security therefor (including, without limitation, the collateral security granted to Subordinated Creditor pursuant to the Subordinated Security Agreement) shall continue to be held solely for the benefit of Subordinated Creditor, unless assigned pursuant to an assignment made expressly subject to this Agreement. The Subordinated Note(s) shall be legended to expressly state that it is subject to this Subordination Agreement. 6. SENIOR CREDITOR'S PRIORITY In the event of any distribution, division, or application, partial or complete, voluntary or involuntary, by operation of law or otherwise, of all or any part of the property of Borrower or the proceeds thereof to the creditors of Borrower, or the readjustment of the Senior Debt and the Subordinated Debt of Borrower, whether by reason of liquidation, bankruptcy, arrangement, receivership, assignment for the benefit of creditors or any other action or proceeding involving the readjustment of all or any part of the Senior Debt or the Subordinated Debt, or the application of the property of Borrower to the payment or liquidation thereof, or upon the 5 27 dissolution, liquidation, reorganization, or other winding up of Borrower's business, or upon the sale of all or any substantial part of Borrower's property (any of the foregoing being hereinafter referred to as an "Insolvency Event"), then, and in any such event, Senior Creditor shall be entitled to receive payment in cash or other property or securities in the full amount of the allowed claim of the Senior Debt, before Subordinated Creditor shall be entitled to receive any payment on account of the Subordinated Debt, and to that end and in furtherance thereof: (a) All payments and distributions of any kind or character, whether in cash, property, or securities, in respect of the Subordinated Debt to which Subordinated Creditor would be entitled if the Subordinated Debt were not subordinated pursuant to this Agreement, shall be paid to Senior Creditor and applied in payment of the Senior Debt. (b) Subordinated Creditor shall file a claim or claims, on the form required in such proceedings, on or before thirty (30) days prior to the last date such claims or proofs of claim may be filed pursuant to law or the order of any court exercising jurisdiction over such proceeding. (c) In the event that, notwithstanding the foregoing, any payment or distribution of any kind or character, whether in cash, properties or securities, shall be received by Subordinated Creditor on account of the Subordinated Debt before all of the Senior Debt has been paid, then such payment or distribution shall be received by Subordinated Creditor in trust for and shall be promptly paid over to Senior Creditor for application to the payments of amounts due on the Senior Debt until the Senior Debt shall have been paid in cash, property, or securities in the full amount of the allowed claim of the Senior Debt. 7. GRANT OF AUTHORITY In the event of the occurrence of an Insolvency Event, and in order to enable Senior Creditor to enforce its rights hereunder in any of the aforesaid actions or proceedings, Senior Creditor is hereby irrevocably authorized and empowered, in Senior Creditor's discretion, as follows: (a) Senior Creditor is hereby irrevocably authorized and empowered (in its own name or in the name of Subordinated Creditor or otherwise), but shall have no obligation, (i) to demand, sue for, collect and receive every payment or distribution referred to in Section 6, above, and give acquittance therefor and (ii) (if Subordinated Creditor has failed to file claims or proofs of claim on or before thirty (30) days prior to the last date such claims or proofs of claim may be filed pursuant to law or the order of any court exercising jurisdiction over such proceeding) to file claims and proofs of claim, and (iii) to take such other action (including, without limitation, enforcing any lien securing payment of the Subordinated Debt) as it may deem necessary or advisable for the exercise or enforcement of any of the rights or interests of Senior Creditor hereunder. Subordinated Creditor shall duly and promptly take such action as Senior Creditor may reasonably request to execute and deliver to Senior Creditor such authorizations, endorsements, assignments, or other instruments as Senior Creditor may reasonably request in order to enable Senior Creditor to enforce any and all claims with respect to, and any liens securing payment of, the Subordinated Debt as such enforcement is contemplated herein. 6 28 (b) To the extent that payments or distributions on account of the Subordinated Debt are made in property or securities other than cash, Subordinated Creditor authorizes Senior Creditor to sell or dispose of such property or securities on such terms as are commercially reasonable in the situation in question. Following full payment of the Senior Debt, Senior Creditor shall remit to Subordinated Creditor (with all necessary endorsements) to the extent of Subordinated Creditor's interest therein, all payments and distributions of cash, property, or securities paid to and held by Senior Creditor in excess of the allowed amount of the Senior Debt, 8. PAYMENTS RECEIVED BY SUBORDINATED CREDITOR Should any payment, distribution, or security be received by Subordinated Creditor upon or with respect to the Subordinated Debt (other than Permitted Payments) prior to termination of this Agreement in accordance with Section 10, below, Subordinated Creditor shall receive and hold the same in trust for the benefit of Senior Creditor and shall forthwith deliver the same to Senior Creditor in precisely the form received (except for the endorsement or assignment of Subordinated Creditor where necessary), for application to the Senior Debt, and, until so delivered, the same shall be held in trust by Subordinated Creditor as the property of Senior Creditor. 7 29 9. FURTHER ASSURANCES; COOPERATION Subject to Section 16.b hereof, Subordinated Creditor agrees to cooperate with Senior Creditor and to take all actions that Senior Creditor may reasonably require to enable Senior Creditor to realize the full benefits of this Agreement. 10. TERMINATION OF AGREEMENT This Agreement shall be effective upon the date set forth in Section 21 hereof. After the effective date occurs, this Agreement shall remain in effect and cannot be revoked or amended by Subordinated Creditor, except with the written consent of Senior Creditor. This Agreement shall terminate upon the date which is 105 days following the date on which the Senior Debt shall have been paid in cash or other property or securities in the full amount of the allowed claim of the Senior Debt and all commitments to extend credit under the Loan Agreement shall have been terminated. 11. ADDITIONAL AGREEMENTS FOR SENIOR CREDITOR Senior Creditor may administer and manage its credit and other relationships with Borrower in its own best interest, without notice to or consent of Subordinated Creditor. At any time and from time to time, Senior Creditor may enter into any amendment or agreement with Borrower as Senior Creditor may deem proper, extending the time of payment of or renewing or otherwise altering the terms of all or any of the obligations constituting Senior Debt or affecting the collateral security for, supporting or underlying any or all of the Senior Debt, and may exchange, sell, release, surrender or otherwise deal with any such collateral without in any way thereby impairing or affecting this Agreement, and all such additional agreements and amendments shall be "Senior Loan Documents" evidencing the Senior Debt; provided, that neither this Section 11 nor any provision of such agreements shall affect the limitations contained in the definitions of Senior Creditor or Senior Debt. 12. SUBROGATION If cash or other property otherwise payable or deliverable to Subordinated Creditor or on account of the Subordinated Debt shall have been applied pursuant to this Agreement to the payment of the Senior Debt, and if the Senior Debt shall have been paid in CASH, property or securities in the full amount of the allowed claim of Senior Debt, then Subordinated Creditor shall be subrogated to any rights of Senior Creditor to receive further payments or distributions applicable to the Senior Debt until the Subordinated Debt shall have been fully paid. No such payments or distributions received by Subordinated Creditor by reason of such subrogation shall, as between Borrower and its creditors other than Senior Creditor, on the one hand, and Subordinated Creditor, on the other hand, be deemed to be a payment by Borrower on account of the Subordinated Debt owed to Subordinated Creditor. 13. SUBORDINATED CREDITOR'S WAIVERS AND COVENANTS (a) Without limiting the generality of any other waiver made by Subordinated Creditor in this Agreement, Subordinated Creditor hereby expressly waives (i) reliance by Senior Creditor upon the subordination and other agreements herein provided, and (ii) any claim that Subordinated Creditor may now or hereafter have against Senior Creditor arising out 8 30 of any and all actions that Senior Creditor, in good faith, takes or omits to take (A) with respect to the creation, perfection or continuation of liens in or on any collateral security for the Senior Debt, (B) with respect to the foreclosure upon, sale, release, or depreciation of, or failure to realize upon, any of the collateral security for the Senior Debt, (C) with respect to the collection of any claim for all or any part of the Senior Debt from any account debtor, guarantor or any other third party and (D) with respect to the valuation, use, protection or release of any collateral security for the Senior Debt. (b) Without limiting the generality of any other covenant or agreement made by Subordinated Creditor in this Agreement, Subordinated Creditor hereby covenants and agrees that (i) Senior Creditor has not made any warranties or representations with respect to the due execution, legality, validity, completeness or enforceability of the Senior Loan Agreement or any of the other Senior Loan Documents, or the collectibility of the Senior Debt; and (ii) Subordinated Creditor will not interfere with or in any manner oppose a disposition of any collateral security for the Senior Debt by Senior Creditor. 14. REINSTATEMENT OF SENIOR DEBT To the extent that the Senior Creditor receives payments on, or proceeds of any collateral security for the Senior Debt which are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, state or federal law, common law, or equitable cause, then, to the extent of such payment or proceeds invalidated, declared to be fraudulent or preferential, set aside or required to be repaid, the Senior Debt, or part thereof, intended to be satisfied shall be revived and continue in full force and effect as if such payments or proceeds had not been received by Senior Creditor. 15. NO WAIVERS Senior Creditor shall not be prejudiced in its rights under this Agreement by any act or failure to act of Borrower or Subordinated Creditor or any noncompliance of Borrower or Subordinated Creditor with any agreement or obligation, regardless of any knowledge thereof which Senior Creditor may have, or with which Senior Creditor may be charged; and no action permitted hereunder taken by Senior Creditor shall in any way affect or impair the rights of Senior Creditor in the exercise of any other right or remedy or shall operate as a waiver thereof, and no single or partial exercise by Senior Creditor of any right or remedy shall preclude any other or further exercise thereof; nor shall any modification or waiver of any of the provisions of this Agreement be binding upon Senior Creditor, except as expressly set forth in a writing duly signed and delivered by Senior Creditor. 16. INFORMATION CONCERNING BORROWER; CREDIT ADMINISTRATION (a) Subordinated Creditor hereby assumes responsibility for keeping itself informed of the financial condition of Borrower, any and all endorsers and any and all guarantors of the Senior Debt and of all other circumstances bearing upon the risk of nonpayment of the Senior Debt or the Subordinated Debt that diligent inquiry would reveal, and Subordinated Creditor hereby agrees that Senior Creditor shall have no duty to advise Subordinated Creditor of information known to Senior Creditor regarding such condition. 9 31 (b) Subject to Sections 2.d, 3, 4, 7, and 8 hereof, Subordinated Creditor may (i) administer and manage its credit and other relationships with Borrower in its own best interest, and (ii) amend or extend its agreements with Borrower or enter into additional agreements with Borrower, all without the consent of or notice to the Senior Creditor; provided that neither this Section 16.b nor any amendments or additional agreements referred to therein shall impair or affect the subordination of Subordinated Debt or change the definition of Subordinated Debt or Subordinated Creditor. 17. NOTICES Except as otherwise provided herein, all notices and service of process required, contemplated, or permitted hereunder or with respect to the subject matter hereof shall be in writing, and shall be deemed to have been validly served, given or delivered upon the earlier of: (i) the first business day after transmission by facsimile or hand delivery or deposit with an overnight express service or overnight mail delivery service; or (ii) the third calendar day after deposit in the United States mails, with proper first class postage prepaid, and shall be addressed to the party to be notified as follows: IF TO SUBORDINATED CREDITOR: COMDISCO, INC. Legal Department Attention: General Counsel 6111 North River Road Rosemont, IL 60018 Facsimile: (847) 518-5088 WITH A COPY TO: COMDISCO INC./VENTURE GROUP Attention: James Labe 6111 North River Road Rosemont, IL 60018 Facsimile: (847) 518-5465 IF TO BORROWER: ____________________________ Attention:___________ ____________________________ ___________________________________ FAX: (__)___-__________ TEL: (__)___-__________ If to Senior Creditor, at such address as Senior Creditor shall designate in a writing given to Subordinated Creditor and Borrower, or to such other address as each party may designate for itself by like notice. 18. SEVERABILITY 10 32 Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. 19. GOVERNING LAW This Agreement has been approved by Subordinated Creditor in the State of Illinois, and shall be governed by and interpreted in accordance with the laws of the State of Illinois without regard to principles of conflict of laws that would cause the application of laws of any other jurisdiction. 20. ASSIGNMENT This Agreement shall be binding upon Subordinated Creditor, Borrower and their respective successors and assigns, and shall inure to the benefit of and be enforceable by Senior Creditor and its successors and assigns. 21. EFFECTIVENESS OF AGREEMENT This Agreement shall be effective upon the occurrence of both of the following events: (a) the execution of this Agreement by Borrower and its acceptance in Rosemont, Illinois by Subordinated Creditor, and (b) the delivery by Borrower and Senior Creditor to Subordinated Creditor of written notice (the "Notice of Senior Loan") in the form attached hereto as Exhibit A, that Borrower has entered into a Senior Loan Agreement with Senior Creditor for Senior Debt, which notice shall identify Senior Creditor and state the address to which notices to Senior Creditor are to be sent. Borrower agrees to furnish Subordinated Creditor with a copy of the Senior Loan Agreement and such other Senior Loan Documents as Subordinated Creditor shall reasonably request; provided, however, that any delay or failure by borrower to furnish such copies shall not limit or impair the effectiveness of this Agreement. 22. MUTUAL WAIVER OF JURY TRIAL Because disputes arising in connection with complex financial transactions are most quickly and economically resolved by an experienced and expert person and the parties wish applicable state and federal laws to apply (rather than arbitration rules), the parties desire that their disputes be resolved by a judge applying such applicable laws. EACH OF BORROWER, SUBORDINATED CREDITOR, AND SENIOR CREDITOR SPECIFICALLY WAIVE EACH PARTY'S RIGHT TO TRIAL BY JURY OF ANY CAUSE OF ACTION, CLAIM, CROSS-CLAIM, COUNTERCLAIM, THIRD PARTY CLAIM OR ANY OTHER CLAIM (COLLECTIVELY, "CLAIMS") ASSERTED BY BORROWER, SUBORDINATED CREDITOR, OR SENIOR CREDITOR AGAINST THE OTHER PARTY OR PARTIES TO THIS AGREEMENT. This Waiver extends to all such claims, including, without limitation, claims which involve persons or entities other than Borrower, Subordinated Creditor, and Senior Creditor; claims which arise out of or are in any way connected to the relationships between or among Borrower, Subordinated Creditor, and Senior Creditor; and any claims for damages, breach of contract, specific performance, or any equitable or legal relief of any kind. 23. COUNTERPARTS 11 33 This Agreement and any amendments, waivers, consents or supplements hereto may be executed in any number of counterparts, and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all of which counterparts together shall constitute but one and the same instrument. 12 34 IN WITNESS WHEREOF, this Subordination Agreement has been executed as of the date first above written. BORROWER: ----------------------------------------- Signature: ------------------------------- Print Name: ------------------------------ Title: ----------------------------------- ACCEPTED IN ROSEMONT. ILLINOIS: SUBORDINATED CREDITOR COMDISCO, INC. Signature: ------------------------------- Print Name: ------------------------------ Title: ----------------------------------- 13 35 EXHIBIT A TO SUBORDINATION AGREEMENT NOTICE OF SENIOR LOAN Pursuant to Section 2 of the Subordination Agreement dated as of April ________ , 1999, by and between Comdisco, Inc., (as Subordinated Creditor) and _____________ (as Borrower), notice is hereby given that Borrower has entered into a Senior Loan Agreement with __________________ (as Senior Creditor), whose address is: ________________ Facsimile: (___)___ -______, and that on and after the date of this Notice Senior Creditor is and shall be entitled to all the rights and benefits of the Subordination Agreement and shall be bound thereby. Attached hereto are true and correct copies, as executed, of the Senior Loan Agreement and the other Senior Loan Documents. BORROWER: ----------------------------------------- Signature: ------------------------------- Print Name: ------------------------------ Title: ----------------------------------- SENIOR CREDITOR: [NAME] ----------------------------------- Signature: ------------------------------- Print Name: ------------------------------ Title: ----------------------------------- 14 EX-10.9 13 0013.txt LOAN & SECURITY AGREEMENT ((MMC/GATX) 1 EXHIBIT 10.9 LOAN AND SECURITY AGREEMENT Agreement No._____________ Dated as of November 9, 1999 by and among MMC/GATX PARTNERSHIP NO. I as agent and a lender SILICON VALLEY BANK as payment agent and a lender VENTURE LENDING & LEASING II, INC. TRANSAMERICA BUSINESS CREDIT CORPORATION and LIGHTHOUSE CAPITAL PARTNERS as lenders And COLO.COM 2000 Sierra Point Parkway Suite 601 Brisbane, CA 94005-1819 as borrower CREDIT AMOUNT: $17,000,000
Commitment Amount Commitment Percentage ----------------- --------------------- MMC/GATX Partnership No. I $5,000,000 29.4% Venture Lending & Leasing II, Inc. $5,000,000 29.4% Transamerica Business Credit $3,000,000 17.6% Corporation Silicon Valley Bank $2,000,000 11.8% Lighthouse Capital Partners $2,000,000 11.8%
Repayment Period: 42 months Treasury Note Maturity: 42 months Final Payment Percentage: 10% Loan Margin: 393 basis points
Commitment Termination Date: December 31, 2001 Eligible Equipment: Eligible Equipment at Borrower's Financed Equipment Locations. The terms and information set forth on this cover page are a part of the attached Loan and Security Agreement, dated as of the date first written above (this "Agreement"), entered into by and among MMC/GATX Partnership No. I ("MMC/GATX"), in its individual capacity, Silicon Valley Bank ("SVB"), in its individual capacity, Venture Lending & Leasing II, Inc. ("VLL"), Transamerica Business Credit Corporation ("IBC") and Lighthouse Capital Partners ("Lighthouse") (each individually a "Lender" and collectively, "Lenders"), MMC/GATX as agent, not individually, SVB as payment agent, not individually, and COLO.COM ("Borrower"). The terms and conditions of this Agreement agreed to between the parties hereto are as follows: 2 AGREEMENT 1. Definitions and Construction. 1.1 Definitions. As used in this Agreement, the following terms shall have the following definitions: "Affiliate" means any Person that owns or controls directly or indirectly ten percent or more of the stock of another entity, any Person that controls or is controlled by or is under common control with such Persons or any Affiliate of such Persons or each of such Person's officers, directors, joint venturers or partners. "Agent" means MMC/GATX, not in its individual capacity, but solely in its capacity as agent on behalf of and for the benefit of Lenders and any successor agent. "Agent's Expenses" means all reasonable costs or expenses (including reasonable attorneys' fees and expenses) incurred in connection with the preparation, negotiation, documentation, administration, funding, and enforcement of the Loan Documents; and Agent's reasonable attorneys' fees and expenses incurred in amending, enforcing or defending the Loan Documents, (including fees and expenses of appeal or review, or those incurred in any insolvency proceeding) whether or not suit is brought. "Agreement" shall mean this Loan and Security Agreement, as the same may from time to time be amended or supplemented. "All-In Rate" shall be the per annum rate of interest at which the Basic Rate and the Final Payment amortize the Loan. "Applicable Premium" shall mean an amount equal to: (i) 10% of the Current Principal Balance on or before twelve (12) months after the Funding Date, (ii) 8% of the Current Principal Balance more than twelve (12) months after, but on or before eighteen (18) months after the Funding Date, (iii) 6% of the Current Principal Balance more than eighteen (18) months after, but on or before twenty-four (24) months after the Funding Date, (iv) 4% of the Current Principal Balance more than Twenty-four (24) months after, but on or before thirty (30) months after the Funding Date, (v) 3% of the Current Principal Balance more than thirty (30) months after, but on or before thirty-six (36) months after the Funding Date, or (vi) 2% of the Current Principal Balance more than thirty-six (36) months after the Funding Date. "Basic Rate" means, as of the relevant Funding Date, the per annum rate of interest (based on a year of twelve 30-day months) equal to the sum of (a) the U.S. Treasury note yield to maturity for a term equal to the Treasury Note Maturity as quoted in the Western edition of The Wall Street Journal on the date the Loan Agreement Supplement is prepared, plus (b) the Loan Margin. Notwithstanding the foregoing, the Basic Rate shall not exceed the highest rate permitted by applicable law to be charged on commercial loans. "Borrower" shall have the meaning set forth on the cover page hereof. 1 3 "Business Day" means any day that is not a Saturday, Sunday, or other day on which banking institutions are authorized or required to close in California. "Closing Date" means the date that each of the conditions precedent listed in Section 3.1 has been satisfied or waived in writing by Lenders. "Code" means the Uniform Commercial Code as adopted and in effect in the State of California, as amended from time to time. "Collateral" has the meaning given that term in Section 4.1, including, without limitation, all Financed Equipment listed in any Loan Agreement Supplement executed from time to time pursuant to Section 4.2. "Collateral Assignment Agreement" means an agreement substantially in the form of Exhibit F or such form as Requisite Lenders may accept. "Commitment Fee" has the meaning given that term in Section 2.7. "Commitment Termination Date" means the date following such term on the cover page of this Agreement. "Commitment" or "Commitment Amount" means with respect to each Lender the amount set forth following such term on the cover page of this Agreement under the column titled "Commitment Amount" and "Commitments" means all such amounts collectively. "Commitment Percentage" means with respect to each Lender, the percentage set forth on the cover page of this Agreement under the column titled "Commitment Percentage." "Credit Amount" means the amount set forth following such term on the cover page of this Agreement. "Current Principal Balance" shall be the outstanding principal balance of the Loan as of the date of prepayment calculated from an amortization schedule using the All-In Rate. "Default" means any event which with the passing of time or the giving of notice or both would become an Event of Default hereunder. "Default Rate" means the per annum rate of interest equal to 5% over the rate at which the Basic Rate and the Final Payment amortize the Loan, but such rate shall in no event be more than the highest rate permitted by applicable law to be charged on commercial loans. "Eligible Equipment" shall mean, to the extent reasonably acceptable to Lenders, New Equipment; provided that Other Equipment having an aggregate Stated Cost of not more than 50% of the aggregate Loans outstanding at any time may also constitute Eligible Equipment. "Environmental Claims" means all claims, however asserted, by any Governmental Authority or other Person alleging potential liability or responsibility for violation of any Environmental Law or for release or injury to the environment or threat to public health, personal 2 4 injury (including sickness, disease or death), property damage, natural resources damage, or otherwise alleging liability or responsibility for damages (punitive or otherwise), cleanup, removal, remedial or response costs, restitution, civil or criminal penalties, injunctive relief, or other type of relief, resulting from or based upon (a) the presence, placement, discharge, emission or release (including intentional and unintentional, negligent and non-negligent, sudden or non-sudden, accidental or non-accidental placement, spills, leaks, discharges, emissions or releases) of any Hazardous Material at, in, or from Property, whether or not owned by Borrower, or (b) any other circumstances forming the basis of any violation, or alleged violation, of any Environmental Law. "Environmental Laws" means all foreign, federal, state or local laws, statutes, common law duties, rules, regulations, ordinances and codes, together with all administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authorities, in each case relating to environmental, health, safety and land use matters, including the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Clean Air Act, the Federal Water Pollution Control Act of 1972, the Solid Waste Disposal Act, the Federal Resource Conservation and Recovery Act, the Toxic Substances Control Act and the Emergency Planning and Community Right-to-Know Act. "Equity Securities" of any Person shall mean (a) all common stock, preferred stock, participations, shares, partnership interests or other equity interests in and of such Person (regardless of how designated and whether or not voting or non-voting) and (b) all warrants, options and other rights to acquire any of the foregoing. "Event of Default" has the meaning given to such term in Section 8. "Event of Loss" has the meaning given to that term in Section 6.10. "Final Payment" means, with respect to each Loan, a payment (in addition to and not in substitution for the regular monthly payments of principal and accrued interest) due on the Maturity Date for such Loan equal to the Loan Amount for such Loan at such time multiplied by the Final Payment Percentage. "Final Payment Percentage" means the percentage set forth following such term on the cover page of this Agreement. "Financed Equipment" has the meaning given to that term in Exhibit A to any Loan Agreement Supplement, as amended or supplemented from time to time. "Finance Equipment Locations" means the locations of Borrower's facilities in the United States specified in Exhibit A. "Funding Date" means any date on which a Loan is made to or on account of Borrower under this Agreement. "Governmental Authority" means (a) any federal, state, county, municipal or foreign government, or political subdivision thereof, (b) any governmental or quasi-governmental agency, authority, board, bureau, commission, department, instrumentality or public body, 3 5 (c) any court or administrative tribunal or (d) with respect to any Person, any arbitration tribunal or other non-governmental authority to whose jurisdiction that Person has consented. "Hazardous Materials" means all those substances which are regulated by, or which may form the basis of liability under, any Environmental Law, including all substances identified under any Environmental Law as a pollutant, contaminant, hazardous waste, hazardous constituent, special waste, hazardous substance, hazardous material, or toxic substance, or petroleum or petroleum derived substance or waste. "Intellectual Property" shall mean all of Borrowers right, title and interest in and to patents, patent rights (and applications and registrations therefor), trademarks and service marks (and applications and registrations therefor), inventions, copyrights, mask works (and applications and registrations therefor), trade names, trade styles, software and computer programs, trade secrets, methods, processes, know how, drawings, specifications, descriptions, and all memoranda, notes, and records with respect to any research and development, all whether now owned or subsequently acquired or developed by Borrower and whether in tangible or intangible form or contained on magnetic media readable by machine together with all such magnetic media "Interim Payment" means, with respect to each Loan, an amount equal to the initial Loan Amount multiplied by the percentage equal to the product of (i) the quotient derived from dividing the initial Loan Factor with respect to such Loan by 30, and (ii) the number of days from (and including) the Funding Date of such Loan to (but not including) the first Payment Date with respect to such Loan. "Landlord Agreement" means an agreement substantially in the form of Exhibit E or such other form as Requisite Lenders may agree to accept. "Lenders" shall have the meaning set forth on the cover page hereof. "Lenders' Expenses" means all reasonable costs or expenses (including reasonable attorneys' fees and expenses) incurred in connection with the preparation, negotiation, documentation, administration, funding, and enforcement of the Loan Documents; and Lenders' reasonable attorneys' fees and expenses incurred in amending, modifying, enforcing or defending the Loan Documents, including the exercise of any rights or remedies afforded hereunder or under applicable law, whether or not suit is brought. "Lien" means any pledge, bailment, lease, mortgage, hypothecation, conditional sales and title retention agreement, encumbrance or other lien with respect to the Property in favor of any Person. "Lighthouse" means Lighthouse Capital Partners. "Loan" means each advance of credit by Lenders to Borrower under this Agreement in accordance with their Commitment Percentage. "Loan Agreement Supplement" means a supplement to this Agreement in substantially the form of Exhibit C. 4 6 "Loan Amount" means, with respect to each Loan, as of any date, the original principal amount of such Loan less prepayments of such Loan paid prior to such date. "Loan Documents" means, collectively, this Agreement, each Loan Agreement Supplement, the warrants, the Landlord Agreements, the Collateral Assignment Agreements and all other documents, instruments and agreements entered into in connection with this Agreement, all as amended or extended from time to time. "Loan Factor" means, with respect to each Loan, the amount set forth as a percentage in the Loan Terms Schedule with respect to such Loan, calculated using the Basic Rate applicable to such Loan. "Loan Margin" means the number of basis points set forth following such term on the cover page of this Agreement. "Loan Terms Schedule" means, with respect to each Loan, Annex B to the Loan Agreement Supplement prepared by Lenders in connection with such Loan. "Maturity Date" means, with respect to each Loan, the last day of the Repayment Period for such Loan, or if earlier, the date of acceleration of such Loan by Lenders following an Event of Default. "Minimum Funding Amount" means $50,000. "MMC/GATX" means MMC/GATX PARTNERSHIP NO. I. "New Equipment" means Financed Equipment delivered to Borrower by the manufacturer or vendor not more than ninety (90) days prior to the Funding Date of the Loan relating to such Financed Equipment. "Obligations" means all debt, principal, interest, fees, charges, expenses and attorneys' fees and costs and other amounts, obligations, covenants, and duties owing by Borrower to Lenders or Agent of any kind and description (whether pursuant to or evidenced by the Loan Documents, or by any other agreement among Agent, Lenders and Borrower, and whether or not for the payment of money), whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, including the principal, interest and Final Payment due with respect to the Loans, and further including all Lenders' Expenses and Agent's Expenses that Borrower is required to pay or reimburse by the Loan Documents, by law, or otherwise; provided. however, "Obligations" shall expressly exclude any obligations of Borrower pursuant to its standby letter of credit facility with SVB. "Other Equipment" means tenant improvements and buildout costs, software, tooling, equipment specially manufactured for Borrower, equipment delivered to Borrower by the manufacturer or vendor more than ninety (90) days prior to the Funding Date of the Loan, and other soft costs; all of the foregoing in place, or located, at one of the Financed Equipment Locations. 5 7 "Payment Agent" means SVB, not in its individual capacity but solely in its capacity as payment agent. "Payment Date" has the meaning given to that term in Section 2.2(a). "Permitted Liens" means the following: (a) The Lien created by this Agreement; (b) Liens for taxes, fees, assessments or other governmental charges or levies, either not delinquent or being contested in good faith by appropriate proceedings and as to which full payment is bonded or adequate reserves are maintained on Borrower's books in accordance with GAAP, provided the same have no priority over any of Agent's security interests; (c) Liens of materialmen, mechanics, warehousemen, carriers, or other similar liens accruing after the date hereof and in the ordinary course of business or by operation of law or regulation and securing obligations not yet due; (d) Easements, reservations, rights-of-way, restrictions, minor defects or irregularities in title and other similar charges or encumbrances affecting real property not constituting a material adverse effect; (e) Liens in favor of customs and revenue authorities arising as a matter of law to secure payments of customs duties in connection with the importation of goods; (f) Liens that are not prior to the Lien of Agent which constitute rights of set-off of a customary nature or banker's Liens with respect to amounts on deposit, whether arising by operation of law or by contract, in connection with arrangement entered in to with banks in the ordinary course of business; (g) Liens to secure payment of worker's compensation, employment insurance, old age pensions or other social security obligations of Borrower in the ordinary course of business of Borrower; and (h) Liens on any of Borrower's Property which does not constitute "Collateral." "Person" means and includes any individual, any partnership, any corporation, any business trust, any joint stock company, any limited liability company, any unincorporated association or any other entity and any domestic or foreign national, state or local government, any political subdivision thereof, and any department, agency, authority or bureau of any of the foregoing. "Property" means any interest in any kind of property or asset, whether real, personal or mixed, whether tangible or intangible. 6 8 "Repayment Period" means the period beginning on the first Payment Date and continuing for the number of calendar months set forth following such term on the cover page of this Agreement. "Requisite Lenders" means at any time, Lenders then holding at least seventy-one percent (71%) of the then aggregate unpaid principal amount of the Loans then outstanding or, if no Loans are then outstanding, Lenders then having at least seventy-one (71%) of the aggregate Commitments. "Scheduled Payments" has the meaning given to such term in Section 2.2(a). "Stated Cost" means (i) with respect to New Equipment, the original cost to Borrower of the item of New Equipment excluding any and all freight, installation, taxes and outer soft costs or (ii) with respect to Used Equipment, the Agent's appraised value of such item of Used Equipment at the time of the making of the Loan financing such item of Used Equipment. "Stipulated Loan Value" means, with respect to each Loan, the percentage set forth with respect to such Loan in the Loan Terms Schedule for such Loan, determined as of the Payment Date on which payment of such amount is to be made, or if such date is not a Payment Date, on the Payment Date immediately succeeding such date. "Subsidiary" means any corporation of which a majority of the outstanding capital stock entitled to vote for the election of directors (otherwise than as the result of a default) is owned by Borrower directly or indirectly through Subsidiaries. "SVB" means Silicon Valley Bank. "TBC" means Transamerica Business Credit Corporation. "Term" means the period from and after the date hereof until the payment in full of all amounts and liabilities payable under this Agreement and the other Loan Documents, including principal and interest on the Loans and the Final Payment with respect to each Loan. "Treasury Note Maturity" means the period of months set forth following such term on the cover page of this Agreement. "Used Equipment" means all Financed Equipment which is not New Equipment. "VLL" means Venture Lending & Leasing II, Inc. "Warrants" means separate warrants in favor of each of the Lenders to purchase securities of Borrower substantially in the form of Exhibit B. 1.2 Other Interpretive Provisions. References in this Agreement to "Articles," "Sections," "Exhibits, "schedules" and "Annexes" are to recitals, articles, sections, exhibits, schedules and annexes herein and hereto unless otherwise indicated. References in this Agreement and each of the other Loan Documents to any document, instrument or agreement shall include (a) all exhibits, schedules, annexes and other attachments thereto, (b) all 7 9 documents, instruments or agreements issued or executed in replacement thereof, and (c) such document, instrument or agreement, or replacement or predecessor thereto, as amended, modified and supplemented from time to time and in effect at any given time. The words "hereof," "herein" and "hereunder" and words of similar import when used in this Agreement or any other Loan Document shall refer to this Agreement or such other Loan Document, as the case may be, as a whole and not to any particular provision of this Agreement or such other Loan Document, as the case may be. The words "include" and "including" and words or similar import when used in this Agreement or any other Loan Document shall not be construed to be limiting or exclusive. Unless otherwise indicated in this Agreement or any other Loan Document, all accounting terms used in this Agreement or any other Loan Document shall be construed, and all accounting and financial computations hereunder or thereunder shall be computed, in accordance with generally accepted accounting principles as in effect in the United States of America from time to time. 2. Loans; Repayment. 2.1 Commitment. (a) The Credit Amount. Subject to the terms and conditions of this Agreement and relying upon the representations and warranties herein set forth as and when made or deemed to be made, Lenders agree to lend to Borrower, severally and not jointly, from time to time prior to the Commitment Termination Date, the Loans according to each Lender's pro rata share of the Credit Amount (based upon the respective Commitment of each Lender); provided that the aggregate principal amount of the Loans shall not exceed the Credit Amount at such time. Loans may not be prepaid except in accordance with Section 2.5; provided further that the aggregate principal amount of Loans relating to Other Equipment shall not exceed fifty percent (50%) of the then outstanding balance of the Loans. (b) Promissory Note. Each Loan Terms Schedule shall be considered a promissory note evidencing the amounts due hereunder for all purposes. (c) Use of Proceeds. The proceeds of the Loans shall be used solely for the purchase of Eligible Equipment or reimbursement to Borrower of the Stated Cost of Eligible Equipment; provided that all such Eligible Equipment remains located at all times at one of the Financed Equipment Locations as provided by this Agreement. 2.2 Scheduled Payments; Payment of Interest; Final Payment; Loan Fee. (a) Scheduled Payments. Borrower shall make payments of principal and accrued interest in advance for each Loan (collectively, "Scheduled Payments") as set forth in the Loan Terms Schedule, commencing on the date set forth on the Loan Term Schedule applicable to such Loan and continuing thereafter during the Repayment Period on the first Business Day of each calendar month (each a "Payment Date"), in an amount equal to the Loan Factor multiplied by the Loan Amount for such Loan as of such Payment Date. In any event, all unpaid principal and accrued interest shall be due and payable in full on the last Payment Date with respect to such Loan. 8 10 (b) Interim Payment. Unless the Funding Date for a Loan is a Payment Date, Borrower shall pay the Interim Payment payable with respect to such Loan on the Funding Date, as specified in the Loan Term Schedule applicable to such Loan. (c) Payment of Interest. Borrower shall pay interest on each Loan at a per annum rate of interest equal to the Basic Rate specified in the applicable Loan Agreement Supplement for such Loan. All computations of interest on Loans shall be based on a year of twelve 30-day months. Notwithstanding any other provision hereof, the amount of interest payable hereunder shall not in any event exceed the maximum amount permitted by the law applicable to interest charged on commercial loans. (d) Final Payment. Unless a Loan is prepaid in full, on the Maturity Date with respect to such Loan, Borrower shall pay, in addition to any unpaid principal and accrued interest and all other amounts due on such date with respect to such Loan, an amount equal to the Final Payment with respect to such Loan. (e) Termination of Commitment to Lend. Notwithstanding anything in the Loan Documents, each Lender's obligation to lend the undisbursed portion of the such Lender's Commitment to Borrower hereunder shall terminate on the earlier of (i) at the Requisite Lenders' sole election, the occurrence and continuance of any Default or Event of Default hereunder, and (ii) the Commitment Termination Date. Notwithstanding the foregoing, each Lender's obligation to lend the undisbursed portion of such Lender's Commitment to Borrower shall terminate if, in Requisite Lenders' sole judgment, there has been a material adverse change in the general affairs, management, results of operations, condition (financial or otherwise) or prospects of Borrower, whether or not arising from transactions in the ordinary course of business, or there has been any material adverse deviation by Borrower from the business plan of Borrower presented to and not disapproved by Requisite Lenders, since the date of this Agreement. 2.3 Other Payment Terms. (a) Place and Manner. Borrower shall make all payments due to Agent or Lenders in lawful money of the United States. All payments of principal, interest, fees and other amounts payable by Borrower hereunder shall be made, in immediately available funds, by debit to any account of Borrower with Payment Agent not later than 10:00 a.m. California time, on the date on which such payment is made. Borrower authorizes and directs SVB, as Payment Agent, to debit the amount of each such payment to any account of Borrower, and to disburse to each Lender its respective share of such payment on each Payment Date. Payment Agent shall disburse payments to the other Lenders as follows: MMC/GATX Payment GATX Capital Corporation Bank Name: Bank of America Bank Address: Dallas, Texas 75202 Account No.: 3750878673 ABA Routing No.: 111-000012 9 11 Reference: Colo.com Invoice # VLL Payment Venture Lending & Leasing II, Inc. Bank Name: Investors Bank & Trust Co. Account No.: 8421183 Attention: Bruce Maxwell ABA Routing No.: 011001438 F/C Client Funds #56930395 Reference: Venture Lending & Leasing II, Inc. TBC Payment Transamerica Business Credit Corporation Bank Name: Bank One, NA Bank Address: One Bank One Plaza Chicago, IL 60670 Account No.: 55-75427 ABA Routing No.: 071-000-013 Reference: Colo.com Lighthouse Payment Lighthouse Capital Partners Bank Name: Imperial Bank Bank Address: Santa Clara Valley Regional Office Account No.: 20-007-605 ABA Routing No.: 122201444 Reference: Colo.com Any payment received by Agent, Payment Agent or any Lender for the account of another Lender shall be paid promptly to such Lender, in like funds, for the Loan in respect of which such payment is made. (b) Date. Whenever any payment due hereunder shall fall due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall be included in the computation of interest or fees, as the case may be. 10 12 (c) Default Rate. If either (i) any amounts required to be paid by Borrower under this Agreement or the other Loan Documents (including principal, interest, the Final Payment payable with respect to any Loan, and any fees or other amounts) remain unpaid after such amounts are due, or (ii) an Event of Default has occurred and is continuing, Borrower shall pay interest on the aggregate, outstanding balance hereunder from the date due or from the date of the Event of Default, as applicable, until such past due amounts are paid in full or until all Events of Default are cured, as applicable, at a per annum rate equal to the Default Rate. All computations of such interest shall be based on a year of twelve 30-day months. 2.4 Procedure for Making Loans. (a) Notice. Whenever Borrower desires that Lenders make a Loan, Borrower is responsible for providing Agent with a list of equipment proposed to be financed with such Loan together with such additional information with respect to the Loan and the Eligible Equipment as Agent shall reasonably request. Following the receipt by Agent of such information in form and substance reasonably satisfactory to it, Agent shall notify Borrower that the condition set forth in Section 3.2(b) has been met and Borrower may then notify Agent in writing (or by telephone with prompt confirmation in writing) of the date on which it desires Lenders to make such Loan. Such notice shall (i) be made at least five (5) Business Days in advance of the desired Funding Date, (ii) be irrevocable and (iii) request that Agent prepare a Loan Terms Schedule for such Loan. Within two (2) Business Days following receipt of such notice, Agent shall notify each Lender by telephone or facsimile of the principal amount (including such Lender's Commitment Percentage thereof) and Funding Date of the Loan being requested by Borrower. Borrower's request for a Loan shall be deemed to be a representation and warranty by Borrower that no Default or Event of Default has occurred and is continuing, and that the representations and warranties set forth in Section 5 are true and correct as of the time of such notice as if made at such time. Subject to the terms and conditions of this Agreement, as soon as practicable prior to 11:00 a.m. California Time on the Funding Date specified in the Loan Terms Schedule, each Lender shall transfer an amount equal to its Commitment Percentage multiplied by the amount of the Loan to the account specified in Section 2.4(c) in immediately available funds. Each Lender's obligation to make its Commitment Percentage of the Loan shall be expressly subject to the satisfaction of the conditions set forth in Sections 3.1 and 3.2. (b) Loan Factor and Stipulated Loan Value Calculation. Prior to each Funding Date, Agent, on behalf of Lenders, shall establish the Basic Rate, the Loan Factor and Stipulated Loan Value with respect to such Loan. The Loan Factor shall be calculated in a manner to fully amortize the Loan over the Repayment Period applicable to such Loan in equal periodic installments of principal and interest. The Loan Factor and Stipulated Loan Value applicable to each Loan shall be set forth in the Loan Agreement Supplement to be executed by Borrower with respect to each Loan and shall be conclusive in the absence of a manifest error. (c) Disbursement. Each Lender shall disburse its pro rata portion of such Loan by wire transfer to Borrower at Silicon Valley Bank, Name: SIL VLY BK SJ, Account No. 3300172656, ABA Routing No. 121140399, Account Name: COLO.COM. Notwithstanding anything stated herein to the contrary, no Lender shall have any obligation to advance funds on behalf of any other Lender. 11 13 2.5 Prepayments. (a) Prepayment Upon an Event of Loss. if any Financed Equipment is subject to an Event of Loss and Borrower is required to or elects to prepay the Loan with respect to such Financed Equipment, then such Loan shall be prepaid to the extent and in the manner provided hereunder. (b) Mandatory Prepayment Upon an Acceleration. If the Loans are accelerated following the occurrence of an Event of Default or otherwise (other than following an Event of Loss), then Borrower shall immediately pay to Lenders (i) all unpaid Scheduled Payments with respect to each Loan due prior to the date of prepayment, (ii) the Stipulated Loan Value with respect to each Loan multiplied by the Loan Amount of such Loan, and (iii) all other sums, if any, that shall have become due and payable hereunder. (c) Optional Prepayment By, Or Replacement Of, Financed Equipment Location. In the event Borrower desires to prepay all, but not less than all, of the Loans made as to a particular financed Equipment Location, Borrower shall provide a written notice to each Lender of (i) the Financed Equipment Location as to which Borrower wishes to prepay all of its Loans, (ii) the locations of Borrower's facilities in the United States which are not either Financed Equipment Locations or subject to another lender's equipment loans or security interests ("Alternative Locations"). Requisite Lenders shall determine either that (i) Borrower may prepay all, but not less than all, of the Loans made as to such particular Financed Equipment Location, or (ii) Borrower may replace such Financed Equipment Location with Requisite Lenders' selection of one of the Alternative Locations. Borrower shall provide Lenders with such information regarding any of the Alternative Locations and assets located thereat as Lenders may reasonably request in order for Requisite Lenders to make such determination. Lenders shall have ten (10) Business Days after receipt of Borrower's written notice and information requested by Lenders regarding the Alternative Locations to make such determination, and Agent shall provide Borrower with written notice of such determination ("Determination Notice"). If Requisite Lenders determine to replace such Finance Equipment Locations with an Alternative Location, Borrower at its expense, shall cooperate and execute such further agreements and security documentation, substantially on the terms and conditions of this Agreement, to secure such Loans and the, Alternative Location, and release such Financed Equipment Location. If Requisite Lenders determine to allow Borrower to prepay all of the Loans as to such Finance Equipment Location, Borrower shall prepay, within five (5) Business Days of Lenders' Determination Notice, all such Loans in full at a prepayment price with respect to each Loan equal to the Current Principal Balance of the Loan, plus interest accrued on the Loan through and including the date of such prepayment, plus a premium on the Loan equal to the Applicable Premium. Borrower may exercise the prepayment right of this section only as to a total of one (1) Financed Equipment Location. If Requisite Lenders cannot agree, the determination shall be a prepay. (d) No Other Prepayment. Borrower may not prepay any Loan except (1) upon the occurrence of an event described in Section 2.5(a), (b) or (c) above in which event the prepayment shall be made as described in such sections, or (2) in connection with Lenders' refusal to consent under Sections 7.5(iv) or 7.7, in which case, Borrower shall prepay all, but not less than all, of the Loans in full at a prepayment price with respect to each Loan equal to the 12 14 Current Principal Balance of the Loan plus interest accrued on the Loan through and including the date of such prepayment, plus a premium equal to the Applicable Premium. 2.6 Minimum Funding Amount; Maximum Number of Fundings. Except with the prior consent of Requisite Lenders, in Requisite Lenders' sole discretion, (i) the amount of each requested Loan shall not be less than the Minimum Funding Amount, (ii) there shall not be more than one funding of Loans in any one calendar month, (iii) each Loan (and the Financed Equipment thereunder) shall be applicable to a separate Financed Equipment Location, and (iv) more than one Financed Equipment Location may be financed at a time so long as each Loan meets the requirements of clauses (i), (ii) and (iii) and this Agreement. 2.7 Commitment Fee; Expenses. Borrower has paid a commitment fee in the amount of Twenty-Five Thousand Dollars ($25,000) (the "Commitment Fee"). The Commitment Fee, less an amount to pay Lenders' Expenses and Agent's Expenses in connection with due diligence and the negotiation and documentation (including filing and recording fees) of the Loan Documents, will be applied to the first payment due by Borrower after Agent's determination of such expenses. If such expenses exceed the Commitment Fee, Borrower agrees to pay such expenses within thirty (30) days of invoice. 3. Conditions of Loans. 3.1 Conditions Precedent to Closing. At the time of the execution and delivery of this Agreement, the Lenders shall have received, in form and substance reasonably satisfactory to Lenders, all of the following: (a) This Agreement duly executed by Borrower and each of the Lenders. (b) The separate Warrants to be issued to each Lender, each duly executed by Borrower. (c) The separate Warrant to be issued to MMC/GATX or the Person designated by it, in connection with its fee, duly executed by Borrower. (d) The intercreditor agreement, in form and substance satisfactory to Lenders, and duly executed by each of the Lenders. (e) A certificate of the secretary or assistant secretary of Borrower with copies of the following documents attached: (i) the articles of incorporation and bylaws of Borrower certified by Borrower as being in full force and effect on the Closing Date, (ii) incumbency and representative signatures, and (iii) resolutions authorizing the execution and delivery of this Agreement and each of the other Loan Documents. (f) A good standing certificate from Borrower's state of incorporation and the state in which Borrower's principal place of business is located, together with certificates of the applicable governmental authorities stating that Borrower is in compliance with the franchise tax laws of each such state, each dated as of a recent date. 13 15 (g) Evidence of the insurance coverage required by Section 6.9 of this Agreement. (h) All necessary consents of shareholders and other third parties with respect to the execution, delivery and performance of this Agreement, the Warrants and the other Loan Documents. (i) A legal opinion of Borrower's counsel covering the matters set forth in Exhibit D hereto. (j) Such other documents, and completion of such other matters, as Lenders may deem necessary or appropriate. 3.2 Conditions Precedent to all Loans. The obligation of Lenders to make each Loan, including the initial Loan, is further subject to the following conditions: (a) No Default or Event of Default shall have occurred and be continuing. (b) Borrower shall have provided to Agent, with respect to the Eligible Equipment which is requested to be financed with the proceeds of the Loan to be made on such Funding Date, such invoices, purchase orders, bills of sale, serial numbers, agreements, canceled checks, and other documents as Lenders shall reasonably request to evidence the ownership by Borrower of, the payment in full of the purchase price of such Eligible Equipment, each in form and substance reasonably satisfactory to Lenders. (e) Each Loan shall be for Financed Equipment at one Financed Equipment Location and Borrower shall have provided Agent with the location of each item of Financed Equipment and a Collateral Assignment Agreement and a Landlord Agreement for such Financed Equipment Location, which have been duly executed by each of the parties thereto. (d) Borrower, Agent and Lenders shall have executed a Loan Agreement Supplement, including a Loan Terms Schedule and a list of Financed Equipment with respect to the proposed Loan. (e) Agent shall have received such documents, instruments and agreements, including UCC financing statements or amendments to UCC financing statements, as Agent shall reasonably request to evidence the perfection and priority of the security interests granted to Agent, on behalf of and for the benefit of Lenders, pursuant to Section 4. (f) Borrower shall have delivered to Agent, on behalf of Lenders, a release, or estoppel letter, as appropriate, from any Person having an existing Lien superior to the Lien of Lenders on any item of Eligible Equipment which is requested to be financed. (g) Such other documents, and completion of such other matters, as Agent may deem necessary or appropriate. 14 16 3.3 Covenant to Deliver. Borrower agrees (not as a condition but as a covenant) to deliver to Agent each item required to be delivered to Agent and/or Lenders as a condition to each Loan, if such Loan is advanced. Borrower expressly agrees that the extension of such Loan prior to the receipt by Agent or Lenders of any such item shall not constitute a waiver by Agent or Lenders of Borrower's obligation to deliver such item, and any such extension in the absence of a required item shall be in Lenders' sole discretion. 4. Creation of Security Interest. 4.1 Grant of Security Interest. Borrower grants to Agent on behalf and for the benefit of Lenders, a valid, first priority, continuing security interest in all presently existing and hereafter acquired or arising Collateral in order to secure prompt, full and complete payment of any and all Obligations and in order to secure prompt, full and complete performance by Borrower of each of its covenants and duties under each of the Loan Documents. The "Collateral" shall mean and include all right, title, interest, claims and demands of Borrower in and to the following: (a) All goods and equipment now owned or hereafter acquired, including, without limitation, all laboratory equipment, computer equipment, office equipment, machinery, fixtures, vehicles (including motor vehicles and trailers), and any interest in any of the foregoing, and all attachments, accessories, accessions, replacements, substitutions, additions, and improvements to any of the foregoing, which are now or at any time hereafter located on any of the Financed Equipment Locations; (b) All inventory now owned or hereafter acquired, including, without limitation, all merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products which is now or at any time hereafter located on any of the Financed Equipment Locations, including such inventory therefrom as is temporarily out of Borrower's custody or possession or in transit and including any returns upon any accounts or other proceeds, including insurance proceeds, resulting from the sale or disposition of any of the foregoing and any documents of title representing any of the above, and Borrower's books relating to any of the foregoing; (c) All contract rights and general intangibles (including Intellectual Property), including, without limitation, goodwill, license agreements, franchise agreements, blueprints, drawings, purchase orders, customer lists, route lists, infringements, claims, computer programs, computer disks, computer tapes, literature, reports, catalogs, design rights, income tax refunds, payments of insurance and rights to payment of any kind, royalties, license rights and any and all credit insurance, guaranties, and other security therefor, as well as all merchandise returned to or reclaimed by Borrower, now or at any time hereafter owned or acquired by Borrower or in which Borrower now or at any time hereafter has any rights, relating to any Financed Equipment Location, and Borrower's books relating to the foregoing; (d) All now existing and hereafter arising accounts and all other forms of obligations owing to Borrower arising out of the sale or lease of space, the licensing of technology or the rendering of services by Borrower (subject, in each case, to the contractual rights of third parties to require funds received by Borrower to be expended in a particular 15 17 manner) now or at any time hereafter produced or generated by, or derived from, the ownership or operation of any of the Financed Equipment Locations (collectively, "Receivables"); provided that any portion of any Receivables which have been fully earned by performance by Borrower (collectively, "Earned Receivables") shall be excluded as Collateral hereunder; (e) All deposit accounts, now existing or hereafter arising, maintained at SVB or with any other Lender (Borrower's execution and delivery of this Agreement to Lender shall constitute notice under the Code that Borrower has granted a security interest in such account or accounts in favor of Agent, for the benefit of the Lenders), and any and all monies, securities and other Property of Borrower, and the proceeds thereof, now or hereafter held by any of the Lenders or Agent, whether for safekeeping, custody, pledge, transmission, collection or otherwise; (f) All documents, cash, deposit accounts, letters of credit, certificates of deposit, instruments, chattel paper and investment property, including, without limitation, all securities, whether certificated or uncertificated, security entitlements, securities accounts, commodity contracts and commodity accounts, and all financial assets held in any securities account or otherwise, wherever located, now or at any time hereafter produced or generated by, or derived from, any of the Financed Equipment Locations; (g) Any and all claims, rights and interests in any of the above and all substitutions for, additions and accessions to and proceeds thereof, including, without limitation, insurance, condemnation, requisition or similar payments; and (h) Any and all of the following equipment collateral (collectively, "Equipment Collateral"): All right, title, interest, claims and demands of Borrower in and to each and every item of equipment, fixtures or personal property, whether now owned or hereafter acquired, together with all substitutions, renewals or replacements of and additions, improvements, accessions, replacement parts and accumulations to any and all of such equipment, fixtures or personal property (collectively, the "Equipment"), together with all proceeds thereof, including, without limitation, insurance, condemnation, requisition or similar payments, and all proceeds from sales, renewals, releases or other dispositions thereof, which is financed with or is designated as collateral for the Obligations on and after the date of this Agreement by designating such equipment, fixtures and personal property on a UCC financing statement listing Borrower as "debtor" and Lender as "secured party." (i) But expressly excluding any certificates of deposit now or hereafter maintained by SVB which secure any obligations of Borrower now or hereafter arising pursuant to Borrower's standby letter of credit facility with SVB, including without limitation. certificate of deposit account numbers 8800049728, 8800049741, 8800049818, 8800049829 and 8800050632 (collectively, the "SVB Collateral"). 16 18 4.2 After-Acquired Property. All Financed Equipment which is financed through Loans and any and all other Property generally described or referred to as Collateral which is hereafter acquired by Borrower shall ipso facto, and without any further conveyance, assignment or act on the part of Borrower or Lenders, become and be subject to the security interest herein granted as fully and completely as though specifically described herein. The list of Financed Equipment shall be amended and supplemented on each Funding Date by a Loan Agreement Supplement to incorporate all Financed Equipment financed with the Loan advanced on such Funding Date; provided, however, the failure to so amend and supplement the list of Financed Equipment shall not affect the grant by Borrower to Lender of the security interest in such Financed Equipment pursuant to this Section 4. This Agreement and the other documents in connection herewith may be otherwise supplemented and amended from time to time, as required by Lender, to reflect additional Collateral to be subject to the security interest granted pursuant to this Section 4. 4.3 Duration of Security Interest. Agent's security interest in the Collateral shall continue until the payment in full and the satisfaction of all Obligations, whereupon such security interest shall terminate; provided, however, if any item of Financed Equipment is subject to an Event of Loss, then following the prepayment of the Loan with respect to such item pursuant to Section 2.5, Agent shall release its security interest in such item of Financed Equipment. Agent shall, at Borrower's sole cost and expense, execute such further documents and take such further actions as may be reasonably necessary to effect the release contemplated by this Section 4.3, including duly executing and delivering termination statements for filing in all relevant jurisdictions under the Code. 4.4 Location and Possession of Collateral. The Equipment Collateral is and shall remain in the possession of Borrower at one of the Financed Equipment Locations. Notwithstanding the foregoing, Borrower may, not more than once per quarter, elect to move part of the Equipment Collateral from one Financed Equipment Location (the "Released Equipment"); provided (1) Borrower gives Lenders thirty (30) days' written notice of its request, including the description and value of the Released Equipment and the description and value of the equipment which will replace the Released Equipment at the Financed Equipment Location (the "Substitute Equipment"), (2) the Substitute Equipment must be of a greater or equal value than the Released Equipment in Requisite Lenders' judgment, (3) the Substitute Equipment must become "Equipment Collateral" under this Agreement, subject to Lenders' first priority security interest, (4) the Released Equipment does not consist of more than ten percent (10%) of the aggregate of all of the New Equipment as to the Loans made for that Financed Equipment Location, (5) the Substitute Equipment must be delivered to Borrower by the manufacturer or vendor not more than ninety (90) days prior to the Released Equipment being moved to another location, and (6) there is no Event of Default or Default existing or occurring. Borrower shall remain in full possession, enjoyment and control of the Collateral (except only as may be otherwise required by Agent for perfection of its security interest therein) and so long as no Event of Default has occurred and is continuing, shall be entitled to manage, operate and use the same and each part thereof with the rights and franchises appertaining thereto; provided, however, that the possession enjoyment, control and use of the Collateral shall at all time be subject to the observance and performance of the terms of this Agreement. 17 19 4.5 Markings On the Collateral. At Agent's request at any time during the Tern of the Loan (including any extension thereof), Borrower shall place in a conspicuous location on each item of Financed Equipment a plaque or outer marking to be supplied by Lenders which reads substantially as follows; MMC/GATX PARTNERSHIP NO. I, as Agent for Lenders, Lienholder. Such plaque or other marking shall not be removed (or if removed or damaged such plaque or other marking shall be replaced) until the security interest in favor of Agent in such item of Collateral is terminated pursuant to this Agreement. 4.6 Delivery of Additional Documentation Required. Borrower shall from time to time execute and deliver to Agent on behalf of Lenders, at the request of Agent, all financing statements and other documents Agent may reasonably request, in form satisfactory to Agent, to perfect and continue Agent's perfected security interests in the Collateral and in order to consummate fully all of the transactions contemplated under the Loan Documents. 4.7 Right to Inspect. Each Lender (through any of its officers, employees, or agents) shall have the right, upon reasonable prior notice, from time to time during Borrower's usual business hours, to inspect Borrower's books and records and to make copies thereof and to inspect, test, and appraise the Collateral in order to verify Borrower's financial condition or the amount, condition of, or any other matter relating to, the Collateral. 4.8 Intentionally omitted. 4.9 Real Property Collateral. (a) Documents. In connection with each Financed Equipment Location, Borrower shall duly execute and deliver to Lenders, in form and substance satisfactory to Lenders a Collateral Assignment Agreement, and a Landlord Agreement duly executed by the applicable landlord. A form of the Landlord Agreement is attached as Exhibits E, but the parties recognize that there will be variations in these agreements between the Financed Equipment Locations, although all such agreements must be satisfactory to Lenders. Borrower agrees that Lenders or Agent may retain local counsel in connection with the negotiation, documentation and enforcement of these agreements and such attorneys' fees and costs shall be either Lenders' Expenses or Agent's Expenses, reimbursable by Borrower hereunder. 5. Representations and Warranties. Borrower represents, warrants and covenants as follows: 5.1 Due Organization and Qualification. Borrower is a corporation duly organized and validly existing and in good standing under the laws of its state of incorporation and qualified and licensed to do business in, and is in good standing in, any state in which (i) the conduct of its business or its ownership of Property requires that it be so qualified or in which the Collateral is located, except for such states as to which any failure to so qualify would not have a material adverse effect on Borrower, and (ii) a Financed Equipment Location is located. 18 20 5.2 Authority. Borrower has all necessary power and authority to execute, deliver, and perform in accordance with the terms thereof, the Loan Documents to which it is a party. Borrower has all requisite power and authority to own and operate its properties and to carry on its businesses as now conducted. 5.3 Conflict with Other Instruments, etc. Neither the execution and delivery of any Loan Document to which Borrower is a party nor the consummation of the transactions therein contemplated nor compliance with the terms, conditions and provisions thereof will conflict with or result in a breach of any of the terms, conditions or provisions of the articles of incorporation and the by-laws, or other organizational documents of Borrower or any law or any regulation, order, writ, injunction or decree of any court or governmental instrumentality or any material agreement or instrument to which Borrower is a party or by which it or any of its properties is bound or to which it or any of its properties is subject, or constitute a default thereunder or result in the creation or imposition of any Lien, other than Permitted Liens. 5.4 Authorization; Enforceability. The execution and delivery of this Agreement, the granting of the security interest in the Collateral, the incurring of the Loans, the execution and delivery of the other Loan Documents to which Borrower is a party and the consummation of the transactions herein and therein contemplated have each been duly authorized by all necessary action on the part of Borrower. The Loan Documents have been duly executed and delivered and constitute legal, valid and binding obligations of Borrower, enforceable in accordance with their respective terms, except as the enforceability thereof may be limited by bankruptcy, insolvency or other similar laws of general application relating to or affecting the enforcement of creditors' rights or by general principles of equity. 5.5 No Prior Encumbrances. Borrower has good and marketable title to the Collateral, free and clear of Liens except for Permitted Liens. 5.6 Name; Location of Chief Executive Office, Principal Place of Business and Collateral. Except as disclosed in Schedule 1, Borrower has not done business under any name other than that specified on the signature page hereof. The chief executive office, principal place of business, and the place where Borrower maintains its records concerning the Collateral are presently located at the addresses set forth on the cover page of this Agreement. The Equipment Collateral is presently located at one of the Financed Equipment Locations, as set forth in a Loan Agreement Supplement which is approved by Agent. The Collateral (other than the Equipment Collateral) is presently located at the address set forth on the cover page to this Agreement. 5.7 Litigation. There are no actions or proceedings pending by or against Borrower before any court or administrative agency in which an adverse decision could have a material adverse effect on Borrower or the aggregate value of the Collateral. Borrower does not have knowledge of any such pending or threatened actions or proceedings. Borrower will promptly notify Lenders in writing if any action, proceeding or governmental investigation involving Borrower is commenced that is reasonably expected to result in damages or costs to Borrower of Fifty Thousand Dollars ($50,000) or more. 5.8 Financial Statements. All financial statements relating to Borrower or any Affiliate that have been or may hereafter be delivered by Borrower to each Lender present fairly 19 21 in all material respects Borrower's financial condition as of the date thereof and Borrower's results of operations for the period then ended. 5.9 Security Interest. Assuming the proper filing of one or more financing statement(s) identifying the Collateral with the proper state and/or local authorities and the appropriate recordings and/or filings with respect to Collateral constituting Intellectual Property or real property with the proper federal, state or county authorities, the security interests in the Collateral granted to Agent pursuant to this Agreement (i) constitute and will continue to constitute first priority security interests (except to the extent any Permitted Liens may have a superior priority to Agent's Lien under this Agreement) and (ii) are and will continue to be superior and prior to the rights of all other creditors of Borrower (except to the extent of such Permitted Liens). 5.10 Full Disclosure. No representation, warranty or other statement made by Borrower in any Loan Document, certificate or written statement furnished to Lenders or either of them contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained in such certificates or statements not misleading. There is no fact known to Borrower which materially adversely affects, or which could in the future be reasonably expected to materially adversely affect, its ability to perform its obligations under this Agreement. 6. Affirmative Covenants. Borrower covenants and agrees that, until the full and complete payment of the Obligations and the termination of the Commitments, Borrower shall do all of the following: 6.1 Good Standing. Borrower shall maintain its corporate existence and its good standing in its jurisdiction of incorporation and maintain qualification in each jurisdiction in which (i) the failure to so qualify could reasonably be expected to have a material adverse effect on the financial condition, operations or business of Borrower, and (ii) a Financed Equipment Location is located. Borrower shall maintain in force all licenses, approvals and agreements, the loss of which could reasonably be expected to have a material adverse effect on its financial condition, operations or business. 6.2 Government Compliance. Borrower shall comply with all statutes, laws, ordinances and government rules and regulations to which it is subject, noncompliance with which could reasonably be expected to materially adversely affect the financial condition, operations or business of Borrower. 6.3 Financial Statements, Reports, Certificates. Borrower shall deliver to each Lender: (a) as soon as available, but in any event within thirty (30) days after the end of each month, a company prepared balance sheet, income statement and cash flow statement covering Borrower's operations during such period, certified by a Responsible Officer; (b) as soon as available, but in any event within ninety (90) days after the end of Borrower's fiscal year, audited financial statements of Borrower prepared in accordance with generally accepted accounting principles, consistently applied, together with an unqualified opinion on such financial statements of a nationally recognized or other independent public accounting firm reasonably acceptable to Agent; and (c) such other financial information as Lender may 20 22 reasonably request from time to time. From and after such time as Borrower becomes a publicly reporting company, promptly as they are available and in any event: (x) at the time of filing of Borrower's Form 10-K with the Securities end Exchange Commission after the end of each fiscal year of Borrower, the financial statements of Borrower filed with such Form 10-K; and (y) at the time of filing of Borrower's Form 10-Q with the Securities and Exchange Commission after the end of each of the first three fiscal quarters of Borrower, the financial statements of Borrower filed with such Form 10-Q. In addition, Borrower shall deliver to each Lender (i) promptly upon becoming available, copies of all statements, reports and notices sent or made available generally by Borrower to its security holders; (ii) immediately upon receipt of notice thereof, a report of any material legal actions pending or threatened against Borrower; and (iii) such other financial information as Lenders may reasonably request from time to time. 6.4 Certificates of Compliance. Each time financial statements are furnished pursuant to Section 6.3 above, there shall be delivered to each Lender, a certificate signed by a Responsible Officer (each, an "Officer's Certificate") with respect to such financial reports to the effect that: (i) no Event of Default or Default has occurred and is continuing hereunder since the date of this Agreement or, if later, since the date of the prior Officer's Certificate or, if such an event or condition has occurred and is continuing, the nature and extent thereof and the action Borrower proposes to take with respect thereto, and (ii) Borrower is in compliance with the provisions of Sections 6 and 7. 6.5 Notice of Event of Loss. As soon as possible, and in any event within ten (10) days after Borrower has knowledge thereof, Borrower shall notify Agent in writing in reasonable detail of any Event of Loss. 6.6 Notice of Defaults. As soon as possible, and in any event within five (5) days after the discovery of a Default or an Event of Default provide Agent, with an Officer's Certificate of Borrower setting forth the facts relating to or giving rise to such Default or Event of Default and the action which Borrower proposes to take with respect thereto. 6.7 Taxes. Borrower shall make due and timely payment or deposit of all federal, state, and local taxes, assessments, or contributions required of it by law or imposed upon any properties belonging to it, including the Financed Equipment, and will execute and deliver to Agent, on demand, appropriate certificates attesting to the payment or deposit thereof; and Borrower will make timely payment or deposit of all tax payments and withholding taxes required of it by applicable laws, including those laws concerning F.I.C.A., F.U.T.A., state disability, and local, state, and federal income taxes, and will, upon request, furnish Agent with proof satisfactory to Agent and Requisite Lenders indicating that Borrower has made such payments or deposits; provided that Borrower need nut make any payment if the amount or validity of such payment is contested in good faith by appropriate proceedings and as to which payment in full is bonded or is adequately reserved against by Borrower. 6.8 Use: Maintenance. (a) Borrower, at its expense, shall make all necessary site preparations and cause the Collateral to be operated in accordance with any applicable manufacturer's manuals or instructions. So long as no Default or Event of Default has occurred and is continuing, Borrower 21 23 shall have the right to quietly possess and use the Collateral as provided herein without interference by Agent or Lenders. (b) Borrower, at its expense, shall maintain the Collateral in good condition, reasonable wear and tear excepted, and will comply in all material respects with all laws, rules and regulations to which the use and operation of the Collateral may be or become subject. Such obligation shall extend to repair and replacement of any partial loss or damage to the Collateral which does not constitute an Event of Loss, regardless of the cause. If maintenance is mandated by manufacturer, Borrower shall obtain and keep in effect, at all times during the Term maintenance service contracts with suppliers approved by Agent and Requisite Lenders, such approval not to be unreasonably withheld. All parts furnished in connection with such maintenance or repair shall immediately become part of the Collateral. All such maintenance, repair and replacement services shall be immediately paid for and discharged by Borrower with the result that no Lien will attach to the Collateral. 6.9 Insurance. Borrower shall, obtain and maintain for the Term, at its own expense: (a) "All risk" insurance against loss or damage to the Collateral and the Financed Equipment Locations. The coverage limit shall be the greater of the replacement cost of the Equipment or the Stipulated Loan Value of the Loan Amount applicable to each Loan. The deductible shall not exceed $25,000. The policy shall name Agent, on behalf of Lenders, as sole loss payee with respect to the Equipment, shall not be invalidated by any action of or breach of warranty by Borrower of any provision thereof and waive subrogation against Agent, on behalf of Lenders. (b) Commercial general liability insurance (including contractual liability, products liability and completed operations coverages) reasonably satisfactory to Lenders. The limit of liability shall be at least $2,000,000 per occurrence. The policy shall be without deductible, except for products liability coverage which may have a deductible up to $25,000. The policy(ies) shall name Agent, on behalf of Lenders, as additional insured in the full amount of Borrower's liability coverage limits (or the coverage limits of any successor to Borrower or such successor's parent which is providing coverage), be primary and without contribution as respects any insurance carried by Agent or Lenders, and contain cross liability and severability of interest clauses. (c) Such other insurance against risks of loss and with terms as shall be reasonably required by Agent and Requisite Lenders. All policies of insurance shall be placed with financially sound, commercial insurers reasonably satisfactory to Agent and Requisite Lenders. All policies of insurance shall provide that Agent, on behalf of Lenders, shall be given 30 days notice of cancellation of coverage. This notice provision shall be without qualification. On or prior to the first Funding Date and prior to each policy renewal, Borrower shall furnish to Agent, on behalf of Lenders, certificates of insurance or other evidence satisfactory to Agent that insurance complying with all of the above requirements is in effect. 22 24 6.10 Loss; Damage; Destruction and Seizure. (a) Borrower shall bear the risk of the Financed Equipment being lost, stolen, destroyed, damaged beyond repair, rendered permanently unfit for use, or seized by a governmental authority for any reason whatsoever at any time until the expiration or termination of the Term. (b) If during the Term any item of Financed Equipment is lost, stolen, destroyed, damaged beyond repair, rendered permanently unfit for use, or seized by a governmental authority for any reason whatsoever for a period equal to at least the remainder of the Term (an "Event of Loss"), then in each case Agent, on behalf of Lenders, shall receive from the proceeds of insurance maintained pursuant to Section 6.9, from any award paid by the seizing governmental authority or, to the extent not received from the proceeds of insurance or award or both, from Borrower, on or before the Payment Date next succeeding such Event of Loss, an amount equal to the sum of (i) all accrued and unpaid Scheduled Payments with respect to such Loan due prior to the next such Payment Date, (ii) a prepayment in an amount equal to the Stipulated Loan Value with respect to such Loan multiplied by the Stated Cost of each affected item of Financed Equipment provided that the sum of (i) and (ii) shall not exceed the principal amount of each such Loan and all accrued interest and (iii) all other sums, if any, that shall have become due and payable hereunder with respect to such Loan, including interest at the Default Rate with respect to any past due amounts. On the date of receipt by Agent, on behalf of Lenders, of the amount specified above with respect to each such item of Financed Equipment subject to an Event of Loss, this Agreement shall terminate as to such Financed Equipment. Except as provided in Section 6.10(c), any proceeds of insurance maintained by Borrower pursuant to Section 6.9 and received by Borrower shall be paid to Agent, on behalf of Lenders, promptly upon their receipt by Borrower. If any proceeds of insurance or awards received from governmental authorities are in excess of the amount owed under this Section 6.10, Agent shall promptly remit to Borrower the amount in excess of the amount owed to Lenders. (c) So long as no Event of Default has occurred and is continuing, any proceeds of insurance maintained pursuant to Section 6.9 received by Lenders or Borrower with respect to an item of Financed Equipment, the repair of which is practicable, shall, at the election of Borrower, be applied either to the repair or replacement of such Financed Equipment or, upon Agent's receipt, on behalf of Lenders, of evidence of the repair or replacement of the Financed Equipment reasonably satisfactory to Lenders, to the reimbursement of Borrower for the cost of such repair or replacement. All replacement parts and equipment acquired by Borrower in replacement of Financed Equipment pursuant to this Section 6.10(c) shall immediately become part of the Financed Equipment upon acquisition by Borrower. Borrower shall take such actions and provide such documentation as may be reasonably requested by Agent, on behalf of Lenders, to protect and preserve their first priority security interest and otherwise to avoid any impairment of Agent's and Lenders' rights under the Loan Documents in connection with such repair or replacement. 6.11 Further Assurances. At any time and from time to time Borrower shall execute and deliver such further instruments and take such further action as may reasonably be requested by Lenders to effect the purposes of this Agreement. 23 25 7. Negative Covenants. Borrower covenants and agrees that until the full and complete payment of the Obligations and termination of the Commitments, Borrower will not do any of the following: 7.1 Chief Executive Office. During the continuance of this Agreement, change its chief executive office or principal place of business without thirty (30) days prior written notice to Lenders. 7.2 Collateral Control. Subject to its rights under Section 4, (i) terminate, waive or release any material right with respect to any Collateral, (ii) remove any Equipment Collateral from a Financed Equipment Location to a location which is not a Financed Equipment Location, (iii) except upon thirty days' prior written notice to Lenders, remove any Equipment Collateral from one Financed Equipment Location to another Financed Equipment Location, (iv) except upon thirty days' prior written notice to Lenders, remove any items of Collateral (other than Equipment Collateral) from a Financed Equipment Location or Borrower's facility located at the address set forth on the cover page hereof or such other address agreed to in writing by Lenders, or (v) affix or attach or permit to be affixed or attached to any item of Collateral any other item of property owned by Borrower or any other lender, lessor or financing party which is not readily identifiable or separable without any damage to such item of Collateral, without each Lender's prior written consent. 7.3 Liens. Create, incur, assume or suffer to exist any Lien of any kind upon any Collateral, whether now owned or hereafter acquired, except Permitted Liens. 7.4 Other Dispositions of Collateral. Convey, sell, lease or otherwise dispose of all or any part of the Collateral to any Person except for Financed Equipment in which Lenders shall have released their security interest pursuant to Section 4.3. 7.5 Extraordinary Transaction; Restructure. (i) Dispose of any assets not in the ordinary and usual course of Borrower's business, (ii) change Borrower's name without prior written notice to Agent and Lenders, (iii) make or suffer any material adverse change in Borrower's financial condition or any material adverse change in Borrower's operations, (iv) cause, permit, or suffer any material change in Borrower's ownership by merger or otherwise, (v) engage in any business other than the business currently engaged in by Borrower or reasonably related thereto, or (vi) suspend operation of Borrower's business; provided that in the event Borrower requests Lenders' consent to a clause (iv) event and Lenders do not consent (Lenders' decision whether to consent is at Lenders' sole discretion), Borrower may prepay the Obligations with the Applicable Premium. 7.6 Distributions. (i) Pay any dividends or make any distributions on its Equity Securities; (ii) purchase, redeem, retire, defease or otherwise acquire for value any of its Equity Securities (other than repurchases by cancellation of indebtedness pursuant to the terms of employee stock purchase plans, employee restricted stock agreements or similar arrangements (1) in an aggregate amount not to exceed $100,000, or (2) where Borrower may repurchase shares previously issued to employee(s) of Borrower pursuant to Borrower's stock option plans using the proceeds from such issuance); (iii) return any capital to any holder of its Equity Securities as such; (iv) make any distribution of assets, Equity Securities, obligations or 24 26 securities to any holder of its Equity Securities as such; or (v) set apart any sum for any such purpose; provided, however, that Borrower may pay dividends payable solely in common stock; provided, further, however, once an IPO (as defined in the Warrants) occurs, and only upon the written consent of Requisite Lenders (which consent shall be at Requisite Lenders' sole discretion) Borrower may purchase, redeem, retire, defease or otherwise acquire for value any of its Equity Securities. 7.7 Mergers or Acquisitions. Acquire all or substantially all of the capital stock or assets of another Person which is not in Borrower's "ordinary course of business" or merge or consolidate with or into any other Person; provided that in the event Borrower requests Lenders' consent to such a transaction and Lenders do not consent (Lenders' decision whether to consent is at Lenders' sole discretion), Borrower may prepay the Obligations with the Applicable Premium. Borrower may acquire all or substantially all of the capital stock or assets of another Person in the "ordinary course of business." For the purposes of this Section, such an acquisition shall be in Borrower's "ordinary course of business" if it is an acquisition (a) to obtain one or more co-location facilities or similar facilities which Borrower intends to convert into one or more co-location facilities, (b) consistent with Borrower's "Business Plan," and (c) as to which the total acquisition cost thereof directly reduces Borrower's build-out costs on a dollar-for-dollar basis if Borrower were to build out similarly located co-location facilities without the acquisition. For the purposes of this Section, "Business Plan" shall mean Borrower's business plan presented to Lenders on or before the date of this Agreement and such amendments thereto as may be approved by Requisite Lenders. 7.8 Transactions With Affiliates. Enter into any contractual obligation with any affiliate or engage in any other transaction with any affiliate except upon terms at least as favorable to Borrower as an arms-length transaction with unaffiliated Persons. 7.9 Indebtedness Payments. Repay any notes to officers, directors or shareholders, prior to all Obligations to Lenders being fully satisfied except for repayments made solely in the Company's Equity Securities. 8. Events of Default. Any one or more of the following events shall constitute an Event of Default by Borrower under this Agreement: 8.1 If Borrower fails to pay when due and payable or when declared due and payable in accordance with the Loan Documents, any portion of the Obligations. 8.2 If Borrower fails to perform any obligation under Sections 6.8, 6.9 and 6.10 or violates any of the covenants contained in Section 7 of this Agreement. 8.3 If Borrower fails or neglects to perform, keep, or observe any other material term, provision, condition, covenant, or agreement contained in this Agreement (other than as set forth in Sections 8.1 or 8.2), in any of the other Loan Documents, or in any other present or future agreement between Borrower and Lenders and as to any default under such other term, provision, condition, covenant or agreement that can be cured, has failed to cure such default within fifteen (15) days after the occurrence of such default. 25 27 8.4 If there occurs a material adverse change in Borrower's business, or if there is a material impairment of the prospect of repayment of any portion of the Obligations owing to Lenders or a material impairment of the value or priority of Agent's security interest in the Collateral. 8.5 If any material portion of Borrower's assets is attached, seized, subjected to a writ or distress warrant, or is levied upon, or comes into the possession of any trustee, receiver or Person acting in a similar capacity and such attachment, seizure, writ or distress warrant or levy has not been removed, discharged or rescinded within thirty (30) days, or if Borrower is enjoined, restrained, or in any way prevented by court order from continuing to conduct all or any material part of its business affairs, or if a judgment or other claim becomes a lien or encumbrance upon any material portion of Borrower's assets, or if a notice of lien, levy, or assessment is filed of record with respect to any of Borrower's assets by the United States Government, or any department, agency, or instrumentality thereof, or by any state, county, municipal, or governmental agency, and the same is not paid within thirty (30) days after Borrower receives notice thereof, provided that none of the foregoing shall constitute an Event of Default where such action or event is stayed or an adequate bond has been posted pending a good faith contesting by Borrower. 8.6 (i) If there is any default in any agreement which could reasonably be expected to have a material adverse effect on the financial condition, operations or business of Borrower, or (ii) if there is a payment default in any agreement to which Borrower is a party which is not cured within the applicable cure period thereunder resulting in a right by the other party or parties to such agreement, whether or not exercised, to accelerate the maturity of any indebtedness unless Borrower disputes such default in good faith and for which full payment is bonded or adequate reserves are maintained on Borrower's books in accordance with GAAP provided that such default does not result in any Lien. 8.7 If a judgment or judgments for the payment of money in an amount, individually or in the aggregate, of at least Fifty Thousand Dollars ($50,000) shall be rendered against Borrower and shall remain unsatisfied and unstayed for a period of thirty (30) days. 8.8 If any material misrepresentation or material misstatement exists now or hereafter in any warranty, representation, statement, or report made to Lenders or either of them by Borrower or any officer, employee, agent, or director of Borrower. 8.9 If Borrower shall breach any term of the Warrants. 8.10 If any Loan Document shall in any material respect cease to be, or Borrower shall assert that any Loan Document is not, a legal, valid and binding obligation of Borrower enforceable in accordance with its terms. 8.11 If a proceeding shall have been instituted in a court having jurisdiction in the premises seeking a decree or order for relief in respect of Borrower in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or for the appointment of a receiver, liquidator, assignee, custodian, trustee (or similar official) of Borrower or for any substantial part of its property, or for the winding-up or liquidation of its 26 28 affairs, and such proceeding shall remain undismissed or unstayed and in effect for a period of thirty (30) consecutive days or such court shall enter a decree or order granting the relief sought in such proceeding. 8.12 If Borrower shall commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, shall consent to the entry of an order for relief in an involuntary case under any such law, or shall consent to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian (or other similar official) of Borrower or for any substantial part of its property, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any corporate action in furtherance of any of the foregoing. 9. Agent's and Lenders' Rights and Remedies. 9.1 Rights and Remedies. Upon the occurrence and during the continuance of any Default or Event of Default, neither Agent nor Lenders shall have any further obligation to advance money or extend credit to or for the benefit of Borrower. In addition, upon the occurrence and during the continuance of an Event Of Default, Lenders or Agent on behalf of Lenders, shall have the rights, options, duties and remedies of a secured party as permitted by law and, in addition to and without limitation of the foregoing, Lenders may, at the election of Requisite Lenders, without notice of election and without demand, do any one or more of the following, all of which are authorized by Borrower: (a) Declare all Obligations, whether evidenced by this Agreement, by any of the other Loan Documents, or otherwise, including the Stipulated Loan Value of the Loan Amount of each Loan, immediately due and payable (provided that upon the occurrence of an Event of Default described in Section 8.11 or 8.12 all Obligations shall become immediately due and payable without any action by Lenders); (b) Make such payments and do such acts as Agent or Lenders consider necessary or reasonable to protect Agent's security interest in the Collateral. Borrower agrees to assemble the Collateral if Agent, on behalf of Lenders, so requires, and to make the Collateral available to Agent as Agent may designate. Borrower authorizes Agent to enter the premises where the Collateral is located, to take and maintain possession of the Collateral, or any part of it, and to pay, purchase, contest, or compromise any encumbrance, charge, or lien which in Requisite Lenders' determination appears to be prior or superior to their security interest and to pay all expenses incurred in connection therewith. With respect to any of Borrower's owned premises, Borrower hereby grants Agent, on behalf of Lenders, a license to enter into possession of such premises and to occupy the same, without charge, for up to one hundred twenty (120) days in order to exercise any of Agent's or Lenders' rights or remedies provided herein, at law, in equity, or otherwise; c) Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell (in the manner provided for herein) the Collateral. Lenders and their agents and any purchasers at or after foreclosure are hereby granted an irrevocable, perpetual, fully paid, royalty-free license or other right, solely pursuant to the provisions of this Section 9.1, to use, without charge, Borrower's Intellectual Property, including without limitation, labels, 27 29 patents, copyrights, rights of use of any name, trade secrets, trade names, trademarks, service marks, and advertising matter, or any Property of a similar nature, now or at arty time hereafter owned or acquired by Borrower or in which Borrower now or at any time hereafter has any rights, relating to the ownership, operation, management, maintenance or repair or the development or construction of any Financed Equipment Location, in completing production of, advertising for sale, and selling any Collateral and in operating, maintaining, foreclosing or selling any Financed Equipment Location and, in connection with Lenders' exercise of their rights under this Section 9.1, Borrower's rights under all licenses and all franchise agreements shall inure to Lenders' benefit; (d) Sell the Collateral at either a public or private sale, or both, by way of one or more contracts or transactions, for cash or on terms, in such manner and at such places (including Borrower's premises) as Lenders determine are commercially reasonable; (e) Agent or any Lender may credit bid and purchase at any public sale; and (f) Any deficiency that exists after disposition of the Collateral as provided above will be paid immediately by Borrower. 9.2 Set Off Right. During the occurrence and continuance of an Event of Default arising out of Borrower's failure to comply with Section 8.1, Lenders may set off and apply to the Obligations any and all indebtedness at any time owing to or for the credit or the account of Borrower. 9.3 Effect of Sale. Any sale, whether under any power of sale hereby given or by virtue of judicial proceedings, shall operate to divest all right, title, interest, claim and demand whatsoever, either at law or in equity, of Borrower in and to the Property sold, and shall be a perpetual bar, both at law and in equity, against Borrower, its successors and assigns, and against any and all Persons claiming the Property sold or any part thereof under, by or through Borrower, its successors or assigns. 9.4 Power of Attorney in Respect of the Collateral. Borrower does hereby irrevocably appoint Agent on behalf of Lenders (which appointment is coupled with an interest), the true and lawful attorney in fact of Borrower with full power of substitution, for it and in its name to file any notices of security interests, financing statements and continuations and amendments thereof pursuant to the Uniform Commercial Code or federal law, as may be necessary to perfect, or to continue the perfection of Agent's security interests in the Collateral. Borrower does hereby irrevocably appoint Agent on behalf of Lenders (which appointment is coupled with an interest) on the occurrence and during the continuance of an Event of Default, the true and lawful attorney in fact of Borrower with full power of substitution, for it and in its name: (a) to ask, demand, collect, receive, receipt for, sue for, compound and give acquittance for any and all rents, issues, profits, avails, distributions, income, payment draws and other sums in which a security interest is granted under Section a with full power to settle, adjust or compromise any claim thereunder as fully as if Agent were a Borrower itself, (b) to receive payment of and to endorse the name of Borrower to any items of Collateral (including checks, drafts and other orders for the payment of money) that come into Agent's possession or under 28 30 Agent's control, (e) to make all demands, consents and waivers, or take any other action with respect to, the Collateral, (d) in Agent's discretion to file any claim or take any other action or proceedings, either in their own names or in the name of Borrower or otherwise, which Agent or Requisite Lenders may reasonably deem necessary or appropriate to protect and preserve the right, title and interest of Agent, on behalf of Lenders, in and to the Collateral, or (e) to otherwise act with respect thereto as though Agent, on behalf of Lenders, were the outright owner of the Collateral. 9.5 Agent's Expenses. If Borrower fails to pay any amounts or furnish any required proof of payment due to third persons or entities, as required under the terms of this Agreement, then Agent may do any or all of the following: (a) make payment of the same or any part thereof; or (b) obtain and maintain insurance policies of the type discussed in Section 6.9 of this Agreement, and take any action with respect to such policies as Agent deems prudent. Any amounts paid or deposited by Agent shall constitute Agent's Expenses, shall be immediately due and payable, and shall bear interest at the then applicable rate hereinabove provided. and shall be secured by the Collateral. Any payments made by Agent shall not constitute an agreement by Agent to make similar payments in the future or a waiver by Agent or any Lender of any Event of Default under this Agreement. 9.6 Remedies Cumulative. Agent's and Lenders' rights and remedies under this Agreement, the Loan Documents, and all other agreements shall be cumulative. Agent and Lenders shall have all other rights and remedies not inconsistent herewith as provided under the Code, by law, or in equity. No exercise by Agent or any Lender of one right or remedy shall be deemed an election, and no waiver by Lenders of any Event of Default on Borrower's part shall be deemed a continuing waiver. No delay by Agent or any Lender shall constitute a waiver, election, or acquiescence by it or either of them. 9.7 Application of Collateral Proceeds. The proceeds and/or avails of the Collateral, or any part thereof, and the proceeds and the avails of any remedy hereunder (as well as any other amounts of any kind held by Agent, on behalf of Lenders, at the time of or received by Agent, on behalf of Lenders, after, the occurrence of an Event of Default hereunder) shall be paid to and applied as follows: (a) First, to the payment of out-of-pocket costs and expenses, including all amounts expended to preserve the value of the Collateral, of foreclosure or suit, if any, and of such sale and the exercise of any other rights or remedies, and of all proper fees, expenses, liability and advances, including reasonable legal expenses and attorneys' fees, incurred or made hereunder by Agent or any Lender, including without limitation, Agent's Expenses and Lenders' Expenses; (b) Second, to the payment to Lenders of the amount then owing or unpaid on the Loans for Scheduled Payments, the Stipulated Loan Value of the Loan Amount, and all other Obligations with respect to all Loans, provided, however, that if such proceeds shall be insufficient to pay in full the whole amount so due, owing or unpaid upon the Loans, then to the unpaid interest thereon, then to unpaid principal thereof, then to the Stipulated Loan Value of the Loan Amount with respect to all Loans, and then to the payment of other amounts then payable to Lenders under any of the Loan Documents; and 29 31 (c) Third, to the payment of the surplus, if any, to Borrower, its successors and assigns, or to whomsoever may be lawfully entitled to receive the same. 9.8 Reinstatement of Rights. If Agent or Lenders shall have proceeded to enforce any right under this Agreement or any other Loan Document by foreclosure, sale, entry or otherwise, and such proceedings shall have been discontinued or abandoned for any reason or shall have been determined adversely, then and in every such case (unless otherwise ordered by a court of competent jurisdiction), Agent and Lenders shall be restored to their former position and rights hereunder with respect to the Property subject to the security interest created under this Agreement. 10. Waivers; Indemnification. 10.1 Demand; Protest. Except for notices and demands otherwise required by the terms of this Agreement, Borrower waives demand, protest, notice of protest, notice of default or dishonor, notice of payment and nonpayment, notice of any default, nonpayment at maturity, release, compromise, settlement, extension, or renewal of accounts, documents, instruments, chattel paper, and guarantees at any time held by Agent on which Borrower may in any way be liable. 10.2 Agent's Liability for Collateral. So long as Agent complies with its obligations, if any, under the Code, Lenders shall not in any way or manner be liable or responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage thereto occurring or arising in any manner or fashion from any cause other than Lender's gross negligence or willful misconduct; (c) any diminution in the value thereof; or (d) any act or default of any carrier, warehouseman, bailee, forwarding agency, or other Person whomsoever. All risk of loss, damage or destruction of the Collateral shall be borne by Borrower. 10.3 Indemnification and Waiver. Whether or not the transactions contemplated hereby shall be consummated: (a) General Indemnity. Borrower shall pay, indemnify, and hold Agent and each Lender and each of their respective officers, directors, employees, counsel, partners, agents and attorneys-in-fact (each, an "Indemnified Person") harmless from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, charges, expenses or disbursements (including Agent's Expenses, Lenders' Expenses and reasonable attorney's fees and the allocated cost of in-house counsel) of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of this Agreement and any other Loan Documents, or the transactions contemplated hereby and thereby, and with respect to any investigation, litigation or proceeding (including any case, action or proceeding before any court or other Governmental Authority relating to bankruptcy, reorganization, insolvency, liquidation, dissolution or relief of debtors or any appellate proceeding) related to this Agreement or the Loans or the use of the proceeds thereof, whether or not any Indemnified Person is a party thereto (all the foregoing, collectively, the "Indemnified Liabilities"); provided, that Borrower shall have no obligation hereunder to any Indemnified Person with respect to Indemnified Liabilities arising from the gross negligence or willful misconduct of such Indemnified Person. 30 32 (b) Environmental Indemnity. Borrower hereby agrees to indemnify, defend and hold harmless each Indemnified Person, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, charges, expenses or disbursements (including reasonable attorneys' fees and the allocated cost of in-house counsel and internal environmental audit or review services), which may be incurred by or asserted against such Indemnified Person in connection with or arising out of any pending or threatened investigation, litigation or proceeding, or any action taken by any Person, with respect to any Environmental Claim arising out of or related to any Property owned, leased or operated by Borrower. No action taken by legal counsel chosen by any Lender or Agent in defending against any such investigation, litigation or proceeding or requested remedial, removal or response action (except for actions which constitute fraud, willful misconduct, gross negligence or material violations of law) shall vitiate or in any way impair Borrower's obligation and duty hereunder to indemnify and hold harmless each Lender and Agent. Lenders and Agent agree to use reasonable efforts to cooperate with Borrower respecting the defense of any matter indemnified hereunder, except insofar as and to the extent that their respective interests may be adverse to Borrower's, in each Lenders' reasonable discretion. (c) Waivers. (i) Borrower shall give Lenders written notice within one hundred eighty (180) days of obtaining knowledge of the occurrence of any claim or cause of action it believes it has, or may seek to assert to allege against Lenders whether such claim is based in law or equity, arising under or related to this Agreement or any of the other Loan Documents or to the transactions contemplated hereby or thereby, or any act or omission to act by Lenders with respect hereto or thereto, and that if it shall fail to give such notice to Lenders with regard to any such claim or cause of action, Borrower shall be deemed to have waived, and shall be forever barred from bringing or asserting such claim or cause of action in any suit, action or proceeding in any court or before any governmental agency or authority or any arbitrator. (ii) NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS AGREEMENT OR ANYWHERE ELSE, BORROWER AGREES THAT IT SHALL NOT SEEK FROM LENDERS UNDER ANY THEORY OF LIABILITY (INCLUDING ANY THEORY IN TORTS), ANY SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES. (d) Survival: Defense. The obligations in this Section 10.3 shall survive payment of all other Obligations pursuant to Section 12.8 of this Agreement. At the election of any Indemnified Person, Borrower shall defend such Indemnified Person using legal counsel satisfactory to such Indemnified Person in such Person's reasonable discretion, at the sole cost and expense of Borrower. All amounts owing under this Section 10.3 shall be paid within thirty (30) days after written demand. 11. Notices. (a) Unless otherwise provided in this Agreement, all notices or demands by any party relating to this Agreement or any other agreement entered into in connection herewith shall be in writing and (except for financial statements and other informational documents which may be sent by first-class mail, postage prepaid) shall be personally delivered or sent by certified mail, postage prepaid, return receipt requested, or by prepaid facsimile to Borrower Or to Lenders, as the case may be, at their respective addresses set forth below: 31 33 If to Borrower: COLO.COM 2000 Sierra Point Parkway Brisbane, CA 94005-1819 Attention: Gary Sanders Fax: (650) 244-7727 PH: (650) 244-7212 If to MMC/GATX: MMC/GATX Partnership No. I c/o Meier Mitchell & Company 4 Orinda Way, Suite 200-B Orinda, CA 94563 Attention: Contract Administration Fax: (925) 254-9528 PH: (925) 254-9520 If to SVB: Silicon Valley Bank 3003 Tasman Drive Santa Clara, CA 95054 Attention: Lance Brown Fax: (408) 748-9478 PH: (408) 654-1005 If to VLL: Venture Lending & Leasing II, Inc. 2010 North First Street, Suite 310 San Jose, CA 95131 Attention: CFO Fax: (408) 436-8625 PH: (408) 436-8577 If to TBC: Transamerica Business Credit Corporation 76 Batterson Park Road Farmington, CT 06032 Attention: Pamela Lamberson, Sr. Attorney Fax: (860) 677-6473 PH: (860) 409-4548 If to Lighthouse: Lighthouse Capital Partners 100 Drakes Landing Road, Suite 260 Greenbrae, CA 94904 Attention: Darren Haggerty Fax: (415) 925-3387 PH: (415) 925-3379 The parties hereto may change the address at which they are to receive notices hereunder, by notice in writing in the foregoing manner given to the other. 12. General Provisions. 32 34 12.1 Successors and Assigns. This Agreement shall bind and inure to the benefit of the respective successors and permitted assigns of each of the parties; provided, however, that neither this Agreement nor any rights hereunder may be assigned by Borrower without each Lender's prior written consent, which consent may be granted or withheld in Lenders' sole discretion. Each Lender shall have the right without the consent of or notice to Borrower to sell, transfer, negotiate, or grant participation's in all or any part of, or any interest in such Lender's rights and benefits hereunder. Agent shall have the right to resign as Agent hereunder without Borrower's consent and pursuant to the terms of a separate intercreditor agreement entered into between the Lenders. 12.2 Time of Essence. Time is of the essence for the performance of all obligations set forth in this Agreement. 12.3 Severability of Provisions. Each provision of this Agreement shall be several from every other provision of this Agreement for the purpose of determining the legal enforceability of any specific provision. 12.4 Entire Agreement; Construction; Amendments and Waivers. (a) This Agreement and each of the other Loan Documents dated as of the date hereof, taken together, constitute and contain the entire agreement among Borrower, Agent and Lenders and supersede any and all prior agreements, negotiations, correspondence, understandings and communications between the parties, whether written or oral, respecting the subject matter hereof. Borrower acknowledges that it is not relying on any representation or agreement made by any Lender or Agent or any employee, attorney or agent thereof, other than the specific agreements set forth in this Agreement and the Loan Documents. (b) This Agreement is the result of negotiations between and has been reviewed by each of Borrower and Lenders executing this Agreement as of the date hereof and their respective counsel; accordingly, this Agreement shall be deemed to be the product of the parties hereto, and no ambiguity shall be construed in favor of or against Borrower, Agent or Lenders. Borrower, Agent and Lenders agree that they intend the literal words of this Agreement and the other Loan Documents and that no parol evidence shall be necessary or appropriate to establish Borrower's, Agent's or any Lender's actual intentions. (c) Any and all amendments, modifications, discharges or waivers of, or consents to any departures from any provision of this Agreement or of any of the other Loan Documents shall not be effective without the written consent of each Agent and Requisite Lenders. Notwithstanding the foregoing, in all cases, any material change of maturity dates, any interest rate reduction, or any release of any Collateral or any guarantor, or any forbearances or waiver of rights under the Loan Documents shall require the written consent of each Lender. Any waiver or consent with respect to any provision of the Loan Documents shall be effective only in the specific instance and for the specific purpose for which it was given. No notice to or demand on Borrower in any case shall entitle Borrower to any other or further notice or demand in similar or other circumstances. Any amendment, modification, waiver or consent effected in accordance with this Section 12.4 shall be binding upon Agent, each Lender and on Borrower. 33 35 12.5 Reliance by Agent and Lenders. All covenants, agreements, representations and warranties made herein by Borrower shall be deemed to be material to and to have been relied upon by Lenders, notwithstanding any investigation by Lenders. 12.6 No Set-Offs by Borrower. All sums payable by Borrower pursuant to this Agreement or any of the other Loan Documents shall be payable without notice or demand and shall be payable in United States Dollars without set-off or reduction of any manner whatsoever. 12.7 Counterparts. This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Agreement. 12.8 Survival, All covenants, representations and warranties made in this Agreement shall continue in full force and effect so long as any Obligations remain outstanding. The obligations of Borrower to indemnify Lenders with respect to the expenses, damages, losses, costs and liabilities described in Section 10.3 shall survive until all applicable statute of limitations periods with respect to actions that may be brought against Lenders have run. 13. Relationship of Parties. Borrower, Agent and each Lender acknowledge, understand and agree that the relationship between the Borrower, on the one hand, and Agent and Lenders, on the other, is, and at all time shall remain solely that of a borrower and lenders. Neither Agent nor any Lender shall under any circumstances be construed to be partners or joint venturers of Borrower or any of its Affiliates; nor shall Agent or any Lender under any circumstances be deemed to be in a relationship of confidence or trust or a fiduciary relationship with Borrower or any of its Affiliates, or to owe any fiduciary duty to Borrower or any of its Affiliates. Neither Agent nor any Lender undertakes or assumes any responsibility or duty to Borrower or any of its Affiliates to select, review, inspect, supervise, pass judgment upon or otherwise inform Borrower or any of its Affiliates of any matter in connection with its or their Property, any Collateral held by Agent or the operations of Borrower or any of its Affiliates. Borrower and each of its Affiliates shall rely entirely on their own judgment with respect to such matters, and any review, inspection, supervision, exercise of judgment or supply of information undertaken or assumed by Agent or any Lender in connection with such matters is solely for the protection Agent or such Lender and neither Borrower nor any Affiliate is entitled to rely thereon. 14. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. EACH OF BORROWER, AGENT AND LENDERS HEREBY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED IN THE NORTHERN DISTRICT OF CALIFORNIA. BORROWER, AGENT AND LENDERS HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. 34 36 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written. BORROWER: COLO.COM By: /s/ Gary J. Sanders --------------------------------- Title: CFO ------------------------------ AGENT: MMC/GATX PARTNERSHIP NO. I By: GATX Capital Corporation, its General Partner By: /s/ Patricia W. Leicher --------------------------------- Title: VP ------------------------------ PAYMENT AGENT: SILICON VALLEY HANK By: /s/ unreadable --------------------------------- Title: SVP ------------------------------ LENDERS: MMC/GATX PARTNERSHIP NO. I By: GATX Capital Corporation, its General Partner By: /s/ Patricia W. Leicher --------------------------------- Title: VP ------------------------------ SILICON VALLEY BANK By: /s/ unreadable --------------------------------- Title: SVP ------------------------------ 35 37 VENTURE LENDING & LEASING II, INC. By: /s/ unreadable --------------------------------- Title: President ------------------------------ TRANSAMERICA BUSINESS CREDIT CORPORATION By: /s/ unreadable --------------------------------- Title: EVP ------------------------------ LIGHTHOUSE CAPITAL PARTNERS III, L.P. By: Lighthouse Management Partners III, L.L.C. Its General Partner By: /s/ Edgerton Scott II --------------------------------- Name: Edgerton Scott II ------------------------------ Title: Managing Member ------------------------------ 36 38 LIST OF EXHIBITS AND SCHEDULES Exhibit A Financed Equipment Locations Exhibit B Form of Warrant Exhibit C Form of Loan Agreement Supplement Exhibit D Form of Legal Opinion Exhibit E Form of Landlord Agreement Exhibit F Form of Collateral Assignment Agreement Schedule 1 Borrower's Trade Names Schedule 2 Reserved 39 EXHIBIT A FINANCED EQUIPMENT LOCATIONS 1. 1200 West 7th Street, Los Angeles, CA 90017 2. 8619 Westwood Center Drive, Vienna, VA 22192 40 EXHIBIT WARRANT 41 EXHIBIT C FORM OF LOAN AGREEMENT SUPPLEMENT LOAN AGREEMENT SUPPLEMENT No. [ ] LOAN AGREEMENT SUPPLEMENT No. [ ], dated __, 199_ ("Supplement"), to the Loan and Security Agreement dated as of [Date] (the "Loan Agreement") by and among COLO.COM, a California corporation ("Borrower."), MMC/GATX Partnership No. I, Venture Lending & Leasing II, Inc., Transamerica Business Credit Corporation, Silicon Valley Bank, and Lighthouse Capital Partners (collectively, "Lenders") and Agent. Unless otherwise defined herein, capitalized terms have the meanings given to such terms in the Loan Agreement. 1. To secure the prompt payment by Borrower of the principal of and interest on, and all other amounts from time to time outstanding under the Loan Agreement, and the performance and observance by Borrower of all the agreements, covenants and provisions contained in the Loan Agreement, Borrower does hereby grant unto Agent, on behalf of Lenders, their respective successors and assigns, a first priority security interest in all of Borrower's right, title and interest in each item of equipment and other property described in Annex A hereto, which equipment and other property shall be deemed to be additional "Financed Equipment." The list of Financed Equipment in Annex A hereto shall be construed as a supplement to, and deemed part of, the Equipment Collateral listed in Section 4.1 of the Loan Agreement and shall form a part thereof and the Loan Agreement is hereby incorporated by reference herein and is hereby ratified, approved and confirmed. 2. Attached as Annex B hereto is the Loan Terms Schedule with respect to the Loan the proceeds of which will be used to finance the Financed Equipment listed in Annex A hereto. 3. The Financed Equipment shall be located at the following Financed Equipment Location: _____________________ 4. The proceeds of the Loan should be transferred to Borrower's account as set forth in Section 2.4(c) of the Loan Agreement. 5. Borrower hereby certifies that (a) the foregoing information is true and correct and authorizes Lenders to endorse in their respective books and records, the Basic Rate applicable to the Funding Date of the Loan contemplated in this Loan Agreement Supplement and the principal amount set forth in the Loan Terms Schedule; (b) the representations and warranties made by Borrower in Section 5 of the Loan Agreement and in the other Loan Documents are true and correct on the date hereof and will be true and correct on such Funding Date; (c) Borrower has met or will by such Funding Date meet all conditions set forth in Section 3 of the Loan Agreement; (d) Borrower is now, and on such Funding Date will be, in compliance with the covenants and the requirements contained in Sections 6 and 7 of the Loan Agreement; and (e) no Default or Event of Default has occurred and is continuing under the Loan Agreement. 42 6. This Supplement is being delivered in the State of California. 7. This Supplement may be executed by Borrower, Agent and Lenders in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument. [Remainder of page intentionally left blank.] 43 IN WITNESS WHEREOF, Borrower, Agent and Lenders have caused this Supplement to be duly executed and delivered as of this day and year first above written. COLO.COM By:_____________________________________ Title:__________________________________ AGENT: MMC/GATX PARTNERSHIP NO. I By: GATX Capital Corporation, its General Partner By:_____________________________________ Title:__________________________________ 44 LENDERS: MMC/GATX PARTNERSHIP NO. I By: GATX Capital Corporation, its General Partner By:_____________________________________ Title:__________________________________ SILICON VALLEY BANK By:_____________________________________ Title:__________________________________ VENTURE LENDING & LEASING II, INC. By:_____________________________________ Title:__________________________________ TRANSAMERICA BUSINESS CREDIT CORPORATION By:_____________________________________ Title:__________________________________ LIGHTHOUSE CAPITAL PARTNERS By:_____________________________________ Title:__________________________________ 45 Annex A - Description of Financed Equipment Annex B - Loan Terms Schedule 46 ANNEX A to EXHIBIT C The Financed Equipment being financed with the Loan for which this Loan Agreement Supplement is being executed is listed below. Upon the funding of such Loan, this Schedule automatically shall be deemed to be a part of the Equipment Collateral listed in Section 4.1 of the Loan Agreement. FINANCED EQUIPMENT See Attached Pages. 47 ANNEX B LOAN TERMS SCHEDULE Loan Funding Date: _____________, 199__ Original Loan Amount: $______________ Basic Rate _____% Loan Factor: _____% Original Scheduled Payment Amount*: $______________ Date of First Scheduled Payment: $______________ To MMC/GATX: $______________ To VLL: $______________ To TBC: $______________ To SVB: $______________ To Lighthouse: $______________ Maturity Date: $______________ Final Payment: An additional amount equal to the Final Payment Percentage multiplied by the original Loan Amount then in effect, shall be paid on the Maturity Date with respect to such Loan. Stipulated Loan Value: Payment No. Payment Date Stipulated Loan Value** - ----------- ------------ --------------------- 1 2 ... [41] [42] */The amount of each Scheduled Payment will change as the Loan Amount changes. 48 **/Each Stipulated Loan Value amount assumes payment of all Scheduled Payments due on or before the indicated Payment Date. 49 EXHIBIT D ITEMS TO BE COVERED BY OPINION OF BORROWER'S COUNSEL The opinions hereafter expressed are subject to the following qualifications: (a) We assume the genuineness of all signatures on original documents, the authenticity and completeness of all documents submitted to us as originals, the conformity to original documents of all copies submitted to us and the due execution and delivery of all documents (except as to due execution and delivery by the Company) where due execution and delivery are a prerequisite to the effectiveness thereof; (b) We express no opinion as to the effect of applicable bankruptcy, insolvency, reorganization, moratorium or other similar federal or state laws affecting the rights of creditors; (c) We express no opinion as to the effect of rules of law governing specific performance, injunctive relief or other equitable remedies (regardless of whether any such remedy is considered in a proceeding at law or in equity). Based on and subject to the foregoing, we are of the opinion that: 1. Borrower is a corporation, duly organized, validly existing and in good standing under the laws of the State of [_________], and is duly qualified and authorized to do business in the state of California. 2. Borrower has the full corporate power, authority and legal right, and has obtained all necessary approvals, consents and given all notices to execute and deliver the Loan Documents and perform the terms thereof. 3. The Loan Documents have been duly authorized, executed and delivered by Borrower and constitute valid, legal and binding agreements. 4. To our knowledge, there is no action, suit, audit, investigation, proceeding or patent claim pending or threatened against Borrower in any court or before any governmental commission, agency, board or authority which might have a material adverse effect on the business, condition or operations of Borrower or the ability of Borrower to perform its obligations under the Loan Documents. 5. The Shares issuable pursuant to exercise or conversion of the Warrants have been duly authorized and reserved for issuance by Borrower and, when issued in accordance with the terms thereof, will be validly issued, fully paid and nonassessable. 6. The shares of Common Stock issuable upon conversion of the Shares have been duly authorized and reserved and, when issued in accordance with the terms of Borrower's [Articles/Certificate] of Incorporation, as amended, will be validly issued, fully paid and nonassessable. 9 50 7. The rights, preferences, privileges and restrictions granted to or imposed upon Borrower's Series [ ] Preferred Stock and the holders thereof are as set forth in Borrower's [Articles/Certificate] of Incorporation, as amended to the Date of Grant, a true and complete copy of which has been delivered to Lenders. 8. The execution and delivery of the Warrants are not, and the issuance of the Shares upon exercise of the Warrants in accordance with the terms thereof will not be, inconsistent with Borrower's [Articles/Certificate] of Incorporation, as amended, or Bylaws, do not and will not contravene any law, governmental rule or regulation, judgment or order applicable to Borrower, and do not and will not conflict with or contravene any provision of, or constitute a default under, any indenture, mortgage, contract or other agreement or instrument of which Borrower is a party or by which it is bound or require the consent or approval of, the giving of notice to, the registration or filing with or the taking of any action in respect of or by, any federal, state or local government authority or agency or other person, except for the filing of notices pursuant to federal and state securities laws, which filings will be effected by the time required thereby. 10 51 EXHIBIT E LANDLORD AGREEMENT THIS LANDLORD AGREEMENT (this "Agreement") is dated as of ____________, 1999 and made by and between MMC/GATX PARTNERSHIP NO. I, as Agent for the Lenders ), ("Landlord"). RECITALS: A. COLO.COM ("Lessee"), as borrower, has entered into a Loan and Security Agreement with MMC/GATX Partnership No. I, Venture Lending & Leasing II, Inc., Transamerica Business Credit Corporation, Silicon Valley Bank and Lighthouse Capital Partners (collectively, "Lenders") and Agent dated as of November __, 1999 (as amended and supplemented from time to time, the "Loan Agreement"). B. Landlord is the lessor under that certain lease agreement dated as of _______________, 19__, by and between Landlord and Lessee, a true and correct copy of which is attached hereto as Exhibit A (the "Lease"), which demises approximately _____ rentable square feet (the "Leasehold Premises") located on that certain real property in the County of ____________________, State of _________________ commonly known as [address], with the full legal description thereof set forth in Exhibit B (the "Real Property"). C. Lessee has executed in favor of Agent, for the benefit of Lenders, a Collateral Assignment of Leases, Rents and Income (the "Assignment"), securing, among other things, Lessee's interest in the Lease. A copy of the Assignment has been delivered to Landlord. Lenders, as a condition to funding under the Loan Agreement, require the execution of this Agreement. Agent shall also be deemed to include any successor to Agent and any Lender or third party who subsequently executes this agreement and subsequently acquires Lessee's interest under the Lease directly or indirectly through the Assignment. NOW, THEREFORE, for good and sufficient consideration, receipt of which is hereby acknowledged, the parties agree as follows: 1. Landlord consents to Borrower's execution and delivery to Agent of the Assignment. 2. Whether or not Agent exercises rights under the Assignment, Landlord consents to the removal by Agent or Lenders of the equipment, fixtures and other personal property assets situated in the Leased Premises ("Equipment") from the Real Property, no matter how it is affixed thereto. Landlord waives and releases each and every right which Landlord now has, under laws of the State of [California] or by virtue of the Lease now in effect, to levy or distrain upon for rent, in arrears, in advance or both, or to claim or assert title to the Equipment that is already on, said Real Property, or may hereafter be delivered or installed thereon. 11 52 3. The Equipment shall be considered to be personal property and shall not be considered part of the Real Property regardless of whether or by what means it is or may become attached or affixed to the Real Property. 4. Landlord will permit Lenders or Agent, or their agent or representative, to enter upon the Real Property for the purpose of exercising any right they may have under the terms of the Assignment, including, without limitation, the right to remove the Equipment; provided, however, that if Lenders or Agent, in removing the Equipment damage any improvements of the undersigned on the Real Property, Lenders will, at their expense, cause same to be repaired. 5. If Agent subsequently acquires Lessee's interest as lessee under the Lease directly or indirectly through the Assignment, Landlord agrees to recognize Agent as lessee under the Lease and Agent agrees to attorn as lessee to Landlord under the Lease, and the terms of the Lease shall not be terminated, disturbed, or adversely affected; provided that Agent or Tenders shall not be obligated to cure any defaults of Lessee which occurred prior to the time Agent or Leaders purchased, exercised their rights under the Assignment or otherwise acquired their interest under the Lease unless Landlord has given Agent the corresponding written notice of default set forth in Section 6 at least ten (10) days prior to the time Agent or Lenders acquired their interest under the Lease, and Agent or Lenders shall not be liable for any other act or omission of Lessee. 6. Landlord agrees to give Agent copies of any notices of default under the Lease, and allow Agent to cure said defaults, if Agent so elects, within thirty (30) days of Agent's receipt of said notice. As of the date hereof, Landlord acknowledges that there is no default under the Lease. 7. Notices to Agent and Landlord shall be in writing and addressed and sent by personal or overnight delivery, or US postage pre-paid mail: To Landlord: ____________________ ____________________ ____________________ ____________________ To Agent: MMC/GATX Partnership No. I c/o Meier Mitchell & Company 4 Orinda Way, Suite 200B Orinda, CA 94563 Attention: Contract Administration 8. Nothing in this Agreement shall be deemed to change in any manner the provisions of the Assignment or waive any right that Agent may now have or later acquire against Lessee by reason of the Assignment. 12 53 9. This agreement shall be binding upon the heirs, successors and assigns of Landlord and shall inure to the benefit of each Lender, Agent and its respective successors and assigns. This Agreement shall be governed by, and construed in accordance with, the laws of California. This Agreement may be executed in counterparts. This Agreement contains the entire agreement of the parties and supercedes any and all prior agreements and understandings. This Agreement may not be amended or modified unless in writing executed by all of the parties. IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date set forth above. MMC/GATX PARTNERSHIP NO. I, as Agent _________________________________ By: GATX Capital Corporation, its general partner OWNER/LESSOR By:_____________________________ By:______________________________ Title:__________________________ Title:___________________________ The foregoing Agreement must be acknowledged before a Notary Public. 13 54 STATE OF ) ) ss COUNTY OF ) On the _____ day of _____________, 1999 before me,____________________, Notary Public, personally appeared ____________________________________ to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), ' and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal _____________________________________________ SIGNATURE OF NOTARY PUBLIC (SEAL) 14 55 Exhibit A to Landlord Agreement LEASE 15 56 Exhibit B to Landlord Agreement LEGAL DESCRIPTION 16 57 . EXHIBIT F COLLATERAL ASSIGNMENT OF LEASES, RENTS AND INCOME THIS COLLATERAL ASSIGNMENT OF LEASES, RENTS AND INCOME (the "ASSIGNMENT") is made as of _______________, 1999, between MMC/GATX Partnership No. I, as Agent for the Lenders (the "AGENT"), and COLO.COM (the "BORROWER"), with reference to the following Recitals: RECITALS A. Borrower is a tenant under certain leases more particularly described in Exhibit A hereto (the "LEASES"), and is entitled to the payment of certain fees, charges and rentals under various license/rental/customer agreements as they pertain to the Financed Equipment Locations (the "OCCUPANCY AGREEMENTS") entered into by Borrower, as ___________________, with parties occupying space located in the premises demised to Borrower, as tenant, under the Leases (the "RENTS AND INCOME"). The Leases and Occupancy Agreements are referred to herein collectively as the "COLLATERAL DOCUMENTS." A. Borrower, has entered into a Loan and Security Agreement with MMC/GATX Partnership No. I, Venture Lending & Leasing II, Inc., Transamerica Business Credit Corporation, Silicon Valley Bank and Lighthouse Capital Partners (collectively, "LENDERS") and Agent dated as of November __, 1999 (as amended and supplemented from time to time, the "LOAN AGREEMENT"), pursuant to which Borrower has granted to Bank a security interest in certain property of Borrower. Unless otherwise defined herein, capitalized terms have the meanings given such terms in the Loan Agreement. C. Borrower has agreed to assign as security to the Agent, for the benefit of the Lenders, all of the right, title and interest of Borrower in and under the Collateral Documents, and to grant to the Agent, for the benefit of the Lenders, a security interest in the Rents and Income, upon the terms and subject to the conditions set forth herein. NOW THEREFORE, in consideration of the foregoing Recitals, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. The parties hereby acknowledge and agree that the Collateral Documents and the Rents and Income constitute "COLLATERAL" under and subject to the terms of the Loan Agreement. 17 58 2. All cash proceeds from the Collateral Documents, including without limitation the Rents and income, are "COLLATERAL" as that term is defined in the Loan Agreement and shall be payable by Borrower to the Lenders in accordance with the terms thereof and the terms of this Assignment. 3. This assignment is intended by Borrower to create and shall be construed to create an immediate assignment as security to Agent, for the benefit of the Lenders, of all of Borrower's right, title and interest in the Collateral Documents and the Rents and Income. By its acceptance of this Assignment, and so long as an Event of Default shall not have occurred and be continuing under the Credit Agreement, Agent hereby grants to Borrower a revocable license to enforce the Collateral Documents, to collect the Rents and Income, to apply the Rents and Income to the payment of the costs and expenses incurred in connection with the business operation of Borrower as may be permitted by the terms of the Loan Agreement. Upon occurrence of an Event of Default and at any time thereafter during the continuance thereof, Agent shall have the right to revoke the license granted to Borrower hereby by giving written notice of such revocation to Borrower. Upon such revocation, Borrower shall promptly deliver to the Agent, for the benefit of the Lenders, all Rents and Income then held by Borrower, and Agent, for the benefit of the Lenders, shall thereafter be entitled to collect and receive, without deduction or offset, all Rents and Income and apply such Rents and Income as provided in the Loan Agreement, and to enforce and exercise the rights of Borrower under the Collateral Documents. 4. (a) Borrower agrees to execute such additional documentation as may be requested by the Lenders to effectuate the assignment as security to the Agent hereunder of Borrower's right, title and interest under the Leases and to obtain the agreement of the landlords thereunder to recognize Agent and any successor or assignee of Agent as the tenant under the Leases upon exercise by Agent of its rights under this Assignment. (b) From and after the date hereof, Borrower shall not enter into or consent to any amendment, modification or termination of any of the Leases without the prior written consent of Requisite Lenders (as defined in the Loan Agreement). (c) Borrower represents and warrants that it has delivered true and correct copies of the Leases to Agent. 5. Borrower shall execute such further documentation (including, without limitation, a UCC-1 Financing Statement) and do such further acts as may be necessary to perfect the Agent's security interest in the Collateral Documents and the Rents and Income. Borrower agrees that Agent may record this Assignment in the applicable county recording office. 6. This Assignment may be executed in any number of counterparts; each such counterpart bearing the signature of a party hereto shall be deemed to be an original document, and any set of counterparts bearing the signatures of all parties hereto when taken together shall constitute a fully-executed Assignment. 18 59 7. Borrower represents and warrants to the Lenders that Borrower has full right, title and interest in and to the Collateral Documents, and the Collateral Documents are not subject to any security interest, lien or encumbrance of any kind except in favor of Agent, for the benefit of the Lenders. IN WITNESS WHEREOF, the parties hereto have executed this Assignment as of the date first above written. COLO.COM By: ____________________________________ Its: _______________________________ MMC/GATX PARTNERSHIP NO. I, AS AGENT FOR THE LENDERS By: GATX CAPITAL CORPORATION, ITS GENERAL PARTNER By: ____________________________________ Its: _______________________________ The foregoing Agreement must be acknowledged before a Notary Public. 19 60 STATE OF ) ) ss COUNTY OF ) On the _______ day of _____________, 1999 before me, _______________ Notary Public, personally appeared _________________________________ to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal ________________________________________ SIGNATURE OF NOTARY PUBLIC (S E A L) 61 SCHEDULE 1 BORROWER'S TRADE NAMES Colomotion EX-10.10 14 0014.txt RETAIL LEASE FORM 1 EXHIBIT 10.10 RETAIL LEASE FORM OF THE BUILDING OWNERS AND MANAGERS ASSOCIATION OF SAN FRANCISCO Parties 1. THIS LEASE, made this 7th day of, November 1996 between Telehub, Inc., Lessor; and Mauswerks, Inc., Lessee: Premises 2. WITNESSETH: That Lessor does hereby lease to Lessee, and Lessee does hereby lease from Lessor those certain premises situated in the City and County of San Francisco, State of California, and described as follows: Approximately 3,975 rentable square feet on the second floor of 1019 Mission Street, hereinafter called "premises". The word "Premises" as used throughout this lease is hereby expressly defined, subject to the provisions of paragraph 17 hereof, to include sidewalks and driveways in front of or adjacent to the premises described above, including driveway and sidewalk installations, and also the area, if any, directly underneath such sidewalks and driveways. The word "installations includes, without limiting the generality of the word, elevators, elevator doors, stairways and sidewalk lights. Use 3. The premises are to be used as General Office and for no other business or purpose, without the written consent of Lessor. Covenants 4. It is mutually agreed that the letting hereunder is upon and subject to the following terms, covenants and conditions and Lessee covenants, as a material part of the consideration for this lease, to keep and perform each and all of said terms, covenants and conditions by him to be kept or performed, and that this lease is made upon the condition of such performance. Term 5. The term of this lease shall be for and shall commence on the 1st day of December 1996, and end on the 30th day of November 4, 1999, inclusive: Rent 6. Tenant shall pay to Landlord as basic rent for the Premises throughout the term of this Lease the sum per month as follows: a) Basic rent shall be paid to Landlord on or before the first day of the term hereof and on or before the first day of each and every successive calendar month thereafter during the term hereof, except that basic rent for the first full calendar month shall be paid concurrently with the execution of this Lease by Tenant. In the event the term of this Lease commences on a day other than the first day of a calendar month or ends on a day other than the last day of a calendar month, then the basic rent for the first and last fractional months of the term hereof shall be appropriately pro-rated. 2 c) All charges and other amounts or any kind payable by Tenant to Landlord pursuant to this lease shall be deemed additional rent. Landlord shall have the same remedies for default in the payment of additional rent as for default in the payment of basic rent. Basic rent, percentage rent, and additional rent are collectively sometimes hereinafter referred to as "rent." d) Rent shall be paid to Landlord, without deduction or offset, in lawful money of the United States of America at Landlord's address for notices hereunder or to such other person or at such other place as Landlord may from time to time designate in writing. All rent payable by Tenant to Landlord hereunder, if not received by Landlord when due, shall bear interest from the due date until paid at the publicly announced prime rate or reference rate charged on such due date by the San Francisco Main Office of Bank of America, N.T. & S.A. (or any other successor bank) for short-term, unsecured loans to its most creditworthy borrower, plus four percent (4% per annum, but in no event shall such interest exceed the maximum rate permitted by law. Landlord's acceptance of any interest payments shall not constitute a waiver of Tenant's default with respect to the overdue amount or prevent Landlord from exercising any of the rights and remedies available to Landlord under this Lease or by law. Any change in said interest rate shall become effective on the same date on which a change in the prime rate or reference rate becomes effective. e) The parties intend that this Lease shall be net to Landlord property tax and insurance and that Tenant shall pay all other costs and expenses relating to the Premises and the business conducted therein as expressly provided in this Lease. Notice of Surrender 7. Lessee shall, at least thirty (30) days before the last day of the term hereof, give to Lessor a written notice of intention to surrender the premises on that date, but nothing contained herein shall be construed as an extension of the term hereof or as consent of Lessor to any holding over by Lessee. Holding Over 8. If Lessee holds possession of the premises after the term of this Lease, Lessee shall, at the option of Lessor, to be exercised by Lessor's giving written notice of Lessee and not otherwise, become a tenant from month to month upon the terms and conditions herein specified, so far as applicable, at a monthly rental of Five thousand nine hundred fifty Dollars ($5,950.00), payable in advance, in lawful money, and shall continue to be such Tenant until thirty days after Lessee shall have given to Lessor or Lessor shall have given to Lessee a written notice of intention to terminate such monthly tenancy. Unless Lessor shall exercise the option hereby given him, Lessee shall be a tenant at sufferance only, whether or not Lessor shall accept any rent from Lessee while Lessee is so holding over. Delivery of Possession 9. If Landlord, for any reason whatsoever, cannot deliver possession of the said premises to Tenant at the commencement of the term hereof, this Lease shall not be void or voidable, nor shall Landlord be liable to Tenant for any loss or damage resulting therefrom, but in that event there shall be a proportionate reduction of rent covering the period between the commencement of the said term and the time when Landlord can deliver possession. If possession of the Premises is not delivered to Tenant within six months from the scheduled commencement date, this Lease will terminate. Should Landlord tender possession of the premises to Tenant prior to the date specified for the commencement of the term, and Tenant accepts such prior tender, such prior occupancy shall be subject to all terms, covenants, and conditions of this Lease, including the payment of rent. No delay in delivery of possession shall operate to extend the term hereof. Within 10 days after written request from Landlord, Tenant shall execute and return to Landlord acknowledgement of the commencement date of the term of this Lease. Uses Prohibited 10. The premises shall not be used except for the purposes specified in paragraph 3 hereof, Lessee shall, at all times during the term hereof, actively use the premises for those purposes, and shall not at any time leave the premises vacant without the written consent of Lessor. Lessee shall not do or permit anything to be done in or about the premises, or bring or keep anything therein, which will in any 2 3 way increase the rate of fire insurance upon the building wherein the premises are situated or any of its contents , or which will in any way conflict with any law, ordinance rule or regulation which may now or hereafter be enacted or promulgated by any public authority, or create a nuisance, or in any way obstruct or interfere with the rights of other tenants of the building, or injure or annoy them, allow any sale by auction upon the premises, or commit or suffer to be committed any waste upon the premises, or use, or allow the premises to be used, for any improper, immoral, unlawful or objectionable purpose or place any loads upon the floor, walls or ceiling which endanger the structure, obstruct the sidewalk or passageways or stairways in front of, within, or adjacent to the premises, do or permit to be done anything in any way tending to disturb the occupants or neighboring property or tending to injure the reputation or appearance of the building. Assignment And Subletting 11. a) Tenant shall not mortgage, pledge, hypothecate or encumber this Lease or any interest therein. Tenant shall not assign this Lease or suffer any other person (the agents and servants, Tenant excepted) to occupy or use the premises, or any part thereof, or any right or privilege appurtenant thereto without the prior written consent of Landlord first had and obtained, which consent shall not be unreasonably withheld. Landlord's consent to one assignment, subleasing occupancy shall not be deemed to be a consent to any subsequent assignment or occupancy. b) Provided further and notwithstanding, anything hereinbefore set forth: In the event that at any time or from time to time during the term of this Lease, Tenant desires to sublet all or any part of the Premises, Tenant shall notify the Landlord in writing (the "Sublet Notice") of the terms of the proposed subletting, and the area so proposed to be sublet and shall give Landlord the right to sublet from Tenant such space (the "Sublet Space") on the same terms as those contained in the Sublet Notice. Such option shall be exercisable by Landlord in writing for a period of 30 days after receipt of the Sublet Notice. If Landlord fails to exercise its option and Tenant desires to complete the proposed sublease, Tenant shall deliver an executed copy of such sublease to Landlord in order to obtain its consent as required in paragraph 11 (a) above. If Landlord consents to a sublease, then such sublease shall be subject to and made upon the following terms: (i) any such sublease shall be subject to the terms of this Lease and the term thereof may not extend beyond the expiration of the term of this Lease; (ii) no subtenant shall have a right to further sublease its premises. If Landlord fails to exercise such option, and Tenant fails to consummate a sublease with a third party within 60 days after the expiration of Landlord's option period on the same terms and conditions contained in the Sublet Notice, Tenant shall be required to deliver and comply with the terms and conditions set forth above before any further subletting shall be permitted. c) Regardless of Landlord's consent, no subletting nor assignment shall release Tenant of Tenant's obligation or alter the primary liability of Tenant to pay rent and perform other obligations of Tenant under this Lease. d) In no event shall Tenant assign this Lease or sublet the Premises to or any portion thereof to any then, existing or prospective tenant of said building. e) Tenant shall pay Landlord's reasonably costs incurred in connection with Tenant's request to assign this Lease or sublet the premises regardless whether or not the Landlord consents in the proposed transfer. f) If Tenant is a corporation or partnership, the transfer (as consequence of a single transaction or any number of separate transactions) of fifty percent (50%) or more of the beneficial ownership interest of the voting stock of Tenant issued and outstanding as of the date hereof or of the partnership interests in Tenant, as the case may be, shall constitute an assignment hereunder for which such consent is required. Further, Tenant shall not assign or sublet the Premises or any portion thereof to any corporation which controls, is controlled by or is under common control with Tenant, or that any corporation resulting from merger or consolidation with Tenant, or to any person or entity which acquires all the assets as a going concern of the business or Tenant that is being constructed on the premises, without such consent shall be void, and at the option of Landlord, shall terminate this lease. 12. Lessee has examined and inspected and knows the condition of the premises and every part thereof and has received the same in good order and repair and accepts the same in their present condition. Lessee, at Lessee's own cost and expense, shall maintain the premises, and every part thereof, in as good order and repair as when received, reasonable use and wear thereof and damage by Act of God excepted, and in good and safe condition, and shall make all repairs and maintain and repair all equipment therein, including plumbing and heating installations. Lessee waives the benefits of the provisions of subsection 1 of Section 1932 and of Sections 1941 and 1942 of the Civil Code of California and all right to make repairs at the expense of Lessor as provided in Section 1942 of that Code. Lessee shall have all passenger or freight elevators now or hereafter constructed upon the premiss, and all elevators, including sidewalk elevators, actually used by lessee in connection with the premises, whether on the premises or not, regularly inspected, and shall keep the same in good running order and in perfect repair and condition and keep same covered during the term hereof by permit and license to operate by the Industrial Accident Commission of the State of California, and by any other public authority from which a license or permit is or may be required, at the cost and expense of Lessee. Lessee agrees to replace immediately, at Lessee's cost and expense, all plate glass and windows and skylights broken or destroyed by accident or act of third parties or Lessee's agents or employees. In the event that any alterations, additions, repairs or acts of God shall be required to be done in 4 connection with the premises or any part thereof under the provisions of any law, ordinance or rule now in force or hereafter enacted by municipal, state or national authority, the same shall be made at the cost and expense of Lessee. All repairs, alterations and improvements that may be required shall be done only with the written consent of Lessor first obtained by Lessee but at the cost of Lessee, and unless otherwise provided by written agreement, all additions to, improvements and alterations of, the premises except movable furniture and trade fixtures, shall become a part of the realty, and be the property of Lessor, and shall remain upon and be surrendered with the premises. Lessee agrees that if he shall make any repairs, alterations or improvements, he will not take such action until two days after receipt by him of the written consent of Lessor required by this paragraph, in order that Lessor may post appropriate notices to avoid any liability for liens. Lessee will at all times permit such notices to be posted and to remain posted until the completion and acceptance of such work. Destruction of 13. a) In the event the Premises or a portion of the Premises Building is damaged by fire or other insured casualty, Landlord shall diligently repair the same to the extent possible with the insurance proceeds received by Landlord, subject to the provisions of this Section hereinafter set forth, if such repairs can in Landlord's opinion be made within 90 days after the issuance of a building permit therefor under the laws and regulations of federal, state and local governmental authorities having jurisdiction thereof. In such event this Lease shall remain in full force and effect except that if such damage is not the result of the negligence or willful misconduct of Tenant or Tenant's agents, contractors, employees, subtenants, licensees, invitees or visitors, an abatement of basic rent shall be allowed Tenant for such part of the Premises as shall be rendered unusable by Tenant in the conduct of its business during the time such part is so unusable. Notwithstanding the foregoing, if such damage shall occur during the final year of the term of this Lease, Landlord shall not be obligated to repair such damage, but may instead elect to terminate this Lease upon written notice given to Tenant within 30 days after the date of such fire or other casualty, in which event this Lease shall terminate as of the termination date specified in Landlord's notice. b) If such repairs cannot in Landlord's opinion be made within 90 days after issuance of a building permit therefor or if such damage is uninsured, Landlord may elect upon notice to Tenant given within 60 days after the date of such fire or other casualty to (i) repair or restore such damage, in which event this Lease shall continue in full force and effect, but basic rent shall be partially abated as hereinabove in this Section provided or (ii) terminate this Lease in which event this Lease shall terminate as of the termination date specified in Landlord's notice. c) A total destruction of the Building automatically shall terminate this Lease. Landlord and Tenant acknowledge that this Lease constitutes the entire agreement of the parties regarding events of damage or destruction, and Tenant waives the provisions of California Civil Code Section 1932(2) and 1933(4) and any similar statute now or hereafter in force. d) If the Premises are to be repaired under this Section, Landlord shall repair at its cost any injury or damage to the Building itself and the initial improvements made by Landlord pursuant to Exhibit A___. Tenant shall pay the cost of repairing or replacing all other improvements in the Premises and Tenant's trade fixtures, furnishings, equipment and other personal property. Entry and 14. Lessee will permit Lessor and its agents to enter into Inspection and upon the premises at all reasonable times for the purpose of inspecting the same, or for the purpose of protecting owner's reversions, or to make alterations or additions to the premises or to any other portion of the building in which the premises are situated, without any rebate of rent to Lessee for any loss of occupancy or quiet enjoyment of the premises, or damage, injury or inconvenience thereby occasioned, and will permit Lessor at any time within thirty (30) days prior to the expiration of this lease to place upon the premises any usual or ordinary "To Let" or "To Lease" signs, and to bring upon the premises, for purposes of inspection or display, prospective tenants or purchasers thereof. Hold Harmless 15. Tenant agrees to indemnify and defend Landlord against and save Landlord harmless from any and all loss, cost, liability, damage and expense, including without limitation penalties, fines and reasonable attorney's fees and costs, incurred in connection with or arising from any cause whatsoever in, on or about the foregoing: (1) any default by Tenant in the observance or performance of any of the terms, covenants or conditions of this Lease on Tenant's part to be observed or performed, or (2) the use of occupancy or manner of use or occupancy of the Premises by Tenant or any person or entity claiming through or under Tenant, including without limitation, the presence, use, generation, storage, transportation or disposal of any toxic or hazardous substances, or (3) the condition of the Premises or any occurrence or happening on the Premises from any cause whatsoever, or (4) any acts, omissions or negligence of Tenant or any person or entity claiming through or under Tenant, or of Tenant's agents, contractors, employees, subtenants, licensees, invitees or visitors or any such person or entity, in, on or about the Premises or the Building, either prior to the commencement of, during, or after the expiration of the term, including without limitation any acts, omissions or negligence in the making or performing of any alterations. Tenant further agrees to indemnify, defend and save harmless Landlord, Landlord's agents and the lessors under any ground or underlying leases, from and against any and all loss, cost, liability, damage and expense, including without limitation reasonable attorney's fees and costs, incurred in connection with or arising from any claims by any persons by reason of injury to persons or damage to property occasioned by any use, occupancy, condition, occurrence, happening, act, omission or negligence referred to in the preceding sentence, In the event any action or proceeding is brought against Landlord for any claim against which Tenant is obligated to indemnify Landlord hereunder, Tenant upon notice from Landlord shall defend such action or proceeding at Tenant's sole expense by counsel approved by Landlord, which approval shall not be reasonably withheld. The provisions of this Section (15) shall survive the expiration or earlier termination of this Lease. Utilities 16. Lessee agrees to pay promptly, as the same become due and payable, all bills for all water, gas, electricity, heat and other services furnished to or used by Lessee on or about the premises, in addition to the rents herein reserved. 4 5 Sub-Sidewalk 17. The area, if any, directly under sidewalks or driveways Area included in the premises shall be subject to all prior rights and easements of the city and county wherein situated, and any tax or rental which may hereafter be imposed by the City and County for the use or occupation of such area shall be borne and paid by Lessee, in addition to the rental herein reserved. In the event that Lessee shall be ousted by such city and county from any of the portions of the premises described in this paragraph, such ousted shall not constitute a breach of this Lease nor be held to be an eviction by Lessor, but this Lease shall continue in full force and effect. Signs 18. Lessor reserves the exclusive right to the roof, and to all exterior walls or parts of the premises, and access thereto, and the same are not covered by this Lease, and Lessee agrees that no signs, advertisements or notices whatsoever shall be inscribed, painted, affixed or displayed on, to or in any part of the outside or inside, or on the roof of the premises, without the written consent of Lessor. Any signs so placed on the premises shall be so placed upon the understanding and agreement that Lessee will remove same at the termination of the tenancy herein created and repair any damage or injury the premises caused thereby, and if not so removed by Lessee then Lessor may have same so removed at Lessee's expense. Notices 19. All notices to be given between the parties hereto shall be in writing and served personally or by depositing the same in the United States mail, postage prepaid and registered and addressed to Lessor at its office and to Lessee at the premises, whether or not Lessee has departed from, abandoned or vacated the premises. Default 20. In the event of any breach or default of Lease by Tenant, then Landlord, besides any other rights are remedies of Landlord at law or equity, shall have the right either to terminate Tenant's right to possession of the premises and thereby terminate this Lease or to have this Lease continue in full force and effect with Tenant at all times having the right to possession of the premises. Such property so removed may be stored in a public warehouse or elsewhere at the cost and for the account of Tenant. Upon such termination Landlord, in addition to any other rights and remedies (including rights and remedies under Subparagraphs (1), (2) and (4) of Subdivision (a) of Section 1951.2 of the California Civil Code of any amendment thereto), shall be entitled to recover from Tenant the worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time exceeds the amount of such rental loss that the Tenant proves could be reasonably avoided. The worth at the time of award of the amount referred to in subparagraphs (1) and (2) of Subdivision (a) of Section 1951.2 of the California Civil Code shall be computed by allowing interest at the maximum rate allowed by law. The worth at the time of the award of the amount referred to in subparagraph (3) of Subdivision (a) of Section 1951.2 of the California Civil Code shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of the award plus 1%. Any proof by Tenant of the amount of rental loss that could be reasonably avoided shall be made in the following manner: Landlord and Tenant shall each select a licensed real estate broker in the business of renting property of the same type and use as the premises and in the same geographic vicinity and such two real estate brokers shall select a third licensed real estate broker and the three licensed real estate brokers so selected shall determine the amount of rental loss that could be reasonably avoided for the balance of the term of this Lease after the time of award. The decision of the majority of said licensed real estate brokers shall be final and binding upon the parties hereto. Should Landlord, following any breach or default of this Lease by Tenant, elect to keep this Lease in full force and effect, with Tenant retaining the right to possession of the premises (notwithstanding the fact the Tenant may have abandoned the leased premises), then Landlord, besides the rights and remedies specified in Section 1951.4 of the California Civil Code "(lessor may continue lease in effect after lessee's breach and abandonment and recover rent as it becomes due, if lessee has right to sublet or assign, subject only to reasonable limitations)" and all other rights and remedies Landlord may have at law or equity, shall have the right to enforce all of Landlord's rights and remedies under this Lease. Notwithstanding any such election to have this Lease remain in full force and effect, Landlord may at any time thereafter elect to terminate Tenant's right to possession of said premises and thereby terminate this Lease for any previous breach or default which remains uncured, or for any subsequent breach or default. Removal of 21. Lessee hereby irrevocably appoints Lessor as agent and Property attorney in fact of Lessee, to enter upon the premises in the event of default by Lessee in the payment of any rent herein reserved, or in the performance of any term covenant or condition herein contained to be kept or performed by Lessee, and to remove any and all furniture and personal property whatsoever situated upon the premises, and to place such property in storage for the account of, and at the expense of Lessee. In the event that Lessee shall not pay the cost of storing any such property after the property has been stored for a period of ninety (90) days or more, Lessor may sell any or all of such property, at public or private sale, in such manner and at such times and places as Lessor in his sole discretion may deem proper, without notice to Lessee or any demand upon Lessee for the payment of any part of such charges or the removal of any of such property, and shall apply the proceeds of such sales first to the cost and expenses of such sale, including reasonable attorney's fees actually incurred- second, to the payment of the costs of or charges for storing any such property- third, to the payment of any other sums of money which may then or thereafter be due to the Lessor from the Lessee under any of the terms thereof; and, fourth, the balance, if any, to Lessee. Waiver of 22. Lessee hereby waives all claim for damages that may be Damages caused by Lessor's re-entering and taking possession of the premises or removing and storing furniture and property, as herein provided, and will save Lessor harmless from loss, costs or damages occasioned Lessor thereby, and no such re-entry shall be considered or construed to be a forcible entry as the same is defined in the Code of Civil Procedure of the State of California. Attorney Fees 23. If as a result of any breach or default on the part of Tenant under this Lease, Landlord uses the services of any attorney in order to secure compliance with this Lease, Tenant shall reimburse Landlord upon demand as additional rent for any and all attorneys' fees and expenses incurred by Landlord, whether or not formal legal proceedings are instituted. Should either party bring action. 5 6 against the other party, by reason of or alleging the failure of the other party to comply with any or all of its obligations hereunder, whether for declaratory or other relief, then the party which prevails in such action shall be entitled to its reasonable attorneys' fees and expenses related to such action, in addition to all other recovery or relief. A party shall be deemed to have prevailed in any such action (without limiting the generality of the foregoing) if such action is dismissed upon the payment by the other party of the sums allegedly due or the performance of obligations allegedly not complied with, or if such party obtains substantially the relief sought by it in the action, irrespective of whether such action is prosecuted to judgment. In addition, if either party to this Lease becomes a party to or is involved in any way in any action concerning this Lease or the Premises by reason in whole or in part of any act, neglect, fault or omission of any duty by the other party, its employees or contractors, the party subjected to said involvement shall be entitled to reimbursement for any and all reasonable attorneys' fees and costs. Non-Waiver of 24. Lessor's failure to take advantage of any default or breach Breach of covenant on the part of Lessee shall not be or be construed as a waiver thereof, nor shall any custom or practice which may grow up between the parties in the course of administering this instrument, be construed to waive or to lessen the right of Lessor to insist upon the performance by Lessee of any term, covenant or condition hereof, or to exercise any rights given him on account of any such default. A waiver of a particular breach or default shall not be deemed to be a waiver of the same or any other subsequent breach or default. Surrender of 25. Lessee agrees to surrender the premises at the termination Premises of the tenancy herein created, in the same condition as herein agreed they have been received, reasonable use and wear thereof and damage by the act of God or by the elements excepted, and upon the surrender of the premises, either at the expiration of the term or otherwise, Lessee agrees to remove all rubbish from the premises, and if not so removed by Lessee, Lessor may have the same removed at Lessee's expense. Terms Defined 26. The words "Lessor" and "Lessee" as used herein shall include the plural as well as the singular words used in masculine gender include the feminine and neuter. If there be more than one Lessor or Lessee the obligations hereunder imposed upon Lessor or Lessee shall be joint and several. The marginal headings or titles to the paragraphs of this Lease are not a part of this Lease and shall have no effect upon the construction or interpretation of any part thereof. Heirs 27. Subject to the provisions hereof relating to assignment and subletting, this lease is intended to and does bind the heirs, executors, administrators, successors and assigns of any or all of the parties hereto. Time 28. Time is of the essence of this Lease. Insurance 29. Tenant agrees to keep in force during the term hereof, at Tenant's expense, public liability and property damage insurance with combined single limits of not less than $1,000,000.00. Said policy shall name Landlord as an additional insured, and shall insure Landlord's contingent liability as respects acts, or omissions of Tenant, shall be issued by an insurance company licensed to do business in the state where the premises are located; and shall provide that said insurance shall not be canceled or amended unless thirty (30) days prior written notice to Landlord is first given. A certified copy of said policy, or, if the Landlord agrees, a certificate thereof, shall be delivered to Landlord by Tenant prior to commencement of the term and each renewal of such insurance. Tenant hereby waives all rights of subrogation against Landlord to which any insurance carrier may at any time become entitled under any policy of insurance carried by Tenant. Liens 30. Tenant shall keep the Premises and the building free from any liens arising out of any work performed, materials furnished or obligations incurred by Tenant. Should Tenant fail to remove any such lien within five (5) business days after notice to do so from Landlord, Landlord may, in addition to any other remedies, record a bond pursuant to California Civil Code Section 3143 and all amounts incurred by Landlord in so doing shall become immediately due and payable by Tenant to Landlord as additional rent. Landlord shall have the right to post and keep posted on the Premises any notices that may be provided by law or which Landlord may deem to be proper for the protection of Landlord, the Premises and the Building from such liens. Security 31. Simultaneously with the execution of this Lease, Tenant shall deposit the sum of $5,950.00, of which sum $1,975.00 shall be payment of the first month's rent and the balance thereof, namely, $3,975.00 shall be held by Landlord as security for the faithful performance by Tenant of all the terms, covenants and conditions of this Lease. Provided that at the end of the term Tenant shall have delivered up the Premises to Landlord, broom clean, and in the same condition as at the commencement date, reasonable wear excepted, said sum held as security shall be returned to Tenant. No interest shall be payable thereon and Landlord shall not be required to keep said sum in a separate account. If Tenant fails to pay any Rent or other charges due hereunder, or otherwise defaults with respect to any provision of this Lease, Landlord may at its option apply or retain all or any portion of the deposit for the payment of any Rent or other charge in default of the payment of any other sum to which Landlord may become obligated by Tenant's default, or to compensate Landlord for any loss damage which Landlord may suffer thereby. If Landlord so uses or applies all or any portion of the deposit, then within 10 days after demand therefor Tenant shall deposit cash with Landlord in any amount sufficient to restore the deposit to the full amount thereof, and Tenant's failure to do so shall be a material breach of this Lease. Landlord's application or retention of the deposit shall not constitute a waiver of Tenant's default to the extent that the deposit does not fully compensate Landlord for all losses or damages incurred by Landlord in connection with such default and shall not prejudice any other rights to remedies available to Landlord under this Lease or by law. Eminent Domain 32. If all or any part of the Premises shall be taken or appropriated by any public or quasi-public authority under the power of eminent domain, and such taking will substantially impair Tenant's use of the premises for more than 90 days, either party shall have the right, at its option, to terminate this 6 7 Lease. If all or any part of the building of which the premises are a part shall be taken or appropriated by any public or quasi-public authority under any power of eminent domain, Landlord may terminate this Lease. In either of such events, Landlord shall be entitled to and Tenant upon demand of Landlord shall assign to Landlord any rights of Tenant to any and all income, rent, award, or any interest therein whatsoever which may be paid or made in connection with such public or quasi-public use or purpose, and Tenant shall have no claim against Landlord or the condemnor for the value of any unexpired term of this Lease. If a part of the premises shall be so taken or appropriated and neither party hereto shall elect to terminate this Lease, the rent thereafter to be paid shall be equitably reduced. Subordination 33. This Lease shall be subject and subordinate at all times to all ground underlying leases which may now exist or hereafter be executed affecting the building and/or the land upon which the building is situated and to the lien of any mortgages or deeds of trust in any amount or amounts whatsoever now or hereafter placed on or against said building and/or land on or against the Landlord's interest or estate therein or on or against any ground or underlying lease without the necessity of having further instruments on the part of Tenant to effectuate such subordination. Notwithstanding the foregoing, Tenant covenants and agrees to execute and deliver, upon demand, such further instruments evidencing such subordination of this Lease to such ground or underlying leases and to the lien of any such mortgages or deeds of trust as may be required by Landlord. Tenant hereby irrevocably appoints Landlord the attorney in fact of Tenant to execute and deliver any such instrument or instruments for or in the name of Tenant. In the event of foreclosure or exercise of any power of sale under any mortgage or deed of trust superior to this Lease or to which this Lease is subject or subordinate, upon Tenant's attornment to the Lessor under such ground or underlying lease, or to the purchaser at any foreclosure sale or sale pursuant to the exercise of any power of sale under any mortgage or deed of trust, this Lease shall not terminate and Tenant shall automatically be and become the Tenant of said Lessor under such ground or underlying lease or to said purchaser, whichever shall make demand therefore. Late Charge 34. In the event Tenant shall fail to pay any rents or sums due hereunder on or before the due date herein provided, then and in the event the amount so due and unpaid shall bear a late charge equal to five percent (5%) of the amount due together with interest accruing from the date due at the maximum interest rate permitted by law, which late charge and interest shall be payable forthwith upon demand. (The foregoing shall be in addition to any other right or remedy of Landlord.) Complete Agreement 35. There are no oral agreements between Landlord and Tenant affecting this Lease, and this Lease supersedes and cancels any and all prior negotiations, arrangements, correspondence, communications, brochures, agreements and understandings, if any, whether oral or written, between Landlord and Tenant or displayed by Landlord or Tenant with respect to the subject matter of this Lease or the Building. There are no representations between Landlord and Tenant other than those contained in this Lease and all reliance with respect to any representations is based solely upon the terms of this Lease. Corporate Authority 36. If Tenant signs as a corporation, each of the persons executing this Lease on behalf of Tenant does hereby covenant and warrant that(a) Tenant is a duly authorized and existing corporation, (b) Tenant has and is qualified to do business in California, (c) the corporation has full right and authority to enter into this Lease, and (d) each and both of the persons signing on behalf of the corporation are authorized to do so. If Tenant is a corporation, within 30 days after execution of this Lease by Tenant, Tenant shall deliver to Landlord a certified corporate resolution authorizing the persons who signed below or behalf of Tenant to execute this Lease. Modification & 37. If any mortgage or equity lender should require Financing as a condition to the financing that Landlord Agreements obtain any amendment of the provisions of this Lease, Tenant agrees to execute such amendment, provided that such amendment shall not change the location of the Premises, increase the rent or materially interfere with Tenant's use or occupancy of the Premises. If Tenant should refuse to execute any amendments so required within five (5) days after receipt of the same, Landlord shall have the right by notice to Tenant to cancel this Lease, and upon such cancellation Landlord shall refund any unearned rent, the security deposit, if any, and neither party shall have any liability to the other. Alterations to 38. Landlord shall have the right at any time and Building from time to time to change, add to, subtract from, or otherwise alter the Building, including without limitation, the location and/or size of entrances, doors and doorways, corridors, elevators, stairs, utility rooms, restrooms or other general common areas. In addition, Landlord reserves the right to locate, both vertically and horizontally, install, maintain, use, repair and replace pipes, utility lines, ducts, conduits, flues, drains, sprinkler mains and valves, access panels, wires and structural elements leading through the Premises in locations which will not materially interfere with Tenant's use thereof. Landlord shall use reasonable efforts not to interfere unreasonably with the normal business operations of Tenant, but in any event there shall be no abatement of any rent by reason of any actions of Landlord pursuant to the provisions of this Section, and Tenant hereby waives any claim for damages for any injury or inconvenience or interfere with Tenant's business, any loss of occupancy or quiet enjoyment of the Premises or any other loss occasioned by such actions. Quiet Possession 39. Landlord agrees that Tenant, upon paying the rent and performing the terms, covenants and conditions of this lease, may quietly have, hold and enjoy the Premises from and after Landlord's delivery of the Premises to Tenant and until the end of the term, subject, however, to the provisions of Section 14, and any mortgages, deeds of trust, ground or underlying leases, agreements and encumbrances to which this Lease is subordinate. Non-Discrimination 40. Tenant agrees for Tenant and Tenant's heirs, executors, administrators, successors and assigns and all persons claiming under or through Tenant, and this Lease is made and accepted upon and subject to the following conditions; that there shall be no discrimination against or segregation of any person or group of persons on account of race, color, creed, sex, religion, marital status, medical conditions, physical handicap, ancestry or national origin (whether in the use, occupancy, subleasing, transferring, tenure or enjoyment of the Premises or otherwise) nor shall Tenant or any person claiming through or under Tenant establish or permit any such practice or practices of discrimination or segregation with reference to or arising out of the use or occupancy of the Premises by Tenant or by per- 8 son claiming through or under Tenant. Other Stores Additional 42. The exhibits and addenda listed below are incorporated Provisions by reference in this lease. Exhibit A + Addendum to Lease. IN WITNESS WHEREOF Landlord and Tenant have executed this Lease the day and year first above written. By Telehub, Inc. MAUSWERKS, INC. ------------------------ -------------------------- /s/ PAUL LARSON ------------------------ -------------------------- Paul Larson BRIAN TOPPING, President ------------------------ -------------------------- /s/ BRIAN TOPPING ------------------------ -------------------------- Landlord Tenant Date 11-10-96 Date 11-10-96 ------------- ---------------- SEE YOUR ATTORNEY This Lease should be given to your attorney for review and approval before you sign it. BOMA makes no representation or recommendation concerning the legal effect, legal sufficiency, or tax consequences of this Lease. These are questions for your attorney. 8 9 SETTLEMENT AGREEMENT AND MUTUAL RELEASE THIS AGREEMENT ("Agreement") is made on the 8th day of July, 1997 between Brian Topping and Manswerks, Inc., a California Corporation having an address at 2339 Third Street, Suite 24, San Francisco, CA 94107 ("Manswerks") and Peter Berns, Patrick Connolly, Robert Lamb and Colomotion, Inc., a California Corporation having an address at 1021 Mission Street, San Francisco, CA 94103 ("Colomotion"), hereinafter collectively referred to as the "Parties." RECITALS 1. The Parties had an oral agreement ("Oral Agreement") whereby each of Peter Berns, Patrick Connolly, Robert Lamb and Brian Topping would form Colomotion as equal partners. 2. The Parties entered into negotiations to modify the Oral Agreement whereby each of Peter Berns, Patrick Connolly, and Robert Lamb would join Manswerks as unequal partners. These negotiations were never completed. 3. Manswerks currently holds the lease for commercial space located at 1021 Mission Street, San Francisco, CA 94103 and the lease for Metropolitan Fiber Systems' services (collectively, "the Leases"). 4. Colomotion has agreed to pay Manswerks twenty four thousand nine hundred forty eight dollars and twenty cents ($24,948.20 US). Manswerks hereby acknowledges receipt from Colomotion of (1) a payment in the amount of thirteen thousand five hundred dollars ($13,500US) applied toward the downpayment, and (2) five thousand eight hundred five dollars and sixty cents ($5,805.60US), which represents three monthly installment payments pursuant to the Promissory Note. The downpayment balance one of three hundred sixty eight dollars and eighty three cents ($368.83US) will be paid on execution of this Agreement and installment payments one of five thousand eight hundred five dollars and sixty cents ($5,805.60US) will be paid as a pursuant to the Promissory Note. 5. Following a dispute ("Dispute") between the Parties, the Parties have elected to terminate their Oral Agreement and to settle the Dispute as set forth in this Agreement. NOW, THEREFORE, for good and valuable consideration, including the mutual promises, the Parties hereby agree as follows: PAYMENT TERMS 6. Effective immediately upon execution of this Agreement, the promissory installment note ("Promissory Note"), and the pledge agreement ("Pledge"), (collectively, "the Documents"), Colomotion shall assume all obligations of Manswerks under the Leases, including all interest and benefit in said space and improvements, including those made by Manswerks. In exchange for these interests, Manswerks accepts as full and complete consideration (1) the payment of Manswerks invoice 1205 dated 6/4/97 (the "Invoice"), (2) the release by Colomotion of any express or implied claim, demand, obligation, or cause of action in Manswerks or Brian Topping as outlined below in Section 8, and (3) the successful assignment of the Leases to Colomotion or any other entity as Colomotion authorizes within 30 days after execution of this Agreement. The terms of said payments are attached hereto and entitled "Promissory Note", and "Pledge" ("Documents"). Attached to the Documents are Exhibit A and the Invoice. These Documents and the attachments thereto are incorporated herein by reference. Settlement Agreement and Mutual Release 1/3 July 8, 1997 10 RECITAL OF CONSIDERATION 7. The Parties do hereby release and forever discharge each other, including any parent, subsidiary, or related companies, and any and all of the Parties' officers, directors, agencies, agents, representatives, assigns, shareholders, heirs, and employees past, present and future, from any and all claims, demands, obligations, or causes of action of any nature whatsoever, whether based on tort, contract, statutory, or other legal theory of recovery, and whether compensatory, punitive, statutory or any other form of damages or legal relief which arise out of, are based on, or pertain to the transactions and occurrences referenced in the Documents. 8. The Parties do hereby expressly waive any and all rights conferred upon them by the provisions of section 1542 of the California Civil Code. 9. This is a compromise settlement of outstanding issues that exist between the Parties. The payment of the consideration for this Agreement shall not be construed or deemed as an admission of liability on the part of either of the Parties. 10. The payment of the sum specified in the Promissory Note is for a full and complete settlement and release of matters involving disputed issues. No further sums are due. ENTIRE AGREEMENT 11. This Agreement supersedes any and all other Agreements, whether oral or in writing, between the Parties, with respect to the subject of this Agreement. This Agreement, when included with the Documents, contains all of the covenants and agreements between the Parties. Each party to this Agreement acknowledges that no representations, inducements, promises or agreements have been made by or on behalf of any party except those covenants and agreements embodied in this Agreement. No agreement, statement, or promise not contained in this Agreement shall be valid or binding. GOVERNING LAW 12. The validity of this Agreement and of any of its terms or provisions, as well as the rights and duties of the Parties under this Agreement, shall be governed by and construed pursuant to and in accordance with the laws of the State of California. DISPUTE RESOLUTION 13. All disputes, claims and controversies arising out of this Agreement that are not resolved between the Parties within thirty (30) days after notice of a dispute, shall be settled by binding arbitration conducted by an alternative dispute resolution entity located in the San Francisco Bay Area. Such arbitration shall be conducted in San Francisco or such other place as the Parties so agree. The arbitration shall be conducted by a sitting or retired judge or attorney with at least ten (10) years' relevant experience, and conducted under the commercial arbitration rules of the American Arbitration Association, and otherwise comply with Section 1280 et. seq. of the California Code of Civil Procedure. The award in such arbitration may be enforced in any court of competent jurisdiction and the cost of arbitration and the fees and expenses of the prevailing party shall be borne by the losing party as determined by the arbitrator. NOTICES 14. All notices, consents, requests, waivers or reports required or permitted under this Agreement shall be in writing and shall be deemed to have been properly given or served for all purposes if delivered in person (including courier delivery), sent by certified mail, postage prepaid, return receipt requested, to the Parties at the addresses set forth below, or sent by facsimile: If to Colomotion: Peter Berns 1021 Mission Street San Francisco, CA 94103 Settlement Agreement and Mutual Release 2/3 July 8, 1997 11 (415) 574-1114 Fax If to Mausworks: Brian Topping 2339 Third Street, Suite 24 San Francisco, CA 94107 (415) 522-5001 Fax Either party may at any time change the place for notice by notice to the other party. All notices shall be deemed effective and deemed given (i) on the third (3rd) business day after mailing, if mailed (ii) on the date of delivery, if delivered, or (iii) the date of acknowledged receipt, if faxed. /s/ PETER BERNS 7/14/97 - ------------------------------------------------------------------------------ Peter Berns /s/ PATRICK CONNOLLY 7/14/97 - ------------------------------------------------------------------------------ Patrick Connolly /s/ ROBERT LAMB 7/14/97 - ------------------------------------------------------------------------------ Robert Lamb /s/ BRIAN TOPPING 7/14/97 - ------------------------------------------------------------------------------ Brian Topping Settlement Agreement and Mutual Release 3/3 July 8, 1997 12 ADDENDUM TO LEASE AGREEMENT LIMITATION OF RESPONSIBILITY "Tenant acknowledges and agrees that all telephone and telecommunications services desired by Tenant shall be ordered and utilized at the sole expense of Tenant. Unless Landlord otherwise requests or consents in writing, all of Tenant's telecommunications equipment shall be and remain solely in the Tenant's premises and the telephone closet(s) on the floor(s) on which the Tenant's premises is located in accordance with rules and regulations adopted by Landlord from time to time. Unless otherwise specifically agreed to in writing. Landlord shall have no responsibility for the maintenance of Tenant's telecommunications equipment, including wiring; nor for any wiring or other infrastructure to which Tenant's telecommunications equipment may be connected. Tenant agrees that, to the extent any such service is interrupted, curtailed or discontinued, Landlord shall have no obligation or liability with respect thereto and it shall be the sole obligation of Tenant at its expense to obtain substitute service." NECESSARY SERVICE INTERRUPTIONS "Landlord shall have the right, upon reasonable prior notice to Tenant, to interrupt or turn off telecommunications facilities in the event of emergency or as necessary in connection with repairs to the building or installation of telecommunications equipment for other Tenants of the building." REMOVAL OF EQUIPMENT, WIRING AND OTHER FACILITIES "Any and all telecommunications conduits and cable installed in the Tenant's premises or elsewhere in the building by or on behalf of Tenant, including wiring, or other facilities for telecommunications transmittal, shall be removed prior to the expiration or earlier termination of the Lease term, by Tenant at its sole cost or, at Landlord's election, by Landlord at Tenant's sole cost, with the cost thereof to be paid as additional rent. Landlord shall have the right, however, upon written notice to Tenant given no later than day(s) prior to the expiration or earlier termination of the Lease term, to require Tenant to abandon and leave in place, without additional payment to Tenant or credit against rent, any and all telecommunications wiring and related infrastructure, whether located in the Tenant's premises or elsewhere in the building." NEW PROVIDER INSTALLATIONS "In the event that Tenant wishes at any time to utilize the services of a telephone or telecommunications provider whose equipment is not then servicing the building, no such provider shall be permitted to install its lines or other equipment within the building without first securing the prior written approval of the Landlord. Landlord's approval shall not be deemed any kind of warranty or representation by Landlord, including, without limitation, any warranty or representation as to the suitability, competence, or financial strength of the provider. Without limitation of the foregoing standard, unless all of the following conditions are satisfied to Landlord's satisfaction, it shall be reasonable for Landlord to refuse to give its approval: (i) Landlord shall incur no expense whatsoever with respect to any aspect of the provider's provision of its services, including without limitation, the costs of installation, materials and services; (ii) prior to commencement of any work in or about the building by the provider, the provider shall supply Landlord with such written indemnities, insurance, financial statements, and such other items as Landlord reasonably determines to be necessary to protect its financial interests and the interests of the building relating to the proposed activities of the provider; 13 Addendum Page - 2 (iii) the provider agrees to abide by such rules and regulations, building and other codes, job site rules and such other requirements as are reasonably determined by Landlord to be necessary to protect the interests of the building, the Tenants in the building and Landlord, in the same or similar manner as Landlord has the right to protect itself and the building with respect to proposed alterations as described in Article ___ of this Lease; (iv) Landlord reasonably determines that there is sufficient space in the building for the placement of all of the provider's equipment and materials; (v) the provider agrees to abide by Landlord requirements, if any, that provider use existing building conduits and pipes or use building contractors (or other contractors approved by Landlord); (vi) Landlord receives from the provider such compensation as is reasonably determined by Landlord to compensate it for space used in the building for the storage and maintenance of the provider's equipment, for the fair market value of a provider's access to the building, and the costs which may reasonably be expected to be incurred by Landlord; (vii) the provider agrees to deliver to Landlord detailed "as built" plans immediately after the installation of the provider's equipment is complete; and (viii) all of the foregoing matters are documented in a written license agreement between Landlord and the provider, the form and content of which is reasonably satisfactory to Landlord." LIMIT OF DEFAULT OR BREACH "Notwithstanding any provision of the proceeding paragraphs to the contrary, the refusal of Landlord to grant its approval to any prospective telecommunications provider shall not be deemed a default or breach by Landlord of its obligation under this Lease unless and until Landlord is adjudicated to have acted recklessly or maliciously with respect to Tenant's request for approval, and in that event, Tenant shall still have no right to terminate the Lease or claim an entitlement to rent abatement, but may as Tenant's sole and exclusive recourse seek a judicial order of specific performance compelling Landlord to grant its approval as to the prospective provider in question. The provisions of this paragraph may be enforced solely by Tenant and Landlord are not for the benefit of any other party, and specifically but without limitation, no telephone or telecommunications provider shall be deemed a third party beneficiary of this Lease." INSTALLATION AND USE OF WIRELESS TECHNOLOGIES "Tenant shall not utilize any wireless communications equipment (other than usual and customary cellular telephones), including antennae and satellite receiver dishes, within the Tenant's premises or the building, without Landlord's prior written consent. Such consent may be conditioned in such a manner so as to protect Landlord's financial interests and the interests of the building, and the other Tenants therein, in a manner similar to the arrangements described in the immediately preceding paragraphs." USE OF ROOF "Landlord may grant Tenant a non-exclusive license to use the roof of the building for the installation, operation, maintenance and repair of a satellite dish, not to exceed two (2) meters in diameter, or similar antenna for its own use or that of a subtenant or assignee. Tenant's rights under this subsection may not be separately assigned or subleased. Tenant's exercise of said license shall be subject to the following: (i) Landlord's reasonable determination that space is available for such purpose at the time Tenant's request is made; (ii) Landlord's reasonable approval of the size, type, and location of the equipment to be installed; (iii) Landlord's reasonable determination that such use shall not cause damage to or interference with the roof or any other use being made (or intended to be made) of the roof at that time; and (iv) Tenant's reimbursement of any reasonable out-of-pocket expenses incurred by Landlord in reviewing Tenant's request and in supervising the installation of Tenant's equipment. If Tenant is granted permission to use the roof for the aforesaid purposes, then Tenant shall pay to Landlord as additional rent the costs referenced in this subsection [and a sum of nine hundred dollars ($900.00) for every month such permission is in effect] [but no separate monthly or annual charge shall be levied on Tenant]. 14 Addendum Page - 3 In addition to any other rules and regulations Landlord may establish from time to time governing use of the roof, Tenant shall comply with the following: (i) Tenant's use of the roof shall be at Tenant's sole risk and expense and Landlord shall have no responsibility therefore and no liability on account of any damage to or interference with Tenant equipment; (ii) Tenant shall be solely responsible for installing, operating, maintaining and repairing its equipment at its own expense in a manner that causes no interference with or damage to the roof itself or any other person's use of the roof; (iii) Tenant shall perform all of such work in such a way as to not damage any building systems or void any warranty or guarantee relating thereto; (iv) Tenant, if required by Landlord, shall use existing building conduits and pipes or use building contractors (or other contractors approved by Landlord) in performing such work; (v) Tenant shall be responsible for obtaining and paying all government licenses and permits required by law (and shall deliver copies thereof to Landlord as a condition precedent to is use of the roof) and for complying with all applicable laws relating to its exercise of said license; and (vi) Tenant shall remove all of its equipment at or before the expiration of the term of this Lease and shall repair any damage resulting from such removal and restore the roof and building systems to the condition they were in (ordinary wear and tear excepted) before Tenant exercised said license. Tenant's exercise of its rights under this subsection shall be considered an alteration subject to Section ____ of this Lease to the extent Section ____ is not inconsistent with the foregoing. In the event Tenant breaches any of its obligations under this subsection beyond any notice and cure period provided in Section ____ of this Lease, then Tenant shall be in default under this Lease and in addition to any other remedy Landlord may have under this Lease, Landlord may revoke the license granted in this subsection, whereupon Tenant shall cease its use of the roof and shall remove, repair, and restore as set forth above. LIMITATION OF LIABILITY FOR EQUIPMENT INTERFERENCE In the event that telecommunications equipment, wiring and facilities or satellite and antennae equipment of any type installed by or at the request of Tenant within the Tenant's premises, on the roof, or elsewhere within or on the building causes interference to equipment used by another party, Tenant shall assume all liability related to such interference. Tenant shall use reasonable efforts, and shall cooperate with Landlord and other parties, to promptly eliminate such interference. In the event that Tenant is unable to do so, Tenant will substitute alternative equipment which remedies the situation. If such interference persists, Tenant shall discontinue the use of such equipment, and, at Landlord's discretion, remove such equipment according to foregoing specifications. 15 EXHIBIT A ADDENDUM TO LEASE DATED NOVEMBER 7, 1996 BETWEEN TELEHUB, INC. AND MAUSWERKS, INC. 1. PRINTED FOR SUBORDINATE TO ADDENDA: 1.1 These addenda are in integral part of the attached Agreement which has been extended herewith and these addenda supersede inconsistent provisions of the printed Agreement. 2. RENT 2.1 December 1996 and January 1997 rents are waived in lieu of certain tenant improvements. The monthly rent schedule shall be as follows: February 1997 $515.00 March 1997 $2475.00 April 1997 $2975.00 May 1997 $3475.00 June 1997 - November 1999 $3975.00 Tenant will have one 2 year option available at $3975.00 3. TENANT IMPROVEMENTS 3.1 Landlord agrees to do the following improvements to the space. - Build-out one ADA complaint uni-sex restroom. - Ceiling to be painted gray to match mezzanine. - Broken windows to be replaced. - Provide new front door with glass. - Provide more accessible gate on front door. - Doors to be installed on elevator. - Conduit to be placed from the 2nd floor to the Telehub in the basement. -1- 16 4. TENANT ALLOWED TO SUB-LET TO OTHER INTERNET SERVICE PROVIDERS, TECHNOLOGY COMPANIES AND LIKE KIND 4.1 Local access providers will be located in the basement. Rent paying providers are exempt from cross-connect fees Tenant is exempt from cross connect fees. 5. TENANT ROOF RIGHTS Tenant shall have the right to place 3 antennae, one 2 meter and 2 DSS sized dishes on the roof at no charge. 6. PARKING Tenant shall have use of 2 tandem parking spaces in the building located in front of the freight elevator at a monthly rent of $150 month on a month-to-month basis. 7. ALTERATIONS AND ADDITIONS 3.1 Any alteration, improvements, additions or Utility Installations in, or about the premises that Lessee shall desire to make and which requires the consent of the Lessor shall be presented to Lessor in written form, with proposed detailed plans. If Lessor shall give its consent, the consent shall be deemed conditioned upon Lessee acquiring a permit to do so from appropriate governmental agencies, the furnishing of a copy thereof to Lessor prior to the commencement of the work and the compliance by Lessee of all conditions of said permit in a prompt and expeditious manner. 3.2 Lessee shall pay, when due, all claims for labor or materials furnished or alleged to have been furnished to or for Lessee at or for use in the Premises, which claims are or may be secured by any mechanics or materialmen's lien against the Premises or any interest herein. Lessee shall give Lessor not less than ten (10) days' notice prior to the commencement of any work in the Premises, and Lessor shall have the right to post notices on non-responsibility in or on the Premises as provided by law. If Lessee shall, in good faith, contest the validity of any such lien, claim or demand, then Lessee shall, at its sole expense defend itself and Lessor against the same and shall pay and satisfy any such adverse judgment that may be rendered thereon before the enforcement thereof against the Lessor or the Premises, upon the condition that if Lessor shall require, Lessee shall furnish to Lessor a surety bond satisfactory to Lessor in an amount equal to such contested lien claim or demand indemnifying Lessor against liability for the same and holding the Premises free from the effect of such lien or claim. In addition, Lessor may require Lessee to pay Lessor's attorneys fees and costs in participating in such action if Lessor shall decide it is to its best interest to do so. -2- 17 EXHIBIT A ADDENDUM TO LEASE DATED NOVEMBER 7, 1996 BETWEEN TELEHUB, INC. AND MAUSWERKS, INC. 1. PRINTED FORM SUBORDINATE TO ADDENDA 1.1 These addenda are an integral part of the attached agreement which has been extended concurrently herewith and those addenda supersede inconsistent provisions of the printed agreement. 2. RENT 2.1 December 1996 and January 1997 rents are waived in lieu of certain tenant improvements. The monthly rent schedule shall be as follows: February 1997 $ 515 March 1997 $2475.00 April 1997 $2975.00 May 1997 $3475.00 May 1997-November 1999 $3975.00 *Tenant will have one 2 year option available at $3975 3. TENANT IMPROVEMENTS 3.1 Landlord agrees to do the following improvements to the space. - Build-out one ADA compliant uni-sex restroom. - Ceiling to be painted gray to match mezzanine. - Broken windows to be replaced. - Provide new front door with glass. - Provide more accessible gate on front door. - Doors to be installed on elevator. - Conduit to be placed from the 2nd floor space to the Telehub in the basement. 4. TENANT ALLOWED TO SUB-LET TO OTHER INTERNET SERVICE PROVIDERS, TECHNOLOGY COMPANIES AND LIKE 4.1 Local access providers will be located in the basement. Rent paying providers are exempt from cross-connect fee. Tenant is exempt from cross connect fees. 5. TENANT ROOF LIGHTS Tenant shall have the right to place 3 antennae, one 2 meter and 2 DSS sized dishes on the roof at no charge. 6. PARKING Tenant shall have use of 2 tandem parking spaces in the building located in front of the freight elevator at a monthly rent of $150 month on a month-to-month basis. 18 EXHIBIT B RIDERS The following modifications and insertions, numbered Riders No. 1 and 2, are hereby made and incorporated into the Lease and the other Exhibits thereto and shall be deemed made at the respective places indicated in the Lease and the Exhibits. In addition to the following Rider(s), certain deletions or insertions of language may have been made at the places indicated throughout the Lease. In the event of any conflict between this Exhibit B and the printed provisions of the Lease or the other Exhibits, the provisions of this Exhibit are intended to govern and control and the Lease and the other Exhibits shall be construed accordingly. Any reference to the Lease in the following provisions of this Exhibit B shall be deemed to include this Exhibit B, unless otherwise specified in such reference. Terms used in this Exhibit B which are defined in the Lease or the other Exhibits shall have the meanings given to them in the Lease or the other Exhibits. RIDER NO. 1 - OPTION TO RENEW Subject to the terms and conditions hereinafter set forth, Lessor hereby grants Lessee one (1) option to extend ("Option to Extend") the term of this Lease for one (1) five (5) year period, commencing immediately after the expiration of the initial term (the "Extension Term"). Lessee's election to exercise the above Option to Extend must be given to Lessor in writing not less than 180 days prior to expiration of the last lease year of the original Term. DURING THE LAST 270 DAYS OF THE INITIAL TERM, LESSOR SHALL UPON WRITTEN NOTICE FROM LESSEE SPECIFY TO LESSEE FAIR MARKET RENT FOR THE PREMISES AS OF THE COMMENCEMENT OF THE EXTENSION TERM. Lessee's Option to Extend the term shall be upon the terms and conditions contained herein except as set forth below and except that there shall be no further option to extend the term beyond the Extension Term. If Lessee exercises the Option to Extend, the Base Expenses Year and Base Tax Year shall be changed from the date on the Lease Summary to the first year of the option period or to such other date as is mutually approved by both parties. If Lessee exercises the Option to Extend, the Base Rent for the Premises during the Extension Term shall be ninety-five percent (95%) of the fair market rent for the Premises determined in the manner set forth in Rider 2 below, provided that in no event shall the Basic Rental payable during the Extension Term be less than the amount of the Basic Rental payable at the end of the previous lease year. As used herein, Fair Market Rent for the Premises shall mean the Basic Rental and all other monetary payments and escalations, that Lessor could obtain from a third party desiring to lease the Premises, taking into account the size, location and floor level of the Premises, the quality of construction of the Building, the services provided under the terms of this Lease, the rental then being obtained for leases of space comparable to the Premises in the Building, and within the downtown San Francisco Financial District and all other factors that would be relevant to a willing third party desiring to lease the Premises and a willing lessor desiring to let the Premises for the subject period of the lease term in determining the rental such party would be willing to pay or receive therefore provided that no allowance for the construction of Lessee improvements shall be taken into account in determining Fair market Rent. Notwithstanding anything to the contrary contained herein, all option rights of Lessee pursuant to this Rider No. 1 shall automatically terminate without notice and be of no further force and effect whether or not Lessee has timely exercised the Option to Extend granted herein if an Event of Default (as defined in Section 18 above) exists at the time of exercise of the option or at the time of commencement of the Extension Term. 19 RIDER NO. 2 -- DETERMINATION OF FAIR MARKET RENT Fair market rent for the Premises as of the commencement of the Extension Term (the "Adjustment Date") shall be specified by Lessor by notice to Lessee not less than 180 days prior to the Adjustment Date, subject to Lessee's right of arbitration as set forth below. If Lessee believes that the fair market rent specified by lessor exceeds the actual fair market rent for the Premises as of the Adjustment Date, then Lessee shall so notify Lessor within ten (10) business days following receipt of Lessor's notice. If Lessee fails to so notify Lessor within said ten (10) business days, Lessor's determination of the fair market rent for the Premises shall be final and binding upon the parties. If the parties are unable to agree upon fair market rent for the Premises within ten (10) days after Lessor's receipt of notice of Lessee's objection, the fair market rent as of the Adjustment Date shall be determined as follows: (a) Within 20 days after receipt of Lessor's notice specifying the fair market rent, Lessee, at its sole expense, shall obtain and deliver in writing to Lessor a determination of the fair market rent for the Premises as of the Adjustment Date, from a broker ("Lessee's broker") licensed in the State of California and engaged in the office brokerage business in the City and County of San Francisco for at least the immediately preceding five (5) years. If Lessor accepts such determination the fair market rent for the Premises as of the Adjustment Date shall be the amount determined by Lessee's broker. (b) If Lessor does not accept such determination, within 15 days after receipt of the determination of Lessee's broker, Lessor shall designate a broker ("Lessor's broker") licensed in the State of California and engaged in the office brokerage business in the City and County of San Francisco for at least the entire immediately preceding five (5) years. Lessor's broker and Lessee's broker shall name a third broker, similarly qualified, within five (5) days after the appointment of Lessor's broker. Each of said three brokers shall determine the fair market rent for the Premises as of the Adjustment Date within 15 days after the appointment of the third broker. The fair market rent for the Premises as of the Adjustment Date shall equal the arithmetic average of such three determinations; provided, however, if any such determination deviates more than 10% from the median of such determinations, the fair market rent shall be the average of the two closest determinations. (c) Lessor shall pay the costs and fees of Lessor's broker in connection with any determination hereunder, and Lessee shall pay the costs and fees of Lessee's broker in connection with such determination. The costs and fees of any third broker, shall be paid one-half by Lessor and one-half by Lessee. This exhibit is an attachment to the Mauswerks, Inc. lease that was assigned to Colomotion on 8/97 as initialed by Peter Berns. 20 July 17, 1997 Telehub, Inc. 15 Fern Road Kentfield, CA 94904 Attn: Colomotion, Inc. This letter summarizes the intent of Colomotion, Inc. and Telehub, Inc. in reference to the Retail Lease Form signed on November 7, 1996 between Telehub, Inc. and Mauswerks, Inc. The lease is for 3,975 square feet of space within 1019/1021 Mission Street in San Francisco, CA. As a result of the ratification of a Settlement Agreement and Mutual Release signed between Mauswerks, Inc. and Colomotion, Inc. Colomotion, Inc. now intends to assume the aforementioned lease on behalf of Mauswerks, Inc. Colomotion, Inc. will uphold all responsibilities that Mauswerks, Inc. agreed to in the lease here attached. Once the lease is assigned to Colomotion, Inc. by Telehub, Inc. and Mauswerks, Inc. by way of signature of Colomotion, Inc. Telehub, Inc. all fees, rents and charges due from Tenant will be paid by Colomotion, Inc. Telehub, Inc. upon receipt of a signed Settlement Agreement and Mutual Release between Mauswerks, Inc. and Colomotion, Inc. will assign the attached lease to Colomotion, Inc. Telehub, Inc. will then extend all privileges and rights that Mauswerks, Inc. had as a result of said lease to Colomotion, Inc. for the remaining time of the lease originally signed by Brian Topping, President of Mauswerks, Inc. on November 7, 1996. /s/ PAUL LARSON - ---------------------- Paul Larson President and CEO Telehub, Inc. 21 EXHIBIT B This exhibit shall become a permanent addendum to the lease signed between Telehub, Inc. and Mauswerks, Inc., which was then assigned to Colomotion, Inc. for the second floor of 1021 Mission Street in San Francisco. Colomotion requested of Telehub, Inc. assistance in acquiring a new HVAC system. In an effort to help Colomotion finance the HVAC installation recently completed at 1021 Mission Street in San Francisco, Telehub, Inc. will let Colomotion spread it's November 1997 and December 1997 lease payments over twelve equal installments between January 1998 and December 1998. Colomotion will be responsible for immediately paying Atlas Heating and having any liens against Telehub, Inc. or 1021 Mission Street removed. The calculations for the re-assignment of lease payments are to be as follows:
Deferred Rent Month Affected $4,125 November 1997 $4,125 December 1997
$8,250 Total Deferred Payments The 1998 lease amount due each month will be increased from $4,125 to include 1/12 of $8,250 or $687.50. The new adjusted lease amount due for each month of 1998 is $4,812.50 Concur Telehub, Inc. /s/ [Signature Illegible] - ------------------------------- Concur Colomotion, Inc. EX-21.1 15 0015.txt LIST OF SUBSIDIARIES 1 Exhibit 21.1 LIST OF SUBSIDIARIES COLO.COM, Ltd. (United Kingdom) COLO.COM GmbH (Germany) COLOCOM Iberia, S.A. (Spain) COLO.COM, Ltd. (Canada) COLO.COM, B.V. (Netherlands) EX-23.1 16 0016.txt CONSENT OF ARTHUR ANDERSEN 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our report dated January 24, 2000 (and to all references to our Firm) included in or made a part of this registration statement on Form S-4. /s/ ARTHUR ANDERSEN LLP San Francisco, California June 7, 2000 EX-27.1 17 0017.txt FINANCIAL DATA SCHEDULE
5 1,000 US DOLLARS YEAR 3-MOS DEC-31-1999 DEC-31-2000 JAN-01-1999 JAN-01-2000 DEC-31-1999 MAR-31-2000 1 1 198,412 381,010 0 0 33 656 (5) (135) 0 0 199,144 383,713 13,292 49,586 (97) (553) 215,742 525,108 11,136 26,735 3,340 218,233 0 0 208,354 208,354 12,826 26,003 (18,492) 44,975 215,742 525,108 0 0 218 192 0 0 762 3,521 8,834 8,283 0 0 0 2,939 (8,887) (11,892) 0 0 (8,887) (11,892) 0 0 0 0 0 0 (8,887) (11,892) (1.86) (1.49) (1.86) (1.49)
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