10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES           EXCHANGE ACT OF 1934
	For the quarterly period ended June 30, 2009

 o                                      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)

For the transition period from ______ to ______.

Commission file number 001-34143

RACKSPACE HOSTING, INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware	74-3016523
(State or Other Jurisdiction of Incorporation or Organization)	(IRS Employer Identification No.)

5000 Walzem Rd.

San Antonio, Texas 78218

(Address of principal executive offices, including Zip Code)

(210) 312-4000

(Registrant’s Telephone Number, Including Area Code)

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “accelerated filer, large accelerated filer and a smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 Large Accelerated filer   o    Accelerated filer   o  Non-accelerated filer   þ  Smalller reporting company   o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes o   No þ

On August 11, 2009, 121,089,522 shares of the registrant’s Common Stock, $0.001 par value, were outstanding.

RACKSPACE HOSTING, INC.

TABLE OF CONTENTS

Part I – Financial Information
Item 1.	Financial Statements:
	Consolidated Balance Sheets as of December 31, 2008 and June 30, 2009 (unaudited)	1
	Unaudited Consolidated Statements of Income for the Three and Six Months Ended  June 30, 2008 and 2009	2
	Unaudited Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2008 and 2009	3
	Notes to Unaudited Consolidated Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	33
Item 4.	Controls and Procedures	34
Part II – Other Information
Item 1.	Legal Proceedings	35
Item 1A.	Risk Factors	35
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	49
Item 3.	Defaults Upon Senior Securities	49
Item 4.	Submission of Matters to a Vote of Securities Holders	49
Item 5.	Other Information	50
Item 6.	Exhibits	51
Signatures		52

PART I – FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS

RACKSPACE HOSTING, INC. AND SUBSIDIARIES—

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)	December 31,			June 30,
	2008			2009
				(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	238,407		$	147,877
Accounts receivable, net of allowance for doubtful accounts and
customer credits of $3,295 as of December 31, 2008,
and $6,901 as of June 30, 2009		30,932			38,642
Income taxes receivable		12,318			13,353
Prepaid expenses and other current assets		10,838			11,572
Total current assets		292,495			211,444
Property and equipment, net		362,042			407,901
Goodwill		6,942			14,329
Intangible assets, net		15,101			13,567
Other non-current assets		8,681			9,552
Total assets	$	685,261		$	656,793
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	71,387		$	87,316
Current portion of deferred revenue		16,284			16,812
Current portion of obligations under capital leases		38,909			43,381
Current portion of debt		5,944			52,485
Total current liabilities		132,524			199,994
Non-current deferred revenue		3,883			3,199
Non-current obligations under capital leases		50,781			60,707
Non-current debt		204,779			53,711
Non-current deferred income taxes		13,398			20,475
Other non-current liabilities		10,212			9,884
Total liabilities		415,577			347,970
COMMITMENTS AND CONTINGENCIES
Stockholders' equity:
Common stock, $0.001 par value per share: 300,000,000 shares
authorized; 117,154,094 shares issued and outstanding
as of December 31, 2008, 120,857,060 shares issued and
outstanding as of June 30, 2009		117			121
Additional paid-in capital		207,589			225,345
Accumulated other comprehensive income (loss)		(16,027	)		(8,227	)
Retained earnings		78,005			91,584
Total stockholders’ equity		269,684			308,823
Total liabilities and stockholders’ equity	$	685,261		$	656,793

See accompanying notes to the unaudited consolidated financial statements.

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RACKSPACE HOSTING, INC. AND SUBSIDIARIES—

CONSOLIDATED STATEMENTS OF INCOME – (Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
(In thousands, except per share data)	2008			2009			2008			2009
Net revenue	$	130,829		$	151,995		$	250,442		$	297,072
Costs and expenses:
Cost of revenue		42,842			48,235			82,065			94,445
Sales and marketing		19,846			19,080			37,414			39,582
General and administrative		38,108			41,566			71,741			79,106
Depreciation and amortization		21,637			29,711			40,688			57,515
Total costs and expenses		122,433			138,592			231,908			270,648
Income from operations		8,396			13,403			18,534			26,424
Other income (expense):
Interest expense		(1,834	)		(2,172	)		(3,164	)		(4,707	)
Interest and other income (expense)		173			(267	)		420			(358	)
Total other income (expense)		(1,661	)		(2,439	)		(2,744	)		(5,065	)
Income before income taxes		6,735			10,964			15,790			21,359
Income taxes		2,553			3,973			6,166			7,780
Net income	$	4,182		$	6,991		$	9,624		$	13,579
Net income per share
Basic	$	0.04		$	0.06		$	0.09		$	0.11
Diluted	$	0.04		$	0.06		$	0.09		$	0.11
Weighted average number of shares outstanding
Basic		103,227			120,214			102,901			118,918
Diluted		110,508			126,442			109,810			124,007

See accompanying notes to the unaudited consolidated financial statements.

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RACKSPACE HOSTING, INC. AND SUBSIDIARIES—

CONSOLIDATED STATEMENTS OF CASH FLOWS – (Unaudited)

(In thousands)	Six Months Ended June 30,
	2008			2009
Cash Flows From Operating Activities
Net income	$	9,624		$	13,579
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation and amortization		40,688			57,515
Loss on disposal of equipment, net		1,977			487
Provision for bad debts and customer credits		1,210			6,382
Deferred income taxes		2,524			5,317
Share-based compensation expense		6,556			9,254
Other non-cash compensation expense		140			409
Excess tax benefits from share-based compensation arrangements		(2,621	)		-
Changes in certain assets and liabilities
Accounts receivable		(1,640	)		(12,858	)
Income taxes receivable		-			(1,035	)
Accounts payable and accrued expenses		11,077			12,026
Deferred revenues		2,157			(792	)
All other operating activities		(2,688	)		(1,436	)
Net cash provided by operating activities		69,004			88,848
Cash Flows From Investing Activities
Purchases of property and equipment, net		(87,521	)		(56,616	)
Earnout payments for acquisitions		-			(5,622	)
Net cash used in investing activities		(87,521	)		(62,238	)
Cash Flows From Financing Activities
Principal payments of capital leases		(14,144	)		(20,922	)
Principal payments of notes payable		(2,929	)		(4,527	)
Borrowings on line of credit		40,000			-
Payments on line of credit		-			(100,000	)
Payments for debt issuance costs		(158	)		(328	)
Proceeds from sale leaseback transactions		1,543			-
Proceeds from issuance of common stock, net		548			-
Proceeds from exercise of stock options		1,205			6,230
Excess tax benefits from share-based compensation arrangements		2,621			-
Net cash provided by (used in) financing activities		28,686			(119,547	)
Effect of exchange rate changes on cash and cash equivalents		(12	)		2,407
Increase (decrease) in cash and cash equivalents		10,157			(90,530	)
Cash and cash equivalents, beginning of period		24,937			238,407
Cash and cash equivalents, end of period	$	35,094		$	147,877
Supplemental cash flow information:
Acquisition of property and equipment by capital leases	$	37,703		$	35,320
Acquisition of property and equipment by notes payable		9,930			-
Vendor financed equipment purchases	$	47,633		$	35,320
Shares issued in business combinations	$	-		$	1,880
Cash payments for interest, net of amount capitalized	$	3,276		$	4,857
Cash payments for income taxes	$	3,540		$	2,938

See accompanying notes to the unaudited consolidated financial statements.

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RACKSPACE HOSTING, INC. AND SUBSIDIARIES—

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Overview and Basis of Presentation

Nature of Operations

As used in this report, the terms “Rackspace”, “Rackspace Hosting”, “we”, “our company”, “the company”, “us,” or “our” refer to Rackspace Hosting, Inc. and its subsidiaries.  Rackspace Hosting, Inc., through its operating subsidiaries, is a provider of hosting and cloud computing solutions.  We provide IT as a service, managing web-based IT systems for small and medium-sized businesses as well as large enterprises. We focus on providing a service experience for our customers, which we call Fanatical Support®.

Rackspace Hosting, Inc. was incorporated in Delaware on March 7, 2000. However, our operations began in 1998 as a limited partnership which became our subsidiary through a corporate reorganization completed on August 21, 2001.

We operate consolidated subsidiaries which include, among others, Rackspace US, Inc., our domestic operating entity, and Rackspace Limited, our United Kingdom operating entity.

In October 2008, we completed the acquisition of Jungle Disk, Inc., a company specializing in cloud storage.  Also in October 2008, we completed the acquisition of Slicehost LLC, a company specializing in cloud hosting.  Accordingly, their operating results have been included in our consolidated financial statements since the date of acquisition.

Basis of Consolidation

The consolidated financial statements include the accounts of our wholly owned subsidiaries located in the United States of America (U.S.), the United Kingdom (U.K.), the Netherlands, and Hong Kong. Intercompany transactions and balances have been eliminated in consolidation.

Certain reclassifications have been made to prior year balances in order to conform to the current year’s presentation.

Basis of Presentation

The accompanying consolidated financial statements as of June 30, 2009, and for the three and six months ended June 30, 2008 and 2009, are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and Rule 10-01 of Regulation S-X.  Accordingly, they do not include all financial information and disclosures required by GAAP for complete financial statements and certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted.  The unaudited interim consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and in the opinion of management, reflect all adjustments, which include normal recurring adjustments, necessary for a fair statement of our financial position as of June 30, 2009, our results of operations for the three and six months ended June 30, 2008 and 2009, and our cash flows for the six months ended June 30, 2008 and 2009.

These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto as of December 31, 2008 included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 2, 2009, as amended.  The results of the three and six months ended June 30, 2009 are not necessarily indicative of the results to be expected for the year ending December 31, 2009, or for any other interim period, or for any other future year.

In connection with the preparation of the consolidated financial statements and in accordance with the recently issued Statement of Financial Standards No. (SFAS) 165, Subsequent Events, we evaluated events after the balance sheet date of June 30, 2009 through August 12, 2009.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements, and reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. On an ongoing basis, we evaluate our estimates, including those related to accounts receivable and customer credits, property and equipment, fair values of intangible assets and goodwill, useful lives of intangible assets, fair value of stock options, contingencies, and income taxes, among others. We base our estimates on historical experience and on other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets

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and liabilities. We engaged third party valuation consultants to assist management in the purchase price allocation of significant acquisitions.  We also engaged third party valuation consultants to assist management in the valuation of our common stock price, which affected transactions recorded in our consolidated financial statements prior to Rackspace becoming a public company.

2. Summary of Significant Accounting Policies

The accompanying financial statements reflect the application of certain significant accounting policies. There have been no material changes to our significant accounting policies that are disclosed in our audited consolidated financial statements and notes thereof as of December 31, 2008 included in our Annual Report on Form 10-K, as amended.

Recently Adopted Accounting Pronouncements

In April 2009, the Financial Accounting Standards Board (FASB) issued three related Staff Positions (FSP): (i) FSP 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability have Significantly Decreased and Identifying Transactions That Are Not Orderly. (ii) FSP 115-2 and FSP 124-2, Recognition and Presentation of Other-Than-Temporary Impairments, and (iii) FSP 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments, which will be effective for interim and annual periods ending after June 15, 2009. FSP 157-4 provides guidance on how to determine the fair value of assets and liabilities under SFAS 157 in the current economic environment and reemphasizes that the objective of a fair value measurement remains an exit price. If we were to conclude that there has been a significant decrease in the volume and level of activity of the asset or liability in relation to normalmarket activities, quoted market values may not be representative of fair value and we may conclude that a change in valuation technique or the use of multiple valuation techniques may be appropriate. FSP 115-2 and FSP 124-2 modify the requirements for recognizing other-than-temporarily impaired debt securities and revise the existing impairment model for such securities, by modifying the current intent and ability indicator in determining whether a debt security is other-than-temporarily impaired. FSP 107-01 and APB 28-1 enhance the disclosure of instruments under the scope of SFAS 157 for both interim and annual periods. These statements did not have a material impact on our consolidated financial statements.

In May 2009, the FASB issued SFAS 165, Subsequent Events, which sets forth general standards of accounting for the disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. SFAS 165 became effective in the quarter ending June 30, 2009.

Recent Accounting Pronouncements

In June 2009, the FASB issued SFAS 167, Amendments to FASB Interpretation No. 46(R), which amends FASB Interpretation No. 46 (revised December 2003) to address the elimination of the concept of a qualifying special purpose entity. SFAS 167 also replaces the quantitative-based risks and rewards calculation for determining which enterprise has a controlling financial interest in a variable interest entity with an approach focused on identifying which enterprise has the power to direct the activities of a variable interest entity and the obligation to absorb losses of the entity or the right to receive benefits from the entity. Additionally, SFAS 167 provides more timely and useful information about an enterprise’s involvement with a variable interest entity. SFAS 167 will become effective in the first quarter of 2010. We are currently evaluating the impact of this standard on our consolidated financial statements.

In June 2009, the FASB issued SFAS 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162.  U.S. GAAP will no longer be issued in the form of an “accounting standard,” but rather as an update to the applicable “topic” or “subtopic” within the codification. As such, accounting guidance will be classified as either “authoritative” or “nonauthoritative” based on its inclusion or exclusion from the codification.  The codification will be the single source of authoritative U.S. accounting and reporting standards, except for rules and interpretive releases of the SEC under authority of federal securities laws, which are sources of authoritative GAAP for SEC registrants.  The codification of U.S. GAAP will be effective for interim or annual periods ending after September 15, 2009.  We do not expect this statement will have a material impact on our consolidated financial statements.

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3. Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share:

	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands, except per share data)	2008		2009		2008		2009
Basic net income per share:
Net income	$	4,182	$	6,991	$	9,624	$	13,579
Weighted average shares outstanding:
Common stock		102,012		120,214		101,686		118,918
Preferred stock		1,215		-		1,215		-
Number of shares used in per share computations		103,227		120,214		102,901		118,918
Earnings per share	$	0.04	$	0.06	$	0.09	$	0.11
Diluted net income per share:
Net income	$	4,182	$	6,991	$	9,624	$	13,579
Weighted average shares outstanding:
Common stock		102,012		120,214		101,686		118,918
Stock options and awards		7,032		6,228		6,663		5,089
Preferred stock		1,215		-		1,215		-
Stock warrants		249		-		246		-
Number of shares used in per share computations		110,508		126,442		109,810		124,007
Earnings per share	$	0.04	$	0.06	$	0.09	$	0.11

We excluded 4.9 million and 5.2 million potential common shares from the computation of dilutive earnings per share for the three months ended June 30, 2008 and 2009, respectively, and 5.6 million and 6.5 million potential shares for the six months ended June 30, 2008, and 2009, respectively, because the effect would have been anti-dilutive.

As a result of our initial public offering (IPO) in August 2008, all outstanding stock warrants were exercised, resulting in an issuance of 268,750 shares of common stock, and all shares of our outstanding preferred stock were automatically converted to shares of common stock; thus subsequent to the IPO, the impact of these transactions on the weighted average shares outstanding was reflected in common stock.

4. Cash and Cash Equivalents

Cash and cash equivalents consisted of:

	December 31,		June 30,
(In thousands)	2008		2009
Cash deposits	$	37,787	$	47,187
Money market funds		200,620		100,690
Cash and cash equivalents	$	238,407	$	147,877

Our available cash and cash equivalents are held in bank deposits, overnight sweep accounts, and money market funds. We actively monitor the third-party depository institutions that hold our deposits. Our emphasis is primarily on safety of principal while secondarily maximizing yield on those funds.  In March 2009, we repaid $100.0 million on our revolving credit facility with our money market funds.

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Our money market mutual funds invest exclusively in high-quality, short-term securities that are issued or guaranteed by the U.S. government or by U.S. government agencies.

5.  Fair Value Measurements

We adopted the full provisions of SFAS 157 as amended on January 1, 2009.  SFAS 157 defines fair value, expands related disclosure requirements and specifies a hierarchy of valuation techniques based on the nature of the inputs used to develop the fair value measures. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. SFAS 157 establishes a three-tier fair value of hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1 – Observable inputs such as quoted prices in active markets for identical assets or liabilities;

Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and

Level 3 – Unobservable inputs that are supported by little or no market activity, which require management judgment or estimation.

In accordance with SFAS 157, we measure applicable assets and liabilities at fair value. Our money market funds are classified within Level 1 because they are valued using quoted market prices.  Our interest rate swap is classified within Level 2 as the valuation inputs are based on quoted prices and market observable data of similar instruments.

The carrying values of cash deposits, accounts receivable, prepaid expenses and other assets, accounts payable and accrued expenses are reasonable estimates of their fair values due to the short maturity of these financial instruments and are classified within Level II.

Assets and liabilities measured at fair value on a recurring basis are summarized by level below.  The table does not include assets and liabilities which are measured at historical costs or any other basis other than fair value.

(In thousands)	December 31, 2008
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Assets/Liabilities at Fair Value
Assets:
Money market funds (1)	$	200,620	$	-	$	-	$	200,620
Total	$	200,620	$	-	$	-	$	200,620
Liabilities:
Interest rate swap agreement (1)	$	-	$	2,901	$	-	$	2,901
Deferred compensation (2)		296		-		-		296
Total	$	296	$	2,901	$	-	$	3,197

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(In thousands)	June 30, 2009
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Assets/Liabilities at Fair Value
Assets:
Money market funds (1)	$	100,690	$	-	$	-	$	100,690
Rabbit trust (3)		449		-		-		449
Total	$	101,139	$	-	$	-	$	101,139
Liabilities:
Interest rate swap agreement (1)	$	-	$	2,400	$	-	$	2,400
Deferred compensation (2)		434		-		-		434
Total	$	434	$	2,400	$	-	$	2,834

(1) Money market funds are classified in cash and cash equivalents and the interest rate swap agreement is classified in other non-current liabilities.

(2) Obligations to pay benefits under a non-qualified deferred compensation plan that are classified in other current liabilities within accounts payable and accrued expenses.

(3) Investments in marketable securities held in a Rabbi Trust associated with a non-qualified deferred compensation plan located in other non-current assets.

Our Rabbi Trust was established in January 2009 and we elected the fair value option under SFAS 159, which allows for the recognition of unrealized gains and losses to be recorded in the statement of income in the same period as the gains and losses are incurred as part of the non-qualified deferred compensation plan.  For the three and six months ended June 30, 2009, we recognized a net unrealized gain of a minimal amount as interest and other income (expense).

6. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of:

	December 31,		June 30,
(In thousands)	2008		2009
Prepaid expenses	$	5,481	$	4,516
Current deferred taxes		3,050		3,914
Other current assets		2,307		3,142
Prepaid expenses and other current assets	$	10,838	$	11,572

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7. Property and Equipment, net

Property and equipment consisted of:

(In thousands)	Estimated Useful Lives		December 31, 2008			June 30, 2009
Computers, software and equipment	1-5 years		$	350,697		$	445,696
Furniture and fixtures	7 years			12,856			16,679
Buildings and leasehold improvements	2-30 years			61,839			113,595
Land		--		13,860			13,860
Property and equipment, at cost				439,252			589,830
Less accumulated depreciation and amortization				(188,300	)		(245,938	)
Work in process				111,090			64,009
Property and equipment, net			$	362,042		$	407,901

Depreciation and leasehold amortization expense, not including amortization expense for intangible assets, was $20.9 million and $28.1 million for the three months ended June 30, 2008 and 2009, respectively, and $39.1 million and $54.4 million for the six months ended June 30, 2008 and 2009, respectively.

At December 31, 2008, the work in process balance consisted of build outs of $47.0 million for office facilities and $53.5 million for data centers, and $10.6 million for capitalized software and other projects.  At June 30, 2009, the work in process balance consisted of build outs of $49.5 million for office facilities and $9.4 million for data centers, and $5.1 million for capitalized software and other projects.

Capitalized interest was $0.8 million and $0.2 million for the three months ended June 30, 2008 and 2009, respectively and $1.3 million and $0.5 million for the six months ended June 30, 2008 and 2009, respectively.

8. Business Combinations and Goodwill

In October 2008, we acquired two companies with a total purchase price of $28.0 million, which were accounted for as business combinations.  The initial purchase price of the combined acquisitions was $11.5 million paid in cash and stock, with up to $16.5 million in additional payouts of cash and stock based on certain earnout provisions.  For the six months ended June 30, 2009, earn-outs totaling $7.5 million were achieved and paid in both cash and stock.  If the remaining $9.0 million in additional earn-outs are achieved, the payments will be accounted for as additional goodwill.

The following table provides a roll forward of our goodwill balance.

Balance at December 31, 2008	$	6,942
Earn-out payments for acquisitions		7,502
Purchase accounting adjustments		(115	)
Balance at June 30, 2009	$	14,329

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9. Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consisted of:

	December 31,		June 30,
(In thousands)	2008		2009
Trade payables	$	23,459	$	27,733
Accrued compensation and benefits		19,462		21,851
Foreign income taxes payable		324		6,030
Vendor accruals		19,984		24,395
Other liabilities		8,158		7,307
Accounts payable and accrued expenses	$	71,387	$	87,316

10. Debt

Debt outstanding consisted of:

	December 31,			June 30,
(In thousands)	2008			2009
Revolving credit facility	$	200,000		$	100,000
Notes payable		10,723			6,196
Total debt		210,723			106,196
Less current portion of debt		(5,944	)		(52,485	)
Total non-current debt	$	204,779		$	53,711

Revolving Credit Facility

Our revolving credit facility includes an aggregate commitment of $245.0 million.  The facility provides for letters of credit up to $25.0 million. The interest is based on a floating rate, generally the London Interbank Offered Rate (LIBOR) plus a margin spread, which changes ratably from 0.675% to 1.55% dependent on the total funded debt to adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) ratio. We are required to pay a facility fee of 0.2% per annum on the full amount committed under the facility and a quarterly administrative fee. The facility has a 5-year term and matures in August 2012, and is fully secured by our assets and governed by financial and non-financial covenants.  Financial covenants under our facility include a minimum fixed charge coverage ratio and a maximum total funded debt to EBITDA ratio. As of June 30, 2009, we were in compliance with all of the covenants under our facility.

In June 2009, we amended the revolving credit facility agreement to provide us with the ability to borrow under our credit facility in Pounds Sterling and Euros, rather than only allowing our borrowings in U.S. dollars. We have the ability to borrow up to $75 million in alternate currencies. In addition, the amendment provides for changes in regard to certain other items in the credit agreement, including but not limited to (i) the calculation to determine our “Minimum Fixed Charge Coverage Ratio”, (ii) our banking account maintenance, (iii) requirements for access to collateral located at our various real property locations. These changes were made in order to provide clarifications that reflected compliance expectations that already existed among the parties. We incurred fees of $328 thousand which have been capitalized and will be amortized over the remaining term of the revolver. As of June 30, 2009 we did not have any draws on our credit facility in alternate currencies.

- 10 - -

As of June 30, 2009, the amount outstanding under the facility was $100.0 million, with an outstanding letter of credit of $0.7 million, and an additional $144.3 million available for future borrowings.

In July 2009 we repaid $50.0 million, reducing our borrowings on the facility to $50.0 million.  Although this amount was not currently due, it was reflected in the consolidated balance sheet in current portion of debt as of June 30, 2009.

Interest Rate Swap

We have a cash flow hedge to limit our exposure that may result from the variability of floating interest rates. Effective December 10, 2007, we entered into an interest rate swap agreement with a notional amount of $50.0 million to hedge a portion of our outstanding floating-rate debt. This swap converts floating rate interest based on the LIBOR into fixed-rate interest as part of the arrangement with our primary lender and expires in December 2010.

We are required to pay the counterparty a stream of fixed interest payments at a rate of 4.135%, and in turn, receive variable interest payments based on 1-month LIBOR.  The margin spread as of June 30, 2009 was 1.05% resulting in an effective fixed rate of 5.185%.  The net receipts or payments from the swap are recorded as interest expense. The swap is designated and qualifies as a cash flow hedge under SFAS 133, Accounting for Derivative Instruments and Hedging Activities. As such, the swap is accounted for as an asset or a liability in the accompanying consolidated balance sheets at fair value. We are utilizing the dollar offset method to assess the effectiveness of the swap. Under this methodology, the swap was deemed to be highly effective for the six month periods ended June 30, 2008 and June 30, 2009. There was no hedge ineffectiveness recognized in earnings for either period.  If the hedge becomes ineffective, or if certain terms of the facility change, the facility is extinguished, or if the swap is terminated prior to maturity, the fair value of the swap and subsequent changes in fair value may be recognized in the accompanying consolidated statements of income.  The fair value of the swap was estimated based on the yield curve as of December 31, 2008 and June 30, 2009, and represents its carrying value.

The following table presents the impact of the interest rate swap on the consolidated balance sheets:

	December 31,			June 30,
(In thousands)	2008			2009
Other non-current liabilities	$	2,901		$	2,400
Accumulated other comprehensive income    (loss), net of tax	$	(1,886	)	$	(1,560	)

	Three Months Ending June 30,				Six Months Ending June 30,
(In thousands)	2008		2009		2008			2009
Effective gain (loss) recognized in accumulated    other comprehensive income, net of tax	$	913	$	260	$	(143	)		326

Our counterparty is also the primary lender on our revolving credit facility and we actively monitor the potential credit risk.  As of June 30, 2009, we were in a liability position to our primary lender and therefore had limited counterparty credit risk.

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11. Other Non-Current Liabilities

Other non-current liabilities consisted of:

	December 31,		June 30,
(In thousands)	2008		2009
Texas Enterprise Fund Grant	$	5,000	$	5,000
Other		5,212		4,884
Other non-current liabilities	$	10,212	$	9,884

In August 2007, we entered into an agreement with the State of Texas (Texas Enterprise Fund Grant) under which we may receive up to $22.0 million in state enterprise fund grants on the condition that we meet certain employment levels in the State of Texas paying an average compensation of at least $56,000 per year (subject to increases). To the extent we fail to meet these requirements, we may be required to repay all or a portion of the grants plus interest.  In September 2007, we received the initial installment of $5.0 million from the State of Texas, which was recorded as a non-current liability.  In July 2009, we modified the agreement, which provided more favorable terms for achieving and sustaining the requirements for the grant funding.  See subsequent event footnote for additional information.

12. Commitments and Contingencies

Legal Proceedings

We are party to various legal and administrative proceedings, which we consider routine and incidental to our business. In addition, on October 22, 2008, Benjamin E. Rodriguez D/B/A Management and Business Advisors vs. Rackspace Hosting, Inc. and Graham Weston, was filed in the 37th District Court in Bexar County Texas by a former consultant to the company, Benjamin E. Rodriguez. The suit alleges breach of an oral agreement to issue Mr. Rodriguez a 1% interest in our stock in the form of options or warrants for compensation for services he was engaged to perform for us. We believe that the plaintiff’s position is without merit and intend to vigorously defend this lawsuit. We do not expect the results of this claim or any other current proceeding to have a material adverse effect on our business, results of operations or financial condition.

Contingent Liability

We previously recorded a $­­­2.1 million charge to cost of revenue related to an unresolved contractual issue with a vendor. We recorded a loss contingency liability with respect to this matter in accordance with SFAS 5, Accounting for Contingencies.  Due to the uncertainty regarding the interpretation of certain contractual terms, it is possible the ultimate loss may exceed or be less than the amount currently accrued.

13. Share-Based Compensation

In January 2009, our board of directors approved an additional 5.5 million shares for future grant under the Amended and Restated 2007 Stock Plan.  As of June 30, 2009, the total number of shares authorized under the plan was 42.8 million shares, of which approximately 6.2 million shares were available for future grants.

Outstanding stock awards were as follows:

	December 31,  2008		June 30, 2009
Restricted stock units		50,000		2,050,000
Stock options		19,255,644		19,341,057
Total outstanding awards		19,305,644		21,391,057

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The following table summarizes our restricted stock unit activity for the six months ended June 30, 2009:

	Number of Units
Outstanding at December 31, 2008		50,000
Units granted		2,000,000
Units vested		-
Units cancelled		-
Outstanding at June 30, 2009		2,050,000

On February 25, 2009, our board approved grants of restricted stock units (RSUs) to our chief executive officer and another member of the executive team. A total of 2,000,000 RSUs were granted. The vesting of the RSUs are dependent on the company’s total shareholder return (TSR) on its common stock compared to other companies in the Russell 2000 Index. In addition, the company’s TSR must be positive for vesting to occur. Of the total RSUs granted, 1,050,000 have a measurement period at the end of three years, and the remainder at the end of five years.  The fair value of these awards was estimated to be $7.0 million at the date of grant using a Monte Carlo pricing model, and are being amortized over their service periods.

The following table summarizes the activity under our stock plans:

	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life		Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2008		19,255,644		$	4.94		7.01	$	34,050
Granted		3,824,400		$	5.19
Exercised		(3,313,400	)	$	1.88
Canceled		(425,587	)	$	7.85
Outstanding at June 30, 2009		19,341,057		$	5.45		7.81	$	162,777
Vested and exercisable at June 30, 2009		6,979,542		$	2.99		6.33	$	75,872
Vested and exercisable at June 30, 2009
and expected to vest thereafter *		17,630,217		$	5.27		7.69	$	151,487

* Includes reduction of shares outstanding due to estimated forfeitures

On February 25, 2009, our board approved the grant of 3.7 million stock options for certain employees with an exercise price of $5.09. The shares vest 25% at the end of each year over a four-year period and expire after ten years. The fair value of these stock options was $2.97 per option using the Black-Scholes option pricing model.

The total pre-tax intrinsic value of the stock options exercised during the three months ended June 30, 2008 and 2009, was $5.8 million and $11.7 million, respectively and $8.2 million and $19.4 million for the six months ended June 30, 2008 and 2009, respectively.

The weighted average fair value of stock options issued for the three months ended June 30, 2008 and 2009 was $9.43 and $4.90 respectively, and $7.95 and $3.03 for the six months ended June 30, 2008 and 2009, respectively, using the Black-Scholes option pricing model with the following assumptions:

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	Three Months Ended June 30,						Six Months Ended June 30,
	2008			2009			2008			2009
Expected stock volatility		61% - 64	%		60	%		61% - 65	%		60% - 61	%
Expected dividend yield		0.0	%		0.0	%		0.0	%		0.0	%
Risk-free interest rate		3.02% - 3.41	%		2.30	%		2.71% - 3.41	%		2.24% - 2.30	%
Expected life	6.25 - 6.50 years			6.25 years			6.25 - 6.50 years			6.25 years

As of June 30, 2009, there was $51.7 million of total unrecognized compensation cost related to non-vested stock options granted under our various plans, which will be amortized using the straight line method over a weighted average period of 2.4 years.

Share-based compensation expense was recognized as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	2008			2009			2008			2009
Cost of revenue	$	603		$	675		$	968		$	1,304
Sales and marketing	$	533		$	721		$	934		$	1,419
General and administrative	$	2,668		$	3,621		$	4,654		$	6,531
Pre-tax share-based compensation		3,804			5,017			6,556			9,254
Less: Income tax benefit		(1,462	)		(1,819	)		(2,560	)		(3,371	)
Total share-based compensation
expense, net of tax	$	2,342		$	3,198		$	3,996		$	5,883

14. Income Taxes

We are subject to U.S. federal income tax and various state, local, and international income taxes in numerous jurisdictions. Our domestic and international tax liabilities are subject to the allocation of revenue and expenses in different jurisdictions and the timing of recognizing revenue and expenses. Additionally, the amount of income taxes paid is subject to our interpretation of applicable tax laws in the jurisdictions in which we file.

We currently file income tax returns in the U.S. and the U.K., which are periodically under audit by federal, state, and international tax authorities. These audits can involve complex matters that may require an extended period of time for resolution. The Internal Revenue Service completed an examination of our consolidated U.S. Federal income tax returns through fiscal year 2004 with no changes to the tax return. We remain subject to U.S. federal and state income tax examinations for the tax years 2005 through 2008, and to U.K. income tax examinations for the years 2002 through 2007. There are no income tax examinations currently in process. Although the outcome of open tax audits is uncertain, in management’s opinion, adequate provisions for income taxes have been made. If actual outcomes differ materially from these estimates, they could have a material impact on our financial condition and results of operations. Differences between actual results and assumptions, or changes in assumptions in future periods are recorded in the period they become known. To the extent additional information becomes available prior to resolution, such accruals are adjusted to reflect probable outcomes. Our effective tax rate is impacted by earnings being realized in countries where we have lower statutory rates.

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15. Comprehensive Income

Total comprehensive income was as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	2008		2009		2008			2009
Net income	$	4,182	$	6,991	$	9,624		$	13,579
Derivative instrument, net of deferred taxes of $491     and $139 for the three months June 30, 2008 and     2009, and ($77) and $175 for the six months     ended June 30, 2008 and 2009.		913		260		(143	)		326
Foreign currency cumulative translation adjustment,     net of taxes of ($9) and ($1,908) for the three     months ended June 30, 2008 and 2009, ($1)  and     ($1,697) for the six months ended June 30, 2008     and 2009.		23		8,254		(8	)		7,474
Total other comprehensive income (loss)		936		8,514		(151	)		7,800
Total comprehensive income	$	5,118	$	15,505	$	9,473		$	21,379

(In thousands)	Derivative Instrument			Translation Adjustment			Accumulated other comprehensive income (loss)
Balance at December 31, 2008	$	(1,886	)	$	(14,141	)	$	(16,027	)
2009 changes in fair value		326			-			326
2009 translation adjustment		-			7,474			7,474
Balance at June 30, 2009	$	(1,560	)	$	(6,667	)	$	(8,227	)

16. Segment Information

SFAS 131, Disclosures about Segments of an Enterprise and Related Information, established standards for reporting information about operating segments. Operating segments are defined as components of an enterprise for which separate financial information is available and evaluated regularly by the chief operating decision-maker, or decision-making group, in deciding how to allocate resources and in assessing performance. Our chief operating decision-maker is our chief executive officer. Our chief executive officer reviews financial information presented on a consolidated basis, accompanied by information by business unit and geographic region for purposes of evaluating financial performance and allocating resources.  We are organized as, and operate two business units: managed hosting and cloud computing services.  We have evaluated the criteria for aggregation by products and services, and by geography, and determined we have one reportable segment, which we describe as Hosting.  Revenue is attributed by geographic location based on the Rackspace Hosting operating location that enters into the contractual relationship with the customer, either the U.S. or outside U.S., primarily the U.K.  Our long-lived assets are primarily located in the U.S. and U.K., and to a lesser extent Hong Kong.

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Total net revenue by geographic region was as follows:

	Three Months Ending June 30,				Six Months Ending June 30,
(In thousands)	2008		2009		2008		2009
United States	$	92,100	$	113,309	$	176,947	$	223,873
Outside United States		38,729		38,686		73,495		73,199
Total net revenue	$	130,829	$	151,995	$	250,442	$	297,072

Long-lived assets by geographic region were as follows:

	December 31,		June 30,
(In thousands)	2008		2009
United States	$	322,949	$	351,865
Outside United States		68,930		91,843
Total long-lived assets	$	391,879	$	443,708

17. Related Party Transactions

We lease some facilities from a partnership controlled by our chairman of the board of directors. For these leases, we recognized $140 thousand and $189 thousand of rent expense on our consolidated statements of income for the three months ended June 30, 2008 and 2009, respectively, and $277 thousand and $366 thousand for the six months ended June 30, 2008 and 2009, respectively.

18. Subsequent Events

In July 2009, we repaid $50.0 million on our revolving credit facility. As of July 31, 2009, the amount outstanding under the facility was $50.0 million, with an outstanding letter of credit of $0.7 million, and an additional $194.3 million available for future borrowings.

In July, 2009, the Texas Enterprise Fund Grant agreement was amended to modify the job creation requirements. Under the amendment, the grant has been divided in to four separate tranches. The first tranche, called “Basic Fund” in the amendment, is $8.5 million with a target of 1,225 new jobs created in the state of Texas by December 31, 2012. We already have drawn $5.0 million of this tranche. We can draw an additional $3.5 million when we reach the target. While we expect to meet the job target requirements, if we do not create these jobs by December 31, 2012 and maintain them through December 31, 2021, we will be required to repay portions of the grant (clawback), with the maximum clawback being the amounts that we have drawn plus 3.4% interest on such amounts per year. The remaining three tranches are at our option and provide for additional draws up to $13.5 million, which are also subject to clawbacks.

In July 2009, Rackspace entered into an agreement with Tarantula Ventures LLC, a DuPont Fabros Technology company to lease approximately 36,700 square feet of raised floor space and approximately 10,000 square feet of office and storage space in a data center facility located in the Chicago, Illinois area (the Lease). The leased space will be provided with a maximum critical load power of 5.633 megawatts. The Lease has been determined to be an operating lease and provides for a commencement date at the earlier of November 1, 2009 or the date on which Rackspace begins to conduct business at the site. The Lease has a term of 15 years from the commencement date, and a total estimated financial obligation of approximately $140 million to $150 million over the 15 year term, inclusive of base lease payments and Rackspace’s pro-rata share of operating expenses. Upon the expiration of the 15 year term, Rackspace has the option to renew the lease for two consecutive five year periods.

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ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

References to “we,” “our,” “our company,” “us,” “the company,” “Rackspace Hosting,” or “Rackspace” refer to Rackspace Hosting, Inc. and its consolidated subsidiaries.  We have made forward-looking statements in this Quarterly Report on Form 10-Q that are subject to risks and uncertainties. Forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section and Section 21E of the Securities Exchange Act of 1934, as amended, are subject to the “safe harbor” created by those sections.  The forward-looking statements in this report are based on our management’s beliefs and assumptions and on information currently available to our management. In some cases, you can identify forward-looking statements by terms such as “anticipates,” “aspires,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “seeks,” “should,” “will” or “would” or the negative of these terms and similar expressions intended to identify forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors, which may cause our actual results, performance, time frames or achievements to be materially different from any future results, performance, time frames or achievements expressed or implied by the forward-looking statements. We discuss many of these risks, uncertainties and other factors in this document in greater detail under the heading “Risk Factors.” We believe it is important to communicate our expectations to our investors. However, there may be events in the future that we are not able to predict accurately or over which we have no control. The risks described in “Risk Factors” included in this report, as well as any other cautionary language in this report, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. You should be aware that the occurrence of the events described in “Risk Factors” and elsewhere in this report could harm our business.

Given these risks, uncertainties and other factors, you should not place undue reliance on these forward-looking statements. Also, these forward-looking statements represent our estimates and assumptions only as of the date of this filing. You should read this document completely and with the understanding that our actual future results may be materially different from what we expect. We hereby qualify our forward-looking statements by these cautionary statements. Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

The following discussion should be read in conjunction with our consolidated financial statements and the related notes contained elsewhere in this document.

Overview of our Business

Rackspace Hosting, Inc. is a world leader in hosting and cloud computing. Our growth is the result of our commitment to serving our customers, known as Fanatical Support®, and our exclusive focus on hosting and cloud computing. We have been successful in attracting and retaining thousands of customers and in growing our business. We are a pioneer in an emerging category, hybrid hosting, which combines the benefits of both traditional dedicated hosting and cloud computing. We are committed to maintaining our service-centric focus and will follow our vision to be considered one of the world’s greatest service companies.

We offer services to support websites, web-based IT systems, and computing as a service. The equipment required (servers, routers, switches, firewalls, load balancers, cabinets, software, wiring, etc.) to deliver services is typically purchased and managed by us. Rackspace offers a full suite of hosting services, including managed hosting, cloud hosting, as well as email and application hosting.

We sell our services to small and medium-sized businesses as well as large enterprises. For the six months of 2009, 24.6% of our net revenue was generated by our operations outside of the U.S., mainly from the U.K. Late in 2008, we also began operations of a Hong Kong data center and a sales office, which generated minimal revenue in 2008 and the first six months of 2009.  Our growth strategy includes among other strategies, targeting international customers as we plan to expand our activities in continental Europe and Asia. For the first six months of 2009, no individual customer accounted for greater than 2% of our net revenue.

Key Metrics

We carefully track several financial and operational metrics to monitor and manage our growth, financial performance, and capacity. Our key metrics are structured around growth, profitability, capital efficiency, infrastructure capacity, and utilization. The following data should be read in conjunction with the consolidated financial statements, the notes to the financial statements and other financial information included in this Quarterly Report on Form 10-Q.

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	Three Months Ended
(Dollar amounts in thousands, except annualized net	June 30,			September 30,			December 31,			March 31,			June 30,
revenue per average technical square foot)	2008			2008			2008			2009			2009
Growth	(Unaudited)
Managed hosting customers at period end		17,220			18,012			18,480			19,048			19,363
Cloud customers at period end*		16,387			18,173			34,820			43,030			51,440
Number of customers at period end		33,607			36,185			53,300			62,078			70,803
Managed hosting, net revenue	$	125,498		$	131,908		$	134,275		$	134,204		$	138,943
Cloud, net revenue	$	5,331		$	6,446		$	8,862		$	10,873		$	13,052
Net revenue	$	130,829		$	138,354		$	143,137		$	145,077		$	151,995
Revenue growth (year over year)		55.7	%		44.0	%		34.2	%		21.3	%		16.2	%
Net upgrades (monthly average)		2.1	%		1.8	%		1.4	%		0.9	%		1.2	%
Churn (monthly average)		-1.1	%		-1.2	%		-1.3	%		-1.1	%		-1.0	%
Growth in installed base (monthly average)		1.0	%		0.6	%		0.1	%		-0.2	%		0.2	%
Number of employees (Rackers) at period end		2,422			2,536			2,611			2,661			2,648
Number of servers deployed at period end		42,424			45,231			47,518			50,038			52,269
Profitability
Income from operations	$	8,396		$	9,490		$	12,125		$	13,021		$	13,403
Depreciation and amortization	$	21,637		$	23,174		$	26,310		$	27,804		$	29,711
Share-based compensation expense
Cost of revenue	$	603		$	819		$	678		$	629		$	675
Sales and marketing	$	533		$	612		$	595		$	698		$	721
General and administrative	$	2,668		$	2,886		$	2,871		$	2,910		$	3,621
Total share-based compensation expense	$	3,804		$	4,317		$	4,144		$	4,237		$	5,017
Adjusted EBITDA (1)	$	33,837		$	36,981		$	42,579		$	45,062		$	48,131
Adjusted EBITDA margin		25.9	%		26.7	%		29.7	%		31.1	%		31.7	%
Operating income margin		6.4	%		6.9	%		8.5	%		9.0	%		8.8	%
Income from operations	$	8,396		$	9,490		$	12,125		$	13,021		$	13,403
Effective tax rate		37.9	%		29.6	%		27.7	%		36.6	%		36.2	%
Net operating profit after tax (NOPAT) (1)	$	5,214		$	6,681		$	8,766		$	8,255		$	8,551
NOPAT margin		4.0	%		4.8	%		6.1	%		5.7	%		5.6	%
Capital efficiency and returns
Interest bearing debt	$	183,553		$	297,933		$	300,413		$	201,507		$	210,284
Stockholders' equity	$	117,417		$	269,008		$	269,684		$	282,880		$	308,823
Less: Excess cash	$	-		$	(235,421	)	$	(200,620	)	$	(117,611	)	$	(129,638	)
Capital base	$	300,970		$	331,520		$	369,477		$	366,776		$	389,469
Average capital base	$	275,935		$	316,245		$	350,497		$	368,127		$	378,123
Capital turnover (annualized)		1.90			1.75			1.63			1.58			1.61
Return on capital (annualized) (1)		7.6	%		8.5	%		10.0	%		9.0	%		9.0	%
Capital expenditures
Purchases of property and equipment, net	$	40,273		$	45,328		$	32,547		$	25,589		$	31,027
Vendor financed equipment purchases	$	26,014		$	23,009		$	14,848		$	11,683		$	23,637
Total capital expenditures	$	66,287		$	68,337		$	47,395		$	37,272		$	54,664
Customer gear	$	27,347		$	27,627		$	23,073		$	19,255		$	32,448
Data center build outs	$	18,509		$	21,679		$	14,240		$	11,386		$	13,914
Office build outs	$	12,815		$	11,227		$	8,340		$	2,239		$	1,651
Capitalized software and other projects	$	7,616		$	7,804		$	1,742		$	4,392		$	6,651
Total capital expenditures	$	66,287		$	68,337		$	47,395		$	37,272		$	54,664
Infrastructure capacity and utilization
Technical square feet of data center space at period end **		133,462			136,962			134,923			157,523			177,371
Annualized net revenue per average technical square foot **	$	4,217		$	4,093		$	4,212		$	3,969		$	3,631
Utilization rate at period end		59.1	%		63.4	%		70.4	%		64.6	%		59.8	%

*      December 31, 2008, March 31, 2009, and June 30, 2009 amounts include customers resulting from the Slicehost acquisition, and

        March 31, 2009 and June 30, 2009 amounts include SaaS customers for Jungle Disk. 

**   The technical square feet as of June 30, 2009, includes the addition of 18,748 square feet for phase two of our Slough, U.K. data center and 1,100

        square feet for the first phase of our new Virginia data center.  11,750 square feet will be removed in the 3rd quarter of 2009 for operations

        at a U.K. data center that will be decommissioned and migrated to the Slough data center.

(1)   See discussion and reconciliation of our Non-GAAP financial measures to the most comparable GAAP measures.

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Non-GAAP Financial Measures

Return on Capital (ROC) (Non-GAAP financial measure)

We define Return on Capital as follows: ROC = Net operating profit after tax (NOPAT) /Average capital base

NOPAT = Income from operations x (1 – Effective tax rate)

Average capital base = Average of (Interest bearing debt + stockholders’ equity – excess cash) = Average of (Total assets – excess cash – accounts payables and accrued expenses – deferred revenue– other non-current liabilities and deferred income taxes)

Year-to-date average balances are based on an average calculated using the quarter end balances at the beginning of the period and all other quarter ending balances included in the period.

For the periods ending March 31, 2009 and June 30, 2009, we define excess cash as the amount of cash and cash equivalents that exceed our operating cash requirements, which for these periods is calculated as three percent of our annualized net revenue for the three months prior to the period end.  For prior periods, we defined excess cash as our investments in money market funds.  As a result of a decrease in capital expenditures due to the completion of the last phase of our Grapevine, Texas data center and phase 2 of our Slough, U.K. data center, as well as the signing of leases to occupy data centers that have minimal data center build out costs, our operating cash requirements have declined.  We will periodically review the calculation and adjust it to reflect our projected cash requirements for the upcoming year.

We believe that ROC is an important metric for investors in evaluating our company’s performance. ROC relates to after-tax operating profits with the capital that is placed into service. It is therefore a performance metric that incorporates both the Statement of Income and the Balance Sheet. ROC measures how successfully capital is deployed within a company.

Note that ROC is not a measure of financial performance under GAAP and should not be considered a substitute for return on assets, which we consider to be the most directly comparable GAAP measure. ROC has limitations as an analytical tool, and when assessing our operating performance, you should not consider ROC in isolation, or as a substitute for other financial data prepared in accordance with GAAP. Other companies may calculate ROC differently than we do, limiting its usefulness as a comparative measure.

ROC increased from 7.6% to 9.0% for the three months ended in June 30, 2008 compared to the three months ended June 30, 2009. This increase was primarily due to a higher tax rate unfavorably impacting the ROC calculation for the three months ended June 30, 2008. Included in the average capital base for 2008 are capital expenditures related to our new corporate headquarters facility and data centers that were in the process of being built out.

Return on assets remained flat at 4.4% for the three months ended June 30, 2008 and June 30, 2009. Although our net income has grown through this period from higher revenue, our asset base has also grown primarily due to the purchase of property and equipment to support the growth of our business.  In addition we have recently held additional amounts of cash and cash equivalents due to our IPO in August 2008, as well as further borrowings under our revolving credit facility due to the instability in the financial markets.

- 19 - -

See our reconciliation of the calculation of return on assets to ROC in the following table:

	Three Months Ended
	(Unaudited)
(In thousands, except financial metrics)	June 30, 2008			September 30, 2008			December 31, 2008			March 31, 2009			June 30, 2009
Income from operations	$	8,396		$	9,490		$	12,125		$	13,021		$	13,403
Effective tax rate		37.9	%		29.6	%		27.7	%		36.6	%		36.2	%
Net operating profit after tax (NOPAT)	$	5,214		$	6,681		$	8,766		$	8,255		$	8,551
Net income	$	4,182		$	5,235		$	6,844		$	6,588		$	6,991
Average total assets	$	381,815		$	546,761		$	685,236		$	643,349		$	629,116
Less: Average excess cash	$	-		$	(117,710	)	$	(218,021	)	$	(159,116	)	$	(123,625	)
Less: Average accounts payable and accrued expenses	$	(76,494	)	$	(79,837	)	$	(76,564	)	$	(71,299	)	$	(79,264	)
Less: Average deferred revenues (current and non-current)	$	(19,762	)	$	(20,077	)	$	(20,111	)	$	(20,271	)	$	(20,193	)
Less: Average other non-current liabilities and deferred taxes	$	(9,624	)	$	(12,892	)	$	(20,043	)	$	(24,536	)	$	(27,911	)
Average capital base	$	275,935		$	316,245		$	350,497		$	368,127		$	378,123
Return on assets (annualized)		4.4	%		3.8	%		4.0	%		4.1	%		4.4	%
Return on capital (annualized)		7.6	%		8.5	%		10.0	%		9.0	%		9.0	%

Adjusted EBITDA (Non-GAAP financial measure)

We use Adjusted EBITDA as a supplemental measure to review and assess our performance.  We define Adjusted EBITDA as Net income, plus income taxes, total other income (expense), depreciation and amortization, and non-cash charges for share-based compensation.

Adjusted EBITDA is a metric that is used in our industry by the investment community for comparative and valuation purposes. We disclose this metric in order to support and facilitate the dialogue with research analysts and investors.

Note that Adjusted EBITDA is not a measure of financial performance under GAAP and should not be considered a substitute for operating income, which we consider to be the most directly comparable GAAP measure. Adjusted EBITDA has limitations as an analytical tool, and when assessing our operating performance, you should not consider Adjusted EBITDA in isolation, or as a substitute for net income or other consolidated income statement data prepared in accordance with GAAP.  Other companies may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure. 

For each three month period, EBITDA has increased steadily from 25.9% for the three months ended June 30, 2008 to 31.7% for the three months ended June 30, 2009 due to increased revenue, partially offset by marginal increases in each cost category. During 2008 and continuing into 2009, we focused on scaling our cost structure.

Income from operations have been favorably impacted by cost reduction efforts, but was partially offset by higher depreciation and amortization expense resulting from capital investments, and increasing share-based compensation expense from grants of stock options and other stock awards to employees. Our operating income margin increased from 6.4% for the three months ended June 30, 2008 to 8.8% for the three months ended June 30, 2009.

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See our Adjusted EBITDA reconciliation below.

	Three Months Ended
	(Unaudited)
(Dollars in thousands)	June 30, 2008			September 30, 2008			December 31, 2008			March 31, 2009			June 30, 2009
Net revenue	$	130,829		$	138,354		$	143,137		$	145,077		$	151,995
Income from operations	$	8,396		$	9,490		$	12,125		$	13,021		$	13,403
Net income	$	4,182		$	5,235		$	6,844		$	6,588		$	6,991
Plus: Income taxes	$	2,553		$	2,199		$	2,620		$	3,807		$	3,973
Plus: Total other (income) expense	$	1,661		$	2,056		$	2,661		$	2,626		$	2,439
Plus: Depreciation and amortization	$	21,637		$	23,174		$	26,310		$	27,804		$	29,711
Plus: Share-based compensation expense	$	3,804		$	4,317		$	4,144		$	4,237		$	5,017
Adjusted EBITDA	$	33,837		$	36,981		$	42,579		$	45,062		$	48,131
Operating income margin		6.4	%		6.9	%		8.5	%		9.0	%		8.8	%
Adjusted EBITDA margin		25.9	%		26.7	%		29.7	%		31.1	%		31.7	%

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Results of Operations

The following tables set forth our results of operations for the specified periods and as a percentage of our revenue for those same periods. The period-to-period comparison of financial results is not necessarily indicative of future results.

Consolidated Statements of Income (Unaudited):  

	Three Months Ended
(In thousands)	June 30, 2008			September 30, 2008			December 31, 2008			March 31, 2009			June 30, 2009
Net revenue	$	130,829		$	138,354		$	143,137		$	145,077		$	151,995
Costs and expenses:
Cost of revenue		42,842			45,499			45,019			46,210			48,235
Sales and marketing		19,846			21,462			21,447			20,502			19,080
General and administrative		38,108			38,729			38,236			37,540			41,566
Depreciation and amortization		21,637			23,174			26,310			27,804			29,711
Total costs and expenses		122,433			128,864			131,012			132,056			138,592
Income from operations		8,396			9,490			12,125			13,021			13,403
Other income (expense):
Interest expense		(1,834	)		(1,912	)		(3,153	)		(2,535	)		(2,172	)
Interest and other income (expense)		173			(144	)		492			(91	)		(267	)
Total other income (expense)		(1,661	)		(2,056	)		(2,661	)		(2,626	)		(2,439	)
Income before income taxes		6,735			7,434			9,464			10,395			10,964
Income taxes		2,553			2,199			2,620			3,807			3,973
Net income	$	4,182		$	5,235		$	6,844		$	6,588		$	6,991

Consolidated Statements of Income, as a Percentage of Net Revenue (Unaudited):

	Three Months Ended
(Percent of net revenue)	June 30, 2008			September 30, 2008			December 31, 2008			March 31, 2009			June 30, 2009
Net revenue		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%
Costs and expenses
Cost of revenue		32.7	%		32.9	%		31.5	%		31.9	%		31.7	%
Sales and marketing		15.2	%		15.5	%		15.0	%		14.1	%		12.6	%
General and administrative		29.1	%		28.0	%		26.7	%		25.9	%		27.3	%
Depreciation and amortization		16.5	%		16.7	%		18.4	%		19.2	%		19.5	%
Total costs and expenses		93.6	%		93.1	%		91.5	%		91.0	%		91.2	%
Income from operations		6.4	%		6.9	%		8.5	%		9.0	%		8.8	%
Other income (expense)
Interest expense		-1.4	%		-1.4	%		-2.2	%		-1.7	%		-1.4	%
Interest and other income (expense)		0.1	%		-0.1	%		0.3	%		-0.1	%		-0.2	%
Total other income (expense)		-1.3	%		-1.5	%		-1.9	%		-1.8	%		-1.6	%
Income before income taxes		5.1	%		5.4	%		6.6	%		7.2	%		7.2	%
Income taxes		2.0	%		1.6	%		1.8	%		2.6	%		2.6	%
Net income		3.2	%		3.8	%		4.8	%		4.5	%		4.6	%

Due to rounding, totals may not equal the sum of the line items in the table above.

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Second Quarter 2009 Overview

To aid in understanding our operating results for the periods covered by this report, we have provided an executive overview and a summary of the significant events that affected the most recent reporting period.  These sections should be read in conjunction with the other portions of management’s discussion and analysis of our financial condition and results of operations, our “Risk Factors” section, and our consolidated financial statements and notes included in this report.

The highlights and significant events of the three months ended June 30, 2009 and the impact on our operating results compared to the three months ended, March 31, 2009 were as follows:

Net Revenue - Net revenue increased $6.9 million or 4.8% from $145.1 million in the first three months ended March 31, 2009 to $152.0 million in the three months ended June 30, 2009.  The growth rate was impacted by the broader economic environment. In addition, revenue was impacted by approximately $2.4 million in service credits relating to service interruptions in a portion of our Grapevine, Texas data center.  Partially offsetting the negative impact was a weakening U.S. dollar relative to the Pound Sterling, which resulted in an increase to revenue of approximately $2.7 million or 1.8% for the three months ended June 30, 2009 compared to the three months ended March 31, 2009. For the three months ended March 31, 2009, we experienced a monthly average churn rate of 1.1%, which slightly decreased to 1.0% for the three months ended June 30, 2009 with an increase in net upgrades from 0.9% for the  three months ended March 31, 2009 to 1.2% for the three months ended June 30, 2009.  Overall, our installed base declined at an average rate of (0.2)% per month for the three months ended March 31, 2009 compared to growth at an average rate of 0.2% for the three months ended June 30, 2009.

Income from Operations - Income from operations increased by $0.4 million or 2.9% from $13.0 million for the three months ended March 31, 2009 to $13.4 million for the three months ended June 30, 2009.  Operating income margin was 9.0% for the three months ended March 31, 2009 compared to 8.8% for the three months ended June 30, 2009.  Our margin decreased primarily as a result of approximately $2.4 million in service credits relating to service interruptions in a portion of our Grapevine, Texas data center.

Adjusted EBITDA -Adjusted EBITDA increased $3.0 million or 6.8% from $45.1 million for the three months ended March 31, 2009 to $48.1 million in the three months ended June 30, 2009.  Adjusted EBITDA as a percentage of revenue was 31.1% in the three months ended March 31, 2009 compared to 31.7% in the three months ended June 30, 2009. See the discussion of Adjusted EBITDA, a non-GAAP financial measure for additional information.

Net Income and Net Income per Share - - Net income was $6.6 million, or $0.05 per share on a diluted basis for the three months ended March 31, 2009 compared to net income of $7.0 million, or $0.06 per share on a diluted basis for the three months ended June 30, 2009. Although we incurred certain expenses as a result of the data center service interruptions for the three months ended June 30, 2009, net income increased $0.4 million from the three months ended March 31, 2009 compared to the three months ended June 30, 2009. The increase in net income was mainly due to lower cost of revenue and sales and administrative expenses as a percentage of revenue for the three months ended June 30, 2009 compared to the three months ended March 31, 2009, partially offset by an increase in general and administrative expenses, as well as depreciation and amortization expense as a percentage of revenue.

During the three months ended June 30, 2009, we experienced service interruptions in a portion of our data center operations in Grapevine, Texas. As a result certain customers experienced downtime and we extended approximately $2.4 million in service credits to them. We have been working to reduce the likelihood of further incidents at this data center and our other data centers throughout the world. While we have not experienced larger than normal customer attrition following these interruptions, the extent of any damage to our reputation is difficult to access.

During the second quarter of 2009, we announced the availability of the public beta of our Cloud Servers API. Through the open, standards-based API (application program interface), Rackspace Cloud customers can now programmatically manage their cloud servers allowing for deep integration between applications and infrastructure, which makes on demand scaling a reality. The Cloud Servers API includes four new features, which are server metadata, server data injection, host identification and shared IP groups.

In June 2009, we completed the second phase of our data center build out at our Slough, U.K. data center and also commenced operations at our Ashburn, Virginia data center facility.

- 23 - -

In July 2009, Rackspace entered into an agreement with Tarantula Ventures LLC, a DuPont Fabros Technology company, to lease approximately 36,700 square feet of technical square feet in a data center facility in the Chicago area. We expect to commence operations in this facility in late 2009.

Quarterly Results of Operations

Revenue has increased sequentially in each of the quarters primarily due to increased volume of services provided, both due to an increasing number of customer accounts over time and due to incremental services rendered to existing customers. Net revenue increased from $130.8 million for the three months ended June 30, 2008 to $152.0 million for the three months ended June 30, 2009, which represents an average growth rate of approximately 3.8% per quarter. In the second half of 2008 and the three months ended March 31, 2009, the growth rate was negatively impacted by the deteriorating economic conditions and the strengthening U.S. dollar versus the Pound Sterling.  For the three months ended June 30, 2009, we continued to be negatively impacted by the economic conditions and decreased IT spend by our customers, but we experienced a favorable impact by a weakening U.S. dollar versus the Pound Sterling. For the twelve month period ended June 30, 2009, our average monthly growth in installed base was 0.2% per month, and our customer base increased from 33,607 at the end of the three months ended June 30, 2008 to 70,803 customers at the end of the three months ended June 30, 2009, which includes customers acquired through our acquisition of Slicehost in the fourth quarter of 2008.

Because of the growth of our revenue, total operating expenses increased sequentially in each of the quarters presented, primarily as we continued to add personnel especially in the first half of 2008, and incurred costs to accommodate our growth. During the second half of 2008, we focused on scaling our expenditures, which is evidenced in the reduction in sales and marketing, and general and administrative expenses as a percentage of revenue.  These reductions were partially offset with increasing depreciation and amortization expense resulting from equipment expenditures and facility additions to support our customer growth.  Rackspace completed strategic build outs during this time period including the Slough, U.K. data center, in June 2008, the completion of the third phase of our Grapevine, Texas data center in January 2009, and the second phase of our Slough U.K. data center in June 2009, as well as capital expenditures related to the build out of a corporate facility.

Three Months Ended June 30, 2008 and June 30, 2009

Net Revenue

Our net revenue was $130.8 million for the three months ended June 30, 2008 and $152.0 million for the three months ended June 30, 2009, an increase of $21.2 million, or 16.2%. Our increase in net revenue was primarily due to increased volume of services provided, both due to an increasing number of customer accounts and due to incremental services rendered to existing customers. Partially offsetting the revenue increase was the negative impact of a weaker U.S. dollar relative to the Pound Sterling for the three months ended June 30, 2009 compared to the three months ended June 30, 2008.  Net revenue for the three months ended June 30, 2009 would have been approximately $10 million higher had the U.S. dollar to the Pound Sterling exchange rate remained constant from the prior year.

Recurring revenue

Our recurring revenue was $125.8 million for the three months ended June 30, 2008 and $147.6 million for the three months ended June 30, 2009, an increase of $21.8 million, or 17.3%. This increase was driven in part by new customer growth as we increased our customer base from 33,607 at June 30, 2008 to 70,803 at June 30, 2009, or 110.7%. A significant portion of our customer growth has been from the Cloud computing business, including customers acquired in our acquisition of Slicehost in October 2008, which generate a lower revenue per customer than our managed hosting business.Recurring revenue growth was partly offset by approximately $2.4 million in service credits issued to customers as a result of service interruptions in a portion of our Grapevine, Texas data center for the three months ended June 30, 2009.

Non-recurring revenue

Our non-recurring revenue decreased from $5.0 million for the three months ended June 30, 2008 to $4.4 million for the three months ended June 30, 2009, a decrease of 12.0% as a result of decreased customer overage charges.

Cost of Revenue

Our cost of revenue was $42.8 million for the three months ended June 30, 2008, and $48.2 million for the three months ended June 30, 2009, an increase of $5.4 million, or 12.6%. Of this increase, $2.0 million was attributable to an increase in salaries, benefits, and share-based compensation expense. The cost increase was further attributable to an increase in license costs of $3.1 million and an increase in data center costs of $0.4 million related to bandwidth, power, and rent.

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Sales and Marketing Expenses

Our sales and marketing expenses were $19.8 million for the three months ended June 30, 2008 and $19.1 million for the three months ended June 30, 2009, a decrease of $0.7 million, or 3.5%. Of this decrease, $2.2 million was primarily attributable to advertising, Internet-related marketing expenditures and partnership programs as a result of a concentrated effort to decrease marketing spend, with a focus on areas that generate more efficient growth opportunities.  The overall decrease was partially offset by a $1.3 million increase in salaries, commissions, benefits, and share-based compensation expense. Total compensation increased as a result of the hiring of additional sales and marketing personnel and the impact of commissions associated with increased sales.

General and Administrative Expenses

Our general and administrative expenses were $38.1 million for the three months ended June 30, 2008 and $41.6 million for the three months ended June 30, 2009, an increase of $3.5 million, or 9.2%. Of this increase, $2.1 million was attributable to an increase in salaries and benefits, of which share-based compensation expense increased by $1.0 million as a result of stock option and restricted stock unit grants to employees in 2008 and in the first half of 2009. Bad debt expense increased by $1.4 million due to customers generally extending payment terms or not being able pay as a result of the current economic conditions. We also experienced an increase in internal software support and maintenance of $0.6 million.  Partially offsetting these increases were decreases to travel expenditures of $0.4 million.

   Depreciation and Amortization Expense

Our depreciation and amortization expense was $21.6 million for the three months ended June 30, 2008 and $29.7 million for the three months ended June 30, 2009, an increase of $8.1 million, or 37.5%. The increase in depreciation and amortization expense was a direct result of an increase in property and equipment related to depreciable assets to support the growth of our business, which included increases in data center equipment and leasehold improvements due to data center build outs, as well as intangible assets acquired through acquisitions.

    Other Income (Expense)

Our interest expense was $1.8 million for the three months ended June 30, 2008 and $2.2 million for the three months ended June 30, 2009, an increase of $0.4 million or 22.2%.  Interest expense was partially offset by capitalized interest of $0.8 million for the three months ended June 30, 2008 and $0.2 million for the three months ended June 30, 2009.  Although we had an increased level of indebtedness in 2009, interest expense did not increase significantly due to lower borrowing rates.

Interest and other income (expense) was $0.2 million for the three months ended June 30, 2008 and ($0.3) million for the three months ended June 30, 2009.  In the three months ended June 30, 2008, we recognized $0.2 million in interest income.  In the three months ended June 30, 2009, we recognized $0.1 million of interest income offset by foreign currency losses of ($0.4) million.

Income Taxes

Our effective tax rate decreased from 37.9% for the three months ended June 30, 2008 to 36.2% for the three months ended June 30, 2009, primarily as a result of earnings being realized in countries where we have lower statutory rates than compared to the three months ended June 30, 2008.  The differences between our effective tax rate and the U.S. federal statutory rate of 35% principally result from our geographical distribution of taxable income, state income taxes, research and development credits, and permanent differences between the book and tax treatment of certain items. Our foreign earnings are generally taxed at lower rates than in the United States.

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Six months ended June 30, 2008 and June 30, 2009

The following tables set forth our results of operations for the specified periods and as a percentage of our revenue for those same periods. The period-to-period comparison of financial results is not necessarily indicative of future results.

Consolidated Statements of Income (Unaudited):

	Six Months Ended
(In thousands)	June 30, 2008			June 30, 2009
Net revenue	$	250,442		$	297,072
Costs and expenses:
Cost of revenue		82,065			94,445
Sales and marketing		37,414			39,582
General and administrative		71,741			79,106
Depreciation and amortization		40,688			57,515
Total costs and expenses		231,908			270,648
Income from operations		18,534			26,424
Other income (expense):
Interest expense		(3,164	)		(4,707	)
Interest and other income (expense)		420			(358	)
Total other income (expense)		(2,744	)		(5,065	)
Income before income taxes		15,790			21,359
Income taxes		6,166			7,780
Net income	$	9,624		$	13,579

Consolidated Statements of Income, as a Percentage of Net Revenue (Unaudited):

	Six Months Ended
(Percent of net revenue)	June 30, 2008			June 30, 2009
Net revenue		100.0	%		100.0	%
Costs and expenses
Cost of revenue		32.8	%		31.8	%
Sales and marketing		14.9	%		13.3	%
General and administrative		28.6	%		26.6	%
Depreciation and amortization		16.2	%		19.4	%
Total costs and expenses		92.6	%		91.1	%
Income from operations		7.4	%		8.9	%
Other income (expense)
Interest expense		-1.3	%		-1.6	%
Interest and other income (expense)		0.2	%		-0.1	%
Total other income (expense)		-1.1	%		-1.7	%
Income before income taxes		6.3	%		7.2	%
Income taxes		2.5	%		2.6	%
Net income		3.8	%		4.6	%

Due to rounding, totals may not equal the sum of the line items in the table above.

- 26 - -

Net Revenue

Our net revenue was $250.4 million for the six months ended June 30, 2008 and $297.1 million for the six months ended June 30, 2009, an increase of $46.7 million, or 18.7%. Our increase in net revenue was primarily due to increased volume of services provided, both due to an increasing number of customer accounts and due to incremental services rendered to existing customers. Partially offsetting the revenue increase was the negative impact of a weaker U.S. dollar relative to the Pound Sterling for the six months ended June 30, 2009 compared to the six months ended June 30, 2008.  Net revenue for the six months ended June 30, 2009, would have been approximately $23 million higher had the U.S. dollar to the Pound Sterling exchange rate remained constant from the prior year.

Recurring revenue

Our recurring revenue was $241.1 million for the six months ended June 30, 2008 and $288.9 million for the six months ended June 30, 2009, an increase of $47.8 million, or 19.8%. This increase was driven in part by new customer growth as we increased our customer base from 33,607 at June 30, 2008 to 70,803 at June 30, 2009, or 110.7%. A significant portion of our customer growth has been from the Cloud computing business, including customers acquired in our acquisition of Slicehost in October 2008, which generate a lower revenue per customer than our managed hosting business. Recurring revenue growth was partly offset by the approximately $2.4 million in service credits relating to service interruptions in a portion of our Grapevine, Texas data center in the three months ended June 30, 2009.

Non-recurring revenue

Our non-recurring revenue decreased from $9.3 million for the six months ended June 30, 2008 to $8.2 million for the six months ended June 30, 2009, a decrease of 11.8% as a result of decreased customer overage charges.

Cost of Revenue

Our cost of revenue was $82.1 million for the six months ended June 30, 2008 and $94.4 million for the six months ended June 30, 2009, an increase of $12.3 million, or 15.0%. Of this increase, $4.7 million was attributable to an increase in salaries, benefits, and share-based compensation expense. The cost increase was further attributable to an increase in license costs of $6.6 million and an increase in data center costs of $2.2 million related to bandwidth, power, and rent.  Offsetting these increases was a decrease in maintenance costs and replacement of IT equipment parts in the amount of approximately $1.1 million.

Sales and Marketing Expenses

Our sales and marketing expenses were $37.4 million for the six months ended June 30, 2008 and $39.6 million for the six months ended June 30, 2009, an increase of $2.2 million, or 5.9%. Of this increase, $4.2 million was primarily attributable to an increase in salaries, commissions, benefits, and share-based compensation expense. Total compensation increased as a result of the hiring of additional sales and marketing personnel and the impact of commissions associated with increased sales. Partially offsetting the increase was a $2.0 million decrease to advertising, Internet-related marketing expenditures and partnership programs as a result of a concentrated effort to decrease marketing spend, with a focus on areas that generate more efficient growth opportunities.

General and Administrative Expenses

Our general and administrative expenses were $71.7 million for the six months ended June 30, 2008 and $79.1 million for the six months ended June 30, 2009, an increase of $7.4 million, or 10.3%. Of this increase, $3.2 million was attributable to an increase in salaries and benefits, of which share-based compensation expense increased by $2.0 million as a result of stock option and restricted stock unit grants to employees in 2008 and in the first half of 2009. Bad debt expense increased by $3.4 million due to customers generally extending payment terms or not being able pay as a result of the current economic conditions. We also experienced increases in internal software support and maintenance of $1.5 million. Partially offsetting these increases were decreases to travel expenditures of $0.8 million.

Depreciation and Amortization Expense

Our depreciation and amortization expense was $40.7 million for the six months ended June 30, 2008 and $57.5 million for the six months ended June 30, 2009, an increase of $16.8 million, or 41.3%. The increase in depreciation and amortization expense was a direct result of an increase in property and equipment related to depreciable assets including increases in data center equipment and leasehold improvements due to data center build outs, as well as intangible assets acquired through acquisitions.

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Other Income (Expense)

Our interest expense was $3.2 million for the six months ended June 30, 2008 and $4.7 million for the six months ended June 30, 2009, an increase of $1.5 million or 46.9%.  This relative increase was primarily due to the increased level of indebtedness, which was mostly offset by decreased borrowing rates.  Interest expense was partially offset by capitalized interest of $1.3 million for the six months ended June 30, 2008 and $0.5 million for the six months ended June 30, 2009.

Interest and other income (expense) was $0.4 million for the six months ended June 30, 2008 and ($0.4) million for the six months ended June 30, 2009.  In the six months ended June 30, 2008, we recognized $0.4 million in interest income. In the six months ended June 30, 2009, we recognized $0.1 million of interest income offset by foreign currency losses of ($0.5) million.

Income Taxes

Our effective tax rate decreased from 39.1% for the six months ended June 30, 2008 to 36.4% for the six months ended June 30, 2009, primarily as a result of earnings being realized in countries where we have lower statutory rates than compared to the six months ended June 30, 2008.  The differences between our effective tax rate and the U.S. federal statutory rate of 35% principally result from our geographical distribution of taxable income, state income taxes, research and development credits, and permanent differences between the book and tax treatment of certain items. Our foreign earnings are generally taxed at lower rates than in the United States. 

Liquidity and Capital Resources

At June 30, 2009, our cash and cash equivalents balance was $147.9 million. We use our cash and cash equivalents, cash flow from operations, capital leases, and existing amounts available under our revolving credit facility as our primary source of liquidity.  We believe that internally generated cash flows, along with cash and cash equivalents currently available to us, are sufficient to support business operations, capital expenditures, in addition to a level of discretionary investments.

In June 2009, we amended our revolving credit facility agreement to provide us the ability to borrow from our credit facility in Pounds Sterling and Euros, rather than restricting borrowings to U.S. dollars. We are limited to borrowings of $75 million in alternate currencies. The option to borrow in other foreign currencies will provide protection against fluctuations in currencies in the countries in which we do business.

We maintain debt levels that we establish through consideration of a number of factors, including cash flow expectations, cash requirements for operations, investment plans (including acquisitions), and our overall cost of capital. Outstanding debt under our line of credit decreased from $200.0 million as of December 31, 2008 to $100.0 million at June 30, 2009.  The decrease in amounts outstanding under our line of credit was due primarily to repayment of $100.0 million in the six months ended June 30, 2009.  As of June 30, 2009, we had an additional $144.3 million available for future borrowings.  

In July 2009, we repaid $50.0 million on our line of credit, reducing our outstanding debt under our line of credit to $50.0 million, thus increasing the amount available for future borrowings to $194.3 million.

We have vendor finance arrangements in the form of leases and notes payable with our major vendors that permit us to finance our purchases of data center equipment.  As of December 31, 2008 and June 30, 2009, we had $100.4 million and $110.3 million outstanding with respect to these arrangements.  We believe our borrowings from these arrangements will continue to be available, and as long as they are competitive, we will continue to finance purchases through these arrangements.

Capital Expenditure Requirements

For the full year of 2009, the company expects to have total capital expenditures of $165 million to $185 million, including $100 million to $115 million dollars for customer gear, approximately $30 million to $35 million for data centers, approximately $15 million for office space, and $20 million for capitalized software and other. Our previous expectation for 2009 capital expenditures was between $120 million to $160 million. Our expectations for growth for the next twelve months have improved in the recent months. The increase in our range primarily relates to increased spend on customer gear tied to increased growth expectations as well as increasing our data center footprint with the recent decision to lease space at a data center facility in the Chicago area, which we intend to begin operations in late 2009. Our sources to fund these capital expenditures will be our cash and cash equivalents, cash flow from operations, capital leases, and existing amounts available under our revolving credit facility.

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Our available cash and cash equivalents are held in bank deposits, overnight sweep accounts, and money market funds.  Our money market mutual funds invest exclusively in high-quality, short-term securities that are issued or guaranteed by the U.S. government or by U.S. government agencies.  We actively monitor the third-party depository institutions that hold our cash and cash equivalents. Our emphasis is primarily on safety of principal while secondarily maximizing yield on those funds. The balances may exceed the Federal Deposit Insurance Corporation or “FDIC” insurance limits or are not insured by the FDIC.  While we monitor the balances in our accounts and adjust the balances as appropriate, these balances could be impacted if the underlying depository institutions fail or could be subject to other adverse conditions in the financial markets. To date, we have experienced no loss or lack of access to our invested cash and cash equivalents; however, we can provide no assurances that access to our funds will not be impacted by adverse conditions in the financial markets.

The credit markets in the U.S. have recently experienced adverse conditions. Continuing volatility has increased costs associated with obtaining financing due to increased spreads over relevant interest rate benchmarks.  We currently believe that current cash and cash equivalents, and cash generated by operations will be sufficient to meet our operating and capital needs in the foreseeable future. Our long-term future capital requirements will depend on many factors, most importantly our growth of revenue, and our investments in new technologies and services. Our ability to generate cash depends on our financial performance, general economic conditions, technology trends and developments, and other factors. We could be required, or could elect, to seek additional funding in the form of debt or equity, which would subject us to the prevailing costs to raise capital.

The following table sets forth a summary of our cash flows for the periods indicated:

	Six Months Ended
(In thousands)	June 30, 2008			June 30, 2009
Cash provided by operating activities	$	69,004		$	88,848
Cash used in investing activities	$	(87,521	)	$	(62,238	)
Cash provided by (used in) financing activities	$	28,686		$	(119,547	)
Acquisition of property and equipment by capital    leases and equipment notes payable	$	47,633		$	35,320

  Operating Activities

 Net cash provided by operating activities is primarily a function of our profitability, the amount of non-cash charges included in our profitability, and our working capital management. Net cash provided by operating activities was $69.0 million in the first six months of 2008 compared to $88.8 million in the first six months of 2009, an increase of $19.8 million or 28.7%. Net income increased from $9.6 million in the first six months of 2008 to $13.6 million in the first six months of 2009.  A summary of the significant changes in non-cash adjustments affecting net income and changes in assets and liabilities impacting operating cash flows is as follows:

• Depreciation and amortization expense was $40.7 million in the first six months of 2008 compared to $57.5 million in the first six months of 2009.  The increase in depreciation and amortization was due to the purchases of servers, networking gear and computer software, and leasehold improvements, as well as amortization of intangibles related to acquisitions.

• Our provision for bad debts and customer credits increased from $1.2 million in the first six months of 2008 to $6.4 million in the first six months of 2009 due to customers generally extending payment terms as a result of the current economic conditions.

• Share-based compensation expense was $6.6 million in the first six months of 2008 compared to $9.3 million in the first six months of 2009.  The increase in expense was due to stock options and restricted stock units granted in 2008 and the first six months of 2009.

• The change in accounts receivable was a cash outflow of $1.6 million in the first six months of 2008 compared to a cash outflow of $12.9 million in the first six months of 2009.  Our accounts receivable balance has increased during the first six months of 2009 as a result of increased sales and slower customer payment patterns that are being influenced by the current economic conditions.

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• The change in accounts payable created an $11.1 million cash inflow in the first six months of 2008 compared to a $12.0 million cash inflow in the first six months of 2009.  The changes resulted from the timing of payments for trade payables.

Investing Activities

Net cash used in investing activities was primarily capital expenditures to meet the demands of our growing customer base. Historically our main investing activities have consisted of purchases of IT equipment for our data center infrastructure, furniture, equipment and leasehold improvements to support our operations.

Our net cash used in investing activities was $87.5 million for the first six months of 2008 compared to $62.2 million for the first six months of 2009, a decrease of $25.3 million, or 28.9%.

We also purchase equipment through capital lease arrangements and other types of vendor financing that do not require an initial outlay of cash.  Purchases through these arrangements decreased from $47.6 million for the first six months of 2008 to $35.3 million for the first six months of 2009.

The combined total for cash and non-cash capital expenditures for property and equipment decreased from $135.2 million for the first six months of 2008 to $91.9 million for the first six months of 2009. Of the 2009 amount, $51.7 million was used to purchase dedicated customer equipment, $25.3 million for data center build outs, $3.9 million related to build out of office space and $11.0 million was invested in capitalized software, including internally developed software that is focused on improving our service offerings, and other purchases. The decrease in combined capital expenditures resulted primarily from a decline of $18.6 million in data center build outs and $17.8 million from office build outs, which mostly resulted from the renovations for our headquarters facility in 2008.

Financing Activities

Net cash provided by (used in) financing activities was $28.7 million for the first six months of 2008 compared to $(119.5) million for the first six months of 2009, a change of $148.2 million. This was due primarily to a repayment of $100.0 million on our revolving credit facility in March 2009 compared to $40.0 million in net advances for the first six months of 2008. Principal payments on capital leases and notes payable were $17.1 million for the first six months of 2008 compared to $25.4 million for the first six months of 2009.  In addition, proceeds from exercises of stock options and the related excess tax benefits increased by $2.4 million in the first six months of 2009.

Contractual Obligations, Commitments and Contingencies

The following table summarizes our contractual obligations as of June 30, 2009:

(In thousands)	Total		2009			2010-2011		2012-2013	2014 and Beyond
Capital leases (1)	$	110,101	$	25,294	$	73,363	$	11,444	$	-
Operating leases		96,679		7,498		24,940		22,115		42,126
Purchase commitments		3,857		1,637		2,173		47		-
Revolving credit facility (2)		100,000		-		-		100,000		-
Software and equipment notes (2)		6,196		1,417		4,515		264		-
Total contractual obligations	$	316,833	$	35,846	$	104,991	$	133,870	$	42,126

(1)     Represents principal and interest.

(2)     Represents principal only.

Leases

Capital and finance method leases are primarily related to expenditures for IT equipment. Our operating leases are primarily for office space and data center facilities.

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In July 2009, Rackspace entered into an agreement to lease approximately 36,700 raised square feet and approximately 10,000 square feet of office and storage space in a data center facility in the Chicago area. The operating lease has a term of 15 years from the commencement date with total estimated financial obligation of approximately $140 million to $150 million over the 15 year term, inclusive of base lease payments, and Rackspace’s pro-rata share of operating expenses. Rackspace has a one-time option to terminate the lease after ten years subject to a penalty, as well as upon expiration of the lease, to renew the lease for two successive five year periods.

Purchase commitments

Our purchase commitments are primarily related to bandwidth for our data centers.

Revolving Credit Facility

We have a credit facility with a committed amount of $245.0 million. As of June 30, 2009, we had $100.0 million of revolving loans outstanding and a $0.7 million letter of credit outstanding under the credit facility, and $144.3 million available for future borrowings.

In December 2007, we entered into an interest rate swap agreement converting a portion of our interest rate exposure from a floating rate basis to a fixed rate of 4.135% per annum. The interest rate swap agreement has a notional amount of $50.0 million and matures in 2010.

In July 2009, we repaid $50.0 million on our credit facility, reducing the revolving loans outstanding from $100.0 million to $50.0 million.

Software and Equipment Notes

We finance certain software and equipment from third-party vendors. The terms of these arrangements are generally one to five years.

Off-Balance Sheet Arrangements

During the periods presented, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities or any other entity defined as such within Financial Accounting Standards Board Interpretation No. 46 (Revised 2003), Consolidation of Variable Interest Entities—An Interpretation of ARB No. 51. These entities are typically established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

We have entered into various indemnification arrangements with third parties, including vendors, customers, landlords, our officers and directors, stockholders of acquired companies, and third parties to whom and from whom we license technology. Generally, these indemnification agreements require us to reimburse losses suffered by third parties due to various events, such as lawsuits arising from patent or copyright infringement or our negligence. Certain of these agreements require us to indemnify the other party against certain claims relating to property damage, personal injury or the acts or omissions by us, our employees, agents or representatives. To date, there have been no claims against us or our customers pertaining to such indemnification provisions and no amounts have been recorded.

These indemnification obligations are considered off-balance sheet arrangements in accordance with FASB Interpretation 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. To date, we have not encountered material costs as a result of such obligations and have not accrued any liabilities related to such indemnification obligations in our financial statements.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with GAAP. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application, while in other cases, significant judgment is required in making estimates, and selecting among available alternative accounting standards that allow different accounting treatment for similar transactions. These judgments and estimates affect the reported amounts of assets, liabilities, revenue, costs and expenses and related disclosures. We consider these policies requiring significant management judgment and estimates used in the preparation of our financial statements to be critical accounting policies.

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We review our estimates and judgments on an ongoing basis, including those related to revenue recognition, service credits, allowance for doubtful accounts, property and equipment, goodwill and intangibles, contingencies, the fair valuation of stock related to share-based compensation, software development, and income taxes.

We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances to determine the carrying values of assets and liabilities. In many instances, we could have reasonably used different accounting estimates, and in other instances changes in the accounting estimates are reasonably likely to occur from period-to-period. Accordingly, actual results could differ significantly from the estimates made by our management. To the extent that there are material differences between these estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected.  We believe the following accounting policies to be critical to the judgments and estimates used in the preparation of our financial statements.

• Revenue recognition;

• Valuation of accounts receivable and service credits;

• Property, equipment, and other long lived assets;

• Goodwill and intangible assets;

• Contingencies;

• Share-based compensation;

• Software development;

• Income taxes;

A description of our critical accounting policies that involve significant management judgment appears in our Annual Report filed on Form 10-K filed with the SEC on March 2, 2009, as amended under “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies.”

Recent Accounting Pronouncements

For a full description of new accounting pronouncements, including the respective dates of adoption and impact on results of operation and financial condition, see Note 2 of the Consolidated Financial Statements.

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ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Power Prices.    We are a large consumer of power.  During the first six months of 2009, we expensed approximately $8.7 million that was paid to utility companies to power our data centers, representing 2.9% of our net revenue. Because we anticipate further revenue growth for the foreseeable future, we expect to consume more power in the future. Power costs vary by geography, the source of power generation, seasonal fluctuations, and are subject to certain proposed legislation that may increase our exposure to increased power costs. Our largest exposure to energy prices based on consumption currently exists at our Grapevine, Texas data center in the Dallas-Fort Worth area, a deregulated energy market. In August 2008, we entered into a fixed price contract with a provider of electricity for power for our Grapevine data center. The contract allows the company to periodically convert the price to a floating market price during the arrangement.  The contract is for 19 months, and allows the provider an option to extend the contract for an additional 19 months.  Also, in June 2009, we entered into a fixed price contract for 12 months for our Slough U.K. data center.

Interest Rates.    Our main credit facility is a revolving line of credit with a base rate determined by the London Interbank Offered Rate, or LIBOR. This market rate of interest is fluctuating and exposes our interest expense to risk. Our credit agreement obligates us to hedge part of that interest rate risk with appropriate instruments, such as interest rate swaps or interest rate options. On December 10, 2007, we entered into an at-the-market fixed-payer interest rate swap with a notional amount of $50.0 million at an annual rate of 4.135%. This swap essentially fixes the rate we pay on the first $50.0 million outstanding on our revolving credit facility. As we borrow more, we may enter into additional swaps to continuously control our interest rate risk. Generally, we do not hedge our complete exposure. As a result, we are exposed to interest rate risk on the un-hedged portion of our borrowings, which was $50.0 million as of June 30, 2009.  For example, a 100 basis point increase in LIBOR would increase the interest expense on $10 million of borrowings that are not hedged by $0.1 million annually.

Leases.    The majority of our purchases of customer gear are vendor financed through capital leases with fixed payment terms generally over three to five years, coinciding with the depreciation period of the equipment.  As of June 30, 2009, we have a liability for these leases of $104.1 million on our consolidated balance sheet, of which $43.4 million is classified as current.  Although we believe our borrowings from these arrangements will continue to be available, we have exposure that vendor financing may no longer be available or the borrowing rates, which are fixed rates, may increase.

Foreign Currencies.    The majority of our customers are invoiced, and substantially all of our expenses are paid, by us or our subsidiaries in the functional currency of our company or our subsidiaries, respectively. A relatively insignificant amount of customers are invoiced in currencies other than the applicable functional currency, such as the Euro. Therefore, our results of operations and cash flows are subject to fluctuations in foreign currency exchange rates.  We also have exposure to foreign currency transaction gains and losses as the result of certain receivables due from our foreign subsidiaries, which are denominated in both the U.S. dollar and the Pound Sterling.  During the first six months of 2009, we recognized foreign currency losses of ($0.5) million within other income (expense).  We have not entered into any currency hedging contracts, although we may do so in the future. We recently amended our revolving credit facility agreement to provide us the ability to borrow from our credit facility in Pounds Sterling and Euros, rather than restricting borrowings to U.S. dollars. We currently do not have borrowings in any alternative currencies from our credit facility. As we grow our international operations, our exposure to foreign currency risk could become more significant.

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ITEM 4.  - CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures

Under the supervision and with the participation of our senior management, including our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), as amended, as of the end of the period covered by this quarterly report (the “Evaluation Date”). Based on this evaluation, our chief executive officer and chief financial officer concluded as of the Evaluation Date that our disclosure controls and procedures were effective such that the information relating to the Company, including our consolidated subsidiaries, required to be disclosed in our SEC reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in internal control over financial reporting

There were no changes in our internal controls over financial reporting during our most recent fiscal quarter reporting period identified in connection with management’s evaluation as required and defined by paragraph (d) of Rules 12a-15 and 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

The SEC, as required by Section 404 of the Sarbanes-Oxley Act, adopted rules requiring every company that files reports with the SEC to include a management report on such company’s internal control over financial reporting in its annual report. In addition, our independent registered public accounting firm must attest to our internal control over financial reporting. Our first annual report on Form 10-K did not include a report of management’s assessment regarding internal control over financial reporting or an attestation report from our independent registered public accounting firm due to a transition period established by SEC rules applicable to newly public companies. Management will be required to provide an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2009.

Inherent Limitations of Internal Controls

Our management, including our chief executive officer and chief financial officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

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PART II – OTHER INFORMATION

ITEM 1 – LEGAL PROCEEDINGS

We are party to various legal and administrative proceedings, which we consider routine and incidental to our business. In addition, on October 22, 2008, Benjamin E. Rodriguez D/B/A Management and Business Advisors vs. Rackspace Hosting, Inc. and Graham Weston, was filed in the 37th District Court in Bexar County Texas by a former consultant to the company, Benjamin E. Rodriguez. The suit alleges breach of an oral agreement to issue Mr. Rodriguez a 1% interest in our stock in the form of options or warrants for compensation for services he was engaged to perform for us. We believe that the plaintiff’s position is without merit and intend to vigorously defend this lawsuit. We do not expect the results of this claim or any other current proceeding to have a material adverse effect on our business, results of operations or financial condition.

ITEM IA – RISK FACTORS

Risks Related to Our Business and Industry

Our physical infrastructure is concentrated in a few facilities and any failure in our physical infrastructure or services could lead to significant costs and disruptions and could reduce our revenue, harm our business reputation and have a material adverse effect on our financial results.

Our network, power supplies and data centers are subject to various points of failure, problems with our generators, uninterruptible power supply, or UPS, routers, switches, or other equipment, whether or not within our control, could result in service interruptions for some or all of our customers as well as equipment damage.  Because our hosting services do not require geographic proximity of our data centers to our customers, our hosting infrastructure is consolidated into a few large facilities. While data backup services and disaster recovery services are available as a part of our hosting services offerings, the majority of our customers do not elect to pay the additional fees required to have disaster recovery services store their backup data offsite in a separate facility, which could substantially mitigate the adverse effect to a customer from a single data center failure. Accordingly, any failure or downtime in one of our data center facilities could affect a significant percentage of our customers. The total destruction or severe impairment of any of our data center facilities could result in significant downtime of our services and the loss of customer data. Since our ability to attract and retain customers depends on our ability to provide customers with highly reliable service, even minor interruptions in our service could harm our reputation. The services we provide are subject to failure resulting from numerous factors, including:

o Power loss;

o Equipment failure;

o Human error or accidents;

o Sabotage and vandalism;

o Failure by us or our vendors to provide adequate service or maintenance to our equipment;

o Network connectivity downtime;

o Improper building maintenance by the landlords of the buildings in which our facilities are located;

o Physical or electronic security breaches;

o Fire, earthquake, hurricane, tornado, flood, and other natural disasters;

o Water damage; and

o Terrorism.

Additionally, in connection with the expansion or consolidation of our existing data center facilities from time to time, there is an increased risk that service interruptions may occur as a result of server relocation or other unforeseen construction-related issues.

We have experienced interruptions in service in the past, due to such things as power outages, power equipment failures, cooling equipment failures, routing problems, hard drive failures, database corruption, system failures, software failures, and other computer failures. For example, during the second quarter of 2009, portions of our data center in Grapevine, Texas experienced certain service interruptions due to power system failures. These system failures resulted in downtime for a portion of the servers located in the facility. As a result of the downtime, we extended approximately $2.4 million in service credits to our customers and our reputation may have suffered. While we have not experienced larger than normal customer attrition following these events, the extent to which our reputation suffered is difficult to assess. We are taking certain steps to avoid this situation in the future

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including upgrades to our electrical and mechanical infrastructure. However, service interruptions due to equipment failures, power outages, natural disasters, accidents, or otherwise could still materially impact our business.

Any future interruptions could:

o Cause our customers to seek damages for losses incurred;

o Require us to replace existing equipment or add redundant facilities;

o Affect our reputation as a reliable provider of hosting services;

o Cause existing customers to cancel or elect to not renew their contracts; or

o Make it more difficult for us to attract new customers.

Any of these events could materially increase our expenses or reduce our revenue, which would have a material adverse effect on our operating results.

We rely on a number of third-party providers for data center space, equipment and maintenance, and the loss of, or problems with, one or more of these providers may impede our growth or cause us to lose customers.

We rely on third-party providers to supply data center space, equipment and maintenance.  For example, we lease data center space from third party landlords, lease or purchase equipment from equipment providers, and source equipment maintenance through third parties. While we have entered into various agreements for these products and services, any failure to obtain additional capacity or space, equipment, or maintenance, if required, would impede the growth of our business and cause our financial results to suffer. For example, if a data center landlord does not adequately maintain its facilities, or provide services for which it is responsible, we may not be able to deliver services to our customers according to our standards or at all.  Further, the equipment that we purchase could be deficient in some way, thereby affecting our products and services. If, for any reason, these providers fail to provide the required services or suffer other failures, we may incur financial losses and our customers may lose confidence in our company, and we may not be able to retain these customers.

Customers with mission-critical applications could potentially expose us to lawsuits for their lost profits or damages, which could impair our financial condition.

Because our hosting services are critical to many of our customers’ businesses, any significant disruption in our services could result in lost profits or other indirect or consequential damages to our customers. Although we require our customers to sign agreements that contain provisions attempting to limit our liability for service outages, we cannot assure you that a court would enforce any contractual limitations on our liability in the event that one of our customers brings a lawsuit against us as the result of a service interruption or other Internet site or application problems that they may ascribe to us. The outcome of any such lawsuit would depend on the specific facts of the case and any legal and policy considerations that we may not be able to mitigate. In such cases, we could be liable for substantial damage awards that may exceed our liability insurance coverage by unknown but significant amounts, which could materially impair our financial condition.

Our operating results may be adversely impacted by the current recession, worldwide political and economic uncertainties and specific conditions in the markets we address. As a result, the market price of our common stock could decline.

Recently, general worldwide economic conditions have experienced a deterioration due to among other things, credit conditions resulting from the financial crisis affecting the banking system and financial markets including: slower economic activity, concerns about inflation and deflation, volatility in energy costs, decreased consumer confidence, reduced corporate profits and capital spending, the ongoing effects of the war in Iraq and Afghanistan, recent international conflicts, terrorist and military activity, and the impact of natural disasters and public health emergencies. These conditions make it extremely difficult for both us and our customers to accurately forecast and plan future business activities.  Additionally, they could cause U.S. and foreign businesses to slow spending on our services, which could delay and lengthen our new customer sales cycle and cause existing customers to do one or more of the following:

o Cancel or reduce planned expenditures for our services;

o Seek to lower their costs by renegotiating their contracts with us;

o Move their hosting services in-house; or

o Switch to lower-priced solutions provided by us or our competitors.

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Customer collections are our primary source of cash. We have historically grown through a combination of an increase in new customers and revenue growth from our existing customers. We have experienced a decrease in our installed base growth and if the economic recession continues or deteriorates further, we may experience additional reductions in our installed base growth, increases in churn and/or longer new customer sales cycles. If these events were to occur, we could experience a decrease in revenue and a reduction in operating margins. Further, during challenging economic times, our customers may have difficulty gaining timely access to sufficient credit, which could result in an impairment of their ability to make timely payments to us. We have experienced an increase in our allowance for doubtful accounts already, and if our customers’ ability to pay is further eroded, we may be required to increase our allowance for doubtful accounts. We cannot predict the timing, strength or duration of any economic slowdown or subsequent economic recovery. If the economy or markets in which we operate do not improve, we may record additional charges related to the impairment of goodwill and other long-lived assets, and our business, financial condition and results of operations could be materially and adversely affected.

Finally, like many other companies, our stock price decreased during the onset of the economic downturn.  Although our stock price has recently increased, if investors have concerns that our business, financial condition and results of operations will be negatively impacted by a continued or worsened worldwide economic downturn, our stock price could decrease again.

If we do not prevent security breaches, we may be exposed to lawsuits, lose customers, suffer harm to our reputation, and incur additional costs.

Our internal infrastructure has limited security controls in place, which may affect our ability to protect our equipment and hardware against security breaches. The services we offer involve the transmission of large amounts of sensitive and proprietary information over public communications networks, as well as the processing and storage of confidential customer information. Unauthorized access, computer viruses, accidents, employee error or malfeasance, fraudulent service plan orders, intentional misconduct by computer “hackers”, and other disruptions can occur that could compromise the security of our infrastructure, thereby exposing such information to unauthorized access by third parties and leading to interruptions, delays or cessation of service to our customers. Techniques used to obtain unauthorized access to, or to sabotage systems, change frequently and generally are not recognized until launched against a target. We may be unable to implement security measures in a timely manner or, if and when implemented, these measures could be circumvented as a result of accidental or intentional actions by parties within or outside of our organization. Any breaches that occur could expose us to increased risk of lawsuits, loss of existing or potential customers, harm to our reputation and increases in our security costs. Although we typically require our customers to sign agreements that contain provisions attempting to limit our liability for security breaches, we cannot assure you that a court would enforce any contractual limitations on our liability in the event that one of our customers brings a lawsuit against us as the result of a security breach that they may ascribe to us. The outcome of any such lawsuit would depend on the specific facts of the case and legal and policy considerations that we may not be able to mitigate. In such cases, we could be liable for substantial damage awards that may significantly exceed our liability insurance coverage by unknown but significant amounts, which could seriously impair our financial condition.

If we are unable to manage our growth effectively, our financial results could suffer and our stock price could decline.

The growth of our business and our service offerings has strained our operating and financial resources. Further, we intend to continue expanding our overall business, customer base, headcount, and operations.  Creating a global organization and managing a geographically dispersed workforce requires substantial management effort and significant additional investment in our operating and financial system capabilities and controls. If our information systems are unable to support the demands placed on them by our growth, we may be forced to implement new systems which would be disruptive to our business. We may be unable to manage our expenses effectively in the future due to the expenses associated with these expansions, which may negatively impact our gross margins or operating expenses. If we fail to improve our operational systems or to expand our customer service capabilities to keep pace with the growth of our business, we could experience customer dissatisfaction, cost inefficiencies, and lost revenue opportunities, which may materially and adversely affect our operating results.

If we overestimate our data center capacity requirements, our operating margins and profitability could be adversely affected.

The costs of construction, leasing, and maintenance of our data centers constitute a significant portion of our capital and operating expenses. In order to manage growth and ensure adequate capacity for new and existing customers while minimizing unnecessary excess capacity costs, we continuously evaluate our short and long-term data center capacity requirements. Due to the lead time in expanding existing data centers or building new data centers, we are required to estimate demand for our services as far as two years into the future. We currently plan to increase our infrastructure as required through the addition of data centers in the U.S. and internationally. In contrast to our data centers that we have established to date, several of which were acquired relatively inexpensively as distressed assets of third parties, our current expansion plans may require us to pay full market rates for new data center facilities. If we overestimate the demand for our services and therefore overbuild our data center capacity or commit to long term facility leases, our operating margins could be materially reduced, which would materially impair our profitability.

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If we underestimate our data center capacity requirements, our financial results and services could be impaired.

If we underestimate our data center capacity requirements, we may not be able to service the expanding needs of our existing customers. Additionally, we may be required to limit new customer acquisition while we work to increase data center capacity to satisfy demand, either of which may materially impair our revenue growth.

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

Terrorist attacks and other acts of violence, as well as governments’ responses to such activities, may have an adverse effect on business, financial, and general economic conditions internationally. Terrorist activities may disrupt our ability to provide our services or may increase our costs due to the need to provide enhanced security, which would have a material adverse effect on our business and results of operations. These circumstances may also adversely affect our ability to attract and retain customers, our ability to raise capital, and the operation and maintenance of our facilities. We may not have adequate property and liability insurance to cover catastrophic events or attacks brought on by terrorist attacks and other acts of violence. In addition, we depend heavily on the physical infrastructure, particularly as it relates to power, that exists in the markets in which we operate. Any damage to such infrastructure in these markets where we operate may materially and adversely affect our operating results.

We rely on third-party hardware that may be difficult to replace or could cause errors or failures of our service, which could adversely affect our operating results or harm our reputation.

We rely on hardware acquired from third parties in order to offer our services. This hardware may not continue to be available on commercially reasonable terms in quantities sufficient to meet our business needs, which could adversely affect our ability to generate revenue. Any errors or defects in third-party hardware could result in errors or a failure of our service, which could harm our reputation and operating results. Indemnification from hardware providers, if any, would likely be insufficient to cover any damage to our business or our customers resulting from such hardware failure.

We rely on third-party software that may be difficult to replace or which could cause errors or failures of our service that could lead to lost customers or harm to our reputation.

We rely on software licensed from third parties to offer our services. This software may not continue to be available to us on commercially reasonable terms, or at all. Any loss of the right to use any of this software could result in delays in the provisioning of our services until equivalent technology is either developed by us, or, if available, is identified, obtained, and integrated, which could harm our business. Any errors or defects in third-party software or inadequate or delayed support by the third party could result in errors or a failure of our service which could harm our operating results by adversely affecting our revenue or operating costs.

We provide service level commitments to our customers, which could require us to issue credits for future services if the stated service levels are not met for a given period and could significantly decrease our revenue and harm our reputation.

Our customer agreements provide that we maintain certain service level commitments to our customers relating primarily to network uptime, critical infrastructure availability, and hardware replacement. If we are unable to meet the stated service level commitments, we may be contractually obligated to provide these customers with credits for future services. As a result, a failure to deliver services for a relatively short duration could cause us to issue these credits to a large number of affected customers. In addition, we cannot be assured that our customers will accept these credits in lieu of other legal remedies that may be available to them. Our failure to meet our commitments could also result in substantial customer dissatisfaction or loss. Because of the loss of future revenue through these credits, potential customer loss and other potential liabilities, our revenue could be significantly impacted if we cannot meet our service level commitments to our customers.

If we are unable to maintain a high level of customer service, customer satisfaction and demand for our services could suffer.

We believe that our success depends on our ability to provide customers with quality service that not only meets our stated commitments, but meets and then exceeds customer service expectations. If we are unable to provide customers with quality customer support in a variety of areas, we could face customer dissatisfaction, decreased overall demand for our services, and loss of revenue. In addition, our inability to meet customer service expectations may damage our reputation and could consequently limit our ability to retain existing customers and attract new customers, which would adversely affect our ability to generate revenue and negatively impact our operating results.

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We may not be able to continue to add new customers and increase sales to our existing customers, which could adversely affect our operating results.

Our growth is dependent on our ability to continue to attract new customers while retaining and expanding our service offerings to existing customers. Growth in the demand for our services may be inhibited and we may be unable to sustain growth in our customer base for a number of reasons, such as:

o A reduction in the demand for our services due to the economic recession;

o Our inability to market our services in a cost-effective manner to new customers;

o The inability of our customers to differentiate our services from those of our competitors or our inability to effectively communicate such distinctions;

o Our inability to successfully communicate the benefits of hosting to businesses;

o The decision of businesses to host their Internet sites and web infrastructure internally or in colocation facilities as an alternative to the use of our hosting services;

o Our inability to penetrate international markets;

o Our inability to expand our sales to existing customers;

o Our inability to strengthen awareness of our brand; and

o Reliability, quality or compatibility problems with our services.

A substantial amount of our past revenue growth was derived from purchases of service upgrades by existing customers. Our costs associated with increasing revenue from existing customers are generally lower than costs associated with generating revenue from new customers. Therefore, a reduction in the rate of revenue increase or a rate of revenue decrease from our existing customers, even if offset by an increase in revenue from new customers, could reduce our operating margins. Any failure by us to continue attracting new customers or grow our revenue from existing customers for a prolonged period of time could have a material adverse effect on our operating results.

Our existing customers could elect to reduce or terminate the services they purchase from us because we do not have long-term contracts with our customers, which could adversely affect our operating results.

Customer contracts for our services typically have initial terms of one to two years which, unless terminated, may be renewed or automatically extended on a month-to-month basis. Our customers have no obligation to renew their services after their initial contract periods expire. Moreover, our customers could cancel their service agreements before they expire. Our costs associated with maintaining revenue from existing customers are generally much lower than costs associated with generating revenue from new customers. Therefore, a reduction in revenue from our existing customers, even if offset by an increase in revenue from new customers, could reduce our operating margins. Any failure by us to continue to retain our existing customers could have a material adverse effect on our operating results.

Our corporate culture has contributed to our success, and if we cannot maintain this culture, we could lose the innovation, creativity, and teamwork fostered by our culture, and our operating results may be harmed.

We believe that a critical contributor to our success has been our corporate culture, which we believe fosters innovation, creativity, and teamwork. If we implement more complex organizational management structures because of growth or other structural changes, we may find it increasingly difficult to maintain the beneficial aspects of our corporate culture. This could negatively impact our future operating results. In addition, being a publicly traded company may create disparities in personal wealth among our employees, which may adversely impact our corporate culture and employee relations.

If we fail to hire and retain qualified employees and management personnel, our growth strategy and our operating results could be harmed.

Our growth strategy depends on our ability to identify, hire, train, and retain executives, IT professionals, technical engineers, operations employees, and sales and senior management personnel who maintain relationships with our customers and who can provide the technical, strategic, and marketing skills required for our company to grow. There is a shortage of qualified personnel in these fields, specifically in the San Antonio, Texas area, where we are headquartered and a majority of our employees are located. We compete with other companies for this limited pool of potential employees. There is no assurance that we will be able to recruit or retain qualified personnel, and this failure could cause our operations and financial results to be negatively impacted.

Our success and future growth also depends to a significant degree on the skills and continued services of our management team, especially Graham Weston, our Chairman, and A. Lanham Napier, our Chief Executive Officer and President. We do not have long-term employment agreements with any members of our management team, including Messrs. Weston and Napier. Mr. Napier is the only member of our management team on whom we maintain key man insurance.

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Our operating results may fluctuate significantly, which could make our future results difficult to predict and could cause our operating results to fall below investor or analyst expectations.

Our operating results may fluctuate due to a variety of factors, including many of the risks described in this section, which are outside of our control. As a result, comparing our operating results on a period-to-period basis may not be meaningful. You should not rely on our operating results for any prior periods as an indication of our future operating performance. Fluctuations in our revenue can lead to even greater fluctuations in our operating results. Our budgeted expense levels depend in part on our expectations of long-term future revenue. Given relatively fixed operating costs related to our personnel and facilities, any substantial adjustment to our expenses to account for lower than expected levels of revenue will be difficult and time consuming. Consequently, if our revenue does not meet projected levels, our operating expenses would be high relative to our revenue, which would negatively affect our operating performance.

If our revenue or operating results do not meet or exceed the expectations of investors or securities analysts, the price of our common stock may decline.

Increased energy costs, power outages, and limited availability of electrical resources may adversely affect our operating results.

Our data centers are susceptible to increased regional, national or international costs of power and to electrical power outages. Our customer contracts do not allow us to pass on any increased costs of energy to our customers, which could affect our operating margins. Further, power requirements at our data centers are increasing as a result of the increasing power demands of today’s servers. Increases in our power costs could impact our operating results and financial condition. Since we rely on third parties to provide our data centers with power sufficient to meet our needs, our data centers could have a limited or inadequate amount of electrical resources necessary to meet our customer requirements. We attempt to limit exposure to system downtime due to power outages by using backup generators and power supplies. However, these protections may not limit our exposure to power shortages or outages entirely. Any system downtime resulting from insufficient power resources or power outages could damage our reputation and lead us to lose current and potential customers, which would harm our operating results and financial condition.

Increased Internet bandwidth costs and network failures may adversely affect our operating results.

Our success depends in part upon the capacity, reliability, and performance of our network infrastructure, including the capacity leased from our Internet bandwidth suppliers. We depend on these companies to provide uninterrupted and error-free service through their telecommunications networks. Some of these providers are also our competitors. We exercise little control over these providers, which increases our vulnerability to problems with the services they provide. We have experienced and expect to continue to experience interruptions or delays in network service. Any failure on our part or the part of our third-party suppliers to achieve or maintain high data transmission capacity, reliability or performance could significantly reduce customer demand for our services and damage our business.

As our customer base grows and their usage of telecommunications capacity increases, we will be required to make additional investments in our capacity to maintain adequate data transmission speeds, the availability of which may be limited or the cost of which may be on terms unacceptable to us. If adequate capacity is not available to us as our customers’ usage increases, our network may be unable to achieve or maintain sufficiently high data transmission capacity, reliability or performance. In addition, our business would suffer if our network suppliers increased the prices for their services and we were unable to pass along the increased costs to our customers.

We may not be able to renew the leases on our existing facilities on terms acceptable to us, if at all, which could adversely affect our operating results.

We do not own the facilities occupied by our current data centers, but occupy them pursuant to commercial leasing arrangements. The initial terms of our main existing data center leases expire over a period ranging from 2009 to 2027, with each having at least one renewal period of no less than three years, except our older U.K. data center lease, which expires in November 2010. Upon the expiration or termination of our data center facility leases, we may not be able to renew these leases on terms acceptable to us, if at all. If we fail to renew any data center lease and are required to move the data center to a new facility, we would face significant challenges due to the technical complexity, risk, and high costs of relocating the equipment. For example, if we are required to migrate customer servers to a new facility, such migration could result in significant downtime for our affected customers. This could damage our reputation and lead us to lose current and potential customers, which would harm our operating results and financial condition.

Even if we are able to renew the leases on our existing data centers, we expect that rental rates, which will be determined based on then-prevailing market rates with respect to the renewal option periods and which will be determined by negotiation with the landlord after the renewal option periods, will be higher than rates we currently pay under our existing lease agreements. If we fail to increase revenue in our existing data centers by amounts sufficient to offset any increases in rental rates for these facilities, our operating results may be materially and adversely affected.

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We could be required to repay substantial amounts of money to certain state and local governments if we lose tax exemptions or grants previously awarded to us, which could adversely affect our operating results.

In August 2007, we entered into an agreement with the State of Texas (Texas Enterprise Fund Grant) under which we may receive up to $22.0 million in state enterprise fund grants on the condition that we meet certain employment levels in the State of Texas paying an average compensation of at least $56,000 per year (subject to increases). To the extent we fail to meet these requirements, we may be required to repay all or a portion of the grants plus interest.  In September 2007, we received the initial installment of $5.0 million from the State of Texas, which was recorded as a non-current liability.

On July 27, 2009, the Texas Enterprise Fund Grant agreement was amended to modify the job creation requirements.  Under the amendment, the grant has been divided into four separate tranches. The first tranche, called “Basic Fund” in the amendment, is $8.5 million with a Job Target of 1,225 new jobs by December 2012 (in addition to the 1,436 jobs in place as of August 1, 2007 for a total of 2,661 jobs in Texas). We already have drawn $5.0 million of this grant. We can draw an additional $3.5 million when we reach 1,225 new jobs. If we do not create 1,225 new jobs in Texas by 2012, we will be required to repay the grant at a rate of $1,263 per job missed per year (clawback). The maximum clawback would be the amounts we draw plus 3.4% interest on such amounts per year.  The remaining three tranches are at our option. We can draw an additional $13.5 million, based on the following amounts and milestones: $5.5 million if we create a total of 2,100 new jobs in Texas; another $5.25 million if we create a total of 3,000 new jobs in Texas; and $2.75 million more if we create a total of 4,000 new jobs in Texas. We are responsible for maintaining the jobs through January 2022. If we eliminate jobs for which we have drawn funds, the clawback is triggered.

In October 2008, we received a grant in partnership with the State of Texas and Alamo Community College District, which will provides us the opportunity to be reimbursed for up to $4.7 million for certain training expenses conducted through Alamo Community College over the next three years. In order to fulfill our requirements, we must meet the employment requirements defined in the original Texas Enterprise Fund Grant agreement, which is unlikely. We are in the process of evaluating this grant and the need to renegotiate its terms.

On August 3, 2007, we entered into a lease for approximately 67 acres of land and a 1.2 million square foot facility in Windcrest, Texas, which is in the San Antonio, Texas area, to house our corporate headquarters and potentially a future data center operation. In connection with this lease, we also entered into a Master Economic Incentives Agreement (“MEIA”) with the Cities of Windcrest and San Antonio, Texas, Bexar County, and certain other parties, pursuant to which we agreed to locate existing and future employees at the new facility location. The agreement requires that we meet certain employment levels each year, with an ultimate job requirement of 4,500 jobs by December 31, 2012, provided that if the job requirement in any grant agreement with the State of Texas is lower, then the job requirement under the MEIA is automatically adjusted downward. Consequently, because the Texas Enterprise Fund Grant agreement has been amended to reduce the state job requirement, we believe the job requirement under the MEIA has been reduced to 1,774.  In addition, the MEIA requires that the median compensation of those employees be no less than $51,000 per year. In exchange for meeting these employment obligations, the parties agreed to enter into the lease structure, pursuant to which, as a lessee of the Windcrest Economic Development Corporation, we will not be subject to most of the property taxes associated with the property for a 14 year period. If we fail to meet these job creation requirements, we could lose a portion or all of the tax benefit being provided during the 14 year period by having to make payments in lieu of taxes (PILOT) to the City of Windcrest. The amount of the PILOT payment would be calculated based on the amount of taxes that would have been owed for that period if the property were not exempt, and then such amount would be adjusted pursuant to certain factors, such as the percentage of employment achieved compared to the stated requirements.

We have significant debt obligations that include restrictive covenants limiting our flexibility to manage our business; failure to comply with these covenants could trigger an acceleration of our outstanding indebtedness and adversely affect our financial position and operating results.

As of June 30, 2009, outstanding indebtedness under our credit facility totaled $100.0 million, with an outstanding letter of credit of $0.7 million. This amount was subsequently reduced to $50.0 million in July 2009, as a result of our repayment of $50.0 million of the outstanding indebtedness. Our credit facility requires that we maintain specific financial ratios and comply with covenants, including financial covenants, which contain numerous restrictions on our ability to incur additional debt, pay dividends or make other restricted payments, sell assets, enter into affiliate transactions and take other actions.  Our existing credit facility is, and any future financing arrangements may be, secured by all of our assets. If we are unable to meet the terms of the financial covenants or if we breach any of these covenants, a default could result under one or more of these agreements, which may require us to repay all amounts owed under our credit facility.

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If we are unable to generate sufficient cash to repay our debt obligations when they become due and payable, either when they mature or in the event of a default, we may not be able to obtain additional debt or equity financing on favorable terms, if at all, which may negatively impact our ability to continue as a going concern.

We also have substantial equipment lease obligations, which totaled approximately $104.1 million as of June 30, 2009. The payment obligations under these equipment leases are secured by a significant portion of the hardware used in our data centers. If we are unable to generate sufficient cash flow from our operations or cash from other sources in order to meet the payment obligations under these equipment leases, we may lose the right to possess and operate the equipment used in our data centers, which would substantially impair our ability to provide our services, which could have a material adverse effect on our liquidity or results of operations.

We may require additional capital and may not be able to secure additional financing on favorable terms to meet our future capital needs, which could adversely affect our financial position and result in stockholder dilution.

In order to fund future growth, we will be dependent on significant capital expenditures. We may need to raise additional funds through equity or debt financings in the future in order to meet our operating and capital needs. We may not be able to secure additional debt or equity financing on favorable terms, or at all, at the time when we need such funding. If we are unable to raise additional funds, we may not be able to pursue our growth strategy and our business could suffer. If we raise additional funds through further issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution in their percentage ownership of our company, and any new equity securities we issue could have rights, preferences, and privileges senior to those of holders of our common stock. In addition, any debt financing that we may obtain in the future could have restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions.

We are exposed to commodity and market price risks that have the potential to substantially influence our profitability and liquidity.

We are a large consumer of power. During the first six months of 2009, we expensed approximately $8.7 million to utility companies to power our data centers. We anticipate an increase in our consumption of power in the future as our sales grow. Power costs vary by locality and are subject to substantial seasonal fluctuations and changes in energy prices. Our largest exposure to energy prices currently exists at our Grapevine, Texas facility in the Dallas-Fort Worth area, where the energy market is deregulated. Power costs have historically risen with general costs of energy, and continued increases in electricity costs may negatively impact our gross margins or operating expenses. We periodically evaluate the advisability of entering into fixed price utilities contracts.  If we choose not to enter into a fixed price contract, we expose our cost structure to this commodity price risk.

The majority of our customers are invoiced, and substantially all of our expenses are paid, by us or our subsidiaries in the functional currency of our company or our subsidiaries, respectively. However, some of our customers are currently invoiced in currencies other than the applicable functional currency, such as the Euro. As a result, we may incur foreign currency losses based on changes in exchange rates between the date of the invoice and the date of collection. In addition, large changes in foreign exchange rates relative to our functional currencies could increase the costs of our services to non-U.S. customers relative to local competitors, thereby causing us to lose existing or potential customers to these local competitors. Thus, our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates. Further, as we grow our international operations, our exposure to foreign currency risk could become more significant. To date, we have not entered into any foreign currency hedging contracts, although we may do so in the future.

If we are unable to adapt to evolving technologies and customer demands in a timely and cost-effective manner, our ability to sustain and grow our business may suffer.

Our market is characterized by rapidly changing technology, evolving industry standards, and frequent new product announcements, all of which impact the way hosting services are marketed and delivered. These characteristics are magnified by the continued rapid growth of the Internet and the intense competition in our industry. To be successful, we must adapt to our rapidly changing market by continually improving the performance, features, and reliability of our services and modifying our business strategies accordingly. We could also incur substantial costs if we need to modify our services or infrastructure in order to adapt to these changes. For example, our data center infrastructure could require improvements due to the development of new systems to deliver power to or eliminate heat from the servers we house or as a result of the development of new server technologies that require levels of critical load and heat removal that our facilities are not designed to provide. We may not be able to timely adapt to changing technologies, if at all. Our ability to sustain and grow our business would suffer if we fail to respond to these changes in a timely and cost-effective manner.

New technologies or industry standards have the potential to replace or provide lower cost alternatives to our hosting services. The adoption of such new technologies or industry standards could render our services obsolete or unmarketable. We cannot guarantee that we will be able to identify the emergence of these new service alternatives successfully, modify our services accordingly, or develop and bring new products and services to market in a timely and cost-effective manner to address these changes.  If and when we do identify the emergence of new service alternatives and bring new products and services to market, those new products and services may need to be made available at lower price points than our then-current services. For example, a current managed hosting customer may determine that all or part of their service can be delivered through our cloud offerings at a much lower price point.

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Our failure to provide services to compete with new technologies or the obsolescence of our services could lead us to lose current and potential customers or could cause us to incur substantial costs, which would harm our operating results and financial condition.  Our introduction of new service alternative products and services that have lower price points than current offerings may result in our existing customers switching to the lower cost products, which could reduce our revenue and have a material, adverse effect of our operating results.

We may not be able to compete successfully against current and future competitors.

The market for hosting services is highly competitive. We expect to face additional competition from our existing competitors as well as new market entrants in the future.

Our current and potential competitors vary by size, service offerings and geographic region. These competitors may elect to partner with each other or with focused companies like us to grow their businesses. They include:

o Do-it-yourself solutions with a colocation partner such as AT&T, Equinix, SAVVIS, Switch & Data, and other telecommunications companies;

o IT outsourcing providers such as CSC, EDS, and IBM;

o Hosting providers such as AT&T, Pipex, SAVVIS, Terremark, The Planet, and Verio; and

o Large Internet companies such as Microsoft, Google, and Amazon.

The primary competitive factors in our market are: customer service and technical expertise; security reliability and functionality; reputation and brand recognition; financial strength; breadth of services offered; and price.

Many of our current and potential competitors have substantially greater financial, technical and marketing resources, larger customer bases, longer operating histories, greater brand recognition, and more established relationships in the industry than we do. As a result, some of these competitors may be able to:

o Develop superior products or services, gain greater market acceptance, and expand their service offerings more efficiently or more rapidly;

o Adapt to new or emerging technologies and changes in customer requirements more quickly;

o Bundle hosting services with other services they provide at reduced prices;

o Take advantage of acquisition and other opportunities more readily;

o Adopt more aggressive pricing policies and devote greater resources to the promotion, marketing, and sales of their services; and

o Devote greater resources to the research and development of their products and services.

We may be accused of infringing the proprietary rights of others, which could subject us to costly and time-consuming litigation and require us to discontinue services that infringe the rights of others.

There may be intellectual property rights held by others, including issued or pending patents, trademarks, and service marks that cover significant aspects of our technologies, branding or business methods, including technologies and intellectual property we have licensed from third parties. Companies in the technology industry, and other patent and trademark holders seeking to profit from royalties in connection with grants of licenses, own large numbers of patents, copyrights, trademarks, service marks, and trade secrets and frequently enter into litigation based on allegations of infringement or other violations of intellectual property rights. These or other parties could claim that we have misappropriated or misused intellectual property rights and any such intellectual property claim against us, regardless of merit, could be time consuming and expensive to settle or litigate and could divert the attention of our technical and management personnel. An adverse determination also could prevent us from offering our services to our customers and may require that we procure or develop substitute services that do not infringe. For any intellectual property rights claim against us or our customers, we may have to pay damages, indemnify our customers against damages or stop using technology or intellectual property found to be in violation of a third party’s rights. We may be unable to replace those technologies with technologies that have the same features or functionality and that are of equal quality and performance standards on commercially reasonable terms or at all. Licensing replacement technologies and intellectual property may significantly increase our operating expenses or may require us to restrict our business activities in one or more respects. We may also be required to develop alternative non-infringing technology and intellectual property, which could require significant effort, time, and expense.

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Our use of open source software could impose limitations on our ability to provide our services, which could adversely affect our financial condition and operating results.

We utilize open source software, including Linux-based software, in providing a substantial portion of our services. The terms of many open source licenses have not been interpreted by U.S. courts, and there is a risk that such licenses could be construed in a manner that could impose unanticipated conditions or restrictions on our ability to offer our services. Additionally, the use and distribution of open source software can lead to greater risks than the use of third-party commercial software, as open source software does not come with warranties or other contractual protections regarding infringement claims or the quality of the code. From time to time parties have asserted claims against companies that distribute or use open source software in their products and services, asserting that open source software infringes their intellectual property rights. We could be subject to suits by parties claiming infringement of intellectual property rights with respect to what we believe to be open source software. In such event, we could be required to seek licenses from third parties in order to continue using such software or offering certain of our services or to discontinue the use of such software or the sale of our affected services in the event we could not obtain such licenses, any of which could adversely affect our business, operating results and financial condition. In addition, if we combine our proprietary software with open source software in a certain manner, we could, under some of the open source licenses, be required to release the source code of our proprietary software.

We may not be successful in protecting and enforcing our intellectual property rights, which could adversely affect our financial condition and operating results.

We rely primarily on copyright, trademark, service mark, and trade secret laws, as well as confidentiality procedures and contractual restrictions, to establish and protect our proprietary rights, all of which provide only limited protection. We rely on copyright laws to protect software and certain other elements of our proprietary technologies, although to date we have not registered for copyright protection. We cannot assure you that any future copyright, trademark or service mark registrations will be issued for pending or future applications or that any registered or unregistered copyrights, trademarks or service marks will be enforceable or provide adequate protection of our proprietary rights. We currently have one patent in the U.S. Our patent may be contested, circumvented, found unenforceable or invalidated.

We endeavor to enter into agreements with our employees and contractors and agreements with parties with whom we do business to limit access to and disclosure of our proprietary information. The steps we have taken, however, may not prevent unauthorized use or the reverse engineering of our technology. Moreover, others may independently develop technologies that are substantially equivalent, superior to, or otherwise competitive to the technologies we employ in our services or that infringe our intellectual property. We may be unable to prevent competitors from acquiring trademarks or service marks and other proprietary rights that are similar to, infringe upon, or diminish the value of our trademarks and service marks and our other proprietary rights. Enforcement of our intellectual property rights also depends on successful legal actions against infringers and parties who misappropriate our proprietary information and trade secrets, but these actions may not be successful, even when our rights have been infringed.

In addition, the laws of some foreign countries do not protect our proprietary rights to the same extent as the laws of the U.S. Despite the measures taken by us, it may be possible for a third party to copy or otherwise obtain and use our technology and information without authorization. Policing unauthorized use of our proprietary technologies and other intellectual property and our services is difficult, and litigation could become necessary in the future to enforce our intellectual property rights. Any litigation could be time consuming and expensive to prosecute or resolve, result in substantial diversion of management attention and resources, and harm our business, financial condition, and results of operations.

We may be liable for the material that content providers distribute over our network and we may have to terminate customers that provide content that is determined to be illegal, which could adversely affect our operating results.

The law relating to the liability of private network operators for information carried on, stored on, or disseminated through their networks is still unsettled in many jurisdictions. We have been and expect to continue to be subject to legal claims relating to the content disseminated on our network, including claims under the Digital Millennium Copyright Act, other similar legislation and common law. In addition, there are other potential customer activities, such as online gambling and pornography, where we, in our role as a hosting provider, may be held liable as an aider or abettor of our customers. If we need to take costly measures to reduce our exposure to these risks, terminate customer relationships and the associated revenue or defend ourselves against such claims, our financial results could be negatively affected.

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Government regulation of data networks is largely unsettled, and depending on its evolution, may adversely affect our operating results.

We are subject to varying degrees of regulation in each of the jurisdictions in which we provide services. Local laws and regulations, and their interpretation and enforcement, differ significantly among those jurisdictions. Future regulatory, judicial, and legislative changes may have a material adverse effect on our ability to deliver services within various jurisdictions. National regulatory frameworks that are consistent with the policies and requirements of the World Trade Organization have only recently been, or are still being, put in place in many countries. Accordingly, many countries are still in the early stages of providing for and adapting to a liberalized telecommunications market. As a result, in these markets we may encounter more protracted and difficult procedures to obtain any necessary licenses or negotiate interconnection agreements, which could negatively impact our ability to expand in these markets or increase our operating costs in these markets.

Our ability to operate and expand our business is susceptible to risks associated with international sales and operations.

We anticipate that, for the foreseeable future, a significant portion of our revenue will continue to be derived from sources outside of the U.S. A key element of our growth strategy is to further expand our customer base internationally and successfully operate data centers in foreign markets. We have limited experience operating in foreign jurisdictions other than the U.K. and expect to rapidly grow our international operations. Managing a global organization is difficult, time consuming, and expensive. Our inexperience in operating our business globally increases the risk that international expansion efforts that we may undertake will not be successful. In addition, conducting international operations subjects us to new risks that we have not generally faced. These risks include:

o Localization of our services, including translation into foreign languages and adaptation for local practices and regulatory requirements;

o Lack of familiarity with and unexpected changes in foreign regulatory requirements;

o Longer accounts receivable payment cycles and difficulties in collecting accounts receivable;

o Difficulties in managing and staffing international operations;

o Fluctuations in currency exchange rates;

o Potentially adverse tax consequences, including the complexities of transfer pricing, foreign value added tax systems, and restrictions on the repatriation of earnings;

o Dependence on certain third parties, including channel partners with whom we do not have extensive experience;

o The burdens of complying with a wide variety of foreign laws and legal standards;

o Increased financial accounting and reporting burdens and complexities;

o Political, social, and economic instability abroad, terrorist attacks and security concerns in general; and

o Reduced or varied protection for intellectual property rights in some countries.

Operating in international markets also requires significant management attention and financial resources. The investment and additional resources required to establish operations and manage growth in other countries may not produce desired levels of revenue or profitability.

Our acquisitions may divert our management’s attention, result in dilution to our stockholders and consume resources that are necessary to sustain our business.

We have made acquisitions and, if appropriate opportunities present themselves, we may make additional acquisitions or investments or enter into joint ventures or strategic alliances with other companies. Risks commonly encountered in such transactions include:

o The difficulty of assimilating the operations and personnel of the combined companies;

o The risk that we may not be able to integrate the acquired services or technologies with our current services, products, and technologies;

o The potential disruption of our ongoing business;

o The diversion of management attention from our existing business;

o The inability of management to maximize our financial and strategic position through the successful integration of the acquired businesses;

o Difficulty in maintaining controls, procedures, and policies;

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o The impairment of relationships with employees, suppliers, and customers as a result of any integration;

o The loss of an acquired base of customers and accompanying revenue; and

o The assumption of leased facilities, other long-term commitments or liabilities that could have a material adverse impact on our profitability and cash flow.

As a result of these potential problems and risks, businesses that we may acquire or invest in may not produce the revenue, earnings, or business synergies that we anticipated. In addition, there can be no assurance that any potential transaction will be successfully identified and completed or that, if completed, the acquired business or investment will generate sufficient revenue to offset the associated costs or other potential harmful effects on our business.

We have and will continue to incur significant increased costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance initiatives.

As a public company, we have and will continue to incur significant legal, accounting, and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented by the Securities and Exchange Commission, and the New York Stock Exchange have imposed various requirements on public companies, including requiring changes in corporate governance practices. Our management and other personnel have and will need to continue to devote a substantial amount of time to these new compliance initiatives. Moreover, these rules and regulations have and are expected to continue to increase our legal and financial compliance costs, making some activities more time-consuming and costly. For example, these new rules and regulations make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantial costs to maintain the same or similar coverage. These rules and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers.

In order to respond to additional regulations applicable to public companies, such as Section 404 of the Sarbanes-Oxley Act, we have hired a number of finance and accounting personnel. In the future, we may be required to hire additional full-time accounting employees to fill these and other related finance and accounting positions. Some of these positions require candidates with public company experience, and we may be unable to locate and hire such individuals as quickly as needed, if at all. In addition, new employees will require time and training to learn our business and operating processes and procedures. If our finance and accounting organization is unable for any reason to respond adequately to the increased demands resulting from being a public company, the quality and timeliness of our financial reporting may suffer and we could experience internal control weaknesses. Any consequences resulting from inaccuracies or delays in our reported financial statements could have an adverse effect on the trading price of our common stock as well as an adverse effect on our business, operating results, and financial condition.

We are in the process of evaluating our system of internal controls and may not be able to demonstrate that we can accurately report our financial results or prevent fraud. As a result, our stockholders could lose confidence in our financial reporting, which could harm our business and the trading price of our common stock.

Ensuring that we have adequate internal financial and accounting controls and procedures in place so that we can produce accurate financial statements on a timely basis is a costly and time-consuming effort that needs to be re-evaluated frequently. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with U.S. generally accepted accounting principles, or GAAP. We are in the process of documenting, reviewing and improving our internal controls and procedures for compliance with Section 404 of the Sarbanes-Oxley Act, which requires an annual management assessment of the effectiveness of our internal controls over financial reporting and a report by our independent auditors assessing the effectiveness of such internal controls.

Changes to financial accounting standards or practices may affect our reported financial results and cause us to change our business practices.

We prepare our financial statements to conform to GAAP. These accounting principles are subject to interpretation by the SEC and various other bodies. A change in those policies can have a significant effect on our reported results and may affect our reporting of transactions completed before a change is announced. Changes to those rules or the interpretation of our current practices may adversely affect our reported financial results or the way we conduct our business.

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Risks Related to the Ownership of Our Common Stock

The trading price of our common stock may be volatile.

The market price of our common stock has been highly volatile and could be subject to wide fluctuations in response to, among other things, the risk factors described in this periodic report, and other factors beyond our control, such as stock market volatility and fluctuations in the valuation of companies perceived by investors to be comparable to us.

Further, the stock markets have experienced price and volume fluctuations that have affected and continue to affect our stock price and the market prices of equity securities of many other companies. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. These broad market and industry fluctuations, as well as general economic, political, and market conditions, such as recessions, interest rate changes or international currency fluctuations, may negatively affect the market price of our common stock.  We may experience additional volatility as a result of the limited number of our shares available for trading in the market.

In the past, many companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns, which could seriously harm our business.

Our common stock has only been publicly traded since our initial public offering on August 7, 2008 and the price of our common stock has fluctuated substantially since then and may fluctuate substantially in the future.

Our common stock has only been publicly traded since our initial public offering on August 7, 2008. The trading price of our common stock has fluctuated significantly since then. For example, between December 31, 2008 and July 31, 2009, the closing trading price of our common stock was very volatile, ranging between $4.38 and $14.50 per share, including single-day increases of up to 12.9% and declines up to 11.7%. Our trading price could fluctuate substantially in the future due to the factors discussed in this Risk Factors section and elsewhere in this quarterly report on Form 10-Q.

Contractual lock-up restrictions on the sale of approximately 99 million shares held by certain stockholders expired on February 3, 2009 and to the extent a stockholder is not an affiliate, its shares are now eligible for sale without restriction.   Affiliate sales are subject to the volume, manner of sale and other restrictions of Rule 144 of the Securities Exchange Act of 1933 which allow the holder to sell up to the greater of 1% of our outstanding common stock or our average weekly trading volume during any three-month period.  Shares beneficially held by Graham Weston, Norwest Venture Partners, and certain other parties will be subject to such requirements to the extent they are deemed to be our “affiliates” as that term is defined in Rule 144.  Additionally, Weston, Norwest, and other holders possess registration rights with respect to some of the shares of our common stock that they hold. If they choose to exercise such rights, their sale of the shares that are registered would not be subject to the Rule 144 limitations. If a significant amount of the shares that become eligible for resale enter the public trading markets in a short period of time, the market price of our  common stock may decline.

Additionally, certain of our larger stockholders are venture funds that may from time to time distribute the shares of our stock held by them to their limited partners in order to provide them with liquidity with respect to their investment in our stock. The distributed shares may be eligible for immediate resale, in which case all or a significant portion of these shares may be sold by these limited partners in the public markets during a short period of time following their receipt of these shares, which may cause the market price for our stock to decline.

The issuance of additional stock in connection with acquisitions, our stock option plans, or otherwise will dilute all other stockholdings.

We have a large number of shares of common stock authorized but unissued and not reserved for issuance under our stock option plans or otherwise. We may issue all of these shares without any action or approval by our stockholders. We intend to continue to actively pursue strategic acquisitions. We may pay for such acquisitions, partly or in full, through the issuance of additional equity. Any issuance of shares in connection with our acquisitions, the exercise of stock options or otherwise would dilute the percentage ownership held by our then existing stockholders.

Your ability to influence corporate matters may be limited because a small number of stockholders beneficially own a substantial amount of our common stock.

Our directors and executive officers and their affiliates beneficially own a significant portion of our outstanding common stock.  As a result, these stockholders will be able to exercise significant influence over all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions, such as a merger or other sale of our company or its assets. Although our directors and executive officers are not currently party to any agreements or understandings to act together on matters submitted for stockholder approval, this concentration of ownership could limit your ability to influence corporate matters and may have the effect of delaying or preventing a third party from acquiring control over us.

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Anti-takeover provisions in our organizational documents and Delaware law may discourage or prevent a change of control, even if an acquisition would be beneficial to our stockholders, which could affect our stock price adversely and prevent attempts by our stockholders to replace or remove our current management.

Our restated certificate of incorporation and amended and restated bylaws contain provisions that could delay or prevent a change of control of our company or changes in our board of directors deemed undesirable by our board of directors that our stockholders might consider favorable. Some of these provisions:

o Authorize the issuance of blank check preferred stock which can be created and issued by our board of directors without prior stockholder approval, with voting, liquidation, dividend, and other rights senior to those of our common stock;

o Provide for a classified board of directors, with each director serving a staggered three-year term;

o Prohibit our stockholders from filling board vacancies or increasing the size of our board, calling special stockholder meetings or taking action by written consent;

o Provide for the removal of a director only with cause and by the affirmative vote of the holders of a majority of the shares then entitled to vote at an election of our directors; and

o Require advance written notice of stockholder proposals and director nominations.

In addition, we are subject to the provisions of Section 203 of the Delaware General Corporation Law, which may prohibit certain business combinations with stockholders owning 15% or more of our outstanding voting stock. These and other provisions in our restated certificate of incorporation, amended and restated bylaws and Delaware law could make it more difficult for stockholders or potential acquirers to obtain control of our board of directors or initiate actions that are opposed by our then current board of directors, including a merger, tender offer or proxy contest involving our company. Any delay or prevention of a change of control transaction or changes in our board of directors could cause the market price of our common stock to decline.

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ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Sales of Unregistered Securities

On April 15, 2009, we issued 200,000 shares of our common stock to the two owners of Slicehost, LLC as partial consideration for reaching an earn-out target related to our acquisition of substantially all of the assets of Slicehost, LLC on October 22, 2008. The issuances of these shares of common stock were made in reliance on the exemption from registration provided by Section 4(2) of the Securities Act of 1933.

Use of Proceeds from Public Offering of Common Stock

On August 7, 2008, our registration statement was declared effective for our IPO. As a result of the offering, we received net proceeds of approximately $144.6 million.

In August 2008, we used $57.3 million of the net proceeds from the IPO to repay outstanding balances under our revolving line of credit. In October 2008, we acquired two companies. The purchase price of the combined acquisitions was approximately $11.5 million payable in cash and stock, with the potential for up to $16.5 million in additional payouts of cash and stock based on certain performance criteria. In March 2009, we paid $5.6 million in cash as partial payment (the remaining consideration was paid in stock) for achievement of the first of the earn-out targets associated with our acquisitions and we expect to pay additional consideration with a total value of $9 million for the achievement of the remaining earn-out targets.

Our primary sources of capital are cash generated from operating activities, equipment financing arrangements with vendor-related leasing companies, and funds available under our revolving line of credit. We have used, and intend to continue to use, the net proceeds from the IPO to supplement these existing sources of capital primarily to finance our growth plans, as well as for working capital and general corporate purposes, including financing our growth initiatives domestically and internationally, and for potential acquisitions.

In our prospectus for the IPO, we anticipated making aggregate capital expenditures of approximately $335 million in 2008, $160 million of which was expected to be allocated for construction contracts for our new corporate headquarters in the San Antonio, Texas area and expansion of data center facilities in the U.S. and the U.K., with the remaining $175 million expected to be allocated for purchases of IT equipment. In our earnings release for the third quarter of 2008 dated November 5, 2008, we reduced our anticipated aggregate capital expenditure estimate for 2008 to $270 million. Our actual capital expenditures for 2008 were approximately $260 million.

In February 2009, we announced that we anticipated making aggregate capital expenditures between $105 million and $160 million in 2009, primarily for customer gear. We now anticipate making aggregate capital expenditures between $165 million and $185 million in 2009.  This is primarily to an expected increase in expenditures related to customer gear tied to increased growth expectations, as well as an increase in costs associated with expanding our data center footprint. However, we may still accelerate or postpone certain of these expenditures to align our asset base with the need to support our customers and to exploit opportunities to acquire assets. The timing and amount of our actual expenditures are based on many factors, including cash flows from operations and the anticipated growth of our business.

Pending the use of the remaining proceeds, we have invested the net proceeds in short-term, highly liquid, interest-bearing, money market funds.

ITEM 3 – DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4 – SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

We held our 2009 annual meeting of Shareholders on May 13, 2009. At the annual meeting, S. James Bishkin, Fred Reichheld and Mark P. Mellin were elected to serve on our board of directors. The board terms for Graham Weston, A. Lanham Napier, Palmer L. Moe and George J. Still, Jr., who were not elected at the annual meeting, will continue until their terms expire.  The following matters were voted upon at the 2009 annual meeting of shareholders:

1. The election of the nominees for the board of directors who will serve a term to expire at the 2012 annual meeting of shareholders. The nominees, all of whom were elected, were S. James Bishkin, Fred Reichheld and Mark P. Mellin. The Inspector of Election certified the following vote tabulations:

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	Votes For		Votes Withheld		% Votes For
S. James Bishkin		110,760,758		226,004		93.10	%
Fred Reichheld		110,795,806		190,956		93.13	%
Mark P. Mellin		110,820,332		166,430		93.15	%

2. A proposal to ratify the selection of KPMG LLP as independent registered public accounting firm for fiscal year 2009 was approved by the stockholders. The Inspector of Election certified the following vote tabulations:

	Votes For		Votes Against		Votes Abstain		Broker Non-Votes		% Vote For
KPMG LLP		110,839,590		117,838		29,331		-		93.16	%

ITEM 5 – OTHER INFORMATION

None

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ITEM 6 – EXHIBITS

Exhibit

Number                 Description­

10.1*† Lease Agreement by and between Tarantula Ventures LLC and Rackspace US, Inc. dated July 31, 2009

10.2* Service Order & Statement of Works dated July 1, 2009 between Equinix(UK) Ltd and Rackspace Limited

31.1 * Certification of Principal Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2 * Certification of Principal Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1 ** Certifications of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2 ** Certifications of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

*              Filed herewith

**           Furnished herewith

† Confidential treatment has been requested for portions of this exhibit.  These portions have been omitted from this Quarterly Report on Form 10-Q and submitted separately to the Securities and Exchange Commission.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized, on ­­ August 12, 2009.

               Rackspace Hosting, Inc.

Date: August 12, 2009	By:		/s/ Bruce R. Knooihuizen
			Bruce R. Knooihuizen
			Chief Financial Officer, Senior Vice President and  Treasurer
		(Principal Financial Officer)

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EX-10.1

Exhibit 10.1

CONFIDENTIAL MATERIAL HAS BEEN OMMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISION.  BOXES AND ASTERIXES DENOTE SUCH OMISSION

LEASE

BY AND BETWEEN

TARANTULA VENTURES LLC

AND

RACKSPACE US, INC.

CH1 DATA CENTER

2200 BUSSE ROAD

ELK GROVE VILLAGE, ILLINOIS

CONFIDENTIAL MATERIAL HAS BEEN OMMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISION.  BOXES AND ASTERIXES DENOTE SUCH OMISSION

LEASE

This Lease (the “Lease”) is made as of the 31st day of July, 2009 (the “Lease Commencement Date”) by and between Tarantula Ventures LLC, a Delaware limited liability company (hereinafter referred to as “Landlord”), and Rackspace US, Inc., a Delaware corporation (hereinafter referred to as “Tenant”).

RECITALS:

A.           Landlord has constructed a data center facility known as “CH1 Phase I”, located in 2200 Busse Road, Elk Grove Village, Illinois (the “Building”) situated on certain real property owned by Landlord legally described on Exhibit A attached hereto (the “Land”).  The Building and the Land shall constitute the “Property”.

B.           CH1 Phase I contains approximately two hundred fifty-three thousand (253,000) gross square feet, comprised in part of approximately one hundred twenty-one thousand (121,000) square feet of raised floor area, and has 18.2 megawatts of Critical Load Power (as defined in Section 13.2 below) available to it.  The raised floor space in CH1 Phase I is divided into computer rooms of varying sizes (each a “Pod”).

C.           Adjoining the Building is an office building (the “Office Building”).  Moreover, the Building and Land contain additional space sufficient to construct another data center facility (“CH1 Phase II”) which Landlord (in its sole discretion) may, but shall be under no obligation to, construct.

D.           The Tenant desires to lease a portion of the rentable area of said Building and a portion of the rentable area of said Office Building, and Landlord is willing to rent such portion of the rentable area of said Building and such portion of the rentable area of said Office Building to Tenant, upon the terms, conditions, covenants and agreements set forth herein.

Now, Therefore, the parties hereto, intending to be legally bound, hereby covenant and agree as follows:

ARTICLE I

THE PREMISES

1.1Landlord hereby leases and demises to Tenant and Tenant hereby leases and accepts from Landlord, for the term and upon the terms and conditions hereinafter set forth, the space in CH1 Phase I designated on the floor plan attached hereto as Exhibit B as computer rooms 1, 5, 6, 7 and 8 (“Pod 1”, “Pod 5”, “Pod 6”, “Pod 7”, and “Pod 8”, respectively; each, a “Pod”; collectively, the “Pods”).  Pod 1 contains approximately two thousand seven hundred

CONFIDENTIAL MATERIAL HAS BEEN OMMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISION.  BOXES AND ASTERIXES DENOTE SUCH OMISSION

(2,700) rentable square feet of raised floor and each of Pod 5, Pod 6, Pod 7 and Pod 8 contains approximately eight thousand five hundred (8,500) rentable square feet of raised floor.  The Pods, together with the Office Space (defined below) and the Storage Space (defined below) are hereinafter referred to as the “Premises”.  Subject to the terms and provisions of Section V below, Tenant shall at all times throughout the Lease Term, have access to the Premises twenty-four (24) hours per day, seven (7) days per week.

1.2Subject to the terms of this Lease, Tenant shall also have the right to use the public and common areas and facilities in the Building and the Office Building and on the Land (the “Common Areas”), including any lobby area, the loading dock and any other areas devoted to the public such as corridors, fire vestibules, restrooms, janitor closets and other similar facilities, and those areas of the Building and the Office Building provided for use in common by Landlord and Tenant and other tenants of the Building and Office Building, whether or not any such area is open to the general public, but includes no other rights not specifically set forth herein.  In addition, Tenant shall have the right, to the extent reasonably necessary in order for Tenant to use the Premises for Permitted Uses (as defined in Section 6.1 below), upon request to Landlord whenever practicable, (but in all cases subject to Landlord’s reasonable security procedures), to access the telephone rooms located in the Building and the Office Building.  Tenant shall have the right to access the mechanical and electrical rooms and closets located in the Building and the Office Building, to the extent such access is reasonably necessary or desirable in connection with Tenant’s use of the Premises for the Permitted Uses, subject to Landlord’s approval, not to be unreasonably withheld or delayed and subject further to Landlord’s reasonable security procedures.

1.3Landlord hereby leases to and demises to Tenant and Tenant hereby leases and accepts from Landlord for the period beginning on the Rent Commencement Date and ending upon the expiration of the Lease Term (defined below) (the “Office Space Term”) and upon the terms and conditions hereinafter set forth, office space in the Office Building consisting of approximately eight thousand four hundred eighty-four (8,484) rentable square feet on the first floor of the Office Building, as more particularly described on the floor plan attached hereto as Exhibit B-1 (the “Office Space”).  Tenant shall occupy the Office Space in two (2) phases (“Office Space Phase I” and “Office Space Phase II”).  It is anticipated that Office Space Phase I will consist of approximately five thousand three hundred eighty-five (5,385) rentable square feet and Office Space Phase II approximately three thousand ninety-nine (3,099) rentable square feet, provided that the exact area of the two phases shall be as mutually agreed between Landlord and Tenant within thirty (30) days after the Lease Commencement Date.  Provided Landlord [*****] delivers the Office Space to Tenant as provided herein below, Tenant shall be obligated to take occupancy of Office Space Phase I on the Rent Commencement Date, and Office Space Phase II on the earlier to occur of (i) [*****] or (ii) such earlier date as requested by Tenant upon one hundred twenty (120) days advance written notice (the “Office Space Phase II Notice”) to Landlord (“Office Space Phase II Commencement Date”).  Except as otherwise expressly provided herein, the Office Space shall be considered a part of the Premises for all purposes hereunder.  [*****].  Notwithstanding anything to the contrary contained herein, in the event Landlord does not deliver the Office Space Phase I [*****] broom clean, with a security

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CONFIDENTIAL MATERIAL HAS BEEN OMMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISION.  BOXES AND ASTERIXES DENOTE SUCH OMISSION

access card reader allowing entry only to persons on the Tenant Access List pursuant to Article V below, on the Rent Commencement Date, then Tenant’s obligation to commence paying Office Rent in accordance with Section 3.3 below shall be delayed until the date on which Landlord delivers the Office Space Phase I to Tenant as aforesaid.  Further notwithstanding anything to the contrary contained herein, in the event Landlord does not deliver the Office Space Phase II [*****] broom clean, on the Office Space Phase II Commencement Date, then Tenant’s obligation to commence paying full Office Rent in accordance with Section 3.3 below [i.e., that portion of Office Rent allocable to Office Space Phase II] shall be delayed until the date on which Landlord delivers the Office Space Phase II to Tenant as aforesaid.

1.4Landlord hereby leases to and demises to Tenant and Tenant hereby leases and accepts from Landlord for the period beginning on the Rent Commencement Date (“Storage Space Commencement Date”) and ending upon the expiration of the Lease Term (the “Storage Space Term”), and upon the terms and conditions hereinafter set forth, storage space in the Building consisting of Storage Room No. 1001-A (containing approximately one thousand six hundred (1,600) square feet), as more particularly described on the floor plan attached hereto as Exhibit B (the “Storage Space”).  Except as otherwise expressly provided herein, the Storage Space shall be considered a part of the Premises for all purposes hereunder.  Notwithstanding anything to the contrary contained herein, in the event Landlord does not deliver the Storage Space broom clean, with a security access card reader allowing entry only to persons on the Tenant Access List pursuant to Article V below, and with appropriate demising walls (walls consist of coated and painted steel mesh), on the Storage Space Commencement Date, then Tenant’s obligation to commence paying Storage Rent in accordance with Section 3.3 below shall be delayed until the date on which Landlord delivers the Storage Space to Tenant as aforesaid.

ARTICLE II

TERM

2.1Except as otherwise set forth herein, all of the provisions of this Lease shall be in full force and effect from and after the Lease Commencement Date.  The term of this Lease (hereinafter referred to as the “Lease Term” or “Term”) shall commence on the Rent Commencement Date, as determined pursuant to Section 2.2 below, and continue for a period of fifteen (15) years thereafter, unless such Lease Term shall be extended, renewed or terminated earlier in accordance with the provisions hereof.  Notwithstanding the foregoing, if the Rent Commencement Date shall occur on a day other than the first day of a month, the Lease Term shall commence on such date and continue for the balance of such month and for a period of fifteen (15) years thereafter.  The term “Lease Term” shall include any properly exercised renewals and extensions of the term of this Lease.

2.2(a)           The “Rent Commencement Date” shall be the earlier of (i) November 1, 2009 (the “Anticipated Rent Commencement Date”) or (ii) the date on which Tenant commences the conduct of its business upon any portion of the Premises, but only with respect to such portion.  Landlord represents that as of the Lease Commencement Date, the following items

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CONFIDENTIAL MATERIAL HAS BEEN OMMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISION.  BOXES AND ASTERIXES DENOTE SUCH OMISSION

have been completed, obtained and/or are true, as applicable, and Landlord warrants and covenants that the same will be completed, in effect and/or true, as applicable, as of the Rent Commencement Date:  (I) Landlord’s Work (as hereinafter defined) [*****] has been substantially completed in accordance with Section 9.1 below; (II) all mechanical and electrical systems for each Pod, and all components thereof, including, without limitation, power distribution units (“PDUs”), power distribution boards, computer room air conditioning units (“CRACs”) and other components of the HVAC system, uninterruptible power systems (“UPSs”), EPO kiosks, and back-up diesel engine generators (“Engine Generators”), and the Security Systems (as hereinafter defined) and Building Management System (as hereinafter defined), are in good working order; (III) data center level 4 testing and level 5 commissioning have been completed with respect to all mechanical and electrical systems for each Pod as certified by EYP Mission Critical Facilities, the Building engineer; and (IV) a certificate of occupancy and any other required occupancy and/or use permits have been issued by Cook County and/or such other applicable governmental authority for the Building, including the Pods.  For avoidance of doubt, except as otherwise expressly provided in Section 2.4 below, the Early Access (as hereinafter defined), the Electrical and Mechanical Systems Testing (as hereinafter defined) and Tenant’s performance of Tenant’s Installations (as hereinafter defined) shall not constitute the conduct of Tenant’s business upon any portion of the Premises.

(b)[*****].  Notwithstanding the foregoing, 5.633 megawatts of Critical Load Power will be available to the Premises as of the Rent Commencement Date, and Tenant may use more than the applicable Phase Load Limit, up to 5.633 megawatts, at any time during the Lease Term, subject to and in accordance with the terms and provisions of this Section 2.2(b).  [*****].

(c)Notwithstanding anything to the contrary contained herein, in the event Landlord or an affiliate of Landlord fails to complete Tenant’s Deployment Work to the extent required to support the delivery of Phase 1 in accordance with Section 2.2(b) above on or prior to the Anticipated Rent Commencement Date, then the Rent Commencement Date shall be delayed until the date on which such condition is satisfied or completed as provided herein.  Notwithstanding the foregoing, if Landlord shall be delayed in satisfying the condition set forth herein above as a result of delays caused by Tenant, then, for purposes of determining when such condition is satisfied, such condition shall be deemed satisfied on the date such condition would have been satisfied absent any such Tenant-caused delay.  Within ten (10) days after the occurrence of a Tenant-caused delay, Landlord shall notify Tenant in writing of such Tenant-caused delay.  If Landlord fails to so notify Tenant within said ten (10) day period and such failure to notify continues for twenty (20) days thereafter, then Landlord shall be deemed to have waived and excused any such Tenant-caused delay.

(d)Promptly after the Rent Commencement Date and the commencement of each subsequent Phase are ascertained, Landlord and Tenant shall execute a written declaration setting forth, as applicable, the Rent Commencement Date, the commencement date of each subsequent Phase (subject to the provisions of Section 2.2(b) above), and the date upon which

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the Lease Term and the applicable Phase will expire.  The form of such declaration is attached hereto as Exhibit C and made a part hereof.

2.3For purposes of this Lease, the term “Lease Year” shall mean either (a) if the Rent Commencement Date shall not occur on the first day of a calendar month, each period of twelve (12) consecutive calendar months commencing on the first day of the month immediately following the month in which the Rent Commencement Date occurs, and on each anniversary of such date, provided that the first Lease Year shall also include the period from the Rent Commencement Date to the first day of the month immediately following the Rent Commencement Date; or (b) if the Rent Commencement Date shall occur on the first day of a calendar month, each period of twelve (12) consecutive calendar months commencing on the Rent Commencement Date and on each anniversary of such date, whichever is applicable.

2.4Landlord shall permit Tenant to enter the Premises starting on the Lease Commencement Date (the “Early Access”), in order to commence installation of racks, infrastructure, furniture and other equipment in the Premises (“Tenant’s Installations”) provided that, prior to commencing any such work in the Premises, Tenant shall comply in all respects with the requirements of Article IX below.  In performing Tenant’s Installations during Tenant’s Early Access, Tenant shall be permitted to use [*****] and normal, non-Critical Load Power in the Premises, at its expense, for installation and testing.  Except as otherwise expressly provided herein below, [*****], Tenant will be deemed to have commenced the conduct of its business for purposes of subpart (ii) of the first sentence of Section 2.2(a) hereof, provided, that Landlord shall not be required to give Tenant more than one (1) such notice and opportunity to cure during Early Access.  All terms and conditions of this Lease, as executed, shall apply to Tenant’s Early Access, [*****].  Notwithstanding anything to the contrary contained herein, Landlord acknowledges and agrees that: (a) Tenant, at Tenant’s sole cost and expense pursuant to a separate agreement between Tenant and DFTS (as hereinafter defined), shall be permitted during the Early Access to perform certain testing reasonably agreed to by Landlord, Tenant and DFTS, with respect to the electrical and mechanical systems for the Building and the Pods (the “Electrical and Mechanical Systems Testing”), and (b) the use of Critical Load Power, including the use of [*****], in the Premises for any period of time in connection with such Electrical and Mechanical Systems Testing shall not be considered the conduct of Tenant’s business for purposes of subpart (ii) of the first sentence of Section 2.2(a) above.

ARTICLE III

BASE RENT

3.1Commencing on the Rent Commencement Date, Tenant shall pay to Landlord as monthly base rent (“Base Rent”), net of all Operating Expenses (which term is defined in Section 4.2 below), without set off, deduction (unless otherwise expressly agreed to herein) or demand, an amount equal to [*****] on the date that such monthly Base Rent is due and payable subject to annual adjustment pursuant to Section 3.2 below.  The monthly Base Rent payable hereunder shall be due and payable in advance on the first day of each month.  Payment of monthly Base Rent for any fractional calendar month shall be prorated.  [*****].

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3.2 The Base Rent Rate shall be escalated on the first day of the second (2nd) Lease Year and each anniversary of such date thereafter during the Lease Term (each, an “Escalation Date”) by [*****].

3.3Subject to the terms and provisions of Section 1.3 above, commencing on later to occur of (i) the Rent Commencement Date, or (ii) the date on which [*****], in addition to the monthly Base Rent set forth in Section 3.1 above, Tenant shall, subject to adjustment as set forth in Section 1.3 above [*****], pay to Landlord monthly base rent in the amount of [*****] for the Office Space (the “Office Rent”); provided, however, that subject to the terms and provisions of Section 1.3 above, until the Office Space Phase II Commencement Date occurs Tenant shall be obligated to pay only a pro-rata share of Office Rent based on the ratio of the area of Office Space Phase I over the total area of the Office Space.  Subject to the terms and provisions of Section 1.4 above, commencing on the Rent Commencement Date, Tenant shall pay to Landlord monthly base rent in the amount of [*****] for the Storage Space (the “Storage Rent”).  The Office Rent and Storage Rent shall be due and payable in advance of the first day of each month.  The Office Rent and Storage Rent shall be increased each Lease Year as and when Base Rent is increased pursuant to Section 3.2 above.  Payments of Office Rent and/or Storage Rent for any fractional calendar month shall be prorated.

3.4All rent shall be paid to Landlord in legal tender of the United States at the address to which notices to Landlord are to be given or to such other address as Landlord may designate from time to time by written notice to Tenant.  If Landlord shall at any time accept rent after it shall come due and payable, such acceptance shall not excuse a delay upon subsequent occasions, or constitute or be construed as a waiver of any of Landlord’s rights hereunder.

ARTICLE IV

ADDITIONAL RENT

4.1From and after the Rent Commencement Date, Tenant shall pay as additional rent, (i) its Pro Rata Share of Operating Expenses (as defined in Section 4.2(a) below) incurred each year in the operation of CH1 Phase I and (ii) a management fee for the management and operation of CH1 Phase I equal to [*****] (the “Management Fee”).  Tenant’s “Pro Rata Share” shall mean thirty and ninety-five one hundredths percent (30.95%).  Commencing on the Rent Commencement Date, [*****], Tenant shall pay the Management Fee and Tenant’s Pro Rata Share of all Operating Expenses for CH1 Phase I with respect to the entire Premises [*****].  If Landlord elects to construct CH1 Phase II and to operate CH1 Phase I and CH1 Phase II as an integrated facility, upon completion of CH1 Phase II, Tenant’s Pro Rata Share shall be reduced to the ratio of the Critical Load Power available to the Premises compared to the Critical Load Power available, in the aggregate, to both CH1 Phase I and CH1 Phase II.  [*****].

4.2(a)           “Operating Expenses” shall, subject to the exclusions set forth below, mean and include those direct reasonable expenses actually incurred (directly or indirectly) by Landlord in operating and maintaining the Property (or any portion thereof), but only to the extent directly attributable or reasonably allocable to CH1 Phase I calculated in accordance with

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generally accepted accounting principles and real property management practices, both consistently applied, including the following:  [*****].  Notwithstanding the foregoing to the contrary, Operating Expenses shall not include (i) the cost of any capital improvement to the Property other than those included in clause (5) above; (ii) expenses Landlord incurs in connection with leasing or procuring tenants or renovating space for new or existing tenants, including brokerage commissions, legal fees, lease concessions, rental abatements and construction allowances; (iii) costs and fees including, without limitation, legal fees, incurred in disputes with Tenant or other tenants at the Building, in connection with enforcing leases at the Building and/or in connection with violations of laws by Landlord with respect to the Property; (iv) interest or principal payments on any mortgages or, subject to clause (5) above, other indebtedness of Landlord; (v) ground lease payments; (vi) the cost of repairs or other work to the extent Landlord is reimbursed by insurance (or would have been reimbursed had Landlord maintained the insurance coverages required in Article 12 below) or condemnation proceeds; (vii) costs incurred in connection with the sale, financing or refinancing of the Building; (viii) organizational expenses associated with the creation and/or operation of the ownership entity which constitutes Landlord; (ix) Landlord’s administrative costs; (x) advertising, promotion, charitable and tenant relations expenses; (xi) any amount for which Landlord receives payment directly by a tenant or non-tenant other than as an Operating Expense; (xii) the cost of correcting defects in the original construction or any renovation of the Building; (xiii) the cost of maintaining, repairing and/or replacing the foundation, roof, exterior walls and/or any other structural element of the Building; (xiv) depreciation (except to the extent permitted in clause (5) above); (xv) costs associated with the cleanup or removal of Hazardous Materials that are in existence as of the Lease Commencement Date in violation of applicable laws; and (xvi) costs for which Landlord is compensated by warranties.  For avoidance of doubt, Landlord and Tenant acknowledge and agree that, other pursuant to Section 4.2(c) below, Operating Expenses shall not include any costs or expenses associated with the Office Building.

(b)“Taxes” shall mean and include (i) all taxes on real property and personal property, ad valorem taxes, surcharges, general and special assessments and impositions, general and special, ordinary and extraordinary, foreseen or unforeseen, of any kind levied or imposed upon Landlord, the Building or the Land, or assessed against the Property or any machinery, equipment, fixtures or other personal property of Landlord thereon or therein, or in connection with the use thereof (including any transit, personal property, sales, rental, use, gross receipts and occupancy tax and other similar charges); (ii) any other present or future taxes or governmental charges which are imposed upon Landlord or assessed against the Building or the Land, and which are in the nature of, or in substitution for, real property taxes, including any tax levied on or measured by rents payable by tenants of the Property, any public safety fee or similar charge, any transit, sales, receipts, rental, use or occupancy tax or fee, and any assessment imposed in connection with business improvement, transportation or similar districts; (iii) any assessments against the Building or the Land, or against Landlord with respect to the Building or the Land, by any association now or hereafter established to administer, oversee or enforce common covenants or other rules and regulations to which the Building, Land or common areas are subject or to operate, maintain, repair or replace common or public areas or facilities thereof; and (iv) all taxes which are imposed upon Landlord, and which are assessed against the value of any

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improvements to the Premises made by Tenant or any machinery, equipment, fixtures or other personal property of Tenant used therein.  Notwithstanding anything to the contrary contained herein, taxes shall not include any income taxes, excess profits taxes, excise taxes, franchise taxes, estate taxes, inheritance taxes, succession taxes, gains taxes, grantor’s taxes, recordation taxes and/or transfer taxes, except to the extent such taxes fall within clause (ii) above.  If the Land and all buildings comprising the Complex are assessed together, then the Taxes for CH1 Phase I shall be a fraction of such Taxes, such fraction to be based upon a fair and equitable allocation determined in Landlord’s reasonable discretion.  The tax and assessment bills used in calculating Tenant's obligation attributable to Taxes in a given Lease Year shall be those which become due for payment during such Lease Year, without regard to the period for which the Taxes are levied or assessed and without regard to whether or not the Lease was in existence during such period.  Landlord and Tenant agree and acknowledge that the Property is located in Cook County, Illinois, and that Cook County real property taxes are customarily billed and payable one (1) year in arrears.  If Landlord contests Taxes for any calendar year contained within the Lease Term and such contest results in a decrease in Taxes for such calendar year, then Landlord shall credit against the monthly installments of Base Rent next coming due Tenant’s proportionate share of such refund, but only up to an amount equal to the payment made by Tenant for such calendar year on account of Taxes.  If Landlord contests the Taxes for any calendar year and such contest results in an increase in Taxes for such calendar year, Landlord shall have the right to bill Tenant for prior underpayments of Taxes thereby resulting.  Landlord’s and Tenant’s obligations under this Section 4.2(b) shall survive the expiration or earlier termination of the Lease Term.

(c)CH1 Phase I is operated as part of a complex that includes:  (i) the Office Building; (ii) the Building; (iii) the portion of the structure, of which the Building is a part,  remaining for construction of CH1 Phase II; and (iv) the vacant future development site located at the northwestern corner of the Land (collectively the “Complex”).  As a result, there shall be included in Operating Expenses a fraction of Complex Common Area Expenses, which fraction shall be based on a fair and equitable allocation reasonably determined by Landlord.  As used above, the term “Complex Common Area Expenses” shall mean those Operating Expenses incurred by Landlord in owning, operating and/or managing the common areas of the Complex, including common parking areas and facilities (as opposed to those Operating Expenses related exclusively to CH1 Phase I), but only to the extent directly attributable or reasonably allocable to CH1 Phase I.

(d)Notwithstanding anything to the contrary contained herein, Landlord shall use commercially reasonable efforts to minimize Operating Expenses without compromising the integrity of the Building, the Premises or the services Landlord is required to provide under the Lease.  Furthermore, Landlord shall pay, promptly when due, all Taxes relating to the Property.

4.3If the Lease Term commences or expires on a day other than the first day or the last day of a calendar year, respectively, then Tenant’s Pro Rata Share of Operating Expenses shall be apportioned so that Tenant shall pay Tenant’s Pro Rata Share of Operating Expenses

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attributable to only that portion of such year as falls within the Lease Term.  This Section 4.3 shall survive the expiration or earlier termination of this Lease.

4.4In the event the average occupancy rate for the entire Building shall be less than one hundred percent (100%), or if any tenant is paying separately for electricity or other utilities or services furnished to its premises, then, for purposes of calculating the additional rent payable by Tenant pursuant to this Article IV for each calendar year, the Operating Expenses for such calendar year that fluctuate depending on the level of occupancy of the Building shall be increased by the amount of additional costs and expenses that Landlord reasonably estimates would have been incurred if the average occupancy rate for the entire Building had been one hundred percent (100%) and as if no tenants had separately paid for electricity or other utilities and services for such calendar year.  It is the intent of this provision to permit Landlord to recover Operating Expenses attributable to occupied space in the Building only, even though the aggregate of such expenses shall have been reduced as a result of vacancies in the Building.  This Section 4.4 shall not be construed to permit Landlord to, and Landlord shall not, recover from Tenant additional rent on account of Operating Expenses for any calendar year which when added to the total amount of additional rent payable by all tenants of the Building on account of Operating Expenses for such year, will exceed the actual Operating Expenses incurred by Landlord for such year.

4.5Subject to Section 4.3 above, commencing on the Rent Commencement Date and on the first day of each month thereafter, Tenant shall make estimated monthly payments to Landlord on account of the Operating Expenses that are expected to be incurred during each calendar year falling entirely or partially within the Lease Term.  The amount of such monthly payments shall be determined as follows: commencing with the Rent Commencement Date and at the beginning of each calendar year thereafter, Landlord shall submit to Tenant a statement setting forth Landlord’s reasonable estimate of the Operating Expenses that are expected to be incurred during such calendar year and Tenant’s Pro Rata Share thereof (as determined in accordance with Section 4.1 hereof).    Except with respect to charges for heat rejection HVAC (as defined below in Section 13.2(i)), which shall be paid by Tenant pursuant to Section 13.4 below, Tenant shall pay to Landlord on the first day of each month following receipt of such statement during such calendar year an amount equal to Tenant’s Pro Rata Share of the anticipated Operating Expenses multiplied by a fraction, the numerator of which is one (1) and the denominator of which is twelve (12).  Except with respect to estimated charges for heat rejection HVAC, which shall be reconciled in accordance with Section 13.4 below, within approximately ninety (90) days, but not later than one hundred fifty (150) days, after the expiration of each calendar year, Landlord shall submit to Tenant a statement (the “Reconciliation Statement”), showing (i) the Operating Expenses actually incurred during the preceding calendar year and Tenant’s Pro Rata Share thereof, and (ii) the aggregate amount of the estimated payments made by Tenant on account thereof.  If the aggregate amount of such estimated payments exceeds Tenant’s actual liability for such Operating Expenses, then Landlord shall credit the net overpayment against the next monthly installment(s) of Additional Rent coming due under this Lease (except that any such overpayment during the last calendar year falling wholly or partly within the Lease Term shall be promptly refunded to Tenant by

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Landlord).  If Tenant’s actual liability for such Operating Expenses exceeds the estimated payments made by Tenant on account thereof, then Tenant shall pay to Landlord the total amount of such deficiency within thirty (30) days after its receipt of the applicable Reconciliation Statement from Landlord.  The provisions of this paragraph shall survive the expiration or earlier termination of this Lease.  [*****].

4.6Provided no Event of Default exists hereunder, Tenant or an independent certified public accountant (on behalf of Tenant) reasonably approved by Landlord, shall have the right, during regular business hours, at the metropolitan [Washington, D.C.] [Chicago, Illinois] area management office for the Building, and after giving at least fifteen (15) days’ advance written notice to Landlord, to commence to have Landlord’s books and records related to Operating Expenses for the immediately preceding calendar year reviewed (and if so commenced, to diligently pursue such review to completion), provided that such review shall be concluded not later than nine (9) months following the date of Tenant’s receipt of the Reconciliation Statement for the year to which such review relates, so long as Landlord’s books and records remain reasonably available for review by Tenant and/or Tenant’s accountant.  In connection therewith, Landlord shall maintain its books and records in a commercially reasonable condition, capable of being audited by Tenant and/or its accountant.  If Landlord disagrees with the results of Tenant’s review and audit, then Landlord and Tenant’s auditor shall together select a neutral auditor of similar qualifications to conduct a review of such books and records (the fees of such neutral auditor to be shared equally by Landlord and Tenant), and the determination of Operating Expenses reached by such neutral auditor shall be final and conclusive.  Notwithstanding anything to the contrary contained herein, in the event Landlord does not contest Tenant’s review and audit within forty-five (45) days after receipt thereof, then Landlord shall be deemed to have approved such review and audit.  If the amounts paid by Tenant to Landlord on account of Operating Expenses (a) exceed the amounts to which Landlord is entitled hereunder, then Landlord shall credit the amount of such excess toward the next monthly payment(s) of Additional Rent due hereunder, or (b) are less than the amounts to which Landlord is entitled hereunder, then Tenant shall pay such deficiency as Additional Rent within thirty (30) days after final determination of said Operating Expenses and receipt of written request.  Excluding the fees of any neutral auditor selected by the parties hereto as aforesaid, which shall be shared equally by Landlord and Tenant, all costs and expenses of any such review by Tenant and/or Tenant’s accountant shall be paid by Tenant; provided, however, that if the amount of Operating Expenses used in such Reconciliation Statement to calculate Tenant’s Proportionate Share thereof was overstated by Landlord by more than five percent (5%), Landlord shall, within thirty (30) days after receipt of written request from Tenant, accompanied by back-up documentation reasonably acceptable to Landlord, reimburse Tenant for the commercially reasonable, out of pocket hourly or flat fee costs and expenses paid by Tenant in connection with Tenant’s review.  Any and all information obtained through any such review (including without limitation, any matters pertaining to Landlord, its managing agent or the Building), and any compromise, settlement or adjustment that may be proposed or reached between Landlord and Tenant as a result of such review, shall be held in strict confidence, and neither Tenant nor any of Tenant’s Agents shall disclose any such information to any person or entity other than a Permitted Recipient.  A “Permitted Recipient” shall be the officers, directors, partners and employees of

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Tenant, Tenant’s certified public accountants who have responsibilities related to Operating Expenses, Tenant’s attorneys  involved with the Lease or such review, any employees of Tenant’s auditor involved with such review, or any person or entity to whom disclosure is required by applicable judicial or governmental authority.  Prior to disclosing any such information to any Permitted Recipient (including its auditor), Tenant shall instruct such Permitted Recipient to abide by this confidentiality provision.  Notwithstanding anything herein to the contrary, if Tenant does not notify Landlord in writing of any objection to an annual Operating Expenses Reconciliation Statement within one hundred fifty (150) days after receipt thereof, then Tenant shall be deemed to have waived any such objection and shall have no right to review Landlord’s books and records related to Operating Expenses that are the subject of such Reconciliation Statement; [*****].

ARTICLE V

SECURITY

5.1Landlord shall provide the following security services and operate and maintain, in a manner consistent with a first-class data center, the following systems with respect to the Office Building, the Building and the Premises, the cost of which shall be included in Operating Expenses if and to the extent permitted under Article IV above: (i) administration of Office Building perimeter security and Building perimeter security including, without limitation, the Common Areas, (ii) monitoring and administration of the Building’s access card system and the Office Building’s access card system, (iii) monitoring and oversight of loading dock security and the parking lot located on the Land (the “Parking Lot”), (iv) monitoring and operation of security cameras throughout the Office Building and throughout the Building, and (v) monitoring of the routes of ingress to, and egress from, the Premises, the Building and the Office Building (the “Security Systems”).

5.2Tenant shall have the right to, subject to Article IX hereof, install, manage and/or maintain, at its sole cost and expense, security services and systems to protect the Premises and vault environments including, without limitation, a secondary security perimeter within the Premises and electronic “key card” security system and/or biometric access system, in addition to the standard Building, Office Building and Property security services provided by Landlord.  Tenant agrees that such security systems shall not (i) limit Landlord’s ability to access the space in the event of an emergency or to perform routine maintenance, subject to Section 11.1 hereof and Exhibit F attached hereto, or (ii) materially, adversely affect any area outside of the Premises.  Tenant shall, upon ten (10) days’ advance written notice to Landlord, have the right to obtain, at no additional cost to Tenant, monthly reports from Landlord regarding entry data and card access for: (a) each person on the Tenant Access List (as hereinafter defined) that enters the

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Building and Office Building and (b) each person that enters the Premises.  Tenant shall, further, have the right to request entry data, review video and card access for the Premises, the Building, the Office Building and the Parking Lot, as situations dictate to resolve its own reasonable security concerns or support any necessary personnel inquires, and Landlord or the Management Company (defined in Section 13.5 below) shall use commercially reasonable efforts to furnish all such records, all subject to availability, no more than forty-eight (48) hours after such request by Tenant.

5.3Notwithstanding anything to the contrary contained herein, if (i) any breach of security in the Premises shall occur, (ii) any Service Interruption (as defined in Section 13.8 below) shall occur, or (iii) any other event adversely impacting the operation of the Premises occurs, Tenant shall immediately provide notice to Landlord via (a) email to the following (twenty-four (24) hours per day, seven (7) days per week and three hundred sixty-five (365) days per year) [*****] and (b) telephone call to the following (twenty-four (24) hours per day, seven (7) days per week and three hundred sixty-five (365) days per year) Landlord’s Emergency/Security Response Center [*****] and/or such other email address and/or phone number as Landlord shall from time to time notify Tenant in writing (“Landlord’s Emergency Contacts”).

5.4Notwithstanding anything to the contrary contained herein, if (i) any breach of security in the Building and/or the Premises shall occur, (ii) any Service Interruption (as hereinafter defined) and/or reductions in levels of redundancy as provided in Section 13.2 below shall occur, or (iii) any other event adversely impacting the operation of the Premises and/or the Building occurs, Landlord shall immediately provide notice to Tenant via (a) email to [*****] (twenty-four (24) hours per day, seven (7) days per week and three hundred sixty-five (365) days per year) and (b) telephone call to [*****] (twenty-four (24) hours per day, seven (7) days per week and three hundred sixty-five (365) days per year), and/or to such other email address and/or phone number as Tenant shall from time to time notify Landlord in writing  (“Tenant’s Emergency Contacts”).

5.5Tenant shall provide to Landlord an access list (as updated and/or modified from time to time by Tenant, the “Tenant Access List”) designating employees of Tenant and Permitted Licensees (defined in Section 7.6 below) that are permitted to enter the Premises.  Each Tenant employee/Permitted Licensee designated by Tenant on the Tenant Access List shall receive a permanent access badge (an “Access Badge”).  [*****]. Tenant shall be solely responsible for updating the Tenant Access List and providing any changes to Landlord.  In the event that any Tenant employee or Permitted Licensee is removed from the Tenant Access List by Tenant or no longer requires access to the Premises for any reason, Tenant shall return such Tenant employee/Permitted Licensee’s Access Badge to Landlord promptly.  Landlord agrees and acknowledges that: (a) the contents of the Tenant Access List and/or the identities of those parties visiting the Premises shall remain strictly confidential and shall not be disclosed to any other party, other than the Management Company, without the prior written consent of Tenant, and (b) Landlord shall destroy, and not re-use, any and all Access Badges returned by Tenant to Landlord as aforesaid.  If any person seeking to gain access to the Premises is not on the Tenant

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Access List, then such person shall be refused access to the Premises; provided, however, that, so long as an employee or representative of Tenant has escort authorization as specifically indicated on the Tenant Access List, such employee and/or representative may escort any visitor, including, without limitation, any vendor, supplier, partner, customer or prospective customer of Tenant, that is not on the Tenant Access List to and/or within the Premises.  Without limiting the foregoing, in no event shall Landlord permit any representative or employee of Tenant that does not have escort authorization to escort any person that is not on the Tenant Access List to and/or within the Premises.  Notwithstanding anything to the contrary contained herein, Landlord shall have the right, at any time, to require the immediate removal of any employee, agent, representative, and/or contractor of Tenant, including, but not limited to, persons included on the Tenant Access List, from: (i) the Building or the Land for disruptive behavior or safety concerns occurring on the Property outside of the Premises or (ii) the Premises for material interference with Landlord’s performance of its obligations within the Premises, as determined in the sole but reasonable discretion of Landlord.  [*****].  Landlord will provide a security orientation for its non-employee, third-party contractors, consultants, technicians and other personnel (excluding Tenant, Permitted Licensees or any of Tenant’s employees, agents or invitees) that will have access to the Premises.  [*****].

5.6[*****].

ARTICLE VI

USE OF PREMISES

6.1Tenant shall use and occupy the Premises solely for data center computing, hosting and managed services purposes (including Permitted Interconnections (as defined in Section 7.6 below)) and uses accessory thereto, including, without limitation, general office, storage, assembly, and repair (“Permitted Uses”), and for no other use or purpose.  Tenant shall not use or occupy the Premises for any unlawful purpose, or in any manner that will violate the certificate of occupancy for the Premises or the Building or that will constitute waste, nuisance or unreasonable annoyance to Landlord or any other tenant or user of the Building, or in any manner (other than the Permitted Uses) that will increase the number of parking spaces required for the Building as required by law.  Tenant’s use of the Premises shall comply with all present and future laws (including, without limitation, the Americans with Disabilities Act (the “ADA”) and the regulations promulgated thereunder, as the same may be amended from time to time), ordinances (including without limitation, zoning ordinances and land use requirements), regulations, orders and recommendations (including, without limitation, those made by any public or private agency having authority over insurance rates) (collectively, “Laws”) concerning the use, occupancy and condition of the Premises and of all Tenant’s machinery, equipment, furnishings, fixtures and improvements therein, all of which shall be complied with in a timely manner at Tenant’s sole expense.  Notwithstanding the foregoing, Landlord at its expense (subject to reimbursement pursuant to Article IV above, if and to the extent permitted thereby) shall comply with Laws (including, without limitation, the ADA and Environmental Laws (hereinafter defined)) to the extent the same apply directly to the Building Structure and Systems

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(as hereinafter defined in Section 8.2), Common Areas of the Property as a whole, and any other portions of the Building located outside of tenant premises, including, without limitation, telephone rooms, mechanical and electrical rooms and closets; provided, however, that to the extent any non-compliance is a result of Tenant’s particular use or occupancy of the Premises (as opposed to the Permitted Uses) or any negligence or willful misconduct of Tenant or any Agent, or if any improvements made by Landlord to comply with such Laws benefit solely the Premises (and not any other premises) and are atypical of those performed for similarly-situated tenants, then such compliance shall be at Tenant’s cost.  Landlord represents and warrants that, as of the Rent Commencement Date, the Premises and the Building shall be in material compliance with all Laws.  Notwithstanding any other provisions herein to the contrary, the parties hereto acknowledge and agree that in the event the Premises and/or the Building are not in compliance with all laws as of the Rent Commencement Date, and provided that any non-compliance is not a result of Tenant’s breach of its obligations under this Lease or any negligence or willful misconduct of Tenant or any Agent, Landlord shall bear any and all costs and expenses of achieving such compliance, and such costs and expenses shall not be included as an Operating Expense.  If any such Law requires an occupancy or use permit or license for the Premises or the operation of the business conducted therein, then Tenant shall obtain and keep current such permit or license at Tenant’s expense and shall promptly deliver a copy thereof to Landlord, provided, that Landlord shall be responsible, at its sole cost and expense and not to be included as an Operating Expense, for obtaining the initial certificate of occupancy required for the Premises and Tenant’s use of the Premises for the Permitted Uses.  Use of the Premises is subject to all covenants, conditions and restrictions of record.  Tenant shall not use any space in the Building or the Land for the sale of goods to the public at large or for the sale at auction of goods or property of any kind.  Tenant shall not conduct any operations, sales, promotions, advertising or special events outside the Premises, whether in the Building or on the Land.

6.2Tenant shall pay before delinquency any business, rent or other taxes or fees that are now or hereafter levied, assessed or imposed upon Tenant’s use or occupancy of the Premises, the conduct of Tenant’s business at the Premises, or Tenant’s equipment, fixtures, furnishings, inventory or personal property.  If any such tax or fee is enacted or altered so that such tax or fee is levied against Landlord or so that Landlord is responsible for collection or payment thereof, then Tenant shall pay as Additional Rent the amount of such tax or fee.

6.3(a)           Tenant shall not allow, cause or permit any Hazardous Materials to be generated, used, treated, released, stored or disposed of in or about the Building or the Land by Tenant’s employees, agents, contractors, licensees (including, without limitation Permitted Licensees) and/or invitees [but excluding Landlord or Landlord’s agents, contractors or employees], provided that Tenant and Permitted Licensees may use and store normal and reasonable quantities of Hazardous Materials in the Premises as are customarily maintained by data center tenants and as may be reasonably necessary for Tenant and Permitted Licensees to conduct normal operations in the Premises, taking into account the Permitted Uses, so long as such Hazardous Materials are properly, safely and lawfully stored and used by Tenant and Permitted Licensees.  At the expiration or earlier termination of this Lease, with respect to conditions existing on account of Tenant’s use or occupancy of the Premises, Tenant shall

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surrender the Premises to Landlord free of Hazardous Materials attributable to an Environmental Default and in full compliance with all Environmental Laws.

(i)“Hazardous Materials” means (a) asbestos and any asbestos containing material and any substance that is then defined or listed in, or otherwise classified pursuant to, any Environmental Law or any other applicable Law as a “hazardous substance,” “hazardous material,” “hazardous waste,” “infectious waste,” “toxic substance,” “toxic pollutant” or any other formulation intended to define, list, or classify substances by reason of deleterious properties such as ignitability, corrosivity, reactivity, carcinogenicity, toxicity, reproductive toxicity, or Toxicity Characteristic Leaching Procedure (TCLP) toxicity, (b) any petroleum and drilling fluids, produced waters, and other wastes associated with the exploration, development or production of crude oil, natural gas, or geothermal resources, and (c) any petroleum product, polychlorinated biphenyls, urea formaldehyde, radon gas, radioactive material (including any source, special nuclear, or by product material), medical waste, chlorofluorocarbon, lead or lead based product, and any other substance whose presence could be detrimental to the Building or the Land or hazardous to health or the environment.

(ii)“Environmental Law” means any present and future Law and any amendments (whether common law, statute, rule, order, regulation or otherwise), permits and other requirements or guidelines of governmental authorities applicable to the Building or the Land and relating to the environment and environmental conditions or to any Hazardous Material (including, without limitation, CERCLA, 42 U.S.C. § 9601 et seq., the Resource Conservation and Recovery Act of 1976, 42 U.S.C. § 6901 et seq., the Hazardous Materials Transportation Act, 49 U.S.C. § 1801 et seq., the Federal Water Pollution Control Act, 33 U.S.C. § 1251 et seq., the Clean Air Act, 42 U.S.C. § 7401 et seq., the Toxic Substances Control Act, 15 U.S.C. § 2601 et seq., the Safe Drinking Water Act, 42 U.S.C. § 300f et seq., the Emergency Planning and Community Right To Know Act, 42 U.S.C. § 1101 et seq., the Occupational Safety and Health Act, 29 U.S.C. § 651 et seq., and any so called “Super Fund” or “Super Lien” law, any Law requiring the filing of reports and notices relating to hazardous substances, environmental laws administered by the Environmental Protection Agency, and any similar state and local Laws, all amendments thereto and all regulations, orders, decisions, and decrees now or hereafter promulgated thereunder concerning the environment, industrial hygiene or public health or safety).

(iii)“Environmental Default” means any material violation of any Environmental Law by Tenant or any Tenant invitee (other than Landlord or Landlord’s agents, contractors, employees or agents) including, without limitation, a release, spill, or discharge of a Hazardous Material on or from the Premises, the Land or the Building.

(b)Notwithstanding any termination of this Lease, Tenant shall indemnify and hold Landlord, its employees and agents harmless from and against any damage, injury, loss, liability, charge, demand or claim based on or arising out of the presence or removal of, or failure to remove, Hazardous Materials generated, used, released, spilled, stored or disposed of by Tenant or any Tenant invitee (other than Landlord or Landlord’s agents, contractors or employees) in or about the Building, after the date hereof.  In addition, Tenant shall give

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Landlord prompt written notice of any actual or threatened Environmental Default of which Tenant has actual knowledge, which Environmental Default Tenant shall cure in accordance with all Environmental Laws.  Upon any Environmental Default, in addition to all other rights available to Landlord under this Lease, at law or in equity, Landlord shall have the right but not the obligation to immediately enter the Premises, to supervise and approve any actions taken by Tenant to address the Environmental Default, and, if Tenant fails to promptly address same to Landlord’s reasonable satisfaction, to perform, at Tenant’s sole cost and expense, any lawful action necessary to address same.   If any lender or governmental agency shall require testing to ascertain whether an Environmental Default is pending or threatened, and such testing discloses the existence of an Environmental Default, then Tenant shall pay the reasonable costs of such testing as Additional Rent.

(c)Notwithstanding anything to the contrary contained herein, Landlord represents and warrants to Tenant that Landlord has no knowledge of the current existence of any Hazardous Materials in or about the Property or the Office Building.  Notwithstanding anything to the contrary contained herein, Landlord shall indemnify and hold Tenant, its employees and agents harmless from and against any damage, injury, loss, liability, charge, demand or claim based on, or arising out of, the presence or removal of, or failure to remove, Hazardous Materials generated, used, released, stored or disposed of by Landlord, any Landlord invitee or any other party (other than Tenant or Tenant’s agents, contractors, employees, invitees or guests) prior to or after the Lease Commencement Date.  In addition, Landlord shall give Tenant prompt written notice of any actual or threatened violation of any Environmental Law affecting the Premises of which Landlord has actual knowledge, which violation Landlord shall cure in accordance with all Environmental Laws.  For purposes of this Section 6.3(c), Hazardous Materials excludes substances of a type and in a quantity normally used in connection with the occupancy or operation of data centers, provided such substances are being held, stored and used in compliance with federal, state and local Laws.

ARTICLE VII

ASSIGNMENT AND SUBLETTING

7.1Subject to the terms and provisions of Sections 7.2(b) and 7.6 below, Tenant shall not assign, transfer or otherwise encumber (collectively, “assign”) this Lease or all or any of Tenant’s rights hereunder or interest herein, or sublet or permit anyone to use or occupy (collectively, “sublet”) the Premises or any part thereof, without obtaining the prior written consent of Landlord, which consent, provided no Event of Default exists under this Lease, and subject to Landlord’s rights and Tenant’s obligations pursuant to Sections 7.3, 7.4 and 7.5 below, Landlord shall not unreasonably withhold, condition or delay.  For purposes of the immediately preceding sentence, it shall be reasonable for Landlord to withhold its consent if, for example: (i) the proposed subtenant or assignee is engaged in a business, or the Premises will be used in a manner, that is inconsistent with the use of the Property as a first-class data center; or (ii) Landlord is not reasonably satisfied with the financial condition of the proposed subtenant or assignee taking into account the remaining obligations under this Lease and the fact that Tenant

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is not released; or (iii) the proposed use of the Premises is not in compliance with Article VI or is not compatible with the other uses within, and the terms of other leases with respect to, the Building; or (iv) the initial Tenant does not remain fully liable as a primary obligor for the payment of all rent and other charges payable by Tenant under this Lease and for the performance of all other obligations of Tenant under this Lease; or (v) the proposed subtenant or assignee is a governmental or quasi governmental agency; or (vi) the holders of Mortgages encumbering the Building shall fail to consent (Landlord hereby agreeing to use commercially reasonable diligent efforts to obtain such consent if Landlord approves such transaction); or (vii) the proposed subtenant or assignee is either (A) an existing tenant of the Building (or any parent, subsidiary or affiliate thereof) if Landlord has adequate space available in the Building for a comparable term, or (B) for a period of forty-five (45) days following the submission of a written proposal for the lease of space (and thereafter if a mutual agreement such as a letter of intent is executed within such period), any other person or entity with which Landlord is in the process of negotiating for the rental of space in the Building.  Except as otherwise set forth herein, no assignment or right of occupancy hereunder may be effectuated by operation of law or otherwise without the prior written consent of Landlord, which consent shall not be unreasonably withheld, conditioned or delayed.  Any assignment or subletting, Landlord’s consent thereto, the listing or posting of any name other than Tenant’s, or Landlord’s collection or acceptance of rent from any assignee or subtenant, shall not be construed either as waiving or releasing Tenant from any of its liabilities or obligations under this Lease as a principal and not as a guarantor or surety, or as relieving Tenant or any assignee or subtenant from the obligation of obtaining Landlord’s prior written consent to any subsequent assignment or subletting.  As security for this Lease, Tenant hereby assigns to Landlord the rent due from any assignee or subtenant of Tenant.  During any period that there exists an Event of Default under this Lease, Tenant hereby authorizes each such assignee or subtenant to pay said rent directly to Landlord upon receipt of notice from Landlord specifying same.  Landlord’s collection of such rent shall not be construed as an acceptance of such assignee or subtenant as a tenant.  Tenant shall not mortgage, pledge, hypothecate or encumber (collectively “mortgage”) this Lease without Landlord’s prior written consent, which consent may be granted or withheld in Landlord’s sole but reasonable discretion.  Any sublease, assignment or mortgage shall, at Landlord’s option, be effected on forms reasonably approved by Landlord.  Tenant shall deliver to Landlord a fully executed copy of each agreement evidencing a sublease, assignment or mortgage, and Landlord’s consent thereto, within thirty (30) days after execution thereof.

7.2(a)           If Tenant is a partnership or a limited liability company, then any event (whether voluntary, concurrent or related) resulting in a dissolution of Tenant, any withdrawal or change (whether voluntary, involuntary or by operation of law) of the partners or members, as applicable, owning a controlling interest in Tenant (including each general partner or manager, as applicable), or any structural or other change having the effect of limiting the liability of the partners shall be deemed a voluntary assignment of this Lease subject to the provisions of this Article VII.  If Tenant is a corporation or a partnership with a corporate general partner, then any event (whether voluntary, concurrent or related) resulting in a dissolution, merger, consolidation or other reorganization of Tenant (or such corporate general partner) and that causes a change in control of Tenant, or the sale or transfer or relinquishment of the interest of shareholders who, as

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of the date of this Lease, own a controlling interest of the capital stock of Tenant (or such corporate general partner) and that causes a change in control of Tenant, shall be deemed a voluntary assignment of this Lease subject to the provisions of this Article VII; provided, however, that if Tenant is a corporation, or a wholly-owned subsidiary of a corporation, whose stock is traded through a national or regional exchange or over the counter market, then the foregoing portion of this sentence shall be applicable only if such event has or is intended to have the effect of eliminating liability under this Lease.

(b)Notwithstanding anything contained in this Article VII to the contrary, provided no Event of Default exists hereunder, Tenant may, upon not less than ten (10) days’ prior written notice to Landlord (which notice shall contain a written certificate from Tenant, signed by an authorized representative of Tenant, containing a representation as to the true, correct and complete legal and beneficial relationship of Tenant and the proposed assignee, transferee or subtenant) but without Landlord’s prior written consent and without being subject to Landlord’s rights and Tenant’s obligations set forth in Sections 7.4 and 7.5 below, assign or transfer its entire interest in this Lease or sublease the entire or any portion of the Premises to any of the following (each, an “Affiliate”): (i) to a corporation or other business entity (herein sometimes referred to as a “successor corporation”) into or with which Tenant shall be merged or consolidated, or to which substantially all of the assets of Tenant may be transferred or sold, provided that such successor corporation shall have a net worth and liquidity factor at least equal to the net worth and liquidity factor of Tenant as of the date hereof or otherwise reasonably acceptable to Landlord taking into account the fact that the original Tenant under this Lease is not being released, and provided that the successor corporation shall assume in writing all of the obligations and liabilities of Tenant under this Lease and the proposed use of the Premises is in compliance with Article VI above; or (ii) to a corporation or other business entity (herein sometimes referred to as a “related corporation”) which shall control, be controlled by or be under common control with Tenant, provided that such related corporation shall assume in writing all of the obligations and liabilities of Tenant under this Lease (without relieving Tenant therefrom) and the proposed use of the Premises is in compliance with Article VI above.  In the event of any such assignment or subletting, Tenant shall remain fully liable as a primary obligor for the payment of all rent and other charges required hereunder and for the performance of all obligations to be performed by Tenant hereunder.  For purposes of this Section 7.2, “control” shall be deemed to be ownership of more than fifty percent (50%) of the stock or other voting interest of the controlled corporation or other business entity.  Notwithstanding the foregoing, if Tenant structures one or more assignment or sublease transactions to an entity that meets the definition of Affiliate as specified above for the purpose of circumventing the restrictions on subleases and assignments provided elsewhere in this Article VII, then such subtenant(s) or assignee(s) shall conclusively be deemed not to be an Affiliate and subject to all such restrictions.

7.3(a)           If at any time during the Lease Term Tenant desires to assign, sublet or mortgage all or part of this Lease or the Premises, then in connection with Tenant’s request to Landlord for Landlord’s consent thereto, Tenant shall give notice to Landlord in writing (“Tenant’s Request Notice”) containing: the identity of the proposed assignee, subtenant or

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other party and a description of its business; the terms of the proposed assignment, subletting or other transaction (including a copy of the proposed document for same) including whether any premium or other consideration is being paid for the assignment, sublease or other transaction; the anticipated commencement date of the proposed assignment, subletting or other transaction (the “Proposed Sublease Commencement Date”); the area proposed to be assigned, sublet or otherwise encumbered (the “Proposed Sublet Space”); and either financial statements for the prior two (2) years certified by an authorized officer of Tenant or a certified public accounting firm or other evidence of financial responsibility of such proposed assignee, subtenant or other party.  If financial statements for such proposed assignee, subtenant or other party are not available for the prior two years, then Tenant shall submit any financial statements that are available for the prior two years and any other available evidence of financial responsibility reasonably requested by Landlord.

(b)Landlord shall grant or deny, with reasonable specificity, Tenant’s request for consent contained in any Tenant’s Request Notice within thirty (30) days after Landlord has received any such Tenant’s Request Notice (including all other items required to be delivered by Tenant to Landlord as set forth in Section 7.3(a) above).  If Landlord fails to timely grant or deny such request with reasonable specificity, then Landlord shall be deemed to have granted its consent thereto.

7.4If the proposed term with respect to the Proposed Sublet Space extends (including any renewal or extension options) beyond the first (1st) day of the twelfth (12th) calendar month before the then-scheduled expiration of the Lease Term, or if the Proposed Sublet Space is (or, when aggregated with other space being sublet or assigned by Tenant, will be) more than fifty percent (50%) of the total number of rentable square feet in the Premises or if the Critical Load Power associated with the Proposed Sublet Space is (or, when aggregated with the Critical Load Power associated with other space being sublet or assigned by Tenant, will be) more than fifty percent (50%) of the Maximum Load Limit (hereinafter defined), then, in any such event, except as set forth in Section 7.2(b) concerning Affiliates, Landlord shall have the right in its sole and absolute discretion to terminate this Lease with respect to the Proposed Sublet Space by sending Tenant written notice of such termination within thirty (30) days after Landlord’s receipt of Tenant’s Request Notice.  Notwithstanding any of the foregoing to the contrary, if Landlord sends Tenant a written notice pursuant to the immediately preceding sentence indicating Landlord’s intention to terminate this Lease with respect to the Proposed Sublet Space, then Tenant shall have the right, for a period of ten (10) days after receipt of such notice, to withdraw (by written notice to Landlord) the applicable Tenant’s Request Notice.  If the Proposed Sublet Space does not constitute the entire Premises and Landlord exercises its option to terminate this Lease with respect to the Proposed Sublet Space, then (a) Tenant shall tender the Proposed Sublet Space to Landlord on the Proposed Sublease Commencement Date and such space shall thereafter be deleted from the Premises, and (b) as to that portion of the Premises which is not part of the Proposed Sublet Space, this Lease shall remain in full force and effect except that Base Rent and additional rent shall be reduced pro rata.  Fifty percent (50%) of the cost of any construction required to permit the operation of the Proposed Sublet Space separate from the balance of the Premises shall be paid by Tenant to Landlord as additional rent hereunder.  If the

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Proposed Sublet Space constitutes the entire Premises and Landlord elects to terminate this Lease, then Tenant shall tender the Proposed Sublet Space to Landlord, and this Lease shall terminate, on the Proposed Sublease Commencement Date.

7.5If any sublease or assignment (whether by operation of law or otherwise, including without limitation an assignment pursuant to the provisions of the Bankruptcy Code or any other Insolvency Law) provides that the subtenant or assignee thereunder is to pay any amount in excess of the sum of (a) the rent and other charges due under this Lease plus (b) the reasonable out-of-pocket expenses (including any costs attributable to vacancy periods or “downtime”), that Tenant reasonably incurred in connection with the procurement of such sublease, assignment or other transfer (which expenses shall be amortized on a straight-line basis over the initial sublease term for the purposes hereof), then whether such net excess be in the form of an increased monthly or annual rental, a lump sum payment, payment for the sale, transfer or lease of Tenant’s fixtures, leasehold improvements, furniture and other personal property, or any other form of payment having the effect of a “disguised” rental payment (and if the subleased or assigned space does not constitute the entire Premises, the existence of such excess shall be determined on a pro rata basis), Tenant shall pay to Landlord, along with the next monthly installment of Base Rent due, [*****] of any such net excess or other premium applicable to the sublease or assignment, which amount shall be calculated and paid by Tenant to Landlord on a monthly basis as Additional Rent.  Acceptance by Landlord of any payments due under this Section 7.5 shall not be deemed to constitute approval by Landlord of any sublease or assignment, nor shall such acceptance waive any rights of Landlord hereunder.  Landlord shall have the right to inspect and audit Tenant’s books and records relating to any sublease or assignment.

7.6Landlord acknowledges that the business to be conducted by Tenant in the Premises may include the installation of certain equipment (described below) owned, licensed or otherwise used by customers, vendors or co-locators of the undersigned Tenant (“Permitted Licensees”) in the Premises, in order for Permitted Licensees to place, use, operate and/or maintain computer, switch, communications and/or other related facilities and equipment which may interconnect with Tenant’s equipment and facilities and/or other Permitted Licensees’ equipment and facilities (the “Permitted Interconnection”).  To expedite Permitted Licensees’ access to the Premises for Permitted Interconnections, Landlord expressly agrees that Tenant may, without Landlord’s consent, license portions of the Premises to Permitted Licensees for the sole purpose of Permitted Interconnections pursuant to written agreements or other arrangements by and between Tenant and Permitted Licensees (collectively, “Permitted Agreements”); provided, however, that (a) Tenant acknowledges and agrees that access of Permitted Licensees to the Building and the Premises is subject to the terms and provisions of Article V above and (b) the Permitted Licensee’s license of a portion of the Premises may not violate the terms of this Lease or any Applicable Laws.  The Permitted Agreements and the Permitted Licensees’ rights thereunder shall be subject and subordinate at all times to the Lease and all of its provisions, covenants and conditions.  Except to the extent caused by the negligence or willful acts or omissions of Landlord or its agents, and subject to Section 12.3 below, Tenant hereby agrees to indemnify, defend, and hold harmless Landlord from and against (and to reimburse Landlord for)

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any and all claims, costs, damages, causes of action and/or litigation arising from or in any manner relating to (i) any Permitted Agreement, (ii) the use of the Premises or any other portion of the Building or the Property by any Permitted Licensee or any person claiming by, through or under any Permitted Licensee, its officers, agents or employees (collectively, the “Colocating Parties”), and (iii) the acts or omissions of any Permitted Licensee or any Colocating Parties.  Notwithstanding anything to the contrary contained herein, Landlord and Tenant acknowledge and agree that Permitted Agreements shall not constitute, or be deemed to be, (I) the grant of a leasehold interest or otherwise constitute, or be deemed to be, a real property interest or (II) an assignment of this Lease or a sublet of the Premises, or any portion thereof, requiring Landlord’s consent, and the Permitted Interconnections and Permitted Agreements shall not be subject to Landlord’s rights and Tenant’s obligations set forth in Section 7.4 and 7.5 above.  Additionally, Landlord and Tenant agree that Tenant’s right to enter into Permitted Agreements related to the Premises is a right that is granted specifically and solely to Rackspace U.S., Inc. and Rackspace Hosting, Inc. and Affiliates of each, and, as such, such right shall not be exercisable by any party (who is not an Affiliate of Rackspace U.S., Inc. and/or Rackspace Hosting, Inc.) to whom any or all of the rights of “Tenant” under this Lease are hereafter assigned or otherwise transferred, or by any Colocating Party (who is not an Affiliate of Rackspace U.S., Inc. and/or Rackspace Hosting, Inc.).

7.7All restrictions and obligations imposed pursuant to this Lease on Tenant shall be deemed to extend to any subtenant, assignee, licensee, concessionaire or other occupant or transferee, and Tenant shall cause such person to comply with such restrictions and obligations.  Any assignee shall be deemed to have assumed obligations from and after the effective date of the relevant assignment and at Landlord’s request shall execute promptly a document confirming such assumption.  Each sublease is subject to the condition that if the Lease Term is terminated or Landlord succeeds to Tenant’s interest in the Premises by voluntary surrender or otherwise, at Landlord’s option the subtenant shall be bound to Landlord for the balance of the term of such sublease and shall attorn to and recognize Landlord as its landlord under the then executory terms of such sublease.

ARTICLE VIII

MAINTENANCE AND REPAIRS

8.1Subject to Landlord’s obligations in Section 8.2, Article XVI and Article XVII below and in the Services Exhibit attached hereto as Exhibit F, Tenant, at Tenant’s sole cost and expense, shall promptly make all repairs, perform all maintenance, and make all replacements in and to the Premises that are necessary or desirable to keep the Premises in proper operating condition and repair, in a clean, safe and tenantable condition, and otherwise in accordance with all Laws and the requirements of this Lease (Tenant’s repair, maintenance and replacement obligations, including but not limited to obligations with respect to the Tenant Items (as hereinafter defined), shall hereinafter be collectively referred to as “Tenant’s Repair and Maintenance Obligations”).  Subject to Landlord’s obligations in Section 8.2, Article XVI and Article XVII below, Tenant shall maintain all fixtures, furnishings and equipment installed by

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Tenant or any Tenant invitee in the Premises (excluding any PDUs installed by Tenant) in clean, safe and sanitary condition, shall take good care thereof and make all required repairs and replacements thereto.  Tenant shall maintain throughout the Lease Term, at Tenant’s sole cost and expense, customary maintenance and service contracts for the maintenance and repair of any and all non-Building standard supplemental heating, ventilation and air conditioning equipment and systems and any and all non-Building standard supplemental power distribution equipment and systems installed by Tenant or any Tenant invitee in the Premises, and Tenant shall maintain throughout the Lease Term, at Tenant’s sole cost and expense, all such supplemental heating, ventilation and air conditioning equipment and systems and supplemental power distribution equipment and systems, as well as any special tenant areas, facilities and finishes installed by Tenant or any Tenant invitee; special fire protection equipment, telecommunications and computer equipment installed by Tenant or any Tenant invitee; kitchen/galley equipment and fixtures, all other furniture, furnishings, equipment and systems of Tenant and all Alterations (collectively, “Tenant Items”).  Each such contract shall be with a contractor licensed to do business in the jurisdiction in which the Building is located and otherwise reasonably approved by Landlord.  From time to time, at Landlord’s request, Tenant shall provide Landlord with copies of all maintenance and service contracts.  In the event that Tenant fails to commence and diligently prosecute to completion any item of Tenant’s Repair and Maintenance Obligations within fifteen (15) Business Days following Tenant’s receipt of notice from Landlord, then Landlord shall have the right, at Landlord’s option, to perform any such item of Tenant’s Repair and Maintenance Obligations and to charge Tenant for all reasonable costs and expenses actually incurred by Landlord in connection therewith.  Tenant shall give Landlord prompt written notice of any defects or damage to the structure of, or equipment or fixtures in, the Building or any part thereof of which Tenant has knowledge.  Tenant shall suffer no waste or injury to any part of the Premises, and shall, at the expiration or earlier termination of the Lease Term, surrender the Premises in an order and condition equal to or better than their order and condition on the Rent Commencement Date, except for ordinary wear and tear and as otherwise provided in Article IX, Article XII and/or Article XVI.  Except as otherwise provided in Article XVI, all injury, breakage and damage to the Premises and to any other part of the Building or the Land caused by any act or omission of any agent, employee, subtenant, assignee, contractor, client, licensee, customer, invitee or guest of Tenant (collectively, “Agents”) or Tenant, shall be repaired by and at Tenant’s expense, except that:  (A) if either an emergency condition exists or the Lease Term has expired or Tenant fails to commence and diligently prosecute to completion repair of any such injury, breakage or damage within ten (10) days following Tenant’s receipt of notice from Landlord, then Landlord shall have the right at Landlord’s option to make any such repair and to charge Tenant for all reasonable costs and expenses actually incurred by Landlord in connection therewith; and (B) if such injury, breakage and damage is caused by the negligence of Tenant or any Agent (as opposed to the gross negligence or willful misconduct of Tenant or any Agent), then the mutual waiver of subrogation specified in Sections 12.2 and 12.3 shall apply (subject to the limitations of the remainder of Article XII, including without limitation the fact that Tenant’s insurance shall be primary and non-contributory).  Landlord shall provide and install replacement tubes for Building-standard fluorescent light fixtures (subject to reimbursement pursuant to Article IV).  All other lights and/or light bulbs within the Premises shall be provided and installed by Tenant at Tenant’s sole cost and expense.  The provision, installation and

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replacement of such lights and light bulbs shall be expressly required as an item of Tenant’s Repair and Maintenance Obligations.

8.2Except as otherwise provided in this Lease, Landlord, at its expense (subject to reimbursement pursuant to Article IV if and to the extent permitted thereby), shall promptly make all repairs, perform all maintenance and make all replacements (which shall be new or comparable materials, facilities or equipment only) to keep the exterior and demising walls, main lobby in the Building and main lobby in the Office Building, slab floors, exterior windows, load bearing elements, foundations, roof and common areas that form a part of the Building and that form a part of the Office Building; the driveways, parking and grounds on the Land; the raised floor, the PDUs (up to the load side of each PDU, up to and including the output bus), CRACs, Engine Generators, electrical distribution switchgear, uninterruptible power systems, HVAC cooling support equipment, the Building Management System, the Security Systems, fire detection and alarm system and fire protection system, any other equipment, facilities or other property of Landlord, located within the Premises, the Building and the Office Building, as well as the mechanical, telecommunications, electrical, HVAC and plumbing systems, equipment, rooms, closets, pipes, cables, risers, vaults, manholes and conduits that are provided by Landlord in the operation of the Building and the Office Building (collectively, the “Building Structure and Systems”), clean and in good operating condition, consistent with industry standards for first-class data centers (Landlord’s repair, maintenance and replacement obligations, collectively, “Landlord’s Repair and Maintenance Obligations”).  Landlord’s Repair and Maintenance Obligations shall include Landlord’s duties and obligations set forth in Section B of the Services Exhibit attached hereto as Exhibit F.  Notwithstanding any of the foregoing to the contrary, maintenance and repair of all Tenant Items shall be the sole responsibility of Tenant and Tenant Items shall be deemed not to be a part of the Building Structure and Systems.

ARTICLE IX

ALTERATIONS

9.1(a)           Landlord represents and warrants that it has constructed and installed at its sole cost and expense, the Building and data center infrastructure and leasehold improvements (“Landlord’s Work”) as outlined in Exhibit D attached hereto and made a part hereof, all in a good, workmanlike and first-class manner, and all in compliance with all applicable Laws and building codes.  [*****].  It is understood and agreed that, except for the Landlord’s Work [*****] and delivery of the Office Space and Storage Space as set forth in Sections 1.3 and 1.4 above, Landlord will not make, and is under no obligation to make, any structural or other alterations, installations, additions or improvements in or to the Building, Land or Premises.

(b)[*****].

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(c)[*****].

9.2Tenant shall not make or permit anyone to make any material alterations, additions, improvements or replacements in or to the Premises, the Building, the Office Building or the Property (collectively, “Alterations”) without the prior written consent of Landlord, which consent may be withheld or granted in Landlord’s sole and absolute discretion with respect to structural Alterations and those non-structural Alterations which are visible from the exterior of the Premises, and which consent shall not be unreasonably withheld, conditioned or delayed with respect to all other non-structural Alterations.  Structural Alterations shall be deemed to include, without limitation, any Alteration that will or may necessitate any changes, replacements or additions to the load-bearing or exterior walls, non-drop ceilings, partitions (load-bearing or non-demising), columns or floor, or to the fire protection, water, sewer, electrical, mechanical, plumbing or HVAC systems, of the Premises or the Building.  Notwithstanding the foregoing, Tenant shall have the right to make Minor Changes (as defined below) within the Premises without requiring the consent of Landlord.  “Minor Changes” shall mean those minor, non-structural Alterations which will not cause an interruption of, or a reduction in, the functioning of the Building’s mechanical, electrical, life safety, security, plumbing, HVAC, telecommunications or other systems, and which cost (including installation) in the aggregate less than [*****] (as reasonably determined by Landlord).  The construction of any cage(s), security fencing or similar structure within the Premises shall not be a Minor Change and shall be subject to Landlord’s consent, such consent not to be unreasonably withheld, conditioned or delayed.  Any Alterations made by Tenant shall be made: (a) in a good, workmanlike, first class and prompt manner; (b) using new or comparable materials only; (c) by a contractor included on Landlord’s list of approved contractors or a contractor otherwise reasonably approved in writing by Landlord (each, an “Approved Contractor”); (d) on days and at times that do not unreasonably interfere with Landlord’s performance of its obligations under this Lease; (e) under the supervision of an architect reasonably approved in writing by Landlord; (f) in accordance with plans and specifications prepared by an engineer and/or architect reasonably acceptable to Landlord, and, with respect to Alterations that are not Minor Changes, which plans and specifications shall be approved in writing by Landlord at Landlord’s standard charge, which shall not exceed [*****] except in the event that Landlord reasonably obtains the services of a non-affiliated third party to review such plans and specifications (i.e., where an Alteration affects the Building Structure and Systems), in which event Tenant shall be responsible for all reasonable, third-party, out-of-pocket costs and expenses actually incurred by Landlord; (g) in accordance with all Laws and, if made available to Tenant by Landlord, the reasonable requirements of any insurance company insuring the Building or any portion thereof; (h) with respect to any Alterations that are not Minor Changes, after Landlord shall have obtained any required consent of the holder of any Mortgage of whom Tenant has notice; (i) after obtaining public liability and worker’s compensation insurance policies approved in writing by Landlord, which policies shall cover every person who will perform any work with respect to such Alteration; and (j) with the obligation for Tenant to obtain and deliver to Landlord written, unconditional full or partial (as applicable) waivers of mechanics’ and materialmen’s liens against the Premises, the Building and the Property from all contractors, subcontractors, laborers and material suppliers (individually and collectively, “Contractors”) for all work, labor and

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services performed and materials furnished in connection with Alterations within ten (10) Business Days after Tenant submits payment to the applicable Contractor(s) for the applicable portion(s) of the Alterations.  If any lien (or a petition to establish such lien) is filed in connection with any Alteration made by or on behalf of Tenant, such lien (or petition) shall be discharged by Tenant as soon as commercially reasonable, but in no event more than thirty (30) days after Tenant receives notice thereof, at Tenant’s sole cost and expense, by the payment thereof or by the filing of a bond legally sufficient to discharge such lien.  If Landlord gives its consent to the making of any Alteration, such consent shall not be deemed to be an agreement or consent by Landlord to subject its interest in the Premises, or the Building to any liens which may be filed in connection therewith.  Tenant acknowledges that any Alterations are accomplished for Tenant’s account, Landlord having no obligation or responsibility in respect thereof.  Landlord’s approval of any plans and drawings (and changes thereto) regarding any Alterations or any contractor or subcontractor performing such Alterations shall not constitute Landlord’s representation that such approved plans, drawings, changes or Alterations comply with all Laws.  Any deficiency in design or construction, although same had prior approval of Landlord, shall be solely the responsibility of Tenant, unless Landlord performed design work or construction work (other than reviewing and/or approving plans, drawings or construction work) with respect to such Alterations.  All Alterations involving structural, electrical, mechanical or plumbing work, the heating, ventilation and air conditioning system of the Premises or the Building, fire and life safety system or the roof of the Building shall, at Landlord’s election, be performed by Landlord’s designated contractor or subcontractor, who shall be reasonably approved by Tenant, at Tenant’s expense (provided the cost therefor is competitive).  For any approved Alterations performed by Tenant and/or its contractor(s), Tenant shall not be required to pay a construction supervision fee or coordination fee to Landlord; however, if Landlord’s contractor or subcontractor performs any Alteration, then, except with respect to any of Landlord’s Work, [*****], Tenant shall pay a reasonable construction supervision fee [*****]. Promptly after the completion of an Alteration, Tenant, at its expense, shall deliver to Landlord three (3) sets of as-built (or record) drawings and CAD drawings prepared by Tenant’s engineer showing such Alteration in place.  Notwithstanding the foregoing, subject to Landlord’s written approval, which shall not be unreasonably withheld or delayed, Tenant may elect not to cause as-built drawings and CAD drawings to be prepared for Minor Changes that, in Landlord’s sole but reasonable discretion, do not affect the Building Structure and Systems.

9.3If any Alterations that require Landlord’s consent are made without the prior written consent of Landlord then, if either an emergency condition exists or the Lease Term has expired or Tenant fails to commence and diligently prosecute to completion, removal and correction of such Alterations and restoration of the Premises and the Building within ten (10) days following Tenant’s receipt of notice from Landlord, Landlord shall have the right, at Tenant’s expense, to so remove and correct such Alterations and restore the Premises and the Building to their condition immediately prior thereto.  Subject to the immediately succeeding sentence, all tenant improvements, to the Premises made by Landlord, [*****] (excluding moveable furniture, furnishings, trade fixtures and equipment) shall immediately become the property of Landlord and shall remain upon and be surrendered with the Premises as a part thereof at the expiration or earlier termination of the Lease Term.  Tenant shall have the right to

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remove, at or prior to the expiration or earlier termination of the Lease Term, all movable furniture, furnishings, trade fixtures, facilities and equipment installed in the Premises or elsewhere in the Building or on the Land solely at the expense of Tenant, including all Tenant Items, and Tenant may remove, at its expense, all Alterations and other items (including any telecommunications equipment and wiring) made or installed by Tenant in the Premises or the Building, provided, that Tenant may, at its option, surrender those Alterations and/or Tenant Items or other Tenant facilities or equipment requested by Landlord in writing.

9.4Landlord waives, releases and relinquishes any statutory, common law or constitutional liens it may have or at any time hereafter be entitled to assert against the personal property, trade fixtures and telecommunications, computer or other equipment and facilities which Tenant, its agents, employees and/or its Permitted Licensees, install in the Premises or elsewhere in the Building, the Office Building or on the Land, or is otherwise located in the Premises.

ARTICLE X

SIGNS

Tenant shall not place, inscribe, paint, affix or otherwise display any sign, advertisement or notice of any kind on any part of the exterior or the interior of the Building without the prior written approval of Landlord, which may be granted or withheld in Landlord’s sole and absolute discretion, provided, that Tenant may display signs within the Premises without Landlord’s consent; however, the location of any such sign displayed within the Premises is subject to Landlord’s approval, not to be unreasonably withheld or delayed.  All signage installed by Tenant in accordance with this Article X shall be installed and removed at the expiration or earlier termination of the Lease Term, and Tenant shall repair any damage to the Building resulting therefrom, at Tenant’s cost and expense.  If any sign, advertisement or notice requiring Landlord’s approval as aforesaid is exhibited or installed by Tenant without Landlord’s prior approval, Landlord shall have the right to immediately remove the same at Tenant’s expense.  Landlord reserves the right to affix, install and display signs, advertisements and notices on any part of the exterior or interior of the Building, including those required by applicable law, provided, that Landlord shall not affix, install or display any signs, advertisements or notices not required by applicable law and identifying Tenant, Tenant’s Affiliates, any Permitted Licensees or Tenant’s customers on or within the Building and/or the Office Building without Tenant’s prior written consent, which consent may be granted or withheld in Tenant’s sole and absolute discretion.

ARTICLE XI

LANDLORD ACCESS

11.1Tenant will permit Landlord, or its agents or representatives, and the holder of any Mortgage to enter the Premises, without charge therefor to Landlord and without diminution of the rent payable by Tenant, (i) to examine, inspect and protect the Premises, the Building and

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the Office Building, (ii) to make such alterations, replacements and/or repairs as in Landlord’s reasonable judgment may be required by law or be necessary in order for Landlord to perform its obligations under Article VIII hereof, and (iii) to otherwise comply with and carry out Landlord’s obligations under this Lease.  In connection with any such entry, Landlord shall (A) diligently endeavor to minimize the disruption to Tenant’s use of the Premises, and, in all events, shall not materially interfere with Tenant’s use of, or access to, the Premises for the Permitted Uses, (B) except in the event of emergency, give Tenant reasonable advance written, telephonic or email notice of such entry pursuant to Section 5.4 above, which shall not be less than two (2) Business Days prior to the date of entry and (C) diligently endeavor to conduct such entry only during normal working hours (except in the event of an emergency).  Tenant may, at its option, require that Landlord be accompanied by a representative of Tenant during any such entry (except in the case of emergency), provided that such representative of Tenant does not interfere with or delay Landlord exercising its rights or satisfying its obligations hereunder.

11.2Landlord reserves the right to grant easements, rights, and dedications that Landlord deems necessary or desirable for the benefit of the Property, and to record personal maps and restrictions in connection therewith; provided, however, Landlord shall not enter into any such agreement or grant any such rights that would unreasonably interfere with Tenant’s use or occupancy of, or access to, the Premises in accordance with the Permitted Uses.

11.3Upon written request by Tenant, Landlord shall grant, subject to Landlord’s rules and regulations and upon commercially reasonable terms, as determined by Landlord in its sole but reasonable discretion, license rights coterminous with the Lease Term to one or more reputable telecommunications utility provider(s) designated by Tenant (any such utility provider, an “Approved Fiber Provider”), to permit any such Approved Fiber Provider to bring such Approved Fiber Provider’s telecommunications fiber, cable and related equipment and facilities from and through conduits [*****] duct banks on the Property (the “Telecommunications Duct Banks”) into [*****] of the Building’s telecommunications points of entry (each, a “POE”), to provide cross-connects within the Premises and to permit any such Approved Fiber Provider to maintain and operate such cable, fiber and related facilities and equipment on the Property.  Landlord agrees that Landlord shall not charge Tenant or any Approved Fiber Provider any fee and/or other amount in connection with any such license granted pursuant to this Section 11.3 (other than direct costs incurred in connection with maintaining and restoring the Property, systems, and equipment directly affected by such license).  Tenant shall have the right, subject to Landlord’s reasonable rules and regulations, to use the secure telecommunications conduits exclusively serving each Pod in the Premises and extending from each Pod within the Premises to two (2) POEs within the Building (the “Telecommunications Conduits”) in order to connect Tenant’s telecommunications network cables and related telecommunications and computer facilities and equipment to the telecommunications equipment and facilities of third parties located within the two (2) POEs (“AFP Telecommunications Facilities”).  Tenant shall not be charged any fee for the use of the Telecommunications Duct Banks, the Telecommunications Conduits and/or the POEs in accordance with this Section 11.3.  Furthermore, Tenant shall have the right, subject to Article IX above and Landlord’s reasonable rules and regulations, and accompanied by an employee of Landlord or the Management Company or an agent designated

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by Landlord or the Management Company, to enter the POEs solely to install, use, operate, maintain, inspect, repair, replace and remove telecommunications facilities and equipment reasonably approved by Landlord in order to connect to AFP Telecommunications Facilities located within the POEs, all in locations reasonably designated by Landlord.  Tenant acknowledges and agrees that, in connection with its use of the Telecommunications Conduits and the POEs: (a) any of Tenant’s telecommunications network cables and wires entering the POEs must terminate in optical cable entrance termination facilities reasonably approved by Landlord, (b) Tenant may use only non-heat rejecting fiber termination facilities within the POEs, and (c) Tenant shall not materially disrupt, interfere with, or adversely affect (i) the operations of Landlord or other tenants within the Building, (ii) the structure of the Premises or the Building, and/or (iii) the telecommunications equipment and facilities or other personal property of Landlord or other tenants within the Building.  Tenant shall be responsible, at its sole cost and expense, for (1) connections to Approved Fiber Providers and for any services provided by Approved Fiber Providers to Tenant and (2) all costs associated with the population of the Telecommunications Conduits, including the installation of innerducts.  [*****].

ARTICLE XII

INSURANCE

12.1Tenant shall not conduct or permit to be conducted any activity, or place or permit to be placed any equipment or other item in or about the Premises or the Building, which is inconsistent with the Permitted Uses and which will in any way increase the rate of property insurance or other insurance on the Building.  If any increase in the rate of property or other insurance is due to any specific activity, equipment or other item of Tenant, then (whether or not Landlord has consented to such activity, equipment or other item) Tenant shall pay, as Additional Rent due hereunder, the amount of such increase.  The statement of any applicable insurance company or insurance rating organization (or other organization exercising similar functions in connection with the prevention of fire or the correction of hazardous conditions) that an increase is due to any such specific activity, equipment or other item shall be conclusive evidence thereof.

12.2(a)           Throughout the Lease Term, Tenant shall obtain and maintain:  (1) commercial general liability insurance (written on an occurrence basis) including contractual liability coverage insuring the obligations assumed by Tenant under this Lease, premises and operations coverage, broad form property damage coverage, independent contractors coverage, and personal injury, an exception to any pollution exclusion which insures damage or injury arising out of heat, smoke or fumes from a hostile fire, and a standard separation of insureds provision; (2) business interruption insurance; (3) all risk property insurance; (4) comprehensive automobile liability insurance (covering automobiles owned, hired or used by Tenant in carrying on its business, if any); (5) worker’s compensation insurance (covering Tenant’s employees); (6) employer’s liability insurance (covering Tenant’s employees); and (7) umbrella excess liability coverage on a following form basis in excess of the primary commercial liability, business auto liability, and employer’s liability coverages specified above and which insures against bodily

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injury, property damage, personal injury and advertising injury claims.  Such commercial general liability insurance shall be in amounts of One Million Dollars ($1,000,000) combined single limit per occurrence, and Two Million Dollar ($2,000,000) annual general aggregate (on a per location basis).  Such business interruption insurance shall be in minimum amounts typically carried by prudent tenants engaged in similar operations, but in no event shall be in an amount less than the Base Rent then in effect during any Lease Year.  Such property insurance shall be in an amount not less than that required to replace all tenant improvements installed by Tenant in the Premises, all Alterations [*****] and all of Tenant’s contents within the Premises (including, without limitation, Tenant’s trade fixtures, decorations, furnishings, inventory, equipment, facilities and personal property), but excluding PDUs, CRACs, HVAC cooling support equipment, fire detection and alarm and fire suppression systems and equipment and any other equipment, facilities or other property of Landlord comprising the Building Structure and Systems and located within the Premises.  Such automobile liability insurance shall be in an amount of One Million Dollars ($1,000,000) combined single limit for each accident.  Such worker’s compensation insurance shall meet statutory limits as defined by the law of the jurisdiction in which the Building is located (as the same may be amended from time to time).  Such employer’s liability insurance shall be in an amount of One Million Dollars ($1,000,000) for each accident, One Million Dollars ($1,000,000) disease policy limit, and One Million Dollars ($1,000,000) disease each employee.  Such umbrella excess liability insurance shall be in amounts of Five Million Dollars ($5,000,000) per occurrence and Five Million Dollars ($5,000,000) annual aggregate, in addition to the limits stated above for the commercial general liability, business auto liability and employer’s liability insurance.

(b)All such insurance shall:  (1) be issued by a company that is licensed to do business in the jurisdiction in which the Building is located, and that has a rating equal to or exceeding A:XII from the most current Best’s Insurance Guide; (2) with respect to Tenant’s commercial general liability insurance, name Landlord, the Management Company and the holder of any Mortgage (as hereinafter defined) of which Tenant has notice as additional insureds; (3) contain a waiver of subrogation (Tenant hereby waiving its right of action and recovery against and releasing Landlord and Landlord’s shareholders, partners, directors, officers and employees (“Landlord’s Representatives”) from liabilities, claims and losses for which they may otherwise be liable to the extent that (i) Tenant is covered therefor by insurance carried or required to be carried under this Lease and (ii) provided that Tenant is carrying such required insurance, Tenant receives proceeds therefor); (4) be reasonably acceptable in form and content to Landlord; (5) be primary and non-contributory; and (6) contain an endorsement requiring the insurance company to provide Landlord with written notice (by certified or registered mail, return receipt requested to the addresses listed in Section 24.6 hereof) of cancellation or non-renewal at least thirty (30) days’ prior to the effective date of such cancellation or non renewal.  Landlord reserves the right from time to time to require higher minimum amounts or different types of insurance if it becomes customary for other landlords of comparable data centers in the Chicago, Illinois area to require similar tenants in similar industries to carry insurance of such higher minimum amounts or of such different types.  Tenant shall deliver an Accord 27 certificate of all such insurance (which certificate shall evidence an endorsement for each policy indicating that the Landlord Insured Parties are named as additional insureds on liability policies

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(except employer’s liability, workers’ compensation and umbrella excess liability coverage) and that Landlord is named as a loss payee on the property insurance policies with respect to Landlord’s interest in improvements and betterments)  to Landlord on or before the Rent Commencement Date and at least annually thereafter.  If Tenant fails to provide evidence of insurance required to be provided by Tenant hereunder, prior to the Rent Commencement Date and, thereafter, within thirty (30) days following Landlord’s request during the Lease Term (and in any event within thirty (30) days prior to the expiration date of any such coverage, any other cure or grace period provided in this Lease not being applicable hereto), Landlord shall be authorized (but not required), after ten (10) days’ prior notice, to procure such coverage in the amount stated, with all costs thereof to be chargeable to Tenant and payable as Additional Rent within thirty (30) days after receipt of written invoice therefor.

12.3Throughout the Lease Term, Landlord agrees to carry and maintain all-risk property insurance (with full replacement cost coverage) covering the Building and the Office Building, including the Building Structure and Systems, and any other equipment, fixtures and property of Landlord therein, in an amount required by its insurance company to avoid the application of any coinsurance provision.  Landlord hereby waives its right of action and recovery against and releases Tenant and Tenant’s Affiliates, shareholders, partners, directors, officers, employees, agents and representatives (“Tenant’s Representatives”) from any and all liabilities, claims and losses for which they may otherwise be liable to the extent that (i) Landlord is covered therefor by insurance carried or required to be carried under this Lease and (ii) provided that Landlord is carrying such required insurance, Landlord receives proceeds therefor.  Landlord shall secure a waiver of subrogation endorsement from its insurance carrier with respect to Tenant and Tenant’s Representatives.  Landlord also agrees to carry and maintain, throughout the Lease Term, commercial general liability insurance in limits it reasonably deems appropriate (but in no event less than the limits required of Tenant pursuant to Section 12.2 above).  Landlord may elect to carry such other additional insurance or higher limits as it reasonably deems appropriate.  Tenant acknowledges that Landlord shall not carry insurance on, and shall not be responsible for damage to, Tenant’s personal property or any Alterations installed by Tenant [*****], and that Landlord shall not carry insurance against, or be responsible for any loss suffered by Tenant due to, interruption of Tenant’s business.

ARTICLE XIII

SERVICES AND UTILITIES

13.1The Building is at all times subject to the exclusive control, management and operation of Landlord.  Subject to the terms and provisions of this Lease, Landlord has the right with respect to such control, management and operation to:

(i)obstruct or close off all or any part of the Property for the purpose of maintenance, repair or construction, provided that Tenant’s use of or access to the Premises is not unreasonably impaired thereby;

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(ii)employ all personnel necessary for the operation and management of the Building, either directly or through an experienced third party property management company and, in connection therewith, Landlord shall maintain adequate personnel at the Building twenty-four (24) hours per day, seven (7) days per week;

(iii)construct other improvements and make alterations, additions, subtractions or re-arrangements, construct facilities adjoining or proximate to the Building, including underground tunnels and pedestrian walkways and overpasses, provided that Tenant’s use of, normal operations in or access to, the Premises in accordance with the Permitted Uses is not impaired thereby;

(iv)do and perform such other acts in and to the Building and, in connection with performing any maintenance or repair obligations of Landlord, in and to the Premises and to have access thereto, as, in the use of good business judgment, Landlord determines to be advisable for the more efficient and proper operation of the Building and Premises, provided that Tenant’s use of, normal operations in or access to, the Premises in accordance with the Permitted Uses is not unreasonably impaired thereby; and

(v)reasonably control, supervise and regulate the parking areas in such manner as the Landlord determines from time to time.

13.2During the Term, the Landlord shall provide, or cause to be provided, to the Premises, the following services and utilities upon the terms and subject to the conditions set out in this Article XIII and in Exhibit F attached hereto:

(i)the heating, ventilation and air conditioning (“HVAC”) for the Premises shall be provided at all times in order to maintain the Environmental Conditions (as hereinafter defined), including maintaining a temperature adequate for normal occupancy in accordance with the Permitted Uses, including heat rejection equipment capable of handling 5.633 megawatts of Critical Load Power;

(ii)water, gas and fuel in amounts no less than the amounts customarily provided by the owners of similarly-sized, first class data centers, as installed in the Building and Premises;

(iii)PDUs sufficient to support 5.633 megawatts of Critical Load Power to the Premises (the “Maximum Load Limit”);

(iv)Four (4) four-inch Landlord-installed, secure Telecommunications Conduits exclusively serving each Pod, that enable Tenant to access connectivity to one or more fiber providers shall be provided from each Pod to two (2) POEs within the Building [with two (2) Telecommunications Conduits connecting each Pod to each such POE]; provided, however, that Tenant may, pursuant to Section 11.3 above, utilize one or more Approved Fiber Providers for the connection of new fiber lines from and through each of the Telecommunications Duct Banks to the Building and into two (2) POEs;

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(v)security for the Building in accordance with Article V hereof; and

(vi)loading dock facilities convenient to the Premises twenty-four (24) hours a day, seven (7) days a week.

Landlord represents, warrants and covenants to Tenant that, commencing on the Lease Commencement Date and throughout the Lease Term, (I) Critical Load Power up to the Maximum Load Limit will be available to the Premises, (II) the Premises shall be provided with a dedicated back-up system for such Critical Load Power, including UPS and Engine Generators and (III) all Building infrastructure shall be operational in accordance with industry standards and procedures for first-class data centers, accounting for, among other things, repairs, scheduled maintenance and emergency situations.  Landlord further represents and warrants that the critical electrical and mechanical systems of CH1 Phase I are designed in an isolated redundant 14N + 2R configuration with 18.2 megawatts of Critical Load Power over the raised floor space, thus 5.633 megawatts of Critical Load Power with N+2R redundancy, shall be available to the Premises when all infrastructure is operational as provided herein above.  [*****].

As used herein, “Critical Load Power” shall mean the total electrical power supplied to the input circuit breakers of the PDUs within the Premises and excluding electrical power needed for any heat rejection or HVAC system, lighting or other common facility systems or services.

13.3Tenant hereby acknowledges that the proper functioning of the Building as a data center requires Tenant to, at all times, maintain a clean Premises environment.  In connection with the foregoing and notwithstanding anything to the contrary contained herein, Tenant shall clean the Pods, including the raised floor surface and subsurface, in accordance with industry standards and procedures for cleaning first-class mission critical data center environments; provided, however, all cleaning of subsurface environments (i.e., beneath the raised floor in the Premises) must be approved in advance by Landlord, supervised by Landlord or Landlord’s agent, and performed in accordance with Landlord’s reasonable rules and regulations for performing such work.  Tenant shall be solely responsible for providing, and shall pay directly all janitorial and other charges relating to, such cleaning services to the Premises.

13.4Tenant shall be solely responsible for the distribution of electrical power from the load side of each PDU (including the output circuit breakers) within the Premises to the remainder of the Premises and for the installation and related maintenance of equipment and systems required in connection with such distribution.  Tenant shall, in no event, whether by the installation or placement of equipment or improvements or otherwise, interfere with Landlord’s delivery of electrical power to the line side of each PDU (up to and including the output bus) within the Premises.  All charges for, or associated with, any service or utility which is separately measured or submetered to the Premises (including without limitation the Critical Load Power and charges for CRAC usage) shall be billed directly to Tenant (without any mark-up by Landlord) and paid to Landlord, or, if requested in writing by Landlord (where applicable), paid directly by Tenant to the utility provider.  In each case, payment shall be made within thirty (30) days of Tenant’s receipt of an invoice therefor.  Charges for or associated with all other

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services or utilities which are required to be provided by Landlord under Section 13.2 which are not separately measured shall be included in Operating Expenses and shall be paid by Tenant each month as provided in Article IV based on Tenant’s Pro Rata Share.  Notwithstanding the foregoing, Tenant shall be charged monthly, in advance, for electricity to be consumed to supply the Premises with heat rejection HVAC for the following month in an amount equal to the estimated monthly charge for Critical Load Power to be used by Tenant for the following month (based on the prior month’s usage) multiplied by [*****] (the “Monthly Heat Rejection Charge”).  The estimated Monthly Heat Rejection Charges will be reconciled with the actual monthly charges for electricity used to supply the Premises with heat rejection HVAC not less frequently than annually and not more often than monthly.  The reconciliation of Monthly Heat Rejection Charges for any particular month shall be added to, or subtracted from, as applicable, the Monthly Heat Rejection Charge for the month following the date of any such reconciliation.  The Monthly Heat Rejection Charge shall be payable by Tenant on the later to occur of: (i) the first day of the calendar month immediately following the date on which Tenant receives an invoice from Landlord setting forth the Monthly Heat Rejection Charge for the following month or (ii) within fifteen (15) Business Days of receipt of such invoice from Landlord setting forth the Monthly Heat Rejection Charge.  In the event any electrical utility serving the Premises imposes a “power factor” surcharge or similar surcharge as a result of Tenant’s use of the Premises, including, without limitation, as a result of the power factor of any of Tenant’s equipment, Landlord shall reasonably determine the portion of the surcharge allocable to Tenant and invoice Tenant therefor.  Tenant shall pay amounts so invoiced within thirty (30) days of receipt of each such invoice, accompanied by reasonable back-up documentation.  The Critical Load Power supplied to the Premises shall be separately metered or submetered.

13.5It is understood and agreed that Landlord shall, prior to the Rent Commencement Date, engage the services of a professional data center management company (together with its successors and/or assigns, the “Management Company”) to provide certain management services in connection with the operation of the Building, including, without limitation, on-site facility engineering support services, maintenance and repair required of Landlord under this Lease and other services customary to first class data centers.  The initial Management Company shall be DuPont Fabros Technology, L.P.  In addition, DF Technical Services LLC (“DFTS”), an affiliate of Landlord, shall be available to Tenant, on a direct contract basis and pursuant to a separate agreement at market rates, to provide services with respect to the Premises, including, without limitation, tenant deployment services.  To the extent that Tenant is not satisfied with the pricing of the services of DFTS, Tenant shall have the right, subject to Article IX of this Lease, to contract those services directly with a vendor included on Landlord’s list of approved vendors or a vendor otherwise proposed by Tenant and approved by Landlord (which approval shall not be unreasonably withheld, conditioned or delayed) (each an “Approved Vendor”).  [*****].  To the extent the Management Company carries out the duties and obligations of Landlord under this Lease, then all restrictions and obligations imposed pursuant to this Lease on Landlord shall be deemed to extend to the Management Company, and Landlord shall cause the Management Company to comply with all such restrictions and obligations.

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13.6Tenant will neither utilize more than the Maximum Load Limit nor install any equipment which will exceed or overload the capacity of any utility, electrical, HVAC, or mechanical facilities in the Premises or Building, and Tenant will not bring into the Premises or install any utility, electrical, HVAC, or mechanical facility which Landlord does not approve, such approval not to be unreasonably withheld, conditioned, or delayed.  Notwithstanding the foregoing, provided that Tenant’s plans for configuration of the Premises have been approved by Landlord in accordance with Article IX above, Tenant shall not be required to obtain Landlord’s approval to bring into the Premises, or install, any computer, network or telecommunications equipment and facilities to be used by Tenant or any Permitted Licensees where the installation of such equipment and/or facilities is consistent with Tenant’s approved plans.

13.7 If any damage is caused to the Building or the Premises by any of Tenant’s machinery, equipment, objects or things or by overloading by Tenant as described in Section 13.6 above, Tenant will forthwith repair such damage, or, at the option of Landlord, pay Landlord within thirty (30) days after receipt of written demand accompanied by reasonable back-up documentation and invoices, as Additional Rent, the cost of repairing such damage plus a sum equal to five percent (5%) of such cost representing Landlord’s overhead and administrative costs.

13.8 Landlord acknowledges that Tenant’s business operations require the continuous provision of electrical power, HVAC, and monitoring services in accordance with the standards, and in the amounts, specified herein (collectively, the “Critical Services”).  Except as expressly set forth in this Lease, neither Landlord nor Tenant will take any action which would interrupt the Critical Services without the prior written consent of the other party, which consent may be granted or withheld in such party’s sole and absolute discretion.  Landlord will use diligent and best efforts not to interfere with or interrupt Tenant’s operations within the Premises and will take immediate action to remedy any circumstances in which Landlord or any Landlord Party interferes with Tenant’s Critical Services (except to the extent expressly permitted by this Lease).  In the event of any interruption of Critical Services (a “Service Interruption”), Tenant shall, promptly upon becoming aware thereof, notify Landlord’s Emergency Contacts in accordance with Article V hereof; such notice shall state with reasonable detail the nature of the interruption in question (each such notice, an “Interruption Notice”).  Upon receipt of notice of any Interruption Notice or upon Landlord or the Management Company otherwise gaining knowledge of any Service Interruption, Landlord shall immediately undertake diligent efforts, consistent with first class data center providers, to cause the Service Interruption to be immediately remedied. Landlord shall maintain periodic contact with Tenant until the Service Interruption is resolved.  [*****].

13.9[*****].

13.10[*****].

13.11[*****].

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ARTICLE XIV

LIABILITY OF LANDLORD

14.1Except as otherwise set forth in this Lease, Landlord and Landlord’s Representatives shall not be liable to Tenant, any Agent or any other person or entity for any and all damage, injury, loss or claim based on or arising out of any cause whatsoever, including without limitation the following:  repair to any portion of the Premises (except for Landlord’s maintenance, repair and replacement obligations as set forth in Article VIII above); interruption in the use of the Premises or any equipment therein (except for Landlord’s obligations as set forth in Article XIII above); any accident or damage resulting from any use or operation (by Landlord, Tenant or any other person or entity) of heating, cooling, electrical, sewage or plumbing equipment or apparatus (except for Landlord’s obligations as set forth in Article XIII above); termination of this Lease by reason of damage to the Premises, the Building or the Office Building; any fire, robbery, theft, vandalism, mysterious disappearance or any other casualty; actions of any other tenant of the Building or the Office Building or of any other person or entity; failure or inability to furnish any service specified in this Lease (except for Landlord’s obligations to provide services and utilities as provided in Article XIII); and leakage in any part of the Premises, the Building or the Office Building from water, rain, ice or snow that may leak into, or flow from, any part of the Premises, the Building or the Office Building, or from drains, pipes or plumbing fixtures in the Premises, the Building or the Office Building.  If any condition exists which may be the basis of a claim of constructive eviction, then Tenant shall give Landlord written notice thereof and a reasonable opportunity to correct such condition, and in the interim Tenant shall not claim that it has been constructively evicted or is entitled to a rent abatement.  Any property placed by Tenant or any Agent in or about the Premises, the Building or the Office Building shall be at the sole risk of Tenant, and Landlord shall not in any manner be held responsible therefor.  Any person receiving an article delivered for Tenant shall be acting as Tenant’s agent for such purpose and not as Landlord’s agent.  For purposes of this Article XIV, the term “Building” shall be deemed to include the Land.  Notwithstanding the foregoing provisions of this Section 14.1, and subject to Section 12.2(b) above, Landlord shall not be released from liability (a) to Tenant for any physical injury to any natural person or damage to Tenant’s personal property caused by the negligence or willful misconduct of Landlord or Landlord’s Representatives, provided that for damage to personal property, Landlord shall only be liable to the extent that such damage is not covered by insurance either carried by Tenant or  required by this Lease to be carried by Tenant or (b) to the extent resulting from the breach or default by Landlord of its representations, warranties, covenants, duties and/or obligations under this Lease; provided, however, that neither Landlord nor any of Landlord’s Representatives (nor any past, present or future board member, partner, trustee, director, member, officer, employee, agent, representative or advisor of any of them) shall under any circumstances under this Lease (including, without limitation, with respect to its reimbursement and indemnity obligations set forth in Section 14.2(b) below) be liable for: (i) any exemplary or punitive damages or (ii) any consequential or indirect damages (or for any interruption of or loss to business) to the extent that (A) Landlord is not covered therefor by insurance carried, or required to be carried under

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this Lease, and (B) provided that Landlord is carrying such required insurance, Landlord does not receive proceeds therefor, all in connection with or relating to this Lease.

14.2(a)           Except to the extent caused by the negligence or willful misconduct of Landlord or its agents, and subject to Section 12.3 above, Tenant shall reimburse Landlord, its employees and agents for (as additional rent), and shall indemnify, defend upon request and hold them harmless from and against all reasonable costs, damages, claims, liabilities, expenses (including reasonable attorneys’ fees), losses, penalties and court costs (collectively, “Costs”) suffered by or claimed against them, directly or indirectly, based on or arising out of, in whole or in part, (i) use and occupancy of the Premises or the business conducted therein, (ii) any negligent or willful act or omission of Tenant or any Agent, (iii) any breach of Tenant’s obligations under this Lease, including failure to comply with Laws or surrender the Premises upon the expiration or earlier termination of the Lease Term, or (iv) any entry by Tenant or any Agent upon the Land prior to the Rent Commencement Date in violation of the terms and provisions of this Lease.  In no event, however, shall Tenant, Guarantor (as hereinafter defined), or any of Tenant’s Representatives (nor any past, present or future board member, partner, trustee, director, member, officer, employee, agent, representative or advisor of any of them), under any circumstances under this Section 14.2(a)or elsewhere under this Lease, be liable for: (I) any exemplary or punitive damages or (II) any consequential or indirect damages (or for any interruption of or loss to business) to the extent that (A) Tenant is not covered therefor by insurance carried, or required to be carried under this Lease, and (B) provided that Tenant is carrying such required insurance, Tenant does not receive insurance proceeds therefor.

(b)Except to the extent caused by the negligence or willful misconduct of Tenant or an Agent of Tenant, and subject to Section 12.2(b) above, Landlord shall reimburse Tenant and shall indemnify and hold Tenant harmless from and against all Costs suffered or claimed against Tenant as a result of: (i) Landlord’s use or control of the common areas of the Building and/or the Office Building and the Building Structure and Systems, (ii) any negligent or willful act or omission of Landlord, its agents, employees or contractors, or (iii) any breach of Landlord’s obligations under this Lease.

14.3No landlord hereunder shall be liable for any obligation or liability based on or arising out of any event or condition occurring during the period that such landlord was not the owner of the Property.  Within five (5) days after request, Tenant shall attorn to any transferee landlord and execute, acknowledge and deliver any document submitted to Tenant confirming such attornment, provided such transferee assumes in writing, the obligations of Landlord hereunder which accrue from and after the date of the transfer.

14.4Except as otherwise expressly provided herein (including, without limitation, as set forth in the Services Exhibit attached hereto as Exhibit F), Tenant shall not have the right to set off or deduct any amount allegedly owed to Tenant pursuant to any claim against Landlord from any rent or other sum payable to Landlord.  Tenant’s sole remedy for recovering upon such claim shall be to institute an independent action against Landlord, which action shall not be consolidated with any action of Landlord; provided, however, that the foregoing shall not prohibit Tenant from asserting a compulsory counterclaim in any proceeding instituted by

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Landlord against the Tenant that is required to be brought by applicable Laws and will be deemed forever waived if not then asserted by Tenant.

14.5 If Tenant or any Agent is awarded a money judgment against Landlord, then recourse for satisfaction of such judgment shall be limited to execution against Landlord’s estate and interest in the Land, the Building, the Office Building and any other improvements constructed or to be constructed on the Land, which shall be deemed to include proceeds actually received by Landlord from any sale of the Building, the Office Building and/or CH1 Phase 1 (net of all expenses of sale), insurance or condemnation proceeds (subject to the rights of any Mortgagees), and rental income from the Building, the Office Building and/or CH1 Phase II (net of all expenses). No other asset of Landlord, and no asset of any of Landlord’s Representatives (or any past, present or future board member, partner, director, member, officer, trustee, employee, agent, representative or advisor of any of them (each, an “officer”)) or any other person or entity, shall be available to satisfy or be subject to any such judgment.  No such Landlord’s Representative, officer or other person or entity shall be held to have personal liability for satisfaction of any claim or judgment whatsoever under this Lease.

ARTICLE XV

RULES AND REGULATIONS

Tenant agrees to comply with and observe the rules and regulations pertaining to the use and occupancy of the Premises or the Building or the Office Building set forth in Exhibit E attached hereto, together with all reasonable amendments thereto as may be promulgated in writing hereafter by Landlord in accordance with the terms and provisions of this Section 15.1 (the “Rules and Regulations”).  Tenant’s failure to keep and observe said Rules and Regulations after notice and opportunity to cure as set forth in Section 18.1(b) hereof shall constitute a material breach of the terms of this Lease.  Landlord reserves the right from time to time to reasonably amend or supplement said Rules and Regulations and to adopt and promulgate additional reasonable Rules and Regulations applicable to the Premises and the Building, provided, that any such amendments, supplements or additional Rules and Regulations shall not materially reduce Tenant’s rights under this Lease or materially interfere with Tenant’s use of the Premises.  Upon receipt thereof, Tenant agrees thereupon to comply with and observe any such additional, amended or supplemental Rules and Regulations promulgated by Landlord in accordance with this Section 15.1.  In the event of any inconsistency between this Lease and the Rules and Regulations, the provisions of this Lease shall prevail and control.  Any violation of the Rules and Regulations by any individual that is not under Tenant’s control shall not constitute a default under this Lease.  Landlord shall apply and enforce the Rules and Regulations in a uniform and non-discriminatory manner.

ARTICLE XVI

DAMAGE OR DESTRUCTION

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16.1 If, during or prior to the Lease Term, the Pods, the Storage Space and/or the Building are totally or partially damaged or destroyed thereby rendering the Pods and/or the Storage Space totally or partially inaccessible or unusable, then Landlord shall diligently repair and restore the Pods, the Storage Space and/or the Building to substantially the same condition they were in prior to such damage or destruction; provided, however, that if:  (i) the Building electrical and mechanical infrastructure is destroyed or materially damaged and in Landlord’s reasonable judgment such repair and restoration cannot be completed within one hundred eighty (180) days after the occurrence of such damage or destruction (taking into account the time needed for effecting a satisfactory settlement with any insurance company involved, removal of debris, preparation of plans and issuance of all required government permits); (ii) more than forty-five percent (45%) of the Building is damaged or destroyed; or (iii) more than fifty-five percent (55%) of the rentable square footage comprising the Pods is materially damaged or destroyed and there is less than one (1) year of the Lease Term remaining as of the date of said casualty and Tenant has not exercised any remaining option to renew the Lease Term, then Landlord shall have the right to terminate this Lease, but only with respect to the entirety of the Premises, by giving written notice of termination to Tenant within forty-five (45) days after the occurrence of such damage or destruction.  If this Lease is terminated pursuant to this Article XVI, then rent shall be apportioned as of the date of the happening of the damage or destruction (based on the portion of the aggregate amount of rentable square footage of the Pods and Critical Load Power which is usable or used after such damage or destruction) and paid to the earlier of the date of termination or the date Tenant completely vacates and abandons the Premises on account of such damage.  If this Lease is not terminated as a result of such damage or destruction, then until such repair and restoration of the affected Pods, the Storage Space and/or the Building are substantially complete, as of the date of the happening of the damage or destruction, Tenant shall be required to pay rent only for the portion of the Storage Space and/or the Pods and Critical Load Power that is usable while such repair and restoration are being made; provided, however, that if such damage or destruction was caused by the grossly negligent or willful misconduct of Tenant or any Agent, then Tenant shall not be entitled to any such rent reduction.  After receipt of all insurance proceeds (including proceeds of insurance maintained by Tenant), Landlord shall diligently proceed with, and bear the expenses of, such repair and restoration of the Storage Space, the Pods and/or the Building as aforesaid; provided, however, that (a) if such damage or destruction was caused by the grossly negligent or willful misconduct of Tenant or any Agent, then Tenant shall pay Landlord’s deductible and (b) Landlord shall not be required to repair or restore any tenant improvements installed by Tenant in the Pods and/or the Storage Space (except to the extent Landlord receives proceeds therefor from Tenant’s insurance), any Alterations [*****] (other than Tenant’s trade fixtures, decorations, furnishings, equipment, facilities and/or personal property)] or any of Tenant’s contents within the Pods and/or the Storage Space (including, without limitation, Tenant’s trade fixtures, decorations, furnishings, equipment, facilities or personal property, but excluding PDUs, CRACs, HVAC cooling support equipment, fire detection and alarm and fire suppression systems and equipment and any other equipment, facilities or other property of Landlord comprising the Building Structure and Systems and located within the Premises, which shall be Landlord’s responsibility).  Notwithstanding anything herein to the contrary, in the event of any damage or destruction referenced in the first sentence of this Section 16.1, Landlord shall have the right to

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terminate this Lease if (1) insurance proceeds plus deductibles are insufficient to pay the full cost of repair and restoration of such damage or destruction, so long as Landlord maintains the insurance required by Section 12.3 above, (2) the holder of any Mortgage fails or refuses to make such insurance proceeds available for such repair and restoration, or (3) zoning or other applicable Laws or regulations do not permit such repair and restoration; provided, however, that Landlord shall be entitled to terminate this Lease under subsections (1), (2) and (3) above only if Landlord simultaneously terminates the leases (or applicable portions thereof) of all other tenants leasing pods that are in a substantially similar condition to the Pods after such damage or destruction.  If this Lease is terminated pursuant to this Article XVI, Landlord shall grant to Tenant a license, expiring ninety (90) days after the date of termination, allowing Tenant the right to access the Building for the purpose of removing Tenant’s Items therefrom.

16.2[*****].

16.3[*****].

16.4If, during or prior to the Lease Term, the Office Space or the Office Building are totally or partially damaged or destroyed thereby rendering the Office Space totally or partially inaccessible or unusable, then Landlord shall diligently repair and restore the Office Space and/or the Office Building to substantially the same condition they were in prior to such damage or destruction; provided, however, that if in Landlord’s reasonable judgment such repair and restoration cannot be completed within two hundred ten (210) days after the occurrence of such damage or destruction (taking into account the time needed for effecting a satisfactory settlement with any insurance company involved, removal of debris, preparation of plans and issuance of all required governmental permits), then Landlord shall have the right to terminate this Lease as to the Office Space only, by giving written notice of termination within forty-five (45) days after the occurrence of such damage or destruction.  If this Lease is terminated as to the Office Space pursuant to this Section 16.4, then Office Rent shall be apportioned as of the date of the happening of the damage or destruction (based on the portion of the Office Space which is usable or used after such damage or destruction) and paid to the earlier of the date of termination or the date Tenant completely vacates and abandons the Office Space on account of such damage.  If this Lease is not terminated as to the Office Space as a result of such damage or destruction, then until such repair and restoration of the Office Space and/or Office Building are substantially complete, as of the date of the happening of the damage or destruction, Tenant shall be required to pay Office Rent only for the portion of the Office Space that is usable while such repair and restoration are being made; provided, however, that if such damage or destruction was caused by the grossly negligent or willful misconduct of Tenant or any Agent, then Tenant shall not be entitled to any such rent reduction.  After receipt of all insurance proceeds (including proceeds of insurance maintained by Tenant), Landlord shall diligently proceed with, and bear the expenses of, such repair and restoration of the Office Space and/or the Office Building as aforesaid; provided, however, that (a) if such damage or destruction was caused by the grossly negligent or willful misconduct of Tenant or any Agent, then Tenant shall pay Landlord’s deductible and (b) Landlord shall not be required to repair or restore any tenant improvements installed by Tenant in the Office Space (except to the extent Landlord receives proceeds therefor from Tenant’s

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insurance), any Alterations in the Office Space [*****] (other than Tenant’s trade fixtures, decorations, furnishings, equipment, facilities and/or personal property)] or any of Tenant’s contents within the Office Space (including, without limitation, Tenant’s trade fixtures, decorations, furnishings, equipment, facilities or personal property, but excluding HVAC cooling support equipment, fire detection and alarm and fire suppression systems and equipment and any other equipment, facilities or other property of Landlord comprising the Building Structure and Systems and located within the Office Space, which shall be Landlord’s responsibility).  Notwithstanding anything herein to the contrary, in the event of any damage or destruction to the Office Building referenced in the first sentence of this Section 16.4, Landlord shall have the right to terminate this Lease as to the Office Space only if (1) insurance proceeds plus deductibles are insufficient to pay the full cost of repair and restoration of such damage or destruction, so long as Landlord maintains the insurance required by Section 12.3 above, (2) the holder of any Mortgage fails or refuses to make such insurance proceeds available for such repair and restoration, (3) zoning or other applicable Laws or regulations do not permit such repair and restoration, or (4) the damage to the Office Building exceeds forty-five percent (45%) of the replacement value of the Office Building; provided, however, that Landlord shall be entitled to terminate this Lease as to the Office Space under subsections (1), (2), (3) and/or (4) above only if Landlord simultaneously terminates the leases (or applicable portions thereof) of all other tenants leasing space in the Office Building, that are in a substantially similar condition to the Office Space after such damage or destruction.  If this Lease is terminated pursuant to this Section 16.4, Landlord shall grant to Tenant a license, expiring ninety (90) days after the date of termination, allowing Tenant the right to access the Office Building for the purpose of removing Tenant’s Items therefrom.

16.5 If, within forty five (45) days after the occurrence of the damage or destruction to the Office Building described in Section 16.4 above, Landlord determines in its sole but reasonable judgment that the repairs and restoration cannot be substantially completed within two hundred ten (210) days after the date of such damage or destruction, and Landlord does not elect to terminate this Lease pursuant to Section 16.4, then Landlord shall notify Tenant of such determination within such forty-five (45) day period (the “Restoration Notice”).  For a period continuing through the later of the thirtieth (30th) day after the occurrence of such damage or destruction to the Office Building or the tenth (10th) day after receipt of such notice, Tenant shall have the right to terminate this Lease as to the Office Space only by providing written notice to Landlord (which date of such termination shall be not more than thirty (30) days after the date of Tenant’s notice to Landlord).  Furthermore, Landlord shall notify Tenant in writing (the “Insurance Proceeds Notice”) within forty-five (45) days after the occurrence of the damage or destruction to the Office Building described in Section 16.4 above as to whether the holder of any Mortgage fails or refuses to make insurance proceeds available for the repair and restoration required under Section 16.4 above.  In the event Tenant receives any such Insurance Proceeds Notice from Landlord providing that the holder of any Mortgage fails or refuses to make such insurance proceeds available, and Landlord does not elect to terminate this Lease as to the Office Space pursuant to Section 16.4 above within such forty-five (45) day period, then Tenant shall have the right to terminate this Lease as to the Office Space only by providing written notice thereof to Landlord within ten (10) days after the expiration of such forty-five (45)

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day period (which date of such termination shall be not more than thirty (30) days after the date of Tenant’s notice to Landlord).  Failure of Landlord to deliver the Insurance Proceeds Notice to Tenant within such forty-five (45) day period as aforesaid shall be deemed notice that the holder of any Mortgage fails or refuses to make such insurance proceeds available.  Notwithstanding any of the foregoing to the contrary, Tenant shall not have the right to terminate this Lease as the Office Space under this Section 16.5 if the willful misconduct of Tenant or any Agent shall have caused the damage or destruction.

ARTICLE XVII

CONDEMNATION

17.1If one third or more of the Pods, or the use or occupancy thereof, or any portion of the Building required for the reasonable and proper use of the Pods, shall be taken or condemned by any governmental or quasi governmental authority for any public or quasi public use or purpose or sold under threat of such a taking or condemnation (collectively, “condemned”), then this Lease shall terminate on the day prior to the date title thereto vests in such authority and rent shall be apportioned as of such date.  If less than one third of the Pods or occupancy thereof or portions of the Building not required for the proper use of the Pods or the Building, is condemned, then this Lease shall continue in full force and effect as to the part of the Pods not so condemned, except that as of the date title vests in such authority Tenant shall not be required to pay rent with respect to the part of the Pods so condemned.  Landlord shall notify Tenant of any condemnation contemplated by this Section 17.1 promptly after Landlord receives notice thereof.  Within ten (10) days after receipt of such notice, Tenant shall have the right to terminate this Lease with respect to the remainder of the Pods not so condemned as of the date title vests in such authority, but only if such condemnation renders said remainder of the Pods totally unusable for their intended purpose.  Notwithstanding anything herein to the contrary, if thirty-five percent (35%) or more of the Land or the Building is condemned, then whether or not any portion of the Pods is condemned, Landlord shall have the right to terminate this Lease as of the date title vests in such authority, provided, that, as a condition to such right, Landlord must simultaneously terminate the leases (or applicable portions thereof) of all other tenants in the Building leasing pods that are affected in a substantially similar manner as the Pods by such condemnation.

17.2If one third or more of the Office Space, or the use or occupancy thereof, or any portion of the Office Building required for the reasonable and proper use of the Office Space, shall be taken or condemned by any governmental or quasi governmental authority for any public or quasi public use or purpose or sold under threat of such a taking or condemnation (collectively, “condemned”), then this Lease shall terminate as to the Office Space only on the day prior to the date title thereto vests in such authority and Office Rent shall be apportioned as of such date.  If less than one third of the Office Space or occupancy thereof or portions of the Office Building not required for the proper use of the Office Space or the Office Building, is condemned, then this Lease shall continue in full force and effect as to the part of the Office Space not so condemned, except that as of the date title vests in such authority Tenant shall not

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be required to pay rent with respect to the part of the Office so condemned.  Landlord shall notify Tenant of any condemnation of the Office Building contemplated by this Section 17.2 promptly after Landlord receives notice thereof.  Within ten (10) days after receipt of such notice, Tenant shall have the right to terminate this Lease with respect to the remainder of the Office Space not so condemned as of the date title vests in such authority, but only if such condemnation renders said remainder of the Office Space totally unusable for their intended purpose.  Notwithstanding anything herein to the contrary, if thirty-five percent (35%) or more of the Office Building is condemned, then whether or not any portion of the Office Space is condemned, Landlord shall have the right to terminate this Lease as to the Office Space only as of the date title vests in such authority, provided, that, as a condition to such right, Landlord must simultaneously terminate the leases (or applicable portions thereof) of all other tenants in the Office Building leasing Office Space that are affected in a substantially similar manner as the Office Space by such condemnation.

17.3All awards, damages and other compensation paid by the condemning authority on account of any such taking or condemnation (or sale under threat of such a taking) shall belong to Landlord, and Tenant hereby assigns to Landlord all rights to such awards, damages and compensation.  Tenant agrees not to make any claim against Landlord or the condemning authority for any portion of such award or compensation attributable to damages to the Premises, the value of the unexpired term of this Lease, the loss of profits or goodwill, leasehold improvements or severance damages.  Nothing contained herein, however, shall prevent Tenant from pursuing a separate claim against the condemning authority for the value of furnishings, equipment and trade fixtures installed in the Premises at Tenant’s expense and for relocation expenses, provided that such claim does not in any way diminish the award or compensation payable to or recoverable by Landlord in connection with such taking or condemnation.

ARTICLE XVIII

DEFAULT

18.1Each of the following shall constitute an “Event of Default” by Tenant under this Lease:

(a)Tenant’s failure to make when due any payment of Base Rent, Additional Rent or other sum, which failure shall continue for a period of five (5) days after receipt by Tenant of written notice thereof; provided, however, that Landlord shall not be required to give Tenant more than two (2) such written notices during any Lease Year during the Lease Term;

(b)Tenant’s failure to perform or observe any covenant or condition of this Lease not otherwise specifically described in this Section 18.1, which failure shall continue for a period of thirty (30) days after receipt by Tenant of written notice thereof; provided, however, that if such cure cannot reasonably be effected within such thirty (30) day period and Tenant begins such cure promptly within such thirty (30) day period and is pursuing such cure in good faith and with diligence and continuity during such thirty (30) day period, then, except in the

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event of an emergency, Tenant shall have such additional time as is reasonably necessary to effect such cure;

(c)an Event of Bankruptcy as specified in Article XIX hereof;

(d)Tenant’s dissolution or liquidation;

(e)any Environmental Default as specified in Section 6.3 hereof;

(f)Tenant’s failure to execute, acknowledge and deliver the written statement required by Section 24.4 hereof after receipt by Tenant of written notice thereof and a ten (10) day cure period;

(g)excluding any sublease or assignment requiring Landlord’s consent but that Tenant believed in good faith was permitted under Section 7.2(b) above, any sublease, assignment or mortgage not permitted by Article VII hereof;

(h)the occurrence of [*****] Prohibited Spikes [*****].

18.2If there shall be an Event of Default (even if prior to the Rent Commencement Date), then the provisions of this Section 18.2 shall apply.  Landlord shall have the right, at its sole option, to terminate this Lease upon delivery of written notice to Tenant.  In addition, with or without terminating this Lease, Landlord may re-enter, terminate Tenant’s right of possession and take possession of the Premises.  The provisions of this Article XVIII shall operate as a notice to quit, and Tenant hereby waives any other notice to quit or notice of Landlord’s intention to re-enter the Premises.  If necessary, Landlord may proceed to recover possession of the Premises under applicable Laws, or by such other proceedings, including re entry and possession, as may be applicable.  If Landlord elects to terminate this Lease and/or elects to terminate Tenant’s right of possession, everything contained in this Lease on the part of Landlord to be done and performed shall cease without prejudice, however, to Tenant’s liability for all Base Rent, additional rent and other sums specified herein.  Whether or not this Lease and/or Tenant’s right of possession is terminated, Landlord shall have the right, at its sole option, to terminate any renewal or expansion right contained in this Lease and to grant or withhold any consent or approval pursuant to this Lease in its sole and absolute discretion.  If an Event of Default has occurred under this Lease and Tenant has vacated the Premises, and if Landlord has terminated this Lease as a result of such Event of Default, then Landlord shall thereafter use reasonable efforts to relet the Premises; provided, however, that Tenant understands and agrees that Landlord’s main priority will be the leasing of other space in the Building (and not then leased by Landlord), and the reletting of the Premises will be of lower priority.  Tenant hereby expressly waives, for itself and all persons claiming by, through or under it, any right of redemption, re-entry or restoration of the operation of this Lease under any present or future Law, including without limitation any such right which Tenant would otherwise have in case Tenant shall be dispossessed for any cause, or in case Landlord shall obtain possession of the Premises as herein provided.  Landlord may relet the Premises or any part thereof, alone or together with other premises, for such term(s) (which may extend beyond the date on which the

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Lease Term would have expired but for Tenant’s default) and on such terms and conditions (which may include any concessions or allowances granted by Landlord) as Landlord, in its sole and absolute but reasonable discretion, may determine, but Landlord shall not be liable for, nor shall Tenant’s obligations hereunder be diminished by reason of, any failure by Landlord to relet all or any portion of the Premises or to collect any rent due upon such reletting.  Whether or not this Lease is terminated or any suit is instituted, Tenant shall be liable for any Base Rent, additional rent, damages or other sum which may be due or sustained prior to such Event of Default, and for all costs, fees and expenses (including, but not limited to, attorneys’ fees and costs, brokerage fees (to the extent proportionately allocable to the remaining Lease Term), expenses incurred in placing the Premises in first class rentable condition, advertising expenses, and any concessions or allowances granted by Landlord) incurred by Landlord in pursuit of its remedies hereunder and/or in recovering possession of the Premises and renting the Premises to others from time to time until the date the Lease Term would have expired but for Tenant’s default.  Tenant also shall be liable for additional damages which at Landlord’s election shall be either: (a) an amount equal to the Base Rent and additional rent due or which would have become due from the date of Tenant’s default through the remainder of the Lease Term, less the amount of rental, if any, which Landlord receives during such period from others to whom the Premises may be rented (other than any additional rent received by Landlord as a result of any failure of such other person to perform any of its obligations to Landlord), which amount shall be computed and payable in monthly installments, in advance, on the first day of each calendar month following Tenant’s default and continuing until the date on which the Lease Term would have expired but for Tenant’s default, it being understood that separate suits may be brought from time to time to collect any such damages for any month(s) (and any such separate suit shall not in any manner prejudice the right of Landlord to collect any damages for any subsequent month(s)), or Landlord may defer initiating any such suit until after the expiration of the Lease Term (in which event such deferral shall not be construed as a waiver of Landlord’s rights as set forth herein and Landlord’s cause of action shall be deemed not to have accrued until the expiration of the Lease Term); or (b) an amount equal to the difference between (i) all Base Rent, additional rent and other sums due or which would be due and payable under this Lease as of the date of Tenant’s default through the end of the scheduled Lease Term, and (ii) the fair market value rental of the Premises over the same period (net of all expenses (including attorneys’ fees) and all vacancy periods reasonably projected by Landlord to be incurred in connection with the reletting of the Premises), as determined by Landlord in its sole and absolute discretion, which difference shall be discounted at a rate equal to one (1) whole percentage point above the discount rate in effect on the date of payment at the Federal Reserve Bank nearest the Building, and which resulting amount shall be payable to Landlord in a lump sum on demand, it being understood that upon payment of such liquidated and agreed final damages, Tenant shall be released from further liability under this Lease with respect to the period after the date of such payment, and that Landlord may bring suit to collect any such damages at any time after an Event of Default shall have occurred.  Tenant shall pay all expenses (including attorneys’ fees) incurred by Landlord in connection with or as a result of any Event of Default whether or not a suit is instituted.  The provisions contained in this Section 18.2 shall be in addition to, and shall not prevent the enforcement of, any claim Landlord may have against Tenant for anticipatory breach of this Lease (including, without limitation, the right of injunction and the right to invoke

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any remedy allowed at law or in equity as if re-entry, summary proceedings and other remedies were not provided for herein).  Nothing herein shall be construed to affect or prejudice Landlord’s right to prove, and claim in full, unpaid rent accrued prior to termination of this Lease.  If Landlord is entitled, or Tenant is required, pursuant to any provision hereof to take any action upon the termination of the Lease Term, then Landlord shall be entitled, and Tenant shall be required, to take such action also upon the termination of Tenant’s right of possession.

18.3All rights and remedies of Landlord set forth herein are cumulative and in addition to all other rights and remedies available to Landlord at law or in equity including those available for anticipatory breach.  The exercise by Landlord of any such right or remedy shall not prevent the concurrent or subsequent exercise of any other right or remedy.  No delay in the enforcement or exercise of any right or remedy by Landlord or Tenant shall constitute a waiver of any default by the other party hereunder or of such party’s rights or remedies in connection therewith.  Neither party hereto shall be deemed to have waived any default by the other party hereunder unless such waiver is set forth in a written instrument signed by the party against whom such waiver is asserted.  If either party waives in writing any default by Tenant, such waiver shall not be construed as a waiver of any covenant, condition or agreement set forth in this Lease except as to specific circumstances described in such written waiver.

18.4If Landlord shall institute proceedings against Tenant and a compromise or settlement thereof shall be made, the same shall not constitute a waiver of default or of any other covenant, condition or agreement set forth herein, nor of any of Landlord’s rights hereunder, except to the extent agreed by Landlord in writing in connection with such compromise or settlement.  Neither the payment by Tenant of a lesser amount than the installments of Base Rent, Additional Rent or of any sums due hereunder nor any endorsement or statement on any check or letter accompanying a check for payment of rent or other sums payable hereunder shall be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord’s right to recover the balance of such rent or other sums or to pursue any other remedy available to Landlord.  Notwithstanding any request or designation by Tenant, Landlord may apply any payment received from Tenant to any payment then due.  No re-entry by Landlord, and no acceptance by Landlord of keys from Tenant, shall be considered an acceptance of a surrender of this Lease.

18.5If Tenant defaults in the making of any payment or in the doing of any act herein required to be made or done by Tenant, then Landlord may, but shall not be required to, make such payment or do such act after Landlord delivers written notice to Tenant.  If Landlord elects to make such payment or do such act, all costs incurred by Landlord, plus interest thereon at the rate per annum which is three percent (3%) higher than the prime rate published in the Money Rates section of the Wall Street Journal (the “Prime Rate”) from the date paid by Landlord to the date of payment thereof by Tenant, shall constitute Additional Rent hereunder and shall be immediately paid by Tenant to Landlord; provided, however, that nothing contained herein shall be construed as permitting Landlord to charge or receive interest in excess of the maximum rate then allowed by law.  The taking of such action by Landlord shall not be considered as a cure of

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such default by Tenant or prevent Landlord from pursuing any remedy it is otherwise entitled to in connection with such default.

18.6If Tenant fails, on more than two (2) occasions in any Lease Year during the Lease Term, to make any payment of Base Rent on or before the date that is five (5) Business Days after such payment is due and payable, and provided Landlord has notified Tenant of each such failure in writing, then Tenant shall pay to Landlord a late charge of two percent (2%) of the amount of such payment of Base Rent.  If Tenant fails to make any payment of Base Rent or Additional Rent on or before the date such payment is due and payable, such payment shall bear interest at the rate per annum which is three percent (3%) higher than the Prime Rate from the date such payment became due to the date of payment thereof by Tenant; provided, however, that nothing contained herein shall be construed as permitting Landlord to charge or receive interest in excess of the maximum rate then allowed by law.  Such interest shall constitute Additional Rent due and payable hereunder with the next installment of Base Rent due hereunder.

ARTICLE XIX

BANKRUPTCY

19.1An “Event of Bankruptcy” is the occurrence with respect to any of Tenant, a guarantor or any other person liable for Tenant’s obligations hereunder (including, without limitation, any general partner of Tenant (a “General Partner”)) of any of the following:  (a) such person becoming insolvent, as that term is defined in Title  11 of the United States Code (the “Bankruptcy Code”) or under the insolvency laws of any state (the “Insolvency Laws”); (b) appointment of a receiver or custodian for any property of such person, or the institution of a foreclosure or attachment action upon any property of such person; (c) filing by such person of a voluntary petition under the provisions of the Bankruptcy Code or Insolvency Laws; (d) filing of an involuntary petition against such person as the subject debtor under the Bankruptcy Code or Insolvency Laws, which either (1) is not dismissed within sixty (60) days after filing, or (2) results in the issuance of an order for relief against the debtor; (e) such person making or consenting to an assignment for the benefit of creditors or a composition of creditors; or (f) an admission by Tenant or Guarantor of its inability to pay debts as they become due.  At any time (but in no event more than one (1) time during any calendar year unless Landlord reasonably and in good faith believes that a substantial change in Tenant’s financial condition shall have occurred) upon not less than ten (10) days’ prior written notice, Tenant shall submit such information concerning the financial condition of any such person as Landlord may reasonably request.  Tenant warrants that all such information heretofore and hereafter submitted is and shall be correct and complete.

19.2Upon occurrence of an Event of Bankruptcy, Landlord shall have all rights and remedies available pursuant to Article XVIII above; provided, however, that while a case (the “Case”) in which Tenant is the subject debtor under the Bankruptcy Code is pending, Landlord’s right to terminate this Lease shall be subject, to the extent required by the Bankruptcy Code, to any rights of Tenant or its trustee in bankruptcy (collectively, “Trustee”) to assume or assume

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and assign this Lease pursuant to the Bankruptcy Code.  After the commencement of a Case:  (i) Trustee shall perform all post petition obligations of Tenant under this Lease; and (ii) if Landlord is entitled to damages (including, without limitation, unpaid rent) pursuant to the terms of this Lease, then all such damages shall be entitled to administrative expense priority pursuant to the Bankruptcy Code.  Any person or entity to which this Lease is assigned pursuant to the Bankruptcy Code shall be deemed without further act or deed to have assumed all of the obligations arising under this Lease on and after the date of assignment, and any such assignee shall upon request execute and deliver to Landlord an instrument confirming such assumption.  Trustee shall not have the right to assume or assume and assign this Lease unless Trustee promptly (a) cures all defaults under this Lease, (b) compensates Landlord for damages incurred as a result of such defaults, (c) provides adequate assurance of future performance on the part of Trustee as debtor in possession or Trustee’s assignee, and (d) complies with all other requirements of the Bankruptcy Code.  If Trustee desires to assume and assign this Lease to any person who shall have made a bona fide offer, then Trustee shall give Landlord written notice of such proposed assignment (which notice shall set forth the name and address of such person, all of the terms and conditions of such offer, and the adequate assurance to be provided Landlord to assure such person’s future performance under this Lease) no later than fifteen (15) days after receipt by Trustee of such offer, but in no event later than thirty (30) days prior to the date Trustee shall make application to the appropriate court for authority and approval to enter into such assignment and assumption, and Landlord shall thereupon have the prior right and option, to be exercised by notice to Trustee given at any time prior to the effective date of such proposed assignment, to accept (or to cause Landlord’s designee to accept) an assignment of this Lease upon the same terms and conditions and for the same consideration, if any, as the bona fide offer made by such person, less any brokerage commissions which may be payable out of the consideration to be paid by such person for the assignment of this Lease.  If Trustee fails to assume or assume and assign this Lease in accordance with the requirements of the Bankruptcy Code within sixty (60) days after the initiation of the Case (or such other period as may be provided by the Bankruptcy Code or allowed by the United States Bankruptcy Court for same), then Trustee shall be deemed to have rejected this Lease.  If this Lease is rejected or deemed rejected, then Landlord shall have all rights and remedies available to it pursuant to Article XVIII above.

ARTICLE XX

SUBORDINATION MORTGAGES

20.1Subject to the terms and provisions of Section 20.3 below, this Lease is subject and subordinate to the lien, provisions, operation and effect of all mortgages, deeds of trust, ground leases or other security instruments which may now or hereafter encumber any portion of the Building, the Office Building and/or the Land (collectively, “Mortgages”), to all funds and indebtedness intended to be secured thereby, and to all renewals, extensions, modifications, recastings or refinancings thereof.  Said subordination and the provisions of this Section shall be self operative and no further instrument of subordination shall be required by the holder of any Mortgage.  The holder of any Mortgage to which this Lease is subordinate shall have the right

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(subject to any required approval of the holders of any superior Mortgage) at any time to declare this Lease to be superior to the lien, provisions, operation and effect of such Mortgage.

20.2Tenant shall, at Landlord’s request, promptly execute any requisite or appropriate document confirming such subordination.  Tenant waives the provisions of any statute or rule of law now or hereafter in effect which may give or purport to give Tenant any right to terminate or otherwise adversely affect this Lease and Tenant’s obligations hereunder in the event any foreclosure proceeding is prosecuted or completed or in the event the Building, the Office Building, the Land or Landlord’s interest therein is transferred by foreclosure, by deed in lieu of foreclosure or otherwise.  At the request of any transferee and assumption of Landlord’s obligations as required hereby, Tenant shall attorn to such transferee and shall recognize such transferee as the landlord under this Lease.  Within ten (10) days after the request of such transferee, Tenant shall execute acknowledge and deliver any requisite or appropriate document submitted to Tenant confirming such attornment.

20.3Notwithstanding anything to the contrary contained herein, the effectiveness of any subordination by Tenant to any Mortgage as provided herein above shall be subject to the condition that Landlord obtain from the holder of any such Mortgage a non-disturbance agreement, in form reasonably acceptable to Tenant, that provides: (a) so long as Tenant is not in default under this Lease beyond any applicable notice and cure period and (b) Tenant agrees to attorn to the holder of any such Mortgage or to any transferee in connection with any foreclosure, or sale or transfer in lieu thereof, and recognize such party as landlord under this Lease, as provided in Section 20.2 above, then, in the event of any foreclosure, or sale or transfer in lieu thereof, this Lease shall remain in full force and effect and Tenant’s use and possession of the Premises as provided herein shall not be disturbed.  Landlord represents to Tenant that, as of the Lease Commencement Date, KeyBank National Association (“Lender”) has made a loan to an affiliate of Landlord that is secured by the lien of a Mortgage encumbering the Land and all improvements thereon, including the Building and the Office Building (the “Existing Mortgage”), and that no Mortgage other than the Existing Mortgage is a lien thereon.  Prior to or concurrent with the Lease Commencement Date, Landlord shall obtain from Lender a subordination, non-disturbance and attornment agreement (a “SNDA”) in a form set forth on Exhibit G attached hereto and made a part hereof.  Landlord acknowledges and agrees that, unless waived by Tenant in its sole and absolute discretion, the effectiveness of this Lease is conditioned upon the execution and delivery by Lender of a SNDA in the form attached hereto as Exhibit G within thirty (30) days after the Lease Commencement Date.  [*****].  For avoidance of doubt, Landlord and Tenant acknowledge and agree that, upon full execution and delivery of such SNDA, such SNDA shall be promptly recorded among the land records of Cook County, Illinois.  Furthermore, Landlord shall secure for Tenant a SNDA (recognizing Tenant’s rights under this Lease) from the holder of each Mortgage hereafter encumbering the Building and/or the Land on such holder’s standard form nondisturbance agreement, subject to Tenant’s reasonable approval.

ARTICLE XXI

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HOLDING OVER

21.1If Tenant (or anyone claiming through Tenant) does not immediately surrender the Premises or any portion thereof upon the expiration or earlier termination of the Lease Term, then, unless otherwise agreed to by the parties hereto in writing, for the first six months of such holdover period, the rent payable by Tenant hereunder shall be increased to equal one hundred fifty percent (150%) of the Base Rent, plus Additional Rent and other sums that would have been payable pursuant to the provisions of this Lease if the Lease Term had continued during such holdover period.  If such holdover period is longer than six (6) months, commencing on the first day of the seventh month of the holdover period and for each month of the holdover period thereafter, the rent payable by Tenant shall be increased to one hundred seventy-five percent (175%) of the Base Rent, plus Additional Rent and other sums that would have been payable pursuant to the provisions of this Lease if the Lease Term had continued during such holdover period.  Such rent shall be computed by Landlord and paid by Tenant on a monthly basis and shall be payable on the first day of such holdover period and the first day of each calendar month thereafter during such holdover period until the Premises have been vacated.  Notwithstanding any other provision of this Lease, Landlord’s acceptance of such rent shall not in any manner adversely affect Landlord’s other rights and remedies, including Landlord’s right to evict Tenant and to recover all damages.  Any such holdover shall be deemed to be a tenancy at sufferance.  In no event shall any holdover be deemed a permitted extension or renewal of the Lease Term, and nothing contained herein shall be construed to constitute Landlord’s consent to any holdover or to give Tenant any right with respect thereto.

ARTICLE XXII

COVENANTS OF LANDLORD

22.1Landlord covenants that it has the right to enter into this Lease for the term aforesaid, and that so long as Tenant is not in default (beyond the expiration of any applicable notice and cure period) under this Lease, then, subject to the provisions of this Lease, Tenant shall during the Lease Term, peaceably and quietly occupy and enjoy the full possession of the Premises without hindrance by Landlord, its employees or agents.  Tenant acknowledges and agrees that its leasehold estate in and to the Premises vests on the date this Lease is executed, notwithstanding that the Lease Term will not commence until a future date.

ARTICLE XXIII

PARKING

23.1During the Lease Term, Landlord shall maintain no less than two hundred (200) parking spaces for parking in the surface parking areas located adjacent to the Building available on a non-exclusive, unassigned, first-come, first-served basis, [*****].  Landlord covenants that, throughout the Lease Term, Landlord will maintain on the Land, at a minimum, the number of parking spaces required by applicable Law.

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23.2It is understood and agreed that Landlord does not assume any responsibility for, and shall not be held liable for, any damage or loss to any automobiles parked in the parking areas or to any personal property located therein, or for any injury sustained by any person in or about the parking areas, except, subject to the insurance requirements and the waiver of subrogation provision set forth in Section 12.2(b) above, for any physical injury to any natural person or damage to Tenant’s personal property caused by the negligence or willful misconduct of Landlord or Landlord’s Representatives.

ARTICLE XXIV

GENERAL PROVISIONS

24.1Tenant acknowledges that neither Landlord nor any broker, agent or employee of Landlord has made any representations or promises with respect to the Premises or the Building except as herein expressly set forth, and no rights, privileges, easements or licenses are being acquired by Tenant except as herein expressly set forth.

24.2Nothing contained in this Lease shall be construed as creating a partnership or joint venture of or between Landlord and Tenant, or to create any other relationship between the parties hereto other than that of landlord and tenant.

24.3Landlord and Tenant each represents and warrants to the other that neither of them has employed or dealt with any broker, agent or finder in carrying on the negotiations relating to this Lease.  Each party shall indemnify and hold the other harmless from and against any claim or claims for brokerage or other commissions asserted by any other broker, agent or finder engaged by the indemnifying party or with whom the indemnifying party has dealt in connection with this Lease.

24.4Tenant agrees, at any time and from time to time, upon not less than fifteen (15) days’ prior written notice by Landlord, to execute, acknowledge and deliver to the requesting party a statement in writing (i) certifying, if true, that this Lease is unmodified and in full force and effect (or if there have been any modifications, that the Lease is in full force and effect as modified and stating the modifications); (ii) stating the dates to which the rent and any other charges hereunder have been paid by Tenant; (iii) stating whether or not, to the best knowledge of Tenant, Landlord is in default in the performance of any covenant, agreement or condition contained in this Lease, and if so, specifying the nature of such default; (iv) stating the address to which notices to Tenant are to be sent; and (v) stating such other information as Landlord or any mortgagee or prospective mortgagee of the Land and improvements thereon may reasonably request.  Any such statement delivered by Tenant may be relied upon by any landlord of the Building, the Office Building or the Land, any prospective purchaser of the Building, the Office Building or the Land, any mortgagee or prospective mortgagee of the Building, the Office Building or the Land or of Landlord’s interest therein, or any prospective assignee of any such mortgagee.

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24.5 LANDLORD AND TENANT EACH HEREBY WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THEM AGAINST THE OTHER IN CONNECTION WITH ANY MATTER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS LEASE, THE RELATIONSHIP OF LANDLORD AND TENANT HEREUNDER, TENANT’S USE OR OCCUPANCY OF THE PREMISES, AND/OR ANY CLAIM OF INJURY OR DAMAGE.

24.6Subject to the terms and conditions of Article V above and except as otherwise expressly provided herein, all notices or other communications required hereunder shall be in writing and shall be deemed duly given and received when delivered in person (with receipt therefor), if delivered by  overnight delivery by a nationally recognized company, or if sent by certified or registered mail, return receipt requested, postage prepaid, to the following addresses:

If to Landlord:                       Tarantula Ventures LLC

c/o DuPont Fabros Technology, Inc.

1212 New York Avenue, NW, Suite 900

Washington, D.C.  20005

Attn:  General Counsel

Phone: (202) 728-0044

Fax: (202) 728-0220

With a copy to:                     Cooley Godward Kronish LLP

11951 Freedom Drive

Reston, Virginia  20190-5601

Attn:  John H. Toole

Phone: (703) 456-8651

Fax: (703) 456-8000

If to Tenant: Rackspace US, Inc.

5000 Walzem Road

San Antonio, Texas 78218

Attention: Director of Real Estate

Telephone:  (210) 312-4861

Facsimile:  (210) 312-4300

With copies to: Rackspace US, Inc.

5000 Walzem Road

San Antonio, Texas 78218

Attention: General Counsel

Telephone:  (210) 312-4721

Facsimile:  (210) 312-4848

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Smith, Robertson, Elliott, Glen, Klein & Bell, LLP

221 West 6th Street, Suite 1100

Austin, Texas 78701

Attention: Gavin Klein

Telephone: (512) 225-1708

Facsimile: (512) 225-5838

    If to Guarantor:                     Rackspace Hosting, Inc.

   5000 Walzem Road

   San Antonio, Texas 78218

   Attn: General Counsel    

    Telephone: (210) 312-4721   

    Facsimile: (210) 312-4848

With copies to: Smith, Robertson, Elliott, Glen, Klein & Bell, LLP

221 West 6th Street, Suite 1100

Austin, Texas 78701

Attention: Gavin Klein

Telephone: (512) 225-1708

Facsimile: (512) 225-5838

Any such notice shall be deemed effective upon the earlier of: (i) receipt, (ii) refusal to accept delivery, (iii) three (3) days after being deposited in the U.S. Mail, postage pre-paid, via registered or certified mail, return receipt requested, or (iv) one (1) day after being deposited with a nationally-recognized overnight carrier.

Either party may change its address for the giving of notices by notice given in accordance with this Section 24.6.

24.7If any 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 enforced to the fullest extent permitted by law.

24.8Feminine or neuter pronouns shall be substituted for those of the masculine form, and the plural shall be substituted for the singular number, in any place or places herein in which the context may require such substitution.

24.9The provisions of this Lease shall be binding upon, and shall inure to the benefit of, the parties hereto and each of their respective representatives, successors and assigns, subject to the provisions hereof restricting assignment or subletting by Tenant.

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24.10 This Lease contains and embodies the entire agreement of the parties hereto and supersedes all prior agreements, negotiations and discussions between the parties hereto.  Any representation, inducement or agreement that is not contained in this Lease shall not be of any force or effect.  This Lease may not be modified or changed in whole or in part in any manner other than by an instrument in writing duly signed by both parties hereto.

24.11This Lease shall be governed by and construed in accordance with the laws of the State of Illinois.

24.12Article and section headings are used herein for the convenience of reference and shall not be considered when construing or interpreting this Lease.

24.13The submission of an unsigned copy of this document to Tenant for Tenant’s consideration does not constitute an offer to lease the Premises or an option to or for the Premises.  This document shall become effective and binding only upon the execution and delivery of this Lease by both Landlord and Tenant.

24.14Time is of the essence with respect to each provision of this Lease.

24.15Neither this Lease nor a memorandum thereof shall be recorded; however, this Section 24.15 shall not be construed as prohibiting the recordation of the SNDA in accordance with Section 20.3 above.

24.16Except as otherwise provided in this Lease, any additional rent or other sum owed by Tenant to Landlord, and any cost, expense, damage or liability incurred by Landlord for which Tenant is liable, shall be considered “Additional Rent” and unless otherwise provided in this Lease shall be paid by Tenant to Landlord no later than thirty (30) days after the date Landlord notifies Tenant of the amount of such Additional Rent or such cost, expense, damage or liability.

24.17For purposes of this Lease, “Business Day” shall mean a day other than a Saturday, Sunday or Federal holiday.

24.18Except as expressly set forth herein to the contrary, all of the parties’ duties and obligations hereunder shall survive the termination of this Lease for any reason whatsoever.

24.19If Landlord or Tenant is in any way delayed, interrupted or prevented from performing any obligation (except, with respect to Tenant, its obligations to pay rent and other sums due under this Lease, any obligation with respect to insurance pursuant to Article XII, any obligation to give notice with respect to extensions, expansions or otherwise, and any holdover) due to fire, act of God, governmental act or failure to act, war, enemy action, strike, labor dispute, inability to procure materials, or any cause beyond Landlord’s or Tenant’s (as applicable) reasonable control (whether similar or dissimilar to the foregoing events) (all of which are collectively referred to herein as “Force Majeure”), then the time for performance of such obligation shall be excused for the period of such delay, interruption or prevention and

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extended for a period equal to the period of such delay or prevention.  Notwithstanding the foregoing, neither financial disability or hardship shall constitute a Force Majeure event.  By way of clarification, the occurrence of an event of Force Majeure will not prevent the occurrence of a Power Deficiency or HVAC Deficiency and same shall be determined without regard to such Force Majeure.

24.20 Each party hereby represents and warrants to the other that all necessary corporate or company action has been taken to enter into this Lease and that the person signing this Lease on behalf of such party has been duly authorized to do so and all consents required by such party to enter into this Lease have been received and no further consent from any party is required to enter into this Lease.

24.21 Landlord and Tenant each agrees that it will not publicly disclose the terms of this Lease, provided that communication of such information may be made in connection with any valid legal order issued by a court or governmental agency or any legally required official filing with any governmental agency or if required by the applicable rules of a national securities exchange, and provided further that communication by either party to its lenders, private investors, purchasers, accountants, attorneys, consultants and brokers shall be permitted.  The sole remedy for a breach by either party hereto of any of the terms and provisions of this Section 24.21 shall be an action for specific performance, injunction or restraining order, and such a breach shall not otherwise be deemed to constitute a default under this Lease or give rise to any claim for damages or other relief.   

24.22This Lease includes and incorporates the Recitals and the Exhibits A, B, B-1, B-2, C, D, D-1, E, F, G, H and I attached hereto.

24.23This Lease may be executed in separate counterparts, each of which shall constitute an original and all of which, together, shall constitute one and the same instrument.  This Lease shall be fully executed when each party whose signature is required has signed and delivered to each of the parties at least one counterpart, even though no single counterpart contains the signatures of all parties hereto.

ARTICLE XXV

RENEWAL

25.1Landlord hereby grants to Tenant two (2) successive five (5)-year renewal options, each exercisable at Tenant’s option and subject to the conditions described below (each such five-year term, if exercised, being referred to herein as a “Renewal Term”).  If such right is exercised, and if the conditions applicable thereto have been satisfied, the first Renewal Term shall commence immediately following the end of the Lease Term provided in this Lease and the second Renewal Term shall commence immediately following the end of the first Renewal Term.  The right of renewal herein granted to Tenant shall be subject to, and shall be exercised in accordance with, the following terms and conditions:

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(a)Tenant shall exercise its right of renewal with respect to each Renewal Term by giving Landlord written notice thereof not earlier than eighteen (18) months and not later than twelve (12) months prior to the expiration date of the then-current Lease Term (the “Renewal Notice”).

(b)In the event the Renewal Notice is not given timely, Tenant’s right of renewal shall lapse and be of no further force or effect.

(c)All the terms, conditions, covenants and agreements set forth in this Lease shall continue to apply and be binding upon Landlord and Tenant during each Renewal Term, except for the determination of Base Rent which shall be as set forth in Section 25.2 below.

(d)In the event there exists an Event of Default on the date of receipt of a Renewal Notice or anytime thereafter until the date such Renewal Term is to commence, then, at Landlord’s option, such Renewal Term shall not commence and the Lease Term shall expire on the date the Lease Term would have expired without such renewal.

(e)The renewal option shall be exercised only by the original Tenant hereunder or by an Affiliate of the original Tenant hereunder, and not by any other assignee, transferee or subtenant.  In the event the original Tenant assigns this Lease to any entity other than an Affiliate of the original Tenant, Tenant's rights under this Section 25.1 shall lapse as though this Section 25.1 had never been included in the Lease.

(f)In the event this Lease is not renewed for the first Renewal Term, Tenant’s right to renew this Lease for the second Renewal Term shall lapse and be of no further force and effect.

25.2(a)The Base Rent charged for the first year of each Renewal Term shall be [*****].

(b)[*****].

(c)[*****].

ARTICLE XXVI

COMMUNICATIONS EQUIPMENT

26.1(a)           Subject to the terms and conditions in this Article XXVI, Tenant shall have the license, at Tenant’s sole risk, cost and expense, to install and maintain in a designated location on the roof of the Building (individually and together, the “Satellite Area”) one (1) or more satellite dish antennae (together and singly the “antenna”), together with the cables extending from such antenna to the Premises through plenums, risers, electrical closets, ducts or pipes on or serving the floor on which the Premises are located (other than those installed for another tenant’s exclusive use and provided Tenant shall have utilization of each such facility or

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area in no greater proportion than the ratio by which the square feet of rentable area in the Premises compares to the square feet of rentable area in the Building), all in accordance with plans and specifications to be reasonably approved by Landlord.  The number, location, size, weight, height and all other features and specifications of the antenna and the manner of the initial installation of the same shall be subject to Landlord’s prior written approval, which approval will not be unreasonably withheld, conditioned or delayed.  The installation of such antenna and all related wiring and equipment shall be performed during normal working hours and under the supervision of Landlord’s designated representative.  Notwithstanding the foregoing, Tenant shall not be entitled to install such an antenna (i) which is greater than three (3) meters in diameter (or more if same is not visible from the grounds adjacent to the Building or appropriately screened from view in accordance with Building standards), (ii) which is more than four (4) meters in height (or more if same is not visible from the grounds adjacent to the Building or appropriately screened from view in accordance with Building standards), (iii) if such installation would violate (or in a manner that would violate) any warranty with respect to the roof or structure of the Building, (iv) if such installation would materially, adversely affect (or in a manner that would materially, adversely affect) the structure or any of the building systems of the Building, or if such installation would require (or in a manner that would require) any structural alteration to the Building, or if such installation would disturb the roof membrane or make any other penetration on the roof or the exterior facade of the Building, unless Landlord in its sole and absolute discretion approves in writing such structural alteration or roof penetration, (v) if such installation would violate (or in a manner that would violate) any covenant, condition, or restriction of record affecting the Building or any applicable federal, state or local law, rule or regulation, (vi) unless all required approvals and consents of all holders of Mortgages encumbering the Building of whom Tenant has notice are obtained (to the extent required by the loan documents and requested by Landlord), (vii) unless Tenant has obtained and maintains at Tenant’s expense, and has submitted to Landlord copies of, all permits, licenses, special zoning variances, authorizations and approvals relating to such antenna and such installation and maintenance (including, without limitation, any permit required if a crane is necessary to place such antenna on the roof) and pays all taxes and fees related thereto, (viii) unless such antenna is white or of a beige or lighter color (or otherwise appropriately screened), (ix) unless such antenna is installed, at Tenant’s sole cost and expense, by a qualified contractor chosen by Tenant and approved in advance by Landlord, which approval shall not be unreasonably withheld, (x) if the installation or operation would materially interfere with or materially disrupt the use or operation of any other equipment (including antennae) on the roof of the Building on the Rent Commencement Date, (xi) unless Tenant obtains Landlord’s prior consent to the manner and time in which such installation work is to be done; and (xii) unless screened from view from the grounds adjacent to the Building in a manner and with materials reasonably acceptable to Landlord.  All plans and specifications concerning such installation shall be subject to Landlord’s prior written approval, which approval shall not be unreasonably withheld, and Tenant shall reimburse Landlord’s reasonable and customary third-party expenses actually incurred in such review.  All maintenance, repairs and installations required after the initial installation of the antenna also shall be subject to Landlord’s prior written approval, which approval shall not be unreasonably withheld, and Tenant shall reimburse Landlord’s reasonable and customary third-party expenses actually incurred in such review.  Any failure to complete

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the installation of the antenna and related equipment shall not delay the Rent Commencement Date.  Tenant shall have no right to any abatement or reduction in the Base Rent, Additional Rent or any other sums due or payable under this Lease if for any reason Tenant is unable to obtain any required approval for installation of an antenna, or is thereafter unable to use the antenna for any reason.

(b)Tenant shall not have access to any such antenna without Landlord’s prior consent, which consent shall be granted to the extent necessary or desirable for Tenant to perform its maintenance, repair, replacement or other obligations hereunder, and only if Tenant is accompanied by Landlord’s representative (if Landlord so requests and no emergency circumstances required otherwise, and provided such representative of Landlord does not interfere with or delay Tenant in exercising its rights or satisfying its obligations hereunder).  Any such access by Tenant shall be subject to reasonable rules and regulations relating thereto established from time to time by Landlord, including without limitation rules and regulations prohibiting such access unless Tenant is accompanied by Landlord’s representative, provided such representative of Landlord does not interfere with or delay Tenant in exercising its rights or satisfying its obligations hereunder.  Landlord shall have the right to access the Satellite Area at all times, provided Landlord does not unreasonably interfere with Tenant’s use of the Satellite Area and any antenna as provided herein.  Notwithstanding the foregoing, in the event Tenant is prevented or delayed from satisfying its obligations under this Article XXVI due to Landlord’s failure to consent to Tenant’s access to the Satellite Area and any such antenna and/or Landlord’s requirement of a Landlord escort, then Tenant’s obligations shall be excused until Landlord issues such consent and/or produces any such Landlord escort.

(c)At all times during the Lease Term, Tenant shall (i) perform maintenance and repairs so as to keep all said equipment in clean, good and safe condition and in a manner that avoids material interference with or material disruption to Landlord and other tenants of the Building, (ii) comply with all requirements of laws, ordinances, rules and regulations of all public authorities and insurance companies which shall impose any order or duty upon Landlord with respect to or affecting the antenna and/or associated wiring or Tenant’s use or manner of use thereof, and (iii) register the equipment, if required, with appropriate governmental authorities and keep same current.  All repairs and maintenance shall be performed by a qualified Approved Contractor.  Tenant shall pay and discharge all costs and expenses incurred in connection with the furnishing, installation, maintenance, operation and removal of the antenna.  All repairs and maintenance to the Building made necessary by reason of the furnishing, installation, maintenance, operation or removal of the antenna or any replacements thereof (including, without limitation, any invalidation of the roof warranty due to Tenant’s breach of its obligations hereunder) shall be at Tenant’s sole cost.  If the operation of the antenna shall require electrical power, Landlord may, at its sole option, install a separate meter, at Tenant’s sole expense, to measure such electrical consumption and Tenant shall pay for such consumption at the then-current price per kilowatt hour charged Landlord by the utility.  At the expiration or earlier termination of the Lease Term, or upon termination of the operation of the antenna and related equipment as provided in subsection (e) below, Tenant shall remove such antenna and related equipment from the Building and surrender the Satellite Area  in good condition, ordinary

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wear and tear and damage by fire, casualty and the elements excepted.  If Tenant fails to so remove the antenna and equipment in accordance with the foregoing, Landlord shall have the right to remove and dispose of such antenna and equipment, at Tenant’s sole cost and expense, and Landlord shall have no liability therefor.  Notwithstanding the foregoing to the contrary, in the event any repairs or maintenance to, or restoration of, the Building made necessary by reason of furnishing, installation, maintenance, operation or removal of the antenna or any replacements thereof are due to work performed or to be performed by DFTS pursuant to a separate agreement between DFTS and Tenant, then Landlord, and not Tenant, shall be responsible therefor at Landlord’s sole cost and expense.

(d)Upon at least thirty (30) days’ prior written notice to Tenant, Landlord shall have the right to require Tenant to relocate the antenna to another location of equivalent size; provided, however, that such relocation: (i) does not materially, adversely affect the operation of the antenna; and (ii) can be performed without any interruption in service.  Any such relocation shall be performed by Tenant at Landlord’s expense, and in accordance with all of the requirements of this Article XXVI.  Nothing in this Section shall be construed as granting Tenant any line of sight easement with respect to such satellite dish antenna; provided, however, that if Landlord requires that such antenna be relocated in accordance with the preceding two (2) sentences, then Landlord shall provide either (i) the same line of sight for such antenna as was available prior to such relocation, or (ii) a line of sight for such antenna which is functionally equivalent to that available prior to such relocation.

(e)It is expressly understood that by granting Tenant the license hereunder, Landlord makes no representation as to the legality of such antenna or its installation.  In the event that any federal, state, county, regulatory or other authority requires the removal or relocation of such antenna, Tenant shall remove or relocate such antenna at Tenant’s sole cost and expense, and Landlord shall under no circumstances be liable to Tenant therefor.  In addition, at Landlord’s sole option and discretion, Landlord may require Tenant, at any time prior to the expiration or earlier termination of this Lease, to terminate the operation of the antenna and related equipment if it is causing material physical damage to the structural integrity of the Building, materially interfering with any other service provided to the Building in existence as of the Rent Commencement Date or causing the violation of any condition or provision of this Lease.  The right granted to Tenant under this Article XXVI are non-exclusive, non-transferable (except to an Affiliate or in connection with a permitted sublease of the entire Premises or assignment of the Lease in its entirety pursuant to Article VII hereof), revocable license to use the Satellite Area solely in accordance with terms and conditions of this Article XXVI.

(f)Tenant shall indemnify and hold Landlord harmless from and against all costs, damages, claims, liabilities and expenses (including attorneys’ fees) suffered by or claimed against Landlord, directly or indirectly, based on, arising out of or resulting from any act or omission by Tenant or Tenant’s employees, agents, assignees, subtenants, contractors, clients, guests, licensees, customers or invitees with respect to the installation, use, operation, maintenance, repair, removal or disassembly of such antenna and related equipment (including,

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without limitation, any damage to other wires or equipment of the Building or other tenants/occupants of the Building).

(g)The antenna may be used by Tenant only in the conduct of Tenant’s customary business.  No assignee or subtenant shall have any rights pursuant to this Article except for an Affiliate or an assignee of the entire Lease or a subtenant of the entire Premises pursuant to a permitted assignment or sublease in accordance with Article VII hereof.

(h)Tenant shall maintain such insurance (in addition to that required by Article XII of this Lease) as is appropriate with respect to the installation, operation and maintenance of the antenna.  Landlord shall have no liability on account of any damage to or interference with the operation of the antenna, except for physical damage caused by Landlord’s gross negligence or willful misconduct not covered by Tenant’s insurance carried or required to be carried by said Article XII, and Landlord expressly makes no representations or warranties with respect to the capacity for an antenna placed on the roof of the Building to receive or transmit signals.  Except as otherwise expressly provided herein, the operation of the antenna shall be at Tenant’s sole and absolute risk. Tenant shall in no event materially interfere with the use of any other communications equipment located on the roof, or anywhere else in, the Building pursuant to leases or other agreements entered into prior to the date of the Lease and will reasonably cooperate with Landlord, at no cost or expense to Tenant, to avoid material interference with any other antennas or equipment installed in the future.

ARTICLE XXVII

GUARANTOR

The full and complete performance by Tenant of its obligations under the Lease shall be guaranteed by Rackspace Hosting, Inc., a Delaware corporation (“Guarantor”).  The Guarantor shall execute and deliver contemporaneously with Tenant’s execution of this Lease a guaranty in the form attached as Exhibit H hereto.

ARTICLE XXVIII

[*****]

ARTICLE XXIX

[*****]

[Signature Page Follows]

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In Witness Whereof, Landlord and Tenant have executed this Lease under seal on or as of the day and year first above written.

LANDLORD:

TARANTULA VENTURES LLC,

a Delaware limited liability company

By:          Tarantula Interests LLC, a Delaware

limited liability company,

its Managing Member

By:          Safari Ventures LLC, a Delaware

limited liability company,

its Managing Member

By:          DuPont Fabros Technology, Inc.,a Maryland corporation,

its Managing Member

By: /s/ Hossein Fateh

                Hossein Fateh

                President & CEO

TENANT:

RACKSPACE US, INC., a Delaware corporation

By: /s/ Alan Schoenbaum                                                                           

Name: Alan Schoenbaum                                                                           

Title: Sr. Vice-President and General Counsel

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EXHIBITS

A           Description of Land

B           Floor Plan of Premises and Storage Space

B-1        Floor Plan of Office Space

B-2 [*****]

C Declaration Affirming The Rent Commencement Date

D           Landlord’s Work

D-1        Shell Office Space Requirements

E           Rules and Regulations

F           Services Exhibit

G           Form of Subordination Non-disturbance Agreement

H           Form of Guaranty

I            Office Building Services and Utilities

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EXHIBIT A

Description of Land

LOT 1 IN ERNESCO IMPORTS CORP. SUBDIVISION.  A RESUBDIVISION OF LOTS 1 AND 2 IN GREAT—WEST INDUSTRIAL SUBDIVISION, A RESUBDIVISION OF PART OF LOT 269 IN CENTEX INDUSTRIAL PARK UNIT 151.  A SUBDIVISION IN THE SOUTHEAST ¼ OF SECTION 34, TOWNSHIP 41 NORTH, RANGE 11, EAST OF THE THIRD PRINCIPAL MERIDIAN, ACCORDING TO THE PLAT THEREOF RECORDED FEBRUARY 13, 1986 AS DOCUMENT 86063318, IN COOK COUNTY, ILLINOIS

Permanent Tax/Assessor Parcel Number:  08-34-402-058,0000

A-1

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EXHIBIT B

Floor Plan of Premises and Storage Space

B-1

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EXHIBIT B-1

Floor Plan of Office Space

B1-1

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EXHIBIT B-2

[*****]

B2-1

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EXHIBIT C

Declaration Affirming The Rent Commencement Date

This Declaration is being provided pursuant to that certain Lease Agreement dated as of _____________, 200_ (the “Lease”), by and between Tarantula Ventures LLC (“Landlord”) and __________________ (“Tenant”).  The parties to the Lease desire to confirm the following:

1.           The Rent Commencement Date is ____________, 200_.

2.           Unless earlier terminated in accordance with the Lease, the initial term of the Lease shall expire on ____________, 20__.

[*****]

[Signatures on Following Page]

C-1

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In Witness Whereof, Landlord and Tenant have executed this Certificate under seal on _____________, 200_.

LANDLORD:

Tarantula Ventures LLC, a Delaware limited liability company

                                                                                                         By: Tarantula Interests LLC, a Delaware

limited liability company,

its Managing Member

By: Safari Ventures LLC, a Delaware

limited liability company,

its Managing Member

By: DuPont Fabros Technology, Inc.,  a Maryland corporation,

its Managing Member

By:____________________________

        Name:__________________________

        Title:___________________________

TENANT:

RACKSPACE US, INC., a Delaware corporation

By:_________________________________

Name: ______________________________

Title:________________________________

C-2

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EXHIBIT D

Landlord’s Work

CH1 Phase I is constructed as a mission critical facility capable of continuously serving approximately 18.2 megawatts of critical computer equipment load protected by an uninterruptible power system using inertial rotary storage.  CH1 is configured such that all heat loads in the building are continuously rejected to the outside of the facility, using a chilled water system as the primary cooling mechanism in the facility.  The improvements that have been constructedand installed include:

Exterior Architectural and Structural Work pursuant to schematic drawings

Electrical Service and Transformers

600v Distribution Switchgear

UPS System

Engine Generators

Static Transfer Switches (STS)

PDUs

Power Monitoring System (for power billing and system monitoring)

Fire Detection and Alarm System (including VESDA system)

Fire Alarm System (VESDA system)

Security System

Lightning Protection

Evaporative Chilled Water System with Centrifugal Chillers

HVAC Controls

Building Monitoring and Alarm System

Raised Floor (height per design requirements)

Loading Dock

Secure Single Point Entry

Common Area Restrooms

Elevator

Building Grounding System

D-1

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EXHIBIT D-1

Shell Office Requirements

Ÿ   Building structure including foundations, slab on grade, supported slabs and structural concrete.

Ÿ   Concrete floors ready to receive tenant finish.

Ÿ   Men’s and women’s toilet rooms in hallway substantially complete including plumbing and fixtures, paint and lighting per code.

Ÿ   Drinking fountains installed per code.

Ÿ   Electrical closets complete with tenant panel for power and lighting.

Ÿ   Building fire stairs complete.

Ÿ   Mechanical equipment rooms complete with air handlers and ductwork.

Ÿ   Mechanical penthouse substantially complete with base building equipment.

Ÿ   Elevators, cabs, frames and entries.

Ÿ   Primary HVAC loop ductwork from the mechanical rooms around the cores.

Ÿ   VAV boxes at ratio of one box with control thermostat per 2500 RSF (coiled up awaiting tenant walls).

Ÿ   Drywall ready for paint around columns, outside of cores and perimeter walls.

Ÿ   Fire alarm system with connections to base building equipment (tamper and flow switches, HVAC units, elevators, etc.).  System to be sized to accept tenant devices.

Ÿ   Fire sprinkler pump (if required) with tamper and flow switches on the risers, sprinkler loop on each floor with heads in base building areas (toilet, mechanical, stair towers, penthouse, etc.).

Ÿ   Perimeter security system.

Ÿ   Exit lights at each building exit.

Ÿ   One (1) turned up sprinkler head for every 225 square feet.

Ÿ   Glass exterior perimeter walls.

Ÿ   [*****]

Ÿ   [*****]

Ÿ   Perimeter doors and hardware.

D-1-1

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EXHIBIT E

DuPont Fabros CH1

_____________________

STANDARD OPERATING

PROCEDURES, RULES AND REGULATIONS

Any material violation of these rules and regulations by Tenant shall constitute a default by Tenant under the Lease.

The following rules shall be applicable to the Property and Tenant’s activities therein:

Tenant shall not obstruct or encumber or use for any purpose other than ingress and egress to and from the Premises any sidewalk, entrance, passage, court, elevator, vestibule, stairway, corridor, hall or other part of the Building not exclusively occupied by Tenant.  No bottles, parcels or other articles shall be placed, kept or displayed on window ledges, in windows or in corridors, stairways or other public parts of the Building.  Tenant shall not place any showcase, mat or other article outside the Premises.

Where Landlord’s consent is required under these Rules and Regulations, Landlord shall not unreasonably withhold, condition, or delay such consent.  Canvassing, soliciting and peddling in the Building are prohibited, and Tenant shall cooperate to prevent the same.

Tenant shall have the right to attach, hang or use in connection with any window or door of the Premises any drape, blind, shade or screen to prevent any person outside the Premises from seeing into the Premises.  Landlord shall have the right to approve the type of window or door covering, which approval shall not be unreasonably withheld, conditioned or delayed.

Tenant shall not use the water fountains, water and wash closets, and plumbing and other fixtures for any purpose other than those for which they were constructed, and Tenant shall not place any debris, rubbish, rag or other substance therein (including, without limitation, coffee grounds).  All damages from misuse of fixtures shall be borne by the tenant causing same.

Tenant shall not construct, maintain, use or operate within the Premises any electrical device, wiring or apparatus in connection with a loudspeaker system or other sound system, in connection with any excessively bright, changing, flashing, flickering or moving light or lighting device, or in connection with any similar device or system, without Landlord’s prior written consent.  Tenant shall not construct, maintain, use or operate any such device or system outside of its Premises or within such Premises so that the same can be heard or seen from outside the Premises.  Tenant will not permit or allow any vapors, steam, water, vibrations, noises or other undesirable effects to emanate from the Premises or any equipment or installation therein, which in Landlord’s reasonable discretion, are objectionable or cause any interference with the safety, comfort or convenience of the Building by Landlord or its agents, servants, invitees or employees.

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Tenant shall not bring any child under the age of twelve (12) years old, animal, bird or pet of any kind into the Building, except seeing-eye or hearing-ear dogs for handicapped persons visiting the Premises.

Except as specifically provided to the contrary in the Lease and except in the office areas (including, without limitation, any network operations center), where customary microwave cooking and office kitchen use shall be permitted, Tenant shall not cook or permit any cooking on the Premises, except for microwave cooking and use of coffee machines by Tenant’s employees for their own consumption.  No food or drink of any kind is permitted in any raised floor environment.  Tenant shall not cause or permit any unusual or objectionable odor to be produced upon or emanate from the Premises.

[*****].  Tenant shall not place on any floor a load exceeding the floor load per square foot which such floor was designed to carry.  Landlord shall have the right to repair at Tenant’s expense any damage to the Premises or the Building caused by Tenant’s moving property into or out of the Premises or to require Tenant to do the same, in accordance with the terms and provisions of the Lease.

Except as otherwise provided herein, Tenant shall not place additional locks or bolts of any kind on any of the doors or windows, and shall not make any change in any existing lock or locking mechanism therein, without Landlord’s prior written approval, which shall not be unreasonably withheld or delayed.  Tenant shall keep doors leading to a corridor or main hall closed at all times except as such doors may be used for ingress or egress and shall lock such doors during all times the Premises are unattended.  Tenant shall, upon the termination of its tenancy: (a) restore to Landlord all keys and security cards to the Building and the Premises which were either furnished to, or otherwise procured by, Tenant, and in the event of the loss of any keys so furnished, Tenant shall pay the replacement cost thereof; and (b) inform Landlord of the combination of any lock, safe and vault in the Premises.  Tenant’s key system shall be consistent with that for the rest of the Building.

Subject to the terms and provisions of Article V of the Lease, Landlord shall require all persons not having permanent Access Badges admitted to the Building to show government-issued identification and to sign a register.

Tenant shall not permit or encourage any loitering in or about the Premises and shall not use or permit the use of the Premises for lodging, dwelling or sleeping.

Tenant shall not request Landlord’s employees to perform any work or do anything outside of such employees’ regular duties without Landlord’s prior written consent.  Tenant’s special requirements will be attended to only upon application to Landlord, and any such special requirements shall be billed to Tenant in accordance with the schedule of charges maintained by Landlord from time to time or as is agreed upon in writing in advance by Landlord and Tenant.  Tenant shall not employ any of Landlord’s employees for any purpose whatsoever without Landlord’s prior written consent.  Except as otherwise expressly provided herein, only Approved Contractors, Approved Vendors and/or Approved Fiber Providers, as applicable, will be

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permitted to furnish services to Tenant which require entry upon the Property, and only in accordance with the terms and provisions of the Lease and these Rules and Regulations.

There shall not be used in any space, or in the public halls of the Building, either by any tenant or by jobbers or others in the delivery or receipt of merchandise, any hand trucks, except those equipped with rubber tires and side guards.  Tenant shall be responsible for any loss or damage resulting from any deliveries made by or for Tenant.

Tenant shall not remove, alter or replace the ceiling light diffusers, ceiling tiles or air diffusers in any portion of the Premises without the prior consent of Landlord.

Tenant shall not in any manner deface any part of the Premises or the Building.  Except as otherwise expressly provided herein and/or in the Lease, no stringing of wires, boring or cutting shall be permitted except with Landlord’s prior written consent.

Tenant shall not bring or keep, or permit to be brought or kept, in the Building any weapon or, except as otherwise provided herein, flammable, combustible or explosive fluid, chemical or substance.

Tenant shall comply with all workplace smoking Laws.  There shall be no smoking in the Premises, the Building and the Common Areas.

Subject to the terms and provisions of Articles I and XXVI of the Lease, Tenant shall have no right of access to the roof of the Building and shall not install, repair or replace any satellite dish, antennae, fan, air conditioner or other devices on the roof of the Building without prior written consent of Landlord.  Any such device installed without such written consent shall be subject to removal, at Tenant’s expense, without notice, at any time.

Landlord may refuse admission to the Building to all persons except as otherwise provided in Section V of the Lease.

The Building loading docks, shall be used pursuant to procedures reasonably designated by Landlord.  Without limiting the generality of the foregoing, the Building loading docks may only be used for loading and unloading.  Tenants may not place any dumpsters or other trash receptacles at the loading docks or any other portion of the Building without prior approval of Landlord.

Except in the event of an emergency, Tenant shall not turn on, shutdown, adjust or permit to be turned on, shutdown or adjusted any PDUs, computer room air conditioners, fire alarm systems, security systems or other systems within the Premises without Landlord’s prior written approval and, in all cases, Tenant shall promptly notify Landlord’s Emergency Contacts in accordance with Section 5.3 of the Lease.  To the extent possible, a shutdown or adjustment shall be subject to the supervision of the Building engineer.

Tenant shall not install Direct Current {DC} power plants within the leased premises without Landlords prior written approval.

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Tenant shall not remove, alter or replace any equipment associated with the electrical, communications, mechanical, fire protection, security and all other facility infrastructure.  This shall include, without limitation, conduits, cable trays, cabling or other pathways which pass through the Premises but, subject to Article IX of the Lease, shall not include Tenant’s own conduits, cable trays, cabling or other pathways used exclusively by Tenant.

Tenant shall not install wiring below the raised floor without Landlord’s prior written approval in accordance with Section 9.2 of this Lease.

[*****].

Except as otherwise expressly provided herein, Tenant’s contractors or vendors may not use any space within the Building or Property for the storage or moving of materials or equipment (except on a temporary basis, as approved by Landlord in its reasonable discretion, to provide services to allow Tenant to operate in the Premises in accordance with the Permitted Uses) or for the location of a field office or facilities for the employees of any such contractor or vendor without Landlord’s prior written consent.  Landlord reserves the right to restrict the use of certain materials in the Building or on the Property if Landlord, in its reasonable discretion, determines that such materials are unsafe, provided Landlord shall not unreasonably interfere with Tenant’s use of the Premises for the Permitted Uses.

Trucks using the Building loading dock located on the lower level of the Buildingwill load and discharge at the place or places designated by the duly authorized representative of Landlord in charge of such operation.

The Building loading dock is intended to be used for transferring freight to and from the Building.  The use of the Building loading dock by Tenant or any of its agents, servants, employees, representatives or contractors will be confined to such purpose, under the direction of, and pursuant to procedures established by, a duly authorized representative of Landlord in charge of such operation.  No storage or holding of freight at the loading dock awaiting the arrival of trucks, or awaiting transfer by Tenant from the loading dock to the Premises, will be permitted.  No automobiles of Tenant or any employee, agent, or invitee of Tenant may enter on or be stored in any portion of the Property, except in areas designated by Landlord.  Any violation of this rule or disregard of directions issued by Landlord will give Landlord the right, upon notice to Tenant’s Emergency Contacts, to transfer, remove or store the applicable freight or automobile.  When such transfer, removal or storage is performed by or for Landlord in accordance with this provision, any and all expense associated therewith will be at Tenant’s sole cost and expense.  Landlord will not be responsible for any loss or damage to any freight or automobile as a result of such transfer, removal, or storage except to the extent the same arises as a result of Landlord’s negligence or willful misconduct.

Tenant shall not, under any circumstances, permit the accumulation of sweepings or any other rubbish in the expansion joints of those portions of the Building located outside of the Premises, and all such sweepings or rubbish shall be removed daily by Tenant in such manner as Landlord shall reasonably direct.  Except as otherwise expressly provided herein, Tenant will not place machinery or equipment in a position so that such machinery or equipment straddles an

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expansion joint, or erect a partition which intersects an expansion joint.  Tenant shall not broom sweep any portion of the Property outside of the Premises; Tenant shall clean dust, debris, and similar materials by use of a vacuum.  Tenant shall clean the Premises in accordance with Section 13.3 of the Lease.

All damage to the Building caused by Tenant moving or using any heavy equipment or other office equipment or furniture shall be repaired by Tenant or otherwise at the expense of Tenant.

The moving of all heavy equipment and furniture may occur only with Landlord’s prior approval, which approval shall not be unreasonably withheld, conditioned, or delayed.  Safes and other heavy equipment, furniture and machinery must be moved through the halls and corridors on plywood or, depending on the weight, steel bearing plates.  No oversized or bulky freight will be received into the Building or carried in the elevators except as approved in advance by Landlord.

Tenant shall have the right to receive or ship fixtures, equipment or articles related to the Permitted Uses 24 hours a day, 7 days a week through facilities, doors and elevators designated by Landlord.

Tenant will, at its expense, comply with Landlord’s reasonable waste management, disposal and recycling requirements Landlord may, upon request of Tenant, waive Tenant’s compliance with any of these Rules and Regulations, provided that (a) no waiver shall be effective unless signed by Landlord, (b) no waiver shall relieve Tenant from the obligation to comply with such Rules and Regulations in the future unless otherwise agreed in writing by Landlord, and (c) no waiver shall relieve Tenant from any liability for any loss or damage resulting from Tenant’s failure to comply with any of these Rules and Regulations.

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Exhibit F

Services Exhibit

A.           DEFINITIONS

All capitalized terms not defined herein shall have the meanings ascribed to them in the Lease.

(a)           “Building Management System” (the “BMS”) shall refer to an environmental diagnostic system for power, temperature and humidity, with remote sensors located in the Tenant Space and capable of providing monitoring at the level specified herein.

(b)           “CBEMA Curve” means 208V AC line voltage, as measured at the PDU and maintained within the “No Interruption in Function Region” described in the ITI CBEMA Curve in Appendix 1 attached hereto.

(c)           “Computer Room Air Conditioning Unit(s)” or “CRAC(s)” shall mean the individual air conditioning/cooling devices that regulate temperature within the Premises raised floor space.

(d)           “Environmental Conditions” means the temperature and humidity conditions in the Tenant Space as described in Section B.i.

(e)           “HVAC” shall mean the heating, ventilation, and air conditioning system used for regulation of the Environmental Conditions and air filtering.

(f)           “HVAC Deficiency” is defined in Section B.i.  A momentary interruption resulting from a switch from utility power to back-up or generator power shall not constitute a HVAC Deficiency.

(g)           “HVAC Demand” shall mean the quantity of HVAC required to reject the heat generated by the consumption of electricity within a Pod in order for Tenant to sufficiently conduct its business operations in such Pod.

(h)           “Power Deficiency” is defined in Section B.ii.

(i)           “Power Distribution Unit” (“PDU”) is defined as an electrical distribution component that steps down the building distribution voltage to the 120/208V level for use as branch circuit distribution to the computing equipment.

(j)           “Service Deficiency” means a Power Deficiency or a HVAC Deficiency.

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(k)           “Tenant Space” is the Premises, as defined in the Lease, which includes the Pods and Office Space.

B.           DESCRIPTION OF SERVICES

i.           Environmental Conditions

Landlord shall, at all times throughout the Lease Term, use commercially reasonable, diligent efforts to maintain environmental conditions for temperature and humidity (“Environmental Conditions”) in accordance with those described in the “Recommended” range for a Class 1 Data Center Environment as defined by ASHRAE TC 9.9 “Thermal Guidelines for Data Processing Environments,” as such guidelines may be modified, revised and supplemented from time to time (the “ASHRAE Guidelines”), and Landlord shall at all times throughout the Lease Term, maintain Environmental Conditions in accordance with those described in the “Allowable” Range for a Class 1 Data Center Environment under the ASHRAE Guidelines.  Landlord will place up to ten (10) temperature sensors at various locations around each 1.3 megawatt Pod, and five (5) temperature sensors in each .433 megawatt Pod, in amounts, at locations and at times during the Phasing Period reasonably agreed upon by both the Landlord and Tenant.  Sensors shall be monitored 24x7 by the BMS.

Landlord shall use the BMS to proactively and continuously monitor Environmental Conditions at the sensor locations within each Pod.  These monitors or data collection points shall be dispersed within the Pod to record rack inlet Environmental Conditions and not be limited to collection of return air at the CRAC units.  [*****].

In the event that any BMS monitor or data collection point detects an Environmental Condition reading outside the “Recommended Range” per the ASHRAE Guidelines in any of the Pods of the Premises, an alarm will be triggered within the BMS specifying the Pod and location of the fault and Landlord shall immediately undertake all commercially reasonable action to cure the event and resolve the issue, which Landlord shall pursue diligently until the Environmental Condition is within the Recommended Range.  [*****].  Furthermore, in the event of a HVAC Deficiency, Landlord shall immediately undertake all commercially reasonable, best efforts to cure such HVAC Deficiency and resolve such HVAC Deficiency, which Landlord shall pursue diligently until the HVAC Deficiency is cured.  Landlord shall immediately notify Tenant’s Emergency Contacts in the event of a HVAC Deficiency in accordance with Article V of the Lease, and Landlord will maintain periodic contact with Tenant until the HVAC Deficiency is cured.

ii.           Power Quality and Power Availability

Landlord shall provide continuous electrical power, at all times to the load side of each PDU in accordance with recommendations for the AC power input envelope or curve formerly known as “CBEMA,” published by the TC3 of the Information Technology Industry Council in 2000 and attached as Appendix 1 hereto.  Voltage shall remain within

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the region identified as the “No Interruption In Function Region.”  Landlord shall maintain a BMS with event capture capabilities that will track compliance with this provision of CBEMA at the PDU level.

Tenant may, at its own expense and with Landlord’s consent (which may not be unreasonably withheld), procure the installation of a Branch Circuit Monitoring system (BCM) to allow for monitoring power quality and availability of each circuit on the load side of the PDU.

[*****].

Landlord will provide Tenant annually with a maintenance schedule for the current Lease Year that targets the calendar month(s) in which Landlord will perform planned standard electrical maintenance and major power maintenance.  [*****] Landlord shall in all events provide Tenant with at least two (2) Business Days’ advance notice of the date of performance of any such planned standard electrical maintenance or major power maintenance.  Landlord may deviate from the maintenance schedule, provided that such changes shall not unreasonably interfere with Tenant’s beneficial use of the Premises.

In the event of a Power Deficiency for any reason, Landlord shall use all commercially reasonable, best efforts to immediately return all Critical Load Power to [*****]. Landlord will immediately notify Tenant’s Emergency Contacts of any Power Deficiency in accordance with Article V of the Lease, and Landlord will maintain periodic communication until all Critical Load Power is returned to [*****].

iii.           Maintenance and Operations

(a)           24x7 On-site Facilities Engineering Staff

As part of Landlord’s Repair and Maintenance Obligations, Landlord shall maintain [*****] onsite 24 hours a day, 7 days per week, who is qualified in their respective craft, and trained in systems, operations, procedures, and policies that are specific to the Building.

(b)           System Tests

As part of Landlord’s Repair and Maintenance Obligations, Landlord shall perform and document manufacturer recommended and all industry standard maintenance, repairs and confidence tests on all building systems and back-up systems to ensure ongoing operation and to validate that they operate properly under their rated load and design conditions as often as is recommended by the manufactures or is customary in the industry for first-class data centers, whichever is more frequent.  All such maintenance, repairs and tests shall be conducted in accordance with best industry practices, and at such intervals recommended by the original equipment manufacturers and recognized industry

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experts.  Under normal conditions, Landlord shall not utilize Tenant’s equipment as the test load when troubleshooting or performing functional testing following maintenance activities.  [*****]. Landlord shall in all events provide Tenant with at least two (2) Business Days’ advance notice of the actual date on which maintenance or testing that will subject Tenant’s circuits to intentional power source transfers shall be performed.

iv.           Notifications

Notifications and alerts related to Service Deficiencies, whether generated electronically by the BMS, other electronic means or manually by security staff will be communicated in accordance with Sections B.i. and B.ii. above, as applicable.

C.           [*****]

D.           GENERAL

Notwithstanding any provision to the contrary contained in this Exhibit F, neither Landlord nor the Management Company shall be obligated to perform any services requested by Tenant in addition to the services Landlord is obligated to provide or perform pursuant to the terms and provisions of the Lease, to the extent such additional services are beyond, or in conflict with, the documented design parameters of the Building and any industry-standard equipment, fixtures and installations thereto or thereon.  Any and all costs and expenses that are approved by Tenant in writing and incurred by Landlord and/or the Management Company in performing the services required hereunder shall be included in Operating Expenses under the Lease.

E.           [*****]

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EXHIBIT G

Subordination, Non-disturbance and Attornment Agreement

Recorded at the Request of and After Recording Return to:

William F. Timmons, Esq.

McKenna Long & Aldridge LLP

303 Peachtree Street, Suite 5300

Atlanta, Georgia  30308

SUBORDINATION, NON-DISTURBANCE

AND ATTORNMENT AGREEMENT

Grantor #1 (Landlord):                                         TARANTULA VENTURES LLC, a Delaware limited liability company

Grantor #2 (Tenant):                                             RACKSPACE US, INC., a Delaware corporation

Grantee (Lender):                                                  KEYBANK NATIONAL ASSOCIATION, AS AGENT

Abbreviated Legal Description:

Official Legal Description on Exhibit A

Assessor’s Tax Parcel ID #                                08-34-402-058-0000

Reference No.                                                       N/A

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SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT

THIS SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT (the “Agreement”) is made as of the ____ day of _________________, 2009 by and between:

KEYBANK NATIONAL ASSOCIATION,

a national banking association, as Agent

having an address at

127 Public Square

Cleveland, Ohio 44114

(“Lender”),

and

RACKSPACE US, INC., a Delaware corporation

having an address at

5000 Walzem Road

San Antonio, Texas 78218

(“Tenant”).

RECITALS:

A.           Tenant is the holder of a leasehold estate in a portion of those certain premises located in the County of Cook, State of Illinois, and more particularly described on Exhibit A attached hereto and made a part hereof (the “Property”) under and pursuant to the provisions of a certain lease (as amended, the “Lease”) dated July ____, 2009 by and between Tarantula Ventures LLC, a Delaware limited liability company, as landlord (“Landlord”), and Rackspace US, Inc., a Delaware corporation, as tenant (“Tenant”);

B.           Landlord is the owner in fee simple of the Property and the landlord under the Lease; and

C.           Lender is the agent for lenders which have made a loan to Grizzly Ventures LLC, a Delaware limited liability company, as borrower (“Borrower”), an affiliate of Landlord, having its principal place of business at 1212 New York Avenue, N.W., Suite 900, Washington, D.C.  20005, evidenced or to be evidenced by a promissory note or notes made by Borrower to the order of such lenders (collectively, the “Note”) and secured or to be secured by that certain Construction Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing dated as of December 20, 2007 (as modified, amended or restated from time to time, the “Security Instrument”), and that certain Assignment of Leases and Rents granted by Landlord to or for the benefit of Lender and encumbering the Property (the “Assignment of Rents”) granted by Landlord to or for the benefit of Lender and encumbering the Property; and

D.           Tenant has agreed to subordinate the Lease to the lien of the Security Instrument and Lender has agreed to grant non-disturbance to Tenant under the Lease on the terms and conditions hereinafter set forth.

AGREEMENT:

For good and valuable consideration, Tenant and Lender agree as follows:

1.           SUBORDINATION.   Subject to the terms hereof, Tenant agrees that the Lease and all of the terms, covenants and provisions thereof and all rights, remedies and options of Tenant thereunder are and shall at all times continue to be subject and subordinate in all respects to the lien of the Security Instrument and to all renewals, increases, modifications, spreaders, consolidations, replacements and extensions thereof, to the extent of all sums

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secured thereby and advances made thereunderwith the same force and effect as if the Security Instrument had been executed, delivered and recorded prior to the execution and delivery of the Lease.

2.           NON-DISTURBANCE.    If any action or proceeding is commenced by Lender for the foreclosure of the Security Instrument or the sale of the Property, Tenant shall not be named as a party therein unless such joinder shall be required by law, provided, however, such joinder shall not result in the termination of the Lease or disturb the Tenant’s possession or use of the premises demised thereunder, and the sale of the Property in any such action or proceeding and the exercise by Lender of any of its other rights under the Note or the Security Instrument shall be made subject to all rights of Tenant under the Lease and shall not disturb Tenant’s right of possession or use of the premises demised thereunder, provided that at the time of the commencement of any such action or proceeding or at the time of any such sale or exercise of any such other rights Tenant shall not be in default under any of the terms, covenants or conditions of the Lease or of this Agreement on Tenant’s part to be observed or performed beyond any applicable notice or grace period.

3.           ATTORNMENT.    If Lender or any other subsequent purchaser of the Property shall become the owner of the Property by reason of the foreclosure of the Security Instrument or the acceptance of a deed or assignment in lieu of foreclosure or by reason of any other enforcement of the Security Instrument (Lender or such other purchaser being hereinafter referred to as “Purchaser”), and the conditions set forth in Section 2 above have been met at the time Purchaser becomes owner of the Property, the Lease shall not be terminated or affected thereby but shall continue in full force and effect as a direct lease between Purchaser and Tenant upon all of the terms, covenants and conditions set forth in the Lease and in that event, Tenant agrees to attorn to Purchaser and Purchaser by virtue of such acquisition of the Property shall be deemed to have agreed to accept such attornment, whereupon, subject to the observance and performance by Tenant of all the terms, covenants and conditions of the Lease on the part of Tenant to be observed and performed, Purchaser shall recognize the leasehold estate of Tenant under all of the terms, covenants and conditions of the Lease for the remaining balance of the term with the same force and effect as if Purchaser were the lessor under the Lease subject to the terms of Section 4 of this Agreement; provided, however, that Purchaser shall not be:

(a) liable for the failure of any prior landlord (any such prior landlord, including Landlord and any successor landlord, being hereinafter referred to as a “Prior Landlord”) to perform any of its obligations under the Lease which have accrued prior to the date on which Purchaser shall become the owner of the Property, provided that the foregoing shall not limit Purchaser’s liability for, and obligations under the Lease to correct, any conditions that (i) existed as of the date Purchaser shall become the owner of the Property and (ii) violate Purchaser’s obligations as landlord under the Lease; provided further, however, that Purchaser shall have received written notice of such omissions, conditions or violations and has had an opportunity to cure the same as provided in Section 5 below, all pursuant to the terms and conditions of the Lease;

(b) subject to any offsets, defenses, abatements or counterclaims which shall have accrued in favor of Tenant against any Prior Landlord prior to the date uponwhich Purchaser shall become the owner of the Property, except for (i) the right to recapture from rent any reasonable amounts expended by Tenant to cure a default of any Prior Landlord for which Lender had received a copy of notice pursuant to the terms hereof and would have been required to cure upon succeeding to the interest of Prior Landlord, and (ii) any rental abatements and/or credits available to Tenant pursuant to Section 3.1, Article 16 or Article 17 of, or the Services Exhibit attached as Exhibit F to, the Lease;

(c) liable for damages for any breach, act or omission of any Prior Landlord which have accrued prior to the time Purchaser succeeded to any Prior Landlord’s interest under the Lease by reason of the foreclosure of the Security Instrument or the acceptance of a deed or assignment in lieu of foreclosure or by reason of any other enforcement of the Security Instrument;

(d) liable for the return of rental security deposits, if any, paid by Tenant to any Prior Landlord in accordance with the Lease unless such sums are actually received by Purchaser;

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(e) bound by any obligation which may appear in the Lease to perform any initial improvement work to the Property to prepare the premises demised under the Lease for occupancy by Tenant;

(f) bound by any payment of rents, additional rents or other sums which Tenant may have paid more than one (1) month in advance to any Prior Landlord unless (i) such sums are actually received by Purchaser or (ii) such prepayment shall have been expressly approved of by Purchaser;

(g) subject to the terms and provisions of Section 7 below, bound by any obligation to make any payment to Tenant which was required to be made prior to the time Purchaser succeeded to any Prior Landlord’s interest under the Lease by reason of the foreclosure of the Security Instrument or the acceptance of a deed or assignment in lieu of foreclosure or by reason of any other enforcement of the Security Instrument, except for any payments resulting from any rental abatements and/or credits available to Tenant pursuant to Section 3.1, Article 16 or Article 17 of, or the Services Exhibit attached as Exhibit F to, the Lease;

(h) bound by any amendment or modification of the rent, term or other material term of the Lease made without Lender’s or Purchaser’s prior written consent prior to the time Purchaser succeeded to Landlord’s interest, provided, however, that no consent from Lender or Purchaser shall be required to any amendment or modification (including, without limitation, termination) of the Lease either expressly provided for in the Lease or entered into as a result of Tenant’s exercise of any renewal, expansion, first refusal, first offer or other options or rights contained in the Lease; or

(i) responsible for the making of repairs in or to the Property in the case of damage or destruction to the Property or any part thereof due to fire or other casualty or by reason of condemnation unless Purchaser is obligated under the Lease to make such repairs and Purchaser receives insurance proceeds (or would have received insurance proceeds if Purchaser maintained the insurance required of Landlord under Article XII of the Lease) or condemnation awards sufficient to finance the completion of such repairs.

In the event that any liability of Purchaser does arise pursuant to this Agreement, such liability shall be limited and restricted to Purchaser’s interest in the Property (and the rents, issues and profits derived therefrom and, in the event of a sale thereof, the proceeds of any such sale) and shall in no event exceed such interest.

4.           NOTICE TO TENANT.  After written notice is given to Tenant by Lender that the Landlord is in default under the Note and the Security Instrument and that the rentals under the Lease should be paid to Lender pursuant to the terms of the Assignment of Rents executed and delivered by Landlord to Lender in connection therewith, Tenant shall thereafter pay to Lender or as directed by the Lender, all rentals and all other monies due or to become due to Landlord under the Lease and Landlord hereby expressly authorizes Tenant to make such payments to Lender and hereby releases and discharges Tenant from any liability to Landlord on account of any such payments.

5.           NOTICE TO LENDER AND RIGHT TO CURE.  Subject to the terms and provisions of this Section 5 contained herein below, Tenant further agrees that, notwithstanding any provisions of the Lease other than the Services Exhibit attached as Exhibit F to the Lease and except as otherwise expressly provided herein below, no cancellation or termination of the Lease and no abatement or reduction of the rent or management fees payable thereunder due to a default on the part of Landlord under the Lease shall be effective unless Lender has received notice of the same and has failed within thirty (30) days after both Lender’s receipt of said notice and the time when Lender shall have become entitled under the Security Instrument to remedy the same, to commence to cure the default which gave rise to the cancellation or termination of the Lease or abatement or reduction of the rent or management fee payable thereunder and thereafter fails to diligently prosecute such cure to completion, provided that in the event Lender cannot commence such cure without possession of the Property, no cancellation or termination of the Lease and no abatement or reduction of the rent or management fees payable thereunder shall be effective if Lender commences judicial or non judicial proceedings to obtain possession within such thirty (30) day period and thereafter diligently prosecutes such efforts and cure to completion.  Notwithstanding the foregoing, Lender shall have no obligation to cure any default by Landlord except as provided in Section 3 above in the event

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Lender shall become the owner of the Property by reason of the foreclosure of the Security Instrument or the acceptance of a deed or assignment in lieu of foreclosure or by reason of any other enforcement of the Security Instrument.  Furthermore, notwithstanding anything to the contrary contained herein, the requirements of notice and an opportunity to cure afforded to Lender as set forth in this Section 5 shall not apply to any rent abatements and/or credits or termination rights: (a) set forth in Part C. of the Services Exhibit attached as Exhibit F to the Lease or (b) (i) that do not arise from a default on the part of the “Landlord” under the Lease and/or (ii) for which such a right or remedy in favor of Tenant ensues without the requirement of notice and an opportunity to cure being afforded to Landlord; provided, however Tenant agrees to notify Lender as provided in Section 8 below of any default on the part of Landlord under the Lease which would entitle Tenant to cancel or terminate the Lease or to abate or reduce the rent or management fees payable thereunder.

6.           CASUALTY AND CONDEMNATION.  Tenant understands and agrees that if the Property or any portion thereof are damaged by fire or other casualty, or are taken by eminent domain proceedings, any insurance proceeds or condemnation awards attributable to such casualty or condemnation proceeding shall be subject to, and shall be distributed in accordance with, the terms of the Security Instrument and other documents relating to the Loan.

7.           OFFICE SPACE ALLOWANCE.  Notwithstanding anything to the contrary contained herein, in the event Purchaser shall become the owner of the Property by reason of the foreclosure of the Security Instrument or the acceptance of a deed or assignment in lieu of foreclosure or by reason of any other enforcement of the Security Instrument and Tenant provides Purchaser written notice that Landlord failed to pay or credit when due all or any portion of the Office Space Allowance (as defined in the Lease) (“Tenant Allowance Notice”), then, within thirty (30) days of its receipt of the Tenant Allowance Notice, Purchaser shall issue a credit(s) against monthly Base Rent due under the Lease in an amount equal to the total amount of the Office Space Allowance due Tenant as required under Sections 9.1(b) and 9.1(c) of the Lease (“Build-out Rental Credits”).  The total of Build-out Rental Credits to be credited by Purchaser to Tenant in a single calendar month for such month shall not exceed one hundred percent (100%) of the Base Rent due under the Lease for such month and any unapplied balance of the Build-out Rental Credits shall be carried forward to the next month for which Base Rent is payable.  Landlord hereby acknowledges and agrees to provide Lender with copies of any written correspondence from Landlord to Tenant regarding the credit or application of the Office Space Allowance, provided, that, Landlord’s failure to so provide any such copies of written correspondence to Lender shall in no way affect or impair Tenant’s rights and entitlements under this Section 7.

8.           NOTICES. Any notice, demand, request or other communication which any party hereto may be required or may desire to give hereunder shall be in writing and shall be deemed to have been properly given (a) if hand delivered, when delivered; (b) if mailed by United States Certified Mail (postage prepaid, return receipt requested), three Business Days after mailing (c) if by Federal Express or other reliable overnight courier service, on the next Business Day after delivered to such courier service or (d) if by telecopier on the day of transmission if confirmed receipt is obtained:

If to Tenant:                          Rackspace US, Inc.

5000 Walzem Road

San Antonio, Texas 78218

Attention: General Counsel

Facsimile: (210) 312-4848

With a copies to:                 Rackspace US, Inc.

                                               5000 Walzem Road

                                               San Antonio, Texas 78218

                                               Attention: Director of Real Estate

                                               Facsimile: (210) 312-4300

                                               Smith, Robertson, Elliott, Glen, Klein & Bell, L.L.P.

221 West 6th Street, Suite 1100

Austin, Texas 78701

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Attention: Gavin P. Klein

Facsimile: (512) 225-5838

If to Lender:                          KeyBank National Association, as Agent

127 Public Square

Cleveland, OH  44114

Attention:  Real Estate Capital Services, John C. Scott

Facsimile: (216) 689-5819

or addressed as such party may from time to time designate by written notice to the other parties. For purposes of this Section 8, the term “Business Day” shall mean a day on which commercial banks are not authorized or required by law to close in the state where the Property is located. Either party by notice to the other may designate additional or different addresses for subsequent notices or communications.

9.            SUCCESSORS AND ASSIGNS.   This Agreement shall be binding upon and inure to the benefit of Lender, Tenant and Purchaser and their respective successors and assigns.

10.           GOVERNING LAW.   This Agreement shall be deemed to be a contract entered into pursuant to the laws of the State of Illinois and shall in all respects be governed, construed, applied and enforced in accordance with the laws of the State of Illinois.

11.           MISCELLANEOUS.   This Agreement may not be modified in any manner or terminated except by an instrument in writing executed by the parties hereto. If any term, covenant or condition of this Agreement is held to be invalid, illegal or unenforceable in any respect, this Agreement shall be construed without such provision. This Agreement may be executed in any number of duplicate originals and each duplicate original shall be deemed to be an original. This Agreement may be executed in several counterparts, each of which counterparts shall be deemed an original instrument and all of which together shall constitute a single Agreement. Whenever the context may require, any pronouns used herein shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns and pronouns shall include the plural and vice versa.  Landlord and Lender each acknowledge and agree that neither the Security Instrument nor any other instrument evidencing, securing or relating to Lender’s interest in the Property does or shall cover, or be construed as subjecting in any manner to the liens thereof, any of the improvements, personal property, trade fixtures, equipment or facilities located in or about the Property that is owned, financed, licensed and/or leased by Tenant.  Subject to the terms and provisions of Section 3(h) above regarding amendments or other modifications to the Lease, Lender agrees that this Agreement satisfies any condition or requirement in the Security Instrument relating to the approval by Lender of the Lease.  Tenant, Landlord and Lender each represents and warrants to the other that the individual signing on its behalf hereinbelow has the right, power and authority to so execute this Agreement.

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IN WITNESS WHEREOF, Lender and Tenant have duly executed this Agreement as of the date first above written.

LENDER:

KEYBANK NATIONAL ASSOCIATION, a national banking association, as Agent

By:  _____________________  

Name:                      _____________________  

Its:  _____________________  

STATE OF  _____________________    )

COUNTY OF   ___________________    )

On _____________, 2009 before me, , Notary Public, personally appeared , personally known to me 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 capacity as ______________ of KeyBank National Association, a national banking association, as Agent, 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.

 Notary Public

 My commission expires:

[SIGNATURES CONTINUE ON FOLLOWING PAGE]

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TENANT:

RACKSPACE US, INC., a Delaware corporation

By: ____________________________________                                                                    

Name: __________________________________   

Its: ____________________________________                                                                    

STATE OF  _____________________  )

COUNTY OF   ___________________  )

On _____________, 2009 before me, , Notary Public, personally appeared , personally known to me 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 capacity as ____________________ of Rackspace US, Inc., a Delaware corporation, 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.

 Notary Public

 My commission expires:

[SIGNATURES CONTINUE ON FOLLOWING PAGE]

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The undersigned hereby joins in the execution of this Agreement in order to evidence its acceptance of, and agreement to, the provisions of Section 4 hereof.

LANDLORD:

TARANTULA VENTURES LLC, a Delaware limited liability company

By:           Tarantula Interests LLC, a Delaware limitedliability company, its Managing Member

By:           Safari Ventures LLC, a Delaware limited liabilitycompany, its Managing Member

By:           DuPont Fabros Technology, Inc., aMaryland corporation, its Managing Member

By:  ____________________________________                                                              

Name: ___________________________________

Title: ____________________________________

Dated: ___________________________________

STATE OF _____________________      )

COUNTY OF   _____________________ )

On _____________, 2___ before me, , Notary Public, personally appeared , personally known to me 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 capacity as _____________ of DuPont Fabros Technology, Inc., a Maryland corporation, the Managing Member of Safari Ventures LLC, a Delaware limited liability company, the Managing Member of Tarantula Interests LLC, a Delaware limited liability company, the Managing Member of Tarantula Ventures LLC, a Delaware limited liability company, 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.

 Notary Public

 My commission expires:

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Exhibit “A”

Legal Description

LOT 1 IN ENESCO IMPORTS CORP. SUBDIVISION, A RESUBDIVISION OF LOTS 1 AND 2 IN GREAT-WEST INDUSTRIAL SUBDIVISION, A RESUBDIVISION OF PART OF LOT 269 IN CENTEX INDUSTRIAL PARK UNIT 151, A SUBDIVISION IN THE SOUTHEAST ¼ OF SECTION 34, TOWNSHIP 41 NORTH, RANGE 11, EAST OF THE THIRD PRINCIPAL MERIDIAN, ACCORDING TO THE PLAT THEREOF RECORDED FEBRUARY 13, 1986 AS DOCUMENT 86063318, IN COOK COUNTY, ILLINOIS.

Permanent Tax/Assessor Parcel Number: 08-34-402-058-0000

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EXHIBIT H

Form of Guaranty

THIS GUARANTY is made as of January ____, 2009, by RACKSPACE HOSTING, INC., a Delaware corporation, having an address at 5000 Walzem Road, San Antonio, Texas 78218 ("Guarantor"), to TARANTULA VENTURES LLC, a Delaware limited liability company ("Landlord"), having an address at 1212 New York Avenue, N.W., Suite 900, Washington, D.C. 20005.

WHEREAS, Landlord has leased to Rackspace US, Inc., a Delaware corporation ("Tenant"), certain space (the "Premises") in the data center facility known as CH1 and located in Elk Grove Village, Illinois, pursuant to that certain Deed of Lease by and between Landlord and Tenant dated as of _______________, 2009 (the "Lease");

WHEREAS, Guarantor is materially benefited by the Lease, and Guarantor’s executing this Guaranty is a material inducement to Landlord to enter into the Lease.

NOW THEREFORE, in consideration of the premises, and of other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, Guarantor agrees with Landlord as follows:

1.           Guarantor unconditionally and irrevocably guarantees that all sums stated in the Lease to be payable by Tenant shall be promptly paid in full when due in accordance with the Lease and that Tenant shall perform and observe its covenants thereunder.  If any such sum or covenant is not timely paid, performed or observed, then Guarantor shall, within ten (10) business days of receipt of written demand from Landlord, pay the same regardless of (a) whether Landlord shall have taken any steps to enforce any rights against Tenant or any other person, (b) termination of the Lease as a result of Tenant’s default, or (c) any other condition or contingency; provided that no such demand shall be made unless (i) with respect to payments of Base Rent and/or Additional Rent, an Event of Default has occurred, or (ii) with respect to payment of other sums, Tenant has defaulted in the payment of such sum, both Tenant and Guarantor have received written notice from Landlord of such default and such defaults shall have remained uncured for a period of twenty (20) days after both Tenant and Guarantor have received notice.  Guarantor shall also pay all reasonable expenses of collecting such sum or any part thereof or of otherwise enforcing this Guaranty, including reasonable attorneys’ fees.  This Guaranty is irrevocable, unconditional and absolute.

2.           Guarantor’s obligations and covenants under this Guaranty shall in no way be affected or impaired by reason of the happening from time to time of any of the following, whether or not Guarantor has been notified thereof or consented thereto: (i) Landlord’s waiver of the performance or observance by Guarantor or any other party (other than Tenant) of any covenant or condition contained in the Lease or this Guaranty; (ii) any extension, in whole or in

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part, of the time for payment by Tenant or Guarantor of any sums owing or payable under the Lease or this Guaranty, or of any other sums or obligations under or arising out of or on account of the Lease or this Guaranty, or the renewal of the Lease or this Guaranty; (iii) any assignment of the Lease or subletting of the Premises or any part thereof; provided, that, in the event Tenant assigns all of its interest in the Lease or subleases its interest in the Premises in its entirety, other than to an Affiliate, Guarantor shall not be liable hereunder for any option periods, renewals, extensions or modifications of the Lease negotiated or effected between Landlord and any such assignee/sublessee, unless Guarantor otherwise agrees in writing; (iv) any modification or amendment (whether material or otherwise) of any of the obligations of Tenant or Guarantor under the Lease or this Guaranty; (v) the doing or the omission of any act referred to in the Lease or this Guaranty (including the giving of any consent referred to in the Lease or this Guaranty); (vi) Landlord’s failure or delay to exercise any right or remedy available to Landlord or any action on the part of Landlord granting indulgence or extension in any form whatsoever; (vii) the voluntary or involuntary liquidation, dissolution, sale of any or all of the assets, marshaling of assets and liabilities, receivership, conservatorship, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition or readjustment of, or other similar proceeding affecting, Tenant or Guarantor or any of Tenant’s or Guarantor’s assets; or (viii) the release of Guarantor from the performance or observation of any covenant or condition contained in the Lease or this Guaranty by operation of law.

3.           To the extent not prohibited by law, Guarantor hereby expressly waives (a) any right Guarantor may now or hereafter have to any hearing prior to the attachment of any real or personal property to satisfy Guarantor’s obligations, and (b) the benefits of any present or future constitution, statute or rule of law which exempts property from liability for debt.

4.           No rejection, disaffirmance or termination of the Lease by Tenant or Tenant’s trustee in bankruptcy pursuant to bankruptcy law or any other law affecting creditors’ rights, shall be effective to release and/or terminate the continuing liability of Guarantor to Landlord under this Guaranty.

5.           Notice of acceptance of this Guaranty and notice of any obligations or liabilities contracted or incurred by Tenant are hereby waived by Guarantor.  Guarantor hereby waives presentment, notice of dishonor, protest and notice of non-payment or non-performance.

6.           This Guaranty shall be construed in accordance with the laws of the jurisdiction in which the Premises are located, without giving reference to conflict of law principles.

7.           This Guaranty may not be modified or amended except by a written agreement duly executed by Guarantor and Landlord.

8.           Subject to Guarantor’s right to avail itself of any defenses available to Tenant, Guarantor’s liability shall be primary and joint and several with that of Tenant.  Landlord may proceed against Guarantor under this Guaranty without initiating or exhausting any remedy against Tenant, and may proceed against Tenant and Guarantor separately or concurrently.  If Guarantor consists of more than one person or entity, the liability of each person

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or entity comprising Guarantor shall be joint and several with that of all other persons or entities comprising Guarantor, and Landlord may proceed separately or concurrently against any or all persons or entities comprising Guarantor.

9.           Within ten (10) business days after Landlord’s written request, Guarantor shall execute and deliver to Landlord a written statement certifying any reasonable matter concerning this Guaranty or the Lease as Landlord may reasonably request.

10.           Any notice which Landlord may elect to send shall be binding upon Guarantor if delivered by overnight delivery by a nationally recognized carrier, or if sent by certified or registered mail, return receipt requested, postage prepaid, to Guarantor’s address as set forth in Section 24.6 of the Lease, .

11.           All actions or proceedings arising in connection with this Guaranty shall be litigated only in a court of competent jurisdiction in the jurisdiction in which the Premises are located.  Each person or entity comprising Guarantor consents to the jurisdiction of the courts of such jurisdiction, waives any objection to the venue of any action filed in any court situated in such jurisdiction, and waives any right under the doctrine of forum non-conveniens, or otherwise, to transfer any such action filed in any such court to any other court.

12.           This Guaranty shall be binding upon, and inure to the benefit of, the parties hereto and their respective heirs, personal representatives, successors and assigns.

13.           Capitalized terms not otherwise defined herein shall have the same meaning as set forth in the Lease.

14.           THE UNDERSIGNED HEREBY WAIVES TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT EITHER BY LANDLORD OR THE UNDERSIGNED (OR ANY OF THEM) AGAINST THE OTHER WITH RESPECT TO ANY MATTERS WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED TO THE LEASE OR THIS GUARANTY.

IN WITNESS WHEREOF, Guarantor has caused this Guaranty to be executed under seal as of the date first above written.

WITNESS:	GUARANTOR:
	Rackspace Hosting, Inc., a Delaware corporation
	By:                                                       Name:                                                                 Title:

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EXHIBIT I

OFFICE BUILDING SERVICES AND UTILITIES

1.           Water service for use in the lavatories on the floor on which the Office Space is located and cold water service at the riser for use in the Office Space, including any kitchenette located therein.

2.           Heat and air conditioning in season 24 hours per day, 7 days per week, at such temperatures and in such temperature ranges and at such humidity levels as are consistent with comparable office buildings in the Chicago, Illinois metropolitan area.  Tenant shall have the right, at Tenant’s sole cost and expense, to install one (1) or more supplemental HVAC units to service the Office Space.

3.           Maintenance and repair of the Office Building as described in Section 8.2 of the Lease.

4.           Janitorial service customarily provided by owners of comparable office buildings in the Chicago, Illinois metropolitan area, five days per week (excluding Holidays).

5.           Exterior window washing at such intervals as reasonably determined by Landlord.

6.           Electricity to the Office Space at a rate of 8 watts per rentable square feet.

7.           Security for the Office Building in accordance with Article V of the Lease.

8.           Use of Office Space Conduits in accordance with Section 11.3 of the Lease.

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Table of Contents	Page
ARTICLE I THE PREMISES	1
ARTICLE II TERM	3
ARTICLE III BASE RENT	5
ARTICLE IV ADDITIONAL RENT	6
ARTICLE V SECURITY	11
ARTICLE VI USE OF PREMISES	13
ARTICLE VII ASSIGNMENT AND SUBLETTING	16
ARTICLE VIII MAINTENANCE AND REPAIRS	21
ARTICLE IX ALTERATIONS	23
ARTICLE X SIGNS	26
ARTICLE XI LANDLORD ACCESS	26
ARTICLE XII INSURANCE	28
ARTICLE XIII SERVICES AND UTILITIES	30
ARTICLE XIV LIABILITY OF LANDLORD	35
ARTICLE XV RULES AND REGULATIONS	37
ARTICLE XVI DAMAGE OR DESTRUCTION	37
ARTICLE XVII CONDEMNATION	41
ARTICLE XVIII DEFAULT	42
ARTICLE XIX BANKRUPTCY	46
ARTICLE XX SUBORDINATION MORTGAGES	47
ARTICLE XXI HOLDING OVER	49
ARTICLE XXII COVENANTS OF LANDLORD	49
ARTICLE XXIII PARKING	49
ARTICLE XXIV GENERAL PROVISIONS	50
ARTICLE XXV RENEWAL	54
ARTICLE XXVI COMMUNICATIONS EQUIPMENT	55
ARTICLE XXVII GUARANTOR	59
[*****]

i

EX-10.2

Exhibit 10.2

EQUINIX

SERVICE ORDER & STATEMENT OF WORKS
Order Number:	IXSQ7865	Service Order Date:  21/05/2009	Agreement Number:  RAC001

This Service Order & Statement Of Works is made between	Equinix (UK) Ltd	and the Customer below.
It is governed by the Master Service Agreement referred to by the Agreement Number above.
Contract renewal for Sections 1 & 2 of Rackspace existing footprint at London Heathrow LD2, the space measures 4075 sq ft, (378 m2), with a power allocaton of 284 kva.

THE CUSTOMER		EQUINIX
Name:	Rackspace	Name:	Equinix (UK) Ltd
Contact Name:	Jacques Greyling
Address:	2 Longwalk Road Stockley Park UB11 1BA UXBRIDGE	Address:	2 Buckingham Avenue Slough Trading Estate Slough SL14NB
Registered Number:		Registered Number:	3672650
Billing Contact:	Jacques Greyling
Billing Address:	2 Longwaik Road Stockley Park UB11 1BA UXBRIDGE	Sales Representative:	Stuart Brown
Phone Number:	02087342500	Phone Number:	+44 (0) 845 373 2967
Email address:	jacques.greyling@rackspace.com	Email:	stuart.brown@eu.equinix.com
Fax:	+44 020 8897 4710	Fax:

THE PREMISES			COMMENCEMENT AND EXPIRY DATES
Name:	(LD2) Equinix London West		Commencement Date:	01/07/2009	Duration (Months):
Address:	Unit 1, Airport Gate,	West Drayton UB7 0NJ	Expiry Date:	31/10/2009

MONTHLY RECURRING CHARGES			Currency:    GBP
Product Code	Description		Unit Price	Qty	Total
CAB10014.REC	Business Suite Monthly Service 1m2/0.75 kVA		187.32	378.00	70,806.96
	Monthly Recurring Charge for 1.0m2 in a Bushes Suite; a power load up to 0.75kVA; and sufficient front or bottom cool airflow to manage customer generated heat.
	Total Monthly Recurring Charges				70,806.96
ONE-OFF CHARGES			Currency:    GBP
Product Code	Description		Unit Price	Qty	Total
			0.00		0.00
	SubTotal	Total One-Off Charges			0.00
ONE-OFF CHARGES			Currency:    GBP
Product Code	Description		Unit Price	Qty	Total
POW10055.NR	Metered Power kWh		0.199	1.00	0.20
	A KiloWattHour used by the Customer's Equipment as measured at the Power Distribution Unit(PDU).
	Total One-Off Charges				0.20

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EQUINIX

ONE-OFF CHARGES			Currency:    GBP
Product Code	Description		Unit Price	Qty	Total
	SubTotal		0.00		0.00
		Total One-Off Charges			0.00

THE AGREEMENT The Customer hereby confirms that he has read and understood the Service Order & Statement of Works above. Equinix agrees to provide the services above according to the Agreement.
For Equinix Name:          Wynn McCabe Title:            Sales Director Date:            1/6/09 Signature:   /s/ Wynn McCabe	For the Customer Name:           J. Greyling Title:             Operations Director Date:             26/05/2009 Signature:    /s/ Jacques Greyling
For Equinix (Technical Approval) Name: Title: Date: Signature:	For the Customer (Optional) Name: Title: Date: Signature:
This Service Order & Statement Of Works is valid for and must be signed within 30 days from the Service Order Date as stated above. This document becomes valid upon two signatures by authorised Equinix staff and at least one customer signatory. The optional customer signature is for client purposes only.

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EQUINIX

SERVICE ORDER & STATEMENT OF WORKS
Order Number:	IXSQ7866	Service Order Date: 21/05/2009	Agreement Number:  RAC001

This Service Order & Statement Of Works is made between	Equinix (UK) Ltd	and the Customer below.
It is governed by the Master Service Agreement referred to by the Agreement Number above.
Contract renewal for sections 3 &4 of the Rackspace current footprint at London Heathrow LD2, the space measures 3661 sq ft, (337m2), with a power allocaton of 253 kva.

THE CUSTOMER		EQUINIX
Name:	Rackspace	Name:	Equinix (UK) Ltd
Contact Name:	Jacques Greyling
Address:	2 Longwaik Road Stockley Park UB11 1BA UXBRIDGE	Address:	2 Buckingham Avenue Slough Trading Estate Slough SL14NB
Registered Number:		Registered Number:	3672650
Billing Contact:	Jacques Greyling
Billing Address:	2 Longwalk Road Stockley Park UB11 1BA UXBRIDGE	Sales Representative:	Stuart Brown
Phone Number:	02087342500	Phone Number:	+44 (0) 845 373 2967
Email address:	jacques.greyling@rackspace.com	Email:	stuart.brown@eu.equinix.com
Fax:	+44 020 8897 4710	Fax:

THE PREMISES			COMMENCEMENT AND EXPIRY DATES
Name:	(LD2) Equinix London West		Commencement Date:	01/07/2009	Duration (Months):
Address:	Unit 1, Airport Gate,	West Drayton UB7 0NJ	Expiry Date:	30/11/2009

MONTHLY RECURRING CHARGES			Currency:    GBP
Product Code	Description		Unit Price	Qty	Total
CAB10014.REC	Business Suite Monthly Service 1m2/ 0.75 kVA		187.21	337.00	63,089.77
	Monthly Recurring Charge for 1.0m2 in a Busines Suite; a power load up to 0.75kVA; and sufficient front or bottom cool airflow to manage customer generated heat.
	Total Monthly Recurring Charges				63,089.77
ONE-OFF CHARGES			Currency:    GBP
Product Code	Description		Unit Price	Qty	Total
			0.00		0.00
	SubTotal	Total One-Off Charges
ONE-OFF CHARGES			Currency:    GBP
Product Code	Description		Unit Price	Qty	Total
POW10055.NR	Metered Power kWh		0.199	1.00	0.20
	A KiloWattHour used by the Customer's Equipment as measured at the Power Distribution Unit (PDU).
	Total One-Off Charges				0.20

Page 1 of 2

EQUINIX

ONE-OFF CHARGES			Currency:    GBP
Product Code	Description		Unit Price	Qty	Total
	SubTotal		0.00		0.00
		Total One-Off Charges			0.00

THE AGREEMENT The Customer hereby confirms that he has read and understood the Service Order & Statement of Works above. Equinix agrees to provide the services above according to the Agreement.
For Equinix Name:            Wynn McCabe Title:              Sales Director Date:             1/6/09 Signature:     /s/ Wynn McCabe	For the Customer Name:           J. Greyling Title:             Operations Director Date:             26/05/2009 Signature:    /s/ Jacques Greyling
For Equinix (Technical Approval) Name: Title: Date: Signature:	For the Customer (Optional) Name: Title: Date: Signature:
This Service Order & Statement Of Works is valid for and must be signed within 30 days from the Service Order Date as stated above. This document becomes valid upon two signatures by authorised Equinix staff and at least one customer signatory. The optional customer signature is for client purposes only.

Page 2 of 2

EQUINIX

SERVICE ORDER &STATEMENT OF WORKS

Order Number:     IXSQ7867           Service Order Date:   29/05/2009           Agreement Number:   RAC001

This Service Order & Statement Of Works is made between           Equinix (UK) Ltd           and the Customer below.

It is governed by the Master Service Agreement referred to by the Agreement Number above.

Contract for the provision of a private suite at LD2, the private suite will measure 1350 sq ft, (125m2) with a total power allocation of 94kva.

Agreement No IXSQ7867 Supersedes IXSQ2626-E

The cross connect services, (line item CC10001.REC) listed in this contract can be canceled with one months notice from Rackspace as these services are terminated for other parts of their private suite.

IXSQ7867 shall come into full force and effect on the Commencement Date and shall continue thereafter until the Expiry Date at which time Agreement IXSQ7867 will automatically renew for a further period of twelve months unless either Party has notified the other of its intention to terminate the Service Order on the Expiry date by providing at least 90 days written notice

THE CUSTOMER			EQUINIX
Name:	Rackspace		Name:	Equinix (UK) Ltd
Contact Name:	Jacques Greyling
Address:	2 Longwalk Road Stockley Park		Address:	2 Buckingham Avenue
				Slough Trading Estate
	UB11 1BA   UXBRIDGE			Slough SL14NB
Registered Number:			Registered Number:	3672650
Billing Contact:	Jacques Greyling
Billing Address:	2 Longwalk Road Stockley Park
	UB11 1BA   UXBRIDGE		Sales Representative:	Stuart Brown
Phone Number;	02087342500		Phone Number:	+44 (0) 845 373 2967
Email address:	jacques.greyling@rackspace.com		Email:	stuart.brown@eu.equinix.com
Fax:	+44 020 8897 4710		Fax:
THE PREMISES			COMMENCEMENT AND EXPIRY DATES
Name:            (LD2) Equinix London West			Commencement Date:    01/07/2009		Duration (Months)
Address:       Unit 1 Airport Gate,		West Drayton UB7 0NJ	Expiry Date:                     30/11/2010

MONTHLY RECURRING CHARGES		Currency:	GBP
Product Code	Description	Unit Price	Qty	Total
CAB10014.REC	Business Suite Monthly Service 1m2 / 0.75 kVA
	Monthly Recurring Charge for 1.0m2 in a Busines Suite; a power load up to 0.75kVA; and sufficient front or bottom cool airflow to manage customer generated heat.	216.60	125.00	27,075.00
CC10001.REC	Cross Connect Coax
	Monthly Recurring Charge for a Coax Cross Connect	5.20	2.00	10.40
CC10001.REC	Cross Connect UTP
	Monthly Recurring Charge for a UTP Cross Connect	5.20	53.00	275.60
CC10001.REC	Cross Connect Fiber - Single Mode
	Monthly Recurring Charge for a Single Mode Fiber Cross Connect	10.38	26.00	269.88

EQUINIX

FLEX10001 .REC	IBXFlex OPSFlex per sq m	3,600.00	1 00	3,600.00
	Monthly Recurring Charge for 1 Office Space as agreed between Equinix and the Customer
	Total Monthly Recurring Charges			31,230.88
ONE-OFF CHARGES		Currency:	GBP
Product Code	Description	Unit Price	Qty	Total
		0.00		0.00
	SubTotal
	Total One-Off Charges			0.00
ONE-OFF CHARGES		Currency:	GBP
Product Code	Description	Unit Price	Qty	Total
POW10055.NR	Metered Power kWh	0.199	100	0.20
	A KiloWattHour used by the Customer's Equipment as measured at the Power Distribution Unit (PDU).
	Total One-Off Charges			0.20
ONE-OFF CHARGES		Currency:	GBP
Product Code	Description	Unit Price	Qty	Total
		0.00		0.00
	SubTotal
	Total One-Off Charges			0.00
THE AGREEMENT
The Customer hereby confirms that he has read and understood the Service Order & Statement of Works above. Equinix agrees to provide the services above according to the Agreement.

EQUINIX

For Equinix Name:           Wynn McCabe Title:             Sales Director Date:             1/6/09 Signature:    /s/ Wynn McCabe	For the Customer Name:          Jacques Greyling Title:            Operations Director Date:            29/05/2009 Signature:   /s/ J Greyling
For Equinix (Technical Approval) Name: Title: Date: Signature:	For the Customer (Optional) Name: Title: Date: Signature:
This Service Order & Statement Of Works is valid for and must be signed within 30 days from the Service Order Date as stated above.
This document becomes valid upon two signatures by authorised Equinix staff and at least one customer signatory. The optional customer signature is for client purposes only.

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO RULE 13a-14(a) OR 15d-14(a) OF THE SECURITIES

EXCHANGE

ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

I, A. Lanham Napier, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Rackspace Hosting, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 12, 2009	By:	/s/ A. Lanham Napier
		A. Lanham Napier
		Chief Executive Officer, President and Director
		(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO RULE 13a-14(a) OR 15d-14(a) OF THE SECURITIES

EXCHANGE

ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

I, Bruce R. Knooihuizen, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Rackspace Hosting, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 12, 2009	By:		/s/ Bruce R. Knooihuizen
			Bruce R. Knooihuizen
			Chief Financial Officer, Senior Vice President and  Treasurer
		(Principal Financial Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Rackspace Hosting, Inc. for the quarterly period ended June 30, 2009 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), A. Lanham Napier, as Principal Executive Officer of Rackspace Hosting, Inc., hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Rackspace Hosting, Inc.

Date: August 12, 2009	By:	/s/ A. Lanham Napier
		A. Lanham Napier
		Chief Executive Officer, President and Director (Principal Executive Officer)

EX-32.2

                    Exhibit 32.2

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Rackspace Hosting, Inc. for the quarterly period ended June 30, 2009 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Bruce R. Knooihuizen , as Principal Financial Officer of Rackspace Hosting, Inc., hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Rackspace Hosting, Inc.

Date: August 12, 2009	By:	/s/ Bruce R. Knooihuizen
		Bruce R. Knooihuizen
		Chief Financial Officer, Senior Vice President and  Treasurer (Principal Financial Officer)