DigitalOcean Holdings, Inc 10-Q for FY2026 Q3
DigitalOcean Holdings, Inc. (DOCN)
10-Q
2026-11-03
For: 2026-09-30
View Original
Added on
November 03, 2026
About this 10-Q
DigitalOcean Holdings, Inc filed this 10-Q on November 3, 2026, covering the quarter ended September 30, 2026 (FY2026 Q3).
DigitalOcean reported revenue of 321,192 (in thousands) for the three months ended September 30, 2026, up 40%, with ARR of $1,285 million and AI Customer ARR of $376 million. Gross margin fell to 50% from 60%, and net loss attributable to common stockholders was 42,609 (in thousands). AI summary
Headline figures
Quarter ended September 30, 2026, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $321.19M
- up 39.9% from $229.63M a year earlier
- Net loss
- $42.61M
- compared with net income of $158.37M a year earlier
- Diluted EPS
- -$0.37
- compared with $1.51 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
For the quarterly period ended September 30, 2026
OR
For the transition period from ______ to ______
Commission File Number: 001-40252
| (Exact Name of Registrant as Specified in Its Charter) | ||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
(Address of principal executive offices and Zip Code)
(646 ) 827-4366
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| ☒ | Accelerated filer | ☐ | |||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | |||||||||
| Emerging growth company | |||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of October 29, 2026, there were 117,996,815 shares of the registrant’s common stock, with a par value of $0.000025 per share, outstanding.
TABLE OF CONTENTS | ||||||||
| PART I. FINANCIAL INFORMATION | ||||||||
| Page | ||||||||
| Item 1. | Financial Statements (unaudited) | |||||||
Item 2. | ||||||||
Item 3. | ||||||||
Item 4. | ||||||||
PART II. OTHER INFORMATION | ||||||||
Item 1. | ||||||||
Item 1A. | ||||||||
Item 2. | ||||||||
Item 3. | ||||||||
Item 4. | ||||||||
Item 5. | ||||||||
Item 6. | ||||||||
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations or financial condition, business strategy and plans and objectives of management for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will” or “would” or the negative of these words or other similar terms or expressions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about: our future financial performance, including our revenue, cost of revenue, gross profit, and operating expenses; trends in our key business metrics; our ability to successfully retain and expand usage of our existing customers and attract new customers; the amount of remaining performance obligations that we expect to recognize as revenue over future periods; our growth and product strategy for our agentic inference cloud platform; our ability to operate our business and effectively manage our scale under evolving macroeconomic conditions, such as geopolitical conflicts, tariffs and trade tensions, inflationary pressures, interest rate fluctuations, and foreign currency exchange rate volatility; our ability to effectively manage our growth and future expenses; the sufficiency of our cash and cash equivalents, cash flow from operations and availability under our credit facility to meet our liquidity needs; and other statements regarding our future operations, financial condition, and prospects and business strategies.
You should not rely on forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition and operating results. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in Part I, Item 1A. “Risk Factors” and elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2025. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. The results, events and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this Quarterly Report on Form 10-Q. While we believe such available information provides a reasonable basis for these statements, that information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements.
The forward-looking statements made in this Quarterly Report on Form 10-Q speak only as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments.
1
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DIGITALOCEAN HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
(unaudited)
| September 30, 2026 | December 31, 2025 | ||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Marketable securities | |||||||||||
Accounts receivable, less allowance for credit losses of $ | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Total current assets | |||||||||||
| Property and equipment, net | |||||||||||
| Restricted cash | |||||||||||
| Goodwill | |||||||||||
| Intangible assets, net | |||||||||||
| Operating lease right-of-use assets, net | |||||||||||
| Deferred tax assets | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued other expenses | |||||||||||
| Deferred revenue | |||||||||||
Debt, current | |||||||||||
| Operating lease liabilities, current | |||||||||||
| Finance lease liabilities and equipment financing obligations, current | |||||||||||
| Other current liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Deferred tax liabilities | |||||||||||
Debt, long-term | |||||||||||
| Operating lease liabilities, long-term | |||||||||||
| Finance lease liabilities and equipment financing obligations, long-term | |||||||||||
| Other non-current liabilities | |||||||||||
| Total liabilities | |||||||||||
Commitments and contingencies (Note 10) | |||||||||||
Preferred stock ($ | |||||||||||
Common stock ($ | |||||||||||
| Additional paid-in capital | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Accumulated deficit | ( | ( | |||||||||
| Total stockholders’ equity (deficit) | ( | ||||||||||
| Total liabilities and stockholders’ equity | $ | $ | |||||||||
See accompanying notes to condensed consolidated financial statements
2
DIGITALOCEAN HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||||||||
| Revenue | $ | $ | $ | $ | |||||||||||||||||||||||||
| Cost of revenue | |||||||||||||||||||||||||||||
| Gross profit | |||||||||||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||||||||
| Research and development | |||||||||||||||||||||||||||||
| Sales and marketing | |||||||||||||||||||||||||||||
| General and administrative | |||||||||||||||||||||||||||||
| Total operating expenses | |||||||||||||||||||||||||||||
| Operating income | |||||||||||||||||||||||||||||
| Other (expense) income: | |||||||||||||||||||||||||||||
| Interest expense | ( | ( | ( | ( | |||||||||||||||||||||||||
| Gain (loss) on extinguishment of debt, net | ( | ||||||||||||||||||||||||||||
| Induced conversion expense | ( | ( | |||||||||||||||||||||||||||
| Interest income and other income, net | |||||||||||||||||||||||||||||
| Other (expense) income, net | ( | ( | |||||||||||||||||||||||||||
| Income (loss) before income taxes | ( | ||||||||||||||||||||||||||||
| Income tax benefit (expense) | ( | ( | |||||||||||||||||||||||||||
| Net income (loss) attributable to common stockholders | $ | ( | $ | $ | $ | ||||||||||||||||||||||||
| Net income (loss) per share attributable to common stockholders | |||||||||||||||||||||||||||||
| Basic | $ | ( | $ | $ | $ | ||||||||||||||||||||||||
| Diluted | $ | ( | $ | $ | $ | ||||||||||||||||||||||||
| Weighted-average shares used to compute net income per share attributable to common stockholders | |||||||||||||||||||||||||||||
| Basic | |||||||||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements
3
DIGITALOCEAN HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
(unaudited)
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||||||||
| Net income (loss) attributable to common stockholders | $ | ( | $ | $ | $ | ||||||||||||||||||||||||
| Other comprehensive income (loss): | |||||||||||||||||||||||||||||
| Foreign currency translation adjustments, net of taxes | ( | ( | ( | ||||||||||||||||||||||||||
| Unrealized loss on marketable securities, net of taxes | ( | ( | |||||||||||||||||||||||||||
| Other comprehensive income (loss) | ( | ( | ( | ||||||||||||||||||||||||||
| Comprehensive income (loss) | $ | ( | $ | $ | $ | ||||||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements
4
DIGITALOCEAN HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(in thousands, except share amounts)
(unaudited)
| Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Loss | Retained Earnings (Accumulated Deficit) | Total | |||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||
| Balance at June 30, 2026 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||
| Issuance of common stock under equity incentive plan, net of taxes withheld | — | ( | — | — | ( | ||||||||||||||||||||||||||||||
| Issuance of common stock in connection with induced conversion of 2030 Convertible Notes, net of transaction costs and tax | — | — | — | ||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Net loss attributable to common stockholders | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Balance at September 30, 2026 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||
| Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Loss | Retained Earnings (Accumulated Deficit) | Total | |||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||
| Balance at June 30, 2025 | $ | $ | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||||||||
| Issuance of common stock under equity incentive plan, net of taxes withheld | — | ( | — | — | ( | ||||||||||||||||||||||||||||||
| Repurchase and retirement of common stock including related costs | ( | — | ( | — | — | ( | |||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
| Purchases of capped calls related to 2030 Convertible Notes, net of tax | — | — | ( | — | ( | ( | |||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Net income attributable to common stockholders | — | — | — | — | |||||||||||||||||||||||||||||||
| Balance at September 30, 2025 | $ | $ | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements
5
DIGITALOCEAN HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(in thousands, except share amounts)
(unaudited)
| Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Loss | Retained Earnings (Accumulated Deficit) | Total | |||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||
| Balance at December 31, 2025 | $ | $ | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||||||||
| Issuance of common stock under equity incentive plan, net of taxes withheld | — | ( | — | — | ( | ||||||||||||||||||||||||||||||
| Issuance of common stock under employee stock purchase plan, net of taxes withheld | — | — | — | ||||||||||||||||||||||||||||||||
| Issuance of common stock in connection with follow-on public offering, net of underwriter discounts and issuance costs | — | — | — | ||||||||||||||||||||||||||||||||
| Issuance of common stock in connection with induced conversion of 2030 Convertible Notes, net of transaction costs and tax | — | — | — | ||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Net income attributable to common stockholders | — | — | — | — | |||||||||||||||||||||||||||||||
| Balance at September 30, 2026 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||
| Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Income (Loss) | Retained Earnings (Accumulated Deficit) | Total | |||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||
| Balance at December 31, 2024 | $ | $ | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||||||||
| Issuance of common stock under equity incentive plan, net of taxes withheld | — | ( | — | — | ( | ||||||||||||||||||||||||||||||
| Issuance of common stock under employee stock purchase plan, net of taxes withheld | — | — | — | ||||||||||||||||||||||||||||||||
| Repurchase and retirement of common stock including related costs | ( | — | ( | — | — | ( | |||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
| Purchases of capped calls related to 2030 Convertible Notes, net of tax | — | — | ( | — | ( | ( | |||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | |||||||||||||||||||||||||||||||
| Net income attributable to common stockholders | — | — | — | — | |||||||||||||||||||||||||||||||
| Balance at September 30, 2025 | $ | $ | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements
6
DIGITALOCEAN HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
| Nine Months Ended September 30, | |||||||||||||||||||||||
| 2026 | 2025 | ||||||||||||||||||||||
| Operating activities | |||||||||||||||||||||||
| Net income attributable to common stockholders | $ | $ | |||||||||||||||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||
| Stock-based compensation | |||||||||||||||||||||||
| Provision for expected credit losses | |||||||||||||||||||||||
| Loss (gain) on extinguishment of debt, net | ( | ||||||||||||||||||||||
| Induced conversion expense | |||||||||||||||||||||||
| Deferred income taxes | ( | ||||||||||||||||||||||
| Operating lease right-of-use assets and liabilities, net | ( | ( | |||||||||||||||||||||
| Non-cash interest expense | |||||||||||||||||||||||
| Net accretion of discounts and amortization of premiums on investments | ( | ||||||||||||||||||||||
| Other | ( | ||||||||||||||||||||||
| Changes in operating assets and liabilities: | |||||||||||||||||||||||
| Accounts receivable | ( | ( | |||||||||||||||||||||
| Prepaid expenses and other current assets | ( | ( | |||||||||||||||||||||
| Accounts payable and accrued expenses | |||||||||||||||||||||||
| Deferred revenue | |||||||||||||||||||||||
| Other assets and liabilities | |||||||||||||||||||||||
| Net cash provided by operating activities | |||||||||||||||||||||||
| Investing activities | |||||||||||||||||||||||
| Capital expenditures - property and equipment | ( | ( | |||||||||||||||||||||
Capital expenditures - internal-use software | ( | ( | |||||||||||||||||||||
| Acquisition of equipment under financing arrangements | ( | ( | |||||||||||||||||||||
| Purchase of intangible assets | ( | ( | |||||||||||||||||||||
| Cash paid for acquisition of businesses, net of cash acquired | ( | ||||||||||||||||||||||
| Purchase of marketable securities | ( | ||||||||||||||||||||||
| Proceeds from sale of equipment | |||||||||||||||||||||||
| Net cash used in investing activities | ( | ( | |||||||||||||||||||||
| Financing activities | |||||||||||||||||||||||
| Proceeds from direct offering for induced conversion of 2030 Convertible Notes, net of related costs | |||||||||||||||||||||||
| Repayment of 2030 Convertible Notes upon induced conversion | ( | ||||||||||||||||||||||
| Proceeds from follow-on public offering, net of underwriting discounts and issuance costs | |||||||||||||||||||||||
| Proceeds from drawdown of Term Loan Facility | |||||||||||||||||||||||
| Principal repayment of Term Loan Facility | ( | ||||||||||||||||||||||
| Payment of issuance costs related to Equipment Lease Facility | ( | ||||||||||||||||||||||
| Proceeds related to issuance of common stock under equity incentive plan | |||||||||||||||||||||||
| Proceeds from issuance of common stock under employee stock purchase plan | |||||||||||||||||||||||
| Employee payroll taxes paid related to net settlement of equity awards | ( | ( | |||||||||||||||||||||
| Proceeds from issuance of 2030 Convertible Notes, net of issuance costs | |||||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements
7
DIGITALOCEAN HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
| Nine Months Ended September 30, | |||||||||||||||||||||||
| 2026 | 2025 | ||||||||||||||||||||||
| Purchases of capped calls related to 2030 Convertible Notes | ( | ||||||||||||||||||||||
| Proceeds from 2025 Credit Facility, net of issuance costs | |||||||||||||||||||||||
| Repayments of 2026 Convertible Notes including related costs | ( | ||||||||||||||||||||||
| Proceeds from financing arrangements | |||||||||||||||||||||||
| Principal repayments of finance leases and financing arrangements | ( | ( | |||||||||||||||||||||
| Repurchase and retirement of common stock including related costs | ( | ||||||||||||||||||||||
| Net cash provided by (used in) financing activities | ( | ||||||||||||||||||||||
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash | ( | ( | |||||||||||||||||||||
| Increase (decrease) in cash, cash equivalents and restricted cash | ( | ||||||||||||||||||||||
| Cash, cash equivalents and restricted cash - beginning of period | |||||||||||||||||||||||
| Cash, cash equivalents and restricted cash - end of period | $ | $ | |||||||||||||||||||||
| Supplemental disclosures of cash flow information: | |||||||||||||||||||||||
| Cash paid for interest | $ | $ | |||||||||||||||||||||
| Cash paid for taxes, net of refunds | |||||||||||||||||||||||
| Operating cash flows paid for operating leases | |||||||||||||||||||||||
| Non-cash investing and financing activities: | |||||||||||||||||||||||
| Capitalized stock-based compensation | $ | $ | |||||||||||||||||||||
Property and equipment received but not yet paid, included in accounts payable and accrued other expenses | |||||||||||||||||||||||
| Debt and equipment lease facility issuance costs incurred but not yet paid, included in accounts payable and accrued liabilities | |||||||||||||||||||||||
| Operating right-of-use assets obtained in exchange for operating lease liabilities | |||||||||||||||||||||||
| Finance right-of-use assets obtained in exchange for finance lease liabilities | |||||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements
8
DIGITALOCEAN HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
Note 1. Nature of Business
DigitalOcean Holdings, Inc. and its subsidiaries (collectively, “the Company”, “we”, “our”, “us”) is an AI-Native Cloud, purpose-built for inference and agentic workloads, that brings infrastructure, core cloud services, inference, data, and agents together in one integrated stack that is open throughout, giving builders the best of the AI ecosystem in one place. The Company’s platform is designed to be simple, scalable and approachable by providing a variety of product offerings that were built with the needs of growing technology companies in mind. The Company offers a comprehensive set of cloud platform capabilities which span across Infrastructure-as-a-Service (“IaaS”), including Droplet virtual machines, storage and networking offerings; Platform-as-a-Service (“PaaS”) and Software-as-a-Service (“SaaS”), including Managed Hosting, Managed Database, Managed Kubernetes and Marketplace offerings. The Company also offers a comprehensive artificial intelligence and machine learning (“AI/ML”) platform - DigitalOcean Gradient® AI Agentic Cloud, which includes Gradient AI Infrastructure with offerings such as GPU Droplets and Bare Metal GPUs; the Gradient AI Platform which offers various building block services including Large Language Models (“LLMs”); and Gradient AI Agents. The Company continues to invest in its platform to further penetrate the growing markets in which it operates.
The Company has adopted a holding company structure and the primary operations are performed globally through its wholly owned operating subsidiaries.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
Reclassifications
Certain prior period amounts have been reclassified to conform with current period presentation.
Use of Estimates
The preparation of these condensed consolidated financial statements in conformity with U.S. GAAP requires management to make, on an ongoing basis, estimates, judgments and assumptions that affect the amounts reported and disclosed in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Such estimates include, but are not limited to, those related to revenue recognition, accounts receivable and related reserves, useful lives and realizability of long-lived assets, capitalized internal-use software development costs, accounting for stock-based compensation including estimation of forfeiture rates and the probability of performance vesting conditions, the incremental borrowing rate used to determine lease liabilities, valuation allowances against deferred tax assets, fair value of financial instruments, and the fair value and useful lives of tangible and intangible assets acquired and liabilities assumed resulting from business combinations. Management bases its estimates on historical experience and on various other assumptions which management believes to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Estimates are periodically reviewed to consider changes in circumstances, facts and experience.
9
Restricted Cash
The following table reconciles cash, cash equivalents and restricted cash per the condensed consolidated statements of cash flows:
___________________
| September 30, | |||||||||||
| 2026 | 2025 | ||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
Restricted cash(1) | |||||||||||
| Total cash, cash equivalents and restricted cash | $ | $ | |||||||||
Accounts Receivable Net of Allowance for Expected Credit Losses
The following table presents the changes in the allowance for expected credit losses for the period presented:
| Amount | |||||||||||||||||
| Balance as of December 31, 2025 | $ | ||||||||||||||||
| Provision for expected credit losses | |||||||||||||||||
| Write-offs and other | ( | ||||||||||||||||
| Balance as of September 30, 2026 | $ | ||||||||||||||||
Recent Accounting Pronouncements – Adopted
In July 2025, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2025-05, Financial Instruments - Credit Losses (“Topic 326”): Measurement of Credit Losses for Accounts Receivable and Contract Assets (“ASU 2025-05”), which amends Topic 326 to provide a practical expedient and an accounting policy election related to the estimation of expected credit losses for current accounts receivable and current contract assets that arise from transactions accounted for under Accounting Standards Codification 606. Specifically, in developing reasonable and supportable forecasts as part of estimating expected credit losses, all entities may elect a practical expedient that assumes that current conditions as of the balance sheet date do not change for the remaining life of the asset. ASU 2025-05 is effective for annual reporting periods beginning after December 15, 2025, and interim reporting periods within those annual reporting periods. The Company adopted the practical expedient of ASU 2025-05 on January 1, 2026 on a prospective basis. There was no impact on the Company’s condensed consolidated financial statements.
Recent Accounting Pronouncements – Pending Adoption
In November 2024, the FASB issued ASU No. 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (“Subtopic 220-40”): Disaggregation of Income Statement Expenses (“ASU 2024-03”). In January 2025, the FASB issued ASU No. 2025-01, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (“Subtopic 220-40”): Clarifying the Effective Date (“ASU 2025-01”). ASU 2024-03 requires that an entity breaks down expenses into specific categories, such as employee compensation and costs related to depreciation and amortization, as well as a qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively. Further, ASU 2024-03 requires disclosure of the total amount of selling expenses and, in annual reporting periods, an entity’s definition of selling expenses. As clarified in ASU 2025-01, the amendments in ASU 2024-03 are required to be adopted for annual reporting periods beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027. Early adoption is permitted. The amendments should be
10
applied on a prospective basis for financial statements issued after the adoption date, although retrospective application is permitted. The Company is currently evaluating the impact of adoption on its financial disclosures.
In September 2025, the FASB issued ASU No. 2025-06, Intangibles - Goodwill and Other - Internal-Use Software (“Subtopic 350-40”): Targeted Improvements to the Accounting for Internal-Use Software (“ASU 2025-06”). ASU 2025-06 modernizes the accounting for internal-use software costs by increasing the operability of the recognition guidance considering different methods of software development. ASU 2025-06 is effective for the Company for annual reporting periods beginning after December 15, 2027, and interim reporting periods within those annual reporting periods. Early adoption is permitted. The amendment can be applied prospectively, retrospectively, or via a modified prospective transition method. The Company is currently evaluating the impact of the new standard on its condensed consolidated financial statements and related disclosures.
In December 2025, the FASB issued ASU No. 2025-11, Interim Reporting (“Topic 270”): Narrow-scope Improvements (“ASU 2025-11”). ASU 2025-11 enhances GAAP interim reporting by specifying required disclosures, establishing a disclosure principle for material post-year-end events, and clarifying the scope, types, and presentation of interim financial statements. ASU 2025-11 is effective for interim reporting periods within annual reporting periods beginning after December 15, 2027 for public business entities and for interim reporting periods within annual reporting periods beginning after December 15, 2028 for entities other than public business entities. Early adoption is permitted. The amendment can be applied prospectively or retrospectively for all prior periods presented in the financial statements. The Company is currently evaluating the impact of the new standard; however, it does not expect that the standard will have a material impact on its condensed consolidated financial statements and related disclosures.
Note 3. Revenue
Revenue Disaggregation
Based on the information provided to and reviewed by the Company’s Chief Executive Officer (“CEO”), its chief operating decision maker (“CODM”), the Company believes that the nature, amount, timing and uncertainty of its revenue and cash flows and how they are affected by economic factors is most appropriately depicted based on the category of its customers. Customers are classified in categories based on the amount of their spend in a given month and individual customers may fall within different categories within a reporting period.
The Company classifies its customers into the following annual run-rate revenue (“ARR”) categories (customer spend in a month in whole dollars):
•Digital Native Enterprise (“DNE”) Customers: users that spend more than $500 in a month. DNE Customers include the following categories:
◦Above $6 K and under $100 K Customers: users that spend more than $500 and less than or equal to $8,333 in a month.
◦Above $100 K and under $500 K Customers: users that spend more than $8,333 and less than or equal to $41,667 in a month.
◦Above $500 K and under $1 M Customers: users that spend more than $41,667 and less than or equal to $83,333 in a month.
◦Above $1 M Customers: users that spend more than $83,333 in a month.
•Developers: users that spend less than or equal to $500 in a month, except users that spend less than or equal to $50 in a month and have been on the Company’s platform for three months or less.
Revenue by customer ARR category, as determined based on the customers’ spend in a given month, was as follows:
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| Three Months Ended September 30, | |||||||||||||||||||||||||||||||||||
| 2026 | 2025 | ||||||||||||||||||||||||||||||||||
Amount | Percentage of Revenue(2) | Amount | Percentage of Revenue(2) | ||||||||||||||||||||||||||||||||
Above $ | $ | % | $ | % | |||||||||||||||||||||||||||||||
Above $ | % | % | |||||||||||||||||||||||||||||||||
Above $ | % | % | |||||||||||||||||||||||||||||||||
Above $ | % | % | |||||||||||||||||||||||||||||||||
Digital Native Enterprise Customers(1) | $ | % | $ | % | |||||||||||||||||||||||||||||||
Developers and other(1) (3) | % | % | |||||||||||||||||||||||||||||||||
| Total | $ | % | $ | % | |||||||||||||||||||||||||||||||
| Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||
| 2026 | 2025 | ||||||||||||||||||||||||||||||||||
Amount | Percentage of Revenue(2) | Amount | Percentage of Revenue(2) | ||||||||||||||||||||||||||||||||
Above $ | $ | % | $ | % | |||||||||||||||||||||||||||||||
Above $ | % | % | |||||||||||||||||||||||||||||||||
Above $ | % | % | |||||||||||||||||||||||||||||||||
Above $ | % | % | |||||||||||||||||||||||||||||||||
Digital Native Enterprise Customers(1) | $ | % | $ | % | |||||||||||||||||||||||||||||||
Developers and other(1) (3) | % | % | |||||||||||||||||||||||||||||||||
| Total | $ | % | $ | % | |||||||||||||||||||||||||||||||
(1) Beginning in the fourth quarter of 2025, the Company revised its customer category naming and classification. Prior periods have been recast to reflect the effects of these changes.
(2) May not recalculate due to rounding.
(3) Beginning in the fourth quarter of 2025, Developers and other include revenue from users that spend less than or equal to $500 in a given month, revenue from certain legacy Bare Metal CPU offerings, miscellaneous revenue and other reserve adjustments. Prior periods have been recast to reflect the effect of this change.
Geographical Information
Revenue, as determined based on the Company’s customers’ billing addresses, was as follows:
| Three Months Ended September 30, | |||||||||||||||||||||||||||||||||||
| 2026 | 2025 | ||||||||||||||||||||||||||||||||||
| Amount | Percentage of Revenue (1) | Amount | Percentage of Revenue (1) | ||||||||||||||||||||||||||||||||
| North America | $ | % | $ | % | |||||||||||||||||||||||||||||||
| Europe | % | % | |||||||||||||||||||||||||||||||||
| Asia | % | % | |||||||||||||||||||||||||||||||||
Rest of the world | % | % | |||||||||||||||||||||||||||||||||
| Total | $ | % | $ | % | |||||||||||||||||||||||||||||||
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| Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||
| 2026 | 2025 | ||||||||||||||||||||||||||||||||||
| Amount | Percentage of Revenue (1) | Amount | Percentage of Revenue (1) | ||||||||||||||||||||||||||||||||
| North America | $ | % | $ | % | |||||||||||||||||||||||||||||||
| Europe | % | % | |||||||||||||||||||||||||||||||||
| Asia | % | % | |||||||||||||||||||||||||||||||||
Rest of the world | % | % | |||||||||||||||||||||||||||||||||
| Total | $ | % | $ | % | |||||||||||||||||||||||||||||||
___________________________
(1) May not recalculate due to rounding.
Revenue derived from customers in the United States was 45 % and 40 % of total revenue for the three and nine months ended September 30, 2026, respectively, and 34 % and 32 % of total revenue for the three and nine months ended September 30, 2025, respectively.
Deferred Revenue
Deferred revenue was $52,707 and $5,882 as of September 30, 2026 and December 31, 2025, respectively. Revenue recognized during the three months ended September 30, 2026 and 2025 was $344 and $325 , respectively, and $3,064 and $3,210 during the nine months ended September 30, 2026 and 2025, respectively, which was included in the deferred revenue balances at the beginning of each respective period. Subsequent to September 30, 2026, the Company received $107,433 in cash from a customer that will be recorded as deferred revenue and recognized over the contract term.
Remaining Performance Obligations
The Company has performance obligations associated with commitments in customer contracts for future services that have not yet been recognized in the condensed consolidated financial statements. As of September 30, 2026, the aggregate transaction price allocated to the remaining performance obligations, which includes contracts with expected term of one year or less, was $799,707 with a weighted-average life of 3.7 years. As of September 30, 2026, the Company expects to recognize $345,111 of its remaining performance obligations as revenue over the next 12 months, with the remainder recognized thereafter over the remaining life of the contracts.
Concentration of Credit Risk
The amounts reflected in the condensed consolidated balance sheets for cash and cash equivalents, marketable securities, restricted cash, and trade accounts receivable are exposed to concentrations of credit risk. Although the Company maintains cash and cash equivalents with multiple financial institutions, the deposits, at times, may exceed federally insured limits. The Company believes that the financial institutions that hold its cash and cash equivalents are financially sound and, accordingly, minimal credit risk exists with respect to these balances. The Company’s customer base consists of a significant number of geographically dispersed customers.
Note 4. Marketable Securities
The following is a summary of available-for-sale marketable securities, excluding those securities classified within cash and cash equivalents, on the condensed consolidated balance sheets as of September 30, 2026. The Company had no available-for-sale marketable securities as of December 31, 2025.
| September 30, 2026 | |||||||||||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||||||||||
| Marketable securities: | |||||||||||||||||||||||
| U.S. Treasury securities | $ | $ | $ | ( | $ | ||||||||||||||||||
| Commercial paper | ( | ||||||||||||||||||||||
| Total Marketable securities | $ | $ | $ | ( | $ | ||||||||||||||||||
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Interest income from investments was $5,083 , and $2,630 for the three months ended September 30, 2026 and 2025, respectively, and $14,350 and $9,489 for the nine months ended September 30, 2026 and 2025, respectively. As of September 30, 2026, all of the Company’s available-for-sale short-term investments were due within one year.
As of September 30, 2026, the Company held nine securities that were in an unrealized loss position. The Company does not intend to sell and expects that it is more likely than not that it will not be required to sell these securities until such time as the value recovers or the securities mature. Unrealized losses from fixed-income securities are primarily attributable to changes in interest rates and not credit-related factors based on the Company’s evaluation of available evidence. To determine whether a decline in value is related to credit loss, the Company evaluates, among other factors: the extent to which the fair value is less than the amortized cost basis, changes to the rating of the security by a rating agency and any adverse conditions specifically related to an issuer of a security or its industry. Management does not believe any remaining unrealized losses represent impairments based on our evaluation of available evidence. Unrealized gains and losses on marketable securities are presented net of tax.
Note 5. Fair Value Measurements
The fair value of the Company’s financial assets measured on a recurring basis was as follows:
| September 30, 2026 | |||||||||||||||||
| Level 1 | Level 2 | Total | |||||||||||||||
| Cash and cash equivalents: | |||||||||||||||||
| Cash | $ | $ | $ | ||||||||||||||
| Money market funds | |||||||||||||||||
| U.S. Treasury securities | |||||||||||||||||
| Commercial paper | |||||||||||||||||
| Total cash and cash equivalents | $ | $ | $ | ||||||||||||||
| Marketable securities: | |||||||||||||||||
| U.S. Treasury securities | $ | $ | $ | ||||||||||||||
| Commercial paper | |||||||||||||||||
| Total Marketable securities | $ | $ | $ | ||||||||||||||
| December 31, 2025 | |||||||||||||||||
| Level 1 | Level 2 | Total | |||||||||||||||
| Cash and cash equivalents: | |||||||||||||||||
| Cash | $ | $ | $ | ||||||||||||||
| Money market funds | |||||||||||||||||
| Total cash and cash equivalents | $ | $ | $ | ||||||||||||||
The Company classifies its highly liquid money market funds and U.S. Treasury securities within Level 1 of the fair value hierarchy because they are valued based on quoted market prices in active markets. The Company classifies its commercial paper within Level 2 because it is valued using inputs other than quoted prices that are directly or indirectly observable in the market, including readily available pricing sources for the identical underlying security which may not be actively traded. The Company had no Level 2 financial assets as of December 31, 2025 and no Level 3 financial assets as of September 30, 2026 and December 31, 2025.
Financial Instruments Not Recorded at Fair Value on a Recurring Basis
The Company reports financial instruments at fair value, with the exception of its convertible notes. Financial instruments that are not recorded at fair value on a recurring basis are measured at fair value on a quarterly basis for disclosure purposes. Refer to Note 7. Debt for the carrying values and estimated fair values of financial instruments not recorded at fair value.
14
Note 6. Balance Sheet Details
Property and equipment, net
Property and equipment, net consisted of the following:
| September 30, 2026 | December 31, 2025 | ||||||||||
Servers and related equipment | $ | $ | |||||||||
| Equipment under finance leases | |||||||||||
| Equipment under financing obligations | |||||||||||
| Internal-use software | |||||||||||
| Leasehold improvements | |||||||||||
| Furniture and fixtures | |||||||||||
| Property and equipment, gross | $ | $ | |||||||||
| Less: accumulated depreciation | $ | ( | $ | ( | |||||||
Less: accumulated amortization | ( | ( | |||||||||
| Property and equipment, net | $ | $ | |||||||||
Depreciation expense on property and equipment was $66,087 , and $28,062 for the three months ended September 30, 2026 and 2025, respectively, and $145,308 , and $75,410 for the nine months ended September 30, 2026 and 2025, respectively.
Capitalized costs related to the development of computer software for internal use were $7,056 and $3,881 for the three months ended September 30, 2026 and 2025, respectively, and $16,737 and $8,168 for the nine months ended September 30, 2026 and 2025, respectively, which are included in internal-use software costs within property and equipment, net. Amortization expense related to internal-use and purchased software was $3,984 and $2,084 for the three months ended September 30, 2026 and 2025, respectively, and $11,384 and $6,483 for the nine months ended September 30, 2026 and 2025, respectively.
Note 7. Debt
Debt, Long-term
The net carrying amount of the Company’s debt consisted of the following:
Outstanding as of | |||||||||||
| September 30, 2026 | December 31, 2025 | ||||||||||
| 2030 Convertible Notes | $ | $ | |||||||||
| 2026 Convertible Notes | |||||||||||
| Term Loan Facility | |||||||||||
| Total obligations | |||||||||||
| Unamortized debt issuance costs | ( | ( | |||||||||
| Carrying value of debt | |||||||||||
| Less: Debt, current | ( | ( | |||||||||
| Debt, long-term | $ | $ | |||||||||
As of September 30, 2026, the total fair value of the 2030 Convertible Notes (as defined below) was $539,674 , and the fair value of the 2026 Convertible Notes (as defined below) was $313,807 . The fair value was determined based on the closing trading price as of the last day of trading for the period. The Company classifies the fair value to be a Level 2 valuation within the fair value measurement hierarchy due to the limited trading activity.
15
2030 Convertible Notes
On August 14, 2025, the Company issued $625,000 aggregate principal amount of 0.00 % Convertible Senior Notes due 2030 (“2030 Convertible Notes”). The 2030 Convertible Notes are senior unsecured obligations of the Company and do not bear regular interest, and the principal amount of the 2030 Convertible Notes does not accrete. The 2030 Convertible Notes will mature on August 15, 2030, unless earlier converted, redeemed or repurchased.
The following table presents details of the 2030 Convertible Notes:
| Initial Conversion Rate per $1,000 Principal | Initial Conversion Price (In whole $) | Initial Number of Shares (In thousands) | |||||||||||||||
| 2030 Convertible Notes | 25.5317 | $ | |||||||||||||||
Holders may convert the 2030 Convertible Notes at their option only in the following circumstances:
(1) during any calendar quarter (and only during such calendar quarter) commencing after the calendar quarter ending on December 31, 2025, if the last reported sale price per share of the Company’s common stock exceeds 130 % of the conversion price for each of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter;
(2) during the five consecutive business days immediately after any 10 consecutive trading day period (such 10 consecutive trading day period, the “measurement period”) if the trading price per $1,000 principal amount of 2030 Convertible Notes for each trading day of the measurement period was less than 98 % of the product of the last reported sale price per share of the Company’s common stock on such trading day and the conversion rate on such trading day;
(3) if the Company calls the 2030 Convertible Notes for redemption; and
(4) upon the occurrence of certain corporate events or distributions of the Company’s common stock, as described in the indenture governing the 2030 Convertible Notes.
During the three months ended March 31, 2026 and continuing through the three months ended June 30, 2026 and the three months ended September 30, 2026, the circumstances allowing holders to convert the 2030 Convertible Notes were met since the Company’s last reported sale price per share of the Company’s common stock exceeded 130 % of the conversion price of $39.17 for each of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter. Therefore, the 2030 Convertible Notes have been convertible, in whole or in part, at the option of the holders since April 1, 2026 and are convertible until December 31, 2026. Whether the 2030 Convertible Notes will be convertible following such period will depend on the continued satisfaction of this condition or another conversion condition in the future.
The Company has the election of settling any conversion of the 2030 Convertible Notes in cash, shares of its common stock, or a combination of both. The Company continues to classify the 2030 Convertible Notes as a long-term liability in its condensed consolidated balance sheets as of September 30, 2026 because the Company has the option to settle the 2030 Convertible Notes in shares and the maturity date exceeds one year from the balance sheet date.
Partial Repurchase of 2030 Convertible Notes
In July 2026, the Company entered into privately negotiated agreements with certain holders of its 2030 Convertible Notes to repurchase $471,828 aggregate principal amount for aggregate cash consideration of $1,474,414 , based on the volume-weighted average price of the Company’s common stock of $117.54 per share. The repurchase closed on July 23, 2026 and was funded by a concurrent registered direct offering. Refer to Note 11. Stockholders’ Equity of the condensed consolidated financial statements for details on the registered direct offering. The note repurchase and the direct offering were cross-conditional. Upon completion, the repurchased notes were retired.
The Company accounted for the repurchase as an induced conversion and recognized a $516,253 increase to additional paid-in capital for $460,231 of the carrying value of the repurchased portion of the 2030 Convertible Notes, $2,601 of related tax impact and $53,422 of the fair value of consideration paid to holders of the 2030 Convertible Notes in excess of the value to which they were entitled to receive pursuant to the original conversion terms (“2030 Notes Induced Conversion Incentive”). The Company recorded the 2030 Notes Induced Conversion Incentive and $3,688 of transaction-
16
related fees paid with cash on hand in other (expense) income, net in the Company’s condensed consolidated statements of operations for a total induced conversion expense of $57,110 during the three months ended September 30, 2026.
As of September 30, 2026, $153,172 aggregate principal amount of the 2030 Convertible Notes remained outstanding with a maturity date of August 15, 2030.
2030 Capped Calls
In connection with the issuance of the 2030 Convertible Notes, the Company entered into capped call transactions with certain financial institutions (“2030 Capped Calls”). The 2030 Capped Calls have an initial strike price of $39.17 per share, which corresponds to the initial conversion price of the 2030 Convertible Notes. The 2030 Capped Calls have an initial cap price of $66.51 per share. At that time, the 2030 Capped Calls were generally expected to reduce the potential dilution to the Company’s common stock upon any conversion of the 2030 Convertible Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of converted 2030 Convertible Notes, with such reduction and/or offset subject to the cap price. The strike price, cap price and other terms of the 2030 Capped Calls are subject to certain adjustments under the terms of the capped call transactions. Notwithstanding the partial repurchase of the 2030 Convertible Notes that closed on July 23, 2026, the Company did not take any actions on the 2030 Capped Calls and they continued to remain outstanding as of September 30, 2026. The 2030 Capped Calls expire on August 15, 2030, unless exercised or called prior to that date.
2025 Credit Facility
On May 5, 2025, the Company entered into a credit agreement (the “Credit Agreement”) by and among the Company, its wholly owned subsidiary, DigitalOcean, LLC, as borrower, Morgan Stanley Senior Funding, Inc., as administrative agent, and the other parties thereto for a $500,000 senior secured delayed draw term loan facility (“Term Loan Facility”, and any loans thereunder “Term Loans”) and a $300,000 senior secured revolving credit facility (“Revolving Facility”, and any loans thereunder “Revolving Loans”) which includes a $30,000 sublimit for the issuance of letters of credit (collectively the “2025 Credit Facility”). On May 4, 2026, the Company entered into an amendment to the Credit Agreement (the “First Amendment”), which, among other modifications, (i) increased the Revolving Facility to $412,500 , (ii) increased the letter of credit sublimit to $80,000 , and (iii) amended the definition of “Indebtedness” to provide that capitalized leases shall be deemed to be an amount equal to 25 % of the capitalized amount. The Term Loan Facility and Revolving Facility mature on May 5, 2030, and are subject to a springing maturity date in the event certain conditions occur as described in the Credit Agreement. Revolving Loans may be borrowed, repaid and reborrowed, until their maturity date. Term Loans may be borrowed until February 5, 2026 and, once borrowed and repaid, cannot be reborrowed.
On February 3, 2026, the Company drew down the remaining $120,000 available principal under its Term Loan Facility resulting in a total outstanding principal amount of $500,000 . On March 27, 2026, the Company repaid the $500,000 outstanding principal of its Term Loan Facility in cash from the proceeds of its follow-on offering (see Note 11. Stockholders’ Equity) and wrote-off $2,700 of related unamortized issuance cost as loss on extinguishment of debt in other (expense) income, net on the Company’s condensed consolidated statements of operations during the nine months ended September 30, 2026.
The Credit Agreement includes customary representations, warranties, and affirmative and negative covenants, including financial covenants that require the Company to maintain certain levels of total net leverage ratio and interest coverage ratio. As of September 30, 2026, the Company was in compliance with all covenants under the 2025 Credit Facility.
The Company was issued letters of credit under the letter of credit sublimit of its Revolving Facility of $9,734 and $15,584 during the three and nine months ended September 30, 2026, respectively. No drawdowns have been made under the Company’s letters of credit and the Revolving Facility. The Company’s total available borrowing capacity under the Revolving Facility was $396,916 as of September 30, 2026.
17
2026 Convertible Notes
In November 2021, the Company issued $1,500,000 aggregate principal amount of convertible notes (“2026 Convertible Notes”). The 2026 Convertible Notes are senior unsecured obligations of the Company and do not bear interest, and the principal amount of the 2026 Convertible Notes does not accrete.
Each $1 of principal of the 2026 Convertible Notes will initially be convertible into 5.6018 shares of the Company’s common stock, which is equivalent to an initial conversion price of approximately $178.51 per share, subject to adjustment as set forth in the indenture governing the 2026 Convertible Notes. As of June 1, 2026, holders may convert all or any portion of their 2026 Convertible Notes at the option of the holder regardless of the circumstances.
On August 14, 2025, the Company repurchased approximately $1,187,678 aggregate principal amount of the 2026 Convertible Notes. The outstanding $312,322 of aggregate principal amount of 2026 Convertible Notes will mature on December 1, 2026 unless earlier converted, redeemed, or repurchased. Upon conversion of the 2026 Convertible Notes, the Company will pay or deliver, as the case may be, cash, shares of common stock or a combination of cash and shares of common stock, at the Company’s election.
Issuance Costs
Issuance costs are amortized to interest expense over the contractual term of the respective borrowing. Contractual interest expense consists of commitment fees and cash interest expense under the Company’s 2025 Credit Facility and Equipment Lease Facility. Interest expense related to the Company’s convertible notes and credit facilities consisted of the following:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| Contractual interest expense | $ | $ | $ | $ | |||||||||||||||||||
| Amortization of debt issuance costs | |||||||||||||||||||||||
Note 8. Operating Leases
The Company leases co-location space at data center facilities and, to a lesser extent, corporate offices, all of which are classified as operating leases. Operating leases generally have an initial lease term ranging from to thirteen years , which includes any option to renew or terminate the lease when it is reasonably certain that the option will be exercised.
The components of operating lease expense were as follows:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||||||||
| Operating lease expense | $ | $ | $ | $ | |||||||||||||||||||||||||
| Variable lease expense | |||||||||||||||||||||||||||||
| Short-term lease expense | |||||||||||||||||||||||||||||
Total operating lease expense | $ | $ | $ | $ | |||||||||||||||||||||||||
Weighted-average remaining lease term and discount rate were as follows:
| September 30, 2026 | December 31, 2025 | ||||||||||
| Weighted-average remaining lease term (in years) | |||||||||||
| Weighted-average discount rate | |||||||||||
18
Maturities of operating lease liabilities as of September 30, 2026 were as follows:
| 2026 | $ | ||||
| 2027 | |||||
| 2028 | |||||
| 2029 | |||||
| 2030 | |||||
| 2031 | |||||
| Thereafter | |||||
Total undiscounted operating lease liabilities | |||||
| Less: Imputed interest | ( | ||||
Total present value of operating lease liabilities | |||||
Less: Current portion of operating lease liabilities | ( | ||||
Operating lease liabilities, long-term | $ | ||||
As of September 30, 2026, the Company had $2,955,158 of estimated undiscounted fixed payment obligations primarily for leases of co-location space at data center facilities that have not yet commenced and were not included in the condensed consolidated balance sheets. These leases are scheduled to commence between November 2026 and June 2028, and have a weighted-average lease term of 11.1 years.
Note 9. Finance Leases and Equipment Financing Obligations
The Company enters into finance leases and equipment financing obligations for servers and related equipment. The components of finance lease and equipment financing obligations expense were as follows:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||||||||
| Finance leases: | |||||||||||||||||||||||||||||
| Amortization of finance lease right-of-use assets | $ | $ | $ | $ | |||||||||||||||||||||||||
| Interest expense on finance lease liabilities | |||||||||||||||||||||||||||||
| Equipment financing obligations: | |||||||||||||||||||||||||||||
| Depreciation of assets under equipment financing obligations | |||||||||||||||||||||||||||||
| Interest expense on equipment financing obligations | |||||||||||||||||||||||||||||
| Total finance lease and equipment financing obligations expense | $ | $ | $ | $ | |||||||||||||||||||||||||
Weighted-average remaining term and discount rate of finance lease liabilities and equipment financing obligations were as follows:
| September 30, 2026 | December 31, 2025 | ||||||||||
| Finance Leases | |||||||||||
Weighted-average remaining term (in years) | |||||||||||
| Weighted-average discount rate | |||||||||||
| Equipment Financing Obligations | |||||||||||
| Weighted-average remaining term (in years) | |||||||||||
| Weighted-average discount rate | |||||||||||
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Maturities of finance lease liabilities and equipment financing obligations as of September 30, 2026 were as follows:
| Finance Leases | Equipment Financing Obligations | Total | |||||||||||||||
| 2026 | $ | $ | $ | ||||||||||||||
| 2027 | |||||||||||||||||
| 2028 | |||||||||||||||||
| 2029 | |||||||||||||||||
| 2030 | |||||||||||||||||
| 2031 | |||||||||||||||||
Total undiscounted finance lease liabilities and equipment financing obligations | $ | $ | $ | ||||||||||||||
| Less: Imputed interest | ( | ( | ( | ||||||||||||||
Total present value of finance lease liabilities and equipment financing obligations | $ | $ | $ | ||||||||||||||
Less: Finance lease liabilities and equipment financing obligations, current | ( | ( | ( | ||||||||||||||
| $ | $ | $ | |||||||||||||||
In October 2026, the Company entered into agreements to receive servers and related equipment under (i) finance leases with total estimated undiscounted payments of $19,992 , commencing between November 2026 and November 2027, with a weighted-average lease term of 5.0 years, and (ii) equipment financing arrangements with total estimated undiscounted payments of $33,018 commencing in November 2026 with a weighted-average lease term of 5.0 years.
Equipment Lease Facility
On September 10, 2026, the Company and its wholly owned subsidiary, DigitalOcean, LLC (the “Lessee”), entered into an agreement with MUFG Americas Capital Leasing & Finance, LLC, as lessor (the “Lessor”), MUFG Bank, Ltd., as administrative agent and collateral agent, and the other parties thereto providing for up to $725,000 of committed financing to fund purchases of data center equipment, including an accordion feature permitting the Company to increase the committed financing by up to an additional $300,000 to $1,025,000 in the aggregate (the “Equipment Lease Facility”). The Company may request advances through September 10, 2027, funding up to 90 % of the cost of equipment with the Lessee funding the remaining balance as prepaid rent, and the Lessor will acquire equipment with such funds and lease it to the Lessee. The Equipment Lease Facility matures on September 10, 2030. Each advance drawn under the Equipment Lease Facility will be accounted for as a separate finance lease.
Rent under each equipment lease is payable monthly in arrears and amortizes the applicable advance in full by September 10, 2030. Each equipment lease bears interest at a fixed rate, determined at the time of the applicable drawdown, equal to a term SOFR swap rate plus 2.75 % per annum. Undrawn commitments under the Equipment Lease Facility are subject to a commitment fee of 0.20 % per annum, increasing to 0.40 % per annum six months after closing. The Lessee may prepay and purchase the equipment in whole or in part, subject to a prepayment premium of 5 % in the first year and 3 % in the second year following the applicable advance. Title to the equipment will transfer to the Lessee for nominal consideration upon payment in full of the amounts under the applicable equipment lease.
The Equipment Lease Facility is guaranteed by the Company and certain of its subsidiaries, is secured by the related equipment and collateral, and contains financial covenants and events of default substantially consistent with those under the 2025 Credit Facility.
In connection with the Equipment Lease Facility, the Company paid customary arrangement, upfront and agency fees of $7,274 , which are recognized as deferred financing fees in other assets within the condensed consolidated balance sheets, and are deferred until drawdown and will be amortized through the Equipment Lease Facility maturity on September 10, 2030. As of September 30, 2026, the Company had not drawn advances under the Equipment Lease Facility. The Company’s total available borrowing capacity under the Equipment Lease Facility was $725,000 as of September 30, 2026.
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On October 6, 2026, the Company exercised an additional $60,000 of the accordion feature, increasing the total committed financing to $785,000 .
Note 10. Commitments and Contingencies
Purchase Commitments
The Company has commitments and purchase orders with various software license, bandwidth, network services and third-party license vendors. The Company’s purchase commitments have not materially changed since December 31, 2025 except for a long-term purchase agreement for a software license with total non-cancelable payments of $128,072 and a contractual term of up to 6.0 years that commenced in July 2026.
Legal Proceedings
The Company may be involved in various legal proceedings and litigation arising in the ordinary course of business. While it is not feasible to predict or determine the ultimate disposition of any such litigation matters, the Company believes that any such legal proceedings will not have a material adverse effect on its condensed consolidated financial position, results of operations, or liquidity.
Letters of Credit
In relation to the execution of data center leases, the Company was issued letters of credit under the letter of credit sublimit of its Revolving Facility of $9,734 and $15,584 during the three and nine months ended September 30, 2026, respectively. There were no outstanding letters of credit as of December 31, 2025. No
Note 11. Stockholders’ Equity
2026 Follow-on Offering
On March 26, 2026, the Company completed a follow-on public equity offering (“2026 Follow-on Offering”) of 11,948,052 shares of common stock, inclusive of the exercised over-allotment option, at a public offering price of $77.00 per share. The Company received net proceeds of $887,888 after deducting underwriting discounts and commissions of $31,050 and other issuance costs of $1,062 .
2026 Direct Offering
On July 23, 2026, the Company completed a registered direct offering of 12,543,915 shares of common stock at a price of $117.54 per share concurrent with the partial repurchase of the 2030 Notes. The Company received net proceeds of $1,473,857 after deducting $557 of transaction-related fees paid and payable that were recognized as a decrease to additional paid-in capital. The proceeds were used to repurchase $471,828 in aggregate principal amount of 2030 Convertible Notes. Cash on hand was used to pay transaction-related fees. Refer to Note 7. Debt of the condensed consolidated financial statements for further details.
Share Buyback Program
On August 11, 2025, the Company adopted a new stock repurchase program authorizing the repurchase of up to $100,000 of its common stock (“2025 Share Buyback Program”). Pursuant to the 2025 Share Buyback Program, repurchases of the Company’s common stock may be made at prevailing market prices through open market purchases, in negotiated transactions off the market or otherwise, including through Rule 10b5-1 plans. The 2025 Share Buyback Program will expire on July 31, 2027; however, the Company is not obligated to acquire any particular amount of common stock and the program may be extended, modified, suspended or discontinued at any time at the Company’s discretion. During the three and nine months ended September 30, 2026, the Company had no repurchases of shares under the 2025 Share Buyback Program.
Note 12. Stock-Based Compensation
Equity Incentive Plan
In March 2021, the Company’s Board of Directors adopted, and the stockholders approved, the 2021 Equity Incentive Plan (“2021 Plan”). The 2021 Plan is a successor to and continuation of the 2013 Stock Plan. The 2021 Plan became effective on the date of the Company’s initial public offering with no further grants being made under the 2013 Stock Plan; however, awards outstanding under the 2013 Stock Plan continued to be governed by their existing terms. The 2021 Plan provides
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for the grant of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock units (“RSUs”), performance-based restricted stock units (“PRSUs”), market-based restricted stock units (“MRSUs”) and other awards to employees, directors, and consultants. Shares issued pursuant to the exercise or settlement of these awards are transferable by the holder. There were 29,402,187 shares available for grant under the 2021 Plan as of September 30, 2026.
RSUs and PRSUs
RSUs granted typically vest over four years . The Company has also issued PRSUs which vest based on the achievement of each award’s established performance targets. Depending on the actual financial metrics achieved relative to the target financial metrics throughout the defined performance period of the award, the number of Long Term Incentive Plan (“LTIP”) PRSUs that vest could range from 0 % to 200 % of the target amount and are subject to the Compensation Committee’s approval of the level of achievement against the approved performance targets.
Assuming the minimum performance level is achieved, one-third of the aggregate number of the achieved LTIP PRSUs shall vest on the later of (i) March 1 of the year after grant, (ii) the first anniversary of the grant date, or (iii) two trading days following the public release of the Company’s financial results for the year of grant, and the remainder shall vest over the following two years in eight equal quarterly installments subject, in each case, to the individual’s continuous service through the applicable vesting date.
On April 25, 2025, the Company granted an LTIP PRSU award (“2025 LTIP PRSU”). The financial performance level under the PRSUs was equal to the sum of the attainment of certain ARR targets weighted at 75 % and adjusted free cash flow margin targets weighted at 25 %. On February 13, 2026, the Company determined that the 2025 LTIP PRSU was achieved at 89.0 % of the target amount. This resulted in a performance factor reduction of 154,488 shares from the original maximum shares achievable of 278,356 , net of forfeiture. The target shares granted under the 2025 LTIP PRSU were 139,178 , net of forfeiture.
On March 10, 2026 and June 1, 2026, the Company granted LTIP PRSU awards (“2026 LTIP PRSUs”). The financial performance level under the 2026 LTIP PRSUs can be attained based on the achievement of certain ARR and adjusted free cash flow margin targets. Under the 2026 LTIP PRSUs, 75 % of the awards can be achieved based on the ARR targets and 25 % of the awards can be achieved based on the adjusted free cash flow margin targets. The target shares granted under the 2026 LTIP PRSUs were 427,796 . The actual number of shares that are received under the 2026 LTIP PRSUs may be higher or lower than the target shares based on the actual financial metrics achieved relative to the target financial metrics for fiscal year 2026.
As of September 30, 2026, there was $147,974 of unrecognized stock-based compensation, net of estimated forfeitures, related to outstanding RSUs, that is expected to be recognized over a weighted-average period of 3.0 years. As of September 30, 2026, there was $17,660 of unrecognized stock-based compensation, net of estimated forfeitures, related to outstanding PRSUs that is expected to be recognized over a weighted-average period of 2.5 years.
MRSU
On February 12, 2024, Padmanabhan Srinivasan joined the Company in the role of CEO. As part of his compensation package, Mr. Srinivasan received an MRSU with an estimated grant date fair value of approximately $8,000 , which vests upon the satisfaction of certain service conditions and the achievement of certain Company stock price goals during a five-year performance period. A cumulative percentage of the MRSU target is earned based on the achievement of stock price goals, measured based on the average of the Company’s closing stock price over a consecutive 60 days trading day period during the performance period as set forth in the table below:
| Tranche | Company Stock Price Target | Total Payout | ||||||||||||||||||
| 1 | $ | |||||||||||||||||||
| 2 | $ | |||||||||||||||||||
| 3 | $ | |||||||||||||||||||
| 4 | $ | |||||||||||||||||||
As of September 30, 2026, the conditions related to the Company Stock Price Target applicable to Tranches 1, 2, and 3 of the MRSUs had been met. Subject to Mr. Srinivasan’s continued service through the applicable vesting dates, 50 % of the Tranche 1, 2, and 3 MRSUs will vest upon the Compensation Committee’s certification of Company Stock Price
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Target performance achievement in the first quarter of 2027 and the remaining 50 % will vest upon the Compensation Committee’s certification in the first quarter of 2029.
As of September 30, 2026, there was $2,389 of unrecognized stock-based compensation related to the MRSU award that is expected to be recognized over a weighted-average period of 2.4 years.
ESPP
In March 2021, the Company’s Board of Directors adopted, and the stockholders approved, the 2021 Employee Stock Purchase Plan (“ESPP”). Eligible employees enroll in the offering period at the start of each purchase period, whereby they may purchase a number of shares at a price per share equal to 85 % of the lesser of (1) the stock price at the employee’s first participation in the offering period or (2) the fair market value of the Company’s common stock on the purchase date. There were 5,918,387 shares available for grant under the ESPP as of September 30, 2026.
Stock-Based Compensation
Stock-based compensation is included in the condensed consolidated statements of operations as follows:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||||||||
| Cost of revenue | $ | $ | $ | $ | |||||||||||||||||||||||||
| Research and development | |||||||||||||||||||||||||||||
| Sales and marketing | |||||||||||||||||||||||||||||
General and administrative | |||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||||||||
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Note 13. Net Income per Share Attributable to Common Stockholders
The following table presents the calculation of basic and diluted net income per share:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||||||||
| (In thousands, except per share amounts) | 2026 | 2025 | 2026 | 2025 | |||||||||||||||||||||||||
| Basic net income per share: | |||||||||||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||||||||
| Net income (loss) attributable to common stockholders | $ | ( | $ | $ | $ | ||||||||||||||||||||||||
| Denominator: | |||||||||||||||||||||||||||||
| Weighted-average shares used to compute net income (loss) per share attributable to common stockholders | |||||||||||||||||||||||||||||
| Basic | $ | ( | $ | $ | $ | ||||||||||||||||||||||||
| Diluted net income per share: | |||||||||||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||||||||
| Net income (loss) attributable to common stockholders | $ | ( | $ | $ | $ | ||||||||||||||||||||||||
| Interest expense on dilutive convertible notes, net of tax | |||||||||||||||||||||||||||||
| Net income (loss) used in diluted calculation | $ | ( | $ | $ | $ | ||||||||||||||||||||||||
| Denominator: | |||||||||||||||||||||||||||||
| Number of shares used in basic calculation | |||||||||||||||||||||||||||||
Weighted-average effect of dilutive securities: | |||||||||||||||||||||||||||||
Stock Options | |||||||||||||||||||||||||||||
RSUs | |||||||||||||||||||||||||||||
PRSUs | |||||||||||||||||||||||||||||
| MRSUs | |||||||||||||||||||||||||||||
2026 Convertible Notes | |||||||||||||||||||||||||||||
| 2030 Convertible Notes | |||||||||||||||||||||||||||||
Number of shares used in diluted calculation | |||||||||||||||||||||||||||||
| Diluted net income (loss) per share attributable to common stockholders | $ | ( | $ | $ | $ | ||||||||||||||||||||||||
We calculate the potential dilutive effect of the convertible senior notes under the if-converted method. Under this method, diluted earnings per share are determined by assuming that outstanding convertible senior notes were converted into shares of our common stock at the beginning of the reporting period.
In connection with the issuance of the convertible senior notes, we entered into the capped call transactions, which were not included for purposes of calculating the number of diluted shares outstanding, as their effect would have been anti-dilutive. The capped call transactions are expected to partially offset the potential dilution to our common stock upon any conversion of the convertible senior notes.
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Potentially dilutive securities that were not included in the diluted per share calculations because they would be anti-dilutive were as follows:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||||||||
| (In thousands) | 2026 | 2025 | 2026 | 2025 | |||||||||||||||||||||||||
| Stock Options | |||||||||||||||||||||||||||||
| RSUs | |||||||||||||||||||||||||||||
| PRSUs | |||||||||||||||||||||||||||||
| MRSUs | |||||||||||||||||||||||||||||
2026 Convertible Notes | |||||||||||||||||||||||||||||
2030 Convertible Notes | |||||||||||||||||||||||||||||
| Total | |||||||||||||||||||||||||||||
Note 14. Income Taxes
The computation of the provision for, or benefit from, income taxes for an interim period is determined using an estimated annual effective tax rate, adjusted for discrete items, if any. Each quarter, the Company updates the estimated annual effective tax rate and records a year-to-date adjustment to the tax provision, as necessary.
For the three and nine months ended September 30, 2026, the Company recorded income tax expense of $6,184 and $6,614 , respectively. The effective tax rate for the three and nine months ended September 30, 2026 was (17.0 )% and 43.5 %, respectively. The effective tax rate differs from the statutory rate primarily due to the induced conversion expense recognized on the partial repurchase of the Company’s 2030 Convertible Notes, which carries no tax benefit. The mix of income in the foreign jurisdictions in which the Company conducts business, 162(m) limitation and excess tax benefits from stock-based compensation also affected the rates.
For the three and nine months ended September 30, 2025, the Company recorded tax benefit of $68,057 and $59,460 , respectively. The effective tax rate for the three and nine months ended September 30, 2025 was (75.4 )% and (34.1 )%, respectively. The effective tax rate differs from the statutory rate primarily due to the release of the valuation allowance on U.S. and state deferred tax assets.
The Organisation for Economic Co-operation and Development Pillar Two guidelines published to date include transition and safe harbor rules around the implementation of the Pillar Two global minimum tax of 15%. Based on current enacted legislation, the Company is not subject to Pillar Two tax since the Company’s revenue is currently below the threshold. The Company is monitoring developments and evaluating the impacts these new rules will have on its future income tax provision and effective income tax rate.
On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted in the U.S. The OBBBA includes significant provisions, such as the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act, modifications to the international tax framework and the restoration of favorable tax treatment for certain business provisions. The legislation has multiple effective dates, with certain provisions effective in 2025 and others implemented through 2027. The Company applied the provisions related to the international tax framework that became effective in 2026 for the three and nine months ended September 30, 2026. The adoption on January 1, 2026 did not have a material impact on the Company’s condensed consolidated financial statements.
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Note 15. Segment and Geographical Information
Segment Information
The Company’s CODM is the CEO. The CODM assesses performance on a monthly basis by reviewing consolidated results against the annual operating plan and ongoing forecasts. Accordingly, the Company has one operating and reporting segment.
The measure of segment profitability used by the CODM is net income, as reported in the condensed consolidated statements of operations. The significant segment expenses reviewed by the CODM on a consolidated basis include cost of revenue, research and development, sales and marketing, and general and administrative as reported in the condensed consolidated statements of operations on a consolidated basis. Other segment expense categories include other (expense) income, net and income tax benefit (expense) as reported in the condensed consolidated statements of operations. Refer to Note 3. Revenue, for revenue by geography.
The measure of segment assets is total assets, which is reported in the condensed consolidated balance sheets. Refer to condensed consolidated statements of cash flows and within Note 6. Balance Sheet Details, for details of capital expenditures and depreciation and amortization, respectively.
Long-lived assets include property and equipment, net and operating lease right-of-use assets, net. The geographic locations of the Company’s long-lived assets, net, based on the physical location of the assets, are as follows:
| September 30, 2026 | December 31, 2025 | ||||||||||
| United States | $ | $ | |||||||||
| Netherlands | |||||||||||
| Germany | |||||||||||
| Canada | |||||||||||
| Singapore | |||||||||||
| Other | |||||||||||
| Total | $ | $ | |||||||||
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be considered together with our unaudited condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q, our audited consolidated financial statements and the related notes, and the discussion under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2025. This discussion, particularly information with respect to our outlook, key trends and uncertainties, our plans and strategy for our business, and our performance and future success, includes forward-looking statements that involve risks and uncertainties as described under the heading “Special Note Regarding Forward-Looking Statements” in this Quarterly Report on Form 10-Q. Actual results could differ materially from those discussed below.
Overview
DigitalOcean is an AI-Native Cloud, purpose-built for inference and agentic workloads, that brings infrastructure, core cloud services, inference, data, and agents together in one integrated stack that is open throughout, giving builders the best of the AI ecosystem in one place. The platform combines production-ready GPU infrastructure, a full-stack cloud, model-first inference workflows, and an agentic experience layer to reduce operational complexity and accelerate time to production. Our customers include growing technology companies across numerous industry verticals ranging from online gaming to fintech to cybersecurity, among many others, and leverage our platform for a wide variety of use cases, such as building and hosting websites, developing new web and mobile applications, integrating AI into their businesses, and building AI products and applications, among many others. We believe that being simple, scalable, and approachable, while offering a comprehensive range of integrated cloud and AI products, are our key differentiators, driving a broad range of customers around the world whose needs are not being fully met by larger cloud providers to build and grow their businesses on our platform.
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We offer a comprehensive set of cloud platform capabilities which span across Infrastructure-as-a-Service (“IaaS”), including Droplet virtual machines, storage and networking offerings; Platform-as-a-Service (“PaaS”) and Software-as-a-Service (“SaaS”), including Managed Hosting, Managed Database, Managed Kubernetes and Marketplace offerings. We also offer a comprehensive artificial intelligence and machine learning (“AI/ML”) platform - DigitalOcean Gradient® AI Agentic Cloud, which includes Gradient AI Infrastructure with offerings such as GPU Droplets and Bare Metal GPUs; the Gradient AI Platform which offers various building block services including Large Language Models (“LLMs”); and Gradient AI Agents. We continue to invest in our platform to further penetrate the growing markets in which we operate.
We generate revenue primarily from the usage of our agentic inference cloud platform by our customers. We recognize revenue largely based on the customer utilization of our offerings. While our pricing is primarily consumption-based and the majority of our customers use our platform on a month-to-month basis, a growing number of customers are using our platform for larger workloads and some of these customers are opting to enter into committed contracts, committing to a minimum spend on our platform.
We serve a large number of customers that range in size from growing or scaled businesses that generate millions of dollars in revenue and serve millions of their own customers to individual developers testing or learning new technology for their own development. Thousands of new users come to DigitalOcean every month with some users intending only to utilize our platform for a discrete task, and other users are part of new or existing businesses that intend to operate their production and test workloads on our platform to support their business. Given the wide range of users and their associated spend, we classify customers based on their spend in a given month, which we have found to be a good proxy that distinguishes between casual users and substantial enterprise customers.
Our total customer count is represented by the number of Digital Native Enterprise (“DNE”) Customers, which are users that spend more than $500 in a month. We further disaggregate our DNE Customers into the following categories - $100K+ Customers, $500K+ Customers and $1M+ Customers. See further discussion in “Digital Native Enterprise Customers” below.
Growing our DNE Customers is a critical focus for us, and we have successfully increased the number of these customers and their percentage of our total revenue. Revenue from our DNE Customers as a percentage of total revenue was 69% in the three months ended September 30, 2026, up from approximately 60% in the three months ended September 30, 2025. As of September 30, 2026, we had approximately 22,000 DNE Customers using our platform to build, deploy and scale applications, an increase from approximately 21,000 as of September 30, 2025.
We had no material customer concentration as our top 25 customers made up approximately 27% and 11% of our revenue in the three months ended September 30, 2026 and 2025, respectively.
Our annual run-rate revenue (“ARR”) as of September 30, 2026 was $1,285 million, up from $919 million as of September 30, 2025. Our AI Customer ARR as of September 30, 2026 was $376 million, up from $97 million as of September 30, 2025. See further discussion in “ARR and AI Customer ARR” below.
We have a highly efficient self-service customer acquisition model, which we complement with a sales force focused on inside sales, targeted outside sales and partnership opportunities to drive revenue growth. The efficiency of our go-to-market model and our focus on the needs of growing technology enterprises have enabled us to drive organic growth and establish a truly global customer base across a broad range of industries. For the three months ended September 30, 2026 and 2025, our sales and marketing expense was approximately 8% and 9% of our revenue, respectively.
Our customers are spread across approximately 190 countries and around two-thirds of our revenue has historically come from customers located outside the United States. For the three months ended September 30, 2026, 49% of our revenue was generated from North America, 20% from Europe, 23% from Asia and 8% from the rest of the world.
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Key Factors Affecting Our Performance
Increasing Usage by Our Existing Customers
Our existing customer base represents a significant opportunity for further sales expansion through increased usage of our platform and adoption of additional product offerings. We are highly focused on gaining a better understanding of the needs and growth plans of our existing customers, increasing our feature velocity and shaping our product roadmap around the needs of DNE Customers, and leveraging our account management function to provide more direct coverage of our top spending accounts. This deeper relationship with our customers is helping us to identify opportunities to educate our customer base on ways to utilize the platform more effectively for their individual use cases, as well as provide a feedback loop to inform our product roadmap, in order to build trust with customers and encourage them to run more of their critical cloud workloads on our platform. We expect to increase our revenue in the future from existing customers through the introduction of new products and features tailored to our DNE Customers through expanded customer outreach, and targeted services to support our customers in migrating additional workloads from other cloud providers to DigitalOcean.
Growing Our Base of AI-Native and Cloud-Native DNE Customers
We believe there is a substantial opportunity to further expand our customer base. We are investing in strategies that we believe will drive adoption by new AI-Native and Cloud-Native DNE Customers, a dedicated AI sales team with deep AI expertise to help prospective customers understand our offerings and the process to onboard onto our platform, marketing initiatives that further optimize our self-service revenue funnel to identify potential DNE Customers, enhanced research and development to build our product roadmap around the needs of DNE Customers, and the expansion of our migration services team to support additional migrations to our platform from other cloud providers.
Investing in Our Platform and Product Offerings
We have a history of, and will continue to invest significantly in, delivering innovative products, features and functionality for our DNE Customers. Our product strategy is anchored in addressing the needs of our DNE Customers and other digital native enterprises and on continuously innovating to meet those needs in a simple, scalable and approachable way. We have accelerated the pace of product innovation and made disciplined investments to expand our offerings for our IaaS and PaaS offerings, as well as our newer AI/ML offerings.
The market opportunity for our services continues to expand and we expect to make additional investments to offer an enhanced and tailored suite of IaaS, PaaS/SaaS and AI/ML offerings that address the changing needs of our customers.
Driving Increased Adoption Through Our Community Ecosystem
We attract a large number of developers to our website and platform, and we are committed to supporting and expanding this community of innovators and technologists by continuing to produce high-quality educational content and hosting developer-focused programs and events around the world. Supporting and educating the developer community is not only one of our values, but it also fosters brand loyalty, expands our customer base and drives increased adoption of our products.
Augmenting Our Platform through Strategic Partnerships and Acquisitions
In addition to organic growth, we believe that strategic partnerships and acquisitions will allow us to accelerate our key platform, product and marketing initiatives. In recent years, we completed acquisitions of Paperspace, which launched our AI/ML offerings, and Cloudways, which added our Managed Hosting offering to our platform. In addition, we have entered into partnerships to augment our product offerings. We intend to actively pursue both strategic partnerships and acquisitions that we believe will be complementary to our business, accelerate customer acquisition, increase usage of our platform and/or expand our product offerings in our core markets.
Macroeconomic and Geopolitical Conditions
Unfavorable conditions in the economy, both in the United States and abroad, could cause a decrease in business investments in information technology and negatively affect the growth of our business and our results of operations. These conditions include: changes in gross domestic product growth; inflationary pressures and high interest rates; supply chain disruptions; political and local opposition to data center infrastructure; financial and credit market fluctuations, volatility in the capital markets, and liquidity concerns at, or failures of, banks and other financial institutions; trade tension and the imposition, enforceability, or threatened imposition of tariffs, export controls, sanctions, and other trade restrictions or retaliatory actions for those measures by other countries; and geopolitical conditions, including ongoing military conflicts
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involving Russia, Ukraine, Iran, and the Middle East, political turmoil, political instability or transitions of power in regions where we operate, potential shutdowns of the U.S. federal government, natural catastrophes, and outbreaks of contagious diseases.
We will continue to monitor the direct and indirect impacts of these or similar circumstances on our business and our results of operations. The implications of macroeconomic and geopolitical conditions on our business, results of operations, and overall financial position remain uncertain.
Key Business Metrics
We utilize the key metrics set forth below to help us evaluate our business and growth, identify trends, formulate financial projections and make strategic decisions. We are not aware of any uniform standards for calculating these key metrics, and other companies may not calculate similarly titled metrics in a consistent manner, which may hinder comparability.
___________
| Three Months Ended September 30, | |||||||||||||||||||||||
| 2026 | 2025 | ||||||||||||||||||||||
Digital Native Enterprise Customers(1) | 22,374 | 20,825 | |||||||||||||||||||||
$100K+ Customers(1) | 655 | 590 | |||||||||||||||||||||
$500K+ Customers(1) | 100 | 68 | |||||||||||||||||||||
$1M+ Customers(1) | 51 | 26 | |||||||||||||||||||||
| ARR (in millions) | $ | 1,285 | $ | 919 | |||||||||||||||||||
AI Customer ARR (in millions) | $ | 376 | $ | 97 | |||||||||||||||||||
(1)Customer count. Beginning in the fourth quarter of 2025, we redefined our total customer count, customer categories naming and disaggregation, and excluded the number of customers using certain legacy Bare Metal CPU offerings. Prior periods have been recast to reflect the effects of such changes.
Digital Native Enterprise Customers
We refer to customers spending more than $500 in a given month collectively as our Digital Native Enterprise (“DNE”) Customers. We believe the total number of our DNE Customers is an important indicator of the growth of our business and future revenue opportunity, and the trends relating to our $100K+ Customers, $500K+ Customers and $1M+ Customers are of particular importance to us as these customers comprise a significant majority of our revenue and revenue growth, and are representative of the Cloud-Native and AI-Native DNEs that have scaled on our platform.
We calculate customer count as the average number of customers as of the last day of the month for each month in the most recent quarter. Customers are classified in the following categories based on the amount of their spend in a given month and individual customers may fall within different categories within a reporting period (customer spend in a month in whole dollars):
•DNE Customers: users that spend more than $500 in a month.
•$100K+ Customers: users that spend more than $8,333 in a month.
•$500K+ Customers: users that spend more than $41,667 in a month.
•$1M+ Customers: users that spend more than $83,333 in a month.
ARR and AI Customer ARR
Given the recurring nature of our business, we view ARR as an important indicator of our current progress towards meeting our revenue targets and projected growth rate going forward. We calculate ARR by multiplying total revenue for the most recent quarter by four.
We view AI Customer ARR as an important indicator of our growth in customers using AI-related products across our AI-Native Cloud and a key driver of our revenue targets and projected growth rate going forward.
We calculate AI Customer ARR by multiplying total AI Customer Revenue for the most recent quarter by four. AI Customer Revenue is defined as the total revenue generated from customers who utilize one or more of our AI/ML offerings, inclusive of their revenue from our IaaS and PaaS/SaaS offerings during the period.
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Components of Results of Operations
Revenue
We offer a comprehensive set of cloud platform capabilities which span across IaaS, including Droplet virtual machines, storage and networking offerings; PaaS and SaaS, including Managed Hosting, Managed Database, Managed Kubernetes and Marketplace offerings. We also offer a comprehensive AI/ML platform - DigitalOcean Gradient® AI Agentic Cloud, which includes Gradient AI Infrastructure with offerings such as GPU Droplets and Bare Metal GPUs; the Gradient AI Platform which offers various building block services including LLMs; and Gradient AI Agents. We continue to invest in our platform to further penetrate the growing markets in which we operate.
We may offer sales incentives in the form of promotional and referral credits and grant credits to encourage customers to use our services. These types of promotional and referral credits typically expire in two months or less if not used. For credits earned with a purchase, they are recorded as contract liabilities when earned and recognized at the earlier of redemption or expiration. The majority of credits are redeemed in the month they are earned.
Cost of Revenue
Cost of revenue consists primarily of fees related to operating our data center facilities, personnel costs of our employees providing customer support or operating our facilities, and partnership expenses. Cost of revenue includes depreciation of our data center equipment and amortization of acquired technology and capitalized internal-use software development costs. Data center facility fees include data center rental fees, power costs, maintenance fees, network, bandwidth and ancillary equipment. Personnel costs include salaries, bonuses, benefits, and stock-based compensation.
We intend to continue to invest additional resources in our infrastructure to support our product portfolio and the scalability of our customer base. The level, timing and relative investment in our infrastructure could affect our cost of revenue in the future.
Operating Expenses
Research and Development Expenses
Research and development expenses consist primarily of personnel costs including salaries, bonuses, benefits, and stock-based compensation. Research and development expenses also include amortization of capitalized internal-use software development costs, which are amortized over three years, professional services, software, as well as costs related to our efforts to add new features to our existing offerings, develop new offerings, and ensure the security, performance, and reliability of our global cloud platform. We expect research and development expenses to increase in absolute dollars as we continue to invest in our platform and product offerings.
Sales and Marketing Expenses
Sales and marketing expenses consist primarily of personnel costs of our sales and marketing and customer success employees, including salaries, bonuses, benefits, commissions and stock-based compensation. Sales and marketing expenses also include costs for marketing programs, advertising, amortization of acquired customer relationships and purchased software used for sales and marketing purposes, professional services and software. We expect sales and marketing expenses to increase in absolute dollars as we enhance our product offerings and implement new marketing and sales strategies.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel costs of our human resources, legal, finance and other administrative functions, including salaries, bonuses, benefits, and stock-based compensation. General and administrative expenses also include payment processing fees, provision for expected credit losses, professional services, software, business insurance, depreciation and amortization, rent and facilities costs, acquisition-related compensation, and other administrative costs. General and administrative expenses may increase in absolute dollars as we continue to grow our business.
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Other (Expense) Income, net
Other (expense) income, net consists primarily of induced conversion expense related to the partial repurchase of 2030 Convertible Notes, loss on extinguishment of our Term Loan Facility, cash interest expense on our Term Loan Facility, credit facilities, finance leases and equipment financing obligations, amortization of debt issuance costs, interest income on our money market funds, accretion of our marketable securities, and gains or losses on foreign currency exchange.
Income Tax Benefit (Expense)
Income tax expense consists primarily of income taxes in foreign jurisdictions and U.S. federal and state income taxes. Our income tax benefit consists primarily of the release of a valuation allowance related to our U.S. deferred tax assets.
Results of Operations
The following table sets forth our results of operations for the periods presented:
___________________
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Revenue | $ | 321,192 | $ | 229,634 | $ | 860,281 | $ | 659,037 | |||||||||||||||
Cost of revenue(1) | 160,122 | 92,701 | 399,839 | 261,715 | |||||||||||||||||||
Gross profit | 161,070 | 136,933 | 460,442 | 397,322 | |||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
Research and development(1) | 58,786 | 38,119 | 165,131 | 117,357 | |||||||||||||||||||
Sales and marketing(1) | 24,207 | 21,228 | 68,444 | 59,917 | |||||||||||||||||||
General and administrative(1) | 45,052 | 32,654 | 127,900 | 101,855 | |||||||||||||||||||
Total operating expenses | 128,045 | 92,001 | 361,475 | 279,129 | |||||||||||||||||||
| Operating income | 33,025 | 44,932 | 98,967 | 118,193 | |||||||||||||||||||
| Other income (expense), net | (69,450) | 45,382 | (83,754) | 55,949 | |||||||||||||||||||
| Income (loss) before income taxes | (36,425) | 90,314 | 15,213 | 174,142 | |||||||||||||||||||
| Income tax benefit (expense) | (6,184) | 68,057 | (6,614) | 59,460 | |||||||||||||||||||
| Net income (loss) attributable to common stockholders | $ | (42,609) | $ | 158,371 | $ | 8,599 | $ | 233,602 | |||||||||||||||
(1) Includes stock-based compensation as follows:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Cost of revenue | $ | 1,138 | $ | 1,225 | $ | 4,410 | $ | 4,042 | |||||||||||||||
| Research and development | 17,195 | 8,536 | 43,049 | 26,261 | |||||||||||||||||||
| Sales and marketing | 3,041 | 3,188 | 7,826 | 8,823 | |||||||||||||||||||
| General and administrative | 14,671 | 6,851 | 35,991 | 21,187 | |||||||||||||||||||
| Total stock-based compensation | $ | 36,045 | $ | 19,800 | $ | 91,276 | $ | 60,313 | |||||||||||||||
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The following table sets forth our results of operations as a percentage of revenue for the periods presented:
__________________
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | ||||||||||||||||||||
| Revenue | 100 | % | 100 | % | 100 | % | 100 | % | |||||||||||||||
| Cost of revenue | 50 | 40 | 46 | 40 | |||||||||||||||||||
Gross profit | 50 | 60 | 54 | 60 | |||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Research and development | 18 | 17 | 19 | 18 | |||||||||||||||||||
| Sales and marketing | 8 | 9 | 8 | 9 | |||||||||||||||||||
| General and administrative | 14 | 14 | 15 | 15 | |||||||||||||||||||
| Total operating expenses | 40 | 40 | 42 | 42 | |||||||||||||||||||
Operating income | 10 | 20 | 12 | 18 | |||||||||||||||||||
| Other income (expense), net | (22) | 20 | (10) | 8 | |||||||||||||||||||
Income (loss) before income taxes(1) | (11) | 39 | 2 | 26 | |||||||||||||||||||
| Income tax benefit (expense) | (2) | 30 | (1) | 9 | |||||||||||||||||||
| Net income attributable to common stockholders | (13 | %) | 69 | % | 1 | % | 35 | % | |||||||||||||||
(1) May not foot due to rounding.
Comparison of the Three Months Ended September 30, 2026 and 2025
Revenue
| Three Months Ended September 30, | |||||||||||||||||||||||
| 2026 | 2025 | $ Change | % Change | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Revenue | $ | 321,192 | $ | 229,634 | $ | 91,558 | 40 | % | |||||||||||||||
Revenue increased for the three months ended September 30, 2026 compared to the three months ended September 30, 2025. The increase was driven by a 61% increase in revenue from our DNE Customers primarily attributable to the addition of new customers, including our expanding AI Customer base, and the continued adoption of our products by our existing customers leading to higher average usage on our platform.
Cost of Revenue
| Three Months Ended September 30, | |||||||||||||||||||||||
| 2026 | 2025 | $ Change | % Change | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Cost of revenue | $ | 160,122 | $ | 92,701 | $ | 67,421 | 73 | % | |||||||||||||||
Cost of revenue increased for the three months ended September 30, 2026 compared to 2025 primarily due to data center expansions which drove increases of $38.2 million in depreciation and amortization related to data center infrastructure additions, $19.1 million in co-location costs, $6.2 million in third-party licenses, $1.3 million in partnership expenses, $1.3 million in ancillary equipment costs, and $1.4 million in other costs, net. Gross profit decreased to 50% for the three months ended September 30, 2026 from 60% for the three months ended September 30, 2025. The decline in gross margin resulted from incurrence of costs for data center expansions in advance of the expected ramp in revenue from new data centers.
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Operating Expenses
| Three Months Ended September 30, | |||||||||||||||||||||||
| 2026 | 2025 | $ Change | % Change | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Research and development | $ | 58,786 | $ | 38,119 | $ | 20,667 | 54 | % | |||||||||||||||
| Sales and marketing | 24,207 | 21,228 | 2,979 | 14 | % | ||||||||||||||||||
| General and administrative | 45,052 | 32,654 | 12,398 | 38 | % | ||||||||||||||||||
| Total operating expenses | $ | 128,045 | $ | 92,001 | $ | 36,044 | 39 | % | |||||||||||||||
Research and development expenses increased for the three months ended September 30, 2026 compared to 2025 due to increases of $19.9 million in personnel costs driven by headcount growth, stock-based compensation for new hire and ongoing grants, and annual merit-based salary raises, $2.2 million in third-party development resources, and $1.8 million in software costs, partially offset by $3.2 million in additional capitalized internal-use software development costs.
Sales and marketing expenses increased for the three months ended September 30, 2026 compared to 2025 primarily due to increases of $1.7 million in advertising and promotion costs and $1.4 million in depreciation and amortization related to purchased software.
General and administrative expenses increased for the three months ended September 30, 2026 compared to 2025 due to an increase of $9.7 million in personnel costs driven by headcount growth, stock-based compensation for new hire and ongoing grants, and annual merit-based salary raises, and $2.7 million in other costs, net.
Other (Expense) Income, net
| Three Months Ended September 30, | |||||||||||||||||||||||
| 2026 | 2025 | $ Change | % Change | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Other (expense) income, net | $ | (69,450) | $ | 45,382 | $ | (114,832) | (253 | %) | |||||||||||||||
Other expense, net was $69.5 million for the three months ended September 30, 2026, compared to other income, net of $45.4 million for the three months ended September 30, 2025. The change was primarily due to induced conversion expense of $57.1 million related to the partial repurchase of our 2030 Convertible Notes, gain on partial extinguishment of our 2026 Convertible Notes of $48.4 million recognized in 2025, and an increase of $11.4 million in interest expense primarily driven by interest on our finance leases and equipment financing arrangements, partially offset by $2.5 million higher interest income due to higher investment balance from the proceeds of our public equity offering completed in March 2026 and accretion of our marketable securities.
The induced conversion expense recognized on the partial repurchase of our 2030 Convertible Notes decreased basic and diluted net income per share attributable to common stockholders by $0.50 during the three months ended September 30, 2026.
The gain on partial extinguishment of our 2026 Convertible Notes increased basic net income per share attributable to common stockholders by $0.51 and diluted net income per share attributable to common stockholders by $0.44 during the three months ended September 30, 2025.
Income Tax (Expense) Benefit
| Three Months Ended September 30, | |||||||||||||||||||||||
| 2026 | 2025 | $ Change | % Change | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Income tax (expense) benefit | $ | (6,184) | $ | 68,057 | $ | (74,241) | (109 | %) | |||||||||||||||
Income tax expense was $6.2 million for the three months ended September 30, 2026 compared to income tax benefit of $68.1 million for the three months ended September 30, 2025. The increase in income tax expense was primarily driven by the $69.9 million release of our valuation allowance related to our U.S. deferred tax assets as a discrete deferred tax benefit in the prior year. In the current year, the $57.1 million induced conversion expense carries no tax benefit, which increased tax expense. This was partially offset by an increase in excess tax benefits from stock-based compensation.
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The tax benefit related to the release of the valuation allowance increased basic net income per share attributable to common stockholders by $0.77 and diluted net income per share attributable to common stockholders by $0.66 during the three months ended September 30, 2025.
Comparison of the Nine Months Ended September 30, 2026 and 2025
Revenue
| Nine Months Ended September 30, | |||||||||||||||||||||||
| 2026 | 2025 | $ Change | % Change | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Revenue | $ | 860,281 | $ | 659,037 | $ | 201,244 | 31 | % | |||||||||||||||
Revenue increased for the nine months ended September 30, 2026 compared to the nine months ended September 30, 2025. The increase was driven by a 48% increase in revenue from our DNE Customers primarily attributable to the addition of new customers and the continued adoption of our products by our existing customers leading to higher average usage on our platform.
Cost of Revenue
| Nine Months Ended September 30, | |||||||||||||||||||||||
| 2026 | 2025 | $ Change | % Change | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Cost of revenue | $ | 399,839 | $ | 261,715 | $ | 138,124 | 53 | % | |||||||||||||||
Cost of revenue increased for the nine months ended September 30, 2026 compared to 2025 primarily due to data center expansions which drove increases of $70.9 million in depreciation and amortization related to data center infrastructure additions, $40.5 million in co-location costs, $9.6 million in third-party licenses, $7.8 million in ancillary equipment costs, $3.9 million in partnership expenses, $3.4 million in personnel costs driven by headcount growth, and $2.0 million in other costs, net. Gross profit decreased to 54% for the nine months ended September 30, 2026 from 60% for the nine months ended September 30, 2025. The decline in gross margin resulted from incurrence of costs for data center expansions in advance of the expected ramp in revenue from new data centers.
Operating Expenses
| Nine Months Ended September 30, | |||||||||||||||||||||||
| 2026 | 2025 | $ Change | % Change | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Research and development | $ | 165,131 | $ | 117,357 | $ | 47,774 | 41 | % | |||||||||||||||
| Sales and marketing | 68,444 | 59,917 | 8,527 | 14 | % | ||||||||||||||||||
| General and administrative | 127,900 | 101,855 | 26,045 | 26 | % | ||||||||||||||||||
| Total operating expenses | $ | 361,475 | $ | 279,129 | $ | 82,346 | 30 | % | |||||||||||||||
Research and development expenses increased for the nine months ended September 30, 2026 compared to 2025 due to increases of $48.1 million in personnel costs driven by headcount growth, stock-based compensation for new hire and ongoing grants, and annual merit-based salary raises, $3.4 million in software costs, $3.3 million in third-party development resources and $0.9 million in other costs, net, partially offset by $7.9 million in additional capitalized internal-use software development costs.
Sales and marketing expenses increased for the nine months ended September 30, 2026 compared to 2025 due to increases of $3.9 million in personnel costs driven by headcount growth and annual merit-based salary raises, $3.7 million in depreciation and amortization related to purchased software, and $0.9 million in other costs, net.
General and administrative expenses increased for the nine months ended September 30, 2026 compared to 2025 due to increases of $20.3 million in personnel costs driven by headcount growth, stock-based compensation for new hire and ongoing grants, and annual merit-based salary raises, $4.5 million in professional services costs related to consulting and legal fees, and $1.2 million in other costs, net.
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Other (Expense) Income, net
| Nine Months Ended September 30, | |||||||||||||||||||||||
| 2026 | 2025 | $ Change | % Change | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Other (expense) income, net | $ | (83,754) | $ | 55,949 | $ | (139,703) | (250 | %) | |||||||||||||||
Other expense, net was $83.8 million for the nine months ended September 30, 2026, compared to other income, net of $55.9 million for the nine months ended September 30, 2025. The change was primarily due to induced conversion expense of $57.1 million related to the partial repurchase of our 2030 Convertible Notes, gain on partial extinguishment of our 2026 Convertible Notes of $48.1 million recognized in 2025, an increase of $24.9 million in interest expense primarily driven by interest on our finance leases and equipment financing arrangements, a decrease of $10.1 million in net unrealized gains related to foreign currency fluctuations from our operations, a loss of $2.7 million on the extinguishment of our Term Loan Facility, and an increase of $1.6 million in other expenses, net, partially offset by a $4.9 million increase in interest income due to higher investment balance from the proceeds of our public equity offering completed in March 2026 and accretion of our marketable securities.
The induced conversion expense recognized on the partial repurchase of our 2030 Convertible Notes decreased basic net income per share attributable to common stockholders by $0.55 and diluted net income per share attributable to common stockholders by $0.53 during the nine months ended September 30, 2026.
The gain on partial extinguishment of our 2026 Convertible Notes increased basic net income per share attributable to common stockholders by $0.50 and diluted net income per share attributable to common stockholders by $0.45 during the nine months ended September 30, 2025.
Income Tax (Expense) Benefit
| Nine Months Ended September 30, | |||||||||||||||||||||||
| 2026 | 2025 | $ Change | % Change | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Income tax (expense) benefit | $ | (6,614) | $ | 59,460 | $ | (66,074) | (111 | %) | |||||||||||||||
Income tax expense was $6.6 million for the nine months ended September 30, 2026 compared to the income tax benefit of $59.5 million for the nine months ended September 30, 2025. The increase in income tax expense was primarily driven by the $69.9 million release of our valuation allowance related to our U.S. deferred tax assets as a discrete deferred tax benefit in the prior year. This was partially offset by excess tax benefits from stock-based compensation.
The tax benefit related to the release of the valuation allowance increased basic net income per share attributable to common stockholders by $0.77 and diluted net income per share attributable to common stockholders by $0.68 during the nine months ended September 30, 2025.
Liquidity and Capital Resources
We have funded our operations since inception primarily with cash flow generated by operations, offerings of our equity and debt securities, and borrowings under our credit facilities, equipment financing arrangements and finance leases. Cash provided from these sources is used primarily for operating expenses, such as personnel and co-location costs, capital expenditures, including our investments in AI/ML and other core product offerings, and principal repayments of finance leases and equipment financing obligations for servers and related equipment. From time to time, we may also use excess cash and/or debt for share repurchases and investments in marketable securities and cash equivalents.
In February 2026, we borrowed an additional $120.0 million under our Term Loan Facility.
In March 2026, we completed a public equity offering in which we issued and sold 11,948,052 shares of common stock, inclusive of the exercised over-allotment option, at a public offering price of $77.00 per share (“2026 Follow-on Offering”). We received net proceeds of $887.9 million after deducting underwriting discounts and commissions of $31.1 million and other issuance costs of $1.1 million.
We used the proceeds from our 2026 Follow-on Offering to repay $500.0 million of principal outstanding of our
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Term Loan Facility during the three months ended March 31, 2026.
On May 4, 2026, we entered into an amendment to our Credit Agreement (the "First Amendment"). The First Amendment amends the Credit Agreement to, among other modifications, (i) provide for a $112.5 million increase in the Revolving Facility thereunder, (ii) provide for a $50.0 million increase in the letter of credit sublimit thereunder and (iii) amend the definition of “Indebtedness” to provide that capitalized leases shall be deemed to be an amount equal to 25% of the capitalized amount.
On July 23, 2026, we repurchased $471.8 million in aggregate principal amount of our 2030 Convertible Notes using the $1.47 billion net proceeds from a concurrent registered direct offering of 12,543,915 shares of our common stock at $117.54 per share. Cash on hand was used to pay transaction-related fees of $4.2 million. Upon completion, the repurchased notes were retired. Notwithstanding the partial repurchase of our 2030 Convertible Notes, we did not take any action on our 2030 Capped Calls and they continue to remain outstanding. The 2030 Capped Calls expire on August 15, 2030, unless exercised or called prior to that date.
On September 10, 2026, we entered into an agreement with MUFG Americas Capital Leasing & Finance, LLC, as lessor, MUFG Bank, Ltd., as administrative agent and collateral agent, and the other parties thereto for up to $725.0 million of committed financing to fund purchases of data center equipment (the “Equipment Lease Facility”), including an accordion feature permitting us to increase the committed financing by up to an additional $300.0 million to $1,025.0 million in the aggregate (the “Equipment Lease Facility”). The Equipment Lease Facility matures on September 10, 2030 and we may request advances until September 10, 2027. As of September 30, 2026, we had not drawn advances under the Equipment Lease Facility. On October 6, 2026, we exercised an additional $60.0 million of the accordion feature, increasing the total committed financing to $785.0 million.
During the three and nine months ended September 30, 2026, we were issued letters of credit of $9.7 million and $15.6 million under the letter of credit sublimit of our Revolving Facility, respectively. For further information refer to Note 7. Debt in our condensed consolidated financial statements.
As of September 30, 2026, we had $465.5 million aggregate principal amount of our 2030 Convertible Notes and 2026 Convertible Notes outstanding, with $312.3 million aggregate principal amount of our 2026 Convertible Notes maturing within the next 12 months. We plan to repurchase, repay, acquire or otherwise settle the remaining outstanding principal of our 2026 Convertible Notes by using cash on hand and cash generated from our operations. As of September 30, 2026, the circumstances allowing holders to convert the 2030 Convertible Notes were met.
We have historically repurchased our common stock pursuant to repurchase programs approved by our Board of Directors. In August 2025, we adopted the 2025 Share Buyback Program which authorizes the repurchase of up to $100.0 million of our common stock. The 2025 Share Buyback Program will expire on July 31, 2027. No shares were repurchased during the nine months ended September 30, 2026.
As of September 30, 2026, we had $666.1 million in cash and cash equivalents, $178.6 million in marketable securities, as well as $396.9 million of available borrowing capacity available under our Revolving Facility and $725 million of available commitments under our Equipment Lease Facility. On October 6, 2026, we exercised an additional $60.0 million of the accordion feature under our Equipment Lease Facility, increasing the total available borrowing capacity to $785.0 million. Our cash and cash equivalents primarily consist of cash and money market funds. Our marketable securities consist of U.S. Treasury securities and commercial paper. We believe our existing cash and cash equivalents, cash flow from operations and availability under our Revolving Facility and Equipment Lease Facility will be sufficient to support our requirements for working capital and capital expenditures, outstanding contractual commitments, debt and finance lease liabilities and equipment financing obligations both over the next 12 months and beyond.
As of September 30, 2026, we had $2,955.2 million of estimated undiscounted fixed payment obligations primarily for leases of co-location space at data center facilities that have not yet commenced and were not included in the condensed consolidated balance sheets. These leases are scheduled to commence between November 2026 and June 2028, and have a weighted-average lease term of 11.1 years.
In October 2026, the Company entered into agreements to receive servers and related equipment under (i) finance leases with total estimated undiscounted payments of $20.0 million, commencing between November 2026 and November 2027, with a weighted-average lease term of 5.0 years, and (ii) equipment financing arrangements with total estimated undiscounted payments of $33.0 million commencing in November 2026 with a weighted-average lease term of 5.0 years.
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We continually evaluate our capital needs and may decide to raise additional capital to fund working capital, capital expenditures, strategic initiatives, and/or the growth of our business. Financing alternatives may include public or private offerings of equity, equity-linked or debt securities or credit facilities.
From time to time, we may seek to retire or purchase our outstanding equity or debt, including the repurchase of our common stock or outstanding convertible notes, through cash purchases and/or exchanges for equity securities, in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions, and other factors. The amounts involved in any such transactions, individually or in the aggregate, may be material. Further, any such purchases or exchanges may result in us acquiring and retiring a substantial amount of such indebtedness, which could impact the trading liquidity of such indebtedness.
The following table summarizes our cash flows for the periods presented:
| Nine Months Ended September 30, | |||||||||||||||||||||||
(In thousands) | 2026 | 2025 | |||||||||||||||||||||
| Net cash provided by operating activities | $ | 318,116 | $ | 252,324 | |||||||||||||||||||
| Net cash used in investing activities | (381,974) | (138,772) | |||||||||||||||||||||
| Net cash provided by (used in) financing activities | 475,796 | (307,177) | |||||||||||||||||||||
| Increase (decrease) in cash, cash equivalents and restricted cash | 411,619 | (193,632) | |||||||||||||||||||||
Operating Activities
Our largest source of operating cash is cash collections from sales to our customers. Our primary uses of cash from operating activities are for personnel costs, data center co-location costs, payment processing fees, bandwidth and connectivity, server maintenance, software licensing fees, taxes and interest payments on finance leases, equipment financing obligations and debt.
Net cash provided by operating activities was $318.1 million and $252.3 million for the nine months ended September 30, 2026 and 2025, respectively. The change was primarily driven by higher revenues and advance payments from customers, partially offset by higher co-location costs resulting from data center expansions and higher personnel costs due to increased headcount and annual merit-based salary raises.
Investing Activities
Net cash used in investing activities was $382.0 million and $138.8 million for the nine months ended September 30, 2026 and 2025, respectively. The change was primarily driven by purchases of marketable securities of $177.6 million, a $14.9 million increase in cash payments for capital expenditures, an increase of $47.5 million in cash payments for the acquisition of equipment under financing arrangements (for which we received an equivalent amount of proceeds discussed below in “Financing Activities”), and a $4.0 million payment for acquisition of an AI-related business.
Financing Activities
Net cash provided by financing activities was $475.8 million for the nine months ended September 30, 2026, compared to net cash used in financing activities of $307.2 million for the nine months ended September 30, 2025. The change was primarily driven by proceeds of $1,473.9 million from our direct offering for induced conversion of 2030 Convertible Notes, proceeds of $887.9 million from our 2026 Follow-on Offering, $120.0 million drawdown on our Term Loan Facility and $75.1 million from equipment financing arrangements, partially offset by a $1,478.1 million settlement payment of the 2030 convertible senior notes, $500.0 million repayment of our Term Loan Facility, $62.1 million of payments of employee payroll taxes related to net share settlement of equity awards and $39.9 million of principal repayments for finance leases and financing arrangements for data center equipment.
Contractual Obligations and Commitments
There have been no material changes to our contractual obligations and commitments as compared to those disclosed in the Annual Report on Form 10-K for the fiscal year ended December 31, 2025 other than those disclosed under Note 7. Debt, Note 8. Operating Leases, Note 9. Finance Leases and Equipment Financing Obligations, and Note 10. Commitments and Contingencies, in our condensed consolidated financial statements.
37
Critical Accounting Policies and Estimates
Our condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions. Our actual results may differ from these estimates under different assumptions or conditions.
There have been no material changes to our critical accounting policies as compared to those disclosed in the Annual Report on Form 10-K for the fiscal year ended December 31, 2025.
Recently Issued and Adopted Accounting Pronouncements
For information on recently issued and adopted accounting pronouncements see Note 2. Summary of Significant Accounting Policies, in our notes to condensed consolidated financial statements included in Part I, Item 1. “Financial Statements” included in this Quarterly Report on Form 10-Q.
Non‑GAAP Financial Measures
To supplement our consolidated financial statements, which are prepared and presented in accordance with generally accepted accounting principles in the United States, or GAAP, we provide investors with non-GAAP financial measures including: (i) adjusted operating income and adjusted operating income margin, (ii) adjusted EBITDA and adjusted EBITDA margin and (iii) non-GAAP net income and non-GAAP diluted net income per share. These measures are presented for supplemental informational purposes only, have limitations as analytical tools and should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP.
We believe that adjusted operating income margin and adjusted EBITDA, when taken together with our GAAP financial results, provide meaningful supplemental information regarding our operating performance (including our long-term performance in the case of adjusted operating income) and facilitate internal comparisons of our historical operating performance on a more consistent basis by excluding certain items that may not be indicative of our business, results of operations or outlook. In particular, we believe that the use of adjusted operating income and adjusted EBITDA is helpful to our investors as they are measures used by management in assessing the health of our business, evaluating our operating performance, and for internal planning and forecasting purposes.
We believe non-GAAP net income and non-GAAP diluted net income per share provides our management and investors consistency and comparability with our past financial performance and facilitates period-to-period comparisons of operations, as this metric generally eliminates the effects of unusual or non-recurring items from period to period for reasons unrelated to overall operating performance.
Our calculations of each of these measures may differ from the calculations of measures with the same or similar titles by other companies and therefore comparability may be limited. Because of these limitations, when evaluating our performance, you should consider each of these non-GAAP financial measures alongside other financial performance measures, including the most directly comparable financial measure calculated in accordance with GAAP and our other GAAP results. A reconciliation of each of our non-GAAP financial measures to the most directly comparable financial measure calculated in accordance with GAAP is set forth below.
Adjusted Operating Income and Adjusted Operating Income Margin
We define adjusted operating income as operating income, adjusted to exclude stock-based compensation, amortization of acquired intangible assets, acquisition related compensation, acquisition and integration related costs, restructuring and other charges, restructuring related charges, impairment of certain long-lived assets and other charges. We define adjusted operating income margin as adjusted operating income as a percentage of revenue.
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The following table presents a reconciliation of operating income, the most directly comparable financial measure stated in accordance with GAAP, to adjusted operating income for each of the periods presented:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||||||||
| (In thousands) | 2026 | 2025 | 2026 | 2025 | |||||||||||||||||||||||||
| Operating income | $ | 33,025 | $ | 44,932 | $ | 98,967 | $ | 118,193 | |||||||||||||||||||||
| Adjustments: | |||||||||||||||||||||||||||||
| Stock-based compensation | 36,045 | 19,800 | 91,276 | 60,313 | |||||||||||||||||||||||||
| Amortization of acquired intangible assets | 5,071 | 4,914 | 15,079 | 15,142 | |||||||||||||||||||||||||
| Impairment of certain long-lived assets | — | — | 311 | — | |||||||||||||||||||||||||
| Adjusted operating income | $ | 74,141 | $ | 69,646 | $ | 205,633 | $ | 193,648 | |||||||||||||||||||||
| As a percentage of revenue: | |||||||||||||||||||||||||||||
| Operating income margin | 10 | % | 20 | % | 12 | % | 18 | % | |||||||||||||||||||||
| Adjusted operating income margin | 23 | % | 30 | % | 24 | % | 29 | % | |||||||||||||||||||||
Adjusted EBITDA and Adjusted EBITDA Margin
We define adjusted EBITDA as net income attributable to common stockholders, adjusted to exclude depreciation and amortization, stock-based compensation, interest expense, acquisition related compensation, acquisition and integration related costs, income tax expense (benefit), restructuring and other charges, restructuring related charges, impairment of certain long-lived assets, interest income and other income, net, (gain) loss on extinguishment of debt, net, induced conversion expense, and other charges. We define adjusted EBITDA margin as adjusted EBITDA as a percentage of revenue.
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The following table presents a reconciliation of net income attributable to common stockholders, the most directly comparable financial measure stated in accordance with GAAP, to adjusted EBITDA for each of the periods presented:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||||||||
| (In thousands) | 2026 | 2025 | 2026 | 2025 | |||||||||||||||||||||||||
| GAAP Net income (loss) attributable to common stockholders | $ | (42,609) | $ | 158,371 | $ | 8,599 | $ | 233,602 | |||||||||||||||||||||
| Adjustments: | |||||||||||||||||||||||||||||
| Depreciation and amortization | 75,142 | 35,060 | 171,771 | 97,035 | |||||||||||||||||||||||||
| Stock-based compensation | 36,045 | 19,800 | 91,276 | 60,313 | |||||||||||||||||||||||||
| Induced conversion expense | 57,110 | — | 57,110 | — | |||||||||||||||||||||||||
| Interest expense | 16,408 | 5,042 | 34,424 | 9,489 | |||||||||||||||||||||||||
| Income tax (benefit) expense | 6,184 | (68,057) | 6,614 | (59,460) | |||||||||||||||||||||||||
| Loss (gain) on extinguishment of debt, net | — | (48,373) | 2,700 | (48,104) | |||||||||||||||||||||||||
| Impairment of certain long-lived assets | — | — | 311 | — | |||||||||||||||||||||||||
Interest income and other income, net(1) | (4,068) | (2,051) | (10,480) | (17,334) | |||||||||||||||||||||||||
| Adjusted EBITDA | $ | 144,212 | $ | 99,792 | $ | 362,325 | $ | 275,541 | |||||||||||||||||||||
| As a percentage of revenue: | |||||||||||||||||||||||||||||
| Net income (loss) margin | (13 | %) | 69 | % | 1 | % | 35 | % | |||||||||||||||||||||
| Adjusted EBITDA margin | 45 | % | 43 | % | 42 | % | 42 | % | |||||||||||||||||||||
___________________
(1)For the three and nine months ended September 30, 2026, primarily consists of interest income from our cash and cash equivalents and accretion income from our marketable securities. For the three and nine months ended September 30, 2025, primarily consists of interest income from our cash and cash equivalents.
Non-GAAP Net Income and Non-GAAP Diluted Net Income Per Share
We define non-GAAP net income as net income attributable to common stockholders, excluding stock-based compensation, acquisition related compensation, amortization of acquired intangibles, acquisition and integration related costs, restructuring and other charges, restructuring related charges, impairment of certain long-lived assets, (gain) loss on extinguishment of debt, net, induced conversion expense and other charges. In addition to these exclusions, we subtract an assumed non-GAAP provision for income taxes to calculate non-GAAP net income that excludes the current period income tax benefit (expense). We utilize a fixed long-term projected tax rate in our computation of the non-GAAP income tax provision in order to provide better consistency across reporting periods. We define non-GAAP diluted net income per share as non-GAAP net income divided by the weighted-average diluted shares outstanding, which includes the potentially dilutive effect of our stock options, RSUs, PRSUs, and Convertible Notes and, beginning in the first quarter of 2026, excludes the in-the-money portion of our 2030 Convertible Notes as they are covered by our capped call transactions, which are expected to mitigate the dilutive effect of our 2030 Convertible Notes.
The following table presents a reconciliation of net income attributable to common stockholders, the most directly comparable financial measure stated in accordance with GAAP, to non-GAAP net income for each of the periods presented:
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| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||||||||
| (In thousands, except per share amounts) | 2026 | 2025 | 2026 | 2025 | |||||||||||||||||||||||||
| GAAP Net income (loss) attributable to common stockholders | $ | (42,609) | $ | 158,371 | $ | 8,599 | $ | 233,602 | |||||||||||||||||||||
| Stock-based compensation | 36,045 | 19,800 | 91,276 | 60,313 | |||||||||||||||||||||||||
| Induced conversion expense | 57,110 | — | 57,110 | — | |||||||||||||||||||||||||
| Amortization of acquired intangible assets | 5,071 | 4,914 | 15,079 | 15,142 | |||||||||||||||||||||||||
Loss (gain) on extinguishment of debt, net(1) | — | (48,373) | 2,700 | (48,104) | |||||||||||||||||||||||||
| Impairment of certain long-lived assets | — | — | 311 | — | |||||||||||||||||||||||||
Other charges(7) | 3,387 | — | 3,387 | — | |||||||||||||||||||||||||
Non-GAAP income tax adjustment(2) | (4,246) | (78,722) | (22,998) | (91,699) | |||||||||||||||||||||||||
| Non-GAAP Net income | $ | 54,758 | $ | 55,990 | $ | 155,464 | $ | 169,254 | |||||||||||||||||||||
Non-cash charges related to convertible notes(3) | $ | 678 | $ | 1,320 | $ | 2,868 | $ | 4,511 | |||||||||||||||||||||
| Non-GAAP Net income used to compute net income per share, diluted | $ | 55,436 | $ | 57,310 | $ | 158,332 | $ | 173,765 | |||||||||||||||||||||
GAAP Net income (loss) per share attributable to common stockholders, diluted(6) | $ | (0.37) | $ | 1.51 | $ | 0.08 | $ | 2.31 | |||||||||||||||||||||
| Stock-based compensation | 0.29 | 0.19 | 0.77 | 0.59 | |||||||||||||||||||||||||
| Induced conversion expense | 0.46 | — | 0.48 | — | |||||||||||||||||||||||||
| Amortization of acquired intangible assets | 0.04 | 0.05 | 0.13 | 0.15 | |||||||||||||||||||||||||
Loss (gain) on extinguishment of debt, net(1) | — | (0.46) | 0.02 | (0.47) | |||||||||||||||||||||||||
| Impairment of certain long-lived assets | — | — | — | — | |||||||||||||||||||||||||
Non-cash charges related to convertible notes(3) | 0.01 | 0.01 | 0.02 | 0.04 | |||||||||||||||||||||||||
Other charges(7) | 0.03 | — | 0.03 | — | |||||||||||||||||||||||||
Non-GAAP income tax adjustment(2) | (0.01) | (0.76) | (0.20) | (0.93) | |||||||||||||||||||||||||
Non-GAAP Net income per share, diluted(4) | $ | 0.45 | $ | 0.54 | $ | 1.33 | $ | 1.69 | |||||||||||||||||||||
| GAAP Weighted-average shares used to compute net income per share, diluted | 114,682 | 105,520 | 108,049 | 103,036 | |||||||||||||||||||||||||
| Add: Weighted-average dilutive effect of potentially dilutive securities | 12,152 | — | 14,662 | — | |||||||||||||||||||||||||
Less: Anti-dilutive impact of capped call transaction(5) | (3,470) | — | (4,024) | — | |||||||||||||||||||||||||
Non-GAAP Weighted-average shares used to compute net income per share, diluted(6) | 123,364 | 105,520 | 118,687 | 103,036 | |||||||||||||||||||||||||
(1)For the three and nine months ended September 30, 2026, excludes tax impact which is presented in Non-GAAP income tax adjustment.
(2)For the periods in fiscal year 2026 and 2025, we used a tax rate of 16%, which we believe is a reasonable estimate of our long-term effective tax rate applicable to non-GAAP pre-tax income for each respective year.
41
(3)Consists of non-cash interest expense for amortization of debt issuance costs related to our Convertible Notes.
(4)May not foot due to rounding.
(5)Excludes the in-the-money portion of our 2030 Convertible Notes for non-GAAP weighted-average diluted shares as they are covered by our capped call transactions. Our outstanding capped call transactions are antidilutive under GAAP, but are expected to mitigate the dilutive effect of our 2030 Convertible Notes, and therefore are included in the calculation of non-GAAP diluted shares outstanding. The capped calls have an antidilutive impact when the average stock price of our common stock in a given period is higher than their exercise price.
(6)Includes the potentially dilutive effect of our convertible notes as if the entire principal amount outstanding were converted into shares for all periods presented. The Company has the election of settling any conversion in cash, shares of our common stock, or a combination of both. For further information refer to Note 13. Net Income per Share Attributable to Common Stockholders in our condensed consolidated financial statements.
(7)Consist of charges associated with the wind-down of our legacy dedicated bare metal CPU offering.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in market risk from the information provided in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”), evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”)) as of September 30, 2026. Based on such evaluation, our CEO and CFO concluded that, as of September 30, 2026, our disclosure controls and procedures were effective at the reasonable assurance level that information we are required to disclose in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with management’s evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act during the quarter ended September 30, 2026 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
In designing and evaluating the disclosure controls and procedures and internal control over financial reporting, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures and internal control over financial reporting must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we are involved in various legal proceedings arising from the normal course of business activities. We are not presently a party to any litigation the outcome of which, if determined adversely to us, would, in our estimation, have a material adverse effect on our business, operating results, cash flows or financial condition. Defending such proceedings can be costly and can impose a significant burden on management and employees. The results of any current or future litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
ITEM 1A. RISK FACTORS
Please refer to Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2025 for a description of certain significant risks and uncertainties to which our business, financial condition and results of operations are subject. There have been no material changes to the risk factors discussed in our Annual Report on Form 10-K for the year ended December 31, 2025.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(c) Issuer Purchases of Equity Securities
None.
On August 11, 2025, the Company adopted the 2025 Share Buyback Program authorizing the repurchase of up to $100 million of the Company’s common stock. Pursuant to the 2025 Share Buyback Program, repurchases of the Company’s common stock will be made at prevailing market prices through open market purchases, in negotiated transactions off the market or otherwise, including through Rule 10b5-1 plans. The 2025 Share Buyback Program will expire on July 31, 2027.
As of September 30, 2026, $100 million remained available for future repurchases under the 2025 Share Buyback Program.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
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Incorporated by Reference | ||||||||||||||||||||
Exhibit No. | Exhibit Description | Form | File No. | Exhibit | Filing Date | Filed Herewith | ||||||||||||||
| 3.1 | Amended and Restated Certificate of Incorporation of DigitalOcean Holdings, Inc. | 10-K | 001-40252 | 3.1 | 2/24/2026 | |||||||||||||||
| 3.2 | Amended and Restated Bylaws of DigitalOcean Holdings, Inc. | 10-Q | 001-40252 | 3.1 | 11/2/2023 | |||||||||||||||
| 10.1 | X | |||||||||||||||||||
| 10.2 | X | |||||||||||||||||||
| 31.1 | X | |||||||||||||||||||
| 31.2 | X | |||||||||||||||||||
| 32.1* | X | |||||||||||||||||||
| 101.INS | Inline XBRL Instance Document | X | ||||||||||||||||||
| 101.SCH | Inline XBRL Taxonomy Extensions Schema | X | ||||||||||||||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase | X | ||||||||||||||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase | X | ||||||||||||||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase | X | ||||||||||||||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase | X | ||||||||||||||||||
| 104 | Cover Page Interactive File (formatted as Inline XBRL and contained in Exhibit 101) | X | ||||||||||||||||||
___________________
* Furnished herewith and not deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| DigitalOcean Holdings, Inc. | |||||||||||||||||
| Date: | November 3, 2026 | By: | /s/ Padmanabhan Srinivasan | ||||||||||||||
| Padmanabhan Srinivasan | |||||||||||||||||
| Chief Executive Officer | |||||||||||||||||
| (Principal Executive Officer) | |||||||||||||||||
| Date: | November 3, 2026 | By: | /s/ W. Matthew Steinfort | ||||||||||||||
| W. Matthew Steinfort | |||||||||||||||||
| Chief Financial Officer | |||||||||||||||||
| (Principal Financial Officer) | |||||||||||||||||
45
Exhibit 10.1
TRANSACTION AGREEMENT
DATED AS OF SEPTEMBER 10, 2026
AMONG
DIGITALOCEAN, LLC,
AS THE LESSEE,
DIGITALOCEAN HOLDINGS, INC.,
AS A GUARANTOR,
MUFG AMERICAS CAPITAL LEASING & FINANCE, LLC,
AS THE LESSOR,
MUFG BANK, LTD.,
AS THE COLLATERAL AGENT,
MUFG BANK, LTD.,
AS THE ADMINISTRATIVE AGENT,
AND
THE RENT ASSIGNEES SET FORTH ON
SCHEDULE I FROM TIME TO TIME
AS THE RENT ASSIGNEES
MUFG BANK, LTD.,
AXOS BANK
BMO BANK N.A.
AND
WELLS FARGO EQUIPMENT FINANCE, INC.
AS JOINT LEAD ARRANGERS AND JOINT BOOKRUNNERS
PNC BANK, N.A.
AS DOCUMENT AGENT
TABLE OF CONTENTS
Page
-i-
NA_DECHERT.96486683.12
TABLE OF CONTENTS
(continued)
Page
SECTION 4.4. Representations and Warranties of the Administrative Agent and the Collateral Agent. 27
SECTION 8.1. Appointment of the Administrative Agent and the Collateral Agent; Powers and Authorization to Take Certain Actions. 53
-ii-
NA_DECHERT.96486683.12
TABLE OF CONTENTS
(continued)
Page
SECTION 8.7. Resignation or Removal of the Administrative Agent, the Collateral Agent; Appointment of Successor. 58
-iii-
NA_DECHERT.96486683.12
TABLE OF CONTENTS
(continued)
Page
Appendix I Definitions
Schedule I Rent Assignee Commitments
Schedule II Addresses For Notice; Wire Instructions
Schedule 2.11(c) Amortization Schedules For Each Advance Date
Schedule 3.1(r) Approved Sites
Schedule 4.5 Representations and Warranties
Schedule 5.2 Affirmative Covenants
Schedule 5.3 Negative Covenants
Exhibit A Form of Advance Request
Exhibit B Form of Assignment Agreement
Exhibit C Form of Bill of Sale
Exhibit C Form of Bill of Sale
Exhibit D-1 Forms of U.S. Tax Compliance Certificate – Foreign Participants that are not Partnerships for U.S. Federal Income Tax Purposes
Exhibit D-2 Form of U.S. Tax Compliance Certificate – Foreign Participation Holders that are Partnerships for U.S. Federal Income Tax Purposes
Exhibit D-3 Form of U.S. Tax Compliance Certificate – Foreign Participation Holders that are not Partnerships for U.S. Federal Income Tax Purposes
Exhibit D-4 Form of U.S. Tax Compliance Certificate – Foreign Participants that are Partnerships for U.S. Federal Income Tax Purposes
Exhibit E Form of Additional Rent Assignee Supplement
-iv-
NA_DECHERT.96486683.12
TABLE OF CONTENTS
(continued)
Page
-v-
NA_DECHERT.96486683.12
TRANSACTION AGREEMENT
THIS TRANSACTION AGREEMENT, dated as of September 10, 2026 (this “Agreement”), is made among DIGITALOCEAN, LLC, a Delaware limited liability company, as Lessee (the “Lessee”), DIGITALOCEAN HOLDINGS, INC., a Delaware corporation (“Holdings”), MUFG AMERICAS CAPITAL LEASING & FINANCE, LLC, a Delaware limited liability company, as the Lessor (in such capacity, the “Lessor”), MUFG BANK, LTD., as Collateral Agent for the Participants (the “Collateral Agent”), MUFG BANK, LTD., as Administrative Agent for the Participants (in such capacity, the “Administrative Agent”) and the Rent Assignee(s) named on Schedule I hereto from time to time (the “Rent Assignees”).
PRELIMINARY STATEMENT
A. The Lessee has requested that the Rent Assignees provide credit facilities under a finance lease with the Lessor for the purposes set forth herein and the applicable Rent Assignees have indicated their willingness to acquire from the Lessor the Rent Assignment Interests (together with other capitalized terms in this Preliminary Statement, as defined below) on the terms and subject to the terms and conditions of this Agreement and the other Operative Documents to facilitate the acquisition by the Lessor and leasing to and by the Lessee of the Leased Equipment under such finance lease.
B. Subject to the terms and conditions of this Agreement and the other Operative Documents, as of the Closing Date, among other things:
(i)the parties will enter into this Agreement;
(ii)the Lessor and the Lessee will enter into the Master Lease Agreement pursuant to which the terms and conditions of each Lease shall be agreed; and
(iii)the parties will enter into the other Operative Documents to be delivered on the Closing Date and Closing shall occur.
C. Subject to the terms and conditions of this Agreement and the other Operative Documents in effect, on each Advance Date, among other things:
(i)the Lessee will sell or cause to be sold to the Lessor a GPU Equipment Pool and the Lessor will acquire good and marketable title to such GPU Equipment Pool from a Manufacturer, Seller or the Lessee in accordance herewith;
(ii)the Lessor and the Lessee will enter into a Lease Supplement pursuant to which the Lessor will lease such Leased Equipment to the Lessee and set forth the Advance Date and Equipment Related Operative Documents to be delivered on such date and set forth the portion of the Commitments of the Rent Assignees to be made as the Advances for the Leased Equipment described therein; and
(iii)the Lessor and each Rent Assignee will enter into the Rent Assignment Agreement pursuant to which, inter alia, each Rent Assignee shall, subject to the terms and conditions hereof and thereof, acquire its pro rata share of the Rent Assignment Interests from the Lessor to enable the Lessor to acquire such Leased
NA_DECHERT.96486683.12
Equipment on such Advance Date and agree to acquire its pro rata share of the Rent Assignment Interests from the Lessor on subsequent Advance Dates, to enable the Lessor to acquire such Leased Equipment on such Advance Date.
NOW, THEREFORE, in consideration of the mutual agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS; INTERPRETATION; ACCOUNTING AND OTHER GENERAL TERMS
DEFINITIONS; INTERPRETATION; ACCOUNTING AND OTHER GENERAL TERMS
SECTION 1.1.Definitions.
Unless the context shall otherwise require, capitalized terms used and not defined herein shall have the meanings assigned thereto in Appendix I hereto or, solely with respect to Article I and Sections 4.5, 5.2 and 5.3, in Appendix to Schedules 4.5, 5.2 and 5.3, Defined Terms attached hereto for all purposes hereof.
SECTION 1.2.Interpretation.
The rules of interpretation set forth in Appendix I hereto shall apply to this Agreement. In addition, references herein to (i) the Leased Equipment shall be interpreted to mean the GPU Equipment Pools which are leased by the Lessor and the Lessee pursuant to a Lease, and (ii) a Lease shall be interpreted to mean the Master Lease Agreement as incorporated into a Lease Supplement.
SECTION 1.3.Accounting Terms.
(a)All accounting terms not specifically or completely defined herein shall be construed in conformity with, and all financial data (including financial ratios and other financial calculations) required to be submitted pursuant to this Agreement shall be prepared in conformity with, GAAP, applied in a manner consistent with that used in preparing Holdings’ prior audited financial statements, except as otherwise specifically prescribed herein.
(b)Notwithstanding anything to the contrary herein, for purposes of calculating compliance with any test contained in this Agreement or determining Consolidated EBITDA, the Total Net Leverage Ratio, the Interest Coverage Ratio or the Secured Net Leverage Ratio, any Specified Transactions that have occurred during the Test Period, or (except in connection with determining actual compliance (as opposed to compliance on a Pro Forma Basis) with the Financial Covenants) subsequent to such Test Period and on or prior to or simultaneously with the date of determination, shall be calculated on a Pro Forma Basis assuming that all such Specified Transactions (and the change in Consolidated EBITDA resulting therefrom) had occurred on the first day of the Test Period. If since the beginning of such period any Person (that subsequently became a Restricted Subsidiary or was merged with or into Holdings or any Restricted Subsidiary since the beginning of such period) shall have made any Specified Transaction that would have required adjustment pursuant to this definition, then the Total Net Leverage Ratio, the Interest Coverage Ratio and the Secured Net Leverage Ratio shall be calculated giving Pro Forma Effect thereto for such Test Period as if such Specified Transaction had occurred at the beginning of the Test Period.
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(c)Where reference is made to “Holdings and its Restricted Subsidiaries on a consolidated basis” or similar language, such consolidation shall not include any Subsidiaries of Holdings other than Restricted Subsidiaries.
(d)In the event that Holdings elects to prepare its financial statements in accordance with IFRS and such election results in a change in the method of calculation of financial covenants, standards or terms (collectively, the “Accounting Changes”) in this Agreement, the Lessee and the Administrative Agent agree to enter into good faith negotiations in order to amend such provisions of this Agreement (including the levels applicable herein to any computation of the Total Net Leverage Ratio and the Secured Net Leverage Ratio) so as to reflect equitably the Accounting Changes with the desired result that the criteria for evaluating the Lessee’s financial condition shall be substantially the same after such change as if such change had not been made. Until such time as such an amendment shall have been executed and delivered by the Lessee, the Administrative Agent and the Required Rent Assignees, all financial covenants, standards and terms in this Agreement shall continue to be calculated or construed in accordance with GAAP (as determined in good faith by a Responsible Officer of the Lessee) (it being agreed that the reconciliation between GAAP and IFRS used in such determination shall be made available to Rent Assignees) as if such change had not occurred.
SECTION 1.4.Rounding.
Any financial ratios required to be satisfied in order for a specific action to be permitted under this Agreement shall be calculated by dividing the appropriate component by the other component, carrying the result to one place more than the number of places by which such ratio is expressed herein and rounding the result up or down to the nearest number (with a rounding-up if there is no nearest number).
SECTION 1.5.Times of Day.
Unless otherwise specified, all references herein to times of day shall be references to Eastern time (daylight or standard, as applicable).
SECTION 1.6.Timing of Payment or Performance.
When the payment of any obligation or the performance of any covenant, duty or obligation is stated to be due or performance required on a day which is not a Business Day, the date of such payment (other than as described in the definition of “Payment Period”) or performance shall extend to the immediately succeeding Business Day, unless such Business Day falls after the Maturity Date, in which case such payment or performance shall be due or required on the next preceding Business Day.
SECTION 1.7.Certain Calculations and Tests.
(a)Notwithstanding anything in this Agreement or any Operative Document to the contrary, when calculating any applicable ratio or other financial calculation or determining other compliance with this Agreement (including the determination of compliance with any provision of this Agreement which requires that no Default or Event of Default has occurred, is continuing or would result therefrom or accuracy of representations and warranties) in connection with a Specified Transaction undertaken in connection with the consummation of a Limited Condition Transaction, the date of determination of such ratio or other financial calculation or other applicable covenant and determination of whether any Default or Event of
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Default has occurred, is continuing or would result therefrom or accuracy of representations and warranties or other applicable covenant, shall, at the option of the Lessee (the Lessee’s election to exercise such option in connection with any Limited Condition Transaction, an “LCT Election”), be deemed to be in the case of a LCT Election, either (A) the date that the definitive agreements for such Limited Condition Transaction are entered into or (B) solely in connection with an acquisition to which the United Kingdom City Code on Takeovers and Mergers (the “City Code”) applies, the date on which a “Rule 2.7 announcement” of a firm intention to make an offer in respect of a target company is made in compliance with the City Code or, at the election of the Lessee, any other date thereafter (any such date, the “LCT Test Date”), and if, after such ratios and other provisions are measured on a Pro Forma Basis after giving effect to such Limited Condition Transaction and the other Specified Transactions to be entered into in connection therewith (including any incurrence of Indebtedness and the use of proceeds thereof) as if they occurred at the beginning of the four consecutive fiscal quarter period being used to calculate such financial ratio ending prior to the LCT Test Date, the Lessee could have taken such action on the relevant LCT Test Date in compliance with such ratios and provisions, such provisions shall be deemed to have been complied with. For the avoidance of doubt, (x) if any of such ratios are exceeded as a result of fluctuations in such ratio (including due to fluctuations in Consolidated EBITDA of Holdings and its Restricted Subsidiaries) at or prior to the consummation of the relevant Limited Condition Transaction, such ratios and other provisions will not be deemed to have been exceeded as a result of such fluctuations solely for purposes of determining whether the Limited Condition Transaction is permitted hereunder and (y) such ratios and other provisions shall not be tested at the time of consummation of such Limited Condition Transaction or related Specified Transactions. If the Lessee has made an LCT Election for any Limited Condition Transaction then in connection with any subsequent calculation of any ratio or basket availability with respect to any other Specified Transaction on or following the relevant LCT Test Date and prior to the earlier of the date on which such Limited Condition Transaction is consummated, or the date that the definitive agreement for, or “Rule 2.7 announcement” in respect of, as applicable, such Limited Condition Transaction is terminated or expires without consummation of such Limited Condition Transaction, any such ratio or basket shall be calculated on a Pro Forma Basis assuming such Limited Condition Transaction and other transactions in connection therewith (including any incurrence of Indebtedness and the use of proceeds thereof) have been consummated.
(b)Notwithstanding anything to the contrary herein, with respect to any amounts incurred or transactions entered into (or consummated) in reliance on a provision of this Agreement that does not require compliance with a financial ratio or test (including, without limitation, pro forma compliance with any Total Net Leverage Ratio test and/or Secured Net Leverage Ratio test) (any such amounts, the “Fixed Amounts”) substantially concurrently with any amounts incurred or transactions entered into (or consummated) in reliance on a provision of this Agreement that requires compliance with any such financial ratio or test (any such amounts, the “Incurrence Based Amounts”), it is understood and agreed that (i) the Fixed Amounts (and any cash proceeds thereof) and/or (ii) any Indebtedness resulting from borrowings under the Credit Agreement which occur concurrently or substantially concurrently with the incurrence of the Incurrence Based Amounts shall in each case be disregarded in the calculation of the financial ratio or test applicable to the Incurrence Based Amounts in connection with such substantially concurrent incurrence.
(c)Notwithstanding anything to the contrary herein, for purposes of the covenants described in Section 5.3, if any Indebtedness, Lien, Investment, Restricted Payment or repayment of Subordinated Debt (or a portion thereof) would be permitted pursuant to one or more provisions described therein, the Lessee may divide and classify such Indebtedness, Liens, Investments, Restricted Payment or repayment of Subordinated Debt (or a portion thereof) in any manner that complies with the covenants set forth in Section 5.3, and may later divide and reclassify any such Indebtedness, Lien, Investment, Restricted Payment or repayment of
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Subordinated Debt so long as the Indebtedness, Lien, Investment, Restricted Payment or repayment of Subordinated Debt (as so redivided and/or reclassified) would be permitted to be made in reliance on the applicable exception as of the date of such redivision or reclassification; provided that any such divisions, classifications, redivisions and/or reclassifications shall only be permitted within a specific type of covenant, and not, for the avoidance of doubt, across different types of covenants.
SECTION 1.8.Divisions.
For all purposes under the Operative Documents, in connection with any division under Delaware law (including any Delaware LLC Division or any comparable event under a different jurisdiction’s laws): (a) if any asset, right, obligation or liability of any Person becomes the asset, right, obligation or liability of a different Person, then it shall be deemed to have been transferred from the original Person to the subsequent Person and (b) if any new Person comes into existence, such new Person shall be deemed to have been organized on the first date of its existence by the holders of its Equity Interests at such time.
SECTION 1.9.Designation of Additional Guarantors.
(a)The Lessee shall from time to time designate as Additional Guarantors any Person organized in a Qualified Jurisdiction and designated as an Additional Borrower under the Credit Agreement and shall deliver written notice (including via email) of such Additional Guarantor duly executed on behalf of such Restricted Subsidiary and the Lessee at least five (5) Business Days (or such shorter period as agreed by the Administrative Agent) prior to the proposed effectiveness of such election. In addition, the Lessee shall deliver to the Administrative Agent:
(i) all documentation and other information with respect to such Subsidiary required by regulatory authorities under applicable “know your customer” and anti-money laundering rules and regulations, including without limitation, the USA PATRIOT Act and a beneficial ownership certificate to the extent required under 31 C.F.R. §1010.230, no later than three (3) Business Days (or, solely with respect to an Additional Guarantor organized outside the United States, such longer period as may be required by the Administrative Agent and the Rent Assignees to comply with this clause (i)) prior to the date of the proposed effectiveness of such election (or such later date as may be agreed by the Administrative Agent);
(ii) (A) all documents, updated schedules, instruments, certificates and agreements, and all other actions and information, then required by or in respect of such Additional Guarantor by Section 5.2.10 of Schedule 5.2 hereof or by the Guarantee Requirement (without giving effect to any grace periods for delivery of such items, the updating of such information or the taking of such actions), (B) customary legal opinions, (C) a customary secretary’s certificate attaching such equivalent documents as were delivered by the original Lessee on the Closing Date or as otherwise is customary in such jurisdiction, and (D) delivery of certificates, if any, representing the pledged equity referred to therein accompanied by undated stock or comparable powers executed in blank and instruments, if any, evidencing the pledged debt indorsed in blank, if applicable;
(iii) [reserved];
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(iv) a certificate of a Responsible Officer of the Lessee stating that, as of the date the Additional Guarantor joins this Agreement as such, no Event of Default has occurred and is continuing;
(v) a customary joinder agreement whereby the Additional Guarantor becomes party hereto and to the Guaranty as a Guarantor, in form and substance reasonably satisfactory to the Administrative Agent.
SECTION 1.10.Interest Rate.
The Administrative Agent does not warrant, nor accept responsibility, nor shall the Administrative Agent have any liability with respect to the administration, submission or any other matter related to any reference rate referred to herein. The Administrative Agent and its affiliates or other related entities shall have no liability to the Lessee, any Rent Assignee or any other person or entity for damages of any kind, including direct or indirect, special, punitive, incidental or consequential damages, costs, losses or expenses (whether in tort, contract or otherwise and whether at law or in equity), for any error or other action or omission related to or affecting the selection, determination, or calculation of any rate (or component thereof) provided by any such information source or service.
ARTICLE II
EFFECTIVENESS; GENERAL PROVISION
EFFECTIVENESS; GENERAL PROVISION
SECTION 2.1.Effectiveness of Agreement; Closing Date Conditions.
The obligations of the Lessor, the Rent Assignees, Collateral Agent and Administrative Agent to enter into the Operative Documents and perform their respective obligations hereunder and thereunder (the “Closing”) shall be subject to the fulfillment to the satisfaction of, or waiver by, the party or parties to whom the applicable condition precedent is required to be delivered (acting directly or through its counsel) on or, unless otherwise specified, prior to the Closing Date of the following conditions precedent, provided that the obligation of any Participant shall not be subject to any conditions contained in this Section 2.1 which are required to be performed by such Participant:
(a)Authorization, Execution and Delivery of Documents; No Default. The following Operative Documents to be delivered on the Closing Date (the “Closing Date Operative Documents”) shall have been duly authorized, executed and delivered by each of the parties thereto, shall be in form and substance reasonably satisfactory to the Lessee, each Participant, and the Agents and an executed counterpart of each thereof shall have been received by such parties:
(i)the Transaction Agreement;
(ii)the Master Lease Agreement;
(iii)the Guaranty;
(iv)the Rent Assignment Agreement;
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(v)the Assignment of Lease; and
(vi)the Fee Letters.
(b)Each of the documents referred to above shall be in full force and effect as to all parties and no event which would constitute a Default or Event of Default under a Lease or a default under any other Operative Document shall be continuing.
(c)Legal Opinions. The Agents and each of the Participants shall have received favorable opinions of Milbank, LLP, special counsel to the Lessee and Holdings with respect to New York corporate, enforceability, and other matters related to such Operative Documents.
(d)Governmental and Third Party Approvals. All necessary or advisable Governmental Actions and all consents, approvals and authorizations of Persons other than Governmental Authorities, required in connection with the Overall Transaction, shall have been obtained or made and be in full force and effect and not be subject to any pending procedures or appeals, whether administrative, judicial or otherwise, except for any Governmental Action, consent, approval or authorization the failure to obtain which, or the appeal of or further procedures with respect to which, would not reasonably be expected to have a Material Adverse Effect.
(e)Corporate Status and Proceedings. The Agents and each of the Participants shall have received:
(i)a copy of a certificate dated the Closing Date of the Secretary or an Assistant Secretary of Lessee, certifying as to (A) any and all company action required to authorize the transactions contemplated hereby and the execution, delivery and performance by Lessee of each of the Operative Documents to which Lessee is or will be a party and any other documents to be executed by or on behalf of Lessee in connection with the transactions contemplated hereby or thereby having been taken, and (B) the incumbency of the person or persons authorized to execute and deliver this Agreement and each other document to be executed by Lessee in connection with the transactions contemplated hereby and thereby;
(ii)(x) a copy of the certificate of formation of Lessee, certified by the Secretary of State of the State of Delaware, and a certificate or other evidence from the Secretary of State of the State of Delaware, dated within thirty (30) days prior to the Closing Date, as to the corporate existence and good standing of Lessee in such State, and (y) a copy of the LLC Agreement of Lessee, and all amendments thereto;
(iii)a copy of a certificate dated the Closing Date of the Secretary or an Assistant Secretary of Holdings, certifying as to (A) any and all corporate action required to authorize the transactions contemplated hereby and the execution, delivery and performance by Holdings of each of the Operative Documents to which Holdings is or will be a party and any other documents to be executed by or on behalf of Holdings in connection with the transactions contemplated hereby or thereby having been taken, and (B) the incumbency of the person or persons authorized to execute and deliver this Agreement and each other document to be executed by Holdings in connection with the transactions contemplated hereby and thereby;
(iv)(x) a copy of the certificate of incorporation of Holdings, certified by the Secretary of State of the State of Delaware, and a certificate or other evidence
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from the Secretary of State of the State of Delaware, dated within thirty (30) days prior to the Closing Date, as to the corporate existence and good standing of Holdings in such State, and (y) a copy of the by-laws of Holdings, and all amendments thereto;
(v)a copy of a certificate dated the Closing Date of the Secretary or an Assistant Secretary of each Guarantor as of the Closing Date, certifying as to (A) any and all corporate action required to authorize the transactions contemplated hereby and the execution, delivery and performance by such Guarantor of each of the Operative Documents to which such Guarantor is or will be a party and any other documents to be executed by or on behalf of such Guarantor in connection with the transactions contemplated hereby or thereby having been taken, and (B) the incumbency of the person or persons authorized to execute and deliver this Agreement and each other document to be executed by such Guarantor in connection with the transactions contemplated hereby and thereby; and
(vi)(x) a copy of the certificate of incorporation of each Guarantor as of the Closing Date, certified by the Secretary of State of the State of Delaware, and a certificate or other evidence from the Secretary of State of the State of Delaware, dated within thirty (30) days prior to the Closing Date, as to the corporate existence and good standing of such Guarantor in such State, and (y) a copy of the by-laws of such Guarantor, and all amendments thereto.
(f)The Lessor Documents. The Lessee shall have received:
(i)a certificate of good standing with respect to the Lessor from the State of Delaware, dated no earlier than the thirtieth (30th) day prior to the Closing Date; and
(ii)a certificate of the Secretary or Assistant Secretary (or other Responsible Officer) of the Lessor, in form and substance reasonably satisfactory to the Lessee and attaching and certifying as to (A) the certificate of good standing with respect to the Lessor, (B) its certificate of formation, and (C) the incumbency and signatures of persons authorized to execute and deliver the Operative Documents on behalf of the Lessor.
(g)Representations and Warranties; Absence of Defaults; Etc. Each representation and warranty of the Lessee and the Participants contained herein or in any other Operative Document shall be true and correct in all material respects. After giving effect to the Operative Documents, no Default or Event of Default shall have occurred and be continuing on and as of the Closing Date.
(h)No Material Adverse Change. Except as publicly disclosed prior to the date of the most recent audited financial statements delivered (or deemed delivered) to the Administrative Agent, there shall have occurred no Material Adverse Change since the date of the most recent audited financial statements delivered (or deemed delivered) to the Administrative Agent with respect to the Lessee or Holdings.
(i)Rent Assignment Interests Permitted by Applicable Law, etc. The acquisition of the Rent Assignment Interests by the Rent Assignees and the making of the Rent Assignment Advances by the Rent Assignees shall be permitted by Applicable Laws (including, without limitation, Regulations T, U and X of the F.R.S. Board) and shall not subject any Participant to any penalty, liability or other onerous condition under or pursuant to any Applicable Laws.
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(j)The Lessor Confirmation Letter. The Lessee shall have received a lessor confirmation letter from the Lessor providing information related to ASC 810.
(k)KYC, FIN Cen Information. At least three (3) Business Days prior to the Closing Date, the Lessee shall have provided to the Participants the documentation and other information required by bank regulatory authorities under applicable “know your customer” and anti-money-laundering rules and regulations, including the USA PATRIOT Act, as defined below.
(l)Fees and Transaction Costs. (i) The Agents, the Arranger and each of the Participants shall have received payment of all Fees agreed to by the Lessee in writing and due and payable to them on the Closing Date and (ii) the Lessee shall have paid all other Transaction Costs due and payable on or prior to the Closing Date (including fees and expenses of Dechert LLP) that have been set forth in detailed invoices delivered to the Lessee reasonably in advance of the Closing Date.
All documents and instruments required to be delivered on the Closing Date pursuant to the Closing Date Operative Documents shall be delivered at the offices of Dechert LLP, or at such other location as the Lessor, the Agents and the Lessee may agree. The release by any party of its counterpart to this Agreement shall constitute conclusive evidence of its satisfaction with the form and substance of each of the items so delivered under this Section 2.1.
SECTION 2.2.Commitments.
(a)Rent Assignee’s Commitments.
(i)Subject to the terms and conditions hereof and of the Rent Assignment Agreement and after receipt of an Advance Request in accordance with Section 2.5 hereof, each Rent Assignee severally agrees to acquire Rent Assignment Interests from the Lessor for the purpose of enabling the Lessor to make the related Advance to the Administrative Agent for the benefit of the Lessee on the applicable Advance Date in the amounts required under Section 2.11(a) hereof and Section 1.02(b) of the Rent Assignment Agreement.
(ii)Each Rent Assignee’s Commitment and Commitment Percentage are as specified on Schedule I, as amended from time to time pursuant to an applicable Assignment Agreement pursuant to which such Rent Assignee became a party to the Rent Assignment Agreement. The aggregate Commitments of all Rent Assignees shall be an amount not to exceed the Total Commitment Amount.
(iii)Nothing in this Section 2.2(a) shall operate to relieve the Lessee from its obligations under the Operative Documents including its obligation to pay Prepaid Rent on each Advance Date or to waive any of the Rent Assignees’ rights against the Lessee.
(b)Lessor’s Commitment. The Lessor has not committed, and is not required to commit, to fund any portion of the Advances. Other than the receipt and application of proceeds from the sale of Rent Assignment Interests and Prepaid Rent by the Administrative Agent on its behalf, no investment in the Leased Equipment shall be made by the Lessor.
(c)Termination of Commitment. Notwithstanding anything contained herein to the contrary, any undrawn Rent Assignee Commitments shall reduce automatically upon the transfer to the Administrative Agent of the Rent Assignment Advances by the respective Rent
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Assignees with respect thereto in accordance with this Section 2.2 and shall terminate automatically at 4:00 p.m. New York time on the Commitment Expiration Date.
(d)Increases in Commitment Amount. The Lessee may, from time to time prior to the earlier of (i) forty-five (45) days after the Closing Date or (ii) three (3) Business Days prior to the initial Advance Date, elect to increase the Commitment Amount (a “Commitment Increase”). Any request for a Commitment Increase pursuant to this Section 2.2(d) shall be subject to satisfaction of the following conditions:
(i)One or more Persons (x) satisfying the conditions set forth in the definition of “Eligible Assignee”, which may include an existing Rent Assignee, and (y) satisfactory to the Lessee, shall have agreed to make and assume some or all of the Commitment Increase as Rent Assignee Commitment pursuant to a Supplement to the Rent Assignment Agreement and an Additional Rent Assignee Supplement, in an amount equal to the Commitment Increase allocated to such Person as set forth in such Supplements which amount, together with any existing Rent Assignee Commitment Amount in the case of an existing Rent Assignee, shall constitute such Person’s Rent Assignee Commitment Amount;
(ii)Such Person shall enter a Supplement to the Rent Assignment Agreement and an Additional Rent Assignee Supplement which shall evidence (i) such Person’s agreement to acquire and assume all of the Rent Assignee Commitment allocated to it under this Section 2.2(d) and other terms with respect to such Rent Assignee Commitment and (ii) set forth certain representations and warranties of such Person with respect to such Supplement and its capacity as a Rent Assignee;
(iii)Rent Assignee Commitments and the related Rent Assignment Interests which such Person shall acquire with respect to any Commitment Increase shall be on the same terms and conditions as all other existing Rent Assignment Commitments and Rent Assignment Interests including, without limitation, with respect to class, priority, entitlement to payment, rights to collateral and voting rights;
(iv)No Default or Event of Default has occurred and is continuing;
(v)The Lessee has delivered to the Lessor and the Administrative Agent three (3) Business Days in advance of such Commitment Increase a written election for the Commitment Increase, identifying such Person or Persons to whom such Commitment Increase shall be issued;
(vi)The aggregate increase in the Commitment Amount following a Commitment Increase will not, together with all prior Commitment Increases, exceed $300,000,000.00 (with a total Commitment Amount of up to $1,025,000,000.00); and
(vii)The representations and warranties of the Lessee contained in Section 4.1 shall be true and correct in all material respects as of the date of the increase (except to the extent (x) such representations and warranties expressly relate to any earlier date, in which case such representations and warranties shall be true and correct in all material respects as of such earlier day as if made on such date, and (y) such representations and warranties are already qualified as to materiality, in which case such representations and warranties shall be true and correct in all respects).
On the date of each Commitment Increase, Schedule I to each of this Agreement and the Rent Assignment Agreement shall be amended through the delivery of the Additional Rent
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Assignee Supplement and the Rent Assignment Supplement, respectively, to reflect the additional Rent Assignee, the inclusion of such additional Rent Assignee Commitment Amount and the revised Commitment Percentages of all Rent Assignees as a result of such Commitment Increase. Notwithstanding any of the foregoing to the contrary, no existing Rent Assignee shall be under any obligation to increase their Rent Assignee Commitment with respect to any election of a Commitment Increase by the Lessee.
SECTION 2.3.Advances.
(a)Advance Dates. On each Advance Date, subject to the terms and conditions set forth in Sections 2.6 and 3.1 of this Agreement, the Rent Assignment Agreement and in reliance on the representations and warranties of each of the parties hereto contained herein or made pursuant hereto, the Rent Assignees, in accordance with their respective Commitment Percentages, shall provide immediately available funds to the Administrative Agent, and, so long as the Administrative Agent shall have received the applicable Prepaid Rent in accordance with Section 2.3(c), the Administrative Agent shall disburse, from the proceeds of such funding and Prepaid Rent, the amount equal to the Acquisition Costs for the Eligible Equipment described in the related Advance Request and acquire the Eligible Equipment. Such amounts from the Rent Assignees transferred or applied by the Administrative Agent shall constitute the Advance. Transfers of such funds by the Rent Assignees shall be made in immediately available funds by wire transfers to the Administrative Agent in accordance with the instructions set forth in the Advance Request for deposit not later than 12:00 p.m., New York time, on the Advance Date. The parties intend that funds from the Rent Assignees shall be transferred to the Administrative Agent and applied in accordance with the Advance Request for same day value provided, that, if the terms and conditions for the Advance set forth herein or for the release thereof by the Administrative Agent have not been satisfied by 3:00 p.m. New York time on the Advance Date, then, subject to the indemnification set forth in the Advance Request and in Article VII hereof, the Lessee may elect in writing to extend such time for satisfaction, to occur no later than 3:00 p.m. New York time on the second Business Day thereafter.
(b)No Reborrowing. No amounts paid or prepaid with respect to the Rent Assignment Interest may be reborrowed.
(c)Lessee’s Prepaid Rent. As a condition to the acquisition of Rent Assignment Interests by the Rent Assignees on any Advance Date, the Lessee shall have paid Prepaid Rent to the Administrative Agent on such Advance Date. Transfers of such funds by the Lessee shall be made in immediately available funds by wire transfer to the Administrative Agent in accordance with the instructions set forth in the Advance Request for deposit not later than 10:00 a.m., New York time, on the Advance Date. The parties intend that such funds from the Lessee shall be applied by the Administrative Agent in accordance with the Advance Request for same day value.
SECTION 2.4.Obligations Several.
The obligations of the Participants hereunder or elsewhere in the Operative Documents shall be several and not joint and the Participants shall not be liable or responsible for the acts or defaults of any other Participant hereunder or under any other Operative Document, nor shall the failure of any Participant to perform its obligations in and of itself relieve any other Participant from its obligations hereunder.
SECTION 2.5.Advance Requests.
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(a)At or before 1:00 p.m. New York time five (5) Business Days prior to the proposed Advance Date, the Lessee shall deliver to the Administrative Agent an irrevocable written notice substantially in the form of Exhibit A (a “Advance Request”), setting forth:
(i)the proposed Advance Date;
(ii)a statement of the amount of the requested Advance in Dollars and in an amount not less than the Minimum Advance Amount; and
(iii)a separate statement of the amount thereof, if any, that constitutes Acquisition Costs.
(b)Promptly upon receipt, the Administrative Agent shall confirm the amounts set forth in the Advance Request and the Administrative Agent shall forward the Advance Request to each Rent Assignee with instructions to each recipient to the extent any Fees or other amounts should be retained from their respective Advances.
(c)On the scheduled Advance Date, and subject to the satisfaction of the conditions set forth in this Section 2.5 and in Sections 2.6 and 3.1, the Rent Assignees shall fund their respective portion of the Advance in Dollars by wire transfer to the Administrative Agent in the manner described in Section 2.3(a).
SECTION 2.6.Allocation of Acquisition Costs; Designation of Lease Supplements.
(a)The Acquisition Costs for all Leased Equipment shall be allocated among the Rent Assignees and the Lessee. On each Advance Date, (i) the Rent Assignees shall fund ninety percent (90.0%) of such Acquisition Costs and (ii) the Lessee shall fund ten percent (10.0%) of such Acquisition Costs as Prepaid Rent.
(b)The Lessee shall designate in each Advance Request whether the Leased Equipment to be acquired will be divided into one or multiple Leases and, accordingly, Lease Supplements; provided that each Lease Supplement shall reflect no less than thirty million dollars ($30,000,000) of Leased Equipment. In no event prior to the Commitment Expiration Date shall the Lessee designate the leasing of Leased Equipment which would cause the number of Leases in the Overall Transaction to exceed twenty-five (25) Leases or such greater number as may be agreed to by the Administrative Agent.
SECTION 2.7.Payments to Participants.
The parties to this Agreement hereby agree that any payment required to be made to (a) the Lessor or (b) the Rent Assignees by the Lessor pursuant to the Rent Assignment Agreement from payments to be made by the Lessee shall be made to the Administrative Agent. Such payment by the Lessee to the Administrative Agent for the benefit of the Participants, shall be deemed to constitute (i) the required payment from the Lessee to the Lessor and (ii) the corresponding payment by the Lessor to the Rent Assignees. However, this Section 2.7 shall not relieve the Administrative Agent of its obligation to make such payments to the Lessor and to the Rent Assignees under the terms of the Operative Documents.
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SECTION 2.8.Interest.
The Administrative Agent shall no later than 2:00 p.m., New York time, two (2) Business Days prior to the proposed Advance Date, notify the Lessee, the Rent Assignees and the Lessor of the Interest Rate related to each Lease Supplement to be entered into on such Advance Date, but failure to so notify shall not affect the obligations of the parties hereunder or under the other Operative Documents. Such Interest Rate shall be fixed in accordance with the definition thereof.
SECTION 2.9.Computations.
For all purposes under the Operative Documents, all computations of Interest and other accrued amounts (including, without limitation, the Overdue Rate) shall be made on the basis of a 360-day year which is composed of twelve thirty (30) day months.
SECTION 2.10.Rent Assignment Balance Interest Rate; Overdue Rate.
With respect to each GPU Equipment Pool, the Rent Assignment Balance outstanding from time to time shall accrue Interest at the rate per annum equal to the Interest Rate. During the continuance of an Event of Default, the Lessee shall pay interest on past due amounts under this Agreement and the Leases at an interest rate per annum at all times equal to the Overdue Rate to the fullest extent permitted by Applicable Laws and shall be payable from time to time on demand as Supplemental Rent.
SECTION 2.11.Rent Assignment Interests.
(a)Procedure for Acquiring Rent Assignment Interests. Upon receipt of an Advance Request and subject to the terms and conditions of this Agreement, each Rent Assignee agrees that it shall wire transfer its portion of the requested Advance equal to the amount of its Rent Assignment Advance, as set forth in the Advance Request and Lease Supplement delivered with respect to the related Advance Date in immediately available funds to the Administrative Agent for further Advance by the Administrative Agent, all in accordance with Section 2.3.
(b)Payments with respect to Rent Assignment Interests. Payments with respect to the Rent Assignment Interests shall be made by the Administrative Agent to the Rent Assignees, together with all accrued and unpaid Interest thereon, at the times and in the manner set forth in this Agreement and the Rent Assignment Agreement. Each Rent Assignee shall be entitled to be paid its outstanding Rent Assignment Balance, in full, together with (1) Interest accrued thereon to the date of repayment at the Interest Rate or Overdue Rate, if applicable, and (2) all other amounts then due and payable to such Rent Assignee under the Rent Assignment Agreement, upon the first to occur of:
(i)the purchase by the Lessee during the Lease Term of the Leased Equipment pursuant to Article XIII or Article XX of the Lease, such payment to be made on the date specified in such provisions for payment with respect to such purchase; and
(ii)following an Event of Default and the exercise of remedies under the Lease.
(c)Scheduled Repayment of Rent Assignment Balance. Except in the case of a required repayment described in Section 2.11(b) above and payments of Basic Rent with respect to the Principal Component thereof payable with respect to the Rent Assignment Balance, there
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shall be no payments with respect to the principal of such Rent Assignment Balance prior to the Maturity Date. On the Maturity Date, payments shall be applied to the aggregate unpaid principal amount of the Rent Assignment Balance as of such date. With respect to Rent Assignment Advances made on any Advance Date during the Commitment Period, the scheduled principal repayment of the Rent Assignment Advances with respect to each such Advance Date shall be made on the Payment Dates numerically listed, and in the proportions as separately set forth, on the amortization schedule set forth in Schedule 2.11(c) which includes such Advance Date.
(d)Interest.
(i)Pursuant to Section 2.01 of the Rent Assignment Agreement, Interest shall be payable with respect to the outstanding Rent Assignment Balance at an effective rate per annum thereon equal to the Interest Rate.
(ii)If all or a portion of the Rent Assignment Balance or Interest is not paid when due (on the related Maturity Date, by acceleration or otherwise) under Article X hereof or under the Rent Assignment Agreement, such overdue amount shall, without limiting the rights of the Rent Assignees under any Operative Document, bear interest at the Overdue Rate, in each case from the date of nonpayment until paid (after as well as before judgment).
(iii)Payments of Interest with respect to Rent Assignment Balance shall be payable in arrears on each Payment Date.
(e)Computation of Interest. Interest in respect of the Rent Assignment Interests shall be calculated as provided in Section 2.9.
SECTION 2.12.Nature of Transaction.
It is the intention of the parties that (i) the Overall Transaction and each of the Leases constitute finance leases for purposes of the Lessee’s financial reporting under GAAP provisions relating to leases including without limitation the Accounting Standards Codification (“ASC”) 842 (including 842-10), and (ii) for United States federal, state and local income tax, property tax, transfer tax, sales tax, franchise tax, general corporation tax and other similar taxes that may be imposed upon net or gross income, bankruptcy (including the substantive law upon which bankruptcy proceedings are based) and commercial law purposes: the Overall Transaction constitutes (x) a financing by the Lessor to the Lessee, the obligations of the Lessee to the Lessor are for borrowed money secured by a Lien on the Leased Equipment and other collateral and the Lessee shall be treated as the legal and beneficial owner of the Leased Equipment (subject to a conditional sale arrangement), Lessee will be entitled to all benefits of ownership of the Leased Equipment including, without limitation, tax benefits ordinarily available to owners of property similar to the Leased Equipment, the obligations of the Lessee to pay Basic Rent shall be treated as payments of interest to the Lessor and the payment by the Lessee of any amounts in respect of the Lease Balance including the Principal Component of the Basic Rent payments shall be treated as payments of principal to the Lessor, and (y) a sale of receivables and other rights under the Operative Documents as set forth in the Rent Assignment Agreement from the Lessor to the Rent Assignees.
(i)The Lessor will be deemed and will have the rights of a lender making secured loans to the Lessee secured by, among other things, the Collateral, a portion of which rights will
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be deemed sold by the Lessor to the Rent Assignees upon payment for their respective Rent Assignment Interests.
The Lessee acknowledges and agrees that none of the Agents, the Arranger or any of the Participants has made, in any capacity, any representations or warranties concerning the tax, accounting or legal consequences or characteristics of the Operative Documents or any aspect of the Overall Transaction and that the Lessee has obtained and relied upon such tax, accounting and legal advice concerning the Operative Documents and the Overall Transaction as it deems appropriate, provided, that the Lessee may rely on the representations and warranties contained in the Operative Documents and the legal opinions issued to it in connection therewith and to which it is an addressee. Each Participant acknowledges and agrees that the Lessee has not made any representations or warranties concerning the tax, accounting or legal consequences or characteristics of the Operative Documents or any aspect of the Overall Transaction and that such Person has obtained and relied upon such tax, accounting and legal advice concerning the Operative Documents and the Overall Transaction as it deems appropriate, provided, that each Participant may rely on the representations and warranties contained in the Operative Documents and the legal opinions issued in connection therewith. Notwithstanding anything in the foregoing, no Participant may take any action inconsistent with the intended tax and accounting treatment of the transactions contemplated by the Operative Documents as described in this Section 2.12 unless required to do so by an appropriate taxing Authority pursuant to a final non-appealable determination or after a clearly applicable change in Applicable Laws.
SECTION 2.13.Amounts Due.
(a)It is the intention of the Lessee and the Participants that (i) the amount and timing of installments of Basic Rent due and payable from time to time from the Lessee under the Leases shall be equal to the aggregate payments due and payable in respect of Interest accrued on and payable with respect to the Rent Assignment Balance under the Rent Assignment Agreement due on each Payment Date, together with the Principal Component payable with respect to the Rent Assignment Balance under the Rent Assignment Agreement due on such Payment Date; (ii) if the Lessee elects the Early Termination Option with respect to one or more Lease Supplements, the outstanding principal of the Rent Assignment Balance, all Interest on such Rent Assignment Balance, Prepayment Premium, if any, Break Amounts, if any, with respect thereto, all Fees and Transaction Costs and all other obligations of the Lessee owing to the Agents and the Participants thereunder shall be paid in full by the Lessee in accordance with Article XX of the Lease; and (iii) upon an Event of Default or an Event of Loss, the amounts then due and payable by the Lessee under the Leases and other Operative Documents shall include all amounts necessary to pay in full the outstanding principal with respect to the Rent Assignment Balance plus all accrued Interest thereon plus Prepayment Premium, if any, Break Amounts, if any, plus all other amounts then payable by the Lessee to the Agents and the Participants under the Operative Documents with respect thereto.
(b)The Lessee shall pay or repay each Advance at such times and in such amounts as the Rent Assignment Balance becomes due and payable, which payment obligations shall be satisfied by and to the extent of any payment made by or on behalf of the Lessee pursuant to the Operative Documents of the Lease Balance, the Termination Value or the Purchase Price, as the case may be.
SECTION 2.14.Fees and Other Transaction Costs.
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The Lessee shall have paid in immediately available funds all Transaction Costs due and payable at or prior to the Closing and any and all fees described in the succeeding provisions of this Section 2.14 (collectively, “Fees”):
(a)Arrangement Fee. The Lessee shall pay to the Arranger on the Closing Date the Arrangement Fee as set forth in the applicable Fee Letter;
(b)Syndication Fees. The Lessee shall pay to the each Rent Assignee due such Fee on the Closing Date the Upfront Fee, the Joint Lead Arranger Fee and/or the Documentation Agent Fee, as defined in and as set forth in the applicable Fee Letter;
(c)Agent Fee. The Lessee shall pay to the Administrative Agent (for the benefit of the Agents, as applicable) on the Closing Date and on each anniversary of the Closing Date (excluding the Maturity Date), the Agent Fee as set forth in the applicable Fee Letter;
(d)Commitment Fee. The Lessee shall pay to the Rent Assignees on each Monthly Date during the Commitment Period (excluding the initial Monthly Date) and on the Commitment Expiration Date, a commitment fee (the “Commitment Fees”) (i) for the first six months of the Commitment Period at a rate per annum equal to the product of twenty basis points (0.20%) times the daily amount of the Available Commitment of each such Rent Assignee, determined as at the end of each calendar day during the preceding Payment Period, and (ii) for the period from and including the date that is six months after the Closing Date to and including the Commitment Expiration Date at a rate per annum equal to the product of forty basis points (0.40%) times the daily amount of the Available Commitment of each such Rent Assignee, determined as at the end of each calendar day during the preceding Payment Period. The Commitment Fee will be calculated, and payable monthly in arrears during the Commitment Period to the Rent Assignees on a pro-rata basis; and
(e)Transaction Costs. The Lessee shall pay all outstanding and invoiced Transaction Costs on the Closing Date and each Advance Date and thereafter shall promptly pay all Transaction Costs after receiving invoices therefor.
(f)Other Costs and Expenses. Without limitation of the foregoing, the Lessee agrees to pay to the Agents and the Participants (i) reasonable costs and expenses (including reasonable and properly documented legal fees and expenses of one counsel for the Agents, the Arranger and the Lessor, collectively, and, if necessary, one firm of local counsel in each appropriate jurisdiction, which may include a single special counsel acting in multiple jurisdictions, and, in the case of an actual conflict of interest, one additional counsel for the affected party) incurred by any of them in connection with: (A) the considering, evaluating, investigating, negotiating and entering into or giving or withholding of any amendments or supplements or waivers or consents with respect to any Operative Document requested by the Lessee; or (B) the negotiation and documentation of any restructuring or “workout,” whether or not consummated, of any Operative Document; and (ii) reasonable costs and expenses (including, except in the case of an Event of Default described in paragraph (g) or (h) of Article XVII of the Lease, reasonable and properly documented legal fees and expenses of one counsel for the Agents and the Participants, collectively, and, if necessary, one firm of local counsel in each appropriate jurisdiction, which may include a single special counsel acting in multiple jurisdictions, and, in the case of an actual conflict of interest, one additional counsel for the affected party) incurred by any of them in connection with: (A) the enforcement of the rights or remedies under the Operative Documents; or (B) any sale, assignment or transfer by a Participant of any interest in the Operative Documents during the continuance of an Event of Default.
SECTION 2.15.Non-Funding Rent Assignee’s Portion
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(a)In the event that any Rent Assignee fails to make available to the Administrative Agent on the applicable Advance Date after all conditions to such Advance have been satisfied an amount equal to such Rent Assignee’s Commitment Percentage of the amount of the Advance required by the terms hereof to be funded by such Rent Assignee on such Advance Date (a “Defaulting Rent Assignee”), the Administrative Agent shall cease to pay such Defaulting Rent Assignee any Commitment Fee for as long as such Rent Assignee remains a Defaulting Rent Assignee and the Administrative Agent shall promptly notify the Lessee thereof and the Lessee shall have the following options: (x) without in any way waiving the occurrence of any payment Default, the Lessee may elect to postpone the Advance of the portion of the Advance to be provided by the Defaulting Rent Assignee (provided, however that such postponement shall in no event relieve the Lessee of its obligation to pay as Supplemental Rent any Break Amount suffered or incurred by any Participant (other than to the extent of an amount equal to any payment thereof to the Defaulting Rent Assignee) as and to the extent required by and pursuant to Section 7.5, provided, further, that, such postponement shall not relieve such Defaulting Rent Assignee from any liability to the Lessee for its contractual breaches), or (y) the Lessee may elect to have the provisions of clause (b) of this Section 2.15 be applicable. In either event, the Lessee or the Administrative Agent may elect to have the Defaulting Rent Assignee replaced with a new Rent Assignee acceptable to the Lessee, and the Administrative Agent and the Defaulting Rent Assignee shall cooperate (at no cost to the Lessee) in replacing such Defaulting Rent Assignee with a replacement Rent Assignee in accordance with Section 6.3. The Administrative Agent’s right to replace the Defaulting Rent Assignee shall be subordinate to such right of the Lessee; and if the Lessee does not elect to replace the Defaulting Rent Assignee with a new Rent Assignee by delivery of written notice to the Administrative Agent within fifteen (15) days after the Advance Date on which the Defaulting Rent Assignee fails to fund its Rent Assignee’s Commitment Percentage of the requested Advance, or if the Lessee timely elects to do so, but for only a portion of the Defaulting Rent Assignee’s Commitment, and the Non-Defaulting Rent Assignees do not elect to increase their Commitments to cover the uncommitted portion of the Defaulting Rent Assignee’s Commitment, then the Administrative Agent shall have the right to replace the Defaulting Rent Assignee.
(b)At the Lessee’s or, subject to the provisions of Section 2.15(a), the Administrative Agent’s option, the Administrative Agent shall (i) promptly notify each other Rent Assignee that is not a Defaulting Rent Assignee (each, a “Non-Defaulting Rent Assignee”), (ii) specify the then Available Commitment (as used in this Section 2.15(b), the “Defaulted Rent Assignee Commitment Amount”) of each Defaulting Rent Assignee less, if applicable, the Commitment(s) of the replacement Rent Assignee(s) (such difference, the “Commitment Shortfall”), and (iii) offer to all Non-Defaulting Rent Assignees the opportunity to increase their respective Commitments by notice in writing to Administrative Agent within five (5) Business Days of Administrative Agent’s receipt of notice in clause (i) above. If the Non-Defaulting Rent Assignees offer to increase their Commitments in an amount in the aggregate which is not less than the Commitment Shortfall, Administrative Agent shall increase the Commitments of the participating Non-Defaulting Rent Assignees on a pro-rata basis in accordance with the respective amounts by which such Non-Defaulting Rent Assignees have offered to participate, it being understood that in no event shall the aggregate amount funded by any Rent Assignee exceed the amount of such Rent Assignee’s Commitment, after giving effect to any increase in such Commitment pursuant to this sentence.
As soon as practical after receipt of notices from Non-Defaulting Rent Assignees electing to participate in the Defaulted Rent Assignee Commitment Amount in an amount equal to or greater than the Defaulted Rent Assignee Commitment Amount, Administrative Agent shall notify each participating Rent Assignee of its revised Rent Assignee Commitment Amount, and the Lessee may resubmit such Advance Request and each Rent Assignee shall Advance to the Administrative Agent in the manner set forth in Section 2.3(a) in accordance with its revised
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Commitment Percentage. Following a revision of the Rent Assignee Commitment Amounts as described above, a Defaulting Rent Assignee shall not have the right to Advance its Defaulted Rent Assignee Commitment Amount.
Unless either (i) the Non-Defaulting Rent Assignees offer to increase their Rent Assignment Commitments in an amount equal to or greater than the Defaulted Rent Assignee Commitment Amount or (ii) the Defaulting Rent Assignee is replaced pursuant to Section 2.15(a), such that the aggregate Available Commitments of the Non-Defaulting Rent Assignees and, if applicable, the replacement Rent Assignees are equal to the remaining aggregate, unfunded Rent Assignment Commitments of the Rent Assignees prior to the occurrence of the events described in clauses (i) or (ii) of this paragraph, no Rent Assignee shall be obligated to make any Rent Assignment Advance to account for the unfunded Rent Assignee Commitment Amount of the Defaulting Rent Assignee.
(c)The parties hereto agree that, subject to the assignment provisions of this Transaction Agreement and the Rent Assignment Agreement, upon replacement of any Defaulting Rent Assignee with a replacement Rent Assignee, and/or reapportionment of such Defaulting Rent Assignee’s Commitment among the Non-Defaulting Rent Assignees pursuant to Section 2.15(a) or (b), as applicable, such Defaulting Rent Assignee or its Commitment shall be automatically replaced or altered accordingly, without any further action or requirement by or of any Person, such that at all times the Rent Assignees shall have proportionate Commitments under the Rent Assignment Agreement.
(d)The Lessee shall have the right to exercise any remedies available at law or in equity (including the recovery of monetary damages and the recovery of all costs and expenses in pursuing such remedies and relief) against any Defaulting Rent Assignee in the Lessee’s own name. Each Rent Assignee acknowledges that the Lessee will be relying on the commitments of the Rent Assignees to make Rent Assignment Advances required by this Transaction Agreement.
ARTICLE III
CONDITIONS TO ADVANCES
CONDITIONS TO ADVANCES
SECTION 3.1.Conditions to each Advance.
The obligation of the Lessor to acquire the Leased Equipment being acquired on each Advance Date and of each other Participant to perform its obligations on such Advance Date shall be subject to Section 2.2 and to the satisfaction of, or the waiver in writing by such Participant of, the conditions precedent set forth in this Section 3.1 on or prior to such Advance Date (all such conditions precedent to be satisfied to the satisfaction of such Participant in its reasonable discretion, except that the obligation of any party hereto shall not be subject to such party’s own performance or compliance) provided, that, notwithstanding Section 9.5(a)(ii), such conditions precedent following the initial Advance shall be satisfied to the satisfaction of the Administrative Agent and the Lessor in their reasonable discretion:
(a)Advance Request. The Lessee shall have delivered an Advance Request conforming to the requirements of Section 2.5.
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(b)Authorization, Execution and Delivery of Equipment Related Operative Documents. The Equipment Related Operative Documents to be delivered on such Advance Date including a Lease Supplement subjecting Eligible Equipment being acquired on such Advance Date and set forth on Schedule I to the related Advance Request to the Lease as Leased Equipment and setting forth the Rent Assignment Advances being made by the Rent Assignees shall have been duly authorized, executed and delivered by each of the parties thereto, and a Bill of Sale with respect to each item of such Leased Equipment shall have been duly executed and delivered by the respective Sellers in favor of the Lessor on such Advance Date, shall be in form and substance reasonably satisfactory to each Participant and the Agents and an executed counterpart of each thereof shall have been received by such parties and the Lessee. Each of the documents referred to above together with the Operative Documents delivered pursuant to Section 2.1 hereof shall be in full force and effect as to all parties.
(c)Representations and Warranties True; Absence of Defaults. Each representation and warranty of the Lessee and Holdings contained herein or in any other Operative Document or in any certificate delivered in connection therewith shall be true and correct in all material respects as though made on and as of the related Advance Date, except that any such representation or warranty which is expressly made only as of an earlier date need be true only as of such date. After giving effect to such Operative Documents, no Default for which the cure period, if any, has commenced, Default for which there is no notice and cure period, or Event of Default shall have occurred and be continuing and no such Default or Event of Default shall exist after giving effect to the transactions contemplated herein.
(d)No Material Adverse Change. Except as publicly disclosed prior to the date of the most recent audited financial statements delivered (or deemed delivered) to the Administrative Agent, there shall have occurred no Material Adverse Change since the date of the most recent audited financial statements delivered (or deemed delivered) to the Administrative Agent with respect to the Lessee or Holdings.
(e)Consents and Approvals. All necessary or advisable Governmental Actions, and all consents, approvals and authorizations of Persons, required in connection with the Overall Transaction, shall have been obtained or made and be in full force and effect and not be subject to any pending procedures or appeals, whether administrative, judicial or otherwise, except for Governmental Actions the failure to obtain which would not reasonably be expected to have a Material Adverse Effect.
(f)The Lessee Documents. The Agents and the Participants shall have received (i) bring-down certificates of the Secretary or Assistant Secretary (or other Responsible Officer) of the Lessee, Holdings and each Guarantor, respectively, in form and substance reasonably satisfactory to the Agents with respect to the certificates delivered pursuant to Section 2.1(d) hereof, and (ii) a copy of the certificate from the Secretary of State of the State of each Site, dated as of a date within thirty (30) days prior to such Advance Date, as to the good standing of Lessee in such State as a foreign company.
(g)Legal Opinions. The Agents and each of the Participants shall have received favorable opinions of Milbank, LLP, special counsel to the Lessee and Holdings with respect to New York corporate, enforceability, perfection and other matters related to each Lease Supplement entered into on such Advance Date. Such opinion shall be dated as of the related Advance Date and in form and substance reasonably satisfactory to the recipients thereof.
(h)Ownership; Title. With respect to such Leased Equipment, Agents shall have received evidence acceptable to the Agents of either (i) good and marketable title thereof being held by the Manufacturer, in the case where the Manufacturer is the Seller, or (ii) a complete and unbroken chain of good and marketable title thereof from the related Manufacturer
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to the respective vendor or the Lessee in the case where such vendor or the Lessee is the Seller. For the avoidance of doubt, the requirement in clause (ii) above shall not apply to Leased Equipment purchased new directly by the Lessor from the related Manufacturer. Good and marketable title to each item of Leased Equipment delivered on such Advance Date shall be transferred from Seller to Lessor in accordance with the related Bill of Sale, free and clear of all Liens and Lessee has no knowledge of any Permitted Contests or subleases of such Leased Equipment. The Lessee shall have delivered to the Lessor and the Administrative Agent collateral assignments of all purchase, maintenance and repair contracts, including all Warranty Rights therein, for each Material Item of Leased Equipment being acquired by the Lessor, used commercially reasonable efforts to cause such assignments to be acknowledged by the issuer of the applicable warranties, in form and substance reasonably acceptable to the Lessor and the Administrative Agent.
(i)Invoices. The Lessor shall have received invoices from each Seller reflecting the respective Acquisition Cost for each item of Eligible Equipment to be acquired on such Advance Date; provided that such invoices shall be on terms and conditions that do not require the Lessor to become a party to the applicable Purchase Agreement (other than as assignee) or are in form and substance otherwise reasonably satisfactory to Lessor.
(j)Prepaid Rent. The Lessee shall have paid the Prepaid Rent with respect to such Leased Equipment to the Administrative Agent in accordance with Section 2.3(c) hereof.
(k)Use of Proceeds. The proceeds of each Advance, together with the proceeds of the Prepaid Rent, shall be used to fund Acquisition Costs related to Eligible Equipment in order for the Lessor to acquire such Eligible Equipment and subject it to a Lease as Leased Equipment pursuant to a Lease Supplement.
(l)Rent Assignment Interests Permitted by Applicable Law, etc. The acquisition of the Rent Assignment Interests by the Rent Assignees shall be permitted by Applicable Laws (including, without limitation, Regulations T, U and X of the F.R.S. Board) and shall not subject any Participant to any penalty, liability or other onerous condition under or pursuant to any Applicable Laws.
(m)Tax Documentation. The Lessee shall have delivered to each Participant, an Internal Revenue Service Form W-9.
(n)Taxes. All Taxes, fees and other charges due and payable on or prior to such Advance Date in connection with the Leased Equipment to be acquired by Lessor and leased to Lessee shall have been paid in full or provisions for such payments shall have been made by Lessee to the reasonable satisfaction of Administrative Agent. Any sales and use Taxes and duties related to the transactions contemplated by the Operative Documents due and payable as of such Advance Date shall have been paid through the use of the proceeds of the Rent Assignment Advances or otherwise provided for by Lessee.
(o)Collateral Assignments and Liens. The Collateral Agent (for the security and benefit of the Participants) shall have a security interest in all Collateral set forth in the Lease Supplement delivered on such Advance Date.
(p)Lien Searches, Financing Statements. Uniform Commercial Code searches shall have been performed and sufficient copies thereof delivered to the Lessor and the Administrative Agent, which shall indicate to each such party’s reasonable satisfaction that there are no Liens on such Advance Date (regardless of whether senior, pari passu or junior), other than Permitted Liens in effect with respect to any Collateral or Leased Equipment, and UCC-1 financing statements covering such collateral shall have been prepared by the parties thereto and
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copies thereof delivered to the Lessor and the Administrative Agent, all of which shall be in form and substance reasonably acceptable to the Lessor and the Administrative Agent.
(q)Filings, Recordings and Other Actions. The Lessee and the Lessor shall have executed and delivered all instruments and documents, other than the UCC-1 financing statements addressed in Section 3.1(p), necessary for (i) the Lessor to obtain a first perfected Lien on the Collateral and (ii) any of the applicable Operative Documents to become effective or enforceable, in each case in accordance with Applicable Laws. The Lessee shall have caused all such instruments and documents, and the UCC-1 financing statements described in Section 3.1(p), to be filed and recorded in such governmental offices as are necessary to perfect or publish notice of such Liens in favor of the Collateral Agent as assignee of the Lessor (or arrangements shall have been made for such filings and recordations to be completed promptly after the Advance on such Advance Date).
(r)Sites; Third-Party Actions. At least thirty (30) days in advance of the related Advance Date, the Lessee shall provide to the Lessor (i) the location of the Site for the Lease Supplement or Lease Supplements to be entered into on such Advance Date which Site shall be (A) an approved Site listed on Schedule 3.1(r) hereto or (B) otherwise satisfies the requirements set forth in this clause (r) and is subject to a Site Lease satisfying the requirements of the Operative Documents, (ii) executed copies of the Site Lease or Site Leases between it and the related Property Owner of the Site or Sites on which the GPU Equipment Pool to be leased on such Advance Date is to be located, (iii) executed copies of any master services agreement or an equivalent agreement between such owner and its tenants evidencing sufficient rights for the Lessee to install, use, operate and remove such GPU Equipment Pool or portion thereof at such Site which shall be so designated on the related Lease Supplement, and (iv) to the extent available, the applicable Site owner’s template Landlord Waiver and, if there exists a mortgage or similar Lien on the Site, a Mortgagee Waiver. On such Advance Date, each of the agreements referenced above, including a duly executed and delivered Landlord Waiver and, if applicable, Mortgagee Waiver, shall be in full force and effect, and no default, “event of default” or other event or circumstance shall have occurred and be continuing and no default, “event of default” or other event or circumstance shall exist thereunder after giving effect to the transactions contemplated herein that, in each case, gives rise to a termination right in favor of the landlord under the applicable Site Lease.
(s)Insurance. The Agents and each Participant shall have received evidence of Lessee’s compliance with the insurance requirements set forth in Section 11.1, 11.2 and Section 11.3 of the Lease with respect to the related Leased Equipment.
(t)No Event of Loss. No Event of Loss or other event or circumstance that, with the giving of notice or lapse of time or both, would constitute an Event of Loss shall have occurred and be continuing with respect to the related Leased Equipment.
(u)Transaction Costs. The Agents, the Arranger and each of the Participants shall have received payment of all Transaction Costs due and payable on or prior to such Advance Date that have been set forth in detailed invoices delivered to the Lessee reasonably in advance thereof.
Notwithstanding anything to the contrary contained in this Section 3.1, the Lessee’s obligation to deliver the items described in Sections 3.1(a), (b), (e), (f), (g), (h), (n), (r) and (s) shall be satisfied by its delivery of such item to the Lessor and the Administrative Agent, and the Administrative Agent shall use commercially reasonable efforts to post such item to a data site that is accessible to the Collateral Agent and the Rent Assignees on the same Business Day on
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which such item is received, or if such item is delivered after the Administrative Agent’s regular business hours, on the next Business Day.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
REPRESENTATIONS AND WARRANTIES
SECTION 4.1.Representations and Warranties of the Lessee.
As of the Closing Date and each Advance Date, the Lessee makes the representations and warranties set forth in this Section 4.1 to each of the other parties hereto:
(a)Use of Proceeds. The proceeds of each Advance, together with the proceeds of the Prepaid Rent, have been used to fund Acquisition Costs related to the Eligible Equipment acquired on each Advance Date in order for the Lessor to acquire such Eligible Equipment and subject it to a Lease as Leased Equipment pursuant to a Lease Supplement. All of the property described on each Schedule I to an Advance Request constitutes Eligible Equipment and the Acquisition Cost of Eligible Equipment described in clause (iii) of the definition thereof does not exceed ten percent (10%) of the aggregate Acquisition Costs of such Eligible Equipment.
(b)Title. As of the related Advance Date, the Lessor holds good and marketable legal and beneficial title to the related Leased Equipment, as described in the related Lease Supplement, free and clear of all Liens other than the Permitted Liens.
(c)Location of the Lessee. The Lessee’s address for purposes of preparing any UCC financing statement is at the following address:
DigitalOcean, LLC
105 Edgeview Drive, Suite 425
Broomfield, CO 80021
Broomfield, CO 80021
(d)Beneficial Ownership. As of the Closing Date, to the best knowledge of the Lessee, the information included in the Beneficial Ownership Certification, if any, provided by the Lessee to the Administrative Agent or any Participant in connection with this Agreement is true and correct in all respects.
(e)Pari Passu. Its payment obligations under this Agreement and each Lease rank at least pari passu with all its other present and future unsecured payment obligations, except as may be limited by bankruptcy, insolvency, liquidation or judicial proceedings or similar laws affecting the enforcement of creditors’ rights generally and as may be limited by equitable principles of general applicability.
(f)Insurance. All insurance policies required to be effected under Article XI of the Master Lease Agreement will be in full force and effect on each Advance Date as to all-risk coverage with respect to the related Leased Equipment and on the Closing Date as to commercial general liability and, to the best of the Lessee’s knowledge, starting from the related Advance Date, no event or circumstances has occurred nor has there been any omission to
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disclose a fact which in any such case would entitle any insurer to avoid or otherwise reduce its liability under any of the insurance policies.
SECTION 4.2.Representations and Warranties of the Lessor.
As of the Closing Date and each Advance Date, the Lessor represents and warrants to each of the other parties hereto as follows:
(a)Due Organization, etc. The Lessor is duly organized and validly existing under the laws of the jurisdiction of its incorporation and has full power and authority to own its properties, to enter into and perform its obligations as the Lessor under each Operative Document to which it is or will be a party and each other agreement, instrument and document to be executed and delivered by it on or before the Closing Date or such Advance Date in connection with or as contemplated by each such Operative Document to which it is or is to be a party, and to carry on its business as now being and hereafter proposed to be conducted.
(b)Due Authorization; Enforceability, etc. This Agreement and each other Operative Document to which the Lessor is or will be a party have been or will be (to the extent it is to be a party thereto in its individual capacity) duly authorized, executed and delivered by or on behalf of the Lessor (in its individual capacity) and are, or upon execution and delivery will be, legal, valid and binding obligations of the Lessor, enforceable against it in accordance with their respective terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, or similar laws affecting creditors’ rights generally and by general equitable principles.
(c)No Conflict. The execution and delivery by the Lessor of each Operative Document to which the Lessor is or will be a party, are not and will not be, and the performance by the Lessor of its obligations under each Operative Document (i) are not and will not be, inconsistent with the organizational documents of the Lessor; (ii) do not and will not contravene any Applicable Laws applicable to the Lessor and (iii) do not and will not conflict with result in a breach of, or a default under, the charter documents or resolutions of the Lessor or any indenture or other material agreement or instrument to which the Lessor is party, or any Governmental Action relating to the Lessor, except in any case, as could not reasonably be expected to have a material adverse effect on the ability of the Lessor to perform its obligations pursuant to the Operative Documents.
(d)Lessor Liens. The Leased Equipment is free and clear of all Lessor Liens attributable to the Lessor and no act or omission by it has occurred which would cause a Lessor Lien attributable to it.
(e)Location of the Lessor. The location of the Lessor, as defined by the Uniform Commercial Code, is the State of California and the Lessor’s address for purposes of preparing any UCC financing statement is at the following address:
MUFG Americas Capital Leasing & Finance, LLC
555 South Flower Street, 22nd Floor
Los Angeles, California 90071
The Lessor keeps or will keep its company records concerning the Equipment and the Operative Documents to which it is or will be a party at such address or at such other address of which the Lessor will provide the Collateral Agent notice within forty-five (45) days after its company records have been relocated.
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SECTION 4.3.Representations and Warranties of the Rent Assignees.
As of the Closing Date and each Advance Date, each Rent Assignee represents and warrants severally and only as to itself to each of the other parties hereto as follows:
(a)Due Organization, etc. It is duly organized and validly existing under the laws of the jurisdiction of its formation and has full power and authority to enter into and perform its obligations as a Rent Assignee under each Operative Document to which it is or is to be a party and each other agreement, instrument and document to be executed and delivered by it on or before the Closing Date or such Advance Date in connection with or as contemplated by each such Operative Document to which it is or is to be a party.
(b)ERISA. It is acquiring the Rent Assignment Interests with assets that are not “plan assets”, within the meaning of 29 C.F.R. Section 2510.3-101, as modified by Section 3(42) of ERISA, of any Benefit Plan.
(c)Investment in Rent Assignment Interests. It (i) is engaged in the business of investing in assets such as the Rent Assignment Interests may be and, as such, is a highly sophisticated institutional investor that (A) is fully capable of evaluating the merits and risks (including for tax, legal, regulatory, accounting and other financial purposes) of an investment in the Rent Assignment Interests, (B) is financially able to bear such risks of investment in the Rent Assignment Interests for an indefinite period of time, including an entire loss of its investment, (C) is fully capable of protecting its own interests in connection with the purchase of the Rent Assignment Interests without reliance upon any advice, counsel, statements, agreements, assurances, guarantees, due diligence investigation, representations or warranties (whether written or oral, direct or indirect, and express or implied) of the Lessor, any related transaction party or any of their respective control persons, partners, officers, directors, agents, employees or representatives or Affiliates or any of their respective control persons, partners, officers, directors, agents, employees or representatives concerning the Lessor, the Rent Assignment Interests or the Rent Assignee’s investment therein, and (D) has independently determined that an investment in the Rent Assignment Interests is suitable and appropriate for the Rent Assignee; (ii) has conducted its own independent due diligence investigation of the Lessor, the other transaction parties and the Rent Assignment Interests, and is relying solely on its own diligence investigation, its own financial analysis and whatever sources of information it has deemed appropriate, reliable and adequate with respect to the Rent Assignment Interests; (iii) has not relied and will not rely on any investigation that any Person acting on behalf of it may have conducted with respect to the Rent Assignment Interests, the Lessor, the Lessee, their assets or their agreements, and expressly acknowledges that it is not relying on the Lessor or any of its control persons, partners, officers, directors, agents, employees or representatives or Affiliates or any of their respective control persons, partners, officers, directors, agents, employees or representatives for advice or recommendations on legal, regulatory, accounting, tax, financial or investment matters concerning the Rent Assignment Interests and has consulted with and will rely on the advice of the Rent Assignee’s own professionals and advisors (including the Rent Assignee’s own legal counsel) for such matters; (iv) having availed itself of the advice of legal counsel and its own tax, accounting and regulatory advisors and based on such Rent Assignee’s own knowledge and investigation, has made an independent analysis and decision regarding the purchase of the Rent Assignment Interests based on such advice and not upon any information (whether delivered in written form or orally) provided to it by the Lessee or any of its control persons, partners, officers, directors, agents, employees or representatives or Affiliates or any of their respective control persons, partners, officers, directors, agents, employees or representatives; and (v) understands and takes full cognizance of the clear and substantial risks related to the acquisition of the Rent Assignment Interests, took those risks into account in
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making its determination to purchase the Rent Assignment Interests and is able to bear the economic risk of an entire loss of its investment in the Rent Assignment Interests.
(d)Notwithstanding the foregoing, but subject to the provisions of Article VI hereof, it is understood among the parties that the disposition of its property shall be at all times within its control. It and its respective agents and representatives have such knowledge and experience in financial and business matters as to enable them to utilize the information made available to them in connection with the transactions contemplated hereby, to evaluate the merits and risk of their participation investment in the financing contemplated hereby in the form of its Rent Assignment Interests and to make an informed decision with respect thereto and such an evaluation and informed decision have been made. The Rent Assignee understands that the Lessee will rely upon the completeness and accuracy of this Section 4.3(c) in establishing that the interests in the Operative Documents and the transactions contemplated thereby are exempt from registration under the Securities Act.
(e)Lessor Liens. The Leased Equipment is free and clear of all Lessor Liens attributable to such Rent Assignee and no act or omission by it has occurred which would cause a Lessor Lien attributable to such Rent Assignee.
(f)Eligible Assignees. It is an Eligible Assignee.
(g)Withholding Tax. Upon consummation of the assignment and assumption contemplated hereby, it will not be subject to United States federal or state Withholding Tax on payments under the Operative Documents, or any other Tax for which the Lessee will be obligated to indemnify or pay additional amounts pursuant to Section 7.2 or Section 7.3.
SECTION 4.4.Representations and Warranties of the Administrative Agent and the Collateral Agent.
As of the Closing Date and each Advance Date, each Agent hereby represents and warrants to each of the other parties hereto as follows:
(a)Organization and Authority. It is duly organized, validly existing and in good standing under the laws of the jurisdiction of its formation and has the power and authority to enter into and perform its obligations under the Operative Documents.
(b)Authorization; Binding Effect. The Operative Documents to which it is or will be a party have been or will be, on the date required to be delivered hereby, duly authorized, executed and delivered by it and this Agreement is, and such other Operative Documents are, or, when so executed and delivered by it will be, valid, legal and binding agreements of such Agent, enforceable against it in accordance with their respective terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors’ rights generally and by general principles of equity.
(c)Non-Contravention. Neither the execution and delivery by it of the Operative Documents to which it is or will be a party, either in its individual capacity, as Agent or both, nor compliance with the terms and provisions thereof, conflicts with, results in a breach of, constitutes a default under (with or without the giving of notice or lapse of time or both), or violates any of the terms, conditions or provisions of: (i) its organizational documents; (ii) any bond, debenture, note, mortgage, indenture, agreement, lease or other instrument to which it, either in its individual capacity, as Agent, or both, is now a party or by which it or its property,
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either in its individual capacity, as Agent or both, is bound or affected, where such conflict, breach, default or violation would be reasonably likely to materially and adversely affect its ability, either in its individual capacity, as Agent or both, to perform its obligations under any Operative Document to which it is or will be a party, either in its individual capacity, as Agent or both; or (iii) any of the terms, conditions or provisions of any Applicable Laws governing its banking or trust powers, or any order, injunction or decree of any Governmental Authority applicable to it in its individual capacity, as Agent or both, where such conflict, breach, default or violation would be reasonably likely to materially and adversely affect its ability, either in its individual capacity, as the Agent or both, to perform its obligations under any Operative Document to which it is or will be a party.
(d)Absence of Litigation, etc. There is no litigation (including, without limitation, derivative actions), arbitration or governmental proceedings served and pending or, to the best knowledge of such Agent, threatened against it which would be reasonably likely to adversely affect its ability to perform its obligations under the Operative Documents to which it is party.
(e)Consents, etc. No authorization, consent, approval, license or formal exemption from, nor any filing, declaration or registration with, any Governmental Authority governing its banking or trust powers, is or will be required in connection with its execution and delivery of the Operative Documents to which it is party or its performance of its obligations under such Operative Documents.
(f)Lessor Liens. The Leased Equipment is free and clear of all Lessor Liens attributable to such Agent and no act or omission by it has occurred which would cause a Lessor Lien attributable to such Agent.
SECTION 4.5.Representations and Warranties of Holdings and the Lessee.
Holdings and the Lessee represent and warrant to the Agents and the Participants on the Closing Date and on each Advance Date as to those matters set forth on Schedule 4.5 hereto.
ARTICLE V
COVENANTS OF THE LESSEE
COVENANTS OF THE LESSEE
SECTION 5.1.Covenants of the Lessee.
The Lessee covenants and agrees with the Lessor, the Agents and each of the Rent Assignees that it shall comply with the following provisions of this Section 5.1:
(a)Use of Proceeds. Lessee shall use the proceeds of the Advances exclusively for the purposes set forth herein and as described in the related Advance Request.
(b)Securities. The Lessee shall not, nor shall it permit anyone authorized to act on its behalf to, take any action which would subject the offer, issuance, sale, transfer or delivery of the Rent Assignment Interests or any security or lease the offering of which, for purposes of the Securities Act or any state securities laws would be deemed to be part of the same offering as the offering of the aforementioned items, to the registration requirements of Section 5 of the Securities Act or any state securities laws.
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(c)Chain of Custody. The Lessee shall require each Seller of GPUs and CPUs to ship such Leased Equipment to the applicable Site in tamper-evident packaging. Upon acceptance of delivery, the Lessee shall inspect all shipments of GPUs and CPUs for evidence of tampering and shall reconcile the manufacturer’s serial numbers on such GPUs and CPUs with those set forth in the related purchase order or similar documentation from the applicable Seller. In the event tampering is evident or the manufacturer’s serial numbers cannot be reconciled, the Lessee shall notify the Administrative Agent within five (5) Business Days and such affected Leased Equipment shall be promptly returned to the applicable Seller by the Lessee for replacement unless otherwise notified by the Administrative Agent.
SECTION 5.2.Affirmative Covenants of Holdings and the Lessee.
Holdings and the Lessee shall, and shall (except in the case of the covenants set forth in Section 5.2.1, Section 5.2.2 and Section 5.2.3 of Schedule 5.2 hereto) cause each Restricted Subsidiary to pay and perform those affirmative covenants and obligations set forth on Schedule 5.2 hereof.
SECTION 5.3.Negative Covenants of the Lessee.
Holdings and the Lessee shall not, nor shall they permit any of their Restricted Subsidiaries to pay and perform those covenants and obligations set forth on Schedule 5.3 hereof.
ARTICLE VI
OTHER COVENANTS AND AGREEMENTS
OTHER COVENANTS AND AGREEMENTS
SECTION 6.1.Cooperation with the Lessee.
The Agents and each of the Participants shall, to the extent reasonably requested by the Lessee (but without assuming additional liability on account thereof), as a Transaction Cost and at the Lessee’s expense after the Closing Date, cooperate to allow the Lessee to further the Lessee’s requirements as lessee of the Leased Equipment including, without limitation, to file any statement with respect to any tax abatements or other requirements; provided, none of the foregoing expose the Administrative Agent or any Participant to increased liability beyond that contemplated by the Operative Documents.
SECTION 6.2.Covenants of the Agents and the Participants.
(a)Discharge of Liens. Neither Agent, in both its individual capacity and in its capacity as Agent, will create or permit to exist at any time any Lessor Lien attributable to it, and the relevant Agent will promptly take such action as may be necessary duly to discharge, or to cause to be discharged, all Lessor Liens attributable to it and will cause restitution to be made to the Lessor for the benefit of the Lessee and the Participants (as their interests may appear) in the amount of any diminution of the value of the Leased Equipment as a result of its failure to comply with its obligations under this Section 6.2(a). The Lessor will not create or permit to exist at any time any Lessor Lien attributable to it, and will promptly take such action as may be necessary duly to discharge, or to cause to be discharged, all Lessor Liens attributable to it and will cause restitution to be made to the Lessee and the Rent Assignees (as their interests may appear) in the amount of any diminution of the value of the Leased Equipment as a result of its failure to comply with its obligations under this Section 6.2(a). Each of the Rent Assignees
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covenants as to itself, and not jointly with any other Rent Assignee, that it will not create or permit to exist at any time, any Lessor Lien attributable to it and will, at its own cost and expense, promptly take such action as may be necessary duly to discharge, or to cause to be discharged, all Lessor Liens attributable to it and will cause restitution to be made to the Lessor for the benefit of the Lessee and the other Participants (as their interests may appear) in the amount of any diminution of the value of the Leased Equipment as a result of its failure to discharge or cause to be discharged all Lessor Liens attributable to it pursuant to this Section 6.2(a).
(b)Other Lessor Covenants. The Lessor shall not subject any of the Leased Equipment to any mortgage, lien, security interest or other claim or encumbrance, other than in favor of the Collateral Agent, the Lessee and the Participants in accordance herewith or transfer any interest in the Leased Equipment other than as contemplated by, arising from or related to the Operative Documents.
(c)Depreciation. Prior to the termination of each Lease and the transfer of the Leased Equipment to any Person other than the Lessee or its Affiliate or its designee, none of the Participants shall claim any United States federal, state, or local tax attributes or benefits (including depreciation) relating to the Leased Equipment unless required to do so by an appropriate taxing Governmental Authority pursuant to a final non-appealable determination or after a clearly applicable change in Applicable Laws; provided, however, that if an appropriate taxing Governmental Authority shall require such Participant to claim any such United States federal, state, or local tax attributes or benefits, or after a clearly applicable change in Applicable Laws or in connection with a decision to make a protective response to a proposed adjustment by a Governmental Authority, such Participant shall promptly notify the Lessee thereof and, at the election of the Lessee, shall (i) permit the Lessee to contest such requirement in a manner similar to the contest rights provided in, and subject to any applicable limitation to a contest contained in, Section 7.2(b) hereof and/or (ii) promptly pay to the Lessee the amount of any Tax benefit eligible to be received as a result of such United States federal, state, or local tax attributes or benefits claimed or eligible to be claimed by such Participant provided, however, if a Participant loses the benefit of any such benefit for which it has made a payment pursuant to clause (ii), such loss shall be treated as a Tax indemnifiable hereunder without regard to exclusions (except to the extent such loss results from the Participant’s gross negligence, willful misconduct or fraud).
(d)Quiet Possession. If and so long as no Event of Default shall have occurred and be continuing, the Agents and each Participant, individually, and not severally, agrees that it shall not interfere with the Lessee’s right to the use, possession and quiet enjoyment of the Leased Equipment according to the terms hereof and of the other Operative Documents.
(e)Insurance Covenants. The Agents and the Participants herewith accept all covenants between the Lessee and each insurer made in accordance with the terms of the Operative Documents for their respective benefit including but not limited to the naming of the Agents and the Participants as additional insureds or as loss payees, as the case may be.
SECTION 6.3.Assignments.
(a)Rent Assignee Assignments. No Rent Assignee shall directly or indirectly, whether by operation of law or otherwise, assign, convey or otherwise transfer in whole or in part any of its right, title or interest in all or a portion of its Rent Assignment Interest and/or its rights, obligations and interest in, to or under this Agreement, the Operative Documents, the Collateral, and/or the Leased Equipment to any Person except with the prior written consent of the Lessee, which consent shall not be unreasonably withheld, conditioned or delayed at any time (it being agreed that it would be reasonable for the Lessee to withhold such consent if, among other things, payments to any such transferee would be or may become subject to United States
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federal or state Withholding Tax, or would be or may become subject to related gross-up obligations or Tax indemnification which would not apply to the transferor) and with the prior written consent of the Administrative Agent, which consent shall not be unreasonably withheld, conditioned or delayed at any time and upon compliance with the conditions set forth in this Section 6.3(a). Subject to the foregoing, any Rent Assignee may, assign and delegate all or a portion of its Rent Assignment Interest and its rights, obligations and interest in, to or under this Agreement, the Operative Documents and the Leased Equipment to one or more Eligible Assignees, subject to the following conditions:
(i)each such assignment shall be of a constant, and not a varying, percentage of the assigning Rent Assignee’s rights and obligations being assigned and shall be pro rata among all of the Leases;
(ii)the aggregate principal amount of the Rent Assignment Advances assigned by any Rent Assignee shall be in a minimum amount equal to the least of (A) $10,000,000 and integral multiples of $5,000,000 in excess thereof, (B) any lower amount approved by the Lessee in its sole discretion, and (C) the aggregate principal amount of all of such Rent Assignee’s Rent Assignment Advances;
(iii)after giving effect to any such assignment by a Rent Assignee, such Rent Assignee holds an outstanding Rent Assignment Balance and Commitment equal to either zero or at least $10,000,000 or any lower amount approved by the Lessee in its sole discretion;
(iv)the assignee shall not be a natural person or a Disqualified Rent Assignee (and such assignee shall be required to represent that it is not a Disqualified Rent Assignee or an Affiliate of a Disqualified Rent Assignee that would constitute a Disqualified Rent Assignee but for the fact that it is not readily identifiable as such on the basis of its name); provided that whether a prospective assignee is a Disqualified Rent Assignee may be communicated to a Rent Assignee upon request but the list of Disqualified Rent Assignees shall not be posted or otherwise distributed to the Rent Assignees, prospective Rent Assignees and prospective assignees; provided, further, that it is agreed that the Lessee may withhold its consent to an assignment to any person that is known by it to be an Affiliate of a Disqualified Rent Assignee (regardless of whether it is readily identifiable as an Affiliate by virtue of its name (other than, in the case of Disqualified Rent Assignees under clause (ii) of the definition thereof, such Affiliates that are bona fide debt funds));
(v)upon the consummation of such assignment, such Rent Assignee shall deliver an amended Schedule I and, if applicable, an amended Schedule II to the Lessee and the Administrative Agent, which amended Schedule I shall amend and restate the prior Schedule I automatically, without any action required by any other party hereto. Any permitted successor Rent Assignee shall be bound by the same restrictions on transfer as provided herein;
(vi)such sale, assignment or transfer will not be in violation of the registration requirements of the Securities Act of 1933, as amended or violate the USA PATRIOT Act;
(vii)the Administrative Agent shall have received from the assignee/transferee or the assignor/transferor a transfer fee in the amount of $3,500.00; and
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(viii)the Permitted Transferee shall have the requisite power and authority to enter into and carry out the transactions of a Rent Assignee contemplated hereby and by the Operative Documents to which such Rent Assignee is then a party.
(b)Lessor Assignments. The Lessor shall not directly or indirectly, whether by operation of law or otherwise, assign, convey or otherwise transfer in whole or in part any of its right, title or interest in the Leased Equipment, the Collateral, this Agreement, the Leases or any other Operative Document (for purposes of this Section 6.3, the “Lessor’s Interests”) to any Person except upon compliance with the conditions set forth in this Section 6.3(b). The Lessor shall not, without the prior written consent of the Lessee in its sole and absolute discretion, transfer such right, title or interests to any Person including to a Person that would (i) be subject to United States federal or state Withholding Tax, if any (except to the extent that the transferor at the time of such transfer is subject to United States federal or state Withholding Tax subject to indemnification by the Lessee pursuant to Section 7.2(a)(iii)) or be eligible for indemnification under Section 7.2(a)(i) in respect of any other Tax if the transferor is not also entitled to indemnification for the same amount of Tax, (ii) as reasonably determined by the Lessee and communicated in writing to the Lessor, result in consolidation of the transferee to the balance sheet of the Lessee pursuant to ASC 810, as defined by the Financial Accounting Standards Board or (iii) as reasonably determined by the Lessee have an adverse effect on the Overall Transaction. Subject to the foregoing, the Lessor may, with the prior written consent of the Lessee, which consent shall not be unreasonably withheld or delayed, at any time and at the Lessor’s sole expense, sell, assign or transfer in whole such right, title and interest to a transferee satisfying the conditions set forth below (a “Permitted Transferee”) and, provided, further, that it shall also be a condition to any such sale, assignment or transfer that:
(i)such sale, assignment or transfer will not be in violation of the registration requirements of the Securities Act of 1933, as amended or violate the USA PATRIOT Act;
(ii)the Permitted Transferee shall have the requisite power and authority to enter into and carry out the transactions of the Lessor as contemplated hereby and by the Operative Documents to which the Lessor is then a party;
(iii)the Permitted Transferee shall execute an instrument, in form and substance reasonably satisfactory to the Lessee, the Agents, the Lessor and the other Participants, whereby such Permitted Transferee confirms for the benefit of the Lessee, the Agents, the Lessor and the other Participants, that it has the requisite power and authority to enter into and to carry out the provisions of this Agreement and the Operative Documents to which the Lessor is then a party and agrees to be bound by all the terms of, and assumes all of the liabilities and obligations of the Lessor contained in, this Agreement and each of such Operative Documents;
(iv)the Permitted Transferee shall be either (A) an Eligible Assignee, (B) a subsidiary of any Person described in clause (A) above, or (C) a corporation which is a member of the same consolidated group for Federal income tax purposes as the Lessor, or another corporation owned and controlled by, or under common control with, the Lessor, provided, that if the Permitted Transferee is (x) a Person described in clause (B) above and not described in clause (A) above, a Person described in clause (A) shall have executed and delivered a guaranty in form and substance reasonably satisfactory to the Lessee, the Agents and the other Participants, or (y) a Person described in clause (C) above and not described in clause (A) above, the Lessor shall continue to be liable with respect to the obligations of the Permitted Transferee and shall confirm such fact in writing to the Lessee, the Agents and the other Participants;
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(v)if the Lessor proposes to transfer its interest hereunder at any time pursuant to this Section 6.3(b), the Lessor shall give not less than ten (10) Business Days’ (or in the case of a transfer to a Person described in clause (C) of clause (iv) above, five (5) Business Days’) notice to the Lessee, the Agents and the other Participants (and, as to the notice to Lessee, request for Lessee’s consent) specifying the name and address of the proposed Permitted Transferee and specifying the facts necessary to determine compliance with this Section 6.3 (and, as to the notice to Lessee, to enable Lessee to evaluate the request for consent); and
(vi)any transfer of the Lessor’s Interests shall be a transfer of all of the Lessor’s Interests in all of the Leases to a single transferee, and the Lessee and Lessor, each acting reasonably, shall agree upon a location and time for the transfer.
From and after any permitted transfer of the Lessor’s Interests effected in accordance with this Section 6.3(b), the Permitted Transferee shall be deemed the “Lessor” for all purposes of the Operative Documents and each reference contained in the Operative Documents to the Lessor shall thereafter be deemed a reference to the Permitted Transferee and such Permitted Transferee shall be bound by the same restrictions on transfer as provided herein, and the transferring Lessor shall have no further liability hereunder or thereunder except (i) to the extent of claims relating to or arising out of the period prior to such transfer or (ii) as otherwise provided in this Section 6.3(b).
(c)Required Deliveries. The Lessee, the Agents and the other Participants may continue to deal solely and directly with the assignor in connection with any interest so assigned under clauses (a) or (b) above, until (A) written consent of such assignment shall have been given by the Lessee to the Lessor and Lessor shall have provided the Agents and the other Participants notice of the same; and (B) the assignor and assignee shall have executed and delivered to the Lessee, the Administrative Agent and the other Participants an instrument of assignment in the form attached hereto as Exhibit B. When the relevant Persons have received the items listed in clauses (A) and (B) of the preceding sentence, subject to subsection (a) or (b) above, as applicable, the assignee shall be a party hereto and the other Operative Documents to which the assignor was (or, in the case of a partial assignment, is) a party and, to the extent of the rights and obligations so assigned to it, shall have the rights and obligations of the Lessor hereunder and under such other Operative Documents, and the assignor shall, to the extent that rights and obligations hereunder and under such other Operative Documents have been assigned by it, relinquish its rights and be released from its obligations hereunder and under such other Operative Documents.
(d)Exceptions to Restrictions. Notwithstanding anything to the contrary contained in this Section 6.3, (i) when an Event of Default pursuant to paragraphs (a), (g) and (h) of Article XVII of the Master Lease Agreement has occurred and is continuing, no consent of the Lessee shall be required in respect of an assignment by any Participant to any third party (whether or not an Eligible Assignee or a Permitted Transferee) of all or any part of its rights and obligations under or with respect to this Agreement and the other Operative Documents, (ii) without the consent of the Lessee, any Participant may assign and pledge all or any portion of its Rent Assignment Balance owing to it to any Federal Reserve Bank, the European Central Bank and the central bank of any country which is a member of the Organization for Economic Cooperation and Development as collateral security pursuant to Regulation A of the Board of Governors of the Federal Reserve System and any Operating Circular issued by such Federal Reserve Bank or regulations of the European Central Bank or other central bank of any country which is a member of the Organization for Economic Cooperation and Development, as applicable, provided that no such assignment shall release the assigning Participant from its
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obligations under the Operative Documents, (iii) without the consent of the Lessee, any Participant may assign all or any portion of its Rent Assignment Balance owing to it to any Affiliate of such Participant, another Participant or any affiliate or subsidiary of such other Participant that is an Eligible Assignee or to a Lender or Approved Fund, each as defined under the Credit Agreement and, provided that, for the avoidance of doubt, no change in the law, rules or regulations applicable to any Participant due solely to any such assignment shall be deemed a “Change in Law” or a change in any “regulatory requirement” as such terms are defined in Section 7.4 hereof, and (iv) subject to the provisos at the end of this clause (iv), no consent of the Lessee shall be required in respect to an assignment by any Participant to any third party (whether or not an Eligible Assignee or Permitted Transferee) of all or any part of the rights and obligations under or with respect to this Agreement and the other Operative Documents, if such assignment is required by Applicable Laws; provided, however, in the event any Participant is required to assign to a third party as required by Applicable Law, such Participant shall use good faith efforts to make such assignment to an Eligible Assignee or a Permitted Transferee and, if such Participant cannot make an assignment to an Eligible Assignee or a Permitted Transferee, such Participant shall consult with the Lessee regarding any potential assignee; provided, further, that this consultation right of the Lessee shall not in any way prevent an assignment by such Participant if required by Applicable Law. Notwithstanding the foregoing, no such assignment described in clauses (ii), (iii) or (iv) shall cause payments to such transferee to be subject to United States federal or state Withholding Tax (except to the extent that the transferor at the time of such transfer is subject to United States federal or state Withholding Tax subject to indemnification by the Lessee pursuant to Section 7.2(a)(iii)) or be eligible for indemnification under Section 7.2(a)(i) in respect of any other Tax if the transferor is not also entitled to indemnification for the same amount of Tax.
(e)Register. The Administrative Agent shall maintain a book-entry register for the recordation of the names and addresses of the Participants that own Rent Assignment Interests and Lessor’s Interests, and the Commitments of, and Advance and any other amounts treated as principal or interest for United States Federal income tax purposes owing to, each Participant pursuant to the terms hereof from time to time (the “Register”). The entries in the Register shall be conclusive absent manifest error, and the Lessee, the Agents and the Participant shall treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Participant hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Lessee and any Participant, at any reasonable time and from time to time upon reasonable prior notice. The Administrative Agent shall make payments only to persons named on the Register, and a Participant may only transfer its right to receive payments in respect of its Rent Assignment Interests by having the transfer recorded on the Register.
SECTION 6.4.Participations.
Each of the Rent Assignees may, at any time, sell, transfer or assign a participation in all or a portion of the interests represented by its Rent Assignment Interests or any right to payment thereunder (each such sale, transfer or assignment of a participation in such interests or rights, a “Participation”), to any Person (such Person, a “Participation Holder”) other than a Disqualified Rent Assignee or a natural person. In the event of any such sale, transfer or assignment by a Rent Assignee of a Participation to a Participation Holder, the rights and obligations of such Rent Assignee under this Agreement and under the other Operative Documents shall remain unchanged, such Rent Assignee shall remain solely responsible for the performance thereof, such Rent Assignee shall remain the holder of its Rent Assignment Interests for all purposes under this Agreement and under the other Operative Documents, and the Agents, the Lessee and the other Participants shall continue to deal solely and directly with
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such Rent Assignee in connection with such Participation Holder’s rights and obligations under this Agreement and the other Operative Documents. Any agreement pursuant to which any Rent Assignee may grant such a Participation shall provide that such Rent Assignee shall retain the sole right and responsibility to enforce the obligations of the Lessee under the Operative Documents including, without limitation, the right to approve any amendment, modification or waiver of any provision of the Operative Documents provided, that, such agreement may require such Rent Assignee to obtain the consent of the Participation Holder party thereto before such Rent Assignee enters into or approves any amendment, modification or waiver of any provision of any Operative Document that (i) extends any date upon which any payment of money is due to the Rent Assignees, (ii) reduces the Interest on the Lease Balance, any fee or any other payment obligation under the Operative Documents, (iii) releases any party from any payment obligations, or (iv) releases any interest of Rent Assignees in the Leased Equipment (except as otherwise expressly provided for in any Operative Document), each in a manner that affects such Rent Assignee. Any Rent Assignee that sells, transfers or assigns a Participation pursuant hereto hereby agrees to indemnify, protect, defend and hold harmless the Lessee, on a Grossed-Up Basis, against any United States federal or state Withholding Tax which may arise solely from its Participation, except to the extent (x) the Lessee would have been responsible for such Withholding Tax pursuant to Section 7.2(a)(iii) had no Participation been transferred or (y) such Withholding Tax is imposed on the Lessee as a result of the fraud, gross negligence or willful misconduct of the Lessee. To the extent a Rent Assignee sells, transfers or assigns a Participation pursuant hereto, such Rent Assignee shall, acting solely for this purpose as a non-fiduciary agent of the Lessee, maintain a register on which it enters the name and address of each Participation Holder and information relating to the Rent Assignment Interests held by such Participation Holder (including information relating to any amounts treated as principal or interest for United States Federal income tax purposes) (the “Participant Register”); provided that no Rent Assignee shall have any obligation to disclose all or any portion of the Participant Register (including the identity of any Participation Holder or any information relating to a Participation Holder’s Rent Assignment Interests) to any Person except to the extent that such disclosure is necessary to establish that such commitment, loan, letter of credit or other obligation is in registered form under Section 5f.103-1(c) of the United States Treasury Regulations. The entries in the Participant Register shall be conclusive absent manifest error, and such Rent Assignee shall treat each Person whose name is recorded in the Participant Register as the owner of such Participation for all purposes of this Agreement notwithstanding any notice to the contrary. Each Rent Assignee subject to this Section 6.4 shall make payments only to persons named on the Participant Register, and any owner of a Participation may only transfer its right to receive payments in respect of its Participation in Rent Assignment Interests by having the transfer recorded on the Participant Register. Notwithstanding any other provision of this Section 6.4 or any other Operative Document, a Participation Holder shall not be entitled to receive any greater payment under Section 7.2, Section 7.3 or Section 7.4 of this Agreement than the applicable Rent Assignee would have been entitled to receive with respect to the Participation sold to such Participation Holder, unless the sale of the Participation to such Participation Holder is made with the Lessee’s prior written consent and such consent explicitly acknowledges such Participation Holder’s right to receive such greater payment; provided that, the foregoing limitation shall not apply to the extent such entitlement to receive a greater payment results from a Change in Law that occurs after such Participation Holder became a Participation Holder.
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ARTICLE VII
INDEMNIFICATION AND ADDITIONAL PAYMENTS
INDEMNIFICATION AND ADDITIONAL PAYMENTS
SECTION 7.1.General Indemnification.
(a)Claims Indemnified. Subject to the exclusions stated in subsection 7.1(b) below, the Lessee will indemnify, defend and hold each Indemnitee harmless, on a Grossed-Up Basis, from and against any and all Claims (which may include the outstanding Lease Balance or any portion thereof) that directly or indirectly relate to, result from or arise out of or are alleged by Persons other than any Indemnitee to relate to, result from or arise out of any of the following (whether or not any such Indemnitee is indemnified as to such matter by any other Person and whether or not such Claim arises or accrues prior to the Closing Date, any Advance Date or after the Maturity Date or the Lease Expiration Date):
(i)the Leased Equipment, a Site, the Collateral or, in each case, any part thereof;
(ii)any of the Operative Documents, Site Leases, master services agreement or other Site related agreement or any of the transactions contemplated thereby, or any investigation, litigation, enforcement or proceeding in connection therewith, and any amendment, modification or waiver in respect thereof;
(iii)the regulation of the ownership, leasing, use or operation of the Leased Equipment, a Site or any part thereof, but only to the extent that the Indemnitee is subjected to such regulation as a result of its being a party to or beneficiary of the Operative Documents or its involvement in the transactions contemplated in the Operative Documents;
(iv)the offer, financing, refinancing, inspection, mortgaging, pledging, granting of a security interest in, the design, manufacture, construction, purchase, ownership, acquisition, acceptance, rejection, delivery, nondelivery, redelivery, possession, transportation, lease, sublease, installation, condition, transfer of title or other ownership interest (including any broker’s claims with respect thereto or marketing thereof), rental, use, operation, storage, maintenance, modification, alteration, repair, assembly, sale, return, abandonment or other application or disposition of all or any part of the Leased Equipment or any product produced therewith, a Site or any interest therein or improvements thereto or the imposition of any Lien thereon, or the failure to perform or accomplish any of the foregoing in accordance with the requirements of the Operative Documents, other agreements governing such matters or Applicable Laws including, without limitation: Claims or penalties arising from any violation of law or in tort (strict liability or otherwise), latent or other defects, whether or not discoverable, any Claim based upon a violation or alleged violation of the terms of any restriction, easement, condition or covenant or other matter affecting title to the Leased Equipment, the making of any Alterations in violation of any standards imposed by any insurance policies required to be maintained by the Lessee pursuant to the Leases which policies are in effect at any time with respect to the Leased Equipment or any part thereof, any Claim for patent, trademark or copyright infringement, and Claims arising from any improvements with respect to the Leased Equipment or a Site resulting in any change or special assessments being levied by the Property Owner against the Leased Equipment;
(v)a breach by the Lessee of any of its covenants under any Operative Document or a misrepresentation by the Lessee (including any omission that makes any representation made by such party materially misleading) in any Operative Document or
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in any certificate or other document delivered by such party to the Agents or any Participant pursuant to any Operative Document, or the occurrence of any Default or Event of Default, or the material inaccuracy of any information provided by any such party to any third party in connection with the preparation by such third party of a report or other document required to be delivered pursuant to any Operative Document;
(vi)other than the Lessor’s Liens, the existence of any Lien on or with respect to the Leased Equipment, title thereto, any interest therein or any Basic Rent or Supplemental Rent, including any Liens which arise out of the possession, use, occupancy, construction, repair or rebuilding of the Leased Equipment or by reason of labor or materials furnished or claimed to have been furnished to the Lessee, or any of its contractors or agents or by reason of the financing of any personalty or equipment purchased or leased by the Lessee or Alterations constructed by the Lessee, except Liens in favor of the Lessee, the Collateral Agent or the Lessor;
(vii)any Environmental Claim;
(viii)the offer, issuance, sale, transfer or delivery of the Rent Assignment Interests; and
(ix)any civil penalty or fine assessed by either (1) OFAC or any other Governmental Authority administering any Anti-Money Laundering Law, Anti-Corruption Law or Sanctions or (2) any Governmental Authority administering any Applicable Export Control Laws, and in either case all reasonable costs and expenses (including reasonable documented legal fees and disbursements) incurred in connection with defense thereof by any Indemnitee in connection with the Operative Documents as a result of any action of the Lessee or any of its respective Affiliates.
(b)The Lessee shall be entitled to credit against any payments due to an Indemnitee under this Section 7.1 both (x) any insurance recoveries received by such Indemnitee in respect of the matters described herein under or from insurance paid for by any Person other than the Indemnitee or an Affiliate thereof or assigned to the Lessor by the Lessee and (y) any other indemnity amount received by such Indemnitee in respect of such matters from a Person (other than the Lessee) unrelated to such Indemnitee; provided, to the extent any such insurance amounts or indemnity amounts referenced in the foregoing subsections (x) or (y) are utilized for one purpose (for example, such as addressing a repair expense in the context of an Event of Loss), then such insurance amount or indemnity amount shall not be available, or deemed available, for any other purpose (for example, such as rebuilding the Leased Equipment in the context of an Event of Loss).
(c)Exclusions. The provisions of Section 7.1(a) shall not apply to any Claim:
(i)with respect to any Indemnitee, to the extent attributable to the willful misconduct, bad faith or gross negligence of, such Indemnitee, its officers, agents, employees and Affiliates, or negligence in the handling of funds by either Agent, or the breach in any material respect of any representation, warranty or covenant made by such Indemnitee under the Operative Documents;
(ii)to the extent attributable to acts or events that occur after the repossession of the Leased Equipment by the Lessor or any Person designated by the Lessor following an Event of Default or the return of the Leased Equipment pursuant to
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the Leases (except (A) to the extent fairly attributable to circumstances existing or acts, events, liabilities or damages occurring or accruing prior to such repossession, or (B) to the extent relating to the acts or omissions of the Lessee in relation to, or liabilities arising out of, the location, structure, installation, putting into service, operation, repair, servicing, maintenance, replacement or dismantling of the Leased Equipment or remaining on or the entering onto a Site or the Leased Equipment by any such Person);
(iii)in respect of Taxes, which are governed by Section 7.2, other than a payment necessary to make payments under this Section 7.1 on a Grossed-Up Basis; or
(iv)claims brought by an Indemnitee against any other Indemnitee that do not involve an act or omission by the Lessee, the Guarantors or any of their respective Affiliates (other than a claim against the Administrative Agent or the Arranger in such capacity).
(d)Insured Claims. In the case of any Claim indemnified by the Lessee hereunder that is covered by a policy of insurance maintained by the Lessee, each Indemnitee agrees to cooperate, at the Lessee’s expense, with the insurers in the exercise of their rights to investigate, defend and compromise such Claim.
(e)Contests. In respect of the indemnification provided under Section 7.1(a), promptly after receipt by an Indemnitee of notice of any pending or threatened Claim, such Indemnitee shall, if a claim for indemnification in respect thereof is to be made against the Lessee, give notice thereof to the Lessee. So long as no Event of Default has occurred and is continuing, the Lessee, at its own expense, may elect to assume and control the defense of any such Claim through its own counsel, which shall be subject to the reasonable approval of the Indemnitee, on behalf of the Indemnitee (with full right of subrogation to the Indemnitee’s rights and defenses). The Lessee must indicate its election to assume such defense by written notice to the Indemnitee within forty-five (45) days following receipt of Indemnitee’s notice of the Claim, or in the case of a third-party claim which requires a shorter time for response then within such shorter period as specified in the Indemnitee’s notice of Claim; provided that such Indemnitee has given the Lessee notice thereof. If the Lessee denies liability or fails to respond to the notice within the time period set forth above, the Indemnitee may defend or compromise the Claim as it deems appropriate without prejudice to any of Indemnitee’s rights hereunder. If the Lessee shall have elected to assume the defense of any such Claim, then upon the request of the Lessee, the Indemnitee requesting payment of indemnity under Section 7.1(a) shall promptly furnish the Lessee with copies of any records or documents pertaining to the matter to be indemnified and, to the extent known by such Indemnitee, a reasonably detailed explanation of the circumstances giving rise to the claim of indemnification and the determination of the amount of the requested indemnity payment. Upon payment in full to Indemnitee of any indemnity pursuant to Section 7.1(a), the Lessee shall be subrogated to any right of Indemnitee in respect of the matter against which such indemnity has been paid. If the Lessee shall have elected to assume the defense of any such Claim, upon the written request at any time and from time to time of the Lessee, Indemnitee shall, at the expense of the Lessee, take such reasonable actions and execute such documents as are necessary or reasonably appropriate to assist the Lessee in the preservation and enforcement against third parties of the Lessee’s right of subrogation hereunder. The Indemnitee may employ separate counsel in any such Claim and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of the Indemnitee unless the Indemnitee and the Lessee shall have been advised by counsel that there exists a conflict of interest in such counsel’s representation of the Indemnitee and the Lessee in which case the fees and expenses of such separate counsel shall be for the account of the Lessee. All fees and expenses shall be paid periodically as incurred. So long as no Default or Event of Default shall have occurred and be continuing, the Indemnitee shall not settle any such Claim (other than a Claim involving potential criminal liability or charges or involving reputational risk with respect
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to an Indemnitee) without the Lessee’s prior written consent unless the Lessee shall have failed to assume the defense thereof and the Lessee shall not be liable for any settlement of any such Claim effected without its consent unless the Lessee shall fail to, or elect in writing not to, assume the defense thereof in which case the Indemnitee, without waiving any rights to indemnification hereunder, may defend such Claim and enter into any good faith settlement thereof without the prior written consent of the Lessee. The Lessee shall not, without the prior written consent (not to be unreasonably withheld) of the Indemnitee, effect any settlement of any such Claim unless such settlement includes an unconditional release of the Indemnitee from all civil and criminal liabilities that are the subject of such Claim. The parties agree to cooperate in any defense or settlement of any such Claim and to give each other reasonable access to all information relevant thereto subject to appropriate confidentiality agreements. The parties will similarly cooperate in the prosecution of any claim or lawsuit against any third party.
(f)Subrogation. Upon the indefeasible payment in full of any Claim pursuant to this Section 7.1, the Lessee, without any further action, shall be subrogated to any claims the Indemnitee may have relating thereto. The Indemnitee agrees, at the Lessee’s expense, to give such further assurances or agreements and to cooperate with the Lessee to permit the Lessee to pursue such claims, if any, to the extent reasonably requested by the Lessee. If the Lessee shall have paid an amount to or for an Indemnitee pursuant to this Section 7.1 and such Indemnitee subsequently shall be reimbursed in respect of such indemnified amount from any other Person, such Indemnitee shall promptly pay the Lessee, but not before the Lessee shall have made all payments then due to such Indemnitee pursuant to this Section 7.1 and any other payments then due hereunder and under any other Operative Document, the amount of such reimbursement, including interest actually received attributable thereto, net of Taxes required to be paid by such Indemnitee as a result of any refund received, after giving effect to such payment to the Lessee.
(g)No Guaranty. Nothing set forth in this Section 7.1 constitutes a guarantee by the Lessee that any Leased Equipment at any time will have any particular value, useful life or residual value.
(h)Payments; Interest. Any amount payable to any Indemnitee on account of a Claim shall be paid within thirty (30) days after receipt by the Lessee of a written demand therefor from such Indemnitee accompanied by a written statement describing in reasonable detail the Claims that are the subject of and basis for such indemnity and the computation of the amount payable. Any payments made pursuant to this Section 7.1 directly to an Indemnitee or to the Lessee, as the case may be, shall be made in immediately available funds at such bank or to such account as is specified by the payee in written directions to the payor or, if no such directions are given, by check of the payor payable to the order of the payee and mailed to the payee by certified mail, return receipt requested, postage prepaid to its address referred to in Section 9.3. To the extent permitted by applicable law, during the continuance of an Event of Default, interest at the Overdue Rate shall be paid, on demand, on any amount or indemnity not paid when due pursuant to this Section 7.1 until the same is paid. Such interest shall be paid in the same manner as the unpaid amount in respect of which such interest is due.
(i)Tax deduction or credit. If, by reason of any Claim payment made to or for the account of an Indemnitee by the Lessee pursuant to this Section 7.1, such Indemnitee subsequently realizes a tax deduction or credit (including foreign tax credit and any reduction in Taxes) not previously taken into account in computing such payment, so long as no Event of Default has occurred and is continuing, such Indemnitee shall promptly pay to the Lessee, but only if the Lessee has made all payments then due and owing to such Indemnitee under the Operative Documents, an amount equal to the sum of (i) the actual reduction in Taxes realized by such Indemnitee which is attributable to such deduction or credit, and (ii) the actual reduction in Taxes realized by such Indemnitee as a result of any payment made by such Indemnitee pursuant to this sentence; provided that, the Lessee, upon request of such Indemnitee, agrees to repay the
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amount paid over to the Lessee (plus any penalties, interest or other charges imposed by the relevant taxing authority) to such Indemnitee to the extent a subsequent determination by such taxing authority results in an actual increase in Taxes payable by such Indemnitee which is attributable to such deduction or credit. Each Indemnitee agrees to make good-faith efforts to claim any such tax deduction or credit that may reasonably be available and to provide promptly thereafter to the Lessee written notification of any action, proceeding or decision with respect to such claim.
SECTION 7.2.General Tax Indemnity.
(a)(i) Tax Indemnity. The Lessee shall pay on written demand and shall indemnify and hold each Tax Indemnitee at all times harmless from and against, any and all Taxes, howsoever imposed, on or with respect to any Tax Indemnitee, the Leased Equipment or the Lessee or any sublessee or user of the Leased Equipment by any taxing Governmental Authority, in connection with or in any way relating to: (A) the acquisition, mortgaging, inspection, delivery, non-delivery, acceptance, rejection, purchase, ownership, possession, rental, lease, sublease, repossession, maintenance, repair, alteration, modification, addition, substitution, storage, transfer of title (including any brokers claims with respect thereto), redelivery, use, financing, refinancing, operation, condition, purchase, repurchase, sale, return or other application or disposition of all or any part of the Leased Equipment or the imposition of any Lien (or incurrence of any liability to refund or pay over any amount as a result of any Lien) thereon; (B) the payment of Basic Rent or Supplemental Rent or the receipts arising from or received with respect to the Leased Equipment or any part thereof, or any interest therein; (C) the payment of any other amount pursuant to the Rent Assignment Agreement or any other Operative Documents, or the property or the income or other proceeds with respect to the Equipment; (D) the Leased Equipment or any part thereof or any interest therein; (E) the execution, delivery, filing, registration or recording of any financing statements or Operative Documents and any respective amendments and supplements thereto; and (F) otherwise with respect to or in connection with the transactions contemplated by the Operative Documents or the enforcement thereof in accordance with their respective terms.
(i)General Tax Indemnity Exclusions. The indemnification obligations of Section 7.2(a)(i) shall not apply to:
(1)Taxes (other than Taxes that are sales, use, rental, value added or Taxes of a similar nature that are not substitutes for income taxes) based upon or measured by the Tax Indemnitee’s gross or net income, gross or net receipts, franchise Taxes, branch profits Taxes, or that are in the nature of, or are imposed with respect to, capital, net worth, excess profits, accumulated earnings, capital gains, franchise or conduct of business of such Tax Indemnitee (or its direct or indirect owners) except in the case of gross or net income Taxes, to the extent necessary so that payments under this Section 7.2 are made to a Tax Indemnitee on a Grossed-Up Basis within the meaning of Section 7.6;
(2)Taxes that result from a transfer or other disposition by the Tax Indemnitee or any of its Affiliates of all or any portion of its interest in the Leased Equipment, the Rent Assignment Agreement or the Operative Documents (including a Participation), other than a transfer or disposition that occurs while an Event of Default has occurred and is continuing and is related to such Event of Default or that results from (a) the Lessee’s exercise of the Return Option or the Early Termination Option under the Lease, (b) any other transfer to the Lessee under the Operative Documents or which is contemplated by the Operative Documents or (c) any other transfer made at the request of the Lessee in an effort
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to maintain or enhance the accounting treatment of the Lessee with regard to the Overall Transaction;
(3)Taxes imposed with respect to any period or portion thereof after the expiration or earlier termination of the Leases (but not to the extent attributable to events occurring on or prior to such date) (other than any Tax that is attributable to (a) any Tax Indemnitee exercising its remedies upon an Event of Default, (b) any payment to, by or on behalf of the Lessee after such termination, or (c) any party’s compliance with any obligation under the Operative Documents that survives the termination of the Lease, except, in each case, to the extent such Tax would otherwise be an excludable tax but for this parenthetical);
(4)Taxes resulting from (a) the gross negligence, willful misconduct or fraud of the Tax Indemnitee or any of its Affiliates, (b) any representation, warranty, certification or statement of the Tax Indemnitee under the Operative Documents proving to have been incorrect when made or deemed to have been made, or (c) the breach of any covenant of the Tax Indemnitee under the Operative Documents;
(5)Taxes imposed on the Agents, the Lessee or the Lessor, in each case in their respective individual capacity, with respect to any fees received by it for services rendered;
(6)Withholding Taxes, indemnification for which shall be solely as provided in Section 7.2(a)(iii) hereof;
(7)Taxes while they are being contested in accordance with Section 7.2(b);
(8)Taxes imposed on, or, in the case of value added taxes, not refunded to, a Tax Indemnitee that results from its failure to file tax returns properly or timely, to claim a deduction or credit to which it is entitled, or to comply with certification, reporting, or similar requirements of the jurisdiction imposing the Tax, except to the extent caused by a failure of the Lessee to comply with Section 7.2(d), provided that the foregoing exclusion shall apply only if such Tax Indemnitee is eligible to comply with such requirement and such Tax Indemnitee shall have been given timely written notice by the Lessee of such requirement;
(9)Taxes imposed on a transferee of any Participant’s interest hereunder (other than a transferee who acquired such interest as a result of any transfer or assignment in connection with the occurrence of an Event of Default) to the extent of the excess of such Taxes over the total amount of the Taxes of the same or similar nature that would have been imposed had there not been a transfer by the transferor Tax Indemnitee of its interest after the Closing Date;
(10)Taxes in the nature of intangible taxes or similar taxes upon or with respect to the value of the interest of a Rent Assignee or the Lessor in any of the Rent Assignment Interests;
(11)Taxes included in the cost of the Equipment and funded by the Advance;
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(12)Taxes that would not have been imposed but for any “prohibited transaction” within the meaning of Section 406 of ERISA or Section 4975 of the Code;
(13)Taxes that would not have been imposed but for any indebtedness, head lease, swap, hedge or other financing arrangements of any Participant or any Affiliate thereof, provided that the provisions of the Leases and this Agreement, and the lease contemplated thereby, are not such indebtedness, head lease, swap, hedge or other financing arrangements and provided further that this Section 7.2(a)(ii)(13) shall not apply to Taxes of any Participant arising as a result of the circumstances described in Section 7.5(a)-(d);
(14)Taxes imposed by a taxing Governmental Authority that is not the United States or any taxing Governmental Authority within the United States, except to the extent caused by the Lessee making a payment from such jurisdiction;
(15)Taxes that would not have been imposed but for a present or former connection between any Participant or any Affiliate thereof and the jurisdiction imposing such Tax, other than a connection arising solely by reason of the transactions contemplated by the Operative Documents; and
(16)Taxes imposed for the failure to comply with any of the requirements of Section 7.3.
(ii)Withholding Tax Indemnity. The Lessee shall not be required to make any additional payment to or on behalf of a Tax Indemnitee with respect to any Withholding Tax, except that the Lessee agrees to indemnify, protect, defend and hold harmless the Tax Indemnitees, against Withholding Taxes described in paragraphs (A) and (B) of this Section 7.2(a)(iii). If any such withholding is so required, the Lessee shall make the withholding and pay the amount withheld to the appropriate taxing Governmental Authority before penalties attach thereto or interest accrues thereon. Withholding Taxes referred to in the first sentence of this Section 7.2(a)(iii) as indemnifiable are:
(A)Withholding Taxes imposed under the laws of any jurisdiction other than the United States and any taxing jurisdictions therein, if such Tax is imposed solely as a result of the Lessee making the payment from such jurisdiction;
(B)Withholding Taxes imposed under the laws of the United States, or any taxing jurisdiction therein, imposed solely as the result of a change in Tax laws, regulations, rulings, interpretations or treaties after the Closing Date (and, in the case of a Rent Assignee, after the date of the assignment pursuant to which such Rent Assignee acquired an interest hereunder).
Notwithstanding the foregoing, the Lessee shall not be required to make any additional payment to or on behalf of a Tax Indemnitee on account of or with respect to:
(I)any Withholding Tax to the extent resulting from the failure of such Tax Indemnitee to comply with Section 7.3;
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(II)any Withholding Taxes imposed on a transferee to the extent of the excess of such Withholding Taxes over the total amount of the Withholding Taxes that would have been imposed had there not been a transfer by the initial Tax Indemnitee of its interest after the Closing Date;
(III)any Withholding Taxes imposed under FATCA; and
(IV) any Withholding Taxes based upon or measured by the Tax Indemnitee’s gross or net income, gross or net receipts, or that are in the nature of, or are imposed with respect to, capital, net worth, excess profits, accumulated earnings, capital gains, franchise or conduct of business of such Tax Indemnitee (or its direct or indirect owners).
If the Lessee pays any amount to a Tax Indemnitee with respect to Withholding Taxes required to be withheld by law but not subject to indemnity pursuant to this Section 7.2, such Tax Indemnitee shall reimburse the Lessee within fifteen (15) days of written demand therefor for the amount so paid by the Lessee provided that if such Tax Indemnitee fails to reimburse the Lessee within such fifteen (15) days, such Tax Indemnitee shall thereafter be obligated to reimburse the Lessee for such amount together with interest on such amount at the Overdue Rate from the date such reimbursement was due until the date it is paid.
(iii)Nothing contained in Section 7.2(a) shall entitle a Tax Indemnitee to indemnification of a Tax under more than one subsection of Section 7.2(a).
(b)Contests. If any claim or claims is or are made against any Tax Indemnitee for any Tax which is subject to indemnification as provided in Section 7.2(a), such Tax Indemnitee shall as soon as practicable, but in no event more than thirty (30) days after receipt of formal written notice of the claim for Tax or proposed Tax, notify the Lessee. Notwithstanding anything to the contrary contained in this Section 7.2(b), the Lessee shall not be required to indemnify any Tax Indemnitee pursuant to Section 7.2(a) for any incremental interest, penalties or expenses resulting from the failure of such Tax Indemnitee to notify the Lessee of such possible indemnification claim within 180 days after such Tax Indemnitee receives written notice from the applicable taxing Governmental Authority of the specific tax assessment giving rise to such indemnification claim. Upon receipt of a written request from Lessee to such Tax Indemnitee, Lessee shall be entitled (so long as the provisos of the definition of “Permitted Contest” continue to be satisfied), at no cost or expense to the Tax Indemnitee, (i) in any contest involving only Lessee-indemnified Taxes or (ii) in any contest involving one or more other Taxes, where the contest of such Lessee-indemnified Taxes can be severed (and, provided that such Tax Indemnitee uses reasonable efforts to do so, is severed) from the contest of such other Taxes, to assume responsibility for and control of the contest in Lessee’s own name or in the name of such Tax Indemnitee, if Lessee is permitted by law to do so, through appropriate administrative and judicial proceedings, including pursuing judicial appeals (but not to the U.S. Supreme Court). If a Tax Indemnitee is requested in writing by Lessee to contest any claim for Lessee-indemnified Taxes and if such claim is not being contested by Lessee pursuant to the previous sentence, such Tax Indemnitee shall, in good faith and with due diligence, to the extent permitted by applicable law, regulations or rules, contest the validity, applicability or amount of such Taxes, through appropriate administrative and judicial proceedings, including pursuing judicial appeals (but not to the U.S. Supreme Court), provided that (x) there exists a reasonable basis to contest any such Tax which satisfies the requirements of ABA Formal Opinion 85-352
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(as supported by an opinion of tax counsel to the Lessee, which may be an employee of Lessee), and (y) so long as the provisos of the definition of “Permitted Contest” continue to be satisfied and, in the case of a Tax on gross or net income, the aggregate amount of the Tax exceeds $100,000. The Lessee shall pay all out-of-pocket expenses incurred by the Tax Indemnitee in contesting any such Tax (including, without limitation, all reasonable attorney’s and accountants’ fees and expenses), upon demand by the Tax Indemnitee. The Lessee shall have the right to participate in the conduct of any proceedings controlled by the Tax Indemnitee to the extent that such participation by the Lessee does not interfere with the Tax Indemnitee’s control of such contest and the Lessee shall in all events be kept informed, to the extent practicable, of material developments relative to such proceedings. The Tax Indemnitee shall have the right to participate in the conduct of any proceedings controlled by the Lessee to the extent that such participation by the Tax Indemnitee does not interfere with the Lessee’s control of such contest, and the Tax Indemnitee shall in all events be kept informed, to the extent practicable, of material developments relative to such proceedings. The Tax Indemnitees agree that a contested claim for which the Lessee would be required to make a reimbursement payment hereunder will not be settled or compromised without the Lessee’s prior written consent or the Tax Indemnitee waives its right to indemnification hereunder and repays the Taxes advanced by the Lessee as a non-interest bearing loan by the Lessee to such Tax Indemnitee without interest.
(c)Permitted Contest. Tax Indemnitee shall endeavor to settle or compromise any such contested claim in accordance with written instructions received from the Lessee; provided, that (i) the Lessee on or before the date the Tax Indemnitee executes a settlement or compromise pays the contested Tax to the extent agreed upon or makes an indemnification payment to the Tax Indemnitee in an amount acceptable to the Tax Indemnitee; and (ii) the settlement or compromise does not, in the reasonable opinion of the Tax Indemnitee materially adversely affect the right of the Lessor or such Tax Indemnitee to receive Rent or the Lease Balance or any other payment pursuant to the Operative Documents, or involve a material risk of sale, forfeiture or loss of the Leased Equipment or any interest therein or any matter described in the provisos to the definition of “Permitted Contest.” The failure of a Tax Indemnitee to (x) notify the Lessee of the existence of any claim against such Tax Indemnitee of any Tax as required by the first sentence of this Section 7.2(b) or (y) contest timely a claim against it for any Tax which is subject to indemnification under Section 7.2(a) and for which it has an obligation to the Lessee to contest under this Section 7.2(b) in the manner required by Applicable Laws where the Lessee has timely requested (with regard to the time of the initial notification by Tax Indemnitee) that such Tax Indemnitee contest such claim, in each case shall relieve the Lessee of its obligations to such Tax Indemnitee under Section 7.2(a) with respect to such claim only to the extent such failure materially impairs the contest of such claim. If Applicable Laws require the payment of a contested Tax as a condition to, or regardless of, its being contested, and the Lessee chooses to contest such Tax or to direct the Tax Indemnitee to contest such Tax in accordance with this Section, then the Lessee shall provide the Tax Indemnitee with the funds to pay such Tax, such provision of funds to be deemed a non-interest bearing loan by the Lessee to the Tax Indemnitee to be repaid by any recovery of such Tax (including the amount of any interest received by reason of payment or deposit of the Tax claimed with funds advanced by the Lessee to the Tax Indemnitee with respect to such recovered Tax, payable on a net after-tax basis to the Tax Indemnitee) from such contest and any remaining unpaid amount not recovered to offset the Lessee’s obligation to indemnify the Tax Indemnitee for such Tax or returned to Lessee if such Tax is not subject to indemnification. The Lessee shall indemnify the Tax Indemnitee on a Grossed-Up Basis in accordance with Section 7.6 for and against any adverse consequences of any such interest-free loan.
(d)Payments. Any Tax indemnifiable under Section 7.2(a) shall be paid by the Lessee directly when due to the applicable taxing Governmental Authority if direct payment is practicable and permitted. If direct payment to the applicable taxing Governmental Authority is not permitted or is otherwise not made, any amount payable to a Tax Indemnitee pursuant to
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Section 7.2(a) shall be paid within thirty (30) days after receipt of a written demand therefor from such Tax Indemnitee accompanied by a written statement describing in reasonable detail the amount so payable (accompanied by a written statement describing the basis for such indemnity), but not before the date that the relevant Taxes are due or, in the case of taxes that are contested under Section 7.2(b), the contest is finally resolved. Any payments made pursuant to Section 7.2(a) directly to the Tax Indemnitee entitled thereto or the Lessee, as the case may be, shall be made in immediately available funds at such bank or to such account as specified by the payee in written directions to the payor, or, if no such direction shall have been given, by check of the payor payable to the order of the payee by certified mail, postage prepaid at its address as set forth in this Agreement. Upon the request of any Tax Indemnitee with respect to a Tax that the Lessee is required to pay, the Lessee shall furnish to such Tax Indemnitee the original or a certified copy of a receipt for the Lessee’s payment of such Tax or such other evidence of payment as is reasonably acceptable to such Tax Indemnitee.
(e)Calculation of Payments. Any payment that the Lessee shall be required to make to or for the account of any Tax Indemnitee with respect to any Tax that is subject to indemnification under this Section 7.2 shall be paid on a Grossed-Up Basis under Section 7.6 of this Agreement. If a Tax Indemnitee or any Affiliate of such Tax Indemnitee who files any tax return on a combined, consolidated, unitary or similar basis with such Tax Indemnitee shall actually realize any saving of any Tax not indemnifiable by the Lessee pursuant to the Operative Documents (by way of credit (including any foreign tax credit), deduction, exclusion from income or otherwise) by reason of any amount with respect to which the Lessee has indemnified such Tax Indemnitee pursuant to this Section 7.2, and such tax saving was not taken into account in determining the amount payable by the Lessee on account of such indemnification, such Tax Indemnitee shall promptly pay to the Lessee the amount of such saving together with the amount of any tax saving resulting from any payment pursuant to this sentence (provided that such payments by such Tax Indemnitee shall not exceed the amount of the payments made by the Lessee to or for such Tax Indemnitee which gave rise to such savings and payment by such Tax Indemnitee). Each Tax Indemnitee agrees to make, at the Lessee’s expense, good-faith efforts to claim any such tax saving or exemption that may reasonably be available and to provide promptly thereafter to the Lessee written notification of any action, proceeding or decision with respect to such claim.
(f)Refund. If a Tax Indemnitee shall receive a refund of (or receive a credit against or any other current reduction in, any Tax not indemnified by the Lessee under this Section 7.2, in respect of) all or part of any Taxes which the Lessee shall have paid on behalf of such Tax Indemnitee or for which the Lessee shall have reimbursed, advanced funds to or indemnified such Tax Indemnitee, such Tax Indemnitee shall promptly pay or repay to the Lessee an amount equal to the amount of such refund, plus any net tax benefit (taking into account any Taxes incurred by such Tax Indemnitee by reason of the receipt of such refund, credit or reduction) realized by such Tax Indemnitee as a result of any payment by such Tax Indemnitee made pursuant to this sentence (provided that such payments by such Tax Indemnitee shall not exceed the amount of the payments made by the Lessee to or for such Tax Indemnitee which gave rise to such refund and payment by such Tax Indemnitee). If, in addition to such refund, credit or reduction, as the case may be, such Tax Indemnitee shall receive an amount representing interest on the amount of such refund, credit or reduction, as the case may be, such Tax Indemnitee shall promptly pay to the Lessee that proportion of such interest that shall be fairly attributable to Taxes paid, reimbursed or advanced by the Lessee prior to the receipt of such refund. If a Tax Indemnitee loses the benefit of any refund for which it has made a payment pursuant to this Section 7.2(f), such loss shall be treated as a Tax indemnifiable hereunder without regard to exclusions. Each Tax Indemnitee agrees to make, at the Lessee’s expense, good-faith efforts to claim any such refund, credit, reduction or exemption that may reasonably be available and to provide promptly thereafter to the Lessee written notification of any action, proceeding or decision with respect to such claim.
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(g)Tax Savings. If any Indemnitee realizes any credits, deductions or other Tax benefits by reason of any payment or indemnity pursuant to Section 7.1 or 7.2 not taken into account in making such payment or indemnity on a Grossed-Up Basis, such Indemnitee shall pay to Lessee the lesser of (i) the sum of the amount by which such credits, deductions and other Tax benefits reduce such Indemnitee’s Taxes plus any Tax savings realized as the result of any payment by such Indemnitee made pursuant to this sentence and (ii) the aggregate amount of all payments by Lessee to or for the account of such Indemnitee under Section 7.1 or 7.2 (other than any contest expenses and less the amount of any prior payments by such Indemnitee to Lessee pursuant to this Section 7.2(g)), with the excess of (i) over (ii), if any, being carried forward and applied to reduce pro tanto any subsequent obligations of Lessee to make payments to such Indemnitee pursuant to Section 7.1 or 7.2. Any Taxes that are imposed on an Indemnitee as a result of the disallowance or reduction in a subsequent Tax year of a Tax benefit paid to Lessee pursuant to this Section 7.2(g) shall be treated as a Tax for which Lessee is obligated to indemnify such Indemnitee without regard to the exclusions.
(h)Verification. At Lessee’s written request after Lessee receives Tax Indemnitee’s computations showing the amount of any indemnity payable by Lessee to such Tax Indemnitee pursuant to this Section 7.2, such computations shall be subject to confidential verification in writing by a nationally recognized firm of certified public accountants jointly selected by Lessee and such Tax Indemnitee. The accounting firm shall be instructed to complete its review within 30 days of Lessee’s receipt of such Tax Indemnitee’s computations. The computations of such accounting firm shall (i) be delivered simultaneously to Lessee and such Tax Indemnitee and (ii) absent prima facie error, be final, binding and conclusive upon Lessee and such Tax Indemnitee. If Lessee pays any indemnity in whole or in part before completion of the verification procedure, appropriate adjustments will be made promptly after completion of the verification procedure (and nothing in this Section 7.2(h) shall be construed as changing the time when any such indemnity is payable under this Section 7.2) to take into account any redetermination of the indemnity by the accounting firm. The fee and disbursements of such accounting firm shall be paid by Lessee unless such verification shall disclose an error in such Tax Indemnitee’s computation in favor of such Tax Indemnitee (i.e., an adjustment in Lessee’s favor) exceeding ten percent of the amount as computed by the Tax Indemnitee, in which case such fee and disbursements shall be paid by such Tax Indemnitee. Such Tax Indemnitee shall cooperate with such accounting firm and (subject to such accounting firm’s execution of a confidentiality agreement reasonably satisfactory to such Tax Indemnitee) shall supply such accounting firm with all information reasonably necessary to permit such review and determination.
(i)Restructuring for Withholding Taxes. Each party covered by this Section 7.2 agrees to use reasonable efforts to investigate alternatives for reducing any Withholding Taxes that are indemnified against hereunder or imposed on Rent, or Interest on the Lease Balance (whether or not indemnifiable hereunder) and to use reasonable efforts to reduce any Withholding Taxes that are indemnified against hereunder including, without limitation, negotiating in good faith to relocate or restructure the Advance (which relocation or restructuring shall be at the Lessee’s expense in the case of indemnifiable Withholding Taxes), but no party shall be obligated to take any such action as such party determines will be adverse to its business or financial or commercial interests.
(j)Preparation and Filing of Tax Returns. The Lessee shall be responsible for preparing and filing on its behalf any Tax returns in respect of the Leased Equipment applicable to the Lessee. In case any report or Tax return shall be required to be made with respect to any Tax indemnified by the Lessee under Section 7.2(a)(i), the Lessee, at its sole cost and expense, shall notify the relevant Tax Indemnitee of such requirement and reasonably cooperate with such Tax Indemnitee in the filing of such return.
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SECTION 7.3.Withholding Tax Documentation.
(a)At least fifteen (15) Business Days prior to the first payment date with respect to a payment under the Operative Documents that is subject to a Withholding Tax on interest or Interest that is indemnifiable under Section 7.2(a)(iii) and that is imposed by a jurisdiction outside the United States, the Tax Indemnitee shall have complied with certification, information, documentation, reporting, filing, or other similar requirements concerning the nationality, residence, identity, or connection with the jurisdiction imposing such Withholding Taxes or any other similar matters that are required by law as a condition to total exemption or total relief from such Withholding Taxes to the extent it is legally entitled to do so and shall have notified the Lessee in writing of such compliance (and shall provide updated notice to Lessee from time to time upon Lessee’s reasonable written request). The Tax Indemnitee shall further timely comply with all requirements for keeping any such exemption in full force and effect, unless a change in treaty, law, or regulation has occurred that would prevent the Tax Indemnitee from complying and the Tax Indemnitee promptly advises the Lessee in writing that it is not capable of receiving payments without withholding. Lessee shall provide Rent Assignees in writing promptly after request therefor and shall reasonably assist Rent Assignees with completing such documentation if requested to do so in writing by any Rent Assignee. To the extent any Participant is not a U.S. Person, it represents and warrants that it qualifies for portfolio interest exemption contained in Section 871(h) or Section 881(c) of the Code. Each of the parties hereto acknowledges that, to their knowledge, on the Closing Date, no certification, documentation, reporting or similar confirmation is required of a Tax Indemnitee to establish total exemption from Withholding Taxes on interest, Interest or any other amounts relevant to this transaction in any applicable jurisdiction other than Internal Revenue Service Forms W-8BEN, W-8BEN-E, W-8ECI or W-8IMY and any required attachments (in the case of a Tax Indemnitee that is not a U.S. Person) or Internal Revenue Service Form W-9 (in the case of a Tax Indemnitee that is a U.S. Person), in each case as required by Section 7.3(b).
(b)Prior to becoming a Participant, hereunder, each Participant shall have delivered to each of the Lessee, Lessor and the Administrative Agent, (i) in the case of a Participant that is a U.S. Person, two duly completed copies of United States Internal Revenue Service form W-9, certifying that such Participant is exempt from United States backup withholding tax, and (ii) in the case of a Participant that is not a U.S. Person, two duly completed copies of United States Internal Revenue Service Form W-8BEN, W-8BEN-E, W-8ECI or W-8IMY and any required attachments, in any case with taxpayer identifying numbers, certifying that such Participant is entitled to receive payments of Interest on the Lease Balance, a return of principal of its Lease Balance, as applicable, under the Operative Documents without deduction or withholding of any United States Federal income taxes. In delivering any such form or any successor or replacement form, a Participant shall be entitled to assume that the payor of such Interest or return of principal is organized under the laws of the United States or any state thereof. Each Participant which so delivers Internal Revenue Service Form W-9 or Internal Revenue Service Form W-8BEN, W-8BEN-E, W-8ECI or W-8IMY and any required attachments it shall further deliver to each of the Lessee and the Administrative Agent, two additional copies of such form (or a successor form) on or before the date that such form expires or becomes inaccurate or obsolete or within thirty (30) days after the occurrence of any event requiring a change in the most recent forms so delivered by it, and, as may be reasonably requested by the Lessee or the Administrative Agent such amendments thereto or extensions or renewals thereof, in each case certifying that such Participant is entitled to receive payments under the Operative Documents without deduction or withholding of any United States Federal income taxes, unless a change in treaty, law or regulation has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such Participant from duly completing and delivering any such form with respect to it and such Participant promptly advises the Lessee and the Administrative Agent in
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writing that it is not capable of receiving payments without any withholding of United States Federal income tax.
(c)Without limiting the foregoing, in the case of a Participant that is not a U.S. Person that (X) is the beneficial owner of the Interest and is claiming the benefits of an exemption for portfolio interest under Section 881(c) of the Code, such Participant shall provide a certificate substantially in the form of Exhibit D-1 to the effect that (i) such Participant is not (A) a “bank” within the meaning of section 881(c)(3)(A) of the Code, (B) a “10 percent shareholder” of the Lessee within the meaning of section 871(h)(3)(B) of the Code, or (C) a “controlled foreign corporation” related to the Lessee described in section 881(c)(3)(C) of the Code, and (ii) the interest payments in question are not effectively connected with the United States trade or business conducted by such Rent Assignee (a “U.S. Tax Compliance Certificate”) or (Y) is not the beneficial owner (for example, where such Participant has issued a Participation) but is transmitting a claim for the benefits of an exemption for portfolio interest under Section 881(c) of the Code by the beneficial owner, such Participant shall provide a U.S. Tax Compliance Certificate substantially in the form of Exhibit D-2, D-3 or D-4, as applicable.
(d)If any payment made to a Tax Indemnitee hereunder would be subject to U.S. federal withholding Tax imposed by FATCA if such Tax Indemnitee were to fail to comply with the applicable reporting requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of the Code, as applicable), such Tax Indemnitee shall deliver to the Lessee, the Lessor and the Administrative Agent at the time or times prescribed by law and at such time or times reasonably requested by the Lessee or the other Participants such documentation prescribed by applicable law (including as prescribed by Section 1471(b)(3)(C)(i) of the Code) as may be necessary for the Lessee, the Lessor and the Administrative Agent to comply with their respective obligations, if any, under FATCA and to determine that such Tax Indemnitee has complied with such Tax Indemnitee’s obligations under FATCA or to determine the amount to deduct and withhold from such payment.
SECTION 7.4.Increased Costs.
(a)If any Change in Law shall:
(i) subject any Participant to any Taxes (other than Taxes described in Section 7.2(a)(i) and Taxes described in Section 7.2(a)(iii)) on its Rent Assignment Balance; or
(ii) impose, modify or deem applicable any reserve, special deposit, or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Participant; or
(iii) impose on any Participant or the applicable lending office (or, in the case of the Lessor, the applicable leasing office), any other condition, cost or expense (other than Taxes) affecting this Agreement, any Rent Assignment Advances or, in the case of the Lessor, the Leased Equipment or any Lease;
and the result of any of the foregoing shall be to increase the cost to such Participant of converting any such advance or making, maintaining or continuing any such advance (or of maintaining its obligation to make any such advance) or to reduce the amount of any sum received or receivable by such Participant hereunder (whether of principal, interest or otherwise), then the Lessee will pay to such Participant such additional amount or amounts as will compensate such Participant for such additional costs incurred or reduction suffered.
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(b)If any Participant reasonably determines in good faith that any Change in Law regarding capital or liquidity requirements has or would have the effect of reducing the rate of return on such Participant’s capital or on the capital of such Participant’s holding company, if any, as a consequence of this Agreement or the Rent Assignment Advances made by such Participant, to a level below that which such Participant or such Participant’s holding company could have achieved but for such Change in Law (taking into consideration such Participant’s policies and the policies of such Participant’s holding company with respect to capital adequacy or liquidity), then from time to time the Lessee will pay to such Participant, as the case may be, such additional amount or amounts, in each case as documented by such Participant to the Lessee as will compensate such Participant or such Participant’s holding company for any such reduction suffered; it being understood that to the extent duplicative of the provisions in Section 7.2, this Section 7.4(b) shall not apply to Taxes.
(c)A certificate of a Participant setting forth the amount or amounts necessary to compensate such Participant or its holding company, as the case may be, as specified in paragraph (a) or (b) of this Section 7.4 shall be delivered to the Lessee and shall be conclusive absent manifest error. The Lessee shall pay such Participant the amount shown as due on any such certificate within fifteen (15) days after receipt thereof.
(d)Failure or delay on the part of any Participant to demand compensation pursuant to this Section 7.4 shall not constitute a waiver of such Participant’s right to demand such compensation; provided that the Lessee shall not be required to compensate a Participant pursuant to this Section 7.4 for any increased costs or reductions incurred more than one hundred eighty (180) days prior to the date that such Participant notifies the Lessee of the Change in Law giving rise to such increased costs or reductions and of such Participant’s intention to claim compensation therefor; provided, further, that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the one hundred eighty (180) day period referred to above shall be extended to include the period of retroactive effect thereof. The protection of this Section 7.4 shall be available to each Participant regardless of any possible contention as to the invalidity or inapplicability of the law, rule, regulation, guideline or other change or condition which shall have occurred or been imposed.
(e)Any determination by a Participant of amounts owed pursuant to this Section 7.4 to such Participant due to any Change in Law, pursuant to the proviso in the definition thereof shall be made in good faith in a manner generally consistent with such Participant’s standard practice.
(f)If any Rent Assignee or the Lessor requests compensation under this Section 7.4 or requests reimbursement for amounts owing pursuant to Section 7.2(a)(i) or 7.2(a)(iii), then such Rent Assignee or the Lessor, as applicable, will, if requested by the Lessee, use commercially reasonable efforts to designate (i) in the case of a Rent Assignee, another lending office for any Rent Assignment Advance affected by such event and (ii) in the case of the Lessor, another leasing office for its interest in the Leased Equipment and the related Lease affected by such event; provided that such efforts are made on terms that, in the reasonable judgment of such Rent Assignee or the Lessor, as applicable, cause such Rent Assignee and its lending office(s), or the Lessor and its leasing office(s), as applicable, to suffer no material economic, legal or regulatory disadvantage; and provided further that nothing in this Section 7.4(f) shall affect or postpone any of the Obligations of the Lessee or the rights of such Rent Assignee or the Lessor pursuant to Section 7.4(a), (b), (c), (d) or (e).
As used herein:
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“Change in Law” shall mean, after the date hereof, (a) the adoption of any law, rule or regulation after the date of this Agreement, (b) any change in any law (including pursuant to any treaty), rule or regulation or in the interpretation or application thereof by any Governmental Authority after the date of this Agreement applicable to the Lessee or (c) compliance by any Participant (or, for purposes of Section 7.4(b), by any lending office of such Participant or by such Participant’s holding company, if any) with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the date of this Agreement; provided that notwithstanding anything herein to the contrary, (x) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, regulations, requirements, guidelines or directives thereunder or issued in connection therewith and (y) all requests, rules, regulations, requirements, guidelines or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities, in each case pursuant to Basel III, shall in each case be deemed to be a “Change in Law” regardless of the date enacted, adopted, implemented or issued.
SECTION 7.5.Advance Losses.
In the event of (a) the payment of any principal of any Rent Assignment Advance other than on the last day of a Payment Period applicable thereto (including as a result of the occurrence and continuance of an Event of Default), (b) the failure to borrow, convert, continue or prepay any Rent Assignment Advances on the date specified in any notice delivered pursuant hereto, (c) the assignment of any Rent Assignment Balance other than on the last day of the Payment Period applicable thereto as a result of a request by the Lessee pursuant to Section 2.15 or Section 9.5(b), or (d) any loss or expense incurred by any Participant by reason of (x) an early termination or unwind of any swap or other hedging arrangement entered into (or deemed entered into) by any Participant in connection with the fixing of the Interest Rate, or (y) the liquidation or reemployment of deposits or other funds acquired by such Participant to make, continue or maintain any portion of its investment in the Rent Assignment Balance on a basis of interest rates applicable to deposits in Dollars or any replacement rate therefor (excluding, however the Applicable Margin or other margin included therein, if any) in the event of a payment or prepayment of the foregoing on a date other than the respective Maturity Date, as such loss and expense shall be reasonably determined in good faith, then, in any such event, at the request of such Participant, the Lessee shall compensate such Participant for the loss, cost and expense (the amount of such loss, cost and expense, the “Break Amount”), attributable to such event. Such loss, cost or expense to any Participant in the case of clauses (a), (b) and (c) above, shall be deemed to include an amount reasonably determined in good faith by such Participant to be the excess, if any, of (i) the amount of interest which would have accrued on the principal amount of such Rent Assignment Balance had such event not occurred, at the applicable rate of interest for such Rent Assignment Balance (excluding, however the Applicable Margin or other margin included therein, if any), for the period from the date of such event to the last day of the then current Payment Period therefor (or, in the case of a failure to borrow, convert or continue, for the period that would have been the Payment Period for such Rent Assignment Advances), over (ii) the amount of interest which would accrue on such principal amount for such period at the interest rate which such Participant would bid were it to bid, at the
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commencement of such period, for a comparable amount and period from other banks in the applicable market. A certificate of any Participant setting forth any amount or amounts that such Participant is entitled to receive pursuant to this Section 7.5 shall be delivered to the Lessee and shall be conclusive absent manifest error. The Lessee shall pay such Participant the amount shown as due on any such certificate within fifteen (15) days after receipt thereof. Notwithstanding the foregoing, the Lessee shall not be required to compensate a Participant pursuant to this Section 7.5 for any loss, cost or expense incurred more than one hundred eighty (180) days prior to the date that such Participant notifies the Lessee of the event giving rise to such claim; provided that, if the circumstance giving rise to such claim is retroactive, then such 180-day period referred to above shall be extended to include the period of retroactive effect thereof.
SECTION 7.6.Gross Up.
If a Tax Indemnitee shall not be entitled to a corresponding and equal deduction with respect to any payment or Tax which the Lessee is required to pay or reimburse under any other provision of this Article VII (each such payment or reimbursement under this Article VII, an “original payment”) and which original payment constitutes income to such Indemnitee when accrued or received, then the Lessee shall pay to such Indemnitee on demand the amount of such original payment on a grossed-up basis such that, after subtracting all Taxes imposed on such Indemnitee with respect to such grossed-up payment by the Lessee (including any Taxes otherwise excluded by Section 7.2(a)(i) and assuming for this purpose that such Indemnitee was subject to taxation at the highest United States Federal, state and local marginal rates applicable to corporations and, in the case of Withholding Taxes subject to indemnification pursuant to Section 7.2(a)(iii), the marginal rates actually applicable to the Indemnitee for the year in which such income is taxable), such amount (i.e., the grossed-up payment minus the taxes thereon) shall be equal to the original payment to be received or reimbursed (net of any credits, deductions or other tax benefits then actually recognized that arise from the payment by such Indemnitee of any amount, including taxes, for which the payment to be received is made) (“Grossed-Up Basis”).
ARTICLE VIII
AGENCY
AGENCY
SECTION 8.1.Appointment of the Administrative Agent and the Collateral Agent; Powers and Authorization to Take Certain Actions.
(a)Each of the Participants irrevocably appoints and authorizes MUFG Bank, Ltd. to act as its Administrative Agent (and MUFG Bank, Ltd. hereby consents to such appointment and authorization) and each of the Participants irrevocably appoints and authorizes MUFG Bank, Ltd. to act as its Collateral Agent for the respective purposes set forth in the Operative Documents (and MUFG Bank, Ltd. hereby consents to such appointment and authorization), in each case hereunder and under the other Operative Documents, with such powers as are specifically delegated to the Administrative Agent or the Collateral Agent by the terms hereof and thereof, together with such other powers as are reasonably incidental thereto; provided, however, in respect of the Collateral Agent’s duties with respect to the Assignment of Lease, the Collateral Agent is hereby appointed as agent for the Rent Assignees (which
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appointment is hereby accepted) and shall act solely for the benefit of the Rent Assignees. Each Participant authorizes and directs the Administrative Agent or the Collateral Agent, as the case may be, to, and each of the Agents agrees for the benefit of the Participants that, on the Closing Date, will accept the documents described or referred to in Section 2.1 of this Agreement. Each of the Agents accepts the agency hereby created applicable to it and agrees to receive all applicable payments and proceeds pursuant to the Operative Documents and disburse such payments or proceeds in accordance with the Operative Documents to which it is a party.
(b)With respect to certain of Lessor’s rights under each Lease and other Operative Documents, Lessor has sold and assigned such rights to the Rent Assignees as part of the Rent Assignment Interests pursuant to the Rent Assignment Agreement. In connection therewith, Lessor and the Rent Assignees hereby appoint the Collateral Agent to act as agent for the Lessor and Rent Assignees jointly as secured party and grantee of Liens made by the Lessee under the Operative Documents, which appointment is accepted by the Collateral Agent. In addition, the Participants and the Agents agree that the Agents shall take instructions from the Rent Assignees on a pro rata basis in accordance with the Rent Assignment Interest acquired respectively by the Rent Assignees and acknowledge and agree that the Rent Assignees have acquired all of the voting rights described as part of the Rent Assignment Interests and such rights are expressly set forth in this Agreement and the other Operative Documents.
(c)Neither the Administrative Agent nor the Collateral Agent shall have any duties or responsibilities except those expressly set forth in the Operative Documents. Neither the Administrative Agent nor the Collateral Agent shall be responsible to any Participant (or to any other Person): (i) for any recitals, statements, representations or warranties of any party contained in any Operative Document or in any certificate or other document referred to or provided for in, or received by it under, the Operative Documents, other than the representations and warranties made by each of the Agents in Section 4.4, (ii) for the value, validity, effectiveness, genuineness, enforceability or sufficiency of the Leased Equipment or the title thereto or (iii) for any failure by the Lessee, the Lessor, or any other Person (other than each of the Agents, as applicable) to perform any of its obligations under any Operative Document. Each of the Agents may, in fulfilling its obligations, employ agents, trustees or attorneys-in-fact, may vest any of them with any property, title, right or power deemed necessary for the purposes of such appointment and shall not be responsible for the negligence or misconduct of any of them selected by it with reasonable care.
(d)Neither the Administrative Agent nor the Collateral Agent shall have any duty or obligation to manage, control, use, operate, store, lease, sell, dispose of or otherwise deal with the interest held by the Lessor and, with respect to the Collateral Agent, any other easement granted to it pursuant to the Operative Documents, the Leased Equipment, or to otherwise take or refrain from taking any action with respect thereto, except as expressly provided by the terms of the Operative Documents, and no implied duties of any kind shall be read into any Operative Document against each of the Agents. The permissive right of each of the Agents to take actions enumerated in this Agreement or any other Operative Document shall never be construed as a duty, unless it is instructed or directed to exercise, perform or enforce one or more rights by the Required Rent Assignees (provided that each of the Agents has received indemnification reasonably satisfactory to it). Subject to Section 8.1(e) below, no provision of the Operative Documents shall require the Administrative Agent or the Collateral Agent to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its obligations under the Operative Documents, or in the exercise of any of its rights or powers thereunder. It is understood and agreed that the duties of each of the Agents are ministerial in nature.
(e)Except as specifically provided herein, each of the Agents is acting hereunder solely as agent and, except as specifically provided herein, is not responsible to any party hereto in its individual capacity, except with respect to any claim arising from its own gross
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negligence or willful misconduct, or its negligence in the handling of funds or any breach of a representation or covenant made in its individual capacity.
(f)Each of the Agents may accept deposits from, lend money to and otherwise deal with the Lessee or any of its Affiliates with the same rights as it would have if it were not named the Administrative Agent or the Collateral Agent hereunder.
SECTION 8.2.Reliance.
Each of the Agents may rely upon, and shall not be bound or obligated to make any investigation into the facts or matters stated in, any certificate, notice or other communication (including any communication by telephone or email) reasonably believed by it to be genuine and correct and to have been made, signed or sent by or on behalf of the proper Person or Persons, and upon advice and statements of legal counsel, independent accountants and other experts selected by each of the Agents with due care (including any expert selected by each of the Agents to aid it in any calculations, if any, required in connection with its duties under the Operative Documents).
SECTION 8.3.Action Upon Instructions Generally.
(a)Subject to Sections 8.4, 8.6 and 9.5, upon written instructions of the Required Rent Assignees or all Rent Assignees or all Participants if so required hereunder or pursuant to any other Operative Document, each of the Agents shall, solely in the furtherance of its duties as Administrative Agent or the Collateral Agent, as applicable, on behalf of the Rent Assignees or the Lessor, as the case may be, give such notice, consent, approval or direction, exercise such right, remedy or power hereunder or under the other Operative Documents or in respect of the Leased Equipment, and enter into such amendment to any document to which it is a party as the Administrative Agent or the Collateral Agent, as applicable, as may be specified in such instructions. Each Agent shall deliver to each Participant a copy of each notice, demand, report and certificate received by it pursuant to the Operative Documents, which delivery shall be made by such Agent posting such item to a data site that is accessible to the Agents and the Participants and from which electronic notices of such postings shall be made to the Participants. Neither the Administrative Agent nor the Collateral Agent shall have any obligation to investigate or determine whether there has been an Event of Default or Default. Neither the Administrative Agent nor the Collateral Agent shall be deemed to have any notice or knowledge of an Event of Default or Default unless a Responsible Officer of it is notified in writing of such Event of Default or Default; provided that the Administrative Agent shall be deemed to have been notified in writing of any failure of the Lessee to pay Rent in the amounts and at the times set forth in Article IV of the Lease. If either the Administrative Agent or the Collateral Agent receives notice of an Event of Default, it shall give prompt notice thereof, at the Lessee’s expense, to each Participant, and if either the Administrative Agent or the Collateral Agent receives notice of a payment failure as described in the Assignment of Lease, it shall give prompt notice thereof, at the Lessor’s expense, to each Rent Assignee.
(b)Subject to Sections 8.4, 8.6 and 9.5 hereof, each of the Agents shall take action or refrain from taking action with respect to an Event of Default as directed by the Required Rent Assignees (including with respect to a default by Lessor in the performance of its obligations under the Assignment of Lease); provided that, unless and until it receives such directions, each of the Agents may refrain from taking any action with respect to such Event of Default; provided, further, that the Agents, in their individual capacity or any other capacity, covenants for the benefit of the Lessor and the Rent Assignees only, that it shall not exercise, or attempt to exercise, any right of setoff, banker’s lien or the like against any deposit account or
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property of the Lessee or any of its Affiliates held or maintained by any Agent without the prior written consent of the Rent Assignees. Prior to the date the Lease Balance shall have become due and payable by acceleration pursuant to Section 18.1(iii) of the Lease, the Required Rent Assignees may deliver written instructions to the Agents (including with respect to a default by Lessor in the performance of its Obligations under the Assignment of Lease) to waive, and each of the Agents, respectively, shall waive pursuant thereto, any Event of Default and its consequences and to provide periodic updates or information related thereto as may be requested by the Required Rent Assignees in such instructions; provided that in the absence of written instructions from all of the Rent Assignee, neither the Administrative Agent nor the Collateral Agent shall waive any payment default; provided, further, that in the absence of written instructions from the Required Rent Assignees or all of the Rent Assignees or all of the Participants, as applicable, neither the Administrative Agent nor the Collateral Agent shall waive any covenant or provision which, under Section 9.5 hereof, cannot be modified or amended without the consent of such Participants. As to any actions, inactions, consents, approvals and other matters to be taken under the Operative Documents including those rights assigned by the Lessor under the Assignment of Lease the instructions for which are not expressly provided for by this Agreement, each of the Agents shall in all cases take instructions from the Required Rent Assignees (including with respect to a default by Lessor in the performance of its obligations under the Assignment of Lease) and shall be fully protected in acting, or in refraining from acting, hereunder in accordance with instructions signed by the Required Rent Assignees and such instructions of the Required Rent Assignees and, subject to Section 9.5 hereof, any action taken or failure to act pursuant thereto shall be binding on each Participant.
(c)Subject to Sections 8.4, 8.6 and 9.5 hereof, upon written instructions of any Rent Assignee, the Required Rent Assignees or all Rent Assignees if so required hereunder or pursuant to any other Operative Document, the Lessor shall, on behalf of such Rent Assignee or the Rent Assignees, as the case may be, give such notice, consent, approval or direction, exercise such right, remedy or power hereunder or under the other Operative Documents or in respect of the Leased Equipment, and enter into such amendment to any document to which it is a party as the Lessor, as may be specified in such instructions.
SECTION 8.4.Indemnification.
Each Rent Assignee shall reimburse and hold each of the Agents harmless, ratably in accordance with its Commitment Percentage at the time the indemnification is required to be given (but only to the extent that any such indemnified amounts have not in fact been paid to each of the Agents by, or on behalf of, the Lessee in accordance with Section 7.1), from any and all claims, losses, damages, obligations, penalties, liabilities, demands, suits, judgments, or causes of action, and all legal proceedings, and any reasonable costs or expenses in connection therewith, including reasonable and documented attorneys’ fees and expenses incurred by each of the Agents, in any way relating to or arising in any manner out of (i) any Operative Document, the enforcement thereof or the consummation of the transactions contemplated thereby, and (ii) instructions from the Required Rent Assignees (including in the case of the Collateral Agent with respect to the Assignment of Lease) or all Participants or all Rent Assignees, as the case may be, if so required hereunder or pursuant to any other Operative Document (including, without limitation, the costs and expenses that the Lessee is obligated to and does not pay hereunder, but excluding normal administrative costs and expenses incident to the performance by each of the Agents of its agency duties hereunder other than materially increased administrative costs and expenses incurred as a result of an Event of Default); provided that no Rent Assignee shall be liable for any of the foregoing to the extent they arise from (a) the gross negligence or willful
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misconduct of each of the Administrative Agent and the Collateral Agent, (b) the inaccuracy of any representation or warranty or breach of any covenant given by the Administrative Agent or the Collateral Agent in Section 4.4 or in the Rent Assignment Agreement, (c) in the case of the Administrative Agent’s handling of funds, the failure to act with the same care as the Administrative Agent uses in handling its own funds, or (d) any taxes, fees or other charges payable by each of the Agents based on or measured by any fees, commissions or compensation received by it for acting as the Administrative Agent or the Collateral Agent, as applicable, in connection with the Overall Transaction.
Additionally, each Rent Assignee shall reimburse and hold the Lessor harmless, ratably in accordance with its Commitment Percentage at the time the indemnification is required to be given (but only to the extent that any such indemnified amounts have not in fact been paid to the Lessor by, or on behalf of, the Lessee in accordance with Section 7.1), from any and all claims, losses, damages, obligations, penalties, liabilities, demands, suits, judgments, or causes of action, and all legal proceedings, and any reasonable costs or expenses in connection therewith, including reasonable and documented attorneys’ fees and expenses incurred by the Lessor, in any way relating to or arising in any manner out of instructions from such Rent Assignee, the Required Rent Assignees or all Rent Assignees, as the case may be, if so required hereunder or pursuant to any other Operative Document (including, without limitation, the costs and expenses that the Lessee is obligated to and does not pay hereunder, but excluding normal administrative costs and expenses incident to the performance by the Lessor hereunder other than materially increased administrative costs and expenses incurred as a result of an Event of Default).
SECTION 8.5.Independent Credit Investigation.
Each Participant, by entering into this Agreement agrees that it has, independently and without reliance on each of the Agents, the Arranger or any other Participant and based on such documents and information as it has deemed appropriate, made its own credit analysis of the Lessee and Holdings and its own decision to enter into this Agreement and each of the other Operative Documents to which it is a party and that it will, independently and without reliance upon the Administrative Agent or the Collateral Agent, the Arranger or any other Participant and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking action under this Agreement and any related documents to which it is a party. Neither the Administrative Agent nor the Collateral Agent shall be required to keep itself informed as to the performance or observance by the Lessee or Holdings of any other document referred to (directly or indirectly) or provided for herein or to inspect the properties or books of the Lessee or Holdings. Except for notices or statements which the Administrative Agent or the Collateral Agent is expressly required to give under this Agreement and for notices, reports and other documents and information expressly required to be furnished to the Administrative Agent or the Collateral Agent alone (and not also to each Participant, it being understood that each of the Agents shall forward copies of same to each of the other Participants or the Rent Assignees, as the case may be) hereunder or under any other Operative Document, neither the Administrative Agent nor the Collateral Agent shall have any duty or responsibility to provide any Participant with copies of notices or with any credit or other information concerning the affairs, financial condition or business of the Lessee, Holdings (or
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any of their respective Affiliates) that may come into the possession of the Administrative Agent or the Collateral Agent or any of their respective Affiliates. Notices, reports and other documents and information expressly required to be furnished to the Collateral Agent are being provided to the Collateral Agent for file-keeping purposes only and unless otherwise expressly provided herein, the Collateral Agent shall have no obligation to review or be familiar with the contents thereof or provide copies to any other person.
SECTION 8.6.Refusal to Act.
Except for notices and actions expressly required of the Lessor or each of the Agents hereunder and except for the performance of expressed obligations under the Operative Documents by the Lessor, the Administrative Agent or the Collateral Agent, the Lessor and each of the Agents shall in all cases be fully justified in failing or refusing to act unless (a) it is indemnified to its reasonable satisfaction by the Participants or the Rent Assignees, as applicable, against any and all liability and reasonable expense which may be incurred by it by reason of taking or continuing to take any such action (provided that such indemnity shall be subject to each of the limitations set forth in Section 8.4, including clauses (a) through (d) of Section 8.4, it being understood that no action taken by the Lessor, the Administrative Agent or the Collateral Agent in accordance with the instructions of the Required Rent Assignees (including in the case of the Collateral Agent with respect to the Assignment of Lease) shall be deemed to constitute any such matter) and (b) it is reasonably satisfied that such action is not contrary to any Operative Document or to any Applicable Laws.
SECTION 8.7.Resignation or Removal of the Administrative Agent, the Collateral Agent; Appointment of Successor.
Subject to the appointment and acceptance of a successor Administrative Agent or Collateral Agent as provided below, each of the Administrative Agent and Collateral Agent may resign at any time by giving notice thereof to the other and to each Participant and the Lessee, and may be removed from such position at any time by written notice from the Required Rent Assignees and the Lessor. Upon any such resignation or removal of the Administrative Agent or the Collateral Agent, the Required Rent Assignees and the Lessor at the time of the resignation or removal shall have the right to appoint, with the prior written consent of the Lessee (such consent of the Lessee to be obtained so long as no Event of Default has occurred and is continuing), such consent not to be unreasonably withheld, conditioned, or delayed, a successor Administrative Agent or Collateral Agent, as applicable, which shall be a financial institution having (i) a long-term credit rating no lower than investment grade as rated by Moody’s and S&P and (ii) a combined capital and surplus of not less than $100,000,000. If, within thirty (30) days after the retiring Administrative Agent’s or Collateral Agent’s giving of notice of resignation or receipt of a written notice of removal, a successor Administrative Agent or Collateral Agent is not so appointed and does not accept such appointment, then the retiring or removed Administrative Agent or Collateral Agent may appoint a successor to itself meeting the requirements in the prior sentence and transfer to such successor all of its rights and obligations. Upon the acceptance of any appointment as the Administrative Agent or the Collateral Agent hereunder, such successor Administrative Agent or Collateral Agent, as applicable, shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the
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retiring or removed Administrative Agent and Collateral Agent, respectively, and the retiring or removed Administrative Agent or Collateral Agent, as applicable, shall be discharged from duties and obligations as the Administrative Agent and the Collateral Agent, respectively, thereafter arising hereunder and under any related document, provided, that the retiring or removed Administrative Agent or Collateral Agent, as applicable, shall not be discharged from such duties and obligations, respectively, until its successor has accepted such appointment. If the retiring Administrative Agent or Collateral Agent does not appoint a successor, the Required Rent Assignees and the Lessor shall be entitled to apply to a court of competent jurisdiction for such appointment, and such court may thereupon appoint a successor to act until such time, if any, as a successor shall have been appointed as above provided. Notwithstanding the foregoing, any resignation or removal of one Agent shall be deemed a resignation or removal of both Agents and the respective successor Agents shall be the same financial institution or an Affiliate thereof. Lessee shall incur no costs or expenses in connection with any such resignation, removal or replacement of the Administrative Agent or the Collateral Agent.
SECTION 8.8.Separate Agent.
Subject to any Applicable Laws, the Required Rent Assignees may, and if they fail to do so at any time when they are so required, each of the Agents may, for the purpose of meeting any legal requirements of any jurisdiction in which the Leased Equipment may be located, appoint one or more Persons either to act as co-agent jointly with the Administrative Agent or the Collateral Agent, as applicable, or to act as separate agent of all or any part of the Leased Equipment and vest in such individuals or corporations, in such capacity, such rights to such Leased Equipment or any part thereof, and such other rights or duties as each of the Agents may consider necessary or desirable. Each of the Agents shall execute, acknowledge and deliver all such instruments as may be required by any such co-agent or separate agent more fully confirming such title, rights or duties to such co-agent or separate agent. Upon the acceptance in writing of such appointment by any such co-agent or separate agent, it shall be vested with such interest in the Leased Equipment or any part thereof, and with such rights and duties, not inconsistent with the provisions of the Operative Documents, as shall be specified in the instrument of appointment, jointly with each of the Agents (except insofar as local law makes it necessary for any such co-agent or separate agent to act alone), subject to all terms of the Operative Documents. Any co-agent or separate agent, to the fullest extent permitted by legal requirements of the relevant jurisdiction, at any time, by an instrument in writing, shall constitute the Administrative Agent or the Collateral Agent, as applicable, pursuant to its appointment, its attorney-in-fact and agent, with full power and authority to do all acts and things and to exercise reasonable judgment on its behalf and in its name. If any co-agent or separate agent shall become incapable of acting, resign or be removed, the interest in the Leased Equipment and all rights and duties of such co-agent or separate agent shall, so far as permitted by law, vest in and be exercised by the Administrative Agent or the Collateral Agent, respectively, without the appointment of a successor to such co-agent or separate agent.
SECTION 8.9.Termination of Agency.
The agency created hereby shall terminate upon the final disposition by each of the Agents of all Leased Equipment and each of the Administrative Agent’s and the Collateral
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Agent’s interest in the Leased Equipment and the final distribution by each of the Agents of all monies or other property or proceeds received pursuant to the Operative Documents in accordance with their terms; provided, that at such time the Lessee shall have complied fully with all the terms hereof.
SECTION 8.10.Compensation of the Administrative Agent and the Collateral Agent.
The Lessee shall pay each of the Agents the fees as set forth in Section 2.14(c) hereof and including after an Event of Default, any other reasonable and documented fees, costs and expenses for the performance by each of the Administrative Agent and Collateral Agent of its respective obligations hereunder (including the reasonable and documented out-of-pocket fees and expenses of its counsel) (collectively, “Agency Fees”).
SECTION 8.11.Limitations.
It is expressly understood and agreed by and among the parties hereto that, except as otherwise provided herein or in the other Operative Documents: (a) to the extent each of the Agents is entering into such documents and agreements as the Administrative Agent or the Collateral Agent, this Agreement and the other Operative Documents to which each of the Agents is a party are executed by each of the Administrative Agent or the Collateral Agent in its capacity as Administrative Agent or Collateral Agent, as applicable, under the Operative Documents in the exercise of the power and authority conferred and vested in it as such Administrative Agent or Collateral Agent; (b) each of the undertakings and agreements herein made on the part of each of the Agents are each and every one of them made and intended not as personal undertakings and agreements by each of the Agents, or for the purpose or with the intention of binding each of the Agents personally, but are made and intended for the purpose of binding only the Leased Equipment unless expressly provided otherwise; (c) actions to be taken by each of the Agents pursuant to its obligations under the Operative Documents may, in certain circumstances, be taken by each of the Agents only upon specific authority of the Participants or the Rent Assignees, as further set forth herein an in the other Operative Documents; (d) nothing contained in the Operative Documents shall be construed as creating any liability on either of the Agents, individually or personally, or any incorporator or any past, present or future subscriber to the capital stock of, or stockholder, officer or director, employee or agent of, each of the Agents to perform any covenants either express or implied contained herein, all such liability, if any, being expressly waived by the other parties hereto and by any Person claiming by, through or under them; and (e) so far as each of the Agents, individually or personally, is concerned, the other parties hereto and any Person claiming by, through or under them shall look solely to the Leased Equipment and the Lessee for the performance of any obligation under any of the instruments referred to herein, provided, however, that nothing in this Section 8.11 shall be construed to limit in scope or substance the general corporate liability of each of the Agents in respect of its gross negligence or willful misconduct, negligence in the handling of funds or for those representations, warranties and covenants of each of the Agents, as applicable, in its individual capacity set forth herein, in the other Operative Documents or in any of the other agreements contemplated hereby or thereby. In addition, Administrative Agent shall not be responsible or have any liability for, or have any duty to ascertain, inquire into, monitor or
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enforce, compliance with the provisions hereof relating to Disqualified Rent Assignees; further, without limiting the generality of this sentence, Administrative Agent shall not (x) be obligated to ascertain, monitor or inquire as to whether any Rent Assignee or Participant or prospective Rent Assignee or Participant is a Disqualified Rent Assignee or (y) have any liability with respect to or arising out of any assignment or participation of Rent Assignment Interests, or disclosure of confidential information, to any Disqualified Rent Assignee.
ARTICLE IX
MISCELLANEOUS
MISCELLANEOUS
SECTION 9.1.Survival of Indemnities.
The indemnities of the parties provided for in the Operative Documents shall survive the execution and delivery and the termination or expiration of this Agreement and any of the other Operative Documents, the transfer of the interest in the Leased Equipment as provided herein or in any other Operative Documents, any disposition of any interest of the Lessor or the Collateral Agent in the Leased Equipment, the purchase and sale of the Rent Assignment Interests, payment therefor and any disposition thereof and shall continue in effect notwithstanding that any party hereto may waive compliance with any of the other terms, provisions or conditions of any of the Operative Documents.
SECTION 9.2.No Broker, etc.
(a)Except for the Lessee’s dealings with the Lessor, in its capacity as Arranger, each of the parties hereto represents to the others that, except as noted in clause (b) below, it has not retained or employed any arranger, broker, finder or financial advisor to act on its behalf in connection with this Agreement, nor has it authorized any arranger, broker, finder or financial adviser retained or employed by any other Person so to act, nor has it incurred any fees or commissions to which the Agents or any Participant might be subjected by virtue of their entering into the transactions contemplated by this Agreement. Any party who is in breach of this representation shall indemnify and hold the other parties harmless from and against any liability arising out of such breach of this representation.
SECTION 9.3.Notices.
Unless otherwise specified herein, all notices, requests, demands or other communications to or upon the respective parties hereto in connection with the Operative Documents shall be in writing (including bank wire, transmission, electronic mail or similar writing) and shall be effective given to such party: (i) if given by electronic mail transmission, when transmitted to the e-mail address specified on Schedule II during the recipient’s normal business hours and confirmation of receipt is received or (ii) if given by any other means, when delivered during the recipient’s normal business hours at the address specified on Schedule II; provided that notices under Article II or Sections 7.4, 7.5 or 7.6 hereof shall not be effective until received.
SECTION 9.4.Counterparts.
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This Agreement and each of the other Operative Documents may be executed by the parties hereto and thereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same agreement. Delivery of an executed counterpart of a signature page of this Agreement by electronic means (e.g. “.pdf” or “.tif” and Docusign) shall be effective as delivery of a manually executed counterpart of such Operative Document. The words “executed,” “signed,” “signature,” and words of like import in this Agreement or in any other certificate, agreement or document related to this transaction shall include, in addition to manually executed signatures, images of manually executed signatures transmitted by electronic format (including, without limitation, “pdf” and Docusign) and other electronic signatures (including, without limitation, any electronic sound, symbol, or process, attached to or logically associated with a contract or other record and executed or adopted by a Person with the intent to sign the record). The use of electronic signatures and electronic records (including, without limitation, any contract or other record created, generated, sent, communicated, received, or stored by electronic means) shall be of the same legal effect, validity and enforceability as a manually executed signature or use of a paper-based record-keeping system to the fullest extent permitted by applicable law, including the Federal Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act and any other applicable law, including, without limitation, any state law based on the Uniform Electronic Transactions Act or the Uniform Commercial Code.
SECTION 9.5.Amendments.
(a)No Operative Document nor any of the terms thereof may be terminated, amended, supplemented, waived or modified, and no consent to any departure by the Lessee or any Guarantor therefrom may be granted, without the written agreement or consent of the Administrative Agent (as directed by the Required Rent Assignees), the Lessee, the Collateral Agent (as directed by the Required Rent Assignees) and the Required Rent Assignees; provided, however, that Section 9.15 hereof and the other Sections referenced therein may not be terminated, amended, supplemented, waived or modified without the written consent of the Arranger; provided, further, that such termination, amendment, supplement, waiver or modification of any Operative Document shall require the written agreement or consent of each Rent Assignee and, to the extent affected thereby, the Lessor if such termination, amendment, supplement, waiver or modification would:
(i)modify any of the provisions of this Section 9.5, change the definition of “Required Rent Assignees”, or modify or waive any provision of any Operative Document requiring action by the Required Rent Assignees or all of the Rent Assignees such that such provision no longer requires such action, or release any collateral (except in connection with a transaction permitted by the Operative Documents);
(ii)waive any condition set forth in Sections 2.1 or 3.1 hereof with regard to the initial Advance without the written consent of each Rent Assignee;
(iii)increase, extend, waive, amend, modify or create the Commitment of any Participant affected thereby (it being understood that a waiver of any condition precedent set forth in Section 3.1 or the waiver of any Default or Event of Default, mandatory prepayment or mandatory reduction of the Commitments shall not constitute
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an extension or increase of any Commitment of any Participant) or waive, amend or otherwise modify any of the provisions contained in Section 2.2(d);
(iv)change any provision of Section 4.03 of the Rent Assignment Agreement or Article X hereof that would alter the pro rata sharing or the order of payments, in each case, without the written consent of each Participant directly and adversely affected thereby;
(v)reduce the principal of, or the rate of interest specified herein on, any Rent Assignment Advance or any fees or other amounts payable hereunder or under any other Operative Document without the written consent of each Participant directly and adversely affected thereby, it being understood that any change to the definition of “Secured Net Leverage Ratio” or “Total Net Leverage Ratio” or in the component definitions thereof shall not constitute a reduction in the rate of interest or fees; provided that only the consent of the Required Rent Assignees shall be necessary to amend the definition of “Overdue Rate” or to waive any obligation of the Lessee to pay interest at the Overdue Rate;
(vi)reduce, modify, amend or waive any Excluded Amounts or Excepted Rights in favor of any Participant;
(vii)reduce the amount or change the time of payment of any Rent, the Lease Balance, Termination Value or Purchase Price or consent to releasing the Lessee from its obligations to pay any Rent, the Lease Balance or Purchase Price or changing the absolute and unconditional character of such obligations;
(viii)release any Collateral in any transaction or series of related transactions, without the written consent of each Rent Assignee (other than related to the purchase of Leased Equipment and the repayment of the outstanding Lease Balance related thereto and payment of all other Rent due and the termination of all Commitments hereunder as expressly contemplated in the Operative Documents);
(ix)release all or substantially all of the value of any Guarantee including the Guaranty in any transaction or series of related transactions, without the written consent of each Rent Assignee; provided that any transaction permitted under Section 5.3.4 of Schedule 5.3 hereto shall not be subject to this clause (ix) to the extent such transaction does not result in the release of all or substantially all of any Guarantee or the Guaranty;
(x)(i) contractually subordinate any Obligations in right of payment to any other Indebtedness of the Lessee and/or Guarantors or (ii) contractually subordinate the Liens securing the Obligations on the Collateral to Liens on the collateral securing other Indebtedness, without the written consent of each Rent Assignee directly and adversely affected thereby (it being understood that this clause (x) shall not (A) restrict an amendment to increase the maximum permitted amount of Indebtedness (x) incurred under Section 5.3.3(f) of Schedule 5.3 hereto and (y) secured by liens under Section 5.3.1(i) of Schedule 5.3 hereto as in effect on the Effective Date, as defined in the Credit Agreement, or (B) apply to the incurrence of debtor-in-possession financing (or similar financing arrangements in insolvency proceedings in non-U.S. jurisdictions) approved by the applicable bankruptcy court);
(xi)permit the creation of any Lien on the Leased Equipment, the Collateral or any part thereof, except for Permitted Liens or as otherwise permitted by the Operative Documents;
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(xii)modify the definition of “Maturity Date” or “Lease Expiration Date” or otherwise extend either such date;
and provided that (i) no amendment, waiver or consent shall, unless in writing and signed by the Administrative Agent in addition to the Rent Assignees required above, affect the rights or duties of, or any fees or other amounts payable to, the Administrative Agent under this Agreement or any other Operative Document and (ii) in determining whether the requisite percentage of Rent Assignees have consented to any amendment, modification, waiver or other action, any Defaulting Rent Assignees shall be deemed to have voted in the same proportion as those Rent Assignees who are not Defaulting Rent Assignees, except with respect to (x) any amendment, waiver or other action which by its terms requires the consent of all Rent Assignees or each affected Rent Assignee and (y) any amendment, waiver or other action that by its terms adversely affects any Defaulting Rent Assignee in its capacity as a Rent Assignee in a manner that differs in any material respect from other affected Rent Assignees, in which case the consent of such Defaulting Rent Assignee, as applicable, shall be required.
Notwithstanding anything to the contrary contained in this Section 9.5, any guarantees executed by Subsidiaries in connection with this Agreement may be in a form reasonably determined by the Administrative Agent and may be, together with this Agreement, amended, supplemented and waived with the consent of the Administrative Agent at the request of the Lessee without the need to obtain the consent of any Rent Assignee if such amendment, supplement or waiver is delivered in order (i) to comply with Applicable Law or advice of local counsel, (ii) to add parallel debt provisions, (iii) to cure ambiguities, omissions, mistakes or defects or (iv) to cause such guarantee to be consistent with this Agreement and the other Operative Documents. Furthermore, with the consent of the Administrative Agent at the request of the Lessee (without the need to obtain any consent of any Rent Assignee), any Operative Document may be amended to cure ambiguities, inconsistencies, omissions, mistakes or defects (which determination by the Lessee and the Administrative Agent shall be conclusive).
Notwithstanding anything in this Section 9.5 to the contrary, (a) technical and conforming modifications to the Operative Documents may be made with the consent of the Lessee and the Administrative Agent to the extent necessary to make any amendments permitted by Section 1.3 hereof and to give effect to any election to adopt IFRS and (b) without the consent of any Rent Assignee, the Lease Parties and the Administrative Agent or any collateral agent may (in their respective sole discretion, or shall, to the extent required by any Operative Document) enter into any amendment, modification or waiver of any Operative Document, or enter into any new agreement or instrument, to effect the granting, perfection, protection, expansion or enhancement of any security interest in any Collateral or additional property to become Collateral for the benefit of the Collateral Agent or as required by local law to give effect to, or protect any security interest for benefit of the Collateral Agent, in any property or so that the security interests therein comply with applicable law or this Agreement or in each case to otherwise enhance the rights or benefits of any Rent Assignee under any Operative Document. Without limitation of the foregoing, the Lessee may, without the consent of any Rent Assignees, upon delivery to the Administrative Agent (i) increase the interest rates (including any interest rate margins or interest rate floors), fees and other amounts payable to the Rent Assignees hereunder, (ii) add, increase, expand and/or extend the call protection provisions and any “most
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favored nation” provisions benefiting the Rent Assignees hereunder and/or (iii) with the consent of the Administrative Agent, modify any other provision hereunder or under any other Operative Document in a manner, as determined by the Administrative Agent in its sole discretion, more favorable to the then-existing Rent Assignees; provided that the Administrative Agent will have at least five Business Days (or such shorter period to which the Administrative Agent may consent in its reasonable discretion) after written notice from the Lessee to provide such consent and may, in its sole discretion, provide written notice to the Rent Assignees regarding any such proposed amendment.
SECTION 9.6.Headings, etc.
The Table of Contents and headings of the various Articles and Sections of this Agreement are for convenience of reference only and shall not modify, define, expand or limit any of the terms or provisions hereof.
SECTION 9.7.Parties in Interest.
Except as expressly provided herein, none of the provisions of this Agreement is intended for the benefit of any Person except the parties hereto and their respective successors and permitted assigns. This Agreement shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns.
SECTION 9.8.Governing Law.
THIS AGREEMENT HAS BEEN DELIVERED IN, AND SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF, THE STATE OF NEW YORK, WITHOUT REGARD TO THE CONFLICTS OF LAWS PRINCIPLES OF SUCH STATE (EXCEPT SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW) EXCEPT TO THE EXTENT THAT THE LAWS OF THE STATE WHERE THE SITE IS LOCATED ARE REQUIRED TO APPLY.
SECTION 9.9.Payment of Transaction Costs and Other Costs.
(a) Transaction Costs and Fees. As and when any portion of Transaction Costs, including, without limitation, any Fees becomes due and payable, such Transaction Costs, including, without limitation, any Fees shall be paid by the Lessee as Supplemental Rent.
(b) Continuing Expenses. The continuing fees, reasonable and documented or invoiced out-of-pocket expenses and disbursements (including reasonable and documented legal fees) of counsel as set forth in Section 2.14(f) hereof for (i) the Administrative Agent and the Collateral Agent, and (ii) the Participants shall be paid directly by the Lessee as Supplemental Rent.
(c) Amendments, Supplements, etc. Without limitation of the foregoing, the Lessee agrees to pay to the Agents and the Participants (i) reasonable and documented out-of-pocket costs and expenses (including reasonable and properly documented legal fees and expenses of one counsel for the Agents and the Participants, collectively, and, if reasonably necessary, one firm of local counsel in each appropriate jurisdiction, which may include a single special counsel acting in
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multiple jurisdictions, and, in the case of an actual conflict of interest, one additional counsel for the affected party) incurred by any of them in connection with: (A) the considering, evaluating, investigating, negotiating and entering into or giving or withholding of any amendments or supplements or waivers or consents with respect to any Operative Document requested by the Lessee; or (B) the negotiation and documentation of any restructuring or “workout,” whether or not consummated, of any Operative Document; and (ii) reasonable and documented out-of-pocket costs and expenses (including, except in the case of an Event of Default described in paragraph (g) or (h) of Article XVII of the Lease, properly documented legal fees and expenses of counsel to the Agents and the Participants, collectively, and, if reasonably necessary, one firm of local counsel in each appropriate jurisdiction, which may include a single special counsel acting in multiple jurisdictions, and, in the case of an actual conflict of interest, one additional counsel for the affected party) incurred by any of them in connection with: (A) the enforcement of the rights or remedies under the Operative Documents; or (B) any sale, assignment or transfer by a Participant of any interest in the Operative Documents during the continuance of an Event of Default.
SECTION 9.10.Severability.
Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. The parties hereto shall not have any duties or obligations, except those expressly set forth herein or in another Operative Document, and no implied duties or obligations shall be read into this Agreement.
SECTION 9.11.Limited Liability of the Lessor.
The parties hereto agree that except as specifically set forth herein or in any Operative Document, neither Lessor nor any of its Representatives (other than Affiliates of the Lessor to the extent that funds are received by the Lessor and not applied in accordance with the terms of the Operative Documents) shall have personal liability whatsoever to the Lessee or its successors and assigns for any claim or obligation based on or in respect of this Agreement or any of the other Operative Documents, except to the extent attributable to the willful misconduct or gross negligence of, or negligence in the handling of funds by, the Lessor, its officers, agents, employees and Affiliates or the breach in any material respect of any representation or warranty made by the Lessor under the Operative Documents or a breach or violation of the terms and conditions of this Agreement or any Operative Document.
SECTION 9.12.Liabilities of the Participants.
No Participant shall have any obligation to the Agents or any other Participant or to the Lessee with respect to the Overall Transaction except those obligations of such Participant expressly set forth in the Operative Documents or except as set forth in the instruments delivered in connection therewith and no Participant shall be liable for performance by any other party
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hereto of such other party’s obligations under the Operative Documents except as otherwise so set forth.
SECTION 9.13.Submission to Jurisdiction; Waivers.
(a)EACH PARTY HERETO IRREVOCABLY AND UNCONDITIONALLY:
(i)SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER OPERATIVE DOCUMENT, OR FOR RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF, TO THE SOLE, EXCLUSIVE GENERAL JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK OR OF ANY NEW YORK STATE COURT SITTING IN THE BOROUGH OF MANHATTAN, AND APPELLATE COURTS FROM ANY THEREOF;
(ii)CONSENTS THAT ANY SUCH ACTION OR PROCEEDINGS MAY BE BROUGHT TO SUCH COURTS, AND WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM THE SAME;
(iii)AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID, TO SUCH PARTY AT ITS ADDRESS SET FORTH ON SCHEDULE II OR AT SUCH OTHER ADDRESS OF WHICH THE OTHER PARTIES HERETO SHALL HAVE BEEN NOTIFIED PURSUANT TO SECTION 9.3; AND
(iv)AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
(b)EACH PARTY HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THE OPERATIVE DOCUMENTS AND FOR ANY COUNTERCLAIM THEREIN.
SECTION 9.14.Reproduction of Documents.
Subject to Section 9.19, this Agreement, all documents constituting an Appendix, Schedule or Exhibit hereto, and all documents relating hereto received by a party hereto, including, without limitation: (a) consents, waivers and modifications that may hereafter be executed; (b) documents received by the Agents or any Participant in connection with the receipt and/or acquisition of the Leased Equipment; and (c) financial statements, certificates and other information previously or hereafter furnished to the Agents or any Participant may be reproduced by the party receiving the same by any photographic, photostatic, microfilm, micro-card, miniature photographic or other similar process. Each of the parties hereto agrees and stipulates that, to the extent permitted by law, any such reproduction shall be admissible in evidence as the
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original itself in any judicial or administrative proceeding (whether or not the original is in existence and whether or not such reproduction was made by such party in the regular course of business) and that, to the extent permitted by law, any enlargement, electronic copy, or further reproduction of such reproduction shall likewise be admissible in evidence.
SECTION 9.15.Role of Arranger.
Each party hereto acknowledges hereby that it is aware of the fact that the Arranger has acted as an “arranger” with respect to the transactions contemplated by the Operative Documents. The parties hereto acknowledge and agree that the Arranger has not made any representations or warranties concerning, and that they have not relied upon the Arranger as to, the tax, accounting or legal characterization or validity of (i) the Operative Documents or (ii) any aspect of the Overall Transaction. The parties hereto acknowledge and agree that the Arranger has no duties, express or implied, under the Operative Documents in its capacity as the Arranger. The parties hereto further agree that Section 2.1(k), Section 2.14(a), Section 2.13, Section 8.5, Section 9.2, Section 9.5, Section 9.9(a) and this Section 9.15 are for the express benefit of the Arranger, in such capacity, and the Arranger shall be entitled to rely thereon as if it were a party hereto.
SECTION 9.16.Rights Related to Rent Assignment Agreement.
The Lessee acknowledges the sales and assignments by the Lessor under the Rent Assignment Agreement and the Assignment of Lease, expressly consents to the sales and assignments thereunder regarding the sale of Lessor’s rights to certain payments of Rent and rights related to such payments, and agrees to pay and deliver to the Administrative Agent for application hereunder the sums set forth therein or, upon written request therefor pursuant to the Assignment of Lease, to the Rent Assignees. In furtherance thereof, the Lessee acknowledges and agrees that the exercise of rights and remedies by the Lessor under the Lease may be subject to the prior written instruction by either Agent which instruction may be delivered at the direction of the Required Rent Assignees or all of the Rent Assignees or Participants.
SECTION 9.17.Payments in Dollars.
All payments to be made by the Lessee hereunder shall be made in Dollars in immediately available and freely transferable funds at the place of payment, all such payments to be paid without setoff, counterclaim or reduction and without deduction for, and free from, any and all present or future taxes, levies, imposts, duties, fees, charges, deductions, withholding or liabilities with respect thereto or any restrictions or conditions of any nature. If the Lessee is required by Applicable Law to make any deduction or withholding on account of any tax or other withholding or deduction from any sum payable by the undersigned hereunder, the Lessee shall pay any such tax or other withholding or deduction and shall pay such additional amount necessary to ensure that, after making any payment, deduction or withholding, the recipient thereof shall receive and retain (free of any liability in respect of any payment, deduction or withholding) a net sum equal to what it would have received and so retained hereunder had no such deduction, withholding or payment been required to have been made, which payment or withholding is made subject to the limitations set forth in Sections 7.2(a)(iii) and 7.6 hereof, the
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reimbursement obligations of Indemnitees set forth in Sections 7.2(a)(iii), 7.2(e), 7.2(f) and 7.2(g) hereof and other rights of the Lessee and representations of the Rent Assignees set forth in Sections 4.3(f), 6.3, 6.4, 7.2 and 7.6 hereof.
SECTION 9.18.Confidentiality.
In connection with the Overall Transaction and the Lessee’s compliance with the Operative Documents, the Agents, the Participants and any Participation Holder may be receiving certain information (whether in written or electronic form, or if oral, confirmed in writing as confidential information) which is non-public, confidential or proprietary in nature. Such information and any other non-public, confidential or proprietary information concerning the Equipment, the Lessee and/or its Subsidiaries (the Lessee and/or its Subsidiaries being collectively referred to as the “DigitalOcean Companies”) furnished by or on behalf of the DigitalOcean Companies to the Agents, the Participants or any Participation Holder in connection with the Overall Transaction (at any time on, before or after the date hereof), together with any other documents prepared by the DigitalOcean Companies or by any of their respective agents, Affiliates, representatives (including attorneys, accountants and financial advisors) or employees which contain or otherwise reflect such information is hereinafter referred to as the “Information”.
The Agents and each of the Participants hereby severally agrees, as to itself only, subject to the exclusions set forth elsewhere in this Section 9.18, that the Information shall be kept confidential and shall not, without the prior written consent of relevant DigitalOcean Company, be disclosed by such Person or by any of its Affiliates, directors, officers, employees, attorneys and agents (“Representatives”) in any manner whatsoever, in whole or in part, and shall not be used by such Person or its Representatives other than in connection with monitoring the compliance by the DigitalOcean Companies with the terms of the Operative Documents, provided, however, that such Person may reveal the Information (i) to its Representatives solely for the purpose of evaluating or managing such Person’s investment in the Overall Transaction if the recipients of the Information are informed by such Person of the confidentiality obligations with respect to the Information and such recipients agree to be bound by the terms and conditions of this Section or are otherwise bound by an obligation of confidentiality with respect thereto or (ii) to the extent requested by any applicable regulatory Governmental Authorities having jurisdiction.
The provisions of this Section shall be inoperative as to such portions of the Information that (i) are or become generally available to the public on a non-confidential basis through no fault of or action by the Agents or the Participants or by any of their respective Representatives, (ii) become available to the Agents or any of the Participants on a non-confidential basis from a source other than the DigitalOcean Companies or their representatives or agents, so long as the Person to whom such portions of Information have been made available has no knowledge that the source of such Information is prohibited from disclosing such portions by a contractual, legal or fiduciary obligation to the DigitalOcean Companies, (iii) was heretofore independently developed or compiled by the Agents or any of the Participants or their respective Representatives, as evidenced by records of such Person, without the use of the Information, or (iv) are provided to any court or tribunal in connection with the exercise or enforcement of any
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rights under this Agreement or other Operative Document. In addition, each of the Agents and the Participants may disclose such Information to potential transferees of its interest and to actual or potential Participation Holders, or to any actual or prospective party to a swap, hedge, derivative or insurance transaction under which payments are made by reference to the Lessee and its obligations, this Agreement or payments hereunder, provided such potential transferee and/or actual or potential Participation Holder and/or other such party (i) is not a Disqualified Rent Assignee and (ii) has entered into a confidentiality agreement containing provisions substantially similar to the provisions of this Section.
In the event that the Agents, any of the Participants, any Participation Holder or anyone to whom any such Person transmits the Information pursuant to this Section 9.18, becomes required by Applicable Laws or Governmental Action to disclose any of the Information, the Person so required (if a party to this Agreement) or the Person that transmitted the Information to the Person so required (if the Person so required is not a party to this Agreement) if legally permitted shall provide the Lessee with notice of such event promptly upon obtaining knowledge thereof so that the Lessee or the applicable DigitalOcean Company may seek a protective order or other appropriate remedy against such disclosure. In the event that no protective order or other remedy is obtained, the Person so required to disclose such Information (if a party to this Agreement) or the Person that transmitted the Information to the Person so required to disclose such Information (if the Person so required is not a party to this Agreement) shall have the right to disclose such information to the appropriate Governmental Authority. Notwithstanding such right, such Person shall, at the Lessee’s expense, cooperate to the extent reasonable with the Lessee’s or such DigitalOcean Company’s instructions to disclose, only that portion of the Information that is required to be disclosed in accordance with Applicable Laws and shall do so in a manner reasonably designed to preserve the Information’s confidential nature. Notwithstanding anything to the contrary in this Section 9.18, the Agents and each of the Participants and any Participation Holder may disclose the Information as requested by any Governmental Authority to whose jurisdiction such Person is subject or in connection with an examination of such Person by regulatory examiners or independent auditors. In addition, to the extent not contrary to the foregoing, the Lessor shall use reasonable efforts to comply with written instruction from the Lessee to such Person or, at the Lessee’s expense, return confidential information to the Lessee; provided, however, that the Lessor may retain one (1) file copy of such Information, documents, memoranda, notes and other writings for regulatory and audit purposes and for the purposes of defending or maintaining any proceedings relating to this Agreement, and any such materials so retained shall remain subject to the provisions of this Section 9.18.
The agreements of the Agents and each of the Participants in this Section shall survive the termination of any of the Operative Documents to which any such Person is a party and the payment of all or any part of the Lease Balance, the Termination Value or the Purchase Price and the repayment of all or any part of the Advance made by the Agents or any of the Participants in respect thereof.
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SECTION 9.19.Entire Agreement.
This Agreement (together with the other Operative Documents) constitutes the entire agreement between the parties hereto with respect to the matters covered hereby and supersedes all prior agreements and understandings, written or oral, with respect to such matters between the parties. The parties hereto shall not have any duties or obligations, except those expressly set forth herein, and no implied duties or obligations shall be read into this Agreement.
SECTION 9.20.UCC Filings and Other Matters.
The Lessee hereby grants to the Collateral Agent (or the Lessor or its counsel on its behalf) the permission and right to file, without the signature of the Lessee, any financing statements, amendment statements and continuation statements under the Uniform Commercial Code necessary to perfect the Collateral Agent’s security interest in the Collateral under each Lease. The Lessee shall attend to the filing of any necessary UCC amendment statements and continuation statements in order to maintain the perfection of its security interest as set forth in each such Lease perfected by the UCC Financing Statements filed on or about the Closing Date and on or about each Advance Date and referencing the Collateral Agent as the secured party.
SECTION 9.21.Existence and Continuation of an Event of Default.
Notwithstanding any other provision of any Operative Document to the contrary, if an Event of Default shall have occurred then following the giving of any required notice and the expiration of any applicable cure period, such Event of Default shall continue in existence unless and until such time that such Event of Default is expressly and specifically waived in writing by the Administrative Agent or the Participants, as applicable, in accordance with the requirements of the Operative Documents.
SECTION 9.22.Mitigation Obligations; Replacement of Rent Assignees.
(a)If at any time (i) any Rent Assignee requests reimbursement for amounts owing pursuant to Section 7.2(a)(i), 7.2(a)(iii) or Section 7.4 as a result of any condition described in such Sections and such Rent Assignee has declined or is unable to designate a different lending office in accordance with Section 7.4(f), (ii) any Rent Assignee becomes a Defaulting Rent Assignee, or (iii) any Rent Assignee becomes a Non-Consenting Rent Assignee, then the Lessee may, on prior written notice to the Administrative Agent and such Rent Assignee, replace such Rent Assignee by requiring such Rent Assignee to (and such Rent Assignee shall be obligated to) assign pursuant to Section 6.3(a) (with the assignment fee to be paid by the Lessee in such instance) all of its rights and obligations under this Agreement (or, with respect to clause (iii) above, all of its rights and obligations with respect to the Rent Assignment Balance or Commitments that is the subject of the related consent, waiver or amendment) to one or more Eligible Assignees (provided that neither the Administrative Agent nor any Rent Assignee shall have any obligation to the Lessee to find a replacement Rent Assignee or other such Person; and provided, further, that (A) in the case of any such assignment resulting from a claim for compensation under Section 7.4 or payments required to be made pursuant to Section 7.2(a)(iii), such assignment will result in a reduction in such compensation or payments and (B) in the case of any such assignment resulting from a Rent Assignee becoming a Non-Consenting Rent Assignee, the applicable Eligible Assignees shall have agreed to the applicable departure, waiver or amendment of the Operative Documents).
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(b)Any Rent Assignee being replaced pursuant to Section 9.22(a) above shall execute and deliver an Assignment Agreement with respect to such Rent Assignee’s Commitment and outstanding Rent Assignment Balance and Participations, as applicable (provided that the failure of any such Rent Assignee to execute an Assignment Agreement shall not render such assignment invalid and such assignment shall be recorded in the Register). Pursuant to such Assignment Agreement, (A) the assignee Rent Assignee shall acquire all or a portion, as the case may be, of the assigning Rent Assignee’s Commitments and outstanding Rent Assignment Balance and Participations, as applicable, (B) all obligations of Holdings and the Lessee owing to the assigning Rent Assignee relating to the Operative Documents and Participations so assigned shall be paid in full by the assignee Rent Assignee or the Lessee (as applicable) to such assigning Rent Assignee concurrently with such assignment and assumption, including any amounts owing to the assigning Rent Assignee (other than a Defaulting Rent Assignee) under Section 7.5 as a consequence of such assignment and (C) upon such payment, the assignee Rent Assignee shall become a Rent Assignee hereunder and the assigning Rent Assignee shall cease to constitute a Rent Assignee hereunder with respect to such assigned Rent Assignment Balance, Commitments and Participations, except with respect to indemnification provisions under this Agreement, which shall survive as to such assigning Rent Assignee.
(c)In the event that (i) the Lessee or the Administrative Agent have requested that the Rent Assignees (A) consent to a departure or waiver of any provisions of the Operative Documents or (B) agree to any amendment thereto, (ii) the consent, waiver or amendment in question requires the agreement of all affected Rent Assignees in accordance with the terms of Section 9.5 or all the Rent Assignees, and (iii) the Required Rent Assignees have agreed to such consent, waiver or amendment, then any Rent Assignee who does not agree to such consent, waiver or amendment shall be deemed a “Non-Consenting Rent Assignee.”
(d)Notwithstanding anything herein to the contrary, each party hereto agrees that any assignment pursuant to the terms of this Section 9.22 may be effected pursuant to an Assignment Agreement executed by the Lessee, the Administrative Agent and the assignee and that the Rent Assignee making such assignment need not be a party thereto.
SECTION 9.23.USA PATRIOT Act Notice.
Each Participant hereby notifies the Lessee that pursuant to the requirements of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act (USA PATRIOT Act) of 2001, Title III of Pub. L. 107-56, signed into law on October 26, 2001 or any subsequent legislation that amends, supplements or supersedes such Act (the “USA PATRIOT Act”), it is required to obtain, verify and record information that identifies the Lessee and any related borrower, guarantor or grantor (the “Lease Parties”), which information includes the name, address and tax identification number of each Lease Party and other information that will allow such Participant to identify such Lease Party in accordance with the USA PATRIOT Act. This notice is given in accordance with the requirements of the USA PATRIOT Act. The Lessee agrees to provide all documentation and other information that the Administrative Agent or such Participant reasonably requests (including any information required by bank regulatory authorities) under “know your customer” and anti-money laundering rules and regulations, including the USA PATRIOT Act.
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SECTION 9.24.Acknowledgement and Consent to Bail-In of Affected Financial Institutions.
Notwithstanding anything to the contrary in this Transaction Agreement, any Operative Document or in any other agreement, arrangement or understanding among any such parties, each party hereto acknowledges that any liability of any Affected Financial Institution arising under any Operative Document, to the extent such liability is unsecured, may be subject to the write-down and conversion powers of the applicable Resolution Authority and agrees and consents to, and acknowledges and agrees to be bound by:
(a)the application of any Write-Down and Conversion Powers by the applicable Resolution Authority to any such liabilities arising hereunder which may be payable to it by any party hereto that is an Affected Financial Institution; and
(b)the effects of any Bail-In Action on any such liability, including, if applicable:
(i)a reduction in full or in part or cancellation of any such liability;
(ii)a conversion of all, or a portion of, such liability into shares or other instruments of ownership in such Affected Financial Institution, its parent undertaking, or a bridge institution that may be issued to it or otherwise conferred on it, and that such shares or other instruments of ownership will be accepted by it in lieu of any rights with respect to any such liability under this Transaction Agreement or any other Operative Document; or
(iii)the variation of the terms of such liability in connection with the exercise of the write-down and conversion powers of the applicable Resolution Authority.
As used in this Transaction Agreement:
“Affected Financial Institution” means (a) any EEA Financial Institution or (b) any UK Financial Institution.
“Bail-In Action” means the exercise of any Write-Down and Conversion Powers by the applicable Resolution Authority in respect of any liability of an Affected Financial Institution.
“Bail-In Legislation” means, (a) with respect to any EEA Member Country implementing Article 55 of Directive 2014/59/EU of the European Parliament and of the Council of the European Union, the implementing law, regulation, rule or requirement for such EEA Member Country from time to time which is described in the EU Bail-In Legislation Schedule and (b) with respect to the United Kingdom, Part I of the United Kingdom Banking Act 2009 (as amended from time to time) and any other law, regulation or rule applicable in the United Kingdom relating to the resolution of unsound or failing banks, investment firms or other financial institutions or their affiliates (other than through liquidation, administration or other insolvency proceedings).
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“EEA Financial Institution” means (a) any credit institution or investment firm established in any EEA Member Country which is subject to the supervision of an EEA Resolution Authority, (b) any entity established in an EEA Member Country which is a parent of an institution described in clause (a) of this definition, or (c) any financial institution established in an EEA Member Country which is a subsidiary of an institution described in clauses (a) or (b) of this definition and is subject to consolidated supervision with its parent.
“EEA Member Country” means any of the member states of the European Union, Iceland, Liechtenstein, and Norway.
“EEA Resolution Authority” means any public administrative authority or any Person entrusted with public administrative authority of any EEA Member Country (including any delegee) having responsibility for the resolution of any EEA Financial Institution.
“EU Bail-In Legislation Schedule” means the EU Bail-In Legislation Schedule published by the Loan Market Association (or any successor Person), as in effect from time to time.
“Resolution Authority” means an EEA Resolution Authority or, with respect to any UK Financial Institution, a UK Resolution Authority.
“UK Bail-In Legislation” means (to the extent that the United Kingdom is not an EEA Member Country which has implemented, or implements, Article 55 BRRD) Part I of the United Kingdom Banking Act 2009 and any other law or regulation applicable in the United Kingdom relating to the resolution of unsound or failing banks, investment firms or other financial institutions or their affiliates (otherwise than through liquidation, administration or other insolvency proceedings).
“UK Financial Institution” means any BRRD Undertaking (as such term is defined under the PRA Rulebook (as amended from time to time) promulgated by the United Kingdom Prudential Regulation Authority) or any person falling within IFPRU 11.6 of the FCA Handbook (as amended from time to time) promulgated by the United Kingdom Financial Conduct Authority, which includes certain credit institutions and investment firm, and certain affiliates of such credit institutions or investment firms.
“UK Resolution Authority” means the Bank of England or any other public administrative authority having responsibility for the resolution of any UK Financial Institution.
“Write-Down and Conversion Powers” means, (a) with respect to any Bail-In Legislation described in the EU Bail-In Legislation Schedule, from time to time, the powers described as such in relation to that Bail-In Legislation in the EU Bail-In Legislation Schedule, (b) in relation to any other applicable Bail-In Legislation (x) any powers under that Bail-In Legislation to cancel, transfer or dilute shares issued by a person that is a bank or investment firm or other financial institution or affiliate of a bank, investment firm or other financial institution, to cancel, reduce, modify or change the form of a liability of such a person or any contract or instrument under which that liability arises, to convert all or part of that liability into
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shares, securities or obligations of that person or any other person, to provide that any such contract or instrument is to have effect as if a right had been exercised under it or to suspend any obligation in respect of that liability or any of the powers under that Bail-In Legislation that are related to or ancillary to any of those powers; and (y) any similar or analogous powers under that Bail-In Legislation; and (c) with respect to the any UK Bail-In Legislation, (x) any powers of the UK Bail-In Legislation to cancel, transfer or dilute shares issued by a Person that is a bank or investment firm or other financial institution or affiliate of a bank, investment firm or other financial institution, to cancel, reduce, modify or change the form of a liability of such a Person or any contract or instrument under which that liability arises, to convert all or part of that liability into shares, securities or obligations of that Person or any other Person, to provide that any such contract or instrument is to have effect as if a right had been exercised under it or to suspend any obligation in respect of that liability or any of the powers under that UK Bail-In Legislation that are related to or ancillary to any of those powers and (y) any similar or analogous powers under that UK Bail-In Legislation.
SECTION 9.25.The Collateral Agent Statements
To the extent amounts are held and/or invested by the Collateral Agent under the Operative Documents including, without limitation, under Section 23.13 of the Lease, the Collateral Agent shall furnish the Lessee periodic cash transaction statements which shall include detail for all investment transactions effected by the Collateral Agent. Upon the Lessee’s election, such statements will be delivered via the Collateral Agent providing the Lessee with online access to the Collateral Agent’s system with respect to this Transaction Agreement and upon electing such service, paper statements will be provided only upon request. The Lessee waives the right to receive brokerage confirmations of security transactions effected by the Collateral Agent as they occur, to the extent permitted by law. The Lessee further understands that trade confirmations for securities transactions effected by the Collateral Agent will be available upon request and at no additional cost and other trade confirmations may be obtained from the applicable broker.
SECTION 9.26.Rights Under Assignment of Lease
The Lessee acknowledges the assignments to be made by the Lessor under the Assignment of Lease and expressly consents to the assignments thereof regarding the Leases and the property of the Lessor with respect to which a lien is purported to be granted pursuant to the Assignment of Lease.
SECTION 9.27.Erroneous Payment
(a)If the Administrative Agent notifies a Participant or any Person who has received funds on behalf of a Participant (any such Participant or other recipient, a “Payment Recipient”) that the Administrative Agent has determined in its sole discretion (whether or not after receipt of any notice under immediately succeeding clause (b)) that any funds received by such Payment Recipient from the Administrative Agent or any of its Affiliates were erroneously transmitted to, or otherwise erroneously or mistakenly received by, such Payment Recipient (whether or not known to such Participant or other Payment Recipient on its behalf) (any such funds, whether received as a payment, prepayment or repayment of principal, interest, fees, distribution or otherwise, individually and collectively, an “Erroneous Payment”) and demands
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the return of such Erroneous Payment (or a portion thereof), such Erroneous Payment shall at all times remain the property of the Administrative Agent and shall be segregated by the Payment Recipient and held in trust for the benefit of the Administrative Agent, and such Participant shall (or, with respect to any Payment Recipient who received such funds on its behalf, shall cause such Payment Recipient to) promptly, but in no event later than two Business Days thereafter, return to the Administrative Agent the amount of any such Erroneous Payment (or portion thereof) as to which such a demand was made, in same day funds (in the currency so received), together with interest thereon in respect of each day from and including the date such Erroneous Payment (or portion thereof) was received by such Payment Recipient to the date such amount is repaid to the Administrative Agent in same day funds at the greater of (x) the Federal Funds Rate and (y) a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation from time to time in effect. A notice of the Administrative Agent to any Payment Recipient under this clause (a) shall be conclusive, absent manifest error.
(b)Without limiting immediately preceding clause (a), each Participant hereby further agrees that if it receives a payment, prepayment or repayment (whether received as a payment, prepayment or repayment of principal, interest, fees, distribution or otherwise) from the Administrative Agent (or any of its Affiliates) (x) that is in a different amount than, or on a different date from, that specified in a notice of payment, prepayment or repayment sent by the Administrative Agent (or any of its Affiliates) with respect to such payment, prepayment or repayment, (y) that was not preceded or accompanied by a notice of payment, prepayment or repayment sent by the Administrative Agent (or any of its Affiliates), or (z) that such Participant or other such recipient, otherwise becomes aware was transmitted, or received, in error or by mistake (in whole or in part) in each case:
(i)(A) in the case of immediately preceding clauses (x) or (y), an error shall be presumed to have been made (absent written confirmation from the Administrative Agent to the contrary) or (B) an error has been made (in the case of immediately preceding clause (z)), in each case, with respect to such payment, prepayment or repayment; and
(ii)such Participant shall (and shall cause any other recipient that receives funds on its respective behalf to) promptly (and, in all events, within one Business Day of its knowledge of such error) notify the Administrative Agent of its receipt of such payment, prepayment or repayment, the details thereof (in reasonable detail) and that it is so notifying the Administrative Agent pursuant to this Section 9.27(b).
(c)Each Participant hereby authorizes the Administrative Agent to set off, net and apply any and all amounts at any time owing to such Participant under this Agreement, or otherwise payable or distributable by the Administrative Agent to such Participant from any source, against any amount due to the Administrative Agent under immediately preceding clause (a) or under the indemnification provisions of this Agreement.
(d)In the event that an Erroneous Payment (or portion thereof) is not recovered by the Administrative Agent for any reason, after demand therefor by the Administrative Agent in accordance with immediately preceding clause (a), from any Participant that has received such Erroneous Payment (or portion thereof) (and/or from any Payment Recipient who received such Erroneous Payment (or portion thereof) on its respective behalf) (such unrecovered amount, an “Erroneous Payment Return Deficiency”), upon the Administrative Agent’s notice to such Participant at any time, (i) such Participant shall be deemed to have assigned its Advances (but not its Commitments) with respect to which such Erroneous Payment was made (the “Erroneous Payment Impacted Facility”) in an amount equal to the Erroneous Payment Return Deficiency (or such lesser amount as the Administrative Agent
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may specify) (such assignment of the Advances (but not Commitments) of the Erroneous Payment Impacted Facility, the “Erroneous Payment Deficiency Assignment”) at par plus any accrued and unpaid interest (with the assignment fee to be waived by the Administrative Agent in such instance), and is hereby (together with the Lessee) deemed to execute and deliver an Assignment Agreement (or, to the extent applicable, an agreement incorporating an Assignment Agreement by reference pursuant to an electronic platform as to which the Administrative Agent and such parties are participants) with respect to such Erroneous Payment Deficiency Assignment, and such Participant shall deliver any promissory note evidencing such Advances to the Lessee or the Administrative Agent, (ii) the Administrative Agent as the assignee Participant shall be deemed to acquire the Erroneous Payment Deficiency Assignment, (iii) upon such deemed acquisition, the Administrative Agent as the assignee Participant shall become a Participant hereunder with respect to such Erroneous Payment Deficiency Assignment and the assigning Participant shall cease to be a Participant hereunder with respect to such Erroneous Payment Deficiency Assignment, excluding, for the avoidance of doubt, its obligations under the indemnification provisions of this Agreement and its applicable Commitments which shall survive as to such assigning Participant and (iv) the Administrative Agent may reflect in the attached Schedules its ownership interest in the Advances subject to the Erroneous Payment Deficiency Assignment. The Agent may, in its discretion, sell any Advances acquired pursuant to an Erroneous Payment Deficiency Assignment and upon receipt of the proceeds of such sale, the Erroneous Payment Return Deficiency owing by the applicable Participant shall be reduced by the net proceeds of the sale of such Advance (or portion thereof), and the Administrative Agent shall retain all other rights, remedies and claims against such Participant (and/or against any recipient that receives funds on its respective behalf). For the avoidance of doubt, no Erroneous Payment Deficiency Assignment will reduce the Commitments of any Participant and such Commitments shall remain available in accordance with the terms of this Agreement. In addition, each party hereto agrees that, except to the extent that the Administrative Agent has sold an Advance (or portion thereof) acquired pursuant to an Erroneous Payment Deficiency Assignment, and irrespective of whether the Administrative Agent may be equitably subrogated, the Administrative Agent shall be contractually subrogated to all the rights and interests of the applicable Participant under this Agreement with respect to each Erroneous Payment Return Deficiency.
(e)The parties hereto agree that an Erroneous Payment shall not pay, prepay, repay, discharge or otherwise satisfy any obligations owed by the Lessee except, in each case, to the extent such Erroneous Payment is, and solely with respect to the amount of such Erroneous Payment that is, comprised of funds received by the Administrative Agent from the Lessee for the purpose of making such Erroneous Payment.
(f)To the extent permitted by applicable law, no Payment Recipient shall assert any right or claim to an Erroneous Payment, and hereby waives, and is deemed to waive, any claim, counterclaim, defense or right of set off or recoupment with respect to any demand, claim or counterclaim by the Administrative Agent for the return of any Erroneous Payment received, including without limitation waiver of any defense based on “discharge for value” or any similar doctrine.
(g)Each party’s obligations, agreements and waivers under this Section 9.27 shall survive the resignation or replacement of the Administrative Agent, any transfer of rights or obligations by, or the replacement of, a Participant, the termination of the Commitments and/or the repayment, satisfaction or discharge of all obligations (or any portion thereof) of the Lessee hereunder.
ARTICLE X
RECEIPT, DISTRIBUTION AND APPLICATION OF RECEIPTS
RECEIPT, DISTRIBUTION AND APPLICATION OF RECEIPTS
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SECTION 10.1.Receipt, Distribution and Application of Receipts; Rent Distribution.
The parties hereto agree that the payments specified in this Article X will be distributed pursuant to the applicable subsections of this Article X and, with respect to payments required in this Article X below to be made to the Rent Assignees, in accordance with the Rent Assignment Agreement.
Except as otherwise provided in Section 10.3, each payment of Basic Rent under the Leases as well as any payment of interest on overdue installments of Basic Rent under the Lease, and any other monies paid over by the Lessee to the Administrative Agent in respect thereof which shall be remitted to the Administrative Agent on behalf of the Lessor, shall be distributed by the Administrative Agent as promptly as possible (it being understood that any payments of Basic Rent received by the Administrative Agent under the Leases on a timely basis and in accordance with the provisions of the Leases shall be distributed and/or paid by the Administrative Agent on the date received in the funds so received) in the following order of priority:
(i)first, to the Rent Assignees, pro rata, in respect of interest due;
(ii)second, to the Rent Assignees, pro rata, in respect of scheduled principal due; and
(iii)third, any remaining amounts, to, or at the direction of, the Lessee.
SECTION 10.2.Distribution of Certain Other Payments.
(a)Except as otherwise provided in Sections 10.3 and 10.5, the amount of any payment of Casualty/Requisition Payment, Purchase Price, Termination Value, Lease Balance, the Final Maturity Purchase Price Amount, Prepayment Premium, if any, Break Amounts, if any, with respect thereto, and any other amounts received as a result of the termination of the Leases due to an early termination of the Leases or any purchase of the Leased Equipment by the Lessee on the Maturity Date or otherwise, or an Event of Loss under a Lease other than payments of Excluded Amounts (which Excluded Amounts will be applied from such payments and amounts in accordance with Section 10.5 hereof prior to their application below), in each case, with respect to which the Lessor, Agents or Rent Assignee shall have the right to receive and apply such amounts, shall, in each case be distributed and/or paid by the Administrative Agent, in the following order of priority:
(i)first, so much of such payments, proceeds and/or amounts as shall be required to reimburse the Agents for services in their capacities as such as provided in the Operative Documents for any Claim incurred by such Persons (to the extent not previously reimbursed and to the extent incurred in connection with their administrative duties under the Operative Documents, duties as Agents) and any such unpaid ongoing administrative fees owing to such Persons shall be retained by the Person due such amounts;
(ii)second, the balance of such Supplemental Rent shall be distributed to the Rent Assignees, pro rata in accordance with their respective Commitment Percentage in respect of all accrued and unpaid Interest due on the outstanding Rent Assignment Balance, until payment thereof in full;
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(iii)third, the balance of such Supplemental Rent shall be distributed to the Rent Assignees, pro rata in accordance with their respective Commitment Percentage in respect of the outstanding principal amount of the Rent Assignment Balance, until payment thereof in full;
(iv)fourth, the balance of such Supplemental Rent shall be distributed to the Rent Assignees, pro rata in accordance with their respective Commitment Percentage of all Prepayment Premium received in respect of the prepaid Rent Assignment Balance, until payment thereof in full;
(v)fifth, to each Rent Assignee to which a Break Amount is then due and payable, the Break Amount then due and payable to such Rent Assignee; if the amount available under this priority is insufficient to pay all such Break Amounts in full, such amount shall be distributed among the affected Rent Assignees pro rata in proportion to the respective Break Amounts then due and payable to them;
(vi)sixth, the Final Maturity Purchase Price Amount shall be paid to the Lessor;
(vii)seventh, the balance of such Supplemental Rent shall be distributed to the Rent Assignees and the Lessor, pro rata, without priority of one such Person over the other, with respect to all other amounts payable to the Rent Assignees and the Lessor under the Operative Documents;
(viii)eighth, the balance thereof shall be distributed to any other Indemnitee, pro rata, without priority of one such Person over the other, with respect to all other amounts payable to such Person under the Operative Documents; and
(ix)ninth, the balance, if any, shall be paid to the Lessee or such other Person as the Lessee may designate in writing.
(b)Any payment received as a result of a Casualty that does not result in the termination of the affected Lease, shall be paid to the Lessee in accordance with Section 11.5 of the Lease.
SECTION 10.3.Distribution of Payments After Event of Default.
All payments, proceeds and amounts received and/or realized by the Lessor and the Agents after a Lease shall have been declared in default in accordance with Article XVII of such Lease following and during the continuance of an Event of Default including Casualty/Requisition Payment, Purchase Price, Termination Value, Lease Balance, the Final Maturity Purchase Price Amount, Prepayment Premium, if any, Break Amounts as well as all payments or amounts then held or thereafter received (other than Excluded Amounts which will be applied from such payment and amounts in accordance with Section 10.5 hereof prior to their application below) by the Lessor and the Agents while such Event of Default shall be continuing, shall be remitted to the Administrative Agent, and forthwith distributed and/or paid, in each case, with respect to which the Lessor, the Agents or the Rent Assignees shall have the right to receive and apply such amounts, in the following order of priority:
(i)first, so much of such payments, proceeds and/or amounts as shall be required to reimburse the Agents for services in their capacities as such as provided in
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the Operative Documents for any Claim incurred by such Persons (to the extent not previously reimbursed and to the extent incurred in connection with their administrative duties under the Operative Documents, duties as Agents) and any such unpaid ongoing administrative fees owing to such Persons shall be retained by the Person due such amounts;
(ii)second, the balance of such Supplemental Rent shall be distributed to the Rent Assignees, pro rata in accordance with their respective Commitment Percentage in respect of all accrued and unpaid Interest due on the outstanding Rent Assignment Balance, until payment thereof in full;
(iii)third, the balance of such Supplemental Rents shall be distributed to the Rent Assignees, pro rata in accordance with their respective Commitment Percentage in respect of the outstanding principal amount of the Rent Assignment Balance, until payment thereof in full;
(iv)fourth, the balance of such Supplemental Rent shall be distributed to the Rent Assignees, pro rata in accordance with their respective Commitment Percentage of all Prepayment Premium received in respect of the prepaid Rent Assignment Balance, until payment thereof in full;
(v)fifth, to each Rent Assignee to which a Break Amount is then due and payable, the Break Amount then due and payable to such Rent Assignee; if the amount available under this priority is insufficient to pay all such Break Amounts in full, such amount shall be distributed among the affected Rent Assignees pro rata in proportion to the respective Break Amounts then due and payable to them;
(vi)sixth, the balance thereof shall be distributed to any other Indemnitee, pro rata, without priority of one such Person over the other, with respect to all other amounts payable to such Person under the Operative Documents;
(vii)seventh, the balance of such Supplemental Rent shall be distributed to the Rent Assignees and the Lessor, pro rata, without priority of one such Person over the other, with respect to all other amounts payable to the Rent Assignees and the Lessor under the Operative Documents; and
(viii)eighth, the balance, if any, shall be paid to the Lessee or such other Person as the Lessee may designate in writing.
SECTION 10.4.Other Payments.
(a)Except as otherwise provided in Sections 10.1, 10.2, 10.3 and 10.5 and paragraph (b) below:
(i)any payments received by the Lessor (or the Administrative Agent or the Collateral Agent) no provision for the application of which is made in the Operative Documents or elsewhere in this Article X, and
(ii)all payments received and amounts realized by the Lessor (or the Administrative Agent or the Collateral Agent) under the Leases or otherwise with respect to the Leased Equipment to the extent received or realized at any time after payment in full of the outstanding Lease Balance with respect to the Rent Assignment Balance together with all accrued and unpaid Interest thereon and all other amounts payable to the Rent Assignees and the Lessor under the Operative Documents,
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(iii)shall be remitted to the Administrative Agent and distributed forthwith in the order of priority set forth in Section 10.2, if the Leases shall not have been declared in default in accordance with Article XVII of the Lease, and Section 10.3, if the Leases shall have been declared in default in accordance with Article XVII of the Leases during the continuance of an Event of Default.
(b)Any payment received by the Lessor (or the Administrative Agent or the Collateral Agent) provision for the application of which is made in an Operative Document but not elsewhere in this Article X shall be remitted to the Administrative Agent and distributed forthwith to the Person for the purpose for which such payment was made in accordance with the terms of such Operative Document.
SECTION 10.5.Distribution of Excluded Amounts and Supplemental Rent.
All amounts constituting Excluded Amounts or Supplemental Rent received by the Lessor (or the Administrative Agent) shall be remitted to the Administrative Agent and paid to or upon the order of the Person entitled thereto pursuant to the Operative Documents.
[Signature Pages Follow]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written.
DIGITALOCEAN, LLC, as the Lessee | |||||
By: /s/ W. Matthew Steinfort Name: W. Matthew Steinfort Title: Chief Financial Officer | |||||
DIGITALOCEAN HOLDINGS, INC. | |||||
By: /s/ W. Matthew Steinfort Name: W. Matthew Steinfort Title: Chief Financial Officer | |||||
[Signature Page to the Transaction Agreement]
MUFG AMERICAS CAPITAL LEASING & FINANCE, LLC, as the Lessor | |||||
By: /s/ Stefan Breuer Name: Stefan Breuer Title: Managing Director | |||||
[Signature Page to the Transaction Agreement]
MUFG BANK, LTD., as the Collateral Agent | |||||
By: /s/ Stefan Breuer Name: Stefan Breuer Title: Managing Director | |||||
[Signature Page to the Transaction Agreement]
MUFG BANK, LTD., as the Administrative Agent | |||||
By: /s/ Lawrence Blat Name: Lawrence Blat Title: Director | |||||
[Signature Page to the Transaction Agreement]
MUFG BANK, LTD., as a Rent Assignee | |||||
By: /s/ Stefan Breuer Name: Stefan Breuer Title: Managing Director | |||||
[Signature Page to the Transaction Agreement]
AXOS BANK, as a Rent Assignee | |||||
By: /s/ Kira Jones Name: Kira Jones Title: VP – Documentation Manager | |||||
BMO BANK N.A., as a Rent Assignee | |||||
By: /s/ Kamran Khan Name: Kamran Khan Title: Managing Director | |||||
WELLS FARGO EQUIPMENT FINANCE, INC., as a Rent Assignee | |||||
By: /s/ Juile Milbrath Name: Julie Milbrath Title: Authorized Signer | |||||
PNC BANK, NATIONAL ASSOCIATION, as a Rent Assignee | |||||
By: /s/ Christy Lockard Name: Christy Lockard Title: Vice President | |||||
MORGAN STANLEY BANK, N.A., as a Rent Assignee | |||||
By: /s/ Ross Shaiman Name: Ross Shaiman Title: Authorized Signatory | |||||
[Signature Page to the Transaction Agreement]
JPMORGAN CHASE BANK, N.A., as a Rent Assignee | |||||
By: /s/ Megan Ater Name: Megan Ater Title: Authorized Officer | |||||
TEXAS CAPITAL BANK, as a Rent Assignee | |||||
By: /s/ Frank Annello Name: Frank Annello Title: Managing Director | |||||
SUMITOMO MITSUI TRUST BANK, LIMITED, NEW YORK BRANCH, as a Rent Assignee | |||||
By: /s/ Ritch Vilas Boas Name: Ritch Vilas Boas Title: Senior Director | |||||
[Signature Page to the Transaction Agreement]
MITSUBISHI HC CAPITAL AMERICA, INC., as a Rent Assignee | |||||
By: /s/ Brian Rosa Name: Brian Rosa Title: President | |||||
[Signature Page to the Transaction Agreement]
Exhibit 10.2
ARTICLE I | ||
MASTER LEASE AGREEMENT
Dated as of September 10, 2026
Between
MUFG AMERICAS CAPITAL LEASING & FINANCE, LLC,
as the Lessor,
as the Lessor,
And
DIGITALOCEAN, LLC,
as the Lessee
as the Lessee
NA_DECHERT.96555686.10
TABLE OF CONTENTS
Page
-i-
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-ii-
NA_DECHERT.96555686.10
Exhibit A Form of Lease Supplement
Exhibit B Form of Bill of Sale
-iii-
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MASTER LEASE AGREEMENT
ARTICLE ITHIS MASTER LEASE AGREEMENT, dated as of September 10, 2026 (as amended, supplemented, or otherwise modified from time to time, this “Master Lease Agreement”), is between MUFG AMERICAS CAPITAL LEASING & FINANCE, LLC, a Delaware limited liability company, as the Lessor (the “Lessor”), and whose principal offices are located at 555 South Flower Street, 22nd Floor, Los Angeles, California 90071, and DIGITALOCEAN, LLC, a Delaware limited liability company, as the Lessee (the “Lessee”), and whose principal offices are located at 105 Edgeview Drive, Suite 425, Broomfield, CO 80021.
WITNESSETH:
ARTICLE IIWHEREAS, the parties hereto desire to enter into the Overall Transaction for the purpose of leasing the Leased Equipment from the Lessor to the Lessee;
ARTICLE IIIWHEREAS, subject to the terms and conditions set forth in the Operative Documents, on the related Base Term Commencement Date, pursuant to the Transaction Agreement, the Lessor, as purchaser, has acquired or will acquire GPU Equipment Pools from the Seller, as evidenced by a Bill of Sale;
ARTICLE IVWHEREAS, the Lessee and the Lessor desire to enter into this Master Lease Agreement to set forth the terms and conditions under which such parties will lease the Leased Equipment; and
ARTICLE VWHEREAS, pursuant to this Master Lease Agreement and each Lease Supplement entered into on the date hereof or in the future by the Lessor and the Lessee, the form of which is attached hereto as Exhibit A, the Lessor will lease the Leased Equipment described in each such Lease Supplement to the Lessee and the Lessee will lease such Leased Equipment from the Lessor.
ARTICLE VINOW, THEREFORE, in consideration of the mutual agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto, intending to be legally bound hereby, hereby agree as follows:
ARTICLE I
DEFINITIONS
DEFINITIONS
Section 1.1.Definitions; Interpretation. For all purposes hereof, the capitalized terms used herein and not otherwise defined shall have the meanings assigned thereto in Appendix I to that certain Transaction Agreement dated as of even date herewith (as the same may be amended, modified, restated or supplemented from time to time, the “Transaction Agreement”), among the Lessee, DigitalOcean Holdings, Inc., a Delaware corporation (“Holdings”), the Lessor, MUFG Bank, Ltd., as the Administrative Agent, MUFG Bank, Ltd. as the Collateral Agent, and the Rent Assignees named on Schedule I thereto from time to time, and the rules of interpretation set forth in Appendix I to the Transaction Agreement shall apply to this Lease provided, however, with respect to Article XVII hereof, certain capitalized terms used therein and not otherwise defined shall have the meanings assigned thereto in the Appendix to Schedules 4.5, 5.2 and 5.3 of the
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Transaction Agreement, Defined Terms attached. In addition, references herein to (i) the Leased Equipment shall be interpreted to mean the Leased Equipment which is leased by the parties pursuant to a Lease Supplement (whether executed simultaneously with this Lease or in the future), and (ii) this Lease shall be interpreted to mean this Master Lease Agreement as incorporated into Lease Supplements executed from time to time.
ARTICLE II
LEASE OF LEASED EQUIPMENT; LEASE TERM
LEASE OF LEASED EQUIPMENT; LEASE TERM
Section 2.1.Acceptance and Lease
ARTICLE III. The agreement of the Lessor to accept delivery of title to the Leased Equipment, as such title is described in Section 3.1 below, and simultaneously lease the Leased Equipment to the Lessee hereunder and the agreement of the Lessee to lease from the Lessor for the Lease Term the Leased Equipment shall be subject to the satisfaction of the conditions set forth in Sections 2.1 and 3.1 of the Transaction Agreement including the execution and delivery by such parties of a Lease Supplement with respect to GPU Equipment Pools consisting of the Leased Equipment described in such Lease Supplement. The execution and delivery by such parties of such Lease Supplement shall be evidence of such acceptance by the parties of the Leased Equipment for the purposes set forth herein. Subject to Articles XII and XVIII hereof, the Lessor will not lease nor otherwise make the Leased Equipment, in whole or in part, available to any Person other than the Lessee and its permitted successors, assigns and sublessees during the Lease Term, and (without derogating in any way from the Lessor’s rights under Articles XVI or XVIII hereof) during the Lease Term the Lessee shall have unimpeded physical control of the Leased Equipment and quiet and peaceful enjoyment of the Leased Equipment, notwithstanding the Lessor’s rights to inspect the Leased Equipment in accordance with Article XVI.
Section 3.1.Lease Term. Unless earlier terminated, the term of this Lease with respect to the Leased Equipment shall consist of a base lease term (the “Lease Term”) commencing immediately upon the execution and delivery of the related Lease Supplement and without further act of the parties hereto, on the Base Term Commencement Date for the Leased Equipment as set forth in the Lease Supplement related thereto (such date, the “Base Term Commencement Date”) and ending on the fourth anniversary of the Closing Date (such final date of the Lease Term, herein the “Return Date”).
ARTICLE IV
TITLE
TITLE
Section 4.1.Title
ARTICLE V. The Lessor warrants that, on the related Base Term Commencement Date, the Lessor shall have received whatever title to the related Leased Equipment that was conveyed to it by the Lessee pursuant to the Purchase and Sale Agreement and related Bill of Sale. The Lessor covenants that it will not directly or indirectly create, incur, assume or suffer to exist any Lessor Lien, and shall promptly, at its own expense, take such action as may be necessary duly to discharge any Lessor Lien if the same shall arise at any time in accordance with Section 6.2(a) of the Transaction Agreement.
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ARTICLE VI
RENT
RENT
Section 6.1.Basic Rent. During the Lease Term, the Lessee shall pay to the Lessor the Basic Rent in arrears, without duplication, on (i) each Payment Date, (ii) the Return Date, and (iii) any date on which this Lease terminates, whether on a Lease Expiration Date or upon demand following an Event of Default pursuant to Article XVIII.
Section 6.2.Supplemental Rent. The Lessee shall pay to the Lessor, or to whomever shall be entitled thereto as expressly provided herein or in any other Operative Document (and the Lessor hereby directs the Lessee, on behalf of the Lessor, to so pay any such other Person), any and all Supplemental Rent promptly as the same shall become due and payable.
Section 6.3.Method and Amount of Payment. Basic Rent and Supplemental Rent shall be paid by wire transfer by the Lessee to the Administrative Agent (in accordance with Section 2.7 of the Transaction Agreement) (or, in the case of Supplemental Rent not otherwise applied in accordance with Sections 10.2 or 10.3 of the Transaction Agreement, to such Person as may be entitled thereto) at such place as the Administrative Agent (or such other Person) shall specify in writing to the Lessee pursuant to Schedule II to the Transaction Agreement (or such other account in the United States as Administrative Agent or such other Person directs by notice to the Lessee at least ten (10) Business Days prior to the due date). Each payment of Rent shall be made by the Lessee prior to 1:00 p.m. New York time (and any amounts received after such time on any date may, in the reasonable discretion of the Administrative Agent, be deemed to have been received on the next succeeding Business Day solely for purposes of calculating interest thereon) at the place of payment in funds consisting of Dollars which (in the case of any amount payable to the Administrative Agent, any Participant or any other Indemnitee) shall be immediately available on the scheduled date when such payment shall be due unless the scheduled date shall not be a Business Day, in which case such payment shall be due and made on the next succeeding Business Day.
Section 6.4.Late Payment. During the continuance of an Event of Default, if any Basic Rent shall not be paid when due, the Lessee shall pay to the Lessor, or if any Supplemental Rent payable to or on behalf or for the account of the Administrative Agent, any Participant or other Indemnitee is not paid when due, the Lessee shall pay to whomever shall be entitled thereto, in each case as Supplemental Rent, interest at the Overdue Rate (to the maximum extent permitted by law) on such overdue amount from and including the later of (i) the due date of such payment and (ii) the date on which such Event of Default first occurs to, but excluding the Business Day of payment thereof.
Section 6.5.No Set-off, Counterclaim, Etc. To the extent permitted by Applicable Law, the Lessee’s obligation to pay all Rent payable hereunder shall be absolute and unconditional and shall not be affected by any circumstance whatsoever, including, without limitation, (i) any set-off, counterclaim, recoupment, defense or other right which the Lessee may have against the Lessor or any other Person for any reason whatsoever, (ii) any defect in the title, condition, design, operation, or fitness for use of, or any damage to or loss or destruction of, Leased Equipment, or any interruption of, or cessation in, or prohibition, limitation or restriction of, the use or possession thereof by the Lessee (or any Permitted Sublessee) for any reason whatsoever including, without limitation, any such interruption, cessation, prohibition, limitation or restriction resulting from the act of any government authority, (iii) any insolvency, bankruptcy, reorganization or similar case or proceedings by or against the Lessee (or any Permitted Sublessee) or any other Person, or (iv) any breach, default or misrepresentation by the Lessor or any other Person under this Lease or any other Operative Document, or (v) any other circumstance, happening, or event, whether or not unforeseen or similar to any of the foregoing. Nothing contained in this Section 4.5 shall be construed to waive any claim which the Lessee may have hereunder or under any other Operative Document (including, without limitation, claims that Rent payments demanded from or paid by the Lessee are or were erroneous) or otherwise or to limit the right of the Lessee to make any claim it may have against the Lessor or
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any other Person or to pursue any such claim in such manner (other than pursuant to set-off) as the Lessee shall deem appropriate.
Section 6.6.Pari Passu
ARTICLE VIIThe Lessee must ensure that its payment obligations under the Leases at all times rank at least pari passu with all its other present and future unsecured payment obligations, except as may be limited by bankruptcy, insolvency, liquidation, judicial or out-of-court reorganization proceedings or similar laws affecting the enforcement of creditors’ rights generally and as may be limited by equitable principles of general applicability.
ARTICLE VIII
NET LEASE
NET LEASE
ARTICLE IXThis Lease shall constitute a net lease and, notwithstanding any other provision of this Lease and the other Operative Documents and the Lessee’s obligation to pay Rent in accordance with the terms of the Operative Documents is absolute and unconditional. The payment and performance obligations and liabilities of the Lessee hereunder shall, to the fullest extent permitted by Applicable Laws, in no way be released, discharged or otherwise affected for any reason (other than the indefeasible payment or performance in full of such liability or obligation) including the circumstances set forth in Section 4.5. Except as specifically set forth in Articles XIII, XVIII or XX of this Lease, this Lease shall be noncancellable by the Lessee for any reason whatsoever and the Lessee, to the fullest extent permitted by Applicable Laws, waives all rights now or hereafter conferred by statute or otherwise to quit, terminate or surrender this Lease, or to any diminution, abatement or reduction of Rent payable by the Lessee hereunder. Subject to the terms and conditions herein, the Lessee assumes the sole responsibility for the condition, use, operation, maintenance, and management of the Leased Equipment. Without affecting the Lessee’s obligation to pay Basic Rent, the Lease Balance and all other amounts due and payable under the Operative Documents or to perform its obligations under the Operative Documents, the Lessee may enforce the Operative Documents in accordance with their terms, and, notwithstanding any other provision of the Operative Documents (but subject to Section 9.11 of the Transaction Agreement), seek damages of any kind or any other remedy at law or equity against the Lessor for such willful misconduct or gross negligence or negligence in the handling of funds or for a breach by the Lessor of its obligations under this Lease or the other Operative Documents.
ARTICLE X
CONDITION OF LEASED EQUIPMENT
CONDITION OF LEASED EQUIPMENT
Section 10.1.Waivers. LESSOR LEASES AND LESSEE TAKES THE LEASED EQUIPMENT AND EACH ITEM OF LEASED EQUIPMENT “AS-IS,” “WHERE-IS”. LESSOR DOES NOT HAVE, HAS NOT MADE AND SHALL NOT BE DEEMED TO HAVE MADE, AND HEREBY EXPRESSLY DISCLAIMS AND WILL BE DEEMED TO HAVE EXPRESSLY DISCLAIMED, ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO THE QUALITY OF THE MATERIAL, WORKMANSHIP, VALUE, CONDITION, DESIGN, OPERATION, MERCHANTABILITY OR FITNESS OR SUITABILITY FOR USE OR FOR A PARTICULAR PURPOSE OF THE LEASED EQUIPMENT OR EACH ITEM OF LEASED EQUIPMENT, AS TO THE ABSENCE OF
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LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, AS TO THE ABSENCE OF ANY INFRINGEMENT OF ANY PATENT, TRADEMARK OR COPYRIGHT, AS TO THE ABSENCE OF OBLIGATIONS BASED ON STRICT LIABILITY IN TORT, OR ANY OTHER REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO THE LEASED EQUIPMENT OR EACH ITEM OF LEASED EQUIPMENT, except that (x) nothing set forth in this sentence shall (1) derogate from the representations and warranties made by the Lessor in or pursuant to any Operative Document or (2) be construed as a waiver by the Lessee of any warranty or other claim against any manufacturer (including, without limitation, any Manufacturer), supplier, dealer, contractor, subcontractor or other Person, and (y):
(i)the Lessor warrants that, on the related Base Term Commencement Date, it shall have received whatever title to the Leased Equipment was conveyed to it by the applicable Seller and covenants that it will not directly or indirectly create, incur, assume or suffer to exist any Lessor Lien, and shall promptly, at its own expense, take such action as may be necessary duly to discharge any such Lessor Lien if the same shall arise at any time, and it will cause restitution to be made to the Lessee in the amount of any diminution of the value of the Leased Equipment as a result of its failure to discharge or cause to be discharged all Lessor Liens attributable to it pursuant to this clause (i); and
(ii)the Lessor agrees that, so long as no Event of Default shall have occurred and be continuing, the Lessee and, if a Sublease is then in effect, any Permitted Sublessee shall have the benefit of and shall be entitled to enforce, either in its own name or in the name of the Lessor (or, in the case of such Permitted Sublessee, in the name of the Lessee) for the use and benefit of the Lessee or such Permitted Sublessee, as the case may be, any and all warranties of any Person (whether express or implied) in respect of the Leased Equipment or any item thereof, and the Lessor agrees to execute and deliver such further documents and take such further action, as may be reasonably requested by the Lessee and at the Lessee’s cost and expense, as may be necessary to enable the Lessee or such Permitted Sublessee to obtain such warranty service or the benefits of any such warranty as may be furnished for the Leased Equipment or any item thereof by such Person. The Lessee shall maintain and keep in full force and effect all warranties for the GPU Servers, except to the extent such warranties expire or terminate in accordance with their terms. The Lessor hereby appoints and constitutes the Lessee and, if a Sublease is then in effect, also any Permitted Sublessee, except at such times as an Event of Default shall have occurred and be continuing, its agent and attorney-in-fact during the Lease Term to assert and enforce, from time to time, in the name and for the account of the Lessor and the Lessee (and such Permitted Sublessee), as their interests may appear, but in all cases at the cost and expense of the Lessee, whatever non-frivolous claims and rights the Lessor (and, in the case of such Permitted Sublessee, also whatever non-frivolous claims and rights the Lessee) may have against such Person provided, however, that such appointment or appointments are revocable by the Lessor in its sole discretion upon the occurrence and during the continuance of an Event of Default and are void and automatically revoked without further action upon an Event of Default described in paragraphs (g) or (h) of Article XVII hereof or upon any similar circumstance with respect to any such Permitted Sublessee.
ARTICLE XI
LIENS
LIENS
Section 11.1.Liens. During the Lease Term, the Lessee will not directly or indirectly create, incur, assume or suffer to exist any Lien, except as provided herein, on or with respect to the Leased Equipment or any item thereof, title thereto or any interest therein or this Lease, except (i) the respective rights and interests created by or pursuant to or resulting from the Operative Documents, the respective rights of the Lessor and the Lessee as herein provided and
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the respective rights and interests of the other parties to the Operative Documents, (ii) the Lessor Liens, (iii) Liens approved in writing by the Lessor (at the direction of the Required Rent Assignees), (iv) Liens for Taxes, (x) which are not delinquent for a period of more than thirty (30) days and, with respect to which, no action or proceeding has been commenced to enforce such Lien, or (y) which are being contested pursuant to a Permitted Contest, and (v) statutory or common law Liens of landlords, carriers, warehousemen, mechanics, materialmen, repairmen, construction contractors or other like Liens arising in the ordinary course of business and (other than a Lien imposed under Section 430(k) of the Code or Section 303(k) of ERISA) (x) which secure amounts not overdue for a period of more than thirty (30) days or, if more than thirty (30) days overdue, are unfiled or bonded (or, if, filed have been discharged or stayed) and no action or proceeding has been commenced to enforce such Lien or (y) which are being contested pursuant to a Permitted Contest. Liens described in clauses (i) through (v) above are referred to as “Permitted Liens”.
ARTICLE XII
POSSESSION
POSSESSION
Section 12.1.Possession. Without the prior written consent of the Lessor and the Rent Assignees, the Lessee shall not sublease or otherwise in any manner deliver, transfer or relinquish possession of the Leased Equipment, such consents not to be unreasonably withheld or delayed at any time, it being agreed that it would be reasonable to withhold such consents if, among other things, (i) any such sublease would subject any Participant or Agent to a violation of Applicable Laws then applicable to such Persons including, without limitation, those promulgated by OFAC, (ii) an Event of Default shall have occurred and be continuing or, after giving effect to such sublease, would exist, (iii) the Person subleasing or otherwise obtaining such possession shall then be subject to any events or circumstances described in paragraphs (g) or (h) of Article XVII hereof, (iv) the Leased Equipment would not be used and operated in place at the same Site, subject to the terms and conditions hereof, or (v) any such sublease (a) extends beyond the Maturity Date, (b) discharges or diminishes any of the Lessee’s obligations to the Lessor or to any other Person under any other Operative Document, (c) is not expressly subject and subordinate to the related Lease, (d) the Lessee does not remain primarily liable for all obligations under such Lease, (e) does not expressly provide for the surrender of the related Leased Equipment subleased by the applicable sublessee at the election of the Lessor after the occurrence and during the continuation of an Event of Default, (f) does not provide that such provisions may be directly enforced by the Lessor or the Administrative Agent, or does not provide that such sublessee expressly agrees to comply with the use restrictions set forth in Article IX hereof; provided, however, that the Lessee may, without the prior written consent of the Lessor sublease all or any portion of a GPU Equipment Pool to any Affiliate, provided that such sublease and such Affiliate shall not give rise to events or circumstances described in the foregoing clauses (i) through (v) inclusive, mutatis mutandis. The Lessee shall give the Lessor and the Administrative Agent prompt written notice of any such sublease which notice shall include copies of each such sublease.
ARTICLE XIIIThe Lessee agrees to reimburse the Lessor for all of its reasonable out-of-pocket fees and expenses, including, without limitation, reasonable and documented out-of-pocket fees and disbursements of counsel, incurred by the Lessor in connection with any such sublease.
ARTICLE XIV
OPERATION AND USE; MAINTENANCE
OPERATION AND USE; MAINTENANCE
Section 14.1.Operation and Use
ARTICLE XV. The Lessee agrees that it will not (and will not permit any Permitted Sublessee to) use or operate the Leased Equipment for any purpose or in any manner that would
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diminish in any material respect the value, utility, useful life or functional capability thereof (ordinary wear and tear excepted) or in violation of any Applicable Law including, without limitation, those promulgated by OFAC, except to the extent the Lessee (or, if a Sublease is then in effect, any Permitted Sublessee) is contesting in good faith the validity or application of any such Applicable Law in any manner that does not involve any risk of criminal liability or material risk of civil penalty against any Participant, or any material risk of sale, forfeiture or loss of such Leased Equipment or the interest of the Lessor therein; provided that ordinary-course changes in workload allocation, software configuration, AI/ML training intensity and data-center operations shall not constitute a breach of this Section 9.1 so long as such use is consistent with the applicable Leased Equipment’s design specifications and the manufacturer recommendations applicable thereto and consistent with the Lessee’s use and operation of similar equipment owned or leased by the Lessee, taking into account ordinary-course differences in end users and purposes. In the event that any such Applicable Law requires alteration of any item of Leased Equipment, the Lessee will conform thereto or obtain conformance therewith at no expense to the Lessor subject to the contest rights contained in the first sentence of this Section 9.1. The Lessee shall use the Leased Equipment in compliance with all of the Operative Documents. The Lessee shall pay, or cause to be paid, all charges and costs required in connection with the use of the Leased Equipment in accordance with this Lease and the Transaction Agreement. The Lessee shall not commit or permit any physical waste of the Leased Equipment or any part thereof.
Section 15.1.Maintenance; Compliance with Law
ARTICLE XVI. The Lessee shall (a) maintain, service and repair the Leased Equipment (or cause the same to be done) so as to keep the Leased Equipment in good operating condition, ordinary wear and tear excepted; (b) maintain the Leased Equipment in accordance with all Applicable Laws (including all Data Protection Laws) in all material respects, whether or not such maintenance requires upgrades, updates, replacements or other maintenance; (c) comply in all material respects with the Insurance Requirements which are in effect at any time with respect to the Leased Equipment or any item of Leased Equipment; (d) use the Leased Equipment only in accordance with Section 9.1; (e) make all necessary or appropriate repairs, replacements and renewals of the Leased Equipment or item of Leased Equipment which may be required to keep the Leased Equipment in the condition required by this Section 9.2, whether foreseen or unforeseen, ordinary or extraordinary; and (f) procure, maintain and comply in all material respects with all Governmental Actions required for the use, maintenance, operation and construction of the Leased Equipment. In addition, the Lessee shall (i) comply, and make commercially reasonable efforts to cause its directors, officers, employees and agents (in their respective capacities as such) to comply, with all Data Protection Laws applicable to its business and operations, (ii) maintain written policies and procedures by or on behalf of the Lessee that are reasonably designed to promote and achieve compliance by, the Lessee and its directors, officers, employees and agents (in their respective capacities as such), with Data Protection Laws applicable to its business and operations, and (iii) perform any investigation or remedial action to the extent required by Governmental Authorities under Data Protection Laws, in each case, except to the extent a non-compliance would not reasonably be expected to have a Material Adverse Effect. The Lessee waives any right that it may now have or hereafter acquire to (x)
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require the Lessor to maintain, repair, replace, alter, remove or rebuild all or any part of the Leased Equipment or (y) make repairs at the expense of the Lessor pursuant to any Applicable Laws or other agreements.
Section 16.1.Export Controls. The Lessee shall, and shall cause its Subsidiaries to, and contractually require its Permitted Sublessees to, comply with all Applicable Export Control Laws in all material respects, in each case, in connection with the Leased Equipment and the Services.
ARTICLE XVIIThe Lessee shall maintain, and shall contractually require each Permitted Sublessee to maintain, a customer-screening program reasonably designed to identify and screen each customer of the Services operated on the Leased Equipment against the Specially Designated Nationals and Blocked Persons List and Consolidated Sanctions List, in each case, maintained by OFAC, and any customer-identification/KYC requirements applicable to the Lessee (including, if and as applicable, under Executive Order 13984 and any successor rule). The Lessee shall not knowingly provide and shall take commercially reasonable steps to prevent access to the Leased Equipment or the Services to any national, instrumentality, or entity of a comprehensively sanctioned country or any customer for whom access to the Leased Equipment or the Services is prohibited pursuant to applicable Sanctions Laws and Regulations or Applicable Export Control Laws, except as authorized under Applicable Law.
ARTICLE XVIII
LOCATION
LOCATION
Section 18.1.Location. The Lessee shall procure that the Leased Equipment leased under each Lease Supplement shall remain at all times at the Site set forth therein with respect to such Leased Equipment. The Lessee shall be responsible for all aspects of the safety of the Leased Equipment leased to it under the Leases at such Sites and shall maintain the Leased Equipment in such a way that the same shall not constitute a danger to persons or things. The Lessee will not allow the name of any Person to be placed on the Leased Equipment as a designation that might be interpreted as a claim of title or ownership; provided that nothing in this Section 10.1 shall prohibit the Lessee (or any Permitted Sublessee) from placing appropriate markings on such Leased Equipment. Notwithstanding the foregoing, except upon the occurrence and continuance of an Event of Default, the Lessee may relocate any item or items of Leased Equipment to any other Site satisfying the requirements of Section 3.1(r) of the Transaction Agreement, upon twenty (20) days’ prior written notice to the Lessor and the Administrative Agent, subject to delivery of an updated Lease Supplement or amendment to the applicable Lease Supplement reflecting the relocation of such item or items to the new Site.
Section 18.2.Site Leases; Termination of a Site Lease. All Leased Equipment will be installed and located at Sites. Each Lease Supplement shall set forth in detail the location within each Site of each item of Leased Equipment comprising the GPU Equipment Pool described therein. Each Site shall be subject to a Site Lease evidencing sufficient rights for the Lessee to install, use and operate each such item of Leased Equipment at such location designated therefor on the related Lease Supplement. In the event of a termination of a Site Lease where the Lessee does not relocate the affected Leased Equipment to an alternative Site within sixty (60) days of such termination (a “Site Lease Termination Event”), the Lessee will be required to pay to the Administrative Agent on behalf of the Lessor, within ten (10) days of such termination an amount equal to the Termination Amount with respect to all Leased Equipment located at such Site. Upon receipt by the Administrative Agent from the Lessee of the Termination Amount due to a Site Lease Termination Event, (x) the applicable Lease related to such Site shall be terminated as to the Leased Equipment at such Site and the obligations of the Lessee with respect to such Leased Equipment shall terminate as of the date of such payment (other than those which
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are expressly set forth to survive), (y) the Basic Rent for such Lease with respect to such Leased Equipment shall cease, and (z) title to such Leased Equipment shall be conveyed to the Lessee or its designee.
Section 18.3.No Exportation. The Lessee shall not, and shall not knowingly authorize any Permitted Sublessee to, remove, ship, export or reexport any Leased Equipment in violation of Applicable Export Control Laws.
ARTICLE XIX
INSURANCE
INSURANCE
Section 19.1.Commercial General Liability Insurance. The Lessee shall maintain commercial general liability insurance, including coverages for contractual liability, against personal injury, bodily injury, including death, and third-party property damage occurring with respect to the Leased Equipment, written on an occurrence basis, including against the Lessor, in an amount at least equal to $1,000,000 per occurrence with $25,000,000 annual aggregate Umbrella Liability excess coverage during the Lease Term. Such coverage shall cover at least the following: (x) premises and operations; (y) independent contractors; and (z) contractual liability covering, to the maximum extent permitted by law, the Lessee’s obligation to indemnify the Indemnitees as required under the Operative Documents. Any policies of insurance carried in accordance with this Section 11.1 and any policies taken out in substitution or replacement for any of such policies shall: (1) name each Agent and each Participants, as their respective Interests (defined below in this Section 11.1) may appear, as additional insureds (the “Additional Insureds”), (2) subject to the conditions of clause (3) below, provide that, in respect of the interest of each Additional Insured in such policies, the insurance shall not be invalidated by any action or inaction of the Lessee or any other insured (other than such Additional Insured) and shall insure each Additional Insured’s Interests as they appear, regardless of any breach or violation of any warranty, declaration or condition contained in such policies by the Lessee or any other insured (other than such Additional Insured), (3) provide that if such insurance is canceled for any reason, or if any change is made in the insurance that materially reduces the amount of insurance, or if such insurance is canceled for nonpayment of premium, such cancellation or change shall not be effective as to any Additional Insured for thirty (30) days after issuance to such Additional Insured of written notice from or on behalf of such insurers of such cancellation or change, (4) provide that the Additional Insureds shall have no obligation or liability for premiums, commissions, assessments or calls in connection with such insurance, (5) provide that the insurers shall waive any rights of (x) set-off, counterclaim or any other deduction, whether by attachment or otherwise, in respect of any liability of the Additional Insureds to the extent of any moneys due to the Additional Insureds and (y) subrogation against the Additional Insureds to the extent that the Lessee has waived its rights by its agreements to indemnify the Additional Insureds pursuant to the Operative Documents, (6) be primary without right of contribution from any other insurance carried by any Additional Insured with respect to its Interests as such in the Leased Equipment, and (7) expressly provide that all of the provisions thereof, except the limits of liability, shall operate in the same manner as if there were a separate policy covering each insured. “Interests” as used in this Section 11.1 and in Sections 11.2 and 11.3 with respect to any Person means the interests of such Person in the transactions contemplated by the Operative Documents. The Lessee shall have the right to maintain self-insured retentions and/or deductibles with respect to the foregoing insurance in such amounts and on such terms as are, from time to time, consistent with prudent business practice for companies engaged in similar businesses and owning similar assets and are customarily maintained by the Lessee with respect to similar assets of the Lessee in the United States.
Section 19.2.Property Insurance. The Lessee shall maintain property insurance against loss or damage covering all risks of loss or damage to the Leased Equipment from any cause whatsoever including, without limitation, property damage, liability, fire, theft, vandalism, malicious mischief, flood (if the respective Site is located in a high-risk flood zone), earth movement (including but not limited to earthquake and landslide and other hazards covered by a standard commercial property insurance policy providing “special” form coverage or equivalent
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all-risk policy; provided that such insurance shall be maintained with regard to each GPU Equipment Pool from and after the Base Term Commencement Date with respect thereto for an amount not less than the Insured Value for the respective GPU Equipment Pools, which insured amount must be declared by the Lessee and approved by the Lessor. Any policies carried in accordance with this Section 11.2 and any policies taken out in substitution or replacement for any such policies shall: (1) provide that any insurance proceeds up to an amount equal to the Insured Value for such GPU Equipment Pool payable for any loss or damage constituting an Event of Loss with respect to such GPU Equipment Pool and any insurance proceeds in excess of the Insurance Threshold up to an amount equal to the Insured Value for such GPU Equipment Pool for any loss or damage thereto not constituting an Event of Loss with respect thereto, shall be paid to the Collateral Agent as sole loss payee (the “Loss Payee”) and that all other amounts shall be paid to the Lessee or its designee, unless an Event of Default exists, in which case all insurance proceeds for any loss or damage to such GPU Equipment Pool up to an amount equal to the Insured Value for such GPU Equipment Pool shall be payable to the Administrative Agent, (2) subject to the conditions of clause (3) below (other than the exception set forth therein), provide that, in respect of the interest of the Loss Payee and each Additional Insured in such policies, the insurance shall not be invalidated by any action or inaction of the Lessee or any other insured (other than such Loss Payee and/or Additional Insured) and shall insure the Loss Payee and each Additional Insured’s Interests as they appear, regardless of any breach or violation of any warranty, declaration or condition contained in such policies by the Lessee or any other insured (other than such Loss Payee and/or Additional Insured), (3) provide that except to the extent not provided for by the Lessee’s all-risk insurance provider, if such insurance is canceled for any reason, or if any change is made in the insurance that materially reduces the coverage (not including the amount) in effect on the Base Term Commencement Date to the Lessor, or if such insurance is canceled for nonpayment of premium, such cancellation or change shall not be effective as to the Loss Payee or Additional Insured for thirty (30) days (or ten (10) days for non-payment) after issuance to the Loss Payee and Additional Insured of written notice from or on behalf of such insurers of such cancellation or change, (4) provide that neither the Loss Payee nor the Additional Insureds shall have any obligation or liability for premiums, commissions, assessments or calls in connection with such insurance, and (5) provide that the insurers shall waive rights of (x) set-off, counterclaim or any other deduction, whether by attachment or otherwise, in respect of any liability of the Loss Payee and/or Additional Insured to the extent of any moneys due to such Persons and (y) subrogation against the Additional Insureds to the extent the Lessee has waived its rights by its agreement to indemnify the Additional Insureds pursuant to the Operative Documents. To the extent that the Lessee’s all-risk insurance provider does not provide for provision of direct notice to the Loss Payee and Additional Insured of cancellation or change in the insurance required hereunder, the Lessee hereby agrees that upon receipt of notice of any thereof from such insurance provider it shall give such Persons immediate notice of each cancellation or change to such insurance. The Lessee shall have the right to maintain self-insured retentions and/or deductibles with respect to the foregoing insurance in such amounts and on such terms as are, from time to time, consistent with prudent business practice for companies engaged in similar businesses and owning similar assets and are customarily maintained by the Lessee with respect to similar assets of the Lessee in the United States.
Section 19.3.Other Insurance.
(a)Cyber and Privacy Insurance. The Lessee shall maintain cyber and privacy insurance covering all operations and work of the Lessee with limits of not less than $25,000,000 each claim.
(b)Crime (Fidelity) Insurance. The Lessee shall maintain crime (fidelity) insurance covering all employees, temporary workers or independent contractors of the Lessee with limits not less than $5,000,000 each occurrence, including third party / client coverage.
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ARTICLE XXAny policies of insurance carried in accordance with Section 11.3(a) and (b) and any policies taken out in substitution or replacement for any of such policies shall name the Additional Insureds as an additional insured with respect to such coverage and shall otherwise comply with clauses (1) – (7) of Section 11.1 hereof.
Section 20.1.Insurance Requirements. Insurance provided pursuant to this Article XI shall be written by reputable insurance companies that are financially sound and solvent with a rating of at least “A-/VII” by A.M. Best’s or a claims paying rating of “A-” by S&P or by other insurers approved in writing by the Participants. Each policy referred to in this Article XI shall provide that: (i) it will not be canceled, materially modified or its limits reduced, or allowed to lapse without renewal, except after not less than thirty (30) days’ prior written notice to the Administrative Agent and the Lessor and not less than ten (10) days’ prior written notice to the Administrative Agent and the Lessor for the non-payment of premium; (ii) the interests of the Administrative Agent, the Collateral Agent, the Lessor and any other Participant shall not be invalidated by any act or negligence of or breach of warranty or representation by the Lessee or any Person having an interest in the Leased Equipment; (iii) such insurance is primary and non-contributory with respect to any other insurance carried by or available to the Administrative Agent, the Collateral Agent, the Lessor or any other Participant; (iv) the insurer shall waive customary rights of subrogation, setoff, counterclaim, or other deduction, whether by attachment or otherwise, against any additional insured or loss payee; (v) with respect to Sections 11.1 and 11.2, such policy shall contain a severability clause providing for coverage of the Additional Insureds as if a separate policy had been issued to each of them; (vi) such policy, to the extent of the insurance policies provided by the Lessee pursuant to Section 11.1 or Section 11.3, shall be written on an occurrence basis and shall be in effect for the Lease Term; and (vii) the insurer shall waive all claims for premiums against the Administrative Agent, the Collateral Agent, the Lessor and any other Participant. Any insurance policy required hereunder (other than any flood hazard insurance policy, “excess flood” insurance policy, or similar policy) may be in the form of a blanket insurance policy, provided that such policy shall provide the same protection as would a separate policy insuring only the Leased Equipment in compliance with the provisions of this Article XI provided, however, any blanket insurance policy that does not specifically allocate to the Leased Equipment the amount of coverage from time to time required hereunder shall be subject to the Lessor’s reasonable approval after taking into account, among other things, the amount, location, number, type and size of properties covered by such blanket insurance policy.
Section 20.2.Application of Insurance Payments. All losses will be adjusted by the Lessee with the insurers. As between the Lessor and the Lessee it is agreed that all insurance payments received under policies required to be maintained by the Lessee hereunder, exclusive of any payments received in excess of the respective Insured Value from such policies, as the result of the occurrence of an Event of Loss with respect to Leased Equipment will be applied as follows:
(i)if such payments are received with respect to such Leased Equipment that has been or is being replaced by the Lessee pursuant to Section 13.1, such payments shall be paid over to, or retained by, the Administrative Agent and, upon completion of such replacement, shall be paid over to, or retained by, the Lessee; and
(ii)if such payments are received with respect to such Leased Equipment that has not been or will not be replaced as contemplated by Section 13.1, after reimbursement of the Administrative Agent for its actual and reasonable out-of-pocket costs and expenses, so much of such payments remaining as do not exceed the amounts required to be paid by the Lessee pursuant to Section 13.1 shall be applied in accordance with Section 10.2 of the Transaction Agreement.
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ARTICLE XXIIn all events, the payment of any property damage or loss received under policies maintained by the Lessee in excess of the respective Insured Value on the date of such payment shall be paid to the Lessee.
ARTICLE XXIIThe payment of any property damage or loss received under policies maintained by the Lessee for any loss or damage to Leased Equipment not constituting an Event of Loss with respect thereto shall be applied in payment (or to reimburse the Lessee) for repairs or for replacement property in accordance with the terms of Sections 9.2 and 14.1, and any balance remaining after compliance with such Sections with respect to such loss or damage shall be paid to the Lessee. Any amount referred to in the preceding sentence or in clause (i), or (ii) of the first paragraph of this Section 11.5 that is payable to the Lessee shall not be paid to the Lessee (or, if it has been previously paid directly to the Lessee, shall not be retained by the Lessee) if at the time of such payment or retention an Event of Default has occurred and is continuing, but shall be paid to and held by the Administrative Agent as security for the obligations of the Lessee under this Lease and the other Operative Documents and shall be invested pursuant to Section 23.13 unless and until such amount is applied to the Lessee’s obligations under this Lease and the other Operative Documents as and when due. At such time as there shall be no Event of Default continuing, such amount shall be paid to the Lessee to the extent not previously applied in accordance with this Section 11.5.
Section 22.1.Delivery of Insurance Certificates; Lapses.
(a)Throughout the Lease Term, at the time each of the Lessee’s insurance policies is renewed (but in no event more frequently than once every twelve (12) months) or upon written request by the Lessor or the Administrative Agent during the continuance of an Event of Default, the Lessee shall deliver to the Administrative Agent, the Collateral Agent, the Lessor and each other Participant certificates of insurance evidencing that all insurance required by Sections 11.1, 11.2 and 11.3 to be maintained by the Lessee with respect to the Leased Equipment is in effect.
(b)No provision of Article XI or any other Operative Document shall impose on the Administrative Agent, the Collateral Agent, the Lessor or any other Participant any obligation to verify the existence or adequacy of the insurance coverage to be maintained pursuant to Article XI, nor shall any such Person be responsible for any representations or warranties made by or on behalf of the Lessee to any insurance company or underwriter. Any failure on the part of the Lessor to obtain the evidence of insurance required by Article XI from the Lessee and/or failure of such to identify any noncompliance of such evidence of insurance shall not constitute a waiver of any of the insurance requirements in Article XI.
(c)In the event that the Lessee shall fail to maintain or to cause to be maintained insurance as herein provided, the Lessor or the Administrative Agent may at its option obtain such insurance, provided that it gives the Lessee at least five (5) days’ prior written notice before procuring such insurance and provided, further, that any such insurance costs charged to the Lessee shall be commercially reasonable, and, in such event, the Lessee shall, upon demand, reimburse the Lessor and/or the Administrative Agent, as Supplemental Rent, for the commercially reasonable cost to the Lessor and/or the Administrative Agent of such insurance, together with interest thereon at the Overdue Rate, if an Event of Default is continuing, for the period commencing with the date such cost was paid to the date of reimbursement; provided, however, that no exercise by the Lessor or the Administrative Agent of said option shall affect the provisions of this Lease, including the provisions that failure by the Lessee to maintain the prescribed insurance (beyond any applicable grace period) shall constitute an Event of Default.
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ARTICLE XXIII
ASSIGNMENT
ASSIGNMENT
Section 23.1.Assignment. The Lessee will not, without the prior written consent of the Lessor and the Rent Assignees, sell, assign, pledge or otherwise transfer in whole or in part any of its rights or obligations hereunder. Except as otherwise provided elsewhere herein and/or in the other Operative Documents, the Lessor agrees that it will not, without the prior written consent of the Lessee, sell, assign, pledge or otherwise transfer any of its right, title and interest in and to this Lease, any other Operative Documents, the Transaction Agreement, the Leased Equipment to any Person other than the Lessee or its designee in accordance with this Lease. Subject to the foregoing, the terms and provisions of this Lease shall be binding upon and inure to the benefit of the Lessor and the Lessee and their respective successors and permitted assigns. Notwithstanding the foregoing, the Lessee may assign, in whole but not in part, its right, title and interest in, to and under a Lease to any Affiliate of the Lessee without the prior written consent of the Lessor and the Administrative Agent, provided that (i) no such assignment would subject any Participant or Agent to a violation of Applicable Laws then applicable to such Persons including, without limitation, those promulgated by OFAC, (ii) no Event of Default shall have occurred and be continuing or, after giving effect to such assignment, would exist, (iii) the assignee shall not then be subject to any events or circumstances described in paragraphs (g) or (h) of Article XVII hereof, (iv) the parties enter into an assignment agreement as to all of the Lessee’s obligations under the Operative Documents and related amendments thereto as they relate to such Lease, each in form and substance reasonably satisfactory to the Lessor, (v) prior to such assignment, (a) the Lessee shall issue an irrevocable and unconditional guaranty of the obligations of such assignee thereunder, in form and substance reasonably satisfactory to the Lessor and the Rent Assignees, and (b) each Guarantor shall issue a reaffirmation of its Guarantee, in form and substance reasonably satisfactory to the Lessor and the Rent Assignees, (vi) all filings of or in respect of any such assignment necessary to protect the rights of the Lessor in the Leased Equipment and the other Operative Documents are made in a timely fashion, (vii) the Participants shall have received certificates and opinions of counsel with respect to the foregoing and such other matters as the Participants may reasonably request, in form and substance substantially similar to the legal opinions delivered under Section 2.1 of the Transaction Agreement to the extent the scope thereof is similar to the foregoing matters, (viii) such assignment will not result in the imposition of any unindemnified Taxes, and (ix) the Lessee shall provide to the Lessor and Administrative Agent not less than twenty (20) days’ prior written notice of such assignment, such notice to identify the assignee.
ARTICLE XXIV
LOSS, DESTRUCTION, REQUISITION
LOSS, DESTRUCTION, REQUISITION
Section 24.1.Event of Loss with Respect to Leased Equipment
ARTICLE XXV.(a) Upon the determination that an Event of Loss has occurred with respect to Leased Equipment, the Lessee shall as soon as practicable notify the Lessor of such Event of Loss, and, within (x) for any Material Item of Leased Equipment, thirty (30) days after such determination or (y) for any other Leased Equipment, sixty (60) days after such determination, the Lessee shall give the Lessor written notice of its election to perform one of the following options (it being agreed that if the Lessee has not given such notice of election within such period, the Lessee shall be deemed to have elected to perform the option set forth in the following clause (ii)). The Lessee may elect either:
(i)so long as no Default under paragraph (a) of Article XVII of the Lease or any Event of Default has occurred and is continuing, to substitute, on or before the Loss Payment Date (as defined below), as replacement for such Leased Equipment with
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respect to which an Event of Loss has occurred, Replacement Equipment free and clear of all Liens (except Permitted Liens) which Replacement Equipment shall be located at the same Site as the affected item or items of Leased Equipment under the same Site Lease or at such other Site which is subject to a Site Lease as shall be acceptable to the Lessor (it being understood that, upon consummation of such replacement, any all-risk insurance proceeds held by the Administrative Agent in regard thereto shall be paid over by the Administrative Agent to the Lessee against costs actually incurred by the Lessee and the Lessee shall be entitled to any excess insurance proceeds); provided that, if the Lessee has not so replaced such affected item or items of Leased Equipment on or prior to the Loss Payment Date, then the Lessee shall on the Loss Payment Date prepay its payment obligations under this Lease as to such Leased Equipment in an amount equal to the applicable Termination Amount payable with respect thereto; or
(ii)on the Loss Payment Date, to prepay a portion of the Lease Balance under this Lease as to such Leased Equipment in an amount equal to the applicable Termination Amount payable with respect thereto (such payment a “Casualty/Requisition Payment”);
ARTICLE XXVIThe “Loss Payment Date” with respect to an Event of Loss means the Payment Date next succeeding the date of the written notice of the Lessee’s election of clause (i) or (ii) above. Upon receipt of such payment of Casualty/Requisition Payment, (x) the Lessor will assign to the Lessee all rights to all physical damage insurance and requisition and other proceeds and awards relating to such loss or requisition, (y) the Basic Rent payments and outstanding Lease Balance for such Lease shall be reduced proportionately, and (z) such item or items of affected Leased Equipment shall be transferred to the Lessee (or its designee) pursuant to Section 23.11, whereupon this Lease shall terminate solely as to such item or items of affected Leased Equipment and the obligations of the Lessee with respect thereto shall terminate as of the date of such payment except for such provisions which expressly survive such a termination.
(a)If the Lessee elects to substitute a Replacement Equipment, the Lessee shall, at its sole expense, not later than the Loss Payment Date, (A) transfer to the Lessor legal title to such Replacement Equipment, pursuant to such bill of sale (or other evidence), (B) cause (1) a Lease Supplement, subjecting such Replacement Equipment to the Lien of this Lease, to be delivered to the Lessor for execution (and the Lessor shall promptly execute such Lease Supplement) which Lease Supplement shall contain certifications from the Lessee that, upon such replacement, such Replacement Equipment will be subject to the Lien of this Lease and that no further action, filing or recording of any document is necessary or advisable in order to establish and perfect the Liens on such Replacement Equipment on a first priority (subject to Permitted Liens which, if of record, shall rank behind such first Lien such that this Lease shall rank on a first priority basis), and (2) a UCC financing statement with respect to such Replacement Equipment or other requisite documents or instruments to be filed in such place or places as necessary in order to perfect the Lessor’s interest therein, (C) furnish the Lessor with lien search results or other materials reasonably requested by the Lessor to substantiate the lien status under such Lease Supplement, and (D) furnish the Lessor with evidence of compliance with the insurance provisions of Article XI with respect to such Replacement Equipment.
ARTICLE XXVIIFor all purposes hereof, upon any replacement in compliance with the terms of this Section 13.1, the Replacement Equipment shall become part of the property subject to the Lien of this Lease and the Replacement Equipment shall be deemed “Leased Equipment” as defined herein.
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Section 27.1.Application of Payments for an Event of Loss. Any payment other than insurance proceeds (the application of which is provided for in Section 11.5) received at any time by the Lessor or any Agent or the Lessee from any Governmental Authority or other Person in respect of an Event of Loss to Leased Equipment, will be applied as follows:
(i)if such payments are received with respect to any item of such Leased Equipment that has been or is being replaced by the Lessee pursuant to Section 13.1, such payments shall be paid over to, or retained by, the Lessor and upon completion of such replacement shall be paid over to, or retained by, the Lessee; or
(ii)if such payments are received with respect to any item of such Leased Equipment that has not been and will not be replaced pursuant to Section 13.1, after reimbursement of the Lessor for its actual and reasonable out-of-pocket costs and expenses, such payments remaining shall be applied pursuant to Section 10.2 of the Transaction Agreement.
Section 27.2.Requisition for Use or Hire by a Government of Leased Equipment. In the event of the requisition for use or hire by any Governmental Authority of Leased Equipment that does not constitute an Event of Loss, the Lessee shall promptly notify the Administrative Agent of such requisition, and all of the Lessee’s rights and obligations under this Lease shall continue to the same extent as if such requisition had not occurred. All payments received by the Lessor or any Agent or the Lessee from such Governmental Authority for the use or hire of such Leased Equipment shall be paid over to, or retained by, the Lessee.
Section 27.3.Application of Payments During Existence of an Event of Default. Any amount referred to in this Article XIII that is payable to the Lessee shall not be paid to the Lessee (or, if it has been previously paid directly to the Lessee, shall not be retained by the Lessee) if at the time of such payment or retention an Event of Default has occurred and is continuing, but shall be paid to and held by the Administrative Agent as security for the obligations of the Lessee under this Lease and the other Operative Documents and shall be invested pursuant to Section 23.13 unless and until such amount is applied to the Lessee’s obligations pursuant to Section 10.3 of the Transaction Agreement. At such time as there shall be continuing no Event of Default, such amount shall be paid to the Lessee to the extent not previously applied in accordance with this Section 13.4 or such Section 10.3.
ARTICLE XXVIII
REPLACEMENT OF PARTS
REPLACEMENT OF PARTS
Section 28.1.Replacement of Parts. The Lessee shall, at its own cost and expense, promptly replace or cause to be replaced all Parts incorporated or installed in or attached to the Leased Equipment and that become worn out, lost, stolen, destroyed, seized, confiscated, damaged beyond repair or rendered permanently unfit for use for any reason whatsoever, except as otherwise provided in Section 15.1 or if the Leased Equipment to which a Part relates has suffered an Event of Loss (in which case the Lessee shall comply with Section 13.1 in respect thereof). In addition, the Lessee (or any Permitted Sublessee), at its own cost and expense, may remove in the ordinary course of maintenance, overhaul, service, repair or testing any Parts, in any case whether or not worn out, lost, stolen, destroyed, seized, confiscated, damaged beyond repair or rendered permanently unfit for use; provided that the Lessee (or any Permitted Sublessee), except as otherwise provided in Section 15.1, will, at its own cost and expense, replace such Parts as promptly as practicable. All replacement Parts shall be free and clear of all Liens except for Permitted Liens. Except as otherwise provided in Section 15.1, any Part removed from the Leased Equipment shall remain subject to the Lien of this Lease no matter where located until it is replaced by a part incorporated or installed in or attached to the Leased Equipment that meets the requirements for replacement Parts specified above. Immediately upon any replacement Part becoming incorporated or installed in or attached to the Leased Equipment as above provided, without further act, (i) such replacement Part shall thereupon be subject to the Lien of this Lease, (ii) such replacement Part shall become subject to this Lease and be deemed
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part of the Leased Equipment for all purposes hereof to the same extent as the Parts originally incorporated or installed in or attached to the Leased Equipment, and (iii) title to the replaced Part shall thereupon, without further act, vest in the Lessee (or, if a Sublease is then in effect, any Permitted Sublessee), free and clear of all rights of the Lessor and the Lien of this Lease and shall no longer be deemed a Part hereunder. Upon request of the Lessee from time to time, and at the Lessee’s cost and expense, the Lessor shall execute and deliver to the Lessee such instrument supplied to it by the Lessee releasing any such released Part from this Lease.
ARTICLE XXIX
ALTERATIONS, MODIFICATIONS AND ADDITIONS
ALTERATIONS, MODIFICATIONS AND ADDITIONS
Section 29.1.Alterations, Modifications and Additions. The Lessee (or any Permitted Sublessee) will, at its own cost and expense, make (or cause to be made) such alterations and modifications in and additions to the Leased Equipment as are required from time to time to meet the requirements of Applicable Law and Insurance Requirements; provided that the Lessee (or, if a Sublease is then in effect, any Permitted Sublessee) may, in good faith and by appropriate proceedings, contest the validity or application of any such requirement in any manner that does not involve any material risk of sale, loss or forfeiture of such Leased Equipment or any interest therein, or any material risk of civil liability or risk of any criminal liability on the part of the Lessor. In addition, the Lessee (or any Permitted Sublessee), at its own expense, may from time to time add further parts or accessories and make or cause to be made such alterations and modifications in and additions to the Leased Equipment as the Lessee (or any Permitted Sublessee) deems desirable in its reasonable business judgment including, without limitation, removal (without replacement) of Parts, provided that no such alteration, modification, addition or removal shall materially diminish the value, useful life, utility or functional capability of such Leased Equipment below its value, useful life, utility, utility or functional capability immediately prior to such alteration, modification, addition or removal, assuming that such Leased Equipment was then in the condition required to be maintained by the terms of this Lease, except that the value (but not the utility) of such Leased Equipment may be reduced by the value of any such Parts that are removed that the Lessee (or any Permitted Sublessee) deems obsolete or no longer suitable or appropriate for use on such Leased Equipment. Title to all Parts incorporated or installed in or attached or added to the Leased Equipment as the result of such alteration, modification or addition shall, without further act, vest in the Lessor free and clear of all Liens (except for Permitted Liens). Notwithstanding the foregoing, so long as no Event of Default has occurred and is continuing, the Lessee (or any Permitted Sublessee) may, at any time, remove any Part from the Leased Equipment if such Part: (i) is in addition to, and not in replacement of or substitution for, (x) any Part originally incorporated or installed in or attached to such Leased Equipment on the respective Base Term Commencement Date, or (y) any Part in replacement of, or substitution for, any such Part, (ii) is not required to be incorporated or installed in or attached or added to such Leased Equipment pursuant to the first sentence of this Section 15.1 and (iii) can be removed from such Leased Equipment without materially diminishing the value or utility required to be maintained by the terms of this Lease that such Leased Equipment would have had at such time had the installation of such Part on such Leased Equipment not occurred. Upon the removal by the Lessee (or any Permitted Sublessee) of any Part as permitted by this Section 15.1, title to such removed Part shall, without further act, vest in the Lessee (or any Permitted Sublessee), free and clear of all rights of the Lessor, and such Part shall no longer be deemed a Part hereunder. The Lessor acknowledges that it has no interest in the Excluded Equipment. Notwithstanding the provisions of this Section 15.1 or any other term or condition of this Lease, the Lessee (or any Permitted Sublessee) may from time to time install on, and remove from, the Leased Equipment that is owned by the Lessee or any Permitted Sublessee (and title to such equipment shall remain vested in the Lessee or such Permitted Sublessee) if (1) such equipment is Excluded Equipment and (2) the Leased Equipment affected by any such removal, if damaged, is repaired, in a workmanlike manner, to a serviceable condition following such a removal, such a repair shall be deemed to be an acceptable repair for purposes of complying with
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this requirement; provided that all costs of installation and removal shall be the responsibility of the Lessee.
ARTICLE XXX
INSPECTION
INSPECTION
Section 30.1.Inspections. Subject to the conditions set forth in Section 16.3 below and to the extent not in contravention of the applicable Landlord Waiver and Site Lease, at all reasonable times and upon at least twenty (20) days’ prior written notice to the Lessee and any Permitted Sublessee, the Lessor or the Administrative Agent, on behalf of the Participants, in each case through its authorized representatives designated in writing by the Lessor or the Administrative Agent (the “Inspection Representative”), may inspect the Leased Equipment at the various Sites (any such inspection, an “Inspection”) and may inspect and make copies of the books and records of the Lessee or Permitted Sublessee relating to such Leased Equipment (any such inspection, a “Records Inspection”). In lieu of a Records Inspection, the Lessor, or its Inspection Representatives, may request that the Lessee or Permitted Sublessee provide the Lessor with some or all of such books and records relating to such Leased Equipment that are available and transmissible in electronic form and the Lessee shall provide, or cause Permitted Sublessee to provide, the Lessor with any such documents or, if such documents are not then maintained by the Lessee or Permitted Sublessee in electronic form, such data of a similar type maintained by the Lessee or Permitted Sublessee in electronic form at the time of such request, within thirty (30) days of such request.
Section 30.2.Frequency of Inspections. An Inspection and a Records Inspection will each be permitted no more than one time during any consecutive 12-month period; provided that, during the continuance of an Event of Default, additional Inspections and additional Records Inspections will be permitted during any consecutive 12-month period at the Lessee’s cost.
Section 30.3.Inspection Conditions. Any inspection pursuant to this Article XVI shall be subject to the following conditions: (i) the Lessor, the Inspection Representative, or any other parties undertaking an inspection shall be fully insured at no cost to the Lessee or any Permitted Sublessee with respect to any risks incurred in connection with any such inspection or, at the option of the Lessee, shall provide to the Lessee and any Permitted Sublessee a written release satisfactory to the Lessee with respect to such risks, (ii) any such inspection shall be during the Lessee’s or Permitted Sublessee’s normal business hours and subject to the safety, security and workplace rules applicable at the location where such inspection is conducted and any applicable governmental rules or regulations, (iii) any such inspection of the Leased Equipment shall be permitted under and made in compliance with, both the respective Landlord Waiver and the applicable Site Lease, (iv) no exercise of such inspection right shall interfere with the use, operation or maintenance of such Leased Equipment by, or the business of, the Lessee (or Permitted Sublessee) and the Lessee (or Permitted Sublessee) shall not be required to undertake or incur any additional liabilities in connection therewith; and (v) the Inspection Representative and any other parties undertaking an inspection shall be accompanied by a representative of the Lessee (or Permitted Sublessee) at all times during any such Inspection. Any inspection pursuant to this Article XVI shall be at the sole risk (including, without limitation, any risk of personal injury or death) and expense of the Lessor (other than during the continuance of an Event of Default, which shall be at the Lessee’s cost), the Inspection Representative or any other parties undertaking such inspection. The Lessor shall not have any duty to make any inspection nor shall the Lessor incur any liability or obligation by reason of not making such inspection.
Section 30.4.Confidentiality. All information obtained in connection with any inspection or provision of data pursuant to this Article XVI shall be Information and shall be treated by the Lessor, the Inspection Representative, their respective representatives, and any other parties undertaking an inspection pursuant to this Section in accordance with the provisions of Section 9.18 of the Transaction Agreement.
Section 30.5.Compliance. Notwithstanding anything to the contrary in this Lease, in no event shall the Lessee be required to permit the Lessor, the Inspection Representative or any other party undertaking an inspection pursuant to this Article XVI to inspect (i) any portion of
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the Leased Equipment that the Lessee would be prohibited from showing to such Person pursuant to any Applicable Law, (ii) to disclose to any such Person any information with respect to such Leased Equipment that the Lessee would be prohibited from disclosing to such Person pursuant to any Applicable Law or (iii) any document, information or other matter that constitutes non-financial trade secrets or non-financial proprietary information such as customer specifications which are outside the scope of Section 9.18 of the Transaction Agreement.
ARTICLE XXXI
EVENTS OF DEFAULT
EVENTS OF DEFAULT
ARTICLE XXXIIThe occurrence of any one or more of the following circumstances, conditions, acts or events (each an “Event of Default”), for any reason whatsoever and whether any such circumstance, condition, act or event shall be voluntary or involuntary or come about or be effected by operation of law or pursuant to or in compliance with any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body, shall constitute an Event of Default for so long as, but only for so long as, the same is continuing or has not been waived in writing by the Lessor (at the direction of the Required Rent Assignees):
(a)(i) the Lessee shall fail to make any payment of Basic Rent when due and such failure shall continue for a period of three (3) Business Days, (ii) the Lessee shall fail to make any payment of Supplemental Rent (other than amounts set forth in clauses (iii) and (iv) hereof) when due and such failure shall continue for more than ten (10) Business Days after the receipt by the Lessee of written notice thereof from the Lessor, or (iii) the Lessee shall fail to make payment of Prepaid Rent when due and such failure shall continue for a period of one (1) Business Day, or (iv) the Lessee shall fail to make payment of the entire Purchase Price, Termination Amount, Casualty/Requisition Payment, Lease Balance, Return Date Payment or other amounts due and payable under Article XVIII, Article XX, Article XXI or Article XXII on the date such payments are due hereunder, or any amount due and payable on each Maturity Date or the Lease Expiration Date; or
(b)Holdings or the Lessee fails to perform or observe any term, covenant or agreement contained in any of Section 5.2.3(a) or Section 5.2.4 of Schedule 5.2 to the Transaction Agreement (solely with respect to Holdings or the Lessee) or in Schedule 5.3 to the Transaction Agreement; provided that an Event of Default arising from a failure to comply with Section 5.2.3(a) shall be deemed to be no longer continuing automatically upon and simultaneously with the underlying Default ceasing to be continuing so long as the Lessee has provided notice to the Administrative Agent promptly after a Responsible Officer of Holdings or the Lessee obtains knowledge of such underlying Default; or
(c)the Lessee fails to (i) maintain (or cause to be maintained) insurance for the Leased Equipment in accordance with the provisions of Article XI and such failure continues for two (2) Business Days after the earlier of (1) receipt by the Lessee of written notice thereof from the Lessor or the Administrative Agent or (2) the Lessee’s knowledge of such failure, or (ii) perform or observe any of the terms, covenants, conditions and agreements set forth in (x) Section 12.1 hereof (as to sales, assignments and transfers of the Lessee’s rights and obligations and not as to collateral assignments or pledges for security thereof), or (y) Articles XXI and XXII hereof; or
(d)any Lease Party fails to perform or observe any other covenant or agreement (not specified in paragraphs (a), (b) or (c) above) contained in any Operative Document on its part to be performed or observed and such failure continues for thirty (30) days after receipt by the Lessee of written notice thereof by the Administrative Agent or the Required Rent Assignees; or
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(e)any representation, warranty, certification or statement of fact made or deemed made by or on behalf of any Lease Party herein, in any other Operative Document, or in any document required to be delivered in connection herewith or therewith shall be incorrect or misleading in any material respect when made or deemed made and such incorrect or misleading representation, warranty, certification or statement of fact, if capable of being cured, remains so incorrect or misleading for thirty (30) days after receipt by the Lessee of written notice thereof by the Administrative Agent or the Required Rent Assignees; or
(f)Holdings or any Restricted Subsidiary (i) fails to make any payment beyond the applicable grace period with respect thereto, if any (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise) in respect of any Indebtedness (other than the Obligations hereunder) having an aggregate principal amount exceeding the Judgment Threshold, or (ii) fails to observe or perform any other agreement or condition relating to any such Indebtedness, or any other event occurs, the effect of which default or other event is to cause, or to permit the holder or holders of such Indebtedness (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause, with the giving of notice if required, all such Indebtedness to become due or to be repurchased, prepaid, defeased or redeemed (automatically or otherwise), or an offer to repurchase, prepay, defease or redeem all such Indebtedness to be made, prior to its stated maturity; provided that this clause (ii) shall not apply to (A) secured Indebtedness that becomes due (or requires an offer to purchase) as a result of the voluntary sale or transfer of the property or assets securing such Indebtedness, if such sale or transfer is permitted hereunder and under the documents providing for such Indebtedness and (B) any repurchase, prepayment, defeasance, redemption, conversion or settlement with respect to any Permitted Convertible Indebtedness, including the 2026 Convertible Notes or any Permitted Refinancing Indebtedness in respect thereof, or satisfaction of any condition giving rise to or permitting the foregoing, pursuant to its terms unless such repurchase, prepayment, defeasance, redemption, conversion or settlement results from a default thereunder or an event of the type that constitutes an Event of Default; provided, further, that (x) such failure or breach is unremedied and is not waived by the required holders of such Indebtedness and (y) for the avoidance of doubt, any event or condition set forth under this paragraph (f) shall not, until the expiration of any applicable grace period or the delivery of notice by the applicable holder or holders of such Indebtedness, constitute a Default or an Event of Default for purposes of this Master Lease Agreement; or
(g)except with respect to any dissolution or liquidation of a Restricted Subsidiary expressly permitted by Section 5.3.4 of Schedule 5.3 to the Transaction Agreement, Holdings or any Restricted Subsidiary institutes or consents to the institution of any proceeding under any Debtor Relief Law, or makes an assignment for the benefit of creditors; or applies for or consents to the appointment of any receiver, interim receiver, receiver and manager, trustee, custodian, conservator, liquidator, rehabilitator, administrator, administrative receiver or similar officer for it or for all or any material part of its property; or any receiver, interim receiver, receiver and manager, trustee, custodian, conservator, liquidator, rehabilitator, administrator, administrative receiver or similar officer is appointed without the application or consent of such Person and the appointment continues undischarged or unstayed for sixty (60) calendar days; or any proceeding under any Debtor Relief Law relating to any such Person or to all or any material part of its property is instituted without the consent of such Person and continues undismissed or unstayed for sixty (60) calendar days; or an order for relief is entered in any such proceeding; or
(h)(i) Holdings or any Restricted Subsidiary becomes unable or admits in writing its inability or fails generally to pay its debts as they become due, or (ii) any writ or warrant of attachment or execution or similar process is issued or levied against all or any material part of the property of the Lease Parties, taken as a whole, and is not released, vacated or fully bonded within sixty (60) days after its issue or levy; or
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(i)There is entered against Holdings or any Restricted Subsidiary a final judgment or order for the payment of money in an aggregate amount exceeding the Judgment Threshold (to the extent not covered by independent third-party insurance or contractual indemnity) and such judgment or order shall not have been satisfied, vacated, discharged or stayed or bonded pending an appeal for a period of sixty (60) consecutive days; or
(j)any material provision of any Operative Document, at any time after its execution and delivery and for any reason other than as expressly permitted hereunder or thereunder (including as a result of a transaction permitted under Section 5.3.4 of Schedule 5.3 to the Transaction Agreement) or solely as a result of acts or omissions by the Administrative Agent, the Lessor or the Rent Assignees, if the ability to take such action is within the sole control of the Administrative Agent, the Lessor or such Rent Assignees, as applicable, or the satisfaction in full of all the Obligations (other than contingent indemnification obligations not yet due), ceases to be in full force and effect or ceases to create a valid and perfected lien, with the priority set forth in the applicable Operative Document, on a material portion of the Collateral covered thereby; or any Lease Party contests in writing the validity or enforceability of any material provision of any Operative Document; or any Lease Party denies in writing that it has any or further liability or obligation under any Operative Document (other than as a result of repayment in full of the Obligations (other than contingent indemnification obligations not yet due) and termination of the aggregate Commitments of all Rent Assignees), or purports in writing to revoke or rescind any Operative Document; or
(k)any Guarantee, including the Guaranty, provided by Holdings, the Lessee or any other Guarantor that is a Material Subsidiary, or any material provision thereof, ceases to be in full force and effect (other than pursuant to the terms hereof or thereof) or any Lease Party denies or disaffirms in writing any such Guarantor’s material obligations under its Guarantee (other than as a result of repayment in full of the Obligations (other than contingent indemnification obligations not yet due) and terminations of the Commitments); or
(l)there occurs any Change of Control; or
(m)(i) an ERISA Event occurs which has resulted or could reasonably be expected to result in liability of a Lease Party or a Restricted Subsidiary or an ERISA Affiliate in an aggregate amount which could reasonably be expected to result in a Material Adverse Effect, or (ii) a Lease Party, any Restricted Subsidiary or any ERISA Affiliate fails to pay when due, after the expiration of any applicable grace period, any installment payment with respect to its Withdrawal Liability under Section 4201 of ERISA under a Multiemployer Plan in an aggregate amount which could reasonably be expected to result in a Material Adverse Effect; or
(n)with regard to any Lease, an “Event of Default” shall have occurred and be continuing with respect to any Other Lease (provided, that, to the extent such Event of Default with respect to any Other Lease is solely of the nature described in paragraph (d) above and arises solely from (x) the failure of a Property Owner to comply with the terms of the Site Lease or Landlord Waiver to which it is a party or (y) the failure of the applicable Site to satisfy the requirements of Section 3.1(r) of the Transaction Agreement due to an act or omission of the applicable Property Owner, an Event of Default shall occur with regard to such Lease if such Event of Default with respect to the Other Lease continues for thirty (30) days after the occurrence thereof);
(o)provided, however, solely for the purpose of determining whether an Event of Default has occurred under paragraph (g) or (h) above, any reference in any such clause to any Restricted Subsidiary shall be deemed not to include any Restricted Subsidiary (other than the Lessee) that is an Immaterial Subsidiary or at such time could, upon designation by the Lessee,
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become an Immaterial Subsidiary affected by any event or circumstances referred to in any such clause unless the Consolidated EBITDA of such Subsidiary, in each case, as of the end of the most recently-ended Test Period on or prior to such event or circumstance, together with the Consolidated EBITDA of all other Subsidiaries affected by such event or circumstance referred to in such clause, in each case, as of the end of the most recently-ended Test Period on or prior to such event or circumstance, shall exceed 5% of the Consolidated EBITDA of Holdings and its Restricted Subsidiaries as of the end of the most recently-ended Test Period on or prior to such event or circumstance.
ARTICLE XXXIII
ENFORCEMENT
ENFORCEMENT
Section 33.1.Remedies. During the existence of an Event of Default and notwithstanding any Event of Loss, termination of this Lease pursuant to Article XIII or any other matter or occurrence, at the Lessor’s option and without limiting the Lessor in the exercise of any other right or remedy the Lessor may have on account of such Event of Default, and without any further demand or notice, the Lessor may to the fullest extent permitted under Applicable Laws cause the following to occur:
(i)By notice to the Lessee, the Lessor may terminate the Lessee’s right to possession of the Leased Equipment provided, however, that such possession shall terminate immediately without notice upon the occurrence of an Event of Default described in paragraphs (g) or (h) of Article XVII hereof;
(ii)Upon termination of the Lessee’s right to possession and without further demand or notice, the Lessee shall promptly surrender possession of the Leased Equipment and return possession of the Leased Equipment in accordance with the Return Conditions and Section 22.1 of this Lease, and the Lessor may, in accordance with Applicable Laws and any applicable Landlord Waiver, enter upon each Site where the Leased Equipment is located and take immediate possession of and remove the same by summary proceedings or otherwise, all without liability accruing to the Lessor for or by reason of such entry or taking of possession;
(iii)The Lessor may terminate this Lease with respect to all or any part of the Leased Equipment and/or declare the aggregate outstanding Lease Balance as described in clause (x) of the definition thereof, Break Amounts, if any, and all other amounts payable by the Lessee hereunder or under any other Operative Document to be immediately due and payable (provided, however, that this Lease shall terminate immediately without notice, and the sum of the aggregate outstanding Lease Balance as described in clause (x) of the definition thereof as of the date of such purchase plus all accrued but unpaid Basic Rent due on all Leases, plus Break Amounts, if any, plus prior to the second anniversary of each Base Term Commencement Date, the Prepayment Premium, plus all other amounts then due and payable by the Lessee under the Operative Documents with respect to the Leased Equipment shall become immediately due and payable without demand therefor, upon the occurrence of an Event of Default described in paragraphs (g) or (h) of Article XVII hereof and, subject to the conditions in Section 20.2 hereof, the Leased Equipment shall be transferred in accordance with Section 23.11 hereof), and the Lessor shall be entitled to (x) recover from the Lessee the following amounts without duplication of amounts owed and (y) take the following actions:
(A)the Lessee shall pay all accrued and unpaid Rent hereunder (including, without limitation, Basic Rent and Supplemental Rent) for the period
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commencing on the related Base Term Commencement Date through the date of indefeasible payment in full of the sum set forth in clause (B)(1) below with respect to the Leased Equipment;
(B)the Lessor may elect either of the following with respect to any or all of the Leased Equipment:
(1)the Lessor may demand, by written notice to the Lessee specifying a payment date (the “Final Rent Payment Date”) on a date no earlier than ten (10) days after the date of such notice but, in any event, no later than the date the Leased Equipment or part thereof is sold pursuant to clause (B)(2) hereof, that the Lessee shall pay to the Lessor, on the Final Rent Payment Date (in lieu of Basic Rent due after the Final Rent Payment Date), an amount equal to the Termination Value as to all of the Leased Equipment plus, without duplication, all accrued and unpaid Basic Rent due and unpaid for the period commencing on the related Base Term Commencement Date to and including the Final Rent Payment Date, and upon payment of such amount, and the amount of all other sums due and payable by the Lessee under this Lease and the other Operative Documents (and interest at the Overdue Rate on the amounts payable under this clause (B)(1) from the Final Rent Payment Date to the date of indefeasible payment in full, if an Event of Default shall be continuing), the Leased Equipment shall be transferred to the Lessee or its designee pursuant to Section 23.11; provided, however, that any failure of the Lessee to make such payment on the Final Rent Payment Date shall not suspend its obligation to pay and perform hereunder until the date of actual indefeasible payment in full of the sum set forth above provided, further, however, that amounts described in the foregoing sentence shall become immediately due and payable without demand therefor, upon the occurrence of an Event of Default described in paragraphs (g) or (h) of Article XVII; or
(2)the Lessor may sell its interest in the Leased Equipment or portion thereof as the GPU Equipment Pool or one or more items of Leased Equipment as the Lessor deems appropriate at a public or private sale, at such times and places, to such Persons, whether or not the Lessor at the time has possession thereof, as the Lessor may determine, or otherwise dispose of, hold, use, operate, lease to others or keep idle the Leased Equipment or portions thereof as the Lessor, in its sole discretion, determines, free and clear of any rights or claims of the Lessee and/or pursue any and all remedies under this Lease and/or the other Operative Documents and, in any event, the Lessee shall pay to the Lessor an amount equal to the excess, if any, of (x) all amounts described in clause (B)(1) above due the Lessor over (y) the net Sale Proceeds received by the Lessor from the foregoing sale (provided, that in calculating such net Sale Proceeds, all expenses and Taxes (other than Taxes excluded under Section 7.2(a)(ii) and 7.2(a)(iii) of the Transaction Agreement) to the extent not indemnified and not paid by the Lessee pursuant to Section 7.2 of the Transaction Agreement incurred by any of the Participants in connection with such sale including, without limitation, legal fees and expenses, shall be deducted from such Sale Proceeds);
(C)any other amount reasonably necessary to compensate the Participants for all the damages caused by or resulting from the Lessee’s failure to
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pay or perform the Lessee’s obligation under this Lease, including, but not limited to, the costs and expenses (including without limitation, reasonable and documented attorneys’ fees and expenses, advertising costs and brokers’ commissions) of recovering possession of the Leased Equipment, removing Persons or property from the Leased Equipment, placing the Leased Equipment in good order, condition, and repair, preparing and altering the Leased Equipment for reletting, and all other costs and expenses of reletting; and
(D)such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by Applicable Laws;
(iv)The Lessor or the Administrative Agent may and, at the request of the Required Rent Assignees, shall declare the commitment of each Rent Assignee to make Rent Assignment Advances to be terminated, whereupon such commitments shall be terminated; provided that upon the occurrence of an Event of Default under paragraph (g) or (h) of Article XVII hereof, the obligation of each Rent Assignee to make Rent Assignment Advances shall automatically terminate, the aggregate Termination Amount as to all Leased Equipment including the outstanding Lease Balance as described in clause (x) of the definition thereof, Break Amounts, if any, Prepayment Premium, if any, and all other amounts payable by the Lessee hereunder or under any other Operative Document shall automatically become due and payable without further act of the Administrative Agent, the Lessor or any Rent Assignee;
(v)The Lessee further acknowledges and agrees that all of the rights and remedies of the Lessor under this Article XVIII may be exercised by the Collateral Agent (at the direction of the Required Rent Assignees) as grantee under each Lease Supplement without notice to or consent from any party to the extent not prohibited by law. In furtherance thereof, the Lessor and/or the Collateral Agent may exercise any and all rights and remedies under this Lease and/or the other Operative Documents and/or, as to the Collateral Agent, any other remedy pursuant to the Uniform Commercial Code of the State of New York available to the Collateral Agent in its capacity as the “secured party” hereunder (as more fully described in Section 9 of each Lease Supplement);
(vi)the Lessor may, in its sole discretion and by written notice to the Lessee, elect not to exercise any remedies otherwise available under this Lease or Applicable Law and instead permit the Lease to continue in full force and effect and the Lessor may enforce all of the Lessor’s rights and remedies under this Lease, including the right to recover the Rent hereunder as it becomes due under this Lease; provided that, upon making such election with respect to any Leased Equipment and until such election is rescinded by the Lessor, which rescission may be made in the sole discretion of Lessor and without requirement for notice thereof, the Lessor may not simultaneously exercise any remedy under this Article XVIII that would accelerate the obligations, repossess or sell such Leased Equipment.
(vii)The Lessor may exercise any other right or remedy that may be available to it under Applicable Laws or in equity, or proceed by appropriate court action (legal or equitable) to enforce the terms or to recover damages for the breach hereof, including those arising from a breach by the Lessee of its obligations under Article XX hereof. Separate suits may be brought to collect any such damages for any Rent installment period(s), and such suits shall not in any manner prejudice the Lessor’s right to collect any such damages for any subsequent Rent installment period(s), or the Lessor may defer any such suit until the Lessor determines to bring such suit; and/or
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(viii)The Lessor may retain and apply against the damages suffered by the Participants all sums received by it in accordance with the Operative Documents which the Lessor would, absent such Event of Default, be required to pay to, or turn over to, the Lessee pursuant to the terms of this Lease.
ARTICLE XXXIVIn furtherance of the foregoing, the parties agree that the exercise of remedies hereunder and the other Operative Documents is subject to other Applicable Law, including without limitation, the UCC (as in effect in the State of New York) and the Bankruptcy Code, and that nothing herein derogates from the rights of the Lessor or the Lessee under or pursuant to such other Applicable Law, including without limitation, Article 9 of the UCC (as in effect in the State of New York) or the Bankruptcy Code.
ARTICLE XXXVIn addition, to the extent permitted by Applicable Law, the Lessee shall be liable, except as otherwise provided above and without duplication of amounts payable hereunder or under any other Operative Document, for any and all unpaid Supplemental Rent due hereunder before, after or during the exercise of any of the foregoing remedies, together with interest on such unpaid amounts at the Overdue Rate for all overdue amounts arising during the occurrence of any Event of Default, and for all reasonable and documented legal fees and other actual and reasonable costs and expenses incurred by the Lessor by reason of the occurrence of any Event of Default or the exercise of the Lessor’s remedies with respect thereto including all costs and expenses incurred in connection with the taking, removal and sale of the Leased Equipment in accordance with the terms of this Lease or under Article 9 of the Uniform Commercial Code of the State of New York.
ARTICLE XXXVIThe Lessee acknowledges and agrees that upon the declaration of an Event of Default the amount due and owing by the Lessee to the Lessor hereunder shall be the Lease Balance as described in clause (x) of the definition thereof, Break Amounts, if any, Prepayment Premium, if any, and, without duplication, all accrued and unpaid Rent due and unpaid for the period commencing on the related Base Term Commencement Date to and including the Final Rent Payment Date and that to the maximum extent permitted by Applicable Laws, the Lessee waives any right to contest the foregoing sum as the liquidated sum or agreed upon sum due and owing.
Section 36.1.Proceeds of Sale. All payments received and amounts held or realized by the Lessor at any time when an Event of Default shall be continuing and after the sum of the Lease Balance, Break Amounts, if any, Prepayment Premium, if any, and, without duplication, all accrued and unpaid Rent due and unpaid for the period commencing on the related Base Term Commencement Date to and including the Final Rent Payment Date shall have been accelerated pursuant to this Article XVIII as well as all payments or amounts then held or thereafter received by the Lessor and the proceeds of sale pursuant to Section 18.1(iii)(B)(2) shall be distributed forthwith upon receipt by the Lessor in accordance with Section 10.3 of the Transaction Agreement. The amount realized by the Lessor upon such transfer of the Leased Equipment shall be net of the Lessor’s sale expenses and other expenses reasonably and customarily incurred by the Lessor in connection with the Lessor holding and owning the Leased Equipment until such time as the Leased Equipment is sold.
Section 36.2.Waiver of Certain Rights. To the maximum extent permitted by Applicable Laws, (a) the Lessee hereby waives the benefit of any appraisement, valuation, stay, extension, reinstatement and redemption laws now or hereafter in force and all rights of marshalling in the event of any sale of the Leased Equipment or any interest therein and (b) if
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this Lease shall be terminated pursuant to this Article XVIII, the Lessee waives, to the fullest extent permitted by Applicable Laws, (i) any notice of entry or the institution of legal proceedings to obtain entry and access and/or possession; (ii) any right of redemption, re-entry or repossession; (iii) the benefit of any laws now or hereafter in force exempting property from liability for rent or for debt or limiting the Lessor with respect to the election of remedies; (iv) any other rights which might otherwise limit or modify any of the Lessor’s rights or remedies under this Article XVIII; and (v) any rights now or hereafter conferred under Applicable Laws that may require the Lessor to sell, lease or otherwise use the Leased Equipment, or any part thereof in mitigation of the Lessor’s damages upon the occurrence of an Event of Default or that may otherwise limit or modify any of the Lessor’s rights or remedies under this Article XVIII.
Section 36.3.Remedies Cumulative; No Waiver; Consents. To the extent permitted by, and subject to the mandatory requirements of, Applicable Laws, each and every right, power and remedy herein specifically given to the Lessor or otherwise in this Lease and the other Operative Documents shall be cumulative and shall be in addition to every other right, power and remedy herein specifically given or now or hereafter existing at law, in equity or by statute, and each and every right, power and remedy whether specifically herein given or otherwise existing may be exercised from time to time and as often and in such order as may be deemed expedient by the Lessor, and the exercise or the beginning of the exercise of any power or remedy shall not be construed to be a waiver of the right to exercise at the same time or thereafter any other right, power or remedy. No delay or omission by the Lessor in the exercise of any right, power or remedy or in the pursuit of any remedy shall impair any such right, power or remedy or be construed to be a waiver of any default on the part of the Lessee or be an acquiescence therein. The Lessor’s consent to any request made by the Lessee shall not be deemed to constitute or preclude the necessity for obtaining the Lessor’s consent, in the future, to all similar requests. No express or implied waiver by the Lessor of any Default or Event of Default shall in any way be, or be construed to be, a waiver of any future or subsequent Default or Event of Default.
ARTICLE XXXVII
RIGHTS TO CURE
RIGHTS TO CURE
Section 37.1.The Lessor Cure Right. If any Event of Default as described in (x) clause (c)(i) of Article XVII, or (y) clause (d) of Article XVII as it pertains to a breach of Section 7.1 hereof, shall be continuing and in the Lessor’s reasonable judgment the Lessee is not acting diligently and appropriately to cure such Event of Default, the Lessor may, but shall not be obligated to, on five (5) Business Days’ prior notice to the Lessee (except in the event of an emergency, in which case only one (1) Business Day’s prior notice shall be required), cure such specified Event of Default and the Lessor shall not thereby be deemed to have waived any default caused by such failure to cure, and the amount of any such payment and the amount of any expenses of the Lessor (including reasonable and documented attorneys’ fees and expenses) incurred in connection with such cure, together with interest thereon at the Overdue Rate on any overdue amounts, shall be deemed Supplemental Rent, payable by the Lessee to the Lessor upon demand.
Section 37.2.The Lessee Cure Right. If any Event of Default shall have occurred and be continuing (except to the extent related to clauses (g) or (h) of Article XVII hereof, in which case the Lessee shall not have such option), the Lessee may, at its option, by giving written notice to the Administrative Agent within ten (10) days after the occurrence of such Event of Default, elect to purchase all of the Lessor’s interests in all but no less than all of the Leased Equipment for an amount equal to the sum of the aggregate outstanding Lease Balance as described in clause (x) of the definition thereof as of the date of such purchase plus all accrued but unpaid Basic Rent due on all Leases, plus Break Amounts, if any, plus prior to the second anniversary of each Base Term Commencement Date, the Prepayment Premium, plus all other amounts then due and payable by the Lessee under the Operative Documents with respect to the Leased Equipment. In order to cure such Event of Default as provided above, the Lessee shall deliver the Early Termination Notice not less than such five (5) Business Days nor more than ten
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(10) Business Days prior to the date of purchase designated in such notice, which election to so cure such Event of Default shall be irrevocable when made. Upon receipt of such amount, the Leased Equipment shall be transferred to the Lessee (or its designee) pursuant to Section 23.11, whereupon each Lease shall terminate except for such provisions which expressly survive such a termination.
ARTICLE XXXVIII
EARLY TERMINATION OPTION
EARLY TERMINATION OPTION
Section 38.1.Early Termination Option. So long as no Default or Event of Default shall have occurred and be continuing, the Lessee may, at its option (the “Early Termination Option”), on any Payment Date during the Lease Term following the Base Term Commencement Date of each Lease (the “Early Termination Date”), by giving at least thirty (30) days’ advance written notice to Administrative Agent (the “Early Termination Notice”), purchase all or any portion of the Lessor’s interests in the Leased Equipment for an amount equal to the Purchase Price with respect to such Leased Equipment; provided that the minimum Purchase Price for any exercise of the Early Termination Option if not for all of the Lease Balance shall be $30,000,000 and that the minimum remaining outstanding Lease Balance under any affected Lease is $30,000,000. In order to exercise its option to purchase the Leased Equipment pursuant to this Section 20.1, the Lessee shall deliver the Early Termination Notice not less than thirty (30) days prior to the Early Termination Date which election shall be irrevocable when made. Upon receipt of the Purchase Price, such Leased Equipment shall be transferred to the Lessee (or its designee) pursuant to Section 23.11 whereupon this Lease shall terminate except for such provisions which expressly survive such a termination. For the avoidance of doubt, the Early Termination Option set forth above shall be several options and the Lessee shall be entitled to exercise different options for the GPU Equipment Pools or such items of Leased Equipment as described above.
Section 38.2.Required Purchase. So long as the Lessor has not commenced any remedy under Article XVIII hereof, the Lessee shall be obligated to pay, as to all of the Leased Equipment, automatically and without notice upon the occurrence of any Event of Default described in clauses (g) or (h) of Article XVII of the Lease the Termination Amount and other sums due under clause (iii) of Section 18.1 hereof and, upon receipt of such sums, the Leased Equipment shall be transferred in accordance with Section 23.11 hereof, whereupon this Lease shall terminate except for such provisions which expressly survive such a termination.
ARTICLE XXXIX
END OF TERM TRANSFER
END OF TERM TRANSFER
Section 39.1.Automatic Transfer.
(a)On the Return Date and subject to receipt of the final Basic Rent payment from the Lessee together with all other amounts then due and payable to the Participants and Agents under the Operative Documents (the “Return Date Payment”), ownership of the Leased Equipment shall transfer to the Lessee or its designee immediately upon written confirmation from the Lessor or Administrative Agent on its behalf that such party has successfully received such amounts to be paid on the Return Date.
(b)The payment of the Return Date Payment shall, without the need for any further action being taken, constitute irrevocable acceptance by the Lessee of the Leased Equipment being the subject of the transfer, sale and acceptance thereof without any qualification or reservation.
(c)The parties acknowledge and agree that the sale of the Leased Equipment pursuant to the foregoing shall be without any representation, recourse or warranty of any kind to or on the part of the Lessor or any other Indemnitee other than a warranty that the Lessor has in respect of such title to the Leased Equipment as passed to the Lessor on the respective Base Term Commencement Dates and as to the absence of any Lessor Liens arising by, through or
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under the Lessor and otherwise pursuant to Section 23.11 hereof. The Lessee shall take and accept the Leased Equipment on an “as is and where is” basis as it has full knowledge of the Leased Equipment.
ARTICLE XL
RETURN OF EQUIPMENT
RETURN OF EQUIPMENT
Section 40.1.Return.
(a)Upon the exercise of applicable remedies under Article XVIII hereof, and provided that (i) the Lessee, if so entitled, has not exercised its right to cure the related Event of Default pursuant to Section 19.2 hereof and (ii) the Lessee has not paid the Termination Amount in full, the Lessee shall, at its sole expense, peaceably surrender possession of the Leased Equipment and return the Leased Equipment to the Lessor or one or more designees designated by the Lessor in writing to the Lessee and in the satisfaction of the Return Conditions.
(b)Except for return and surrender upon exercise of applicable remedies under Article XVIII hereof, no surrender to the Lessor of this Lease or of the Leased Equipment shall be offered, valid or effective unless agreed to and accepted in writing by the Lessor in its sole discretion. If the Lessee fails to perform any of the Return Conditions, the Lessor shall have the right, in compliance with Applicable Law, to enter upon the applicable Sites where the Leased Equipment is located to perform those tasks not timely performed, and the Lessee shall reimburse the Lessor for all reasonable costs and expenses incurred in doing so.
(c)Without limiting the generality of the foregoing, upon the surrender and return of the Leased Equipment to the Lessor pursuant to this Section 22.1, the Leased Equipment shall be (x) capable of being immediately utilized by a third-party purchaser or third-party lessee without further inspection, repair, replacement, alterations or improvements, licenses, permits, or approvals, except for any of the foregoing required solely by virtue of the change in ownership (other than to the Lessor), use or occupancy of the Leased Equipment, (y) in accordance and compliance with all Applicable Laws including, without limitation, any of the foregoing required by virtue of a change in ownership (other than to the Lessor), use or occupancy of the Leased Equipment other than to or by the Lessee, and (z) free and clear of any Lien (other than any Lessor Liens). Until the Leased Equipment has been surrendered and returned to the Lessor in accordance with the provisions of this Section 22.1 and subject to Article XVIII hereof, the Lessee shall continue to pay the Lessor all Basic Rent and Supplemental Rent due hereunder.
(d)All Records will be made available for the Lessor’s review in connection with any return. Any review of the Records by the Lessor shall be completed during this period and during normal business hours. All Records shall be delivered in English to the Lessor and at the Lessee’s expense on the date of return and surrender.
(e)The Lessee acknowledges and agrees that a breach of any of the provisions of this Section 22.1 may result in damages to the Lessor that are difficult or impossible to ascertain and that may not be compensable at law. Accordingly, upon application to any court of equity having jurisdiction over the Leased Equipment or the Lessee, the Lessor shall be entitled to a decree against the Lessee requiring specific performance of the covenants of the Lessee set forth in this Section 22.1.
(f)Upon the request of the Lessor, the Lessee shall continue to maintain its insurance policies for the Leased Equipment, to the extent permitted by such policies, provided that the Lessor pays or reimburses the Lessee for the pro rata cost thereof and provided further that there is an insurable interest for the Lessee to insure.
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ARTICLE XLI
MISCELLANEOUS
MISCELLANEOUS
Section 41.1.Binding Effect; Successors and Assigns; Survival. The terms and provisions of this Lease, and the respective rights and obligations hereunder of the Lessor and the Lessee shall be binding upon them and their respective successors, legal representatives and assigns (including, in the case of the Lessor, any Person to whom the Lessor may transfer the Leased Equipment or any interest therein in accordance with the provisions of the Operative Documents), and inure to their benefit and the benefit of their respective permitted successors, legal representatives and assigns (including, in the case of the Lessor, any Person to whom the Lessor may transfer the Leased Equipment or any interest therein in accordance with the provisions of the Operative Documents).
Section 41.2.Severability. Any provision of this Lease that shall be prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction, and the Lessee shall remain liable to perform its obligations hereunder except to the extent of such unenforceability. To the extent permitted by Applicable Laws, the Lessee hereby waives any provision of law that renders any provision hereof prohibited or unenforceable in any respect.
Section 41.3.Notices. Unless otherwise specified herein, all notices, requests, demands or other communications to or upon the respective parties hereto shall be in writing and shall be delivered and shall be deemed to have been given in accordance with Section 9.3 of the Transaction Agreement. The parties shall copy the Agents and the Participants on all notices, requests, demands or other written communications made hereunder.
Section 41.4.Amendment; Complete Agreements. Neither this Lease or any other Operative Document nor any terms hereof or thereof may be amended, supplemented or modified except in accordance with the provisions of the Transaction Agreement. This Lease, together with the other Operative Documents, is intended by the parties as a final expression of their agreement and as a complete and exclusive statement of the terms thereof, all negotiations, considerations and representations between the parties having been incorporated herein and therein. No course of prior dealings between the parties or their officers, employees, agents or Affiliates shall be relevant or admissible to supplement, explain, or vary any of the terms of this Lease or any other Operative Document. Acceptance of, or acquiescence in, a course of performance rendered under this or any prior agreement between the parties or their Affiliates shall not be relevant or admissible to determine the meaning of any of the terms of this Lease or any other Operative Document. No representations, undertakings, or agreements have been made or relied upon in the making of this Lease other than those specifically set forth in the Operative Documents.
Section 41.5.Headings. The Table of Contents and headings of the various Articles and Sections of this Lease are for convenience of reference only and shall not modify, define or limit any of the terms or provisions hereof.
Section 41.6.Original Executed Counterpart. The single executed original of each Lease Supplement containing the receipt of the Collateral Agent therefor on or following the signature pages thereof shall be the “original executed counterpart” of this Lease. To the extent that any such Lease Supplement constitutes chattel paper, as such term is defined in the Uniform Commercial Code as in effect in any applicable jurisdiction, no security interest therein may be created through the transfer or possession of any counterpart other than the “original executed counterpart.”
Section 41.7.Governing Law. THIS LEASE HAS BEEN DELIVERED IN THE STATE OF NEW YORK AND SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE.
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Section 41.8.No Joint Venture. Any intention to create a joint venture or partnership relation hereunder or pursuant to any other Operative Document between the Lessor and the Lessee is hereby expressly disclaimed.
Section 41.9.No Accord and Satisfaction. The acceptance by the Lessor of any sums from the Lessee (whether as Basic Rent or otherwise) in amounts which are less than the amounts due and payable by the Lessee hereunder is not intended, nor shall be construed, to constitute an accord and satisfaction of any dispute between the Lessor and the Lessee regarding sums due and payable by the Lessee hereunder, unless the Required Rent Assignees specifically deem it as such in writing.
Section 41.10.Survival. The termination of this Lease pursuant to Section 18.1 shall in no event relieve the Lessee of its liabilities and obligations hereunder or under any other Operative Document which accrued prior to such termination, all of which shall survive any such termination. The extension of any applicable statute of limitations by the Lessee, any Participant or any other Indemnitee shall not affect such survival.
Section 41.11.Transfer of Leased Equipment. With respect to any sale or transfer of the Leased Equipment pursuant to this Lease other than under Article XVIII hereof, and subject to the termination of this Lease in accordance with the terms hereof and release of all Lessor Liens with respect to such Leased Equipment, (i) the Lessor shall agree to (A) execute and deliver to the Lessee or its designee a bill of sale in the form of Exhibit B hereto and such other bills of and other documents and instruments of transfer, all in form and substance reasonably satisfactory to the Lessee, as the Lessee shall reasonably request to evidence such transfer and the vesting in the Lessee (or the Lessee’s designee) of all right, title and interest in and to the Leased Equipment, on an AS-IS, WHERE-IS basis without representation or warranty except as expressly set forth in such bill of sale, (B) take such actions as may be reasonably required to be taken by the Lessor for the transfer of the Leased Equipment to the Lessee (or its designee) including the execution and delivery to the Lessee (or its designee) of instruments terminating this Lease and releasing the Leased Equipment from this Lease, and (C) take such actions as the Lessee (or its designee) shall reasonably request and as shall be reasonably acceptable to the Lessee in order to release all proceeds (including, without limitation, insurance proceeds), any available Warranty Rights in respect of such Leased Equipment and all rights relating to the foregoing from any Liens arising with respect to this Lease; (ii) the Lessor shall assign to the Lessee (or its designee), pursuant to an assignment agreement in form and substance reasonably satisfactory to the Lessee, any available Warranty Rights with respect to such Leased Equipment; and (iii) the Lessor shall assign to the Lessee (or its designee), pursuant to an assignment agreement in form and substance reasonably satisfactory to the Lessee, all claims against third Persons relating to such Leased Equipment. The Lessee shall pay all out-of-pocket costs and expenses (including reasonable and documented legal fees and expenses) incurred by the Lessor in connection with its actions required by this Section 23.11.
ARTICLE XLIIThe Lessor’s obligation to cause and ensure that title to the Leased Equipment shall be transferred to and vested in the Lessee in accordance with this Section 23.11 is of the essence to this transaction and it is the intention of the parties that the Lessee shall have the right to seek specific performance of such obligation in any appropriate court or tribunal.
ARTICLE XLIIIIn connection with any transfer to an independent third party, (i) the Lessee shall execute and deliver such documents, supplemental bills of sale, certificates, affidavits and estoppels as may be required to facilitate the transfer of the Leased Equipment, and (ii) the Lessee shall cooperate with the Lessor and the purchaser of the Leased Equipment in order to facilitate the purchase and use by such purchaser of the Leased Equipment including the furnishing of title warranties and data and technical information relating thereto and the assigning (to the extent assignable) of all licenses necessary for the operation and maintenance thereof, all of which shall be at the expense of the purchaser or the Lessee. The obligations of the
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Lessee under this paragraph shall survive the expiration or termination of this Lease. Any provision in this Lease or other Operative Document to the contrary notwithstanding, no transfer of the Leased Equipment to the Lessee or to a third party buyer pursuant to the Early Termination Option, Article XVIII or otherwise shall be made until the Participants have received all Rent and other amounts then due and owing by the Lessee hereunder and under the other Operative Documents and no designation by the Lessee of a third party buyer shall relieve it of any of its obligations hereunder or under the other Operative Documents. At or subsequent to the transfer of all or any of the Leased Equipment to a third party buyer pursuant to Article XVIII, the Lessee will provide the Lessor with such lien searches as the Lessor may reasonably request to demonstrate to the Lessor’s satisfaction that the Leased Equipment is subject to no Liens other than Permitted Liens as described in clauses (i) (but excluding any such rights and interests of the Lessee referenced therein) or (ii) of the definition thereof. Notwithstanding anything contained herein or in the other Operative Documents to the contrary, any obligation of the Lessor to transfer any assets to the Lessee shall be satisfied by a transfer of such assets to any designee selected by the Lessee.
Section 43.1.Enforcement of Certain Warranties. The Lessor hereby assigns, without recourse or warranty whatsoever, to the Lessee, all Warranty Rights and other warranties related to the purchase, sale and ownership of the Leased Equipment. Such assignment shall remain in effect until the expiration or termination of this Lease. The Lessor shall also retain the right to enforce the Warranty Rights and any warranties assigned in the name of the Lessee upon the occurrence of an Event of Default. The Lessor hereby agrees to execute and deliver at the Lessee’s expense such further documents, including powers of attorney, as the Lessee may reasonably request in order that the Lessee may have the full benefit of the assignment effected or intended to be effected by this Section 23.12. Upon the termination of this Lease, such Warranty Rights and warranties hereby assigned shall automatically revert to the Lessor or be transferred in accordance with Article XVIII or Section 23.11, as applicable. The foregoing provision of reversion shall be self-operative and no further instrument of reassignment shall be required. In confirmation of such reassignment to the Lessor or assignment to third parties or the Lessee in connection with a transfer under Article XVIII or Section 23.11, respectively, the Lessee or the Lessor, as applicable, shall execute and deliver promptly any certificate or other instrument which the other may reasonably request. Any monies collected by the Lessee under the Warranty Rights or any of the warranties after the occurrence of and during the continuation of an Event of Default shall be held in trust by the Lessee and promptly paid over to the Lessor to be held in trust in accordance with Section 23.13.
Section 43.2.Security Interest in Funds.
ARTICLE XLIVAs long as a Payment Default or Event of Default shall be continuing, any amount that would otherwise be payable to the Lessee under the Operative Documents shall be paid to or retained by the Lessor (including amounts to be paid to the Lessee pursuant to Article XIII or Section 23.12) as security for the performance by the Lessee in full of its obligations under this Lease and the other Operative Documents, and it may be applied to the obligations of the Lessee hereunder and under the other Operative Documents and distributed pursuant to Section 18.2. At such time as no Payment Default or Event of Default shall be continuing, such amounts, net of any amounts previously applied to the Lessee’s obligations hereunder or under any other Operative Documents, shall be paid to the Lessee. Any such amounts which are held pending payment to the Lessee or application hereunder shall be invested by the Lessor as directed from time to time in writing by the Lessee, and at the expense and risk of the Lessee, in Permitted Investments. Any gain (including interest received) realized
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as the result of any such investment (net of any fees, commissions and other expenses, if any, incurred in connection with such investment) shall be applied from time to time in the same manner as the principal invested. The Lessor shall not be liable for any losses on such investments or for any failure to make any investment.
Section 44.1.Submission to Jurisdiction. EACH OF THE LESSOR AND THE LESSEE IRREVOCABLY AND UNCONDITIONALLY:
(a)SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS LEASE, OR FOR RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF, TO THE SOLE, EXCLUSIVE GENERAL JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK OR OF ANY NEW YORK STATE COURT SITTING IN THE BOROUGH OF MANHATTAN, AND APPELLATE COURTS FROM ANY THEREOF;
(b)CONSENTS THAT ANY SUCH ACTION OR PROCEEDINGS MAY BE BROUGHT TO SUCH COURTS, AND WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN INCONVENIENT FORUM AND AGREES NOT TO PLEAD OR CLAIM THE SAME;
(c)AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID, TO SUCH PARTY AT ITS ADDRESS SET FORTH ON SCHEDULE II TO THE TRANSACTION AGREEMENT OR AT SUCH OTHER ADDRESS OF WHICH THE OTHER PARTIES HERETO SHALL HAVE BEEN NOTIFIED PURSUANT TO SECTION 9.3 OF THE TRANSACTION AGREEMENT; AND
(d)AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT TO SUE IN ANY OTHER JURISDICTION.
Section 44.2.Jury Trial. EACH OF THE LESSOR AND THE LESSEE HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS LEASE OR ANY OTHER OPERATIVE DOCUMENT OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH OR ARISING FROM ANY RELATIONSHIP EXISTING IN CONNECTION WITH THIS LEASE OR ANY OTHER OPERATIVE DOCUMENT AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.
Section 44.3.Payments. All payments to be made by the Lessee hereunder shall be made to the Lessor or the Administrative Agent, as the case may be, in Dollars in immediately available and freely transferable funds at the place of payment, all such payments to be paid without setoff, counterclaim or reduction and without deduction for, and free from, any and all present or future taxes, levies, imposts, duties, fees, charges, deductions, withholding or liabilities with respect thereto or any restrictions or conditions of any nature. If the Lessee is required by Applicable Law to make any deduction or withholding on account of any tax or other withholding or deduction from any sum payable by the undersigned hereunder, the Lessee shall pay any such tax or other withholding or deduction and shall pay such additional amount necessary to ensure that, after making any payment, deduction or withholding, the recipient thereof shall receive and retain (free of any liability in respect of any payment, deduction or
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withholding) a net sum equal to what it would have received and so retained hereunder had no such deduction, withholding or payment been required to have been made, which payment or withholding is made subject to the limitations set forth in Sections 7.2(a)(iii) and 7.6 of the Transaction Agreement, the reimbursement obligations of Indemnitees set forth in Sections 7.2(a)(iii), 7.2(e), 7.2(f) and 7.2(g) of the Transaction Agreement and other rights of the Lessee and representations of the Rent Assignees set forth in Sections 4.3(f), 6.3, 6.4, 7.2 and 7.6 of the Transaction Agreement.
[Signature Pages Follow]
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ARTICLE XLVIN WITNESS WHEREOF, the undersigned have each caused this Lease to be duly executed and delivered by their respective representatives thereunto duly authorized as of the day and year first above written.
MUFG AMERICAS CAPITAL LEASING & FINANCE, LLC,
as the Lessor
as the Lessor
By: /s/ Stefan Breuer
Name: Stefan Breuer
Title: Managing Director
Name: Stefan Breuer
Title: Managing Director
DIGITALOCEAN, LLC,
as the Lessee
as the Lessee
By: /s/ W. Matthew Steinfort
Name: W. Matthew Steinfort
Title: Chief Financial Officer
Name: W. Matthew Steinfort
Title: Chief Financial Officer
Exhibit 31.1
CERTIFICATION OF CHIEF 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
I, Padmanabhan Srinivasan, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of DigitalOcean Holdings, 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(s) 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(s) 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: | November 3, 2026 | By: | /s/ Padmanabhan Srinivasan | |||||||||||
| Name: | Padmanabhan Srinivasan | |||||||||||||
| Title: | Chief Executive Officer | |||||||||||||
Exhibit 31.2
CERTIFICATION OF CHIEF 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
I, W. Matthew Steinfort, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of DigitalOcean Holdings, 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(s) 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(s) 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: | November 3, 2026 | By: | /s/ W. Matthew Steinfort | |||||||||||
| Name: | W. Matthew Steinfort | |||||||||||||
| Title: | Chief Financial Officer | |||||||||||||
Exhibit 32.1
CERTIFICATIONS 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
I, Padmanabhan Srinivasan, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report on Form 10-Q of DigitalOcean Holdings, Inc. for the fiscal quarter ended September 30, 2026 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of DigitalOcean Holdings, Inc.
| Date: | November 3, 2026 | By: | /s/ Padmanabhan Srinivasan | |||||||||||
| Name: | Padmanabhan Srinivasan | |||||||||||||
| Title: | Chief Executive Officer | |||||||||||||
I, W. Matthew Steinfort, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report on Form 10-Q of DigitalOcean Holdings, Inc. for the fiscal quarter ended September 30, 2026 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of DigitalOcean Holdings, Inc.
| Date: | November 3, 2026 | By: | /s/ W. Matthew Steinfort | |||||||||||
| Name: | W. Matthew Steinfort | |||||||||||||
| Title: | Chief Financial Officer | |||||||||||||