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Table of Contents

 
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
     
þ   QUARTERLY REPORT PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
     
    For The Quarterly Period Ended December 31, 2010
     
o   TRANSITION REPORT PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 001-12475
Terremark Worldwide, Inc.
(Exact Name of Registrant as Specified in Its Charter)
     
Delaware   84-0873124
(State or Other Jurisdiction of Incorporation or Organization)   (IRS Employer Identification No.)
2 South Biscayne Blvd., Suite 2800, Miami, Florida 33131
(Address of Principal Executive Offices, Including Zip Code)
Registrant’s telephone number, including area code:
(305) 961-3200
Securities registered pursuant to Section 12(b) of the Act:
     
(Title of Class)   (Name of Exchange on Which Registered)
     
Common Stock, par Value $0.001 per Share   NASDAQ Global Market
Securities registered pursuant to Section 12(g) of the
Act:
None
     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
             
Large accelerated filer o   Accelerated filer þ   Non-accelerated filer o   Smaller reporting company o
        (Do not check if a smaller reporting company)    
     Indicate by check mark if the registrant is a shell Company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
     As of February 3, 2011, there were 67,403,482 shares of the registrant’s common stock, par value $0.001 per share, outstanding.
 
 

 


 


Table of Contents

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
                 
    December 31,     March 31,  
    2010     2010  
ASSETS
Current assets:
               
Cash and cash equivalents
  $ 68,881     $ 53,468  
Accounts receivable, net
    61,574       50,266  
Current portion of capital lease receivables
    286       418  
Prepaid expenses and other current assets
    15,078       12,605  
 
           
Total current assets
    145,819       116,757  
Restricted cash
    1,636       1,959  
Property and equipment, net
    482,135       404,656  
Debt issuance costs, net
    5,546       3,384  
Other assets
    15,288       15,384  
Capital lease receivables, net of current portion
    274       235  
Intangibles, net
    10,348       11,759  
Goodwill
    96,112       96,112  
 
           
Total assets
  $ 757,158     $ 650,246  
 
           
 
               
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
               
Current portion of capital lease obligations
  $ 8,391     $ 4,919  
Accounts payable and other current liabilities
    66,627       91,948  
 
           
Total current liabilities
    75,018       96,867  
Secured loans
    518,533       388,835  
Convertible debt
    57,192       57,192  
Deferred rent and other liabilities
    41,360       18,351  
Deferred revenue
    8,959       8,514  
 
           
Total liabilities
    701,062       569,759  
 
           
Commitments and contingencies
           
 
           
Stockholders’ equity:
               
Series I convertible preferred stock: $0.001 par value, 0 and 312 shares issued and outstanding
           
Common stock: $0.001 par value, 100,000,000 shares authorized; 67,376,237 and 65,058,331 shares issued and outstanding
    67       65  
Common stock warrants
    8,901       8,901  
Additional paid-in capital
    465,622       456,860  
Accumulated deficit
    (417,524 )     (384,667 )
Accumulated other comprehensive loss
    (970 )     (672 )
 
           
Total stockholders’ equity
    56,096       80,487  
 
           
Total liabilities and stockholders’ equity
  $ 757,158     $ 650,246  
 
           
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
                                 
    Nine Months Ended     Three Months Ended  
    December 31,     December 31,  
    2010     2009     2010     2009  
Revenues
  $ 258,196     $ 209,836     $ 94,275     $ 74,272  
 
                       
 
                               
Expenses:
                               
Cost of revenues, excluding depreciation and amortization
    135,848       118,362       48,102       41,880  
General and administrative
    33,893       25,522       12,201       8,807  
Sales and marketing
    29,173       19,572       10,266       7,197  
Depreciation and amortization
    39,189       27,474       14,586       9,708  
 
                       
Total operating expenses
    238,103       190,930       85,155       67,592  
 
                       
Income from operations
    20,093       18,906       9,120       6,680  
 
                       
Other (expenses) income:
                               
Interest expense
    (45,508 )     (36,649 )     (16,861 )     (13,656 )
Loss on early extinguishment of debt
          (10,275 )            
Change in fair value of derivatives
    (6,351 )     (1,806 )     (6,525 )     (367 )
Interest income
    384       297       137       85  
Other
    595       814       73       59  
 
                       
Total other expenses
    (50,880 )     (47,619 )     (23,176 )     (13,879 )
 
                       
Loss before income taxes
    (30,787 )     (28,713 )     (14,056 )     (7,199 )
Income tax expense
    (2,070 )     (1,779 )     (787 )     (879 )
 
                       
Net loss
    (32,857 )     (30,492 )     (14,843 )     (8,078 )
Preferred dividend
    (628 )     (703 )     (161 )     (234 )
 
                       
 
                               
Net loss attributable to common stockholders
  $ (33,485 )   $ (31,195 )   $ (15,004 )   $ (8,312 )
 
                       
 
                               
Net loss per common share:
                               
Basic and diluted
  $ (0.51 )   $ (0.49 )   $ (0.23 )   $ (0.13 )
 
                       
 
                               
Weighted average common shares outstanding — basic and diluted
    65,818       63,636       66,520       64,803  
 
                       
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
(In thousands)
(Unaudited)
                                                                 
            Common                                      
            Stock Par                             Accumulated        
    Preferred     Value     Common     Additional             Other        
    Stock     Issued             Stock     Paid-In     Accumulated     Comprehensive        
    Series I     Shares     Amount     Warrants     Capital     Deficit     Loss     Total  
Balance at March 31, 2010
  $       65,058     $ 65     $ 8,901     $ 456,860     $ (384,667 )   $ (672 )   $ 80,487  
Components of comprehensive loss:
                                                               
Net loss
                                  (32,857 )           (32,857 )
Foreign currency translation adjustment
                                        (298 )     (298 )
 
                                                             
Total comprehensive loss
                                                            (33,155 )
Dividends on preferred stock
                            (628 )                 (628 )
Conversion of preferred shares
          1,042       1             1                   2  
Issuance of common stock in lieu of cash Series I convertible preferred stock dividend
          21                   161                       161  
Issuance of common stock in settlement of share-based awards
          1,255       1             1,621                   1,622  
Share-based compensation
                            7,607                   7,607  
 
                                               
Balance at December 31, 2010
  $       67,376     $ 67     $ 8,901     $ 465,622     $ (417,524 )   $ (970 )   $ 56,096  
 
                                               
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
                 
    Nine Months Ended  
    December 31,  
    2010     2009  
Cash flows from operating activities:
               
Net loss
  $ (32,857 )   $ (30,492 )
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
               
Depreciation and amortization
    39,189       27,474  
Loss on early extinguishment of debt
          10,275  
Change in fair value of derivatives
    6,351       1,806  
Gain on currency translation effect
    (584 )     (740 )
Accretion on debt, net
    1,760       2,045  
Amortization of debt issuance costs
    357       698  
Provision for doubtful accounts
    2,698       1,236  
Interest payment in kind on secured loans
          395  
Settlement of interest rate swaps
          (8,360 )
Share-based compensation
    10,393       6,455  
(Increase) decrease in:
               
Accounts receivable
    (13,893 )     (5,960 )
Capital lease receivables, net of unearned interest
    92       268  
Restricted cash
    324       791  
Prepaid expenses and other assets
    (6,013 )     (9,091 )
Increase (decrease) in:
               
Accounts payable and other current liabilities
    (11,942 )     (11,567 )
Deferred revenue
    3,259       2,036  
Deferred rent and other liabilities
    2,512       2,877  
 
           
Net cash provided by (used in) operating activities
    1,646       (9,854 )
 
           
Cash flows from investing activities:
               
Purchase of property and equipment
    (115,309 )     (81,205 )
Acquisition of management solutions company, net of cash acquired
          (11,420 )
 
           
Net cash used in investing activities
    (115,309 )     (92,625 )
 
           
Cash flows from financing activities:
               
Payment on secured loans and convertible debt
          (290,930 )
Proceeds from financing lease
    7,002        
Payments of preferred stock dividends
    (699 )     (690 )
Payments of debt issuance costs
    (2,259 )     (3,545 )
Proceeds from issuance of secured notes
    127,938       386,963  
Payments under capital lease obligations
    (4,132 )     (2,531 )
Proceeds from issuance of common stock
    344       20,022  
 
           
Net cash provided by financing activities
    128,194       109,289  
 
           
Effect of foreign currency exchange rates on cash and cash equivalents
    882       964  
 
           
Net increase in cash and cash equivalents
    15,413       7,774  
Cash and cash equivalents at beginning of period
    53,468       51,786  
 
           
Cash and cash equivalents at end of period
  $ 68,881     $ 59,560  
 
           
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Business and Organization
     Terremark Worldwide, Inc., together with its consolidated subsidiaries (“we,” “us,” “our,” “Terremark,” or the “Company”), is a global provider of managed IT solutions leveraging its highly connected carrier-neutral data centers across major networking hubs in the United States, Europe and Latin America. The Company delivers a comprehensive suite of managed solutions including colocation, managed hosting, managed network, disaster recovery, security and cloud computing services. Terremark serves approximately 1,400 customers worldwide across a broad range of sectors, including enterprise, government agencies, systems integrators, network service providers, internet content and portal companies and internet infrastructure companies. The Company delivers its solutions through specialized data centers, including its three primary facilities: NAP of the Americas in Miami, Florida; NAP of the Capital Region in Culpeper, Virginia outside downtown Washington, D.C.; and NAP of the Americas/West in Santa Clara, California.
2. Summary of Significant Accounting Policies
     The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). All significant intercompany accounts and transactions between consolidated companies have been eliminated in consolidation.
     The accompanying unaudited condensed consolidated financial statements have additionally been prepared in accordance with the accounting policies described in Terremark’s Annual Report on Form 10-K for the year ended March 31, 2010 and should be read in conjunction with such policies and Terremark’s audited consolidated financial statements and notes contained in such Annual Report. The unaudited condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the financial position, results of operations, cash flows and changes in stockholders’ equity for the periods presented have been included. The operating results for interim periods are not necessarily indicative of the results that can be expected for a full year.
Correction of Immaterial Error Related to Prior Periods
     In connection with the preparation of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2010, an error was identified in the calculation and presentation of the changes in Accounts Payable and Other Current Liabilities and Purchase of Property and Equipment line items in the statement of cash flows. The Company reviewed the impact of this error on the prior periods in accordance with the Financial Accounting Standards Board (“FASB”) and Securities and Exchange Commission (“SEC”) guidance and determined that the error was not material to any prior periods. However, the Company has revised its statement of cash flows for the nine months ended December 31, 2009 by increasing net cash used in investing activities for the Purchase of Property and Equipment and decreasing cash flows used in operating activities in Accounts Payable and Other Current Liabilities by approximately $4.3 million. For the comparative fiscal years, the Company will also correct the prior periods as follows (in thousands):
                 
    Year Ended     Year Ended  
    March 31, 2010     March 31, 2009  
Cash flows from operating activities:
               
Accounts payable and other current liabilities
  $ (9,070 )   $ 13,672  
 
           
Cash flows from investing activities:
               
Purchase of property and equipment
  $ 9,070     $ (13,672 )
 
           
Reclassifications
     Certain reclassifications have been made to the prior periods’ condensed consolidated financial statements to conform to the current presentation.
Significant concentrations
     The federal sector, which includes federal government agencies and non-government entities that contract with the federal government, accounted for approximately 21% and 23% of our revenues for the nine and three months ended December 31, 2010, respectively. Also the federal government accounted for approximately 22% and 23% of our revenues for the nine and three months ended December 31, 2009, respectively. No commercial customer accounted for more than 10% of revenues for each of the nine and three months ended December 31, 2010 and 2009.
Derivatives
     The Company has, in the past, used financial instruments, including interest cap agreements and interest rate swap agreements, to manage exposure to movements in interest rates. The use of these financial instruments modifies the Company’s exposure to these risks and is designed to minimize such risks. The Company does not hold or issue derivative instruments for trading purposes.

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TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
     The Company entered into two interest rate swap agreements as required under the provisions of the $250.0 million mortgage loan entered into on July 31, 2007. The interest rate swaps were settled on June 24, 2009. See Note 11.
     The Company’s 6.625% Senior Convertible Notes, due June 15, 2013 (the “6.625% Senior Convertible Notes”), and $50.0 million aggregate principal amount of the Company’s 12% Senior Secured Notes, due June 15, 2017, issued on April 28, 2010 (the “$50.0 million 12% Senior Secured Notes”), contain embedded derivatives that require separate valuation. The Company recognizes these derivatives as assets or liabilities on its balance sheet, measures them at their estimated fair value and recognizes changes in their estimated fair value in earnings for the relevant period.
     The Company estimates the fair value of its embedded derivatives using available market information and appropriate valuation methodologies. Considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company may eventually pay to settle these embedded derivatives.
Construction in progress
     Construction in progress is stated at its original cost and includes direct expenditures associated with the expansion of the Company’s data center footprint and upgrades to infrastructure of current data center footprint. Once an expansion project becomes operational, these capitalized costs are allocated to certain property and equipment categories and are depreciated at the appropriate rates consistent with the estimated useful lives of the underlying assets. In addition, the Company capitalizes selected interest costs during the construction phase if certain criteria are met. The following table sets forth total interest cost incurred and total interest cost capitalized for the periods indicated (in thousands):
                                 
    Nine Months Ended     Three Months Ended  
    December 31,     December 31,  
    2010     2009     2010     2009  
Interest expense
  $ 45,508     $ 36,649     $ 16,861     $ 13,656  
Interest capitalized
    3,096       2,276       210       1,647  
 
                       
Interest charges incurred
  $ 48,604     $ 38,925     $ 17,071     $ 15,303  
 
                       
Fair value of financial instruments
The fair value of secured loans and convertible debt is as follows (in thousands):
                                 
    December 31, 2010     March 31, 2010  
    Book Value     Fair Value     Book Value     Fair Value  
Secured loans:
                               
$420.0 million 12% Senior Secured Notes
  $ 390,859     $ 479,901     $ 388,835     $ 481,491  
$50.0 million 12% Senior Secured Notes
    54,664       57,055              
$75.0 million 9.5% Senior Secured Second Lien Notes
    73,010       75,652              
 
                       
 
  $ 518,533     $ 612,608     $ 388,835     $ 481,491  
 
                       
Convertible debt:
                               
6.625% Senior Convertible Notes
  $ 57,192     $ 66,806     $ 57,192     $ 59,062  
     The book value for the Company’s secured loans and convertible debt is net of the unamortized discount or premium to debt principal. See Notes 9 and 10.
Fair value measurements
The table below summarizes the fair values of our financial assets (liabilities) as follows (in thousands):
                                 
    Fair Value at        
    December 31,     Fair Value Measurement Using  
    2010     Level 1     Level 2     Level 3  
Money market fund
  $ 42,197     $ 42,197     $     $  
Embedded derivatives
    (6,645 )                 (6,645 )
 
                       
 
  $ 35,552     $ 42,197     $     $ (6,645 )
 
                       

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TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
The following is a description of the valuation methodologies used for these items, as well as the general classification of such items:
     Money market fund instruments — these instruments are valued using quoted prices for identical instruments in active markets. Therefore, the instruments are classified within Level 1 of the fair value hierarchy. These money market funds are included in cash and cash equivalents.
     Embedded derivatives — these instruments are embedded within the Company’s 6.625% Senior Convertible Notes and $50.0 million 12% Senior Secured Notes. These instruments were valued using pricing models that incorporate the Company’s stock price, credit risk, volatility, U.S. risk free interest rate, transaction details such as contractual terms, maturity and amount of future cash inflows, as well as assumptions about probability and the timing of certain future events. These embedded derivatives are included in deferred rent and other liabilities on the Company’s balance sheet and the change in the fair value is recorded in the income statement line item, change in fair value of derivatives. For a summary of the changes in the fair value of these embedded derivatives, see Note 11.
     Effective April 1, 2009, the Company adopted the provisions of accounting standards for fair value measurements for our nonfinancial assets and liabilities measured at fair value on a nonrecurring basis. Nonfinancial assets such as goodwill, other intangible assets, and long-lived assets held and used are measured at fair value when there is an indicator of impairment and recorded at fair value only when impairment is recognized or for a business combination.
Recent accounting pronouncements
     In September 2009, the FASB issued accounting guidance which amends the criteria for allocating a contract’s consideration to individual services or products in multiple arrangements. The guidance requires that the best estimate of selling price be used when vendor specific objective or third-party evidence for deliverables cannot be determined. This guidance is effective prospectively for revenue arrangements entered into or materially modified beginning in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of this standard will have on its consolidated financial statements, if any.
     On January 1, 2010, the Company adopted new accounting guidance regarding disclosures about fair value measurements. The guidance amends existing disclosure criteria, requiring entities to disclose the amounts of significant transfers between Level 1 and Level 2 of the fair value hierarchy and the reasons for these transfers, the reasons for any transfers in or out of Level 3, and information in the reconciliation of recurring Level 3 measurements about purchases, sales, issuances and settlements on a gross basis. The guidance also amends existing guidance to clarify that an entity must provide fair value measurement disclosures for each major class of assets and liabilities. With respect to the new disclosures for transfers between Level 1 and Level 2 fair value measurements, the Company’s adoption of this new accounting guidance had no significant impact on its condensed consolidated financial statements. The Company is currently evaluating whether the disclosure of activity in Level 3 fair value measurements will have any impact on its consolidated financial statements.
3. Acquisitions
     On November 12, 2009, the Company entered into a purchase agreement to acquire all issued and outstanding equity interests in DS3 DataVaulting, LLC, a data management solutions provider, for a final purchase price of $12.1 million in cash, including a working capital adjustment of $0.6 million paid to the sellers on March 1, 2010. Pursuant to the purchase agreement, the sellers agreed to indemnify the Company for certain potential contractual obligations. In accordance with the terms of the related escrow agreement, $1.5 million of the purchase price was placed into an escrow account to secure such indemnification obligations. The escrow agreement ends on May 11, 2011, at which time the remaining funds, if any, will be distributed to the sellers. This data management solutions provider delivers offsite, online data backup and restore services, which enable enterprises and government agencies to rapidly and securely backup and restore files, databases and operating systems. The costs to acquire the data management solutions provider were allocated to the tangible and identified intangible assets acquired and liabilities assumed based on their respective fair values, and any excess was allocated to goodwill. The following summarizes the final allocation of the purchase price as of December 31, 2010 (in thousands):
         
Cash and cash equivalents
  $ 44  
Accounts receivable, net
    827  
Prepaid and other current assets
    258  
Property and equipment
    1,690  
Intangibles
    825  
Goodwill
    9,923  
Accounts payable and accrued expenses
    (398 )
Deferred revenue
    (162 )
Capital lease obligations
    (926 )
 
     
Net assets acquired
  $ 12,081  
 
     

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TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
4. Accounts Receivable
                 
    December 31,     March 31,  
    2010     2010  
Accounts receivable, net, consists of (in thousands):
               
Accounts receivable
  $ 46,111     $ 39,359  
Unbilled revenue
    17,427       12,182  
Allowance for doubtful accounts
    (1,964 )     (1,275 )
 
           
 
  $ 61,574     $ 50,266  
 
           
     Trade accounts receivable are recorded at the invoiced amount and do not bear interest. Unbilled revenue consists of revenues earned for which the customer has not been billed.
5. Prepaid Expenses and Other Assets
                 
    December 31,     March 31,  
    2010     2010  
Prepaid expenses and other assets consists of (in thousands):
               
Prepaid expenses
  $ 5,643     $ 4,741  
Deferred costs
    12,428       8,758  
Deposits
    4,551       4,476  
Prepaid ground lease
          3,602  
Deferred rent
    1,387       1,364  
Other
    3,336       2,376  
Tenant allowance
    1,551       1,418  
Deferred tax asset
    1,213       949  
Interest and other receivables
    257       305  
 
           
 
    30,366       27,989  
Less: current portion
    (15,078 )     (12,605 )
 
           
 
  $ 15,288     $ 15,384  
 
           
6. Property and Equipment
                 
    December 31,     March 31,  
    2010     2010  
Property and equipment, net, consists of (in thousands):
               
Land
  $ 24,500     $ 18,336  
Building
    172,309       140,751  
Building and leasehold improvements
    99,657       81,433  
Machinery
    213,052       165,035  
Equipment, furniture and fixtures
    111,148       82,646  
Construction in progress
    12,759       30,521  
 
           
 
    633,425       518,722  
Less: accumulated depreciation and amortization
    (151,290 )     (114,066 )
 
           
 
  $ 482,135     $ 404,656  
 
           
     Depreciation and amortization expense, excluding amortization of intangible assets (see Note 7), was $37.8 million and $14.2 million for the nine and three months ended December 31, 2010, respectively. Depreciation and amortization expense, excluding amortization of intangible assets, was $25.9 million and $9.2 million for the nine and three months ended December 31, 2009, respectively.

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TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
7. Intangibles
                         
    Amortization Period     December 31,     March 31,  
    (Years)     2010     2010  
Intangibles, net, consists of (in thousands):
                       
Customer base
  8-10     $ 9,125     $ 9,125  
Technology
  4-5       6,400       6,400  
Trademarks
        4,100       4,100  
Non-compete agreements
  3       100       100  
 
                   
 
            19,725       19,725  
Less: accumulated amortization
            (9,377 )     (7,966 )
 
                   
 
          $ 10,348     $ 11,759  
 
                   
The Company expects to record amortization expense associated with these intangible assets as follows for each of the fiscal years ended March 31 (in thousands):
                 
    Customer        
    Base     Technology  
2011 (three months remaining)
  $ 269     $ 200  
2012
    1,075       800  
2013
    1,075       120  
2014
    1,075        
2015
    1,075        
2016
    559        
 
           
 
  $ 5,128     $ 1,120  
 
           
     Amortization of intangibles was $1.4 million and $0.4 million for the nine and three months ended December 31, 2010, respectively, and $1.6 million and $0.5 million for the nine and three months ended December 31, 2009, respectively, which is included in depreciation and amortization expense in the Company’s accompanying condensed consolidated financial statements.
8. Accounts Payable and Other Current Liabilities
                 
    December 31,     March 31,  
    2010     2010  
Accounts payable and other current liabilities consists of (in thousands):
               
Accounts payable
  $ 31,697     $ 45,934  
Accrued expenses
    16,987       17,121  
Current portion of deferred revenue
    10,606       7,138  
Interest payable
    3,401       17,308  
Customer prepayments
    3,936       4,447  
 
           
 
  $ 66,627     $ 91,948  
 
           

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TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
9. Secured Loans
                 
    December 31,     March 31,  
    2010     2010  
Secured loans consist of (in thousands):
               
$420.0 million 12% Senior Secured Notes, due June 15, 2017. Interest is payable semi-annually, on December 15 and June 15 (Effective interest rate of 13.8%)
  $ 390,859     $ 388,835  
$50.0 million 12% Senior Secured Notes, due June 15, 2017. Interest is payable semi-annually, on December 15 and June 15 (Effective interest rate of 10.7%)
    54,664        
$75.0 million 9.5% Senior Secured Second Lien Notes, due November 15, 2013. Interest is payable semi-annually, on November 15 and May 15 (Effective interest rate of 10.9%)
    73,010        
 
           
 
  $ 518,533     $ 388,835  
 
           
     On June 24, 2009 and April 28, 2010, the Company issued an aggregate principal amount of $420.0 million and $50.0 million, respectively, of its 12.0% Senior Secured Notes due June 15, 2017 (collectively, the “12% Senior Secured Notes”), and, on November 16, 2010, the Company issued $75.0 million aggregate principal amount of its 9.5% Senior Secured Second Lien Notes, due November 15, 2013 (“9.5% Senior Secured Second Lien Notes” and, together with the 12% Senior Secured Notes, the “Secured Notes”), all of which Secured Notes are guaranteed by substantially all of the Company’s domestic subsidiaries (the “Guarantors”).
     The 12% Senior Secured Notes and the 9.5% Senior Secured Second Lien Notes are secured by a first priority security interest and a second priority second security interest, respectively, in substantially all of the assets of the Company and the Guarantors, including a pledge of 100% of all outstanding capital stock of each of the Company’s domestic subsidiaries, excluding Terremark Federal Group, Inc. and Technology Center of the Americas, LLC, and 65% of all outstanding capital stock of substantially all of the Company’s foreign subsidiaries, subject to certain customary exceptions relating to our ability to remove a pledge with respect to certain significant subsidiaries that would otherwise result in additional audit requirements under SEC accounting rules. The 12% Senior Secured Notes bear interest at 12.0% per annum, payable on December 15 and June 15 of each year, and the 9.5% Senior Secured Second Lien Notes bear interest at 9.5% per annum, payable on May 15 and November 15 of each year, beginning May 15, 2011. In the event of a change in control of the Company, the Company must offer to purchase all of the Secured Notes then outstanding at a price equal to 101% of their principal amount, plus accrued interest (if any), to the date of repurchase.
     The loan proceeds from the June 2009 issuance of 12% Senior Secured Notes were used to satisfy and repay all of the Company’s then-outstanding secured indebtedness, which included (i) loans under a first lien credit agreement with a face value of $150.0 million, (ii) loans under a second lien credit agreement with a face value of $100.0 million (the foregoing credit agreements together, the “Credit Agreements”) and (iii) $8.4 million for the settlement of two interest rate swap agreements that were entered into in connection with the Credit Agreements. The Company paid prepayment premiums of $2.2 million to the holders of the second lien credit agreement in connection with this financing transaction. The Company used the remainder of the proceeds to fund working capital and other general operational purposes.
     The repayment of the amounts outstanding under the Credit Agreements was accounted for as an exchange and early extinguishment of debt, and the $420.0 million 12% Senior Secured Notes issued in June 2009 were accounted for as a new debt instrument at $387.0 million, net of original issue discount of $33.0 million that included $12.5 million in fees paid to initial purchasers of the notes. The exchange of debt instruments resulted in a loss on the early extinguishment of debt of $10.3 million for the nine months ended December 31, 2009. The loss included $7.0 million of unamortized deferred financing costs, $2.3 million of prepayment penalties related to the second lien credit agreement, breakage fees related to the settlement of the interest rate swaps and $1.0 million of unamortized discount.
     In addition, the Company recorded $3.5 million of debt issuance costs related to the $420.0 million 12% Senior Secured Notes issued in June 2009. For the nine and three months ended December 31, 2010, the Company amortized $2.0 million and $0.7 million of the discount, respectively. For the nine and three months ended December 31, 2009, the Company amortized $1.2 million and $0.6 million of the discount, respectively. For the nine and three months ended December 31, 2010, the Company amortized debt issuance costs of $0.2 million and $0.1 million into interest expense, respectively. For the nine and three months ended December 31, 2009, the Company amortized debt issuance costs of $0.1 million and less than $0.1 million into interest expense, respectively

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TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
     The $50.0 million 12% Senior Secured Notes were accounted for as a new debt instrument at $55.0 million, net of premium that included $1.0 million in fees paid to initial purchaser of the notes. The $50.0 million 12% Senior Secured Notes were issued with a substantial premium to par and as a result, the Company determined that the change in control provision would be bifurcated and accounted for separately. The Company has estimated that this embedded derivative does not have significant value, see Note 11. In addition, the Company recorded $1.8 million of debt issuance costs related to the $50.0 million 12% Senior Secured Notes. For the nine and three months ended December 31, 2010, the Company amortized $0.3 million and $0.1 million of the premium and $0.1 million and less than $0.1 million of the debt issuance costs into interest expense, respectively.
     The Company used the proceeds from the issuance of the $50.0 million 12% Senior Secured Notes for working capital and other general corporate purposes.
     The $75.0 million 9.5% Senior Secured Second Lien Notes were accounted for as a new debt instrument at $72.9 million, net of discount that included $2.1 million in fees paid to initial purchaser of the notes. The Company recorded $0.7 million of debt issuance costs related to the $75.0 million 9.5% Senior Secured Second Lien Notes. For the nine and three months ended December 31, 2010, the Company amortized $0.1 million and less than $0.1 million of the debt issuance costs and discount into interest expense, respectively.
     The Company expects to use the proceeds from the issuance of the $75.0 million 9.5% Senior Secured Second Lien Notes for working capital and other general corporate purposes.
10. Convertible Debt
                 
    December 31,     March 31,  
    2010     2010  
Convertible debt consists of (in thousands):
               
6.625% Senior Convertible Notes, due June 15, 2013, and convertible into shares of the Company’s common stock at $12.50 per share. Interest at 6.625% is payable semi-annually, on December 15 and June 15 (Effective interest rate of 6.6%)
  $ 57,192     $ 57,192  
 
           
 
  $ 57,192     $ 57,192  
 
           
     On June 15, 2009, all outstanding obligations under the Company’s 0.5% Senior Subordinated Convertible Notes, (the “Series B Notes”) with a face value of $4.0 million were satisfied and repaid at maturity. On the maturity date, the Company paid $4.1 million to the holders of the Series B Notes, representing the principal amount, including interest paid in kind, and all accrued and unpaid interest. On June 15, 2009, we repaid and satisfied at maturity all outstanding obligations under our 9% Senior Convertible Notes with a face value of $29.1 million. On the maturity date, the Company paid $30.4 million to the holders of such notes, representing $29.1 million of principal and $1.3 million of accrued and unpaid interest.
     The 6.625% Senior Convertible Notes, which were issued on May 2, 2007 in a private exchange for $57.2 million aggregate principal amount of our then outstanding 9% Senior Convertible Notes, are unsecured obligations and rank pari passu with all existing and future unsecured and unsubordinated indebtedness, senior in right of payment to all existing and future subordinated indebtedness, and rank junior to any future secured indebtedness. The Company’s 6.625% Senior Convertible Notes contain two embedded derivatives that require separate valuation from the 6.625% Senior Convertible Notes: an equity participation right, which was determined not to have significant value, and a contingent put upon a change in control of the Company. If there is a change in control of the Company, the holders of the 6.625% Senior Convertible Notes have the right to require the Company to repurchase their notes at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest to and including the date of repurchase. If a holder surrenders notes for conversion at any time beginning on the effective notice of a change in control in which 10% or more of the consideration for the Company’s common stock consists of cash, the Company may be required to increase the number of shares issuable upon such conversion by an amount not to exceed 5,085,334 additional shares. The number of additional shares is based on the date on which the partial cash buy-out becomes effective and the price paid or deemed to be paid per share of the Company’s common stock in the change of control. If the Company issues a cash dividend on its common stock, it must pay contingent interest on the 6.625% Senior Convertible Notes equal to the product of the per share cash dividend and the aggregate number of shares of common stock issuable upon conversion of the outstanding 6.625% Senior Convertible Notes.
11. Derivatives
     The Company’s $50.0 million 12% Senior Secured Notes contain an embedded derivative that requires separate valuation from the $50.0 million 12% Senior Secured Notes: a contingent put upon change in control which is described in Note 9.

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TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
     The Company’s 6.625% Senior Convertible Notes contain two embedded derivatives that require separate valuation from the 6.625% Senior Convertible Notes: an equity participation right and a contingent put upon change in control, see Note 10.
     As of December 31, 2010 and March 31, 2010, the outstanding embedded derivatives contained in the 6.625% Senior Convertible Notes and $50.0 million 12% Senior Secured Notes, comprised an aggregate liability of $6.6 million and $0.3 million, respectively.
     On February 8, 2008, the Company entered into two interest rate swap agreements as required under the Credit Agreements. One of the interest rate swap agreements was effective March 31, 2008 for a notional amount of $148.0 million and a fixed interest rate of 2.999%, and the second interest rate swap agreement was effective on July 31, 2008 for a notional amount of $102.0 million and a fixed interest rate of 3.067%. These interest rate swaps served as economic hedges against increases in interest rates and were not designated as hedges for accounting purposes; therefore, the Company accounted for these interest rate swaps on a fair value basis, adjusted these instruments to fair value and the resulting changes in fair value were charged to earnings.
     In connection with the repayment of the Credit Agreements on June 24, 2009, the interest rate swap agreements were unwound and settled for $8.4 million payable to the holders. The Company recorded $0.9 million of interest expense related to the interest rate swap agreements for the nine months ended December 31, 2009.
12. Deferred Rent and Other Liabilities
                 
    December 31,     March 31,  
    2010     2010  
Deferred rent and other liabilities consists of (in thousands):
               
Deferred rent
  $ 12,593     $ 10,449  
Long-term portion of capital lease obligations
    19,898       5,751  
Deferred tax liability
    1,543       1,543  
Other liabilities
    7,326       608  
 
           
 
  $ 41,360     $ 18,351  
 
           
     During the nine months ended December 31, 2010, the Company entered into sale leaseback financing for the Company’s Amsterdam, Netherlands property, which resulted in net proceeds of $7.0 million. This transaction is in connection with the construction of a new data center in Amsterdam and has been accounted for as a financing lease, wherein the property remains on the Company’s financial statements. No gain or loss resulted from this transaction. The Company entered into such financing using an “unrestricted subsidiary” as permitted under the terms of the indentures governing the Secured Notes.
13. Commitments and Contingencies
     In the ordinary course of conducting business, we become involved in various legal actions and claims. Litigation is subject to many uncertainties and the Company may be unable to accurately predict the outcome of such matters, some of which could be decided unfavorably to us. The Company’s participation in government contracts subjects us to inquiries, investigations and subpoenas regarding our business with the federal government. Improper or illegal activities may subject us to civil and criminal penalties and administrative sanctions, including termination of contracts, forfeiture of profits, suspension of payments, fines, and suspension or debarment from doing business with federal government agencies. Management does not believe the ultimate outcome of pending matters of the nature described above would be material.
14. Changes in Stockholders’ Equity
   Issuance of Common stock
     For the nine months ended December 31, 2010, the Company issued an aggregate of 1,254,930 shares of its common stock to certain employees upon the exercise of stock options and vesting of restricted stock. Shares were net of those surrendered to satisfy the employees’ withholding tax liability.
     For the nine months ended December 31, 2010, all outstanding shares of Series I Convertible Preferred Stock, together with accrued and unpaid dividends thereon, were converted into 1,062,975 shares of our common stock in accordance with the certificate of designation governing the Series I Convertible Preferred Stock.
     On May 29, 2009, in a private transaction, we sold to VMware Bermuda Limited, a wholly-owned subsidiary of VMware, Inc. (“VMware”), four million shares of our common stock at a purchase price of $5.00 per share, for a total purchase price equal to $20 million. As part of the VMware vCloud Initiative, we and VMware have worked together to provide leading-edge utility and cloud computing services to the enterprise and federal markets and continue to jointly cooperate to create and launch cloud infrastructure services.

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TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
     For the nine and three months ended December 31, 2010, we paid to VMware $0.3 million and less than $0.1 million in software licensing and other fees, respectively, and for the nine and three months ended December 31, 2009, $1.1 million and $0.3 million, respectively.
15. Earnings (Loss) Per Share
     The following table sets forth potential shares of common stock that are not included in the diluted net loss per share calculation because to do so would be anti-dilutive for the periods indicated (in thousands):
                                 
    Nine Months Ended     Three Months Ended  
    December 31,     December 31,  
    2010     2009     2010     2009  
9% Senior Convertible Notes
          642              
Common stock warrants
    2,017       2,025       2,017       2,022  
Common stock options
    2,158       2,327       2,065       2,359  
Nonvested stock
    2,964       1,553       3,444       1,783  
Series I convertible preferred stock
    1,002       1,073       874       1,073  
6.625% Senior Convertible Notes
    4,575       4,575       4,575       4,575  
0.5% Senior Subordinated Convertible Notes
          163              
16. Share-based Compensation
   Option Awards
     On May 19, 2010, the Company granted stock options to purchase 116,650 shares of its common stock with an exercise price of $7.65 per share to members of the Company’s Board of Directors.
   Nonvested Stock Awards
     The Company records the intrinsic value of nonvested stock awards as additional paid-in capital. Share-based compensation expense is recognized ratably over the applicable vesting period. As of December 31, 2010, the future compensation expense related to nonvested stock that is anticipated to be recognized is approximately $20.2 million. The cost is expected to be recognized over a weighted average period of 2.1 years. The Company recognized approximately $6.8 million and $2.7 million of share-based compensation expense, associated with nonvested stock, for the nine and three months ended December 31, 2010, respectively and $3.6 million and $1.8 million, for the nine and three months ended December 31, 2009, respectively. A summary of the Company’s nonvested stock as of December 31, 2010 and changes for the nine months ended December 31, 2010 is presented below (in thousands, except for per share data):
                 
            Weighted  
            Average  
            Grant Date  
    Shares     Fair Value  
Outstanding at April 1, 2010
    2,430     $ 6.54  
Granted
    1,707       8.66  
Vested
    (848 )     9.18  
Forfeited
    (134 )     9.14  
 
           
Outstanding at December 31, 2010
    3,155     $ 7.70  
 
           
Share-based Compensation Recognized in the Statement of Operations
     The following table presents, by operating expense category, the Company’s share-based compensation expense recognized for all outstanding equity awards (in thousands):
                                 
    Nine Months Ended     Three Months Ended  
    December 31,     December 31,  
    2010     2009     2010     2009  
Cost of revenues
  $ 3,224     $ 2,945     $ 1,131     $ 1,037  
General and administrative
    6,157       2,956       2,577       999  
Sales and marketing
    1,012       554       374       271  
 
                       
 
  $ 10,393     $ 6,455     $ 4,082     $ 2,307  
 
                       

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TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
17. Related Party Transactions
     Following is a summary of transactions for the nine and three months ended December 31, 2010 and 2009 and other receivable balances from a corporation controlled by a director of the Company that are included in the accompanying condensed consolidated statements of operations and condensed consolidated balance sheets as of December 31, 2010 and March 31, 2010 (in thousands):
                                 
    Nine Months Ended     Three Months Ended  
    December 31,     December 31,  
    2010     2009     2010     2009  
Services purchased from related party
  $     $ 91     $     $ 30  
Services from directors
    375       300       125       100  
                 
    December 31,     March 31,  
    2010     2010  
Other assets
  $ 245     $ 304  
     The Company has entered into consulting agreements with three members of the Company’s Board of Directors and an employment agreement with a fourth board member. The consulting agreements provide for a combined annual compensation of $440,000, and the employment agreement provides for annual compensation of $60,000.
18. Revenues
                                 
    Nine Months Ended     Three Months Ended  
    December 31,     December 31,  
    2010     2009     2010     2009  
Revenues consist of (in thousands):
                               
Colocation
  $ 113,373     $ 81,113     $ 43,053     $ 27,896  
Managed and professional services
    119,875       109,850       41,453       39,908  
Exchange point services
    15,640       13,848       5,596       4,793  
Equipment resales
    9,308       5,025       4,173       1,675  
 
                       
 
  $ 258,196     $ 209,836     $ 94,275     $ 74,272  
 
                       
     Total arrangement consideration for managed web hosting solutions may include the procurement of equipment. Amounts allocated to equipment and software sold under these arrangements and included in managed and professional services were $8.7 million and $2.0 million for the nine and three months ended December 31, 2010, respectively and $7.5 million and $3.1 million for the nine and three months ended December 31, 2009, respectively.
19. Information About the Company’s Operating Segment
     As of December 31, 2010 and March 31, 2010, the Company had one reportable business segment, which is data center operations. The data center operations segment provides Tier 1 NAP, Internet infrastructure and managed services in a data center environment. Additionally, the segment provides NAP development and technology infrastructure buildout services.

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TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
20. Supplemental Cash Flow Information
                 
    Nine Months Ended  
    December 31,  
    2010     2009  
Supplemental disclosures of cash flow information (in thousands):
               
Cash paid for interest, net of amount capitalized
  $ 55,681     $ 38,696  
Cash paid for income taxes
    1,439       767  
Non-cash operating, investing and financing activities:
               
Assets acquired under capital leases
    17,887       5,546  
Cancellation and expiration of warrants
          59  
Changes in accrued property and equipment
    18,114       (12,172 )
Stock tendered in payment of preferred dividend
    161        
Decrease in other assets related to financing lease
    3,226        
21. Supplemental Guarantor and Non-Guarantor Condensed Consolidating Financial Information
     On June 17, 2010, the Company consummated its registered offer to exchange (the “Exchange Offer”) all outstanding 12% Senior Secured Notes (the “Original Notes”) that were not registered under the Securities Act of 1933, as amended (the “Securities Act”), for new 12% Senior Secured Notes that are registered under the Securities Act (the “New Notes”). The terms of the New Notes are substantially identical to the terms of the Original Notes, except that the New Notes are registered under the Securities Act, and the transfer restrictions and registration rights and related additional interest provisions applicable to the Original Notes do not apply to the New Notes. The New Notes represent the same debt as the Original Notes and were issued under the same indenture as the Original Notes. In connection with the Exchange Offer and the registration of the New Notes under the Securities Act, below are certain consolidating financial statements of the Company (not including the Guarantors), the Guarantors and the Company’s subsidiaries that are not Guarantors. In lieu of providing separate unaudited financial statements of the Guarantors, condensed financial statements prepared in accordance with Rule 3-10 of Regulation S-X are presented below.
     The column marked “Issuer” includes the results of Terremark Worldwide, Inc. (the “Parent Company”). The column marked “Guarantor Subsidiaries” includes the results of the Guarantors, which consist of all of the Company’s domestic, wholly-owned, subsidiaries. The column marked “Non-Guarantor Subsidiaries” includes results of the Company’s subsidiaries that are not Guarantors, which consist of the Company’s foreign subsidiaries. Eliminations necessary to arrive at the information for the Company on a consolidated basis for the periods presented are included in the column so labeled and consist primarily of certain intercompany payments between the Parent Company and the Non-Guarantor Subsidiaries. Separate financial statements and other disclosures concerning the Guarantors are not presented because management has determined that they are not material to investors.
     The following represents the supplemental financial statements of the Parent Company, the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries. These financial statements should be read in conjunction with our consolidated financial statements and notes thereto.

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TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
Condensed Consolidating Balance Sheet as of December 31, 2010
(In thousands)
                                         
            Guarantor     Non-Guarantor              
    Issuer     Subsidiaries     Subsidiaries     Eliminations     Total  
Current assets:
                                       
Cash and cash equivalents
  $ 48,167     $ (1,091 )   $ 21,805     $     $ 68,881  
Accounts receivables, net
    2       52,727       8,845             61,574  
Current portion of capital lease receivables
          286                   286  
Prepaid expenses and other current assets
    826       11,293       2,959             15,078  
 
                             
Total current assets
    48,995       63,215       33,609             145,819  
Investment in subsidiaries
    227,407                   (227,407 )      
Intercompany accounts receivable
    492,402       170,645       4,761       (667,808 )      
Restricted cash
    628       1,008                   1,636  
Property and equipment, net
    6,907       444,657       30,571             482,135  
Debt issuance costs, net
    5,546                         5,546  
Other assets
    1,739       12,267       1,297       (15 )     15,288  
Capital lease receivables, net of current portion
          145       129             274  
Intangibles, net
          9,523       825             10,348  
Goodwill
          89,169       6,943             96,112  
 
                             
Total assets
  $ 783,624     $ 790,629     $ 78,135     $ (895,230 )   $ 757,158  
 
                             
Current liabilities:
                                       
Current portion of capital lease obligations
    990       6,563       838             8,391  
Accounts payable and other current liabilities
    11,342       45,456       9,829             66,627  
 
                             
Total current liabilities
    12,332       52,019       10,667             75,018  
Intercompany accounts payable
    167,677       479,079       21,052       (667,808 )      
Secured loans
    518,533                         518,533  
Convertible debt
    57,192                         57,192  
Deferred rent and other liabilities
    10,671       20,060       10,629             41,360  
Deferred revenue
          7,187       1,782       (10 )     8,959  
 
                             
Total liabilities
    766,405       558,345       44,130       (667,818 )     701,062  
 
                             
Commitments and contingencies
                             
Stockholders’ equity:
                                       
Common stock
    67             1,064       (1,064 )     67  
Common stock warrants
    8,901                         8,901  
Additional paid-in capital
    465,622       189,036       37,312       (226,348 )     465,622  
Accumulated (deficit) earnings
    (457,371 )     43,249       (3,402 )           (417,524 )
Accumulated other comprehensive loss
          (1 )     (969 )           (970 )
 
                             
Total stockholders’ equity
    17,219       232,284       34,005       (227,412 )     56,096  
 
                             
Total liabilities and stockholders’ equity
  $ 783,624     $ 790,629     $ 78,135     $ (895,230 )   $ 757,158  
 
                             

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TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
Condensed Consolidating Balance Sheet as of March 31, 2010
(In thousands)
                                         
            Guarantor     Non-Guarantor              
    Issuer     Subsidiaries     Subsidiaries     Eliminations     Total  
Current assets:
                                       
Cash and cash equivalents
  $ 43,497     $ 517     $ 9,454     $     $ 53,468  
Accounts receivable, net
    9       45,937       4,320             50,266  
Current portion of capital lease receivable
          418                   418  
Prepaid expenses and other current assets
    674       8,606       3,328       (3 )     12,605  
 
                             
Total current assets
    44,180       55,478       17,102       (3 )     116,757  
Investment in subsidiaries
    224,726                   (224,726 )      
Intercompany accounts receivable
    288,644       45,798       4,282       (338,724 )      
Restricted cash
    638       1,011       310             1,959  
Property and equipment, net
    6,514       373,112       25,030             404,656  
Debt issuance costs, net
    3,384                         3,384  
Other assets
    904       9,895       4,621       (36 )     15,384  
Capital lease receivable, net of current portion
          235                   235  
Intangibles, net
          10,799       960             11,759  
Goodwill
          89,169       6,943             96,112  
 
                             
Total assets
  $ 568,990     $ 585,497     $ 59,248     $ (563,489 )   $ 650,246  
 
                             
Current liabilities:
                                       
Current portion of capital lease obligations
  $ 1,183     $ 3,589     $ 147     $     $ 4,919  
Accounts payable and other current liabilities
    24,412       58,455       9,081             91,948  
 
                             
Total current liabilities
    25,595       62,044       9,228             96,867  
Intercompany accounts payable
    43,783       276,341       18,600       (338,724 )      
Secured loans
    388,835                         388,835  
Convertible debt
    57,192                         57,192  
Deferred rent and other liabilities
    5,074       12,115       1,162             18,351  
Deferred revenue
          6,540       2,013       (39 )     8,514  
 
                             
Total liabilities
  $ 520,479     $ 357,040     $ 31,003     $ (338,763 )   $ 569,759  
 
                             
Commitments and contingencies
                             
Stockholders’ equity:
                                       
Series I convertible preferred stock
                             
Common stock
    65             1,063       (1,063 )     65  
Common stock warrants
    8,901                         8,901  
Additional paid-in capital
    456,859       189,034       34,630       (223,663 )     456,860  
Accumulated (deficit) earnings
    (417,314 )     39,425       (6,778 )           (384,667 )
Accumulated other comprehensive loss
          (2 )     (670 )           (672 )
 
                             
Total stockholders’ equity
    48,511       228,457       28,245       (224,726 )     80,487  
 
                             
Total liabilities and stockholders’ equity
  $ 568,990     $ 585,497     $ 59,248     $ (563,489 )   $ 650,246  
 
                             

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TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
Condensed Consolidating Statement of Operations for the Nine Months Ended December 31, 2010
(In thousands)
                                         
            Guarantor     Non-Guarantor              
    Issuer     Subsidiaries     Subsidiaries     Eliminations     Total  
Revenues
  $ 23,275     $ 217,180     $ 42,359     $ (24,618 )   $ 258,196  
 
                             
Expenses:
                                       
Costs of revenues, excluding depreciation and amortization
    243       113,280       23,600       (1,275 )     135,848  
General and administrative
    24,598       27,219       5,419       (23,343 )     33,893  
Sales and marketing
    2,371       22,673       4,129             29,173  
Depreciation and amortization
    1,740       32,946       4,503             39,189  
 
                             
Total operating expenses
    28,952       196,118       37,651       (24,618 )     238,103  
 
                             
(Loss) income from operations
    (5,677 )     21,062       4,708             20,093  
 
                             
Other (expenses) other income:
                                       
Interest expense
    (44,880 )     (17,428 )     (188 )     16,988       (45,508 )
Change in fair value of derivatives
    (6,351 )                       (6,351 )
Interest income
    17,057       160       155       (16,988 )     384  
Other
    (111 )     37       669             595  
 
                             
Total other (expenses) income
    (34,285 )     (17,231 )     636             (50,880 )
 
                             
(Loss) income before income taxes
    (39,962 )     3,831       5,344             (30,787 )
Income tax expense
    (95 )     (7 )     (1,968 )           (2,070 )
 
                             
Net (loss) income
  $ (40,057 )   $ 3,824     $ 3,376     $     $ (32,857 )
 
                             

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TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
Condensed Consolidating Statement of Operations for the Nine Months Ended December 31, 2009
(In thousands)
                                         
            Guarantor     Non-Guarantor              
    Issuer     Subsidiaries     Subsidiaries     Eliminations     Total  
Revenues
  $     $ 179,734     $ 31,295     $ (1,193 )   $ 209,836  
 
                             
Expenses:
                                       
Costs of revenues, excluding depreciation and amortization
    212       101,031       18,312       (1,193 )     118,362  
General and administrative
    20,220       1,655       3,647             25,522  
Sales and marketing
    1,988       14,177       3,407             19,572  
Depreciation and amortization
    1,484       23,112       2,878             27,474  
 
                             
Total operating expenses
    23,904       139,975       28,244       (1,193 )     190,930  
 
                             
(Loss) income from operations
    (23,904 )     39,759       3,051             18,906  
 
                             
Other (expenses) income:
                                       
Interest expense
    (36,282 )     (362 )     (106 )     101       (36,649 )
Loss on early extinguishment of debt
    (10,275 )                       (10,275 )
Change in fair value of derivatives
    (1,806 )                       (1,806 )
Interest income
    218       94       86       (101 )     297  
Other
    (113 )     (74 )     1,001             814  
 
                             
Total other (expenses) income
    (48,258 )     (342 )     981             (47,619 )
 
                             
(Loss) income before income taxes
    (72,162 )     39,417       4,032             (28,713 )
Income tax expense
    (172 )     (286 )     (1,321 )           (1,779 )
 
                             
Net (loss) income
  $ (72,334 )   $ 39,131     $ 2,711     $     $ (30,492 )
 
                             

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TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
Condensed Consolidating Statement of Operations for the Three Months Ended December 31, 2010
(In thousands)
                                         
            Guarantor     Non-Guarantor              
    Issuer     Subsidiaries     Subsidiaries     Eliminations     Total  
Revenues
  $ 7,758     $ 78,595     $ 16,110     $ (8,188 )   $ 94,275  
 
                             
Expenses:
                                       
Costs of revenues, excluding depreciation and amortization
    76       39,522       8,867       (363 )     48,102  
General and administrative
    8,779       9,246       2,001       (7,825 )     12,201  
Sales and marketing
    907       7,813       1,546             10,266  
Depreciation and amortization
    641       12,364       1,581             14,586  
 
                             
Total operating expenses
    10,403       68,945       13,995       (8,188 )     85,155  
 
                             
Income (loss) from operations
    (2,645 )     9,650       2,115             9,120  
 
                             
Other (expenses) income:
                                       
Interest expense
    (16,603 )     (5,853 )     (72 )     5,667       (16,861 )
Change in fair value of derivatives
    (6,525 )                       (6,525 )
Interest income
    5,668       51       85       (5,667 )     137  
Other
    (73 )     (10 )     156             73  
 
                             
Total other (expenses) income
    (17,533 )     (5,812 )     169             (23,176 )
 
                             
(Loss) income before income taxes
    (20,178 )     3,838       2,284             (14,056 )
Income tax expense
    (45 )     (2 )     (740 )           (787 )
 
                             
Net (loss) income
  $ (20,223 )   $ 3,836     $ 1,544     $     $ (14,843 )
 
                             

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TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
Condensed Consolidating Statement of Operations for the Three
Months Ended December 31, 2009
(In thousands)
                                         
            Guarantor     Non-Guarantor              
    Issuer     Subsidiaries     Subsidiaries     Eliminations     Total  
Revenues
  $     $ 62,173     $ 12,535     $ (436 )   $ 74,272  
 
                             
Expenses:
                                       
Costs of revenues, excluding depreciation and amortization
    70       34,726       7,520       (436 )     41,880  
General and administrative
    6,993       486       1,328             8,807  
Sales and marketing
    594       5,349       1,254             7,197  
Depreciation and amortization
    271       8,096       1,341             9,708  
 
                             
Total operating expenses
    7,928       48,657       11,443       (436 )     67,592  
 
                             
(Loss) income from operations
    (7,928 )     13,516       1,092             6,680  
 
                             
Other (expenses) income:
                                       
Interest expense
    (13,520 )     (131 )     (48 )     43       (13,656 )
Change in fair value of derivatives
    (367 )                       (367 )
Interest income
    63       29       36       (43 )     85  
Other
    22       (24 )     61             59  
 
                             
Total other (expenses) income
    (13,802 )     (126 )     49             (13,879 )
 
                             
(Loss) income before income taxes
    (21,730 )     13,390       1,141             (7,199 )
Income tax expense
    (1 )     (286 )     (592 )           (879 )
 
                             
Net (loss) income
  $ (21,731 )   $ 13,104     $ 549     $     $ (8,078 )
 
                             

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TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
Condensed Consolidating Statement of Cash Flows for the Nine
Months Ended December 31, 2010
(In thousands)
                                         
            Guarantor     Non-Guarantor              
    Issuer     Subsidiaries     Subsidiaries     Eliminations     Total  
Cash flows from operating activities:
                                       
Net (loss) income
  $ (40,057 )   $ 3,824     $ 3,376     $     $ (32,857 )
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
                                       
Depreciation and amortization
    1,740       32,946       4,503             39,189  
Change in fair value of derivatives
    6,351                         6,351  
Gain on currency translation effect
                (584 )           (584 )
Accretion on debt, net
    1,760                         1,760  
Amortization of debt issuance costs
    357                         357  
Provision for doubtful accounts
          2,698                   2,698  
Share-based compensation
    4,578       5,051       764             10,393  
Decrease (increase) in:
                                       
Accounts receivable
    7       (9,486 )     (4,414 )           (13,893 )
Capital lease receivable, net of unearned interest
          186       (94 )           92  
Restricted cash
    10       (1 )     315             324  
Prepaid expenses and other assets
    (987 )     (5,083 )     57             (6,013 )
(Decrease) increase in:
                                       
Accounts payable and other current liabilities
    (9,179 )     (3,676 )     913             (11,942 )
Deferred revenue
          2,834       425             3,259  
Deferred rent and other liabilities
    (104 )     2,601       15             2,512  
 
                             
Net cash (used in) provided by operating activities
    (35,524 )     31,894       5,276             1,646  
 
                             
Cash flows from investing activities:
                                       
Purchase of property and equipment
    (1,698 )     (109,510 )     (4,101 )           (115,309 )
 
                             
Net cash used in investing activities
    (1,698 )     (109,510 )     (4,101 )           (115,309 )
 
                             
Cash flows from financing activities:
                                       
Intercompany activity, net
    (82,545 )     78,656       3,889              
Proceeds from financing lease
                7,002             7,002  
Payments of preferred stock dividends
    (699 )                       (699 )
Payments of debt issuance costs
    (2,259 )                       (2,259 )
Proceeds from issuance of secured notes
    127,938                         127,938  
Payments under capital lease obligations
    (887 )     (2,851 )     (394 )           (4,132 )
Proceeds from issuance of common stock
    344                         344  
 
                             
Net cash provided by financing activities
    41,892       75,805       10,497             128,194  
 
                             
Effect of foreign currency exchange rates on cash and cash equivalents
          203       679             882  
 
                             
Net increase (decrease) in cash and cash equivalents
    4,670       (1,608 )     12,351             15,413  
Cash and cash equivalents at beginning of period
    43,497       517       9,454             53,468  
 
                             
Cash and cash equivalents at end of period
  $ 48,167     $ (1,091 )   $ 21,805     $     $ 68,881  
 
                             

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TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
Condensed Consolidating Statement of Cash Flows for the Nine Months Ended December 31, 2009
(In thousands)
                                         
            Guarantor     Non-Guarantor              
    Issuer     Subsidiaries     Subsidiaries     Eliminations     Total  
Cash flows from operating activities:
                                       
Net (loss) income
  $ (72,334 )   $ 39,131     $ 2,711     $     $ (30,492 )
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
                                       
Depreciation and amortization
    1,484       23,112       2,878             27,474  
Loss on early extinguishment of debt
    10,275                         10,275  
Change in fair value of derivatives
    1,806                         1,806  
Loss (gain) on currency translation effect
          2       (742 )             (740 )
Accretion on debt, net
    2,045                         2,045  
Amortization of debt issuance costs
    672       26                   698  
Provision for doubtful accounts
          1,236                   1,236  
Interest payment in kind on secured loans
    395                         395  
Share-based compensation
    2,509       3,657       289             6,455  
Settlement of interest rate swaps
    (8,360 )                       (8,360 )
Decrease (increase) in:
                                       
Accounts receivable
    (9 )     (5,880 )     (71 )           (5,960 )
Capital lease receivable, net of unearned interest
          268                   268  
Restricted cash
    (53 )     1,155       (311 )           791  
Prepaid expenses and other assets
    (60 )     (3,499 )     (5,532 )           (9,091 )
(Decrease) increase in:
                                       
Accounts payable and other current liabilities
    122       (12,207 )     518             (11,567 )
Deferred revenue
          1,972       64             2,036  
Deferred rent and other liabilities
    1,494       1,216       167             2,877  
 
                             
Net cash (used in) provided by operating activities
    (60,014 )     50,189       (29 )           (9,854 )
 
                             
Cash flows from investing activities:
                                       
Purchase of property and equipment
    (734 )     (68,796 )     (11,675 )           (81,205 )
Acquisition of management solutions company, net cash acquired
          (11,420 )                 (11,420 )
 
                             
Net cash used in investing activities
    (734 )     (80,216 )     (11,675 )           (92,625 )
 
                             
Cash flows from financing activities:
                                       
Payment on secured loans and convertible debt
    (290,930 )                       (290,930 )
Intercompany activity, net
    (41,343 )     30,204       11,139              
Payments of preferred stock dividends
    (690 )                       (690 )
Payments of debt issuance costs
    (3,545 )                       (3,545 )
Proceeds from issuance of secured notes
    386,963                         386,963  
Payments under capital lease obligations
    (886 )     (1,510 )     (135 )           (2,531 )
Proceeds from issuance of common stock
    20,022                         20,022  
 
                             
Net cash provided by financing activities
    69,591       28,694       11,004             109,289  
 
                             
Effect of foreign currency exchange rates on cash and cash equivalents
          (170 )     1,134             964  
 
                             
Net increase (decrease) in cash and cash equivalents
    8,843       (1,503 )     434             7,774  
Cash and cash equivalents at beginning of period
    41,895       1,363       8,528             51,786  
 
                             
Cash and cash equivalents at end of period
  $ 50,738     $ (140 )   $ 8,962     $     $ 59,560  
 
                             

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TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
22. Subsequent Events
     On January 27, 2011, the Company, entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Verizon Communications Inc., a Delaware corporation (“Parent”), and Verizon Holdings Inc., a Delaware corporation and a wholly-owned subsidiary of Parent (“Purchaser”).
     Pursuant to the Merger Agreement, upon the terms and subject to the conditions thereof, Purchaser will commence a tender offer (the “Offer”) no earlier than the tenth (10th) business day and no later than the fifteenth (15th) business day following January 27, 2011 to acquire all outstanding shares of common stock, par value $0.001 per share, of the Company (“Common Stock”) at a purchase price of $19.00 per share, net to the seller in cash, less any required withholding taxes. The Merger Agreement further provides that, following completion of the Offer, Purchaser will merge with and into the Company, with the Company continuing as the surviving corporation and as a wholly-owned subsidiary of Parent (the “Merger”).
     In connection with the Company’s termination of the Merger Agreement in certain circumstances related to the Company’s execution of a definitive agreement in respect of a superior proposal, the Company must pay or cause to be paid to Parent, concurrently with and as a condition to such termination, a termination fee equal to $52.5 million, unless the Company terminates the Merger Agreement on or prior to February 26, 2011, in which case the termination fee payable to Parent in this circumstance would be $37.5 million.
     The Merger Agreement also provides for the Company’s payment to Parent of a $52.5 million termination fee and the reimbursement of certain of Parent’s and Purchaser’s out-of-pocket expenses not to exceed $7.5 million in certain circumstances where Parent has the right to terminate the Merger Agreement (provided that any reimbursement of expenses is credited against the payment of the termination fee). In no event would the Company be obligated to pay more than one termination fee. See our 8-K filed with the Securities and Exchange Commission on January 27th, 2011, for further information.
     Four putative class action lawsuits have been filed in connection with the Offer and the Merger: (i) Norbert Schaefer v. Terremark Worldwide, Inc., et. al. (Case No. 11-03279-CA-32), filed on January 31, 2011, in the Circuit Court of the Eleventh Judicial Circuit in and for Miami-Dade County, Florida; (ii) Eileen Stackewicz v. Terremark Worldwide, Inc., et al. (Case No. 11-03106-CA-40), filed on February 1, 2011, in the Circuit Court of the Eleventh Judicial Circuit in and for Miami-Dade County, Florida; (iii) Michael Jiannaras v. Terremark Worldwide, Inc., et al. (Case No. 11-03471-CA-40), filed on February 2, 2011, in the Circuit Court of the Eleventh Judicial Circuit in and for Miami-Dade County, Florida; and (iv) Thom Hogan v. Terremark Worldwide, Inc., et al. (Case No. 1:11-cv-2036), filed on February 2, 2011 in the United States District Court, Southern District of Florida, Miami Division.
     All four suits name the Company, the members of the board of directors, Parent and Purchaser as defendants. All four lawsuits are brought by purported holders of the Company’s common stock, both individually and on behalf of a putative class of the Company’s stockholders, alleging that the Company’s board of directors breached its fiduciary duties in connection with the Offer and the Merger by purportedly failing to maximize stockholder value, and that the Company, Parent, and Purchaser aided and abetted the alleged breaches. All four lawsuits seek equitable relief, including, among other things, to enjoin consummation of the Offer and the Merger, rescission of the Merger Agreement and an award of all costs, including reasonable attorneys’ fees. The Hogan complaint additionally seeks compensatory and/or recissory damages. The Company believes that these lawsuits are without merit and intends to vigorously defend against them; however, there can be no assurance that the Company will be successful in its defense. Due to the preliminary nature of all four suits, we are unable at this time to estimate their outcome.

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          ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
     This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 based on our current expectations, assumptions, and estimates about us and our industry. These forward-looking statements involve risks and uncertainties. Words such as “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” “will,” “may,” and other similar expressions identify forward-looking statements. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. All statements other than statements of historical facts, including, among others, statements regarding our future financial position, business strategy, projected levels of growth, projected costs and projected financing needs, are forward-looking statements. Our actual results could differ materially from those anticipated in such forward-looking statements as a result of several important factors including, without limitation that our anticipated acquisition by Verizon Communications Inc., including the related tender offer for our common stock, will not be consummated, potentially resulting in, among other things, our incurrence of termination fee payment obligations, disruption to our operations and execution of our business plan, harm to our relationships with employees, customers and potential customers, and reputational harm, that we may be further impacted by slowdowns, postponements or cancellations in our client’s businesses or deterioration in the financial condition of our clients, a history of losses, competitive factors, uncertainties inherent in government contracting, inquiries and investigations conducted by government agencies with respect to our government contracts, concentration of business with a small number of clients, the ability to service debt, substantial leverage, material weaknesses in our internal controls and our disclosure controls, energy costs, the interest rate environment, failure to successfully implement expansion plans or integrate acquired businesses into our operations, one-time events and other factors more fully described in “Risk Factors” and elsewhere in this report. The forward-looking statements made in this report relate only to events as of the date on which the statements are made. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely upon forward-looking statements as predictions of future events. Except as required by applicable law, including the securities laws of the United States, and the rules and regulations of the Securities and Exchange Commission, we do not plan and assume no obligation to publicly update or revise any forward-looking statements contained herein after the date of this report, whether as a result of any new information, future events or otherwise.
Our Business
     We are a global provider of managed IT solutions with data centers in the United States, Europe and Latin America. We provide carrier neutral colocation, managed services and exchange point services to approximately 1,400 customers worldwide across a broad range of sectors, including enterprises, government agencies, systems integrators, Internet content and portal companies and the world’s largest network providers. We house and manage our customers’ mission-critical IT infrastructure, enabling our customers to reduce capital and operational expenses while improving application performance, availability and security. As a result of our expertise and our full suite of product offerings, customers find it more cost effective and secure to contract us rather than hire dedicated IT staff. Furthermore, as a carrier neutral provider we have more than 160 competing carriers connected to our data centers enabling our customers to realize significant cost savings and easily scale their network requirements to meet their growth. We continue to see an increase in outsourcing as customers face escalating operating and capital expenditures and increased technical demands associated with their IT infrastructure.
     We deliver our solutions primarily through three highly specialized data centers, or Network Access Points (NAPs) that were purpose-built and have been strategically located to enable us to become one of the industry leaders in terms of reliability, power availability and connectivity. Our owned NAP of the Americas facility, located in Miami, Florida, is one of the most interconnected data centers in the world and is a primary exchange point for high levels of traffic between the United States, Europe and Latin America; our owned NAP of the Capital Region, or NCR, located outside Washington, D.C., has been designed to address the specific security and connectivity needs of our federal customers; and our leased NAP of the Americas/West, located in Santa Clara, California, is strategically located in Silicon Valley to serve the technology and Internet content provider segments as well as provide access to connectivity to the U.S. west coast, Asia, Pacific Rim and other international locations. Each facility offers our customers access to carrier neutral connectivity as well as technologically advanced security, reliability and redundancy through 100% service level agreements, or SLAs, which means that we agree to provide 100% uptime for all of our customers’ IT equipment contained in our facilities. Our facilities and our IT platform can be expanded on a cost effective basis to meet growing customer demand.
     Our primary products and services include colocation, managed services and exchange point services.
    Colocation Services: We provide customers with the space, power and a secure environment to deploy their own computing, network, storage and IT infrastructure.
 
    Managed Services: We design, deploy, operate, monitor and manage our clients’ IT infrastructure at our facilities.
 
    Exchange Point Services: We enable our customers to exchange Internet and other data traffic through direct connection with each other or through peering connections with multiple parties.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
     Our business is characterized by long term contracts, which provide for monthly recurring revenue from a diversified customer base. Our customer contracts are generally three years in duration and for the nine and three months ended December 31, 2010, approximately 93% and 94%, respectively of our overall revenue was recurring.
     Our principal executive office is located at 2 South Biscayne Boulevard, Suite 2800, Miami, Florida 33131. Our telephone number is (305) 961-3200.
Recent Events
     On November 16, 2010, we completed our offering of $75.0 million aggregate principal amount of 9.5% Senior Secured Second Lien Notes. The 9.5% Senior Secured Second Lien Notes are our general secured obligations, secured by second-priority liens on the collateral securing the 9.5% Senior Secured Second Lien Notes and are effectively junior to our outstanding $470.0 million aggregate principal amount of 12.0% Senior Secured Notes, due 2017, to the extent of the value of the collateral. The 9.5% Senior Secured Second Lien Notes bear interest at 9.5% per annum, payable in arrears on May 15 and November 15 of each year, commencing May 15, 2011.
     On January 27, 2011, the Company, entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Verizon Communications Inc., a Delaware corporation (“Parent”), and Verizon Holdings Inc., a Delaware corporation and a wholly-owned subsidiary of Parent (“Purchaser”).
     Pursuant to the Merger Agreement, upon the terms and subject to the conditions thereof, Purchaser will commence a tender offer (the “Offer”) no earlier than the tenth (10th) business day and no later than the fifteenth (15th) business day following January 27, 2011 to acquire all outstanding shares of common stock, par value $0.001 per share, of the Company (“Common Stock”) at a purchase price of $19.00 per share, net to the seller in cash, less any required withholding taxes. The Merger Agreement further provides that, following completion of the Offer, Purchaser will merge with and into the Company, with the Company continuing as the surviving corporation and as a wholly-owned subsidiary of Parent (the “Merger”).
Results of Operations
Results of Operations for the Three Months Ended December 31, 2010 as Compared to the Three Months Ended December 31, 2009.
     Revenues. The following charts provide certain information with respect to our revenues:
                 
    Three Months Ended  
    December 31,  
    2010     2009  
United States
    83 %     84 %
International
    17 %     16 %
 
           
 
    100 %     100 %
 
           
                                 
    Three Months Ended December 31,  
    2010             2009          
Revenues consist of (in thousands):
                               
Colocation
  $ 43,053       46 %   $ 27,896       38 %
Managed and professional services
    41,453       44 %     39,908       54 %
Exchange point services
    5,596       6 %     4,793       6 %
Equipment resales
    4,173       4 %     1,675       2 %
 
                       
 
  $ 94,275       100 %   $ 74,272       100 %
 
                       
     The $20.0 million, or 27%, increase in revenues for the three months ended December 31, 2010 as compared to the three months ended December 31, 2009 is mainly due to both an increase in our deployed customer base and an expansion of services to existing customers. Our deployed customer base increased to 1,355 customers as of December 31, 2010 from approximately 1,300 customers as of December 31, 2009. Revenues consist of:
    colocation services, such as licensing of space and provision of power;

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
    managed and professional services, such as network management, managed web hosting, outsourced network operating center services, network monitoring, procurement of connectivity, managed router services, secure information services, technical support and consulting;
 
    exchange point services, such as peering and cross connects; and
 
    procurement and installation of equipment.
     The $15.2 million, or 54%, increase in colocation revenue for the three months ended December 31, 2010 as compared to the three months ended December 31, 2009 is primarily the result of an increase in our utilization of total net colocation space to 38.7% as of December 31, 2010 from 23.4% as of December 31, 2009. Our utilization of total net colocation space represents space billed to customers as a percentage of total space built-out and available to customers. For comparative purposes, space added during the twelve months ended December 31, 2010 was assumed to be also available as of December 31, 2009.
     The $1.5 million, or 4%, increase in managed and professional services revenue for the three months ended December 31, 2010 as compared to the three months ended December 31, 2009 is primarily the result of an increase in orders from both existing and new customers as reflected by the growth in our customer base and utilization of space, as discussed above.
     The $0.8 million, or 17%, increase in exchange point services revenue for the three months ended December 31, 2010 as compared to the three months ended December 31, 2009 is mainly due to an increase in cross-connects billed to customers. Cross-connects billed to customers increased to 10,086 as of December 31, 2010 from 8,883 as of December 31, 2009.
     Revenues from equipment resales fluctuate quarter over quarter based on customer demand.
     We anticipate an increase in revenue from colocation, managed services and exchange point services as we add more customers to our network of NAPs, sell additional services to existing customers and introduce new products and services. We anticipate that the percentage of revenue derived from federal sector customers will fluctuate depending on the timing of exercise of expansion options under existing contracts and the rate at which we sell services to the federal sector. We believe that federal sector revenues will continue to represent a significant portion of our revenues for the foreseeable future.
     Costs of Revenues. Costs of revenues, excluding depreciation and amortization, increased $6.2 million, or 15%, to $48.1 million for the three months ended December 31, 2010, from $41.9 million for the three months ended December 31, 2009. Cost of revenues, excluding depreciation and amortization, consists mainly of operations personnel, fees to third party service providers, procurement of connectivity and equipment, technical and colocation space costs, electricity, chilled water, insurance, property taxes, and security services. The increase was mainly due to increases of $1.5 million in certain variable costs, such as electricity, chilled water, and maintenance as a result of an increase in orders from both existing and new customers as reflected by the growth in our customer base and utilization of space discussed above. We also had increases of $1.5 million in personnel costs, $1.1 million in technical and colocation space costs, and $1.1 million in the procurement of equipment resales.
     The $1.5 million increase in personnel costs was mainly due to an increase in our operations and engineering staffing from 564 employees as of December 31, 2009 to 662 employees as of December 31, 2010, which has been driven primarily by expansion of operations across our various locations. The $1.1 million increase in technical and colocation space costs was primarily the result of new colocation space in Dallas, Texas. The $1.1 million increase in costs of equipment resales for the three months ended December 31, 2010 as compared to the three months ended December 31, 2009 is consistent with the increase in related revenues.
     General and Administrative Expenses. General and administrative expenses increased $3.4 million, or 39%, to $12.2 million for the three months ended December 31, 2010 from $8.8 million for the three months ended December 31, 2009. General and administrative expenses consist primarily of administrative personnel, professional service fees, rent, and other general corporate expenses. The $3.4 million increase in general and administrative expenses was mainly due to an increase in administrative personnel costs of $3.0 million and travel costs of $0.3 million. Personnel costs include payroll and share-based compensation.
     The $3.0 million increase in administrative personnel costs is the result of a $1.6 million increase in share-based compensation, and an increase in headcount from 152 administration employees as of December 31, 2009 to 172 administration employees as of December 31, 2010.
     Sales and Marketing Expenses. Sales and marketing expense increased $3.1 million, or 43%, to $10.3 million for the three months ended December 31, 2010 as compared to $7.2 million for the three months ended December 31, 2009. The $3.1 million increase in sales and marketing expense was mainly due to a $2.3 million increase in payroll and sales commissions, and a $0.5 million increase in certain other costs such as marketing and travel expenses. The $2.3 million increase in payroll and sales commissions was mainly due to an increase in headcount from 104 sales and marketing employees as of December 31, 2009 to 139 sales and marketing employees as of December 31, 2010 coupled with an increase in sales commissions due to increased customer deployments.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
          Depreciation and Amortization Expenses. Depreciation and amortization expense increased $4.9 million, or 50% to $14.6 million for the three months ended December 31, 2010 from $9.7 million for the three months ended December 31, 2009. The increase is the result of capital expenditures mostly related to the expansion of our data center footprint and upgrades to the infrastructure of our current footprint.
          Interest Expense. Interest expense increased $3.2 million, or 23%, to $16.9 million for the three months ended December 31, 2010 from $13.7 million for the three months ended December 31, 2009. This increase is due to higher average outstanding debt balance for the three months ended December 31, 2010 as compared to the three months ended December 31, 2009.
          Change in Fair Value of Derivatives. For the three months ended December 31, 2010, we recognized expense of $6.5 million as compared to an expense of $0.4 million for the three months ended December 31, 2009, mainly due to the change in the fair value of our derivatives following our entry into the Merger Agreement on January 27, 2011. See Note 22 to our unaudited consolidated financial statements contained in this Quarterly Report on Form 10-Q.
Results of Operations for the Nine Months Ended December 31, 2010 as Compared to the Nine Months Ended December 31, 2009.
          Revenues. The following charts provide certain information with respect to our revenues:
                 
    Nine Months Ended  
    December 31,  
    2010     2009  
United States
    84 %     86 %
International
    16 %     14 %
 
           
 
    100 %     100 %
 
           
                                 
    Nine Months Ended December 31,  
    2010             2009          
Revenues consist of (in thousands):
                               
Colocation
  $ 113,373       44 %   $ 81,113       39 %
Managed and professional services
    119,875       46 %     109,850       52 %
Exchange point services
    15,640       6 %     13,848       7 %
Equipment resales
    9,308       4 %     5,025       2 %
 
                       
 
  $ 258,196       100 %   $ 209,836       100 %
 
                       
          The $48.4 million, or 23% increase in revenues for the nine months ended December 31, 2010 as compared to the nine months ended December 31, 2009 is mainly due to both an increase in our deployed customer base and an expansion of services to existing customers. Our deployed customer base increased to 1,355 customers as of December 31, 2010 from approximately 1,300 customers as of December 31, 2009. Revenues consist of:
    colocation services, such as licensing of space and provision of power;
 
    managed and professional services, such as network management, managed web hosting, outsourced network operating center services, network monitoring, procurement of connectivity, managed router services, secure information services, technical support and consulting;
 
    exchange point services, such as peering and cross connects; and
 
    procurement and installation of equipment.
          The $32.2 million, or 40% increase in colocation revenue for the nine months ended December 31, 2010 as compared to the nine months ended December 31, 2009 is primarily the result of an increase in our utilization of total net colocation space to 38.7% as of December 31, 2010 from 23.4% as of December 31, 2009. Our utilization of total net colocation space represents space billed to customers as a percentage of total space built-out and available to customers. For comparative purposes, space added during the nine months ended December 31, 2010 was assumed to be also available as of December 31, 2009.
          The $10.0 million, or 9% increase in managed and professional services revenue for the nine months ended December 31, 2010 as compared to the nine months ended December 31, 2009 is primarily the result of an increase in orders from both existing and new customers as reflected by the growth in our customer base and utilization of space, as discussed above.
          The $1.8 million, or 13% increase in exchange point services revenue for the nine months ended December 31, 2010 as compared to the nine months ended December 31, 2009 is mainly due to an increase in cross-connects billed to customers. Cross-connects billed to customers increased to 10,086 as of December 31, 2010 from 8,883 as of December 31, 2009.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
          Revenues from equipment resales fluctuate quarter over quarter based on customer demand.
          We anticipate an increase in revenue from colocation, managed services and exchange point services as we add more customers to our network of NAPs, sell additional services to existing customers and introduce new products and services. We anticipate that the percentage of revenue derived from federal sector customers will fluctuate depending on the timing of exercise of expansion options under existing contracts and the rate at which we sell services to the federal sector. We believe that federal sector revenues will continue to represent a significant portion of our revenues for the foreseeable future.
          Costs of Revenues. Costs of revenues, excluding depreciation and amortization, increased $17.4 million, or 15%, to $135.8 million for the nine months ended December 31, 2010 from $118.4 million for the nine months ended December 31, 2009. Cost of revenues, excluding depreciation and amortization, consists mainly of operations personnel, fees to third party service providers, procurement of connectivity and equipment, technical and colocation space costs, electricity, chilled water, insurance, property taxes, and security services. The increase was mainly due to increases of $6.7 million in certain variable costs such as electricity, chilled water, bandwidth, security services, and maintenance as a result of an increase in orders from both existing and new customers as reflected by the growth in our customer base and utilization of space, discussed above. We also had increases of $3.6 million in personnel costs, $3.1 million in the procurement of equipment resales, and $2.9 million in technical and colocation space costs.
          The $3.6 million increase in personnel costs was mainly due to an increase in our operations and engineering staffing from 564 employees as of December 31, 2009 to 662 employees as of December 31, 2010, which has been driven primarily by expansion of operations across our various locations. The $3.1 million increase in costs of equipment resales for the nine months ended December 31, 2010 as compared to the nine months ended December 31, 2009 is consistent with the increase in related revenues. The $2.9 million increase in colocation space costs was primarily the result of new colocation space in Dallas, Texas, and Sao Paulo, Brazil.
          General and Administrative Expenses. General and administrative expenses increased $8.4 million, or 33%, to $33.9 million for the nine months ended December 31, 2010 from $25.5 million for the nine months ended December 31, 2009. General and administrative expenses consist primarily of administrative personnel, professional service fees, rent, and other general corporate expenses. The $8.4 million increase in general and administrative expenses was mainly due to an increase in administrative personnel costs of $5.7 million and professional fees of $0.9 million, which includes accounting, legal and other services. Personnel costs include payroll and share-based compensation.
          The $5.7 million increase in administrative personnel costs is the result of a $3.6 million of increase in share-based compensation, and an increase in headcount from 152 administration employees as of December 31, 2009 to 172 administration employees as of December 31, 2010.
          Sales and Marketing Expenses. Sales and marketing expensed increased $9.6 million or 49% to $29.2 million for the nine months ended December 31, 2010 from $19.6 million for the nine months ended December 31, 2009. The $9.6 million increase is mainly due to $6.2 million of payroll and sales commissions, $1.5 million in bad debt expense, $0.9 in marketing costs and $0.6 million of travel expenses. The $6.2 million increase in payroll and sales commissions was the result of an increase in headcount from 104 sales and marketing employees as of December 31, 2009 to 139 sales and marketing employees as of December 31, 2010 coupled with an increase in sales commissions due to increased customer deployments.
          Depreciation and Amortization Expenses. Depreciation and amortization expense increased $11.7 million, or 43% to $39.2 million for the nine months ended December 31, 2010 from $27.5 million for the nine months ended December 31, 2009. The increase is the result of capital expenditures mostly related to the expansion of our data center footprint and upgrades to the infrastructure of our current footprint.
          Interest Expense. Interest expense increased $8.9 million, or 24%, to $45.5 million for the nine months ended December 31, 2010 from $36.6 million for the nine months ended December 31, 2009. This increase is due to higher average outstanding debt balance for the nine months ended December 31, 2010 as compared to the nine months ended December 31, 2009.
          Loss on Early Extinguishment of Debt. For the nine months ended December 31, 2009, we incurred a non-cash loss on the early extinguishment of debt of $10.3 million due to our repayment on June 24, 2009 of our first and second lien senior secured credit facilities, aggregating $250.0 million in face amount, with a portion of the proceeds from our concurrent issuance of $420.0 million 12.0% Senior Secured Notes due 2017.
          Change in Fair Value of Derivatives. For the nine months ended December 31, 2010, we recognized expense of $6.4 million as compared to an expense of $1.8 million for the nine months ended December 31, 2009, mainly due to the change in the fair value of our derivatives following our entry into the Merger Agreement on January 27, 2011. See Note 22 to our unaudited consolidated financial statements contained in this Quarterly Report on Form 10-Q.
Liquidity and Capital Resources
          As of December 31, 2010, our principal source of liquidity was our $68.9 million in unrestricted cash and cash equivalents and our $61.6 million in accounts receivable. On April 28, 2010, we issued an additional $50.0 million aggregate principal amount of our 12% Senior Secured Notes due 2017, which, together with the $420.0 million aggregate principal amount of our 12% Senior Secured Notes due 2017 that we issued on June 25, 2009, comprise a single class of notes. Additionally, on November 16, 2010, we issued $75.0 million aggregate principal amount of our 9.5% Senior Secured Second Lien Notes. We anticipate that we will generate sufficient cash flows from operations to fund our capital expenditures and debt service in connection with our currently identified business objectives.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
          For fiscal year 2011, we anticipate capital expenditures of approximately $115.0 to $120.0 million, with $73.0 million related to the completion of the second and third data centers on our NCR campus in Culpeper, Virginia, $23.0 million to upgrade our technology and service delivery platforms, $13.0 million to finish funding phase 1 of our expansion in Santa Clara, California, $7.0 million for expansion at our Miami NAP, and $4.0 million related to our international operations. We anticipate funding these expenditures with current and future unrestricted cash and other possible resources such secured borrowing and other such options. See “Risk Factors —We may encounter difficulties implementing our expansion plan” contained in Part II, Item 1A of this Quarterly Report on Form 10-Q.
          Our projected revenues and cash flows depend on several factors, some of which are beyond our control, including the rates at which we provide services, the timing of exercise of expansion options by customers under existing contracts, the rate at which new services are sold to the federal sector and the commercial sector, the ability to retain the customer base, the willingness and timing of potential customers in outsourcing the housing and management of their technology infrastructure to us, the reliability and cost-effectiveness of our services and our ability to market our services. Besides our cash on hand and any financing activities we may pursue, customer collections are our primary source of cash.
          While we believe we have a strong customer base and have experienced strong collections in the past, if the current market conditions deteriorate we may experience increased churn in our customer base, including reductions in their commitments to us, which could have a material adverse effect on our liquidity.
     Sources and Uses of Cash
          Cash provided by operations for the nine months ended December 31, 2010 was $1.6 million as compared to cash used in operations of $9.9 million for the nine months ended December 31, 2009. The increase in cash provided by operations is mainly due to timing of cash collections and vendor payments.
          Cash used in investing activities for the nine months ended December 31, 2010 was $115.3 million compared to cash used in investing activities of $92.6 million for the nine months ended December 31, 2009. This increase is the result of higher capital expenditures mostly related to the expansions of our NCR data center campus in Culpeper, Virginia, upgrades to our technology and service delivery platforms, upgrades to our infrastructure in Miami, Florida and the expansion of our footprint in Santa Clara, California.
          Cash provided by financing activities for the nine months ended December 31, 2010 was $128.2 million compared to cash provided by financing activities of $109.3 million for the nine months ended December 31, 2009. The increase in cash provided by financing activities is primarily due to the current proceeds received from our $50.0 million 12% Senior Secured Notes, $75 million 9.5% Senior Secured Second Lien Notes, and financing lease of our Amsterdam, Netherlands property which resulted in net proceeds of $7.0 million, compared to the prior year proceeds received from our $420.0 million 12% Senior Secured Notes, the issuance of four million shares of our common stock for approximately $20.0 million, and the $290.9 million in repayments of the first lien and second lien credit agreements, 9% Senior Convertible Debt and Series B Notes.
     Debt Obligations
          As of December 31, 2010, we had total liabilities of approximately $701.1 million, of which $75.0 million is due within one year.
     Senior Secured Notes
          On June 24, 2009 and April 28, 2010, we issued an aggregate principal amount of $420.0 million and $50.0 million, respectively, of our 12.0% Senior Secured Notes due 2017 (collectively, the “12% Senior Secured Notes”), and, on November 16, 2010, we issued $75.0 million aggregate principal amount of our 9.5% Senior Secured Second Lien Notes, due 2013 (the “9.5% Senior Secured Second Lien Notes” and, together with the 12% Senior Secured Notes, the “Secured Notes”), all of which Secured Notes are guaranteed by substantially all of our domestic subsidiaries (the “Guarantors”).
          The 12% Senior Secured Notes and the 9.5% Senior Secured Second Lien Notes are secured by a first priority security interest and a second priority security interest, respectively, in substantially all of the assets of us and the Guarantors, including a pledge of 100% of all outstanding capital stock of each of our domestic subsidiaries, excluding Terremark Federal Group, Inc. and Technology Center of the Americas, LLC, and 65% of all outstanding capital stock of substantially all of our foreign subsidiaries, subject to certain customary exceptions relating to our ability to remove the pledge with respect to certain significant subsidiaries which would otherwise result in additional audit requirements under SEC accounting rules. The 12% Senior Secured Notes bear interest at 12.0% per annum, payable on December 15 and June 15 of each year, and the 9.5% Senior Secured Second Lien Notes bear interest at 9.5% per annum, payable on May 15 and November 15 of each year, beginning May 15, 2011. In the event of a change in control of the Company, we must offer to purchase all of the Secured Notes then outstanding at a price equal to 101% of their principal amount, plus accrued interest (if any), to the date of repurchase.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
          The terms of the indentures governing the Secured Notes generally limit our ability and the ability of our subsidiaries to, among other things: (i) make restricted payments; (ii) incur additional debt and issue preferred or disqualified stock; (iii) create liens; (iv) create or permit to exist restrictions on our ability or the ability of our restricted subsidiaries to make certain payments or distributions; (v) engage in sale-leaseback transactions; (vi) engage in mergers or consolidations or transfer all or substantially all of our assets; (vii) make certain dispositions and transfers of assets; and (viii) enter into transactions with affiliates. If the Secured Notes are assigned an investment grade rating by both Moody’s and S&P (Standard & Poor’s), and provided that no default has occurred and is continuing, certain of the restrictions would be suspended, including, but not limited to, restrictions on the incurrence of debt, restricted payments, transactions with affiliates and certain restrictions on mergers, consolidations and sales of assets.
          Any additional indebtedness permitted under the indentures governing the Secured Notes may be secured by parity liens on the collateral securing the Secured Notes, provided that our secured leverage ratio does not exceed 3:75 to 1 on a pro-forma basis as if we had incurred such indebtedness at and as of the beginning of our most recently completed four fiscal quarters for which internal financial statements are available.
     6.625% Senior Convertible Notes
          We have outstanding $57.2 million aggregate principal amount of 6.625% Senior Convertible Notes due 2013. The notes bear interest at a rate of 6.625% per annum, payable semi-annually, on each December 15 and June 15 and are convertible into shares of our common stock at the option of the holders at $12.50 per share. The notes rank pari passu with all existing and future unsecured and unsubordinated indebtedness, senior in right of payment to all existing and future subordinated indebtedness, and effectively rank junior to any secured indebtedness.
          If there is a change in control, the holders of the 6.625% senior convertible notes have the right to require us to repurchase their notes at a price equal to 100% of the principal amount, plus accrued and unpaid interest. If we issue a cash dividend on our common stock, we will pay contingent interest to the holders equal to the product of the per share cash dividend and the number of shares of common stock issuable upon conversion of each holder’s note.
          The 6.625% senior convertible notes provide for a make whole premium payable upon conversions occurring in connection with a change in control in which at least 10% or more of the consideration is cash, which can result in our issuing up to 5,085,334 additional shares of our common stock upon such conversions.
     Debt Covenants
          The provisions of our debt contain a number of covenants that limit or restrict our ability to incur more debt or liens, pay dividends, enter into transactions with affiliates, merge or consolidate with others, dispose of assets or use asset sale proceeds, make acquisitions or investments, enter into hedging activities, make capital expenditures and repurchase stock, subject to financial measures and other conditions. Our ability to incur additional indebtedness and liens and make certain restricted payments and investments depends on our ability to achieve the financial ratios provided in the indentures governing our Secured Notes.
          Our failure to comply with the obligations contained in the indentures governing our debt could result in an event of default under such indentures. The respective indentures governing our 6.625% senior convertible notes and the Secured Notes contain cross-default provisions, pursuant to which certain events of default under one indenture could trigger an event of default under the other indentures. An event of default under any such indenture, if not cured or waived, could permit acceleration of the indebtedness or other indebtedness, which could have a material adverse effect on our liquidity, cash flows and results of operations.
Guarantees and Commitments
          We lease space for our operations, office equipment and furniture under non-cancelable operating leases. Some equipment is also leased under capital leases, which are included in leasehold improvements, furniture and equipment.
          The following table represents the minimum future operating and capital lease payments for these commitments which includes a financing lease that the total commitment will not be finalized until the completion of the build and inception of the lease, as well as the combined aggregate maturities (principal, interest and maintenance) for the following obligations for each of the fiscal years ended (in thousands):

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
                                         
    Capital Lease     Operating     Convertible     Secured        
    Obligations     Leases     Debt     Loans     Total  
2011 (three months remaining)
  $ 3,246     $ 4,725     $     $     $ 7,971  
2012
    11,212       17,555       3,789       63,505       96,061  
2013
    8,840       13,128       3,789       63,525       89,282  
2014
    3,995       12,979       59,086       138,525       214,585  
2015
    1,447       12,925             56,400       70,772  
2016 and thereafter
    15,152       42,974             611,000       669,126  
 
                             
 
  $ 43,892     $ 104,286     $ 66,664     $ 932,955     $ 1,147,797  
 
                             
          See Liquidity above.
     Recent Accounting Pronouncements
          See Note 2, “Summary of Significant Accounting Policies,” in the accompanying condensed consolidated financial statements for a discussion of Recent Accounting Pronouncements.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
     At December 31, 2010, our exposure to market risk related primarily to changes in interest rates on our investment portfolio. Our marketable investments consist primarily of short-term fixed interest rate securities. We invest only with high credit quality issuers, and we do not use derivative financial instruments in our investment portfolio. We do not believe that a significant increase or decrease in interest rates would have a material impact on the fair value of our investment portfolio.
     We have not entered into any financial instruments for trading purposes. However, the estimated fair value of the derivatives embedded within our 6.625% Senior Convertible Notes and $50.0 million 12% Senior Secured Notes create a market risk exposure resulting from changes in the price of our common stock, interest rates and our credit rating. We do not expect in the near term significant changes in the two-year historical volatility of our common stock used to calculate the estimated fair value of the embedded derivatives. We do not expect the change in the estimated fair value of the embedded derivative to significantly affect our results of operations, and it will not impact our cash flows.
     Our Secured Notes and 6.625% Senior Convertible Notes have fixed interest rates and, accordingly, we are not exposed to interest rate or market risk on those instruments.
     Our carrying values of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses are reasonable approximations of their fair value.
     For the nine months ended December 31, 2010, approximately 84% of our recognized revenue was denominated in U.S. dollars, generated mostly from customers in the U.S., and our exposure to foreign currency exchange rate fluctuations was minimal. In the future, a larger portion of our revenues may be derived from operations outside of the U.S. and may be denominated in foreign currency. As a result, future operating results or cash flows could be increasingly impacted due to currency fluctuations relative to the U.S. dollar.
     Furthermore, to the extent we engage in international sales that are denominated in U.S. dollars, an increase in the value of the U.S. dollar relative to foreign currencies could make our services less competitive in the international markets. Although we will continue to monitor our exposure to currency fluctuations and, when appropriate, may use financial hedging techniques to minimize the effect of these fluctuations, we cannot conclude that exchange rate fluctuations will not adversely affect our financial results in the future.
     Some of our operating costs are subject to price fluctuations caused by the volatility of underlying commodity prices. The commodity most likely to have an impact on our results of operations in the event of significant price change is electricity. We closely monitor the cost over of electricity, and, to the extent that electricity costs rise, we have the ability to pass these additional power costs through our customers that utilize this power. We do not employ forward contracts or other financial instruments to hedge commodity price risk.
ITEM 4. CONTROLS AND PROCEDURES.
(a) Evaluation of Disclosure Controls and Procedures
     As of the end of the period covered by this report, Terremark carried out an evaluation, under the supervision and with the participation of Terremark’s management, including Terremark’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of Terremark’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, at December 31, 2010, Terremark’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) were effective in ensuring that information required to be disclosed in the reports Terremark files and submits under the Exchange Act are recorded, processed, summarized and reported as and when required.
(b) Changes in Internal Control over Financial Reporting
     There has been no change in our internal control over financial reporting during the quarter ended December 31, 2010 that has materially affected, or is reasonably likely to affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
     In the ordinary course of conducting our business, we become involved in various legal actions and claims. Litigation is subject to many uncertainties and we may be unable to accurately predict the outcome of such matters, some of which could be decided unfavorably to us. Our participation in government contracts subjects us to inquiries, investigations and subpoenas regarding our business with the federal government.
     Improper or illegal activities may subject us to civil and criminal penalties and administrative sanctions, including termination of contracts, forfeiture of profits, suspension of payments, fines, and suspension or debarment from doing business with federal government agencies. Management does not believe the ultimate outcome of pending matters of the nature described above would be material.
     Four putative class action lawsuits have been filed in connection with the Offer and the Merger: (i) Norbert Schaefer v. Terremark Worldwide, Inc., et. al. (Case No. 11-03279-CA-32), filed on January 31, 2011, in the Circuit Court of the Eleventh Judicial Circuit in and for Miami-Dade County, Florida; (ii) Eileen Stackewicz v. Terremark Worldwide, Inc., et al. (Case No. 11-03106-CA-40), filed on February 1, 2011, in the Circuit Court of the Eleventh Judicial Circuit in and for Miami-Dade County, Florida; (iii) Michael Jiannaras v. Terremark Worldwide, Inc., et al. (Case No. 11-03471-CA-40), filed on February 2, 2011, in the Circuit Court of the Eleventh Judicial Circuit in and for Miami-Dade County, Florida; and (iv) Thom Hogan v. Terremark Worldwide, Inc., et al. (Case No. 1:11-cv-2036), filed on February 2, 2011 in the United States District Court, Southern District of Florida, Miami Division.
     All four suits name us, the members of our board of directors, Parent and Purchaser as defendants. All four lawsuits are brought by purported holders of our common stock, both individually and on behalf of a putative class of our stockholders, alleging that our board of directors breached its fiduciary duties in connection with the Offer and the Merger by purportedly failing to maximize stockholder value, and that we, Parent, and Purchaser aided and abetted the alleged breaches. All four lawsuits seek equitable relief, including, among other things, to enjoin consummation of the Offer and the Merger, rescission of the Merger Agreement and an award of all costs, including reasonable attorneys’ fees. The Hogan complaint additionally seeks compensatory and/or recissory damages. We believe that these lawsuits are without merit and intend to vigorously defend against them; however, there can be no assurance that we will be successful in our defense. Due to the preliminary nature of all four suits, we are unable at this time to estimate their outcome.
ITEM 1A. RISK FACTORS.
     You should carefully consider the following risks and all other information contained in this report. If any of the following risks actually occur, our business along with the consolidated financial conditions and results of operations could be materially and adversely affected. The risks and uncertainties described below are those that we currently believe may materially affect our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business operations.
Risks Related to Our Pending Merger with Verizon and the Related Tender Offer.
Completion of the Offer and the Merger are subject to various conditions, and neither the Offer nor the Merger may occur even if we obtain stockholder approval.
     Consummation of the Offer and Merger is subject to customary conditions, including, in the case of the Merger, adoption of the Merger Agreement by our stockholders in certain circumstances, the absence of legal restraints and the receipt of requisite antitrust approval. Each party’s obligation to consummate the Merger is also subject to the accuracy of the representations and warranties of the other party (subject to certain qualifications and exceptions) and the performance in all material respects of the other party’s covenants under the Merger Agreement, including, with respect to us, customary covenants regarding operation of our and our subsidiaries’ respective business prior to closing. As a result of these conditions, we cannot assure you that either the Offer or the Merger will be completed, even if stockholder approval of the Merger is required and obtained. If the Merger is not completed for any reason, we expect that we would continue to be managed by our current management, under the direction of our board of directors.
The Merger process could adversely affect our business, share price, reputation and results of operations.
     Our efforts to complete the Merger could cause substantial disruptions in our business, which could have an adverse effect on our financial results. Among other things, uncertainty as to whether a transaction will be completed with Verizon may affect our ability to recruit prospective employees or to retain and motivate existing employees. Employee retention may be particularly challenging while the merger is pending, because employees may experience uncertainty about their future roles with Verizon.
     Uncertainty as to the our future could adversely affect our business, reputation and our relationship with customers and potential customers. For example, vendors, customers and others that deal with us could defer decisions concerning working with us, or seek to change existing business relationships with us. Further, a substantial amount of the attention of management and employees is being directed toward the completion of the Merger and thus is being diverted from our day-to-day operations because matters related to the Merger (including integration planning) require substantial commitments of time and resources.
     If the proposed Offer and/or Merger is not completed, the share price of our common stock will likely fall to the extent that the current market price of our common stock reflects an assumption that a transaction will be completed. In addition, under circumstances described in the Merger Agreement, we may be required to pay a termination fee of up to $52.5 million if the Merger Agreement is terminated. Further, the failure of the proposed Merger to be completed may result in negative publicity and/or a negative impression of us in the investment community and may affect our relationship with employees, vendors and other partners in the business community.
While the Merger Agreement is in effect, we are subject to restrictions on our business activities.
     While the Merger Agreement is in effect, we are subject to restrictions on our business activities and must generally operate our business in the ordinary course consistent with past practice (subject to certain exceptions). These restrictions could prevent us from pursuing attractive business opportunities that arise prior to the completion of the Merger and are generally outside the ordinary course of business, and otherwise have a material adverse effect on our future results of operations or financial condition.
We are subject to litigation related to the pending Merger.
     Four putative class action lawsuits have been filed in connection with the Offer and the Merger: (i) Norbert Schaefer v. Terremark Worldwide, Inc., et. al. (Case No. 11-03279-CA-32), filed on January 31, 2011, in the Circuit Court of the Eleventh Judicial Circuit in and for Miami-Dade County, Florida; (ii) Eileen Stackewicz v. Terremark Worldwide, Inc., et al. (Case No. 11-03106-CA-40), filed on February 1, 2011, in the Circuit Court of the Eleventh Judicial Circuit in and for Miami-Dade County, Florida; (iii) Michael Jiannaras v. Terremark Worldwide, Inc., et al. (Case No. 11-03471-CA-40), filed on February 2, 2011, in the Circuit Court of the Eleventh Judicial Circuit in and for Miami-Dade County, Florida; and (iv) Thom Hogan v. Terremark Worldwide, Inc., et al. (Case No. 1:11-cv-2036), filed on February 2, 2011 in the United States District Court, Southern District of Florida, Miami Division.
     All four suits name us, the members of our board of directors, Parent and Purchaser as defendants. All four lawsuits are brought by purported holders of our common stock, both individually and on behalf of a putative class of our stockholders, alleging that our board of directors breached its fiduciary duties in connection with the Offer and the Merger by purportedly failing to maximize stockholder value, and that we, Parent, and Purchaser aided and abetted the alleged breaches. All four lawsuits seek equitable relief, including, among other things, to enjoin consummation of the Offer and the Merger, rescission of the Merger Agreement and an award of all costs, including reasonable attorneys’ fees. The Hogan complaint additionally seeks compensatory and/or recissory damages.
     While we believe that the claims made in these lawsuits are without merit and intend to defend such claims vigorously, there can be no assurance that we will prevail in our defense. Further, it is possible that additional claims beyond those that have already been filed will be brought by the current plaintiffs or by others in an effort to enjoin the proposed Offer or Merger or seek monetary relief from us. An unfavorable resolution of any such litigation surrounding the proposed Offer or Merger could delay or prevent the consummation of either the proposed Offer or Merger. In addition, the cost to us of defending the litigation, even if resolved in our favor, could be substantial. Such litigation could also substantially divert the attention of our management and our resources in general. Due to the preliminary nature of all four suits, we are unable at this time to estimate their outcome.
We have incurred substantial losses in the past and expect to continue to incur additional losses in the future, which may reduce our ability to raise capital.
     For the nine and three months ended December 31, 2010, we incurred a net loss of $32.9 million and $14.8 million, respectively. The net loss for the nine and three months ended December 31, 2010, included $6.4 million and $6.5 million of non-cash income on change in fair value of derivatives, respectively. For the years ended March 31, 2010 and 2009, we incurred net losses of $31.7 million and $10.6 million, respectively. The net loss for the year ended March 31, 2010 included a $1.5 million non-cash loss on change in fair value of derivatives and a $10.3 million non-cash loss on the early extinguishment of debt, respectively. The net loss for the year ended March 31, 2009 included a $3.9 million non-cash loss on change in fair value of derivatives. We are currently investing heavily in our expansion of our datacenters in Culpeper, Virginia, upgrades to support our infrastructure in Miami, Florida and expansion in Santa Clara, California. As a result, we will incur higher depreciation and other operating expenses that will negatively impact our ability to achieve and sustain profitability unless and until these new facilities generate enough revenue to exceed their operating costs and cover additional overhead needed to scale our business to the anticipated growth. Although our goal is to achieve profitability, there can be no guarantee that we will become profitable, and we may continue to incur additional losses. Even if we achieve profitability, given the competitive nature of the industry in which we operate, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our continuing losses may limit our ability to raise needed financing, or to do so on favorable terms, for various reasons including that those losses are taken into account by the organizations that issue investment ratings on our indebtedness.
We may not be able to compete successfully against current and future competitors.
     Our products and services must be able to differentiate themselves from existing providers of space and services for telecommunications companies, web hosting companies, virtualized IT solutions and other colocation providers. In addition to competing with carrier neutral colocation providers, we must compete with traditional colocation providers, including local phone companies, long distance phone companies, Internet service providers and web hosting facilities. Likewise, with respect to our other products and services, including managed services, bandwidth services and security services, we must compete with more established providers of similar services. Most of these companies have longer operating histories and significantly greater financial, technical, marketing and other resources than we do.
     Because of their greater financial resources, some of our competitors have the ability to adopt aggressive pricing policies. As a result, in the future, we may suffer from pricing pressure that would adversely affect our ability to generate revenues and adversely affect our operating results. In addition, these competitors could offer colocation on neutral terms, and may start doing so in the same metropolitan areas where we have NAP centers. Some of these competitors may also provide our target customers with additional benefits, including bundled communication services, and may do so in a manner that is more attractive to our potential customers than obtaining space in our data centers. If our competitors were able to adopt aggressive pricing policies together with offering colocation space, our ability to generate revenues would be materially adversely affected. We may also face competition from persons seeking to replicate our Internet Exchanges concept by building new centers or converting existing centers that some of our competitors are in the process of divesting. We may experience competition from our landlords in this regard. Rather than licensing our available space to large single tenants, they may decide to convert the space instead to smaller square foot units designed for multi-tenant colocation use. Landlords may enjoy a cost effective advantage in providing similar services as our data centers, and this could also reduce the amount of space available to us for expansion in the future. Competitors may operate more successfully or form alliances to acquire significant market share. Furthermore, enterprises that have already invested substantial resources in outsourcing arrangements may be reluctant or slow to adopt our approach that may replace, limit or compete with their existing systems.
     In addition, other companies may be able to attract the same potential customers that we are targeting. Once customers are located in competitors’ facilities, it may be extremely difficult to convince them to relocate to our data centers.

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A significant portion of our revenues is from contracts with agencies of the United States government and uncertainties and costs inherent in the government contracting arena could adversely affect our business.
     For the nine months ended December 31, 2010 and the fiscal year ended March 31, 2010, revenues from contracts with the federal sector constituted approximately 21% and 24%, respectively, of our revenues. Generally, U.S. government contracts are subject to oversight audits by government representatives, to profit and cost controls and limitations and to provisions permitting modification or termination, in whole or in part, without prior notice, at the government’s convenience. Government contracts typically have an initial term of one year and renewals are at the discretion of the U.S. government. In some cases, government contracts are subject to the uncertainties surrounding congressional appropriations or agency funding. Our failure to renew or replace U.S. government contracts when they expire could have a material adverse effect on our business, financial condition and results of operations.
     Government contracts are also subject to specific procurement regulations and other requirements which, although customary in U.S. government contracts, increase our performance and compliance costs. These costs might increase in the future, reducing our margins, which could have a negative effect on our financial condition. The government may also change its procurement practices or adopt new contracting rules and regulations that could be costly to satisfy or that could impair our ability to obtain new contracts. Failure to comply with these regulations and requirements could lead to contract modification or termination, the assessment of penalties and fines and/or suspension or debarment from government contracting or subcontracting for a period of time or permanently, which would limit our growth prospects, have an adverse effect on our reputation and ability to secure future U.S. government contracts and materially adversely affect our business, results of operations and financial condition.
     Our participation in government contracts subjects us from time to time to inquiries, investigations and subpoenas and other requests or demands for information regarding our business with the federal government. If improper or illegal activities are uncovered, we may be subject to civil and criminal penalties and administrative sanctions, including termination of contracts, forfeiture of profits, suspension of payments, fines and suspension or debarment from doing business with federal government agencies. In addition, mere allegations of impropriety could adversely impact our reputation. If we were suspended or debarred from contracting with the federal government generally or with any specific agency, if our reputation or relationships with government agencies were impaired or if the government otherwise were to cease doing business with us or were to significantly decrease the amount of business it does with us, our revenue, cash flows and operating results would be materially adversely affected.
     We have been awarded, and may in the future submit bids for, U.S. government contracts that require our employees to maintain various levels of security clearances and require us or our subsidiaries to maintain certain facility security clearances in compliance with Department of Defense and other government requirements. The classified work that we currently perform at our facilities subjects us to the industrial security regulations of the Department of Defense and other federal agencies that are designed to safeguard against unauthorized access by foreigners and others to classified and other sensitive information. Obtaining and maintaining security clearances for employees involves a lengthy process, and it can be difficult to identify, recruit and retain employees who already hold security clearances. If our employees are unable to obtain or retain security clearances, or if our employees who hold security clearances stop working for us, we may face delays in fulfilling contracts or be unable to fulfill or secure new contracts with any customer involved in classified work. Any breach of security for which we are responsible could seriously harm our business, damage our reputation and make us ineligible to work on any classified programs.
     We may be subject to penalties for violations of these regulations. If we were to come under foreign ownership, control, or influence, the U.S. government could terminate our contracts with it or decide not to renew them and such a situation could also impair our ability to obtain new contracts and subcontracts.
We derive a significant portion of our revenues from a few clients; accordingly, a reduction in our clients’ demand for our services or the loss of clients could impair our financial performance.
     For the nine months ended December 31, 2010, and 2009 we derived approximately 21% and 22% of our revenues and for the years ended March 31, 2010 and 2009 we derived approximately 24% of our revenues from the federal sector, respectively. Because we derive a large percentage of our revenues from a few major customers, our revenues could significantly decline if we lose one or more of these customers or if the amount of business we obtain from them is reduced.
A failure to meet customer specifications or expectations could result in lost revenues, increased expenses, negative publicity, claims for damages, harm to our reputation and cause demand for our services to decline.
     Our agreements with customers require us to meet specified service levels for the services we provide. In addition, our customers may have additional expectations about our services. Any failure to meet customers’ specifications or expectations could result in:
    delayed or lost revenue;
 
    requirements to provide additional services to a customer at reduced charges or no charge;
 
    negative publicity about us, which could adversely affect our ability to attract or retain customers; and
 
    claims by customers for substantial damages against us, regardless of our responsibility for the failure, which may not be covered by insurance policies and which may not be limited by contractual terms of our engagement.

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Our ability to successfully market our services could be substantially impaired if we are unable to deploy new infrastructure systems and applications or if new infrastructure systems and applications deployed by us prove to be unreliable, defective or incompatible.
     We may experience difficulties that could delay or prevent the successful development, introduction or marketing of hosting and application management services in the future. If any newly introduced infrastructure systems and applications suffer from reliability, quality or compatibility problems, market acceptance of our services could be greatly hindered and our ability to attract new customers could be significantly reduced. We cannot assure you that new applications deployed by us will be free from any reliability, quality or compatibility problems. If we incur increased costs or are unable, for technical or other reasons, to host and manage new infrastructure systems and applications or enhancements of existing applications, our ability to successfully market our services could be substantially limited.
Any interruptions in, or degradation of, our private transit Internet connections could result in the loss of customers or hinder our ability to attract new customers.
     Our customers rely on our ability to move their digital content as efficiently as possible to the people accessing their websites and infrastructure systems and applications. We utilize our direct private transit Internet connections to major network providers, such as AT&T and Global Crossing as a means of avoiding congestion and resulting performance degradation at public Internet exchange points.
     We rely on these telecommunications network suppliers to maintain the operational integrity of their networks so that our private transit Internet connections operate effectively. If our private transit Internet connections are interrupted or degraded, we may face claims by, or lose, customers, and our reputation in the industry may be harmed, which may cause demand for our services to decline.
Our network infrastructure could fail, which would impair our ability to provide guaranteed levels of service and could result in significant operating losses.
     To provide our customers with guaranteed levels of service, we must operate our network infrastructure 24 hours a day, seven days a week, without interruption. We must, therefore, protect our network infrastructure, equipment and customer files against damage from human error, natural disasters, unexpected equipment failure, power loss or telecommunications failures, terrorism, sabotage or other intentional acts of vandalism. Even if we take precautions, the occurrence of a natural disaster, equipment failure or other unanticipated problem at one or more of our data centers could result in interruptions in the services we provide to our customers. We cannot assure you that our disaster recovery plan will address all, or even most, of the problems we may encounter in the event of a disaster or other unanticipated problem. We have experienced service interruptions in the past, and any future service interruptions could:
    require us to spend substantial amounts of money to replace equipment or facilities;
 
    entitle customers to claim service credits or seek damages for losses under our service level guarantees;
 
    cause customers to seek alternate providers; or
 
    impede our ability to attract new customers, retain current customers or enter into additional strategic relationships.
Our dependence on third parties increases the risk that we will not be able to meet our customers’ needs for software, systems and services on a timely or cost-effective basis, which could result in the loss of customers.
     Our services and infrastructure rely on products and services of third-party providers. We purchase key components of our infrastructure, including networking equipment, from a limited number of suppliers, such as IBM, Cisco Systems, Inc., Microsoft and Oracle.
     We may experience operational problems attributable to the installation, implementation, integration, performance, features or functionality of third-party software, systems and services. We may not have the necessary hardware, parts, or software on hand or that our suppliers will be able to provide them in a timely manner in the event of equipment failure. Our inability to timely obtain and continue to maintain the necessary hardware or parts could result in sustained equipment failure and a loss of revenue due to customer loss or claims for service credits under our service level guarantees.
We could be subject to increased operating costs, as well as claims, litigation or other potential liability, in connection with risks associated with Internet security and the security of our systems.
     A significant barrier to the growth of e-commerce and communications over the Internet has been the need for secure transmission of confidential information. Several of our infrastructure systems and application services use encryption and authentication technology licensed from third parties to provide the protections necessary to ensure secure transmission of confidential information. We also rely on security systems designed by third parties and the personnel in our network operations centers to secure those data centers. Any unauthorized access, computer viruses, accidental or intentional actions and other disruptions could result in increased operating costs or worsen our reputation with our customers.
     For example, we may incur additional significant costs to protect against these interruptions and the threat of security breaches or to alleviate problems caused by these interruptions or breaches. If a third party were able to misappropriate a consumer’s personal or proprietary information, including credit card information, during the use of an application solution provided by us, we could be subject to claims, litigation or other potential liability as well as loss of reputation.

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We may be subject to legal claims in connection with the information disseminated through our network, which could divert management’s attention and require us to expend significant financial resources.
     We may face liability for claims of defamation, negligence, copyright, patent or trademark infringement and other claims based on the nature of the materials disseminated through our network.
     For example, lawsuits may be brought against us claiming that content distributed by some of our customers may be regulated or banned. In these and other instances, we may be required to engage in protracted and expensive litigation that could have the effect of diverting management’s attention from our business and require us to expend significant financial resources. Our general liability insurance may not cover any of these claims or may not be adequate to protect us against all liability that may be imposed. In addition, on a limited number of occasions in the past, businesses, organizations and individuals have sent unsolicited commercial e-mails from servers hosted at our facilities to a number of people, typically to advertise products or services. This practice, known as “spamming,” can lead to statutory liability as well as complaints against service providers that enable these activities, particularly where recipients view the materials received as offensive. We have in the past received, and may in the future receive, letters from recipients of information transmitted by our customers objecting to the transmission. Although we prohibit our customers by contract from spamming, we cannot assure you that our customers will not engage in this practice, which could subject us to claims for damages.
If we are unable to protect our intellectual property and prevent its use by third parties, our ability to compete in the market will be harmed.
     We rely on a combination of patent, copyright, trade secret and trademark laws to protect our proprietary technology and prevent others from duplicating our products and services. However, these means may afford only limited protection and may not: (1) prevent our competitors from duplicating our products or services; (2) prevent our competitors from gaining access to our proprietary information and technology; or (3) permit us to gain or maintain a competitive advantage.
     Any of our patents may be challenged, invalidated, circumvented or rendered unenforceable. We cannot assure you that we will be successful should one or more of our patents be challenged for any reason. If our patent claims are rendered invalid or unenforceable, or narrowed in scope, the patent coverage afforded our products or services could be impaired, which could significantly impede our ability to market our products or services, negatively affect our competitive position and harm our business and operating results.
     We cannot assure you that any pending or future patent applications held by us will result in an issued patent or that, if patents are issued to us, that such patents will provide meaningful protection against competitors or against competitive technologies. The issuance of a patent is not conclusive as to its validity or its enforceability.
     The United States federal courts or equivalent national courts or patent offices elsewhere may invalidate our patents or find them unenforceable. Competitors may also be able to design around our patents. Other parties may develop and obtain patent protection for more effective technologies, designs or methods. If these developments were to occur, it could have an adverse effect on our sales.
     We may not be able to prevent the unauthorized disclosure or use of our technical knowledge or trade secrets by consultants, vendors, former employees and current employees, despite the existence of nondisclosure and confidentiality agreements and other contractual restrictions. Furthermore, the laws of foreign countries may not protect our intellectual property rights effectively or to the same extent as the laws of the United States. If our intellectual property rights are not adequately protected, we may not be able to commercialize our technologies, products or services and our competitors could commercialize our technologies, which could result in a decrease in our sales and market share that would harm our business and operating results.
Our products or services could infringe on the intellectual property rights of others, which may lead to litigation that could itself be costly, could result in the payment of substantial damages or royalties and/or prevent us from using technology that is essential to our products or services.
     We cannot assure you that our products, services or other methods do not infringe the patents or other intellectual property rights of third parties. Infringement and other intellectual property claims and proceedings brought against us, whether successful or not, could result in substantial costs and harm our reputation. Such claims and proceedings can also distract and divert management and key personnel from other tasks important to the success of our business. In addition, intellectual property litigation or claims could force us to do one or more of the following:
    cease selling or using any of our products or services that incorporate or makes use of the asserted intellectual property, which would adversely affect our revenue;
 
    pay substantial damages for past use of the asserted intellectual property;
 
    obtain a license from the holder of the asserted intellectual property, which license may not be available on reasonable terms, if at all; or
 
    redesign or rename, in the case of trademark claims, our products or services to avoid infringing the intellectual property rights of third parties, which may not be possible and could be costly and time-consuming if it is possible to do.
     In the event of an adverse determination in an intellectual property suit or proceeding, or our failure to license essential technology, our sales could be harmed and/or our costs increase, which would harm our financial condition and our stock price may likely decline.

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We license intellectual property rights from third-party owners. If such owners do not properly maintain or enforce the intellectual property underlying such licenses, our competitive position and business prospects could be harmed. Our licensor may also seek to terminate our license.
     We are a party to a number of licenses that give us rights to third-party intellectual property that is necessary or useful to our business. Our success will depend in part on the ability of our licensors to obtain, maintain and enforce our licensed intellectual property. Our licensors may not successfully prosecute the applications for intellectual property to which we have licenses. Even if patents or other intellectual property registrations issue in respect of these applications, our licensors may fail to maintain these patents or intellectual property registrations, may determine not to pursue litigation against other companies that are infringing these patents or intellectual property registrations, or may pursue such litigation less aggressively than we would. Without protection for the intellectual property we license, other companies might be able to offer substantially identical products or services for sale, which could adversely affect our competitive business position and harm our business prospects.
     One or more of our licensors may allege that we have breached our license agreement with them and accordingly seek to terminate our license. If successful, this could result in our loss of the right to use the licensed intellectual property, which could adversely affect our ability to commercialize our technologies, products or services, as well as harm our competitive business position and our business prospects.
We rely on trade secrets and other forms of non-patent intellectual property protection. If we are unable to protect our trade secrets, other companies may be able to compete more effectively against us.
     We rely on trade secrets, know-how and technology, which are not protected by patents, to maintain our competitive position. Our trade secrets may otherwise become known or be independently discovered by competitors.
     To the extent that our commercial partners, collaborators, employees and consultants use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions.
     If any of our trade secrets, know-how or other technologies not protected by a patent were to be disclosed to or independently developed by a competitor, our business, financial condition and results of operations could be materially adversely affected.
We may be subject to damages resulting from claims that we or our employees have wrongfully used or disclosed alleged trade secrets of their former employers.
     Some of our employees may have been previously employed by other companies, including our competitors or potential competitors. As such, we may be subject to claims that these employees or we have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management. If we fail in defending such claims, in addition to paying money claims, we may lose valuable intellectual property rights or personnel. A loss of key personnel or their work product could hamper or prevent our ability to commercialize certain products or services, which would adversely affect our business.
We may be exposed to liability under non-solicitation agreements to which one or more of our employees may be a party with certain of our competitors.
     From time to time, we may hire employees who may be parties to non-solicitation or non-competition agreements with one or more of our competitors. Although we expect that all such employees will comply with the terms of their non-solicitation agreements, it is possible that if customers of our competitors chose to move their business to us, or employees of a competitor seek employment with us, even without any action on the part of any employee bound by any such agreement, one or more of our competitors may chose to bring a claim against us and our employee.
We may become subject to burdensome government regulation and legal uncertainties that could substantially harm our business or expose us to unanticipated liabilities.
     It is likely that laws and regulations directly applicable to the Internet or to hosting and managed application service providers may be adopted. These laws may cover a variety of issues, including user privacy and the pricing, characteristics and quality of products and services. The adoption or modification of laws or regulations relating to commerce over the Internet could substantially impair the growth of our business or expose us to unanticipated liabilities. Moreover, the applicability of existing laws to the Internet and hosting and managed application service providers is uncertain. These existing laws could expose us to substantial liability if they are found to be applicable to our business.
     For example, we provide services over the Internet in many states in the United States and elsewhere and facilitate the activities of our customers in these jurisdictions. As a result, we may be required to qualify to do business, be subject to taxation or be subject to other laws and regulations in these jurisdictions, even if we do not have a physical presence, employees or property in those states.
Difficulties presented by international economic, political, legal, accounting and business conditions could harm our business in international markets.
     For the nine months ended December 31, 2010 and 2009, 16% and 14% of our total revenue and for the years ended March 31, 2010 and 2009, 15% and 13% of our total revenue, respectively was generated in countries outside of the United States. Some risks inherent in conducting business internationally include:

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    unexpected changes in regulatory, tax and political environments;
 
    longer payment cycles and problems collecting accounts receivable;
 
    fluctuations in currency exchange rates;
 
    our ability to secure and maintain the necessary physical and telecommunications infrastructure;
 
    challenges in staffing and managing foreign operations; and
 
    laws and regulations on content distributed over the Internet that are more restrictive than those currently in place in the United States.
     Any one or more of these factors could materially and adversely affect our business.
Our substantial leverage may impair our cash flow and financial condition and prevent us from fulfilling our obligations under our indebtedness.
     We have a substantial amount of indebtedness. As of December 31, 2010, we have debt totaling approximately $604.0 million, of which $8.4 million is current and payable during the twelve months ending December 31, 2011. As of March 31, 2010, we had debt totaling approximately $456.6 million, of which $4.9 million was current and payable during the twelve months ending March 31, 2011. For a description of our outstanding debt, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.” Our substantial indebtedness could have important consequences, including, but not limited to:
    making it more difficult for us to satisfy our obligations and comply with the restrictions under our outstanding notes;
 
    increasing our vulnerability to general adverse economic and industry conditions by making it more difficult for us to react quickly to changing conditions;
 
    limiting our ability to obtain additional or favorable financing to fund future working capital, capital expenditures, debt service requirements, acquisitions and other general corporate purposes;
 
    requiring that we use a substantial portion of our cash flow from operations to pay principal and interest on our indebtedness, therefore reducing our ability to use our cash flow to fund working capital, capital expenditures, acquisitions and general corporate purposes;
 
    limiting our flexibility in planning for, or reacting to, changes in our business, and the industry in which we operate; and
 
    placing us at a competitive disadvantage to those of our competitors that have less indebtedness.
     Should we need additional capital or financing, our ability to arrange financing and the cost of this financing will depend upon many factors, including:
    general economic and capital markets conditions, and in particular the non-investment grade debt market;
 
    conditions in the Internet infrastructure market;
 
    credit availability from banks or other lenders;
 
    investor confidence in the telecommunications industry generally and our company specifically; and
 
    the success of our facilities.
Despite our current level of indebtedness, we may still be able to incur substantially more indebtedness, which could further exacerbate the risks associated with our substantial leverage.
     Subject to specified limitations, the Indenture governing our senior secured notes permits us to incur additional indebtedness, including indebtedness secured equally and ratably by first priority liens on the same collateral securing the notes. In addition, any future credit facility or other agreement governing our indebtedness may allow us to incur additional indebtedness, including secured indebtedness. If new indebtedness is added to our current indebtedness, the risks described above could intensify.
We will require a significant amount of cash to fund our debt service, working capital needs and our expansion plans, and our ability to generate sufficient cash depends upon many factors, some of which are beyond our control
     Our ability to make payments on our indebtedness, including the senior secured notes, fund working capital needs and fulfill our expansion plans depends on our ability to generate adequate cash flow. To some extent, our ability to generate adequate cash flow is subject to general economic, financial, competitive, legislative and regulatory factors and other factors that are beyond our control. We cannot assure you that our business will generate cash flow from operations at sufficient levels or that our cash needs will not increase. If we are unable to generate sufficient cash flow from operations to service our indebtedness and meet our other needs, we may have to refinance all or a portion of our existing indebtedness, or obtain additional financing, either of which may not be available on favorable terms, or at all. Our 12.0% Senior Secured Notes due 2017 contain a “make whole” premium that may make refinancing such indebtedness cost prohibitive.

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Additionally, redemption of our 9.5% Senior Secured Second Lien Notes due 2013 would currently require that we pay a four percent premium to par. Alternatively, we may have to reduce expenditures that we deem necessary to our business or sell assets, which may further reduce our ability to generate cash and may reduce the amount of collateral securing the notes.
We cannot assure you that any or all of these actions will be sufficient to allow us to service our debt obligations or that any additional financing could be obtained on commercially reasonable terms or at all.
Covenant restrictions under our indebtedness may limit our ability to operate our business.
     The indenture that governs our senior secured notes contains, and future financing agreements may contain, covenants that may restrict our ability to finance future operations or capital needs or to engage in other business activities. The indenture governing our senior secured notes restricts, among other things, our ability and the ability of our subsidiaries to:
    make restricted payments;
 
    incur additional debt and issue preferred or disqualified stock;
 
    create liens;
 
    create or permit to exist restrictions on our ability or the ability of our restricted subsidiaries to make
 
    certain payments or distributions;
 
    engage in sale-leaseback transactions;
 
    engage in mergers or consolidations or transfer all or substantially all of our assets;
 
    make certain dispositions and transfers of assets; and
 
    enter into transactions with affiliates.
     Our ability to comply with these covenants may be affected by many events beyond our control, and we may not be able to comply with these covenants, or in the event of default, to remedy that default. Our failure to comply with the covenants under the notes could result in a default, which could cause our senior secured notes (and by reason of cross-acceleration provisions, our other indebtedness) to become immediately due and payable.
If our financial condition deteriorates, we may be delisted by the NASDAQ and our stockholders could find it difficult to sell our common stock.
     Our common stock trades on the NASDAQ Global Market. The NASDAQ requires companies to fulfill specific requirements in order for their shares to continue to be listed. Our securities may be considered for delisting if:
    our financial condition and operating results appear to be unsatisfactory;
 
    we have sustained losses that are so substantial in relation to our overall operations or our existing financial condition has become so impaired that it appears questionable whether we will be able to continue operations and/or meet our obligations as they mature.
     If our shares are delisted from the NASDAQ, our stockholders could find it difficult to sell our stock. To date, we have had no communication from the NASDAQ regarding delisting. If our common stock is delisted from the NASDAQ, we may apply to have our shares quoted on NASDAQ’s Bulletin Board or in the “pink sheets” maintained by the National Quotation Bureau, Inc. The Bulletin Board and the “pink sheets” are generally considered to be less efficient markets than the NASDAQ.
     In addition, if our shares are no longer listed on the NASDAQ or another national securities exchange in the United States, our shares may be subject to the “penny stock” regulations. If our common stock were to become subject to the penny stock regulations it is likely that the price of our common stock would decline and that our stockholders would find it more difficult to sell their shares on a liquid and efficient market.
Our business could be harmed by prolonged electrical power outages or shortages, or increased costs of energy.
     A significant amount of our business is dependent upon the continued operation of the NAP of the Americas building. The NAP of the Americas building and our other NAP facilities are susceptible to regional costs of power, electrical power shortages and planned or unplanned power outages caused by these shortages. A power shortage at an internet exchange facility may result in an increase of the cost of energy, which we may not be able to pass on to our customers. We attempt to limit exposure to system downtime by using backup generators and power supplies. Power outages that last beyond our backup and alternative power arrangements could harm our customers and have a material adverse effect on our business.

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We are dependent on key personnel and the loss of these key personnel could have a material adverse effect on our success.
     We are highly dependent on the skills, experience and services of key personnel. The loss of key personnel could have a material adverse effect on our business, operating results or financial condition. We do not maintain key man life insurance with respect to these key individuals. Our recent and potential growth and expansion are expected to place increased demands on our management skills and resources.
     Therefore, our success also depends upon our ability to recruit, hire, train and retain additional skilled and experienced management personnel. Employment and retention of qualified personnel is important due to the competitive nature of our industry. Our inability to hire new personnel with the requisite skills could impair our ability to manage and operate our business effectively.
We may encounter difficulties implementing our expansion plan.
     We expect that we may encounter challenges and difficulties in implementing our expansion plan to establish new facilities in those domestic and international locations where we believe there is significant demand for our services and to expand our facilities in those locations we currently own such as Culpeper, Virginia, where we have the capacity to construct two additional pods, each yielding 50,000 square feet of net colocation space:
    identify and obtain the use of locations in which we believe there is sufficient demand for our services;
 
    generate sufficient cash flow from operations or through additional debt or equity financings to support these expansion plans;
 
    hire, train and retain sufficient additional financial reporting management, operational and technical employees; and
 
    install and implement new financial and other systems, procedures and controls to support this expansion plan with minimal delays.
     If we encounter greater than anticipated difficulties in implementing our expansion plan, it may be necessary to take additional actions, which could divert management’s attention and strain our operational and financial resources. We may not successfully address any or all of these challenges, and our failure to do so would adversely affect our business plan and results of operations, our ability to raise additional capital and our ability to achieve enhanced profitability.
If the world-wide financial crisis and the ongoing economic recession continues or intensifies, our ability to meet long-term commitments and our ability to grow our business would be adversely affected; this could adversely affect our results of operations, cash flows and financial condition.
     The global economy is currently experiencing a significant contraction, with an almost unprecedented lack of availability of business and consumer credit. We rely on the capital markets, particularly for publicly offered debt, as well as the credit markets, to meet our financial commitments and short-term liquidity needs if internal funds are not available from our operations.
     Long-term disruptions in the capital and credit markets, similar to those that are currently being experienced, could result from uncertainty, changing or increased regulation, reduced alternatives or failures of significant financial institutions and could adversely affect our access to liquidity needed for our business.
     Any disruption could require us to take measures to conserve cash until the markets stabilize or until alternative credit arrangements or other funding for our business needs can be arranged. Such measures could include deferring capital expenditures and reducing or eliminating discretionary uses of cash.
     Besides our cash on hand and any financing activities we may purse, customer collections are our primary source of cash. While we believe we have a strong customer base and have experienced strong collections in the past, if the current market conditions continue to deteriorate we may experience increased churn in our customer base, including reductions in their commitments to us, which could also have a material adverse effect on our liquidity, results of operation and financial position.
     If the ongoing economic recession continues or worsens or if markets continue to be disrupted, there may be lower demand for our services and increased incidence of customers’ inability to pay their accounts. Further, bankruptcies or similar events by customers may cause us to incur bad debt expense at levels higher than historically experienced. These events would adversely impact our results of operations, cash flows and financial position.
Risk Factors Related to Our Common Stock
Our stock price may be volatile, and you could lose all or part of your investment.
     The market for our equity securities has been extremely volatile (ranging from $6.17 per share to $13.61 per share, during the 52-week trading period ended December 31, 2010). Our stock price could suffer in the future as a result of any failure to meet the expectations of public market analysts and investors about our results of operations from quarter to quarter. The factors that could cause the price of our common stock in the public market to fluctuate significantly include the following:
    actual or anticipated variations in our quarterly and annual results of operations;
 
    changes in market valuations of companies in our industry;
 
    changes in expectations of future financial performance or changes in estimates of securities analysts;

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    fluctuations in stock market prices and volumes;
 
    future issuances of common stock or other securities;
 
    the addition or departure of key personnel; and
 
    announcements by us or our competitors of acquisitions, investments or strategic alliances.
We expect that the price of our common stock will be significantly affected by the availability of shares for sale in the market.
     The sale or availability for sale of substantial amounts of our common stock could adversely impact its price. Our certificate of incorporation authorizes us to issue 100,000,000 shares of common stock. On December 31, 2010, there were approximately 67.4 million shares of our common stock issued and outstanding, also there are shares of our common stock reserved for issuance pursuant to our 6.625% Senior Convertible Notes, options, nonvested stock and warrants to purchase our common stock, which consist of:
    4,575,200 shares of our common stock reserved for issuance upon conversion of our 6.625% Senior Convertible Notes, plus up to an additional 5,085,334 reserved for issuance in the event of certain change in control transactions in which at least 10% or more of the consideration paid to our stockholders is in cash;
 
    2,058,476 shares of our common stock issuable upon exercise of options;
 
    3,154,791 shares of our nonvested stock; and
 
    2,016,637 shares of our common stock issuable upon exercise of warrants.
     Accordingly, a substantial number of additional shares of our common stock are likely to become available for sale in the foreseeable future, which may have an adverse impact on our stock price.
Our common shares are thinly traded and, therefore, relatively illiquid.
     While our common shares trade on the NASDAQ, our stock is thinly traded (approximately 0.8%, or 508,615 shares, of our stock traded on an average daily basis during the twelve months ended December 31, 2010) and you may have difficulty in selling your shares quickly. The low trading volume of our common stock is outside of our control, and may not increase in the near future or, even if it does increase in the future, may not be maintained.
Existing stockholders’ interest in us may be diluted by additional issuances of equity securities.
     We expect to issue additional equity securities to fund the acquisition of additional businesses and pursuant to employee benefit plans. We may also issue additional equity for other purposes. These securities may have the same rights as our common stock or, alternatively, may have dividend, liquidation, or other preferences to our common stock. The issuance of additional equity securities will dilute the holdings of existing stockholders and may reduce the share price of our common stock.
We do not expect to pay dividends on our common stock, and investors will be able to receive cash in respect of the shares of common stock only upon the sale of the shares.
     We have no intention in the foreseeable future to pay any cash dividends on our common stock in accordance with the terms of our new credit facilities. Furthermore, unless we satisfy specified financial ratio covenants we may not pay cash or stock dividends without the written consent of our note holders. Further, the terms of our Series I convertible preferred stock provide that, in the event we pay any dividends on our common stock, an additional dividend must be paid with respect to all of our outstanding Series I convertible preferred stock in an amount equal to the aggregate amount of dividends that would be owed for all shares of common stock into which the shares of Series I convertible preferred stock could be converted at such time. Therefore, an investor in our common stock will obtain an economic benefit from the common stock only after an increase in its trading price and only by selling the common stock.

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          ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
     None.
          ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
     None.
          ITEM 4. (REMOVED AND RESERVED).
          ITEM 5. OTHER INFORMATION
     None.
ITEM 6. EXHIBITS.
     
Exhibit No.   Description
4.1
  Indenture, dated November 16, 2010, by and among the Company, the Guarantors and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”), filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on November 22, 2010 (the “November 8-K”) and incorporated herein by reference.
 
   
4.2
  Form of Second Lien Note, filed as Exhibit 4.1 to the November 8-K and incorporated herein by reference.
 
   
10.1
  Registration Rights Agreement, dated November 16, 2010, by and among the Company, the Guarantors and Credit Suisse Securities (USA) LLC, as initial purchaser, filed as Exhibit 10.1 to the November 8-K and incorporated herein by reference.
 
   
10.2
  Second Lien Security Agreement, dated November 16, 2010, by and among the Company, the Guarantors and U.S. Bank National Association, as collateral trustee (the “Collateral Trustee”), filed as Exhibit 10.2 to the November 8-K and incorporated herein by reference.
 
   
10.3
  Second Lien Intellectual Property Security Agreement, dated November 16, 2010, by and among the Company, the Guarantors and the Collateral Trustee, filed as Exhibit 10.3 to the November 8-K and incorporated herein by reference.
 
   
10.4
  Collateral Trust Joinder, dated November 16, 2010, by and between the Trustee and the Collateral Trustee, filed as Exhibit 10.5 to the November 8-K and incorporated herein by reference.
 
   
10.5
  Additional Secured Debt Designation, dated November 16, 2010, by and between the Company and the Collateral Trustee, filed as Exhibit 10.6 to the November 8-K and incorporated herein by reference.
 
   
31.1
  Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
   
31.2
  Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
   
32.1
  Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
   
32.2
  Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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SIGNATURES
     Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 4th day of February, 2011.
         
 
TERREMARK WORLDWIDE, INC.
 
 
  By:   /s/ MANUEL D. MEDINA    
    Manuel D. Medina   
    Chairman of the Board, President and Chief Executive Officer
(Principal Executive Officer)
 
 
 
Date: February 4, 2011
 
   
By:   /s/ JOSE A. SEGRERA    
  Jose A. Segrera
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
 
 
       
Date: February 4, 2011       

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EXHIBIT INDEX
     
Exhibit No.   Description
4.1
  Indenture, dated November 16, 2010, by and among the Company, the Guarantors and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”), filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on November 22, 2010 (the “November 8-K”) and incorporated herein by reference.
 
   
4.2
  Form of Second Lien Note, filed as Exhibit 4.1 to the November 8-K and incorporated herein by reference.
 
   
10.1
  Registration Rights Agreement, dated November 16, 2010, by and among the Company, the Guarantors and Credit Suisse Securities (USA) LLC, as initial purchaser, filed as Exhibit 10.1 to the November 8-K and incorporated herein by reference.
 
   
10.2
  Second Lien Security Agreement, dated November 16, 2010, by and among the Company, the Guarantors and U.S. Bank National Association, as collateral trustee (the “Collateral Trustee”), filed as Exhibit 10.2 to the November 8-K and incorporated herein by reference.
 
   
10.3
  Second Lien Intellectual Property Security Agreement, dated November 16, 2010, by and among the Company, the Guarantors and the Collateral Trustee, filed as Exhibit 10.3 to the November 8-K and incorporated herein by reference.
 
   
10.4
  Collateral Trust Joinder, dated November 16, 2010, by and between the Trustee and the Collateral Trustee, filed as Exhibit 10.5 to the November 8-K and incorporated herein by reference.
 
   
10.5
  Additional Secured Debt Designation, dated November 16, 2010, by and between the Company and the Collateral Trustee, filed as Exhibit 10.6 to the November 8-K and incorporated herein by reference.
 
   
31.1
  Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
   
31.2
  Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
   
32.1
  Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
   
32.2
  Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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