<PAGE>
As filed with the Securities and Exchange Commission on July 26, 1999
Registration No. 333-77105
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
DIGEX, INCORPORATED
(Exact name of registrant as specified in its charter)
----------------
Delaware 4813 59-3582217
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification Code
organization) Number)
One Digex Plaza
Beltsville, MD 20705
(301) 847-5000
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
Mark K. Shull
President and Chief Executive Officer
Digex, Incorporated
One Digex Plaza
Beltsville, MD 20705
(301) 847-5000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------------
Copies to:
Ralph J. Sutcliffe, Esq. Raymond Y. Lin, Esq.
Kronish Lieb Weiner & Hellman LLP Latham & Watkins
1114 Avenue of the Americas 885 Third Avenue
New York, New York 10036-7798 New York, New York 10022-4802
(212) 479-6000 (212) 906-1200
----------------
Approximate date of commencement of proposed sale to public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
----------------
CALCULATION OF REGISTRATION FEE
<TABLE>
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- -------------------------------------------------------------------------------
<CAPTION>
Proposed
Proposed Maximum
Number of Maximum Aggregate
Title of Securities Shares to be Offering Price Offering Amount of
to be Registered Registered Per Share Price (1) Registration Fee
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Common
Stock, par value
$.01 per share... 11,500,000 $16.00 $184,000,000 $51,152
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457 under the Securities Act.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act or until this Registration Statement shall become effective
on such date as the Securities and Exchange Commission, acting pursuant to said
Section 8(a), may determine.
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- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this preliminary prospectus is not complete and may be +
+changed. We may not sell these securities until the registration statement +
+filed with the Securities and Exchange Commission becomes effective. This +
+preliminary prospectus is not an offer to sell these securities nor a +
+solicitation of an offer to buy these securities in any jurisdiction where +
+the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JULY 26, 1999
PRELIMINARY PROSPECTUS
10,000,000 Shares
[LOGO FOR DIGEX]
Class A Common Stock
--------------
This is an initial public offering of 10,000,000 shares of the Class A Common
Stock of Digex, Incorporated. We are selling all of the shares of Class A
Common Stock offered under this prospectus. The underwriters have an option to
purchase a maximum of 1,500,000 additional shares of Class A Common Stock from
us to cover over-allotments of shares.
It is currently estimated that the initial public offering price will be
between $14.00 and $16.00 per share. We have applied to have our Class A Common
Stock approved for listing on the Nasdaq National Market under the symbol
"DIGX."
Immediately following this offering, we will have outstanding two classes of
common stock. The holders of Class A Common Stock are entitled to one vote for
each share, whereas the holders of Class B Common Stock are entitled to 10
votes for each share. The rights of holders of our common stock are
substantially the same in all other respects.
See "Risk Factors" beginning on page 7 about the risks you should consider
before buying shares of our Class A Common Stock.
Neither the Securities and Exchange Commission nor any other regulatory body
has approved or disapproved of these securities or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
--------------
<TABLE>
<CAPTION>
Per
Share Total
----- -----
<S> <C> <C>
Public offering price............................................ $ $
Underwriting discounts and commissions........................... $ $
Proceeds, before expenses, to us................................. $ $
</TABLE>
--------------
Joint Lead Managers
Bear, Stearns & Co. Inc. Donaldson, Lufkin & Jenrette
Book Running
Manager
--------------
CIBC World Markets Legg Mason Wood Walker
Incorporated
DLJdirect Inc.
The date of this prospectus is , 1999
<PAGE>
PROSPECTUS SUMMARY
This summary highlights the key information contained in this prospectus.
Because it is a summary, it does not contain all of the information you should
consider before making an investment decision. You should read the entire
prospectus carefully, including the section titled "Risk Factors" and the
financial statements and the notes relating to those statements.
Digex
Our Company
Digex is a leading provider of Web site hosting services to businesses and
organizations implementing complex, interactive Web sites and Web-based
applications. From major corporations to Internet start-ups, our customers
leverage our services to rapidly and cost-effectively deploy secure and
reliable business solutions including on-line banking, on-line procurement and
electronic retailing. We provide the computer hardware, software, network
technology, and systems management necessary to offer our customers
comprehensive outsourced Web site hosting solutions.
We believe our singular focus on delivering mission-critical Web site and
application hosting solutions has been the major contributor to our growth. We
currently provide services to a diverse customer base of over 500 customers
ranging from Fortune 50 companies to small and medium size businesses that rely
heavily on the Internet. We operate two state-of-the-art data centers
strategically positioned on the east and west coasts of the United States. In
these data centers, we house over 1,400 Windows NT and UNIX-based servers which
we own and manage. Our revenues have grown at a compounded annual growth rate
of 184% over the past two years from $2.8 million in 1996 to $22.6 million in
1998. Our revenue for the three months ended March 31, 1999 was $9.4 million.
The following are among the key factors that we believe will continue to drive
our growth:
. the ability to facilitate the rapid, cost-efficient implementation and
expansion of customers' Web site initiatives;
. an operating platform designed to allow us to scale our operations to
achieve higher revenues, lower marginal unit costs and increased
operating margins;
. an experienced management team and technical experts, who in the
aggregate hold over 200 technical certifications from leading companies
such as Cisco Systems, Microsoft and Sun Microsystems;
. a highly skilled research and development organization dedicated to
identifying the best available tools, technologies and processes;
. a growing, geographically distributed direct sales force; and
. a network of over 120 business partnership alliances which provide
complementary design, development and integration services for our
customers and which represent a significant source of new customer
referrals for Digex.
Our Market Opportunity
According to Forrester Research, Inc., the Web site hosting market is
projected to increase from $875 million in 1998 to approximately $14.6 billion
in 2003. In addition to the overall expansion and increasing pervasiveness of
the Internet, we believe one of the key drivers of growth in the Web site
hosting industry is the increasing number of businesses that have elected to
outsource the management of their Web sites and related operations. Web sites
are mission-critical for virtually all Web-centric companies and are becoming
increasingly strategic for many mainstream enterprises. At the same time, these
operations and applications are becoming more complex and challenging to
operate. We offer customers a comprehensive outsourcing solution designed to
reduce costs, speed implementation, reduce technology risks and provide
guaranteed operating performance.
1
<PAGE>
Our Strategy
Our objective is to shape and lead the global market for Web site and
application hosting solutions. We intend to achieve this goal through a
strategy focused on:
. expanding our premier Web site hosting capabilities;
. addressing industry-specific customer needs;
. developing next generation service offerings; and
. expanding our capabilities through selective strategic alliances and
acquisitions.
Our History
Our business started in 1996 as the Web site hosting unit of Business
Internet, Inc., previously known as DIGEX, Incorporated, a company that was
principally an Internet access and Web site hosting services provider. Business
Internet went public in October 1996 under the name DIGEX, Incorporated, and
was acquired by Intermedia Communications Inc. in July 1997. In contemplation
of this offering, we were incorporated as Digex, Incorporated in April 1999,
and Business Internet contributed our assets to the newly formed Digex,
Incorporated in order to effect a recapitalization of our business.
Our Address and Telephone Number
The address of our principal executive offices is One Digex Plaza,
Beltsville, Maryland 20705 and our telephone number is (301) 847-5000.
----------------
The information on any of our Web sites, such as www.digex.net or
www.digex.com, is not a part of this prospectus.
Digex and the Digex logo are two of our service marks. This prospectus also
contains trademarks and trade names of other companies.
2
<PAGE>
The Offering
Class A Common Stock offered by
Digex.......................... 10,000,000 shares (1)
Common Stock to be outstanding
after the offering............. 10,000,000 shares of Class A Common Stock (1)
50,000,000 shares of Class B Common Stock (2)
Use of proceeds................. We intend to use the net proceeds from this
offering to purchase or construct
Telecommunications Related Assets (3)
Proposed Nasdaq National Market
symbol......................... DIGX
- --------
(1) Excludes 1,500,000 shares to be sold by Digex if the underwriters' over-
allotment option is exercised in full, as described in "Underwriting." As
of July 12, 1999 we have committed to grant on the effective date of this
prospectus options to purchase 2,055,000 shares of our Class A Common Stock
at a weighted average exercise price of $9.66 per share. None of these
options will be exercisable on the effective date.
(2) The Class B Common Stock is fully convertible into Class A Common Stock, on
a one-for-one basis, at any time at the option of the holder or upon the
transfer of the Class B Common Stock to any person or entity not affiliated
with Intermedia.
(3) Due to certain restrictions in the bond indentures of Intermedia, our
parent company, we will be required to use all of the net proceeds of this
offering to purchase or construct Telecommunications Related Assets. The
term "Telecommunications Related Assets" is defined under "Risk Factors--
Digex is controlled by Intermedia," and would include data centers and
related capital expenditures. In addition, we have made arrangements for
Intermedia to purchase from us some of the Telecommunications Related
Assets purchased with the net proceeds of this offering. We expect to be
able to use the proceeds of such sales to Intermedia to the extent
necessary for working capital purposes and to fund operating losses. This
arrangement is explained under "Use of Proceeds" and "Certain Relationships
and Related Transactions--Sale of Telecommunications Related Assets to
Intermedia."
----------------
Except as otherwise indicated, the information in this prospectus assumes
that the underwriters' over-allotment option is not exercised.
3
<PAGE>
Summary Financial Data
The following table sets forth summary financial data of Digex for the period
from July 7, 1997, the date of acquisition by Intermedia of the Web site
hosting unit (the "Predecessor") , which was then part of Business Internet, to
December 31, 1997, the year ended December 31, 1998, and the three months ended
March 31, 1998 and 1999, and of the Predecessor, for the year ended December
31, 1996 and the period from January 1, 1997 to July 6, 1997. The summary
historical financial data has been derived from Digex's and the Predecessor's
financial statements which have been audited by Ernst & Young LLP, with the
exception of the unaudited financial statements as of and for the three months
ended March 31, 1998 and 1999, and are included elsewhere in this prospectus.
The following table also sets forth our pro forma financial information for
the year ended December 31, 1997. The pro forma financial information gives
effect to the purchase by Intermedia of the Predecessor as if such acquisition
had occurred on January 1, 1997. The presentation of pro forma financial
information is made to permit useful comparison of results of operations
between periods presented. This pro forma financial information is not
necessarily indicative of the operating results we would have achieved if the
Predecessor had been acquired on January 1, 1997. The relationship between
Business Internet and the Predecessor is more fully described in note 1 to the
financial statements.
In the following table, pro forma basic and diluted net loss per share have
been calculated assuming that the common shares issued in connection with our
recapitalization in April 1999 were outstanding for all periods of Digex
presented, and giving effect to the 50,000-for-one stock split of our Class B
Common Stock to be effected prior to the closing of this offering.
You should read the summary financial and other data below in conjunction
with our audited and unaudited interim financial statements and the related
notes included elsewhere in this prospectus. You should also read the
accompanying "Selected Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations," contained later in
this prospectus.
4
<PAGE>
<TABLE>
<CAPTION>
Predecessor Digex
------------------------ --------------------------------------------------------------------
Historical Historical Pro Forma Historical
------------------------ --------------- ------------ ------------------------------------
Three months ended
Period from March 31,
Period from July 7, 1997 -----------------------
January 1, (date of
Year ended 1997 to acquisition) to Year ended Year ended
December 31, July 6, December 31, December 31, December 31,
1996 1997 1997 1997 1998 1998 1999
------------ ----------- --------------- ------------ ------------ ----------- -----------
(unaudited) (unaudited) (unaudited)
(In thousands, except pro forma per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues................ $ 2,803 $ 4,420 $ 7,192 $ 11,612 $ 22,635 $ 3,869 $ 9,392
Costs and expenses:
Cost of operations..... 2,002 4,149 1,739 2,808 6,710 887 1,652
Cost of services....... 684 1,817 1,611 3,428 7,044 1,107 3,952
Selling, general and
administrative........ 3,194 7,001 6,087 13,088 17,512 3,637 8,069
Depreciation and
amortization.......... 591 519 2,753 4,850 8,109 2,027 4,314
Charge off of purchased
in-process research
and development....... -- -- 15,000 (1) 15,000 (1) -- -- --
------- ------- -------- -------- -------- ------- -------
Total costs and
expenses............... 6,471 13,486 27,190 39,174 39,375 7,658 17,987
------- ------- -------- -------- -------- ------- -------
Loss before income
taxes.................. (3,668) (9,066) (19,998) (27,562) (16,740) (3,789) (8,595)
Income tax benefit...... -- -- 1,440 4,710 159 -- --
------- ------- -------- -------- -------- ------- -------
Net loss................ $(3,668) $(9,066) $(18,558) $(22,852) $(16,581) $(3,789) $(8,595)
======= ======= ======== ======== ======== ======= =======
Pro forma net loss
Per common share:
Basic.................. -- -- $ (0.37) $ (0.46) $ (0.33) $ (0.08) $ (0.17)
======== ======== ======== ======= =======
Diluted................ -- -- $ (0.37) $ (0.46) $ (0.33) $ (0.08) $ (0.17)
======== ======== ======== ======= =======
Shares used in computing
pro forma basic and
diluted net loss per
share.................. -- -- 50,000 50,000 50,000 50,000 50,000
======== ======== ======== ======= =======
Other Data:
EBITDA before certain
charges (2)............ $(3,077) $(8,547) $ (2,245) $ (7,712) $ (8,631) $(1,762) $(4,281)
Net cash used in
operating activities... (2,565) (7,172) (6,079) (13,251) (10,930) (2,677) (8,036)
Net cash used in
investing activities... (1,445) (1,004) (55,237) (56,241) (30,969) (2,401) (32,001)
Net cash provided
by financing
activities (3)......... 4,010 8,176 61,316 69,492 41,899 5,078 40,037
Capital expenditures.... 1,445 1,004 8,016 9,020 30,969 2,401 32,001
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
December 31,
1998 March 31, 1999
------------ --------------------------
Actual Actual As Adjusted (4)
------------ ----------- --------------
(unaudited) (unaudited)
(In thousands)
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents (5).... $ -- $ -- $137,650
Working capital.................. 1,231 4,997 147,078
Property and equipment, net...... 39,059 67,488 67,488
Total assets..................... 77,739 107,393 245,236
Capital lease obligations,
including current maturities.... 2,089 1,833 --
Total owner's equity............. 70,845 102,287 240,204
</TABLE>
- --------
(1) This amount represents a one-time charge to operations for the charge off
of purchased in-process research and development related to the Predecessor
in connection with Intermedia's purchase of Business Internet on July 7,
1997.
(2) EBITDA before certain charges consists of earnings (loss) before tax
benefit, depreciation and amortization and the charge off of purchased in-
process research and development. EBITDA before certain charges does not
represent funds available for management's discretionary use and is not
intended to represent cash flow from operations. EBITDA before certain
charges should also not be construed as a substitute for operating income
or a better measure of liquidity than cash flow from operating activities,
which are determined in accordance with generally accepted accounting
principles. This caption excludes components that are significant in
understanding and assessing our results of operations and cash flows. In
addition, EBITDA before certain charges is not a term defined by generally
accepted accounting principles and as a result our measure of EBITDA before
certain charges might not be comparable to similarly titled measures used
by other companies. However, we believe that EBITDA before certain charges
is relevant and useful information which is often reported and widely used
by analysts, investors and other interested parties in the Web hosting
industry. Accordingly, we are disclosing this information to permit a more
comprehensive analysis of our operating performance, as an additional
meaningful measure of performance and liquidity, and to provide additional
information with respect to our ability to meet future debt service,
capital expenditure and working capital requirements. See the financial
statements and notes thereto contained elsewhere in this prospectus for
more detailed information.
(3) Net cash provided by financing activities includes capital contributions of
$4,010, $7,626, $64,085, $41,899, $5,078 and $40,037 for the year ended
December 31, 1996, the period from January 1, 1997 to July 6, 1997, the
period from July 7, 1997 to December 31, 1997, the year ended December 31,
1998, and the three months ended March 31, 1998 and 1999, respectively.
(4) As Adjusted as of March 31, 1999 gives effect to our recapitalization and
the offering as if it had occurred on March 31, 1999.
(5) We have historically participated in Intermedia's centralized cash
management system and, as a result, have not carried cash balances on our
financial statements. With the closing of this offering, we will be
maintaining and reporting cash balances in our financial statements.
6
<PAGE>
RISK FACTORS
Investing in our Class A Common Stock involves a high degree of risk. You
should carefully consider the risks and uncertainties described below before
you purchase any of our Class A Common Stock. These risks and uncertainties are
not the only ones we face. Unknown additional risks and uncertainties, or ones
that we currently consider immaterial, may also impair our business operations.
If any of these risks or uncertainties actually occur, our business,
financial condition or results of operations could be materially adversely
affected. In this event, the trading price of our Class A Common Stock could
decline, and you could lose all or part of your investment.
We have a limited operating history and our business model is still evolving,
which makes it more difficult for you to evaluate our company and its
prospects.
We were established in January 1996 to provide Web site hosting services for
businesses deploying complex, mission-critical Web sites, which remains our
primary focus. Our range of service offerings has changed since 1996 and our
business model is still new and developing. For example, we recently began
offering integrated business solutions and enterprise services. Because some of
our services are new, we cannot be sure that businesses will buy them. As a
result, the revenue and income potential of our business is unproven. Our
limited operating history makes predicting future results difficult. Our
prospects must be considered in light of the risks, expenses and difficulties
encountered by companies in the new and rapidly evolving market for Web site
hosting services. To address these risks, among other things, we must:
. provide reliable, technologically current and cost-effective services;
. continue to upgrade and expand our infrastructure;
. market our brand name and services effectively;
. maintain and develop our business partnership alliances; and
. retain and attract qualified personnel.
We have a history of significant losses and expect these losses to continue in
the foreseeable future.
We have experienced operating losses and negative cash flows from operations
in each annual period from inception. As of December 31, 1998, our accumulated
losses since January 1, 1996 have amounted to approximately $47.9 million. We
had a net loss of $16.6 million for the year ended December 31, 1998. While our
revenues have grown in recent periods, we cannot assure you that this growth
will continue. In connection with our expansion plans, we anticipate making
significant investments in sales, marketing, technical and customer support
personnel, as well as in our data center infrastructure. As a result of our
expansion plans, we expect our net losses and negative cash flows from
operations to continue for the foreseeable future. We cannot assure you that we
will ever become or remain profitable or that we will generate positive cash
flows from operations.
Our quarterly and annual results may fluctuate, resulting in fluctuations in
the price of our Class A Common Stock.
Our results of operations fluctuate on a quarterly and annual basis. We
expect to continue experiencing significant fluctuations in our future
quarterly and annual results of operations due to a variety of factors, many of
which are outside our control, including:
. demand for and market acceptance of our services;
. introductions of new services by us and our competitors;
. capacity utilization of our data centers;
. timing of customer installations;
7
<PAGE>
. the mix of services we sell;
. customer retention;
. the timing and magnitude of our capital expenditures, including
construction costs related to the expansion of our operations;
. changes in our pricing policies and those of our competitors;
. fluctuations in bandwidth used by customers;
. our retention of key personnel; and
. other general economic factors.
For these and other reasons, in some future quarters, our results of
operations may fall below the expectations of securities analysts or investors,
which could negatively affect the market price of our Class A Common Stock.
We operate in a relatively new and evolving market with uncertain prospects for
growth.
The market for Web site hosting and related services has only recently begun
to develop and is evolving rapidly. Although certain industry analysts project
significant growth for this market, their projections may not be realized. Our
future growth, if any, will depend on the continued trend of businesses to
outsource their Web site hosting and management systems, and our ability to
market our services effectively. There can be no assurance that the market for
our services will develop, that our services will be adopted, or that
businesses will use these Internet-based services in the degree or manner that
we expect. It is possible that at some point businesses may find it cheaper,
more secure or otherwise preferable to host their Web sites internally and
decide not to outsource the management of their Web sites. If we are unable to
react quickly to changes in the market, if the market fails to develop, or
develops more slowly than expected, or if our services do not achieve market
acceptance, then we are unlikely to become or remain profitable.
We may be unable to achieve our operating and financial objectives due to
significant competition in the Web hosting industry.
The market for hosting Web sites is highly competitive. There are few
substantial barriers to entry and many of our current competitors have
substantially greater financial, technical and marketing resources, larger
customer bases, longer operating histories, greater name recognition and more
established relationships in the industry than we possess. Our current and
potential competitors in the market include Web hosting service providers,
Internet service providers, commonly known as ISPs, telecommunications
companies and large information technology outsourcing firms. Our competitors
may operate in one or more of these areas and include companies such as
AboveNet Communications, AT&T, Cable & Wireless, Concentric Network, EDS,
Exodus Communications, Frontier/GlobalCenter, Globix, GTE, IBM, Intel, Level 3
Communications, MCI WorldCom, PSINet, Qwest Communications International, and
USinternetworking.
Our competitors may be able to expand their network infrastructures and
service offerings more quickly. They may also bundle other telecommunications
services with their Web site hosting services, which could allow them to reduce
the relative prices of their Web site hosting services beyond levels that we
could compete with, and generally adopt more aggressive pricing policies. In
addition, some competitors have entered and will likely continue to enter into
joint ventures or alliances to provide additional services which may be
competitive with those we provide. We also believe the Web hosting market is
likely to experience consolidation in the near future, which could result in
increased price and other competition that would make it more difficult for us
to compete. See "Business--Competition."
8
<PAGE>
Our data centers and the networks we rely on are sensitive to harm from human
actions and natural disasters. Any resulting disruption could significantly
damage our business and reputation.
Our reputation for providing reliable service largely depends on the
performance and security of our data centers and equipment, and of the network
infrastructure of our connectivity providers. In addition, our customers often
maintain confidential information on our servers. However, our data centers and
equipment, the networks we use, and our customers' information are subject to
damage and unauthorized access from human error and tampering, breaches of
security, natural disasters, power loss, capacity limitations, software
defects, telecommunications failures, intentional acts of vandalism, including
computer viruses, and other factors that have caused, and will continue to
cause, interruptions in service or reduced capacity for our customers, and
could potentially jeopardize the security of our customers' confidential
information such as credit card and bank account numbers. Despite precautions
we have taken and plan to take, the occurrence of a security breach, a natural
disaster, interruption in service or other unanticipated problems could
seriously damage our business and reputation and cause us to lose customers.
Additionally, the time and expense required to eliminate computer viruses and
alleviate other security problems could be significant and could impair our
service quality. We also often provide our customers with service level
agreements. If we do not meet the required service levels, we may have to
provide credits to our customers, which could significantly reduce our
revenues. Additionally, in the event of any resulting harm to customers, we
could be held liable for damages. Awards for such damages might exceed our
liability insurance by an unknown but significant amount and could seriously
harm our business.
We could not provide adequate service to our customers if we were unable to
secure sufficient network capacity to meet our future needs on reasonable terms
or at all.
We must continue to expand and adapt our network arrangements to accommodate
an increasing amount of data traffic and changing customers' requirements. We
have entered into several two-year network services agreements with Intermedia
to provide us with certain network transit capacity which we believe to be
adequate for our capacity requirements. However, if our future network capacity
requirements exceed the capacity Intermedia has committed to provide to us, we
may have to pay higher prices for such additional network capacity or such
capacity might not be available at all. Our failure to achieve or maintain high
capacity data transmission could negatively impact service levels to our
existing customers and limit our ability to attract new customers, which would
harm our business.
Our business, in large part, depends on network services we receive from
Intermedia. Any disruption of these services or Intermedia's inability to
maintain its peering relationships could be costly and harmful to our business.
We currently rely exclusively on Intermedia for network services. Intermedia
operates its own coast-to-coast Internet Protocol network, which qualifies it
as a tier-one service provider of Internet connectivity services. If our
network services agreements with Intermedia were to be terminated, we would
need to rapidly secure an alternative provider of these services. As a result,
we could incur transition costs and our monthly costs of operations could
increase. In addition, such a transition could have a detrimental effect on our
customer service levels.
The Internet is composed of many ISPs that operate their own networks and
interconnect with other ISPs at various peering points. Peering relationships
are arrangements that permit ISPs to exchange traffic with one another without
having to pay for the cost of transit services. Peering relationships are a
competitive factor that allow some Web hosting companies to provide faster data
transmission than others. We believe Intermedia's tier-one status and numerous
peering relationships enable it to provide us faster data transmission than
many other ISPs provide. If Intermedia fails to adapt its network
infrastructure to meet industry requirements for peering or loses its peering
relationships for any other reason, then our transmission rates could be
reduced, resulting in a decrease in service quality we provide to our
customers.
9
<PAGE>
Providing services to customers with mission-critical Web sites could
potentially expose us to lawsuits for customers' lost profits or other damages.
Because our Web hosting services are critical to many of our customers'
businesses, any significant interruption in our services could result in lost
profits or other indirect or consequential damages to our customers. Our
customers are required to sign server order forms which incorporate our
standard terms and conditions. Although these terms disclaim our liability for
any such damages, a customer could still bring a lawsuit against us claiming
lost profits or other consequential damages as the result of a service
interruption or other Web site problems that the customer may ascribe to us.
There can be no assurance a court would enforce any limitations on our
liability, and the outcome of any lawsuit would depend on the specific facts of
the case and legal and policy considerations. We also believe we would have
meritorious defenses to any such claims, but there can be no assurance we would
prevail. In such cases, we could be liable for substantial damage awards. Such
damage awards might exceed our liability insurance by unknown but significant
amounts, which would seriously harm our business.
Digex is controlled by Intermedia, which could involve multiple risks for you
as a stockholder.
Intermedia controls a majority of our voting power, and Intermedia's
interests in us may conflict with your interests as a stockholder. Intermedia,
through its wholly-owned subsidiary, Business Internet, owns all of the issued
and outstanding shares of our Class B Common Stock. When this offering is
completed, Intermedia will own 50,000,000 shares of Class B Common Stock. Each
share of Class B Common Stock is entitled to 10 votes, as compared to one vote
for each share of Class A Common Stock to be sold in this offering. Thus, after
this offering is completed, Intermedia will control approximately 98% of the
voting power of Digex, and will be able to control the management and affairs
of Digex, and all matters submitted to our stockholders for approval, including
the election and removal of directors, and any merger, consolidation or sale of
all or substantially all of our assets. As a result, the price of our Class A
Common Stock may be affected.
We depend on Intermedia to fund our working capital and operating losses, but
Intermedia's ability to fund these needs is limited by its own substantial
indebtedness. Because we are subject to the restrictions under Intermedia's
indentures, we will be required to use all of the net proceeds of this offering
to purchase Telecommunications Related Assets, as defined under "Use of
Proceeds," within 270 days of this offering. We will not be able to use the
proceeds of this offering directly to fund operating losses, working capital or
other uses that are not purchases of Telecommunications Related Assets. Because
we anticipate operating losses and a significant need for working capital for
the foreseeable future, we expect we will have to obtain funds for such
purposes from Intermedia or other sources which are significantly restricted.
See "Use of Proceeds" and "Certain Relationships and Related Transactions--Sale
of Telecommunications Related Assets to Intermedia" for a description of
certain arrangements we made with Intermedia relating to our use of a portion
of the proceeds of this offering.
Intermedia is and will continue to be highly leveraged. Intermedia's level of
debt will require it to dedicate a substantial portion of its future cash flow
from operations for payment of principal and interest on its debt, as well as
dividends on and the redemption of its preferred stock. Historically,
Intermedia has not generated sufficient cash flow to cover its operating and
investing expenses. In addition, because of the restrictions in the Intermedia
indentures, Intermedia has only a limited amount of cash that may be used for
working capital purposes and to fund operating losses. Consequently, Intermedia
may not be able to provide us with a source of funds for our working capital or
operating losses. Our dependence on Intermedia and the degree to which
Intermedia is leveraged could, among other things, increase our vulnerability
to general adverse economic and industry conditions, limit our ability to fund
future working capital, operating losses, capital expenditures, acquisitions
and other requirements, and limit our flexibility in reacting to changes in our
business and industry. We strongly urge you to read "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
10
<PAGE>
We may require additional funds to finance our business but our ability to
raise such funds is significantly limited by agreements that are binding on
Intermedia. Intermedia has issued debt securities to the public under seven
indentures. As a subsidiary of Intermedia, we are subject to a number of
restrictions under the Intermedia indentures. These restrictions will, among
other things, limit our ability to make certain restricted payments, incur
indebtedness and issue preferred stock, pay dividends or make other
distributions, engage in sale and leaseback transactions, create liens, sell
our assets, issue or sell our equity interests, or enter into certain mergers
and consolidations. As a result, our future financing sources will be
significantly limited and our use of any proceeds, including the net proceeds
of this offering, will be significantly restricted.
Our ability to issue additional capital stock is constrained by Intermedia's
ownership of the Class B Common Stock, which could make it more difficult for
us to raise capital to expand our business. In the future, Intermedia may elect
to sell shares of our Class B Common Stock that it controls to the public or to
distribute such shares to its own stockholders. If as a result of such sale or
distribution, Intermedia would no longer hold more than 50% of the total voting
power of our capital stock, the consent of the majority in principal amount of
the noteholders under the Intermedia indentures would be required for such a
sale or distribution. In addition, if we decide in the future to issue and sell
additional shares of our capital stock such that the voting power represented
by the Class B Common Stock held by Intermedia would no longer be greater than
50% of the total voting power of our capital stock, the consent of the majority
in principal amount of the noteholders under the Intermedia indentures would
also be required for such a sale. We would be free of the restrictions in the
Intermedia indentures only if Intermedia designated us as an "unrestricted
subsidiary," which would require a consent of a majority in principal amount of
the noteholders under the Intermedia indentures, or if Intermedia sold a
sufficient number of its shares of Digex to reduce its voting power below 50%.
Digex and Intermedia have the same legal counsel, and therefore contractual
relationships between Digex and Intermedia might be less advantageous to Digex
than if Digex had separate legal representation. Kronish Lieb Weiner & Hellman
LLP, counsel to Digex, is also counsel to Intermedia. Consequently, Digex does
not have legal representation independent from Intermedia.
If we do not respond effectively and on a timely basis to rapid technological
change and evolving industry standards, our business could suffer.
Internet and networking technology is changing rapidly. Our future success
will depend largely on our ability to:
. offer services that incorporate leading technologies;
. address the increasingly sophisticated and varied needs of our current
and prospective customers;
. respond to technological advances and emerging industry standards on a
timely and cost-effective basis; and
. continue offering services that are compatible with products and
services of other vendors.
Although we often work with various vendors in testing newly developed
products, there can be no assurance such products will be compatible with our
infrastructure or such products will adequately address changing customer
needs. Although we currently intend to support emerging standards, there can be
no assurance industry standards will be established or, if they become
established, that we will be able to conform to these new standards in a timely
fashion and maintain a competitive position in the market. Our failure to
conform to the prevailing standards, or the failure of common standards to
emerge, could harm our business. In addition, products, services or
technologies developed by others may render our services no longer competitive
or obsolete.
Our business will not grow unless Internet usage grows and Internet performance
remains adequate.
The increased use of the Internet for retrieving, sharing and transferring
information among businesses and consumers has only recently begun to develop.
Our success will depend on the continued growth in Internet
11
<PAGE>
usage. The growth of the Internet is subject to a high level of uncertainty and
depends on a number of factors, including the growth in consumer and business
use of new interactive technologies, the development of technologies that
facilitate interactive communications, security concerns and increases in data
transport capacity. If the Internet as a commercial medium fails to grow or
develops more slowly than expected, then our business is unlikely to grow.
The recent growth in the use of the Internet in general has caused frequent
periods of performance degradation, requiring the upgrade of routers and
switches, telecommunications links and other components forming the
infrastructure of the Internet by ISPs and other organizations with links to
the Internet. Any perceived degradation in the performance of the Internet as a
whole could undermine the benefits of our services. The performance of our Web
site hosting services is ultimately limited by and relies on the speed and
reliability of the networks operated by third parties. Consequently, the growth
of the market for our services depends on improvements being made to the entire
Internet infrastructure to alleviate overloading and congestion.
We may be unable to achieve our operating and financial objectives if we cannot
manage our anticipated growth effectively.
Our business has grown rapidly, and our future success depends in large part
on our ability to manage the recent and anticipated growth in our business. For
us to manage this growth, we will need to:
. expand and enhance our operating and financial procedures and controls;
. replace or upgrade our operational and financial management information
systems; and
. attract, train, manage and retain key employees.
These activities are expected to place a significant strain on our financial
and management resources. If we are unable to manage growth effectively, our
business could suffer.
Our growth depends on our ability to expand data center capacity to meet
anticipated demand.
Continuing to expand capacity is critical to achieving our business strategy.
This expansion is likely to include the need to add new hardware and software,
and may include the opening of additional data centers. We are currently
significantly expanding our data center capacity by constructing two new
facilities, one in Beltsville, Maryland, and another in San Jose, California to
augment our capacity in those regions. We intend to add data center capacity
over the next five years as justified by customer demand. Our ability to do so
successfully depends on:
. anticipating and planning for future demand levels;
. having access to sufficient capital; and
. locating and securing satisfactory data center sites and implementing
the build-out of these sites, all of which may require significant lead
time.
If we cannot expand capacity effectively, our growth will suffer and we may
not be able to adequately meet the demands of existing customers.
Our business could be harmed if our management team, which has worked together
for only a brief time, is unable to work together effectively, or if we are
unable to retain and attract key personnel.
We have recently hired key employees and officers, including our President
and Chief Executive Officer, our Chief Financial Officer and our President,
Product Management, Engineering and Marketing Group, who joined us in the
beginning of July 1999, and our President, Sales and Service Delivery Group,
who joined us in December 1998. As a result, our management team has worked
together for only a brief time. Our success in significant part depends on the
continued services of our senior management personnel, as well as of our key
technical and sales personnel.
12
<PAGE>
We believe our short and long-term success also depends largely on our
ability to attract and retain highly skilled technical, managerial and
marketing personnel, particularly additional management personnel in the areas
of application integration and technical support. Competition for such
personnel is intense. We may not be able to hire or retain the necessary
personnel to implement our business strategy, or we may need to pay higher
compensation for employees than we currently expect. Our inability to attract
and retain such personnel would limit our growth and harm our business.
We could face additional costs and operational disruptions in the future if
Intermedia discontinues providing general and administrative services to us.
Intermedia has provided and is expected to continue to provide many of our
financial, administrative and operational services and related support
functions, including customer billing, legal, human resources and information
management services. We have a General and Administrative Services Agreement
with Intermedia, as described under "Certain Relationships and Related
Transactions--General and Administrative Services Agreement," to provide such
services over the next five years. Should Intermedia's provision of these
services no longer meet our needs or if Intermedia unexpectedly stops providing
these services for any reason, we could face significant challenges and costs
in transitioning to our own or alternative general and administrative
functions. Such a transition and any resulting impairment of our operations
could harm our financial results.
Regulatory and legal uncertainties could have significant costs or otherwise
harm our business.
The law in the United States relating to the liability of on-line and
Internet service providers for information disseminated through their systems
remains largely unsettled. It may also take years to determine whether and how
existing laws, such as those governing intellectual property, privacy, libel
and taxation, apply to the Internet. The growth and development of the market
for on-line commerce may also prompt calls for more stringent consumer
protection laws that may impose additional burdens on companies conducting
business on-line. The application of existing laws or promulgation of new laws
could require us to expend substantial resources to comply with such laws or
discontinue certain service offerings. Increased attention to liability issues
could also divert management attention, result in unanticipated expenses and
harm our business. Regulation of the Internet may also harm our customers'
businesses, which could lead to reduced demand for our services. We are not
currently subject to direct regulation by the Federal Communications Commission
("FCC") or any other government agency, other than as to regulations applicable
to business in general. However, in the future we may be subject to regulation
by the FCC or other federal or state agencies, which could increase our costs
and harm our business. See "Business--Government Regulation."
Our business plan contemplates future international operations but there are
numerous risks and uncertainties in offering services outside of the United
States.
We intend to expand into international markets and may build data centers
internationally. We cannot be sure that we will be able to successfully sell
our services or adequately maintain operations outside the United States. In
addition, there are certain risks inherent in conducting business
internationally. These include:
. unexpected changes in regulatory requirements;
. ability to secure and maintain the necessary physical and
telecommunications infrastructure;
. challenges in staffing and managing foreign operations; and
. employment laws and practices in foreign countries.
Any of these could adversely affect our international operations.
Furthermore, some foreign governments have enforced 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
adversely affect our contemplated future international operations and,
consequently, our business.
13
<PAGE>
We may be unable to protect our intellectual property rights or to continue
using intellectual property that we license from others.
We rely on a combination of copyright, trademark, service mark and trade
secret laws and contractual restrictions to establish and protect certain of
our proprietary rights. We have no patented technology that would bar
competitors from our market. Despite our efforts to protect our proprietary
rights, unauthorized parties may attempt to copy or otherwise obtain and use
our data or technology, such as our customized Digex Centralized Nervous System
applications.
We also rely on certain technologies licensed from third parties. We cannot
be sure these licenses will remain available to us on commercially reasonable
terms or at all. The loss of such technology could require us to obtain
substitute technology of lower quality or performance standards or at greater
cost, which could harm our business.
We did not obtain third party consents in connection with our restructuring,
which may allow certain third parties, including some of our customers, to
assert a breach of a contract.
In connection with this offering, Business Internet, our direct parent
company, contributed the Web hosting business to us. This contribution included
an assignment of all of the contracts that are part of our business, including
our customer contracts. We have elected not to seek consents in connection with
this assignment. While the failure to obtain required third party consents
could give a third party the ability to assert a breach of the acquired
contract, we believe this would be unlikely in the case of the restructuring
because all of the assigned contracts were transferred as part of the entire
Web hosting business. Nevertheless, we cannot be sure that one or more third
parties will not assert a breach of our contracts with them because of our
failure to seek or obtain their consents to assignment.
We could lose revenues and our reputation may be damaged if our systems or
those of our customers or our suppliers are not Year 2000 compliant.
Before the end of this year, many currently installed computer systems and
software products may need to be upgraded in order for 20th century dates to be
distinguished from 21st century dates. Systems that do not comply with these
"Year 2000" requirements may cause miscalculations which will interfere with
business activities or simply fail to work. Although we have implemented a Year
2000 program intended to ensure our computer systems and applications will
function properly beyond 1999 and requested assurances from our suppliers that
their products are Year 2000 compliant, we cannot be sure that we will be able
to promptly or correctly address all relevant Year 2000 issues, especially
where third-party customers or suppliers are involved. If we cannot achieve
Year 2000 compliance, our systems could be disrupted for a period of time. This
would cause a loss of revenues, including requests from customers for credits
for downtime. More importantly, any significant disruption would seriously
damage our business reputation. We might also face lawsuits for damages.
In addition, some of our customers have an option to terminate their
agreements with us if our facilities are not Year 2000 compliant by July 1,
1999. Even though we were not Year 2000 compliant on July 1, 1999, thus far no
customers have terminated their contracts for this reason and we do not believe
that any significant number of customers will exercise their option to
terminate their agreements with us. However, if most of the customers who have
the option to terminate were to exercise that option, our revenues could
decline. Additionally, we cannot evaluate our customers' Year 2000 readiness.
To the extent that a customer's site is not functioning correctly, it may,
potentially, affect other customers' sites or our networks. It may also not be
possible to determine that the malfunctioning is caused by the customer's
software, and the customer may request service credits or we might otherwise
have a difficult time realizing the expected revenues from such a customer. We
strongly urge you to read about our Year 2000 efforts in this prospectus under
the heading "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Impact of Year 2000."
14
<PAGE>
There has been no prior market for our Class A Common Stock and the market
price of the shares will fluctuate.
We cannot be sure that an active public market for the Class A Common Stock
will develop or continue after this offering. Prices for the Class A Common
Stock will be determined in the marketplace, are likely to be highly volatile
and may be influenced by many factors, including variations in our financial
results, changes in earnings estimates by industry research analysts,
investors' perceptions of us and general economic, industry and market
conditions. Investors may not be able to sell their Class A Common Stock at or
above the initial public offering price. Additionally, we believe there are
relatively few comparable companies that have publicly traded equity
securities. This may also affect the trading price of the Class A Common Stock
after this offering and make it more difficult for you to evaluate the value of
the Class A Common Stock.
Further, the stock markets, and in particular the Nasdaq National Market,
have experienced extreme price and volume fluctuations that have particularly
affected the market prices of equity securities of many technology companies
and that often have been unrelated or disproportionate to the operating
performance of such companies. The trading prices of many technology companies'
stocks are at or near historical highs and reflect price to earnings ratios
substantially above historical levels which may not be sustained. These broad
market factors may adversely affect the market price of our Class A Common
Stock. In the past, following periods of volatility in the market price of a
company's securities, securities class action litigation has often been
instituted against such companies. Such litigation, if instituted, could result
in substantial costs and a diversion of management's attention and resources,
which could harm our business.
Future sales of our common stock could adversely affect the price of our Class
A Common Stock.
After this offering is completed, 10,000,000 shares of Class A Common Stock
will be issued and outstanding, assuming no exercise of the underwriters' over-
allotment option. All of the shares of Class A Common Stock sold in this
offering will be freely tradable under the Securities Act unless purchased by
our "affiliates," as that term is defined in the Securities Act. In connection
with this offering, our officers and directors and some of our stockholders
will be required to refrain from selling any shares of Common Stock for a
period of 180 days after the date of this prospectus without the written
consent of Bear, Stearns & Co. Inc. Additionally, shares of Class B Common
Stock could be converted to shares of Class A Common Stock and sold in the
future. The market price of our Class A Common Stock could drop due to sales of
a large number of shares of our Class A Common Stock in the market after this
offering or the perception that such sales could occur. Historically, market
prices of start-up and Internet companies' stocks have been particularly
susceptible to such fluctuations. These factors could also make it more
difficult to raise funds through future offerings of common stock.
You will suffer immediate and substantial dilution.
Purchasers of the Class A Common Stock being offered will experience
immediate and substantial dilution in the net tangible book value of their
Class A Common Stock. See "Dilution."
The greater voting power of our Class B Common Stock, as well as some
provisions of the Delaware Anti-Takeover Law and of our certificate of
incorporation and bylaws, could discourage a takeover of Digex and adversely
affect the price of the Class A Common Stock.
Upon completion of this offering, our board of directors will have the
authority to issue up to 5,000,000 shares of preferred stock and to determine
the price, rights, preferences, privileges and restrictions, including voting
rights, of those shares without any further vote or action by the stockholders.
The rights of the holders of any of our common stock may be adversely affected
by the rights of the holders of any preferred stock that may be issued in the
future. The issuance of preferred stock, while providing flexibility in
connection with possible acquisitions and other corporate purposes, could have
the effect of making it more difficult for a third party to acquire a majority
of our outstanding voting stock. We have no current plans to issue shares of
preferred stock. We are also subject to certain provisions of Delaware law
which could have the effect of
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<PAGE>
delaying, deterring or preventing a change in control of Digex, including
Section 203 of the Delaware General Corporation Law, which prohibits us from
engaging in any business combination with any interested stockholder for a
period of three years from the date the person became an interested stockholder
unless certain conditions are met. In addition, our certificate of
incorporation and bylaws contain certain provisions that, together with
Intermedia's voting power and ownership of Class B Common Stock, could
discourage potential takeover attempts and make attempts by stockholders to
change management more difficult.
This prospectus includes forward-looking statements which could differ from
actual future results.
Some of the statements in this prospectus that are not historical facts are
"forward-looking statements." Forward-looking statements can be identified by
the use of words such as "estimates," "plans," "anticipates," "expects,"
"intends," "believes" or the negative thereof or other variations thereon or by
discussions of strategy that involve risks and uncertainties. Examples of
forward-looking statements include discussions relating to:
. plans to expand our existing Web site hosting services and applications
for enterprises doing business on the Internet;
. introductions of new products and services;
. proposals to build new data centers in various geographic areas;
. estimates of market sizes and addressable markets for our services and
products;
. anticipated revenues from designated markets during 1999 and later
years;
. statements regarding the Year 2000 issue; and
. statements regarding the future course of our relationship with
Intermedia.
We wish to caution you that all the forward-looking statements contained in
this prospectus are only estimates and predictions. Our actual results could
differ materially from those anticipated in the forward-looking statements due
to risks, uncertainties or actual events differing from the assumptions
underlying these statements. Such risks, uncertainties and assumptions include,
but are not limited to, those discussed in this prospectus.
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<PAGE>
USE OF PROCEEDS
We estimate the net proceeds from the sale of the 10,000,000 shares of Class
A Common Stock we are offering will be approximately $137.7 million, at an
assumed initial public offering price of $15.00 per share and after deducting
the estimated underwriting discounts and commissions and estimated offering
expenses. If the underwriters' over-allotment option is exercised in full, we
estimate such net proceeds will be approximately $158.6 million.
Under the terms of Intermedia's indentures, described under "Risk Factors--
Digex is controlled by Intermedia," we will be required to use all of the net
proceeds of this offering to purchase Telecommunications Related Assets.
Telecommunications Related Assets mean assets used in connection with the
business of: (1) transmitting, or providing services relating to the
transmission of, voice, video or data through owned or leased transmission
facilities; (2) creating, developing and marketing communications related
network equipment, software and other devices for use relating to (1); or (3)
evaluating, participating in or pursuing any other activity or opportunity that
is related to those identified in (1) or (2); all as determined in good faith
by the board of directors of Intermedia. We intend to use approximately $95.1
million of the net proceeds to continue to expand and enhance our data center
infrastructure. We have entered into a letter agreement with Intermedia
pursuant to which Intermedia will purchase from us, at our cost, some of the
Telecommunications Related Assets purchased with the net proceeds of this
offering. Intermedia is expected to pay us for these Telecommunications Related
Assets to the extent necessary with funds not subject to restrictions under the
Intermedia indentures that we will use for working capital purposes and to fund
operating losses. The amounts actually expended for such capital expenditures
and working capital purposes may vary significantly, depending on a number of
factors, including our future revenues and Intermedia's availability of funds.
A portion of the net proceeds may also be used to acquire or invest in
complementary businesses, technologies, product lines or products. We have no
current plans, agreements or commitments with respect to any such acquisition,
and we are not currently engaged in any negotiations with respect to any such
transaction. Pending use of the net proceeds of this offering, we intend to
invest the net proceeds in short-term, interest-bearing, investment grade
securities.
DIVIDEND POLICY
We do not anticipate paying any dividends on any of our common stock in the
foreseeable future. Moreover, because we are subject to restrictions under the
Intermedia indentures, we are effectively prohibited from paying dividends. We
may also incur indebtedness in the future which may prohibit or effectively
restrict the payment of dividends.
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<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 1999 (1) on
an actual basis, (2) on a pro forma basis as if our recapitalization had been
effected on March 31, 1999, and (3) as adjusted to give effect to our
recapitalization and the sale of the 10,000,000 shares of Class A Common Stock
we are offering, at an assumed initial public offering price of $15.00 per
share and after deducting the estimated underwriting discounts and commissions
and estimated offering expenses that we will pay. This table should be read in
conjunction with the financial statements and the related notes included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
March 31, 1999
------------------------------
(Unaudited)
Actual Pro Forma As Adjusted
-------- --------- -----------
(In thousands, except share
data)
<S> <C> <C> <C>
Cash and cash equivalents (1)................... $ -- $ -- $137,650
======== ======== ========
Capital lease obligations, including current ma-
turities....................................... $ 1,833 $ -- $ --
Stockholder's equity:
Class A Common Stock, $.01 par value;
100,000,000 authorized;
10,000,000 assumed issued and outstanding.... -- -- 100
Class B Common Stock, $.01 par value;
50,000,000 authorized;
50,000,000 assumed issued and outstanding.... -- 500 500
Owner's net investment........................ 102,287 -- --
Additional paid-in capital.................... -- 102,054 239,604
Accumulated deficit........................... -- -- --
-------- -------- --------
Total stockholder's equity ................... 102,287 102,554 240,204
-------- -------- --------
Total capitalization............................ $104,120 $102,554 $240,204
======== ======== ========
</TABLE>
- --------
(1) We have historically participated in Intermedia's centralized cash
management system and, as a result, have not carried cash balances on our
financial statements. With the closing of this offering, we will be
maintaining and reporting cash balances in our financial statements.
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<PAGE>
DILUTION
Our net tangible book value on a pro forma basis assuming the
recapitalization as of March 31, 1999 and giving effect to the 50,000-for-one
stock split of our Class B Common Stock to be effected prior to the closing of
this offering was approximately $72.3 million, or $1.45 per share of the
combined Class A and Class B Common Stock. Pro forma net tangible book value
per share represents the amount of total tangible assets less total
liabilities, divided by the pro forma combined number of shares of Class A
Common Stock and Class B Common Stock outstanding as of March 31, 1999. After
giving effect to the issuance and sale of the 10,000,000 shares of Class A
Common Stock offered hereby at an assumed initial public offering price of
$15.00 per share and after deducting estimated underwriting discounts and
commissions and estimated offering expenses, our pro forma net tangible book
value as of March 31, 1999 would be $210.0 million, or $3.50 per share of the
combined Class A and Class B Common Stock. This represents an immediate
increase in pro forma net tangible book value of $2.05 per share to existing
stockholders and an immediate dilution of $11.50 per share to new investors.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share of Class A Common
Stock............................................................ $15.00
Pro forma net tangible book value per common share at March 31,
1999 before the offering....................................... $1.45
Increase in pro forma net tangible book value per common share
attributable to new investors.................................. 2.05
-----
Pro forma net tangible book value per common share after offer-
ing.............................................................. 3.50
------
Dilution per share of Class A Common Stock to new investors....... $11.50
======
</TABLE>
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<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth selected historical financial data of Digex
for the period from July 7, 1997, the date of acquisition by Intermedia of the
Predecessor, to December 31, 1997, the year ended December 31, 1998 and the
three months ended March 31, 1998 and 1999, and of the Predecessor for the year
ended December 31, 1996 and the period from January 1, 1997 to July 6, 1997.
The selected historical financial data has been derived from Digex's and the
Predecessor's financial statements which have been audited by Ernst & Young
LLP, with the exception of the unaudited financial statements for the three
months ended March 31, 1998 and 1999, and are included elsewhere in this
prospectus.
The following table also sets forth our pro forma financial information for
the year ended December 31, 1997. The pro forma financial information gives
effect to the purchase by Intermedia of the Predecessor as if such acquisition
had occurred on January 1, 1997. The presentation of pro forma financial
information was made to permit useful comparison of results of operations
between periods presented. This pro forma financial information is not
necessarily indicative of the operating results we would have achieved if the
Predecessor had been acquired on January 1, 1997. The relationship between
Business Internet and the Predecessor is more fully described in note 1 to the
financial statements.
In the following table, pro forma basic and diluted net loss per share have
been calculated assuming that the common shares issued in connection with our
recapitalization in April 1999 were outstanding for all periods of Digex
presented, and giving effect to the 50,000-for-one stock split of our Class B
Common Stock to be effected prior to the closing of this offering.
You should read the selected financial data below in conjunction with our
audited and unaudited interim financial statements and related notes included
elsewhere in this prospectus. You should also read the accompanying
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," contained later in this prospectus.
20
<PAGE>
<TABLE>
<CAPTION>
Predecessor Digex
---------------------------- --------------------------------------------------------------------
Historical Historical Pro Forma Historical
---------------------------- --------------- ------------ ------------------------------------
Period from
July 7, 1997
(date of Three months ended
Year ended Period from acquisition) to Year ended Year ended March 31,
December 31, January 1, 1997 December 31, December 31, December 31, -----------------------
1996 to July 6, 1997 1997 1997 1998 1998 1999
------------ --------------- --------------- ------------ ------------ ----------- -----------
(unaudited) (unaudited) (unaudited)
(In thousands, except pro forma per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of
Operations Data:
Revenues................ $ 2,803 $ 4,420 $ 7,192 $ 11,612 $ 22,635 $ 3,869 $ 9,392
Costs and expenses:
Cost of operations..... 2,002 4,149 1,739 2,808 6,710 887 1,652
Cost of services....... 684 1,817 1,611 3,428 7,044 1,107 3,952
Selling, general and
administrative........ 3,194 7,001 6,087 13,088 17,512 3,637 8,069
Depreciation and
amortization.......... 591 519 2,753 4,850 8,109 2,027 4,314
Charge off of purchased
in-process research
and development....... -- -- 15,000 (1) 15,000 (1) -- -- --
------- ------- -------- -------- -------- ------- -------
Total costs and
expenses............... 6,471 13,486 27,190 39,174 39,375 7,658 17,987
------- ------- -------- -------- -------- ------- -------
Loss before income
taxes.................. (3,668) (9,066) (19,998) (27,562) (16,740) (3,789) (8,595)
Income tax benefit...... -- -- 1,440 4,710 159 -- --
------- ------- -------- -------- -------- ------- -------
Net loss................ $(3,668) $(9,066) $(18,558) $(22,852) $(16,581) $(3,789) $(8,595)
======= ======= ======== ======== ======== ======= =======
Pro forma net loss per
common share:
Basic.................. -- -- $ (0.37) $ (0.46) $ (0.33) $ (0.08) $ (0.17)
======== ======== ======== ======= =======
Diluted................ -- -- $ (0.37) $ (0.46) $ (0.33) $ (0.08) $ (0.17)
======== ======== ======== ======= =======
Shares used in computing
pro forma basic and
diluted net loss per
share.................. -- -- 50,000 50,000 50,000 50,000 50,000
======== ======== ======== ======= =======
Other Data:
EBITDA before certain
charges (2)............ $(3,077) $(8,547) $ (2,245) $ (7,712) $ (8,631) $(1,762) $(4,281)
Net cash used in
operating activities... (2,565) (7,172) (6,079) (13,251) (10,930) (2,677) (8,036)
Net cash used in
investing activities... (1,445) (1,004) (55,237) (56,241) (30,969) (2,401) (32,001)
Net cash provided by
financing
activities (3)......... 4,010 8,176 61,316 69,492 41,899 5,078 40,037
Capital expenditures.... 1,445 1,004 8,016 9,020 30,969 2,401 32,001
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
Predecessor Digex
----------------- --------------------------------------------------
December 31, 1996 December 31, 1997 December 31, 1998 March 31, 1999
----------------- ----------------- ----------------- --------------
(In thousands) (unaudited)
<S> <C> <C> <C> <C>
Balance Sheet Data:
Working capital (defi-
ciency)................ $(1,237) $ (351) $ 1,231 $ 4,997
Property and equipment,
net.................... 2,599 12,930 39,059 67,488
Total assets............ 3,173 49,693 77,739 107,393
Capital lease obliga-
tions.................. 1,745 1,980 2,089 1,833
Total owner's equity.... 342 45,527 70,845 102,287
</TABLE>
- --------
(1) This amount represents a one-time charge to operations for charge off of
purchased in-process research and development related to the Predecessor in
connection with Intermedia's purchase of Business Internet on July 7, 1997.
(2) EBITDA before certain charges consists of earnings (loss) before tax
benefit, depreciation and amortization and the charge off of purchased in-
process research and development. EBITDA before certain charges does not
represent funds available for management's discretionary use and is not
intended to represent cash flow from operations. EBITDA before certain
charges should also not be construed as a substitute for operating income
or a better measure of liquidity than cash flow from operating activities,
which are determined in accordance with generally accepted accounting
principles. This caption excludes components that are significant in
understanding and assessing our results of operations and cash flows. In
addition, EBITDA before certain charges is not a term defined by generally
accepted accounting principles and as a result our measure of EBITDA before
certain charges might not be comparable to similarly titled measures used
by other companies. However, we believe that EBITDA before certain charges
is relevant and useful information which is often reported and widely used
by analysts, investors and other interested parties in the Web hosting
industry. Accordingly, we are disclosing this information to permit a more
comprehensive analysis of our operating performance, as an additional
meaningful measure of performance and liquidity, and to provide additional
information with respect to our ability to meet future debt service,
capital expenditure and working capital requirements. See the financial
statements and notes thereto contained elsewhere in this prospectus for
more detailed information.
(3) Net cash provided by financing activities includes capital contributions of
$4,010, $7,626, $64,085, $41,899, $5,078 and $40,037 for the year ended
December 31, 1996, the period from January 1, 1997 to July 6, 1997, the
period from July 7, 1997 to December 31, 1997, the year ended December 31,
1998, and the three months ended March 31, 1998 and 1999, respectively.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements and related notes appearing elsewhere in this prospectus.
Overview
Digex is a leading provider of Web site and application hosting services to
businesses and organizations operating mission-critical, multi-functional Web
sites and Web-based applications. We also offer related enterprise services,
such as firewall management and stress testing, and consulting services,
including capacity and migration planning and database optimization. We provide
the computer hardware, software, network technology, and systems management
necessary to offer our customers comprehensive outsourced Web site hosting
solutions. We currently provide such services to a diversified customer base
consisting of over 500 customers. We own and manage over 1,400 Windows NT and
UNIX-based servers in our two state-of-the-art data centers which are
strategically positioned on the east and west coasts of the United States.
Our revenues have grown at a compounded annual growth rate of 184% over the
past two years from $2.8 million in 1996 to $22.6 million in 1998. We believe
our singular focus on delivering mission-critical Web site and application
hosting solutions has been the major contributor to our growth.
Our business started in 1996 as the Web site hosting unit of Business
Internet, Inc., previously known as DIGEX, Incorporated, a company that was
principally an Internet access and Web site hosting services provider. Business
Internet went public in October 1996 under the name DIGEX, Incorporated, and
was acquired by Intermedia in July 1997. In contemplation of this offering, we
were incorporated as Digex, Incorporated in April 1999, and Business Internet
contributed our assets to the newly formed Digex, Incorporated in order to
effect a recapitalization of our business.
Revenue. Our revenues consist primarily of monthly fees from sales of our Web
site hosting and other related services. Contracts for these services are
typically between one and three years in length. In addition to Web hosting, we
have also recently begun to offer integrated business solutions, enterprise
services and consulting services and believe that we will begin to derive
increasing amounts of revenues from the sale of these services in the future.
Cost and Expenses. Cost and expenses include:
.cost of operations;
.cost of services;
.selling, general and administrative expenses; and
.depreciation and amortization expense.
Cost of operations consist primarily of the costs for our network
connectivity. We expect our network connectivity requirements to grow in
conjunction with the growth of our overall business and accordingly expect
these costs to increase in the future.
Cost of services consist principally of salaries and benefits for our
technical operations and customer service personnel and facilities
administration, including rent, maintenance and utilities to support our data
centers. We expect our cost of services to increase in dollar amount but to
decline as a percentage of revenue due to economies of scale and expected
improvements in technology and productivity.
Selling, general and administrative expenses consist primarily of salaries
and benefits for our marketing, sales and support personnel, advertising costs,
consultants' fees and other miscellaneous expenses. We expect
23
<PAGE>
selling, general and administrative expenses in the future to increase in
dollar amount but to decline as a percentage of revenue.
Depreciation and amortization expense consists primarily of depreciation of
our data center equipment and related assets and amortization of our intangible
assets. We expect these expenses to increase due to our plans to invest
significant capital to expand our data center capacity.
Results of Operations
The following table presents certain information derived from the audited
financial statements for the years ended December 31, 1996, 1997 and 1998 and
the unaudited financial statements for the three months ended March 31, 1998
and 1999 expressed as a percentage of revenue. For the purposes of the
following discussion and analysis, the results of operations of the Predecessor
for the period from January 1, 1997 to July 6, 1997, have been adjusted to
reflect the acquisition of Business Internet by Intermedia as if the
acquisition had occurred at the beginning of 1997 and have been combined with
the results of our operations for the period from July 7, 1997 (date of
acquisition) to December 31, 1997. This computation was done to permit useful,
complete year comparisons between the results for 1996, 1997 and 1998. However,
this pro forma information is not necessarily indicative of the operating
results we would have achieved if the Predecessor had been acquired on January
1, 1997.
<TABLE>
<CAPTION>
Predecessor Digex
------------ -------------------------------------------------
Historical Pro forma Historical
------------ ------------ ------------------------------------
Three months ended
Year ended Year ended Year ended March 31,
December 31, December 31, December 31, -----------------------
1996 1997 1998 1998 1999
------------ ------------ ------------ ----------- -----------
(unaudited) (unaudited) (unaudited)
(As a percentage of revenues)
<S> <C> <C> <C> <C> <C>
Revenues................ 100.0% 100.0% 100.0% 100.0% 100.0%
Costs of expenses:
Cost of operations.... 71.4 24.2 29.6 22.9 17.6
Cost of services...... 24.4 29.5 31.1 28.6 42.1
Selling, general and
administrative....... 114.0 112.7 77.5 94.0 85.9
Depreciation and
amortization......... 21.1 41.8 35.8 52.4 45.9
Charge off of
purchased in-process
research and
development.......... -- 129.2 -- -- --
------ ------ ----- ----- -----
Total costs and ex-
penses................. 230.9 337.4 174.0 197.9 191.5
------ ------ ----- ----- -----
Loss before income tax-
es..................... (130.9) (237.4) (74.0) (97.9) (91.5)
Income tax benefit...... -- 40.6 0.7 -- --
------ ------ ----- ----- -----
Net loss.............. (130.9)% (196.8)% (73.3)% (97.9)% (91.5)%
====== ====== ===== ===== =====
</TABLE>
Three Months Ended March 31, 1999 Compared to the Three Months Ended March 31,
1998
Revenue. Revenues were $9.4 million for the three months ended March 31,
1999, compared to $3.9 million for the three months ended March 31, 1998, an
increase of 141.0%. The $5.5 million increase in revenue was due primarily to
the increase in our marketing efforts, increase in the number of customers, and
increase in revenues from existing customers. We also experienced an increase
in revenue per server through upgrades and value-added services as compared to
the same period in 1998.
Cost of Operations. Our cost of operations was $1.7 million for the three
months ended March 31, 1999, compared to $887,000 for the three months ended
March 31, 1998. The $765,000 increase was due to additional network costs
resulting from our expanded customer base. We expect costs of operations to
increase in the future in conjunction with our overall growth. As a percentage
of revenue, the cost of operations
24
<PAGE>
decreased to 17.6% for the three months ended March 31, 1999, as compared to
22.9% for the three months ended March 31, 1998.
Cost of Services. Our cost of services was $4.0 million for the three months
ended March 31, 1999, compared to $1.1 million for the three months ended March
31, 1998. The $2.9 million increase was due primarily to the hiring of
additional employees in customer service, engineering, facilities
administration, and technical operations to support the growth in customers and
in conjunction with expanding our data center capacity. As a percentage of
revenue, the cost of services increased to 42.1% for the three months ended
March 31, 1999, from 28.6% for the three months ended March 31, 1998. This
increase is related to the costs associated with the additional personnel that
were added since April 1, 1998. We expect the cost of services to increase in
amount during the remainder of 1999 due to anticipated revenue increases, but
to decline as a percentage of revenue due to economies of scale.
Selling, General and Administrative. Our selling, general and administrative
expenses increased to $8.1 million for the three months ended March 31, 1999,
compared to $3.6 million for the three months ended March 31, 1998. The $4.5
million increase was due primarily to increased departmental expenses
associated with sales and marketing efforts. In order to continue to grow our
business, we hired additional sales personnel, which resulted in increased
salaries, commissions and benefits expenses as well as recruiting fees. We also
incurred additional advertising expenses and rent costs in the first quarter of
1999, as compared to the first quarter of 1998. As a percentage of revenue,
expenses decreased to 85.9% for the three month period ended March 31, 1999
from 94.0% for the three month period ended March 31, 1998.
Depreciation and Amortization. Depreciation and amortization increased to
$4.3 million for the three months ended March 31, 1999, compared to $2.0
million for the three months ended March 31, 1998. The $2.3 million increase
was principally due to the depreciation of server equipment and other data
center related equipment that were placed in service since April 1, 1998.
Net loss. Net losses increased to $(8.6) million for the three months ended
March 31, 1999, compared to $(3.8) million for the three months ended March 31,
1998.
Year Ended December 31, 1998 Compared to the Pro Forma Year Ended December 31,
1997
Revenue. Revenues were $22.6 million for the year ended December 31, 1998,
compared to $11.6 million for the year ended December 31, 1997, an increase of
94.9%. The $11.0 million increase in revenue was a result of our increased
marketing efforts, and market acceptance of our new products, resulting in
growth in our number of customers. We also experienced increases in revenue
from existing customers through upgrades and value added services. This
translated into higher average revenues per server. Additionally, during 1998
we increased the number of quota-bearing sales representatives.
Cost of Operations. Our cost of operations was $6.7 million for the year
ended December 31, 1998, compared to $2.8 million for the year ended December
31, 1997. The $3.9 million increase was due to increased network capacity
requirements necessary to support our growing business. In addition, we also
experienced an increase in the average network bandwidth per server. As a
percentage of revenue, the cost of operations increased to 29.6% in 1998 from
24.2% in 1997 primarily as a result of our purchasing added network capacity
per server in 1998 as compared to 1997 to improve customer Web site
performance.
Cost of Services. Our cost of services was $7.0 million for the year ended
December 31,1998, compared to $3.4 million for the year ended December 31,
1997. The $3.6 million increase was due primarily to the hiring of additional
engineering and operations staff to support our expanded customer base. As a
percentage of revenue, the cost of services increased to 31.1% in 1998 from
29.5% in 1997.
Selling, General and Administrative. Our selling, general and administrative
expenses increased to $17.5 million for the year ended December 31, 1998,
compared to $13.1 million for the year ended December 31, 1997. The $4.4
million increase was due to higher commission expenses associated with our
increased sales
25
<PAGE>
levels as well as increases in our administrative headcount. As a percentage of
revenue, the expenses decreased to 77.5% in 1998 from 112.7% in 1997 due to
economies of scale.
Depreciation and Amortization. Depreciation and amortization increased to
$8.1 million for the year ended December 31, 1998, compared to $4.9 million for
the year ended December 31, 1997. The $3.2 million increase was largely due to
increased capital expenditures for servers and other data center related
equipment.
Income Tax Benefit. Our income tax benefit decreased to $159,000 for the year
ended December 31, 1998, compared to $4.7 million for the year ended December
31, 1997. The 1998 income tax benefit represents the recognition of a portion
of the benefits associated with 1998 tax net operating loss carryforwards.
Benefits were recognized in 1998 to the extent of unused deferred tax credits
originating in previous periods.
Net Loss. Net losses decreased to $(16.6) million for the year ended December
31, 1998, compared to $(22.9) million for the year ended December 31, 1997.
Pro Forma Year Ended December 31, 1997 Compared to the Year Ended December 31,
1996
Revenue. Revenues were $11.6 million for the year ended December 31, 1997,
compared to $2.8 million for the year ended December 31, 1996, an increase of
314.3%. The $8.8 million increase in revenue was due primarily to our increased
marketing and sales efforts and the increased market acceptance of dedicated
Web site hosting as a viable outsourcing solution.
Cost of Operations. Our cost of operations was $2.8 million for the year
ended December 31, 1997, compared to $2.0 million for the year ended December
31, 1996. The $806,000 increase was due to increased network connectivity
expenses in connection with the growth in the number of managed servers. This
increase in our cost of operations was partially offset by the more favorable
network connectivity pricing we received subsequent to Intermedia's acquisition
of Business Internet in July 1997. As a percentage of revenue, the cost of
operations declined to 24.2% in 1997 from 71.4% in 1996, primarily as a result
of the favorable pricing from Intermedia.
Cost of Services. Our cost of services was $3.4 million for the year ended
December 31, 1997, compared to $684,000 for the year ended December 31, 1996.
The $2.7 million increase was due primarily to headcount increases in customer
service and operations during 1997. As a percentage of revenue, the cost of
services increased to 29.5% in 1997 from 24.4% in 1996, primarily due to the
additional customer service and operations employees who were hired in
conjunction with the expansion of our marketing efforts to support the
anticipated growth in our business.
Selling, General and Administrative. Our selling, general and administrative
expenses increased to $13.1 million for the year ended December 31, 1997,
compared to $3.2 million for the year ended December 31, 1996. The $9.9 million
increase was due to significant increases in headcount in our sales, marketing,
management information, and administration departments, as well as one-time
expenditures for employee recruitment, relocation, and training. As a
percentage of revenue, the expenses decreased to 112.7% in 1997 from 114.0% in
1996.
Depreciation and Amortization. Depreciation and amortization increased to
$4.9 million for the year ended December 31, 1997, compared to $591,000 for the
year ended December 31, 1996. The $4.3 million increase was due to the
amortization of intangible assets in connection with the purchase of Business
Internet as allocated to us. This increase was also due to increased capital
expenditures for servers and other data center related equipment connected with
the continued expansion of our business.
Charge off of Purchased In-Process Research and Development. The charge for
purchased in-process research and development of $15.0 million in 1997
represents the amount of purchased in-process research and development
associated with the purchase of Business Internet by Intermedia. In connection
with this acquisition, Intermedia allocated $15.0 million of the purchase price
to in-process research and development
26
<PAGE>
projects that relate directly to us. This allocation represents the estimated
fair value based on risk-adjusted cash flows related to the incomplete
products. At the date of acquisition, the development of these projects had not
yet reached technological feasibility and the in-process research and
development had no alternative future uses. Accordingly, these costs were
expensed as a one-time charge to earnings in 1997.
The acquired projects involved development, engineering, and testing
activities associated with the completion of next generation Web site
management services. The primary effort involved the development of an
additional Web site management facility on the West Coast. The development of
technology related to this project was considered valuable as it is critical to
alleviating capacity constraints and adding significant new service
capabilities. Upon completion, the new Web site management facility was
expected to result in faster and easier installation of customers' servers as
well as efficient traffic management with significantly less overhead. Related
efforts involved the development and integration of next generation routers to
support greater transmission capacity, as well as a new software architecture
to assist in balancing traffic loads. Another valuable element involved the
development of site mirroring, the ability to create exact replicas of Web
sites at each of Digex's two sites for greater service reliability. The fair
value assigned to these projects is $15 million.
These projects were completed during 1998. As such, there is no additional
future cost or risk expected with respect to these projects.
Income Tax Benefit. Our income tax benefit increased to $4.7 million for the
year ended December 31, 1997, compared to $0 for the year ended December 31,
1996. The income tax benefit in 1997 results from our ability to recognize the
benefits of our 1997 net tax operating loss carryforward to the extent of
available and unused tax credits that arose in connection with Intermedia's
purchase of Business Internet. Such tax credits relate to the purchase
accounting differences between bases in our identifiable intangible assets.
Net Loss. Net losses increased to $(22.9) million for the year ended December
31, 1997, compared to $(3.7) million for the year ended December 31, 1996.
Liquidity and Capital Resources
We have used cash in our operating and investing activities during all
periods since inception. These cash usages have been funded by permanent
contributions to capital. Such contributions amounted to $4.0 million, $24.5
million, $41.9 million and $40.0 million in 1996, 1997 (pro forma), 1998, and
the first quarter of 1999, respectively.
Net cash used in operating activities in 1996, 1997 (pro forma), 1998 and the
first quarter of 1999 was $2.6 million, $13.3 million, $10.9 million and $8.0
million, respectively. Net cash used for operating activities in each of these
periods was primarily the result of operating losses and changes in working
capital.
Net cash used for investing activities in 1996, 1997 (pro forma), 1998 and
the first quarter of 1999 was $1.4 million, $56.2 million, $31.0 million and
$32.0 million, respectively. Net cash used for investing activities in each of
these periods was primarily the result of capital expenditures for data center
infrastructure, as well as leasehold improvements, furniture and fixtures and
computers and other equipment. Additionally, in July of 1997, goodwill and
other intangible assets were allocated to us for separate reporting purposes,
and shown as a use of cash. Although we have plans to invest significantly in
property and equipment, we have no material commitments for such items at this
time.
We anticipate we will have significant cash requirements for several years as
we expand our data center capacity, increase our employee base to support such
operations and invest in our marketing organization. In addition, we expect to
invest significantly in the purchase of property and equipment. We have made
certain arrangements with Intermedia, described under "Use of Proceeds" and
"Certain Relationships and Related Transactions--Sale of Telecommunications
Related Assets to Intermedia," such that our management believes the net
proceeds of this offering will be sufficient to fund our capital needs into the
second half of 2000. We intend to seek funding from external sources to meet
our cash needs subsequent to that date. There can be no
27
<PAGE>
assurance that such funding will be available on terms satisfactory to us.
Alternatively, Intermedia may be able to advance funds to us to meet our
requirements after that date, but it has no obligation to do so.
In addition, Intermedia is and will continue to be highly leveraged. At March
31, 1999, Intermedia had outstanding approximately $3.1 billion of debt and
other liabilities including trade payables, and a total of approximately $875
million of obligations with respect to four outstanding series of preferred
stock. Intermedia's level of debt will require it to dedicate a substantial
portion of its future cash flow from operations for payment of principal and
interest on its debt, as well as dividends on and the redemption of its
preferred stock. Historically, Intermedia has not generated sufficient cash
flow to cover its operating and investing expenses. For the year ended December
31, 1998, Intermedia's earnings were insufficient to cover combined fixed
charges and dividends on preferred stock. In addition, because of the
restrictions in the Intermedia indentures, Intermedia has only a limited amount
of cash that may be used for working capital purposes and to fund operating
losses. Consequently, Intermedia may not be able to provide us with a source of
funds for our working capital or operating losses.
Impact of Year 2000
The Year 2000 issue is the result of computer-controlled systems using two
digits rather than four to define the applicable year. For example, computer
programs that have time-sensitive software may recognize a date ending in "00"
as the year 1900 rather than the year 2000. This could result in system failure
or miscalculations causing disruptions of operations including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities. To ensure that our computer systems and
applications will function properly beyond 1999, through Intermedia, we have
implemented a Year 2000 program.
Project and State of Readiness
We have developed a five-phase plan that is designed to assess the impact of
the Year 2000 issue on our information technology ("IT") and non-information
technology ("Non-IT") and remediate as necessary the non-compliant components.
This table represents management's best estimates with respect to our systems
as outlined below. The percentages indicate management's best estimate of
completion as of June 30, 1999:
<TABLE>
<CAPTION>
Date of Date of
Phase IT Completion Non-IT Completion
----- ---- ---------- ------ ----------
<C> <S> <C> <C> <C> <C>
I. Preliminary Activity 100% 12/31/97 100% 12/31/97
II. Problem Determination 100% 9/30/98 100% 3/31/99
III. Plan Complete & Resources 100% 6/1/99 100% 6/1/99
Committed
IV. Operational Sustainability 50% 9/30/99 50% 9/30/99
V. Fully Compliant 50% 9/30/99 50% 11/30/99
</TABLE>
Because it is not always necessary to complete one phase prior to beginning
the next, some projects within a given phase have been started while there may
be outstanding tasks associated with prior phases. Priority is always placed on
mission critical systems.
Phase I Preliminary Activity
This phase is a phase of awareness and education. The outcome of this phase
was our understanding of the criticality, risks, size and scope of the Year
2000 problem.
Phase II Problem Determination
In this phase we performed an inventory and assessment to determine which
portions of our hardware and software would have to be replaced or modified in
order for our networks, office equipment and information management systems to
function properly after December 31, 1999. Such determinations were based in
part on
28
<PAGE>
representations made by hardware and software vendors as to the Year 2000
compliance of the systems we use. However, there can be no assurances that any
vendor representations received by us were accurate or complete. We also
conducted a risk assessment to identify those systems whose failure would be
expected to result in the greatest risk to our business. As of June 30, 1999,
Phase II of the plan was 100% complete with respect to IT and 100% complete
with respect to Non-IT. However, there can be no assurances that mission-
critical equipment has not been overlooked.
Phase III Plan Complete & Resources Committed
During Phase III, we designed a plan to make the necessary modifications to
and/or replace the impacted software and hardware and committed the resources
towards the execution of such a plan. While we believe we have substantially
completed our plan for achieving Year 2000 compliance, the discovery of
additional IT or Non-IT systems requiring remediation could adversely impact
the current plan and the resources required to implement the plan.
Phase IV Operational Sustainability
We are actively engaged in Phase IV, utilizing both internal and external
resources to reprogram, or replace, and test certain components of our networks
and information processing systems for Year 2000 compliance and scheduling the
installation of other necessary hardware and software upgrades. Although we
intend to conduct tests to ensure the equipment is Year 2000 compliant, we will
focus primarily on those systems whose failure would pose the greatest risks to
our operations. There can be no assurance that we have identified all mission
critical IT or Non-IT systems. We will not likely test all of our equipment and
will rely upon vendor representations, if received, where tests are not
conducted. There can be no assurance that any vendor representation will be
accurate or complete. As of June 30, 1999, Phase IV of the plan was 50%
complete for IT and 50% for Non-IT. We expect to complete Phase IV by September
30, 1999.
Phase V Fully Compliant
We plan to be fully compliant on mission-critical components no later than
November 30, 1999, which is prior to any anticipated impact on our operating
systems. Though the majority of the work will be completed by the third quarter
of 1999, there are elements that will not be completed (Phase V) until the
fourth quarter of 1999 primarily due to limited availability of compliant
software and hardware and prioritization of mission critical systems. As of
June 30, 1999, we estimate that our remediation efforts are approximately 55%
complete overall.
We believe that we have allocated adequate resources for this purpose and
expect our Year 2000 conversion program to be successfully completed on a
timely basis. However, there can be no assurance that it will successfully
implement all of the necessary upgrades in a timely manner. We presently
believe that with modifications to existing software and conversions to new
software and hardware, the Year 2000 issue will not pose significant
operational problems for our systems or have any adverse impact on our
customers or business units. However, if such modifications and conversions are
not made, or are not completed in a timely fashion, the Year 2000 problem could
harm our reputation and business.
Costs
We have tracked Year 2000 costs on a company-wide basis by segregating our
internal and external costs and hardware and software costs. The internal costs
are comprised of employee hours, and external costs are comprised of outside
consultant costs.
The cost estimates presented below do not include system upgrades that would
otherwise result as part of our capital expenditure program. The estimated
costs of the project and the date which we have established to complete the
Year 2000 modifications are based on management's best estimates, which were
derived utilizing
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numerous assumptions of future events, including the continued availability of
certain resources, third party modification plans and other factors. However,
there can be no guarantee that these estimates will be achieved and actual
results could differ materially from those anticipated. Specific factors that
might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes, unanticipated mergers and
acquisitions, and similar uncertainties.
A summary of historical and estimated costs for the Year 2000 project are
listed below:
<TABLE>
<CAPTION>
External Internal
-------- --------
<S> <C> <C>
Historical through April 30, 1999..................... $338,076 $ 64,720
Estimated additional expenditures for remainder of
1999................................................. 630,761 222,880
-------- --------
Total............................................... $968,837 $287,600
</TABLE>
<TABLE>
<CAPTION>
Software/Hardware
-----------------
<S> <C>
Historical through April 30, 1999..................... $499,302
Estimated additional expenditures for remainder of
1999................................................. 486,698
--------
Total............................................... $986,000
</TABLE>
Risks and Contingency Plan
While we are working to test our own mission-critical systems for Year 2000
compliance, we do not control the systems of our suppliers. We are currently
seeking assurance from our suppliers and strategic business partners regarding
the Year 2000 readiness of their systems. We are currently reviewing data
provided by the Telco Year 2000 Forum to ensure that our suppliers' and
business partners' systems will accurately interact with our systems into and
beyond the Year 2000. The Telco Year 2000 Forum was formed by some of the
largest U.S. telecommunication companies to pool and share testing resources
for common network components and to perform network interoperability testing.
Importantly, we are relying on Intermedia's Year 2000 compliance efforts to
ensure that our connectivity with Intermedia is available after December 31,
1999. Notwithstanding any measures we may take, there is some risk that the
interaction of our systems and those of our suppliers or business partners may
be impacted by the Year 2000 date change. In addition, in light of the vast
interconnection and interoperability of telecommunications networks and the
Internet worldwide, our ability to provide services to our customers is
dependent in large part on the networks and systems of other carriers. To the
extent the networks and systems of those carriers are adversely impacted by
Year 2000 problems, our ability to service our customers may be adversely
impacted as well. Any such impact could have a material adverse effect on our
operations.
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the company's
results of operations, liquidity and financial condition. Due to the general
uncertainty inherent in the Year 2000 problem, resulting in part from the
uncertainty of the Year 2000 readiness of third-party suppliers and customers,
we are unable to determine at this time whether the consequences of Year 2000
failures will have a material impact on our results of operations, liquidity or
financial condition. The Year 2000 project is expected to significantly reduce
our level of uncertainty about the Year 2000 problem and, in particular, about
the Year 2000 compliance and readiness of our material suppliers and business
partners. We believe that, with the implementation of new business systems and
completion of the Year 2000 project as scheduled, the possibility of
significant interruptions of normal operations should be reduced.
In a recent Securities and Exchange Commission release regarding Year 2000
disclosure, the Securities and Exchange Commission stated that public companies
must disclose the most reasonably likely worst case Year 2000 scenario.
Although it is not possible to assess the likelihood of any of the following
events, each must be included in a consideration of worst case scenarios:
widespread failure of electrical, gas, and similar supplies serving us;
widespread disruption of the services provided by common communications
carriers;
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similar disruption to the means and modes of transportation for us and our
employees, contractors, suppliers and customers; significant disruption to our
ability to gain access to, and remain working in, office buildings and other
facilities; the failure of substantial numbers of our critical computer
hardware and software systems, including both internal business systems and
systems controlling operational facilities such as electrical generation,
transmission and distribution systems; and the failure of outside entities'
systems, including systems related to banking and finance.
If we cannot operate effectively after December 31, 1999, we could, among
other things, face substantial claims by customers, including for lost profits,
or loss of revenue due to service interruptions, inability to fulfill
contractural obligations or bill customers accurately and on a timely basis,
and increased expenses associated with litigation, stabilization of operations
following critical system failures and the execution of contingency plans. We
could also experience an inability by customers and others to pay us on a
timely basis or at all. Under these circumstances, the adverse effects,
although not quantifiable at this time, would be material. Although the U.S.
House of Representatives has passed legislation to limit punitive damages in
lawsuits related to Year 2000 problems, we cannot predict whether such
legislation will ultimately be enacted or whether it would afford us any
meaningful protection from any potential lawsuits.
In addition, some of our customers have an option to terminate their
agreements with us if our facilities are not Year 2000 compliant by July 1,
1999. Even though we were not Year 2000 compliant on July 1, 1999, thus far no
customers have terminated their contracts for this reason and we do not believe
that any significant number of customers will exercise their option to
terminate their agreements with us. However, if most of the customers who have
the option to terminate were to exercise that option, our revenues could
decline. Additionally, we cannot evaluate our customers' Year 2000 readiness.
We believe that we are not responsible for the Year 2000 compliance of our
customers' Web sites and we intend to notify them in writing of this fact and
to urge them to ensure that their sites are Year 2000 compliant. Some of our
customers' sites may fail due to Year 2000 issues and, while we believe that
the failure of any one customers' site will not affect other customers' sites
or our network, we cannot guarantee that this will be the case. Also, to the
extent that a customer's site is not functioning correctly and it is not
possible to determine that the malfunctioning is caused by the customer's
software, the customer may request service credits or we might otherwise have a
difficult time realizing the expected revenues from such a customer.
We believe that our critical systems will be Year 2000 compliant before
January 1, 2000. Intermedia's Year 2000 Executive Steering Committee convened
in first quarter 1999 and is scheduled to meet regularly throughout the year.
This committee includes members of Intermedia's management and our President,
Sales and Service Delivery Group, Nancy G. Faigen. The committee is working to
oversee and allocate additional resources, if required, for the final plans for
Year 2000 readiness. Having identified our mission-critical systems and those
of our key suppliers, and the associated risks of failure to ensure that those
systems are Year 2000 ready, we are in the process of devising contingency
plans which will be implemented in the event any such systems are not Year 2000
compliant in a timely manner. Business continuity plans are under development
by us and will be ready for implementation by the fourth quarter of 1999.
We urge you to read "Risk Factors--We could lose revenues and our reputation
may be damaged if our systems or those of our customers or suppliers are not
Year 2000 compliant."
Quantitative and Qualitative Disclosure About Market Risk
Digex believes that it is not sensitive to market risk related to changes in
interest rates. We do not have any borrowing arrangements and we do not use
interest rate derivative instruments.
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BUSINESS
Overview
Digex is a leading provider of Web site and application hosting services to
businesses and organizations operating mission-critical, multi-functional Web
sites and Web-based applications. We also offer related enterprise services,
such as firewall management and stress testing, and consulting services,
including capacity and migration planning and database optimization. From major
corporations to Internet start-ups, our clients leverage our services to
rapidly and cost-effectively deploy secure and reliable business solutions
including on-line banking, on-line procurement and electronic retailing. We
provide the computer hardware, software, network technology, and systems
management necessary to provide our customers comprehensive outsourced Web site
hosting solutions.
We believe our singular focus on delivering mission-critical Web site and
application hosting solutions has been the major contributor to our growth.
Digex currently provides hosting services to over 500 customers, including
American Century Investments, Budget Rent-A-Car, Forbes, J. Crew, Kraft, Nike
and Universal Studios. We operate two state-of-the-art data centers
strategically positioned on the east and west coasts of the United States. In
these data centers, we house over 1,400 Windows NT and UNIX-based servers which
we own and manage. Our revenues have grown at a compounded annual growth rate
of 184% over the past two years from $2.8 million in 1996 to $22.6 million in
1998. The following are among the key factors that we believe will continue to
drive our growth:
. the ability to facilitate the rapid, cost-efficient implementation and
expansion of customers' Web site initiatives;
. an operating platform designed to allow us to scale our operations to
achieve higher revenues, lower marginal unit costs and increased
operating margins;
. an experienced management team and technical experts, who in the
aggregate hold over 200 technical certifications from leading companies
such as Cisco Systems, Microsoft and Sun Microsystems;
. a highly skilled research and development organization dedicated to
identifying the best available tools, technologies and processes;
. a growing, geographically distributed direct sales force; and
. a network of over 120 business partnership alliances which provide
complementary design, development and integration services for our
customers and which represent a significant source of new customer
referrals for Digex.
We believe we have established a reputation for reliable service, prompt Web
site deployment and quality customer service. To meet our customers' evolving
requirements, we continuously seek to identify, test and utilize the best
available technologies and processes. Scalability is a central element of our
operating strategy. Our architecture was specifically designed to facilitate
the rapid, cost-efficient implementation and expansion of customers' Web site
hosting initiatives. We believe our singular focus of providing mission-
critical Web site hosting services, technical expertise and high quality
facilities has made us a leading provider of Web site hosting services.
Industry Background
Introduction
Use of the Internet, including intranets and extranets, has grown rapidly in
recent years. This growth has been driven by a number of factors, including the
large and growing installed base of personal computers, improvements in network
architectures, increasing numbers of network-enabled applications, the
emergence of compelling content and commerce-enabling technologies, and easier,
faster and cheaper Internet access. As a result of this growing use, the
Internet has become an important new global communications and commerce medium.
The Internet represents an opportunity for enterprises to interact in new and
different ways with a
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large number of customers, employees, suppliers and partners. Enterprises are
responding to this opportunity by rapidly increasing their investment in
Internet sites and services.
Over the last several years, enterprises that focus solely on distributing
products and services over the Internet have emerged and, more recently,
mainstream businesses have begun to implement Web sites to complement
traditional business models and applications. Among the various factors which
continue to attract these businesses to the Internet is the transformation of
Web sites from being primarily text-based and informational to becoming
interactive, multimedia-enabled and transaction oriented. New technologies and
development tools have also led to the Web-enabling of traditional business
functions and applications such as customer service, procurement, human
resource management and sales force automation. Internet operations and
applications are mission-critical for virtually all Web-centric companies and
are becoming increasingly mission-critical for many mainstream enterprises. At
the same time, these operations and applications are becoming more complex and
challenging to operate. Ensuring the quality, reliability, and availability of
these Internet operations typically requires substantial investments in
developing Internet expertise and infrastructures. However, such a continuing
significant investment of resources is often an inefficient use of an
enterprise's limited resources. As a result, businesses are increasingly
seeking collaborative outsourcing arrangements that can increase performance,
provide continuous operation of their Internet solutions, and reduce Internet
operating expenses.
According to Forrester Research, 44% of the 50 Fortune 1000 firms they
surveyed have outsourced the management of their Web sites. Forrester reports
that companies outsource Web site management primarily for the following
reasons:
. scarcity of technical skills;
. performance;
. speed of implementation; and
. security.
We believe additional benefits of outsourcing the management of a complex Web
site include lower total costs, higher service level guarantees and reduced
risk of technology obsolescence.
Emergence of Web Hosting Service Providers
In order to establish a high quality, reliable Web site or to run a Web-based
application on the Internet, businesses must, among other things, procure and
integrate sophisticated hardware and software, develop application specific
technical skills, and have access to a secure, fault-tolerant physical location
and redundant Internet connectivity. While it is possible for a business to
provide all of these elements in-house, many companies elect to outsource all
or a portion of their Web-site operations to companies offering Web hosting
services. Web hosting companies, in general, provide various infrastructure-
related services, including secure, monitored data centers, uninterrupted power
supply and high-speed network connectivity. We categorize the market for
outsourced Web hosting services into the following:
. Shared Hosting: customers share server hardware and bandwidth with other
customers. Shared hosting provides a price competitive entry point for
individuals and businesses desiring a simple Web site.
. Collocation Hosting: customers own their hardware, software and network
equipment which is housed at the Web site hosting company's facilities.
The customers retain responsibility for the installation, management,
scalability and security of their Web sites. While collocation requires
the customer to assume the majority of the responsibilities for the
operation of its Web site, collocation has been and remains an
attractive option for Web-centric companies with advanced in-house
Internet expertise.
. Dedicated Hosting: customers are provided a complete Web site hosting
solution. Unlike collocation, the service provider supplies the
hardware, software, network equipment and support
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necessary to run the Web site. As Web sites have become more complex,
even large and technically astute businesses have found Internet
technologies and solutions a challenge to manage. For such companies,
including many Fortune 2000 companies, dedicated Web site hosting has
become a preferred alternative.
. Application Hosting: customers are provided the services of dedicated
Web site hosting along with the management of Web-enabled business
applications supporting such common business processes as customer
service, procurement, human resource management and sales force
automation. The service provider implements and configures such business
applications to meet the specific needs of its customers. For large and
small businesses alike, business process hosting offers numerous
benefits, including faster time-to-market, access to advanced
application skills and significantly lower costs of operation.
A variety of companies, such as ISPs and large systems integrators, offer
products and services that attempt to address enterprises' Internet outsourcing
needs. However, we believe the solutions offered by these companies fail to
address certain elements required to ensure that customers' mission-critical
Internet operations are reliable, scalable and responsive. ISPs have
traditionally focused on providing Internet access and many have not developed
the technical expertise and physical resources to support mission-critical Web
sites. In addition, many large systems integrators focus primarily on large
enterprises and traditional information technologies. These firms often lack
the network and Internet expertise required to provide mission-critical
solutions. As a result, we believe a significant opportunity exists for a
highly-focused company to provide a combination of complex Web site hosting,
outsourced applications management and professional consulting services that
enable businesses to implement reliable, high performance and cost effective
mission-critical Internet solutions.
The Digex Solution
We focus primarily on providing dedicated Web site and application hosting
services. Our core competency is developing and managing mission-critical Web
solutions for Fortune 2000 companies and Web-centric businesses. We believe we
are uniquely positioned to assist such businesses in optimizing the potential
of the Internet and their Internet-related applications by providing our
customers with the following key advantages:
A Comprehensive Suite of Web Site and Application Hosting Services. We
provide a suite of services that enable companies to conduct business on the
Internet. Using a large, multi-specialized technical staff of certified
engineers, and through the security and reliability of our state-of-the-art
data centers, we provide the services and expertise to ensure secure, scalable,
high-performance operation of mission-critical Web sites 24 hours a day. These
services include:
. Web site management services such as operating and supporting Windows NT
and UNIX-based dedicated servers, providing server collocation, and
private network connectivity;
. integrated business solutions, which involve the hosting of leading Web-
enabled business software applications such as electronic commerce,
sales force automation and customer care;
. enterprise services such as firewall management, stress testing and
customized Web site activity reporting; and
. consulting services including capacity planning, disaster recovery
planning, migration planning and database optimization.
As part of our services, we provide the installation and maintenance of
industry-leading hardware and software, core technical expertise, high-volume
backup and recovery systems and 24 hours a day monitoring by our Server
Operations Center ("SOC").
High-Performance Internet and Private Network Connectivity. We provide high
performance network connectivity services for our customers' Web sites as well
as direct private networking options for secure "back-end" network connections
to private corporate networks and information systems. Through our network
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services agreement with Intermedia, we offer superior Internet connectivity
that provides the following direct benefits to customers:
. connectivity to a diversely redundant high-speed national network via
Intermedia, a tier-one ISP;
. use of all of Intermedia's public and private peering relationships
permitting direct exchange of traffic with a significantly large number
of carriers and ISPs;
. use of all of Intermedia's regional direct connections to major ISPs,
dial-up carriers, and content service providers; and
. service level agreements guaranteeing high availability and performance.
Digex also intends to provide diversified connectivity options to other major
backbones in addition to Intermedia, offering customers an additional service
enhancement. We also intend to establish and maintain our own public and
private peering arrangements.
Responsive Customer Care and Technical Support. We strive to provide superior
customer service. This includes 24-hour a day direct access to a staff of over
150 customer care and technical support personnel and a variety of proactive
monitoring services from our state-of-the-art SOC. We believe this level of
customer support significantly differentiates Digex in the marketplace.
At our SOC, we monitor and report on the health of servers, networks, and
security devices managed by Digex. The SOC uses a variety of technologies and
tools to monitor specific network devices, such as routers, switches and load
balancing equipment. The SOC oversees a large number of server resources, such
as CPU, system processes, log files, TCP ports and disk space, and security
devices, such as firewalls.
Secure, Fault-Tolerant Data Centers. Our data centers have been engineered to
meet the highest expectations of our most demanding customers across our target
markets, including the particularly stringent requirements of the financial
industry.
Our data centers contain multiple, free-standing computer rooms to provide
containment and isolation. Separate mechanical rooms adjacent to each computer
room house cooling and mechanical equipment, eliminating the possible
introduction of liquid into the computer room from equipment leakage. We use
redundant uninterruptable power supply systems and redundant generators to
ensure that the power system is capable of maintaining power to the data center
in the event of any component failure. State-of-the-art physical security has
been implemented through tightly controlled security zones requiring both card
and biometric identification. Over 100 surveillance cameras record movement
through the data centers and security guards provide real-time visibility.
Cooling and environmental controls for each data center are designed to monitor
and ensure proper temperature and humidity levels. Finally, all
telecommunications connections enter the data centers through multiple points
from diverse service arrangements to ensure continued operation of service
without degradation in the unlikely event of a cable cut or local carrier
network outage.
Predictable Monthly Fees. We provide our services for predictable monthly
fees, enabling our customers to accurately budget costs for Web site hosting
services. These fees are typically contracted as part of one, two or three-year
agreements. These agreements often provide service level guarantees and permit
technology upgrades at any time during the life of a contract.
Digex Strategy
Our objective is to maintain our leadership position in the industry and
continue to shape and lead the global market for hosting complex Web sites. We
intend to accomplish this by delivering secure, scalable, high-performance Web
site hosting solutions. Our business strategy focuses on the following:
Expand Our Premier Web Hosting Capabilities. We are currently expanding the
capacity of our east and west coast data centers. We intend to continue to add
data center capacity over the next five years as justified
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by customer demand. We believe our ability to readily grow and scale our
operations while simultaneously maintaining the highest service levels will
allow us to continue to attain higher revenues, lower marginal unit costs and
higher operating margins. The following are among the key initiatives we have
instituted to maintain the quality and scalability of our operations:
. Our Distributed Internet Server Array ("DISA") architecture is
specifically designed to facilitate Web site operating scalability. DISA
unifies interrelated layers of hardware and software around industry
standard solutions. Our customers are strongly encouraged to adopt the
DISA architecture in implementing their Web initiatives. The consistency
and reliability afforded by our DISA architecture facilitates rapid and
cost-efficient implementation of our customers' Web hosting initiatives.
Other Web hosting companies typically have opted not to standardize
their operating architectures. The resulting multiple architectures
significantly complicate and limit the flexibility of their operations.
. Our technical staff includes over 40 Microsoft certified engineers, as
well as technical experts certified by Cisco Systems and Sun
Microsystems. We believe this makes our technical staff among the most
highly skilled and trained in the Web hosting industry. Based on
comments by our customers, we believe our technical staff affords us a
competitive advantage and has been instrumental in attracting many of
our Fortune 2000 customers. In addition, we believe the depth and scope
of our staff's technical skill base is essential to our ability to
maintain our high quality service levels. To attract and retain these
individuals, we offer competitive financial incentives, in-house and
external training programs, and the opportunity to work with cutting-
edge technology.
. The Digex Central Nervous System ("DCNS") is our end-to-end integrated
customer relationship management system. Currently, DCNS provides
support for key customer care functions like sales management, contract
management, order entry, product fulfillment, problem management, and
billing. It serves as a repository for information about the customer
and a customer's Web site. Future enhancements include Web-enabling
DCNS. This will allow customers to access and view the status of their
account on-line. We believe this functionality will increase customer
satisfaction while reducing customer service costs.
Address Industry-Specific Customer Needs. Our marketing and operating
strategy is designed to exploit our expertise in addressing the unique,
industry-specific needs of our targeted customer base. This targeted customer
base is comprised of companies and agencies in the following industries:
financial services and insurance, media and entertainment, manufacturing,
travel and hospitality, retail and distribution, technology and communications,
healthcare, and government. We have chosen to focus on these specific
industries because we believe they have the highest propensity to outsource
complex, mission-critical Web sites. We believe this strategy provides a number
of benefits including:
. the ability to realize cost efficiencies by developing industry-specific
Web solutions that form the basis for serving other customers in the
same or similar industries;
. the ability to develop industry expertise which will enable us to
proactively address the needs of our customers, thereby differentiating
Digex from the competition; and
. development of a referenceable customer base that validates our
industry-specific Web solutions and expertise.
In conjunction with this strategy, we have designated teams consisting of
individuals from our sales, technical and customer support divisions to focus
exclusively on those specific industries which comprise our target market.
Develop Next Generation Service Offerings. As the underlying technology and
functionality of Web-based products evolve, we believe customers will
continuously demand new service offerings. We believe the depth of our Web site
management skills positions Digex to be a leading provider of next generation
Web-based service offerings. The following are among the new service
initiatives we are currently pursuing:
. Web-Enabled Business Applications. We believe Web hosting will become a
vehicle and platform for operating and supporting leading packaged
software applications that can be used for such common business
processes as e-commerce, sales force automation, customer support and
human
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resource management. We intend to continue partnering with various
software developers, systems integrators and information technology
firms that own and develop these business applications by providing the
Web hosting platform to deliver their applications over the Web. To
date, we focus on providing applications which address the following
areas:
. electronic commerce solutions, such as on-line storefronts, including
electronic catalogs and shopping carts;
. business intelligence solutions, such as analytic applications to
mine corporate data warehouses;
. relationship management solutions, such as customer acquisition,
self-service, and self-sales applications;
. human resources solutions, such as recruiting, training and on-line
benefits applications;
. finance and accounting solutions, such as billing and time-tracking
applications; and
. supply chain management solutions, such as procurement, trading and
other intercompany applications.
. Value-added, Recurring Services. We have developed various value-added
services, which we believe significantly enhance the availability and
effectiveness of our customers' Web sites. Examples of these services
are testing, security, database, reporting and intranet service
offerings. We intend to continue developing services that improve the
effectiveness of Web sites and optimize their performance.
. Proactive Customer Service Management. We believe our hardware and
software monitoring capabilities uniquely position us to anticipate the
Web site hosting needs of our existing customers. We are developing new
tools which will both facilitate the identification of problems with a
customer's existing Web site hosting platform and alert client managers
to the Digex services that can be used to address these issues and
optimize Web site performance.
Expand Capabilities Through Selective Strategic Partnering and
Acquisitions. We currently have partnership alliances with over 120 Web design
and development companies and interactive media agencies. These businesses
typically partner with Digex because our high quality services support and
augment, rather than compete with, their own product and service offerings.
Together with our business partners, we can provide our customers with end-to-
end Web site solutions. In 1998, we created the Digex e-Link Partner
Program(TM), which continues to attract leading interactive media and Web
development companies such as Proxicom, Sapient, Studio Archetype and
Agency.com. In addition, we are planning to launch the Digex app-Link Partner
Program(TM) in order to expand our partnership alliances to include systems
integrators, value-added resellers and consultants. Our partnership programs
provide a valuable, cost-effective channel for our services as well as a
highly productive customer referral source.
In addition, we may seek to opportunistically acquire companies which we
believe will enable us to cost-effectively augment our existing products and
services, technology, infrastructure, skill set, geographic presence or
customer base.
Digex Services
We offer a full range of complementary value-added services designed to
handle the rapidly evolving requirements of complex Web sites. Our services
include the following:
. Web site management services;
. integrated business solutions;
. enterprise services; and
. consulting services.
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Web Site Management Services
Dedicated Web Hosting Services. We offer dedicated Web hosting services
designed to enable reliable, scalable, mission-critical Web sites, based on
industry-leading technologies and offering high service level guarantees. We
operate both Windows NT and UNIX-based servers exclusively using hardware from
Compaq and Sun. By standardizing around the hardware produced by these two
vendors, we are able to quickly, easily and cost-effectively upgrade, configure
and implement the new hardware necessary to accommodate our customers' growing
needs for higher computing speeds and capacity. We offer a number of services
to dedicated Web site management customers to ensure ease of implementation,
security, performance and scalability. Specifically, we provide:
. installation and maintenance of Web sites on Digex server hardware;
. installation and maintenance of Microsoft Windows NT and/or UNIX
operating systems tested and configured by Digex to ensure optimal
Internet performance;
. unlimited help desk support available 24 hours a day with access to
certified technical professionals;
. substantial inventory of parts on-site for rapid upgrading and
maintenance of hardware and software;
. industry and vendor security alerts and maintenance;
. backup and recovery of system information, user information and customer
content to ensure protection against data loss from disaster, hardware
failure, or administration errors; and
. secure remote administration capabilities for easy and ubiquitous remote
management.
Server Collocation Service. Digex's server collocation services provide our
customers with a cost-effective means to collocate customer-owned hardware
within a Digex data center and to benefit from Digex's secured facilities and
network connectivity. Customers also receive 24 hour-a-day physical and remote
access to their equipment.
Data-Center within a Data-Center. The Data-Center within a Data-Center
("DC/DC") service will provide a physically separated, monitored and secured
space within our data centers. DC/DC offers the following specialized features:
. dedicated glass-encased raised floor space with separate logged palm-
scan DC/DC entry;
. dedicated environmental control and monitoring;
. dedicated network bandwidth options;
. dedicated security options;
. standard rack equipment; and
. special rates on Digex services.
Intelligent Networking. We offer a variety of intelligent networking services
to customers with multiple servers, including load balancing and geographical
distribution of network traffic. We expect demand for this product to increase
as more customers move to multiple server solutions.
Private Networking. Our private networking services are primarily used to
securely connect a customer's Web site at Digex to their private corporate
network or information system.
Integrated Business Solutions
Our Integrated Business Solutions provide customers with Web site hosting
services designed specifically to operate and support leading packaged software
applications. We partner closely with various business applications vendors to
build valuable skills around their applications with an emphasis on the
operation of the application on the Internet.
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Our Integrated Business Solutions specifically target six distinct functional
solution areas: electronic commerce, business intelligence, relationship
management, human resources, finance and accounting solutions and supply chain
management. We provide application rental, application hosting services and
compelling service level guarantees to our customers. The key benefits of these
solutions include:
. installation and maintenance of pre-configured and pre-tested bundles of
the solution on a hardware configuration that handles predicted user
capacity;
. application software rental and upgrades;
. dedicated support personnel;
. advanced data recovery and storage options for the specific application
and database; and
. special rates on other Digex products and services.
Our Integrated Business Solutions services are detailed as follows:
Electronic Commerce Solutions. Our electronic commerce solutions enable
businesses to directly sell products and services over the Internet to create
an on-line storefront, including electronic catalogs and shopping carts. These
solutions include options for order processing, fulfillment, invoicing, and
payment. Digex's private networking products permit businesses to connect their
commerce Web sites to various payment processing centers and private corporate
information systems ensuring customers secure routing of payment information
and transaction processing.
The Pandesic e-Business Solution(TM) is our first electronic commerce
solution offering. Pandesic is a joint venture between SAP and Intel, offering
end-to-end commerce functionality for businesses. Today, Digex manages over 45
customers using the Pandesic solution, representing over 100 servers.
Business Intelligence Solutions. Our business intelligence solutions will
provide customers fast and easy access to corporate information using analytic
applications to mine corporate electronic data warehouses. By leveraging the
Internet and Digex's business intelligence solutions, businesses empower
executives, employees, shareholders, partners, and others with access to up-to-
date information. We believe these applications facilitate sophisticated
analysis and real-time monitoring of important indicators to assist companies
in their decision making processes.
Relationship Management Solutions. Our relationship management solutions will
provide customers with the ability to extend critical business information to
sales personnel and customers. These solutions include customer acquisition,
self-service and self-sales applications.
Human Resources Solutions. Our human resources solutions will provide
customers with the ability to take advantage of the Internet to extend human
resource functionality to employees anywhere, anytime. Companies will be able
to improve their ability to manage open positions, performing activities such
as recruiting and training and to allow employees to access on-line and modify
benefits and other personal information.
Finance and Accounting Solutions. Our finance and accounting solutions will
provide customers with support for accounting, billing, compensation, time
tracking, and other financial management functions. For example, Digex can
manage a company's time and expense reporting application to provide global
access for employees to enter time sheets and expense reports.
Supply Chain Management Solutions. Our supply chain management solutions will
provide customers with application solutions that help businesses improve the
effectiveness and reliability of a company's supply chain system. Using the
Internet as the vehicle, these solutions can extend a company's supply chain
management system to otherwise cost-prohibitive partners, improving performance
and lowering costs.
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Enterprise Services
Our enterprise services help companies deploy and maintain effective Web
sites. We believe these value-added, repeatable services will become
increasingly important to our customers as they look to ensure a higher level
of Web site availability, security and reporting. Our enterprise services
include the following:
Testing Services. Our testing services aim to identify problems that could
degrade the expected performance and availability of a customer's Web site. For
example, our stress testing services simulate users accessing a Web site to
provide information for isolating problems, optimizing performance and
accelerating the deployment of Web sites.
Reporting Services. Our reporting services are designed to provide timely,
reliable information about user activity on a customer's Web site. Businesses
can use these reports to assess the effectiveness of their Web sites and to
increase their knowledge of the preferences, habits and demographic
characteristics of their Web site visitors.
Security Services. Our security services are designed to ensure the security
of a customer's Web site. These services include firewalls, encryption and
authentication devices.
Database Services. Our database services provide the installation,
configuration, maintenance and support of leading databases.
Consulting Services
Our consulting services provide customized assistance to customers with
unique architecture, deployment or maintenance requirements. These services
include high-availability design, performance tuning, site architecture
assessment, migration planning, capacity planning, disaster recovery planning
and database optimization. Our consulting services typically assist customers
with limited resources or who lack Internet and technical expertise. Our
consulting engagements typically range from a few hours to a few weeks
depending on the complexity and volume of the services needed. We believe our
consulting services will play an increasingly important role in supporting the
implementation and maintenance of complex Web sites as customers continue to
rapidly adopt emerging technologies.
Customers
We have a large and diverse customer base ranging from Fortune 50 companies
to small and medium size businesses that rely heavily on the Internet. Our
customers are primarily located within the United States. As of July 1, 1999,
we were serving over 500 customers, covering most major industries. Our
customer contracts typically range in duration from one to three years. The
majority of our customers operate in industries which fall within our key
targeted industry segments and include the following well-known companies:
<TABLE>
<CAPTION>
Financial
Services and Media and
Insurance Entertainment Manufacturing Retail and Distribution
------------- ----------------- -------------------- -------------------------
<S> <C> <C> <C>
American
Century
Investments BBC America Dole Food Company American Eagle Outfitters
Ernst & Young
LLP The Economist Kraft Foods Authentic Fitness
Northwestern
Mutual Life
Insurance Forbes Liz Claiborne Campmor
Progressive
Insurance
Companies Edmund's Nike J. Crew
Thomson
Financial
Services Inc. Online Nissan Oakley
LendingTree Miller Freeman Sara Lee Corporation WW Grainger
Universal Studios
<CAPTION>
Technology and
Government Communications Healthcare Travel & Hospitality
------------- ----------------- -------------------- -------------------------
<S> <C> <C> <C>
U.S. Marine
Corps Celarix Bally Total Fitness Budget Rent-A-Car
U.S.
Department
of
Agriculture Compaq Claimsnet The Travel Company
JAVU Technologies
Microsoft
</TABLE>
In the past few years, Digex's growth has come from new clients, as well as
existing clients whose Web sites have evolved to become increasingly more
strategic to their overall business goals and objectives.
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Sales, Marketing and Service Delivery
Our sales objective is to achieve broad market penetration by focusing on
market segments which, we believe, have both a high propensity to outsource and
to deploy complex, mission-critical Web sites. We sell our services directly
through a highly-skilled professional sales force and receive referrals through
an extensive network of business partners.
Direct Sales. As of April 1, 1999, our direct sales force consisted of over
60 experienced, quota-bearing sales representatives. We have organized the
sales force into three units: major accounts, mid-market/Web-centric, and
alternate channel. The major accounts unit focuses on Fortune 2000 companies
and is aligned by industry. The mid-market/Web-centric unit addresses the large
and growing number of referrals coming from our regionally based business
partners, and is organized into three geographic regions: eastern, central and
western United States. Our alternate channel sales group works closely with our
business alliance solutions partners, such as Pandesic. Supporting each of
these units is a site engineering team that provides pre-sales technical
support, including requirements gathering, configuration support, site
architecture, and project management.
Strategic Partners--The Digex e-Link Partner ProgramTM. In 1998, we created
the Digex e-Link Partner Program(TM), which, we believe, has attracted some of
the leading interactive media and Web site development companies to partner
with Digex. To date, our business partners include such companies as Proxicom,
Agency.com, Xerox Connect and T3 Media. We currently have over 120 business
partnership alliances that are a significant source of sales leads and
opportunities. These business partners include Web site developers, Web site
designers, interactive and new media agencies, and systems integrators. We
collaborate, instead of compete, with our partners and complement each other's
skills in an effort to bring the best overall solution to our customers.
Typically, in these collaborative relationships, we focus on Web site hosting,
while our strategic partners concentrate on Web site design, development and
systems integration.
The success of this program has encouraged us to develop the Digex app-Link
Partner Program(TM). The Digex app-Link Partner Program(TM) will target
consultants and systems integrators, value-added hardware resellers and
application solution providers. Our partnership programs provide incentives to
refer business to us, and we often work together with our partners directly
with the client. Our strategy is to continue leveraging our partners as a
referral channel and a source for identifying market trends and emerging
customer requirements.
Marketing. We intend to continue our transformation into a highly focused,
market driven company. Our marketing organization is responsible for building
Digex's brand awareness, identifying key target markets and developing
innovative services to meet the evolving demands of the marketplace. Another
objective of our marketing effort is to stimulate the demand for Digex services
through a broad range of marketing communications and public relations
activities. Our primary communication vehicles include advertising, trade
shows, direct response programs, event sponsorship and the Digex Web sites.
Data Center Infrastructure
We presently operate two highly secure, fault-tolerant data centers
specifically designed for the 24-hour a day hosting of Web sites and Web-based
applications. Our east coast data center is strategically located near major
network access points in the Washington, D.C. metropolitan area. Our west coast
data center is situated near the western network access points and the
headquarters of many of our strategic technology providers. We are expanding
our total data center capacity to approximately 200,000 square feet in 1999,
and expect to add additional data center capacity over the next five years as
appropriate to meet anticipated customer and market demand.
Our data centers combine the predictability and control of traditional
mainframe-based data centers with the network access and capacity required for
today's Internet-based computing. Our data centers are designed to provide
consistently high service levels while permitting customers to rapidly deploy
new and strategic applications without substantially increasing cost or
incurring risk.
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The physical infrastructure and security controls of our data centers have
been designed to support rigorous requirements for secure data storage and
processing. Specifically, our data centers offer the following major physical
benefits to our customers:
.state-of-the-art physical security;
.multi-redundant mechanics, utilities and environmental controls;
.high-performance multi-network points of presence (WebPOPs); and
.fully-integrated customer work areas.
State-of-the-art physical security. Our data centers include multiple
separate computer rooms offering customers a high degree of containment and
isolation from accidents or disasters occurring within or outside of each data
center. Physical security has been implemented through tightly controlled
security zones requiring both access card and biometric identification. Each
data center has five security zones that require separate access levels to gain
entry. Our highest security zones include computer rooms physically constructed
as a building-within-a-building, with fire suppression and other controls
separate from the remainder of the data center. Fencing above the ceiling and
below the raised floor isolate each security zone. Over 100 surveillance
cameras record movement through the data centers and security guards provide
real-time visibility. Our cooling towers are surrounded by security fences and
monitored by cameras. Our dual 20,000 gallon diesel fuel tanks are safely
buried underground.
Multi-redundant mechanics, utilities and environmental controls. Within each
data center, separate mechanical rooms exist adjacent to each computer room.
These mechanical rooms house all cooling and mechanical equipment, eliminating
the possible introduction of liquid into the computer rooms from equipment
leakage. We use redundant uninterruptable power supply systems and redundant
generators, to ensure the power system is capable of maintaining power to the
data center in the event of any component failure. Cooling and environmental
controls for each data center are designed to monitor and ensure proper
temperature and humidity.
High-performance WebPOPs. Our data centers include physically separated
WebPOPs, which are network points of presence within our data centers. These
WebPOPs provide high-performance, reliable networking connectivity to multiple
national Internet backbone carriers for our customers. Telecommunications
circuits enter the data centers through multiple points from diverse service
providers. Multiple points of presence ensure continued operation of service
without degradation in the unlikely event of a cable cut or local carrier
network outage.
Fully-integrated customer work areas. Our data centers include separate,
private customer work areas. These work areas are isolated from the security
zones that house our servers, permitting customers to work on-site as
necessary. These work areas provide computing and personal resources, such as
customer breakrooms and wash areas.
Competition
The market served by Digex is highly competitive. There are few substantial
barriers to entry, and we expect to face additional competition from existing
competitors and new market entrants in the future. The principal competitive
factors in this market include:
. quality of services and scalability of infrastructure;
. network capacity, reliability, security and adaptability to new
technologies;
. Internet system engineering expertise;
. quality of customer service and support;
. relationships with marketing partners and vendors;
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. variety of services offered;
. price;
. product innovation;
. financial resources; and
. brand name.
Our current and potential competitors in the market include:
. Web hosting service providers;
. local, regional, national and international ISPs;
. local, regional, national and international telecommunications
companies; and
. large information technology outsourcing firms.
Our competitors may operate in one or more of these areas and include
companies such as AboveNet Communications, AT&T, Cable & Wireless, Concentric
Network, EDS, Exodus Communications, Frontier/GlobalCenter, Globix, GTE, Intel,
Level 3 Communications, MCI WorldCom, PSINet, IBM, Qwest Communications
International, and USinternetworking.
We believe our experience and reputation for delivering high quality, complex
Web site hosting services differentiate us from our key competitors. We focus
on our core competency of Web site and application hosting as opposed to
offering hosting as a complement to a wide range of communication services. We
believe we have defined and offer the industry's most complete set of functions
required to configure, engineer, implement and maintain complex, transactional
Web sites. We believe our DISA architecture, data centers, and technical team
distinguish us from our competition and enable us to provide among the highest
quality end-to-end complex Web site hosting solutions.
Intellectual Property Rights
We rely on a combination of copyright, trademark, service mark and trade
secret laws and contractual restrictions to establish and protect certain
proprietary rights in our data, applications and services. We have no patented
technology that would bar competitors from our market. We also rely on certain
technologies we license from third parties, such as Microsoft, Netscape and
Micromuse. There can be no assurance these third-party technology licenses will
continue to be available to us on commercially reasonable terms. The loss of
such technology could require us to obtain substitute technology of lower
quality or performance standards or at greater cost, which could harm our
business. However, other than our trademarks and service marks, we do not
believe that the loss of any particular one of our intellectual property rights
would harm our business.
Government Regulation
We are not currently subject to direct federal, state or local government
regulation, other than regulations applicable to businesses generally. There is
currently only a small body of laws and regulations directly applicable to
access to or commerce on the Internet.
Congress recently enacted the Digital Millennium Copyright Act, which became
effective in October 1998. The Digital Millennium Copyright Act includes a
limitation on liability of on-line service providers for copyright infringement
for transmitting, routing, or providing connections, transient storage, caching
or storage at the direction of a user. This limitation on liability applies if
the service provider had no actual knowledge or awareness that the transmitted
or stored material was infringing and if certain other conditions are met.
Since this law is new, we are unsure of how it will be applied to limit any
liability we may face in the future for any possible copyright infringement or
copyright-related issues. This new law also requires ISPs to follow certain
"notice and take-down" procedures in order to be able to take advantage of the
limitation on liability. We have not yet implemented such procedures nor
evaluated the cost of complying with them. However, our customers
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are subject to an acceptable use policy which prohibits them from posting,
transmitting or storing material on or through any of our services which, in
our sole judgment is (1) in violation of any local, state, federal or foreign
law or regulation, (2) threatening, obscene, indecent or defamatory or that
otherwise could adversely affect any individual, group or entity or (3) in
violation of the intellectual property rights or other rights of any person.
Although this policy is designed to promote the security, reliability and
privacy of our systems and network, there is no assurance that our policy will
accomplish this goal or shield us from liability under the Digital Millennium
Copyright Act.
Despite enactment of the Digital Millenium Copyright Act, the law relating to
the liability of on-line services companies and Internet access providers for
information carried on or disseminated through their networks remains largely
unsettled. It is possible claims could be made against on-line services
companies and Internet access providers under both United States and foreign
law for defamation, obscenity, negligence, copyright or trademark infringement,
or other theories based on the nature and content of the materials disseminated
through their networks. Several private lawsuits seeking to impose such
liability upon on-line services companies and Internet access providers are
currently pending.
Although sections of the Communications Decency Act of 1996 that proposed to
impose criminal penalties on anyone distributing indecent material to minors
over the Internet were held to be unconstitutional by the U.S. Supreme Court,
similar laws may be proposed, adopted and upheld. The nature of future
legislation and the manner in which it may be interpreted and enforced cannot
be fully determined and, therefore, legislation similar to the Communications
Decency Act could subject us and/or our customers to potential liability, which
in turn could harm our business. The adoption of any of these types of laws or
regulations might decrease the growth of the Internet, which in turn could
decrease the demand for our services or increase our cost of doing business or
in some other manner harm our business.
Due to the increasing popularity and use of the Internet, it is likely a
number of additional laws and regulations may be adopted at the federal, state
and local levels with respect to the Internet, covering issues such as user
privacy, freedom of expression, pricing, characteristics and quality of
products and services, taxation, advertising, intellectual property rights,
information security and the convergence of traditional telecommunications
services with Internet communications. The adoption of any such laws or
regulations might decrease the growth of the Internet, which in turn could
decrease the demand for our services or increase the cost of doing business or
in some other manner harm our business. In addition, applicability to the
Internet of existing laws governing issues such as property ownership,
copyrights and other intellectual property issues, taxation, libel, obscenity
and personal privacy is uncertain. The vast majority of such laws were adopted
prior to the advent of the Internet and related technologies and, as a result,
do not contemplate or address the unique issues of the Internet and related
technologies.
Employees
As of April 1, 1999, we employed approximately 420 full-time employees. None
of our employees are covered by a collective bargaining agreement. We believe
that our employee relations are good.
Properties
We currently share leased space with Intermedia totaling approximately 80,000
square feet in two buildings in Beltsville, Maryland. These facilities house
our east coast data center, our executive and administrative offices, and our
regional sales office. During the third quarter of 1999, we expect to relocate
to two different leased buildings in Beltsville, Maryland occupying a total of
approximately 122,000 square feet. We also lease a total of approximately
76,000 square feet in two other buildings--one in Cupertino, California, and
one in San Jose, California. These house our west coast data facilities and
regional sales office. We believe that our properties are adequate and suitable
for their intended purposes.
Legal Proceedings
We do not believe that there are any pending or threatened legal proceedings
that, if adversely determined, would have a material adverse effect on us.
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MANAGEMENT
The following sets forth the name, age and position within Digex of our
current directors and executive officers:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
David C. Ruberg......... 53 Chairman of the Board
Mark K. Shull (1)....... 43 Director, President and Chief Executive Officer
Nancy G. Faigen......... 42 President, Sales and Service Delivery Group
Rebecca Ward............ 35 President, Product Management, Engineering and Marketing Group
Bryan T. Gernert........ 32 Senior Vice President, Sales, Distribution and Client Services
Bradley E. Sparks....... 52 Chief Financial Officer
Marthe S. Lattinville-
Pace................... 46 Vice President, Human Resources
Robert B. Patrick....... 27 Vice President, Marketing
John C. Baker........... 49 Director
Philip A. Campbell...... 62 Director
George F. Knapp......... 67 Director
Pierce J. Roberts,
Jr. ................... 52 Director
Richard A. Jalkut....... 54 Director
Jack E. Reich........... 48 Director
</TABLE>
- --------
(1) Mr. Shull will become a Director upon the closing of this offering.
Executive Officers and Directors
David C. Ruberg has served as Director and Chairman of the Board of Digex
since April 1999. Mr. Ruberg has served as President, Chief Executive Officer
and a Director of Intermedia since May 1993, and as Chairman of the Board of
Intermedia since March 1994. From September 1991 to May 1993, he was an
independent consultant to the computer and telecommunications industries. From
1989 to September 1991, Mr. Ruberg served as Vice President and General Manager
of the Telecommunications Division and then of the Personal Computer/Systems
Integration Division of Data General Corporation, a computer manufacturer. From
1984 to 1989, Mr. Ruberg served as a Vice President of TIE Communications,
Inc., a manufacturer of telecommunications equipment. Mr. Ruberg received his
B.A. in mathematics from Middlebury College and his M.S. in computer science
from the University of Michigan.
Mark K. Shull has served as President and Chief Executive Officer of Digex
since July 1999. From January 1997 to June 1999, he served as Vice President
and General Manager of the Web hosting and electronic commerce business unit of
GTE Internetworking. From March 1995 to January 1997, prior to GTE
Internetworking's acquisition of BBN Planet Corporation, he served as Vice
President and General Manager of BBN Planet Corporation's Internet Business
Solutions Group. From June 1994 to March 1995, he served as a Senior Consultant
at EDS Management Consulting. Mr. Shull received his B.A. in public and
international affairs from Princeton University, and holds a J.D. from Stanford
Law School.
Nancy G. Faigen has served as President of the Sales and Service Delivery
Group of Digex since July 1999, and she served as President and Chief Executive
Officer from December 1998 to June 1999. From January 1998 to November 1998,
she served as Vice President of IBM e-business solutions, a business unit of
IBM. From October 1996 to November 1998, she served as Vice President of Global
Web Solutions of IBM. From November 1991 to October 1996, Ms. Faigen served in
various managerial and executive positions at IBM, including Executive
Assistant to the CEO and Director of Strategy and Business Unit Director of the
Sales and Services Division. Ms. Faigen holds a B.A. in drama and fine arts
from Dartmouth College.
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Rebecca Ward has served as President of the Product Management, Engineering
and Marketing Group of Digex since July 1999. From March 1991 to June 1999, she
held various management positions at GTE Internetworking and BBN Planet
Corporation, prior to its acquisition by GTE Internetworking, including most
recently Vice President of Product Management and Engineering of the Web
hosting and electronic commerce business unit of GTE Internetworking. Ms. Ward
holds a B.S. in computer technology from Northeastern University and an M.S. in
computer science from Boston University.
Bryan T. Gernert has served as Senior Vice President of Sales, Distribution
and Client Services of Digex since July 1999. From April 1995 to June 1999, he
held various other management positions at Digex, including Vice President of
Sales, Consulting and Client Services, Vice President of Sales and
Distribution, Sales Account Manager and Director of Sales. From January 1993 to
April 1995, he served as National Sales Manager of Evergreen Information
Technologies, Inc. From June 1989 to January 1993, he was Director of
Acquisitions for RCI, Inc. Mr. Gernert holds a B.S. in business administration
with a concentration in finance from the University of Delaware.
Bradley E. Sparks has served as Chief Financial Officer of Digex since July
1999. From September 1998 to July 1999, he served as Executive Vice President
and Chief Financial Officer of WAM!NET, a global provider of digital network
services. From 1995 to September 1998, he served as Chief Financial Officer of
OmniPoint Corporation. From 1993 to 1995, Mr. Sparks served as Vice President
and Controller of MCI Communications Corporation, which is now MCI WorldCom.
Mr. Sparks earned his B.S. from West Point, and his M.S. in management from the
Sloan School at Massachusetts Institute of Technology. Mr. Sparks is also a
certified public accountant.
Marthe S. Lattinville-Pace has served as Vice President of Human Resources of
Digex since April 1999. From January 1999 to March 1999 she served as Vice
President, Human Resources of ManorCare Realty. From April 1994 to March 1999,
she served as Director Human Resources, Europe, India & the Middle East for
Waters Corporation. She also served as Director Human Resources & Building
Administration of NYNEX Mobile Communications, from 1992 to 1994. Mrs.
Lattinville-Pace holds an M.B.A. from the Haute Etudes Commerciales of the
University of Montreal, a Bachelor in industrial relations from University of
Montreal and a psychology diploma from Old Montreal College.
Robert B. Patrick has served as Vice President of Marketing of Digex since
July 1999. From September 1998 to June 1999 he served as Vice President of
Marketing and Product Development of Digex. He served as Director of Business
Development for Digex from July 1997 through September 1998. He joined Digex in
September 1996, as Manager of Technical Operations. From June 1993 to June
1996, he served as a Senior Consultant for Andersen Consulting. From October
1988 to June 1993, he served as a Senior Computer Specialist for the Federal
Bureau of Investigation. Mr. Patrick holds a B.S. in management information
systems from George Mason University.
John C. Baker has served as Director of Digex since April 1999. He has served
as Director of Intermedia since February 1988. Mr. Baker has been the President
of Baker Capital Corp., a multi-national venture capital firm, since October
1995. He served as Senior Vice President of Patricof & Co. Ventures, Inc., a
multi-national venture capital firm, from 1988 until September 1995. Mr. Baker
is currently a Director of Resources Bancshares Mortgage Group, Inc., a
publicly traded corporation.
Philip A. Campbell has served as Director of Digex since April 1999. He has
served as Director of Intermedia since September 1996. Mr. Campbell retired
from Bell Atlantic as Director, Vice Chairman and Chief Financial Officer in
1991. Previously, he served as President of New Jersey Bell, Indiana Bell and
Bell Atlantic Network Services.
George F. Knapp has served as Director of Digex since April 1999. He has
served as Director of Intermedia since February 1988. He has been a Principal
of Communications Investment Group, an investment banking firm, since June
1990. From January 1988 until June 1989, Mr. Knapp was an associate at MBW
Management, Inc., a venture capital firm. Prior to that time, he held various
executive positions at ITT Corporation and its subsidiaries, most recently as
Corporate Vice President of ITT Corporation. Mr. Knapp is currently a member of
the Manhattan College Board of Trustees and Chairman of its Finance Committee.
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Pierce J. Roberts, Jr. has served as Director of Digex since April 1999.
Since December 1998, Mr. Roberts has served as Director of Intermedia. From
April 1993 to August 1998, Mr. Roberts held various positions at Bear, Stearns
& Co. Inc. and most recently was a Senior Managing Director and head of its
Global Telecommunications Group. From December 1990 to April 1993, Mr. Roberts
was a Managing Director at The Blackstone Group. Prior to that, Mr. Roberts
held various positions at BellSouth.
Richard A. Jalkut has served as Director of Digex since July 1999. He has
served as President, Chief Executive Officer and Director of Pathnet, Inc.
since August 1997. From 1995 to August 1997, Mr. Jalkut served as President and
Group Executive of NYNEX Telecommunications Group. From 1991 to 1995, he served
as President and Chief Executive Officer of New York Telephone Co. Inc., the
predecessor company to NYNEX Telecommunications Group. Mr. Jalkut is currently
a Director of Marine Midland Bank, a commercial bank, Ikon Office Solutions,
Inc., a company engaged in wholesale and retail office equipment, and Home
Wireless Networks, a company developing a wireless product for home and
business premises.
Jack E. Reich has served as Director of Digex since July 1999. From November
1998 to the present, he has served as President of KJE Inc., a management and
investment consulting firm. From December 1996 to November 1998 he served as
President and Chief Executive Officer of e.spire Communications, Inc. Mr. Reich
was also appointed Director during his tenure with e.spire Communications, Inc.
From April 1994 to October 1996 he served as President, Customer Business
Solutions, of Ameritech. From April 1986 to April 1994, he served in a number
of management positions for MCI Communications Corporation, including
President, Multinational Accounts. Prior to MCI, Mr. Reich held various
management positions with Rolm Corporation and AT&T. Mr. Reich is currently a
Director of LISN, Inc.
No family relationship exists between any of the directors and executive
officers of Digex.
Committees of the Board of Directors
The board of directors has an audit committee and a compensation committee.
Among other functions, the audit committee:
.makes recommendations to the board of directors regarding the selection of
independent auditors;
.reviews the results and scope of the audit and other services provided by
our independent auditors;
.reviews our financial statements; and
.reviews and evaluates our internal control functions.
The audit committee is composed of David C. Ruberg, Pierce J. Roberts, Jr.
and Jack E. Reich. The chairman of the audit committee is Mr. Ruberg.
The compensation committee administers our Long-Term Incentive Plan and makes
recommendations to the board of directors regarding the executive compensation
and salaries and incentive compensation for our employees and consultants. The
compensation committee is composed of Philip A. Campbell, George F. Knapp and
Richard A. Jalkut. The chairman of the compensation committee is Mr. Campbell.
Employment Agreements
Mark K. Shull. Mr. Shull's employment letter agreement provides for an
initial annual base salary of $250,000, which will be reviewed on January 1,
2000, and an annual bonus opportunity of 60% of his initial annual base salary
that will be based on the achievement of certain corporate and individual
objectives. The agreement also provides Mr. Shull with stock options to
purchase 100,000 shares of Intermedia common stock at an exercise price of
$30.94, subject to the terms and conditions of the Intermedia 1996 Long-Term
Incentive Plan, to vest in equal installments over the 60-month period
commencing on his date of employment. On the effective date of this prospectus,
Mr. Shull will be granted options to purchase 500,000 shares of our Class A
Common Stock. 250,000 of these options will be exercisable at $5.00 per share
and the balance will be exercisable at the initial public offering price.
Options covering 25% of the 500,000 shares of our Class A Common Stock will
vest one year following the date of grant and the balance will vest in equal
quarterly installments over the next three years. Following a change of control
of Digex or Intermedia, one-half of Mr. Shull's then unvested Digex options
will vest immediately, and the remainder will vest on the first
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anniversary of the change of control if Mr. Shull continues to be employed by
Digex at that date, or upon termination by Digex of Mr. Shull's employment
(other than for cause), if earlier. Following a change of control of
Intermedia, one-half of Mr. Shull's then unvested Intermedia options will vest
immediately, and the remainder will vest on the first anniversary of the change
of control if Mr. Shull continues to be employed by Digex or Intermedia or any
of its subsidiaries at that date, or upon termination by Digex and, if
applicable, Intermedia of Mr. Shull's employment (other than for cause), if
earlier.
If Mr. Shull is terminated by Intermedia or us for any reason other than for
cause, we or Intermedia will pay his base salary as in effect at the time of
termination through the later of July 1, 2001, or the first anniversary of the
date of termination. Mr. Shull's entitlement to receive payments shall
terminate if he directly or indirectly knowingly hires, within six months
following his date of termination, any employee of director-level or above who
was employed by Intermedia or Digex on the date of his termination.
The letter agreement also provides Mr. Shull with a relocation allowance of
up to $100,000 in the form of a loan which will be forgiven in equal monthly
installments over a 12-month period commencing on the date of the last
relocation reimbursement.
Nancy G. Faigen. Ms. Faigen's employment letter agreement provides for an
initial annual base salary of $225,000, and an annual bonus opportunity of 50%
of her initial annual base salary that will be based on the achievement of
certain corporate and individual objectives. The agreement provides Ms. Faigen
with a $125,000 unrestricted signing bonus in two installments: $50,000 on
January 2, 1999 and $75,000 on August 1, 1999. The agreement provides Ms.
Faigen with a second signing bonus of $150,000 in two installments: $50,000 on
the date she accepted the offer of employment and $100,000 on April 1, 1999.
The agreement also provides Ms. Faigen with a stock option to purchase
100,000 shares of Intermedia common stock at an exercise price of $15.00,
subject to the terms and conditions of the Intermedia 1996 Long-Term Incentive
Plan, to vest in equal installments over the 60-month period commencing on her
date of employment. On the effective date of this prospectus, Ms. Faigen will
be granted options to purchase 300,000 shares of our Class A Common Stock.
150,000 of these options will be exercisable at $5.00 per share and the balance
will be exercisable at the initial public offering price. Options covering 25%
of the 300,000 shares of our Class A Common Stock will vest one year following
the date of grant and the balance will vest in equal quarterly installments
over the next three years. Following a change of control of Digex or
Intermedia, all of Ms. Faigen's unvested Digex options will vest on the first
anniversary of the change of control if Ms. Faigen continues to be employed by
Digex at that date, or upon termination by Digex of Ms. Faigen's employment
(other than for cause), if earlier. Following a change of control of
Intermedia, all of Ms. Faigen's Intermedia options will vest on the first
anniversary of the change of control if Ms. Faigen continues to be employed by
Digex or Intermedia or any of its subsidiaries at that date, or upon
termination of Ms. Faigen's employment (other than for cause), if earlier.
The letter agreement also provides Ms. Faigen with a relocation allowance of
up to $125,000 in the form of a loan which will be forgiven in equal monthly
installments over a 12-month period commencing on the date of the last
relocation reimbursement.
Rebecca Ward. Ms. Ward's employment letter agreement provides for an initial
annual base salary of $200,000, and an annual bonus opportunity of 50% of her
initial annual base salary that will be based on the achievement of certain
corporate objectives. The agreement provides Ms. Ward with a bonus of $100,000,
payable in two equal installments: upon commencement of employment with us, and
after six months of employment. The agreement also provides Ms. Ward with a
stock option to purchase 50,000 shares of Intermedia common stock at an
exercise price of $30.00, subject to the terms and conditions of the Intermedia
1996 Long-Term Incentive Plan, to vest in equal installments over the 60-month
period commencing with the day the option grant was approved. On the effective
date of this prospectus, Ms. Ward will be granted stock options to purchase
250,000 shares of our Class A Common Stock. 125,000 of these options will be
exercisable at $5.00 per share and the balance will be exercisable at the
initial public offering price. Options covering 25% of the 250,000 shares of
our Class A Common Stock will vest one year following the date of grant and the
balance will vest in equal quarterly installments over the next three years.
Following a change of control of
48
<PAGE>
Digex or Intermedia, all of Ms. Ward's unvested Digex options will vest on the
first anniversary of the change of control if Ms. Ward continues to be employed
by Digex at that date, or upon termination by Digex of Ms. Ward's employment
(other than for cause), if earlier. Following a change of control of
Intermedia, all of Ms. Ward's Intermedia options will vest on the first
anniversary of the change of control if Ms. Ward continues to be employed by
Digex or Intermedia or any of its subsidiaries at that date, or upon
termination by Digex of Ms. Ward's employment (other than for cause), if
earlier.
If Ms. Ward is terminated by Digex for any reason other than for cause, we
will pay her base salary as in effect at the time of termination through the
later of January 1, 2002, or the first anniversary of the date of termination.
Bryan Gernert. Mr. Gernert's employment letter agreement provides for an
initial annual base salary of $200,000 and an annual bonus opportunity of 60%
of his annual base salary that will be based on the achievement of certain
corporate objectives.
On the effective date of this prospectus, Mr. Gernert will be granted options
to purchase 400,000 shares of our Class A Common Stock. 300,000 of these
options will be exercisable at $5.00 per share and the balance will be
exercisable at the initial public offering price. Options covering 25% of the
400,000 shares of our Class A Common Stock will vest one year following the
date of grant and the balance will vest in equal quarterly installments over
the next three years. In the event his employment is terminated by Digex for
any reason other than for cause prior to July 9, 2001, his options covering an
aggregate of 200,000 shares (including any installments previously vested) will
vest immediately on the date of termination, of which 150,000 will be those
exercisable at $5.00 and 50,000 exercisable at the initial public offering
price. Following a change of control of Digex or Intermedia, all of Mr.
Gernert's unvested options will vest on the first anniversary of the change of
control if Mr. Gernert continues to be employed by Digex at that date, or upon
termination by Digex of Mr. Gernert's employment (other than for cause), if
earlier.
Bradley E. Sparks. Mr. Sparks' employment letter agreement provides for an
initial annual base salary of $200,000, and an annual bonus opportunity of 50%
of his initial annual base salary that will be based on the achievement of
certain corporate objectives.
On the effective date of this prospectus, Mr. Sparks will be granted options
to purchase 200,000 shares of our Class A Common Stock. 100,000 of these
options will be exercisable at $5.00 per share and the balance will be
exercisable at the initial public offering price. Options covering 25% of the
200,000 shares of our Class A Common Stock will vest one year following the
date of grant and the balance will vest in equal quarterly installments over
the next three years. Following a change of control of Digex or Intermedia, all
of Mr. Sparks' unvested options will vest on the first anniversary of the
change of control if Mr. Sparks' continues to be employed by Digex at that
date, or upon termination by Digex of Mr. Sparks' employment (other than for
cause), if earlier.
The letter agreement also provides Mr. Sparks with a relocation allowance of
up to $85,000 in the form which will be forgiven in equal monthly installments
over a 12-month period commencing on the date of the last relocation
reimbursement.
Robert B. Patrick. Mr. Patrick's employment letter agreement provides for an
annual base salary of $150,000, and an annual bonus opportunity of 40% of his
annual base salary that will be based on the achievement of certain corporate
objectives.
On the effective date of this prospectus, Mr. Patrick will be granted options
to purchase 100,000 shares of our Class A Common Stock. 50,000 of these options
will be exercisable at $5.00 per share and the balance will be exercisable at
the initial public offering price. Options covering 25% of the 100,000 shares
of our Class A Common Stock will vest one year following the date of grant and
the balance will vest in equal quarterly installments over the next three
years. In the event his employment is terminated by Digex for any reason other
than for cause prior to July 9, 2000, his options covering an aggregate of
25,000 shares (including any installments previously vested) will vest
immediately on the date of termination. Following a change of control of Digex
or Intermedia, all of Mr. Patrick's unvested options will vest on the first
anniversary of the change of control if Mr. Patrick continues to be employed by
Digex at that date, or upon termination by Digex of Mr. Patrick's employment
(other than for cause), if earlier.
49
<PAGE>
Summary Compensation Table
The following table sets forth the total compensation of our Chief Executive
Officer, each of our most highly compensated executive officers whose total
salary and bonus for 1998 exceeded $100,000, and two additional executive
officers for whom disclosure would have been required but for the fact that
they were not serving as executive officers of Digex at the end of 1998 (each a
named executive officer, and collectively, the named executive officers).
Securities underlying the options listed in the "Long-Term Compensation
Awards" column are shares of common stock of Intermedia awarded under
Intermedia's long-term incentive plans. On July 23, 1999, we adopted the Digex
Long-Term Incentive Plan pursuant to which options to purchase shares of our
Class A Common Stock will be issued on the effective date of this prospectus.
Prior awards under Intermedia's long-term incentive plans will not be affected
by the adoption of the Digex Long-Term Incentive Plan.
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
-------------------------------------- ------------
Other Securities
Fiscal Annual Underlying
Name and Principal Position Year Salary($) Bonus($) Compensation($) Options (#)
- --------------------------- ------ --------- -------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Mark K. Shull............ 1998 -- (2) -- -- -- (10)
President and Chief Ex-
ecutive Officer 1997 -- -- -- --
1996 -- -- -- --
Nancy G. Faigen.......... 1998 11,105(3) 50,000(8) -- -- (11)
President, Sales and 1997
Service -- -- -- --
Delivery Group (1) 1996 -- -- -- --
Rebecca Ward............. 1998 -- (4) -- -- -- (12)
President, Product
Management, Engineering 1997 -- -- -- --
and Marketing Group 1996 -- -- -- --
Bryan T. Gernert......... 1998 95,000(5) -- 166,108(9) -- (13)
Senior Vice President,
Sales, Distribution and 1997 75,000 -- 126,016(9) 33,552
Client Services 1996 75,000 -- 31,520(9) 13,422
Bradley E. Sparks........ 1998 -- (6) -- -- -- (14)
Chief Financial Officer 1997 -- -- -- --
1996 -- -- -- --
Robert B. Patrick........ 1998 92,500(7) 5,000 -- 5,000(15)
Vice President, 1997 65,000 7,500 -- 9,586
Marketing
1996 20,000 10,833 -- 3,836
</TABLE>
- --------
(1) Ms. Faigen served as President and Chief Executive Officer from December
1998 to June 1999.
(2) Mr. Shull commenced employment with Digex in July 1999. Mr. Shull's
current annual base salary is $250,000. He has a target annual bonus
opportunity equal to 60% of his base salary.
(3) Ms. Faigen commenced employment with Digex in December 1998. Ms. Faigen's
current annual base salary is $225,000. She has a target annual bonus
opportunity equal to 50% of her base salary.
(4) Ms. Ward commenced employment with Digex in July 1999. Ms. Ward's current
annual base salary is $200,000. She has a target annual bonus opportunity
equal to 50% of her base salary. Ms. Ward also received a bonus of
$100,000, 50% of which was paid upon starting and 50% of which will be
paid six months after employment.
(5) Mr. Gernert's current annual base salary is $200,000. He has a target
annual bonus opportunity equal to 60% of his base salary.
(6) Mr. Sparks commenced employment with Digex in July 1999. Mr. Sparks'
current annual base salary is $200,000. He has a target annual bonus
opportunity equal to 50% of his base salary.
(7) Mr. Patrick commenced employment with Digex in September 1996. Mr.
Patrick's current annual base salary is $150,000. He has a target annual
bonus opportunity equal to 40% of his base salary.
(8) In connection with the commencement of her employment with Digex, Ms.
Faigen received bonuses totalling $275,000, of which $50,000 was paid on
the date of her acceptance of employment, $50,000 on January 2, 1999,
$100,000 on April 1, 1999, and $75,000 is payable on August 1, 1999.
(9) These amounts represent commission payments.
50
<PAGE>
(10) In connection with the commencement of his employment with Digex, Mr.
Shull was granted options to purchase 100,000 shares of Common Stock of
Intermedia at an exercise price equal to $30.94 per share. On the
effective date of this prospectus, Mr. Shull will be granted options to
purchase 500,000 shares of Digex Class A Common Stock, 250,000 of which
will be at an exercise price equal to $5.00 per share and the balance of
which will be at an exercise price equal to the public offering price.
(11) On the effective date of this prospectus, Ms. Faigen will be granted
options to purchase 300,000 shares of Class A Common Stock, 150,000 of
which will be at an exercise price equal to $5.00 per share and the
balance of which will be at an exercise price equal to the public offering
price.
(12) In connection with the commencement of her employment with Digex, Ms. Ward
was granted options to purchase 50,000 shares of Intermedia common stock
at an exercise price equal to $30.00 per share. On the effective date of
this prospectus, Ms. Ward will be granted options to purchase 250,000
shares of Class A Common Stock, 125,000 of which will be at an exercise
price equal to $5.00 per share and the balance of which will be at an
exercise price equal to the public offering price.
(13) On the effective date of this prospectus, Mr. Gernert will be granted
options to purchase 400,000 shares of Class A Common Stock, 300,000 of
which will be at an exercise price equal to $5.00 per share and the
balance of which will be at an exercise price equal to the public offering
price.
(14) On the effective date of this prospectus, Mr. Sparks will be granted
options to purchase 200,000 shares of Class A Common Stock, 100,000 of
which will be at an exercise price equal to $5.00 per share and the
balance of which will be at an exercise price equal to the public offering
price.
(15) On the effective date of this prospectus, Mr. Patrick will be granted
options to purchase 100,000 shares of Class A Common Stock, 50,000 of
which will be at an exercise price equal to $5.00 and the balance of which
will be at an exercise price equal to the public offering price.
Options to be Granted on the Effective Date of this Prospectus
The following table sets forth certain information regarding options to
purchase our Class A Common Stock to be granted to our named executive officers
on the effective date of this prospectus under the Digex Long-Term Incentive
Plan.
The expiration date of all options set forth below will be ten years from the
date of grant. The percent of total options to be granted to employees on the
effective date was calculated based on all option grants that have been
determined and of which recipients have been notified as of the date of this
prospectus. We anticipate granting additional options to other employees on the
effective date. The potential realizable value at assumed annual rates of price
appreciation for all options set forth below was calculated using an assumed
public offering price of $15.00 as the market price on the date of grant.
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Annual Rates of Stock
Price Appreciation For
Individual Grants Option Terms
------------------ ---------------------------------
Number of Percent of Total
Securities Options to be
Underlying Granted to Exercise Assumed
Options Employees on the Price Market
Granted (#) Effective Date (%) Per Share Price 0% 5% 10%
----------- ------------------ --------- ------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Mark K. Shull........... 250,000 12.17 $5.00 $15.00 $2,500,000 $4,857,500 $ 8,477,500
250,000 12.17 (1) 15.00 0 2,357,500 5,977,500
Nancy G. Faigen......... 150,000 7.30 5.00 15.00 1,500,000 2,914,500 5,086,500
150,000 7.30 (1) 15.00 0 1,414,500 3,586,500
Rebecca Ward............ 125,000 6.08 5.00 15.00 1,250,000 2,428,750 4,238,750
125,000 6.08 (1) 15.00 0 1,178,750 2,988,750
Bryan T. Gernert........ 300,000 14.60 5.00 15.00 3,000,000 5,829,000 10,173,000
100,000 4.87 (1) 15.00 0 943,000 2,391,000
Bradley E. Sparks....... 100,000 4.87 5.00 15.00 1,000,000 1,943,000 3,391,000
100,000 4.87 (1) 15.00 0 943,000 2,391,000
Robert B. Patrick....... 50,000 2.43 5.00 15.00 500,000 971,500 1,695,500
50,000 2.43 (1) 15.00 0 471,500 1,195,500
</TABLE>
- --------
(1) The exercise price will equal the public offering price.
51
<PAGE>
Option Grants In Fiscal Year 1998
The following table sets forth certain information regarding Intermedia stock
options granted to our Vice President of Marketing during the year ended
December 31, 1998.
The securities underlying the options listed in the column entitled "Number
of Securities Underlying Options Granted (#)" are shares of common stock of
Intermedia awarded under Intermedia's 1996 Long-Term Incentive Plan. Prior to
the closing of this offering, we will adopt a long-term incentive compensation
plan pursuant to which options to purchase shares of our Class A Common Stock
will be issued on the effective date of this prospectus.
The percent of total options granted to employees in fiscal year ended
December 31, 1998 represent the percent of total options granted to Intermedia
employees.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of
Stock Price
Appreciation
Individual Grants For Option Terms
------------------------------------------------ --------------------
Number of
Securities Percent of Total
Underlying Options
Options Granted to Exercise
Granted Employees in Price Expiration
(#) Fiscal Year (%) Per Share Date 5% 10%
---------- ---------------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Robert B. Patrick....... 5,000 0.2% $26.88 9/29/08 $84,500 $214,200
</TABLE>
Aggregate Option Exercises in 1998 and Last Fiscal Year-End Option Values
The following table shows the number of shares acquired upon exercise of
stock options during 1998, the aggregate value realized from those exercises,
the number of shares covered by both exercisable and unexercisable options as
of December 31, 1998 and the year-end value of exercisable and unexercisable
options as of December 31, 1998 for the only named executive officer who had
any stock options in 1998.
All shares acquired on exercise were shares of Intermedia common stock.
Securities underlying the options listed in the following table are shares of
common stock of Intermedia awarded under Intermedia's long-term incentive
plans.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at In-the-Money Options
December 31, 1998 at December 31, 1998
------------------------- -------------------------
# Shares
Acquired $ Value
Name On Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Bryan T. Gernert........ 4,544 $303,290 24,208 14,140 $222,400 $116,461
Robert B. Patrick....... -0- -0- 3,009 9,135 $ 20,680 $ 37,332
</TABLE>
52
<PAGE>
Long-Term Incentive Plan
The Digex Long-Term Incentive Plan, adopted on July 23, 1999, permits awards
of stock, stock options, stock appreciation rights, restricted stock and other
stock-based awards as incentives to our current and prospective employees,
officers, directors and consultants, and those of our subsidiaries or of any
person that owns over 50% of the voting power of our authorized and outstanding
voting shares. However, only our employees are eligible for grants of incentive
stock options.
The Digex Long-Term Incentive Plan, also known as the "Plan," is administered
by the compensation committee of our board of directors, the members of which
consist solely of two or more members of the board who are "Non-Employee"
directors under Rule 16b-3 of the Exchange Act and "outside directors" under
the Rule 162(m) of the Internal Revenue Code. The compensation committee has
the authority to select those employees, officers, directors and consultants
whose performances it determines significantly promote our success to receive
discretionary awards under the Plan, grant the awards, interpret and determine
all questions of policy pertaining to the Plan, adopt rules, regulations,
agreements and instruments deemed necessary for its proper administration and
take any and all other actions deemed necessary or desirable for the proper
administration of the Plan and to effectuate its purposes. In regards to
options, the board has the authority to determine who will receive options, the
time at which options will be granted, the number of shares subject to any
option, the exercise price of an option, the time or times at which the options
will become vested and exercisable, and the duration of the option.
The shares of Digex subject to the Plan are authorized but unissued shares of
our Class A Common Stock or treasury stock. No more than 9,000,000 shares of
our Class A Common Stock may be issued under the Plan.
Discretionary Awards:
Stock Options. Awards of stock options grant a right to buy a specified
number of shares of Class A Common Stock at a fixed exercise price during a
specified time, all as the compensation committee may determine.
Incentive Stock Options. Awards may be of incentive stock options, within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended, or any
successor section. Subject to adjustment, the aggregate number of shares which
may be subject to incentive stock options awards under the Plan shall not
exceed 9,000,000 shares.
Stock Appreciation Rights. Awards of stock appreciation rights grant a right,
which may or may not be contained in the grant of a stock option or incentive
stock option, to receive in cash, or its equivalent value in Class A Common
Stock, the excess of the fair market value of a share of Class A Common Stock
on the date the right is surrendered over the option exercise price or other
price specified by agreement.
Restricted Shares. Restricted shares are shares of Class A Common Stock
granted to a participant of the Plan that are subject to forfeiture until
certain restrictions, terms and conditions as the compensation committee may
determine are fulfilled.
Dividend or Equivalent. An award of dividends grants a participant the right
to receive dividends or their equivalent in value in Class A Common Stock, cash
or a combination of both.
Stock Award. Class A Common Stock may be issued to a Plan participant. Such
awards can be granted on a contingent basis.
Other Stock-Based Awards. Other Class A Common Stock-based awards that serve
the same function as the foregoing awards may be granted.
53
<PAGE>
Formula Awards:
Pursuant to the Plan, in addition to any discretionary awards granted to non-
employee directors, and subject to certain restrictions, additional grants of
non-incentive stock options shall be awarded to non-employee directors based on
the following formula: stock options to acquire 25,000 shares of Class A Common
Stock shall be granted on the effective date of this prospectus or, with
respect to non-employee directors not serving in such capacity on the foregoing
date, on the date the director is elected to the board of directors,
exercisable, so long as the non-employee director continues to be a member of
the board of directors, as to 8,334 of the shares on the January 1 following
the date the stock option is granted and as to an additional 8,333 shares on
January 1 of each of the two years thereafter. If a non-employee director fails
to attend 75% of the board meetings in any calendar year, he or she will
forfeit the right to exercise that portion of the options which would have been
exercisable on the next following January 1.
Non-employee directors shall also be granted a stock option to acquire 5,000
shares of Class A Common Stock on the effective date of this prospectus or,
with respect to non-employee directors not serving in such capacity on the
foregoing date, on the date the director is elected to the board of directors,
and on each anniversary thereof which options shall be immediately exercisable
upon grant.
Upon a change of control of Digex or Intermedia, options granted to all non-
employee directors shall become fully vested and immediately exercisable and
will continue to be exercisable through the expiration date of the grant. All
stock options granted pursuant to either of the foregoing formulas shall be
granted at the fair market value of the Class A Common Stock (the initial price
to the public in the case of options issued on the effective date of this
prospectus) on the date the options are granted and shall expire on the earlier
of the fifth anniversary of the date the options were granted or on the first
anniversary of the date the non-employee director ceases to be a member of the
board of directors.
General:
If a Plan participant's employment or other relationship with us is
terminated for any other reason besides death or "for cause"or voluntarily by
the participant without the consent of Digex, Intermedia or one of our
subsidiaries, and the participant is thereafter not employed by us or does not
then have a relationship with us, any options granted to the participant under
the Plan may be exercised by the participant at any time within three months of
such termination, to the extent the participant was entitled to exercise the
options at the time of the termination.
A change in the control of Digex or Intermedia will accelerate the date upon
which the options will become exercisable to the extent and under the terms set
forth in the Plan.
The maximum number of shares of Class A Common Stock that may be granted to a
single participant in the Plan in any single year is 1,000,000. Additionally,
no award shall be assignable.
The Plan may be terminated, modified or amended by the affirmative vote of
the holders of a majority of the votes of our outstanding shares of capital
stock present or represented and entitled to vote at a duly held stockholders'
meeting. The board of directors may terminate the Plan or make modifications or
amendments, provided that the board of directors cannot make any amendment to
the Plan increasing the number of shares of Class A Common Stock covered by the
Plan without prior approval by the holders of common stock having a majority of
the voting power thereof present and entitled to vote at a meeting of
stockholders. No termination, modification or amendment of the Plan may
adversely affect the rights previously conferred by an award under the Plan
without the consent of the recipient.
The Plan will terminate on the tenth anniversary of the effective date of
this prospectus.
54
<PAGE>
Indemnifications of Directors and Executive Officers and Limitation of
Liability
Our certificate of incorporation includes a provision that eliminates the
personal liability of our directors for monetary damages for breach of
fiduciary duty as a director, except for liability:
.for any breach of the director's duty of loyalty to us or our
stockholders;
. for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
. under section 174 of the Delaware General Corporation Law regarding
unlawful dividends and stock purchases; or
. for any transaction from which the director derived an improper personal
benefit.
These provisions are permitted under Delaware law.
Our bylaws provide that:
. we must indemnify our directors, officers, employees and agents to the
fullest extent permitted by Delaware law, subject to certain very
limited exceptions; and
. we must advance expenses, as incurred, to our directors and executive
officers in connection with a legal proceeding to the fullest extent
permitted by Delaware Law, subject to certain very limited exceptions.
Prior to the completion of this offering, we intend to enter into
indemnification agreements with each of our directors and executive officers to
give them additional contractual assurances regarding the scope of the
indemnification described above and to provide additional procedural
protections. Generally, pursuant to each indemnification agreement, Digex will
indemnify a director or officer who is or was a party to any legal action by or
against the indemnitee due to his or her position as a Digex director or
officer, known as the "indemnitee," against the expenses, judgments, fines and
amounts paid in settlement that were actually and reasonably incurred by the
indemnitee in connection with such legal action, provided that such indemnitee
acted in good faith and in a manner not opposed to the best interests of Digex.
We also participate in Intermedia's directors' and officers' insurance
providing $40 million in indemnification coverage for our directors, officers
and certain employees for certain liabilities. The coverage under that policy
is being increased to $50 million.
The limitation of liability and indemnification provisions in our certificate
of incorporation and bylaws may discourage stockholders from bringing a lawsuit
against directors for breach of their fiduciary duty. They may also have the
effect of reducing the likelihood or derivative litigation against directors
and officers, even though such an action, if successful, might otherwise
benefit us and our stockholders. Furthermore, a stockholder's investment may be
adversely affected to the extent we pay the costs of settlement and damage
awards against directors and officers pursuant to these indemnification
provisions.
There is no pending litigation or proceeding involving any of our directors,
officers or employees regarding which indemnification is sought, nor are we
aware of any threatened litigation that may result in claims for
indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling Digex pursuant
to the foregoing provisions, we have been informed that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
55
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We have entered into the General and Administrative Services Agreement and
several network services agreements with Intermedia. These agreements are
described below. The General and Administrative Services Agreement and certain
parts of the network services agreements are included as an exhibit to the
registration statement of which this prospectus forms a part.
General and Administrative Services Agreement
Under the General and Administrative Services Agreement, Intermedia will
provide us with a variety of general and administrative services, including:
. finance, accounting and administration services, collections and accounts
receivable services, financial planning and analysis, investor relations
and corporate development;
. human resources services;
. legal services;
. information management services; and
. insurance coverage and related services.
The General and Administrative Services Agreement provides for a two-year
initial term. We may terminate the agreement on 90-days prior notice at any
time after Intermedia no longer owns more than 50% of the voting power of our
outstanding common stock.
The General and Administrative Services Agreement provides that during the
first year of the agreement, we will pay to Intermedia fees totaling
$16,500,000 for the services provided. Thereafter, the fee payable by us will
be decreased monthly based on an assessment of the cost of personnel hired by
us during the preceding month to perform certain of the functions internally.
Material amendments and modifications to the General and Administrative
Services Agreement and any extensions of its term are required to be approved
by a majority of our directors who are not officers or directors of Intermedia.
Intermedia has advised us that the fees payable by Digex to Intermedia under
the General and Administrative Services Agreement are intended to approximate
Intermedia's estimated costs of providing the covered services to Digex.
Because it is not practical to obtain quotes for all of these services from
third parties, we cannot determine whether, and there can be no assurance that,
the terms of the General and Administrative Services Agreement are as favorable
to us as would result from an arm's length negotiation with an unrelated third
party.
Network Services Agreements
We have entered into the following agreements with Intermedia, through its
wholly-owned subsidiary Business Internet, for a variety of Internet access,
network and firewall installation and management services: two Internet transit
services agreements and a managed firewall reseller agreement.
The two Internet transit service agreements provide, among other things,
that:
. we will purchase and Intermedia will provide to us a certain data transit
capacity;
. we will be treated as a most favored customer entitled to rates and fees
as low as those granted by Intermedia to any other customer purchasing
substantially similar services;
. the agreements will have an initial term of two years which will be
automatically renewed for successive one year periods unless either we or
Intermedia elects not to renew by giving 30-days prior notice;
56
<PAGE>
. Intermedia has made certain service level commitments to us covering both
network availability and performance; and
. if we do not renew the agreements for at least one renewal term, we will
be liable to Intermedia for any termination charges assessed against
Intermedia by local access providers for the early termination of local
access circuits purchased by Intermedia for the provision of services to
us.
We expect to pay Intermedia a total of approximately $7.4 million for
Internet transit services during the first year of these agreements.
The managed firewall reseller agreement provides, among other things, for:
. certain service level commitments covering both service availability and
performance; and
. continuous access by Intermedia to any equipment owned by Intermedia
deployed at any of our facilities.
Under this agreement, we will pay over to Intermedia all amounts we receive
from our customers for these services.
We believe the terms of the network services agreements are at least as
favorable to us as they would be under similar arrangements between Digex and
an unrelated third party.
Sale of Telecommunications Related Assets to Intermedia
We are subject to certain restrictions under the Intermedia indentures, as
described under "Risk Factors -- Digex is controlled by Intermedia, which could
involve some risks for you as a stockholder--We depend on Intermedia to fund
our working capital and operating losses, but Intermedia's ability to fund
these needs is limited by its own substantial indebtedness." Due to such
restrictions, we will be required to use all of the net proceeds of this
offering to purchase Telecommunications Related Assets within 270 days of this
offering. We have entered into a letter agreement with Intermedia pursuant to
which Intermedia will purchase from us, at our cost, some of the
Telecommunications Related Assets purchased with the net proceeds of this
offering. Under the letter agreement, Intermedia is expected to pay us for the
Telecommunications Related Assets so purchased to the extent necessary out of
its funds that are not subject to restrictions under the indentures which we
will be able to use for working capital purposes and to fund operating losses.
See "Use of Proceeds."
Restructuring Transactions
In conjunction with this offering, Business Internet has contributed to us
the Web hosting business described in this prospectus in exchange for all the
shares of our Class B Common Stock.
Relationship with Bear, Stearns & Co. Inc.
Bear, Stearns & Co. Inc. is serving as joint lead managing underwriter of
this offering for Digex. Pierce J. Roberts, Jr., who is currently serving as a
Director of Digex, was an employee of Bear, Stearns & Co. Inc. until August
1998. Immediately prior to his departure from Bear, Stearns & Co. Inc., Mr.
Roberts served as a Senior Managing Director and head of the Global
Telecommunications Group.
Bear, Stearns & Co. Inc. or its affiliates have provided and may in the
future provide investment banking or other financial services to Intermedia,
the parent company of Digex, and its affiliates in the ordinary course of
business, for which it has received and is expected to receive customary fees
and expenses. Bear, Stearns & Co. Inc. has been an initial purchaser for
numerous issuances of securities by Intermedia.
57
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table provides information regarding:
. beneficial ownership of our common stock by each person or entity known
to us to be a beneficial owner of more than 5% of the outstanding shares
of our common stock, as of July 12, 1999;
. beneficial ownership of our common stock by each of our directors and
named executive officers, as of July 12, 1999; and
. beneficial ownership of our common stock by all of our directors and
executive officers as a group, as of July 12, 1999.
<TABLE>
<CAPTION>
Percentage
Percentage of Class of Voting Power
Beneficially Owned of Common Stock
---------------------- -----------------
Number of
Shares
Securities Beneficially Before After Before After
Beneficial Owner Owned Owned Offering Offering Offering Offering
- ---------------- ------------ ------------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Principal Stockholders:
Intermedia Class B
Communications Inc. Common Stock
3625 Queen Palm Drive 50,000,000(1) 100.0% 100.0% 100.0% 98%
Tampa, Florida 33619
Directors and Executive
Officers:
David C. Ruberg None -- -- -- -- --
Mark K. Shull None -- -- -- -- --
Nancy G. Faigen None -- -- -- -- --
Rebecca Ward None -- -- -- -- --
Bryan T. Gernert None -- -- -- -- --
Bradley E. Sparks None -- -- -- -- --
Robert B. Patrick None -- -- -- -- --
John C. Baker None -- -- -- -- --
Philip A. Campbell None -- -- -- -- --
George F. Knapp None -- -- -- -- --
Pierce J. Roberts, Jr. None -- -- -- -- --
All directors and
executive officers
as a group (12
persons) None -- -- -- -- --
</TABLE>
- --------
(1) Gives effect to the 50,000-for-one stock split of our Class B Common Stock
to be effected prior to the closing of this offering. These shares are
owned by Intermedia through its wholly-owned subsidiary, Business Internet,
Inc.
58
<PAGE>
The following table provides information regarding:
. those persons or groups known to us to be the beneficial owners of more
than five percent of the common stock of our parent, Intermedia;
. beneficial ownership of common stock of our parent, Intermedia, by each
of our directors and named executive officers, as of July 12, 1999; and
. beneficial ownership of common stock of our parent, Intermedia, by all of
our directors and executive officers as a group, as of July 12, 1999.
The percentage of Intermedia common stock beneficially owned was calculated
based on 50,212,682 shares outstanding on July 12, 1999.
<TABLE>
<CAPTION>
Percentage of
Common Stock
Beneficially
Number of Owned
Shares -----------------
Beneficially Before After
Beneficial Owner Securities Owned Owned Offering Offering
- ---------------- ----------------------- ------------ -------- --------
<S> <C> <C> <C> <C>
Putnam Investments, Inc. Intermedia common stock 5,457,330(1) 10.9% 10.9%
One Post Office Square
Boston, MA 02109
Massachusetts Financial Services Corp. Intermedia common stock 5,038,416(2) 10.0% 10.0%
500 Boylston Street
Boston, MA 02116
FMR Corp. Intermedia common stock 3,614,382(3) 7.2% 7.2%
82 Devonshire Street
Boston, MA 02109
Wellington Management Co. LLP Intermedia common stock 3,539,023(4) 7.0% 7.0%
75 State Street
Boston, MA 02109
Franklin Resources Inc. Intermedia common stock 2,694,280(5) 5.4% 5.4%
777 Mariners Island Blvd.
San Mateo, CA 94404
American Express Co. Intermedia common stock 2,502,648(6) 5.0% 5.0%
200 Vesey Street
New York, NY 10285
T. Rowe Price and Associates, Inc. Intermedia common stock 2,457,379(7) 4.9% 4.9%
100 E. Pratt St.
Baltimore, MD 21202
Directors and Executive Officers:
David C. Ruberg Intermedia common stock 1,018,169(8) 2.0% 2.0%
Mark K. Shull Intermedia common stock 3,334(9) * *
Nancy G. Faigen Intermedia common stock 13,333(10) * *
Rebecca Ward Intermedia common stock 1,667(11) * *
Bryan T. Gernert Intermedia common stock 29,960(12) * *
Bradley E. Sparks None -- -- --
Robert B. Patrick Intermedia common stock 5,663(13) * *
John C. Baker Intermedia common stock 79,820(14) * *
Philip A. Campbell Intermedia common stock 26,000(15) * *
George F. Knapp Intermedia common stock 55,100(16) * *
Pierce J. Roberts, Jr. Intermedia common stock 47,108(17) * *
All directors and executive officers
as a group (12 persons) Intermedia common stock 1,281,087(18) 2.6% 2.6%
</TABLE>
- --------
*Less than 1%
(1) Based upon information set forth in a Schedule 13G filed with the
Securities and Exchange Commission (the "Commission") on February 18,
1999.
(2)Based upon information set forth in a Schedule 13G filed with the
Commission on February 11, 1999.
(3)Based upon information set forth in a Schedule 13G filed with the
Commission on February 1, 1999.
59
<PAGE>
(4) Based upon information set forth in a Schedule 13G filed with the
Commission on February 8, 1999.
(5) Based upon information set forth in a Schedule 13G filed with the
Commission on January 27, 1999.
(6) Based upon information set forth in a Schedule 13G filed with the
Commission on January 29, 1999. In such Schedule 13G, American Express
reported that it beneficially owned 5.2% of outstanding shares of
Intermedia common stock.
(7) Based upon information set forth in a Schedule 13G filed with the
Commission on February 12, 1999. In such Schedule 13G, T. Rowe Price
reported that it beneficially owned 5.0% of outstanding shares of
Intermedia common stock.
(8) Includes 139,951 shares of common stock, 204,049 shares subject to certain
vesting requirements and 674,169 shares subject to options exercisable as
of July 12, 1999 or within 60 days thereafter. Excludes 415,831 shares
subject to options that are not exercisable within 60 days of July 12,
1999.
(9) Includes 3,334 shares subject to options exercisable as of July 12, 1999
or within 60 days thereafter. Excludes 96,666 shares subject to options
that are not exercisable within 60 days of July 12, 1999.
(10) Includes 13,333 shares subject to options exercisable as of July 12, 1999
or within 60 days thereafter. Excludes 86,667 shares subject to options
that are not exercisable within 60 days of July 12, 1999.
(11) Includes 1,667 shares subject to options exercisable as of July 12, 1999
or within 60 days thereafter. Excludes 48,333 shares subject to options
that are not exercisable within 60 days of July 12, 1999.
(12) Includes 29,960 shares subject to options exercisable as of July 12, 1999
or within 60 days thereafter. Excludes 8,388 shares subject to options
that are not exercisable within 60 days of July 12, 1999.
(13) Includes 5,663 shares subject to options exercisable as of July 12, 1999
or within 60 days thereafter. Excludes 6,481 shares subject to options
that are not exercisable within 60 days of July 12, 1999.
(14) Includes 52,190 shares of common stock and 27,630 shares subject to
options exercisable as of July 12, 1999 or within 60 days thereafter.
Excludes 408 shares subject to options that are not exercisable within 60
days of July 12, 1999.
(15) Includes 26,000 shares subject to options exercisable as of July 12, 1999
or within 60 days thereafter.
(16) Includes 9,570 shares of common stock and 45,530 shares subject to options
exercisable as of July 12, 1999 or within 60 days thereafter. Excludes 408
shares subject to options that are not exercisable within 60 days of July
12, 1999.
(17) Includes 5,000 shares of common stock and 42,108 shares subject to options
exercisable as of July 12, 1999 or within 60 days thereafter. Excludes
179,892 shares subject to options that are not exercisable within 60 days
of July 12, 1999.
(18 ) Includes 206,711 shares of common stock, 204,049 shares subject to
certain vesting requirements and 870,327 shares subject to options
exercisable as of July 12, 1999 or within 60 days thereafter. Excludes
856,141 shares subject to options that are not exercisable within 60 days
of July 12, 1999.
60
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Immediately following the closing of this offering, our authorized capital
stock will consist of 100,000,000 shares of Class A Common Stock, $.01 par
value per share, and 50,000,000 shares of Class B Common Stock, $.01 par value
per share. At such time, all authorized shares of our Class B Common Stock will
be outstanding and owned by Intermedia through Business Internet, its wholly-
owned subsidiary.
The following summary is qualified by our certificate of incorporation and
bylaws, as they will be amended prior to the closing of this offering and which
are included as exhibits to the registration statement of which this prospectus
forms a part.
Common Stock
Shares of Class A Common Stock and Class B Common Stock are substantially
identical in all respects except that: (1) the holders of Class B Common Stock
are entitled to 10 votes per share, and the holders of Class A Common Stock are
entitled to one vote per share on all matters submitted to a vote of
shareholders; and (2) each share of Class B Common Stock is convertible into
one share of Class A Common Stock at the option of the holder and automatically
upon the occurrence of a Conversion Event. A "Conversion Event" is defined as a
direct or indirect transfer of beneficial ownership of Class B Common Stock to
any person or entity that does not control, is not controlled by and is not
under common control with Intermedia.
Subject to preferences that may be applicable to any preferred stock
outstanding at the time, the holders of our outstanding shares of Common Stock
are entitled to receive dividends out of legally available assets at such times
and in such amounts as the board of directors from time to time may determine.
Cumulative voting for the election of directors is not authorized by our
certificate of incorporation, which means that the holders of a majority of the
votes can elect all of the directors then standing for election. The Common
Stock is not entitled to preemptive rights and, except as described in the
preceding paragraph with respect to Class B Common Stock, is not subject to
conversion or redemption. Upon liquidation, dissolution or winding-up, the
assets legally available for distribution to stockholders are distributable
ratably among the holders of the Common Stock after payment of liquidation
preferences, if any, on any outstanding preferred stock and payment of other
claims of creditors. Each outstanding share of Common Stock, and all Common
Stock paid for after this offering, is duly and validly issued, and fully paid
and nonassessable.
Preferred Stock
The board of directors is authorized, subject to any limitations prescribed
by Delaware law, to issue 5,000,000 shares of preferred stock in one or more
series. The board of directors can fix the rights, preferences and privileges
of the shares of each series and any qualifications, limitations or
restrictions thereon.
The board of directors may authorize the issuance of preferred stock with
voting or conversion rights that could adversely affect the voting power or
other rights of the holders of common stock. The issuance of preferred stock,
while providing flexibility in connection with possible acquisitions and other
corporate purposes could, among other things, under certain circumstances, have
the effect of delaying, deferring or preventing a change in control of Digex.
We have no current plan to issue any shares of preferred stock.
Delaware Anti-Takeover Law
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law concerning corporate takeovers. This section prevents certain
Delaware corporations from engaging, under certain circumstances, in a
"business combination," which includes a merger or sale of more than 10% of the
corporation's assets, with any "interested stockholder," or a stockholder who
owns 15% or more of the corporation's outstanding voting stock, as well as
affiliates and associates of any such persons, for three years following the
date that such stockholder became an "interested stockholder" unless:
61
<PAGE>
. the transaction in which such stockholder became an "interested
stockholder" is approved by the board of directors prior to the date the
"interested stockholder" attained such status;
. upon consummation of the transaction that resulted in the stockholder's
becoming an "interested stockholder," the "interested stockholder" owned
at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced, excluding those shares owned by persons
who are directors and also officers; or
. on or subsequent to such date the "business combination" is approved by
the board of directors and authorized at an annual or special meeting of
stockholders by the affirmative vote of at least two-thirds of the
outstanding voting stock that is not owned by the "interested
stockholder."
This statute could prohibit or delay mergers or other takeover or change-in-
control attempts with respect to Digex and, accordingly, may discourage
attempts to acquire us.
Transfer Agent and Registrar
The Transfer Agent and Registrar for our Class A Common Stock is Continental
Stock Transfer and Trust Company, located at Two Broadway, New York, New York
10004, with a telephone number of (212) 509-4000.
Listing
We have applied to list our Class A Common Stock on the Nasdaq National
Market under the trading symbol "DIGX."
62
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have outstanding an aggregate of
10,000,000 shares of our Class A Common Stock, assuming no exercise of the
underwriters' over-allotment option, and 50,000,000 shares of Class B Common
Stock. All shares of Class B Common Stock are convertible into shares of our
Class A Common Stock, on a one-for-one basis, at any time at the option of the
holder or upon a direct or indirect transfer to any person or entity not
affiliated with Intermedia. All of the shares sold in this offering will be
freely tradable without restriction or further registration under the
Securities Act, unless such shares are purchased by "affiliates" as that term
is defined in Rule 144 under the Securities Act. The 50,000,000 shares of Class
B Common Stock, and the shares of Class A Common Stock into which they are
convertible, held by Intermedia are "restricted securities" as that term is
defined in Rule 144 under the Securities Act. Restricted securities may be sold
in the public market only if registered or if they qualify for an exemption
from registration under Rule 144 or 701 promulgated under the Securities Act,
which rules are summarized below. Some of our shares are also subject to
contractual restrictions described below. Sales of restricted securities in the
public market, or the availability of such shares for sale, could adversely
affect the price of our Class A Common Stock.
Lock-Up Agreements
All of our officers, directors and stockholders have signed lock-up
agreements under which they agreed not to transfer or dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for shares of Common Stock, for a period of 180
days after the date of this prospectus. Transfers or dispositions can be made
sooner with the prior written consent of Bear, Stearns & Co. Inc.
Rule 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
Class A Common Stock for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of:
. 1% of the number of shares of Class A Common Stock then outstanding,
which will equal approximately 100,000 shares immediately after this
offering; or
. the average weekly trading volume of the Class A Common Stock on the
Nasdaq National Market during the four calendar weeks preceding the
filing of a notice on Form 144 with respect to such sale.
Sales under Rule 144 are also subject to certain manner of sale provisions
and notice requirements and to the availability of current public information
about us.
Rule 144(k)
Under Rule 144(k), a person who is not deemed to have been one of our
affiliates at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner other than an affiliate, is
entitled to sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144. Therefore,
unless otherwise restricted, "144(k) shares" may be sold immediately upon the
completion of this offering.
Rule 701
In general, under Rule 701 of the Securities Act as currently in effect, any
of our employees, consultants or advisors who purchases shares from us in
connection with a compensatory stock or option plan or other written agreement
is eligible to resell such shares 90 days after the effective date of this
offering in reliance on Rule 144, but without compliance with certain
restrictions, including the holding period, contained in Rule 144.
63
<PAGE>
Stock Options
The Digex Long Term Incentive Plan was adopted on July 23, 1999. We intend to
file a registration statement under the Securities Act covering 9,000,000
shares of Class A Common Stock that will be reserved for issuance under this
Plan. Such registration statement is expected to be filed and become effective
on the effective date of this prospectus. Accordingly, shares registered under
such registration statement will, subject to vesting provisions and Rule 144
volume limitations applicable to our affiliates, be available for sale in the
open market immediately after the 180-day lock-up agreements expire.
64
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
between us and the underwriters named below, who are represented by Bear,
Stearns & Co. Inc., Donaldson, Lufkin & Jenrette Securities Corporation, CIBC
World Markets Corp., Legg Mason Wood Walker, Incorporated and DLJdirect Inc.,
the underwriters have severally agreed to purchase from us the following
respective numbers of shares of Class A Common Stock at the public offering
price less the underwriting discounts and commissions set forth on the cover
page of this prospectus.
<TABLE>
<CAPTION>
Number of
Underwriter: Shares
------------ ---------
<S> <C>
Bear, Stearns & Co. Inc. .......................................
Donaldson, Lufkin & Jenrette Securities Corporation.............
CIBC World Markets Corp. .......................................
Legg Mason Wood Walker, Incorporated............................
DLJdirect Inc...................................................
---
Total.........................................................
===
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase and accept delivery of the shares included in this
offering are subject to approval of legal matters by their counsel and to
customary conditions, including the effectiveness of the registration
statement, the continuing correctness of our representations to them, the
receipt of a "comfort letter" from our accountants, the listing of the Class A
Common Stock on the Nasdaq National Market and no occurrence of an event that
would have a material adverse effect on our business. The underwriters are
obligated to purchase and accept delivery of all the shares, other than those
covered by the over-allotment option described below, if they purchase any of
the shares.
We have granted to the underwriters an option, exercisable for 30 days from
the date of the underwriting agreement, to purchase up to 1,500,000 additional
shares at the public offering price less the underwriting fees. The
underwriters may exercise such option solely to cover over-allotments, if any,
made in connection with this offering. To the extent that the underwriters
exercise such option, each underwriter will become obligated, subject to
conditions, to purchase a number of additional shares approximately
proportionate to such underwriter's initial purchase commitment.
The underwriters propose to initially offer some of the shares directly to
the public at the public offering price set forth on the cover page of this
prospectus and some of the shares to dealers at the public offering price less
a concession not in excess of $ per share. The underwriters may allow, and
such dealers may re-allow, a concession not in excess of $ per share on
sales to other dealers. After the initial offering of the shares to the public,
the representatives of the underwriters may change the public offering price
and such concessions. The underwriters do not intend to confirm sales to any
accounts over which they exercise discretionary authority.
The following table shows the underwriting fees to be paid to the
underwriters by us in connection with this offering. These amounts are shown
assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares of the Class A Common Stock.
<TABLE>
<CAPTION>
No Exercise Full Exercise
----------- -------------
<S> <C> <C>
Per share....................................... $ $
Total........................................... $ $
</TABLE>
At our request, the underwriters have reserved for sale at the initial public
offering price up to 300,000 shares of our Class A Common Stock to be sold in
this offering for sale to certain persons designated by us. The number of
shares available for sale to the general public will be reduced to the extent
that any reserved shares are purchased. Any reserved shares not so purchased
will be offered by the underwriters on the same basis as the other shares
offered hereby.
65
<PAGE>
DLJdirect Inc., an affiliate of Donaldson, Lufkin & Jenrette Securities
Corporation and a managing underwriter, is making a prospectus in electronic
format available on its Internet Web site. The underwriters have agreed to
allocate a limited number of shares to DLJdirect for sale to its qualified
brokerage account holders. Other than the prospectus in electronic format, the
information on such Web site is not part of this prospectus or the registration
statement of which this prospectus forms a part, has not been approved and/or
endorsed by us or any underwriter in such capacity and should not be relied on
by prospective investors.
In order to facilitate the offering of the Class A Common Stock, the
underwriters may engage in transactions that stabilize, maintain or otherwise
affect the market price of the Class A Common Stock. Specifically, the
underwriters may over-allot shares of the Class A Common Stock in connection
with this offering, thereby creating a short position in the Class A Common
Stock for their own account. Additionally, to cover such over-allotments or to
stabilize the market price of the Class A Common Stock, the underwriters may
bid for, and purchase, shares of the Class A Common Stock in the open market.
Finally, the representatives, on behalf of the underwriters, also may reclaim
selling concessions allowed to an underwriter or dealer if the underwriting
syndicate repurchases shares distributed by that underwriter or dealer. Any of
these activities may maintain the market price of our Class A Common Stock at a
level above that which might otherwise prevail in the open market. The
underwriters are not required to engage in these activities and, if commenced,
may end any of these activities at any time.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act.
We have applied to list our Class A Common Stock on the NASDAQ National
Market under the symbol "DIGX".
Prior to this offering, there has been no public market for our Class A
Common Stock. Consequently, the initial public offering price for our Class A
Common Stock will be determined by negotiation among us and the representatives
of the underwriters. Among the factors to be considered in determining the
public offering price will be:
. prevailing market conditions;
. our results of operations in recent periods;
. the present stage of our development;
. the market capitalizations and stages of development of generally
comparable companies; and
. estimates of our business potential.
Bear, Stearns & Co. Inc. or its affiliates have provided and may in the
future provide investment banking or other financial services to Intermedia,
the parent company of Digex, and its affiliates in the ordinary course of
business, for which it has received and is expected to receive customary fees
and expenses. To date, Bear, Stearns & Co. Inc. has been an initial purchaser
for numerous issuances of securities by Intermedia.
LEGAL MATTERS
The validity of the shares of Class A Common Stock offered hereby will be
passed upon for us by Kronish Lieb Weiner & Hellman LLP, New York, New York.
Ralph J. Sutcliffe, a partner of Kronish Lieb Weiner & Hellman LLP,
beneficially owns 11,490 shares of common stock of Intermedia and owns a
warrant to purchase 200,000 shares of such common stock at an exercise price of
$20.75 per share. Intermedia is Digex's parent entity and will own
approximately 98% of the voting power of our outstanding common stock when this
offering is completed. Certain legal matters in connection with this offering
will be passed upon for the underwriters by Latham & Watkins, New York, New
York.
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<PAGE>
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements (and schedule) at December 31, 1997 and 1998, and for the year ended
December 31, 1996, the period from January 1, 1997 to July 6, 1997, the period
from July 7, 1997 (date of acquisition) to December 31, 1997 and the year ended
December 31, 1998, as set forth in their report. We have included our financial
statements (and schedule) in the prospectus and elsewhere in the registration
statement in reliance on Ernst & Young LLP's report, given on their authority
as experts in accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
This prospectus is part of a registration statement on Form S-1 under the
Securities Act that we filed with the Securities and Exchange Commission with
respect to the shares of Class A Common Stock offered by this prospectus. This
prospectus does not contain all of the information set forth in the
registration statement and the exhibits and schedule filed therewith. For
further information about us and the Class A Common Stock offered by this
prospectus, reference is made to the registration statement and the exhibits
and schedule filed therewith. Statements contained in this prospectus regarding
the contents of any contract or any other document to which reference is made
are not necessarily complete, and, in each instance, reference is made to the
copy of such contract or other document filed as an exhibit to the registration
statement, each such statement being qualified in all respects by such
reference. A copy of the registration statement and the exhibits and schedule
filed therewith may be inspected without charge at the public reference
facilities maintained by the Commission in Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices located at the
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New York
10048, and copies of all or any part of the registration statement may be
obtained from such offices upon the payment of the fees prescribed by the
Commission. Please call the Commission at 1-800-SEC-0330 for further
information about its public reference room. The Commission maintains a World
Wide Web site that contains reports, proxy and information statements and other
information regarding registrants, including us, that file electronically with
the Commission. The address of the site is http://www.sec.gov. Our registration
statement and the exhibits and schedules we filed electronically with the
Commission are available on this site.
67
<PAGE>
Index to Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditors--The Company............................... F-2
Report of Independent Auditors--Predecessor............................... F-3
Balance Sheets as of December 31, 1997 and 1998 and March 31, 1999........ F-4
Statements of Operations for the Year Ended December 31, 1996, and the
Period from January 1, 1997 to July 6, 1997, and the Period from July 7,
1997 (Date of Acquisition) to December 31, 1997, and the Year Ended
December 31, 1998, and the Three Months Ended March 31, 1998 and 1999.... F-5
Statements of Changes in Owner's Equity (Deficit) for the Year Ended
December 31, 1996, and the Period from January 1, 1997 to July 6, 1997,
and the Period from July 7, 1997 (Date of Acquisition) to December 31,
1997, and the Year Ended December 31, 1998, and the Three Months Ended
March 31, 1999........................................................... F-6
Statements of Cash Flows for the Year Ended December 31, 1996, and the
Period from January 1, 1997 to July 6, 1997, and the Period from July 7,
1997 (Date of Acquisition) to December 31, 1997, and the Year Ended
December 31, 1998, and the Three Months Ended March 31, 1998 and 1999.... F-7
Notes to Financial Statements............................................. F-8
</TABLE>
F-1
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholders
Digex, Incorporated
We have audited the accompanying balance sheets of Digex, Incorporated
(formerly the Web site hosting unit of Business Internet, Inc.) as of December
31, 1997 and 1998, and the related statements of operations, changes in owner's
equity and cash flows for the period from July 7, 1997 (date of acquisition) to
December 31, 1997, and the year ended December 31, 1998. Our audits included
the financial statement schedule listed in the index at Item 16(b). These
financial statements and this schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Digex, Incorporated at
December 31, 1997 and 1998, and the results of its operations and its cash
flows for the period from July 7, 1997 (date of acquisition) to December 31,
1997 and the year ended December 31, 1998, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ Ernst & Young LLP
Tampa, Florida
April 23, 1999
F-2
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholders
Digex, Incorporated
We have audited the accompanying statements of operations, changes in owner's
equity, and cash flows of the Web site hosting unit of Business Internet, Inc.
for the year ended December 31, 1996 and the period from January 1, 1997 to
July 6, 1997. Our audits included the financial statement schedule listed in
the index at Item 16(b). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of the Web site
hosting unit of Business Internet, Inc. for the year ended December 31, 1996
and the period from January 1, 1997 to July 6, 1997, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
/s/ Ernst & Young LLP
Tampa, Florida
April 23, 1999
F-3
<PAGE>
DIGEX, INCORPORATED
BALANCE SHEETS
(Amounts in thousands)
<TABLE>
<CAPTION>
March 31,
December 31, 1999
--------------- March 31, Pro Forma
1997 1998 1999 (Note 10)
------- ------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Assets
Current assets:
Accounts receivable, net of
allowances of $369 in
1997 and $719 in 1998 and $740 in
1999................................ $ 2,059 $ 6,127 $ 8,162 $ 8,162
Prepaid expenses and other current
assets.............................. 340 890 1,073 1,266
------- ------- -------- --------
Total current assets................... 2,399 7,017 9,235 9,428
Property and equipment, net............ 12,930 39,059 67,488 67,488
Intangible assets, net................. 34,364 31,204 30,206 30,206
Other assets........................... -- 459 464 464
------- ------- -------- --------
Total assets........................... $49,693 $77,739 $107,393 $107,586
======= ======= ======== ========
Liabilities and owner's equity
Current liabilities:
Accounts payable..................... $ 486 $ 3,341 $ 1,977 $ --
Accrued compensation and other....... 920 843 699 --
Deferred revenue..................... 96 621 597 --
Accrued line costs................... 525 -- -- --
Current portion of capital lease
obligations......................... 723 981 965 --
------- ------- -------- --------
Total current liabilities.............. 2,750 5,786 4,238 --
Capital lease obligations.............. 1,257 1,108 868 --
Deferred tax liability................. 159 -- -- 5,032
------- ------- -------- --------
Total liabilities...................... 4,166 6,894 5,106 5,032
Owner's equity (see Note 1):
Class A common stock, $.01 par value;
100,000 shares
assumed authorized; none assumed
issued and outstanding for pro forma
purposes............................ -- -- -- --
Class B common stock, $.01 par value;
50,000 shares
assumed authorized; 50,000 shares
assumed issued and outstanding for
pro forma purposes.................. -- -- -- 500
Additional paid-in capital........... -- -- -- 102,054
Accumulated deficit.................. -- -- -- --
Owner's net investment............... 45,527 70,845 102,287 --
------- ------- -------- --------
Total owner's equity................... 45,527 70,845 102,287 102,554
------- ------- -------- --------
Total liabilities and owner's equity... $49,693 $77,739 $107,393 $107,586
======= ======= ======== ========
</TABLE>
See accompanying notes.
F-4
<PAGE>
DIGEX, INCORPORATED
STATEMENTS OF OPERATIONS
(Amounts in thousands, except pro forma share data)
<TABLE>
<CAPTION>
Predecessor The Company
---------------------------- ----------------------------------------------------
Period from
July 7, 1997
(date of Three months ended
Year ended Period from acquisition) to Year ended March 31,
December 31, January 1, 1997 December 31, December 31, -----------------------
1996 to July 6, 1997 1997 1998 1998 1999
------------ --------------- --------------- ------------ ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $ 2,803 $ 4,420 $ 7,192 $ 22,635 $ 3,869 $ 9,392
Costs and expenses:
Cost of operations.... 2,002 4,149 1,739 6,710 887 1,652
Cost of services...... 684 1,817 1,611 7,044 1,107 3,952
Selling, general and
administrative....... 3,194 7,001 6,087 17,512 3,637 8,069
Depreciation and
amortization......... 591 519 2,753 8,109 2,027 4,314
Charge off of
purchased in-process
research and
development.......... -- -- 15,000 -- -- --
------- ------- -------- -------- ------- -------
Total costs and
expenses............... 6,471 13,486 27,190 39,375 7,658 17,987
------- ------- -------- -------- ------- -------
Loss before income
taxes.................. (3,668) (9,066) (19,998) (16,740) (3,789) (8,595)
Income tax benefit...... -- -- 1,440 159 -- --
------- ------- -------- -------- ------- -------
Net loss................ $(3,668) $(9,066) $(18,558) $(16,581) $(3,789) $(8,595)
======= ======= ======== ======== ======= =======
Pro forma net loss per
common share:
Basic................. $ (0.37) $ (0.33) $ (0.08) $ (0.17)
======== ======== ======= =======
Diluted............... $ (0.37) $ (0.33) $ (0.08) $ (0.17)
======== ======== ======= =======
Shares used in computing
pro forma basic and
diluted net loss per
share.................. 50,000 50,000 50,000 50,000
======== ======== ======= =======
</TABLE>
See accompanying notes.
F-5
<PAGE>
DIGEX, INCORPORATED
STATEMENTS OF CHANGES IN OWNER'S EQUITY (DEFICIT)
(Amounts in thousands)
<TABLE>
<CAPTION>
Common Stock
--------------------------- Owner's
Class A Class B Additional Retained Net
------------- ------------- Paid-In Earnings Investment
Shares Amount Shares Amount Capital (Deficit) (Deficit) Total
------ ------ ------ ------ ---------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PREDECESSOR
Balance at January 1,
1996................... -- $ -- -- $ -- $ -- $ -- $ -- $ --
Total allocated costs... -- -- -- -- -- -- 3,177 3,177
Funding for working
capital................ -- -- -- -- -- -- (612) (612)
Funding for purchases of
property, plant and
equipment.............. -- -- -- -- -- -- 1,445 1,445
Net loss................ -- -- -- -- -- -- (3,668) (3,668)
---- ----- ------ ----- -------- ----- -------- ---------
Balance at December 31,
1996................... -- -- -- -- -- -- 342 342
Stock options
exercised.............. -- -- -- -- -- -- 550 550
Total allocated costs... -- -- -- -- -- -- 6,105 6,105
Funding for working
capital................ -- -- -- -- -- -- 517 517
Funding for purchases of
property, plant and
equipment.............. -- -- -- -- -- -- 1,004 1,004
Net loss................ -- -- -- -- -- -- (9,066) (9,066)
---- ----- ------ ----- -------- ----- -------- ---------
Balance at July 6,
1997................... -- $ -- -- $ -- $ -- $ -- $ (548) $ (548)
==== ===== ====== ===== ======== ===== ======== =========
THE COMPANY
Balance at July 7,
1997................... -- $ -- -- $ -- $ -- $ -- $ -- $ --
Contribution from Parent
for Acquisition........ -- -- -- -- -- -- 47,221 47,221
Total allocated costs... -- -- -- -- -- -- 2,698 2,698
Funding for working
capital................ -- -- -- -- -- -- 6,150 6,150
Funding for purchases of
property, plant and
equipment.............. -- -- -- -- -- -- 8,016 8,016
Net loss................ -- -- -- -- -- -- (18,558) (18,558)
---- ----- ------ ----- -------- ----- -------- ---------
Balance at December 31,
1997................... -- -- -- -- -- -- 45,527 45,527
Total allocated costs... -- -- -- -- -- -- 10,018 10,018
Funding for working
capital................ -- -- -- -- -- -- 912 912
Funding for purchases of
property, plant and
equipment.............. -- -- -- -- -- -- 30,969 30,969
Net loss................ -- -- -- -- -- -- (16,581) (16,581)
---- ----- ------ ----- -------- ----- -------- ---------
Balance at December 31,
1998................... -- -- -- -- -- -- 70,845 70,845
Total allocated costs... -- -- -- -- -- -- 3,541 3,541
Funding for working
capital................ -- -- -- -- -- -- 4,495 4,495
Funding for purchases of
property, plant and
equipment.............. -- -- -- -- -- -- 32,001 32,001
Net loss................ -- -- -- -- -- -- (8,595) (8,595)
---- ----- ------ ----- -------- ----- -------- ---------
Balance at March 31,
1999 (unaudited)....... -- -- -- -- -- -- 102,287 102,287
Recapitalization........ -- -- 50,000 500 102,054 -- (102,287) 267
---- ----- ------ ----- -------- ----- -------- ---------
Pro forma balance at
March 31, 1999
(unaudited)............ -- $ -- 50,000 $ 500 $102,054 $ -- $ -- $ 102,554
==== ===== ====== ===== ======== ===== ======== =========
</TABLE>
See accompanying notes.
F-6
<PAGE>
DIGEX, INCORPORATED
STATEMENTS OF CASH FLOWS
(Amounts in thousands)
<TABLE>
<CAPTION>
Predecessor
----------------------------
Year ended Period from
December 31, January 1, 1997
1996 to July 6, 1997
------------ ---------------
<S> <C> <C>
Operating activities
Net loss................................. $(3,668) $(9,066)
Adjustments to reconcile net loss to cash
flows used in operating activities:
Deferred income taxes................... -- --
Depreciation and amortization........... 591 519
Provision for doubtful accounts......... 41 352
Charge off of purchased in-process
research and development .............. -- --
Changes in operating assets and
liabilities net of the effects of the
acquisition:
Accounts receivable................... (594) (890)
Prepaid expenses and
other current assets................. (21) (54)
Other assets.......................... -- --
Accounts payable and
accrued liabilities.................. 1,086 1,967
------- -------
Net cash used in operating activities.... (2,565) (7,172)
Investing activities
Acquisition of business.................. -- --
Purchases of property and equipment...... (1,445) (1,004)
------- -------
Net cash used in investing activities.... (1,445) (1,004)
Financing activities
Payments on capital leases............... -- --
Exercise of stock options................ -- 550
Net contributions from Parent............ 4,010 7,626
------- -------
Net cash provided by financing
activities.............................. 4,010 8,176
Cash at beginning of the year............ -- --
------- -------
Cash at end of year...................... $ -- $ --
======= =======
Supplemental disclosure of cash flow
information
Noncash investing and financing
activities:
Equipment acquired under capital
leases................................. $ 2,840 $ 829
- --------------------------------------------------
======= =======
<CAPTION>
The Company
----------------------------------------------------
Three months ended
March 31,
-----------------------
Period from
July 7, 1997
(date of
acquisition) to Year ended
December 31, December 31,
1997 1998 1998 1999
--------------- ------------ ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Operating activities
Net loss................................. $(18,558) $(16,581) $(3,789) $(8,595)
Adjustments to reconcile net loss to cash
flows used in operating activities:
Deferred income taxes................... (1,440) (159) -- --
Depreciation and amortization........... 2,753 8,109 2,027 4,314
Provision for doubtful accounts......... 498 1,491 150 253
Charge off of purchased in-process
research and development .............. 15,000 -- -- --
Changes in operating assets and
liabilities net of the effects of the
acquisition:
Accounts receivable................... (1,466) (5,559) (810) (2,288)
Prepaid expenses and
other current assets................. (265) (550) (70) (183)
Other assets.......................... -- (459) -- (5)
Accounts payable and
accrued liabilities.................. (2,601) 2,778 (185) (1,532)
--------------- ------------ ----------- -----------
Net cash used in operating activities.... (6,079) (10,930) (2,677) (8,036)
Investing activities
Acquisition of business.................. (47,221) -- -- --
Purchases of property and equipment...... (8,016) (30,969) (2,401) (32,001)
--------------- ------------ ----------- -----------
Net cash used in investing activities.... (55,237) (30,969) (2,401) (32,001)
Financing activities
Payments on capital leases............... (2,769) -- -- --
Exercise of stock options................ -- -- -- --
Net contributions from Parent............ 64,085 41,899 5,078 40,037
--------------- ------------ ----------- -----------
Net cash provided by financing
activities.............................. 61,316 41,899 5,078 40,037
Cash at beginning of the year............ -- -- -- --
--------------- ------------ ----------- -----------
Cash at end of year...................... $ -- $ -- $ -- $ --
=============== ============ =========== ===========
Supplemental disclosure of cash flow
information
Noncash investing and financing
activities:
Equipment acquired under capital
leases................................. $ 846 $ 958 $ 271 $ --
- --------------------------------------------------
=============== ============ =========== ===========
</TABLE>
See accompanying notes.
F-7
<PAGE>
DIGEX, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
(In thousands, except per share information)
1. Organization, Basis of Presentation and Significant Accounting Policies
Organization
Digex, Incorporated (the "Company") was incorporated on April 26, 1999, under
the laws of the State of Delaware. The Company's business was operated as the
Web site hosting unit of Intermedia Communications Inc. ("Intermedia" or the
"Parent Company") since its acquisition by Intermedia on July 7, 1997. On that
date, Intermedia acquired Business Internet, Inc. (previously known as DIGEX,
Incorporated), including the Web site hosting unit (the "Predecessor"), in a
business combination accounted for as a purchase. The Web site hosting unit
presented in the accompanying financial statements had no legal status or
existence prior to the incorporation of the Company on April 26, 1999. The
financial statements of the legal Registrant have been omitted because the
Registrant did not commence operations until May 1, 1999. Prior to April 30,
1999, the Registrant had no assets or liabilities. See also Note 10, which
discloses the contribution of assets on April 30, 1999 by Business Internet,
Inc. to the Registrant.
The Company's operations began in January 1996 to provide complex Web hosting
services, principally to Fortune 2000 companies. The Company's services include
implementing and maintaining secure, scaleable, high-performance Web sites on
the Internet 24 hours a day. In addition, the Company provides a comprehensive
suite of Web management services, including business process solutions and
value-added testing services directed toward improving its customers' overall
Internet performance.
Basis of Presentation
The accompanying financial statements of the Company reflect the carved-out
operations and financial position of the Web site hosting unit of Intermedia
for all periods since July 7, 1997. The accompanying financial statements of
the Predecessor reflect its operations and financial position from inception,
January 1, 1996, to July 6, 1997. As more fully discussed in Note 2, "Related
Party Transactions and Corporate Allocations," the financial statements for all
periods presented include allocations of network costs and corporate expenses.
In addition, for financial reporting purposes, the equity activity of the
Company, prior to its incorporation, and the Predecessor has been accumulated
into a single disclosure caption entitled "Owner's Net Investment."
The Company does not expect to generate positive cash flow from its
operations for several years. As a result, the Company intends to seek funding
from external sources. Management of the Company and of Intermedia believe that
the proceeds of the offering described in Note 12 will be sufficient to meet
the Company's projected cash needs into the second half of 2000. In the event
the contemplated offering does not close, Intermedia, as the Company's indirect
parent, will fund the Company's cash requirements for a period of at least one
year. If the proceeds from the contemplated offering are ultimately less than
currently anticipated, management believes the Company can curtail operating
and capital outlays at levels sufficient to support the Company's current
operations. Intermedia will continue to fund the operating and capital
requirements of the Company until consummation of the offering.
Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
F-8
<PAGE>
DIGEX, INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(Continued)
(In thousands, except per share information)
1. Organization, Basis of Presentation and Significant Accounting Policies
(Continued)
Revenue Recognition and Accounts Receivable
Revenues principally consist of installation fees and monthly service fees
charged to customers under contracts having terms that typically range from one
to three years. Installation fees are recognized upon the customer-approved
completion of the Web site installation. Monthly service fees are recognized in
the month the service is rendered over the contract period. Certain customer
payments for Web site management services received in advance of service
delivery are deferred until the service is performed. Additional services are
recognized in the month the services are performed.
The Company's accounts receivable are financial instruments that expose the
Company to credit risk, as defined by Statement of Financial Accounting
Standards No. 105, Disclosure of Information About Financial Instruments with
Off-Balance Sheet Risk and Financial Instruments with Concentrations of Credit
Risk. Accounts receivable are due from commercial entities to whom credit is
extended based on evaluation of the customer's financial condition, and
generally collateral is not required. Anticipated credit losses are provided
for in the financial statements and have been within management's expectations
for all periods presented.
Property and Equipment
Property and equipment is stated at cost. Depreciation is computed using the
straight-line method over estimated useful lives of the property and equipment,
generally five years for equipment and up to fifteen years for leasehold
improvements. Equipment acquired under capital leases is amortized using the
straight-line method over the lesser of the lease term or the estimated useful
life of the asset, generally five years. The cost of license agreements with
software vendors is amortized over five years.
Intangible Assets
Intangible assets include assets that arose in connection with the purchase
of Business Internet by Intermedia. Identifiable intangible assets arising from
the purchase are stated at cost and consist of trade name, customer lists,
acquired workforce, developed technology and goodwill. Amortization of these
assets is computed using the straight-line method over the estimated periods of
benefit, generally five years for developed technologies and ten years for all
other intangible assets.
Impairment of Long-Lived Assets
In accordance with Statement on Accounting Standards No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of, the Company reviews its long-lived assets for impairment when events or
changes in circumstances indicate the carrying value of such assets may not be
recoverable. This review consists of a comparison of the carrying value of the
asset with the asset's expected future undiscounted cash flows without interest
costs. Estimates of expected future cash flows represent management's best
estimate based on reasonable and supportable assumptions and projections. If
the expected future cash flow exceeds the carrying value of the asset, no
impairment indicator is considered present. If the carrying value exceeds the
future cash flow, an impairment indicator is considered present. Such
impairment would be measured and recognized using a discounted cash flow
method.
Financial Instruments
The carrying amounts reported in the balance sheets for accounts receivable
and accounts payable approximate their fair values.
F-9
<PAGE>
DIGEX, INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(Continued)
(In thousands, except per share information)
1. Organization, Basis of Presentation and Significant Accounting Policies
(Continued)
Advertising Costs
The Company expenses advertising costs as incurred. Advertising expense
amounted to $515, $2,016, $2,076, $2,544, $764 and $1,353 for the year ended
December 31, 1996, the period from January 1, 1997 to July 6, 1997, the period
from July 7, 1997 to December 31, 1997, the year ended December 31, 1998 and
the three months ended March 31, 1998 and 1999, respectively.
Stock-Based Compensation
The Company's employees participated in the stock option plans of Intermedia.
The Company accounts for employee stock-based compensation in accordance with
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, and related Interpretations, because the alternative fair value
accounting model provided under Statement of Financial Accounting Standards No.
123, Accounting for Stock-Based Compensation (SFAS 123), is not required.
Accordingly, in cases where exercise prices equal or exceed fair market value
of the underlying Intermedia common stock, the Company recognizes no
compensation expense. In cases where exercise prices are less than the fair
value, compensation is recognized over the period of performance or vesting
period.
Income Taxes
The operations of the Company and of the Predecessor were included in the
consolidated income tax returns of Intermedia and Business Internet,
respectively. For reporting purposes, the Company has used the asset and
liability method in accounting for income taxes, prescribed in Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes, except
that the presentation reflects the parent companies as if they were the taxing
jurisdictions. Under this method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse. The income
tax provision is calculated on a separate return basis.
Comprehensive Income
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, Reporting Comprehensive Income. This standard requires that total
comprehensive income (loss) be disclosed with equal prominence as net income.
Comprehensive income is defined as changes in stockholder's equity exclusive of
transactions with owners, such as capital contributions and dividends. The
Company and the Predecessor adopted this Standard in 1998 and implemented the
Standard for all years presented herein. The Company's and Predecessor's
comprehensive losses were equal to net losses for all periods presented.
Segment Reporting
The Company and the Predecessor operated during all periods in a single
segment when applying the management approach defined in Statement of Financial
Accounting Standards No. 131, Disclosures about Segments of an Enterprise and
Related Information.
Pro Forma Earnings (Loss) Per Share
Pro forma basic and diluted net loss per share of the Company has been
calculated using the weighted average common shares and dilutive equivalent
shares issued in connection with the Company's recapitalization as adjusted for
a 50,000-for-one stock split of Class B Common Stock to be effected prior to
the closing of the proposed public offering described in Note 12. These shares
are presumed outstanding for all periods of the Company presented.
F-10
<PAGE>
DIGEX, INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(Continued)
(In thousands, except per share information)
2. Related Party Transactions and Corporate Allocations
The Predecessor and the Company utilized the central cash management systems
of Business Internet and Intermedia, respectively. Cash requirements during
these periods were satisfied by cash transactions and transfers that were
accounted for through an intercompany account. In addition, the parent
companies charged the Company for identifiable corporate and operating
expenses, such as network cost and corporate overhead cost. Intercompany
account balances for all periods presented have been treated as permanent
contributions and have been reflected as a component of owner's net investment
in the accompanying financial statements.
The following table summarizes corporate charges and allocations included in
the accompanying financial statements:
<TABLE>
<CAPTION>
Predecessor The Company
----------------------- -------------------------------------------------
July 7, 1997
(date of
January 1, acquisition) Three months ended
Year ended 1997 to to Year ended March 31,
December 31, July 6, December 31, December 31, -----------------------
Statement of Operations Caption 1996 1997 1997 1998 1998 1999
- ------------------------------------------------- ------------ ---------- ------------ ------------ ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Cost of operations............................... $1,947 $4,001 $1,624 $ 6,494 $ 881 $1,424
Cost of services................................. 189 344 103 1,320 171 494
Selling, general and administrative.............. 1,041 1,760 971 2,204 442 1,623
------ ------ ------ ------- ------ ------
- -------------------------------------------------- $3,177 $6,105 $2,698 $10,018 $1,494 $3,541
====== ====== ====== ======= ====== ======
</TABLE>
Management believes that the allocation methodology applied is reasonable.
However, it was not practicable to determine whether the allocated amounts
represent amounts that would have been incurred on a standalone basis.
Explanations of the composition and the method of allocation for the above
captions are as follows:
Cost of Operations
Allocated costs within this caption were the costs of telecommunications
backbone circuits. These costs were allocated to the Company based upon
estimated circuit usage and rate information.
Cost of Services
Allocated costs within this caption were the costs associated with two data
centers (maintenance, utilities and support and employment costs for network
engineering and support, and certain other overhead). These costs were
allocated based upon the employee base.
Selling, General and Administrative
Allocated costs within this caption were the costs of human resources,
information systems services, accounting and back office support, executive
salaries and other general and administrative costs, including rent. All costs
except accounting and back office support were allocated based upon the
employee base. Accounting and back office support were allocated based upon the
relative percentage of monthly recurring revenues.
F-11
<PAGE>
DIGEX, INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(Continued)
(In thousands, except per share information)
3. Property and Equipment
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
December 31,
---------------- March 31
1997 1998 1999
------- ------- ----------- ---
(unaudited)
<S> <C> <C> <C> <C>
Electronics and computer equipment......... $12,163 $36,245 $50,267
Computer software.......................... 1,594 8,153 11,714
Furniture and office equipment............. 121 297 475
Leasehold improvements..................... 227 488 14,472
------- ------- -------
14,105 45,183 76,928
Less accumulated depreciation.............. (1,175) (6,124) (9,440)
------- ------- -------
$12,930 $39,059 $67,488
======= ======= =======
Property and equipment included electronics and computer equipment of $2,051,
$3,009 and $3,009 at December 31, 1997 and 1998, and March 31, 1999,
respectively, that were capitalized pursuant to the terms of capital lease
agreements. Amortization of these assets is included in depreciation expense
for the years ended December 31, 1997 and 1998, and the three months ended
March 31, 1998 and 1999.
Depreciation expense amounted to $591 for the year ended December 31, 1996,
$519 for the period from January 1, 1997 to July 6, 1997, $1,175 for the period
from July 7, 1997 to December 31, 1997, $4,949 for the year ended December 31,
1998, $1,238 for the three months ended March 31, 1998, and $3,316 for the
three months ended March 31, 1999.
4. Intangible Assets
Intangible assets consisted of the following:
<CAPTION>
December 31,
---------------- March 31
1997 1998 1999
------- ------- ----------- ---
(unaudited)
<S> <C> <C> <C> <C>
Goodwill................................... $19,099 $19,099 $19,099
Trade name................................. 9,750 9,750 9,750
Customer list.............................. 3,120 3,120 3,120
Developed technologies..................... 2,720 2,720 2,720
Acquired workforce......................... 1,253 1,253 1,253
------- ------- -------
35,942 35,942 35,942
Less accumulated amortization.............. (1,578) (4,738) (5,736)
------- ------- -------
$34,364 $31,204 $30,206
======= ======= =======
</TABLE>
Amortization expense amounted to $1,578 for the period from July 7, 1997 to
December 31, 1997, $3,160 for the year ended December 31, 1998, $789 for the
three months ended March 31 1998, and $998 for the three months ended March 31,
1999. At the date of acquisition, the trade name was valued at $11,000. The
Company and another operating unit of Intermedia shared the value of this trade
name during the period from July 7, 1997 through December 31, 1998.
F-12
<PAGE>
DIGEX, INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(Continued)
(In thousands, except per share information)
5. Stock-Based Compensation Arrangements
Under the provisions of the Intermedia 1996 Long-Term Incentive Plan (1996
Plan), certain employees and directors of the Company have been granted options
to buy shares of Intermedia common stock, generally at market value with terms
of five to ten years. Under the provisions of Business Internet's equity
participation plan, employees were awarded stock options, generally at market
value with terms of five years. Options in Business Internet that were held by
employees of the Predecessor were converted into 456,632 Intermedia options
upon the purchase of Business Internet, applying the same terms and conditions
as existed under the Business Internet Equity Participation Plan.
The following table summarizes the stock option activity related to employees
of the Predecessor and of the Company:
<TABLE>
<CAPTION>
Number
of Per Share
Shares Option Price
------- ------------
<S> <C> <C>
Outstanding Business Internet options at January 1,
1996............................................... -- $ --
Granted........................................... 483,535 0.13-5.19
Exercised......................................... -- --
Canceled.......................................... 1,102 0.13
-------
Outstanding Business Internet options at December
31, 1996........................................... 482,433 0.13-5.19
Granted........................................... 478,451 1.50-5.12
Exercised......................................... 4,778 0.13-5.00
Canceled.......................................... 3,326 0.13-5.00
------- ------------
Outstanding Business Internet options at July 6,
1997............................................... 952,780 0.13-5.19
======= ============
Outstanding Intermedia options at July 7, 1997...... 456,632 0.26-10.82
Granted........................................... -- --
Exercised......................................... 95,364 0.26-10.82
Canceled.......................................... 1,280 8.99-10.82
------- ------------
Outstanding Intermedia options at December 31,
1997............................................... 359,988 0.26-10.82
Granted........................................... 130,900 16.38-37.00
Exercised......................................... 87,521 0.26-10.82
Canceled.......................................... 183,187 0.26-37.00
------- ------------
Outstanding Intermedia options at December 31,
1998............................................... 220,180 $ 0.26-37.00
======= ============
</TABLE>
The above stock options are not convertible into common stock of the Company.
Pro forma net loss and net loss per share, assuming that the Predecessor and
Digex have applied the fair value model (Black-Scholes Pricing Model) required
by SFAS 123, is as follows:
<TABLE>
<CAPTION>
Predecessor The Company
----------------------- -------------------------
January 1, July 7, 1997
Year ended 1997 to to Year ended
December 31, July 6, December 31, December 31,
1996 1997 1997 1998
------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
Net loss...................... $(4,395) $(9,645) $(18,558) $(16,828)
Net loss per share............ -- -- $ (0.37) $ (0.34)
</TABLE>
F-13
<PAGE>
DIGEX, INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(Continued)
(In thousands, except per share information)
5. Stock-Based Compensation Arrangements (Continued)
The following table summarizes the significant assumptions used in developing
the pro forma information:
<TABLE>
<CAPTION>
Predecessor The Company
----------------------- -------------------------
January 1, July 7,
Year ended 1997 to 1997 to Year ended
December 31, July 6, December 31, December 31,
1996 1997 1997 1998
------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
Risk-free interest
rate................... 6.1% 6.1% 6.1% 5.4%
Volatility factor....... 58.0% 58.0% 58.0% 53.0%
Dividend yield.......... -- -- -- --
Weighted average life... 5 years 5 years 5 years 5 years
</TABLE>
The following table summarizes the weighted average exercise prices of option
activity:
<TABLE>
<CAPTION>
Predecessor The Company
----------------------- -------------------------
January 1, July 7,
Year ended 1997 to 1997 to Year ended
December 31, July 6, December 31, December 31,
1996 1997 1997 1998
------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
Balance at beginning of period................................... $0.13 $6.28 $5.83 $ 5.83
Granted........................................................ 3.07 5.36 -- 26.69
Exercised...................................................... -- 7.45 5.28 6.94
Canceled....................................................... 0.13 8.29 10.02 6.73
----- ----- ----- ------
Balance at end of period......................................... $3.01 $5.83 $5.83 $20.60
===== ===== ===== ======
</TABLE>
As of December 31, 1998, the weighted average exercise price of exercisable
options was $10.20. Outstanding options as of December 31, 1998 were not
convertible into shares of the Company and had a weighted average remaining
contractual life of 7.4 years. The per share weighted average fair value of
options granted during the year ended December 31, 1996, the period from
January 1, 1997 to July 6, 1997, the period from July 7, 1997 to December 31,
1997 and the year ended December 31, 1998 were $1.72, $1.44, $0 and $14.84.
The Company's income tax benefit for the period from July 7, 1997 to December
31, 1997 and the year ended December 31, 1998 are comprised of the following:
<TABLE>
<CAPTION>
Period from
July 7, 1997
to Year ended
December 31, December 31,
1997 1998
------------ ------------
<S> <C> <C>
Current....................................... $ -- $--
Deferred:
Federal..................................... 1,306 144
State....................................... 134 15
------ ----
$1,440 $159
====== ====
</TABLE>
F-14
<PAGE>
DIGEX, INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(Continued)
(In thousands, except per share information)
6. Income Tax Information
The following table reconciles the assumed statutory tax rate with the
effective rate of the Predecessor and the Company:
<TABLE>
<CAPTION>
Predecessor The Company
----------------------- -------------------------
Period
from Period from
January 1, July 7, 1997
Year ended 1997 to to Year ended
December 31, July 6, December 31, December 31,
1996 1997 1997 1998
------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
Tax benefit at statutory rate..................... (34.0)% (34.0)% (34.0)% (34.0)%
Reconciling items:
State income taxes, net......................... (3.5)% (3.5)% (0.7)% (3.1)%
Charge off of purchased in-process research and
development.................................... -- -- 25.5 % --
Change in valuation allowance................... 37.0 % 37.1 % 0.0 % 32.0 %
Other items..................................... 0.5 % 0.4 % 2.0 % 4.1 %
----- ----- ----- -----
Effective tax rate................................ -- % -- % (7.2) % (1.0)%
- --------------------------------------------------
===== ===== ===== =====
</TABLE>
At December 31, 1997 and 1998, the Company had temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and such amounts as measured by tax laws. Significant components of the
Company's deferred tax assets and liabilities as of December 31, 1997 and 1998
were as follows:
<TABLE>
<CAPTION>
December 31,
----------------
1997 1998
------- -------
<S> <C> <C>
Deferred tax liabilities:
Depreciation and amortization.............................. $(5,949) $(5,216)
------- -------
Total deferred tax liabilities........................... (5,949) (5,216)
Deferred tax assets:
Net operating loss carryforwards........................... 5,541 10,268
Allowance for bad debts.................................... 138 186
Stock-based compensation................................... 111 111
------- -------
Total deferred tax assets................................ 5,790 10,565
Less: valuation allowance................................ -- (5,349)
------- -------
Net deferred tax asset................................. 5,790 5,216
------- -------
Net deferred tax asset (liability)........................... $ (159) $ --
======= =======
</TABLE>
At December 31, 1998, the Company's net operating loss carryforward for
federal income tax purposes is approximately $27,400, with expiration periods
beginning in 2011 through 2018. As a result of the recapitalization of the
Company, the net operating loss carryforwards will be limited such that no
benefit will enure to the newly formed corporation.
F-15
<PAGE>
DIGEX, INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(Continued)
(In thousands, except per share information)
7. Lease Commitments
The Company leases electronic and computer equipment under capital lease
arrangements. The Company also leases office space and office equipment under
operating leases. Future noncancelable lease payments under the Company's lease
commitments at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------- ---------
<S> <C> <C>
Future minimum lease payments:
Year ended December 31:
1999................................................. $1,121 $ 881
2000................................................. 892 1,871
2001................................................. 324 1,774
2002................................................. -- 1,628
2003................................................. -- 1,669
Thereafter........................................... -- 8,748
------ -------
2,337 $16,571
=======
Less amount representing interest...................... (248)
------
Present value of lease payments........................ 2,089
Current portion of capital leases...................... (981)
------
Noncurrent portion of capital leases................... $1,108
======
</TABLE>
Lease payments under operating leases include certain rent allocated to the
Company. In the future, rent charges will be included in the General and
Administrative Services Agreement. See Note 10, "Recapitalization and Affiliate
Agreements (Unaudited)."
Rent expense amounted to $121 for the year ended December 31, 1996, $117 for
the period from January 1, 1997 to July 7, 1997, $170 for the period from July
7, 1997 to December 31, 1997, $829 for the year ended December 31, 1998, $125
for the three months ended March 31, 1998, and $271 for the three months ended
March 31, 1999.
8. Pro Forma Loss Per Share (Unaudited)
Pro forma basic and diluted loss per share have been calculated assuming that
the common shares issued in connection with our recapitalization in April 1999
were outstanding for all periods of Digex presented. The following table
summarizes the calculation of pro forma loss per share assuming that the
capitalization of the Company in April 1999 was in effect for all periods
presented below:
<TABLE>
<CAPTION>
Period from Three months
July 1, 1997 ended
to Year ended March 31,
December 31, December 31, ----------------
1997 1998 1998 1999
------------ ------------ ------- -------
<S> <C> <C> <C> <C>
Net loss, as reported............. $(18,558) $(16,581) $(3,789) $(8,595)
======== ======== ======= =======
Weighted average common shares
(pro forma)...................... 50,000 50,000 50,000 50,000
======== ======== ======= =======
Loss per share:
Basic........................... $ (0.37) $ (0.33) $ (0.08) $ (0.17)
======== ======== ======= =======
Diluted......................... $ (0.37) $ (0.33) $ (0.08) $ (0.17)
======== ======== ======= =======
</TABLE>
The above table reflects no adjustments for stock options, as the effect of
options was anti-dilutive.
F-16
<PAGE>
DIGEX, INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(Continued)
(In thousands, except per share information)
9. Business Combination
On July 7, 1997, Intermedia purchased the outstanding common stock of
Business Internet, a nationwide Internet services provider and Web site
management company in a business combination accounted for as a purchase. The
purchase price was allocated to the fair values of assets acquired and
liabilities assumed, with the difference recorded as goodwill, which is being
amortized over ten years.
The following table summarizes the allocation of the purchase price to the
acquired assets and assumed net liabilities of the Company:
<TABLE>
<S> <C>
Estimated net fair values of operating assets and
liabilities................................................. $ (3,721)
Purchased intangible assets:
Trade name................................................. 9,750
Customer list.............................................. 3,120
Acquired workforce......................................... 1,253
Developed technologies..................................... 2,720
Goodwill................................................... 19,099
In-process research and development.......................... 15,000
--------
$ 47,221
========
</TABLE>
The amount allocated to in-process research and development ("IPR&D") of
$15,000 was recorded as a one-time charge to operations in 1997 because the
technology was not fully developed and had no alternative future use.
Management is primarily responsible for estimating the fair value of the
purchased IPR&D.
The fair value of the IPR&D was estimated by management using an income
approach. The value allocated to IPR&D was determined by estimating the costs
to develop the purchased technology into commercially viable services,
estimating the resulting net cash flows, excluding the cash flows related to
the portion that was incomplete at the acquisition date, and discounting the
net cash flows to the present value. The forecast was based upon future
discounted cash flows, taking into account the stage of development of the
IPR&D, the costs to develop the IPR&D, the expected income stream, the life
cycle of the technology ultimately developed, and the associated risks. The
selection of the applicable discount rate was based on consideration of the
costs of capital of Digex and Intermedia, as well as other factors including
the useful life of the technology, profitability levels, the uncertainty of
technology advances that were known at the time, and the stage of completion
related to the technology.
The IPR&D involved development, engineering, and testing activities
associated with the completion of next generation Web site management services.
The primary effort involved the development of an additional Web site
management facility on the West Coast. The development of technology related to
this project was considered critical to alleviating capacity constraints and
adding significant new service capabilities. Upon completion, the new Web site
management facility management facility was expected to result in faster and
easier installation of customers' servers as well as efficient traffic
management with significantly less overhead. Related efforts involved the
development and integration of next generation routers to support greater
transmission capacity, as well as a new software architecture to assist in
balancing traffic loads. Another critical element involved the development of
site mirroring, the ability to create exact replicas of Web sites at each of
Digex's two sites for greater service reliability.
At the valuation date, Digex was approximately 75% complete with the
development of its next generation Web site management services, and
substantial progress had been made in the areas of specification, design, and
implementation. In particular, engineers had made significant progress in the
areas of architecture
F-17
<PAGE>
DIGEX, INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(Continued)
(In thousands, except per share information)
9. Business Combination (Continued)
development as well as the development of site mirroring capabilities. The
Company anticipated that the R&D would be completed in phases by the end of
1998, after which the Company expected to begin generating economic benefits
from the value of the IPR&D. Total costs to complete were expected to be $100
for the remainder of 1997 and $400 in 1998. Projected future cash flows
attributable to Digex's IPR&D, assuming successful development of such
technologies, were discounted to the present value using a discount rate of
24%.
Intermedia management expected to continue development of the IPR&D efforts
at the valuation date, and believed there was a reasonable chance of
successfully completing such development. However, there was risk associated
with the completion of the IPR&D and there was no assurance that any of the
projects would meet with either technological or commercial success. Failure to
successfully develop and commercialize the IPR&D would result in the loss of
the expected economic return inherent in the fair value allocation.
On an unaudited pro forma basis, assuming the purchase had occurred at the
beginning of the 1997 year, total revenues would have been $11,612, net loss
would have been $(22,852) and net loss per share (basic and diluted) would have
been $(0.46), assuming that the recapitalization discussed in Note 10 had been
in effect for that period. However, pro forma results do not purport to be
indicative of the results that would have occurred if the acquisition had
occurred at the beginning of year.
10. Recapitalization and Affiliate Agreements (Unaudited)
Recapitalization
On April 26, 1999, the Company filed its Certificate of Incorporation in the
state of Delaware. Pursuant to the Certificate, the Company is authorized to
issue up to 9 shares of $.01 par value common stock, of which 6 will be
classified Class A and 3 Class B, and 0.1 shares of Preferred Stock. It is the
Company's intent to amend its certificate of incorporation to increase the
number of authorized shares of common stock to 150,000 including 100,000 Class
A shares and 50,000 Class B shares and to increase the number of authorized
shares of Preferred Stock to 5,000 shares. The Class A and Class B common stock
will be identified in all respects except that the Class A will be entitled to
one vote for each share and the Class B will be entitled to ten votes for each
share. In addition, on April 30, 1999, Business Internet contributed the
Company's assets to the newly formed corporation. The unaudited pro forma
balance sheet at March 31, 1999 reflect the pro forma effect of this
recapitalization.
Network Services Agreements
Pursuant to several network services agreements, to be finalized before
consummation of the offering as described in Note 12, between Intermedia and
the Company, Intermedia will provide Internet network access, as well as
network-related services. These Agreements have an initial term of two years.
Rates charged to the Company will generally be consistent with rates incurred
during the periods presented in the accompanying financial statements.
General and Administrative Services Agreement
Pursuant to a General and Administrative Services Agreement, entered into in
April 1999, between Intermedia and the Company, Intermedia will provide the
back office and administrative services as listed below:
.Corporate Human Resources, including labor relations, payroll and training
.Finance, accounting and administration
F-18
<PAGE>
DIGEX, INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(Continued)
(In thousands, except per share information)
10. General and Administrative Services Agreement (Continued)
.Tax services, including tax return preparation
.Accounting and back office support services
.Investor relations
.Information management services
The General and Administrative Services Agreement has an initial term of two
years. Rates charged to the Company for these services are believed to be
consistent with the allocations in the accompanying financial statements. Rates
for services not previously provided to the Company (e.g. investor relations)
are based upon Intermedia and the Company's best estimate of the fair value of
those services.
11. Segments
As a provider of Web site hosting service, the Company has one reportable
operating segment. The revenue of this single segment is derived from service
offerings as reported in the Company's statement of operations. Substantially
all of the Company's revenue is attributable to customers in the United States.
Additionally, all of the Company's assets are located within the United States.
12. Proposed Public Offering of Common Stock (Unaudited)
The Board of Directors of Intermedia has authorized management of the Company
to file a registration statement with the Securities and Exchange Commission
for the initial public offering of the Company's Class A Common Stock. The
Company contemplates using the proceeds from the proposed public offering to
finance its growth plans.
F-19
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Prospective investors may rely only on the information contained in this pro-
spectus. Neither Digex nor any underwriter has authorized anyone to provide
prospective investors with different or additional information. This prospec-
tus is not an offer to sell nor is it seeking an offer to buy these securities
in any jurisdiction where such offer or sale is not permitted. The information
contained in this prospectus is correct only as of the date of this prospec-
tus, regardless of the time of delivery of this prospectus or any sale of
these securities.
---------------------
TABLE OF CONTENTS
---------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 7
Use of Proceeds.......................................................... 17
Dividend Policy.......................................................... 17
Capitalization........................................................... 18
Dilution................................................................. 19
Selected Financial Data.................................................. 20
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 23
Business................................................................. 32
Management............................................................... 45
Certain Relationships and Related Transactions........................... 56
Principal Stockholders................................................... 58
Description of Capital Stock............................................. 61
Shares Eligible for Future Sale.......................................... 63
Underwriting............................................................. 65
Legal Matters............................................................ 66
Experts.................................................................. 67
Where You Can Find Additional Information................................ 67
Index to Financial Statements............................................ F-1
</TABLE>
----------------
Until , 1999 (25 days after the date of this prospectus), all dealers that
effect transactions in these securities, whether or not participating in this
offering, may be required to deliver a prospectus. This is in addition to the
dealers' obligation to deliver a prospectus when acting as underwriters and
with respect to their unsold allotments or subscriptions.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[LOGO OF DIGEX]
10,000,000 Shares
Class A Common Stock
-------------
PROSPECTUS
-------------
Bear, Stearns & Co. Inc.
Donaldson, Lufkin & Jenrette
CIBC World Markets
Legg Mason Wood Walker
Incorporated
DLJdirect Inc.
, 1999
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following statement sets forth the expenses payable in connection with
this Registration Statement, as amended, (estimated except for the SEC filing,
NASD and Nasdaq fees), all of which will be borne by Digex, Incorporated:
<TABLE>
<S> <C>
Securities and Exchange Commission filing fee.................... $ 51,152
NASD filing fee.................................................. 18,900
Nasdaq National Market listing fee............................... 78,875
Blue Sky fees and expenses....................................... 7,500
Legal fees and expenses.......................................... 350,000
Trustees' and Transfer Agents' fees.............................. 20,000
Accountants' fees and expenses................................... 850,000
Printing costs................................................... 425,000
Miscellaneous.................................................... 48,573
----------
Total.......................................................... $1,850,000
==========
</TABLE>
Item 14. Indemnification of Directors and Officers.
Digex's Certificate of Incorporation provides that Digex shall, to the
fullest extent permitted by the Delaware General Corporation Law (the "DGCL"),
indemnify all persons whom it may indemnify pursuant thereto (i.e., directors
and officers) and shall advance expenses incurred in defending any proceeding
for which such right to indemnification is applicable, provided that, if the
DGCL so requires, the indemnitee provides Digex with an undertaking to repay
all amounts advanced if it is determined by a final judicial decision that such
person is not entitled to indemnification pursuant to this provision. Digex's
Certificate of Incorporation also contains a provision eliminating the personal
liability of Digex's directors for monetary damages for breach of any fiduciary
duty. By virtue of this provision, under the DGCL, a director of Digex will not
be personally liable for monetary damages for breach of his fiduciary duty as a
director, except for liability for (i) any breach of the director's duty of
loyalty to Digex or its stockholders, (ii) acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
dividends or stock purchases or redemptions that are unlawful under the DGCL,
and (iv) any transaction from which a director derives an improper personal
benefit. However, this provision of Digex's Certificate of Incorporation
pertains only to breaches of duty by directors as directors and not in any
other corporate capacity such as officers, and limits liability only for
breaches of fiduciary duties under the DGCL and not for violations of other
laws, such as the federal securities laws.
Our bylaws also provide that we must indemnify our directors, officers,
employees and agents, and that we must advance expenses, as incurred, to our
directors and officers in connection with a legal proceeding to the fullest
extent permitted by Delaware law, subject to certain very limited exceptions.
Prior to the completion of this offering, we intend to enter into
indemnification agreements with each of our directors and executive officers to
give them additional contractual assurances regarding the scope of the
indemnification described above and to provide additional procedural
protections. Generally, pursuant to each indemnification agreement, Digex will
indemnify a director or officer who is or was a party to any legal action by or
against the Indemnitee due to his or her position as a Digex director or
officer, known as the "Indemnitee," against the expenses, judgments, fines and
amounts paid in settlement that were actually and reasonably incurred by the
Indemnitee in connection with such legal action, provided that such Indemnitee
acted in good faith and in a manner not opposed to the best interests of Digex.
II-1
<PAGE>
We also intend to obtain directors' and officers' insurance providing
indemnification for our directors, officers and certain employees for certain
liabilities.
As a result of the inclusion of such provision, stockholders may be unable to
recover monetary damages against directors for actions taken by them that
constitute negligence or gross negligence or that are in violation of their
fiduciary duties, although it may be possible to obtain injunctive or other
equitable relief with respect to such actions. The inclusion of this provision
in Digex's Certificate of Incorporation may have the effect of reducing the
likelihood of derivative litigation against directors, and may discourage or
deter stockholders or management from bringing a lawsuit against directors for
breach of their duty of care, even though such an action, if successful, might
otherwise have benefited Digex and its stockholders.
There is no pending litigation or proceeding involving any of our directors,
officers or employees regarding which indemnification is sought, nor are we
aware of any threatened litigation that may result in claims for
indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling Digex pursuant
to the foregoing provisions, we have been informed that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
Item 15. Recent Sales of Unregistered Securities.
As of July 23, 1999, there had been no sales of Digex's unregistered
securities.
Item 16. Exhibits and Financial Data Schedules.
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1 Proposed Form of Underwriting Agreement.
2.1 Contribution Agreement by and between Digex and Business Internet,
Inc., dated as of April 30, 1999.***
2.2 Assignment and Assumption Agreement by and between Digex and Business
Internet, Inc., dated as of April 30, 1999.***
2.3 Trademark Assignment by and between Digex and Business Internet, Inc.,
dated as of April 30, 1999.***
2.4 Bill of Sale to the Contribution Agreement, dated as of April 30,
1999.***
3.1 Certificate of Incorporation of Digex.**
3.2 Bylaws of Digex.**
3.3 Certificate of Amendment to the Certificate of Incorporation of
Digex.*
4.1 See the Certificate of Amendment to the Certificate of Incorporation
of Digex filed as Exhibit 3.3.
5.1 Opinion of Kronish Lieb Weiner & Hellman LLP.*
10.1 Customer Agreement by and between Digex and Pandesic, LLC, dated as of
January 7, 1999.(1)
10.2 Lease by and between Intermedia and Intel Corporation, dated as of
November 10, 1998.***
10.3 Lease by and between Intermedia and Ammendale Commerce Center Limited
Partnership, dated as of April 15, 1998.***
10.4 Lease by and between Intermedia and 1111 19th Street Associates, dated
as of July 23, 1998.
10.5 Contract for Construction by and between Intermedia and R.W. Murray
Company, d/b/a The Murray Company, dated as of February 19, 1999.
10.6 Contract for Construction by and between Intermedia and R.W. Murray
Company, d/b/a The Murray Company, dated as of January 4, 1999.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.7 Software License and Services Agreement by and between Digex and
Oracle Corporation, dated as of May 27, 1999.
10.8 License Agreement by and between Digex and Microsoft Corporation.
10.9 Consulting Letter Agreement by and between Digex, Intermedia and
Andersen Consulting LLP, dated as of April 1, 1999.
10.10 Internet Transit Services Agreement (East Coast) between Digex and
Business Internet, Inc., dated as of April 30, 1992.(1)
10.11 Internet Transit Services Agreement (West Coast) between Digex and
Business Internet, Inc., dated as of April 30, 1992.(1)
10.12 Managed Firewall Services Agreement between Digex and Business
Internet, Inc., dated as of April 30, 1999.(1)
23.1 Consent of Kronish Lieb Weiner & Hellman LLP, included in Exhibit 5.1.
23.2 Consent of Ernst & Young LLP.****
24.1 Power of Attorney (included as part of the signature page of Digex's
registration statement on Form S-1 filed with the Commission on April
27, 1999).
24.2 Power of Attorney.
27.1 Financial Data Schedule (for SEC use only).
</TABLE>
- --------
(1) Certain provisions of this exhibit have been filed separately with the
Commission pursuant to an application for confidential treatment.
* To be filed by Amendment to this Registration Statement.
** Filed as an exhibit to Digex's registration statement on Form S-1 filed
with the Commission on April 27, 1999.
*** Filed as an exhibit to Amendment No. 1 to Digex's registration statement
on Form S-1, filed with the Commission on June 15, 1999.
**** Filed as an exhibit to Amendment No. 2 to Digex's registration statement
on Form S-1, filed with the Commission on July 12, 1999.
(b) Financial Statement Schedules.
The financial statements and financial statement schedules filed as part of
this Registration Statement are as follows:
1. Financial Statements. See Index to Financial Statements on page F-1 of
the Prospectus included in this Registration Statement.
2. Financial Statement Schedules.
Item 17. Undertakings.
The undersigned Registrant hereby undertakes:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by Digex pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
II-3
<PAGE>
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be an initial bona fide offering thereof.
(3) To provide to the Underwriters at the closing specified in the
underwriting agreements, certificates in such denominations and registered
in such names as required by the underwriters to permit prompt delivery to
each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of Digex
pursuant to the foregoing provisions, or otherwise, Digex has been advised that
in the opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by Digex of expenses incurred or paid by a
director, officer or controlling person of Digex in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, Digex
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question of whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, Digex has duly caused
this Amendment No. 3 to the Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Beltsville, State
of Maryland, on this 23 day of July, 1999.
Digex, Incorporated
/s/ Mark K. Shull
By: _________________________________
Mark K. Shull
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act, this Amendment No. 3 to
the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Principal Executive Officers:
/s/ Mark K. Shull President and Chief July 23, 1999
______________________________________ Executive Officer
Mark K. Shull
Principal Financial and Accounting Officers:
* Chief Financial Officer July 23, 1999
______________________________________
Bradley E. Sparks
* Acting Controller July 23, 1999
______________________________________
Jeanne Walters
/s/ David C. Ruberg Chairman of the Board July 23, 1999
______________________________________
David C. Ruberg
* Director July 23, 1999
______________________________________
John C. Baker
* Director July 23, 1999
______________________________________
Philip A. Campbell
* Director July 23, 1999
______________________________________
George F. Knapp
* Director July 23, 1999
______________________________________
Pierce J. Roberts, Jr.
By: /s/ David C. Ruberg
----------------------------------
David C. Ruberg
as attorney-in-fact
</TABLE>
II-5
<PAGE>
DIGEX, INCORPORATED
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(Amounts in thousands)
<TABLE>
<CAPTION>
Additions
-------------------
Balance at Charged to Charged Balance at
Beginning Costs and to Other Deductions -- End of
Description of Period Expenses Accounts Describe Period
- ----------- ---------- ---------- -------- ------------- -----------
<S> <C> <C> <C> <C> <C>
The Predecessor
For the year ended
December 31, 1996:
Deducted from asset
accounts:
Allowance for doubtful
accounts............. $ -- $ 233 $-- $ -- $ 233
===== ====== ==== ===== ======
Allowance for deferred
tax assets........... -- 1,358 -- -- 1,358
===== ====== ==== ===== ======
For the period from
January 1, 1997 to July
6, 1997:
Deducted from asset
accounts:
Allowance for doubtful
accounts............. 233 352 -- 278(1) 307
===== ====== ==== ===== ======
Allowance for deferred
tax assets........... 1,358 3,359 -- -- 4,717
===== ====== ==== ===== ======
The Company
For the period from July
7, 1997 to December 31,
1997:
Deducted from asset
accounts:
Allowance for doubtful
accounts............. 307 498 -- 436(1) 369
===== ====== ==== ===== ======
Allowance for deferred
tax assets........... -- -- -- -- --
===== ====== ==== ===== ======
For the year ended
December 31, 1998:
Deducted from asset
accounts:
Allowance for doubtful
accounts............. 369 1,491 -- 1,141(1) 719
===== ====== ==== ===== ======
Allowance for deferred
tax assets........... -- 5,349 -- -- 5,349
===== ====== ==== ===== ======
</TABLE>
- --------
(1) Uncollectible accounts written off, net of recoveries.
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Page
------- ------- ----
<C> <S> <C>
1.1 Proposed Form of Underwriting Agreement.
2.1 Contribution Agreement by and between Digex and Business
Internet, Inc., dated as of April 30, 1999.***
2.2 Assignment and Assumption Agreement by and between Digex and
Business Internet, Inc., dated as of April 30, 1999.***
2.3 Trademark Assignment by and between Digex and Business
Internet, Inc., dated as of April 30, 1999.***
2.4 Bill of Sale to the Contribution Agreement, dated as of April
30, 1999.***
3.1 Certificate of Incorporation of Digex.**
3.2 Bylaws of Digex.**
3.3 Certificate of Amendment to the Certificate of Incorporation of
Digex.*
4.1 See the Certificate of Amendment to the Certificate of
Incorporation of Digex filed as Exhibit 3.3.
5.1 Opinion of Kronish Lieb Weiner & Hellman LLP.*
10.1 Customer Agreement by and between Digex and Pandesic, LLC,
dated as of January 7, 1999.(1)
10.2 Lease by and between Intermedia and Intel Corporation, dated as
of November 10, 1998.***
10.3 Lease by and between Intermedia and Ammendale Commerce Center
Limited Partnership, dated as of April 15, 1998.***
10.4 Lease by and between Intermedia and 1111 19th Street
Associates, dated as of July 23, 1998.
10.5 Contract for Construction by and between Intermedia and R.W.
Murray Company, d/b/a The Murray Company, dated as of February
19, 1999.
10.6 Contract for Construction by and between Intermedia and R.W.
Murray Company, d/b/a The Murray Company, dated as of January
4, 1999.
10.7 Software License and Services Agreement by and between Digex
and Oracle Corporation, dated as of May 27, 1999.
10.8 License Agreement by and between Digex and Microsoft
Corporation.
10.9 Consulting Letter Agreement by and between Digex, Intermedia
and Andersen Consulting LLP, dated as April 1, 1999.
10.10 Internet Transit Services Agreement (East Coast) between Digex
and Business Internet, Inc., dated as of April 30, 1999.(1)
10.11 Internet Transit Services Agreement (West Coast) between Digex
and Business Internet, Inc., dated as of April 30, 1999. (1)
10.12 Managed Firewall Services Agreement between Digex and Business
Internet, Inc., dated as of April 30, 1999. (1)
23.1 Consent of Kronish Lieb Weiner & Hellman LLP, included in
Exhibit 5.1.
23.2 Consent of Ernst & Young LLP.****
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
24.1 Power of Attorney (included as part of the signature page of
Digex's registration statement on Form S-1 filed with the
Commission on April 27, 1999).
24.2 Power of Attorney.
27.1 Financial Data Schedule (for SEC use only).
</TABLE>
- --------
(1) Certain provisions of this exhibit have been filed separately with the
Commission pursuant to an application for confidential treatment.
*To be filed by Amendment.
** Filed as an exhibit to Digex's registration statement on Form S-1 filed
with the Commission on April 27, 1999.
*** Filed as an exhibit to Amendment No. 1 to Digex's registration statement
on Form S-1 filed with the Commission on June 15, 1999.
**** Filed as an exhibit to Amendment No. 2 to Digex's registration statement
on Form S-1 filed with the Commission on July 12, 1999.
<PAGE>
EXHIBIT 1.1
DIGEX, INCORPORATED
__________ Shares of Common Stock
UNDERWRITING AGREEMENT
July ___, 1999
BEAR, STEARNS & CO. INC.
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
CIBC WORLD MARKETS CORP.
LEGG MASON WOOD WALKER, INCORPORATED
DLJDIRECT INC.
<PAGE>
__________ Shares of Common Stock
DIGEX, INCORPORATED
UNDERWRITING AGREEMENT
----------------------
July ___, 1999
Bear, Stearns & Co. Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
CIBC World Markets Corp.
Legg Mason Wood Walker, Incorporated
DLJDirect Inc.
c/o Bear, Stearns & Co. Inc.
245 Park Avenue
New York, New York 10167
Ladies and Gentlemen:
Digex, Incorporated, a corporation organized and existing under the
laws of Delaware (the "Company"), proposes, subject to the terms and conditions
-------
stated herein, to issue and sell to the several underwriters named in Schedule 1
hereto (collectively, the "Underwriters") an aggregate of __________ shares (the
------------
"Firm Shares") of its Class A common stock, par value $0.01 per share (the
-----------
"Common Stock") and, for the sole purpose of covering over-allotments in
- -------------
connection with the sale of the Firm Shares, at the option of the Underwriters,
up to an additional __________ shares (the "Additional Shares") of Common Stock.
-----------------
The Firm Shares and any Additional Shares purchased by the Underwriters are
referred to herein as the "Shares". The Shares are more fully described in the
------
Registration Statement referred to below.
1. Representations and Warranties of the Company. The Company
---------------------------------------------
represents and warrants to, and agrees with, each of the Underwriters that:
(a) The Company has filed with the Securities and Exchange Commission
(the "Commission") a registration statement on Form S-1 (No. 333-77105), and
----------
any amendments thereto, and related preliminary prospectuses for the
registration under the Securities Act of 1933 (the "Securities Act") of
--------------
shares of common stock, which registration statement, as so amended, has been
declared effective by the Commission and copies of which have heretofore been
delivered to the Underwriters. The registration statement, as amended at the
time it became effective, including the exhibits and information (if any)
deemed to be part of the registration statement at the time of effectiveness
pursuant to Rule 430A under the Act, is hereinafter referred to as the
"Registration Statement". If the Company has filed or is required pursuant
-----------------------
to the terms hereof to file a registration statement pursuant to Rule 462(b)
under the Act registering additional shares of Common Stock (a "Rule 462(b)
-----------
Registration Statement"), then, unless otherwise specified, any
----------------------
<PAGE>
reference herein to the term "Registration Statement" shall be deemed to
include such Rule 462(b) Registration Statement. Other than a Rule 462(b)
Registration Statement, which became effective upon filing, no other document
with respect to the Registration Statement has heretofore been filed with the
Commission (other than prospectuses filed pursuant to Rule 424(b) of the
rules and regulations of the Commission under the Securities Act (the
"Securities Act Regulations"), each in the form heretofore delivered to the
--------------------------
Underwriters). No stop order suspending the effectiveness of either the
Registration Statement or the Rule 462(b) Registration Statement, if any, has
been issued and no proceeding for that purpose has been initiated or, to the
Company's knowledge, threatened by the Commission. The Company, if required
by the Securities Act Regulations, proposes to file the Prospectus with the
Commission pursuant to Rule 424(b) of the Securities Act Regulations. The
Prospectus, in the form in which it is to be filed with the Commission
pursuant to Rule 424(b) of the Securities Act Regulations, is hereinafter
referred to as the "Prospectus", except that if any revised prospectus or
----------
prospectus supplement shall be provided to the Underwriters by the Company
for use in connection with the offering and sale of the Shares (the
"Offering") which differs from the Prospectus (whether or not such revised
--------
prospectus or prospectus supplement is required to be filed by the Company
pursuant to Rule 424(b) of the Securities Act Regulations), the term
"Prospectus" shall refer to such revised prospectus or prospectus supplement,
as the case may be, from and after the time it is first provided to the
Underwriters for such use; and, provided, further, that the term "Prospectus"
shall be deemed to include any wrapper or supplement thereto prepared in
connection with the distribution of any Reserved Shares (as defined in
Section 2(f), below). Any preliminary prospectus or prospectus subject to
completion included in the Registration Statement or filed with the
Commission pursuant to Rule 424 under the Securities Act is hereafter called
a "Preliminary Prospectus". All references in this Agreement to the
----------------------
Registration Statement, the Rule 462(b) Registration Statement, a Preliminary
Prospectus and the Prospectus, or any amendments or supplements to any of the
foregoing, shall be deemed to include any copy thereof filed with the
Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval
System ("EDGAR").
-----
(b) The Registration Statement and the Prospectus, at the time the
Registration Statement became effective and as of the Closing Date referred
to in Section 2 hereof, complied and comply in all material respects with the
requirements of the Securities Act and the Securities Act Regulations, and
did not and as of the Closing Date do not contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading. The
Prospectus, as of the date hereof (unless the term "Prospectus" refers to a
prospectus which has been provided to the Underwriters by the Company for use
in connection with the offering of the Shares which differs from the
Prospectus filed with the Commission pursuant to Rule 424(b) of the
Securities Act Regulations, in which case at the time it is first provided to
the Underwriters for such use) and on the Closing Date, does not and will not
include any untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided, however,
that the representations and warranties in this Section (1)(b) shall not
apply to statements in or omissions from the Registration Statement or
Prospectus made in reliance upon and in conformity with information relating
to any Underwriter furnished to the Company in writing by any Underwriter
expressly for use in the Registration Statement or the Prospectus. Each
Preliminary Prospectus and Prospectus filed as part of the Registration
Statement, as part of any amendment thereto or pursuant to Rule 424 under the
Securities Act Regulations, if filed by electronic transmission pursuant to
Regulation S-T
2
<PAGE>
under the Securities Act, was identical to the copy thereof delivered to the
Underwriters for use in connection with the offer and sales of the Shares
(except as may be permitted by Regulation S-T under the Securities Act).
There are no contracts or other documents required to be described in the
Prospectus or to be filed as exhibits to the Registration Statement under the
Securities Act that have not been described or filed therein as required, and
there are no business relationships or related-party transactions involving
the Company or any of its subsidiaries or any other person required to be
described in the Prospectus that have not been described therein as required.
(c) Each of the Company and its subsidiaries (i) has been duly
organized and is validly existing as a corporation in good standing under the
laws of its respective jurisdiction of incorporation, (ii) has all requisite
corporate power and authority to carry on its business as it is currently
being conducted and as described in the Prospectus and to own, lease and
operate its properties, and (iii) is duly qualified and in good standing as a
foreign corporation authorized to do business in each jurisdiction in which
the nature of its business or its ownership or leasing of property requires
such qualification except, with respect to clauses (i) (as it relates to good
standing) and (iii), where the failure to be so qualified or in good standing
does not and could not reasonably be expected to (x) individually or in the
aggregate, result in a material adverse effect on the properties, business,
results of operations, condition (financial or otherwise), affairs or
prospects of the Company and its subsidiaries, taken as a whole, (y)
interfere with or adversely affect the issuance or marketability of the
Shares pursuant hereto or (z) in any manner draw into question the validity
of this Agreement or any other Operative Document or the transactions
described in the Prospectus under the caption "Use of Proceeds" (any of the
events set forth in clauses (x), (y) or (z), a "Material Adverse Effect").
-----------------------
(d) All of the outstanding shares of capital stock of the Company
have been duly authorized, validly issued, and are fully paid and
nonassessable and were not issued in violation of any preemptive or similar
rights. The Shares, when issued, delivered and sold in accordance with this
Agreement, will be duly authorized and validly issued, fully paid and
nonassessable, and will not have been issued in violation of or subject to
any preemptive or similar rights. At March 31, 1999, after giving effect to
the issuance and sale of the Shares pursuant hereto and the application of
the net proceeds from the sale thereof, the Company had the pro forma
consolidated capitalization as set forth in the Prospectus under the caption
"Capitalization".
(e) All of the outstanding capital stock of, or other ownership
interests in, the Company's subsidiaries is owned by the Company, free and
clear of any security interest, claim, lien, limitation on voting rights or
encumbrance; and all such securities have been duly authorized, validly
issued, and are fully paid and nonassessable and were not issued in violation
of any preemptive or similar rights.
(f) Except as disclosed in the Prospectus there are not currently,
and will not be as a result of the Offering, any outstanding subscriptions,
rights, warrants, calls, commitments of sale or options to acquire or
instruments convertible into or exchangeable for, any capital stock or other
equity interest of the Company or any of its subsidiaries (other than options
issued pursuant to the Company's stock option plans).
(g) The Common Stock (including the Shares) is registered pursuant to
Section 12(g) of the Securities Exchange Act of 1934 (the "Exchange Act") and
------------
is listed for quotation on the Nasdaq National Market System ("Nasdaq"), and
------
the Company has taken no action designed to, or likely to have the effect of,
terminating the registration of the Common Stock under the Exchange Act or
delisting the Common Stock from Nasdaq, nor has the Company
3
<PAGE>
received any notification that the Commission or Nasdaq is contemplating
terminating such registration or listing.
(h) The Company has all requisite corporate power and authority to
execute, deliver and perform its obligations under this Agreement and to
consummate the transactions contemplated hereby, including, without
limitation, the corporate power and authority to issue, sell and deliver the
Shares as provided herein and the power to effect the Use of Proceeds as
described in the Prospectus.
(i) This Agreement has been duly and validly authorized, executed and
delivered by the Company and is the legal, valid and binding agreement of the
Company, enforceable against the Company in accordance with its terms, except
insofar as indemnification and contribution provisions may be limited by
applicable law or equitable principles and subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization or similar laws affecting
the rights of creditors generally and subject to general principles of
equity.
(j) Neither the Company nor any of its subsidiaries is, nor after
giving effect to the Offering will be, (i) in violation of its charter or
bylaws, (ii) in default in the performance of any bond, debenture, note,
indenture, mortgage, deed of trust or other agreement or instrument to which
it is a party or by which it is bound or to which any of its properties is
subject, or (iii) in violation of any local, state or federal law, statute,
ordinance, rule, regulation, requirement, judgment or court decree applicable
to the Company or any of its subsidiaries or any of their assets or
properties (whether owned or leased) other than, in the case of clauses (ii)
and (iii), any default or violation that (A) could not reasonably be expected
to have a Material Adverse Effect or (B) which is disclosed in the
Prospectus. There exists no condition that, with notice, the passage of time
or otherwise, would constitute a default under any such document or
instrument, except as disclosed in the Prospectus.
(k) None of (i) the execution, delivery or performance by the Company
of this Agreement, (ii) the issuance and sale of the Shares and (iii)
consummation by the Company of the transactions contemplated hereby and in
the Prospectus violate, conflict with or constitute a breach of any of the
terms or provisions of, or a default under (or an event that with notice or
the lapse of time, or both, would constitute a default), or require consent
under, or result in the imposition of a lien on any properties of the Company
or any of its subsidiaries, or an acceleration of any indebtedness of the
Company or any of its subsidiaries pursuant to, (A) the charter or bylaws of
the Company or any of its subsidiaries, (B) any bond, debenture, note,
indenture, mortgage, deed of trust, contract or other agreement or instrument
to which the Company or any of its subsidiaries is a party or by which the
Company or its subsidiaries or their properties is or may be bound, (C) any
statute, rule or regulation applicable to the Company or any of its
subsidiaries or any of their assets or properties or (D) any judgment, order
or decree of any court or governmental agency or authority having
jurisdiction over the Company or any of its subsidiaries or any of their
assets or properties, except in the case of clauses (B), (C) and (D) for such
violations, conflicts, breaches, defaults, consents, impositions of liens or
accelerations that (x) would not singly, or in the aggregate, have a Material
Adverse Effect or (y) which are disclosed in the Prospectus. Other than as
described in the Prospectus, no consent, approval, authorization or order of,
or filing, registration, qualification, license or permit of or with, (i) any
court or governmental agency, body or administrative agency or (ii) any other
person is required for (A) the execution, delivery and performance by the
Company of this Agreement, (B) the issuance and sale of the Shares and the
transactions contemplated hereby and thereby, except (x) such as have been
obtained and made
4
<PAGE>
under the Securities Act and state securities or Blue Sky laws and
regulations or such as may be required by the National Association of
Securities Dealers, Inc. (the "NASD") or (y) where the failure to obtain any
----
such consent, approval, authorization or order of, or filing registration,
qualification, license or permit would not reasonably be expected to result
in a Material Adverse Effect.
(l) None of (i) the execution, delivery or performance by the Company
of this Agreement, (ii) the issuance and sale of the Shares and (iii)
consummation by the Company and Intermedia Communications, Inc.
("Intermedia") of the transactions contemplated hereby and in the Prospectus
violate, conflict with or constitute a breach of any of the terms or
provisions of, or a default under (or an event that with notice or the lapse
of time, or both, would constitute a default), or require consent under, or
result in the imposition of a lien on any properties of Intermedia or any of
its subsidiaries, or an acceleration of any indebtedness of Intermedia or any
of its subsidiaries pursuant to, (A) the charter or bylaws of Intermedia or
any of its subsidiaries, (B) any bond, debenture, note, indenture, mortgage,
deed of trust, contract or other agreement or instrument to which Intermedia
or any of its subsidiaries is a party or by which Intermedia or its
subsidiaries or their properties is or may be bound, (C) any statute, rule or
regulation applicable to Intermedia or any of its subsidiaries or any of
their assets or properties or (D) any judgment, order or decree of any court
or governmental agency or authority having jurisdiction over Intermedia or
any of its subsidiaries or any of their assets or properties, except in the
case of clauses (B), (C) and (D) for such violations, conflicts, breaches,
defaults, consents, impositions of liens or accelerations that (x) would not
singly, or in the aggregate, have a Material Adverse Effect or (y) which are
disclosed in the Prospectus.
(m) There is (i) no action, suit or proceeding before or by any
court, arbitrator or governmental agency, body or official, domestic or
foreign, now pending or, to the best knowledge of the Company or any of its
subsidiaries, threatened or contemplated to which the Company or any of its
subsidiaries is a party or to which the business or property of the Company
or any of its subsidiaries is subject, (ii) no statute, rule, regulation or
order that has been enacted, adopted or issued by any governmental agency or
that has been proposed by any governmental body or (iii) no injunction,
restraining order or order of any nature by a federal or state court or
foreign court of competent jurisdiction to which the Company or any of its
subsidiaries is or may be subject or to which the business, assets, or
property of the Company or any of its subsidiaries are or may be subject,
that, in the case of clauses (i), (ii) and (iii) above, (w) is required to be
disclosed in the Prospectus and that is not so disclosed, or (x) could
reasonably be expected to, individually or in the aggregate, result in a
Material Adverse Effect.
(n) No action has been taken and no statute, rule, regulation or
order has been enacted, adopted or issued by any governmental agency that
prevents the issuance of the Shares or prevents or suspends the use of the
Prospectus; no injunction, restraining order or order of any kind by a
federal or state court of competent jurisdiction has been issued that
prevents the issuance of the Shares, prevents or suspends the sale of the
Shares in any jurisdiction referred to in Section 1(c) hereof or that could
adversely affect the consummation of the transactions contemplated by this
Agreement or the Prospectus; and every request of any securities authority or
agency of any jurisdiction for additional information has been complied with
in all material respects.
(o) Except as set forth in the Prospectus, there is (i) no
significant unfair labor practice complaint pending against the Company or
any of its subsidiaries nor, to the best
5
<PAGE>
knowledge of the Company, threatened against any of them, before the National
Labor Relations Board, any state or local labor relations board or any
foreign labor relations board, and no significant grievance or significant
arbitration proceeding arising out of or under any collective bargaining
agreement is so pending against the Company or any of its subsidiaries nor,
to the best knowledge of the Company, threatened against any of them, (ii) no
significant strike, labor dispute, slowdown or stoppage pending against the
Company or any of its subsidiaries nor, to the best knowledge of the Company,
threatened against the Company or any of its subsidiaries and (iii) to the
best knowledge of the Company, no union representation question existing with
respect to the employees of the Company or any of its subsidiaries that, in
the case of clauses (i), (ii) or (iii) above, could reasonably be expected to
result in a Material Adverse Effect. To the best knowledge of the Company, no
collective bargaining organizing activities are taking place with respect to
the Company or any of its subsidiaries. None of the Company or any of its
subsidiaries has violated (A) any federal, state or local law or foreign law
relating to discrimination in hiring, promotion or pay of employees, (B) any
applicable wage or hour laws or (C) any provision of the Employee Retirement
Income Security Act of 1974, as amended, and the regulations and published
interpretations thereunder (collectively, "ERISA"), which in the case of
-----
clause (A), (B) or (C) above could reasonably be expected to result in a
Material Adverse Effect.
(p) None of the Company or any of its subsidiaries has violated any
environmental, safety or similar law or regulation applicable to it or its
business or property relating to the protection of human health and safety,
the environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), lacks any permit, license or other
------------------
approval required of it under applicable Environmental Laws or is violating
any term or condition of such permit, license or approval, which could
reasonably be expected to, either individually or in the aggregate, have a
Material Adverse Effect.
(q) Each of the Company and its subsidiaries has (i) good and
marketable title to all of the properties and assets described in the
Prospectus as owned by it, free and clear of all liens, charges, encumbrances
and restrictions, except such as are described in the Prospectus or as would
not have a Material Adverse Effect, (ii) peaceful and undisturbed possession
of its properties under all material leases to which it is a party as lessee,
(iii) all licenses, certificates, permits, authorizations, approvals,
franchises and other rights from, and has made all declarations and filings
with, all federal, state and local authorities, all self-regulatory
authorities and all courts and other tribunals (each an "Authorization")
-------------
necessary to engage in the business conducted by it in the manner described
in the Prospectus, except as described in the Prospectus or where failure to
hold such Authorizations would not, individually or in the aggregate, have a
Material Adverse Effect and (iv) no reason to believe that any governmental
body or agency is considering limiting, suspending or revoking any such
Authorization. Except where the failure to be in full force and effect would
not have a Material Adverse Effect, all such Authorizations are valid and in
full force and effect, and each of the Company and its subsidiaries is in
compliance in all material respects with the terms and conditions of all such
Authorizations and with the rules and regulations of the regulatory
authorities having jurisdiction with respect thereto. All material leases to
which the Company or any of its subsidiaries is a party are valid and
binding, and no default by the Company or any subsidiary has occurred and is
continuing thereunder and, to the best knowledge of the Company and its
subsidiaries, no material defaults by the landlord are existing under any
such lease that could reasonably be expected to result in a Material Adverse
Effect.
(r) Each of the Company and its subsidiaries owns, possesses or has
the right to employ all patents, patent rights, licenses, inventions,
copyrights, know-how (including
6
<PAGE>
trade secrets and other unpatented and/or unpatentable proprietary or
confidential information, software, systems or procedures), trademarks,
service marks and trade names, inventions, computer programs, technical data
and information (collectively, the "Intellectual Property") presently
---------------------
employed by it in connection with the businesses now operated by it or which
are proposed to be operated by it or its subsidiaries free and clear of and
without violating any right, claimed right, charge, encumbrance, pledge,
security interest, restriction or lien of any kind of any other person and
none of the Company or any of its subsidiaries has received any notice of
infringement of or conflict with asserted rights of others with respect to
any of the foregoing, except as could not reasonably be expected to have a
Material Adverse Effect. The use of the Intellectual Property in connection
with the business and operations of the Company and its subsidiaries does not
infringe on the rights of any person, except as could not reasonably be
expected to have a Material Adverse Effect.
(s) None of the Company or any of its subsidiaries or, to the best
knowledge of the Company, any of their respective officers, directors,
partners, employees, agents or affiliates or any other person acting on
behalf of the Company or any of its subsidiaries has, directly or indirectly,
given or agreed to give any money, gift or similar benefit (other than legal
price concessions to customers in the ordinary course of business) to any
customer, supplier, employee or agent of a customer or supplier, official or
employee of any governmental agency (domestic or foreign), instrumentality of
any government (domestic or foreign) or any political party or candidate for
office (domestic or foreign) or other person who was, is or may be in a
position to help or hinder the business of the Company or any of its
subsidiaries (or assist the Company or any of its subsidiaries in connection
with any actual or proposed transaction), which (i) might subject the Company
or any of its subsidiaries, or any other individual or entity, to any damage
or penalty in any civil, criminal or governmental litigation or proceeding
(domestic or foreign), (ii) if not given in the past, might have had a
material adverse effect on the assets, business or operations of the Company
or any of its subsidiaries or (iii) if not continued in the future, might
have a Material Adverse Effect.
(t) All material tax returns required to be filed by the Company and
each of its subsidiaries in all jurisdictions have been so filed. All taxes,
including withholding taxes, penalties and interest, assessments, fees and
other charges due or claimed to be due from such entities or that are due and
payable have been paid, other than those being contested in good faith and
for which adequate reserves have been provided or those currently payable
without penalty or interest. To the knowledge of the Company, there are no
material proposed additional tax assessments against the Company, the assets
or property of the Company or any of its subsidiaries. The Company has made
adequate charges, accruals and reserves in the applicable financial
statements included in the Prospectus in respect of all federal, state and
foreign income and franchise taxes for all periods as to which the tax
liability of the Company or any of its consolidated subsidiaries has not been
finally determined.
(u) None of the Company or any of its subsidiaries is (i) an
"investment company" or a company "controlled" by an "investment company"
within the meaning of the Investment Company Act of 1940, as amended (the
"Investment Company Act"), or (ii) a "holding company" or a "subsidiary
-----------------------
company" or an "affiliate" of a holding company within the meaning of the
Public Utility Holding Company Act of 1935, as amended.
(v) Except as disclosed in the Prospectus, there are no holders of
securities of the Company or any of its subsidiaries who, by reason of the
execution by the Company of this
7
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Agreement to which it is a party or the consummation by the Company or any of
its subsidiaries of the transactions contemplated hereby, have the right to
request or demand that the Company or any of its subsidiaries register under
the Securities Act or analogous foreign laws and regulations securities held
by them, other than such that have been duly waived.
(w) Each of the Company and its subsidiaries maintains a system of
internal accounting controls sufficient to provide reasonable assurance that:
(i) transactions are executed in accordance with management's general or
specific authorizations; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for assets;
(iii) access to assets is permitted only in accordance with management's
general or specific authorization and (iv) the recorded accountability for
assets is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences thereto.
(x) Each of the Company and its subsidiaries maintains insurance
covering its properties, operations, personnel and businesses. Such
insurance insures against such losses and risks as are adequate in accordance
with customary industry practice to protect the Company and its subsidiaries
and their respective businesses. None of the Company or any of its
subsidiaries has received notice from any insurer or agent of such insurer
that substantial capital improvements or other expenditures will have to be
made in order to continue such insurance. All such insurance is outstanding
and duly in force on the date hereof, subject only to changes made in the
ordinary course of business, consistent with past practice, which do not,
singly or in the aggregate, materially alter the coverage thereunder or the
risks covered thereby. The Company has no reason to believe that it or any
subsidiary will not be able (a) to renew its existing insurance coverage as
and when such policies expire or (b) to obtain comparable coverage from
similar institutions as may be necessary or appropriate to conduct its
business as now conducted or as presently contemplated and at a cost that
would not result in a Material Adverse Effect.
(y) The Company has not (a) taken, directly or indirectly, any action
designed to, or that might reasonably be expected to, cause or result in
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Shares or (b) since the date of the
Preliminary Prospectus (1) sold, bid for, purchased or paid any person any
compensation for soliciting purchases of, the Shares or (2) paid or agreed to
pay to any person any compensation for soliciting another to purchase any
other securities of the Company.
(z) The Company and its subsidiaries and any "employee benefit plan"
(as defined under ERISA) established or maintained by the Company, its
-----
subsidiaries or their "ERISA Affiliates" (as defined below) are in compliance
in all material respects with ERISA. "ERISA Affiliate" means, with respect
---------------
to the Company or a subsidiary, any member of any group of organizations
described in Sections 414(b), (c), (m) or (o) of the Internal Revenue Code of
1986, as amended, and the regulations and published interpretations
thereunder (the "Code") of which the Company or such subsidiary is a member.
----
No "reportable event" (as defined under ERISA) has occurred or is reasonably
expected to occur with respect to any "employee benefit plan" established or
maintained by the Company, its subsidiaries or any of their ERISA Affiliates.
No "employee benefit plan" established or maintained by the Company, its
subsidiaries or any of their ERISA Affiliates, if such "employee benefit
8
<PAGE>
plan" were terminated, would have any "amount of unfunded benefit
liabilities" (as defined under ERISA). Neither the Company, its subsidiaries
nor any of their ERISA Affiliates has incurred or reasonably expects to incur
any liability under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any "employee benefit plan" or (ii) Sections 412, 4971, 4975
or 4980B of the Code. Each "employee benefit plan" established or maintained
by the Company, its subsidiaries or any of their ERISA Affiliates that is
intended to be qualified under Section 401(a) of the Code is so qualified and
nothing has occurred, whether by action or failure to act, which would cause
the loss of such qualification.
(aa) Subsequent to the respective dates as of which information is
given in the Prospectus and up to the Closing Date, except as set forth in
the Prospectus, (i) none of the Company or any of its subsidiaries has
incurred any liabilities or obligations, direct or contingent, that are
material, individually or in the aggregate, to the Company and its
subsidiaries taken as a whole, nor entered into any transaction not in the
ordinary course of business, (ii) none of the Company or any of its
subsidiaries has incurred any liabilities or obligations, direct or
contingent, that will be material to the Company and its subsidiaries taken
as a whole, (iii) there has not been, singly or in the aggregate, any change
or development that could reasonably be expected to result in a Material
Adverse Effect; (iv) there has been no dividend or distribution of any kind
declared, paid or made by the Company or any of its subsidiaries on any class
of its capital stock; (v) there has been no change in accounting methods or
practices (including any change in depreciation or amortization policies or
rates) by the Company or any of its subsidiaries; (vi) there has been no
revaluation by the Company or any of its subsidiaries of any of their assets;
(vii) there has been no increase in the salary or other compensation payable
or to become payable by the Company or any of its subsidiaries to any of
their officers, directors, employees or advisors, nor any declaration,
payment or commitment or obligation of any kind for the payment by the
Company or any of its subsidiaries of a bonus or other additional salary or
compensation to any such person; (viii) there has been no amendment or
termination of any material contract, agreement or license to which the
Company or any subsidiary is a party or by which it is bound; (ix) there has
been no waiver or release of any material right or claim of the Company or
any subsidiary, including any write-off or other compromise of any material
account receivable of the Company or any subsidiary; and (x) there has been
no material change in pricing or royalties set or charged by the Company or
any subsidiary to their respective customers or licensees or in pricing or
royalties set or charged by persons who have licensed Intellectual Property
Rights to the Company or any of its subsidiaries.
(bb) Ernst & Young LLP, who have expressed their opinion with respect
to the financial statements (which term as used in this Agreement includes
the related notes thereto) and supporting schedules included in the
Prospectus, are independent public or certified public accountants within the
meaning of Regulation S-X under the Securities Act and the Exchange Act.
(cc) The financial statements, together with the related notes,
included in the Prospectus present fairly in all material respects the
consolidated financial position of the Company and its subsidiaries as of and
at the dates indicated and the results of their operations and cash flows for
the periods specified. Such financial statements have been prepared in
conformity with generally accepted accounting principles applied on a
consistent basis throughout the periods involved, except as may be expressly
stated in the related notes thereto. The financial data set forth in the
Prospectus under the captions "Prospectus Summary--Summary Financial Data",
"Selected Financial Data" and "Capitalization" fairly present the information
set forth therein on a basis consistent with that of the audited financial
statements contained in the Prospectus.
(dd) Except pursuant to this Agreement, there are no contracts,
agreements or understandings between the Company and any other person that
would give rise to a valid claim against the Company or any of the
Underwriters for a brokerage commission, finder's fee or like payment in
connection with the issuance, purchase and sale of the Shares.
9
<PAGE>
(ee) The statements (including the assumptions described therein)
included in the Prospectus (i) are within the coverage of Rule 175(b) under
the Securities Act to the extent such data constitute forward looking
statements as defined in Rule 175(c) and (ii) were made by the Company with a
reasonable basis and reflect the Company's good faith estimate of the matters
described therein.
(ff) Each of the Company and its subsidiaries has implemented Year
2000 compliance programs designed to ensure that its computer systems and
applications will function properly beyond 1999. The Company believes that
adequate resources have been allocated for this purpose and expects the
Company's and its subsidiaries' Year 2000 date conversion programs to be
completed on a timely basis.
(gg) Each certificate signed by any officer of the Company and
delivered to the Underwriters or counsel for the Underwriters pursuant to
this Agreement shall be deemed to be a representation and warranty by the
Company to the Underwriters as to the matters covered thereby.
The Company acknowledges that each of the Underwriters and, for
purposes of the opinions to be delivered to the Underwriters pursuant to Section
6 hereof, counsel to the Company and counsel to the Underwriters, will rely upon
the accuracy and truth of the foregoing representations and hereby consents to
such reliance.
2. Purchase, Sale and Delivery of the Shares.
-----------------------------------------
(a) On the basis of the representations, warranties, covenants and
agreements herein contained, but subject to the terms and conditions herein
set forth, the Company agrees to sell to the Underwriters and the
Underwriters, severally and not jointly, agree to purchase from the Company,
at a purchase price per share of $__, the number of Firm Shares set forth
opposite the respective names of the Underwriters in Schedule I hereto plus
any additional number of Shares which such Underwriter may become obligated
to purchase pursuant to the provisions of Section 9 hereof.
(b) Payment of the purchase price for, and delivery of certificates
for, the Firm Shares shall be made at the office of Latham & Watkins, 885
Third Avenue, Suite 1000, New York, New York, 10022, or at such other place
as shall be agreed upon by the Underwriters and the Company, at 10:00 A.M. on
July ___, 1999 (unless postponed in accordance with the provisions of Section
9 hereof) after the determination of the public offering price of the Firm
Shares, or such other time not later than ten business days after such date
as shall be agreed upon by the Underwriters and the Company (such time and
date of payment and delivery being herein called the "Closing Date").
------------
Payment shall be made to the Company by wire transfer in same day funds,
against delivery to the Underwriters of certificates for the Shares to be
purchased by them. Certificates for the Firm Shares shall be registered in
such name or names and in such authorized denominations as the Underwriters
may request in writing at least two full business days hours prior to the
Closing Date. The Company will permit the Underwriters to examine and
package such certificates for delivery at least one full business day prior
to the Closing Date.
(c) In addition, the Company hereby grants to the Underwriters the
option to purchase up to __________ Additional Shares at the same purchase
price per share to be paid
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<PAGE>
by the Underwriters to the Company for the Firm Shares as set forth in this
Section 2, for the sole purpose of covering over-allotments in the sale of
Firm Shares by the Underwriters. This option may be exercised at any time, in
whole or in part, on or before the thirtieth day following the date of the
Prospectus, by written notice by the Underwriters to the Company. Such notice
shall set forth the aggregate number of Additional Shares as to which the
option is being exercised and the date and time, as reasonably determined by
the Underwriters, when the Additional Shares are to be delivered (such date
and time being herein sometimes referred to as the "Additional Closing
------------------
Date"); provided, however, that the Additional Closing Date shall not be
----
earlier than the Closing Date or earlier than the second full business day
after the date on which the option shall have been exercised nor later than
the eighth full business day after the date on which the option shall have
been exercised (unless such time and date are postponed in accordance with
the provisions of Section 9 hereof). Certificates for the Additional Shares
shall be registered in such name or names and in such authorized
denominations as the Underwriters may request in writing at least two full
business days prior to the Additional Closing Date. The Company will permit
the Underwriters to examine and package such certificates for delivery at
least one full business day prior to the Additional Closing Date.
(d) The number of Additional Shares to be sold to each Underwriter
shall be the number which bears the same ratio to the aggregate number of
Additional Shares being purchased as the number of Firm Shares set forth
opposite the name of such Underwriter in Schedule I hereto (or such number
increased as set forth in Section 9 hereof) bears to the total number of Firm
Shares being purchased from the Company, subject, however, to such
adjustments to eliminate any fractional shares as the Underwriters in their
sole discretion shall make.
(e) Payment for the Additional Shares shall be made by wire
transfer in same day funds each payable to the order of the Company at the
office of Latham & Watkins, 885 Third Avenue, Suite 1000, New York, New York,
10022, or such other location as may be mutually acceptable, upon delivery of
the certificates for the Additional Shares to the Underwriters.
(f) The Company and the Underwriters agree that up to _______ of
the Firm Shares to be purchased by the Underwriters (the "Reserved Shares")
---------------
shall be reserved for sale by the Underwriters to certain individuals and
entities having business relationships with the Company, as part of the
distribution of the Shares by the Underwriters, subject to the terms of this
Agreement, the NASD and all other applicable laws, rules and regulations. To
the extent that such Reserved Shares are not orally confirmed for purchase by
such individuals and entities having business relationships with the Company
by the end of the first business day after the date of this Agreement, such
Reserved Shares may be offered to the public as part of the public offering
contemplated hereby.
3. Offering. Upon the Underwriters' authorization of the release of
--------
the Firm Shares, the Underwriters propose to offer the Shares for sale to the
public upon the terms set forth in the Prospectus.
4. Covenants of the Company. The Company covenants and agrees with
------------------------
each of the Underwriters that:
(a) The Company will notify the Underwriters immediately (and, if
requested by the Underwriters, will confirm such notice in writing) (i) when
any post-effective
11
<PAGE>
amendment to the Registration Statement becomes effective, (ii) of any
request by the Commission for any amendment of or supplement to the
Registration Statement or the Prospectus or for any additional information,
(iii) of the mailing or the delivery to the Commission for filing of the
Prospectus or any amendment of or supplement to the Registration Statement or
the Prospectus or any document to be filed pursuant to the Exchange Act
during any period when the Prospectus is required to be delivered under the
Securities Act, (iv) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or any post-
effective amendment thereto or of the initiation, or the threatening, of any
proceedings therefor, (v) of the receipt of any comments or inquiries from
the Commission, and (vi) of the receipt by the Company of any notification
with respect to the suspension of the qualification of the Shares for sale in
any jurisdiction or the initiation or threatening of any proceeding for that
purpose. If the Commission shall propose or enter a stop order at any time,
the Company will make every reasonable effort to prevent the issuance of any
such stop order and, if issued, to obtain the lifting of such order as soon
as possible. The Company will not file any post-effective amendment to the
Registration Statement or any amendment of or supplement to the Prospectus
(including any revised prospectus which the Company proposes for use by the
Underwriters in connection with the offering of the Shares which differs from
the prospectus filed with the Commission pursuant to Rule 424(b) of the
Securities Act Regulations, whether or not such revised prospectus is
required to be filed pursuant to Rule 424(b) of the Securities Act
Regulations) to which the Underwriters or Underwriters' Counsel (as
hereinafter defined) shall reasonably object, will furnish the Underwriters
with copies of any such amendment or supplement a reasonable amount of time
prior to such proposed filing or use, as the case may be, and will not file
any such amendment or supplement or use any such prospectus to which the
Underwriters or counsel for the Underwriters shall reasonably object.
(b) If any event shall occur as a result of which the Prospectus
would, in the judgment of the Underwriters or the Company, include an untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading, or if it
shall be necessary at any time to amend or supplement the Prospectus or the
Registration Statement to comply with the Securities Act or the Securities
Act Regulations, the Company will notify the Underwriters promptly and
prepare and file with the Commission an appropriate amendment or supplement
(in form and substance satisfactory to the Underwriters) which will correct
such statement or omission or which will effect such compliance.
(c) The Company has delivered to the Underwriters five signed
copies of the Registration Statement as originally filed, including exhibits,
and all amendments thereto, and the Company will promptly deliver to each of
the Underwriters, from time to time during the period that the Prospectus is
required to be delivered under the Securities Act, such number of copies of
the Prospectus and the Registration Statement, and all amendments of and
supplements to such documents, if any, as the Underwriters may reasonably
request.
(d) The Company will endeavor in good faith, in cooperation with
the Underwriters, to qualify the Shares for offering and sale under the
securities laws relating to the offering or sale of the Shares of such
jurisdictions as the Underwriters may designate and to maintain such
qualification in effect for so long as required for the distribution thereof;
except that in no event shall the Company be obligated in connection
therewith to qualify as a foreign corporation or to execute a general consent
to service of process.
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<PAGE>
(e) The Company will make generally available (within the meaning
of Section 11(a) of the Securities Act) to its security holders and to the
Underwriters as soon as practicable, but not later than 45 days after the end
of its fiscal quarter in which the first anniversary date of the effective
date of the Registration Statement occurs (or if such fiscal quarter is the
Company's fourth fiscal quarter, not later than 90 days after the end of such
quarter), an earnings statement (in form complying with the provisions of
Rule 158 of the Regulations) covering a period of at least twelve consecutive
months beginning after the effective date of the Registration Statement (as
defined in Rule 158(c) under the Securities Act).
(f) During the period of 180 days from the date of the Prospectus,
the Company will not, directly or indirectly, without the prior written
consent of Bear, Stearns & Co. Inc. ("Bear Stearns"), offer, sell, contract
------------
to sell, grant any option to purchase, pledge or otherwise dispose (or
announce any offer, sale, contract to sell, grant of an option to purchase,
pledge or other disposition) of any shares of Common Stock of the Company or
any securities convertible into or exercisable or exchangeable for such
Common Stock, except that the Company may issue (i) [shares of Common Stock
and options to purchase Common Stock under its 1999 Stock Option Plan (as
such term is defined in the Prospectus)], (ii) shares of Common Stock in
connection with strategic relationships and acquisitions of businesses,
technologies and products complementary to those of the Company, so long as
the recipients of such shares agree to be bound by a lock-up agreement
substantially in the form of Exhibit B hereto (which shall provide that any
---------
transferees and assigns of such recipients shall be bound by the lock-up
agreement) for the remainder of the 180-day lock-up period.
(g) During a period of three years from the date of the Prospectus,
the Company will furnish to the Underwriters copies of (i) all reports to its
stockholders; and (ii) all reports, financial statements and proxy or
information statements filed by the Company with the Commission or any
national securities exchange.
(h) The Company will apply the proceeds from the sale of the Shares
as set forth under "Use of Proceeds" in the Prospectus.
(i) If the Company elects to rely upon Rule 462(b), the Rule 462(b)
Registration Statement shall have become effective by 10:00 P.M., New York
City time, on the date of this Agreement, no stop order suspending the
effectiveness of the Registration Statement or any part thereof shall have
been issued and no proceeding for that purpose shall have been initiated or
threatened by the Commission, and all requests for additional information on
the part of the Commission shall have been complied with to the Underwriters'
reasonable satisfaction.
(j) The Company, during the period when the Prospectus is required
to be delivered under the Securities Act or the Exchange Act, will file all
documents required to be filed with the Commission pursuant to Sections 13,
14 or 15 of the Exchange Act within the time periods required by the Exchange
Act and the rules and regulations thereunder.
5. Payment of Expenses. Whether or not the transactions
-------------------
contemplated in this Agreement are consummated or this Agreement is terminated,
the Company hereby agrees to pay all costs and expenses incident to the
performance of the obligations of the Company hereunder, including those in
connection with (a) preparing, printing, duplicating, filing and distributing
the Registration Statement, as originally filed and all amendments thereto
(including all exhibits thereto), any Preliminary Prospectus, the Prospectus and
any amendments or supplements thereto (including, without limitation,
13
<PAGE>
fees and expenses of the Company's accountants and counsel), the underwriting
documents (including this Agreement, the Agreement Among Underwriters and the
Selling Agreement) and all other documents related to the public offering of the
Shares (including those supplied to the Underwriters in quantities as
hereinabove stated), (b) the issuance, transfer and delivery of the Shares to
the Underwriters, including any transfer or other taxes payable thereon, (c) the
qualification of the Shares under state or foreign securities or Blue Sky laws,
including the costs of printing and mailing a preliminary and final "Blue Sky
Memorandum" and the fees of counsel in connection therewith and such counsel's
disbursements in relation thereto, (d) listing of the Shares for quotation on
the Nasdaq, (e) filing fees of the Commission and the NASD, (f) the cost of
printing certificates representing the Shares, (g) the cost and charges of any
transfer agent or registrar and (h) all costs and expenses of the Underwriters,
including the fees and disbursements of counsel for the Underwriters, in
connection with matters related to the Reserved Shares.
6. Conditions of Underwriters' Obligations. The obligations of the
---------------------------------------
Underwriters to purchase and pay for the Firm Shares and the Additional Shares,
as provided herein, shall be subject to the accuracy of the representations and
warranties of the Company herein contained, as of the date hereof and as of the
Closing Date (for purposes of this Section 6, "Closing Date" shall refer to the
------------
Closing Date for the Firm Shares and any Additional Closing Date, if different,
for the Additional Shares), to the absence from any certificates, opinions,
written statements or letters furnished to the Underwriters or to Latham &
Watkins ("Underwriters' Counsel") pursuant to this Section 6 of any material
---------------------
misstatement or omission, to the performance by the Company of its obligations
hereunder, and to the following additional conditions:
(a) Prior to the Closing Date the Registration Statement shall have
become effective, and on the Closing Date, no stop order suspending the
effectiveness of the Registration Statement shall have been issued under the
Securities Act or proceedings therefor initiated or, to the Company's
knowledge, threatened by the Commission. The Prospectus shall have been
filed or transmitted for filing with the Commission pursuant to Rule 424(b)
of the Securities Act Regulations within the prescribed time period, and
prior to Closing Date the Company shall have provided evidence satisfactory
to the Underwriters of such timely filing or transmittal.
(b) All of the representations and warranties of the Company contained
in this Agreement shall be true and correct on the date hereof and on the
Closing Date with the same force and effect as if made on and as of the date
hereof and the Closing Date, respectively. The Company shall have performed
or complied with all of the agreements herein contained and required to be
performed or complied with by it at or prior to the Closing Date.
(c) The Prospectus shall have been printed and copies distributed to
the Underwriters not later than 10:00 a.m., New York City time, on the second
business day following the date of this Agreement or at such later date and
time as to which the Underwriters may agree, and no stop order suspending the
qualification or exemption from qualification of the Shares in any
jurisdiction referred to in Section 4(d) shall have been issued and no
proceeding for that purpose shall have been commenced or shall be pending or
threatened.
(d) No action shall have been taken and no statute, rule, regulation or
order shall have been enacted, adopted or issued by any governmental agency
which would, as of the Closing Date, prevent the issuance of the Shares; no
action, suit or proceeding shall have been commenced and be pending against
or affecting or, to the best knowledge of the Company, threatened against,
the Company or any of its subsidiaries before any court or arbitrator or any
14
<PAGE>
governmental body, agency or official that (i) could reasonably be expected
to result in a Material Adverse Effect or (ii) has not been disclosed in the
Prospectus.
(e) Since the dates as of which information is given in the Prospectus
and except as contemplated by the Prospectus, (i) there shall not have been
any material adverse change, or any development that is reasonably likely to
result in a material adverse change, in the capital stock or the long-term
debt, or material increase in the short-term debt, of the Company or any of
its subsidiaries from that set forth in the Prospectus, (ii) no dividend or
distribution of any kind shall have been declared, paid or made by the
Company or any of its subsidiaries on any class of its capital stock, (iii)
neither the Company nor any of its subsidiaries shall have incurred any
liabilities or obligations, direct or contingent, that are material,
individually or in the aggregate, to the Company and its subsidiaries, taken
as a whole, and that are required to be disclosed on a balance sheet or notes
thereto in accordance with generally accepted accounting principles and are
not disclosed on the latest balance sheet or notes thereto included in the
Prospectus. Since the date hereof and since the dates as of which
information is given in the Prospectus, there shall not have occurred any
Material Adverse Effect.
(f) The Underwriters shall have received a certificate, dated the
Closing Date, signed on behalf of the Company by each of the Company's Chief
Executive Officer and Chief Financial Officer in form and substance
reasonably satisfactory to the Underwriters, confirming, as of the Closing
Date, the matters set forth in paragraphs (a) through (e) of this Section 6
and that, as of the Closing Date, the obligations of the Company to be
performed hereunder on or prior thereto have been duly performed in all
material respects.
(g) The Underwriters shall have received on the Closing Date an
opinion, dated the Closing Date, in form and substance satisfactory to the
Underwriters and counsel to the Underwriters, of Kronish, Lieb, Weiner &
Hellman LLP, counsel for the Company, to the effect set forth in Exhibit A
---------
hereto.
(h) The Underwriters shall have received an opinion, dated the Closing
Date, in form and substance reasonably satisfactory to the Underwriters, of
Latham & Watkins, counsel to the Underwriters, covering such matters as are
customarily covered in such opinions.
(i) Latham & Watkins shall have been furnished with such documents, in
addition to those set forth above, as they may reasonably require for the
purpose of enabling them to review or pass upon the matters referred to in
this Section 6 and in order to evidence the accuracy, completeness or
satisfaction in all material respects of any of the representations,
warranties or conditions herein contained.
(j) At the time this Agreement is executed and at the Closing Date the
Underwriters shall have received from Ernst & Young LLP, independent public
accountants for the Company and its subsidiaries, dated as of the date of
this Agreement and as of the Closing Date, customary comfort letters
addressed to the Underwriters and in form and substance satisfactory to the
Underwriters and counsel to the Underwriters with respect to the financial
statements and certain financial information of the Company and its
subsidiaries contained in the Prospectus.
(k) At the time this Agreement is executed, the Underwriters shall
have received a "lock-up" agreement, substantially in the form attached as
Exhibit B hereto, from each of the officers, directors and stockholders of
---------
the Company identified on Exhibit C hereto.
---------
15
<PAGE>
(l) At the Closing Date, the Shares shall have been approved for
quotation on the Nasdaq.
(m) At the time this Agreement is executed and at the Closing Time,
the NASD shall not have withdrawn, or given notice of an intention to
withdraw, its approval of the fairness of the underwriting terms and
arrangements of the offering of the Shares by the Underwriters.
(n) Each of the General Administrative and Services Agreement, Master
Network Services Agreement, Public Internet Access Services Agreement, and
Customer Network and Application Services Agreement shall be in full force
and effect, and no party to any such agreement shall have given any notice of
termination or amendment of any material provision thereof, or of any
intention to terminate or amend any material provision thereof, to any other
party, and no event shall have occurred which would prevent either party from
substantially performing its obligations under such agreements.
(o) All opinions, certificates, letters and other documents required
by this Section 6 to be delivered by the Company will be in compliance with
the provisions hereof only if they are reasonably satisfactory in form and
substance to the Underwriters. The Company will furnish the Underwriters
with such conformed copies of such opinions, certificates, letters and other
documents as Bear Stearns shall reasonably request. Prior to the Closing
Date, the Company shall have furnished to the Underwriters such further
information, certificates and documents as the Underwriters may reasonably
request.
If any of the conditions specified in this Section 6 shall not have been
fulfilled when and as required by this Agreement, or if any of the certificates,
opinions, written statements or letters furnished to the Underwriters or to
Underwriters' Counsel pursuant to this Section 6 shall not be in all material
respects reasonably satisfactory in form and substance to the Underwriters and
to Underwriters' Counsel, all obligations of the Underwriters hereunder may be
canceled by the Underwriters at, or at any time prior to, the Closing Date and
the obligations of the Underwriters to purchase the Additional Shares may be
canceled by the Underwriters at, or at any time prior to, the Additional Closing
Date. Notice of such cancellation shall be given to the Company in writing, or
by telephone, telecopy, telex or telegraph, confirmed in writing.
7. Indemnification.
---------------
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange
Act against any and all losses, liabilities, claims, damages and expenses
whatsoever as incurred (including but not limited to attorneys' fees and any
and all expenses whatsoever incurred in investigating, preparing or defending
against any litigation, commenced or threatened, or any claim whatsoever, and
any and all amounts paid in settlement of any claim or litigation), joint or
several, to which they or any of them may become subject under the Securities
Act, the Exchange Act or otherwise, insofar as such losses, liabilities,
claims, damages or expenses (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement, as originally filed or any
amendment thereof, or any related Preliminary Prospectus or the Prospectus,
or in any supplement thereto or amendment thereof, or arise out of or are
based upon the omission or alleged omission to state therein
16
<PAGE>
a material fact required to be stated therein or necessary to make the
statements therein not misleading; provided, however, that the Company will
not be liable in any such case (i) to the extent but only to the extent that
any such loss, liability, claim, damage or expense arises out of or is based
upon any such untrue statement or alleged untrue statement or omission or
alleged omission made therein in reliance upon and in conformity with written
information furnished to the Company by or on behalf of any Underwriter
expressly for use therein and (ii) with respect to any preliminary prospectus
or preliminary prospectus supplement to the extent that any such loss, claim,
damage or liability results from the fact that an Underwriter sold Shares to
a person as to whom it shall be established that there was not sent or given,
at or prior to written confirmation of such sale, a copy of the prospectus or
prospectus supplement as then amended or supplemented in any case where such
delivery is required by the Securities Act if the Company has previously
furnished copies thereof in sufficient quantity to such Underwriter and with
sufficient time to effect a recirculation pursuant to Rule 461 under the
Securities Act and the loss, claim, damage or liability of the Underwriters
results from an untrue statement or omission of a material fact contained in
the preliminary prospectus or preliminary prospectus supplement which was
identified in writing prior to the effective date of the registration
statement to such underwriter and corrected in the prospectus or prospectus
supplement as then amended, and such correction would have cured the defect
giving rise to such loss, claim, damage or liability. This indemnity
agreement will be in addition to any liability which the Company may
otherwise have including under this Agreement.
(b) Each Underwriter severally, and not jointly, agrees to
indemnify and hold harmless the Company and each other person, if any, who
controls the Company within the meaning of Section 15 of the Securities Act
or Section 20(a) of the Exchange Act, against any and all losses,
liabilities, claims, damages and expenses whatsoever as incurred (including
but not limited to attorneys' fees and any and all expenses whatsoever
incurred in investigating, preparing or defending against any litigation,
commenced or threatened, or any claim whatsoever, and any and all amounts
paid in settlement of any claim or litigation), joint or several, to which
they or any of them may become subject under the Securities Act, the Exchange
Act or otherwise, insofar as such losses, liabilities, claims, damages or
expenses (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement, as originally filed or any amendment thereof, or
any related preliminary prospectus, preliminary prospectus supplement or
prospectus, or in any amendment thereof or supplement thereto, or arise out
of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but only to
the extent, that any such loss, liability, claim, damage or expense arises
out of or is based upon any such untrue statement or alleged untrue statement
or omission or alleged omission made therein in reliance upon and in
conformity with written information furnished to the Company by or on behalf
of any Underwriter expressly for use therein; provided, however, that in no
case shall any Underwriter be liable or responsible for any amount in excess
of the underwriting discount applicable to the Shares purchased by such
Underwriter hereunder. This indemnity will be in addition to any liability
which any Underwriter may otherwise have, including under this Agreement.
(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against
the indemnifying party under such subsection, notify each party against whom
indemnification is to be sought in writing of the commencement thereof (but
the failure so to notify an indemnifying party shall not relieve it from any
liability which it may have under this Section 7 except to the extent that it
has been prejudiced in any material respect by
17
<PAGE>
such failure or from any liability which it may otherwise have). In case any
such action is brought against any indemnified party, and it notifies an
indemnifying party of the commencement thereof, the indemnifying party will
be entitled to participate therein, and to the extent it may elect by written
notice delivered to the indemnified party promptly after receiving the
aforesaid notice from such indemnified party, to assume the defense thereof
with counsel reasonably satisfactory to such indemnified party.
Notwithstanding the foregoing, the indemnified party or parties shall have
the right to employ its or their own counsel in any such case, but the fees
and expenses of such counsel shall be at the expense of such indemnified
party or parties unless (i) the employment of such counsel shall have been
authorized in writing by the indemnifying parties in connection with the
defense of such action, (ii) the indemnifying parties shall not have employed
counsel to take charge of the defense of such action within a reasonable time
after notice of commencement of the action, or (iii) such indemnified party
or parties shall have reasonably concluded that there may be defenses
available to it or them which are different from or additional to those
available to one or all of the indemnifying parties (in which case the
indemnifying party or parties shall not have the right to direct the defense
of such action on behalf of the indemnified party or parties), in any of
which events such fees and expenses of counsel shall be borne by the
indemnifying parties; provided, however, that the indemnifying party under
subsection (a) or (b) above, shall only be liable for the legal expenses of
one counsel (in addition to any local counsel) for all indemnified parties in
each jurisdiction in which any claim or action is brought. Anything in this
subsection to the contrary notwithstanding, an indemnifying party shall not
be liable for any settlement of any claim or action effected without its
prior written consent; provided, however, that such consent was not
unreasonably withheld.
8. Contribution. In order to provide for contribution in
------------
circumstances in which the indemnification provided for in Section 7 hereof is
for any reason held to be unavailable from any indemnifying party or is
insufficient to hold harmless a party indemnified thereunder, the Company and
the Underwriters shall contribute to the aggregate losses, claims, damages,
liabilities and expenses of the nature contemplated by such indemnification
provision (including any investigation, legal and other expenses incurred in
connection with, and any amount paid in settlement of, any action, suit or
proceeding or any claims asserted, but after deducting in the case of losses,
claims, damages, liabilities and expenses suffered by the Company any
contribution received by the Company from persons, other than the Underwriters,
who may also be liable for contribution, including persons who control the
Company within the meaning of Section 15 of the Securities Act or Section 20(a)
of the Exchange Act, officers of the Company who signed the Registration
Statement and directors of the Company) as incurred to which the Company and one
or more of the Underwriters may be subject, in such proportions as is
appropriate to reflect the relative benefits received by the Company and the
Underwriters from the offering of the Shares or, if such allocation is not
permitted by applicable law or indemnification is not available as a result of
the indemnifying party not having received notice as provided in Section 7
hereof, in such proportion as is appropriate to reflect not only the relative
benefits referred to above but also the relative fault of the Company and the
Underwriters in connection with the statements or omissions which resulted in
such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative benefits received by the
Company on the one hand and the Underwriters on the other hand shall be deemed
to be in the same proportion as (x) the total proceeds from the offering (net of
underwriting discounts and commissions but before deducting expenses) received
by the Company and (y) the underwriting discounts and commissions received by
the Underwriters, respectively, in each case as set forth in the table on the
cover page of the Prospectus. The relative fault of the Company and the
Underwriters shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company or the Underwriters and the parties' relative
18
<PAGE>
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Company and the Underwriters agree that it would
not be just and equitable if contribution pursuant to this Section 8 were
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above. Notwithstanding
the provisions of this Section 8, (i) in no case shall any Underwriter be liable
or responsible for any amount in excess of the underwriting discount applicable
to the Shares purchased by such Underwriter hereunder, and (ii) no person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. Notwithstanding the provisions of
this Section 8 and the preceding sentence, no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at which
the Shares underwritten by it and distributed to the public were offered to the
public exceeds the amount of any damages that such Underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. For purposes of this Section 8, each person, if
any, who controls an Underwriter within the meaning of Section 15 of the
Securities Act or Section 20(a) of the Exchange Act shall have the same rights
to contribution as such Underwriter, and each person, if any, who controls the
Company within the meaning of Section 15 of the Securities Act or Section 20(a)
of the Exchange Act, each officer of the Company who shall have signed the
Registration Statement and each director of the Company shall have the same
rights to contribution as the Company, subject in each case to clauses (i) and
(ii) of this Section 8. Any party entitled to contribution will, promptly after
receipt of notice of commencement of any action, suit or proceeding against such
party in respect of which a claim for contribution may be made against another
party or parties, notify each party or parties from whom contribution may be
sought, but the omission to so notify such party or parties shall not relieve
the party or parties from whom contribution may be sought from any obligation it
or they may have under this Section 8 or otherwise. No party shall be liable for
contribution with respect to any action or claim settled without its consent;
provided, however, that such consent was not unreasonably withheld.
9. Default by an Underwriter.
-------------------------
(a) If any Underwriter or Underwriters shall default in its or
their obligation to purchase Firm Shares or Additional Shares hereunder, and
if the Firm Shares or Additional Shares with respect to which such default
relates do not (after giving effect to arrangements, if any, made by the
Underwriters pursuant to Subsection (b) below) exceed in the aggregate 10% of
the number of Firm Shares or Additional Shares, the Firm Shares or Additional
Shares which such defaulting Underwriter or Underwriters agreed but failed or
refused to purchase shall be purchased by the non-defaulting Underwriters in
proportion to the respective proportions which the numbers of Firm Shares set
forth opposite their respective names in Schedule I hereto bear to the
aggregate number of Firm Shares set forth opposite the names of the non-
defaulting Underwriters.
(b) In the event that such default relates to more than 10% of the
Firm Shares or Additional Shares, as the case may be, the Underwriters may in
their discretion arrange for themselves or for another party or parties
(including any non-defaulting Underwriter or Underwriters who so agree) to
purchase such Firm Shares or Additional Shares, as the case may be, to which
such default relates on the terms contained herein. In the event that within
five calendar days after such a default the Underwriters do not arrange for
the purchase of the Firm Shares or Additional Shares, as the case may be, to
which such default relates as provided in this Section 9, this Agreement, or
in the case of a default with respect to the Additional Shares, the
obligations of the Underwriters to purchase and of the Company to sell the
Additional Shares, shall
19
<PAGE>
thereupon terminate, without liability on the part of the Company with
respect thereto (except in each case as provided in Section 5, 7(a) and 8
hereof) or the Underwriters, but nothing in this Agreement shall relieve a
defaulting Underwriter or Underwriters of its or their liability, if any, to
the other Underwriters and the Company for damages occasioned by its or their
default hereunder.
(c) In the event that the Firm Shares or Additional Shares to which
the default relates are to be purchased by the non-defaulting Underwriters,
or are to be purchased by another party or parties as aforesaid, the
Underwriters or the Company shall have the right to postpone the Closing Date
or Additional Closing Date, as the case may be, for a period not exceeding
five business days, in order to effect whatever changes may thereby be made
necessary in the Registration Statement or the Prospectus or in any other
documents and arrangements, and the Company agrees to file promptly any
amendment or supplement to the Registration Statement or the Prospectus
which, in the opinion of Underwriters' Counsel, may thereby be made necessary
or advisable. The term "Underwriter" as used in this Agreement shall include
any party substituted under this Section 9 with like effect as if it had
originally been a party to this Agreement with respect to such Firm Shares or
Additional Shares.
10. Survival of Representations and Agreements. All representations
------------------------------------------
and warranties, covenants and agreements of the Underwriters and the Company
contained in this Agreement, including the agreements contained in Section 5,
the indemnity agreements contained in Section 7 and the contribution agreements
contained in Section 8, shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any Underwriter or any
controlling person thereof or by or on behalf of the Company, any of its
officers and directors, or any controlling person of the Company, and shall
survive delivery of and payment for the Shares to and by the Underwriters. The
representations contained in Section 1 and the agreements contained in Sections
5, 7, 8, 11(d) and 12 hereof shall survive the termination of this Agreement,
including termination pursuant to Section 9 or 11 hereof.
11. Effective Date of Agreement; Termination.
----------------------------------------
(a) This Agreement shall become effective upon the execution and
delivery of a counterpart hereof by each of the parties hereto.
(b) The Underwriters shall have the right to terminate this
Agreement at any time prior to the Closing Date or the obligations of the
Underwriters to purchase the Additional Shares at any time prior to the
Additional Closing Date, as the case may be, if on or prior to such date, (i)
the Company shall have failed, refused or been unable to perform in any
material respect any agreement on its part to be performed hereunder, (ii)
any other condition to the obligations of the Underwriters hereunder as
provided in Section 6 is not fulfilled when and as required in any material
respect, (iii) in the judgment of the Underwriters any changes of
circumstance shall have occurred since the respective dates as of which
information is given in the Prospectus which could have a Material Adverse
Effect, other than as set forth in the Prospectus, or (iv) (A) any domestic
or international event or act or occurrence has materially adversely
effected, or in the opinion of the Underwriters will in the immediate future
materially adversely effect, the market for the Company's securities or for
securities in general; or (B) trading in securities generally on the New York
Stock Exchange ("NYSE") or quotations on the Nasdaq shall have been suspended
----
or materially limited, or minimum or maximum prices for trading shall have
been established, or maximum ranges for prices for securities shall have been
required, on such exchange, or by such exchange or other regulatory body or
governmental authority having jurisdiction; or (C) a banking
20
<PAGE>
moratorium shall have been declared by federal or state authorities, or a
moratorium in foreign exchange trading by major international banks or
persons shall have been declared; or (D) there is an outbreak or escalation
of armed hostilities involving the United States on or after the date hereof,
or if there has been a declaration by the United States of a national
emergency or war, the effect of which shall be, in the Underwriters'
judgment, to make it inadvisable or impracticable to proceed with the
offering, sale and delivery of the Firm Shares or the Additional Shares, as
the case may be, on the terms and in the manner contemplated by the
Prospectus; or (E) there shall have been such a material adverse change in
general economic, political or financial conditions or if the effect of
international conditions on the financial markets in the United States shall
be such as, in the Underwriters' judgment, makes it inadvisable or
impracticable to proceed with the offering, sale and delivery of the Firm
Shares or the Additional Shares, as the case may be, on the terms and in the
manner contemplated by the Prospectus.
(c) Any notice of termination pursuant to this Section 11 shall be
by telephone, telecopy, telex, or telegraph, confirmed in writing by letter.
(d) If this Agreement shall be terminated pursuant to any of the
provisions hereof (other than pursuant to Section 9(b) or 11(b) hereof), or
if the sale of the Shares provided for herein is not consummated because any
condition to the obligations of the Underwriters set forth herein is not
satisfied or because of any refusal, inability or failure on the part of the
Company to perform any agreement herein or comply with any provision hereof,
the Company will, subject to demand by the Underwriters, reimburse the
Underwriters for all out-of-pocket expenses (including the reasonable fees
and expenses of their counsel), incurred by the Underwriters in connection
herewith.
12. Underwriters' Information. The Company and the Underwriters
-------------------------
severally acknowledge that the statements set forth in (i) the last paragraph of
the outside front cover of the Prospectus concerning the delivery of the shares
of Common Stock to the Underwriters and the offering of such shares by the
Underwriters; (ii) the __________ paragraph under the caption "Underwriting" in
the Prospectus concerning the proposed public offering price, discount and
concession; and (iii) the __________ and __________ paragraphs under the caption
"Underwriting" in the Prospectus concerning transactions that stabilize,
maintain, or otherwise affect the price of the Common Stock, constitute the only
information furnished in writing by or on behalf of any Underwriter expressly
for use in the Registration Statement, as originally filed or in any amendment
thereof, any related Preliminary Prospectus or preliminary prospectus supplement
or the Prospectus or in any amendment thereof or supplement thereto, as the case
may be.
13. Notices. All communications hereunder, except as may be otherwise
-------
specifically provided herein, shall be in writing and, if sent to the
Underwriters shall be mailed, delivered, telegraphed or telecopied and confirmed
in writing to the Underwriters, c/o Bear, Stearns & Co. Inc., 245 Park Avenue,
New York, New York 10167, Attention: Corporate Finance Department, telecopy
number: (212) 272-3092, and if sent to the Company, shall be mailed, delivered
or telexed, telegraphed or telecopied and confirmed in writing to Digex,
Incorporated, One Digex Plaza, Beltsville, Maryland 20705, Attention: Chief
Financial Officer, telecopy number: (301) _______, with a copy to Kronish, Lieb,
Weiner & Hellman LLP, 1114 Avenue of the Americas, 46th Floor, New York, New
York 10036, Attention: Ralph J. Sutcliffe; provided, however, that any notice
pursuant to Sections 7 or 8 shall be mailed, delivered, telegraphed or
telecopied and confirmed in writing
21
<PAGE>
14. Parties. This Agreement shall inure solely to the benefit of,
-------
and shall be binding upon, the Underwriters, the Company and the controlling
persons, directors, officers, employees and agents referred to in Section 7 and
8, and their respective successors and assigns, and no other person shall have
or be construed to have any legal or equitable right, remedy or claim under or
in respect of or by virtue of this Agreement or any provision herein contained.
The term "successors and assigns" shall not include a purchaser, in its capacity
as such, of Shares from any of the Underwriters.
15. Construction. This Agreement shall be construed in accordance
------------
with the internal laws of the State of New York applicable to agreements made
and to be performed within New York, without giving any effect to any provisions
thereof relating to conflicts of law. TIME IS OF THE ESSENCE IN THIS AGREEMENT.
16. Captions. The captions included in this Agreement are included
--------
solely for convenience of reference and are not to be considered a part of this
Agreement.
17. Counterparts. This Agreement may be executed in various
------------
counterparts which together shall constitute one and the same instrument.
22
<PAGE>
If the foregoing correctly sets forth the understanding among the
Underwriters and the Company, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement among
us.
Very truly yours,
DIGEX, INCORPORATED
By: ________________________________
Name: _____________________________
Title: ____________________________
Accepted as of the date first above written
BEAR, STEARNS & CO. INC.
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
CIBC WORLD MARKETS CORP.
LEGG MASON WOOD WALKER, INCORPORATED
Acting severally on behalf of themselves and the
several Underwriters named in Schedule I hereto
BEAR, STEARNS & CO. INC.
By:
-----------------------
Name:
Title:
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
By:
-----------------------
Name:
Title:
<PAGE>
SCHEDULE I
Number of Firm
Name of Underwriter Shares to be Purchased
- ------------------- ----------------------
Bear, Stearns & Co. Inc.......................................................
Donaldson, Lufkin & Jenrette Securities Corporation...........................
CIBC World Markets Corp.......................................................
Legg Mason Wood Walker, Incorporated..........................................
DLJDirect Inc.................................................................
..............................................................................
[others]......................................................................
..............................................................................
..............................................................................
Total.........................................................................
<PAGE>
Exhibit A
Form of Opinion of Kronish, Lieb, Weiner & Hellman LLP
1. Each of the Company and its subsidiaries is duly organized and
validly existing as a corporation in good standing under the laws of its
jurisdiction of incorporation, and has all requisite corporate power and
authority to carry on its business as it is being conducted and as described in
the Prospectus and to own, lease and operate its properties, and is duly
qualified and in good standing as a foreign corporation authorized to do
business in each jurisdiction in which the nature of its business or its
ownership or leasing of property requires such qualification, except where the
failure to be so qualified or in good standing would not, singly or in the
aggregate, have a Material Adverse Effect.
2. All of the outstanding shares of capital stock of the Company
have been duly authorized, validly issued, and are fully paid and nonassessable
and were not issued in violation of any preemptive or similar rights under the
Delaware General Corporation Law. The authorized, issued and outstanding
capital stock of the Company conforms in all respects to the description thereof
set forth in the Prospectus.
3. All of the issued and outstanding capital stock of, or other
ownership interests in, the Company's subsidiaries have been duly authorized and
validly issued, are fully paid and non-assessable and were not issued in
violation of or subject to any preemptive or similar rights under the Delaware
General Corporation Law or known to us, after reasonable inquiry, and, are owned
by the Company of record and, to our knowledge, after reasonable inquiry, free
and clear of any security interest, claim, lien, limitation on voting rights or
encumbrance. There are not, to our knowledge, currently, and will not be
following the Offering, any outstanding subscriptions, rights, warrants, calls,
commitments of sale or options to acquire or instruments convertible into or
exchangeable for, any capital stock or other equity interest of the Company or
any of its subsidiaries (other than options issued pursuant to the Company's
stock option plan).
4. The Company has all requisite corporate power and authority to
execute, deliver and perform its obligations under the Underwriting Agreement
and to consummate the transactions contemplated thereby and in the Prospectus,
including, without limitation, the corporate power and authority to issue, sell
and deliver the Shares as provided herein and therein.
5. The Underwriting Agreement has been duly and validly authorized,
executed and delivered by the Company and, assuming due execution by the other
parties hereto, is the legally valid and binding agreement of the Company.
6. The Registration Statement, Preliminary Prospectus and Prospectus
comply as to form in all material respects with the requirements for
registration statements on Form S-1 under the Securities Act and the Securities
Act Regulations; it being understood, however, that such counsel need not
express an opinion with respect to the financial statements, schedules and other
financial data included in the Registration Statement, Preliminary Prospectus or
Prospectus. To such counsel's knowledge, there are no contracts, indentures,
mortgages, loan agreements, notes, leases or other instruments required to be
described or referred to in the Registration Statement or to be filed as
exhibits thereto other than those described or referred to therein, and, to such
counsel's knowledge, the descriptions thereof or references thereto are correct
in all material respects.
<PAGE>
7. None of (A) the execution, delivery or performance by the Company
of the Underwriting Agreement, (B) the issuance and sale of the Shares or (C)
the consummation by the Company of the transactions described in the Prospectus
under the caption "Use of Proceeds" violates, conflicts with or constitutes a
breach of any of the terms or provisions of, or a default under (or an event
that with notice or the lapse of time, or both, would constitute a default), or
requires consent under, or will result in the imposition of a lien or
encumbrance on any properties of the Company or any of its subsidiaries, or an
acceleration of any indebtedness of the Company or any of its subsidiaries
pursuant to, (i) the charter or bylaws of the Company or any of its
subsidiaries, (ii) any bond, debenture, note, indenture, mortgage, deed of
trust, contract or other agreement or instrument to which the Company or any of
its subsidiaries is a party or by which any of them or their property is or may
be bound identified to such counsel as material (assuming all of such agreements
are governed by New York law), (iii) any judgment, order or decree of any court
or governmental agency or authority having jurisdiction over the Company or any
of its subsidiaries or any of their assets or properties known to such counsel,
and except in the case of clauses (ii) and (iii) for such violations, conflicts,
breaches, defaults, consents, impositions of liens or accelerations that (x)
would not, singly or in the aggregate, have a Material Adverse Effect or (y) are
disclosed in the Prospectus. No consent, approval, authorization or order of,
or filing, registration, qualification, license or permit of or with, any court
or governmental agency, body or administrative agency is required for (1) the
execution, delivery and performance by the Company of the Underwriting
Agreement, (2) the issuance and sale of the Shares or (3) consummation by the
Company of the transactions described in the Prospectus except (i) such as have
been obtained and made or have been disclosed in the Prospectus or (ii) where
the failure to obtain such consents or waivers would not, singly or in the
aggregate, have a Material Adverse Effect. To the best of such counsel's
knowledge, after reasonable inquiry, no consents or waivers from any other
person are required for the execution, delivery and performance by the Company
of the Underwriting Agreement, the issuance and sale of the Shares , other than
such consents and waivers as have been obtained or are being applied for.
8. None of (A) the execution, delivery or performance by the Company
of the Underwriting Agreement and the transactions contemplated thereby, (B) the
issuance and sale of the Shares or (C) the consummation by the Company and
Intermedia Communications, Inc. ("Intermedia") of the transactions described in
----------
the Prospectus under the caption "Use of Proceeds" violates, conflicts with or
constitutes a breach of any of the terms or provisions of, or a default under
(or an event that with notice or the lapse of time, or both, would constitute a
default), or requires consent under, or will result in the imposition of a lien
or encumbrance on any properties of Intermedia or any of its subsidiaries, or an
acceleration of any indebtedness of Intermedia or any of its subsidiaries
pursuant to, (i) the charter or bylaws of Intermedia or any of its subsidiaries,
(ii) any bond, debenture, note, indenture, mortgage, deed of trust, contract or
other agreement or instrument to which Intermedia or any of its subsidiaries is
a party or by which any of them or their property is or may be bound identified
to such counsel as material (assuming all of such agreements are governed by New
York law), (iii) any judgment, order or decree of any court or governmental
agency or authority having jurisdiction over Intermedia or any of its
subsidiaries or any of their assets or properties known to such counsel, and
except in the case of clauses (ii) and (iii) for such violations, conflicts,
breaches, defaults, consents, impositions of liens or accelerations that (x)
would not, singly or in the aggregate, have a Material Adverse Effect or (y) are
disclosed in the Prospectus.
9. None of the Company or any of its subsidiaries is (i) an
"investment company" or a company "controlled" by an "investment company" within
the meaning of the Investment Company Act of 1940, as amended, or (ii) a
"holding company" or a "subsidiary company" or an "affiliate" of a holding
company within the meaning of the Public Utility Holding Company Act of 1935, as
amended.
ii
<PAGE>
10. Except as set forth in the Underwriting Agreement or in the
Prospectus, to such counsel's knowledge, after reasonable inquiry there are no
holders of any securities of the Company who, by reason of the execution by the
Company of the Underwriting Agreement or the consummation by the Company of the
transactions contemplated thereby, have the right to request or demand that the
Company register under the Act securities held by them.
11. To the knowledge of such counsel, after reasonable inquiry, no
search of courts having been made, there is (i) no action, suit, investigation
or proceeding before or by any court, arbitrator or governmental agency, body or
official, domestic or foreign, now pending, or threatened or contemplated to
which any of the Company or any of its subsidiaries is or may be a party or to
which the business or property of any of the Company or any of its subsidiaries
is or may be subject, (ii) no statute, rule, regulation or order that has been
enacted, adopted or issued by any governmental agency or that has been proposed
by any governmental body, or (iii) no injunction, restraining order or order of
any nature by a federal or state court of competent jurisdiction to which any of
the Company or any of its subsidiaries is or may be subject has been issued
that, in the case of clauses (i), (ii) and (iii) above, (w) is required to be
disclosed in the Prospectus and that is not so disclosed or, (x) could
reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect, except as disclosed in the Prospectus; or (y) might
interfere with, adversely affect or in any manner question the validity of the
issuance and sale of the Shares or any of the other transactions contemplated by
the Underwriting Agreement.
12. The statements contained in the Prospectus under the captions
"Management--Indemnification of Directors and Executive Officers and Limitation
of Liability", "Management--[stock option plan]", "Certain Relationships and
Related Transactions", "Principal Stockholders", "Description of Capital Stock"
and "Shares Eligible for Future Sale", in each case, insofar as such statements
constitute summaries of the legal matters, documents or proceedings referred to
therein, fairly present the information required with respect to such legal
matters, documents and proceedings and fairly summarize the matters referred to
therein in all material respects.
We have participated in conferences with officers and other
representatives of the Company, representatives of the independent certified
public accountants of the Company and the Underwriters and their representatives
at which the contents of the Registration Statement, Preliminary Prospectus and
Prospectus and related matters were discussed and, although we have not
undertaken to investigate or verify independently, and do not assume any
responsibility for, the accuracy, completeness or fairness of the statements
contained in the Registration Statement, Preliminary Prospectus or Prospectus
(except as indicated above), on the basis of the foregoing, no facts have come
to our attention which led us to believe that the Registration Statement,
Preliminary Prospectus and Prospectus, as of its date or the Closing Date,
contained an untrue statement of a material fact or omitted to state any fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading
(except as to financial statements and related notes, the financial statement
schedules and other financial and statistical data included therein).
iii
<PAGE>
Exhibit B
Lock-Up Agreement
Digex Corporation
One Digex Plaza
Beltsville, Maryland
Bear, Stearns & Co. Inc.
245 Park Avenue
New York, New York 10167
Dear Sirs:
The undersigned understands that Bear, Stearns & Co. Inc., as
representative of the several underwriters (the "Underwriters"), proposes to
------------
enter into an Underwriting Agreement with Digex Incorporated, a Delaware
corporation (the "Company"), providing for the initial public offering of the
-------
Company's common stock, par value $.01 per share (the "Common Stock"), pursuant
------------
to a Registration Statement on Form S-1 (File No. 333-77105). The undersigned
wishes to facilitate the Offering and recognizes that the Offering will be of
benefit to the undersigned.
In consideration of the foregoing and in order to induce you to act as
Underwriter in connection with the Offering, the undersigned hereby agrees, for
the benefit of the Company and the Underwriters, that during the period
beginning from the date hereof and continuing to and including the date 180 days
after the date of the final prospectus relating to the Offering, the undersigned
will not, directly or indirectly, without the prior written consent of Bear,
Stearns & Co. Inc., offer, sell, contract to sell, swap, make any short sale,
pledge, establish an open "put equivalent position" within the meaning of Rule
16a-1(h) under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), grant any option to purchase or otherwise dispose (or publicly announce
- ---
the undersigned's intention to do any of the foregoing) of, directly or
indirectly, any shares of Common Stock or other capital stock of the Company, or
any securities convertible into, or exerciseable or exchangeable for, any shares
of Common Stock or other capital stock of the Company that the undersigned
currently beneficially owns (within the meaning of Rule 13d-3 under the Exchange
Act), directly or indirectly, or may beneficially own, directly or indirectly,
in the future.
The undersigned confirms that the undersigned understands that the
Underwriters and the Company will rely upon the representations set forth in
this Agreement in proceeding with the Offering. The undersigned further
confirms that the agreements of the undersigned are irrevocable and shall be
binding upon the undersigned's heirs, legal representatives, successors and
assigns. The undersigned agrees and consents to the entry of stop transfer
instructions with the Company's transfer agent against the transfer of
securities of the Company held by the undersigned except in compliance with this
Agreement.
Very truly yours,
By:
------------------------
Name:
Title:
Dated: July ___, 1999
<PAGE>
Exhibit C
Individuals Delivering a Lock-Up Agreement Pursuant to Section 6(k)
John C. Baker
Philip A. Campbell
Nancy G. Faigen
Bryan T. Gernert
George F. Knapp
Marthe S. Lattinville-Pace
Robert E. London
Robert B. Patrick
Mike P. Renner
Pierce J. Roberts, Jr.
David C. Ruberg
John F. Scott
[others]
<PAGE>
*** Certain provisions of this exhibit have been filed separately with the
Commission pursuant to an application for confidential treatment.
EXHIBIT 10.1
01/06/99
AGREEMENT
---------
This AGREEMENT, including all exhibits and schedules hereto (the
"Agreement") is made and entered into as of the 7th day of January, 1999 (the
"Effective Date"), by and between DIGEX, Incorporated, a Delaware corporation,
with offices at 6435 Virginia Manor Road, One Digex Plaza, Beltsville, Maryland
20705 ("DIGEX") and Pandesic, LLC, a Delaware limited liability company, with
offices at 990 Almanor Avenue, Sunnyvale, California 94086 ("Pandesic").
WITNESSETH
WHEREAS, Pandesic is engaged in the business of developing and
providing Internet electronic business solution software for Pandesic's clients
that is used in establishing world wide web sites on the Internet accessible to
third parties ("Web Sites") and permits customers of such clients to place
orders and transact business electronically by accessing and interacting with a
client's Web Site ("Pandesic Software"); and
WHEREAS, Pandesic desires to market and enter into agreements to
license the Pandesic Software and to provide Web Site hosting and server
services to Pandesic's clients (each a "Merchant Agreement"); and
WHEREAS, DIGEX is an Internet service provider and is engaged in the
business of providing Web Site hosting and server services; and
WHEREAS, Pandesic desires to enter into an agreement with DIGEX, and
DIGEX desires to enter into an agreement with Pandesic, whereby DIGEX will
provide Web Site hosting and server services described herein with respect to
the Web Sites to be established
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under Merchant Agreements entered into between Pandesic and clients of Pandesic
(each a "Merchant").
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants contained herein, the parties hereby agree as follows:
1. Services
1.1 Managed Services
DIGEX agrees to provide to Pandesic, with respect to each Merchant for
which Pandesic requests Managed Services from DIGEX, the Web Site hosting and
server services set forth on Exhibit A attached hereto ("Pandesic Managed
Service Definition Document"), subject to the terms and conditions set forth
herein. DIGEX shall be under no obligation to provide Managed Services with
respect to any such Web Site on terms and conditions other than as set forth
herein.
1.2 Additional Services
If any Merchant desires to receive services other than the Managed
Services ("Additional Services"), Pandesic shall inform such Merchant of the
Additional Services that DIGEX can provide. Neither Pandesic nor any Merchant
shall be obligated to obtain such Additional Services from DIGEX. To the extent
that Pandesic or any Merchant desires to receive Additional Services from DIGEX,
and DIGEX is willing to provide such Additional Services to Pandesic or any
Merchant, such Additional Services, and the terms and conditions upon which they
shall be provided, shall be set forth in a separate agreement that shall be duly
executed by DIGEX and by Pandesic or such Merchant, as the case may be. DIGEX
shall be
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under no obligation to provide Additional Services, unless it has entered into a
separate agreement with Pandesic or a Merchant, as the case may be, with respect
thereto.
1.3 Co-Location Servers
DIGEX currently provides to Pandesic certain services for the
management of Web Sites residing on servers not owned by DIGEX, but which are
located in a DIGEX facility and included in the DIGEX web farm ("Co-Location
Servers") pursuant to agreements between DIGEX and Pandesic executed prior to
the Effective Date of this Agreement. It is the intent of the parties that the
Web Sites currently residing on the Co-Location Servers will be migrated to
servers owned by DIGEX by January 1, 1999. If, and when, such migration takes
place, then DIGEX shall thereafter provide the Managed Services with respect to
such Web Sites, subject to the terms and conditions of this Agreement. The terms
and conditions for the migration of such Web Sites currently residing on the Co-
Location Servers to a server owned by DIGEX shall be the subject of a separate
agreement to be negotiated and entered into by DIGEX and Pandesic. Neither the
failure to effect the aforesaid migration of the Web Sites by January 1, 1999,
nor the failure of the parties hereto to agree on the terms and conditions for
such migration, shall be deemed a breach of this Agreement or otherwise affect
the validity of this Agreement.
1.4 Development of Installation Process
DIGEX, at DIGEX's expense, shall engineer and develop the installation
process for the Pandesic Software (through version 3.0 of the Pandesic Software)
to enable DIGEX to commence providing Managed Services to Pandesic (the
"Installation Process"). All script, information, reports, studies, source
codes, flow charts, diagrams and other tangible or intangible material or other
property (collectively, "Development Property") of any nature whatsoever
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produced by or as a result of the engineering and development of the
Installation Process shall be the sole and exclusive property of DIGEX. Pandesic
shall provide DIGEX with such assistance DIGEX reasonably requires to engineer
and develop the Installation Process. All script, information, reports, studies,
object or source codes, flow charts, diagrams and other tangible or intangible
material or other property of any nature whatsoever provided by Pandesic to
DIGEX for the engineering and development of the Installation Process and
Development Property (collectively, "Pandesic Installation Materials") remains
the sole and exclusive property of Pandesic and/or its licensors. DIGEX shall
provide Pandesic with the Installation Process or a similar installation script
to allow Pandesic to build development, test, training and demonstration systems
and to test the compatibility of such Installation Process or similar
installation script with the Pandesic Software solely for use at Pandesic's
facilities. The Installation Process, except for any Pandesic Installation
Materials, shall remain the sole and exclusive property of DIGEX after
termination or expiration of this Agreement. The Installation Process,
Development Property, and Pandesic Installation Materials shall be subject to
the confidentiality provisions of Section 10 ("Confidentiality") of this
Agreement. Because the Pandesic Installation Materials contain confidential
information of Pandesic and/or its licensors, DIGEX shall use any Pandesic
Installation Materials only for the purposes specifically contemplated in this
Agreement.
1.5 Support Services
Pandesic shall provide to the Merchants first tier support services
and follow the escalation procedures set forth in Exhibit A ("Pandesic Managed
---------
Service Definition Document") attached hereto. DIGEX shall provide Pandesic
second tier support services and follow the escalation procedures set forth in
Exhibit A ("Pandesic Managed Service Definition Document")
- ---------
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attached hereto.
2. Fees, Taxes, Pricing and Expenses
2.1 Managed Services Fees
Pandesic shall pay DIGEX all fees for the Managed Services in
accordance with the applicable fee schedule set forth in Exhibit C ("Fees for
Managed Services") attached hereto.
2.2 Payment
DIGEX shall invoice Pandesic for Managed Services Fees and fees for
any additional services ("Additional Services Fees") due on a monthly basis. If
Pandesic fails to pay any Managed Services Fees or Additional Services Fees, or
fails to pay fees relating to any products or services rendered, within forty-
five (45) calendar days from the date of the applicable invoice therefor, late
charges at a rate of the lesser of one and one half percent (1.5%) of the
invoiced amount per month or the maximum allowable under applicable law on all
unpaid amounts shall also become payable by Pandesic to DIGEX. If a dispute
arises as to any portion of an invoice, Pandesic shall pay the undisputed amount
of the invoice when due and shall notify DIGEX in writing of the disputed amount
and the reason(s) therefor with reasonable specificity and pay such disputed
amount into escrow no later than forty-five (45) calendar days from the date of
invoice.
2.3 Dispute Escalation
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Prior to initiation of any termination, arbitration or litigation
related to this Agreement, except with respect to any termination, arbitration
or litigation resulting from Pandesic's failure to comply with its obligations
in Section 2.2 ("Payment"), the Authorized Representatives (as defined in
Section 19 ("Authorized Representative")) of DIGEX and Pandesic will first
attempt in good faith to promptly resolve any dispute arising out of or related
to this Agreement. If the matter has not been resolved by the DIGEX Authorized
Representative and the Pandesic Authorized Representative within three (3)
business days after either party's receipt of a payment dispute notice or other
dispute notice, or if either party will not agree to meet with the other party
within such three-day period, the matter will be referred to the President of
DIGEX, Web Site Management Group, and the President of Pandesic, who will
attempt in good faith to promptly resolve the dispute. (1) If the Presidents
have actually met and conferred in good faith and are unable to resolve the
dispute within an additional five (5) business day period, then either party
shall be entitled, or (2) if DIGEX's President will not agree to meet with
Pandesic's President within such five-day period, then Pandesic shall be
entitled, or (3) if Pandesic's President will not agree to meet with DIGEX's
President within such five-day period, then DIGEX shall be entitled, to initiate
termination, arbitration or litigation pursuant to the terms of this Agreement.
2.4 Taxes; Regulatory and Other Fees
Pandesic shall be liable for, and shall reimburse DIGEX for, all
sales, use, transfer, privilege, excise, all other taxes and all duties and
regulatory fees related to this Agreement or the provision of the Managed
Services, whether international, national, state or local, however designated
(including any interest and penalties imposed thereon), other than (i) taxes
based on the net income of DIGEX, (ii) personal property or use taxes related to
DIGEX's
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hardware or software and (iii) other taxes, assessments and real property
related levies on DIGEX owned or leased real property.
2.5 Pricing Reviews.
(a) The parties shall meet approximately every *** to review pricing
information for the Managed Services, including, but not limited to, actual and
anticipated costs, expenses, charges and cost models and methodologies, with the
parties sharing any savings or increases on a forward-looking basis and
adjusting the Managed Services Fees accordingly if mutually agreed upon by the
parties. At least ten (10) business days prior to any such meeting between the
parties, DIGEX shall provide to Pandesic all relevant pricing information
concerning the provision of the Managed Services for Pandesic's sole use in
preparing for the pricing review meeting. All such information shall be treated
as Confidential Information pursuant to Section 10 ("Confidentiality") of the
Agreement. If, at any time, support and labor costs substantially increase for
DIGEX in the provision of Managed Services to Pandesic or Pandesic's Merchants,
then DIGEX and Pandesic, shall meet to review such cost increases and, if
mutually agreed upon, to an adjustment in the then-current pricing.
(b) At any time during the Initial Term or any Renewal Term, the
parties may agree upon changes to the standard server configuration. If such
changes result in increases and/or savings to direct costs, excluding labor,
DIGEX shall pass through to Pandesic such increases or savings on a forward-
looking basis.
3. Minimum Commitment.
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Pandesic acknowledges and agrees that a substantial initial capital investment
is required to be made by DIGEX with respect to each new server purchased by
DIGEX to meet Pandesic's Managed Services requirements and, accordingly,
Pandesic shall be obligated to pay the Managed Services Fees to DIGEX for a
period of *** from the date that DIGEX commences providing Managed Services with
respect to each Required Server (as defined below), and DIGEX shall be obligated
to provide Managed Services for a period of *** with respect to each Required
Server. Such obligations of Pandesic and DIGEX are subject to Section 18.2(e)
("Effect of Termination: Minimum Commitment") and shall continue notwithstanding
the termination and/or expiration of this Agreement except and unless this
Agreement is terminated by Pandesic pursuant to Section 18.2(b) ("Termination by
Pandesic"). For the purposes of this Agreement, "Required Server" means a server
that DIGEX purchased in order to provide Managed Services to Pandesic at the
time of purchase. DIGEX shall not purchase an additional server to provide
Managed Services for a new Merchant if DIGEX can utilize a server, originally
purchased to provide Managed Services for a Merchant that did not complete the
original term of its Merchant Agreement, to provide Managed Services for such
new Merchant.
4. ***; Services from Other Provider.
***
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***
9
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01/06/99
***
5. Acceptable Use Policy.
Pandesic shall comply, and shall cause each Merchant for which Managed
Services are provided to comply, with the Acceptable Use Policy attached hereto
as Exhibit D ("Acceptable Use Policy"), as the Acceptable Use Policy may be
modified from time to time by
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01/06/99
DIGEX pursuant to the terms of this Section 5. If DIGEX notifies Pandesic of an
Acceptable Use violation by a Merchant, and Pandesic confirms such violation,
Pandesic shall notify such Merchant and if such Merchant fails to cure such
violation within five (5) business days of receipt of notice of such violation,
Pandesic shall terminate such Merchant's Merchant Agreement. If DIGEX notifies
Pandesic of an Acceptable Use violation by a Merchant, DIGEX immediately may
suspend such Merchant's Web Site if the Merchant's violation of the Acceptable
Use Policy jeopardizes the security, privacy or operation of DIGEX's services.
If Pandesic fails to terminate any Merchant that continues to violate the
Acceptable Use Policy DIGEX shall have the right to terminate this Agreement
pursuant to the terms of Section 18.2(a) ("Termination by DIGEX"). DIGEX shall
provide notice to Pandesic of any proposed changes to the Acceptable Use Policy,
together with a copy thereof, not less than thirty (30) calendar days prior to
the date upon which it is to become effective ("Change Notice"). Pandesic shall
have ten (10) calendar days after its receipt of such Change Notice to provide
notice to DIGEX indicating any objection to such change in the Acceptable Use
Policy as reflected in the Change Notice ("Objection Notice"). In the event
Pandesic fails to deliver an Objection Notice within the prescribed time period,
Pandesic shall be deemed to have consented to the changes to the Acceptable Use
Policy, which changes shall thereafter take effect on the effective date
specified in the Change Notice. In the event Pandesic delivers an Objection
Notice within the prescribed time period, DIGEX shall have ten (10) calendar
days after its receipt of such Objection Notice to provide notice to Pandesic
("Response Notice") stating either (i) that DIGEX is terminating the proposed
change to the Acceptable Use Policy, in which case the existing Acceptable Use
Policy shall remain in full force and effect, or (ii) that DIGEX is proceeding
with the changes to the Acceptable Use Policy as specified in the Change Notice.
Notwithstanding anything contained herein to the contrary, DIGEX may only make
modifications to the Acceptable Use
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Policy that DIGEX reasonably believes are necessary to (i) address activities
that are detrimental to DIGEX's ability to deliver its services, (ii) address
changes in any law or regulation or (iii) protect the integrity and security of
DIGEX's Managed Services and/or network.
6. Maintenance; Availability
DIGEX shall perform all maintenance and service in connection with
this Agreement in accordance with Exhibit E ("Service Level Agreement").
7. Grant of License by Pandesic
Pandesic hereby grants to DIGEX a non-exclusive, non-transferable,
royalty-free license for the Initial Term and any Renewal Term (as these terms
are defined below) to adapt, reproduce, perform and display the Pandesic
Software and all items of intellectual property related to the Pandesic Software
solely for use by DIGEX in the provision of Managed Services hereunder. Pandesic
shall require all Merchants obtaining Managed Services from DIGEX to grant to
Pandesic's independent contractors (including DIGEX) a non-exclusive, non
transferable, royalty-free license to adapt, reproduce, perform and display all
materials provided to Pandesic for incorporation into a Merchant Web Site with
respect to which DIGEX is to provide Managed Services hereunder, including any
images, photographs, illustrations, graphics, audio clips, video clips or text
(collectively, the "Merchant Content"), for use by DIGEX solely in providing the
Managed Services hereunder.
8. Grant of License by DIGEX
DIGEX hereby grants to Pandesic a non-exclusive, non-transferable,
royalty-free license for the Initial Term and any Renewal Term to adapt,
reproduce, perform and display the
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Installation Process engineered and developed by DIGEX pursuant to Section 1.4
("Development of Installation Process"). DIGEX hereby grants to Pandesic and
Merchants receiving Managed Services pursuant to this Agreement a non-exclusive,
royalty-free license for the Initial Term and any Renewal Term to adapt,
reproduce, perform and display any software necessary to the provision of the
Managed Services or required to access or use the Managed Services for the
sole purpose of receiving and using the Managed Services as contemplated in this
Agreement. As of the Effective Date, monitoring software used by DIGEX shall be
available to Pandesic, and PC Anywhere shall be available to Merchants. For any
Additional Services, DIGEX shall send notice of license use or restrictions to
Pandesic.
9. Proprietary Rights
9.1 Proprietary Rights of Pandesic
The Pandesic Software and Merchant Content shall remain the sole and
exclusive property of Pandesic and each Merchant, respectively, and nothing in
this Agreement shall be construed to grant DIGEX any ownership right in, or
license to the Pandesic Software and/or Merchant Content, except as provided in
Section 7 ("Grant of License by Pandesic") of this Agreement.
9.2 Proprietary Rights of DIGEX
All materials, including, but not limited to, any computer software
(in object code and source code form), script, programming code, data,
information or HTML script developed or provided by DIGEX or its suppliers at
DIGEX's expense, in connection with this Agreement, including any trade secrets,
know-how, methodologies and processes related to DIGEX's
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products or services, shall remain the sole and exclusive property of DIGEX or
its suppliers, including, without limitation, all copyrights, trademarks,
patents, trade secrets, and any other proprietary rights inherent therein and
appurtenant thereto (collectively "DIGEX Materials"). Notwithstanding the
foregoing, unless otherwise agreed to in a separate agreement, if Pandesic or a
Merchant pays for the development of materials by DIGEX in connection with this
Agreement, and such payment is separately documented with respect to such
development materials, then the party that paid for such development shall own
all rights thereto, and, at Pandesic's or an applicable Merchant's request,
DIGEX agrees to execute any necessary assignments to convey such rights.
9.3 Use of DIGEX Name
Pandesic shall be permitted to use the name of DIGEX in any
solicitation, advertising, publicity, proposals or similar materials in
electronic or print form displayed to prospective Merchants or otherwise
disseminated; provided, however, Pandesic shall have first provided a copy of
any such proposed solicitation, advertising, publicity, proposals or similar
materials to DIGEX not less than five (5) business days prior to such use and
DIGEX shall have consented to such use in writing, including by electronic mail,
which consent shall not be unreasonably withheld. The failure of DIGEX to
respond within such five (5) business day period after receipt of such materials
shall constitute DIGEX's consent to use the DIGEX name in such materials.
9.4 Use of Pandesic Name
DIGEX shall be permitted to use the name of Pandesic in any
solicitation, advertising, publicity, proposals or similar materials in
electronic or print form displayed to
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prospective Merchants or otherwise disseminated; provided, however, DIGEX shall
have first provided a copy of any such proposed solicitation, advertising,
publicity, proposals or similar materials to Pandesic not less than five (5)
business days prior to such use and Pandesic shall have consented to such use in
writing, including by electronic mail, which consent shall not be unreasonably
withheld. The failure of Pandesic to respond within such five (5) business day
period after receipt of such materials shall constitute Pandesic's consent to
use the Pandesic name in such materials.
10. Confidentiality
(a) Each party agrees that during the course of this Agreement,
information that is confidential or proprietary to such party or to its
suppliers or its respective Merchants or customers, may be disclosed to the
other party, including, but not limited to software, technical processes and
formulas, source codes, product designs, sales, cost and other financial
information, product and business plans, usage rates, projections, and marketing
data ("Confidential Information"). Confidential Information shall not include
information that the receiving party can demonstrate (i) is, as of the time of
its disclosure, or thereafter becomes part of the public domain through a source
other than the receiving party, (ii) was known to the receiving party as of the
time of its disclosure, (iii) is independently developed by the receiving party
without access to the Confidential Information of the disclosing party, or (iv)
is subsequently learned from a third party not under a confidentiality
obligation to the disclosing party. Except as provided for in this Agreement,
each party (i) shall not make any disclosure of the Confidential Information to
anyone other than its employees, contractors and agents who have a need to know
in connection with the performance of such party's obligations under this
Agreement, (ii) shall take measures to protect the confidentiality of the other
party's Confidential
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Information that, in the aggregate, are no less protective than those
measures it uses to protect the confidentiality of its own Confidential
Information, (iii) advise those to whom disclosure of Confidential Information
is made of the confidential nature of the Confidential Information and of the
prohibitions contained herein; (iv) not duplicate such Confidential Information,
except as reasonably necessary to perform their duties under this Agreement; and
(v) not remove or destroy any proprietary or copyright notice appearing on the
Confidential Information. Each party shall notify its employees, contractors and
agents of their confidentiality obligations with respect to the Confidential
Information and shall require its employees, contractors and agents to comply
with these obligations.
(b) Notwithstanding the foregoing, a party may disclose the
Confidential Information in judicial or other government proceedings to the
extent that such party is legally compelled to disclose such Confidential
Information, provided that the party has notified the other party prior to such
disclosure and shall have used its best efforts to obtain, and shall have
afforded the other party an opportunity to obtain, an appropriate protective or
similar order or other assurances satisfactory to the other party providing for
the confidential treatment of the Confidential Information required to be so
disclosed.
(c) Pandesic and DIGEX each acknowledge that its failure to comply
with the provisions of this Section 10 will cause irreparable harm to the other
party which cannot be adequately compensated for in damages, and accordingly
acknowledges that the other party will be entitled, in addition to any other
remedies available to it, to interlocutory and permanent injunctive relief to
restrain any anticipated, present or continuing breach of this Section.
11. Merchant Web Site Content
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11.1 Accuracy and Review of Merchant Web Site Content
Pandesic will require that its Merchants assume sole responsibility
for: (a) acquiring any authorization(s) necessary for hypertext links to the Web
Site hosted by DIGEX; and (b) the accuracy of materials provided to DIGEX,
including, without limitation, Merchant Content, nature of business, and address
where business is conducted, and (c) ensuring that the Merchant Content does not
infringe or violate any right of any third party.
11.2 Limitations on Merchant Web Site Content
Pandesic shall require each Merchant to represent to Pandesic in its
Merchant Agreement that such Merchant's Merchant Content does not contain any
content or materials that infringe on the rights of any other party or violate
any applicable law or regulation or any proprietary, contract, moral, privacy or
other third party right, or which otherwise, would expose DIGEX to any civil or
criminal liability or otherwise adversely affect DIGEX's business.
12. Representations and Warranties
12.1 DIGEX representations and Warranties
Subject to the limitations set forth in Section 13 ("No Warranty of
Merchantability or Fitness for Particular Purpose"), DIGEX represents and
warrants to Pandesic as follows:
(a) DIGEX is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and has the power and
authority to enter into and perform its obligations under this Agreement.
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(b) DIGEX is the rightful owner of all trademarks, patents and
licenses related to and regarding the Managed Services, that DIGEX has the right
to use the software relating to the Managed Services and the Managed Services do
not violate any and all patents, copyrights, trademarks, trade secrets or other
proprietary rights of any third party.
(c) DIGEX warrants that all of the Managed Services that have been
solely engineered by DIGEX are Millennium Compliant (as defined below). DIGEX
shall promptly notify Pandesic if any Millennium Compliance testing by DIGEX
reveals any potential problems in complying with this warranty. Should the
software fail to be Millennium Compliant, DIGEX shall cause the software to
become Millennium Compliant promptly at DIGEX's expense. For the purposes of
this Agreement, ***
12.2 Pandesic Representations and Warranties
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Pandesic represents and warrants to DIGEX as follows:
(a) Pandesic is a limited liability company, duly organized and
validly existing under the laws of the State of Delaware and has the power and
authority to enter into and perform its obligations under this Agreement;
(b) Pandesic Software does not and shall not contain any content,
materials or services that are inaccurate or that infringe on or violate any
applicable law, regulation or right of a third party, including, without
limitation, export laws, or any intellectual property right or other proprietary
right, contract, moral, or privacy right or any other third party right, and
that Pandesic owns the Pandesic Software or otherwise has the right to place the
Pandesic Software on the Web Sites, and
(c) Pandesic is the rightful owner or licensee of all trademarks,
patents and licenses related to the Pandesic Software, that Pandesic has the
right to license the Pandesic Software to DIGEX to use in accordance with the
terms of this Agreement, and that the Pandesic Software does not violate any and
all patents, copyrights, trademarks, trade secrets or other proprietary rights
of any third party.
(d) Pandesic warrants that all of the Pandesic Software that has been
solely engineered and developed by Pandesic is Millennium Compliant (as defined
in Section 12. 1 (c)). Pandesic shall promptly notify DIGEX if any Millennium
Compliance testing by Pandesic reveals any potential problems in complying with
this warranty. Should the software fail to be Millennium Compliant, Pandesic
shall cause the software to become Millennium Compliant promptly at Pandesic's
expense.
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***
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***
13. No Warranty of Merchantability or Fitness for Particular Purpose
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NO REPRESENTATIONS OR WARRANTIES OF ANY KIND, WHETHER EXPRESS, IMPLIED
OR STATUTORY, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTY OF MERCHANTABILITY OR
FITNESS FOR ANY PARTICULAR PURPOSE HAVE BEEN MADE BY DIGEX WITH RESPECT TO THE
MANAGED SERVICES OR ANY ADDITIONAL SERVICES PROVIDED HEREUNDER OR OTHERWISE,
UNLESS EXPRESSLY INCLUDED IN THIS AGREEMENT.
14. Indemnification by Pandesic
(a) General. Pandesic shall indemnify and hold harmless DIGEX and
-------
DIGEX's officers, directors, employees, shareholders and agents (each, a "DIGEX
Indemnified Person") against any losses, lawsuits, claims, damages liabilities,
penalties, actions, proceedings or judgments (each a "Loss," and, collectively
"Losses") brought by a third party to which a DIGEX Indemnified Person may
become subject, (i) based on DIGEX's use of the Pandesic Software in accordance
with the terms of this Agreement and (ii) based on Pandesic's breach of its
obligations in Section 12.2(e) ("Pandesic Representations and Warranties")
and/or in Section 11 ("Merchant Web Site Content"). With respect solely to (i)
above, this indemnification shall not apply to matters based on the Managed
Services or Additional Services or to matters directly caused by a DIGEX
Indemnified Person's negligence or willful misconduct. If the Pandesic Software,
or any part thereof, results in an infringement or a misappropriation, then
Pandesic will, at no charge to DIGEX, use commercially reasonable efforts to
either: (i) procure for DIGEX the right to continue using such Pandesic Software
or part thereof; (ii) replace the Pandesic Software with non-infringing, but
substantially equivalent software; or (iii) modify the same so as to make it
non-infringing, but substantially equivalent.
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(b) Notice. Upon obtaining knowledge thereof, a DIGEX Indemnified
------
Person shall promptly give Pandesic written notice of any Loss that the DIGEX
Indemnified Person has determined has given or could give rise to a claim for
indemnification hereunder (a "Notice of Claim"). A Notice of Claim shall specify
in reasonable detail the nature and all known particulars related to the Loss
for which indemnification is sought under this Section 14, but failure to give a
Notice of Claim shall not release Pandesic from indemnifying the DIGEX
Indemnified Person, unless Pandesic is actually prejudiced thereby.
(c) Procedure for Third Party Claims. Pandesic will assume the
--------------------------------
defense of any Loss covered by Section 14(a) ("Indemnification by Pandesic:
General") that is a claim by a third party against DIGEX. The DIGEX Indemnified
Person shall have the right, but not the obligation, to participate, at its own
cost and expense, in the defense or other opposition of any Loss through legal
counsel selected by it and shall have the right, but not the obligation, to
assert any and all cross-claims or counterclaims which it may have. The DIGEX
Indemnified Person shall, at Pandesic's expense, (i) at all times cooperate in
all reasonable ways with, make its relevant files and records available for
inspection and copying by, make its employees reasonably available to and
otherwise render reasonable assistance to Pandesic upon request, and (ii) not
compromise or settle such Loss without the prior written consent of Pandesic. If
Pandesic proposes to settle or compromise any Loss, Pandesic shall give written
notice to that effect (together with a statement in reasonable detail of the
terms and conditions of such settlement or compromise) to the DIGEX Indemnified
Person within a reasonable time prior to effecting such settlement or
compromise. Notwithstanding anything contained herein to the contrary, the DIGEX
Indemnified Person shall have the right to object to the settlement or
compromise of any such Loss whereupon (i) the DIGEX Indemnified Person will
assume the defense or other opposition of any such Loss and
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(ii) Pandesic shall be released from any and all liability with respect to any
such Loss to the extent that such liability exceeds the liability which Pandesic
would have had in respect of such a settlement or compromise.
15. Indemnification by DIGEX
(a) General. DIGEX shall indemnify and hold harmless Pandesic and
-------
Pandesic's officers, directors, employees, shareholders and agents (each, a
"Pandesic Indemnified Person") against any Losses brought by a third party to
which a Pandesic Indemnified Person may become subject, based on Pandesic's use
of the Managed Services, as set forth in the standard support tasks in Exhibit
A, in accordance with the terms of this Agreement. This indemnification shall
not apply to matters based on the Pandesic Software or Merchant Content or to
matters directly caused by a Pandesic Indemnified Person's negligence or willful
misconduct. If the Managed Services or Additional Services, or any part thereof,
results in an infringement or a misappropriation, then DIGEX will, at no
additional charge to Pandesic, use commercially reasonable efforts to either:
(i) procure for Pandesic the right to continue using such Managed Services,
Additional Services or part thereof; (ii) replace the Managed Services or
Additional Services with non-infringing, but substantially equivalent services;
or (iii) modify the same so as to make it non-infringing, but substantially
equivalent.
(b) Notice. Upon obtaining knowledge thereof, a Pandesic Indemnified
------
Person shall promptly give DIGEX a Notice of Claim. A Notice of Claim shall
specify in reasonable detail the nature and all known particulars related to the
Loss for which indemnification is sought under this Section 15, but failure to
give a Notice of Claim shall not release DIGEX from indemnifying the Pandesic
Indemnified Person, unless DIGEX is actually prejudiced thereby.
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(c) Procedure for Third Party Claims. DIGEX will assume the defense
--------------------------------
of any Loss covered by Section 15(a) ("Indemnification by DIGEX: General") that
is a claim by a third party against Pandesic. The Pandesic Indemnified Person
shall have the right, but not the obligation, to participate, at its own cost
and expense, in the defense or other opposition of any Loss through legal
counsel selected by it and shall have the right, but not the obligation, to
assert any and all cross-claims or counterclaims which it may have. The Pandesic
Indemnified Person shall, at DIGEX's expense, (i) at all times cooperate in all
reasonable ways with, make its relevant files and records available for
inspection and copying by, make its employees reasonably available to and
otherwise render reasonable assistance to DIGEX upon request, and (ii) not
compromise or settle such Loss without the prior written consent of DIGEX. If
DIGEX proposes to settle or compromise any Loss, DIGEX shall give written notice
to that effect (together with a statement in reasonable detail of the terms and
conditions of such settlement or compromise) to the Pandesic Indemnified Person
within a reasonable time prior to effecting such settlement or compromise.
Notwithstanding anything contained herein to the contrary, the Pandesic
Indemnified Person shall have the right to object to the settlement or
compromise of any such Loss whereupon (i) the Pandesic Indemnified Person will
assume the defense or other opposition of any such Loss and (ii) DIGEX shall be
released from any and all liability with respect to any such Loss to the extent
that such liability exceeds the liability which DIGEX would have had in respect
of such a settlement or compromise.
16. Limitation of Liability
***
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*** NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY FOR ANY INDIRECT,
INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES, OR FOR ANY LOSS OF PROFITS OR LOSS
OF REVENUE, OR FAILURE TO REALIZE EXPECTED SAVINGS RESULTING FROM THE USE OF THE
PANDESIC SOFTWARE, DIGEX'S MANAGED SERVICES AND/OR THE ADDITIONAL SERVICES AND
THE HARDWARE AND SOFTWARE USED IN CONNECTION THEREWITH BY PANDESIC OR ANY THIRD
PARTIES EVEN IF A PARTY HAS BEEN ADVISED OF THE POSSIBILITY THEREOF.
17. Dispute Resolution.
(a) Subject to Subsection 17(b), all disputes, differences,
controversies or claims arising out of or relating to this Agreement, including,
but not limited to, any question regarding its existence, validity, or
termination, shall be finally and solely determined and settled by
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arbitration in New York, New York in accordance with the Commercial Arbitration
Rules of the American Arbitration Association, which rules are deemed to be
incorporated by reference into this Subsection. The arbitration shall be
conducted by a sole arbitrator. The language of all arbitration proceedings
shall be English. The arbitral tribunal shall have the authority to award, in
addition to monetary damages, injunctive relief, specific performance and/or, as
the case may be, other interim measures, without the posting of any bond, to
prevent or stop harm to either party, including, but not limited to, harm
relating to any rights of either party with respect to trademarks, copyrights,
patent rights, know-how, trade secrets or other intellectual property
(collectively, the "Intellectual Property Rights"). The arbitral award shall
state the reasons upon which the award is based. Judgment upon any arbitral
award may be entered and enforced in any court of competent jurisdiction.
(b) Each party acknowledges that a breach of this Agreement,
including, but not limited to Section 10 ("Confidentiality"), would result in
irreparable harm and, accordingly, the parties agree that a party shall be
entitled in the event of a breach of this Agreement by the other party, and
notwithstanding the provisions of Section 17(a), to apply to a court of
appropriate jurisdiction for injunctive relief, specific performance and/or, as
the case may be, other interim measures, without the posting of any bond, to
prevent or stop harm, including, but not limited to, harm relating to,
Intellectual Property Rights. Pandesic hereby irrevocably submits to the
jurisdiction of the courts of the State of Maryland and irrevocably appoints the
Secretary of State of Maryland as its agent for the service of process in the
event of litigation by DIGEX under this Section 17(b) provided that Pandesic
also receives actual notice of any proceeding under this Section 17(b). Pandesic
hereby waives, and agrees not to raise in connection with the aforesaid
submission to jurisdiction, any defenses based on venue, personal jurisdiction,
sufficiency of
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service of process or similar matters. Pandesic shall not file any cause of
action or other claim in such litigation. DIGEX hereby irrevocably submits to
the jurisdiction of the courts of the State of California and irrevocably
appoints the Secretary of State of California as its agent for the service of
process in the event of litigation by Pandesic under this Section 17(b) provided
that DIGEX also receives actual notice of any proceedings under this Section
17(b). DIGEX hereby waives, and agrees not to raise in connection with the
aforesaid submission to jurisdiction, any defenses based on venue, personal
jurisdiction, sufficiency of service of process or similar matters. DIGEX shall
not file any cause of action or other claim in such litigation.
18. Term; Continuation of Managed Services; Termination
18.1 Term; Continuation of Managed Services
(a) This Agreement shall be effective from the Effective Date and
thereafter remain in effect for an initial period of *** unless earlier
terminated in accordance with the terms of this Agreement (the "Initial Term")
and, unless terminated in accordance with the terms of this Agreement, shall
automatically renew beyond the Initial Term for additional periods of *** unless
earlier terminated during such additional period in accordance with the terms of
this Agreement (each, a "Renewal Term").
(b) This Agreement may be terminated by Pandesic or DIGEX on the last
day of the Initial Term or on the last day of any Renewal Term by providing
written notice to the other party not less than one hundred eighty (180) days
prior to the expiration of the Initial Term or the then current Renewal Term, as
the case may be, indicating an intention to terminate the Agreement as of the
last day of the Initial Term or the then current Renewal Term ("Termination
Date").
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18.2 Termination
(a) Termination by DIGEX. In addition to any other rights DIGEX may
--------------------
have under this Agreement or applicable law, DIGEX may, at DIGEX's option: (i)
terminate this Agreement, upon Pandesic's failure to cure within ten (10)
business days written notice of Pandesic's failure to pay any undisputed amounts
due hereunder as and when the same shall be due and payable or Pandesic's
failure to deposit disputed amounts into escrow in accordance with Section 2.2
("Payment"); (ii) terminate this Agreement by providing thirty (30) calendar
days written notice of Pandesic's failure to terminate a Merchant who is in
violation of the Acceptable Use Policy upon Pandesic's failure to cure such
violation within five (5) business days of receipt of notice from DIGEX; (iii)
terminate this Agreement by providing thirty (30) calendar days written notice
upon Pandesic's breach of the representations stated in Sections 12.2(b) and (c)
("Pandesic Representations and Warranties"), provided that an injunction has
been issued against Pandesic because of such breach; (iv) terminate this
Agreement, upon Pandesic's failure to cure within ten (10) business days written
notice, Pandesic's failure to satisfy its indemnity obligations under Section 14
("Indemnification by Pandesic"); (v) upon five (5) business days written notice
terminate the Managed Services for any Merchant Agreement in which Pandesic has
failed to include certain provisions in such Merchant Agreement in accordance
with Section 12.2(e) ("Pandesic Representations and Warranties") *** Pandesic
has failed to comply with its obligations in Section 11 ("Merchant Web Site
Content"); or (vi) terminate this Agreement upon Pandesic's material breach of
the representations stated in Section 12.2(d) which breach is not cured within
fifteen (15) business days after written notice thereof is received by Pandesic.
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(b) Termination by Pandesic. In addition to any other rights Pandesic
------------------------
may have under this Agreement or applicable law, Pandesic may, at Pandesic's
option, terminate this Agreement, (i) upon a material breach by DIGEX of DIGEX's
representations and warranties under this Agreement which breach is not cured
within fifteen (15) business days after written notice thereof is received by
DIGEX, (ii) upon ten (10) business days written notice of chronic, material
substandard performance by DIGEX as measured by its performance obligations set
forth in Exhibit A ("Pandesic Managed Service Definition Document"), Exhibit B
("Collocation Support Definition"), and Exhibit E ("Service Level Agreement")
or (iii) immediately upon DIGEX ceasing to do business in the normal course,
becoming or being declared insolvent or bankrupt, being the subject of any
proceeding relating to liquidation or insolvency which is not dismissed within
ninety (90) calendar days or making an assignment for the benefit of its
creditors.
(c) Effect of Termination: Merchant Agreements. In the event of any
------------------------------------------
expiration or termination of this Agreement, Pandesic shall have no right to add
Merchants to this Agreement from and after the termination date. However, in the
event of any expiration or termination of this Agreement except for termination
by DIGEX under Section 18.2(a) ("Termination by DIGEX"), in addition to the
obligations under Section 3 ("Minimum Commitment"), Pandesic shall have the
option to have DIGEX continue to provide Managed Services with respect to each
Web Site required to be maintained by Pandesic under Merchant Agreements added
to the coverage of this Agreement prior to the termination date, for a period
from the termination date through the twenty-four (24) month anniversary of the
date upon which DIGEX first began to provide Managed Services with respect to
such Web Site
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("Extension Period"). Pandesic shall continue to be obligated for the payment of
Managed Service Fees pursuant to Section 2.2 ("Payment") with respect to all
Managed Services provided by DIGEX during the Extension Period.
(d) Mandatory Transition Period. In the event of any termination of
---------------------------
this Agreement, in addition to the parties' obligations under Section 3
("Minimum Commitment") and Section 18.2(c) ("Effect of Termination: Merchant
Agreements"), Pandesic shall have the right, upon providing written notice to
DIGEX, to receive Managed Services from DIGEX for up *** after the termination
date (the "Mandatory Transition Period"). With respect to a Mandatory Transition
Period due to termination by DIGEX pursuant to Section 18.2(a), Pandesic shall
pay Managed Service Fees on a monthly basis in advance, but in the event that
Pandesic fails to make any one (1) payment when due during the Mandatory
Transition Period, DIGEX shall be entitled to discontinue the provision of
Managed Services and Pandesic shall be obligated to pay the remainder of the
minimum commitment for each applicable Required Server.
(e) Effect of Termination: Minimum Commitment. In the event of
-----------------------------------------
termination of this Agreement by DIGEX pursuant to Section 18.2(a) ("Termination
by DIGEX"), DIGEX shall either, upon written notice to Pandesic, (i) continue to
provide Managed Services for each Required Server for the remainder of each ***
minimum commitment period or such shorter period (which shorter period shall be
in addition to the Mandatory Transition Period in Section 18.2(d)) that DIGEX
elects (the "Optional Period"), and during such Optional Period, Pandesic shall
pay Managed Service Fees on a monthly basis in advance or (ii) discontinue the
provision of Managed Services after the Mandatory Transition Period, in which
case Pandesic shall not be obligated to pay for the remainder of any ***
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*** minimum commitment period, except as set forth in Section 18.2(d) above.
Notwithstanding the foregoing, in the event that Pandesic fails to make any one
(1) payment when due during the Optional Period, DIGEX shall be entitled to
discontinue the provision of Managed Services and Pandesic shall be obligated to
pay the remainder of the minimum commitment for each applicable Required Server.
(f) Return of Pandesic Software and Merchant Content. Upon the
----------------------------------------------------
expiration or termination of this Agreement, DIGEX shall return to Pandesic all
Pandesic Software, hardware, Merchant Content and any other property and
materials provided to DIGEX by Pandesic in connection with this Agreement except
that DIGEX shall retain such Pandesic Software, hardware and Merchant Content as
is required to provide Managed Services to Merchants pursuant to Sections 3
("Minimum Commitment"), 18.2(c) ("Effect of Termination: Merchant Agreements"),
18.2(d) ("Mandatory Transition Period") and 18.2(e) ("Effect of Termination:
Minimum Commitment") until such time that DIGEX's obligation to provide such
Managed Services concludes, at which point DIGEX shall return to Pandesic all
Pandesic Software, hardware and Merchant Content.
(g) Return of DIGEX Software and Materials. Upon the later occurrence
--------------------------------------------
of expiration or termination of this Agreement or the termination of any
Extension Period, Pandesic shall (i) pay all amounts due and owing to DIGEX
hereunder, (ii) remove from DIGEX's premises all property owned by Pandesic and
(iii) return to DIGEX all software, access keys and any other material provided
to Pandesic by DIGEX under this Agreement.
(h) Service Transfer Assistance. It is the intent of the parties that
-----------------------------
at the expiration or termination of this Agreement, DIGEX will cooperate with
Pandesic to assist with the orderly
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transfer of the services provided by DIGEX hereunder to another services
provider or to Pandesic itself. Prior to expiration or termination of the
Agreement, Pandesic may request DIGEX to perform, and, if so requested, DIGEX
shall perform, services in connection with migrating the work of Pandesic to
another services provider or Pandesic itself. Pandesic shall reimburse DIGEX, at
DIGEX's then current time and materials rates in advance, for any services
performed by DIGEX pursuant to this Section 18.2(h), if DIGEX terminates
Pandesic for cause in accordance with Section 18.2(a). In all other cases,
Pandesic shall reimburse DIGEX, at DIGEX's then current time and materials rates
in arrears, for any services performed by DIGEX pursuant to this Section
18.2(h)
(i) Cessation of Pandesic's Business. In the event that Pandesic and its
--------------------------------
owners determine that Pandesic will cease doing business, Pandesic shall (i)
notify its existing Merchants that DIGEX is willing to provide services similar
to those provided by Pandesic, and (ii) work with its third party software
vendors and existing channel partners who have SAP knowledge to coordinate
efforts with DIGEX for the continuing provision of such services.
Notwithstanding the foregoing, DIGEX shall have no obligation to provide any
such services to Pandesic's existing Merchants, and this Section 18.2(i) shall
have no effect on Pandesic's obligations and DIGEX's rights under this Agreement
with respect to Pandesic's cessation of business. For purposes of this section
only, "cease doing business" means that Pandesic is no longer functioning as a
business and that no parent, subsidiary or affiliate of Pandesic, or successor
to Pandesic's business, has assumed the responsibility of providing services to
Merchants under the Merchant Agreements.
19. Authorized Representative
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(a) Within thirty (30) calendar days after the Effective Date, DIGEX and
Pandesic shall each designate, by written notice to the other party, a
representative (each, an "Authorized Representative") who is authorized to act
on the respective party's behalf with respect to those matters delegated to the
Authorized Representative. Each party may designate an alternate representative
with full authority to act in the absence of the Authorized Representative.
Each party shall have the right to change its Authorized Representative or
alternate by written notice to the other party.
(b) The Authorized Representatives shall provide liaison between the
parties in order to provide effective cooperation, exchange of information and
consultation on a prompt and orderly manner concerning the various matters which
may arise, from time to time, in connection with this Agreement. In addition,
the Authorized Representatives shall have the following responsibilities, among
others:
1. Perform those functions and duties assigned to them in this Agreement.
2. Review and attempt to resolve any disputes between the parties arising
under this Agreement. Should the Authorized Representatives be unable
to resolve a dispute and should dispute escalation be unsuccessful,
the matter shall be resolved in accordance with the provisions of
Section 17 ("Dispute Resolution"); and
3. Arrange for the development and completion of procedures to implement
the provisions of this Agreement.
(c) All actions, agreements, resolutions, determinations or reports
made by the Authorized Representatives shall be in writing and shall become
effective when signed by both Authorized Representatives.
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(d) The party he or she represents shall pay any fees and expenses
incurred by an Authorized Representative in connection with his or her duties.
20. Miscellaneous
20.1 Entire Agreement
This Agreement and the Exhibits attached hereto constitute the entire
agreement between Pandesic and DIGEX with respect to the subject matter hereof
and supercedes all prior oral negotiations and prior written agreements with
respect thereto.
20.2 Independent Contractors
Nothing in this Agreement or in the course of dealing between DIGEX
and Pandesic pursuant hereto shall be deemed to create between DIGEX and
Pandesic (including their respective directors, officers, employees and agents)
a partnership, joint venture, association, employment relationship or any other
relationship, other than that of independent contractors with respect to each
other. Pandesic shall not have the authority to commit or legally bind DIGEX in
any manner whatsoever, including, but not limited to, the acceptance or making
of any agreement, representation or warranty.
20.3 Waiver; Non-Waiver; Amendment
Failure by either party to enforce any of the provisions of this
Agreement or any rights with respect hereto or the failure to exercise any
option provided hereunder shall in no way be considered to be a waiver of such
provision, right or option, or to in any way affect the validity of this
Agreement. No waiver of any rights under this Agreement, nor any modification
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or amendment of this Agreement shall be effective or enforceable, unless in
writing and signed by both parties.
20.4 Force Majeure
Attached hereto as Exhibit F ("Disaster Mitigation Plan") is DIGEX's
disaster recovery plan, which outlines its obligations in the event of any
natural disaster or acts of God. Provided that DIGEX has used its best efforts
to comply with its Disaster Mitigation Plan, DIGEX shall be excused from its
performance under this Agreement to the extent that it is prevented, hindered or
delayed by such causes. Except for the payment of Managed Service Fees and
Additional Services Fees by Pandesic, if the performance of any part of this
Agreement by Pandesic is prevented, hindered, delayed or otherwise made
impracticable in the event of any natural disaster, acts of God, riot, judicial
or governmental or military action, or labor dispute, Pandesic shall be excused
from its performance under this Agreement to the extent that it is prevented,
hindered, or delayed by such causes. DIGEX shall be excused from its performance
under this Agreement to the extent that it is prevented, hindered or delayed by
any riot, judicial or governmental or military action, labor dispute, or failure
caused by any telecommunication or other Internet service provider.
20.5 Governing Law
This Agreement shall be governed by the substantive laws of the State
of New York without giving effect to any choice of law principles that could
result in the application of the laws of any other jurisdiction.
20.6 Attorneys' Fees
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01/06/99
In the event any proceeding or lawsuit is brought by either party; in
connection with this Agreement, the prevailing party in such proceeding shall be
entitled to receive its costs, expert witness fees and reasonable attorneys'
fees, including costs and fees on appeal.
20.7 Assignment
Neither party may sell, assign or transfer any of its rights, duties
or obligations under this Agreement (whether by assignment, merger, transfer of
assets, sale of stock, operation of law or otherwise) without the prior written
consent of the other party and any assignment not in compliance with this
Section 20.7 shall be deemed void. Notwithstanding the foregoing, either party
may sell, assign or transfer any of its rights, duties or obligations under this
Agreement in the event that the proposed assignee is the successor in title to
all of the assigning party's business, or to a party's wholly-owned subsidiary,
parent or subsidiary of a party's parent (whether by assignment, merger,
transfer of assets, sale of stock, operation of law or otherwise) without the
prior written consent of the other party; provided, however, the assignor shall
remain fully liable for all of the terms, conditions, duties, covenants and
other obligations under this Agreement through the Initial Term and each Renewal
Term, if applicable, of this Agreement. A party, in its sole discretion, may
enforce the terms, conditions, duties, covenants and other obligations under
this Agreement against the assignor and/or assignee upon the material breach of
this Agreement by either the assignor and/or assignee.
20.8 Notice
All notices or other communications under this Agreement must be in
writing and will be deemed to have been duly given when (a) delivered by hand
(with written confirmation of receipt), (b) sent by facsimile (with written
confirmation of receipt), or (c) two (2) calendar
37
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01/06/99
days after being deposited for delivery with a nationally recognized overnight
delivery service, such as Federal Express, and addressed or sent, as the case
may be, to the appropriate addresses or facsimile numbers set forth below (or to
such other addresses or facsimile numbers as a party may designate by notice to
the other party):
In the case of DIGEX:
DIGEX, Incorporated
One Digex Plaza
Beltsville, Maryland 20705
Attention: Legal Department
Facsimile No.: (301) 419-7680
In the case of Pandesic:
Pandesic, LLC
990 Almanor Avenue
Sunnyvale, California 94086
Attention: General Counsel
Facsimile No.: (408) 616-1920
20.9 Severability
If any provision of this Agreement is held invalid or unenforceable,
such provision shall thereupon be deemed modified only to the extent necessary
to render the same valid or eliminated from this Agreement, as the situation may
require, and this Agreement shall be enforced and construed as if such provision
had been included herein as so modified in scope or applicability or not been
included herein, as the case may be.
20.10 No Third Party Beneficiaries
This Agreement inures to the benefit of DIGEX and Pandesic only and
no third party shall enjoy the benefits of this Agreement or shall have any
rights hereunder.
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01/06/99
20.11 Counterparts
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original and all of which taken together shall
constitute but one agreement.
20.12 Headings
The headings preceding the text of the paragraphs of this Agreement
have been inserted solely for convenience of reference and neither constitutes a
part of this Agreement nor affects its meaning, interpretation or effect.
20.13 Survival
Any claims arising out of or related to this Agreement must be
brought no later than one (1) year after it has accrued. Sections 1.4, 2, 3,
9.1, 9.2, 10, 11, 12, 13, 14, 15, 16, 17, 18.2 and 20 shall survive the
termination of Managed Services under this Agreement.
39
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01/06/99
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized representatives as of the date first above
written.
PANDESIC, LLC
By: /s/ Pete Wolcott
---------------------------------
Name: Pete Wolcott
-------------------------------
Title: President
------------------------------
DIGEX, INCORPORATED.
By: /s/ Nancy G. Faigen
---------------------------------
Name: Nancy G. Faigen
-------------------------------
Title: President & General Manager
------------------------------
40
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*** Certain provisions of this exhibit have been filed separately with the
Commission pursuant to an application for confidential treatment.
EXHIBIT 10.1SCH
. The attached exhibits are subject to change upon the mutual agreement of
the parties, such agreement not to be unreasonably withheld by either
party. Any changes to any exhibit shall be reflected in the attachment of
an updated exhibit to this Agreement, and when such updated exhibit is
attached, the parties shall be bound by the terms of such updated exhibit.
. Notwithstanding the previous paragraph, with respect to Exhibit E - Service
Level Agreement, DIGEX agrees to meet with Pandesic and discuss in
good faith commercially acceptable modifications to the Service Level
Agreement.
Exhibit A - Pandesic Managed Service Definition Document
- --------------------------------------------------------
The Pandesic Managed Service Definition Document defines the responsibilities of
DIGEX for the Managed Service provided for Pandesic's customers. This service
level definition applies to all Fully Managed Servers for which Pandesic
contracts with DIGEX, including all standard Pandesic server configurations
hosted for Pandesic on behalf of their Merchants, additional web servers or
application servers that match the configuration as outlined by the standard
Pandesic server configuration as current at that time, and Pandesic support
servers.
This document will cover the following topics:
- - Monitoring & Troubleshooting
- - Installation/Deployment Services
- - Ongoing System Support
- - Pandesic Administrative Capabilities
- - Additional Services
MONITORING & TROUBLESHOOTING
This section defines the monitoring capabilities provided by DIGEX as part of
standard monitoring for the Pandesic servers. A standard set of monitoring
activities occurs for each standard Pandesic server. The tools used to perform
these monitoring activities are described in detail in Appendix 1.
***
<PAGE>
***
2
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***
3
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***
4
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***
5
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***
6
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***
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***
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***
9
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***
10
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DIGEX-INTERNAL ESCALATION PROCESS
The following definition of roles and escalation times serves as DIGEX's model
for managing the closure of unresolved problems. As a problem remains unresolved
and one of the time thresholds is reached, an additional DIGEX employee, in the
list provided below, is engaged to provide additional assistance. Independent of
the communication process outlined below, throughout the troubleshooting and
escalation process, additional resources beyond those defined below will be
leveraged wherever possible to solve the problem.
The roles involved in the escalation process are defined as follows:
***
11
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***
12
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***
INSTALLATION/DEPLOYMENT SERVICES
The following section is intended to list and distinguish between activities
which Digex provides as part of "standard" support to Pandesic, "non-standard"
tasks which Digex will provide for an additional fee, and "Pandesic-Supported"
tasks which Digex does not provide at all. All non-standard support tasks
requested by Pandesic, and not related to "critical" or "immediate" severity
issues as defined in Exhibit E - Section I., Paragraph D "Problem Management",
will need to be scheduled based upon resource availability. DIGEX reserves the
right to provide "non-standard" support services at no cost to Pandesic;
decisions to provide "non-standard" support services at no cost to Pandesic will
be made on a case-by-case basis by DIGEX.
***
13
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***
14
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***
The following section is intended to list and distinguish between activities
which Digex provides as part of "standard" support to Pandesic, "non-standard"
tasks which Digex will provide for an additional fee, and "Pandesic-Supported"
tasks which Digex does not provide at all. DIGEX will assist Pandesic in the
removal of a virus or other disabling device as a non-standard support task,
billable at an hourly time and materials rate.
***
15
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***
16
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***
17
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***
18
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***
19
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Appendix 1: Overview of DIGEX Managed Server Monitoring Tools
- --------------------------------------------------------------------
DIGEX uses a variety of tools to provide the full suite of monitoring
functionality that is required by our customers. These tools represent what
DIGEX deems to be best-of-breed today. In the future, DIGEX may decide to change
the specific monitoring tools referenced below; however, any replacement tools
will still allow DIGEX to offer the functionality that is defined below.
SiteScope
SiteScope monitors our web server environment around the clock using over 20
standard monitors. If a problem should arise, SiteScope's paging, e-mail, and
SNMP notification functions ensure that we're the first to know. SiteScope can
execute a script in response to error conditions, providing immediate correction
of common problems.
Following is a description of what the Server Operations Center can monitor
using SiteScope
***
20
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***
21
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***
WhatsUp Gold(SM)
WhatsUp Gold is a scalable enterprise network-monitoring tool, designed for
large, hierarchical networks. WhatsUp Gold also features remote notification by
beeper, pager, e-mail, or prerecorded telephone messages.
Keynotes(SM)
Keynote Systems is the premier supplier of Internet performance data and
diagnostic services to corporations with business-critical web sites.
Keynote Perspective - enables our customers to measure, compare and assure the
Quality of Service (QOS) of their sites, thereby improving competitiveness
and customer satisfaction. The foundation of this service is an extensive
network of customizable software measurement agents connected to the major
Internet backbones in dozens of metropolitan areas worldwide plus a
sophisticated operations center for collecting, analyzing and disseminating
Internet performance data.
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Exhibit B - Collocation Support Definition
- ------------------------------------------
***
23
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***
24
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Exhibit C - Fees For Managed Services
- -------------------------------------
A. Standard Two-Server Configuration Pricing
***
25
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***
26
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B. Incremental Costs to Pandesic
1. Transportable Web Servers
- ------------------------------
Transportable Web Servers are defined web servers, which are shared among
Pandesic configurations during the life of their 24-month contract. These
transportable servers are intended to help satisfy peak demand volumes of
traffic which will exist on varying Pandesic Merchant sites based upon
seasonal purchasing activity at different times in the calendar year.
***
2. Engineering Activities
- ---------------------------
Pandesic has requested ongoing support for Engineering activities which lie
outside of the scope of Managed Services as defined in Exhibit A.
***
27
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***
3. DIGEX Professional Services' WSUR Usage Reporting Service
- -----------------------------------------------------------------
Pandesic may elect to purchase the WSUR Usage Reporting Service from DIGEX for
some or all of Pandesic Merchants. The following information describes both the
functionality and standard reports provided as part of the WSUR Usage Reporting
Service.
***
28
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***
29
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***
30
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III. PRICING
***
C. Network Connectivity
DIGEX has provided Pandesic the ability to purchase bandwidth in bulk on behalf
of Pandesic Merchants. This bandwidth is shared among Pandesic customers as
defined by the Pandesic Engineering team.
***
31
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***
32
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Exhibit D - Acceptable Use Policy
1. Introduction. This document sets forth the principles of the DIGEX Acceptable
------------
Use Policy that governs the use by the Customer identified on the attached order
form ("Customer") of the services and products provided by DIGEX, Inc.
("Company") described on the attached order form ("Services and Products"). The
Acceptable Use Policy has been created to promote the integrity, security,
reliability and privacy of Company's Web Site Management Facility, network, and
Customer data contained within. Company retains the right to modify the
Acceptable Use Policy at any time and any such modification shall be
automatically effective as to all customers when adopted by Company.
Questions or comments regarding the Acceptable Use Policy should be
forwarded to Company via:
E-mail: [email protected]
------------------------
Telephone: 1-888-733-4439
2. Compliance With Law.
-------------------
Customer shall not post, transmit, re-transmit or store material on or
through any of Services or Products which, in the sole judgment of Company (i)
is in violation of any local, state, federal or non-United States law or
regulation, (ii) threatening, obscene, indecent, defamatory or that otherwise
could adversely affect any individual, group or entity (collectively, "Persons")
or (iii) violates the rights of any person, including rights protected by
copyright, trade secret, patent or other intellectual property or similar laws
or regulations including, but not limited to, the installation or distribution
of "pirated" or other software products that are not appropriately licensed for
use by Customer. Customer shall be responsible for determining what laws or
regulations are applicable to its use of the Services and Products.
3. Prohibited Uses of Services and Products.
----------------------------------------
In addition to the other requirements of this Use Policy, Customer may
only use the Services and Products in a manner that, in the Company's sole
judgment, is consistent with the purposes of such Services and Products. If the
Customer is unsure of whether any contemplated use or action is permitted,
please contact the Company as provided above. By way of example, and not
limitation, uses described below of the Services and Products are expressly
prohibited.
3.1. General.
-------
3.1.1. Resale of Services and Products, without the prior
written consent of Company.
3.1.2. Deceptive on-line marketing practices.
3.1.3. Violations of the rights of any Person protected
by copyright, trade secret, patent or other
intellectual property or similar laws or
regulations, including, but not limited to, the
installation or distribution of "pirated" or other
software products that are not appropriately
licensed for use by
33
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Customer.
3.1.4. Actions that restrict or inhibit any Person,
whether a customer of the Company or
otherwise, in its use or enjoyment of any
of the Company's Services or Products.
3.2. System and Network.
------------------
3.2.1. Introduction of malicious programs into the
network or server (e.g., viruses and worms).
3.2.2. Effecting security breaches or disruptions of
Internet communication. Security breaches include,
but are not limited to, accessing data of which
Customer is not an intended recipient or logging
into a server or account that Customer is not
expressly authorized to access. For purposes of
this Section 3.2.2., "disruption" includes, but is
not limited to, port scans, flood pings, packet
spoofing and forged routing information .
3.2.3. Executing any form of network monitoring which
will intercept data not intended for Customer's
server.
3.2.4. Circumventing user authentication or security of
any host, network or account.
3.2.5. Interfering with or denying service to any user or
any host.
3.2.6. Using any program/script/command, or sending
messages of any kind, designed to interfere with a
user's terminal session, via any means, locally or
via the Internet.
3.2.7. Creating an "active" full time connection on a
Company-provided dial-up account by using
artificial means involving software, programming
or any other method.
3.2.8. Utilizing a Company-provided dial-up account for
purposes other than facilitating connectivity to
the products and services provided by the Company.
This includes copying or creating files utilizing
more than 1MB of disk space on the dial-up account
servers.
3.2.9. Failing to comply with the Company's procedure
relating to the activities of customers on
Company's premises.
3.3. Billing.
-------
3.3.1. Furnishing false or incorrect data on the Order
Form, contract or online application, including
fraudulent use of credit card numbers.
3.3.2. Attempting to circumvent or alter the processes or
procedures to measure time, bandwidth utilization,
or other methods to document "use" of Company's
products and services.
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3.4. Mail.
----
3.4.1. Sending unsolicited mail messages, including the
sending of "junk mail" or other advertising
material to individuals who did not specifically
request such material ("e-mail spam").
3.4.2. Harassment, whether through language, frequency or
size of messages.
3.4.3. Unauthorized use, or forging, of mail header
information.
3.4.4. Using Company or Customer account to collect
replies to messages sent from another provider,
which violate these rules or those of that
provider.
3.4.5. Creating or forwarding "chain letters" or other
"pyramid schemes" of any type.
3.5. Usenet Newsgroups
-----------------
3.5.1. Posting the same or similar messages to large
numbers of Usenet newsgroup ("Newsgroup spams").
3.5.2. Posting chain letters of any type.
3.5.3. Posting encoded binary files to newsgroups not
specifically named for that purpose.
3.5.4. Cancellation or superseding of posts other than
your own.
3.5.5. Forging of header information.
3.5.6. Solicitations of mail for any other e-mail address
other than that of the poster's account or
service, with intent to harass or to collect
replies.
3.6. Roles Regarding UNIX Managed Server.
-----------------------------------
3.6.1. Customer may not create/update/delete accounts
created and maintained by Company. Specifically,
the Company account may not be altered in any
manner nor may any account with a UID of less than
1000 be altered.
3.6.2. Customer may not change the partitioning or mount
points of any drive.
3.6.3. Customer may not create/update/delete any file in
the /usr directory tree.
3.6.4. Customer may not install Microsoft(C) FrontPage
Extensions unless updated on the /usr directory
tree.
3.6.5. Customer may not create.rhosts or /etc/.host
.equiv files.
3.6.6. Customer may not implement any procedure or
process that would allow one to login as root
without using the root password. Customer may not
create suid scripts or programs.
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3.6.7. Customer may not alter the system kernel.
3.6.8. Customer may not alter the /sys or /etc/system
directory trees or any files contained therein.
3.6.9. Customer may not apply operating system and
application patches to software not installed and
solely maintained by the Customer, unless
notification is given to Company.
3.6.10. Customer may not change the root shell.
3.6.11. Customer may not alter the contents of /.k5login.
3.6.12. Customer may not alter /etc/fstab or /etc/vfstab.
3.6.13. Customer may not share or export file systems.
This includes modifying /etc/exports,
/etc/dfs/sharetab, and /etc/netgroup.
3.6.14. Customer may not modify the decode or root alias
in the /etc/aliases file.
3.6.15. Customer may not change the "identity" of the
system. This includes modifying /etc/hosts,
/etc/hostname.*, /etc/defaultrouter, /etc/networks
and /etc/ethers.
3.6.16. Customer may not modify the system in any manner
that restricts or alters access to the system by
Company's employees.
3.6.17. Customer may acquire root privileges after
successful login of a valid non-root userid and
using su to gain access as root.
3.6.18. Customer may create/update/delete all aspects of
Customer created user accounts. This may includes
modifying home directory permissions, user
passwords, etc.
3.6.19. Customer may use FTP to create/update/delete files
and directories.
3.6.20. Customer may add to, but may not modify, existing
data in the following configuration files:
/etc/aliases, /etc/group, /etc/rc.local,
/etc/sendmail.cf file and root crontab.
3.6.21. Customer may install software on the server
provided the installation meets all of the
criteria detailed above, and Company is notified
of such installation.
3.7. Roles Regarding Windows NT Managed Server.
-----------------------------------------
3.7.1 Customer may not create/update/delete accounts
created and maintained by Company. Specifically,
Company account may not be altered in any manner.
3.7.2 Customer may not install software that does not
execute as a service.
3.7.3 Customer may not install software that does not
have a remote administration capability.
3.7.4 Customer may not install applications that do not
run within a logon account different from that of
the installing user.
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3.7.5. Customer may not install applications which must
be restarted when one user logs off and another
user logs on.
3.7.6. Customer may not install applications that do not
execute when an individual is not logged on to the
server.
3.7.7. Customer may not modify the network and system
settings of the server.
3.7.8. Customer may not apply operating system and
application patches to software not installed and
solely maintained by the customer, unless
notification is given to Company.
3.7.9. Customer may use FTP to create/update/delete files
and directories.
3.7.10. Customer may create/update/delete all aspects of
Customer created user accounts. This includes
modifying home directory permissions, user
passwords, etc.
3.7.11. Customer may start and stop all Windows NT 4.0
Services, including the WWW and FTP
services.
3.7.12. Customer may install software on the server
provided the installation meets all of the
criteria detailed above, and Company is notified
of such installation.
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Exhibit E - Service Level Agreement
- -----------------------------------
This Exhibit supplements and amends and is hereby made a part of the Agreement
by and between DIGEX, Incorporated ("Company") and Pandesic ("Customer"), dated
December 30, 1998.
This Exhibit provides service level guarantee and availability requirements
between the Company and the Customer. It is intended to provide a quantitative
service commitment to the Customer as a result of the Customer's specific
configuration characteristics.
This Exhibit shall only be effective for the initial contract term of the
Agreement between Company and Customer, but may be extended upon mutual
agreement for any subsequent renewal period. If Customer changes its
configuration, excluding the addition of software, hardware upgrades, or changes
that do not reduce or effect the current level of redundancy as shown in Exhibit
C - Section A. "Standard Two-Server Configuration Pricing," then this Exhibit
shall not apply to new equipment and Company shall have the right to amend this
Exhibit. Additionally, if Customer or Company terminates this Agreement or the
Agreement expires, then this Exhibit shall terminate automatically and both
parties shall no longer have any rights or obligations hereunder, except to the
extent that any rights or obligations survive the termination of the Agreement.
I. Obligations of Company
***
38
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***
39
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***
40
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***
D. PROBLEM MANAGEMENT.
Problem management issues are restricted to items within express or direct
control of DIGEX, Inc. There are five (5) severity levels included under
the description of Problem Management. Each severity level carries maximum
response time associated with it. The response time is defined as maximum
period under which Company will begin investigation of the problem and
create a Case (Trouble Ticket). The five (5) severity levels are as
follows:
***
41
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***
42
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***
43
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EXHIBIT F DISASTER MITIGATION PLAN
- ----------------------------------
DEFINITION
DIGEX sees disaster recovery and mitigation as a spectrum of strategies and
techniques instituted through procedures and precautions implemented in
accordance with customer requirements. Disaster mitigation will include fault-
tolerant and redundant systems. Some of these systems will include the equipment
configuration that DIGEX recommends and implements for the customer, and some
will be DIGEX infrastructure based.
***
***
44
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***
45
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***
46
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***
47
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EXHIBIT 10.4
LEASE AGREEMENT
to be entered into
between
1111 19/th/ STREET ASSOCIATES LIMITED PARTNERSHIP
and
INTERMEDIA COMMUNICATIONS, INC.
<TABLE>
<S> <C>
1. Leased Premises................................................................1
2. Term...........................................................................2
3. Use............................................................................3
4. Basic Annual Rent and Rent Commencement Date...................................3
4.1. Definitions...........................................................4
4.2. Rent AdjustmentCCommon Area Expenses, Insurance and Taxes.............6
4.3. Tax Adjustment........................................................7
4.4. Utilities.............................................................7
4.5. Payments..............................................................7
5. Requirements of Law............................................................8
6. Tenant's Improvements..........................................................8
7. Condition of Premises..........................................................9
8. Conduct on Premises...........................................................10
9. Insurance.....................................................................10
10. Mechanics' and Materialmen's Liens and Other Liens............................10
11. Tenant's Failure to Perform...................................................11
12. Loss, Damage, Injury..........................................................11
13. DestructionCFire or Other Casualty............................................11
14. Eminent Domain................................................................12
15. Assignment/Subletting.........................................................12
16. Defaults......................................................................13
17. Acceptance of Leased Premises.................................................16
18. Access to Premises and Change in Services.....................................16
19. Estoppel Certificates.........................................................16
20. Subordination.................................................................16
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
21. Attornment....................................................................16
22. Notices.......................................................................16
23. Landlord's Liability..........................................................17
24. Separability, Enforceability..................................................17
25. Captions......................................................................17
26. Recordation...................................................................17
27. Successors and Assigns........................................................17
28. Waiver of Jury Trial..........................................................17
29. Miscellaneous.................................................................18
30. Environmental Assurances......................................................19
(a) Covenants............................................................19
(b) Indemnification......................................................19
(c) Definitions..........................................................20
32. Authority.....................................................................20
33. Force Majeure.................................................................20
34. Real Estate Broker............................................................20
35. Intentionally Deleted.........................................................21
36. Holding Over..................................................................21
37. Equipment.....................................................................21
(a) Antenna..............................................................21
(b) Rooftop Equipment License............................................21
38. Net Lease.....................................................................22
RIDER NO. 1 - Renewal Option...........................................................24
RIDER NO. 2 - Exclusive Right to Negotiate.............................................25
Exhibit A - Leased Premises
Exhibit B - Engineered Site Plan
Exhibit C - Plans and Specifications for Base Building
Exhibit D - Lease Commencement Agreement
Exhibit E - Rules and Regulations
</TABLE>
-ii-
<PAGE>
LEASE AGREEMENT
THIS AGREEMENT OF LEASE is made this 23/rd/ day of July 1999, by and
between 1111 19/th/ STREET ASSOCIATES LIMITED PARTNERSHIP, a limited partnership
formed under the laws of the District of Columbia (hereinafter referred to as
"Landlord"), and INTERMEDIA COMMUNICATIONS INC., a Delaware corporation
(hereinafter referred to as "Tenant").
WITNESSETH, that the parties hereby covenant, promise and agree as follows:
1. Leased Premises.
---------------
(1) Landlord is the owner of a single-story building (the "Building")
to be constructed on a parcel of land known as Lot 1, Block A, containing
approximately 10 acres (the "Land"), located at 6900 Muirkirk Meadows Road in
the Konterra Business Campus (the "Park") in Prince George's County, Maryland
(the "County"). The Building will contain approximately 111,716 gross square
feet. The Land and the Building are more particularly described on Exhibit A
attached hereto incorporated by reference herein and initialed by the parties.
The Land, the Building, the easements and rights appurtenant thereto (including
those established by certain declarations of covenants recorded, or intended to
be recorded, prior hereto among the Land Records of the County), and the
sidewalks, areaways, parking areas, driveways, loading areas, gardens and lawns
surrounding the Building and located on the Land are collectively hereinafter
called "Leased Premises". Landlord does hereby lease unto Tenant, and Tenant
does hereby rent from Landlord, the Leased Premises for the "Lease Term" (as
hereinafter defined).
(2) Landlord will construct the base shell of the Building (the "Base
Building") as depicted on the attached Exhibit B, the "Engineered Site Plan" and
in accordance with the plans and specifications attached hereto as Exhibit C
(collectively, the "Base Building Plans"). Any changes which Tenant desires to
request to be made to the Base Building Plans, such as changes to the roll-up
doors, glass glazing and interior slabs, must be submitted to Landlord for
review and approval by August 3, 1998. Entry feature revisions which Tenant
desires to request to the Base Building Plans, along with permit drawings for
same, must be submitted to Landlord for review and approval in a timely fashion
(as determined by Landlord), so that Landlord may file any necessary revisions
to the building permit for the Building with the applicable governmental
authorities of the County by September 1, 1998. In the event that Landlord is
unable to substantially complete construction of the Base Building by the
estimated commencement date as hereinafter set forth of January 1, 1999 as a
result of the Tenant's failure to meet either or both of the foregoing deadlines
or any other delays attributable to Tenant, then, notwithstanding any language
in this Lease to the contrary, the "Rent Commencement Date", as hereinafter
defined, for all purposes of this Lease, shall be January 1, 1999.
(3) The cost of constructing the Base Building in accordance with the
Base Building Plans will be paid by Landlord. All charges and expenses, which
shall be deemed additional rent, incurred for change orders from the Base
Building Plans shall be paid by Tenant to Landlord in accordance with such
written change order; provided, however, that Tenant shall be responsible only
for the net cost of increases resulting from change orders to the Base Building
Plans and Tenant shall receive credit for the benefit, if any, of net cost
reductions to the Landlord. Landlord shall have no obligation to implement any
change order unless it is in writing and specifies the method and time of
payment. All change orders shall specify in reasonable detail the changes to be
effected and whether such change is expected to affect the estimated
commencement date. Landlord shall have the right to refuse to implement such
change if, given the stage of construction, the proposed alterations cannot
reasonably be incorporated into the construction process. Landlord's overhead,
profit and general conditions for change orders, which shall also be deemed as
additional rent and paid by Tenant, shall be limited to eight percent (8%) of
the cost of the change order.
(4) Tenant shall hire an architect reasonably acceptable to Landlord
to prepare plans and specifications for the finishing of the Leased Premises
(the "TI Plans"). The TI
<PAGE>
Plans shall be subject to the prior written approval of Landlord and Banta
Campbell Architects ("Landlord's Architect") which approval shall not be
unreasonably withheld, delayed or conditioned. Such approval must be obtained
prior to Tenant submitting the same to the applicable governmental authorities
of the County for approval. Tenant shall hire a qualified general contractor
approved by Landlord and qualified finish subcontractors approved by Landlord to
finish the Leased Premises in accordance with the TI Plans. Manekin Corporation
will have the right to submit a bid to serve as general contractor. If Tenant
elects to use a general contractor other than Manekin Corporation, then Landlord
and/or Manekin Corporation shall supervise the finishing of the Leased Premises
for which supervision Tenant shall pay to Landlord, or if so designated by
Landlord, to Manekin Corporation, a supervisory fee (the "Fee") equal to the
hourly rate of the supervisory personnel. Landlord shall provide Tenant with
invoice(s) detailing the hourly rate and time involved related to said
supervisory personnel. The construction of the tenant improvements shall be
otherwise in accordance with the provisions of Section 6 below.
(5) All costs incurred for the finishing of the Leased Premises beyond
the cost of construction of the Base Building, shall be borne by Tenant and
Tenant shall indemnify and hold Landlord harmless from same. Tenant agrees that
Tenant shall bear full responsibility for the TI Plans and the Leased Premises
as improved by the TI Plans, as being in compliance with all applicable
requirements of law, including without limitation, the Americans With
Disabilities Act, as amended. Tenant releases Landlord from any claim by Tenant
arising out of the failure of the Leased Premises to be in compliance with all
applicable requirements of law.
2. Term. This Lease shall be for a term of approximately ten (10)
----
years (the "Lease Term") commencing on the Commencement Date (as hereinafter
defined) and terminating at 11:59 p.m. of the last day of the tenth full
consecutive lease year thereafter, unless otherwise extended or terminated in
accordance with the provisions hereof. See Rider No. 1 - Renewal Option.
Each respective period of twelve (12) successive calendar months
during the Lease Term or any renewals thereof shall be hereinafter referred to
as the "lease year"; provided, however, the first lease year shall commence on
the Commencement Date and shall terminate on the last day of the twelfth (12th)
full calendar month following the Rent Commencement Date, as hereinafter
defined.
The "Commencement Date" shall be that date on which the work to be
done by Landlord in accordance with Section 1(b) of this Lease shall have been
completed, except for punch-list items scheduled by Landlord and Tenant (which
shall be deemed accomplished when Landlord's architect issues a statement of
substantial completion). Landlord estimates that the Commencement Date will be
approximately January 1, 1999, which date shall hereinafter be referred to as
the "estimated commencement date". Landlord agrees to use its reasonable
efforts to cause the Commencement Date to occur by the estimated commencement
date, subject however to force majeure factors.
Landlord and Tenant further acknowledge that delivery of the Building
will be in two phases. It is anticipated that the initial phase will include
the delivery by Landlord of approximately 69,890 square feet of the Building,
and the second phase will include delivery by Landlord of the balance of the
Building, all by the estimated commencement date of January 1, 1999.
In the event that Landlord shall be unable, by reason of construction
delays or otherwise, to substantially complete construction of the Base Building
by the estimated commencement date, then this Lease shall nevertheless continue
in full force and effect, and Tenant shall have no right to rescind, cancel or
terminate the same if Landlord substantially completes such construction within
sixty (60) days thereafter; provided, however, that in such event the date on
which Landlord substantially completes construction of the Base Building shall
thereafter be deemed the Commencement Date for all purposes of this Lease.
Whether or not Landlord shall substantially complete such construction on the
estimated commencement date, or within such additional sixty-day period, Tenant
agrees that in no event shall Landlord be liable for damages, if any, sustained
by Tenant as a result of Landlord's failure so long as Landlord has acted
diligently and in good faith.
2
<PAGE>
Should Landlord be unable to substantially complete construction of the Base
Building due solely to its actions by the sixtieth day, Tenant shall have the
right to terminate this Lease by providing Landlord with written notice, within
ten (10) days following the expiration of said (60) day period, subject,
however, to force majeure factors. If the Lease is so terminated, neither party
shall have any further right or obligation hereunder.
Tenant shall have the right to enter the Leased Premises thirty (30)
days prior to the Commencement Date in order to begin construction of the tenant
improvements, provided that such work is done under the general supervision of
Landlord and does not interfere with Landlord's work. Such entry shall be at
Tenant's sole risk and expense. Commencing on the first day of such early
access, Tenant agrees that all the terms and provisions of this Lease shall be
in full force and effect except that Tenant shall have no obligation to pay any
payments due under this Lease during such early access period. Tenant agrees to
indemnify and hold harmless Landlord for any damage or personal injury which may
occur as a result of Tenant's entry into the Leased Premises prior to the
Commencement Date. Tenant shall deliver to Landlord evidence of the insurance
required to be maintained by Tenant pursuant to Section 9 of this Lease prior to
Tenant's entry into the Leased Premises. In the event that Tenant or its
contractors interfere with Landlord's work so that the Commencement Date is
delayed, then the Commencement Date shall be the date that it would have
occurred but for such interference by Tenant.
On the Commencement Date or such later date as Landlord may request,
Tenant shall promptly enter into a supplementary written agreement (the "Lease
Commencement Agreement") in substantially the form attached hereto as "Exhibit
D", or in such other form as Landlord shall prescribe, thereby specifying, among
other matters, the Commencement Date, the Rent Commencement Date, and the date
as of which the Lease Term shall end.
1. Use. Landlord and Tenant expressly agree that the Leased Premises
---
shall be used or occupied by Tenant for the following purposes and none other:
to install, operate, and maintain certain telecommunications, internet, and
similar property and equipment for use in connection with Tenant's
telecommunications/internet business, and to provide telecommunications and
internet services to its customers, as well as general office use.
Tenant may, if permitted by law and/or regulation, be permitted to
refer to the Leased Premises, for mailing purposes, by reference to a name other
than the Building's actual street address. Tenant may not include this other
name on its signage without Landlord's consent, which consent shall not be
unreasonably withheld or delayed.
The Real Property will be subject to certain covenants and
restrictions to be developed by Landlord and recorded among the Land Records of
the County (the "Restrictions"). Tenant agrees to be bound by the Restrictions,
so long as the same do not have a material adverse economic effect on Tenant.
2. Basic Annual Rent and Rent Commencement Date. Commencing on the
---------------------------------------------
Rent Commencement Date, Tenant shall pay to Landlord during the Lease Term
"Basic Annual Rent" in equal monthly installments as set forth below, without
any deductions, recoupments, or set-offs, and without demand, in advance on the
first day of each and every calendar month in each lease year during the Lease
Term; provided, however, that if the Rent Commencement Date should occur on a
day other than the first day of a month, Tenant shall pay on the Rent
Commencement Date for the fractional part of the month in which the Rent
Commencement Date occurs, a prorated amount of one month's rent.
The "Rent Commencement Date" shall be the Commencement Date of this
Lease (which is estimated to be January 1, 1999); provided however, that if the
Commencement Date fails to occur by January 1, 1999 due to delays attributable
to Tenant, then the Rent Commencement Date shall nevertheless be January 1,
1999, all as more particularly set forth in Section l(b) above. In the event
that the Commencement Date fails to occur by January 1, 1999 due to delays
attributable solely to Landlord, subject, however, to force majeure factors,
then the Rent
3
<PAGE>
Commencement Date will be one (1) day after the Commencement Date for each day
of Landlord's delay, for purposes of providing Tenant with one (1) day free of
the obligation to pay Basic Rent for each day of the delay. By way of example,
if the Commencement Date occurs on January 5, 1999 due to delays attributable
solely to Landlord, then the Rent Commencement Date shall be January 10, 1999.
If alternatively, the Commencement Date occurs on January 5, 1999 due to delays
attributable solely to Tenant, the Rent Commencement Date shall be January 1,
1999. Except for Tenant's termination rights set forth in Section 2 above, the
free rent as aforesaid shall be Tenant's sole remedy for Landlord's failure to
deliver the Leased Premises by the estimated commencement date of January 1,
1999.
Tenant shall pay Basic Annual Rent as follows:
<TABLE>
<CAPTION>
Per Basic Monthly
Square Foot Annual Rent Installment
----------- -------------
<S> <C> <C> <C>
1/st/ lease year $ 8.00 $ 867,936.00 $72,328.00
2/nd/ lease year $ 8.24 $ 893,974.08 $74,497.84
3/rd/ lease year $ 8.49 $ 921,097.08 $76,758.09
4/th/ lease year $ 8.74 $ 948,220.08 $79,018.34
5/th/ lease year $ 9.00 $ 976,428.00 $81,369.00
6/th/ lease year $ 9.27 $1,005,720.80 $83,810.07
7/th/ lease year $ 9.55 $1,036,098.60 $86,341.55
8/th/ lease year $ 9.84 $1,067,561.20 $88,963.43
9/th/ lease year $10.13 $1,099,023.90 $91,585.33
10/th/ lease year $10.44 $1,132,656.40 $94,388.03
</TABLE>
2.1 Definitions. For purposes of this Lease, the following
-----------
meanings or definitions shall apply:
(1) "Rentable Area of the Leased Premises" shall, for all purposes of
this Lease, be deemed to be the square footage of the Building as determined by
Landlord's architect utilizing the BOMA standard for a single tenant building,
which is hereby agreed to be 108,492 square feet.
(2) The term "Common Area Expenses" shall mean all reasonable and
necessary expenses paid or incurred by Landlord in connection with Landlord's
management of the Real Property, and the management, maintenance, operation and
repair of the exterior areas of the Real Property, including, but not limited
to, (i) keeping the driveways, parking areas, sidewalks and steps free and clear
of ice, snow and debris; (ii) maintaining all grass and landscaping on the Real
Property; (iii) repair of normal wear and tear of the roof and caulking; (iv)
trash removal from dumpsters on the Real Property, if any; (v) monitoring,
repairing and payment of water, sewerage, unmetered or metered sprinkler and
exterior electrical utilities; (vi) management fees not to exceed 2.5% of the
Basic Annual Rent payable by Tenant hereunder; and (vii) all structural repairs
not caused or necessitated by the acts of Tenant or Tenant's equipment. Common
Area Expenses shall exclude, or have deducted from them, as the case may be and
as shall be appropriate:
(1) Any cost or expense related to financing or
refinancing;
(2) Payment on ground leases;
4
<PAGE>
(3) Repairs or other work occasioned by fire, wind
storm, earthquakes or other casualty or hazard to the extent that Landlord shall
actually receive proceeds from insurance;
(4) Repairs or rebuilding necessitated by a condemnation to
the extent that Landlord has received condemnation proceeds for such repairs or
rebuilding;
(5) Depreciation of the Leased Premises or amortization of
any mortgage;
(6) Charges for Landlord's income tax, franchise tax or
similar taxes on Landlord's business;
(7) Fines, fees and penalties related to Landlord's
obligations under this Lease;
(8) Management fees in excess of 2.5% of the Basic Annual
Rent; and.
(9) Any cost incurred by the Landlord to correct the latent
defects for which it is responsible hereunder.
(3) "Taxes" shall mean any present or future federal, state,
municipal, local and/or any other taxes (including gross receipts or business
license taxes), assessments, levies, benefit charges and/or other governmental
or private impositions (including business park charges and dues), levied,
assessed and/or agreed to be imposed upon the Real Property of which the Leased
Premises are a part or any part or parts of said Real Property, or upon the rent
due and payable hereunder, whether or not now customary or within the
contemplation of the parties hereto and regardless of whether the same shall be
extraordinary or ordinary, general or special, foreseen or unforeseen, or
similar to any of the foregoing but shall not include any inheritance, estate,
succession, income, excise, capital, profits or franchise tax, provided,
however, if at any time during the Lease Term or any extension thereof the
method of taxation prevailing at the commencement of the term shall be altered
or eliminated so as to cause the whole or any part of the items listed in the
first sentence of this subsection (c) to be replaced by a levy, assessment or
imposition, wholly or partly as a capital levy, or otherwise, on the rents or
income (provided the tax on such income is not a tax levied on taxable income
generally) received from the Real Property, wholly or partly in place of an
imposition on or as a substitute for, or an in place of, taxes in the nature of
real estate taxes issued against the Real Property, then the charge to Landlord
resulting from such altered or replacement method of taxation shall be deemed to
be within the definition of "Taxes." All reasonable expenses incurred by
Landlord (including attorneys' fees and costs) in monitoring or contesting any
increase in the assessment of the Real Property shall be included as an item of
Taxes for the purpose of computing additional rent due hereunder.
(4) "Real Property" shall mean the Land, the Building, and all
fixtures, equipment and other improvements in or upon said Land, which have been
provided by Landlord and shall include the sidewalks, areaways, parking areas,
loading areas, gardens and lawns of the Leased Premises.
(5) "Insurance" shall mean all insurance of whatsoever nature kept or
caused to be kept by Landlord, or required by Landlord's lender to be kept, out
of or in connection with Landlord's ownership of the Building and/or the Real
Property, or the equipment, fixtures and other improvements installed and/or
owned by Landlord and used in connection with the Building and/or the Real
Property and/or all alterations, rebuildings, replacements and additions
thereto, insuring the same against loss or damage by fire, vandalism, malicious
mischief, sprinkler leakage (if sprinklered) and such other hazards, casualties,
risks and contingencies now covered by or that may hereafter be considered as
included within, the standard casualty insurance policy, or such other
casualties as Landlord's lender may require. Insurance shall include insurance
for loss of rent arising
5
<PAGE>
out of any of the occurrences covered by such insurance. Such casualty insurance
shall be carried in an amount at least equal to the Full Insurable Value
thereof. The term "Full Insurable Value" shall mean actual replacement costs of
the Building (exclusive of the costs and excavation, foundations and footings
below the lowest basement floor), or such other amounts as may be required by
Landlord's lender.
(6) The term "Operating Year" shall mean: (i) when used in the
context of Common Area Expenses and Insurance, each respective fiscal year
beginning October 1 during the Lease Term or, at the option of Landlord, such
other fiscal year as Landlord may adopt during the Lease Term and (ii) when used
in the context of Taxes, each respective tax year (i.e., the fiscal year
beginning July 1) during the Lease Term, except that, if the tax year changes to
begin on a date other than July 1, then appropriate adjustments will be made for
any additional rent or credits due as Taxes under this Lease.
(7) "Term" or "Lease Term" shall mean the initial lease term and
any renewals or extensions thereof.
(8) "Deed of Trust" shall mean the deed of trust or mortgage securing
Landlord's original, interim, and/or permanent financing for the Leased
Premises.
2.2 Rent Adjustment--Common Area Expenses, Insurance and Taxes.
----------------------------------------------------------
Commencing on the Rent Commencement Date, Tenant agrees to pay to Landlord, as
additional rent, with and at the same time as the payments of Basic Annual Rent,
the following amounts:
(1) Nine Thousand Six Hundred Seventy-Three Dollars and Eighty-Seven
Cents ($9,673.87) per month as one-twelfth of the estimated Common Area Expenses
(calculated on the basis of $1.07 multiplied by the Rentable Area of the Leased
Premises);
(2) Thirteen Thousand One Hundred Nine Dollars and Forty-Five Cents
($13,109.45) per month as one-twelfth of the estimated Taxes (calculated on the
basis of $1.45 multiplied by the Rentable Area of the Leased Premises); and
(3) Seven Hundred Twenty-Three Dollars and Twenty-Eight Cents
($723.28) per month as one-twelfth of the estimated cost of Insurance
(calculated on the basis of $0.08 multiplied by the Rentable Area of the Leased
Premises).
At any time during a Lease Year, Landlord may revise its estimate of
the Common Area Expenses, Insurance and Taxes (collectively, the "Expenses") as
set forth above and adjust Tenant's monthly installments to reflect the revised
estimates. Landlord will give Tenant prior written notice of the revised
estimates and the amount by which Tenant's monthly installments will be
adjusted, and Tenant will pay the adjusted installments with each payment of the
rent, beginning with the first payment of the Basic Annual Rent to come due
after Tenant's receipt of such notice.
Landlord will deliver to Tenant, within one hundred twenty (120) days
(or such longer time as is reasonable under the circumstances) after the end of
each applicable Operating Year for the Expenses, a statement for such Operating
Year (the "Statement") , showing such Expenses. Tenant will pay Landlord within
thirty (30) days of the receipt of the Statement such amounts as may be
necessary to adjust Tenant's estimated payments for such preceding Operating
Year so that such payments will equal the actual Expenses for such Operating
Year. If the actual amount of the Expenses is less than the amounts paid by
Tenant as installments, then Landlord will credit Tenant's account by the amount
of the excess or, if at the end of the Lease Term, refund to Tenant the amount
of the excess. Unless Tenant gives Landlord written notice of its exception to
any Statement for such preceding Operating Year within ninety (90) days after
delivery thereof, the same shall be conclusive and binding on Tenant; provided,
however, that in the event that Tenant shall give Landlord written notice of its
exception to such Statement within such ninety (90) day period, Tenant shall
nevertheless be obligated to pay the additional rent.
6
<PAGE>
Failure of Landlord to provide any Statement within the time
prescribed will not relieve Tenant of its obligations under this Section 4.2.
At its sole cost and expense and without unreasonable interference
with Landlord's business operations or waiving Tenant's obligation to pay the
amount shown on such Statement, Tenant shall have the right, upon at least ten
(10) business days prior written notice given to Landlord within sixty (60) days
after its receipt of a Statement, to examine the books, records and other papers
of Landlord used to compute the Expenses reflected on such Statement. Any such
examination shall be conducted only during Landlord's regular business hours,
and all information examined shall be kept by Tenant in the strictest
confidence. In the event as a result of such audit it shall be determined that
Landlord overcharged Tenant more than five percent (5%) of Tenant's share of
such Expenses, Landlord shall reimburse Tenant all reasonable costs incurred by
Tenant with respect to its audit.
2.3 Tax Adjustment. Tenant acknowledges that Landlord must pay the
--------------
Taxes for an entire tax year (i.e., July 1-June 30) in advance. Therefore,
within thirty (30) days after the Rent Commencement Date, Tenant shall pay to
Landlord a sum equal the pre-paid Taxes paid by Landlord for the tax year in
which the Rent Commencement Date occurs (the "Commencement Tax Year"), pro-rated
from the Rent Commencement Date to the end of the Commencement Tax Year. During
the tax year immediately following the Commencement Tax Year (the "Second Tax
Year"), Tenant shall reimburse Landlord, upon receipt of an invoice therefor,
for any pre-paid Taxes paid by Landlord with respect to the Second Tax Year,
after subtracting therefrom the amount of any estimated payments made by Tenant
pursuant to Section 4.2(b) above with respect to such Second Tax Year.
Thereafter, Tenant's estimated monthly amount of Taxes as set forth in Section
4.2(b) above shall be adjusted to reflect the actual Taxes, which monthly
amounts shall be applied to the tax years immediately following the Second Tax
Year and succeeding tax years, subject to further adjustment. Following
termination of the Lease Term by passage of time or for any reason other than
Tenant's default of this Lease (the "Termination Date"), Tenant shall be
reimbursed by Landlord to the extent of Taxes which it has pre-paid as of such
Termination Date for the period beyond such Termination Date.
2.4 Utilities. From and after the Commencement Date, Tenant shall
---------
pay on a timely basis to the appropriate utility or other supplier, all charges
for gas, steam, electricity, light, heat, power, telephone, water, metered or
unmetered sprinkler, sewerage and all other utility and communication services,
used, rendered and/or supplied upon or in connection with the Leased Premises,
to the extent not paid by Tenant as a part of the Common Area Expenses. Upon
request, Tenant shall promptly furnish Landlord with copies of all paid receipts
for such utilities charges. All such utility charges shall be appropriately
adjusted between the parties as of the Commencement Date and the expiration or
sooner termination of this Lease.
2.5 Payments. All payments or installments of any rent hereunder
--------
other than Basic Annual Rent and all sums whatsoever due under this Lease
(including reasonable attorneys' fees) shall be deemed additional rent and shall
be paid to Landlord at the address designated for notice to Landlord herein, or
as otherwise designated by Landlord, and if any installment of Basic annual Rent
or additional rent is not paid within 5 days of the date when due, it shall bear
a late charge equal to five percent (5%) of the arrearage. In addition, the
arrearage shall bear interest calculated at the rate of eighteen percent (18%)
or the highest rate allowable by law, whichever is lower, per annum for each day
such sum is in arrears in consideration of Landlord's additional expense caused
by such failure to pay and shall be payable without demand simultaneously with
the rent arrearage. Time is of the essence in this Lease with respect to
Tenant's monetary obligations hereunder. Although the payments provided by
Section 4.2. hereof are measured and determined by the amount of Taxes, said
payments are, and shall be deemed to be, additional rent. Unless otherwise
provided, any such additional rent shall be due within thirty (30) days after
the Landlord has submitted a written statement to Tenant showing the amount due.
Such obligations shall survive the expiration or sooner termination of this
Lease. Any such statements shall be accompanied by a copy of the bill or other
invoice for such charge.
7
<PAGE>
3. Requirements of Law. Tenant shall, at the sole cost and expense
-------------------
of Tenant, observe and comply with all laws, requirements, rules, orders,
ordinances and regulations of any governmental, quasi-governmental entity or of
the local Board of Fire Underwriters applicable to the Leased Premises or any
portion(s) thereof. Tenant shall comply with Landlord's rules and regulations
for the Park, a copy of which is attached hereto as Exhibit E, as the same may
be reasonably amended, modified or supplemented from time to time by Landlord.
4. Tenant's Improvements.
---------------------
(1) Tenant agrees that it will not undertake any structural
alterations of any of the improvements, or any part thereof, now or hereafter
erected upon the Leased Premises, or construct any new structures or
improvements upon the Leased Premises or make any other alterations which would
materially change the character of the existing improvements or which would
weaken or impair the structural integrity or lessen the value of the existing
improvements, without the prior written consent of Landlord, which consent of
Landlord may be withheld in Landlord's sole discretion. Tenant shall give
Landlord notice of any alteration, addition, enlargement or improvement and
copies of plans and specifications therefor prior to commencing any work
thereon. Notwithstanding the foregoing, Tenant is permitted to make non-
structural alterations costing less than Ten Thousand dollars ($10,000.00)
without first seeking Landlord's prior consent.
(2) Subject to the limitation contained in the foregoing Section 6(a),
Tenant may, at any time during the term of this Lease, at Tenant's own cost and
expense make or permit to be made any alteration, change or addition of, in, or
to the Leased Premises or any part thereof or any building or improvement which
may hereafter be erected thereon, subject, however, to the following conditions,
each of which must be fully observed and performed by Tenant before the
commencement of any work whatsoever:
(1) That there is no existing and unremedied default on the part of
Tenant, of which Tenant has received notice, under the terms, covenants and
conditions herein on the part of Tenant to be observed and performed.
(2) That Tenant shall covenant that the same shall be performed with
diligence and in a first-class, workmanlike manner.
(3) That neither the interest of the Landlord nor the interest of the
holder of the Deed of Trust nor the Leased Premises nor any building in or
improvement on, under, or above the Leased Premises shall then be the
subject of any charge, liability, claim, or lien of whatsoever kind or
nature by reason of work undertaken by Tenant.
(4) That if under the provisions of any insurance policies required
to be provided and maintained hereunder, any consent to any alteration,
change or addition by the insurers therein shall be required to continue
and keep such policies in full force and effect, Tenant shall obtain such
consents and pay any premiums or charges that may be incurred therefor.
(5) Tenant shall covenant that in the alteration of the then existing
structures and/or the construction of any new building, it will comply with
all applicable requirements of the Building Code of the County and with all
other applicable laws, ordinances, rules and regulations of all
governmental authorities having jurisdiction thereof and of the local Board
of Fire Underwriters or of any similar body.
(6) Tenant shall procure all necessary permits for the alteration of
the then existing structures and for the construction of the new
improvements and shall deliver to Landlord a certificate of occupancy when
required by law, as a condition precedent to the use of the improvements
for their designated purpose. Upon completion of any new structural
improvements, Tenant shall deliver to Landlord a set of the "as built"
plans.
8
<PAGE>
(7) All such work shall be done by Landlord or by contractors
approved by Landlord, which approval shall not be unreasonably withheld.
Notwithstanding the foregoing, Tenant understands that, in the event the
work is not performed by Landlord or its agents, such work shall
nevertheless be performed under the general supervision of Landlord or its
agent to assure standard quality improvements on the Real Property for
which Landlord or such agent shall be paid a reasonable supervisory fee
(which supervisory fee shall not exceed five percent of the cost of the
work).
(3) All such work, other than movable furniture, back up power
systems, raised flooring, supplemental HVAC units, or trade fixtures or other
items specifically designated at the time Landlord approves such work, done by
Tenant upon the Leased Premises, shall be the property of the Landlord at the
termination of this Lease; provided, however, that Landlord may require Tenant,
only at the time Landlord approves such work, to remove all or any part of said
work at the expiration of this Lease, in which event such removal shall be done
at Tenant's sole cost and expense. Tenant shall, at its sole cost and expense,
repair any damage to the Leased Premises and/or the Building caused by such
removal or by the removal of its personalty.
(4) Landlord hereby agrees that Tenant, at its sole cost and expense,
shall have the right to install, operate and maintain an underground fiber
optical cable to the Leased Premises, subject, however, to Tenant, at its sole
cost and expense, obtaining any and all necessary governmental approvals, as
well as Landlord's prior written consent as to the location of any such system
so as not to interfere with any existing easements or right-of-ways, underground
utilities or other conduits servicing the Park or any building therein. Tenant
shall promptly restore all areas damaged by the installation of such cable and
shall provide Landlord with as-built drawings of same. If requested by Landlord,
Tenant shall relocate such cables as required by Landlord in connection with
other development at the Park and shall remove such cables at the expiration of
the Lease Term, restoring promptly any and all damage caused by such removal.
5. Condition of Premises.
---------------------
(1) Tenant shall at all times during the Lease Term take good care of
and keep the Leased Premises and the improvements, fixtures, equipment and
appurtenances therein structural or non-structural (including, but not limited
to, interior and exterior walls and windows, interior and exterior doors, pipes,
plumbing, water and sewer connections, heating and air conditioning equipment
and machinery, electrical works, in good order and condition, free of debris,
and, at Tenant's sole cost and expense, shall make all necessary repairs
thereto, which repairs shall be in quality and class at least equal to the
original work. Tenant shall not commit or suffer any waste of the Leased
Premises and will assume responsibility for all maintenance and repair,
regardless of the nature, pertaining to the heating and/or air conditioning
equipment. Tenant shall install, operate and maintain, at its expense, HVAC
related equipment which may be located adjacent to the Building as permitted by
governmental authority, laws and regulations. The location of this equipment is
subject to Landlord's prior consent and Landlord retains the right to require
Tenant to make modifications to same for aesthetic and/or environmental reasons
at Tenant's expense. At the expiration of the Lease Term, or at the sooner
termination of this Lease as herein provided, Tenant shall deliver up the Leased
Premises in the same good order and condition, reasonable wear and tear
excepted, as at the beginning of the tenancy, broom clean and (subject to the
provisions of the preceding Section hereof) Tenant shall remove all of its
property and/or property maintained and/or stored for or on the account of
others therefrom prior to such termination. Any items of Tenant's personality
remaining in the Leased Premises after the termination of the Lease shall be
deemed abandoned by Tenant and become the sole property of Landlord.
Notwithstanding the foregoing, any costs incurred by Landlord in storing and/or
disposing of such abandoned property shall remain the sole obligation of Tenant,
which obligation shall survive the termination of this Lease.
(2) Except as otherwise set forth in this Lease, Landlord shall not be
required to furnish any services or facilities to the Leased Premises and
Landlord shall not be required to rebuild any improvements on the Leased
Premises or to make any repairs, replacements or renewals of any nature or
description to the Leased Premises or any improvement thereon,
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whether ordinary or extraordinary, foreseen or unforeseen, or to maintain the
Leased Premises in any way.
(3) Landlord hereby agrees to and will assign to Tenant at the
termination of Landlord's Warranty Period (as defined below), to the extent they
exist and are assignable, and any and all written warranties and guarantees from
Landlord's contractors, subcontractors and suppliers of any materials and labor
to the Base Building for that portion, if any, of the Lease Term that such
warranties and guarantees are in effect. With respect to construction of the
Base Building, Landlord hereby warrants ("Landlord's Warranty") to Tenant that
Landlord will be responsible for a period of one (1) year ("Landlord's Warranty
Period") from the Commencement Date with respect to latent defects, to the
extent such defects are not caused by the negligence of Tenant or any of its
servants, employees or contractors (in which event such defects shall be
repaired at Tenant's sole cost.)
6. Conduct on Premises.
-------------------
(1) Tenant shall not do, or permit anything to be done in the Leased
Premises, or bring or keep anything therein which will, in any way, increase the
rate of fire or other insurance maintained on the Real Property by Landlord, or
invalidate or conflict with the fire insurance policies on the Real Property;
obstruct or interfere with the rights of Landlord; or interfere with the good
order of the Building. Tenant agrees that any increase in fire or other
insurance premiums on the Real Property and/or the contents thereof caused by
the use or occupancy of Tenant shall, as they occur or accrue, be added to the
rent heretofore reserved and be paid as a part thereof; and Landlord shall have
all the rights and remedies for the collection of same as are conferred upon
Landlord for the collection of rent provided to be paid pursuant to the terms of
this Lease.
(2) Collocation. Tenant shall have the right to collocate certain
-----------
customer equipment (which may include rooftop equipment, subject to Sections
37(a) and (b) hereunder) in the Leased Premises for the purpose of connecting
such customer equipment to facilities in the provision of telecommunications
services. Tenant shall have the right during the term of the Lease and any
renewal periods to offer to provide telecommunications services to other tenants
of the Park. Landlord shall not impose any charge upon Tenant or other tenants
for such services.
Said customer equipment shall be held by Tenant at its sole cost,
expense and risk and Tenant shall increase or modify its insurance as necessary
to cover said customer equipment, and Tenant shall indemnify, defend and hold
Landlord harmless from any claims regarding said customer equipment.
7. Insurance. At all times during the Lease Term, Tenant, at its
---------
sole cost and expense, shall provide and keep in full force and effect a policy
of public liability and property damage insurance, naming Landlord and Manekin
Corporation as additional insureds, with respect to the Leased Premises and the
business of Tenant in, on, within, from or connected with the Leased Premises,
pursuant to which the limits of liability shall be at least $1,000,000.00 in
respect to any one occurrence, and at least $2,000,000.00 in respect to the
general aggregate limit of liability, or in such amounts as Landlord may
reasonably require. Said insurance policy shall contain a clause that the
insurer will not cancel or change the insurance without first giving Landlord
thirty (30) days prior written notice. Said insurance policy shall be carried
with an insurance company approved by Landlord, and a certificate of insurance
shall be delivered to Landlord at the inception of each policy and renewal
thereof.
8. Mechanics' and Materialmen's Liens and Other Liens. Tenant shall
--------------------------------------------------
not do or suffer to be done any act, I matter or thing whereby the Leased
Premises (or Tenant's interest therein) or any part thereof, may be encumbered
by any mechanics' or materialmen's lien and/or any other lien or encumbrance.
Tenant shall bond or discharge, within ten (10) days after the date of filing,
any mechanics' or materialmen's liens filed against the Leased Premises (or
Tenant's interest therein), or any part thereof, purporting to be for work or
material furnished or to be furnished to Tenant.
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9. Tenant's Failure to Perform. In the event that Tenant shall
---------------------------
fail, after fifteen (15) days written notice from Landlord, to keep the Leased
Premises in the state of condition and repair required by this Lease; to do any
act; make any payment; and/or perform any term or covenant on Tenant's part
required under this Lease, Landlord may (at its option, but without being
required to do so) immediately, or at any time thereafter and without notice,
perform the same for the account of Tenant (including, but not limited to,
entering upon the Leased Premises to make repairs). All rights given to
Landlord in this Section shall be in addition to any other right or remedy of
Landlord herein contained.
10. Loss, Damage, Injury.
--------------------
(1) Tenant hereby expressly agrees that Landlord and its managers and
agents shall not be liable or responsible in any manner for any damage or
destruction to the property of Tenant or of any other person or entity and/or
for injury or death to the person of Tenant or of any other person or entity
directly or indirectly due to any cause whatsoever other than the willful
misconduct or negligence of Landlord, its contractors, servants, employees,
agents, licensees or invitees.
(2) Tenant shall indemnify and hold harmless Landlord and its managers
and agents from and against all losses, costs and expenses, settlement payments
and all liabilities, damages and/or fines paid, incurred or suffered by Landlord
or its managers and agents, as the case may be: (i) by reason of any breach,
violation and/or nonperformance by Tenant and/or Tenant's servants, employees,
agents, licensees or invitees, of any covenant or provision of this Lease; (ii)
by reason of or arising out of the occupancy or use by Tenant of the Real
Property, or any part thereof, including any claim, action, suit or
proceeding, threatened, instituted and/or made against Landlord arising out of
or in connection therewith; and/or (iii) from any other cause whatsoever due to
the negligence, or willfull misconduct of Tenant and/or Tenant's contractors,
servants, employees, agents, licensees and/or invitees. This indemnification by
Tenant shall survive the termination or expiration of this Lease.
11. Destruction--Fire or or Other Casualty. In the event of partial or
--------------------------------------
total damage or destruction to the Leased Premises by fire, other casualty, or
any other cause whatsoever, then Tenant shall give immediate notice thereof to
Landlord and: (a) this Lease shall continue in full force and effect and (b)
Landlord, to the extent that insurance proceeds respecting such damage or
destruction are subject to being utilized for and, in fact, may be utilized by
Landlord therefor, shall thereupon cause such damage or destruction to property
owned by Landlord to be repaired with reasonable speed at the expense of
Landlord, due allowance being made for reasonable delay which may arise by
reason of adjustment of loss under insurance policies on the part of Landlord
and/or Tenant, and for reasonable delay on account of "labor troubles" or any
other cause beyond Landlord's control, and to the extent that the Leased
Premises are rendered untenantable, the rent shall proportionately abate.
Landlord shall have no obligation to rebuild the Leased Premises if
the reasonably estimated cost of repair and reconstruction exceeds fifty percent
(50%) of the Full Insurable Value of the Leased Premises unless: (i) on the
date of such destruction there shall be four (4) or more years remaining in the
Lease Term or (ii) within thirty (30) days of the date of such destruction,
Tenant, at its option, shall enter into an agreement with Landlord to extend the
Lease Term for a period of at least four (4) years from the date of such
destruction. If Tenant so elects to extend the Lease Term, Landlord covenants
to promptly execute and deliver to Tenant a written agreement evidencing such
extension. In the event Tenant elects not to so extend this Lease, Landlord
shall have the right to either (i) waive the extension requirement and rebuild
the Leased Premises as set forth above, or (ii) terminate this Lease by giving
notice of such election to Tenant, in which event Landlord shall be entitled to
retain all insurance proceeds.
In the event that more than fifty percent (50%) of the Leased Premises
is destroyed by fire, other casualty, or any cause whatsoever, and within sixty
(60) days of such destruction, Landlord's architect determines that it would
take more than two hundred seventy (270) days from
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the date of such destruction to rebuild the Leased Premises, Tenant shall have
the right to terminate the Lease by giving written notice to Landlord within ten
(10) days of the date of Tenant's receipt of the architect's determination.
12. Eminent Domain. If the entire Leased Premises shall be
--------------
substantially taken (either temporarily or permanently) for public purposes, or
in the event Landlord shall convey or lease the Real Property to any public
authority in settlement of a threat of condemnation or taking, the rent shall be
adjusted to the date of such taking or leasing or conveyance, and this Lease
shall thereupon terminate. If only a portion of the Leased Premises shall be so
taken, leased or condemned, and as a result of such partial taking, Tenant is
reasonably able to use the remainder of the Leased Premises for the purposes
intended hereunder, then this Lease shall not terminate but, effective as of the
date of such taking, leasing or condemnation, the rent hereunder shall be abated
in an amount thereof proportionate to the area of the Leased Premises so taken,
leased or condemned. If, following such partial taking Tenant shall not be
reasonably able to use the remainder of the Leased Premises for the purposes
intended hereunder, then this Lease shall terminate as if the entire Leased
Premises had been taken, leased or condemned. In the event of a taking, leasing
or condemnation as described in this Section, whether or not there is a
termination hereunder, Tenant shall have no claim against Landlord, other than
an adjustment of rent, to the date of taking, leasing or condemnation, and
Tenant shall not be entitled to any portion of any amount that may be awarded as
damages or paid as a result or in settlement of such proceedings or threat, but
Tenant will have the right to pursue a separate claim against the condemnation
authority for its own loss of business and moving expenses.
13. Assignment/Subletting. Tenant covenants and agrees that the
---------------------
Leased Premises shall be used and occupied only by Tenant or any permitted
sublessees or assigns and only for the purpose above mentioned, in a careful,
safe and proper manner. Tenant, for itself, its heirs, distributees, personal
representatives, legal representatives, successors and assigns, expressly
covenants that it shall not assign, mortgage or encumber this Lease, nor
sublease, or use or permit the Leased Premises or any part thereof to be used by
others, without the prior written consent of Landlord in each instance, which
consent shall not be unreasonably withheld delayed or conditioned. In the event
that Landlord shall give such consent, Tenant shall nevertheless remain
primarily liable for the terms of this Lease and shall not be relieved from any
liability whatsoever under this Lease. Tenant shall bear the reasonable and
actual legal review costs incurred by Landlord in connection with such
assignment or subleasing. Any consent by Landlord to an assignment or
subletting of this Lease shall not constitute a waiver of the necessity of such
consent as to any subsequent assignment or subletting.
Although an assignment includes an assignment of the Lease to any
subsidiary, parent or affiliate corporation of Tenant (a "Related Company"),
Landlord's consent shall not be required so long as Related Company shall have a
creditworthiness comparable to that of Tenant as of the date hereof and Tenant
shall have complied with all other provisions of this Section 15 with respect to
such assignment and the Related Company affirms, to Landlord's satisfaction, all
aspects of the Lease. Tenant shall give Landlord reasonable evidence that such
creditworthiness test has been met, together with such other detail as Landlord
may reasonably request.
Provided Tenant pays Landlord's costs in connection with any permitted
assignment or subletting, then in the event that the amount of the rent to be
paid to Tenant by an assignee or sublessee is greater than the rent required to
be paid by Tenant to Landlord pursuant to this Lease, excluding Tenant's
reasonable and actual expenses in marketing and transacting the sublease or
assignment, Tenant shall pay to Landlord fifty percent (50%) any such excess as
is received by Tenant from such assignee or sublessee. In the event Tenant
desires to assign this Lease or to sublease all or any portion of the Leased
Premises, Landlord shall have the right and option to terminate this Lease no
later than the proposed commencement date of the sublease, which right or option
shall be exercisable by written notice from Landlord to Tenant within thirty
(30) days from the date Tenant gives Landlord written notice in reasonable
detail of such proposed assignment or sublease.
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Any levy or sale in execution, or any assignment or sale in bankruptcy
or insolvency, or the appointment of a receiver or trustee of any of the
property of Tenant by a state or federal court, or the transfer of any control
(whether by operation of law, sale, lease, transfer, gift, merger, consolidation
or otherwise) of Tenant to persons or entities other than those maintaining
control of Tenant on the date hereof shall be deemed an assignment within the
meaning of this Section.
If this Lease be assigned without Landlord's consent, or if the Leased
Premises or any part thereof be subleased or occupied by anybody other than
Tenant, without Landlord's consent, then (1) all expenses incurred by Landlord
in connection therewith, including but not limited to, brokerage fees, costs and
expenses incurred by Landlord's agents, servants, independent contractors, and
employees, shall be the obligation and shall be immediately paid by Tenant at
its sole cost and expense upon the receipt of a statement therefor from
Landlord, and (ii) Landlord may, after default by Tenant, collect rent from the
assignee, subtenant or occupant and apply the net amount collected to the rent
herein reserved, but no such collection shall be deemed a waiver of this
covenant, or the acceptance of the assignee, subtenant, or occupant as tenant,
or a release of Tenant from the further observance and performance by Tenant of
the covenants herein contained.
140 Defaults.
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(1) Each of the following shall be deemed a material default by Tenant
under this Lease and a substantial breach of this Lease, entitling Landlord to
all remedies set forth below or existing at law or in equity:
(1) The filing of a petition by or against Tenant for debtor
relief as defined under the Federal Bankruptcy Code, as now or hereafter amended
or supplemented, or for reorganization, arrangement or other rehabilitation
within the meaning of the Bankruptcy Code, or the commencement of any action or
proceeding for the dissolution or liquidation of Tenant, whether instituted by
or against Tenant, or for the appointment of a receiver or trustee of the
property of Tenant; for purposes of this subsection, the word "Tenant" shall
include any guarantor of Tenant's obligations under this Lease provided,
however, Tenant shall have sixty (60) days after the filing of an involuntary
bankruptcy to discharge same;
(2) The making by Tenant of an assignment for the benefit of
creditors,
(3) The suspension of business by Tenant or any act by Tenant
amounting to a business failure;
(4) The filing of a tax lien against any property of Tenant
located at the Leased Premises;
(5) Tenant's causing or permitting the Leased Premises to be
vacant, the abandonment of the Leased Premises by Tenant and/or the cessation by
Tenant of active use of the Leased Premises for the purpose specified herein.
Notwithstanding the foregoing, if Tenant causes or permits the Leased Premises
to be vacant, abandoned and/or Tenant ceases active use of the Leased Premises,
so long as Tenant continues to pay the rent and all other charges required
hereunder and to maintain all other Tenant obligations hereunder, the Landlord
has the option, as Landlord's sole remedy as the result of such default, to
terminate the Lease, at any time, upon no more than ninety (90) days advance
notice to Tenant.
(6) Tenant's failure to pay Rent or any part thereof, or all or
any part of any other sum (including late charges) required by this Lease within
five (5) days after Landlord has given Tenant notice that such payment is due,
provided, however, that no notice shall be required to be given to Tenant, and
Tenant shall be in immediate default, if Landlord has given such notice to
Tenant two (2) times in the preceding twelve months.
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(7) A breach by Tenant in the performance of any other term,
covenant, agreement or condition of this Lease, on the part of Tenant to be
performed, for a period of fifteen (15) days after service of notice by Landlord
upon Tenant. Landlord shall extend this fifteen day period if Tenant is
diligently pursuing to correct said breach.
(2) All rights and remedies of Landlord in this Lease enumerated shall
be cumulative, and none shall exclude any other right or remedy, now or
hereafter allowed by or available under any statute, ordinance, rule of court,
or the common law, either at law or in equity or both. For the purposes of any
suit brought or based hereon, this Lease shall be construed to be a divisible
contract, to the end that successive actions may be maintained on this Lease as
successive periodic sums shall mature hereunder. The failure of Landlord to
insist, in any one or more instances upon a strict performance of any of the
covenants, terms and conditions of this Lease, or to exercise any right or
option herein contained, shall not be construed as a waiver, or a relinquishment
for the future, of such covenant, term, condition, right or option, but the same
shall continue and remain in full force and effect unless the contrary is
expressed by Landlord in writing. The receipt by Landlord of rent, with
knowledge of the breach of any covenant hereof, shall not be deemed a waiver of
such breach, and no waiver by Landlord of any provision hereof shall be deemed
to have been made unless expressed in writing and signed by Landlord.
(3) In the event of a default of the nature set forth in 16(a) above,
Landlord may, at any time thereafter, at its election, without further notice to
Tenant, terminate this Lease and Tenant's right to possession of the Leased
Premises, and take possession of the Leased Premises, and remove Tenant, any
occupant, and any property therefrom, without relinquishing any rights of
Landlord against Tenant.
(4) If Tenant breaches this Lease as set forth above, Tenant shall be
obligated to, and shall pay to Landlord as damages, upon demand, and Landlord
shall be entitled to recover of and from Tenant at the election of Landlord, all
expenses which shall have been incurred as a result of such breach, including
the costs of any proceedings which shall have been necessary in order for
Landlord to recover possession of the Leased Premises and the expenses of
rerenting the Leased Premises (including, but not limited to, any commissions
paid to any real estate agent in connection therewith and actual attorneys' fees
incurred at the standard hourly rates for such attorneys); plus, either:
(1) liquidated damages, in an amount which, at the time of such
termination is equal to the installments of Basic Annual Rent and the aggregate
of all sums payable hereunder as additional rental (the "Additional Rental")
(for such purpose considering the annual amount of such Additional Rental to be
equal to the amount thereof paid in the lease year or annualized portion thereof
immediately preceding such default) reserved hereunder, for the period which
would otherwise have constituted the unexpired portion of the then current term
of this Lease, said amount to be discounted at the discount rate then in effect
at the Federal Reserve Bank in Baltimore; or
(2) damages (payable in monthly installments, in advance, on the
first day of each calendar month following such termination and continuing until
the date originally fixed herein for the expiration of the then current term of
this Lease) in an amount or amounts equal to the sum of (i) the aggregate
expenses (other than Additional Rental) paid by Landlord during the month
immediately preceding such calendar month for all such items as, by the terms of
this Lease, are required to be paid by Tenant, plus (ii) an amount equal to the
amount of the installment of Basic Annual Rent which would have been payable by
Tenant hereunder in respect of such calendar month had this Lease and the Lease
Term not been so terminated, and (iii) the monthly average of the Additional
Rental payable in the lease year or annualized portion thereof immediately
preceding such default, over the rents, if any, in fact, collected by Landlord
in respect of such calendar month pursuant to either rerenting, or from any
existing permitted subleases, and any suit, action or proceeding brought to
collect the amount of the deficiency for any calendar month shall not prejudice
in any way the rights of Landlord to collect the deficiency for any subsequent
month by a similar proceeding.
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(5) No act or thing done by Landlord shall be deemed to be an
acceptance of a surrender of the Leased Premises, unless Landlord shall execute
a written release of Tenant. Tenant's liability hereunder shall not be
terminated by the execution of a new lease of the Leased Premises by Landlord,
regardless of the term of such new lease. Separate actions may be maintained
each month by Landlord against Tenant to recover the damages then due, without
waiting until the end of the Term of his Lease to determine the aggregate amount
of such damages.
(6) Landlord will use its reasonable efforts to mitigate its damages
hereunder, including using reasonable efforts to relet the Leased Premises,
provided, however, that Landlord shall have no obligation to attempt to relet
the Leased Premises ahead of any other then vacant space in the Park.
16(g). Landlord Default. Landlord shall be in default under this
----------------
Lease if Landlord has not commenced and pursued with reasonable diligence the
cure of any failure of Landlord to meet its obligations under this Lease within
fifteen (15) days of the receipt by Landlord of written notice from Tenant of
the alleged failure to perform (which 15-day period may be extended, if
necessary for whatever additional period of time may be reasonably required).
In the event of a default by Landlord as aforesaid, Tenant shall be entitled as
its sole remedy, without further notice to Landlord, to perform Landlord's
obligations for the account of Landlord and hold Landlord responsible for all
reasonable costs associated with such performance. In no event, however, shall
Tenant be entitled to set-off or abate rent as a result of the foregoing
provision.
[Remainder of Page Intentionally Left Blank]
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15. Acceptance of Leased Premises. Tenant's occupancy of the Leased
-----------------------------
Premises shall constitute acceptance thereof as complying with all requirements
of Tenant and Landlord with respect to the condition, order and repair thereof.
16. Access to Premises and Change in Services. Landlord and/or the
-----------------------------------------
authorized representative of Landlord or any mortgagee or deed of trust holder
shall have the right without abatement of rent, to enter the Leased Premises at
any reasonable hour upon twenty-four (24) hours advance written or verbal notice
(except in emergencies when no advance notice shall be required) to examine the
same and/or to make such repairs improvements and alterations as Landlord and/or
such authorized representative shall deem necessary (but Landlord shall not be
obligated to do so) for the safety and preservation of the Building, or for any
other reasonable purpose whatsoever, including exhibiting the Leased Premises to
prospective purchasers or tenants, during the last six (6) months of the Lease
term.
17. Estoppel Certificates. Tenant agrees at any time and from time
---------------------
to time upon not less than seven (7) business days prior notice by Landlord to
execute, acknowledge and deliver to Landlord a statement in writing certifying
that this Lease is unmodified and in full force and effect (or if there have
been modifications, that the same is in full force and effect as modified and
stating the modifications) and the dates to which the rent and other charges
have been paid in advance, if any, and stating whether or not, to the best
knowledge of the signer of such certificate, Landlord is in breach and/or
default in performance of any covenant, agreement or condition contained in this
Lease and, if so, specifying each such breach and/or default of which the signer
may have knowledge, and any other matters reasonably requested in such estoppel
certificate, it being intended that such statement delivered hereunder may be
relied upon by any party not a party to this Lease. Tenant's failure to deliver
such estoppel certificate within said 7-day period shall be deemed a material
default by Tenant under this Lease.
18. Subordination. Tenant accepts this Lease, and the tenancy
-------------
created hereunder, subject and subordinate to any ground leases, security
interests, mortgages, deeds of trust or other financing arrangements now or
hereafter a lien upon or affecting the Leased Premises or any part or parts
thereof and to any extensions, modifications or amendments thereof, provided,
however, that so long as Tenant is not in default of any provision of this
Lease, its rights under this Lease shall not be diminished. Tenant shall, at
any time hereafter, on request, execute any instruments which may be necessary
to subordinate, or render prior Tenant's interest hereunder to such lien and the
failure of Tenant to execute any such instruments shall constitute a default
hereunder. If applicable, Landlord agrees to use its reasonable efforts, at
Tenant's cost and expense, to obtain a nondisturbance agreement in form and
substance acceptable to Landlord's lender.
19. Attornment. Tenant agrees that upon any termination
----------
of Landlord's interest in the Leased Premises Tenant shall, upon request, attorn
to the person or entity then holding title to the reversion of the Leased
Premises (the "Successor") and to all subsequent Successors, and shall pay to
the Successor all rents and other monies required to be paid by the Tenant,
hereunder and perform all of the other covenants, agreements, provisions,
conditions, obligations and/or duties of Tenant in this Lease contained.
20. Notices. All notices, demands and requests required under this
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Lease shall be in writing and shall be mailed by United States registered or
certified mail, return receipt requested, postage prepaid, or sent by Federal
Express, or some other nationally recognized overnight courier service, or hand
delivered with a receipt and addressed (i) if to Landlord, c/o Manekin
Corporation, 7470 New Technology Way, Suite B, Frederick, Maryland 21701,
Attention: Tate Armstrong, with a copy to Manekin Corporation, 7165 Columbia
Gateway Drive, Columbia, Maryland 21046, Attention: General Counsel, with a copy
to Ann Clary Gordon, Esquire, c/o Shapiro and Olander, 36 South Charles Street,
20th Floor, Baltimore, Maryland 21201-3147 or (ii) if to Tenant, at the Leased
Premises with a copy to Intermedia Communications Inc., 3625 Queen Palm Drive,
Tampa, Florida 33619, Attention: Legal Department. All notices delivered in the
foregoing manner shall be deemed received by the other party on the earliest of:
(i) three (3) business days after the notice is sent; (ii) if applicable, the
date the return receipt is executed; or (iii) if
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applicable, the date delivered as documented by the overnight courier service.
All rental payments and all charges due under this Lease shall be delivered to
Landlord at the address of Landlord set forth above, Attention: Accounting
Department. Either party may designate a change of address by written notice to
the other party.
21. Landlord's Liability. The term "Landlord" as used in this Lease
--------------------
means only the owner, the mortgagee, or the trustee or the beneficiary under a
deed of trust, as the case may be, for the time being, of the Building (or the
owner of a lease of the Building), so that in the event of any transfer of title
to Landlord's estate and interest in the Leased Premises, the transferring
entity shall be and hereby is entirely freed and relieved of all covenants and
obligations of Landlord hereunder thereafter accruing. It is understood that
Landlord on the date hereof is a Maryland limited partnership, and that no
partner of said limited partnership, as it may now or hereafter be constituted,
shall have any personal liability to Tenant and/or any person or entity claiming
under, by or through Tenant and as to Landlord, recourse for such liability
shall be limited to Landlord's interest in the Building.
22. Separability, Enforceability. If any term or provision of this
----------------------------
Lease or the application thereof to any person or circumstances shall, to any
extent, be invalid or unenforceable, the remainder of this Lease or the
application of such term or provision to persons or circumstances other than
those as to which it is held invalid or unenforceable, shall not be affected
thereby, and each term and provision of this Lease shall be valid and
enforceable to the fullest extent permitted by law. Notwithstanding any
language in this Lease to the contrary, if the Lease Term does not commence on
or before January 1, 2010, this Lease shall terminate automatically and neither
party shall have any further liability to the other.
23. Captions. All headings anywhere contained in this Lease are
--------
intended for convenience of reference only and are not to be deemed or taken as
a summary of the provisions to which they pertain or as a construction thereof.
24. Recordation. Tenant covenants that if at any time any mortgagee
-----------
of Landlord's interest in the Leased Premises, any trustee or beneficiary under
a deed of trust constituting a lien upon the Building of which deed of trust
Landlord is grantor, or a landlord of Landlord in respect of the real property
upon which the Building is situate, shall require the recordation of this Lease,
or if the recordation of this Lease shall be required by any valid governmental
order, or if any governmental authority having jurisdiction in the matter shall
assess and be entitled to collect transfer taxes or documentary stamp taxes, or
both such taxes on this Lease, Tenant shall execute such acknowledgments as may
be necessary to effect such recordation and whichever party requires such
recordation shall pay all recording fees, transfer taxes and documentary stamp
taxes payable on, or in connection with, this Lease or such recordation.
25. Successors and Assigns. The covenants, conditions and agreements
----------------------
contained in this Lease shall bind and inure to the benefit of Landlord and
Tenant, and their respective heirs, distributees, executors, administrators,
successors, personal and legal representatives and their permitted assigns.
26. Waiver of Jury Trial. Landlord and Tenant desire a prompt
--------------------
resolution of any litigation between them with respect to this Lease. To that
end, Landlord and Tenant waive trial by jury in any action, suit, proceeding
and/or counterclaim brought by either against the other on any matters
whatsoever arising out of or in any way connected with this Lease, the
relationship of Landlord and Tenant, Tenant's use or occupancy of the Leased
Premises, any claim of injury or damage and/or any statutory remedy. This
waiver is knowingly, intentionally and voluntarily made by Tenant. Tenant
acknowledges that neither Landlord nor any person acting on behalf of Landlord
has made any representations of fact to induce this waiver of trial by jury or
in any way to modify or nullify its effect. Tenant further acknowledges that it
has been represented (or has had the opportunity to be represented) in the
signing of this Lease and the making of this waiver by independent legal
counsel, selected of its own free will, and that it has had the opportunity to
discuss
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this waiver with counsel. Tenant further acknowledges that it has read and
understands the meaning and ramifications of this waiver of jury trial.
27. Miscellaneous.
-------------
(1) As used in this Lease, and where the context requires: (1) the
masculine shall be deemed to include the feminine and neuter and vice-versa; and
(2) the singular shall be deemed to include the plural and vice-versa.
(2) This Lease was made in the State of Maryland and shall be governed
by and construed in all respects in accordance with the laws of the State of
Maryland.
(3) Tenant covenants and agrees that it shall not inscribe, affix, or
otherwise display signs, advertisements or notices in, on, upon or behind any
windows or on any door, partition or other part of the interior or exterior of
the Building without the prior written consent of Landlord. If such consent be
given by Landlord, any such sign, advertisement, or notice shall be inscribed,
painted or affixed by Landlord, or a company approved by Landlord, but the cost
of the same shall be charged to and be paid by Tenant, and Tenant agrees to pay
the same promptly, on demand. Notwithstanding the foregoing, Tenant shall have
the right, at its sole cost and expense, to erect up to three (3) identification
signs on the fascia of the Building and a monument sign at the entrance to the
Building, subject, however, to Tenant obtaining the prior written approval for
such signs from Landlord, the applicable governmental authorities of the County
and the Maryland-National Capital Park and Planning Commission. Such signs
shall be installed by a reputable contractor reasonably acceptable to Landlord.
Tenant shall hold Landlord harmless from any damage caused to the Building as a
result of the installation of such signs. Upon termination of the lease, it
shall be Tenant's obligation, at its sole expense, to remove such signs and to
restore the exterior face of the Building to its condition prior to erecting
such signs, normal wear and tear excepted.
(4) Landlord will provide a minimum of 5.5 parking spaces at the
Leased Premises for every 1000 square feet of Rentable Area of the Leased
Premises, subject to the provisions of Section 37 below. Tenant further agrees
that Landlord will not be responsible for any loss of parking arising from
changes to the Base Building Plans required by Tenant.
(5) Except as otherwise specifically provided in this Lease, no
abatement, refund, offset, diminution or reduction of rent, charges or other
compensation shall be claimed by or allowed to Tenant, or any person claiming
under it, under any circumstances, whether for inconvenience, discomfort,
interruption of business, or otherwise, arising from the making of alterations,
changes, additions, improvements or repairs to the Building or the Leased
Premises, by virtue or because of any present or future governmental laws,
ordinances, or for any other cause or reason.
(6) Landlord covenants and agrees that, upon the payment of the rent
herein provided and the performance by Tenant of all the covenants, agreements
and provisions hereof on Tenant's part to be kept and performed, Tenant shall
have, hold and enjoy the Leased Premises, free from any interference by, from or
through Landlord except as may be otherwise expressly provided herein.
(7) Landlord represents and warrants to Tenant that, to its knowledge,
as of the Rent Commencement Date, the exterior of the Building and access
thereto will comply with the Americans with Disabilities Act and the regulations
promulgated thereunder.
(8) In the event that any action shall be instituted by either of the
parties hereto for the enforcement of any of its rights or remedies in and under
this Lease, the prevailing party, whether in court or by way of out-of-court
settlement, shall be entitled to recover from the non-prevailing party or
parties such prevailing party's attorneys' fees, court costs, expert witness
fees
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and/or other expenses relating to such controversy, including attorneys' fees,
court costs and/or expenses on appeal, if any.
28. Environmental Assurances.
------------------------
(1) Covenants. Tenant covenants with Landlord:
---------
(1) that it shall not Generate (as defined below) Hazardous Substances
(as defined below) at, to or from the Leased Premises unless the same is
specifically approved in advance by Landlord in writing;
(2) to comply with all obligations imposed by applicable law, and
regulations promulgated thereunder, and all other restrictions and regulations
upon the Generation of Hazardous Substances (whether or not at, to or from the
Leased Premises);
(3) to deliver promptly to Landlord true and complete copies of all
notices received by Tenant from any governmental authority with respect to the
Generation by Tenant of Hazardous Substances (whether or not at, to or from the
Leased Premises);
(4) to complete fully, truthfully and promptly any questionnaires sent
by Landlord with respect to Tenant's use of the Leased Premises and Generation
of Hazardous Substances;
(5) to permit entry onto the Leased Premises by Landlord or Landlord's
representatives at any reasonable time upon twenty-four (24) hours advance
written or verbal notice (except in emergencies, when no advance notice shall be
required) to verify and monitor Tenant's compliance with its representations,
warranties and covenants set forth in this Section;
(6) to pay to Landlord, as additional rent, the reasonable and
necessary costs incurred by Landlord hereunder, including the costs of such
monitoring and verification; and
(7) to furnish to Landlord, at the expiration of the Lease Term or at
the sooner termination of the Lease Term as herein provided, a certification in
form and content acceptable to Landlord from an environmental audit company
acceptable to Landlord to the effect that, based upon an inspection conducted by
such environmental audit company not more than thirty (30) days prior to the
expiration or termination of the Lease Term, the generators and fuel tanks
described below have been properly removed and the Leased Premises are free from
Hazardous Substances.
Notwithstanding the foregoing, Tenant shall have the right to install,
operate and maintain, at its sole cost and expense, at the Leased Premises, one
(1) or more diesel generators with above ground fuel tanks provided that (a) the
generators and fuel tanks shall be in compliance with all applicable
environmental laws; (b) Tenant shall maintain such environmental liability
insurance as Landlord may reasonably request with respect thereto; (c) the
generators and/or fuel tanks shall be placed in a location, and shielded in a
manner, acceptable to Landlord in its reasonable discretion; and (d) Tenant
shall remove the same from the Leased Premises upon the expiration of the Lease
Term and repair all damage caused by such removal.
(2) Indemnification. Tenant agrees to indemnify and defend Landlord,
---------------
its managers and agents (with legal counsel reasonably acceptable to Landlord)
from and against any costs, fees or expenses (including, without limitation,
environmental assessment, investigation and environmental remediation expenses,
third party claims and environmental impairment expenses and reasonable
attorneys' fees and expenses) incurred by Landlord or its managers and agents,
as the case may be, in connection with Tenant's Generation of Hazardous
Substances at, to or from the Leased Premises or in connection with Tenant's
failure to comply with its representations, warranties and
19
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covenants set forth in this Section. The indemnification by Tenant under this
Section 30 will remain in effect after the termination or expiration of this
Lease.
(3) Definitions. The term "Hazardous Substance" means (i) any
-----------
"hazardous waste" as defined by the Resource Conservation and Recovery Act of
1976 (42 U.S.C. (S) 6901 et seq.), as amended from time to time, and regulations
promulgated thereunder; (ii) any "hazardous substance" as defined by the
Comprehensive Environmental Response, Compensation and Liability Act of 1980 (42
U.S.C. (S) 9601 et seq.), as amended from time to time, and regulations
------
promulgated thereunder; (iii) any "oil, petroleum products, and their by-
products" as defined by the Maryland Environment Code Ann. (S) 4-411(3)(i), as
amended from time to time, and regulations promulgated thereunder; (iv) any
"controlled hazardous substance" or "hazardous substance" as defined by the
Maryland Environment Code Ann., Title 7, subtitle 2, as amended from time to
time, and regulations promulgated thereunder; (v) any "infectious waste as
defined by the Maryland Environment Code Ann. (S) 9-227, as amended from time to
time, and regulations promulgated thereunder; (vi) any substance the presence of
which on the Real Property is prohibited, regulated or restricted by any local
law or regulation or any other law or regulation similar to those set forth in
this definition; and (vii) any other substance which by law or regulation
requires special handling in its Generation. The term "To Generate" means to
use, collect, generate, store, transport, treat or dispose of.
29. Lender's Requirements. Tenant agrees to execute and deliver to
---------------------
Landlord an amendment to this Lease incorporating such modifications of, and
additions to, the terms and provisions of this Lease as the parties secured by
the Deed of Trust shall require as a condition precedent to their approving this
Lease. Notwithstanding the foregoing, Tenant shall not be required to execute
any such amendment which shall modify the provisions of this Lease as to the
amounts of Basic Annual Rent or additional rent, or other sums payable by Tenant
hereunder.
30. Authority. Tenant warrants to Landlord that Tenant is a
---------
corporation organized and validly existing in good standing under the laws of
the State of Delaware and qualified to transact business in the State of
Maryland. In addition, Tenant warrants to Landlord that this Lease has been
properly authorized and executed by Tenant and is binding upon Tenant in
accordance with its terms. Tenant's resident agent's name and address in the
State of Maryland are Prentice Hall Corporation System, Md., 11 E. Chase Street,
Baltimore, Maryland 21202. Tenant agrees to notify Landlord in writing of any
change with respect to its resident agent.
31. Force Majeure. In the event that either party hereto shall be
-------------
delayed or hindered in or prevented, by reason of weather, strikes, lock-outs,
labor troubles, inability to procure materials, failure of power, restrictive
governmental laws or regulations, riots, insurrection, war, Acts of God or other
reason of a like nature (excluding lack of funds) not the fault of the party
delayed from performing work or doing any act required under the terms of this
Lease, then performance of such act shall be excused for the period of the delay
and the period of the performance of any such act shall be extended for a period
equivalent to the period of such delay. The party so delayed shall give prompt
notice thereof to the other party, stating the force majeure event, and its
beginning and ending dates. The provisions of this Section 33 shall not operate
to excuse Tenant from prompt payment of rent, additional rent or any other
payments required by the terms of this Lease.
32. Real Estate Broker. Landlord and Tenant warrant to the other
------------------
that no real estate broker other than Manekin Corporation and CB Richard Ellis,
Inc. has been employed, caused to be employed, or otherwise utilized in bringing
about this Lease, and agrees to hold harmless and indemnify the other with
respect to the foregoing warranty. Landlord shall pay the commissions due by it
pursuant to the terms of the letter agreement dated June 2, 1998 between
Landlord and CB Richard Ellis, Inc.
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33. Intentionally Deleted.
---------------------
34. Holding Over. If Tenant holds possession of the Leased Premises
------------
after the termination of this Lease without Landlord's written consent, Tenant
shall become a tenant from month to month at one hundred seventy-five percent
(175%) the rent payable during the final lease year and upon all other terms
herein specified and shall continue to be such tenant from month to month until
such tenancy shall be terminated by either party giving the other a written
notice at least thirty (30) days prior to the date of its intended termination
of such tenancy. Nothing contained in this Lease shall be construed as a
consent by Landlord to the occupancy or possession of the Leased Premises by
Tenant after termination of this Lease. Upon the termination of this Lease,
Landlord shall be entitled to the benefit of all public general or public local
laws relating to the speedy recovery of the possession of lands and tenements
held over by tenants, that may now or hereafter be in force.
35. Equipment.
---------
(1) Antenna. So long as this Lease is in full force and effect and
-------
Tenant is not in default of any obligation on its part to be performed
hereunder, Tenant shall have the right to install, operate and maintain, at its
sole cost and expense, at the Leased Premises: one or more antenna(s) in an
"antenna field" of approximately 100 x 100; and one or more, but not more than
five (5) antenna(s) on the roof of the Building provided that (a) all antennas
shall be installed in compliance with all applicable legal requirements, and
Tenant shall obtain all necessary permits and zoning approvals required with
respect thereto; (b) all antennas shall be placed in a location, and shielded in
a manner, acceptable to Landlord in its sole and absolute discretion; and (c)
Tenant shall remove the same from the Leased Premises upon the expiration of the
Lease Term and repair all damage caused by such removal. Tenant further
acknowledges and agrees that the antenna field may result in a loss of parking
spaces which shall not be the responsibility of the Landlord. Tenant shall be
responsible, at its sole cost and expense, for obtaining any necessary
governmental or zoning approvals as a result of the loss of parking spaces.
Tenant may submit for Landlord approval, which shall not be unreasonably
withheld or delayed, a request for more than five (5) antennas.
(2) Rooftop Equipment License. So long as this Lease is in full force
-------------------------
and effect and Tenant is not in default of this Lease, Tenant may erect, from
time to time, at its expense, with Landlord's consent, which consent shall not
be unreasonably withheld, unreasonably delayed or unreasonably conditioned,
satellite dishes, and other light equipment on the roof of the Building (the
"Roof Equipment") so long as the same do not negatively impact the aesthetics or
functional integrity of the Building in Landlord's reasonable opinion, and
subject to the terms and conditions set forth below. Furthermore, Tenant shall
make every effort to place the Roof Equipment within the boundaries of the
existing roof screen.
(1) Landlord hereby grants to Tenant the exclusive right to
use and occupy the roof of the Building (the "Licensed Space") for the purpose
only of operating and maintaining the Roof Equipment.
(2) Tenant for itself, its employees, agents and contractors
shall have free access to the Licensed Space to install, service, operate, and
maintain the Roof Equipment subject to the reasonable rules and regulations of
Landlord promulgated from time to time.
(3) The term of this License shall be the Lease Term.
(4) Upon the termination of the License, Tenant shall remove
the Roof Equipment and repair any damage caused by said removal at the License
expiration and leave the Licensed Space in the same order and repair as when
received by Tenant, reasonable wear and tear excepted. Tenant covenants to pay
to Landlord within twenty (20) days of written notice, the cost of repairing any
damage to the Building resulting from the operation or maintenance of the Roof
Equipment.
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(5) Tenant shall throughout the term of this License maintain
the Roof Equipment in accordance with reasonable and customary engineering
standards and in conformity with any requirements of the Federal Communications
Commission and with the requirements of all other public authorities having
jurisdiction over Tenant.
(6) Tenant, at its expense, must obtain all necessary zoning
and government approvals, as well as approvals required by any Park covenants.
(7) The Roof Equipment must be limited to Tenant's business
and Tenant shall not license the Licensed Space to others.
(8) This License is not assignable by Tenant.
36. Net Lease. It is the purpose and intent of Landlord and Tenant
---------
that the Basic Annual Rent shall be net to Landlord, so that this Lease shall
yield, net, to Landlord, the Basic Annual Rent specified in Section 4 hereof in
each lease year during the Term of this Lease, and that all costs, expenses and
charges of every kind and nature relating to the Leased Premises which may arise
or become due during the Term of this Lease shall be paid by Tenant, except as
otherwise provided for herein and that Landlord shall be indemnified and saved
harmless by Tenant from and against the same.
37. Riders. Two (2) riders, comprised of three (3) pages, are
------
attached hereto and made a part hereof.
(signatures appear on following page]
22
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IN WITNESS WHEREOF, Landlord and Tenant have respectively signed this Lease
under seal as of the day and year first above written.
WITNESS/ATTEST 1111 19/th/ STREET ASSOCIATES LIMITED PARTNERSHIP
By: GOULD PROPERTY COMPANY,
General Partner
By: (SEAL)
- --------------------- ---------------------
Landlord
INTERMEDIA COMMUNICATIONS INC.
By: /s/ Jon M. Carter (SEAL)
- --------------------- ---------------------
Name:
Title:
Tenant
23
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RIDER NO. 1
RENEWAL OPTION
Rider to Section 2 (Term)
Provided (i) this Lease is then in full force and effect, (ii) Tenant is
not in default respecting any provision or condition of this Lease either on the
date Tenant elects to renew or on the date the renewal term commences, and,
(iii) Tenant has not failed more than one time per Lease Year during the
original term of the Lease to pay any payments called for by this Lease on the
date such payment is due, then Tenant shall have the right to renew this Lease,
then Tenant shall have the right to renew this Lease for two (2) renewal terms
of five (5) years each immediately following the expiration of the original term
on the same terms, conditions, and provisions as are set forth in this Lease
with the same force and effect as though this Lease had originally provided for
an approximately fifteen (15) year and two (2) month term or twenty (20) year
and two (2) month term, except that the Basic Annual Rent payable during the
first year of each renewal term with respect to the Leased Premises shall be
adjusted to reflect ninety-five percent (95%) of the then prevailing rental rate
for comparable office space within the Beltsville/Calverton submarket of the
County. The Basic Annual Rent shall increase thereafter by 3% per annum on the
first day of each lease year throughout each renewal term.
Tenant shall be deemed to have waived the right to exercise this renewal
option unless not less than six (6) months prior to the date of termination of
the original term or the first renewal term, as the case may be, Tenant shall
have notified Landlord in writing of Tenant's election to renew (the "Renewal
Notice"). Landlord shall give Tenant written notice of the prevailing rental
rate within thirty (30) days after Landlord's receipt of the Renewal Notice (the
"Rent Notice"). Tenant may elect to have the prevailing rental rate determined
as set forth below if it does not agree with Landlord's determination thereof by
giving Landlord written notice (the "Appraisal Notice") within ten (10) business
days after Tenant's receipt of the Rent Notice.
Within five (5) business days after the Landlord receives the Appraisal
Notice from Tenant, Landlord and Tenant shall give written notice to the other
that each, at its own expense, has hired and appointed a disinterested real
estate broker of recognized competence and professional experience as a broker
of comparable commercial and industrial real estate in the BaltimoreWashington
Metropolitan Area. The two brokers thus appointed shall mutually agree upon the
appointment of a third broker, the cost of which shall be shared equally by
Landlord and Tenant, which broker shall also be a disinterested person of
recognized competence and professional experience as a broker of comparable
commercial and industrial real estate in the Baltimore-Washington Metropolitan
Area. In the event that the two brokers shall be unable to agree, within ten
(10) days after their appointment, on the appointment of the third broker, then
Tenant shall choose three brokers meeting the above criteria from whom Landlord
shall choose one who shall serve as the third broker. Landlord shall notify
Tenant of the selection of the third broker within ten (10) days of Tenant's
notice to Landlord of the selection of such three brokers from which Landlord is
to choose. The third broker shall as promptly as possible, but in no event more
than thirty (30) days after the date of his selection, conduct an appraisal of
the Building for purposes of determining the then prevailing rent therein. Upon
completion of his appraisal, the third broker shall immediately give written
notice to the parties hereto stating his determination, and shall furnish to
each party hereto a copy of such determination signed by him which determination
shall be final and binding on the parties.
Time is of the essence with respect to Tenant's exercise of its rights
under this Rider and Tenant acknowledges that Landlord requires strict adherence
to the requirement that the Renewal Notice and Appraisal Notice be timely made
and in writing.
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RIDER NO. 2
Provided this Lease is in full force and effect and Tenant is not in
default of any obligation its part to be performed hereunder, Tenant shall have
the exclusive right for a period of one hundred eighty (180) days from the date
of this Lease (the "Negotiation Term") to enter into negotiations with Landlord
for an agreement (the "Expansion Lease") pursuant to which Tenant shall lease
from Landlord a building to be constructed by Landlord, containing 200,000-
250,000 square feet, in the approximately 800,000 square foot project to be
developed by Landlord north of Muirkirk Road. The parties hereby agree to
negotiate in good faith the terms of the Expansion Lease during the Negotiation
Term. Except for the Tenant's exclusive right to negotiate as set forth above,
the terms of this Rider No. 2 shall not be deemed to create a binding agreement
upon the parties with respect to the Expansion Lease unless and until a mutually
acceptable binding agreement is fully executed and delivered by the parties
thereto.
25
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EXHIBIT A
Leased Premises
---------------
Map of Leased Property Omitted
26
<PAGE>
EXHIBIT B
Engineered Site Plan
--------------------
27
<PAGE>
EXHIBIT C
Plans and Specifications for Base Building
------------------------------------------
28
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EXHIBIT D
LEASE COMMENCEMENT AGREEMENT
THIS LEASE COMMENCEMENT AGREEMENT, made this _______ day of
______________,199___ , by and between 1111 19/th/ STREET ASSOCIATES LIMITED
PARTNERSHIP ("Landlord") and INTERMEDIA COMMUNICATIONS INC. ("Tenant").
WITNESSETH:
WHEREAS, Landlord and Tenant have entered into that certain Lease Agreement
dated July ___, 1998, (the "Lease") for the premises located at 6900 Muirkirk
Meadows Road, Konterra Business Campus, Prince George's County, Maryland (the
"Leased Premises"); and
WHEREAS, Landlord and Tenant wish to set forth their agreements as to the term
of the Lease, as well as certain other matters, all as more particularly set
forth below.
NOW, THEREFORE, in consideration of the Leased Premises as described in the
Lease and the covenants set forth therein, Landlord and Tenant agree as follows:
1. The "Commencement Date" for all purposes of the Lease is
___________, 1999.
2. The "Rent Commencement Date" for all purposes of the Lease is
___________, 1999.
3. The initial Lease Term shall expire on ___________, 2009.
IN WITNESS WHEREOF, the parties hereto have executed this Commencement
Agreement as of the day and year first above written.
LANDLORD: TENANT:
1111 19/th/ STREET ASSOCIATES INTERMEDIA COMMUNICATIONS, INC.
LIMITED PARTNERSHIP
By: Gould Property Company, By:___________________________________
General Partner
______________________________________
By: ________________________________ Its:
Its: _______________________________
29
<PAGE>
EXHIBIT E
Rules and Regulations
---------------------
1. The delivery, shipping, loading and unloading of goods, wares,
merchandise, equipment, supplies, fixtures and all other items to and from the
Leased Premises will be subject to the rules and regulations Landlord may
promulgate from time to time with respect to deliveries and shipments.
2. All garbage and refuse will be kept in the kind of container
specified by Landlord, and will be placed outside of the Building for collection
in the manner, in such containers and at the times and places reasonably
specified by Landlord. Tenant will not burn any trash or garbage of any kind in
or around the Leased Premises.
3. No radio, speakers, television, phonograph or other sound or
similar device will be installed or operated in the Leased Premises without
Landlord's prior written approval. Tenant will prevent sounds emanating from the
Leased Premises from being heard outside the Leased Premises or otherwise
unreasonably disturbing or annoying other tenants.
4. The plumbing facilities will not be used for any purpose other
than that for which they are constructed. No foreign substance of any kind will
be thrown into the plumbing facilities. The expense of any breakage, stoppage
or damage resulting from a violation of this provision by Tenant or any of its
servants, agents, invitees, employees and/or licensees will be borne solely by
Tenant.
5. Tenant will not place a load upon the floor of the Leased
Premises exceeding the floor load per square foot area which the floor of the
Leased Premises has been designed to carry.
6. Tenant will not permit anyone to lodge, sleep or cook in the
Leased Premises. Tenant is responsible for all persons whom it invites and/or
admits to the Leased Premises and will be liable to Landlord for all acts of
such persons.
7. Landlord reserves to itself all rights not granted to Tenant
under this Lease, including, but not limited to, the following: (a) the right
to change the address of the Building, without liability to Tenant for so doing;
(b) the right to install; and (c) the right to grant to anyone the right to
conduct any particular business or undertaking in the Building.
8. Except as provided in Section 37 of the Lease, Tenant will not
attach or place awnings, antennas or other projections to the outside walls or
any exterior portion of the Building, without the prior written consent of
Landlord. No curtains, blinds, shades or screens shall be attached to or hung
in, or used in connection with, any window or door of the Leased Premises,
without the prior written consent of Landlord.
9. Tenant will not pile or place or permit to be placed any goods on
the sidewalks or parking lots in the front, rear or sides of the Building or in
a place in any manner so as to block said sidewalks, parking lots and loading
areas and/or not to do anything that directly or indirectly will take away any
of the rights of ingress or egress or of light from any other tenant of Landlord
in the Project.
10. Tenant, Tenant's servants, agents, invitees, employees and/or
licensees shall not park on, store on, or otherwise utilize any parking or
loading areas on the Real Property, except as shown on Exhibit A and then only
in the parking places designated by Landlord for such parking and in accordance
with such rules and regulations as Landlord may from time to time promulgate
with respect thereto.
11. No animals of any kind shall be brought into or kept in or about
the Project.
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Exhibit 10.5
AGREEMENT
made as of the 19th day of February in the year of Nineteen Hundred and 1999
BETWEEN the Owner:
(Name and address)
Intermedia Communications, Inc.
3625 Queen Palm Drive
Tampa, Florida 33619
and the Contractor:
(Name and address)
R.W. Murray Company, d/b/a The Murray Company
5425 Beaumont Center Blvd., Suite 918
Tampa, Florida 33634
License Holder - Gregory M. Albers # CG-CO58363
the Project is:
(Name and address)
Interior build out for Digex located at 2950 Zauker Road in San Jose,
California.
the Architect is:
(Name and address)
Collman & Karsky Architects
3102 N. Habana Avenue, Suite 101
Tampa, Florida 33607
The Owner and Contractor agree as set forth below.
ARTICLE 1
THE CONTRACT DOCUMENTS
1.1 The Contract Documents consist of this Agreement, Conditions of the
Contract (General, Supplementary and other Conditions), Drawings,
Specifications, Addenda issued prior to execution of this Agreement, other
documents listed in this Agreement and Modifications issued after execution of
this Agreement; these form the Contract, and are as fully a part of the Contract
as if attached to this Agreement or repeated herein. The Contract represents
the entire and integrated agreement between the parties hereto and supersedes
prior negotiations, representations or agreements, either written or oral. An
enumeration of the Contract Documents, other than Modifications, appears in
Article 16. If anything in the other Contract Documents is inconsistent with
this Agreement, this Agreement shall govern.
ARTICLE 2
THE WORK OF THIS CONTRACT
2.1 The Contractor shall execute the entire Work described in the Contract
Documents, except to the extent specifically indicated in the Contract Documents
to be the responsibility of others, or as follows:
ARTICLE 3
RELATIONSHIP OF THE PARTIES
3.1 The Contractor accepts the relationship of trust and confidence
established by this Agreement and covenants with the Owner to cooperate with the
Architect and utilize the Contractor's best skill, efforts and judgment in
furthering the interests of the Owner; to furnish efficient business
administration and supervision; to make best efforts to furnish at all times an
adequate supply of workers and materials; and to perform the Work in the best
way and most expeditious and economical manner consistent with the interests of
the Owner. The Owner agrees to exercise best efforts to enable
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the Contractor to perform the Work in the best way and most expeditious manner
by furnishing and approving in a timely way information required by the
Contractor and making payments to the Contractor in accordance with requirements
of the Contract Documents.
ARTICLE 4
DATE OF COMMENCEMENT AND SUBSTANTIAL COMPLETION
4.1 The date of commencement is the date from which the Contract Time of
Subparagraph 4.2 is measured; it shall be the date of this Agreement, as first
written above, unless a different date is stated below or provision is made for
the date to be fixed in a notice to proceed issued by the Owner.
(Insert the date of commencement, if it differs from the date of this Agreement
or, if applicable, state that the date will be fixed in a notice to proceed.)
February 11, 1999.
Unless the date of commencement is established by a notice to proceed issued by
the Owner, the Contractor shall notify the Owner in writing not less than five
days before commencing the Work to permit timely filing of mortgages, mechanic's
liens and other security interests.
4.2 The Contractor shall achieve Substantial Completion of the entire Work
not later than
(Insert the calendar date or number of calendar days after the date of
commencement. Also insert any requirements for earlier Substantial Completion
of certain portions of the Work, if not stated else where in the Contract
Documents.)
April 12, 1999.
, subject to adjustments of this Contract Time as provided in the Contract
Documents.
(Insert provisions, if any, for liquidated damages relating to failure to
complete on time.)
ARTICLE 5
CONTRACT SUM
5.1 The Owner shall pay the Contractor in current funds for the Contractor's
performance of the Contract the Contract Sum consisting of the Cost of the Work
as defined in Article 7 and the Contractor's Fee determined as follows:
(State a lump sum, percentage of Cost of the Work or other provision for
determining the Contractor's Fee, and explain how the Contractor's Fee is to be
adjusted for changes in the Work.)
The Contractor's Fee shall be 12% of the cost of the work.
5.2 GUARANTEED MAXIMUM PRICE (IF APPLICABLE)
5.2.1 The sum of the Cost of the Work and the Contractor's Fee is guaranteed
by the Contractor not to exceed One Million, Six Hundred Ninety Seven Thousand,
Nine Hundred Thirty Five and No/ Dollars ($ 1,697,935.00 ), subject to additions
and deductions by Change Order as provided in the Contract Documents. Such
maximum sum is referred to in the Contract Documents as the Guaranteed Maximum
Price. Costs which would cause the Guaranteed Maximum Price to be exceeded
shall be paid by the Contractor without reimbursement by the Owner.
(Insert specific provisions if the Contractor is lo participate in any savings.)
In the event that the cost of the work plus the Contractor's Fee is less than
the Guaranteed Maximum Price, then 75% of the savings shall be given to the
Owner and 25% of the savings shall be given to the Contractor as additional fee.
5.2.2 The Guaranteed Maximum Price is based upon the following alternates, if
any, which are described in the Contract Documents and are hereby accepted by
the Owner:
(State the numbers or other identification of accepted alternates, but only if a
Guaranteed Maximum Price is inserted in Subparagraph 5.2.1. lf decisions on
other alternates are to be made by the Owner subsequent to the execution of this
Agreement, attach a schedule of such other alternates showing the amount for
each and the date until which that amount is valid.)
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N/A
5.2.3 The amounts agreed to for unit prices, if any, are as follows:
(State unit prices only if a Guaranteed Maximum Price is inserted in
Subparagraph 5.2.1.)
N/A
ARTICLE 6
CHANGES IN THE WORK
6.1 CONTRACTS WITH A GUARANTEED MAXIMUM PRICE
6.1.1 Adjustments to the Guaranteed Maximum Price on account of changes in the
Work may be determined by any of the methods listed in Subparagraph 7.3.3 of the
General Conditions.
6.1.2 In calculating adjustments to subcontracts (except those awarded with
the Owner's prior consent on the basis of cost plus a fee), the terms "cost" and
"fee" as used in Clause 7.3.3.3 of the General Conditions and the terms "costs"
and "a reasonable allowance for overhead and profit" as used in Subparagraph
7.3.6 of the General Conditions shall have the meanings assigned to them in the
General Conditions and shall not be modified by Articles 5, 7 and 8 of this
Agreement. Adjustments to subcontracts awarded with the Owner's prior consent
on the basis of cost plus a fee shall be calculated in accordance with the terms
of those subcontracts.
6.1.3 In calculating adjustments to this Contract, the terms "cost" and
"costs" as used in the above-referenced provisions of the General Conditions
shall mean the Cost of the Work as defined in Article 7 of this Agreement and
the terms "fee" and "a reasonable allowance for overhead and profit" shall mean
the Contractor's Fee as defined in Paragraph 5.1 of this Agreement.
ARTICLE 7
COSTS TO BE REIMBURSED
7.1 The term Cost of the Work shall mean all costs necessarily incurred by
the Contractor in the proper performance of the Work. Such costs shall be at
rates not higher than the standard paid at the place of the Project except with
prior consent of the Owner, that are to be paid by Owner hereunder, and are
subject to the Guaranteed Maximum price as described in clause 5.2.1. The Cost
of the Work shall include only the items set forth in this Article 7.
7.1.1 LABOR COSTS
7.1.1.1 Wages of construction workers directly employed by the Contractor to
perform the construction of the Work at the site or, with the Owner's agreement,
at offsite workshops.
7.1.1.2 Wages or salaries of the Contractor's supervisory and administrative
personnel when stationed at the site with the Owner's agreement.
(If it is intended that the wages or salaries of certain personnel stationed at
the Contractor's principal or other offices shall be included in the Cost of the
Work, identify in article 14 the personnel to be included and whether for all or
only part of their time.)
7.1.1.3 Wages and salaries of the Contractor's supervisory or administrative
personnel engaged, at factories, workshops or on the road, in expediting the
production or transportation of materials or equipment required for the Work,
but only for that portion of their time required for the Work.
7.1.1.4 Costs paid or incurred by the Contractor for taxes, insurance,
contributions, assessments and benefits required by law or collective bargaining
agreements and, for personnel not covered by such agreements, customary benefits
such
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as sick leave, medical and health benefits, holidays, vacations and pensions,
provided such costs are based on wages and salaries included in the Cost of the
Work under Clauses 7.1.1.1 through 7.1.1.3.
7.1.2 SUBCONTRACT COSTS
Payments made by the Contractor to Subcontractors in accordance with the
requirements of the subcontracts.
7.1.3 COSTS OF MATERIALS AND EQUIPMENT INCORPORATED IN THE COMPLETED
CONSTRUCTION
7.1.3.1 Costs, including transportation, of materials and equipment incorporated
or to be incorporated in the completed construction.
7.1.3.2 Costs of materials described in the preceding Clause 7.1.3.1 in excess
of those actually installed but required to provide reasonable allowance for
waste and for spoilage. Unused excess materials, if any, shall be handed over
to the Owner at the completion of the Work or, at the Owner's option, shall be
sold by the Contractor; amounts realized, if any, from such sales shall be
credited to the Owner as a deduction from the Cost of the Work.
7.1.4 COSTS OF OTHER MATERIALS AND EQUIPMENT, TEMPORARY FACILITIES AND RELATED
ITEMS
7.1.4.1 Costs, including transportation, installation, maintenance, dismantling
and removal of materials, supplies, temporary facilities, machinery, equipment,
and hand tools not customarily owned by the construction workers, which are
provided by the Contractor at the site and fully consumed in the performance of
the Work; and cost less salvage value on such items if not fully consumed,
whether sold to others or retained by the Contractor. Cost for items previously
used by the Contractor shall mean fair market value.
7.1.4.2 Rental charges for temporary facilities, machinery, equipment, and hand
tools not customarily owned by the construction workers, which are provided by
the Contractor at the site, whether rented from the Contractor or others, and
costs of transportation, installation, minor repairs and replacements,
dismantling and removal thereof. Rates and quantities of equipment rented shall
be subject to the Owner's prior approval.
7.1.4.3 Costs of removal of debris from the site.
7.1.4.4 Costs of telegrams and long-distance telephone calls, postage and parcel
delivery charges, telephone service at the site and reasonable petty cash
expenses of the site office.
7.1.4.5 That portion of the reasonable travel and subsistence expenses of the
Contractor's personnel incurred while traveling in discharge of duties connected
with the Work.
7.1.5 MISCELLANEOUS COSTS
7.1.5.1 That portion directly attributable to this Contract of premiums for
insurance and bonds.
7.1.5.2 Sales, use or similar taxes imposed by a governmental authority which
are related to the Work and for which the Contractor is liable.
7.1.5.3 Fees and assessments for the building permit and for other permits,
licenses and inspections for which the Contractor is required by the Contract
Documents to pay.
7.1.5.4 Fees of testing laboratories for tests required by the Contract
Documents, except those related to defective or nonconforming Work for which
reimbursement is excluded by Subparagraph 13.5.3 of the General Conditions or
other
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provisions of the Contract Documents and which do not fall within the scope of
Subparagraphs 7.2.2 through 7.2.4 below.
7.1.5.5 Royalties and license fees paid for the use of a particular design,
process or product required by the Contract Documents; the cost of defending
suits or claims for infringement of patent rights arising from such requirement
by the Contract Documents; payments made in accordance with legal judgments
against the Contractor resulting from such suits or claims and payments of
settlements made with the Owner's consent; provided, however, that such costs of
legal defenses, judgment and settlements shall not be included in the
calculation of the Contractor's Fee or of a Guaranteed Maximum Price, if any,
and provided that such royalties, fees and costs are not excluded by the last
sentence of Subparagraph 3.17.1 of the General Conditions or other provisions of
the Contract Documents.
7.1.5.6 Deposits lost for causes other than the Contractor's fault or
negligence.
7.1.6 OTHER COSTS
7.1.6.1 Other costs incurred in the performance of the Work if and to the
extent approved in advance in writing by the Owner.
7.1.6.2 Costs of rental of temporary portable buildings and toilets as
required, cost of utilities, ice, water, water containers, cups, fire
extinguishers, first-aid supplies, safety equipment, street and sidewalk rental,
off-site storage space or facilities, and job vehicles.
7.1.6.3 All reasonable costs and expenditures necessary for the operation of
field office, such as stationery, supplies, blueprinting, furniture fixtures,
office equipment, etc.
7.1.6.4 Salaries, vacation pay, bonuses, and other fringe benefits of
Contractor's supervisory or administrative personnel for that portion of their
time spent which is directly related to the general supervision and performance
of the Work. Such personnel shall include any supervisory or administrative
personnel including those stationed at the field office of the Project, at the
home office of the Contractor, and those engaged (whether at shops or on the
road) in expediting the inspection, production of transportation of all
materials.
7.1.6.5 Expenses of reproductions, postage, and distribution of drawings and
specifications.
7.1.6.6 Expense of overtime work requiring higher than regular rates
necessitated by field conditions, or to maintain the construction schedule.
7.1.6.7 The cost of obtaining all utility services required for the work and
the cost of crossing or protecting any public utility, if required.
7.1.6.8 Costs of surveys, consultants, testing and inspection engineers and
laboratories unless paid directly by the Owner.
7.1.6.9 Cost incurred in the planning, design service performed by qualified
architects, engineers and other professionals selected, including all normal
reimbursable expenses, models, travel, long distance reproduction costs,
renderings, Express Mail, delivery, etc., provided by the above-listed
architects, engineers and other professionals.
7.1.6.10 Cost incurred for independent peer review of structural design.
7.1.6.11 Cost of any work which is necessitated by field conditions or
manufacturer's recommendations, but which is not called out or specified in the
Working Drawings and which is required to be performed for proper completion of
the Work.
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7.1.6.12 Cost of any minor work which may be required by any governmental
inspector in connection with obtaining an occupancy permit.
7.1.6.13 Costs due to the requirements of the Drawings as finally approved by
all governing agencies whether public or private.
7.2 EMERGENCIES: REPAIRS TO DAMAGED, DEFECTIVE OR NONCONFORMING WORK
The Cost of the Work shall also include costs described in Paragraph 7.1 which
are incurred by the Contractor:
7.2.1 In taking action to prevent threatened damage, injury or loss in case
of an emergency affecting the safety of persons and property, as provided in
Paragraph 10.3 of the General Conditions.
7.2.2 In repairing or correcting Work damaged or improperly executed by
construction workers in the employ of the Contractor, provided such damage or
improper execution did not result from the fault or negligence of the Contractor
or the Contractor's foremen, engineers or superintendents, or other supervisory,
administrative or managerial personnel of the Contractor.
7.2.3 In repairing damaged Work other than that described in Subparagraph
7.2.2, provided such damage did not result from the fault or negligence of the
Contractor or the Contractor's personnel, and only to the extent that the cost
of such repairs is not recoverable by the Contractor from others and the
Contractor is not compensated therefor by insurance or otherwise.
7.2.4 In correcting defective or nonconforming Work performed or supplied by
a Subcontractor or material supplier and not corrected by them, provided such
defective or nonconforming Work did not result from the fault or neglect of the
Contractor or the Contractor's personnel adequately to supervise and direct the
Work of the Subcontractor or material supplier, and only to the extent that the
cost of correcting the defective or nonconforming Work is not recoverable by the
Contractor from the Subcontractor or material supplier.
ARTICLE 8
COSTS NOT TO BE REIMBURSED
8.1 The Cost of the Work shall not include:
8.1.1 Salaries and other compensation of the Contractor's personnel stationed
at the Contractor's principal office or offices other than the site office,
except as specifically provided in Clauses 7.1.1.2 and 7.1.1.3 and 7.1.6.4 or as
may be provided in Article 14.
8.1.2 Expenses of the Contractor's principal office and offices other than
the site office.
8.1.3 Overhead and general expenses, except as may be expressly included in
Article 7.
8.1.4 The Contractor's capital expenses, including interest on the
Contractor's capital employed for the Work.
8.1.5 Rental costs of machinery and equipment, except as specifically
provided in Clause 7.1.4.2 and 7.1.6.2.
8.1.6 Except as provided in Subparagraphs 7.2.2 through 7.2.4 and Paragraph
13.5 of this Agreement, costs due to the fault or negligence of the Contractor,
Subcontractors, anyone directly or indirectly employed by any of them, or for
whose acts any of them may be liable, including but not limited to costs for the
correction of damaged, defective or nonconforming Work, disposal and replacement
of materials and equipment incorrectly ordered or supplied, and making good
damage to property not forming part of the Work.
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8.1.7 Any cost not specifically and expressly described in Article 7.
8.1.8 Costs which would cause the Guaranteed Maximum Price, if any, to be
exceeded.
ARTICLE 9
DISCOUNTS, REBATES AND REFUNDS
9.1 Cash discounts obtained on payments made by the Contractor shall accrue
to the Owner if (1) before making the payment, the Contractor included them in
an Application for Payment and received payment therefor from the Owner, or (2)
the Owner has deposited funds with the Contractor with which to make payments;
otherwise, cash discounts shall accrue to the Contractor. Trade discounts,
rebates, refunds and amounts received from sales of surplus materials and
equipment shall accrue to the Owner, and the Contractor shall make provisions so
that they can be secured. The Contractor shall promptly advise the Owner of the
availability of cash discounts.
9.2 Amounts which accrue to the Owner in accordance with the provisions of
Paragraph 9.1 shall be credited to the Owner as a deduction from the Cost of the
Work.
ARTICLE 10
SUBCONTRACTS AND OTHER AGREEMENTS
10.1 Those portions of the Work that the Contractor does not customarily
perform with the Contractor's own personnel shall be performed under
subcontracts or by other appropriate agreements with the Contractor. The
Contractor shall obtain bids from Subcontractors and from suppliers of materials
or equipment fabricated especially for the Work and shall deliver such bids to
the Architect. The Owner will then determine, with the advice of the Contractor
and subject to the reasonable objection of the Architect, which bids will be
accepted. The Owner may designate specific persons or entities from whom the
Contractor shall obtain bids; however, if a Guaranteed Maximum Price has been
established, the Owner may not prohibit the Contractor from obtaining bids from
others. The Contractor shall not be required to contract with anyone to whom
the Contractor has reasonable objection.
10.2 If a Guaranteed Maximum Price has been established and a specific
bidder among those whose bids are delivered by the Contractor to the Architect
(1) is recommended to the Owner by the Contractor; (2) is qualified to perform
that portion of the Work; and (3) has submitted a bid which conforms to the
requirements of the Contract Documents without reservations or exceptions, but
the Owner requires that another bid be accepted; then the Contractor may require
that a Change Order be issued to adjust the Guaranteed Maximum Price by the
difference between the bid of the person or entity recommended to the Owner by
the Contractor and the amount of the subcontract or other agreement actually
signed with the person or entity designated by the Owner.
10.3 Subcontracts or other agreements shall conform to the payment
provisions of Paragraphs 12.7 and 12.8, and shall not be awarded on the basis of
cost plus a fee without the prior consent of the Owner.
ARTICLE 11
ACCOUNTING RECORDS
11.1 The Contractor shall keep full and detailed accounts and exercise such
controls as may be necessary for proper financial management under this
Contract; the accounting and control systems shall be satisfactory to the Owner.
The Owner and the Owner's accountants shall be afforded access to the
Contractor's records, books, correspondence, instructions, drawings, receipts,
subcontracts, purchase orders, vouchers, memoranda and other data relating to
this Contract, and the Contractor shall preserve these for a period of three
years after final payment, or for such longer period as may be required by law.
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ARTICLE 12
PROGRESS PAYMENTS
12.1 Based upon Applications for Payment submitted to the Architect by the
Contractor and Certificates for Payment issued by the Architect, the Owner shall
make progress payments on account of the Contract Sum to the Contractor as
provided below and elsewhere in the Contract Documents.
12.2 The period covered by each Application for Payment shall be one
calendar month ending on the last day of the month, or as follows:
12.3 When an Application for Payment is received by the Architect, the Owner
shall make payment to the Contractor not later than 14 days following the
receipt of the Pay Application. The Contractor shall submit Pay Applications to
the Architect twice each month, on the first of the month and on the 15th of the
month.
12.4 With each Application for Payment the Contractor shall submit
information as reasonably required by the Owner or Architect to demonstrate that
cash disbursements already made by the Contractor on account of the Cost of the
Work equal or exceed (1) progress payments already received by the Contractor;
less (2) that portion of those payments attributable to the Contractor's Fee;
plus (3) payrolls for the period covered by the present Application for Payment;
plus (4) retainage provided in Subparagraph 12.5.4, if any, applicable to prior
progress payments.
12.5 CONTRACTS WITH A GUARANTEED MAXIMUM PRICE
12.5.1 Each Application for Payment shall be based upon the most recent
schedule of values submitted by the Contractor in accordance with the Contract
Documents. The schedule of values shall allocate the entire Guaranteed Maximum
Price among the various portions of the Work, except that the Contractor's Fee
shall be shown as a single separate item. The schedule of values shall be
prepared in such form and supported by such data to substantiate its accuracy as
the Architect may require. This schedule, unless objected to by the Architect,
shall be used as a basis for reviewing the Contractor's Applications for
Payment.
12.5.2 Applications for Payment shall show the percentage completion of each
portion of the Work as of the end of the period covered by the Application for
Payment. The percentage completion shall be the lesser of (1) the percentage of
that portion of the Work which has actually been completed or (2) the percentage
obtained by dividing (a) the expense which has actually been incurred by the
Contractor on account of that portion of the Work for which the Contractor has
made or intends to make actual payment prior to the next Application for Payment
by (b) the share of the Guaranteed Maximum Price allocated to that portion of
the Work in the schedule of values.
12.5.3 Subject to other provisions of the Contract Documents, the amount of
each progress payment shall be computed as follows:
12.5.3.1 Take that portion of the Guaranteed Maximum Price properly allocable
to completed Work as determined by multiplying the percentage completion of each
portion of the Work by the share of the Guaranteed Maximum Price allocated to
that portion of the Work in the schedule of values. Pending final determination
of cost to the Owner of changes in the Work, amounts not in dispute may be
included as provided in Subparagraph 7.3.7 of the General Conditions, even
though the Guaranteed Maximum Price has not yet been adjusted by Change Order.
12.5.3.2 Add that portion of the Guaranteed Maximum Price properly allocable to
materials and equipment delivered and suitably stored at the site for subsequent
incorporation in the Work or, if approved in advance by the Owner, suitably
stored off the site at a location agreed upon in writing.
12.5.3.3 Add the Contractor's Fee, less retainage. Retainage shall be 10% of
the total billed for the first half of the project and 0% of the total billed
for the second half of the project. The Contractor's Fee shall be computed upon
the Cost of
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the Work described in the two preceding Clauses at the rate stated in Paragraph
5.1 or, if the Contractor's Fee is stated as a fixed sum in that Paragraph,
shall be an amount which bears the same ratio to that fixed sum Fee as the Cost
of the Work in the two preceding Clauses bears to a reasonable estimate of the
probable Cost of the Work upon its completion.
12.5.3.4 Subtract the aggregate of previous payments made by the Owner.
12.5.3.5 Subtract the shortfall, if any, indicated by the Contractor in the
documentation required by Paragraph 12.4 to substantiate prior Applications for
Payment, or resulting from errors subsequently discovered by the Owner's
accountants in such documentation.
12.5.3.6 Subtract amounts, if any, for which the Architect has withheld or
nullified a Certificate for Payment as provided in Paragraph 9.5 of the General
Conditions.
12.5.4 Additional retainage, if any, shall be as follows:
(If it is intended to retain additional amounts from progress payments to the
Contractor beyond (1) the retainage from the Contractor's Fee provided in Clause
12.5.3.3, (2) the retainage from Subcontractors provided in Paragraph 12.7
below, and(3) the retainage, if any, provided by other provisions of the
Contract, insert provision for such additional retainage here. Such provision,
if made, should also describe any arrangement for limiting or reducing the
amount retained after the Work reaches a certain state of completion.)
ARTICLE 13
FINAL PAYMENT
13.1 Final payment shall be made by the Owner to the Contractor when (1) the
Contract has been fully performed by the Contractor except for the Contractor's
responsibility to correct defective or nonconforming Work, as provided in
Subparagraph 12.2.2 of the General Conditions, and to satisfy other
requirements, if any, which necessarily survive final payment; (2) a final
Application for Payment and a final accounting for the Cost of the Work have
been submitted by the Contractor and reviewed by the Owner's accountants; and
(3) a final Certificate for Payment has then been issued by the Architect; such
final payment shall be made by the Owner not more than fourteen (14) days after
the issuance of the Architect's final Certificate for Payment, or as follows:
Once Substantial Completion is achieved, retention will be reduced to 200% of
the value of the punchlist items.
13.2 The amount of the final payment shall be calculated as follows:
13.2.1 Take the sum of the Cost of the Work substantiated by the Contractor's
final accounting and the Contractor's Fee; but not more than the Guaranteed
Maximum Price, if any.
13.2.2 Subtract amounts, if any, for which the ____________________ withholds,
in whole or in part, a final Certificate for Payment as provided in Subparagraph
9.5.1 of the General Conditions or other provisions of the Contract Documents.
13.2.3 Subtract the aggregate of previous payments made by the Owner.
If the aggregate of previous payments made by the Owner exceeds the amount due
the Contractor, the Contractor shall reimburse the difference to the Owner.
13.3 The Owner's accountants will review and report in writing on the
Contractor's final accounting within 30 days after delivery of the final
accounting to the Architect by the Contractor. Based upon such Cost of the Work
as the Owner's accountants report to be substantiated by the Contractor's final
accounting, and provided the other conditions of Paragraph 13.1 have been met,
the Architect will, within seven days after receipt of the written report of the
Owner's accountants, either issue to the Owner a final Certificate for Payment
with a copy to the Contractor, or notify the Contractor and Owner in writing of
the Architect's reasons for withholding a certificate as provided in
Subparagraph
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9.5.1 of the General Conditions. The time periods stated in this Paragraph 13.3
supersede those stated in Subparagraph 9.4.1 of the General Conditions.
13.4 If the Owner's accountants report the Cost of the Work as substantiated
by the Contractor's final accounting to be less than claimed by the Contractor,
the Contractor shall be entitled to demand arbitration of the disputed amount
without a further decision of the Architect. Such demand for arbitration shall
be made by the Contractor within 30 days after the Contractor's receipt of a
copy of the Architect's final Certificate for Payment; failure to demand
arbitration within this 30 day period shall result in the substantiated amount
reported by the Owner's accountants becoming binding on the Contractor. Pending
a final resolution by arbitration, the Owner shall pay the Contractor the amount
certified in the Architect's final Certificate for Payment.
13.5 If, subsequent to final payment and at the Owner's request, the
Contractor incurs costs described in Article 7 and not excluded by Article 8 to
correct defective or nonconforming Work, the Owner shall reimburse the
Contractor such costs and the Contractor's Fee applicable thereto on the same
basis as if such costs had been incurred prior to final payment, but not in
excess of the Guaranteed Maximum Price, if any. If the Contractor has
participated in savings as provided in Paragraph 5.2, the amount of such savings
shall be recalculated and appropriate credit given to the Owner in determining
the net amount to be paid by the Owner to the Contractor.
ARTICLE 14
MISCELLANEOUS PROVISIONS
14.1 Where reference is made in this Agreement to a provision of the General
Conditions or another Contract Document, the reference refers to that provision
as amended or supplemented by other provisions of the Contract Documents.
14.2 Payments due and unpaid under the Contract shall bear interest from the
date payment is due at the rate stated below,
(Insert rate of interest agreed upon, if any.)
_______________________ A.P.R. ten percent (10%)
(Usury laws and requirements under the Federal Truth in Lending Act, similar
state and local consumer credit laws and other regulations at the Owner's and
Contractor's principal places of business, the location of the Project and
elsewhere may affect the validity of this provision. Legal advice should be
obtained with respect to deletions or modifications, and also regarding
requirements such as written disclosures or waivers.)
14.3 Other provisions:
The Murray Company will submit a Pay Application every two weeks and will be
paid fourteen (14) days after receipt of each invoice.
ARTICLE 15
TERMINATION OR SUSPENSION
15.1 The Contract may be terminated by the Contractor as provided in Article
14 of the General Conditions; however, the amount to be paid to the Contractor
under Subparagraph 14.1.2 of the General Conditions shall not exceed the amount
the Contractor would be entitled to receive under Paragraph 15.3 below, except
that the Contractor's Fee shall be calculated as if the Work had been fully
completed by the Contractor, including a reasonable estimate of the Cost of the
Work for Work not actually completed.
15.2 If a Guaranteed Maximum Price is established in Article 5, the Contract
may be terminated by the Owner for cause as provided in Article 14 of the
General Conditions; however, the amount, if any, to be paid to the Contractor
under Subparagraph 14.2.4 of the General Conditions shall not cause the
Guaranteed Maximum Price to be exceeded, nor shall it exceed the amount the
Contractor would be entitled to receive under Paragraph 15.3 below.
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15.3 The Work may be suspended by the Owner as provided in Article 14 of the
General Conditions; in such case, the Guaranteed Maximum Price, if any, shall be
increased as provided in Subparagraph 14.3.2 of the General Conditions except
that the term "cost of performance of the Contract" in that Subparagraph shall
be understood to mean the Cost of the Work and the term "profit" shall be
understood to mean the Contractor's Fee as described in Paragraphs 5.1 and 6.3
of this Agreement.
ARTICLE 16
ENUMERATION OF CONTRACT DOCUMENTS
16.1 The Contract Documents, except for Modifications issued after execution
of this Agreement, are enumerated as follows:
16.1.1 The Agreement is this executed Standard Form of Agreement Between Owner
and Contractor, AIA Document A111, 1987 Edition.
16.1.2 The General Conditions are the General Conditions of the Contract for
Construction, AIA Document A201, 1987 Edition.
16.1.3 The Supplementary and other Conditions of the Contract are those
contained in the Project Manual dated, and are as follows:
Document Title Pages
_______________________ Not Applicable
16.1.4 The Specifications are those contained in the Project Manual dated as in
Paragraph 16.1.3, and are as follows: (Either list the Specifications here or
refer to an exhibit attached to this Agreement.)
Section Title Pages
See Exhibit "A"
16.1.5 The Drawings are as follows, and are dated unless a different date is
shown below: (Either list the Drawings here or refer to an exhibit attached to
this Agreement.)
Number Title Date
See Exhibit "A"
16.1.6 The Addenda, if any, are as follows:
Number Date Pages
Portions of Addenda relating to bidding requirements are not part of the
Contract Documents unless the bidding requirements are also enumerated in this
Article 16.
16.1.7 Other Documents, if any, forming part of the Contract Documents are as
follows:
(List here any additional documents which are intended to form part of
the Contract Documents. The General Conditions provide that bidding requirements
such as advertisement or invitation to bid, Instructions to Bidders, sample
forms and the Contractor's bid are not part of the Contract Documents unless
enumerated in this Agreement. They should be listed here only if intended to be
part of the Contract Documents.)
1. Original Proposal Letter dated February 1, 1999 and listed as Exhibit
"A".
2. Summary Letter dated February 8, 1999 and listed as Exhibit "B".
3. Schedule of Values dated February 5, 1999 and listed as Exhibit "C".
4. Miscellaneous Provisions listed as Exhibit "D".
5. Insurance Requirements listed as Exhibit "E".
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This Agreement is entered into as of the day and year first written above and is
executed in at least three original copies of which one is to be delivered to
the Contractor, one to the Architect for use in the administration of the
Contract, and the remainder to the Owner.
OWNER CONTRACTOR
/s/ Jon M. Carter
- ---------------------------- ___________________________________
(Signature) (Signature)
Intermedia Communications, Inc. R.W. Murray Company d/b/a The Murray
(Printed name and title) (Printed name and title)
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General Conditions of the Contract
for Construction
1987 EDITION
TABLE OF ARTICLES
1. GENERAL PROVISIONS 8. TIME
2. OWNER 9. PAYMENTS AND COMPLETION
3. CONTRACTOR 10. PROTECTION OF PERSONS AND PROPERTY
4. ADMINISTRATION OF THE CONTRACT 11. INSURANCE AND BONDS
5. SUBCONTRACTORS 12. UNCOVERING AND CORRECTION OF WORK
6. CONSTRUCTION BY OWNER OR BY 13. MISCELLANEOUS PROVISIONS
SEPARATE CONTRACTORS
7. CHANGES IN THE WORK 14. TERMINATION OR SUSPENSION OF THE
CONTRACT
<PAGE>
------------------------------------------------------------
GENERAL CONDITIONS OF THE CONTRACT FOR CONSTRUCTION
------------------------------------------------------------
ARTICLE 1
---------
GENERAL PROVISIONS
1.1 BASIC DEFINITIONS
1.1.1 THE CONTRACT DOCUMENTS
The Contract Documents consist of the Agreement between Owner and Contractor
(hereinafter the Agreement), Conditions of the Contract (General, Supplementary
and other Conditions), Drawings, Specifications, addenda issued prior to
execution of the Contract, other documents listed in the Agreement and
Modifications issued after execution of the Contract. A Modification is (1) a
written amendment to the Contract signed by both parties, (2) a Change Order,
(3) a Construction Change Directive or (4) a written order for a minor change in
the Work issued by the Architect. Unless specifically enumerated in the
Agreement, the Contract Documents do not include other documents such as bidding
requirements (advertisement or invitation to bid, Instructions to Bidders,
sample forms, the Contractor's bid or portions of addenda relating to bidding
requirements).
1.1.2 THE CONTRACT
The Contract Documents form the Contract for Construction. The Contract
represents the entire and integrated agreement between the parties hereto and
supersedes prior negotiations, representations or agreements, either written or
oral. The Contract may be amended or modified only by a Modification. The
Contract Documents shall not be construed to create a contractual relationship
of any kind (1) between the Architect and Contractor, (2) between the Owner and
a Subcontractor or Sub-subcontractor or (3) between any persons or entities
other than the Owner and Contractor. The Architect shall, however, be entitled
to performance and enforcement of obligations under the Contract intended to
facilitate performance of the Architect's duties.
1.1.3 THE WORK
The term "Work" means the construction and services required by the Contract
Documents, whether completed or partially completed, and includes all other
labor, materials, equipment and services provided or to be provided by the
Contractor to fulfill the Contractor's obligations. The Work may constitute the
whole or a part of the Project.
1.1.4 THE PROJECT
The Project is the total construction of which the Work performed under the
Contract Documents may be the whole or a part and which may include construction
by the Owner or by separate contractors.
1.1.5 THE DRAWINGS
The Drawings are the graphic and pictorial portions of the Contract Documents,
wherever located and whenever issued, showing the design, location and
dimensions of the Work, generally including plans, elevations, sections,
details, schedules and diagrams.
1.1.6 THE SPECIFICATIONS
The Specifications are that portion of the Contract Documents consisting of the
written requirements for materials, equipment, construction systems, standards
and workmanship for the Work, and performance of related services.
1.1.7 THE PROJECT MANUAL
The Project Manual is the volume usually assembled for the Work which may
include the bidding requirements, sample forms, Conditions of the Contract and
Specifications.
1.2 EXECUTION, CORRELATION AND INTENT
1.2.1 The Contract Documents shall be signed by the Owner and Contractor as
provided in the Agreement. If either the Owner or Contractor or both do not
sign all the Contract Documents, the Architect shall identify such unsigned
Documents upon request.
1.2.2 Execution of the Contract by the Contractor is a representation that the
Contractor has visited the site, become familiar with local conditions under
which the Work is to be performed and correlated personal observations with
requirements of the Contract Documents.
1.2.3 The intent of the Contract Documents is to include all items necessary
for the proper execution and completion of the Work by the Contractor. The
Contract Documents are complementary, and what is required by one shall be as
binding as if required by all; performance by the Contractor shall be required
only to the extent consistent with the Contract Documents and reasonably
inferable from them as being necessary to produce the intended results.
1.2.4 Organization of the Specifications into divisions, sections and
articles, and arrangement of Drawings shall not
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control the Contractor in dividing the Work among Subcontractors or in
establishing the extent of Work to be performed by any trade.
1.2.5 Unless otherwise stated in the Contract Documents, words which have
well-known technical or construction industry meanings are used in the Contract
Documents in accordance with such recognized meanings.
1.3 OWNERSHIP AND USE OF ARCHITECT'S DRAWINGS, SPECIFICATIONS AND OTHER
DOCUMENTS
1.3.1 The Drawings, Specifications and other documents prepared by the
Architect are instruments of the Architect's service through which the Work to
be executed by the Contractor is described. The Contractor may retain one
contract record set. Neither the Contractor nor any Subcontractor, Sub-
subcontractor or material or equipment supplier shall own or claim a copyright
in the Drawings, Specifications and other documents prepared by the Architect,
and unless otherwise indicated the Architect shall be deemed the author of them
and will retain all common law, statutory and other reserved rights, in addition
to the copyright. All copies of them, except the Contractor's record set, shall
be returned or suitably accounted for to the Architect, on request, upon
completion of the Work. The Drawings, Specifications and other documents
prepared by the Architect, and copies thereof furnished to the Contractor, are
for use solely with respect to this Project. They are not to be used by the
Contractor or any Subcontractor, Sub-subcontractor or material or equipment
supplier on other projects or for additions to this Project outside the scope of
the Work without the specific written consent of the Owner and Architect. The
Contractor, Subcontractors, Sub-subcontractors and material or equipment
suppliers are granted a limited license to use and reproduce applicable portions
of the Drawings, Specifications and other documents prepared by the Architect
appropriate to and for use in the execution of their Work under the Contract
Documents. All copies made under this license shall bear the statutory copyright
notice, if any, shown on the Drawings, Specifications and other documents
prepared by the Architect. Submittal or distribution to meet official regulatory
requirements or for other purposes in connection with this Project is not to be
construed as publication in derogation of the Architect's copyright or other
reserved rights.
1.4 CAPITALIZATION
1.4.1 Terms capitalized in these General Conditions include those which are
(1) specifically defined, (2) the titles of numbered articles and identified
references to Paragraphs, Subparagraphs and Clauses in the document or (3) the
titles of other documents published by the American Institute of Architects.
1.5 INTERPRETATION
1.5.1 In the interest of brevity the Contract Documents frequently omit
modifying words such as "all" and "any" and articles such as "the" and "an," but
the fact that a modifier or an article is absent from one statement and appears
in another is not intended to affect the interpretation of either statement.
ARTICLE 2
---------
OWNER
2.1 DEFINITION
2.1.1 The owner is the person or entity identified as such in the Agreement
and is referred to throughout the Contract Documents as if singular in number.
The term "Owner" means the Owner or the Owner's authorized representative.
2.2 INFORMATION AND SERVICES REQUIRED OF THE OWNER
2.2.1 The Owner shall furnish surveys describing physical characteristics,
legal limitations and utility locations for the site of the Project, and a legal
description of the site.
2.2.2 Except for permits and fees which are the responsibility of the
Contractor under the Contract Documents, the Owner shall secure and pay for
necessary approvals, easements, assessments and charges required for
construction, use or occupancy of permanent structures or for permanent changes
in existing facilities.
2.2.3 Information or services under the Owner's control shall be furnished by
the Owner with reasonable promptness to avoid delay in orderly progress of the
Work.
2.2.4 Unless otherwise provided in the Contract Documents, the Contractor will
be furnished, free of charge, such copies of Drawings and Project Manuals as are
reasonably necessary for execution of the Work.
2.2.5 The foregoing are in addition to other duties and responsibilities of
the Owner enumerated herein and especially those in respect to Article 6
(Construction by Owner or by Separate Contractors), Article 9 (Payments and
Completion) and Article 11 (Insurance and Bonds).
2.3 OWNER'S RIGHT TO STOP THE WORK
2.3.1 If the Contractor fails to correct Work which is not in accordance with
the requirements of the Contract Documents as required by Paragraph 12.2 or
materially fails to carry out Work in accordance with the Contract Documents,
the Owner, by written order signed personally or by an agent specifically so
empowered by the Owner in writing, may order the Contractor to stop the Work, or
any portion thereof, until the cause for such order has been eliminated;
however, the right of the Owner to stop the Work shall not give rise to a duty
on the part of the Owner to exercise this right for the benefit of the
Contractor or
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any other person or entity, except to the extent required by Subparagraph 6.13.
2.4 OWNER'S RIGHT TO CARRY OUT THE WORK
2.4.1 If the Contractor defaults or neglects to carry out the Work in
accordance with the Contract Documents and fails within a seven-day period after
receipt of written notice from the Owner to commence and continue correction of
such default or neglect with diligence, and promptness, the Owner may after such
seven-day period without prejudice to other remedies the Owner may have, correct
such deficiencies. In such case an appropriate Change Order shall be issued
deducting from payments then or thereafter due the Contractor the cost of
correcting such deficiencies, including compensation for the Architect's
additional services and expenses made necessary by such default, neglect or
failure. Such action by the Owner and amounts charged to the Contractor are both
subject to prior approval of the Architect. If payments then or thereafter due
the Contractor are not sufficient to cover such amounts, the Contractor shall
pay the difference to the Owner.
ARTICLE 3
---------
CONTRACTOR
3.1 DEFINITION
3.1.1 The Contractor is the person or entity identified as such in the
Agreement and is referred to throughout the Contract Documents as if singular in
number. The term "Contractor" means the Contractor or the Contractor's
authorized representative.
3.2 REVIEW OF CONTRACT DOCUMENTS AND FIELD CONDITIONS BY CONTRACTOR
3.2.1 The Contractor shall carefully study and compare the Contract Documents
with each other and with information furnished by the Owner pursuant to
Subparagraph 2.2.2 and shall at once report to the Architect errors,
inconsistencies or omissions discovered. The Contractor shall not be liable to
the Owner or Architect for damage resulting from errors, inconsistencies or
omissions in the Contract Documents unless the Contractor recognized such error,
inconsistency or omission and knowingly failed to report it to the Architect. If
the Contractor performs any construction activity knowing it involves a
recognized error, inconsistency or omission in the Contract Documents without
such notice to the Architect, the Contractor shall assume appropriate
responsibility for such performance and shall bear an appropriate amount of the
attributable costs for correction.
3.2.2 The Contractor shall take field measurements and verify field conditions
and shall carefully compare such field measurements and conditions and other
information known to the Contractor with the Contract Documents before
commencing activities. Errors, inconsistencies or omissions discovered shall be
reported to the Architect at once.
3.2.3 The Contractor shall perform the Work in accordance with the Contract
Documents and submittals approved pursuant to Paragraph 3.12.
3.3 SUPERVISION AND CONSTRUCTION PROCEDURES
3.3.1 The Contractor shall supervise and direct the Work, using the
Contractor's best skill and attention. The Contractor shall be solely
responsible for and have control over construction means, methods, techniques,
sequences and procedures and for coordinating all portions of the Work under the
Contract, unless Contract Documents give other specific instructions concerning
these matters.
3.3.2 The Contractor shall be responsible to the Owner for acts and omissions
of the Contractor's employees, Subcontractors and their agents and employees,
and other persons performing portions of the Work under a contract with the
Contractor.
3.3.3 The Contractor shall not be relieved of obligations to perform the Work
in accordance with the Contract Documents either by activities or duties of the
Architect in the Architect's administration of the Contract, or by tests,
inspections or approvals required or performed by persons other than the
Contractor.
3.3.4 The Contractor shall be responsible for inspection of portions of Work
already performed under this Contract to determine that such portions are in
proper condition to receive subsequent Work.
3.4 LABOR AND MATERIALS
3.4.1 Unless otherwise provided in the Contract Documents, the Contractor
shall provide and pay for labor, materials, equipment, tools, construction
equipment and machinery, water, heat, utilities, transportation, and other
facilities and services necessary for proper execution and completion of the
Work, whether temporary or permanent and whether or not incorporated or to be
incorporated in the Work.
3.4.2 The Contractor shall enforce strict discipline and good order among the
Contractor's employees and other persons carrying out the Contract. The
Contractor shall not permit employment of unfit persons or persons not skilled
in tasks assigned to them.
3.5 WARRANTY
3.5.1 The Contractor warrants to the Owner and Architect
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that materials and equipment furnished under the Contract will be of good
quality and new unless otherwise required or permitted by the Contract
Documents, that the Work will be free from defects not inherent in the quality
required or permitted, and that the Work will conform with the requirements of
the Contract Documents. Work not conforming to these requirements, including
substitutions not properly approved and authorized, may be considered defective.
The Contractor's warranty excludes remedy for damage or defect caused by abuse,
modifications not executed by the Contractor, improper or insufficient
maintenance, improper operation, or normal wear and tear under normal usage. If
required by the Architect, the Contractor shall furnish satisfactory evidence as
to the kind and quality of materials and equipment.
3.6 TAXES
3.6.1 The Contractor shall pay sales, consumer, use and similar taxes for the
Work or portions thereof provided by the Contractor which are legally enacted
when bids are received or negotiations concluded, whether or not yet effective
or merely scheduled to go into effect.
3.7 PERMITS, FEES AND NOTICES
3.7.1 Unless otherwise provided in the Contract Documents, the Contractor
shall secure and pay for the building permit and other permits and governmental
fees, licenses and inspections necessary for proper execution and completion of
the Work which are customarily secured after execution of the Contract and which
are legally required when bids are received or negotiations concluded.
3.7.2 The Contractor shall comply with and give notices required by laws,
ordinances, rules, regulations and lawful orders of public authorities bearing
on performance of the Work.
3.7.3 It is not the Contractor's responsibility to ascertain that the Contract
Documents are in accordance with applicable laws, statutes, ordinances, building
codes, and rules and regulations. However, if the Contractor observes that
portions of the Contract Documents are at variance therewith, the Contractor
shall promptly notify the Architect and Owner in writing, and necessary changes
shall be accomplished by appropriate Modification.
3.7.4 If the Contractor performs Work knowing it to be contrary to laws,
statutes, ordinances, building codes, and rules and regulations without such
notice to the Architect and Owner, the Contractor shall assume full
responsibility for such Work and Shall bear the attributable costs.
3.8 ALLOWANCES
3.8.1 The Contractor shall include in the Contract Sum all allowances stated
in the Contract Documents. Items covered by allowances shall be supplied for
such amounts and by such persons or entities as the Owner may direct, but the
Contractor shall not be required to employ persons or entities against which the
Contractor makes reasonable objection.
3.8.2 Unless otherwise provided in the Contract Documents:
.1 materials and equipment under an allowance shall be selected
promptly by the Owner to avoid delay in the Work;
.2 allowances shall cover the cost to the Contractor of materials and
equipment delivered at the site and all required taxes, less
applicable trade discounts;
.3 Contractor's costs for unloading and handling at the site, labor,
installation costs, overhead, profit and other expenses contemplated
for stated allowance amounts shall be included in the Contract Sum
and not in the allowances;
.4 whenever costs are more than or less than allowances, the Contract
Sum shall be adjusted accordingly by Change Order. The amount of the
Change Order shall reflect
(1) the difference between actual costs and the allowances under
Clause 3.8.2.2 and
(2) changes in Contractor's costs under Clause 3.8.2.3.
3.9 SUPERINTENDENT
3.9.1 The Contractor shall employ a competent superintendent and necessary
assistants who shall be in attendance at the Project site during performance of
the Work. The superintendent shall represent the Contractor, and communications
given to the superintendent shall be as binding as if given to the Contractor.
Important communications shall be confirmed in writing. Other communications
shall be similarly confirmed on written request in each case.
3.10 CONTRACTOR'S CONSTRUCTION SCHEDULES
3.10.1 The Contractor, promptly after being awarded the Contract, shall prepare
and submit for the Owner's and Architect's information a Contractor's
construction schedule for the Work. The schedule shall not exceed time limits
current under the Contract Documents, shall be revised at appropriate intervals
as required by the conditions of the Work and Project, shall be related to the
entire Project to the extent required by the Contract Documents, and shall
provide for expeditious and practicable execution of the Work.
3.10.2 The Contractor shall prepare and keep current, for the Architect's
approval, a schedule of submittals which is coordi-
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nated with the Contractor's construction schedule and allows the Architect
reasonable time to review submittals.
3.10.3 The Contractor shall conform to the most recent schedules.
3.11 DOCUMENTS AND SAMPLES AT THE SITE
3.11.1 The Contractor shall maintain at the site for the Owner one record copy
of the Drawings, Specifications, addenda, Change Orders and other Modifications,
in good order and marked currently to record changes and selections made during
construction, and in addition approved Shop Drawings, Product Data, Samples and
similar required submittals. These shall be available to the Architect and
shall be delivered to the Architect for submittal to the Owner upon completion
of the Work.
3.12 SHOP DRAWINGS, PRODUCT DATA AND SAMPLES
3.12.1 Shop Drawings are drawings, diagrams, schedules and other data specially
prepared for the Work by the Contractor or a Subcontractor, Sub-subcontractor,
manufacturer, supplier or distributor to illustrate some portion of the Work.
3.12.2 Product Data are illustrations, standard schedules, performance charts,
instructions, brochures, diagrams and other information furnished by the
Contractor to illustrate materials or equipment for some portion of the Work.
3.12.3 Samples are physical examples which illustrate materials, equipment or
workmanship and establish standards by which the Work will be judged.
3.12.4 Shop Drawings, Product Data, Samples and similar submittals are not
Contract Documents. The purpose of their Submittal is to demonstrate for those
portions of the Work for which submittals are required the way the Contractor
proposes to conform to the information given and the design concept expressed in
the Contract Documents. Review by the Architect is subject to the limitations
of Subparagraph 4.2.7.
3.12.5 The Contractor shall review, approve and submit to the Architect Shop
Drawings, Product Data, Samples and similar submittals required by the Contract
Documents with reasonable promptness and in such sequence as to cause no delay
in the Work or in the activities of the Owner or of separate contractors.
Submittals made by the Contractor which are not required by the Contract
Documents may be returned without action.
3.12.6 The Contractor shall perform no portion of the Work requiring submittal
and review of Shop Drawings, Product Data, Samples or similar submittals until
the respective submittal has been approved by the Architect. Such Work shall be
in accordance with approved submittals.
3.12.7 By approving and submitting Shop Drawings, Product Data, Samples and
similar submittals, the Contractor represents that the Contractor has determined
and verified materials, field measurements and field construction criteria
related thereto, or will do so and has checked and coordinated the information
contained within such submittals with the requirements of the Work and of the
Contract Documents.
3.12.8 The Contractor shall not be relieved of responsibility for deviations
from requirements of the Contract Documents by the Architect's approval of Shop
Drawings, Product Data, Samples or similar submittals unless the Contractor has
specifically informed the Architect in writing of such deviation at the time of
submittal and the Architect has given written approval to the specific
deviation. The Contractor shall not be relieved of responsibility for errors or
omissions in Shop Drawings, Product Data, Samples or similar submittals by the
Architect's approval thereof.
3.12.9 The Contractor shall direct specific attention, in writing or on
resubmitted Shop Drawings, Product Data, Samples or similar submittals, to
revisions other than those requested by the Architect on previous submittals.
3.12.10 Informational submittals upon which the Architect is not expected to
take responsive action may be so identified in the Contract Documents.
3.12.11 When professional certification of performance criteria of materials,
systems or equipment is required by the Contract Documents, the Architect shall
be entitled to rely upon the accuracy and completeness of such calculations and
certifications.
3.13 USE OF SITE
3.13.1 The Contractor shall confine operations at the site to areas permitted
by law, ordinances, permits and the Contract Documents and shall not
unreasonably encumber the site with materials or equipment.
3.14 CUTTING AND PATCHING
3.14.1 The Contractor shall be responsible for cutting, fitting or patching
required to complete the Work or to make its parts fit together properly.
3.14.2 The Contractor shall not damage or endanger a portion of the Work or
fully or partially completed construction of the Owner or separate contractors
by cutting, patching or otherwise altering such construction, or by excavation.
The Contractor shall not cut or otherwise alter such construction by the Owner
or a separate contractor except with written consent of the Owner and of such
separate contractor such consent shall not be unreasonably withheld. The
Contractor shall not unreasonably withhold from the Owner or a separate
contractor the Contractor's consent to cutting or otherwise altering the Work.
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3.15 CLEANING UP
3.15.1 The Contractor shall keep the premises and surrounding area free from
accumulation of waste materials or rubbish caused by operations under the
Contract. At completion of the Work the Contractor shall remove from and about
the Project waste materials, rubbish, the Contractor's tools, construction
equipment, machinery and surplus materials.
3.15.2 If the Contractor fails to clean up as provided in the Contract
Documents, the Owner may do so and the cost thereof shall be charged to the
Contractor.
3.16 ACCESS TO WORK
3.16.1 The Contractor shall provide the Owner and Architect
access to the Work in preparation and progress wherever located.
3.17 ROYALTIES AND PATENTS
3.17.1 The Contractor shall pay all royalties and license fees. The Contractor
shall defend suits or claims for infringement of patent rights and shall hold
the Owner and Architect harmless from loss on account thereof, but shall not be
responsible for such defense or loss when a particular design, process or
product of a particular manufacturer or manufacturers is required by the
Contract Documents. However, if the Contractor has reason to believe that the
required design, process or product is an infringement of a patent, the
Contractor shall be responsible for such loss unless such information is
promptly furnished to the Architect.
3.18 INDEMNIFICATION
3.18.1 To the fullest extent permitted by law, the Contractor shall indemnify
and hold harmless the Owner, Architect, Architect's consultants, and agents and
employees of any of them from and against claims, damages, losses and expenses,
including but not limited to attorneys' fees, arising out of or resulting from
performance of the Work, provided that such claim, damage, loss or expense is
attributable to bodily injury, sickness, disease or death, or to injury to or
destruction of tangible property (other than the Work itself) including loss of
use resulting therefrom, but only to the extent caused in whole or in part by
negligent acts or omissions of the Contractor, a Subcontractor, anyone directly
or indirectly employed by them or anyone for whose acts they may be liable,
regardless of whether or not such claim, damage, loss or expense is caused in
part by a party indemnified hereunder. Such obligation shall not be construed
to negate, abridge, or reduce other rights or obligations of indemnity which
would otherwise exist as to a party or person described in this Paragraph 3.18.
3.18.2 in claims against any person or entity indemnified under this Paragraph
3.18 by an employee of the Contractor, a Subcontractor, anyone directly or
indirectly employed by them or anyone for whose acts they may be liable, the
indemnification obligation under this Paragraph 3.18 shall not be limited by a
limitation on amount or type of damages, compensation or benefits payable by or
for the Contractor or a Subcontractor under workers' or workmen's compensation
acts, disability benefit acts or other employee benefit acts.
3.18.3 The obligations of the Contractor under this Paragraph 3.18 shall not
extend to the liability of the Architect, the Architect's consultants, and
agents and employees of any of them arising out of (1) the preparation or
approval of maps, drawings, opinions, reports, surveys, Change Orders, designs
or specifications, or (2) the giving of or the failure to give directions or
instructions by the Architect, the Architect's consultants, and agents and
employees of any of them provided such giving or failure to give is the primary
cause of the injury or damage.
ARTICLE 4
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ADMINISTRATION OF THE CONTRACT
4.1 ARCHITECT
4.1.1 The Architect is the person lawfully licensed to practice architecture,
or an entity lawfully practicing architecture identified as such in the
Agreement is referred to throughout the Contract Documents as if singular in
number. The term "Architect" means the Architect or the Architect's authorized
representative.
4.1.2 Duties, responsibilities and limitations of authority of the Architect
as set forth in the Contract Documents shall not be restricted, modified or
extended without written consent of the Owner, Contractor and Architect.
Consent shall not be unreasonably withheld.
4.1.3 In case of termination of employment of the Architect, the Owner shall
appoint an architect against whom the Contractor makes no reasonable objection
and whose status under the Contract Documents shall be that of the former
architect.
4.1.4 Disputes arising under Subparagraphs 4.1.2 and 4.1.3 shall be subject to
arbitration.
4.2 ARCHITECT'S ADMINISTRATION OF THE CONTRACT
4.2.1 The Architect will provide administration of the Contract as described
in the Contract Documents, and will be the Owner's representative (1) during
construction, (2) until final payment is due and (3) with the Owner's
concurrence, from time to time during the correction period described in
Paragraph 12.2. The Architect will advise and consult with the Owner. The
Architect will have authority to act on behalf of the Owner only to the extent
provided in the Contract Documents, unless otherwise modified by written
instrument in accordance with other provisions of the Contract.
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4.2.2 The Architect will visit the site at intervals appropriate to the stage
of construction to become generally familiar with the progress and quality of
the completed Work and to determine in general if the Work is being performed in
a manner indicating that the Work, when completed, will be in accordance with
the Contract Documents. However, the Architect will not be required to make
exhaustive or continuous on-site inspections to check quality or quantity of the
Work. On the basis of onsite observations as an architect, the Architect will
keep the Owner informed of progress of the Work, and will endeavor to guard the
Owner against defects and deficiencies in the Work.
4.2.3 The Architect will not have control over or charge of and will not be
responsible for construction means, methods, techniques, sequences or
procedures, or for safety precautions and programs in connection with the Work,
since these are solely the Contractor's responsibility as provided in Paragraph
3.3. The Architect will not be responsible for the Contractor's failure to carry
out the Work in accordance with the Contract Documents. The Architect will not
have control over or charge of and will not be responsible for acts or omissions
of the Contractor, Subcontractors, or their agents or employees, or of any other
persons performing portions of the Work.
4.2.4 Communications Facilitating Contract Administration. Except as otherwise
provided in the Contract Documents or when direct communications have been
specially authorized, the Owner and Contractor shall endeavor to communicate
through the Architect. Communications by and with the Architect's consultants
shall be through the Architect. Communications by and with Subcontractors and
material suppliers shall be through the Contractor. Communications by and with
separate contractors shall be through the Owner.
4.2.5 Based on the Architect's observations and evaluations of the
Contractor's Applications for Payment, the Architect will review and certify the
amounts due the Contractor and will issue Certificates for Payment in such
amounts.
4.2.6 The Architect will have authority to reject Work which does not conform
to the Contract Documents. Whenever the Architect considers it necessary or
advisable for implementation of the intent of the Contract Documents, the
Architect will have authority to require additional inspection or testing of the
Work in accordance with Subparagraphs 13.5.2 and 13.5.3, whether or not such
Work is fabricated, installed or completed. However, neither this authority of
the Architect nor a decision made in good faith either to exercise or not to
exercise such authority shall give rise to a duty or responsibility of the
Architect to the Contractor, Subcontractors, material and equipment suppliers,
their agents or employees, or other persons performing portions of the Work.
4.2.7 The Architect will review and approve or take other appropriate action
upon the Contractor's submittals such as Shop Drawings, Product Data and
Samples, but only for the limited purpose of checking for conformance with
information given and the design concept expressed in the Contract Documents.
The Architect's action will be taken with such reasonable promptness as to cause
no delay in the Work or in the activities of the Owner, Contractor or separate
contractors, while allowing sufficient time in the Architect professional
judgment to permit adequate review. Review of such submittals is not conducted
for the purpose of determining the accuracy and completeness of other details
such as dimensions and quantities, or for substantiating instructions for
installation or performance of equipment or systems, all of which remain the
responsibility of the Contractor as required by the Contract Documents. The
Architect's review of the Contractor's submittals shall not relieve the
Contractor of the obligations under Paragraphs 3.3, 3.5 and 3.12. The
Architect's review shall not constitute approval of safety precautions or,
unless otherwise specifically stated by the Architect, of any construction
means, methods, techniques, sequences or procedures. The Architect's approval
of a specific item shall not indicate approval of an assembly of which the item
is a component.
4.2.8 The Architect will prepare Change Orders and Construction Change
Directives, and may authorize minor changes in the Work as provided in Paragraph
7.4.
4.2.9 The Architect will conduct inspections to determine the date or dates of
Substantial Completion and the date of final completion, will receive and
forward to the Owner for the Owner's review and records written warranties and
related documents required by the Contract and assembled by the Contractor, and
will issue a final Certificate for Payment upon compliance with the requirements
of the Contract Documents.
4.2.10 If the Owner and Architect agree, the Architect will provide one or more
project representatives to assist in carrying out the Architect's
responsibilities, at the site. The duties, responsibilities and limitations of
authority of such project representatives shall be as set forth in an exhibit to
be incorporated in the Contract Documents.
4.2.11 The Architect will interpret and decide matters concerning performance
under and requirements of the Contract Documents on written request of either
the Owner or Contractor. The Architect's response to such requests will be made
with reasonable promptness and within any time limits agreed upon. If no
agreement is made concerning the time within which interpretations required of
the Architect shall be furnished in compliance with this Paragraph 4.2, then
delay shall not be recognized on account of failure by the Architect to furnish
such interpretations until 15 days after written request is made for them.
4.2.12 Interpretations and decisions of the Architect will be consistent with
the intent of and reasonably inerrable from the Contract Documents and will be
in writing or in the form of drawings. When making such interpretations and
decisions, the Architect will endeavor to secure faithful performance by both
Owner and Contractor, will not show partiality to either and will not be liable
for results of interpretations or decisions so
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rendered in good faith.
4.2.13 The Architect's decisions on matters relating to aesthetic effect will
be final.
4.3 CLAIMS AND DISPUTES
4.3.1 Definition. A Claim is a demand or assertion by one of the parties
seeking, as a matter of right, adjustment or interpretation of Contract terms,
payment of money, extension of time or other relief with respect to the terms of
the Contract. The term "Claim" also includes other disputes and matters in
question between the Owner and Contractor arising out of or relating to the
Contract. Claims must be made by written notice. The responsibility to
substantiate Claims shall rest with the party making the Claim.
4.3.2 Decision of Architect. Claims, including those alleging an error or
omission by the Architect, shall be referred initially to the Architect for
action as provided in Paragraph 4.4. A decision by the Architect, as provided in
Subparagraph 4.4.4, shall be required as a condition precedent to or litigation
of a Claim between the Contractor and Owner as to all such matters arising prior
to the date final payment is due, regardless of (1) whether such matters relate
to execution and progress of the Work or (2) the extent to which the Work has
been completed. The decision by the Architect in response to a Claim shall not
be a condition precedent or litigation in the event (1) the position of
Architect is vacant, (2) the Architect has not received evidence or has failed
to render a decision within agreed time limits, (3) the Architect has failed to
take action required under Subparagraph 4.4.4 within 30 days after the Claim is
made, or (4) 45 days have passed after the Claim has been referred to the
Architect.
4.3.3 Time Limits on Claims. Claims by either party must be made within 21
days after occurrence of the event giving rise to such Claim or within 21 days
after the claimant first recognizes the condition giving rise to the Claim,
whichever is later. Claims must be made by written notice. An additional Claim
made after the initial Claim has been implemented by Change Order will not be
considered unless submitted in a timely manner.
4.3.4 Continuing Contract Performance. Pending final resolution of a Claim,
including litigation, unless otherwise agreed in writing, the Contractor shall
proceed diligently with performance of the Contract and the Owner shall continue
to make payments in accordance with the Contract Documents.
4.3.5 Waiver of Claims: Final Payment. The making of final payment shall
constitute a waiver of Claims by the Owner except those arising from:
1. liens, Claims, security interests or encumbrances arising out of the
Contract and unsettled;
2. failure of the Work to comply with the requirements of the Contract
Documents; or
3. terms of special warranties required by the Contract Documents.
4.3.6 Claims for Concealed or Unknown Conditions. If conditions are
encountered at the site which are (1) subsurface or otherwise concealed physical
conditions which differ materially from those indicated in the Contract
Documents or (2) unknown physical conditions of an unusual nature, which differ
materially from those ordinarily found to exist and generally recognized as
inherent in construction activities of the character provided for in the
Contract Documents, then notice by the observing party shall be given to the
other party promptly before conditions are disturbed and in no event later than
21 days after first observance of the conditions. The Architect will promptly
investigate such conditions and, if they differ materially and cause an increase
or decrease in the Contractor's cost of, or time required for, performance of
any part of the Work, will recommend an equitable adjustment in the Contract Sum
or Contract Time, or both. If the Architect determines that the conditions at
the site are not materially different from those indicated in the Contract
Documents and that no change in the terms of the Contract is justified, the
Architect shall so notify the Owner and Contractor in writing, stating the
reasons. Claims by either party in opposition to such determination must be
made within 21 days after the Architect has given notice of the decision. If
the Owner and Contractor cannot agree on an adjustment in the Contract Sum or
Contract Time, the adjustment shall be referred to the Architect for initial
determination, subject to further proceedings pursuant to Paragraph 4.4.
4.3.7 Claims for Additional Cost. if the Contractor wishes to make Claim for
an increase in the Contract Sum, written notice as provided herein shall be
given before proceeding to execute the Work. Prior notice is not required for
Claims relating to an emergency endangering life or property arising under
Paragraph 10.3. If the Contractor believes additional cost is involved for
reasons including but not limited to (1) a written interpretation from the
Architect, (2) an order by the Owner to stop the Work where the Contractor was
not at fault, (3) a written order for a minor change in the Work issued by the
Architect, (4) failure of payment by the Owner, (5) termination of the Contract
by the Owner, (6) Owner's suspension or (7) other reasonable grounds, Claim
shall be filed in accordance with the procedure established herein.
4.3.8 Claims for Additional Time
4.3.8.1 If the Contractor wishes to make Claim for an increase in the Contract
Time, written notice as provided herein shall be given. The Contractor's Claim
shall include an estimate of cost and of probable effect of delay on progress of
the Work. in the case of a continuing delay only one Claim is necessary.
4.3.8.2 If adverse weather conditions are the basis for a Claim for additional
time, such Claim shall be documented by data substantiating that weather
conditions were abnormal for the
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period of time and could not have been reasonably anticipated, and that weather
conditions had an adverse effect on the scheduled construction.
4.3.9 Injury or Damage to Person or Property. If either party to the Contract
suffers injury or damage to person or property because of an act or omission of
the other party, of any of the other party's employees or agents, or of others
for whose acts such party is legally liable, written notice of such injury or
damage, whether or not insured, shall be given to the other party within a
reasonable time not exceeding 21 days after first observance. The notice shall
provide sufficient detail to enable the other party to investigate the matter.
If a Claim for additional cost or time related to this Claim is to be asserted,
it shall be filed as provided in Subparagraphs 4.3.7 or 4.3.8.
4.4 RESOLUTION OF CLAIMS AND DISPUTES
4.4.1 The Architect will review Claims and take one or more of the following
preliminary actions within ten days of receipt of a Claim: (1) request
additional supporting data from the claimant, (2) submit a schedule to the
parties indicating when the Architect expects to take action, (3) reject the
Claim in whole or in part, stating reasons for rejection, (4) recommend approval
of the Claim by the other party or (5) suggest a compromise. The Architect may
also, but is not obligated to, notify the surety, if any, of the nature and
amount of the Claim.
4.4.2 If a Claim has been resolved, the Architect will prepare or obtain
appropriate documentation.
4.4.3 If a Claim has not been resolved, the party making the Claim shall,
within ten days after the Architect's preliminary response, take one or more of
the following actions: (1) submit additional supporting data requested by the
Architect, (2) modify the initial Claim or (3) notify the Architect that the
initial Claim stands.
4.4.4 If a Claim has not been resolved after consideration of the foregoing
and of further evidence presented by the parties or requested by the Architect,
the Architect will notify the parties in writing that the Architect's decision
will be made within seven days, which decision shall be final and binding on the
parties but subject to litigation. Upon expiration of such time period, the
Architect will render to the parties the Architect's written decision relative
to the Claim, including any change in the Contract Sum or Contract Time or both.
If there is a surety and there appears to be a possibility of a Contractor's
default, the Architect may, but is not obligated to, notify the surety and
request the surety's assistance in resolving the controversy.
ARTICLE 5
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SUBCONTRACTORS
5.1 DEFINITIONS
5.1.1 A Subcontractor is a person or entity who has a direct contract with the
Contractor to perform a portion of the Work at the site. The term
"Subcontractor" is referred to throughout the Contract Documents as if singular
in number and means a Subcontractor or an authorized representative of the
Subcontractor. The term "Subcontractor" does not include a separate contractor
or subcontractors of a separate contractor.
5.1.2 A Sub-subcontractor is a person or entity who has a direct or indirect
contract with a Subcontractor to perform a portion of the Work at the site. The
term "Sub-subcontractor" is referred to throughout the Contract Documents as if
singular in number and means a Sub-subcontractor or an authorized representative
of the Sub-subcontractor.
5.2 AWARD OF SUBCONTRACTS AND OTHER CONTRACTS FOR PORTIONS OF THE WORK
5.2.1 Unless otherwise stated in the Contract Documents or the bidding
requirements, the Contractor, as soon as practicable after award of the
Contract, shall furnish in writing to the Owner through the Architect the names
of persons or entities (including those who are to furnish materials or
equipment fabricated to a special design) proposed for each principal portion of
the Work. The Architect will promptly reply to the Contractor in writing
stating whether or not the Owner or the Architect, after due investigation, has
reasonable objection to any such proposed person or entity. Failure of the
Owner or Architect to reply within five (5) business days shall constitute
notice of no reasonable objection.
5.2.2 The Contractor shall not contract with a proposed person or entity to
whom the Owner or Architect has made reasonable and timely objection. The
Contractor shall not be required to contract with anyone to whom the Contractor
has made reasonable objection.
5.2.3 If the Owner or Architect has reasonable objection to a person or entity
proposed by the Contractor, the Contractor shall propose another to whom the
Owner or Architect has no reasonable objection. The Contract Sum shall be
increased or decreased by the difference in cost occasioned by such change and
an appropriate Change Order shall be issued. However, no increase in the
Contract Sum shall be allowed for such change unless the Contractor has acted
promptly and responsively in submitting names as required.
5.2.4 The Contractor shall not change a Subcontractor, person or entity
previously selected if the Owner or Architect makes reasonable objection to such
change.
5.3 SUBCONTRACTUAL RELATIONS
5.3.1 By appropriate agreement, written where legally required for validity,
the Contractor shall require each Subcontractor, to the extent of the Work to be
performed by the Subcontractor, to be bound to the Contractor by terms of the
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Contract Documents, and to assume toward the Contractor all the obligations and
responsibilities which the Contractor, by these Documents, assumes toward the
Owner and Architect. Each subcontract agreement shall preserve and protect the
rights of the Owner and Architect under the Contract Documents with respect to
the Work to be performed by the Subcontractor so that subcontracting thereof
will not prejudice such rights, and shall allow to the Subcontractor, unless
specifically provided otherwise in the subcontract agreement, the benefit of all
rights, remedies and redress against the Contractor that the Contractor, by the
Contract Documents, has against the Owner. Where appropriate, the Contractor
shall require each Subcontractor to enter into similar agreements with Sub-
subcontractors. The Contractor shall make available to each proposed
Subcontractor, prior to the execution of the subcontract agreement, copies of
the Contract Documents to which the Subcontractor will be bound, and, upon
written request of the Subcontractor, identify to the Subcontractor terms and
conditions of the proposed subcontract agreement which may be at variance with
the Contract Documents. Subcontractors shall similarly make copies of
applicable portions of such documents available to their respective proposed
Sub-subcontractors.
5.4 CONTINGENT ASSIGNMENT OF SUBCONTRACTS
5.4.1 Each subcontract agreement for a portion of the Work is assigned by the
Contractor to the Owner provided that:
1. assignment is effective only after termination of the Contract by
the Owner for cause pursuant to Paragraph 14.2 and only for those
subcontract agreements which the Owner accepts by notifying the
Subcontractor in writing; and
2. assignment is subject to the prior rights of the surety, if any,
obligated under bond relating to the Contract.
5.4.2 If the Work has been suspended for more than 30 days, the
Subcontractor's compensation shall be equitably adjusted.
ARTICLE 6
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CONSTRUCTION BY OWNER
OR BY SEPARATE CONTRACTORS
6.1 OWNER'S RIGHT TO PERFORM CONSTRUCTION AND TO AWARD SEPARATE CONTRACTS
6.1.1 The Owner reserves the right to perform construction or operations
related to the Project with the Owner's own forces, and to award separate
contracts in connection with other portions of the Project or other construction
or operations on the site under Conditions of the Contract identical or
substantially similar to these including those portions related to insurance,
and waiver of subrogation. If the Contractor claims that delay or additional
cost is involved because of such action by the Owner, the Contractor shall make
such Claim as provided elsewhere in the Contract Documents.
6.1.2 When separate contracts are awarded for different portions of the
Project or other construction or operations on the site, the term "Contractor"
in the Contract Documents in each case shall mean the Contractor who executes
each separate Owner-Contractor Agreement.
6.1.3 The Owner shall provide for coordination of the activities of the
Owner's own forces and of each separate contractor with the Work of the
Contractor, who shall cooperate with them. The Contractor shall participate
with other separate contractors and the Owner in reviewing their construction
schedules when directed to do so. The Contractor shall make any revisions to
the construction schedule and Contract Sum deemed necessary after a joint review
and mutual agreement. The construction schedules shall then constitute the
schedules to be used by the Contractor, separate contractors and the Owner until
subsequently revised.
6.1.4 Unless otherwise provided in the Contract Documents, when the Owner
performs construction or operations related to the Project with the Owner's own
forces, the Owner shall be deemed to be subject to the same obligations and to
have the same rights which apply to the Contractor under the Conditions of the
Contract, including, without excluding others, those stated in Article 3, this
Article 6 and Articles 10, 11 and 12.
6.2 MUTUAL RESPONSIBILITY
6.2.1 The Contractor shall afford the Owner and separate contractors
reasonable opportunity for introduction and storage of their materials and
equipment and performance of their activities and shall connect and coordinate
the Contractor's construction and operations with theirs as required by the
Contract Documents.
6.2.2 If part of the Contractor's Work depends for proper execution or results
upon construction or operations by the Owner or a separate contractor, the
Contractor shall, prior to proceeding with that portion of the Work, promptly
report to the Architect apparent discrepancies or defects in such other
construction that would render it unsuitable for such proper execution and
results. Failure of the Contractor so to report shall constitute an
acknowledgment that the Owner's or separate contractors' completed or partially
completed construction is fit and proper to receive the Contractor's Work,
except as to defects not then reasonably discoverable.
6.2.3 Costs caused by delays or by improperly timed activities or defective
construction shall be borne by the party
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responsible therefor.
6.2.4 The Contractor shall promptly remedy damage wrongfully caused by the
Contractor to completed or partially completed construction or to property of
the Owner or separate contractors as provided in Subparagraph 10.2.5.
6.2.5 Claims and other disputes and matters in question between the Contractor
and a separate contractor shall be subject to the provisions of Paragraph 4.3
provided the separate contractor has reciprocal obligations.
6.2.6 The Owner and each separate contractor shall have the same
responsibilities for cutting and patching as are described for the Contractor in
Paragraph 3.14.
6.3 OWNER'S RIGHT TO CLEAN UP
6.3.1 If a dispute arises among the Contractor, separate contractors and the
Owner as to the responsibility under their respective contracts for maintaining
the premises and surrounding area free from waste materials and rubbish as
described in Paragraph 3.15, the Owner may clean up and allocate the cost among
those responsible as the Architect determines to be just.
ARTICLE 7
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CHANGES IN THE WORK
7.1 CHANGES
7.1.1 Changes in the Work may be accomplished after execution of the Contract,
and without invalidating the Contract, by Change Order, Construction Change
Directive or order for a minor change in the Work, subject to the limitations
stated in this Article 7 and elsewhere in the Contract Documents.
7.1.2 A Change Order shall be based upon agreement among the Owner, Contractor
and Architect; a Construction Change Directive requires agreement by the Owner
and Architect and may or may not be agreed to by the Contractor; an order for a
minor change in the Work may be issued by the Architect alone.
7.1.3 Changes in the Work shall be performed under applicable provisions of
the Contract Documents, and the Contractor shall proceed promptly, unless
otherwise provided in the Change Order, Construction Change Directive or order
for a minor change in the Work.
7.1.4 If unit prices are stated in the Contract Documents or subsequently
agreed upon, and if quantities originally contemplated are so changed in a
proposed Change Order or Construction Change Directive that application of such
unit prices to quantities of Work proposed will cause substantial inequity to
the Owner or Contractor, the applicable unit prices shall be equitably adjusted.
7.2 CHANGE ORDERS
7.2.1 A Change Order is a written instrument prepared by the Architect and
signed by the Owner, Contractor and Architect, stating their agreement upon all
of the following:
1. a change in the Work;
2. the amount of the adjustment in the Contract Sum, if any; and
3. the extent of the adjustment in the Contract Time, if any.
7.2.2 Methods used in determining adjustments to the Contract Sum may include
those listed in Subparagraph 7.3.3.
7.3 CONSTRUCTION CHANGE DIRECTIVES
7.3.1 A Construction Change Directive is a written order prepared by the
Architect and signed by the Owner and Architect, directing a change in the Work
and stating a proposed basis for adjustment, if any, in the Contract Sum or
Contract Time, or both. The Owner may by Construction Change Directive, without
invalidating the Contract, order changes in the Work within the general scope of
the Contract consisting of additions, deletions or other revisions, the Contract
Sum and Contract Time being adjusted accordingly.
7.3.2 A Construction Change Directive shall be used in the absence of total
agreement on the terms of a Change Order.
7.3.3 If the Construction Change Directive provides for an adjustment to the
Contract Sum, the adjustment shall be based on one of the following methods:
1. mutual acceptance of a lump sum property itemized and supported by
sufficient substantiating data to permit evaluation;
2. unit prices stated in the Contract Documents or subsequently agreed
upon;
3. cost to be determined in a manner agreed upon by the parties and a
mutually acceptable fixed or percentage fee; or
4. as provided in Subparagraph 7.3.6.
7.3.4 Upon receipt of a Construction Change Directive, the Contractor shall
promptly proceed with the change in the Work involved and advise the Architect
of the Contractor's agreement or disagreement with the method, if any, provided
in the Construction Change Directive for determining the proposed adjustment in
the Contract Sum or Contract Time.
7.3.5 A Construction Change Directive signed by the Contractor indicates the
agreement of the Contractor therewith,
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including adjustment in Contract Sum and Contract Time or the method for
determining them. Such agreement shall be effective immediately and shall be
recorded as a Change Order.
7.3.6 If the Contractor does not respond promptly, or disagrees with the
method for adjustment in the Contract Sum, the method and the adjustment shall
be determined by the Architect on the basis of reasonable expenditures and
savings of those performing the Work attributable to the change, including, in
case of an increase in the Contract Sum. a reasonable allowance for overhead and
profit. In such case, and also under Clause __3.3.3, the Contractor shall keep
and present, in such form as the Architect may prescribe, an itemized accounting
together with appropriate supporting data. Unless otherwise provided in the
Contract Documents, costs for the purposes of this Subparagraph 7.3.6 shall be
limited to the following:
1. costs of labor, including social security, old age and unemployment
insurance, fringe benefits required by agreement or custom, and
workers' or workmen's compensation insurance;
2. costs of materials, supplies and equipment, including cost of
transportation, whether incorporated or consumed;
3. rental costs of machinery and equipment, exclusive of hand tools,
whether rented from the Contractor or others;
4. costs of premiums for all bonds and insurance, permit fees, and
sales, use or similar taxes related to the Work; and
5. additional costs of supervision and field office personnel directly
attributable to the change.
7.3.7 Pending final determination of cost to the Owner, amounts not in dispute
may be included in Applications for Payment. The amount of credit to be allowed
be the Contractor to the Owner for a deletion or change which results in a net
decrease in the Contract Sum shall be actual net cost as confirmed by the
Architect. When both additions and credits covering related Work or
substitutions are involved in a change, the allowance for overhead and profit
shall be figured on the basis of net increase, if any, with respect to that
change.
7.3.8 If the Owner and Contractor do not agree with the adjustment in Contract
Time or the method for determining it, the adjustment or the method shall be
referred to the Architect for determination.
7.3.9 When the Owner and Contractor agree with the determination made by the
Architect concerning the adjustments in the Contract Sum and Contract Time, or
otherwise reach agreement upon the adjustments, such agreement shall be
effective immediately and shall be recorded by preparation and execution of an
appropriate Change Order.
7.4 MINOR CHANGES IN THE WORK
7.4.1 The Architect will have authority to order minor changes in the Work not
involving adjustment in the Contract Sum or extension of the Contract Time and
not inconsistent with the intent of the Contract Documents. Such changes shall
be effected by written order and shall be binding on the Owner and Contractor.
The Contractor shall carry out such written orders promptly.
ARTICLE 8
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TIME
8.1 DEFINITIONS
8.1.1 Unless otherwise provided, Contract Time is the period of time,
including authorized adjustments, allotted in the Contract Documents for
Substantial Completion of the Work.
8.1.2 The date of commencement of the Work is the date established in the
Agreement. The date shall not be postponed by the failure to act of the
Contractor or of persons or entities for whom the Contractor is responsible.
8.1.3 The date of Substantial Completion is the date certified by the
Architect in accordance with Paragraph 9.8.
8.1.4 The term "day" as used in the Contract Documents shall mean calendar day
unless otherwise specifically defined.
8.2 PROGRESS AND COMPLETION
8.2.1 Time limits stated in the Contract Documents are of the essence of the
Contract. By executing the Agreement the Contractor confirms that the Contract
Time is a reasonable period for performing the Work.
8.2.2 The Contractor shall not knowingly, except by agreement or instruction
of the Owner in writing, prematurely commence operations on the site or
elsewhere prior to the effective date of insurance required by Article 11 to be
furnished by the Contractor. The date of commencement of the Work shall not be
changed by the effective date of such insurance. Unless the date of
commencement is established by a notice to proceed given by the Owner, the
Contractor shall notify the Owner in writing not less than five days or other
agreed period before commencing the Work to permit the timely filing of
mortgages, mechanic's liens and other security interests.
8.2.3 The Contractor shall proceed expeditiously with adequate forces and
shall achieve Substantial Completion within the Contract Time.
8.3 DELAYS AND EXTENSIONS OF TIME
8.3.1 If the Contractor is delayed at any time in progress of the Work by an
act or neglect of the Owner or Architect, or of
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an employee of either, or of a separate contractor employed by the Owner, or by
changes ordered in the Work, or by labor disputes, fire, unusual delay in
deliveries, unavoidable casualties or other causes beyond the Contractor's
control, or by delay authorized by the Owner or by other causes which the
Architect determines may justify delay, then the Contract Time shall be extended
by Change Order for such reasonable time as the Architect may determine.
8.3.2 Claims relating to time shall be made in accordance with applicable
provisions of Paragraph 4.3.
8.3.3 This Paragraph 8.3 does not preclude recovery of damages for delay by
either party under other provisions of the Contract Documents.
ARTICLE 9
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PAYMENTS AND COMPLETION
9.1 CONTRACT SUM
9.1.1 The Contract Sum is stated in the Agreement and, including authorized
adjustments, is the total amount payable by the Owner to the Contractor for
performance of the Work under the Contract Documents.
9.2 SCHEDULE OF VALUES
9.2.1 Before the first Application for Payment, the Contractor shall submit to
the Architect a schedule of values allocated to various portions of the Work,
prepared in such form and supported by such data to substantiate its accuracy as
the Architect may require. This schedule, unless objected to by the Architect,
shall be used as a basis for reviewing the Contractor's Applications for
Payment.
9.3 APPLICATIONS FOR PAYMENT
9.3.1 At least ten days before the date established for each progress payment,
the Contractor shall submit to the Architect an itemized Application for Payment
for operations completed in accordance with the schedule of values. Such
application shall be notarized, if required, and supported by such data
substantiating the Contractor's right to payment as the Owner or Architect may
require, such as copies of requisitions from Subcontractors and material
suppliers, and reflecting retainage if provided for elsewhere in the Contract
Documents.
9.3.1.1 Such applications may include requests for payment on account of changes
in the Work which have been properly authorized by Construction Change
Directives but not yet included in Change Orders.
9.3.1.2 Such applications may not include requests for payment of amounts the
Contractor does not intend to pay to a Subcontractor or material supplier
because of a dispute or other reason.
9.3.2 Unless otherwise provided in the Contract Documents, payments shall be
made on account of materials and equipment delivered and suitably stored at the
site for subsequent incorporation in the Work. If approved in advance by the
Owner, payment may similarly be made for materials and equipment suitably,
stored off the site at a location agreed upon in writing. Payment for materials
and equipment stored on or off the site shall be conditioned upon compliance by
the Contractor with procedures satisfactory to the Owner to establish the
Owner's title to such materials and equipment or otherwise protect the Owner's
interest, and shall include applicable insurance, storage and transportation to
the site for such materials and equipment stored off the site.
9.3.3 The Contractor warrants that title to all Work covered by an Application
for Payment will pass to the Owner no later than the time of payment. The
Contractor further warrants that upon submittal of an Application for Payment
all Work for which Certificates for Payment have been previously issued and
payments received from the Owner shall, to the best of the Contractor's
knowledge, information and belief, be free and clear of liens, claims, security
interests or encumbrances in favor of the Contractor, Subcontractors, material
suppliers, or other persons or entities making a claim by reason of having
provided labor, materials and equipment relating to the Work.
9.4 CERTIFICATES FOR PAYMENT
9.4.1 The Architect will, within seven days after receipt of the Contractor's
Application for Payment, either issue to the Owner a Certificate for Payment,
with a copy to the Contractor, for such amount as the Architect determines is
properly due, or notify the Contractor and Owner in writing of the Architect's
reasons for withholding certification in whole or in part as provided in
Subparagraph 9.5.1.
9.4.2 The issuance of a Certificate for Payment will constitute a
representation by the Architect to the Owner, based on the Architect's
observations at the site and the data comprising the Application for Payment,
that the Work has progressed to the point indicated and that, to the best of the
Architect's knowledge, information and belief, quality of the Work is in
accordance with the Contract Documents. The foregoing representations are
subject to an evaluation of the Work for conformance with the Contract Documents
upon Substantial Completion, to results of subsequent tests and inspections, to
minor deviations from the Contract Documents correctable prior to completion and
to specific qualifications expressed by the Architect. The issuance of a
Certificate for Payment will further constitute a representation that the
Contractor is entitled to payment in the amount certified. However, the issuance
of a Certificate for Payment will not be a representation that the Architect has
(1) made exhaustive or continuous on-site inspections to check the quality or
quantity of the Work, (2) reviewed construction means, methods, techniques,
sequences or procedures, (3) reviewed copies of requisitions received from
Subcontractors and material suppliers and other data requested by the Owner to
substantiate the
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Contractor's right to payment or (4) made examination to ascertain how or for
what purpose the Contractor has used money previously paid on account of the
Contract Sum.
9.5 DECISIONS TO WITHHOLD CERTIFICATION
9.5.1 The Architect may decide not to certify payment and may withhold a
Certificate for Payment in whole or in part, to the extent reasonably necessary
to protect the Owner, if in the Architect's opinion the representations to the
Owner required by Subparagraph 9.4.2 cannot be made. If the Architect is unable
to certify payment in the amount of the Application, the Architect will notify
the Contractor and Owner as provided in Subparagraph 9.4.1. If the Contractor
and Architect cannot agree on a revised amount, the Architect will promptly
issue a Certificate for Payment for the amount for which the Architect is able
to make such representations to the Owner. The Architect may also decide not to
certify payment or, because of subsequently discovered evidence or subsequent
observations, may nullify the whole or a part of a Certificate for Payment
previously issued, to such extent as may be necessary in the Architect's opinion
to protect the Owner from loss because of:
1. defective Work not remedied;
2. third party claims filed or reasonable evidence indicating probable
filing of such claims;
3. failure of the Contractor to make payments properly to
Subcontractors or for labor, materials or equipment;
4. reasonable evidence that the Work cannot be completed for the unpaid
balance of the Contract Sum;
5. damage to the Owner or another contractor;
6. reasonable evidence that the Work will not be completed within the
Contract Time, and that the unpaid balance would not be adequate to
cover actual or liquidated damages for the anticipated delay; or
7. persistent failure to carry out the Work in accordance with the
Contract Documents.
9.5.2 When the above reasons for withholding certification are removed,
certification will be made for amounts previously withheld.
9.6 PROGRESS PAYMENTS
9.6.1 After the Architect has issued a Certificate for Payment, the Owner
shall make payment in the manner and within the time provided in the Contract
Documents, and shall so notify the Architect. If Owner disputes the amount to
be paid to Contractor, Owner shall promptly pay the undisputed amounts and
proceed to dispute the resolution in accordance herewith.
9.6.2 The Contractor shall promptly pay each Subcontractor, upon receipt of
payment from the Owner, out of the amount paid to the Contractor on account of
such Subcontractor's portion of the Work, the amount to which said Subcontractor
is entitled, reflecting percentages actually retained from payments to the
Contractor on account of such Subcontractor's portion of the Work. The
Contractor shall, by appropriate agreement with each Subcontractor, require each
Subcontractor to make payments to Sub-subcontractors in similar manner.
9.6.3 The Architect will, on request, furnish to a Subcontractor, if
practicable, information regarding percentages of completion or amounts applied
for by the Contractor and action taken thereon by the Architect and Owner on
account of portions of the Work done by such Subcontractor.
9.6.4 Neither the Owner nor Architect shall have an obligation to pay or to
see to the payment of money to a Subcontractor except as may otherwise be
required by law.
9.6.5 Payment to material suppliers shall be treated in a manner similar to
that provided in Subparagraphs 9.6.2, 9.6.3 and 9.6.4.
9.6.6 A Certificate for Payment, a progress payment, or partial or entire use
or occupancy of the Project by the Owner shall not constitute acceptance of Work
not in accordance with the Contract Documents.
9.7 FAILURE OF PAYMENT
9.7.1 If the Architect does not issue a Certificate for Payment, through no
fault of the Contractor, within seven days after receipt of the Contractor's
Application for Payment, or if the Owner does nor pay the Contractor within
seven days after the date established in the Contract Documents the amount
certified by the Architect then the Contractor may, upon seven additional days'
written notice to the Owner and Architect, stop the Work until payment of the
amount owing has been received. The Contract Time shall be extended
appropriately and the Contract Sum shall be increased by the amount of the
Contractor's reasonable costs of shutdown, delay and startup, which shall be
accomplished as provided in Article 7.
9.7.2 Notwithstanding anything to the contrary elsewhere in the contract
documents, to the extent that the Contractor has received payment in accordance
herewith, the Contractor shall keep the work in the property free and clear of
all construction, labor and materialman's liens, including liens on behalf of
any subcontractor or person claiming under any such subcontractor and defend,
indemnify and save Owner harmless therefrom.
9.8 SUBSTANTIAL COMPLETION
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9.8.1 Substantial Completion is the stage in the progress of the Work when the
Work or designated portion thereof is sufficiently complete in accordance with
the Contract Documents so the Owner can occupy or utilize the Work for its
intended use.
9.8.2 When the Contractor considers that the Work, or a portion thereof which
the Owner agrees to accept separately, is substantially complete, the Contractor
shall prepare and submit to the Architect a comprehensive list of items to be
completed or corrected. The Contractor shall proceed promptly to complete and
correct items on the list. Failure to include an item on such list does not
alter the responsibility of the Contractor to complete all Work in accordance
with the Contract Documents. Upon receipt of the Contractor's list, the
Architect will make an inspection to determine whether the Work or designated
portion thereof is substantially complete. If the Architect's inspection
discloses any item, whether or not included on the Contractor's list, which is
not in accordance with the requirements of the Contract Documents, the
Contractor shall, before issuance of the Certificate of Substantial Completion,
complete or correct such item upon notification by the Architect. The
Contractor shall then submit a request for another inspection by the Architect
to determine Substantial Completion. When the Work or designated portion
thereof is substantially complete, the Architect will prepare a Certificate of
Substantial Completion which shall establish the date of Substantial Completion,
shall establish responsibilities of the Owner and Contractor for security,
maintenance, heat, utilities, damage to the Work and insurance, and shall fix
the time within which the Contractor shall finish all items on the list
accompanying the Certificate. Warranties required by the Contract Documents
shall commence on the date of Substantial Completion of the Work or designated
portion thereof unless otherwise provided in the Certificate of Substantial
Completion. The Certificate of Substantial Completion shall be submitted to the
Owner and Contractor for their written acceptance of responsibilities assigned
to them in such Certificate.
9.8.3 Upon Substantial Completion of the Work or designated portion thereof
and upon application by the Contractor and certification by the Architect, the
Owner shall make payment, reflecting adjustment in retainage, if any, for such
Work or portion thereof as provided in the Contract Documents.
9.9 PARTIAL OCCUPANCY OR USE
9.9.1 The Owner may occupy or use any completed or partially completed portion
of the Work at any stage when such portion is designated by separate agreement
with the Contractor, provided such occupancy or use is consented to by the
insurer as required under Subparagraph 11.3.11 and authorized by public
authorities having jurisdiction over the Work. Such partial occupancy or use
may commence whether or not the portion is substantially complete, provided the
Owner and Contractor have accepted in writing the responsibilities assigned to
each of them for payments, retainage if any, security, maintenance, heat,
utilities, damage to the Work and insurance, and have agreed in writing
concerning the period for correction of the Work and commencement of warranties
required by the Contract Documents. When the Contractor considers a portion
substantially complete, the Contractor shall prepare and submit a list to the
Architect as provided under Subparagraph 9.8.2. Consent of the Contractor to
partial occupancy or use shall not be unreasonably withheld. The stage of the
progress of the Work shall be determined by written agreement between the Owner
and Contractor or, if no agreement is reached, by decision of the Architect.
9.9.2 Immediately prior to such partial occupancy or use, the Owner,
Contractor and Architect shall jointly inspect the area to be occupied or
portion of the Work to be used in order to determine and record the condition of
the Work.
9.9.3 Unless otherwise agreed upon, partial occupancy or use of a portion or
portions of the Work shall not constitute acceptance of Work not complying with
the requirements of the Contract Documents.
9.10 FINAL COMPLETION AND FINAL PAYMENT
9.10.1 Upon receipt of written notice that the Work is ready for final
inspection and acceptance and upon receipt of a final Application for Payment,
the Architect will promptly make such inspection and, when the Architect finds
the Work acceptable under the Contract Documents and the Contract fully
performed, the Architect will promptly issue a final Certificate for Payment
stating that to the best of the Architect's knowledge, information and belief,
and on the basis of the Architect's observations and inspections, the Work has
been completed in accordance with terms and conditions of the Contract Documents
and that the entire balance found to be due the Contractor and noted in said
final Certificate is due and payable. The Architect's final Certificate for
Payment will constitute a further representation that conditions listed in
Subparagraph 9.10.2 as precedent to the Contractor's being entitled to final
payment have been fulfilled.
9.10.2 Neither final payment nor any remaining retained percentage shall become
due until the Contractor submits to the Architect (1) an affidavit that
payrolls, bills for materials and equipment, and other indebtedness connected
with the Work for which the Owner or the Owner's property might be responsible
or encumbered (less amounts withheld by Owner) have been paid or otherwise
satisfied, (2) a certificate evidencing that insurance required by the Contract
Documents to remain in force after final payment is currently in effect and will
not be canceled or allowed to expire until at least 30 days' prior written
notice has been given to the Owner, (3) a written statement that the Contractor
knows of no substantial reason that the insurance will not be renewable to cover
the period required by the Contract Documents, (4) consent of surety, if any, to
final payment and (5), if required by the Owner, other data establishing payment
or satisfaction of obligations, such as receipts, releases and waivers of liens,
claims, security interests
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or encumbrances arising out of the Contract, to the extent and in such form as
may be designated by the Owner. If a Subcontractor refuses to furnish a release
or waiver required by the Owner, the Contractor may furnish a bond satisfactory
to the Owner to indemnify the Owner against such lien. If such lien remains
unsatisfied after payments are made, the Contractor shall refund to the Owner
all money that the Owner may be compelled to pay in discharging such lien,
including all costs and reasonable attorneys' fees.
9.10.3 If, after Substantial Completion of the Work, final completion thereof
is materially delayed through no fault of the Contractor or by issuance of
Change Orders affecting final completion, and the Architect so confirms, the
Owner shall, upon application by the Contractor and certification by the
Architect, and without terminating the Contract, make payment of the balance due
for that portion of the Work fully completed and accepted. If the remaining
balance for Work not fully completed or corrected is less than retainage
stipulated in the Contract Documents, and if bonds have been furnished, the
written consent of surety to payment of the balance due for that portion of the
Work fully completed and accepted shall be submitted by the Contractor to the
Architect prior to certification of such payment. Such payment shall be made
under terms and conditions governing final payment, except that it shall not
constitute a waiver of claims. The making of final payment shall constitute a
waiver of claims by the Owner as provided in Subparagraph 4.3.5.
9.10.4 Acceptance of final payment by the Contractor, a Subcontractor or
material supplier shall constitute a waiver of claims by that payee except those
previously made in writing and identified by that payee as unsettled at the time
of final Application for Payment. Such waivers shall be in addition to the
waiver described in Subparagraph 4.3.5.
ARTICLE 10
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PROTECTION OF PERSONS AND PROPERTY
10.1 SAFETY PRECAUTIONS AND PROGRAMS
10.1.1 The Contractor shall be responsible for initiating, maintaining and
supervising all safety precautions and programs in connection with the
performance of the Contract.
10.1.2 In the event the Contractor encounters on the site material reasonably
believed to be asbestos or polychlorinated biphenyl (PCB) which has not been
rendered harmless, the Contractor shall immediately stop Work in the area
affected and report the condition to the Owner and Architect in writing. The
Work in the affected area shall not thereafter be resumed except by written
agreement of the Owner and Contractor if in fact the material is asbestos or
polychlorinated biphenyl (PCB) and has not been rendered harmless. The Work in
the affected area shall be resumed in the absence of asbestos or polychlorinated
biphenyl (PCB), or when it has been rendered harmless, by written agreement of
the Owner and Contractor, or in accordance with final determination by the
Architect on which arbitration has not been demanded, or by arbitration under
Article 4.
10.1.3 The Contractor shall not be required pursuant to Article 7 to perform
without consent any Work relating to asbestos or polychlorinated biphenyl (PCB).
10.1.4 To the fullest extent permitted by law, the Owner shall indemnify and
hold harmless the Contractor, Architect, Architect's consultants and agents and
employees of any of them from and against claims, damages, losses and expenses,
including but not limited to attorneys' fees, arising out of or resulting from
performance of the Work in the affected area if in fact the material is asbestos
or polychlorinated biphenyl (PCB) and has not been rendered harmless, provided
that such claim, damage, loss or expense is attributable to bodily injury,
sickness, disease or death, or to injury to or destruction of tangible property
(other than the Work itself) including loss of use resulting therefrom, but only
to the extent caused in whole or in part by negligent acts or omissions of the
Owner, anyone directly or indirectly employed by the Owner or anyone for whose
acts the Owner may be liable, regardless of whether or not such claim, damage,
loss or expense is caused in part by a party indemnified hereunder. Such
obligation shall not be construed to negate, abridge, or reduce other rights or
obligations of indemnity which would otherwise exist as to a party or person
described in this Subparagraph 10. 1.4.
10.2 SAFETY OF PERSONS AND PROPERTY
10.2.1 The Contractor shall take reasonable precautions for safety of, and
shall provide reasonable protection to prevent damage, injury or loss to:
1. employees on the Work and other persons who may be affected thereby;
2. the Work and materials and equipment to be incorporated therein,
whether in storage on or off the site, under care, custody or
control of the Contractor or the Contractor's Subcontractors or Sub-
subcontractors; and
3. other property at the site or adjacent thereto, such as trees,
shrubs, lawns, walks, pavements, roadways, structures and utilities
not designated for removal, relocation or replacement in the course
of construction.
10.2.2 The Contractor shall give notices and comply with applicable laws,
ordinances, rules, regulations and lawful orders of public authorities bearing
on safety of persons or property or their protection from damage, injury or
loss.
10.2.3 The Contractor shall erect and maintain, as required by existing
conditions and performance of the Contract, reason-
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able safeguards for safety and protection, including posting danger signs and
other warnings against hazards, promulgating safety regulations and notifying
owners and users of adjacent sites and utilities.
10.2.4 When use or storage of explosives or other hazardous materials or
equipment or unusual methods are necessary for execution of the Work, the
Contractor shall exercise utmost care and carry on such activities under
supervision of properly qualified personnel.
10.2.5 The Contractor shall promptly remedy damage and loss (other than damage
or loss insured under property insurance required by the Contract Documents) to
property, referred to in Clauses 10.2.1.2 and 10.2.1.3 caused in whole or in
part by the Contractor, a Subcontractor, a Sub-subcontractor, or anyone directly
or indirectly employed by any of them, or by anyone for whose acts they may be
liable, and for which the Contractor is responsible under Clauses 10.2.1.2 and
10.2.1.3, except damage or loss attributable to acts or omissions of the Owner
or Architect or anyone directly or indirectly, employed by either of them, or
anyone for whose acts either of them may be liable and not attributable to the
fault or negligence of the Contractor. The foregoing obligations of the
Contractor are in addition to the Contractor's obligations under Paragraph 3.18.
10.2.6 The Contractor shall designate a responsible member of the Contractor's
organization at the site whose duty shall be the prevention of accidents. This
person shall be the Contractor's superintendent unless otherwise designated by
the Contractor in writing to the Owner and Architect.
10.2.7 The Contractor shall not load or permit any part of the construction or
site to be loaded so as to endanger its safety.
10.3 EMERGENCIES
10.3.1 In an emergency affecting safety of persons or property, the Contractor
shall act, at the Contractor's discretion, to prevent threatened damage, injury
or loss. Additional compensation or extension of time claimed by the Contractor
on account of an emergency shall be determined as provided in Paragraph 4.3 and
Article 7.
ARTICLE 11
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INSURANCE AND BONDS
11.1 CONTRACTOR'S LIABILITY INSURANCE
11.1.1 The Contractor shall purchase from and maintain in a company or
companies lawfully authorized to do business in the jurisdiction in which the
Project is located such insurance as will protect the Contractor from claims set
forth below which may arise out of or result from the Contractor's operations
under the contract and for which the Contractor may be legally liable, whether
such operations be by the Contractor or by a Subcontractor or by anyone directly
or indirectly employed by any of them, or by anyone for whose acts any of them
may be liable:
1. claims under workers' or workmen's compensation, disability benefit
and other similar employee benefit acts which are applicable to the
Work to be performed;
2. claims for damages because of bodily injury, sickness or disease, or
death of the Contractor's employees;
3. claims for damages because of bodily injury, sickness or disease, or
death of any person other than the Contractor's employees;
4. claims for damages insured by usual personal injury liability
coverage which are sustained (1) by a person as a result of an
offense directly or indirectly related to employment of such person
by the Contractor, or (2) by another person;
5. claims for damages, other than to the Work itself, because of injury
to or destruction of tangible property, including loss of use
resulting therefrom;
6. claims for damages because of bodily injury, death of a person or
property damage arising out of ownership, maintenance or use of a
motor vehicle; and
7. claims involving contractual liability insurance applicable to the
Contractor's obligation, under Paragraph 3.18.
11.1.2 The insurance required by Subparagraph 11.1.1 shall be written for not
less than limits of liability specified in the Contract Documents or required by
law, whichever coverage is greater. Coverages, whether written on an occurrence
or claims-made basis, shall be maintained without interruption from date of
commencement of the Work until date of final payment and termination of any
coverage required to be maintained after final payment.
11.1.3 Certificates of Insurance acceptable to the Owner shall be filed with
the Owner prior to commencement of the Work. These Certificates and the
insurance policies required by this Paragraph 11.1 shall contain a provision
that coverages afforded under the policies will not be canceled or allowed to
expire until at least 30 days' prior written notice has been given to the Owner.
If any of the foregoing insurance coverages are required to remain in force
after final payment and are reasonable, available, an additional certificate
evidencing continuation of such coverage shall be submitted with the final
Application for Payment as required by Subparagraph 9.10.2. Information
concerning reduction of coverage shall be furnished by the Contractor with
reasonable promptness in accordance with the
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Contractor's information and belief.
11.2 OWNER'S LIABILITY INSURANCE
11.2.1 The Owner shall be responsible for purchasing and maintaining the Owner's
usual liability insurance. Optionally, the Owner may purchase and maintain
other insurance for self-protection against claims which may arise from
operations under the Contract. The Contractor shall not be responsible for
purchasing and maintaining this optional Owner's liability insurance unless
specifically required by the Contract Documents.
11.3 PROPERTY INSURANCE
11.3.1 Unless otherwise provided, the Owner shall purchase and maintain, in a
company or companies lawfully authorized to do business in the jurisdiction in
which the Project is located, property insurance in the amount of the initial
Contract Sum as well as subsequent modifications thereto for the entire Work at
the site on a replacement cost basis without voluntary deductibles. Such
property insurance shall be maintained, unless otherwise provided in the
Contract Documents or otherwise agreed in writing by all persons and entities
who are beneficiaries of such insurance, until final payment has been made as
provided in Paragraph 9.1.0 or until no person or entity other than the Owner
has an insurable interest in the property required by this Paragraph 11.3 to be
covered, whichever is earlier. This insurance shall include interests of the
Owner, the Contractor, Subcontractors and Sub-subcontractors in the Work.
11.3.1.1 Property insurance shall be on an all-risk policy form and shall
insure against the perils of fire and extended coverage and physical loss or
damage including, without duplication of coverage, theft, vandalism, malicious
mischief, collapse, falsework, temporary buildings and debris removal including
demolition occasioned by enforcement of any applicable legal requirements, and
shall cover reasonable compensation for Architect's services and expenses
required as a result of such insured loss. Coverage for other perils shall not
be required unless otherwise provided in the Contract Documents.
11.3.1.2 If the Owner does not intend to purchase such property insurance
required by the Contract and with all of the coverages in the amount described
above, the Owner shall so inform the Contractor in writing prior to commencement
of the Work. The Contractor may then effect insurance which will protect the
interests of the Contractor, Subcontractors and Sub-subcontractors in the Work,
and by appropriate Change Order the cost thereof shall be charged to the Owner.
If the Contractor is damaged by the failure or neglect of the Owner to purchase
or maintain insurance as described above, without so notifying the Contractor,
then the Owner shall bear all reasonable costs property attributable thereto.
11.3.1.3 If the property insurance requires minimum deductibles and such
deductibles are identified in the Contract Documents, the Contractor shall pay
costs not covered because of such deductibles. If the Owner or insurer
increases the required minimum deductibles above the amounts so identified or if
the Owner elects to purchase this insurance with voluntary deductible amounts,
the Owner shall be responsible for payment of the additional costs not covered
because of such increased or voluntary deductibles. If deductibles are not
identified in the Contract Documents, the Owner shall pay costs not covered
because of deductibles.
11.3.1.4 Unless otherwise provided in the Contract Documents, this property
insurance shall cover portions of the Work stored off the site after written
approval of the Owner at the value established in the approval, and also
portions of the Work in transit.
11.3.2 Boiler and Machinery Insurance. The Owner shall purchase and maintain
boiler and machinery insurance required by the Contract Documents or by law,
which shall specifically cover such insured objects during installation and
until final acceptance by the Owner; this insurance shall include interests of
the Owner, Contractor, Subcontractors and Sub-subcontractors in the Work, and
the Owner and Contractor shall be named insureds.
11.3.3 Loss of Use Insurance. The Owner, at the Owner's option, may purchase
and maintain such insurance as will insure the Owner against loss of use of the
Owner's property due to fire or other hazards, however caused. The Owner waives
all rights of action against the Contractor for loss of use of the Owner's
property, including consequential losses due to fire or other hazards however
caused.
11.3.4 If the Contractor requests in writing that insurance for risks other
than those described herein or for other special hazards be included in the
property insurance policy, the Owner Shall, if possible, include such insurance,
and the cost thereof shall be charged to the Contractor by appropriate Change
Order.
11.3.5 If during the Project construction period the Owner insures
properties, real or personal or both, adjoining or adjacent to the site by
property insurance under policies separate from those insuring the Project, or
if after final payment property insurance is to be provided on the completed
Project through a policy or policies other than those insuring the Project
during the construction period, the Owner shall waive all rights in accordance
with the terms of Subparagraph 11.3.7 for damages caused by fire or other perils
covered by this separate property insurance. All separate policies shall provide
this waiver of subrogation by endorsement or otherwise.
11.3.6 Before an exposure to loss may occur, the Owner shall file with the
Contractor a copy of each policy that includes insurance coverages required by
this Paragraph 11.3. Each policy shall contain all generally applicable
conditions, definitions, exclusions and endorsements related to this Project.
Each policy shall contain a provision that the policy will not be canceled or
allowed to expire until at least 30 days' prior written
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notice has been given to the Contractor.
11.3.7 Waivers of Subrogation. The Owner and Contractor waive all rights
against (1) each other and any of their subcontractors, sub-subcontractors,
agents and employees, each of the other, and (2) the Architect, Architect's
consultants, separate contractors described in Article 6, if any, and any of
their subcontractors, sub-subcontractors, agents and employees, for damages
caused by fire or other perils to the extent covered by property insurance
obtained pursuant to this Paragraph 11.3 or other property insurance applicable
to the Work, except such rights as they have to proceeds of such insurance held
by the Owner as fiduciary. The Owner or Contractor, as appropriate, shall
require of the Architect, Architect's consultants, separate contractors
described in Article 6, if any, and the subcontractors, sub-subcontractors,
agents and employees of any of them, by appropriate agreements, written where
legally required for validity, similar waivers each in favor of other parties
enumerated herein. The policies shall provide such waivers of subrogation by
endorsement or otherwise. A waiver of subrogation shall be effective as to a
person or entity even though that person or entity would otherwise have a duty
of indemnification, contractual or otherwise, did not pay the insurance premium
directly or indirectly, and whether or not the person or entity had an insurable
interest in the property damaged.
11.3.8 A loss insured under Owner's property insurance shall be adjusted by
the Owner as fiduciary and made payable to the Owner as fiduciary for the
insureds, as their interests may appear, subject to requirements of any
applicable mortgagee clause and of Subparagraph 11.3.10. The Contractor shall
pay Subcontractors their just shares of insurance proceeds received by the
Contractor, and by appropriate agreements, written where legally required for
validity, shall require Subcontractors to make payments to their Sub-
subcontractors in similar manner.
11.3.9 If required in writing by a party in interest, the Owner as fiduciary
shall, upon occurrence of an insured loss, give bond for proper performance of
the Owner's duties. The cost of required bonds shall be charged against
proceeds received as fiduciary. The Owner shall deposit in a separate account
proceeds so received, which the Owner shall distribute in accordance with such
agreement as the parties in interest may reach, or in accordance with an
arbitration award in which case the procedure shall be as provided in Paragraph
4.5. If after such loss no other special agreement is made, replacement of
damaged property shall be covered by appropriate Change Order.
11.3.10 The Owner as fiduciary shall have power to adjust and settle a loss
with insurers unless one of the parties in interest shall object in writing
within five days after occurrence of loss to the Owner's exercise of this power;
if such objection be made, arbitrators shall be chosen as provided in Paragraph
4.5. The Owner as fiduciary shall, in that case, make settlement with insurers
in accordance with directions of such arbitrators. If distribution of insurance
proceeds by arbitration is required, the arbitrators will direct such
distribution.
11.3.11 Partial occupancy or use in accordance with Paragraph 9.9 shall not
commence until the insurance company or companies providing property insurance
have consented to such partial occupancy or use by endorsement or otherwise.
The Owner and the Contractor shall take reasonable steps to obtain consent of
the insurance company or companies and shall, without mutual written consent,
take no action with respect to partial occupancy or use that would cause
cancellation, lapse or reduction of insurance.
11.4 PERFORMANCE BOND AND PAYMENT BOND
11.4.1 The Owner shall have the right to require the Contractor to furnish
bonds covering faithful performance of the Contract and payment of obligations
arising thereunder as stipulated in bidding requirements or specifically
required in the Contract Documents on the date of execution of the Contract.
11.4.2 Upon the request of any person or entity appearing to be a potential
beneficiary of bonds covering payment of obligations arising under the Contract,
the Contractor shall promptly furnish a copy of the bonds or shall permit a copy
to be made.
ARTICLE 12
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UNCOVERING AND CORRECTION OF WORK
12.1 UNCOVERING OF WORK
12.1.1 If a portion of the Work is covered contrary to the Architect's
request or to requirements specifically expressed in the Contract Documents, it
must, if required in writing by the Architect, be uncovered for the Architect's
observation and be replaced at the Contractor's expense without change in the
Contract Time.
12.1.2 If a portion of the Work has been covered which the Architect has not
specifically requested to observe prior to its being covered, the Architect may
request to see such Work and it shall be uncovered by the Contractor. If such
Work is in accordance with the Contract Documents, costs of uncovering and
replacement shall, by appropriate Change Order, be charged to the Owner. If
such Work is not in accordance with the Contract Documents, the Contractor shall
pay such costs unless the condition was caused by the Owner or a separate
contractor in which event the owner shall be responsible foe payment of such
costs.
12.2 CORRECTION OF WORK
12.2.1 The Contractor shall promptly correct Work rejected by the Architect
or failing to conform to the requirements of the Contract Documents, whether
observed before or after Substantial Completion and whether or not fabricated,
installed or completed. The Contractor shall bear costs of correcting such
rejected Work, including additional testing and inspections and compensation for
the Architect's services and expenses made
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necessary thereby.
12.2.2 If, within one year after the date of Substantial Completion of the
Work or designated portion thereof, or after the date for commencement of
warranties established under Subparagraph 9.9.1, or by terms of an applicable
special warranty required by the Contract Documents, any of the Work is found to
be not in accordance with the requirements of the Contract Documents, the
Contractor shall correct it promptly after receipt of written notice from the
Owner to do so unless the Owner has previously given the Contractor a written
acceptance of such condition. This period of one year shall be extended with
respect to portions of Work first performed after Substantial Completion by the
period of time between Substantial Completion and the actual performance of the
Work. This obligation under this Subparagraph 12.2.2 shall survive acceptance of
the Work under the Contract and termination of the Contract. The Owner shall
give such notice promptly after discovery of the condition.
12.2.3 The Contractor shall remove from the site portions of the Work which
art not in accordance with the requirements of the Contract Documents and are
neither corrected by the Contractor nor accepted by the Owner.
12.2.4 If the Contractor fails to correct nonconforming Work within a
reasonable time, the Owner may correct it in accordance with Paragraph 2.4. If
the Contractor does not proceed with correction of such nonconforming Work
within a reasonable Time fixed by written notice from the Architect, the Owner
may remove it and store the salvable materials or equipment at the Contractor's
expense. If the Contractor does not pay costs of such removal and storage
within ten days after written notice, the Owner may upon ten additional days'
written notice sell such materials and equipment at auction or at private sale
and shall account for the proceeds thereof, after deducting costs and damages
that should have been borne by the Contractor, including compensation for the
Architect's services and expenses made necessary thereby. If such proceeds of
sale do not cover costs which the Contractor should have borne, the Contract Sum
shall be reduced by the deficiency. If payments then or thereafter due the
Contractor are not sufficient to cover such amount, the Contractor shall pay the
difference to the Owner.
12.2.5 The Contractor shall bear the cost of correcting destroyed or damaged
construction, whether completed or partially completed, of the Owner or separate
contractors caused by the Contractor's correction or removal of Work which is
not in accordance with the requirements of the Contract Documents.
12.2.6 Nothing contained in this Paragraph 12.2 shall be construed to
establish a period of limitation with respect to other obligations which the
Contractor might have under the Contract Documents. Establishment of the time
period of one year as described in Subparagraph 12.2.2 relates only to the
specific obligation of the Contractor to correct the Work, and has no
relationship to the time within which the obligation to comply with the Contract
Documents may be sought to be enforced, nor to the time within which proceedings
may be commenced to establish the Contractor's liability with respect to the
Contractor's obligations other than specifically to correct the Work.
12.3 ACCEPTANCE OF NONCONFORMING WORK
12.3.1 If the Owner prefers to accept Work which is not in accordance with
the requirements of the Contract Documents, the Owner may do so instead of
requiring its removal and correction, in which case the Contract Sum will be
reduced as appropriate and equitable. Such adjustment shall be effected whether
or not final payment has been made.
ARTICLE 13
----------
MISCELLANEOUS PROVISIONS
13.1 GOVERNING LAW
13.1.1 The Contract shall be governed by the law of the place where the
Project is located; provided however, any claim by either party against the
other arising from the operation hereof shall be brought and maintained in the
Federal and State courts located in Hillsborough County, Florida.
13.2 SUCCESSORS AND ASSIGNS
13.2.1 The Owner and Contractor respectively bind themselves, their partners,
successors, assigns and legal representatives to the other party hereto and to
partners, successors, assigns and legal representatives of such other party in
respect to covenants, agreements and obligations contained in the Contract
Documents. Neither party to the Contract shall assign the Contract as a whole
without written consent of the other. If either party attempts to make such an
assignment without such consent, that party shall nevertheless remain legally
responsible for all obligations under the Contract. Notwithstanding the
foregoing, the Owner shall not require _________________________ to an entity
acquiring all or substantially all of the assets of Owner or controlling
interest in Owner, or to an entity owned or controlled by Owner.
13.3 WRITTEN NOTICE
13.3.1 Written notice shall be deemed to have been duly served if delivered
in person to the individual or a member of the firm or entity or to an officer
of the corporation for which it was intended or if delivered at or sent by
registered or certified mail to the last business address known to the party
giving notice.
13.4 RIGHTS AND REMEDIES
13.4.1 Except as expressly provided herein, the Duties and
21
<PAGE>
obligations imposed by the Contract Documents and rights and remedies available
thereunder shall be in addition to and not a limitation of duties, obligations,
rights and remedies otherwise imposed or available by law.
13.4.2 No action or failure to act by the Owner, Architect or Contractor
shall constitute a waiver of a right or duty afforded them under the Contract,
nor shall such action or failure to act constitute approval of or acquiescence
in a breach thereunder, except as may be specifically agreed in writing.
13.5 TESTS AND INSPECTIONS
13.5.1 Tests, inspections and approvals of portions of the Work required by
the Contract Documents or by laws, ordinances, rules, regulations or orders of
public authorities having jurisdiction shall be made at an appropriate time.
Unless otherwise provided, the Contractor shall make arrangements for such
tests, inspections and approvals with an independent testing laboratory or
entity acceptable to the Owner, or with the appropriate public authority, and
shall bear all related costs of tests, inspections and approvals. The Contractor
shall give the Architect timely notice of when and where tests and inspections
are to be made so the Architect may observe such procedures. The Owner shall
bear costs of tests, inspections or approvals which do not become requirements
until after bids are received or negotiations concluded.
13.5.2 If the Architect, Owner or public authorities having jurisdiction
determine that portions of the Work require additional testing, inspection or
approval not included under Subparagraph 13.5. 1, the Architect will, upon
written authorization from the Owner, instruct the Contractor to make
arrangements for such additional testing, inspection or approval by an entity
acceptable to the Owner, and the Contractor shall give timely notice to the
Architect of when and where tests and inspections are to be made so the
Architect may observe such procedures. The Owner shall bear such costs except
as provided in Subparagraph 13.5.3.
13.5.3 If such procedures for testing, inspection or approval under
Subparagraphs 13.5.1 and 13.5.2 reveal failure of the portions of the Work to
comply with requirements established by the Contract Documents, the Contractor
shall bear all costs made necessary by such failure including those of repeated
procedures and compensation for the Architect's services and expenses.
13.5.4 Required certificates of testing, inspection or approval shall, unless
otherwise required by the Contract Documents, be secured by the Contractor and
promptly delivered to the Architect.
13.5.5 If the Architect is to observe tests, inspections or approvals
required by the Contract Documents, the Architect will do so promptly and, where
practicable, at the normal place of testing.
13.5.6 Tests or inspections conducted pursuant to the Contract Documents
shall be made promptly to avoid unreasonable delay in the Work.
13.6 INTEREST
13.6.1 Payments due and unpaid under the Contract Documents shall bear
interest from the date payment is due at such rate as the parties may agree upon
in writing or, in the absence thereof, at the legal rate prevailing from time to
time at the place where the Project is located.
13.7 COMMENCEMENT OF STATUTORY LIMITATION PERIOD
13.7.1 As between the Owner and Contractor:
1. Before Substantial Completion. As to acts or failures to act
occurring prior to the relevant date of Substantial Completion,
any applicable statute of limitations shall commence to run and
any alleged cause of action shall be deemed to have accrued in
any and all events not later than such date of Substantial
Completion;
2. Between Substantial Completion and Final Certificate for Payment.
As to acts or failures to act occurring subsequent to the
relevant date of Substantial Completion and prior to issuance of
the final Certificate for Payment, any applicable statute of
limitations shall commence to run and any alleged cause of action
shall be deemed to have accrued in any and all events not later
than the date of issuance of the final Certificate for Payment;
and
3. After Final Certificate for Payment. As to acts or failures to
act occurring after the relevant date of issuance of the final
Certificate for Payment, any applicable statute of limitations
shall commence to run and any alleged cause of action shall be
deemed to have accrued in any and all events not later than the
date of any act or failure to act by the Contractor pursuant to
any warranty provided under Paragraph 3.5, the date of any
correction of the Work or failure to correct the Work by the
Contractor under Paragraph 12.2, or the date of actual commission
of any other act or failure to perform any duty or obligation by
the Contractor or Owner, whichever occurs last.
ARTICLE 14
----------
TERMINATION OR SUSPENSION
OF THE CONTRACT
14.1 TERMINATION BY THE CONTRACTOR
22
<PAGE>
14.1.1 The Contractor may terminate the Contract if the Work is stopped for a
period of 30 days through no act or fault of the Contractor or a Subcontractor,
Sub-subcontractor or their agents or employees or any other persons performing
portions of the Work under contract with the Contractor, for any of the
following reasons:
1. issuance of an order of a court or other public authority having
jurisdiction;
2. an act of government, such as a declaration of national
emergency, making material unavailable;
3. because the Architect has not issued a Certificate for Payment
and has not notified the Contractor of the reason for withholding
certification as provided in Subparagraph 9.4.1, or because the
Owner has not made payment on a Certificate for Payment within
the time stated in the Contract Documents;
4. if repeated suspensions, delays or interruptions by the Owner as
described in Paragraph 14.3 constitute in the aggregate more than
100 percent of the total number of days scheduled for completion,
or 120 days in any 365day period, whichever is less; or
5. the Contractor's request, reasonable evidence as required by
Subparagraph 2.2.1.
14.1.2 If one of the above reasons exists, the Contractor may, upon seven
additional days' written notice to the Owner and Architect, and unless the
condition described in such notice is cured or cure is substantially or
diligently underway, terminate the Contract and recover from the Owner payment
for Work executed and for proven loss with respect to materials, equipment,
tools, and construction equipment and machinery, including reasonable overhead,
profit and damages.
14.1.3 If the Work is stopped for a period of 60 days through no act or fault
of the Contractor or a Subcontractor or their agents or employees or any other
persons performing portions of the Work under contract with the Contractor
because the Owner has persistently failed to fulfill the Owner's obligations
under the Contract Documents with respect to matters important to the progress
of the Work, the Contractor may, upon seven additional days' written notice to
the Owner and the Architect, terminate the Contract and recover from the Owner
as provided in Subparagraph 14.1.2.
14.2 TERMINATION BY THE OWNER FOR CAUSE
14.2.1 The Owner may terminate the Contract if the Contractor:
1. Materially refuses or fails to supply enough properly skilled
workers or proper materials;
2. fails to make payment to Subcontractors for materials or labor in
accordance with the respective agreements between the Contractor
and the Subcontractors;
3. materially disregards laws, ordinances, or rules, regulations or
orders of a public authority having jurisdiction; or
4. otherwise is guilty of substantial breach of a provision of the
Contract Documents.
14.2.2 When any of the above reasons exist, the Owner, upon certification by
the Architect that sufficient cause exists to justify such action, may without
prejudice to any other rights or remedies of the Owner and after giving the
Contractor and the Contractor's surety, if any, seven days' written notice,
terminate employment of the Contractor and may, subject to any prior rights of
the surety:
1. take possession of the site and of all materials, equipment,
tools, and construction equipment and machinery thereon owned by
the Contractor;
2. accept assignment of subcontracts pursuant to Paragraph 5.4; and
3. finish the Work by whatever reasonable method the Owner may deem
expedient.
14.2.3 When the Owner terminates the Contract for one of the reasons stated
in Subparagraph 14.2.1, the Contractor shall not be entitled to receive further
payment until the Work is finished.
14.2.4 If the unpaid balance of the Contract Sum exceeds costs of finishing
the Work, including compensation for the Architect's services and expenses made
necessary thereby, such excess shall be paid to the Contractor. If such costs
exceed the unpaid balance, the Contractor shall pay the difference to the Owner.
The amount to be paid to the Contractor or Owner, as the case may be, shall be
certified by the Architect, upon application, and this obligation for payment
shall survive termination of the Contract.
14.3 SUSPENSION BY THE OWNER FOR CONVENIENCE
14.3.1 The Owner may, without cause, order the Contractor in writing to
suspend, delay or interrupt the Work in whole or in part for such period of time
as the Owner may determine.
14.3.2 An adjustment shall be made for increases in the cost of performance
of the Contract, including profit on the increased cost of performance, caused
by suspension, delay or interruption. No adjustment shall be made to the extent:
23
<PAGE>
1. that performance is, was or would have been so suspended, delayed
or interrupted by another cause for which the Contractor is
responsible; or
2. that an equitable adjustment is made or denied under another
provision of this Contract.
14.3.3 Adjustments made in the cost of performance may have a mutually agreed
fixed or percentage fee.
14.3.4 The Owner may, without cause, order the contractor in writing, to
promptly terminate the work in whole. In the event of such termination, the
Owner shall pay to the Contractor all unpaid amounts due for work completed and
materials delivered and ordered through the date of termination, plus reasonable
documented costs of removing contractor's equipment, tools, and materials from
the project site. Contractor shall also be paid for overhead and profit on the
work completed. Contractor expressly agrees that payments of the amounts
described in the paragraph 14.3.4 shall be the sole and total liability of the
Owner for termination for convenience.
24
<PAGE>
Exhibit "A"
February 1, 1999
Mr. Rod Collman
Collman & Karsky Architects
3102 N. Habana Avenue
Tampa, FL 33607
Re: Digex San Jose Data Center
TMC Proposal No. F-1142
Dear Rod:
We are pleased to submit for your review our construction proposal for
improvements for the above-referenced project located at 2950 Zanker Road, San
Jose, CA. Our price is based upon the following drawings:
Drawings provided by Collman & Karsky Sheets (Phase 1):
1.0 Cover Sheet Dated 01/18/99
1.1 Abbreviation and Life Safety Sheet Dated 01/18/99
2.0 Architectural Site Plan Dated 01/18/99
2.1 Demolition Plan Dated 01/18/99
3.0 Renovation Plan Dated 01/18/99
3.1 Wall Types, Details, and Schedules Dated 01/18/99
4.0 Reflected Ceiling Plan Dated 01/18/99
4.1 Sections and Details Dated 01/18/99
M0.01 Specifications Dated 00/00/00
M0.02 Title 24 Dated 00/00/00
M1.01 Mechanical Dated 00/00/00
M1.02 Mechanical Details Dated 00/00/00
E0. I Legend, Notes and Fixture Schedule Dated 01/18/99
E0.2 Energy Compliance Documentation Dated 01/18/99
E3.1 Lighting Plan Dated 01/18/99
E4.1 Power Plan Dated 01/18/99
E7.1 Power One-Line Diagram Dated 01/18/99
E8.1 Panelboard Schedules Dated 01/18/99
E8.2 Panelboard Schedules Dated 01/18/99
E8.3 Panelboard Schedules Dated 01/18/99
E8.4 Panelboard Schedules Dated 01/18/99
We offer the following clarifications:
1. We have included the rental of one (1) 80-ton air cooled
temporary chiller with circulating pump and 200' of water hose
(100' in & out). We have secured this machine for a six (6) month
rental period. We have included the start up labor for this
chiller.
2. We have included the purchase of four (4) Liebert units as
specified for Phase 1.
3. We shall provide the water and air balance as required.
4. We have not included any city water to the Liebert units for
humidification. This is not shown on the drawings and it is
unknown if this temporary facility requires humidification.
<PAGE>
5. We shall insulate all condensate drains.
6. We have assumed all exterior work to be part of Phase 11.
7. Others shall provide the Mirus transformers, UPS, and generator.
8. All demolition costs associated with removal of Phase I shall be
included in our Phase II proposal.
9. We have included a permit allowance of $25,000 for Phase I.
10. We anticipate an April 1, 1999 completion if we are released by
Wednesday, February 3, 1999.
Total Construction Price (Phase 1) $987,614.00
Nine Hundred Eighty Seven Thousand Six Hundred Fourteen and
no/100
The following items have been excluded from our proposal:
1. Owner furniture/equipment or installation of same.
2. All work not shown on drawings or discussed.
3. Paging system, telephone and data cabling.
4. City and fire department corrections.
5. Exterior window cleaning.
6. Testing and inspection.
7. Draft stops/curtains.
8. Card readers.
9. Humidification of temporary Liebert units.
10. Mirus transformers, UPS and generators.
11. Security.
If you should have any questions or comments, please do not hesitate
to call me.
Sincerely,
The Murray Company
Bradley J. Dannegger
<PAGE>
Exhibit "B"
February 8, 1999
Mr. Rick Kowalska
Collman & Karsky Architects
3102 N. Habana Avenue
Tampa, FL 33607
Re: Phase I Digex San Jose Data Center
TMC Proposal No. F-1142
Dear Rick:
Per your request, we are summarizing the initial expenses to get started
on the above-referenced facility. In order to meet the Phase 1 completion
deadline of April 1, 1999, as previously discussed, we must be released on these
activities no later than today. The activities to be completed by April 1,
1999, and their associated costs are as follows:
<TABLE>
<S> <C> <C>
1. Phase I Scope per The Murray Company letter dated February 1, 1999. $ 987,614.00
2. Remove and replace exterior roofing system. $ 280,370.00
3. Roof consultant. $ 11,443.00
4. Roof deck repairs. (Old RTU'S) $ 21,926.00
5. Roof screen and RTU demolition. $ 23,459.00
6. Demo of existing fire sprinkler system. $ 42,000.00
7. Fire sprinkler system rework (mains). $ 71,400.00
8. General building area fire protection (Drops). $ 180,800.00
9. Insurance (Items 28) $ 3,157.00
10. Overhead (Items 28) $ 25,255.00
11. Profit (Items 28) $ 50,517.00
-------------
TOTAL START UP COSTS $1,697,935.00
</TABLE>
Rick, we are very anxious to get started on this work. We have the
resources in place and are awaiting your final approval to start. Please call if
you have any questions.
Sincerely,
The Murray Company
Bradley J. Dannegger
<PAGE>
Digex San Jose Data Center
Phase I
February 5, 1999
Exhibit "C"
General Conditions $103,437.00
Miscellaneous Interior Demo (Floor Grind) $ 3,960.00
Miscellaneous Carpentry $ 1,975.00
Doors, Frames, and Hardware $ 31,484.00
Drywall and Framing $ 74,550.00
Acoustical Ceiling $ 14,175.00
Floor Cover $ 12,985.00
Painting $ 13,503.00
Fire Protection $ 22,995.00
HVAC Phase I $142,349.00
HVAC Liebert Units $ 85,160.00
HVAC Temporary (7 months) $ 55,310.00
Electrical-Phase I $290,000.00
Permit Allowance $ 25,000.00
Insurance $ 4,386.00
Overhead $ 35,448.00
Profit $ 70,897.00
TOTAL PHASE 1 $987,614.00
<PAGE>
Exhibit "D"
MISCELLANEOUS PROVISIONS
I. Hazardous Materials
The term hazardous materials includes, but is not limited to,
asbestos, toxic waste, acids, alkalis, irritants, contaminants and/or
pollutants.
No cutting, handling, removal or other disposition of hazardous
materials shall be performed by the Contractor or any Subcontractor. A
specialized contractor licensed for the work shall be employed under
separate contract directly with the owner.
If, during the performance of the work, presence of hazardous
materials is discovered or suspected, Contractor shall cease work
involving such materials and shall immediately notify the Owner and
arrangements shall be made by Owner for the complete legal removal and
disposition of the hazardous materials, as provided above, or other
such arrangements as may be acceptable to Owner and Contractor.
II. Owner shall provide Builder's Risk Insurance and provide contractor
with Insurance Certificate naming The Murray Company as an additional
insured. Deductibles and limits of this policy shall be for mutually
agreeable amounts.
<PAGE>
EXHIBIT "E"
The following minimum requirements are to be provided by Contractor:
A. Worker's Compensation
1. Statutory
B. Employer's Liability
1. $500,000
C. Commercial General Liability
1. Including Contractor's Protective, Completed
Operations, and Contractual
2. Bodily Injury & Property Damage Combined Single
Limit
a. $1,000,000 per occurrence
b. $2,000,000 per aggregate
D. Commercial Automobile Liability
1. Bodily Injury & Property Damage Combined Single
Limit
a. $1,000,000 per occurrence
b. $1,000,000 per aggregate
E. Umbrella Excess Liability-$10,000,000 per aggregate
The following minimum requirements are to be provided by Subcontractors:
A. Worker's Compensation
1. Statutory
B. Employer's Liability
1. $100,000
C. Commercial General Liability including Contractual Liability
1. Bodily Injury & Property Damaged Combined Single
Limit
a. $500,000 per occurrence
b. $500,000 per aggregate
D. Motor Vehicle Liability
1. Bodily Injury & Property Damage Combined Single
Limit
a. $500,000 per occurrence
b. $500,000 per aggregate
<PAGE>
EXHIBIT 10.6
AGREEMENT
made as of the 4th day of January in the year of Nineteen Hundred and 1999
BETWEEN the Owner:
(Name and address)
lntermedia Communications, Inc.
3625 Queen Palm Drive
Tampa, Florida 33619
and the Contractor:
(Name and address)
R.W. Murray Company, d/b/a The Murray Company
5425 Beaumont Center Blvd., Suite 918
Tampa, Florida 33634
License Holder - Gregory M. Albers # CG-CO58363
the Project is:
(Name and address)
Interior build out for Digex located at 6900 Muirkirk Meadows Drive, Konterra
Business Park in Beltsville, Maryland.
the Architect is:
(Name and address)
Collman & Karsky Architects
3102 N. Habana Avenue, Suite 101
Tampa, Florida 33607
The Owner and Contractor agree as set forth below.
ARTICLE 1
---------
THE CONTRACT DOCUMENTS
1.1 The Contract Documents consist of this Agreement, Conditions of the
Contract (General, Supplementary and other Conditions), Drawings,
Specifications, Addenda issued prior to execution of this Agreement, other
documents listed in this Agreement and Modifications issued after execution of
this Agreement; these form the Contract, and are as fully a part of the Contract
as if attached to this Agreement or repeated herein. The Contract represents the
entire and integrated agreement between the parties hereto and supersedes prior
negotiations, representations or agreements, either written or oral. An
enumeration of the Contract Documents, other than Modifications, appears in
Article 16. If anything in the other Contract Documents is inconsistent with
this Agreement, this Agreement shall govern.
ARTICLE 2
---------
THE WORK OF THIS CONTRACT
2.1 The Contractor shall execute the entire Work described in the Contract
Documents, except to the extent specifically indicated in the Contract Documents
to be the responsibility of others, or as follows:
ARTICLE 3
---------
RELATIONSHIP OF THE PARTIES
3.1 The Contractor accepts the relationship of trust and confidence
established by this Agreement and covenants with the Owner to cooperate with the
Architect and utilize the Contractor's best skill, efforts and judgment in
furthering
<PAGE>
the interests of the Owner; to furnish efficient business administration and
supervision; to make best efforts to furnish at all times an adequate supply of
workers and materials; and to perform the Work in the best way and most
expeditious and economical manner consistent with the interests of the Owner.
The Owner agrees to exercise best efforts to enable the Contractor to perform
the Work in the best way and most expeditious manner by furnishing and approving
in a timely way information required by the Contractor and making payments to
the Contractor in accordance with requirements of the Contract Documents.
ARTICLE 4
---------
DATE OF COMMENCEMENT AND SUBSTANTIAL COMPLETION
4.1 The date of commencement is the date from which the Contract Time of
Subparagraph 4.2 is measured; it shall be the date of this Agreement, as first
written above, unless a different date is stated below or provision is made for
the date to be fixed in a notice to proceed issued by the Owner. (Insert the
date of commencement, if it differs from the date of this Agreement or,
inapplicable, state that the date will be fixed in a notice to proceed.)
November 30, 1998. Unless the date of commencement is established by a notice to
proceed issued by the Owner, the Contractor shall notify the Owner in writing
not less than five days before commencing the Work to permit timely filing of
mortgages, mechanic's liens and other security interests.
4.2 The Contractor shall achieve Substantial Completion of the entire Work not
later than
(Insert the calendar date or number of calendar days after the date of
commencement. Also insert any requirements for earlier Substantial Completion of
certain portions of the Work if not stated elsewhere in the Contract Documents)
May 31, 1999. , subject to adjustments of this Contract Time as provided in the
Contract Documents. (Insert provisions, if any, for liquidated damages relating
to failure to complete on time.)
ARTICLE 5
----------
CONTRACT SUM
5.1 The Owner shall pay the Contractor in current funds for the Contractor's
performance of the Contract the Contract Sum consisting of the Cost of the Work
as defined in Article 7 and the Contractor's Fee determined as follows: (State a
lump sum, percentage of Cost of the Work or other provision for determining the
Contractor's Fee, and explain how the Contractor's Fee is to be adjusted for
changes in the Work.) The Contractor's Fee shall be 12% of the cost of the work.
5.2 GUARANTEED MAXIMUM PRICE (IF APPLICABLE)
5.2.1 The sum of the Cost of the Work and the Contractor's Fee is guaranteed
by the Contractor not to exceed Twenty Million, Two Hundred Thirty Four
Thousand, Six Hundred Eighty Six and No/ Dollars ($ 20,234,686.00 ), subject to
additions and deductions by Change Order as provided in the Contract Documents.
Such maximum sum is referred to in the Contract Documents as the Guaranteed
Maximum Price. Costs which would cause the Guaranteed Maximum Price to be
exceeded shall be paid by the Contractor without reimbursement by the Owner.
(Insert specific provisions if the Contractor is to participate in any savings.)
In the event that the cost of the work plus the Contractor's Fee is less than
the Guaranteed Maximum Price, then 75% of the savings shall be given to the
Owner and 25% of the savings shall be given to the Contractor as additional fee.
5.2.2 The Guaranteed Maximum Price is based upon the following alternates, if
any, which are described in the Contract Documents and are hereby accepted by
the Owner: (State the numbers or other identification of accepted alternates,
but only if a Guaranteed Maximum Price is inserted in Subparagraph 5.2.1. If
decisions on other alternates are to he made by the Owner subsequent to the
execution of this Agreement, attach a schedule of such other alternates showing
the amount for each and the date until which that amount is valid.)
See Exhibit "A".
2
<PAGE>
5.2.3 The amounts agreed to for unit prices, if any, are as follows: (State
unit prices only if a Guaranteed Maximum Price is inserted in Subparagraph
5.2.1.)
N/A
ARTICLE 6
---------
CHANGES IN THE WORK
6.1 CONTRACTS WITH A GUARANTEED MAXIMUM PRICE
6.1.1 Adjustments to the Guaranteed Maximum Price on account of changes in the
Work may be determined by any of the methods listed in Subparagraph 7.3.3 of the
General Conditions.
6.1.2 In calculating adjustments to subcontracts (except those awarded with
the Owner's prior consent on the basis of cost plus a fee), the terms "cost" and
"fee" as used in Clause 7.3.3.3 of the General Conditions and the terms "costs"
and "a reasonable allowance for overhead and profit" as used in Subparagraph
7.3.6 of the General Conditions shall have the meanings assigned to them in the
General Conditions and shall not be modified by Articles 5, 7 and 8 of this
Agreement. Adjustments to subcontracts awarded with the Owner's prior consent on
the basis of cost plus a fee shall be calculated in accordance with the terms of
those subcontracts.
6.1.3 In calculating adjustments to this Contract, the terms "cost" and
"costs" as used in the above-referenced provisions of the General Conditions
shall mean the Cost of the Work as defined in Article 7 of this Agreement and
the terms "fee" and "a reasonable allowance for overhead and profit" shall mean
the Contractor's Fee as defined in Paragraph 5.1 of this Agreement.
6.2 CONTRACTS WITHOUT A GUARANTEED MAXIMUM PRICE
6.3 ALL CONTRACTS
ARTICLE 7
----------
COSTS TO BE REIMBURSED
7.1 The term Cost of the Work shall mean all costs necessarily incurred by
the Contractor in the proper performance of the Work. Such costs shall be at
rates not higher than the standard paid at the place of the Project except with
prior consent of the Owner that are to be paid by Owner hereunder, and are
subject to the Guaranteed Maximum price as described in clause 5.2.1. The Cost
of the Work shall include only the items set forth in this Article 7.
7.1.1 LABOR COSTS
7.1.1.1 Wages of construction workers directly employed by the Contractor to
perform the construction of the Work at the site or, with the Owner's agreement,
at off-site workshops.
7.1.1.2 Wages or salaries of the Contractor's supervisory and administrative
personnel when stationed at the site with the Owner's agreement. (If it is
intended that the wages or salaries of certain personnel stationed at the
Contractor's principal or other offices shall be included in the Cost of the
Work, identify in Article 14 the personnel to be included and whether for all or
only part of their time.)
7.1.1.3 Wages and salaries of the Contractor's supervisory or administrative
personnel engaged, at factories, workshops or on the road, in expediting the
production or transportation of materials or equipment required for the Work,
but only for that portion of their time required for the Work.
3
<PAGE>
7.1.1.4 Costs paid or incurred by the Contractor for taxes, insurance,
contributions, assessments and benefits required by law or collective bargaining
agreements and, for personnel not covered by such agreements, customary benefits
such as sick leave, medical and health benefits, holidays, vacations and
pensions, provided such costs are based on wages and salaries included in the
Cost of the Work under Clauses 7.1.1.1 through 7.1.1.3.
7.1.2 SUBCONTRACT COSTS
Payments made by the Contractor to Subcontractors in accordance with the
requirements of the subcontracts.
7.1.3 COSTS OF MATERIALS AND EQUIPMENT INCORPORATED IN THE COMPLETED
CONSTRUCTION
7.1.3.1 Costs, including transportation, of materials and equipment
incorporated or to be incorporated in the completed construction.
7.1.3.2 Costs of materials described in the preceding Clause 7.1.3.1 in excess
of those actually installed but required to provide reasonable allowance for
waste and for spoilage. Unused excess materials, if any, shall be handed over to
the Owner at the completion of the Work or, at the Owner's option, shall be sold
by the Contractor; amounts realized, if any, from such sales shall be credited
to the Owner as a deduction from the Cost of the Work.
7.1.4 COSTS OF OTHER MATERIALS AND EQUIPMENT, TEMPORARY FACILITIES AND
RELATED ITEMS
7.1.4.1 Costs, including transportation, installation, maintenance,
dismantling and removal of materials, supplies, temporary facilities, machinery,
equipment, and hand tools not customarily owned by the construction workers,
which are provided by the Contractor at the site and fully consumed in the
performance of the Work; and cost less salvage value on such items if not fully
consumed, whether sold to others or retained by the Contractor. Cost for items
previously used by the Contractor shall mean fair market value.
7.1.4.2 Rental charges for temporary facilities, machinery, equipment, and
hand tools not customarily owned by the construction workers, which are provided
by the Contractor at the site, whether rented from the Contractor or others, and
costs of transportation, installation, minor repairs and replacements,
dismantling and removal thereof. Rates and quantities of equipment rented shall
be subject to the Owner's prior approval.
7.1.4.3 Costs of removal of debris from the site.
7.1.4.4 Costs of telegrams and long-distance telephone calls, postage and
parcel delivery charges, telephone service at the site and reasonable petty cash
expenses of the site office.
7.1.4.5 That portion of the reasonable travel and subsistence expenses of the
Contractor's personnel incurred while traveling in discharge of duties connected
with the Work.
7.1.5 MISCELLANEOUS COSTS
7.1.5.1 That portion directly attributable to this Contract of premiums for
insurance and bonds.
7.1.5.2 Sales, use or similar taxes imposed by a governmental authority which
are related to the Work and for which the Contractor is liable.
7.1.5.3 Fees and assessments for the building permit and for other permits,
licenses and inspections for which the Contractor is required by the Contract
Documents to pay.
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7.1.5.4 Fees of testing laboratories for tests required by the Contract
Documents, except those related to defective or nonconforming Work for which
reimbursement is excluded by Subparagraph 13.5.3 of the General Conditions or
other provisions of the Contract Documents and which do not fall within the
scope of Subparagraphs 7.2.2 through 7.2.4 below.
7.1.5.5 Royalties and license fees paid for the use of a particular design,
process or product required by the Contract Documents; the cost of defending
suits or claims for infringement of patent rights arising from such requirement
by the Contract Documents; payments made in accordance with legal judgments
against the Contractor resulting from such suits or claims and payments of
settlements made with the Owner's consent; provided, however, that such costs of
legal defenses, judgment and settlements shall not be included in the
calculation of the Contractor's Fee or of a Guaranteed Maximum Price, if any,
and provided that such royalties, fees and costs are not excluded by the last
sentence of Subparagraph 3.17.1 of the General Conditions or other provisions of
the Contract Documents.
7.1.5.6 Deposits lost for causes other than the Contractor's fault or
negligence. Insert A: (See Attached 7.1.6.2 through 7.1.6.13)
7.1.6 OTHER COSTS
7.1.6.1 Other costs incurred in the performance of the Work if and to the
extent approved in advance in writing by the Owner.
7.1.6.2 Costs of rental of temporary portable buildings and toilets as
required, cost of utilities, ice, water, water containers, cups, fire
extinguishers, first-aid supplies, safety equipment, street and sidewalk rental,
off-site storage space or facilities, and job vehicles.
7.1.6.3 All reasonable costs and expenditures necessary for the operation of
field office, such as stationery, supplies, blueprinting, furniture fixtures,
office equipment, etc.
7.1.6.4 Salaries, vacation pay, bonuses, and other fringe benefits of
Contractor's supervisory or administrative personnel for that portion of their
time spent which is directly related to the general supervision and performance
of the Work. Such personnel shall include any supervisory or administrative
personnel including those stationed at the field office of the Project, at the
home office of the Contractor, and those engaged (whether at shops or on the
road) in expediting the inspection, production of transportation of all
materials.
7.1.6.5 Expenses of reproductions, postage, and distribution of drawings and
specifications.
7.1.6.6 Expense of overtime work requiring higher than regular rates
necessitated by field conditions, or to maintain the construction schedule.
7.1.6.7 The cost of obtaining all utility services required for the work and
the cost of crossing or protecting any public utility, if required.
7.1.6.8 Costs of surveys, consultants, testing and inspection engineers and
laboratories unless paid directly by the Owner.
7.1.6.9 Cost incurred in the planning, design service performed by qualified
architects, engineers and other professionals selected, including all normal
reimbursable expenses, models, travel, long distance reproduction costs,
renderings, Express Mail, delivery, etc., provided by the above listed
architects, engineers and other professionals.
7.1.6.10 Cost incurred for independent peer review of structural design.
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7.1.6.11 Cost of any work which is necessitated by field conditions or
manufacturer's recommendations, but which is not called out or specified in the
Working Drawings and which is required to be performed for proper completion of
the Work.
7.1.6.12 Cost of any minor work which may be required by any governmental
inspector in connection with obtaining an occupancy permit.
7.1.6.13 Costs due to the requirements of the Drawings as finally approved by
all governing agencies whether public or private.
7.2 EMERGENCIES: REPAIRS TO DAMAGED, DEFECTIVE OR NONCONFORMING WORK
The Cost of the Work shall also include costs described in Paragraph 7.1 which
are incurred by the Contractor:
7.2.1 In taking action to prevent threatened damage, injury or loss in case of
an emergency affecting the safety of persons and property, as provided in
Paragraph 10.3 of the General Conditions.
7.2.2 In repairing or correcting Work damaged or improperly executed by
construction workers in the employ of the Contractor, provided such damage or
improper execution did not result from the fault or negligence of the Contractor
or the Contractor's foremen, engineers or superintendents, or other supervisory,
administrative or managerial personnel of the Contractor.
7.2.3 In repairing damaged Work other than that described in Subparagraph
7.2.2, provided such damage did not result from the fault or negligence of the
Contractor or the Contractor's personnel, and only to the extent that the cost
of such repairs is not recoverable by the Contractor from others and the
Contractor is not compensated therefor by insurance or otherwise.
7.2.4 In correcting defective or nonconforming Work performed or supplied by a
Subcontractor or material supplier and not corrected by them, provided such
defective or nonconforming Work did not result from the fault or neglect of the
Contractor or the Contractor's personnel adequately to supervise and direct the
Work of the Subcontractor or material supplier, and only to the extent that the
cost of correcting the defective or nonconforming Work is not recoverable by the
Contractor from the Subcontractor or material supplier.
ARTICLE 8
---------
COSTS NOT TO BE REIMBURSED
8.1 The Cost of the Work shall not include:
8.1.1 Salaries and other compensation of the Contractor's personnel stationed
at the Contractors principal office or offices other than the site office,
except as specifically provided in Clauses 7.1.1.2 and 7.1.1.3 and 7.1.6.4 or as
may be provided in Article 14.
8.1.2 Expenses of the Contractors principal office and offices other than the
site office.
8.1.3 Overhead and general expenses, except as may be expressly included in
Article 7.
8.1.4 The Contractor's capital expenses, including interest on the
Contractor's capital employed for the Work.
8.1.5 Rental costs of machinery and equipment, except as specifically provided
in Clause 7.1.4.2 and 7.1.6.2.
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8.1.6 Except as provided in Subparagraphs 7.2.2 through 7.2.4 and Paragraph
13.5 of this Agreement, costs due to the fault or negligence of the Contractor,
Subcontractors, anyone directly or indirectly employed by any of them, or for
whose acts any of them may be liable, including but not limited to costs for the
correction of damaged, defective or nonconforming Work, disposal and replacement
of materials and equipment incorrectly ordered or supplied, and making good
damage to property not forming part of the Work.
8.1.7 Any cost not specifically and expressly described in Article 7.
8.1.8 Costs which would cause the Guaranteed Maximum Price, if any, to be
exceeded.
ARTICLE 9
---------
DISCOUNTS, REBATES AND REFUNDS
9.1 Cash discounts obtained on payments made by the Contractor shall accrue
to the Owner if (1) before making the payment, the Contractor included them in
an Application for Payment and received payment therefor from the Owner, or (2)
the Owner has deposited funds with the Contractor with which to make payments;
otherwise, cash discounts shall accrue to the Contractor. Trade discounts,
rebates, refunds and amounts received from sales of surplus materials and
equipment shall accrue to the Owner, and the Contractor shall make provisions so
that they can be secured. The Contractor shall promptly advise the Owner of the
availability of cash discounts.
9.2 Amounts which accrue to the Owner in accordance with the provisions of
Paragraph 9.1 shall be credited to the Owner as a deduction from the Cost of the
Work.
ARTICLE 10
----------
SUBCONTRACTS AND OTHER AGREEMENTS
10.1 Those portions of the Work that the Contractor does not customarily
perform with the Contractor's own personnel shall be performed under
subcontracts or by other appropriate agreements with the Contractor. The
Contractor shall obtain bids from Subcontractors and from suppliers of materials
or equipment fabricated especially for the Work and shall deliver such bids to
the Architect. The Owner will then determine, with the advice of the Contractor
and subject to the reasonable objection of the Architect, which bids will be
accepted. The Owner may designate specific persons or entities from whom the
Contractor shall obtain bids; however, if a Guaranteed Maximum Price has been
established, the Owner may not prohibit the Contractor from obtaining bids from
others. The Contractor shall not be required to contract with anyone to whom the
Contractor has reasonable objection.
10.2 If a Guaranteed Maximum Price has been established and a specific bidder
among those whose bids are delivered by the Contractor to the Architect (1) is
recommended to the Owner by the Contractor; (2) is qualified to perform that
portion of the Work; and (3) has submitted a bid which conforms to the
requirements of the Contract Documents without reservations or exceptions, but
the Owner requires that another bid be accepted; then the Contractor may require
that a Change Order be issued to adjust the Guaranteed Maximum Price by the
difference between the bid of the person or entity recommended to the Owner by
the Contractor and the amount of the subcontract or other agreement actually
signed with the person or entity designated by the Owner.
10.3 Subcontracts or other agreements shall conform to the payment provisions
of Paragraphs 12.7 and 12.8, and shall not be awarded on the basis of cost plus
a fee without the prior consent of the Owner.
ARTICLE 11
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ACCOUNTING RECORDS
11.1 The Contractor shall keep full and detailed accounts and exercise such
controls as may be necessary for proper financial management under this
Contract; the accounting and control systems shall be satisfactory to the Owner.
The
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Owner and the Owner's accountants shall be afforded access to the Contractor's
records, books, correspondence, instructions, drawings, receipts, subcontracts,
purchase orders, vouchers, memoranda and other data relating to this Contract,
and the Contractor shall preserve these for a period of three years after final
payment, or for such longer period as may be required by law.
ARTICLE 12
----------
PROGRESS PAYMENTS
12.1 Based upon Applications for Payment submitted to the Architect by the
Contractor and Certificates for Payment issued by the Architect, the Owner shall
make progress payments on account of the Contract Sum to the Contractor as
provided below and elsewhere in the Contract Documents.
12.2 The period covered by each Application for Payment shall be one calendar
month ending on the last day of the month, or as follows:
12.3 When an Application for Payment is received by the Architect, the Owner
shall make payment to the Contractor not later than 14 days following the
receipt of the Pay Application. The Contractor shall submit Pay Applications to
the Architect twice each month; on the first of the month and on the 15th of the
month.
12.4 With each Application for Payment the Contractor shall submit information
as reasonably required by the Owner or Architect to demonstrate that cash
disbursements already made by the Contractor on account of the Cost of the Work
equal or exceed (1) progress payments already received by the Contractor; less
(2) that portion of those payments attributable to the Contractor's Fee; plus
(3) payrolls for the period covered by the present Application for Payment; plus
(4) retainage provided in Subparagraph 12.5.4, if any, applicable to prior
progress payments.
12.5 CONTRACTS WITH A GUARANTEED MAXIMUM PRICE
12.5.1 Each Application for Payment shall be based upon the most recent
schedule of values submitted by the Contractor in accordance with the Contract
Documents. The schedule of values shall allocate the entire Guaranteed Maximum
Price among the various portions of the Work, except that the Contractor's Fee
shall be shown as a single separate item. The schedule of values shall be
prepared in such form and supported by such data to substantiate its accuracy as
the Architect may require. This schedule, unless objected to by the Architect,
shall be used as a basis for reviewing the Contractor's Applications for
Payment.
12.5.2 Applications for Payment shall show the percentage completion of each
portion of the Work as of the end of the period covered by the Application for
Payment. The percentage completion shall be the lesser of (1) the percentage of
that portion of the Work which has actually been completed or (2) the percentage
obtained by dividing (a) the expense which has actually been incurred by the
Contractor on account of that portion of the Work for which the Contractor has
made or intends to make actual payment prior to the next Application for Payment
by (b) the share of the Guaranteed Maximum Price allocated to that portion of
the Work in the schedule of values.
12.5.3 Subject to other provisions of the Contract Documents, the amount of
each progress payment shall be computed as follows:
12.5.3.1 Take that portion of the Guaranteed Maximum Price properly allocable
to completed Work as determined by multiplying the percentage completion of each
portion of the Work by the share of the Guaranteed Maximum Price allocated to
that portion of the Work in the schedule of values. Pending final determination
of cost to the Owner of changes in the Work, amounts not in dispute may be
included as provided in Subparagraph 7.3.7 of the General Conditions, even
though the Guaranteed Maximum Price has not yet been adjusted by Change Order.
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12.5.3.2 Add that portion of the Guaranteed Maximum Price properly allocable
to materials and equipment delivered and suitably stored at the site for
subsequent incorporation in the Work or, if approved in advance by the Owner,
suitably stored off the site at a location agreed upon in writing.
12.5.3.3 Add the Contractor's Fee, less retainage. Retainage shall be 10% of
the total billed for the first half of the project and 0% of the total billed
for the second half of the project. The Contractor's Fee shall be computed upon
the Cost of the Work described in the two preceding Clauses at the rate stated
in Paragraph 5.1 or, if the Contractor's Fee is stated as a fixed sum in that
Paragraph, shall be an amount which bears the same ratio to that fixed-sum Fee
as the Cost of the Work in the two preceding Clauses bears to a reasonable
estimate of the probable Cost of the Work upon its completion.
12.5.3.4 Subtract the aggregate of previous payments made by the Owner.
12.5.3.5 Subtract the shortfall, if any, indicated by the Contractor in the
documentation required by Paragraph 12.4 to substantiate prior Applications for
Payment, or resulting from errors subsequently discovered by the Owner's
accountants in such documentation.
12.5.3.6 Subtract amounts, if any, for which the Architect has withheld or
nullified a Certificate for Payment as provided in Paragraph 9.5 of the General
Conditions.
12.5.4 additional retainage, if any, shall be as follows:
(If it is intended to retain additional amounts from progress payments to the
Contractor beyond (1) the retainage from the Contractor's Fee provided in Clause
12.5.3.3, (2) the retainage from Subcontractors provided in Paragraph 12.7
below, and (3) the retainage, if any provided by other provisions of the
Contract, insert provision for such additional retainage here. Such provision,
if made, should also describe any arrangement for limiting or reducing the
amount retained after the Work reaches a certain state of completion.)
12.6 CONTRACTS WITHOUT A GUARANTEED MAXIMUM PRICE
ARTICLE 13
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FINAL PAYMENT
13.1 Final payment shall be made by the Owner to the Contractor when (1) the
Contract has been fully performed by the Contractor except for the Contractor's
responsibility to correct defective or nonconforming Work, as provided in
Subparagraph 12.2.2 of the General Conditions, and to satisfy other
requirements, if any, which necessarily survive final payment; (2) a final
Application for Payment and a final accounting for the Cost of the Work have
been submitted by the Contractor and reviewed by the Owner's accountants; and
(3) a final Certificate for Payment has then been issued by the Architect; such
final payment shall be made by the Owner not more than fourteen (14) days after
the issuance of the Architect's final Certificate for Payment, or as follows:
Once Substantial Completion is achieved, retention will be reduced to 200% of
the value of the punchlist items.
13.2 The amount of the final payment shall be calculated as follows:
13.2.1 Take the sum of the Cost of the Work substantiated by the Contractors
final accounting and the Contractor's Fee; but not more than the Guaranteed
Maximum Price, if any.
13.2.2 Subtract amounts, if any, for which the withholds, in whole or in part,
a final Certificate for Payment as provided in Subparagraph 9.5.1 of the General
Conditions or other provisions of the Contract Documents.
13.2.3 Subtract the aggregate of previous payments made by the Owner.
If the aggregate of previous payments made by the Owner exceeds the amount due
the Contractor, the Contractor shall reimburse the difference to the Owner.
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13.3 The Owner's accountants will review and report in writing on the
Contractor's final accounting within 30 days after delivery of the final
accounting to the Architect by the Contractor, Based upon such Cost of the Work
as the Owner's accountants report to be substantiated by the Contractor's final
accounting, and provided the other conditions of Paragraph 13.1 have been met,
the Architect will, within seven days after receipt of the written report of the
Owner's accountants, either issue to the Owner a final Certificate for Payment
with a copy to the Contractor, or notify the Contractor and Owner in writing of
the Architect's reasons for withholding a certificate as provided in
Subparagraph 9.5.1 of the General Conditions. The time periods stated in this
Paragraph 13.3 supersede those stated in Subparagraph 9.4.1 of the General
Conditions.
13.4 If the Owner's accountants report the Cost of the Work as substantiated
by the Contractor's final accounting to be less than claimed by the Contractor,
the Contractor shall be entitled to demand arbitration of the disputed amount
without a further decision of the Architect. Such demand for arbitration shall
be made by the Contractor within 30 days after the Contractor's receipt of a
copy of the Architect's final Certificate for Payment; failure to demand
arbitration within this 30-day period shall result in the substantiated amount
reported by the Owner's accountants becoming binding on the Contractor. Pending
a final resolution by arbitration, the Owner shall pay the Contractor the amount
certified in the Architect's final Certificate for Payment.
13.5 If, subsequent to final payment and at the Owner's request, the
Contractor incurs costs described in Article 7 and not excluded by Article 8 to
correct defective or nonconforming Work, the Owner shall reimburse the
Contractor such costs and the Contractor's Fee applicable thereto on the same
basis as if such costs had been incurred prior to final payment, but not in
excess of the Guaranteed Maximum Price, if any. If the Contractor has
participated in savings as provided in Paragraph 5.2, the amount of such savings
shall be recalculated and appropriate credit given to the Owner in determining
the net amount to be paid by the Owner to the Contractor.
ARTICLE 14
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MISCELLANEOUS PROVISIONS
14.1 Where reference is made in this Agreement to a provision of the General
Conditions or another Contract Document, the reference refers to that provision
as amended or supplemented by other provisions of the Contract Documents.
14.2 Payments due and unpaid under the Contract shall bear interest from the
date payment is due at the rate stated below, (Insert rate of interest agreed
upon, if any.)
A.P.R. ten percent (10%)
(Usury laws and requirements under the Federal Truth in Lending Act, similar
state and local consumer credit laws and other regulations at the Owner's and
Contractor's principal places of business, the location of the Project and
elsewhere may affect the validity of this provision. Legal advice should be
obtained with respect to deletions or modifications, and also regarding
requirements such as written disclosures or waivers.)
14.3 Other provisions:
The Murray Company will submit a Pay Application every two weeks and will be
paid fourteen (14) days after receipt of each invoice.
ARTICLE 15
----------
TERMINATION OR SUSPENSION
15.1 The Contract may be terminated by the Contractor as provided in Article
14 of the General Conditions; however, the amount to be paid to the Contractor
under Subparagraph 14.1.2 of the General Conditions shall not exceed the amount
the Contractor would be entitled to receive under Paragraph 15.3 below, except
that the Contractor's Fee shall be calculated as if the Work had been fully
completed by the Contractor, including a reasonable estimate of the Cost of the
Work for Work not actually completed.
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15.2 If a Guaranteed Maximum Price is established in Article 5, the Contract
may be terminated by the Owner for cause as provided in Article 14 of the
General Conditions; however, the amount, if any, to be paid to the Contractor
under Subparagraph 14.2.4 of the General Conditions shall not cause the
Guaranteed Maximum Price to be exceeded, nor shall it exceed the amount the
Contractor would be entitled to receive under Paragraph 15.3 below.
15.3 The Work may be suspended by the Owner as provided in Article 14 of the
General Conditions; in such case, the Guaranteed Maximum Price, if any, shall be
increased as provided in Subparagraph 14.3.2 of the General Conditions except
that the term "cost of performance of the Contract" in that Subparagraph shall
be understood to mean the Cost of the Work and the term "profit" shall be
understood to mean the Contractor's Fee as described in Paragraphs 5.1 and 6.3
of this Agreement.
ARTICLE 16
----------
ENUMERATION OF CONTRACT DOCUMENTS
16.1 The Contract Documents, except for Modifications issued after execution
of this Agreement, are enumerated as follows:
16.1.1 The Agreement is this executed Standard Form of Agreement Between Owner
and Contractor, AIA Document A111, 1987 Edition.
16.1.2 The General Conditions are the General Conditions of the Contract for
Construction, AIA Document A201, 1987 Edition.
16.1.3 The Supplementary and other Conditions of the Contract are those
contained in the Project Manual dated , and are as follows:
Document Title Pages
Not Applicable
16.1.4 The Specifications are those contained in the Project Manual dated as in
Paragraph 16.1.3, and are as follows: (Either list the Specifications here or
refer to an exhibit attached to this Agreement.)
Section Title Pages
See Exhibit "F"
16.1.5 The Drawings are as follows, and are dated unless a different date is
shown below: (Either list the Drawings here or refer to an exhibit attached to
this Agreement)
Number Title Date
See Exhibit "F"
16.1.6 The Addenda, if any, are as follows:
Number Date Pages
Portions of Addenda relating to bidding requirements are not part of the
Contract Documents unless the bidding requirements are also enumerated in this
Article 16.
16.1.7 Other Documents, if any, forming part of the Contract Documents are as
follows:
(List here any additional documents which are intended to form part of the
Contract Documents. The General Conditions provide that bidding requirements
such as advertisement or invitation to bid, Instructions to Bidders, sample
forms and the Contractor's bid are not part of the Contract Documents unless
enumerated in this Agreement. They should be listed here only if intended to be
part of the Contract Documents.)
1. Proposal Letter dated January 4, 1999 and listed as Exhibit "A".
2. Clarifications and Qualifications dated December 10, 1998 and listed as
Exhibit "B".
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3. Exclusions dated December 10, 1998 and listed as Exhibit "C".
4. Schedule of Values dated January 4, 1999 and listed as Exhibit "D".
5. List of Allowances dated December 31, 1998 and listed as Exhibit "E".
6. Drawing Log listed as Exhibit "F".
4. Miscellaneous Provisions listed as Exhibit "G".
5. Insurance Requirements listed as Exhibit "H".
This Agreement is entered into as of the day and year first written above and is
executed in at least three original copies of which one is to be delivered to
the Contractor, one to the Architect for use in the administration of the
Contract, and the remainder to the Owner.
OWNER CONTRACTOR
/s/ Jon M. Carter
- ------------------------- -----------------------------
(Signature) (Signature)
Intermedia Communications, Inc. R.W. Murray Company d/b/a The
(Printed name and title) Murray Company
(Printed name and title)
Exhibit "A"
January 4, 1999
Mr. Rod Collman
Collman & Karsky Architects
3102 N. Habana Avenue
Tampa, FL 33607
Re: Digex Beltsville
TMC Job No. F-1147
Dear Rod:
We are looking forward to working with you on this project.
We wanted to provide an updated schedule of values based on our latest
meetings with our mechanical and electrical subcontractors and engineers. This
schedule of values represents a June 1st substantial completion and includes the
"Alternate 1" electrical scope.
On Monday, December 28, 1998, we met with you, Dan Dellovechio, and our
mechanical contractor, Southern Equipment. Our purpose was to compare and
evaluate the difference in the original budget and the bid cost. There were
approximately $2,200,000 in combined variations or discrepancies from the
original budget. For example, in Prince George's County, a Washington D.C. labor
factor must be used in lieu of the Baltimore factor used in the original budget.
This factor adds approximately $350,000 to the original budget. Other items
factoring into the difference included:
[].80 labor productivity factor
<PAGE>
[] extended warranty costs
[] operable louver costs
[] the cost of the sheetmetal duct work package
[] the cost of the overtime for a June 1st substantial completion
[] furnishing and installing the fuel tanks (this was in the plumbing number in
the budget estimate)
[] the cost of the piping and labor
[] cooling tower and chiller component costs
[] miscellaneous accessories to large pieces of equipment
Upon completion of this meeting, it was concluded that the mechanical costs
reflect a true cost for this scope of work. We discussed additional savings and
are pursuing some value engineering. However, we are limited in what we can save
due to the fact that the majority of the mechanical equipment has been ordered.
On Tuesday, December 29, 1998, we met with you, G.L. Johnson, and our
electrical contractor, Guarantee electric. We discussed the labor vs. materials
breakdown. Guarantees' labor cost is $2,613,000, verses their material cost of
$1,170,000; please keep in mind the labor cost includes installing $3,400,000 of
owner furnished equipment. Some of the larger unusual costs to the job are the
mitigating transformers and the overtime costs to meet the June 1st date. Big
ticket material costs in Guarantee's proposal also include Square "D" gear. Upon
closing this meeting, it was concluded that the electrical bid was an accurate
reflection of the costs for this scope of work. We also concluded that there is
not any additional value engineering savings that can be realized.
The following is a summary of alternatives which we have proposed that
can still save some money for this project:
1 . The FM-200 system can come out in its entirety for a savings of
$839,406.00.
[] It was asked if we could delete the FM-200 from the UPS room;
unfortunately,
FM-200 wasn't designed for the UPS room.
[] If the alternate FM-200 system is acceptable, there will be
a savings of $400,000.00
2. If we were to eliminate the concrete block and brick for the
generator wall, serving the pump house, there would be a savings
of $78,383.00.
3. To eliminate static switches to have one switch handle 26 rack
clusters in lieu of 13 rack clusters. Hank Johnson has estimated
this at a $400,000 savings. This would require re-engineering for
confirmation of this savings.
4. It was our understanding in our meeting last Friday, that as the
electrical revisions (alternate) were being priced that there may
be some savings. This has yet to be quantified. Also, Guarantee
Electric was going to work with Square D to look at their gear
pricing. Approximate savings of $350,000 in owner furnished
equipment.
5. The canopy on the east side of the building is worth $31,700.00.
6. To use Rop-Cord walk-off mats in lieu of Pedimat type mats, deduct
$19,192.00.
7. An alternate access flooring system would save $79,000.00. We are
also trying to negotiate a better number from Tate. Amp is also
pricing a power floor system.
8. To eliminate the Vaugn walls and replace them with standard
painted partitions to grid, will save approximately $41,085.00.
9. Eliminate free cooling, piping, and associated controls would save
$75,337.00.
10. Another option is to leave one farm dark. Deferring work on
interior of one would save $453,695.00.
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Additional savings from our meeting on December 28, 1998 include:
1. Delete safety masks (3ea) and refrigerant pump down unit,
approximately $16,000.00
2. Delete insulated air foil dampers, approximately $21,500.00.
3. Delete unit heaters per revised mechanical
drawings, cost T.B.D. (approximately $15,000 to $30,000.)
4. Delete ductwork per revised mechanical drawings, cost T.B.D.
(approximately $10,000 to $20,000)
5. Reduction in pipe sizing per revised mechanical drawings, cost
T.B.D. (approximately $5,000 to $10,000)
Rod, we hope this is an accurate recap of our efforts this week. Please
do not hesitate to call us if you have any questions.
Sincerely,
The Murray Company
Michael F. Sweeney
3
<PAGE>
Collman and Karsky December 10, 1998
Digex Beltsville P-295
Exhibit "B"
Clarifications and Qualifications
[] The permit cost has yet to be calculated by Prince Georges County, so we
have included it as an allowance.
[] Testing of materials is listed as "By Owner."
[] We have included a security fence with a pair of double gates.
[] We have included an allowance for a security guard.
[] The cooling tower does include a block/brick wall to 12' high.
[] This proposal includes the basin and piers for the cooling tower only. We do
not have enough detail to price the baffles, cantilevered sls or any
other details that may arise from cooling tower specifications.
[] No allowance has been made for the generator exhaust hood.
[] We have included 1/4" clear tempered glass in lieu of the crystal diode
glass.
[] Access flooring includes the 1500 lb. Rated system per area shown on the
plans (conflicts with the specifications).
[] The underfloor power and data system quoted is by Tateflex and includes the
following:
Voice & Data System
The system described shall provide voice and data circuitry for Two
Hundred Eighty Five (285) workstations.
The TateFlex modular wiring for the voice and data system as designed
shall provide an initial quantity of four (4) voice/data ports for each
workstation and provide future system expansion capacity to accommodate
a maximum of six (6) per workstation. The system design and associated
pricing is based upon a non-plenum rated system.
The system offered for your consideration shall include the following
components:
[] Eighty (80), Zone Distribution Boxes (ZDB), each with their own MC
type, CAT5, Riser rated, pre-wired homerun (truck) cable. Each
homerun cable shall contain the appropriated quantity of category
5, four pair UTP cables to meet or exceed the design requirements.
The homerun
<PAGE>
Exhibit "B"
Clarifications and Qualifications
Page 2
cable included with the TateFlex system is unique to
TateFlex and not available from other manufacturers.
[] One Thousand One Hundred Forty (1140), PVC jacketed extender
cables, as required to provide each service location with four (4)
voice and data ports each. These extender cables shall be
pre-connectorized for plug and play, jack to plug connection.
Floor outlet boxes
------------------
1. 285 IAF-3 Floor outlet boxes installed including the floor
panel cutout.
2. Each floor box to contain 2 duplex receptacles for UPS power.
3. Each floor box to contain 1 duplex receptacle for commercial
power.
4. Each floor box to contain 4 ea. Category 5 RJ45 style data
connectors.
5. Each floor box to contain provision for 2 future additional
data connectors.
6. Each box to be factory wired with modular "TateFlex" whips.
Power System
------------
The TateFlex power system to support the demands of each of the
Two Hundred Eighty Five (285) service locations shall consist of
the following:
[] Thirty (30), 6 port, dual power, Main Distribution Boxes (MDB)
with prewired, ten pin, pin and sleeve type, bulk-head
connectors and MC type homerun cables. Each homerun cable
shall have the proper number and type of circuit conductors to
meet or exceed the installation design requirements. Each
homerun cable conductor shall be a minimum of #10 AWG as is
standard with all TateFlex wiring systems. All TateFlex
homerun and extender cables are suitable for use in
environmental air handling spaces per NEC 300-22. The homerun
cable included with the TateFlex system is unique to TateFlex
and not availle from other manufacturers. This system shall
provide both general power (GP) and UPS isolated grounding
power (IG) circuitry to each workstation.
[] One Hundred Forty Five (145), 3 port, dual power, Secondary
Distribution Boxes (SDB), each with pre-wired, ten pin, pin
and sleeve type, bulkhead connectors. These SDB's shall
provide both general power (GP) and UPS isolated grounding
power (IG) circuitry to each workstation.
[] One Hundred Forty Five (145), double power, flexible modular
extender cables, each utilizing #12 AWG conductors, pre-wired
with ten pin, bulkhead connectors to provide GP and IG power
on each end.
[] Two Hundred Eighty Five (285), double port, flexible modular
whip-end extender cables, each utilizing #12 AWG conductors,
pre-wired with ten pin, bulkhead connectors to provide GP and
IG power on each end. These whip and extenders are factory
wired to the Irvine Access floor outlet modules.
[] It is assumed Pepco will provide permanent power by February
15, 1998.
[] It is assumed the UPS, switchgear, panels and generator will be
delivered by January 20, 1998.
<PAGE>
Exhibit "B"
Clarifications and Qualifications
Page 3
<PAGE>
Collman and Karsky December 10, 1998
Digex Beltsville P-295
Exhibit "C"
Exclusions
[] Impact fees.
[] Performance and payment bonds.
[] Builders risk insurance.
[] Permanent power costs.
[] Dewatering.
[] Quality control testing.
[] Landscaping and irrigation.
[] Cooling tower baffles, waterproofing, cantilevered slabs, or other
appurtenances that may be required by the cooling tower manufacturer.
[] Reception desk.
[] Transformer dike.
[] Generator exhaust hood. (Sheet 6.0 -- Section 1 and 2)
[] Furniture systems.
[] Crystal diode glass.
[] Level 5 drywall finish.
[] Installation of carpeting before partitions.
[] Data/Telephone cabling.
[] Security systems work (Readers, piping, power, etc.)
[] Monitoring of security systems.
[] Projection screens or presentation boards.
<PAGE>
[] Modifying the existing building structure to accommodate mechanical or
electrical loads. (i.e. equipment, piping, cable trays, etc.)
Schedule of Values
Digex Beltsville Data Center
January 4, 1999
Exhibit "D"
Item Value
---- -----
General Conditions $555,621.00
Miscellaneous Sitework $167,841.00
Demolition $12,701.00
Concrete Work $725,598.00
Masonry $564,567.00
Steel/Metals $280,372.00
Carpentry $88,332.00
Roofing & Caulking $88,934.00
Doors, Frames and Hardware $249,260.00
Glass & Glazing $32,564.00
Framing & Drywall $601,789.00
Acoustic Ceiling $107,441.00
Floor Coverings $292,092.00
Painting & Wall Covering $219,427.00
Specialties $136,911.00
* Access Flooring (Allowance) $679,302.00
Furnishings $397,008.00
* FM-200 (Allowance) $739,470.00
Plumbing $503,441.00
Fire Sprinklers $281,680.00
HVAC (Allowance) $6,200,698.00
Electric (Per Alternate #1) $4,945,300.00
Miscellaneous $69,862.00
Security Guard Allowance $75,000.00
Overhead $720,609.00
Profit $1,498,866.00
TOTAL PROJECT COSTS $20,234,686.00
<PAGE>
Collman and Karsky December 10, 1998
Digex Beltsville P-295
Exhibit "E"
Allowances
[] The permit is allowed at $44,000.00
[] Security guard allowance is $75,000.00
[] Waterproofing for cooling tower basin is $7,500.00
[] Wallcovering allowance is $ 1 0.00/cy (Material cost)
[] Access floor cut-outs (140 each)
[] Perforated access floor panels (2,335 panels)
[] Window blinds are allowed at $225.00 each.
[] Access flooring allowance is $679,302.00
[] FM 200 allowance is $739,470.00
<PAGE>
Drawing Log
Digex, Inc.
Beltsville, MD
TMC Job No. F-1147
Exhibit "F"
<TABLE>
<CAPTION>
Drawing # Description Date Revised Date Architect/Engineer
--------- ----------- ---- ------------ ------------------
<S> <C> <C> <C> <C>
Specifications Project manual 11/18/98 - Collman & Karsky
1.0 Cover Sheet 11/18/98 - Collman & Karsky
1.1 Abbreviation sheet 11/18/98 - Collman & Karsky
2.0 Architectural site plan 11/18/98 - Collman & Karsky
2.1 Sections and details 11/18/98 - Collman & Karsky
3.0 Partial floor plan - North 11/18/98 - Collman & Karsky
3.1 Partial floor plan - Center 11/18/98 - Collman & Karsky
3.2 Partial floor plan - South 11/18/98 - Collman & Karsky
3.3 Schedules & details 11/18/98 - Collman & Karsky
3.4 Schedules & details 11/18/98 - Collinan & Karsky
3.5 Sections & details 11/18/98 - Collman & Karsky
3.6 Sections & details 11/18/98 - Collman & Karsky
3.7 Partial raised floor plan - North 11/18/98 - Collman & Karsky
3.8 Partial raised floor plan - Central 11/18/98 - Collman & Karsky
3.9 Partial raised floor plan - South 11/18/98 - Collman & Karsky
3.10 Interior elevations and details 11/18/98 - Collman & Karsky
4.0 Partial reflected ceiling plan - South 11/18/98 - Collman & Karsky
4.1 Partial reflected ceiling plan - North 11/18/98 - Collman & Karsky
4.2 Partial reflected ceiling plan - Central 11/18/98 - Collman & Karsky
4.3 Partial reflected ceiling plan - South 11/18/98 - Collman & Karsky
4.4 Interior elevations & details 11/18/98 - Collman & Karsky
4.5 Interior farm elevations & detail 11/18/98 - Collman & Karsky
4.6 Sections & details 11/18/98 - Collman & Karsky
</TABLE>
<PAGE>
Drawing Log
Digex, Inc.
Beltsville, MD
TMC Job No. F-1147
Exhibit "F"
<TABLE>
<CAPTION>
Drawing # Description Date Revised Date Architect/Engineer
--------- ----------- ---- ------------ ------------------
<S> <C> <C> <C> <C>
4.7 Sections & details 11/18/98 - Collman & Karsky
4.8 Enlarged toilet plan 11/18/98 - Collman & Karsky
5.0 Partial flooring plan - South 11/18/98 - Collman & Karsky
5.1 Partial flooring plan - Central 11/18/98 - Collman & Karsky
5.2 Partial flooring plan - North 11/18/98 - Collrnan & Karsky
5.3 Across floor sections and details 11/18/98 - Collman & Karsky
6.0 Roof plan & roof training plan 11/18/98 - Collman & Karsky
7.0 Partial furniture floor plan - North 11/18/98 - Collman & Karsky
7.1 Partial furniture floor plan - Center 11/18/98 - Collman & Karsky
7.2 Partial furniture floor plan - South 11/18/98 - Collman & Karsky
DD- I Entrance canopy elevation 11/18/98 - Collman & Karsky
S1.0 Partial foundation plan - South 11/18/98 - Collman & Karsky
S1.1 Partial foundation plan - Central 11/18/98 - Collman & Karsky
S1.2 Partial foundation plan - North 11/18/98 - Collman & Karsky
S2.0 Structural sections and details 11/18/98 - Collman & Karsky
S3.0 Structural notes 11/18/98 - Collman & Karsky
M0.00 Mechanical legend 11/18/98 - Leo Daly Engineering
M1.01 Floor plan - Area A - HVAC 11/18/98 - Leo Daly Engineering
M1.02 Floor plan - Area B - HVAC 11/18/98 - Leo Daly Engineering
M1,03 Floor plan - Area C - HVAC 11/1898 - Leo Daly Engineering
M1.04 Mechanical roof plan - South 11/18/98 - Leo Daly Engineering
M1.05 Mechanical roof plan - North 11/18/98 - Leo Daly Engineering
M2.01 Floor plan - Area A - HVAC piping 11/18/98 - Leo Daly Engineering
</TABLE>
<PAGE>
Drawing Log
Digex, Inc.
Beltsville, MD
TMC Job No. F-1147
Exhibit "F"
<TABLE>
<CAPTION>
Drawing # Description Date Revised Date Architect/Engineer
--------- ----------- ---- ------------ ------------------
<S> <C> <C> <C> <C>
M2.02 Floor plan - Area B - HVAC piping 11/18/98 - Leo Daly Engineering
M2.03 Floor plan - Area C - HVAC piping 11/18/98 - Leo Daly Engineering
M2.04 Below raised floor Area B - HVAC piping 11/18/98 - Leo Daly Engineering
M2.05 Below raised floor Area C - HVAC piping 11/18/98 - Leo Daly Engineering
M3.01 Mechanical room plans & Sections, Area A 11/18/98 - Leo Daly Engineering
M3.02 Mechanical room plans & sections, Ares B/C 11/18/98 - Leo Daly Engineering
M3.03 Mechanical sections 11/18/98 - Leo Daly Engineering
M3.04 Mechanical sections 11/18/98 - Leo Daly Engineering
M4.01 Chilled water schematic 11/18/98 - Leo Daly Engineering
M4.02 Heating water schematic 11/18/98 - Leo Daly Engineering
M5.01 Fuel oil plan & details 11/18/98 - Leo Daly Engineering
M5.02 Fuel oil plan & details 11/18/98 - Leo Daly Engineering
M5.03 Fuel oil details 11/18/98 - Leo Daly Engineering
M6.01 Mechanical details 11/18/98 - Leo Daly Engineering
M6.02 Mechanical details 11/18/98 - Leo Daly Engineering
M7.01 Mechanical schedules 11/18/98 - Leo Daly Engineering
M7.02 Mechanical schedules 11/18/98 - Leo Daly Engineering
M7.03 Mechanical schedules 11/18/98 - Leo Daly Engineering
M8.01 Control diagrams 11/18/98 - Leo Daly Engineering
M8.02 Control diagrams 11/18/98 - Leo Daly Engineering
M8.03 Control diagrams 11/18/98 - Leo Daly Engineering
M8.04 Control diagrams 11/18/98 - Leo Daly Engineering
M8.05 Control diagrams 11/18/98 - Leo Daly Engineering
</TABLE>
<PAGE>
Drawing Log
Digex, Inc.
Beltsville, MD
TMC Job No. F-1147
Exhibit "F"
<TABLE>
<CAPTION>
Drawing # Description Date Revised Date Architect/Engineer
--------- ----------- ---- ------------ ------------------
<S> <C> <C> <C> <C>
P1.01 Floor plan - Area A - plumbing 11/18/98 - Leo Daly Engineering
P1.02 Floor plan - Area B - plumbing 11/18/98 - Leo Daly Engineering
P1.03 Floor plan - Area C - plumbing 11/18/98 - Leo Daly Engineering
P2.01 Plumbing riser diagrams 11/18/98 - Leo Daly Engineering
P3.01 Plumbing schedules & details 11/18/98 - Leo Daly Engineering
FP1.01 Floor plan - Area A - Fire Protection 11/18/98 - Leo Daly Engineering
FP1.02 Floor plan - Area B - Fire Protection 11/18/98 - Leo Daly Engineering
FP1.03 Floor plan - Area C - Fire Protection 11/18/98 - Leo Daly Engineering
E101 Electrical legend & schedule 11/18/98 12/2/98 G.L. Johnson Eng.
E201 Electrical Area Plan 11/18/98 12/2/98 G.L. Johnson Eng.
E301A Partial plan - lighting 11/18/98 12/7/98 G.L. Johnson Eng.
E302 Partial plan - lighting 11/18/98 12/7/98 G.L. Johnson Eng.
E303 Partial plan - lighting 11/18/98 12/2/98 G.L. Johnson Eng.
E304 Partial plan - mezzanine lighting 11/18/98 - G.L. Johnson Eng.
E305A Partial plan - lighting 11/18/98 12/7/98 G.L. Johnson Eng.
E401 Partial plan - power 11/18/98 12/2/98 G.L. Johnson Eng.
E402 Partial plan - power 11/18/98 12/2/98 G.L. Johnson Eng.
E403 Partial plan - power 11/18/98 12/2/98 G.L. Johnson Eng.
E404 Partial plan - power 11/18/98 12/2/98 G.L. Johnson Eng.
E405A Partial plan - power 11/18/98 12/7/98 G.L. Johnson Eng.
E406A Alternate No. I Partial floor plans - power 11/18/98 12/7/98 G.L. Johnson Eng.
E501 Partial plan - fire alarm systems 11/18/98 - G.L. Johnson Eng.
E502 Partial plan - fire alarm systems 11/18/98 12/2/98 G.L. Johnson Eng.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Drawing # Description Date Revised Date Architect/Engineer
--------- ----------- ---- ------------ ------------------
<S> <C> <C> <C> <C>
E503 Partial plan - fire alarm systems 11/18/98 - G.L. Johnson Eng.
E504 Partial plan-mezzanine fire alarm system 11/18/98 12/2/98 G.L. Johnson Eng.
E601 Details 11/18/98 12/2/98 G.L. Johnson Eng.
E602 Details 11/18/98 - G.L. Johnson Eng.
E603 Details 11/18/98 - G.L. Johnson Eng.
E604 Grounding system diagram and details 11/18/98 - G.L. Johnson Eng.
E605 Electrical room layout and details 11/18/98 - G.L. Johnson Eng.
E701 Panel schedules 11/18/98 12/2/98 G.L. Johnson Eng.
E702 Panel schedules 11/18/98 12/2/98 G.L. Johnson Eng.
E703 Panel schedules 11/18/98 12/2/98 G.L. Johnson Eng.
E704 Panel schedules 11/18/98 12/2/98 G.L. Johnson Eng.
E705 Panel schedules 11/18/98 12/2/98 G.L. Johnson Eng.
E706 Panel schedules 11/18/98 12/2/98 G.L. Johnson Eng.
E707 Panel schedules 11/18/98 12/2/98 G.L. Johnson Eng.
E708 Panel schedules 11/18/98 12/2/98 G.L. Johnson Eng.
E709 Panel schedules 11/18/98 12/2/98 G.L. Johnson Eng.
E710 Panel schedules 11/18/98 12/2/98 G.L. Johnson Eng.
E711A Alternate No. 1 Panel schedules 11/18/98 12/7/98 G.L. Johnson Eng.
E801 One line diagram 11/18/98 - G.L. Johnson Eng.
E802A One line diagram-critical power (UPS) 11/18/98 12/7/98 G.L. Johnson Eng.
E803 One line diagram UPS room critical power 11/18/98 11/18/98 12/7/98 G.L. Johnson Eng.
Branch distribution
E804 One line diagram-branch distribution 11/18/98 12/2/98 G.L. Johnson Eng.
</TABLE>
<PAGE>
Drawing Log
Digex, Inc.
Beltsville, MD
TMC Job No. F-1147
Exhibit "F"
<TABLE>
<CAPTION>
Drawing # Description Date Revised Date Architect/Engineer
--------- ----------- ---- ------------ ------------------
<S> <C> <C> <C> <C>
E901 Lightning protection plan 11/18/98 - G.L. Johnson Eng.
</TABLE>
<PAGE>
Exhibit "G"
MISCELLANEOUS PROVISIONS
I. Hazardous Materials
The term hazardous materials includes, but is not limited to, asbestos,
toxic waste, acids, alkalis, irritants, contaminants and/or pollutants.
No cutting, handling, removal or other disposition of hazardous
materials shall be performed by the Contractor or any Subcontractor. A
specialized contractor licensed for the work shall be employed under
separate contract directly with the owner.
If, during the performance of the work, presence of hazardous materials
is discovered or suspected, Contractor shall cease work involving such
materials and shall immediately notify the Owner and arrangements shall
be made by Owner for the complete legal removal and disposition of the
hazardous materials, as provided above, or other such arrangements as
may be acceptable to Owner and Contractor.
II. Owner shall provide Builder's Risk Insurance and provide contractor
with Insurance Certificate naming The Murray Company as an additional
insured. Deductibles and limits of this policy shall be for mutually
agreeable amounts.
<PAGE>
EXHIBIT "H"
The following minimum requirements are to be provided by Contractor:
A. Worker's Compensation
1. Statutory
B. Employer's Liability
1. $500,000
C. Commercial General Liability
1. Including Contractor's Protective, Completed
Operations, and Contractual
2. Bodily Injury & Property Damage Combined Single
Limit
a. $1,000,000 per occurrence
b. $2,000,000 per aggregate
D. Commercial Automobile Liability
1. Bodily Injury & Property Damage Combined Single Limit
a. $ 1,000,000 per occurrence
b. $1,000,000 per aggregate
E. Umbrella Excess Liability - $10,000,000 per aggregate
The following minimum requirements are to be provided by Subcontractors:
A. Worker's Compensation
1. Statutory
B. Employer's Liability
1. $100,000
C. Commercial General Liability including Contractual Liability
1. Bodily Injury & Property Damaged Combined Single
Limit
a. $500,000 per occurrence
b. $500,000 per aggregate
D. Motor Vehicle Liability
1. Bodily Injury & Property Damage Combined Single Limit
a. $500,000 per occurrence
b. $500,000 per aggregate
<PAGE>
General Conditions of the Contract
for Construction
1987 EDITION
TABLE OF ARTICLES
1. GENERAL PROVISIONS
2. OWNER
3. CONTRACTOR
4. ADMINISTRATION OF THE CONTRACT
5. SUBCONTRACTORS
6. CONSTRUCTION BY OWNER OR BY SEPARATE CONTRACTORS
7. CHANGES IN THE WORK
8. TIME
9. PAYMENTS AND COMPLETION
10. PROTECTION OF PERSONS AND PROPERTY
11. INSURANCE AND BONDS
12. UNCOVERING AND CORRECTION OF WORK
13. MISCELLANEOUS PROVISIONS
14. TERMINATION OR SUSPENSION OF THE CONTRACT
<PAGE>
- --------------------------------------------------------------------------------
GENERAL CONDITIONS OF THE CONTRACT FOR CONSTRUCTION
- --------------------------------------------------------------------------------
ARTICLE 1
---------
GENERAL PROVISIONS
1.1 BASIC DEFINITIONS
1.1.1 THE CONTRACT DOCUMENTS
The Contract Documents consist of the Agreement between owner and Contractor
(hereinafter the Agreement), Conditions of the Contract (General, Supplementary
and other Conditions), Drawings, Specifications, addenda issued prior to
execution of the Contract, other documents listed in the Agreement and
Modifications issued after execution of the Contract. A Modification is (1) a
written amendment to the Contract signed by both parties, (2) a Change Order,
(3) a Construction Change Directive or (4) a written order for a minor change in
the Work issued by the Architect. Unless specifically enumerated in the
Agreement, the Contract Documents do not include other documents such as bidding
requirements (advertisement or invitation to bid, Instructions to Bidders,
sample forms, the Contractor's bid or portions of addenda relating to bidding
requirements).
1.1.2 THE CONTRACT
The Contract Documents form the Contract for Construction. The Contract
represents the entire and integrated agreement between the parties hereto and
supersedes prior negotiations, representations or agreements, either written or
oral. The Contract may be amended or modified only by a Modification. The
Contract Documents shall not be construed to create a contractual relationship
of any kind (1) between the Architect and Contractor, (2) between the Owner and
a Subcontractor or Subsubcontractor or (3) between any persons or entities other
than the Owner and Contractor. The Architect shall, however, be entitled to
performance and enforcement of obligations under the Contract intended to
facilitate performance of the Architect's duties.
1.1.3 THE WORK
The term "Work" means the construction and services required by the Contract
Documents, whether completed or partially completed, and includes all other
lor, materials, equipment and services provided or to be provided by the
Contractor to fulfill the Contractor's obligations. The Work may constitute the
whole or a part of the Project.
1.1.4 THE PROJECT
The Project is the total construction of which the Work performed under the
Contract Documents may be the whole or a part and which may include construction
by the Owner or by separate contractors.
1.1.5 THE DRAWINGS
The Drawings are the graphic and pictorial portions of the Contract Documents,
wherever located and whenever issued, showing the design, location and
dimensions of the Work, generally including plans, elevations, sections,
details, schedules and diagrams.
1.1.6 THE SPECIFICATIONS
The Specifications are that portion of the Contract Documents consisting of the
written requirements for materials, equipment, construction systems, standards
and workmanship for the Work, and performance of related services.
1.1.7 THE PROJECT MANUAL
The Project Manual is the volume usually assembled for the Work which may
include the bidding requirements, sample forms, Conditions of the Contract and
Specifications.
1.2 EXECUTION, CORRELATION AND INTENT
1.2.1 The Contract Documents shall be signed by the Owner and Contractor as
provided in the Agreement. If either the Owner or Contractor or both do not sign
all the Contract Documents, the Architect shall identify such unsigned Documents
upon request.
<PAGE>
1.2.2 Execution of the Contract by the Contractor is a representation that the
Contractor has visited the site, become familiar with local conditions under
which the Work is to be performed and correlated personal observations with
requirements of the Contract Documents.
1.2.3 The intent of the Contract Documents is to include all items necessary
for the proper execution and completion of the Work by the Contractor. The
Contract Documents are complementary, and what is required by one shall be as
binding as if required by all; performance by the Contractor shall be required
only to the extent consistent with the Contract Documents and reasonably
inferable from them as being necessary to produce the intended results.
1.2.4 Organization of the Specifications into divisions, sections and
articles, and arrangement of Drawings shall not control the Contractor in
dividing the Work among Subcontractors or in establishing the extent of Work to
be performed by any trade.
1.2.5 Unless otherwise stated in the Contract Documents, words which have
well-known technical or construction industry meanings are used in the Contract
Documents in accordance with such recognized meanings.
1.3 OWNERSHIP AND USE OF ARCHITECT'S DRAWINGS, SPECIFICATIONS AND OTHER
DOCUMENTS
1.3.1 The Drawings, Specifications and other documents prepared by the
Architect are instruments of the Architect's service through which the Work to
be executed by the Contractor is described. The Contractor may retain one
contract record set. Neither the Contractor nor any Subcontractor,
Subsubcontractor or material or equipment supplier shall own or claim a
copyright in the Drawings, Specifications and other documents prepared by the
Architect, and unless otherwise indicated the Architect shall be deemed the
author of them and will retain all common law, statutory and other reserved
rights, in addition to the copyright. All copies of them, except the
Contractor's record set, shall be returned or suitably accounted for to the
Architect, on request, upon completion of the Work. The Drawings, Specifications
and other documents prepared by the Architect, and copies thereof furnished to
the Contractor, are for use solely with respect to this Project. They are not to
be used by the Contractor or any Subcontractor, Subsubcontractor or material or
equipment supplier on other projects or for additions to this Project outside
the scope of the Work without the specific written consent of the Owner and
Architect. The Contractor, Subcontractors, Sub-subcontractors and material or
equipment suppliers are granted a limited license to use and reproduce
applicable portions of the Drawings, Specifications and other documents prepared
by the Architect appropriate to and for use in the execution of their Work under
the Contract Documents. All copies made under the license shall bear the
statutory copyright notice, if any, shown on the Drawings, Specifications and
other documents prepared by the Architect. Submittal or distribution to meet
official regulatory requirements or for other purposes in connection with this
Project is not to be construed as publication in derogation of the Architect's
copyright or other reserved rights.
1.4 CAPITALIZATION
1.4.1 Terms capitalized in these General Conditions include those which are
(1) specifically defined, (2) the titles of numbered articles and identified
references to Paragraphs, Subparagraphs and Clauses in the document or (3) the
titles of other documents published by the American Institute of Architects.
1.5 INTERPRETATION
1.5.1 In the interest of brevity the Contract Documents frequently omit
modifying words such as "all". and "any" and articles such as "the" and "an,"
but the fact that a modifier or an article is absent from one statement and
appears in another is not intended to affect the interpretation of either
statement.
ARTICLE 2
---------
OWNER
2.1 DEFINITION
2.1.1 The Owner is the person or entity identified as such in the Agreement
and is referred to throughout the Contract Documents as if singular in number.
The term "Owner" means the Owner or the Owner's authorized representative.
<PAGE>
2.2 INFORMATION AND SERVICES REQUIRED OF THE OWNER
2.2.1 The Owner shall furnish surveys describing physical characteristics,
legal limitations and utility locations for the site of the Project, and a legal
description of the site.
2.2.2 Except for permits and fees which are the responsibility of the
Contractor under the Contract Documents, the Owner shall secure and pay for
necessary approvals, easements, assessments and charges required for
construction, use or occupancy of permanent structures or for permanent changes
in existing facilities.
2.2.3 Information or services under the Owner's control shall be furnished by
the Owner with reasonable promptness to avoid delay in orderly progress of the
Work.
2.2.4 Unless otherwise provided in the Contract Documents, the Contractor will
be furnished, free of charge, such copies of Drawings and Project Manuals as are
reasonably necessary for execution of the Work.
2.2.5 The foregoing are in addition to other duties and responsibilities of
the Owner enumerated herein and especially those in respect to Article 6
(Construction by Owner or by Separate Contractors), Article 9 (Payments and
Completion) and Article II (Insurance and Bonds).
2.3 OWNER'S RIGHT TO STOP THE WORK
2.3.1 If the Contractor fails to correct Work which is not in accordance with
the requirements of the Contract Documents as required by Paragraph 12.2 or
materially fails to carry out Work in accordance with the Contract Documents,
the Owner, by written order signed personally or by an agent specifically so
empowered by the Owner in writing, may order the Contractor to stop the Work, or
any portion thereof, until the cause for such order has been eliminated;
however, the right of the Owner to stop the Work shall not give rise to a duty
on the part of the Owner to exercise this right for the benefit of the
Contractor or any other person or entity, except to the extent required by
Subparagraph 6.1.3.
2.4 OWNER'S RIGHT TO CARRY OUT THE WORK
2.4.1 if the Contractor defaults or neglects to carry out the Work in
accordance with the Contract Documents and fails within a seven-day period after
receipt of written notice from the Owner to commence and continue correction of
Such default or neglect with diligence and promptness, the Owner may after such
seven-day period without prejudice to other remedies the Owner may have, correct
such deficiencies. In such case an appropriate Change Order shall be issued
deducting from payments then or thereafter due the Contractor the cost of
correcting such deficiencies, including compensation for the Architect's
additional services and expenses made necessary by such default, neglect or
failure. Such action by the Owner and amounts charged to the Contractor are both
subject to prior approval of the Architect. If payments then or thereafter due
the Contractor are not sufficient to cover such amounts, the Contractor shall
pay the difference to the Owner.
ARTICLE 3
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CONTRACTOR
3.1 DEFINITION
3.1.1 The Contractor is the person or entity identified as such in the
Agreement and is referred to throughout the Contract Documents as if singular in
number. The term "Contractor" means the Contractor or the Contractor's
authorized representative.
3.2 REVIEW OF CONTRACT DOCUMENTS AND FIELD CONDITIONS BY CONTRACTOR
3.2.1 The Contractor shall carefully study and compare the Contract Documents
with each other and with information furnished by the Owner pursuant to
Subparagraph 2.2.2 and shall at once report to the Architect errors,
inconsistencies or omissions discovered. The Contractor shall not be liable to
the Owner or Architect for damage resulting from errors, inconsistencies or
omissions in the Contract Documents unless the Contractor recognized such error,
inconsistency or omission and knowingly failed to report it to the Architect. If
the Contractor performs any construction activity knowing it involves a
recognized error, inconsistency or omission in the
<PAGE>
Contract Documents without such notice to the Architect, the Contractor shall
assume appropriate responsibility for such performance and shall bear an
appropriate amount of the attributable costs for correction.
3.2.2 The Contractor shall take field measurements and verify field conditions
and shall carefully compare such field measurements and conditions and other
information known to the Contractor with the Contract Documents before
commencing activities. Errors, inconsistencies or omissions discovered shall be
reported to the Architect at once.
3.2.3 The Contractor shall perform the Work in accordance with the Contract
Documents and submittals approved pursuant to Paragraph 3.12..
3.3 SUPERVISION AND CONSTRUCTION PROCEDURES
3.3.1 The Contractor shall supervise and direct the Work, using the
Contractor's best skill and attention. The Contractor shall be solely
responsible for and have control over construction means, methods, techniques,
sequences and procedures and for coordinating all portions of the Work under the
Contract, unless Contract Documents give other specific instructions concerning
these matters.
3.3.2 The Contractor shall be responsible to the Owner for acts and omissions
of the Contractor's employees, Subcontractors and their agents and employees,
and other persons performing portions of the Work under 2 contract with the
Contractor.
3.3.3 The Contractor shall not be relieved of obligations to perform the Work
in accordance with the Contract Documents either by activities or duties of the
Architect in the Architect's administration of the Contract, or by tests,
inspections or approvals required or performed by persons other than the
Contractor.
3.3.4 The Contractor shall be responsible for inspection of portions of Work
already performed under this Contract to determine that such portions are in
proper condition to receive subsequent Work.
3.4 LABOR AND MATERIALS
3.4.1 Unless otherwise provided in the Contract Documents, the Contractor
shall provide and pay for labor, materials, equipment, tools, construction
equipment and machinery, water, heat, utilities, transportation, and other
facilities and services necessary for proper execution and completion of the
Work, whether temporary or permanent and whether or not incorporated or to be
incorporated in the Work.
3.4.2 The Contractor shall enforce strict discipline and good order among the
Contractor's employees and other persons carrying out the Contract. The
Contractor shall not permit employment of unfit persons or persons not skilled
in tasks assigned to them.
3.5 WARRANTY
3.5.1 The Contractor warrants to the Owner and Architect that materials and
equipment furnished under the Contract will be of good quality and new unless
otherwise required or permitted by die Contract Documents, that the Work will be
free from defects not inherent in the quality required or permitted, and that
the Work will conform with the requirements of the Contract Documents. Work not
conforming to these requirements, including substitutions not property approved
and authorized, may be considered detective. The Contr2ctor's warranty excludes
remedy for damage or defect caused by abuse, modifications not executed by the
Contractor, improper or insufficient maintenance, improper operation, or normal
wear and tear under normal usage. If required by the Architect, the Contractor
shall furnish satisfactory evidence as to the kind and quality of materials and
equipment.
3.6 TAXES
3.6.1 The Contractor shall pay sales, consumer, use and similar taxes for the
Work or portions thereof provided by the Contractor which are legally enacted
when bids arc received or negotiations concluded, whether or not yet effective
or merely scheduled to go into effect.
3.7 PERMITS, FEES AND NOTICES
3.7.1 Unless other-wise provided in the Contract Documents, the Contractor
shall secure and pay for the building permit and other pemits and governmental
fees, licenses and inspections necessary for proper
<PAGE>
execution and completion of the Work which are customarily secured after
execution of the Contract and which are legally required when bids are received
or negotiations concluded.
3.7.2 The Contractor shall comply with and give notices required by laws,
ordinances, rules, regulations and lawful orders of public authorities bearing
on performance of the Work.
3.7.3 It is not the Contractor's responsibility to ascertain that the Contract
Documents are in accordance with applicable laws, statutes, ordinances, building
codes, and rules and regulations. However, if the Contractor observes that
portions of the Contract Documents are at variance therewith, the Contractor
shall promptly notify the Architect and Owner in writing, and necessary changes
shall be accomplished by appropriate Modification.
3.7.4 If the Contractor performs Work knowing it to be contrary to laws,
statutes, ordinances, building codes, and rules and regulations without such
notice to the Architect and Owner, the Contractor shall assume full
responsibility for such Work and shall bear the attributable costs.
3.8 ALLOWANCES
3.8.1 The Contractor shall include in the Contract Sum all allowances stated
in the Contract Documents. Items covered by allowances shall be supplied for
such amounts and by such persons or entities as the Owner may direct, but the
Contractor shall not be required to employ persons or entities against which the
Contractor makes reasonable objection.
3.8.2 Unless otherwise provided in the Contract Documents:
.1 materials and equipment under an allowance shall be selected promptly
by the Owner to avoid delay in the Work;
.2 allowances shall cover the cost to the Contractor of materials and
equipment delivered at the site and all required taxes, less applicable
trade discounts;
.3 Contractor's costs for unloading and handling at the site, labor,
installation costs, overhead, profit and other expenses contemplated
for stated allowance amounts shall be included in the Contract Sum and
not in the allowances;
.4 whenever costs are more than or less than allowances, the Contract Sum
shall be adjusted accordingly by Change Order. The amount of the Change
Order shall reflect (1) the difference between actual costs and the
allowances under Clause 3.8.2.2 and (2) changes in Contractor's costs
under Clause 3.8.2.3.
3.9 SUPERINTENDENT
3.9.1 The Contractor shall employ a competent superintendent and necessary
assistants who shall be in attendance at the Project site during performance of
the Work. The superintendent shall represent the Contractor, and communications
given to the superintendent shall be as binding as if given to the Contractor.
Important communications shall be confirmed in writing. Other communications
shall be similarly confirmed on written request in each case.
3.10 CONTRACTOR'S CONSTRUCTION SCHEDULES
3.10.1 The Contractor, promptly after being awarded the Contract, shall
prepare and submit for the Owner's and Architect's information a Contractor's
construction schedule for the Work. The schedule shall not exceed time limits
current under the Contract Documents, shall be revised at appropriate intervals
as required by the conditions of the Work and Project, shall be related to the
entire Project to the extent required by the Contract Documents, and shall
provide for expeditious and practicable execution of the Work.
3.10.2 The Contractor shall prepare find keep current, for the Architect's
approval, a schedule of submittals which is coordinated with the Contractor's
construction schedule and allows the Architect reasonable time to review
submittals.
3.10.3 The Contractor shall conform to the most recent schedules.
<PAGE>
3.11 DOCUMENTS AND SAMPLES AT THE SITE
3.11.1 The Contractor shall maintain at the site for the Owner one record copy
of the Drawings, Specifications, addenda, Change Orders and other Modifications,
in good order and marked currently to record changes and selections made during
construction, and in addition approved Shop Drawings, Product Data, Samples and
similar required submittals. These shall be available to the Architect and shall
be delivered to the Architect for submittal to the Owner upon completion of the
Work.
3.12 SHOP DRAWINGS, PRODUCT DATA AND SAMPLES
3.12.1 Shop Drawings are drawings, diagrams, schedules and other data
specially prepared for the Work by the Contractor or a Subcontractor,
Sub-subcontractor, manufacturer, supplier or distributor to illustrate some
portion of the Work.
3.12.2 Product Data are illustrations, standard schedules, performance charts,
instructions, brochures, diagrams and other information furnished by the
Contractor to illustrate materials or equipment for some portion of the Work.
3.12.3 Samples are physical examples which illustrate materials, equipment or
workmanship and establish standards by which the Work will be judged.
3.12.4 Shop Drawings, Product Data, Samples and similar submittals are not
Contract Documents. The purpose of their submittal is to demonstrate for those
portions of the Work for which submittals are required the way the Contractor
proposes to conform to the information given and the design concept expressed in
the Contract Documents. Review by the Architect is subject to the limitations of
Subparagraph 4.2.7.
3.12.5 The Contractor shall review, approve and submit to the Architect Shop
Drawings, Product Data, Samples and similar submittals required by the Contract
Documents with reasonable promptness and in such sequence as to cause no delay
in the Work or in the activities of the Owner or of separate contractors.
Submittals made by the Contractor which are not required by the Contract
Documents may be returned without action.
3.12.6 The Contractor shall perform no portion of the Work requiring submittal
and review of Shop Drawings, Product Data, Samples or similar submittals until
the respective submittal has been approved by the Architect. Such Work shall be
in accordance with approved submittals.
3.12.7 By approving and submitting Shop Drawings, Product Data, Samples and
similar submittals, the Contractor represents that the Contractor has determined
and verified materials, field measurements and field construction criteria
related thereto, or will do so, and has checked and coordinated the information
contained within such submittals with the requirements of the Work and of the
Contract Documents.
3.12.8 The Contractor shall not be relieved of responsibility for deviations
from requirements of the Contract Documents by the Architect's approval of Shop
Drawings, Product Data, Samples or similar submittals unless the Contractor has
specifically informed the Architect in writing of such deviation at the time of
submittal and the Architect has given written approval to the specific
deviation. The Contractor shall not be relieved of responsibility for errors or
omissions in Shop Drawings, Product Data, Samples or similar submittals by the
Architect's approval thereof.
3.12.9 The Contractor shall direct specific attention, in writing or on
resubmitted Shop Drawings, Product Data, Samples or similar submittals, to
revisions other than those requested by the Architect on previous submittals.
3.12.10 Informational submittals upon which the Architect is not expected to
take responsive action may be so identified in the Contract Documents.
3.12.11 When professional certification of performance criteria of materials,
systems or equipment is required by the Contract Documents, the Architect shall
be entitled to rely upon the accuracy and completeness of such calculations and
certifications.
3.13 USE OF SITE
3.13.1 The Contractor shall confine operations at the site to areas permitted
by law, ordinances, permits and
<PAGE>
the Contract Documents and shall not unreasonably encumber the site with
materials or equipment.
3.14 CUTTING AND PATCHING
3.14.1 The Contractor shall be responsible for cutting, fitting or patching
required to complete the Work or to make its parts fit together properly.
3.14.2 The Contractor shall not damage or endanger a portion of the Work or
fully or partially completed construction of the Owner or separate contractors
by cutting, patching or otherwise altering such construction, or by excavation.
The Contractor shall not cut or otherwise alter such construction by the Owner
or a separate contractor except with written consent of the Owner and of such
separate contractor such consent shall not be unreasonably withheld. The
Contractor shall not unreasonably withhold from the Owner or a separate
contractor the Contractor's consent to cutting or otherwise altering the Work.
3.15 CLEANING UP
3.15.1 The Contractor shall keep the premises and surrounding area free from
accumulation of waste materials or rubbish caused by operations under the
Contract. At completion of the Work the Contractor shall remove from and about
the Project waste materials, rubbish, the Contractor's tools, construction
equipment, machinery and surplus materials.
3.15.2 if the Contractor fails to clean up as provided in the Contract
Documents, the Owner may do so and the cost thereof shall be charged to the
Contractor.
3.16 ACCESS TO WORK
3.16.1 The Contractor shall provide the Owner and Architect access to the Work
in preparation and progress wherever located.
3.17 ROYALTIES AND PATENTS
3.17.1 The Contractor shall pay all royalties and license fees. The Contractor
shall defend suits or claims for infringement of patent rights and shall hold
the Owner and Architect harmless from loss on account thereof, but shall not be
responsible for such defense or loss when a particular design, process or
product of a particular manufacturer or manufacturers is required by the
Contract Documents. However, if the Contractor has reason to believe that the
required design, process or product is an infringement of a patent, the
Contractor shall be responsible for such loss unless such information is
promptly furnished to the Architect.
3.18 INDEMNIFICATION
3.18.1 To the fullest extent permitted by law, the Contractor shall indemnify
and hold harmless the Owner, Architect, Architect's consultants, and agents and
employees of any of them from and against claims, damages, losses and expenses,
including but not limited to attorneys' fees, arising out of or resulting from
performance of the Work, provided that such claim, damage, loss or expense is
attributable to bodily injury, sickness, disease or death, or to injury to or
destruction of tangible property (other than the Work itself including loss of
use resulting therefrom, but only to the extent caused in whole or in part by
negligent acts or emissions of the Contractor, a Subcontractor, anyone directly
or indirectly employed by them or anyone for whose acts they may be liable,
regardless of whether or not such claim, damage, loss or expense is caused in
part by a party indemnified hereunder. Such obligation shall not be construed to
negate, abridge, or reduce other rights or obligations of indemnity which would
otherwise exist as to a party or person described in this Paragraph 3.18.
3.18.2 In claims against any person or entity indemnified under this Paragraph
3.18 by an employee of the Contractor, a Subcontractor, anyone directly or
indirectly employed by them or anyone for whose acts they may be liable, the
indemnification obligation under this Paragraph 3.18 shall not be limited by a
limitation on amount or type of damages, compensation or benefits payable by or
for the Contractor or a Subcontractor under workers' or workmen's compensation
acts, disability benefit acts or other employee benefit acts.
3.18.3 The obligations of the Contractor under this Paragraph 3.18 shall not
extend to the liability of the Architect, the Architect's consultants, and
agents and employees of any of them arising out of (1) the preparation or
approval of maps, drawings, opinions, reports, surveys, Change Orders, designs
or specifications, or (2) the giving of or the failure to give directions or
instructions by the Architect, the
<PAGE>
Architect's consultants, and agents and employees of any of them provided such
giving or failure to give is the primary cause of the injury or damage.
ARTICLE 4
---------
ADMINISTRATION OF THE CONTRACT
4.1 ARCHITECT
4.1.1 The Architect is the person lawfully licensed to practice architecture
or an entity lawfully practicing architecture identified as such in the
Agreement and is referred to throughout the Contract Documents as if singular in
number. The term "Architect" means the Architect or the Architect's authorized
representative.
4.1.2 Duties, responsibilities and limitations of authority of the Architect
as set forth in the Contract Documents shall not be restricted, modified or
extended without written consent of the Owner, Contractor and Architect. Consent
shall not be unreasonably withheld.
4.1.3 In case of termination of employment of the Architect, the Owner shall
appoint an architect against whom the Contractor makes no reasonable objection
and whose status under the Contract Documents shall be that of the former
architect.
4.1.4 Disputes arising under Subparagraphs 4.1.2 and 4.1.3 shall be subject to
arbitration.
4.2 ARCHITECT'S ADMINISTRATION OF THE CONTRACT
4.2.1 The Architect will provide administration of the Contract as described
in the Contract Documents, and will be the Owner's representative (1) during
construction, (2) until final payment is due and (3) with the Owner's
concurrence, from time to time during the correction period described in
Paragraph 12.2. The Architect will advise and consult with the Owner. The
Architect will have authority to act on behalf of the Owner only to the extent
provided in the Contract Documents, unless otherwise modified by written
instrument in accordance with other provisions of the Contract.
4.2.2 The Architect will visit the site at intervals appropriate to the stage
of construction to become generally familiar with the progress and quality of
the completed Work and to determine in general if the Work is being performed in
a manner indicating that the Work, when completed, will be in accordance with
the Contract Documents. However, the Architect will not be required to make
exhaustive or continuous on-site inspections to check quality or quantity of the
Work. on the basis of onsite observations as an architect, the Architect will
keep the Owner informed of progress of the Work, and will endeavor to guard the
Owner against defects and deficiencies in the Work.
4.2.3 The Architect will not have control over or charge of and will not be
responsible for construction means, methods, techniques, sequences or
procedures, or for safety precautions and programs in connection with the Work,
since. these are solely the Contractor's responsibility as provided in Paragraph
3.3. The Architect will not be responsible for the Contractor's failure to carry
out the Work in accordance with the Contract Documents. The Architect will not
have control over or charge of and will not be responsible for acts or omissions
of the Contractor, Subcontractors, or their agents or employees, or of any other
persons performing portions of the Work.
4.2.4 Communications Facilitating Contract Administration. Except as otherwise
provided in the Contract Documents or when direct communications have been
specially authorized, the Owner and Contractor shall endeavor to communicate
through the Architect. Communications by and with the Architect's consultants
shall be through the Architect. Communications by and with Subcontractors and
material suppliers shall be through the Contractor. Communications by and with
separate contractors shall be through the Owner.
4.2.5 Based on the Architect's observations and evaluations of the
Contractor's Applications for Payment, the Architect will review and certify the
amounts due the Contractor and will issue Certificates for Payment in such
amounts.
4.2.6 The Architect will have authority to reject Work which does not conform
to the Contract Documents. Whenever the Architect considers it necessary or
advisable for implementation of the intent of the Contract Documents, the
Architect will have authority to require additional inspection or testing of the
Work in accordance with Subparagraphs 13.5.2
<PAGE>
and 13.5.3, whether or not such Work is fabricated, installed or completed.
However, neither this authority of the Architect nor a decision made in good
faith either to exercise or not to exercise such authority shall give rise to a
duty or responsibility of the Architect to the Contractor, Subcontractors,
material and equipment suppliers, their agents or employees, or other persons
performing portions of the Work.
4.2.7 The Architect will review and approve or take other appropriate action
upon the Contractor's submittals such as Shop Drawings, Product Data and
Samples, but only for the limited purpose of checking for conformance with
information given and the design concept expressed in the Contract Documents.
The Architect's action will be taken with such reasonable promptness as to cause
no delay in the Work or in the activities of the Owner, Contractor or separate
contractors, while allowing sufficient time in the Architect's professional
judgment to permit adequate review. Review of such submittals is not conducted
for the purpose of determining the accuracy and completeness of other details
such as dimensions and quantities, or for substantiating instructions for
installation or performance of equipment or systems, all of which remain the
responsibility of the Contractor as required by the Contract Documents. The
Architect's review of the Contractor's submittals shall not relieve the
Contractor of the obligations under Paragraphs 3.3, 3.5 and 3.12. The
Architect's review shall not constitute approval of safety precautions or,
unless otherwise specifically stated by the Architect, of any construction
means, methods, techniques, sequences or procedures. The Architect's approval of
a specific item shall not indicate approval of an assembly of which the item is
a component.
4.2.8 The Architect will prepare Change Orders and Construction Change
Directives, and may authorize minor changes in the Work as provided in Paragraph
7.4.
4.2.9 The Architect will conduct inspections to determine the date or dates of
Substantial Completion and the date of final completion, will receive and
forward to the Owner for the Owner's review and records written warranties and
related documents required by the Contract and assembled by the Contractor, and
will issue a final Certificate for Payment upon compliance with the requirements
of the Contract Documents.
4.2.10 If the Owner and Architect agree, the Architect will provide one or
more project representatives to assist in carrying out the Architect's
responsibilities, at the site. The duties, responsibilities and limitations of
authority of such project representatives shall be as set forth in an exhibit to
be incorporated in the Contract Documents.
4.2.11 The Architect will interpret and decide matters concerning performance
under and requirements of the Contract Documents on written request of either
the Owner or Contractor. The Architect's response to such requests will be made
with reasonable promptness and within any time limits agreed upon. If no
agreement is made concerning the time within which interpretations required of
the Architect shall be furnished in compliance with this Paragraph 4.2, then
delay shall not be recognized on account of failure by the Architect to furnish
such interpretations until 15 days after written request is made for them.
4.2.12 Interpretations and decisions of the Architect will be consistent with
the intent of and reasonably inferable from the Contract Documents and will be
in writing or in the form of drawings. When making such interpretations and
decisions, the Architect will endeavor to secure faithful performance by both
Owner and Contractor, will not show partiality to either and will not be liable
for results of interpretations or decisions so rendered in good faith.
4.2.13 The Architect's decisions on matters relating to aesthetic effect will
be final.
4.3 CLAIMS AND DISPUTES
4.3.1 Definition. A Claim is a demand or assertion by one of the parties
seeking, as a matter of right, adjustment or interpretation of Contract terms,
payment of money, extension of time or other relief with respect to the terms of
the Contract. The term "Claim" also includes other disputes and matters in
question between the Owner and Contractor arising out of or relating to the
Contract. Claims must be made by written notice. The responsibility to
substantiate Claims shall rest with the party making the Claim.
4.3.2 Decision of Architect. Claims, including those alleging an error or
omission by the Architect, shall be referred initially to the Architect for
action as
<PAGE>
provided in Paragraph 4.4. A decision by the Architect, as provided in
Subparagraph 4.4.4, shall be required as a condition precedent to or litigation
of a Claim between the Contractor and Owner as to all such matters arising prior
to the date final payment is due, regardless of (1) whether such matters relate
to execution and progress of the Work or (2) the extent to which the Work has
been completed. The decision by the Architect in response to a Claim shall not
be a condition precedent to or litigation in the event (1) the position of
Architect is vacant, (2) the Architect has not received evidence or has failed
to render a decision within agreed time limits, (3) the Architect has failed to
take action required under 'Subparagraph 4.4.4 within 30 days after the Claim is
made or (4) 45 days have passed after the Claim has been referred to the
Architect.
4.3.3 Time Limits on Claims. Claims by either party must be made within 21
days after occurrence of the event giving rise to such Claim or within 21 days
after the claimant first recognizes the condition giving rise to the Claim,
whichever is later. Claims must be made by written notice. An additional Claim
made after the initial Claim has been implemented by Change Order will not be
considered unless submitted in a timely manner.
4.3.4 Continuing Contract Performance. Pending final resolution of a Claim
including litigation unless otherwise agreed in writing the Contractor shall
proceed diligently with performance of the Contract and the Owner shall continue
to make payments in accordance with the Contract Documents.
4.3.5 Waiver of Claims: Final Payment. The making of final payment shall
constitute a waiver of Claims by the Owner except those arising from:
.1 liens, Claims, security interests or encumbrances arising out of the
Contract and unsettled;
.2 failure of the Work to comply with the requirements of the Contract
Documents; or
.3 terms of special warranties required by the Contract Documents.
4.3.6 Claims for Concealed or Unknown Conditions. If conditions are
encountered at the site which are (1) subsurface or otherwise concealed physical
conditions which differ materially from those indicated in the Contract
Documents or (2) unknown physical conditions of an unusual nature, which differ
materially from those ordinarily found to exist and generally recognized as
inherent in construction activities of the character provided for in the
Contract Documents, then notice by the observing party shall be given to the
other party promptly before conditions are disturbed and in no event later than
21 days after first observance of the conditions. The Architect will promptly
investigate such conditions and, if they differ materially and cause an increase
or decrease in the Contractor's cost of, or time required for, performance of
any part of the Work, will recommend an equitable adjustment in the Contract Sum
or Contract Time, or both. If the Architect determines that the conditions at
the site are not materially different from those indicated in the Contract
Documents and that no change in the terms of the Contract is justified, the
Architect shall so notify the Owner and Contractor in writing, stating the
reasons. Claims by either party in opposition to such determination must be made
within 21 days after the Architect has given notice of the decision. if the
Owner and Contractor cannot agree on an adjustment in the Contract Sum or
Contract Time, the adjustment shall be referred to the Architect for initial
determination, subject to further proceedings pursuant to Paragraph 4.4.
4.3.7 Claims for Additional Cost. If the Contractor wishes to make Claim for
an increase in the Contract Sum, written notice as provided herein shall be
given before proceeding to execute the Work. Prior notice is not required for
Claims relating to an emergency endangering life or property arising under
Paragraph 10-3. If the Contractor believes additional cost is involved for
reasons including but not limited to (1) a written interpretation from the
Architect, (2) an order by the Owner to stop the Work where the Contractor was
not at fault, (3) a written order for a minor change in the Work issued by the
Architect, (4) failure of payment by the Owner, (5) termination of the Contract
by the Owner, (6) Owner's suspension or (7) other reasonable grounds, Claim
shall be filed in accordance with the procedure established herein.
4.3.8 Claims for Additional Time
4.3.8.1 If the Contractor wishes to make Claim for an increase in the Contract
Time, written notice as provided herein shall be given. The Contractor's Claim
shall include an estimate of cost and of probable effect
<PAGE>
of delay on progress of the Work. In the case of a continuing delay only one
Claim is necessary.
4.3.8.2 If adverse weather conditions are the basis for a Claim for additional
time, such Claim shall be documented by data substantiating that weather
conditions were abnormal for the period of time and could not have been
reasonably anticipated, and that weather conditions had an adverse effect on the
scheduled construction.
4.3.9 Injury or Damage to Person or Property. If either party to the Contract
suffers injury or damage to person or property because of an act or omission of
the other party, of any of the other party's employees or agents, or of others
for whose acts such party is legally liable, written notice of such injury or
damage, whether or not insured, shall be given to the other party within a
reasonable time not exceeding 21 days after first observance. The notice shall
provide sufficient detail to enable the other party to investigate the matter.
If a Claim for additional cost or time related to this Claim is to be asserted,
it shall be filed as provided in Subparagraphs 4.3.7 or 4.3.8.
4.4 RESOLUTION OF CLAIMS AND DISPUTES
4.4.1 The Architect will review Claims and take one or more of the following
preliminary actions within ten days of receipt of a Claim: (1) request
additional supporting data from the claimant, (2) submit a schedule to the
parties indicating when the Architect expects to take action, (3) reject the
Claim in whole or in part, stating reasons for rejection, (4) recommend approval
of the Claim by the other party or (5) suggest a compromise. The Architect may
also, but is not obligated to, notify the surety, if any, of the nature and
amount of the Claim.
4.4.2 If a Claim has been resolved, the Architect will prepare or obtain
appropriate documentation.
4.4.3 If a Claim has not been resolved, the party making the Claim shall,
within ten days after the Architect's preliminary response, take one or more of
the following actions: (1) submit additional supporting data requested by the
Architect, (2) modify the initial Claim or (3) notify the Architect that the
initial Claim stands.
4.4.4 If a Claim has not been resolved after consideration of the foregoing
and of further evidence presented by the parties or requested by the Architect,
the Architect will notify the parties in writing that the Architect's decision
will be made within seven days, which decision shall be final and binding on the
parties but subject to litigation. Upon exploration of such time period, the
Architect will render to the parties the Architect's written decision relative
to the Claim, including any change in the Contract Sum or Contract Time or both.
If there is a surety and there appears to be a possibility of a Contractor's
default, the Architect may, but is not obligated to, notify the surety and
request the surety's assistance in resolving the controversy.
4.5 ARBITRATION
ARTICLE 5
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SUBCONTRACTORS
5.1 DEFINITIONS
5.1.1 A Subcontractor is a person or entity who has a direct contract with the
Contractor to perform a portion of the Work at the site. The term
"Subcontractor" is referred to throughout the Contract Documents as if singular
in number and means a Subcontractor or an authorized representative of the
Subcontractor. The term "Subcontractor" does not include a separate contractor
or subcontractors of a separate contractor.
5.1.2 A Sub-subcontractor is a person or entity who has a direct or indirect
contract with a Subcontractor to perform a portion of the Work at the site. The
term "Sub-subcontractor" is referred to throughout the Contract Documents as if
singular in number and means a Sub-subcontractor or an authorized representative
of the Sub-subcontractor.
5.2 AWARD OF SUBCONTRACTS AND OTHER CONTRACTS FOR PORTIONS OF THE WORK
5.2.1 Unless otherwise stated in the Contract Documents or the bidding
requirements, the Contractor, as soon as practicable after award of the
Contract, shall furnish in writing to the Owner through the Architect the names
of persons or entities (including those who
<PAGE>
are to furnish materials or equipment fabricated to a special design) proposed
for each principal portion of the Work. The Architect will promptly reply to the
Contractor in writing stating whether or not the Owner or the Architect, after
due investigation, has reasonable objection to any such entity. Failure of the
Owner or Architect to reply within five (5) business days shall constitute
notice of no reasonable objection.
5.2.2 The Contractor shall not contract with a proposed person or entity to
whom the Owner or Architect has made reasonable and timely objection. The
Contractor shall not be required to contract with anyone to whom the Contractor
has made reasonable objection.
5.2.3 If the Owner or Architect has reasonable objection to a person or entity
proposed by the Contractor, the Contractor shall propose another to whom the
Owner or Architect has no reasonable objection. The Contract Sum shall be
increased or decreased by the difference in cost occasioned by such change and
an appropriate Change Order shall be issued. However, no increase in the
Contract Sum shall be allowed for such change unless the Contractor has acted
promptly and responsively in submitting names as required.
5.2.4 The Contractor shall not change a Subcontractor, person or entity
previously selected if the Owner or Architect makes reasonable objection to such
change.
5.3 SUBCONTRACTUAL RELATIONS
5.3.1 By appropriate agreement, written where legally required for validity,
the Contractor shall require each Subcontractor, to the extent of the Work to be
performed by the Subcontractor, to be bound to the Contractor by terms of the
Contract Documents, and to assume toward the Contractor all the obligations and
responsibilities which the Contractor, by these Documents, assumes toward the
Owner and Architect. Each subcontract agreement shall preserve and protect the
rights of the Owner and Architect under the Contract Documents with respect to
the Work to be performed by the Subcontractor so that subcontracting thereof
will not prejudice such rights, and shall allow to the Subcontractor, unless
specifically provided otherwise in the subcontract agreement, the benefit of all
rights, remedies and redress against the Contractor that the Contractor, by the
Contract Documents, has against the Owner. Where appropriate, the Contractor
shall require each Subcontractor to enter into similar agreements with
Sub-subcontractors. The Contractor shall make available to each proposed
Subcontractor, prior to the execution of the subcontract agreement, copies of
the Contract Documents to which the Subcontractor will be bound, and, upon
written request of the Subcontractor, identify to the Subcontractor terms and
conditions of the proposed subcontract agreement which may be at variance with
the Contract Documents. Subcontractors shall similarly make copies of applicable
portions of such documents available to their respective proposed
Sub-subcontractors.
5.4 CONTINGENT ASSIGNMENT OF SUBCONTRACTS
5.4.1 Each subcontract agreement for a portion of the Work is assigned by the
Contractor to the Owner provided that:
.1 assignment is effective only after termination of the Contract by the
Owner for cause pursuant to Paragraph 14.2 and only for those
subcontract agreements which the Owner accepts by notifying the
Subcontractor in writing; and
.2 assignment is subject to the prior rights of the surety, if any,
obligated under bond relating to the Contract.
5.4.2 if the work has been suspended for more than 30 days, the
Subcontractor's compensation shall be equitably adjusted.
ARTICLE 6
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CONSTRUCTION BY OWNER
OR BY SEPARATE CONTRACTORS
6.1 OWNER'S RIGHT TO PERFORM CONSTRUCTION AND TO AWARD SEPARATE CONTRACTS
6.1.1 The Owner reserves the right to perform construction or operations
related to the Project with the Owner's own forces, and to award separate
contracts in connection with other portions of the
<PAGE>
Project or other construction or operations on the site under Conditions of the
Contract identical or substantially similar to these including those portions
related to insurance and waiver of subrogation. If the Contractor claims that
delay or additional cost is involved because of such action by the Owner, the
Contractor shall make such Claim as provided elsewhere in the Contract
Documents.
6.1.2 When separate contracts are awarded for different portions of the
Project or other construction or operations on the site, the term "Contractor"
in the Contract Documents in each case shall mean the Contractor who executes
each separate Owner-Contractor Agreement.
6.1.3 The owner shall provide for coordination of the activities of the
Owner's own forces and of each separate contractor with the Work of the
Contractor, who shall cooperate with them. The Contractor shall participate with
other separate contractors and the Owner in reviewing their construction
schedules when directed to do so. The Contractor shall make any revisions to the
construction schedule and Contract Sum deemed necessary after a joint review and
mutual agreement. The construction schedules shall then constitute the schedules
to be used by the Contractor, separate contractors and the Owner until
subsequently revised.
6.1.4 Unless otherwise provided in the Contract Documents, when the Owner
performs construction or operations related to the Project with the Owner's own
forces, the Owner shall be deemed to be subject to the same obligations and to
have the same rights which apply to the Contractor under the Conditions of the
Contract, including, without excluding others, those stated in Article 3, this
Article 6 and Articles 10, 11 and 12.
6.2 MUTUAL RESPONSIBILITY
6.2.1 The Contractor shall afford the Owner and separate contractors
reasonable opportunity for introduction and storage of their materials and
equipment and performance of their activities and shall connect and coordinate
the Contractor's construction and operations with theirs as required by the
Contract Documents.
6.2.2 If part of the Contractor's Work depends for proper execution or results
upon construction or operations by the Owner or a separate contractor, the
Contractor shall, prior to proceeding with that portion of the Work, promptly
report to the Architect apparent discrepancies or defects in such other
construction that would render it unsuitable for such proper execution and
results. Failure of the Contractor so to report shall constitute an
acknowledgment that the Owner's or separate contractors' completed or partially
completed construction is fit and proper to receive the Contractor's Work,
except as to defects not then reasonably discoverable.
6.2.3 Costs caused by delays or by improperly timed activities or defective
construction shall be borne by the party responsible therefor.
6.2.4 The Contractor shall promptly remedy damage wrongfully caused by the
Contractor to completed or partially completed construction or to property of
the Owner or separate contractors as provided in Subparagraph 10.2.5.
6.2.5 Claims and other disputes and matters in -question between the
Contractor and a separate contractor shall be subject to the provisions of I
Paragraph 4.3 provided the separate contractor has reciprocal obligations.
6.2.6 The Owner and each separate contractor shall have the same
responsibilities for cutting and patching as are described for the Contractor in
Paragraph 3.14.
6.3 OWNER'S RIGHT TO CLEAN UP
6.3.1 If a dispute arises among the Contractor, separate contractors and the
Owner as to the responsibility under their respective contracts for maintaining
the premises and surrounding area free from waste materials and rubbish as
described in Paragraph 3.15, the Owner may clean up and allocate the cost among
those responsible as the Architect determines to be just.
ARTICLE 7
---------
CHANGES IN THE WORK
7.1 CHANGES
<PAGE>
7.1.1 Changes in the Work may be accomplished after execution of the Contract,
and without invalidating the Contract, by Change Order, Construction Change
Directive or order for a minor change in the Work, subject to the limitations
stated in this Article 7 and elsewhere in the Contract Documents.
7.1.2 A Change Order shall be based upon agreement among the Owner, Contractor
and Architect; a Construction Change Directive requires agreement by the Owner
and Architect and may or may not be agreed to by the Contractor; an order for a
minor change in the Work may be issued by the Architect alone.
7.1.3 Changes in the Work shall be performed under applicable provisions of
the Contract Documents, and the Contractor shall proceed promptly, unless
otherwise provided in the Change Order, Construction Change Directive or order
for a minor change in the Work.
7.1.4 If unit prices are stated in the Contract Documents or subsequently
agreed upon, and if quantities originally contemplated are so changed in a
proposed Change Order or Construction Change Directive that application of such
unit prices to quantities of Work proposed will cause substantial inequity to
the Owner or Contractor, the applicable unit prices shall be equitably adjusted.
7.2 CHANGE ORDERS
7.2.1 A Change Order is a written instrument prepared by the Architect and
signed by the Owner, Contractor and Architect, stating their agreement upon all
of the following:
.1 a change in the Work;
.2 the amount of the adjustment in the Contract Sum, if any; and
.3 the extent of the adjustment in the Contract Time, if any.
7.2.2 Methods used in determining adjustments to the Contract Sum may include
those listed in Subparagraph 7.3.3.
7.3 CONSTRUCTION CHANGE DIRECTIVES
7.3.1 A Construction Change Directive is a written order prepared by the
Architect and signed by the Owner and Architect, directing a change in the Work
and stating a proposed basis for adjustment, if any, in the Contract Sum or
Contract Time, or both. The Owner may by Construction Change Directive, without
invalidating the Contract, order changes in the Work within the general scope of
the Contract consisting of additions, deletions or other revisions, the Contract
Sum and Contract Time being adjusted accordingly.
7.3.2 A Construction Change Directive shall be used in the absence of total
agreement on the terms of a Change Order.
7.3.3 If the Construction Change Directive provides for an adjustment to the
Contract Sum, the adjustment shall be based on one of the following methods:
.1 mutual acceptance of a lump sum property itemized and supported by
sufficient substantiating data to permit evaluation;
.2 unit prices stated in the Contract Documents or subsequently agreed
upon;
.3 cost to be determined in a manner agreed upon by the parties and a
mutually acceptable fixed or percentage fee; or
.4 as provided in Subparagraph 7.3.6.
7.3.4 Upon receipt of a Construction Change Directive, the Contractor shall
promptly proceed with the change in the Work involved and advise the Architect
of the Contractor's agreement or disagreement with the method, if any, provided
in the Construction Change Directive for determining the proposed adjustment in
the Contract Sum or Contract Time.
7.3.5 A Construction Change Directive signed by the Contractor indicates the
agreement of the Contractor therewith, including adjustment in Contract Sum and
Contract Time or the method for determining them. Such agreement shall be
effective immediately and shall be recorded as a Change Order.
7.3.6 If the Contractor does not respond promptly or disagrees with the method
for adjustment in the Contract Sum, the method and the adjustment shall be
determined by the Architect on the basis of reasonable expenditures and savings
of those performing the Work attributable to the change, including, in case of
an increase in the Contract Sum, a reasonable allowance for overhead and profit.
In such case, and also under Clause 7.3.3.3, the Contractor shall keep and
present, in such form as the Architect may prescribe, an itemized accounting
together with appropriate supporting data. Unless otherwise provided in the
Contract Documents, costs for the purposes of this Subparagraph 7.3.6 shall be
limited to the following:
.1 costs of labor, including social security, old age and unemployment
insurance, fringe benefits required by agreement or custom, and
workers' or workmen's compensation insurance;
.2 costs of materials, supplies and equipment, including cost of
transportation, whether incorporated or consumed;
.3 rental costs of machinery and equipment, exclusive of hand tools,
whether rented from the Contractor or others;
.4 costs of premiums for all bonds and insurance, permit fees, and sales,
use or similar taxes related to the Work; and
.5 additional costs of supervision and field office personnel directly
attributable to the change.
7.3.7 Pending final determination of cost to the Owner, amounts not in dispute
may be included in Applications for Payment. The amount of credit to be allowed
by the Contractor to the Owner for a deletion or change which results in a net
decrease in the Contract Sum shall be actual net cost as confirmed by the
Architect. When both additions and credits covering related Work or
substitutions are involved in a change, the allowance for overhead and profit
shall be figured on the basis of net increase, if any, with respect to that
change.
7.3.8 If the Owner and Contractor do not agree with the adjustment in Contract
Time or the method for determining it, the adjustment or the method shall be
referred to the Architect for determination.
7.3.9 When the Owner and Contractor agree with the determination made by the
Architect concerning the adjustments in the Contract Sum and Contract Time, or
otherwise reach agreement upon the adjustments, such agreement shall be
effective immediately and shall be recorded by preparation and execution of an
appropriate Change Order.
7.4 MINOR CHANGES IN THE WORK
7.4.1 The Architect will have authority to order minor changes in the Work not
involving adjustment in the Contract Sum or extension of the Contract Time and
not inconsistent with the intent of the Contract Documents. Such changes shall
be effected by written order and shall be binding on the Owner and Contractor.
The Contractor shall carry out such written orders promptly.
ARTICLE 8
---------
TIME
8.1 DEFINITIONS
8.1.1 Unless otherwise provided, Contract Time is the period of time,
including authorized adjustments, allotted in the Contract Documents for
Substantial Completion of the Work.
8.1.2 The date of commencement of the Work is the date established in the
Agreement. The date shall not be postponed by the failure to act of the
Contractor or of persons or entities for whom the Contractor is responsible.
8.1.3 The date of Substantial Completion is the date certified by the
Architect in accordance with Paragraph 9.8.
8.1.4 The term "day" as used in the Contract Documents shall mean calendar day
unless otherwise specifically defined.
8.2 PROGRESS AND COMPLETION
8.2.1 Time limits stated in the Contract Documents are of the essence of the
Contract. By executing the Agreement the Contractor confirms that the Contract
Time is a reasonable period for performing the Work.
8.2.2 The Contractor shall not knowingly, except by agreement or instruction
of the Owner in writing, prematurely commence operations on the site or
elsewhere prior to the effective date of insurance required by Article 11 to be
furnished by the Contractor. The date of commencement of the Work shall not be
changed by the effective date of such insurance. Unless the date of commencement
is established by a notice to proceed given by the Owner, the Contractor shall
notify the Owner in writing not
<PAGE>
less than five days or other agreed period before commencing the Work to permit
the timely filing of mortgages, mechanic's liens and other security interests.
8.2.3 The Contractor shall proceed expeditiously with adequate forces and
shall achieve Substantial Completion within the Contract Time.
8.3 DELAYS AND EXTENSIONS OF TIME
8.3.1 If the Contractor is delayed at any time in progress of the Work by an
act or neglect of the Owner or Architect, or of an employee of either, or of a
separate contractor employed by the Owner, or by changes ordered in the Work, or
by labor disputes, fire, unusual delay in deliveries, unavoidable casualties or
other causes beyond the Contractor's control, or by delay authorized by the
Owner or by other causes which the Architect determines may justify delay, then
the Contract Time shall be extended by Change Order for such reasonable time as
the Architect may determine.
8.3.2 Claims relating to time shall be made in accordance with applicable
provisions of Paragraph 4.3.
8.3.3 This Paragraph 8.3 does not preclude recovery of damages for delay by
either party under other provisions of the Contract Documents.
ARTICLE 9
---------
PAYMENTS AND COMPLETION
9.1 CONTRACT SUM
9.1.1 The Contract Sum is stated in the Agreement and, including authorized
adjustments, is the total amount payable by the Owner to the Contractor for
performance of the Work under the Contract Documents.
9.2 SCHEDULE OF VALUES
9.2.1 Before the first Application for Payment, the Contractor shall submit to
the Architect a schedule of values allocated to various portions of the Work,
prepared in such form and supported by such data to substantiate its accuracy as
the Architect may require. This schedule, unless objected to by the Architect,
shall be used as a basis for reviewing the Contractor's Applications for
Payment.
9.3 APPLICATIONS FOR PAYMENT
9.3.1 At least ten days before the date established for each progress payment,
the Contractor shall submit to the Architect an itemized Application for Payment
for operations completed in accordance with the schedule of values. Such
application shall be notarized, if required, and supported by such data
substantiating the Contractor's right to payment as the Owner or Architect may
require, such as copies of requisitions from Subcontractors and material
suppliers, and reflecting retainage if provided for elsewhere in the Contract
Documents.
9.3.1.1 Such applications may include requests for payment on account of
changes in the Work which have been properly authorized by Construction Change
Directives but not yet included in Change Orders.
9.3.1.2 Such applications may not include requests for payment of amounts the
Contractor does not intend to pay to a Subcontractor or material supplier
because of a dispute or other reason.
9.3.2 Unless otherwise provided in the Contract Documents, payments shall be
made on account of materials and equipment delivered and suitably stored at the
site for subsequent incorporation in the Work. If approved in advance by the
Owner, payment may similarly be made for materials and equipment suitably stored
off the site at a location agreed upon in writing. Payment for materials and
equipment stored on or off the site shall be conditioned upon compliance by the
Contractor with procedures satisfactory to the Owner to establish the Owner's
title to such materials and equipment or otherwise protect the Owner's interest,
and shall include applicable insurance, storage and transportation to the site
for such materials and equipment stored off the site.
9.3.3 The Contractor warrants that title to all Work covered by an Application
for Payment will pass- to the Owner no later than the time of payment. The
Contractor further warrants that upon submittal of an Application for Payment
all Work for which Certificates for Payment have been previously issued and
payments received from the Owner shall, to the
<PAGE>
best of the Contractor's knowledge, information and belief, be free and clear of
hens, claims, security interests or encumbrances in favor of the Contractor,
Subcontractors, material suppliers, or other persons or entities making a claim
by reason of having provided labor, materials and equipment relating to the
Work.
9.4 CERTIFICATES FOR PAYMENT
9.4.1 The Architect will, within seven days after receipt of the Contractor's
Application for Payment, either issue to the Owner a Certificate for Payment,
with a copy to the Contractor, for such amount as the Architect determines is
properly due, or notify the Contractor and Owner in writing of the Architect's
reasons for withholding certification in whole or in part as provided in
Subparagraph 9.5.1.
9.4.2 The issuance of a Certificate for Payment will constitute a
representation by the Architect to the Owner, based on the Architect's
observations at the site and the data comprising the Application for Payment,
that the Work has progressed to the point indicated and that, to the best of the
Architect's knowledge, information and belief, quality of the Work is in
accordance with the Contract Documents. The foregoing representations are
subject to an evaluation of the Work for conformance with the Contract Documents
upon Substantial Completion, to results of subsequent tests and inspections, to
minor deviations from the Contract Documents correctable prior to completion and
to specific qualifications expressed by the Architect. The issuance of a
Certificate for Payment will further constitute a representation that the
Contractor is entitled to payment in the amount certified. However, the issuance
of a Certificate for Payment will not be a representation that the Architect has
(1) made exhaustive or continuous on-site inspections to check the quality or
quantity of the Work, (2) reviewed construction means, methods, techniques,
sequences or procedures, (3) reviewed copies of requisitions received from
Subcontractors and material suppliers and other data requested by the Owner to
substantiate the Contractor's right to payment or (4) made examination to
ascertain how or for what purpose the Contractor has used money previously paid
on account of the Contract Sum.
9.5 DECISIONS TO WITHHOLD CERTIFICATION
9.5.1 The Architect may decide not to certify payment and may withhold a
Certificate for Payment in whole or in part, to the extent reasonably necessary
to protect the Owner, if in the Architect's opinion the representations to the
Owner required by Subparagraph 9.4.2 cannot be made. If the Architect is unable
to certify payment in the amount of the Application, the Architect will notify
the Contractor and Owner as provided in Subparagraph 9.4.1. If the Contractor
and Architect cannot agree on a revised amount, the Architect will promptly
issue a certificate for Payment for the amount for which the Architect is able
to make such representations to the Owner. The Architect may also decide not to
certify payment or, because of subsequently discovered evidence or subsequent
observations, may nullify the whole or a part of a Certificate for Payment a
previously issued, to such extent as may be necessary in the Architect's opinion
to protect the Owner from loss because of
.1 defective Work not remedied;
.2 third party claims filed or reasonable evidence indicating probable
filing of such claims;
.3 failure of the Contractor to make payments properly to
Subcontractors or for labor, materials or equipment;
.4 reasonable evidence that the Work cannot be completed for the unpaid
balance of the Contract Sum;
.5 damage to the Owner or another contractor;
.6 reasonable evidence that the Work will not be completed within the
Contract Time, and that the unpaid balance would not be adequate to
cover actual or liquidated damages for the anticipated delay; or
.7 persistent failure to carry out the Work in accordance with the
Contract Documents.
9.5.2 When the above reasons for withholding certification are removed,
certification will be made for amounts previously withheld.
9.6 PROGRESS PAYMENTS
9.6.1 After the Architect has issued a Certificate for Payment, the Owner
shall make payment in the manner and within the time provided in the Contract
<PAGE>
Documents, and shall so notify the Architect. If Owner disputes the amount to be
paid to Contractor, Owner shall promptly pay the undisputed amounts and proceed
to dispute the resolution in accordance herewith.
9.6.2 The Contractor shall promptly pay each Subcontractor, upon receipt of
payment from the Owner, out of the amount paid to the Contractor on account of
such Subcontractor's portion of the Work, the amount to which said Subcontractor
is entitled, reflecting percentages actually retained from payments to the
Contractor on account of such Subcontractor's portion of the Work. The
Contractor shall, by appropriate agreement with each Subcontractor, require each
Subcontractor to make payments to Sub-subcontractors in similar manner.
9.6.3 The Architect will, on request, furnish to a Subcontractor, if
practicable, information regarding percentages of completion or amounts applied
for by the Contractor and action taken thereon by the Architect and Owner on
account of portions of the Work done by such Subcontractor.
9.6.4 Neither the Owner nor Architect shall have an obligation to pay or to
see to the payment of money to a Subcontractor except as may otherwise be
required by law.
9.6.5 Payment to material suppliers shall be treated in a manner similar to
that provided in Subparagraphs 9.6.2, 9.6.3 and 9.6.4.
9.6.6 A Certificate for Payment, a progress payment, or partial or entire use
or occupancy of the Project by the Owner shall not constitute acceptance of Work
not in accordance with the Contract Documents.
9.7 FAILURE OF PAYMENT
9.7.1 If the Architect does not issue a Certificate for Payment, through no
fault of the Contractor, within seven days after receipt of the Contractor's
Application for Payment, or if the Owner does not pay the Contractor within
seven days after the date established in the Contract Documents the amount
certified by the Architect then the Contractor may, upon seven additional days'
written notice to the Owner and Architect, stop the Work until payment of the
amount owing has been received. The Contract Time shall be extended
appropriately and the Contract Sum shall be increased by the amount of the
Contractor's reasonable costs of shut-down, delay and start-up, which shall be
accomplished as provided in Article 7.
9.7.2 Notwithstanding anything to the contrary elsewhere in the contract
documents, to the extent that the Contractor has received payment in accordance
herewith, the Contractor shall keep the work in the property free and clear of
all construction, labor and materialman's liens, including liens on behalf of
any subcontractor or person claiming under any such subcontractor and defend,
indemnify and save Owner harmless therefrom.
9.8 SUBSTANTIAL COMPLETION
9.8.1 Substantial Completion is the stage in the progress of the Work when the
Work or designated portion thereof is sufficiently complete in accordance with
the Contract Documents so the Owner can occupy or utilize the Work for its
intended use.
9.8.2 When the Contractor considers that the Work, or a portion thereof which
the Owner agrees to accept separately, is substantially complete, the Contractor
shall prepare and submit to the Architect a comprehensive list of items to be
completed or corrected. The Contractor shall proceed promptly to complete and
correct items on the list. Failure to include an item on such list does not
alter the responsibility of the Contractor to complete all Work in accordance
with the Contract Documents. Upon receipt of the Contractor's list, the
Architect will make an inspection to determine whether the Work or designated
portion thereof is substantially complete. If the Architect's inspection
discloses any item, whether or not included on the Contractor's list, which is
not in accordance with the requirements of the Contract Documents, the
Contractor shall, before issuance of the Certificate of Substantial Completion,
complete or correct such item upon notification by the Architect. The Contractor
shall then submit a request for another inspection by the Architect to determine
Substantial Completion. When the Work or designated portion thereof is
substantially complete, the Architect will prepare a Certificate of Substantial
Completion which shall establish the date of Substantial Completion, shall
establish responsibilities of the owner and Contractor for security,
maintenance, heat, utilities, damage to the Work and insurance, and shall fix
the time within which the Contractor shall finish all items on the list
<PAGE>
accompanying the Certificate. Warranties required by the Contract Documents
shall commence on the date of Substantial Completion of the Work or designated
portion thereof unless otherwise provided in the Certificate of Substantial
Completion. The Certificate of Substantial Completion shall be submitted to the
Owner and Contractor for their written acceptance of responsibilities assigned
to them in such Certificate.
9.8.3 Upon Substantial Completion of the Work or designated portion thereof
and upon application by the Contractor and certification by the Architect, the
Owner shall make payment, reflecting adjustment in retainage, if any, for such
Work or portion thereof as provided in the Contract Documents.
9.9 PARTIAL OCCUPANCY OR USE
9.9.1 The Owner may occupy or use any completed or partially completed portion
of the Work at any stage when such portion is designated by separate agreement
with the Contractor, provided such occupancy or use is consented to by the
insurer as required under Subparagraph 11.3.11 and authorized by public
authorities having jurisdiction over the Work. Such partial occupancy or use may
commence whether or not the portion is substantially complete, provided the
Owner and Contractor have accepted in writing the responsibilities assigned to
each of them for payments, retainage if any, security, maintenance, heat,
utilities, damage to the Work and insurance, and have agreed in writing
concerning the period for correction of the Work and commencement of warranties
required by the Contract Documents. When the Contractor considers a portion
substantially complete, the Contractor shall prepare and submit a list to the
Architect as provided under Subparagraph 9.8.2. Consent of the Contractor to
partial occupancy or use shall not be unreasonably withheld. The stage of the
progress of the Work shall be determined by written agreement between the Owner
and Contractor or, if no agreement is reached, by decision of the Architect.
9.9.2 Immediately prior to such partial occupancy or use, the Owner,
Contractor and Architect shall jointly inspect the area to be occupied or
portion of the Work to be used in order to determine and record the condition of
the Work.
9.9.3 Unless otherwise agreed upon, partial occupancy or use of a portion or
portions of the Work shall not constitute acceptance of Work not complying with
the requirements of the Contract Documents.
9.10 FINAL COMPLETION AND FINAL PAYMENT
9.10.1 Upon receipt of written notice that the Work is ready for final
inspection and acceptance and upon receipt of a final Application for Payment,
the Architect will promptly make such inspection and, when the Architect finds
the Work acceptable under the Contract Documents and the Contract fully
performed, the Architect will promptly issue a final Certificate for Payment
stating that to the best of the Architect's knowledge, information and belief,
and on the basis of the Architect's observations and inspections, the Work has
been completed in accordance with terms and conditions of the Contract Documents
and that the entire balance found to be due the Contractor and noted in said
final Certificate is due and payable. The Architect's final Certificate for
Payment will constitute a further representation that conditions listed in
Subparagraph 9.10.2 as precedent to the Contractor's being entitled to final
payment have been fulfilled.
9.10.2 Neither final payment nor any remaining retained percentage shall
become due until the Contractor submits to the Architect (1) an affidavit that
payrolls, bills for materials and equipment, and other indebtedness connected
with the Work for which the Owner or the Owner's property might be responsible
or encumbered (less amounts withheld by Owner) have been paid or otherwise
satisfied, (2) a certificate evidencing that insurance required by the Contract
Documents to remain in force after final payment is currently in effect and will
not be cancelled or allowed to expire until at least 30 days' prior written
notice has been given to the Owner, (3) a written statement that the Contractor
knows of no substantial reason that the insurance will not be renewable to cover
the period required by the Contract Documents, (4) consent of surety, if any, to
final payment and (5), if required by the Owner, other data establishing payment
or satisfaction of obligations, such as receipts, releases and waivers of liens,
claims, security interests or encumbrances arising out of the Contract, to the
extent and in such form as may be designated by the Owner. If a Subcontractor
refuses to furnish a release or waiver required by the Owner, the Contractor may
furnish a bond satisfactory to the Owner to indemnify the Owner against such
lien. If such lien remains unsatisfied after
<PAGE>
payments are made, , the Contractor shall refund to the Owner all money that the
Owner may be compelled to pay in discharging such lien, including all costs and
reasonable attorneys' fees.
9.10.3 If, after Substantial Completion of the Work, final completion thereof
is materially delayed through no fault of the Contractor or by issuance of
Change Orders affecting final completion, and the Architect so confirms, the
Owner shall, upon application by the Contractor and certification by the
Architect, and without terminating the Contract, make payment of the balance due
for that portion of the Work fully completed and accepted. If the remaining
balance for Work not fully completed or corrected is less than retainage
stipulated in the Contract Documents, and if bonds have been furnished, the
written consent of surety to payment of the balance due for that portion of the
Work fully completed and accepted shall be submitted by the Contractor to the
Architect prior to certification of such payment. Such payment shall be made
under terms and conditions governing final payment, except that it shall not
constitute a waiver of claims. The making of final payment shall constitute a
waiver of claims by the Owner as provided in Subparagraph 4.3.5.
9.10.4 Acceptance of final payment by the Contractor, a Subcontractor or
material supplier shall constitute a waiver of claims by that payee except those
previously made in writing and identified by that payee as unsettled at the time
of final Application for Payment. Such waivers shall be in addition to the
waiver described in Subparagraph 4.3.5.
ARTICLE 10
----------
PROTECTION OF PERSONS AND PROPERTY
10.1 SAFETY PRECAUTIONS AND PROGRAMS
10.1.1 The Contractor shall be responsible for initiating, maintaining and
supervising all safety precautions and programs in connection with the
performance of the Contract.
10.1.2 In the event the Contractor encounters on the site material reasonably
believed to be asbestos or polychlorinated biphenyl (PCB) which has not been
rendered harmless, the Contractor shall immediately stop Work in the area
affected and report the condition to the Owner and Architect in writing. The
Work in the affected area shall not thereafter be resumed except by written
agreement of the Owner and Contractor if in fact the material is asbestos or
polychlorinated biphenyl (PCB) and has not been rendered harmless. The Work in
the affected area shall be resumed in the absence of asbestos or polychlorinated
biphenyl (PCB), or when it has been rendered harmless, by written agreement of
the Owner and Contractor, or in accordance with final determination by the
Architect on which arbitration has not been demanded, or by arbitration under
Article 4.
10.1.3 The Contractor shall not be required pursuant to Article 7 to perform
without consent any Work relating to asbestos or polychlorinated biphenyl (PCB).
10.1.4 To the fullest extent permitted by law, the Owner shall indemnify and
hold harmless the Contractor, Architect, Architect's consultants and agents and
employees of any of them from and against claims, damages, losses and expenses,
including but not limited to attorneys' fees, arising out of or resulting from
performance of the Work in the affected area if in fact the material is asbestos
or polychlorinated biphenyl (PCB) and has not been rendered harmless, provided
that such claim, damage, loss or expense is attributable to bodily injury,
sickness, disease or death, or to injury to or destruction of tangible property
(other than the Work itself) including loss of use resulting therefrom, but only
to the extent caused in whole or in part by negligent acts or omissions of the
Owner, anyone directly or indirectly employed by the Owner or anyone for whose
acts the Owner may be liable, regardless of whether or not such claim, damage,
loss or expense is caused in part by a party indemnified hereunder. Such
obligation shall not be construed to negate, abridge, or reduce other rights or
obligations of indemnity which would otherwise exist as to a party or person
described in this Subparagraph 10.1.4.
10.2 SAFETY OF PERSONS AND PROPERTY
10.2.1 The Contractor shall take reasonable precautions for safety of, and
shall provide reasonable protection to prevent damage, injury or loss to:
.1 employees on the Work and other persons who may be affected
thereby;
<PAGE>
.2 the Work and materials and equipment to be incorporated
therein, whether in storage on or off the site, under care,
custody or control of the Contractor or the Contractor's
Subcontractors or Sub-subcontractors; and
.3 other property at the site or adjacent thereto, such as trees,
shrubs, lawn, walks, pavements, roadways, structures and
utilities not designated for removal, relocation or
replacement in the course of construction.
10.2.2 The Contractor shall give notices and comply with applicable laws,
ordinances, rules, regulations and lawful orders of public authorities bearing
on safety of persons or property or their protection from damage, injury or
loss.
10.2.3 The Contractor shall erect and maintain, as required by existing
conditions and performance of the Contract, reasonable safeguards for safety and
protection, including posting danger signs and other warnings against hazards,
promulgating safety regulations and notifying owners and users of adjacent sites
and utilities.
10.2.4 When use or storage of explosives or other hazardous materials or
equipment or unusual methods are necessary for execution of the Work, the
Contractor shall exercise utmost care and carry on such activities under
supervision of properly qualified personnel.
10.2.5 The Contractor shall promptly remedy damage and loss (other than damage
or loss insured under property insurance required by the Contract Documents) to
property referred to in Clauses 10.2.1.2 and 10.2.1.3 caused in whole or in part
by the Contractor, a Subcontractor, a Sub-subcontractor, or anyone directly or
indirectly employed by any of them, or by anyone for whose acts they may be
liable and for which the Contractor is responsible under Clauses 10.2.1.2 and
10.2.1.3, except damage or loss attributable to acts or omissions of the Owner
or Architect or anyone directly or indirectly employed by either of them, or by
anyone for whose acts either of them may be liable, and not attributable to the
fault or negligence of the Contractor. The foregoing obligations of the
Contractor are in addition to the Contractor's obligations under Paragraph 3.18.
10.2.6 The Contractor shall designate a responsible member of the Contractor's
organization at the site whose duty shall be the prevention of accidents. This
person shall be the Contractor's superintendent unless otherwise designated by
the Contractor in writing to the Owner and Architect.
10.2.7 The Contractor shall not load or permit any part of the construction or
site to be loaded so as to endanger its safety.
10.3 EMERGENCIES
10.3.1 In an emergency affecting safety of persons or property, the Contractor
shall act, at the Contractor's discretion, to prevent threatened damage, injury
or loss. Additional compensation or extension of time claimed by the Contractor
on account of an emergency shall be determined as provided in Paragraph 4.3 and
Article 7.
ARTICLE 11
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INSURANCE AND BONDS
11.1 CONTRACTOR'S LIABILITY INSURANCE
11.1.1 The Contractor shall purchase from and maintain in a company or
companies lawfully authorized to do business in the jurisdiction in which the
Project is located such insurance as will protect the Contractor from claims set
forth below which may arise out of or result from the Contractor's operations
under the Contract and for which the contractor may be legally liable, whether
such operations be by the Contractor or by a Subcontractor or by anyone directly
or indirectly employed by any of them, or by anyone for whose acts any of them
may be liable:
.1 claims under workers' or workmen's compensation, disability
benefit and other similar employee benefit acts which are
applicable to the Work to be performed;
.2 claims for damages because of bodily injury, occupational
sickness or disease, or death of the Contractor's employees;
<PAGE>
.3 claims for damages because of bodily injury, sickness or
disease, or death of any person other than the Contractor's
employees;
.4 claims for damages insured by usual personal injury liability
coverage which are sustained (1) by a person as a result of an
offense directly or indirectly related to employment of such
person by the Contractor, or (2) by another person;
.5 claims for damages, other than to the Work itself, because of
injury to or destruction of tangible property, including loss
of use resulting therefrom;
.6 claims for damages because of bodily injury, death of a person
or property damage arising out of ownership, maintenance or
use of a motor vehicle; and
.7 claims involving contractual liability insurance applicable to
the Contractor's obligations under Paragraph 3.18.
11.1.2 The insurance required by Subparagraph 11.1.1 shall be written for not
less than limits of liability specified in the Contract Documents or required by
law, whichever coverage is greater. Coverages, whether written on an occurrence
or claims-made basis, shall be maintained without interruption from date of
commencement of the Work until date of final payment and termination of any
coverage required to be maintained after final payment.
11.1.3 Certificates of Insurance acceptable to the Owner shall be filed with
the Owner prior to commencement of the Work. These Certificates and the
insurance policies required by this Paragraph 11.1 shall contain a provision
that coverages afforded under the policies will not be cancelled or allowed to
expire until at least 30 days' prior written notice has been given to the Owner.
If any of the foregoing insurance coverages are required to remain in force
after final payment and are reasonably available, an additional certificate
evidencing continuation of such coverage shall be submitted with the final
Application for Payment as required by Subparagraph 9.10.2. Information
concerning reduction of coverage shall be furnished by the Contractor with
reasonable promptness in accordance with the Contractor's information and
belief.
11.2 OWNER'S LIABILITY INSURANCE
11.2.1 The Owner shall be responsible for purchasing and maintaining the
Owner's usual liability insurance. Optionally, the Owner may purchase and
maintain other insurance for self-protection against claims which may arise from
operations under the Contract. The Contractor shall not be responsible for
purchasing and maintaining this optional Owner's liability insurance unless
specifically required by the Contract Documents.
11.3 PROPERTY INSURANCE
11.3.1 Unless otherwise provided, the Owner shall purchase and maintain, in a
company or companies lawfully authorized to do business in the jurisdiction in
which the Project is located, property insurance in the amount of the initial
Contract Sum as well as subsequent modifications thereto for the entire Work at
the site on a replacement cost basis without voluntary deductibles. Such
property insurance shall be maintained, unless otherwise provided in the
Contract Documents or otherwise agreed in writing by all persons and entities
who are beneficiaries of such insurance, until final payment has been made as
provided in Paragraph 9.10 or until no person or entity other than the Owner has
an insurable interest in the property required by this Paragraph 11.3 to be
covered, whichever is earlier. This insurance shall include interests of the
Owner, the Contractor, Subcontractors and Sub-subcontractors in the Work.
11.3.1.1 Property insurance shall be on an all-risk policy form and shall
insure against the perils of fire and extended coverage and physical loss or
damage including, without duplication of coverage, theft, vandalism, malicious
mischief, collapse, false work, temporary buildings and debris removal including
demolition occasioned by enforcement of any applicable legal requirements, and
shall cover reasonable compensation for Architect's services and expenses
required as a result of such insured loss. Coverage for other perils shall not
be required unless otherwise provided in the Contract Documents.
11.3.1.2 If the Owner does not intend to purchase such property insurance
required by the Contract and with
<PAGE>
all of the coverages in the amount described above, the Owner shall so inform
the Contractor in writing prior to commencement of the Work. The Contractor may
then effect insurance which will protect the interests of the Contractor,
Subcontractors and Subsubcontractors in the Work, and by appropriate Change
Order the cost thereof shall be charged to the Owner. If the Contractor is
damaged by the failure or neglect of the Owner to purchase or maintain insurance
as described above, without so notifying the Contractor, then the Owner shall
bear all reasonable costs properly attributable thereto.
11.3.1.3 If the property insurance requires minimum deductibles and such
deductibles are identified in the Contract Documents, the Contractor shall pay
costs not covered because of such deductibles. If the Owner or insurer increases
the required minimum deductibles above the amounts so identified or if the Owner
elects to purchase this insurance with voluntary deductible amounts, the Owner
shall be responsible for payment of the additional costs not covered because of
such increased or voluntary deductibles. If deductibles are not identified in
the Contract Documents, the Owner shall pay costs not covered because of
deductibles.
11.3.1.4 Unless otherwise provided in the Contract Documents, this property
insurance shall cover portions of the Work stored off the site after written
approval of the Owner at the value established in the approval, and also
portions of the Work in transit.
11.3.2 Boiler and Machinery Insurance. The owner shall purchase and maintain
boiler and machinery insurance required by the Contract Documents or by law,
which shall specifically cover such insured objects during installation and
until final acceptance by the Owner; this insurance shall include interests of
the Owner, Contractor, Subcontractors and Subsubcontractors in the Work, and the
Owner and Contractor shall be named insureds.
11.3.3 Loss of Use Insurance. The Owner, at the Owner's option, may purchase
and maintain such insurance as will insure the Owner against loss of use of the
Owner's property due to fire or other hazards, however caused. The Owner waives
all rights of action against the Contractor for loss of use of the Owner's
property, including consequential losses due to fire or other hazards however
caused.
11.3.4 If the Contractor requests in writing that insurance for risks other
than those described herein or for other special hazards be included in the
property insurance policy, the owner shall, if possible, include such insurance,
and the cost thereof shall be charged to the Contractor by appropriate Change
Order.
11.3.5 If during the Project, construction period the Owner insures
properties, real or personal or both, adjoining or adjacent to the site by
property insurance under policies separate from those insuring the Project, or
if after final payment property insurance is to be provided on the completed
Project through a policy or policies other than those insuring the Project
during the construction period, the Owner shall waive all rights in accordance
with the terms of Subparagraph 11.3.7 for damages caused by fire or other perils
covered by this separate property insurance. All separate policies shall provide
this waiver of subrogation by endorsement or otherwise.
11.3.6 Before an exposure to loss may occur, the Owner shall file with the
Contractor a copy of each policy that includes insurance coverages required by
this Paragraph 11.3. Each policy shall contain all generally applicable
conditions, definitions, exclusions and endorsements related to this Project.
Each policy shall contain a provision that the policy will not be canceled or
allowed to expire until at least 30 days' prior written notice has been given to
the Contractor.
11.3.7 Waivers of Subrogation. The Owner and Contractor waive all rights
against (1) each other and any of their subcontractors, sub-subcontractors,
agents and employees, each of the other, and (2) the Architect, Architect's
consultants, separate contractors described in Article 6, if any, and any of
their subcontractors, sub-subcontractors, agents and employees, for damages
caused by fire or other perils to the extent covered by property insurance
obtained pursuant to this Paragraph 11.3 or other property insurance applicable
to the Work, except such rights as they have to proceeds of such insurance held
by the Owner as fiduciary. The Owner or Contractor, as appropriate, shall
require of the Architect, Architect's consultants, separate contractors
described in Article 6, if any, and the subcontractors, sub-subcontractors,
agents and employees of any of them, by appropriate agreements, written where
legally required for validity, similar waivers each in favor of other parties
enumerated herein. The policies shall provide such waivers of
<PAGE>
subrogation by endorsement or otherwise. A waiver of subrogation shall be
effective as to a person or entity even though that person or entity would
otherwise have a duty of indemnification, contractual or otherwise, did not pay
the insurance premium directly or indirectly, and whether or not the person or
entity had an insurable interest in the property damaged.
11.3.8 A loss insured under Owner's property insurance shall be adjusted by
the Owner as fiduciary and made payable to the Owner as fiduciary for the
insureds, as their interests may appear, subject to requirements of any
applicable mortgagee clause and of Subparagraph 11.3.10. The Contractor shall
pay Subcontractors their just shares of insurance proceeds received by the
Contractor, and by appropriate agreements, written where legally required for
validity, shall require Subcontractors to make payments to their
Sub-subcontractors in similar manner.
11.3.9 If required in writing by a party in interest, the Owner as fiduciary
shall, upon occurrence of an insured loss, give bond for proper performance of
the Owner's duties. The cost of required bonds shall be charged against proceeds
received as fiduciary. The Owner shall deposit in a separate account proceeds so
received, which the Owner shall distribute in accordance with such agreement as
the parties in interest may reach, or in accordance with an arbitration award in
which case the procedure shall be as provided in Paragraph 4.5. If after such
loss no other special agreement is made, replacement of damaged property shall
be covered by appropriate Change Order.
11.3.10 The Owner as fiduciary shall have power to adjust and settle a loss
with insurers unless one of the parties in interest shall object in writing
within five days after occurrence of loss to the Owner's exercise of this power;
if such objection be made, arbitrators shall be chosen as provided in Paragraph
4.5. The Owner as fiduciary shall, in that case, make settlement with insurers
in accordance with directions of such arbitrators. If distribution of insurance
proceeds by arbitration is required, the arbitrators will direct such
distribution.
11.3.11 Partial occupancy or use in accordance with Paragraph 9.9 shall not
commence until the insurance company or companies providing property insurance
have consented to such partial occupancy or use by endorsement or otherwise. The
Owner and the Contractor shall take reasonable steps to obtain consent of the
insurance company or companies and shall, without mutual written consent, take
no action with respect to partial occupancy or use that would cause
cancellation, lapse or reduction of insurance.
11.4 PERFORMANCE BOND AND PAYMENT BOND
11.4.1 The Owner shall have the right to require the Contractor to furnish
bonds covering faithful performance of the Contract and payment of obligations
arising thereunder as stipulated in bidding requirements or specifically
required in the Contract Documents on the date of execution of the Contract.
11.4.2 Upon the request of any person or entity appearing to be a potential
beneficiary of bonds covering payment of obligations arising under the Contract,
the Contractor shall promptly furnish a copy of the bonds or shall permit a copy
to be made.
ARTICLE 12
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UNCOVERING AND CORRECTION OF
WORK
12.1 UNCOVERING OF WORK
12.1.1 If a portion of the Work is covered contrary to the Architect's request
or to requirements specifically expressed in the Contract Documents, it must, if
required in writing by the Architect, be uncovered for the Architect's
observation and be replaced at the Contractor's expense without change in the
Contract Time.
12.1.2 If a portion of the Work has been covered which the Architect has not
specifically requested to observe prior to its being covered, the Architect may
request to see such Work and it shall be uncovered by the Contractor. If such
Work is in accordance with the Contract Documents, costs of uncovering and
replacement shall, by appropriate Change Order, be charged to the Owner. if such
Work is not in accordance with the Contract Documents, the Contractor shall pay
such costs unless the condition was caused by the Owner or a separate contractor
in which event the Owner shall be responsible for payment of such costs.
<PAGE>
12.2 CORRECTION OF WORK
12.2.1 The Contractor shall promptly correct Work rejected by the Architect or
failing to conform to the requirements of the Contract Documents, whether
observed before or after Substantial Completion and whether or not fabricated,
installed or completed. The Contractor shall bear costs of correcting such
rejected Work, including additional testing and inspections and compensation for
the Architect's services and expenses made necessary thereby.
12.2.2 If, within one year after the date of Substantial Completion of the Work
or designated portion thereof, or after the date for commencement of warranties
established under Subparagraph 9.9.1, or by terms of an applicable special
warranty required by the Contract Documents, any of the Work is found to be not
in accordance with the requirements of the Contract Documents, the Contractor
shall correct it promptly after receipt of written notice from the Owner to do
so unless the Owner has previously given the Contractor a written acceptance of
such condition. This period of one year shall be extended with respect to
portions of Work first performed after Substantial Completion by the period of
time between Substantial Completion and the actual performance of the Work. This
obligation under this Subparagraph 12.2.2 shall survive acceptance of the Work
under the Contract and termination of the Contract. The Owner shall give such
notice promptly after discovery of the condition.
12.2.3 The Contractor shall remove from the site portions of the Work which
are not in accordance with the requirements of the Contract Documents and are
neither corrected by the Contractor nor accepted by the Owner.
12.2.4 If the Contractor fails to correct nonconforming Work within a
reasonable time, the Owner may correct it in accordance with Paragraph 2.4. If
the Contractor does not proceed with correction of such nonconforming Work
within a reasonable time fixed by written notice from the Architect, the Owner
may remove it and store the salvable materials or equipment at the Contractor's
expense. if the Contractor does not pay costs of such removal and storage within
ten days after written notice, the Owner may upon ten additional days' written
notice sell such materials and equipment at auction or at private sale and shall
account for the proceeds thereof, after deducting costs and damages that should
have been home by the Contractor, including compensation for the Architect's
services and expenses made necessary thereby. If such proceeds of sale do not
cover costs which the Contractor should have borne, the Contract Sum shall be
reduced by the deficiency. If payments then or thereafter due the Contractor are
not sufficient to cover such amount, the Contractor shall pay the difference to
the Owner.
12.2.5 The Contractor shall bear the cost of correcting destroyed or damaged
construction, whether completed or partially completed, of the Owner or separate
contractors caused by the Contractor's correction or removal of Work which is
not in accordance with the requirements of the Contract Documents.
12.2.6 Nothing contained in this Paragraph 12.2 shall be construed to
establish a period of limitation with respect to other obligations which the
Contractor might have under the Contract Documents. Establishment of the time
period of one year as described in Subparagraph 12.2.2 relates only to the
specific obligation of the Contractor to correct the Work, and has no
relationship to the time within which the obligation to comply with the Contract
Documents may be sought to be enforced, nor to the time within which proceedings
may be commenced to establish the Contractor's liability with respect to the
Contractor's obligations other than specifically to correct the Work.
12.3 ACCEPTANCE OF NONCONFORMING
WORK
12.3.1 If the Owner prefers to accept Work which is not in accordance with the
requirements of the Contract Documents, the Owner may do so instead of requiring
its removal and correction, in which case the Contract Sum will be reduced as
appropriate and equitable. Such adjustment shall be effected whether or not
final payment has been made.
ARTICLE 13
----------
MISCELLANEOUS PROVISIONS
13.1 GOVERNING LAW
13.1.1 The Contract shall be governed by the law of the place where the
Project is located. Provided however, any claim by either party against the
other
<PAGE>
arising from the operation hereof shall be brought and maintained in the
Federal and State courts locate din Hillsborough County, Florida.
13.2 SUCCESSORS AND ASSIGNS
13.2.1 The Owner and Contractor respectively bind themselves, their partners,
successors, assigns and legal representatives to the other party hereto and to
partners, successors, assigns and legal representatives of such other party in
respect to covenants, agreements and obligations contained in the Contract
Documents. Neither party to the Contract shall assign the Contract as a whole
without written consent of the other. if either party attempts to make such an
assignment without such consent, that party shall nevertheless remain legally
responsible for all obligations under the Contract. Notwithstanding the
foregoing, the Owner shall not require Contractor's consent to make an
assignment to an entity requiring all or substantially all of the assets of
Owner or controlling interest in Owner or to an entity owned or controlled by
Owner.
13.3 WRITTEN NOTICE
13.3.1 Written notice shall be deemed to have been duly served if delivered in
person to the individual or a member of the firm or entity or to an officer of
the corporation for which it was intended, or if delivered at or sent by
registered or certified mail to the last business address known to the party
giving notice.
13.4 RIGHTS AND REMEDIES
13.4.1 Except as expressly provided herein, the duties and obligations
'unposed by the Contract Documents and rights and remedies available thereunder
shall be in addition to and not a limitation of duties, obligations, rights and
remedies otherwise imposed or available by law.
13.4.2 No action or failure to act by the Owner, Architect or Contractor shall
constitute a waiver of a right or duty afforded them under the Contract, nor
shall such action 0: r failure to act constitute approval of or acquiescence in
a breach thereunder, except as may be specifically agreed in writing.
13.5 TESTS AND INSPECTIONS
13.5.1 Tests, inspections and approvals of portions of the Work required by
the Contract Documents or by laws, ordinances, rules, regulations or orders of
public authorities having jurisdiction shall be made at an appropriate time.
Unless otherwise provided, the Contractor shall make arrangements for such
tests, inspections and approvals with an independent testing laboratory or
entity acceptable to the Owner, or with the appropriate public authority, and
shall bear all related costs of tests, inspections and approvals. The Contractor
shall give the Architect timely notice of when and where tests and inspections
are to be made so the Architect may observe such procedures. The Owner shall
bear costs of tests, inspections or approvals which do not become requirements
until after bids are received or negotiations concluded.
13.5.2 If the Architect, Owner or public authorities having jurisdiction
determine that portions of the Work require additional testing, inspection or
approval not included under Subparagraph 13.5.1, the Architect will, upon
written authorization from the Owner, instruct the Contractor to make
arrangements for such additional testing, inspection or approval by an entity
acceptable to the Owner, and the Contractor shall give timely notice to the
Architect of when and where tests and inspections are to be made so the
Architect may observe such procedures.
The Owner shall bear such costs except as provided in Subparagraph 13.5.3
13.5.3 If such procedures for testing, inspection or approval under
Subparagraphs 13.5.1 and 13.5.2 reveal failure of the portions of the Work to
comply with requirements established by the Contract Documents, the Contractor
shall bear all costs made necessary by such failure including those of repeated
procedures and compensation for the Architect's services and expenses.
13.5.4 Required certificates of testing, inspection or approval shall, unless
otherwise required by the Contract Documents, be secured by the Contractor and
promptly delivered to the Architect.
13.5.5 If the Architect is to observe tests, inspections or approvals required
by the Contract Documents, the Architect will do so promptly and, where
practicable, at the normal place of testing.
<PAGE>
13.5.6 Tests or inspections conducted pursuant to the Contract Documents shall
be Made promptly to avoid unreasonable delay in the Work.
13.6 INTEREST
13.6.1 Payments due and unpaid under the Contract Documents shall bear
interest from the date payment is due at such rate as the parties may agree upon
in writing or, in the absence thereof, at the legal rate prevailing from time to
time at the place where the Project is located.
13.7 COMMENCEMENT OF STATUTORY LIMITATION PERIOD
13.7.1 As between the Owner and Contractor:
.1 Before Substantial Completion. As to acts or failures to act
occurring prior to the relevant date of Substantial
Completion, any applicable statute of limitations shall
commence to run and any alleged cause of action shall be
deemed to have accrued in any and all events not later than
such date of Substantial Completion;
.2 Between Substantial Completion and Final Certificate for
Payment. As to acts or failures to act occurring subsequent to
the relevant date of Substantial Completion and prior to
issuance of the final Certificate for Payment, any applicable
statute of limitations shall commence to run and any alleged
cause of action shall be deemed to have accrued in any and all
events not later than the date of issuance of the final
Certificate for Payment; and
.3 After Final Certificate for Payment. As to acts or failures to
act occurring after the relevant date of issuance of the final
Certificate for Payment, any applicable statute of limitations
shall commence to run and any alleged cause of action shall be
deemed to have accrued in any and all events not later than
the date of any act or failure to act by the Contractor
pursuant to any warranty provided under Paragraph 3.5, the
date of any correction of the Work or failure to correct the
Work by the Contractor under Paragraph 12.2, or the date of
actual commission of any other act or failure to perform any
duty or obligation by the Contractor or Owner, whichever
occurs last.
ARTICLE 14
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TERMINATION OR SUSPENSION
OF THE CONTRACT
14.1 TERMINATION BY THE CONTRACTOR
14.1.1 The Contractor may terminate the Contract if the Work is stopped for a
period of 30 days through no act or fault of the Contractor or a Subcontractor,
Sub-subcontractor or their agents or employees or any other persons performing
portions of the Work under contract with the Contractor, for any of the
following reasons:
.1 issuance of an order of a court or other public authority having
jurisdiction;
.2 an act of government, such as a declaration of national emergency,
making material unavailable;
.3 because the Architect has not issued a Certificate for Payment and
has not notified the Contractor of the reason for withholding
certification as provided in Subparagraph 9.4.1, or because the
Owner has not made payment on a Certificate for Payment wit in the
time stated in the Contract Documents;
.4 if repeated suspensions, delays or interruptions by the Owner as
described in Paragraph 14.3
<PAGE>
constitute in the aggregate more than
100 percent of the total number of days scheduled for completion, or
120 days in any 365-day period, whichever is less; or
.5 the Owner has failed to furnish to the Contractor promptly,
upon the Contractor's request, reasonable evidence as required
by Subparagraph 2.21.
14.1.2 If one of the above reasons exists, the Contractor may, upon seven
additional days' written notice to the Owner and Architect, and unless the
condition described in such notice is cured or cure is substantially or
diligently underway, terminate the Contract and recover from the Owner payment
for Work executed and for proven loss with respect to materials, equipment,
tools, and construction equipment and machinery, including reasonable overhead,
profit and damages.
14.1.3 If the Work is stopped for a period of 60 days through no act or fault
of the Contractor or a Subcontractor or their agents or employees or any other
persons performing portions of the Work under contract with the Contractor
because the Owner has persistently failed to fulfill the Owner's obligations
under the Contract Documents with respect to matters important to the progress
of the Work, the Contractor may, upon seven additional days' written notice to
the Owner and the Architect, terminate the Contract and recover from the Owner
as provided in Subparagraph 14.1.2.
14.2 TERMINATION BY THE OWNER FOR CAUSE
14.2.1 The Owner may terminate the Contract if the Contractor:
.1 Materially refuses or fails to supply enough properly skilled
workers or proper materials;
.2 fails to make payment to Subcontractors for materials, or
labor in accordance with the respective agreements between the
Contractor and the Subcontractors;
.3 materially disregards laws, ordinances, or rules, regulations
or orders of a public authority having jurisdiction; or
.4 otherwise is guilty of substantial breach of a provision of
the Contract Documents.
14.2.2 When any of the above reasons exist, the Owner, upon certification by
the Architect that sufficient cause exists to justify such action, may without
prejudice to any other rights or remedies of the Owner and after giving the
Contractor and the Contractor's surety, if any seven days' written notice,
terminate employment of the Contractor and may, subject to any prior rights of
the surety:
.1 take possession of the site and of all materials, equipment,
tools, and construction equipment and machinery thereon owned
by the Contractor;
.2 accept assignment of subcontracts pursuant to Paragraph 5.4;
and
.3 finish the Work by whatever reasonable method the Owner
may deem expedient.
14.2.3 When the Owner terminates the Contract for one of the reasons stated in
Subparagraph 14.2. 1, the Contractor shall not be entitled to receive further
payment until the Work is finished.
14.2.4 If the unpaid balance of the Contract Sum exceeds costs of finishing
the Work, including compensation for the Architect's services and expenses made
necessary. thereby, such excess shall be paid to the Contractor. If such costs
exceed the unpaid balance, the Contractor shall pay the difference to the Owner.
The amount to be paid to the Contractor or Owner, as the case may be, shall be
certified by the Architect, upon application, and this obligation for payment
shall survive termination of the Contract.
14.3 SUSPENSION BY THE OWNER
FOR CONVENIENCE
14.3.1 The Owner may, without cause, order the Contractor in writing to
suspend, delay or interrupt the Work in, whole or in part for such period of
time as the Owner may determine.
<PAGE>
14.3.2 An adjustment shall be made for increases in the cost of performance of
the Contract, including profit on the increased cost of performance, caused by
suspension, delay or interruption. No adjustment shall be made to the extent:
.1 that performance is, was or would have been so suspended, delayed
or interrupted by another Cause for which the Contractor is
responsible; or
.2 that an equitable adjustment is made or denied under another
provision of this Contract.
14.3.3 Adjustments made in the cost of performance may have a mutually agreed
fixed or percentage fee.
14.3.4 The Owner may, without cause, order the contractor in writing, to
promptly terminate the work in whole. In the event of such termination, the
Owner shall pay to the Contractor all unpaid amounts due for work completed and
materials delivered and ordered through the date of termination, plus reasonable
documented costs of removing contractor's equipment, tools, and materials from
the project site. Contractor shall also be paid for overhead and profit on the
work completed. Contractor expressly agrees that payments of the amounts
described in the paragraph 14.3.4. shall be the sole and total liability of the
Owner for termination for convenience.
<PAGE>
Exhibit 10.7
ORACLE NETWORK LICENSE ORDER FORM
<TABLE>
<S> <C>
Customer Name: Digex Corporation Contract Administrators: Steve Keifer
(An Intermedia Communications Company)
Customer Location: 1 Digex Plaza Phone: 301-847-3200
Beltsville, MD 20705 Fax:
Technical Contact: Steve Keifer Phone:301-847-3200
Email Address: Fax:
</TABLE>
ORACLE CONTRACT INFORMATION
Agreement: Software License and Services Agreement
Agreement Name: SLSA-259108-26-FEB-98 This Network License Order Form and
attachment(s) ("Order Form") are placed in accordance with
the agreement specified above ("Agreement"). Customer
hereby orders the Program licenses described herein for
use in the Territory, unless otherwise specified. The
Network is defined as any of Computers of the Designated
Systems listed in this Order From, except for Computer-
based or Processor-based licenses or other similar
licenses as specified herein.
1. DESIGNATED SYSTEMS/PROGRAMS
Make/Model: Sun Space
Operating System: Solaris 2
Media: CD
Make/Model: Sun Space
Operating System: Solaris 2
Media: CD
<PAGE>
<TABLE>
<CAPTION>
Net Net
Description Quantity License Level License Type License Fee Support Fee
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Unit Licenses:
- -----------------
For use in the U.S. 50 Web Specific Processor $1,868,750 $ 669,094
Oracle8 Enterprise Edition
User Based Fees: $1,868,750
Net License Fees: $1,868,750
---------------------------------------
User Based Support Fee: $1,159,763
Technical Support through November 30, 2001 Fee: $1,159,763
Technical Support Type: Bronze
--------------
Total Fees: $3,028,513
--------------
</TABLE>
2
<PAGE>
ORACLE
B. GENERAL TERMS
1. Technical Support. Annual Technical Support services ordered by Customer
-----------------
will be provided under Oracle's Technical Support policies and pricing in
effect on the date Technical Support is ordered and shall be effective upon
shipment (or upon Order Form Effective Date for products not requiring
shipment); Technical Support through November 30, 2001 is quoted above.
Fees for Technical Support are due and payable annually in advance.
2. Miscellaneous. Customer is licensed to use each Program only on the
-------------
Designated System(s) specified in Section A of this Order From and for
which such Program is available on the Effective Date. The Program Summary
included with this Order Form specifies the Programs on the particular
Designated Systems requested by Customer, which have been shipped to
Customer. Customer acknowledges that Oracle has delivered to the Customer
Location, for use in the U.S., 1 copy of the software media ("Master Copy")
and 1 set of Documentation (CD-ROM or bound, whichever is generally
available) for each Program currently available in production release as of
the Effective Date for use on the Network. Customer shall have the right to
make up to 1 copy of the Program(s), including Documentation, for each
license of the Program(s) and the Customer shall be responsible for
installation of the software. All fees under this Order Form shall be due
and payable net 30 days from date of invoice, and shall be non-cancellable
and the sums paid nonrefundable. Customer agrees to pay applicable
sales/use tax and media charges. If Customer loses or damages the media
containing a Program licensed hereunder, upon Customer's written notice
Oracle will provide a replacement copy thereof, under Oracle's then-current
Technical Support policies, for a media and shipping charge. The following
shipping terms shall apply: FOB Destination, Prepaid, and Add. These terms
shall also apply to any options exercised by Customer. Oracle may refer to
Customer as a customer in sales presentations, marketing vehicles and
activities.
3
<PAGE>
3. WEB SPECIFIC PROGRAMS
1. Web Specific. Web Specific Program(s) shall mean Program license(s) which
------------
may only be accessed by Customer's customers ("Third Parties") via Internet
networking protocols and which are limited to use solely for hosting the
Third Parties' web pages ("Web Pages"). Notwithstanding any use
restrictions in the Agreement or Oracle Program License Terms, Web Specific
Program(s) may only support Web Pages that allow Third Parties access
solely for viewing, querying or adding data only, so long as such use is in
accordance with the other terms of the Agreement. Web Specific Programs
are to be generated by Customer from Full Use Programs.
2. License Term. Notwithstanding Section 4.1 of the Agreement, the Web
------------
Specific Program licenses acquired by Customer under this Order Form shall
be valid from the Effective Date until 30 months from the Effective Date or
unless otherwise terminated pursuant to Section B.3, or the Agreement
("License Term"). These Program licenses are not perpetual.
3. Termination. Upon expiration or termination of the License Term or any
-----------
renewal term thereof, Customer shall cease using the Web Specific Programs
and shall return to Oracle, or destroy such Web Specific Programs in
accordance with the Agreement. If such term expires or terminates for
whatever reason, neither party will be liable to the other because of such
expiration or termination for damages for the loss of prospective profits,
anticipated sales, or good will, provided, however, that expiration or
termination of the Web Specific Program licenses shall not relieve either
party from its liability to pay any fees which have accrued to the other
party as of the expiration or termination, or which accrue after such
expiration or termination. Any election to terminate the licenses ordered
under this Order Form for breach of contract shall not limit either party's
right to seek equitable or other appropriate relief relating to the breach.
Customer shall not be entitled to any refunds or credits of any fees to pay
Oracle for termination of a Web Specific Program license before the end of
the License Term.
4
<PAGE>
4. OTHER
1. a. Applicable License Fee. For the purposes of this Order Form, the
----------------------
Applicable License Fee shall be calculated as follows:
((Applicable List License Fee of Program as of the Effective Date
* Number of Possession * 50* 1.25)/36)' *Number of months
remaining in the License Term
Example: Customer purchases 150 Processors of Oracle8 Enterprise
Edition. The Applicable License Fee would be:
((1495 = 150 / 50-1.25)/36) * Number of months remaining in the
License Term
b. Applicable First Year Bronze Technical Support Fee: For the
--------------------------------------------------
purposes of this Order From, the Applicable First year Bronze
Technical Support Fee shall be calculated as follows:
Applicable List First year Bronze Technical Support Fee of program
as of the Effective Date * Number of Processors / 50 - 1.25
Example: Customer purchases 150 Processors of Oracle 8 Enterprise
Edition. The Applicable First Year Bronze Technical Support Fee
would be:
300 * 150 * 50 * 1.25
2. Additional License Increments. For 30 months from the Effective Date,
-----------------------------
provided Customer has continuously maintained Technical Support, Customer
may increase the quantity of each applicable License Type accessing the
Programs on this Order Form ("Additional License Increment") by paying
Oracle additional license fees less the discounts specified below. Such
discounts shall be off the Applicable License Fee.
5
<PAGE>
<TABLE>
<CAPTION>
Discount off Discount off
Applicable Applicable First
License Fee per Year Bronze
License each Additional Technical Support
--------- License Fee per Additional
Program License Type License Level Increment Increment License Increment
- ------- ------------ ------------- --------- ----------------- --------------------
<S> <C> <C> <C> <C> <C>
Oracle8 Processor Web Specific 50-99 40% 30%
Enterprise
Edition
Oracle8 Processor Web Specific 100-199 50% 30%
Enterprise
Edition
Oracle8 Processor Web Specific 200 and 60% 30%
Enterprise above
Edition
</TABLE>
Each order placed for Additional License Increments must be at least
$10,000 in net license fees; applicable sales tax will be added to the fee.
All applicable fees shall be due and payable on the date that Customer
notifies Oracle in writing of its exercise of this option; Oracle has no
shipment obligation. Upon election, this payment obligation is non-
cancellable, and the sum paid is nonrefundable.
At the time of election, Customer must be current on its Technical Support
payments and Customer may obtain First year Bronze Technical Support
services from Oracle for an Additional License Increment ordered pursuant
to this option at the Applicable First year Bronze Technical Support fees
less the discounts specified above. During the 2 year period specified in
this Section, Technical Support shall be provided pursuant to Oracle's
policies in effect as of the Effective Date. Thereafter, Customer may
obtain Technical Support services from Oracle under Oracle's applicable
Technical Support fees and policies in effect when such services are
ordered.
3. Additional Programs. For a period of 30 months from the Effective Date,
-------------------
Customer may add the Programs specified below to this Order Form if such
Programs are available in production release and are listed on Oracle's
U.S. Price List for installation on the Designated Systems as of the
Effective Date. The license fee for such Programs shall be at the
discounts, specified below, off the Applicable License Fees. Upon
Customer's exercise of this option, Oracle shall ship the Programs to
Customer pursuant to the Miscellaneous section above. Customer may acquire
first year Technical Support from
6
<PAGE>
Oracle for such Programs, at the discounts specified below, off the
Applicable First Year Bronze Technical Support fees and policies in
effect as of the Effective date. Thereafter, Customer may obtain annual
Technical Support services from Oracle under Oracle's Technical Support
fees and policies in effect when such services are ordered.
7
<PAGE>
<TABLE>
<CAPTION>
Discount off
Applicable Discount off Applicable First year
Categories License Level License Type License Fees Bronze Technical Support Fees
- ----------- ------------- ------------ ------------- -----------------------------------
<S> <C> <C> <C> <C>
Oracle8 Enterprise Web Specific Processor 40%** 30%
Edition Options*
Application Server Web Specific Processor 40%** 30%
Application Server Web Specific Processor 40%** 30%
Enterprise Edition
Oracle8 Enterprise Web Specific Processor 50%*** 30%
Edition Options*
Application Server Web Specific Processor 50%*** 30%
Application Server Web Specific Processor 50%*** 30%
Enterprise Edition
Oracle8 Enterprise Web Specific Processor 60%*** 30%
Edition Options*
Application Server Web Specific Processor 60%*** 30%
Application Server Web Specific Processor 60%*** 30%
Enterprise Edition
</TABLE>
The Additional Programs ordered pursuant to this section shall be valid for 2
years from the Effective Date in accordance with Section C.2 above. Such
Program licenses are not perpetual.
8
<PAGE>
* For the purposes of the Order Form, the Oracle 8 Enterprise Edition Options
include: Advanced Networking Option, Diagnostics Pack, Tuning Pack, Change
Management Pack, Objects Option, Parallel Server Option, Partitioning
Option and Oracle Lite Mobile Option.
** Customer shall receive such discount provided Customer has purchased a
total of between 50 and 99 Processors of Oracle 8 Enterprise Edition
pursuant to Sections A and D.2 above.
*** Customer shall receive such discount provided Customer has purchased a
total of between 100 and 199 Processors of Oracle 8 Enterprise Edition
pursuant to Sections A and D.2 above.
**** Customer shall receive such discount provided Customer has purchased a
total of at least 200 Processors of Oracle 8 Enterprise Edition pursuant to
Sections A and D.2 above.
9
<PAGE>
4. Assignment. Customer may not assign this Order Form to a third party (i.e.
----------
a separate legal entity from Customer) without the prior written consent of
Oracle. Oracle shall not unreasonably withhold such consent. Oracle hereby
consents to the assignment of this Order Form to an entity resulting from a
merger, consolidation or sale involving Customer, provided the assignee
signs this order form and is not a competitor of Oracle's.
5. On Sight Support Specialist. In consideration for the technical support
---------------------------
payment to Oracle specified above, Customer shall receive Technical Support
services from 1 on-site technical support specialist for a total of 260
business days of dedicated service at the Customer Service Location.
Reasonable travel, living and relocation expenses incurred by such on-site
support specialist while performing services, at Customer's direction, away
from the Customer Location shall be paid by Customer. Customer agrees to
provide the on-site technical support specialist with office space,
including access to all appropriate computer systems, all necessary
software used to do their job, and a telephone, at no charge to Oracle.
Oracle acknowledges that each such on-site technical support specialist is
an Oracle employee with regard to applicable employee payroll, taxes and
benefits. Thereafter, Customer may acquire such on-site technical support
services under Oracle's technical support fees and policies in effect when
such services are ordered.
10
<PAGE>
- -------------------------------------------------------------------------------
Customer and Oracle agree that the terms and pricing of this Order Form shall
not be disclosed without the prior written consent of the other party. this
quote is valid through May 27, 1999 and shall become binding upon execution by
Customer and acceptance by Oracle.
DIGEX CORPORATION ORACLE CORPORATION
(AN INTERMEDIA
COMMUNICATIONS
COMPANY)
<TABLE>
<CAPTION>
<S> <C>
Signature: /s/ John Scott Signature: /s/ Craig Guarente
---------------------- --------------------------------
Name: John Scott Name: Craig Guarente
--------------------------- -------------------------------------
Title: VP, Finance Title: Senior Manager, Field Sales Support
-------------------------- ------------------------------------
Effective Date: 5/27/99
-----------------
</TABLE>
- -------------------------------------------------------------------------------
11
<PAGE>
PROGRAM SUMMARY:
PROGRAMS DESIGNATED SYSTEMS MEDIA TYPE
- --------- ------------------ ----------
Oracle 8 Enterprise Edition Sun Spare/Solaris 2 CD
Oracle 8 Enterprise Edition PC Compatible/Windows NT CD
12
<PAGE>
Exhibit 10.8
This License Confirmation is issued pursuant to the terms of the Enrollment
Form submitted by the Select Customer referred to on the cover page(s) (for the
purposes of this License Confirmation referred to as "Licensee") and the related
Master Agreement. It is also issued in conjunction with the License Agreement
attached to Licensee's Enrollment Form. This is a legal agreement between
Licensee and Microsoft Corporation ("Licensor"). Licensee must retain this
License Confirmation as evidence of the license rights granted by Licensor. By
exercising the fights granted to Licensee in this License Confirmation, Licensee
agrees to be bound by its terms and conditions, as well as the terms and
conditions set forth in the License Agreement. If Licensee does not agree to
the terms of this License Confirmation, promptly return it together with all
accompanying materials and documents to Licensee's Large Account Reseller for a
full refund. For the purposes of this License Confirmation, the term "Software"
shall mean the software portion of the Select Software Products available under
the License Agreement. If the term "Outsourcer for......" appears under the
"Select Customer (or Select Outsourcer)" heading on the cover page of this
License Confirmation, then this License Confirmation is issued under an
Outsourcer Enrollment Form. In that case, all references in this License
Confirmation to "Licensee" shall be deemed to be references to the Lead Customer
or the Lead Customer Affiliate to which the Licensee has rented, leased or
otherwise provided the Software, rather than to the Licensee itself.
LICENSE
Licensor hereby grants Licensee the right to use, as set forth below, the number
of copies of each version number and language of Software set forth on the front
of this License Confirmation, or in the place of any such copy, a copy of any
prior version of the same Software in the same language. Without the written
consent of Licensor, Licensee may not transfer the rights granted in any
Licensee Confirmation to third parties other than its Lead Customer Affiliates
or pursuant to a merger, consolidation or other corporate/organizational
divestiture or acquisition. In the event Licensee sublicenses or otherwise
transfers its fights in one or more Licenses identified on the cover page(s) of
any License Confirmation to one or more of its Lead Customer Affiliates, then
Licensee shall provide a copy of such License Confirmation to each such Lead
Customer Affiliate identifying the number of Licenses which have been
sublicensed or otherwise transferred. Licensee may not sublicense or otherwise
transfer Licenses on a short-term basis.
I. Application Products - For products which are classified in the Select
- ------------------------
Product List as belonging to the Application Product pool, the following
applies:
A. For application products not otherwise identified below, the following
section is applicable
For each License acquired, Licensee may use one copy of the Software, or in its
place, any prior version for the same operating system, on a single computer.
The primary user of a computer on which a copy of the Software is installed may
make a second copy for his or her exclusive use on either a home or portable
computer.
Licensee may also store or install a copy of the Software on a storage device,
such as a network server, used only to install or run the Software on Licensee's
other computers over an internal
<PAGE>
network; however, Licensee must acquire and dedicate a License for each separate
computer on which the Software is installed or run from the storage device. A
License for the Software may not be shared or used concurrently on different
computers.
B. For the Microsoft Office and other application products which represent the
integration of two or more components the following additional term is
applicable
The Software is licensed as a single product. Its component parts may not be
separated for use on more than one computer.
C. For application products enrolled in Maintenance Plus, the following
additional rights are applicable
At any time, Licensee may have as many copies of the Software in use as Licensee
has Licenses enrolled in Maintenance Plus, as long as Licensee has metering
software in place to ensure that the number of persons using the Software
concurrently does not exceed the number of Licenses enrolled in Maintenance
Plus. A License for the Software may not be shared or used concurrently on
computers located in different time zones, or by a user who is neither an
employee of Licensee nor an independent contractor providing services to
Licensee of the type that arc customarily performed by Licensee's employees.
The primary user of a computer on which a copy of the Software is installed or
which runs the Software from a storage device used only to install or run the
Software on Licensee's computers over an internal network may make a second copy
for his or her exclusive use on a home or portable computer; provided that: (x)
the total number of second copies made by Licensee's users under all grants
evidenced by this License Confirmation may not exceed the number of Licenses
acquired by Licensee; (y) the number of second copies made by users of computers
on which copies of the Software are not installed may not exceed the number of
Licenses enrolled by Licensee in Maintenance Plus; and (z) Licensee must
maintain records that enable Licensee to determine that it is in compliance with
the limitations expressed in clauses (x) and (y) above.
D. For application products acquired under the Microsoft Enterprise License or
the Division Option of the Microsoft Enterprise License for Variable License
Customers (the "Division Option"), the following additional right is applicable
The primary user of a computer on which a copy of the Software is installed or
which runs the Software from a storage device used only to install or run the
Software on Licensee's computers over an internal network may make a second copy
for his or her exclusive use on a home or portable computer; provided that: (x)
the total number of second copies made by Licensee's users under all grants
evidenced by this License Confirmation may not exceed the number of Licenses
acquired by Licensee; and (y) Licensee must maintain records that enable
Licensee to determine that it is in compliance with the limitation expressed in
clause (x) above.
E. For Microsoft Access Developers Toolkit 2.0, Microsoft Visual C++,
Microsoft Visual J++ and Microsoft Visual FoxPro, the following section is
applicable
1. Software. For each License acquired, Licensee may designate one individual
--------
within Licensee's organization who will have the personal, nonexclusive license
to use copies of the Software for the sole purposes of designing, developing,
and testing Licensee's software product(s). Each designated individual may
install copies of the Software on an unlimited number of computers provided that
such individual is the only person who uses each such copy of the Software.
2
<PAGE>
2. Electronic Documents. Solely with respect to electronic documents, if any,
--------------------
included with the Visual C++ and Visual J++ Software, Licensee may make an
unlimited number of copies (either in hard copy or electronic form), provided
that such copies shall be used only for internal purposes and are not
republished or distributed to any third party.
F. For Microsoft Access Developers Toolkit 2.0, the following additional
section is also applicable
REDISTRIBUTABLE COMPONENTS.
1. Redistributable Run-Time Components. In addition to the rights granted
-----------------------------------
above, for each License acquired, Licensor grants Licensee a nonexclusive
royalty-free right to reproduce and distribute the object code version of those
portions of the Software listed in the Software in the ADTEULA.TXT file ("Run-
Time Files"), provided Licensee complies with subsection 3 below.
2. Additional Redistributable Components. In addition to the rights granted
-------------------------------------
above, for each License acquired, Licensor grants Licensee a nonexclusive,
royalty-free right to reproduce and distribute the object code version of the
Software identified in the ADTEULA.TXT file as "Replication Manager
Redistributable File Listing" ("Replication Manager Files"), provided Licensee
complies with subsection 4 below.
3. Redistribution Requirements-Run-Time Files. If Licensee redistributes the
------------------------------------------
Run-Time Files, Licensee agrees: (i) to distribute the Run-Time Files in object
code only in conjunction with and as a part of a software product developed by
Licensee which adds significant and primary functionality to the Software and
which is developed to operate in the Windows or Windows NT environment; (ii)
that Licensee's software product does not substantially duplicate the
capabilities of Microsoft Access or, in the reasonable opinion of Licensor,
compete with same; (iii) to not use Microsoft's name, logo, or trademarks to
market Licensee's software product; (iv) to include a valid copyright notice on
Licensee's software product; and (v) to indemnify, hold harmless, and defend
Microsoft and its suppliers from and against any claims or lawsuits, including
attorneys' fees, that arise or result from the use or distribution of Licensee's
software product.
Unless Licensee's software product requires Licensee's customers to license
Microsoft Access, or incorporates a Run-Time File, in order to operate, Licensee
may not reproduce or use any of the Run-Time Files for commercial distribution
in conjunction with a general purpose word processing, spreadsheet, or database
management software product, or an integrated work or product suite whose
components include a general purpose word processing, spreadsheet, or database
management software product except for the exclusive use of importing or
exporting data to the various formats supported by Microsoft Access and included
in Licensee's software product (e.g., reading data from and writing data to a
single data source at one time). Note: A product that includes limited word
processing, spreadsheet, or database components along with other components
which provide significant and primary value, such as an accounting product with
limited spreadsheet capability, is not considered to be a "general purpose"
product.
3
<PAGE>
4. Redistribution Requirements-Replication Manager Files. If Licensee
-----------------------------------------------------
redistributes the Replication Manager Files, Licensee agrees: (i) to not use
Microsoft's name, logo, or trademarks to market Licensee's software product;
(ii) to include a valid copyright notice on Licensee's software product; and
(iii) to indemnify, hold harmless, and defend Microsoft and its suppliers from
and against any claims or lawsuits, including attorneys' fees, that arise or
result from the use or distribution of Licensee's software product. The
REDISTRIBUTABLES are provided "as is" and without warranty of any kind.
G. For Microsoft FrontPage, the following additional section is also
applicable
1. ADDITIONAL RIGHTS AND/OR RESTRICTIONS. In addition to the applicable
rights and restrictions otherwise stated in this Section I, Licensee's use of
the Software is subject to the following rights and/or restrictions:
. Samples. Licensee may use, copy, modify, adapt and adjust the size, color,
brightness, etc. of the samples that are included in the "Samples.txt" file of
Microsoft Image Composer version 1.5 ("Samples"), (b) combine the Samples with
other images, text, animation, video, sound, and software to create documents,
products, materials and services (collectively, "Products"); and (c)
manufacture, market, sell, lease, rent, transmit, license and otherwise
distribute, directly or indirectly, the Products containing the Samples, subject
to the following restrictions:
. Distribution. Licensee may not distribute the Samples using the "ftp"
(file transfer protocol) for the Internet.
. Reproduction. Licensee may not grant end-users of Products any fights to
reproduce the Samples.
. Integration into Products. Licensee may not sell or license the Samples on
a stand alone basis or transmit or distribute the Samples as part of any Product
for resale; however, Licensee may transmit and distribute the Samples as part of
any promotional, marketing or advertising documents, materials, products and
services distributed through any medium, including but not limited to the
following:
Corporate brochures Corporate logos
Trade show materials Annual reports
Newspaper advertisements Newsletters
Presentation handouts Promotional multimedia titles and games
Product catalogs Direct mail materials
TV/Cable advertising Magazine advertisements
Worldwide Web pages Exhibit designs
Corporate identity materials
. Use in Corporate Identity Materials. If Licensee uses the Samples to
create corporate identity materials (i.e. a "logo"), Licensee is solely
responsible for any trademark search to clear the Sample(s) for use in this
fashion and any and all associated costs for any such search. Licensee shall
4
<PAGE>
have no right under the terms of this Section E for the exclusive use of any
Samples, notwithstanding the results of any trademark search conducted for use
of the Samples.
. Certain Uses Prohibited. Licensee may not use the Samples in any
pornographic, defamatory, libelous or other unlawful manner.
2. OTHER TERMS AND CONDITIONS. Licensee's use of the Software is subject to
all remaining applicable provisions of this Section I.
H. For Microsoft Office 97 Developers Edition, the following additional
section is also applicable
1. Electronic Documents. Solely with respect to electronic documents, if any,
--------------------
included with the Software, Licensee may make an unlimited number of copies
(either in hard copy or electronic form), provided that such copies shall be
used only for internal purposes and are not republished or distributed to any
third party.
2. Redistributable Components. (Note: the Sample Code, Run-Time Files, and
--------------------------
Replication Manager Files, each as defined below, are collectively referred to
as "REDISTRIBUTABLES.")
(a) Sample Code. Licensor grants Licensee a nonexclusive, royalty-free right
-----------
to use and modify those portions of the Software identified as sample code
("Sample Code") and to reproduce and distribute the object code form of the
Sample Code, provided Licensee complies with subsection (2)(e), below.
(b) Redistributable Run-Time Components. Licensor grants Licensee a
-----------------------------------
nonexclusive royalty-free right to reproduce and distribute the object code
version of those portions of the Software listed in the Software in the
ODEEULA.TXT file ("Run-Time Files"), provided Licensee complies with subsection
(2)(d) below. In the event that Licensee has obtained the Software as an
upgrade, the rights granted in this subsection also apply to the Run-Time Files
identified in and provided with any prior version of the Software.
(c) Additional Redistributable Components. Licensor grants Licensee a
-------------------------------------
nonexclusive, royalty-free right to reproduce and distribute the object code
version of the Software identified in the ODEEULA.TXT file as "Replication
Manager Redistributable File Listing" ("Replication Manager Files"), provided
Licensee complies with subsection (2)(e) below. In the event that Licensee has
obtained the Software as an upgrade, the rights granted in this subsection also
apply to the Replication Manager Files identified in and provided with any prior
version of the Software.
(d) Redistribution Requirements--Run-Time Files. If Licensee redistributes the
-------------------------------------------
Run-Time Files, Licensee agrees: (i) to distribute the Run-Time Files in object
code only in conjunction with and as a part of a software product developed by
Licensee which adds significant and primary functionality to the Software and
which is developed to operate in the Windows or Windows NT environment; (ii)
that Licensee's software product does not substantially duplicate the
capabilities of Microsoft Access or, in the reasonable opinion of Licensor,
compete with same; (iii) to not use Microsoft's
5
<PAGE>
name, logo, or trademarks to market Licensee's software product; (iv) to include
a valid copyright notice on Licensee's software product; and (v) to indemnify,
hold harmless, and defend Licensor and its suppliers from and against any claims
or lawsuits, including attorneys' fees, that arise or result from the use or
distribution of Licensee's software product.
Unless Licensee's software product requires Licensee's customers to license
Microsoft Access in order to operate, Licensee may not reproduce or use any of
the Run-Time Files for commercial distribution in conjunction with a general
purpose word processing, spreadsheet, or database management software product,
or an integrated work or product suite whose components include a general
purpose word processing, spreadsheet, or database management software product
except for the exclusive use of importing data to the various formats supported
by Microsoft Access. Note: A product that includes limited word processing,
spreadsheet, or database components along with other components which provide
significant and primary value, such as an accounting product with limited
spreadsheet capability, is not considered to be a "general purpose" product.
(e) Redistribution Requirements--Sample Code or Replication Manager Files. If
---------------------------------------------------------------------
Licensee redistributes the Sample Code or Replication Manager Files, Licensee
agrees: (i) to not use Microsoft's name, logo, or trademarks to market
Licensee's software product; (ii) to include a valid copyright notice on
Licensee's software product; and (iii) to indemnify, hold harmless, and defend
Licensor and its suppliers from and against any claims or lawsuits, including
attorneys' fees, that arise or result from the use or distribution of Licensee's
software product.
The REDISTRIBUTABLES are provided "as is" and without warranty of any kind.
I. For Microsoft Mail Remote Client and Schedule+ Starter Kit, the following
section is applicable
For each License acquired, Licensee may use Software designated as Server
software on a single computer system (i.e., a network server) and may use
Software designated as Workstation software on a single computer or workstation.
If any licensed copy of the Workstation software is permanently installed on the
hard disk or other storage device of a computer (other than a network server)
and one person uses that computer more than 80% of the time it is in use, then
that person may also use the Workstation software on a portable or home
computer.
J. For Microsoft Visual Basic, the following section is applicable
1. Software. For each License it acquires, Licensee may designate one
--------
individual within Licensee's organization who will have the personal,
nonexclusive license to use copies of the Software for the sole purposes of
designing, developing, and testing Licensee's software product(s) that are
designed to operate in conjunction with any Microsoft operating system product.
Each designated individual may install copies of the Software on an unlimited
number of computers provided that such individual is the only person who uses
each such copy of the Software.
2. Electronic Documents. Solely with respect to electronic documents, if any,
--------------------
included with the Software, Licensee may make an unlimited number of copies
(either in hard copy or electronic
6
<PAGE>
form), provided that such copies shall be used only for internal purposes and
are not republished or distributed to any third party.
3. Redistributable Components.
--------------------------
(a) Sample Code. Licensee may use and modify the source code version of those
-----------
portions of the Software designated as "Sample Code" ("SAMPLE CODE') for the
sole purposes of designing, developing, and testing Licensee's software
product(s), and to reproduce and distribute the SAMPLE CODE, along with any
modifications thereof, only in object code form provided that Licensee complies
with subsection (3)(c) below.
(b) Redistributable Components. Licensee is granted a nonexclusive royalty-
--------------------------
free right to reproduce and distribute the object code version of any portion of
the Software listed in the software file Redist.txt, or, for versions prior to
Visual Basic 5.0, in the software file SWDEPEND.TXT or README.HLP (collectively,
"REDISTRIBUTABLE SOFTWARE"), provided Licensee complies with subsection (3)(c)
below.
(c) Redistribution Requirements. If Licensee redistributes the SAMPLE CODE or
---------------------------
REDISTRIBUTABLE SOFTWARE (collectively, "REDISTRIBUTABLES"), Licensee agrees to:
(I) distribute the REDISTRIBUTABLES in object code only in conjunction with and
as a part of a software application product developed by Licensee which adds
significant and primary functionality to the Software and that is developed to
operate on the Microsoft Windows or Microsoft Windows NT environment
("Application"); (II) not use Microsoft's name, logo, or trademarks to market
Licensee's software application product; (III) include a valid copyright notice
on Licensee's software product; (IV) indemnify, hold harmless, and defend
Licensor from and against any claims or lawsuits, including attorneys' fees,
that arise or result from the use or distribution of Licensee's software
application product; (V) not permit further distribution of the REDISTRIBUTABLES
by Licensee's end-users. The following exceptions apply to subsection (V) above:
(1) Licensee may permit further redistribution of the REDISTRIBUTABLES by
Licensee's distributors to Licensee's end-user customers if Licensee's
distributors only distribute the REDISTRIBUTABLES in conjunction with, and as
part of, Licensee's Application and Licensee and Licensee's distributors comply
with all other terms of this Section (J) and Sections (N) and (S) below; and (2)
Licensee may permit Licensee's end users to reproduce and distribute the object
code version of the files designated by ".ocx" file extensions ("Controls") only
in conjunction with and as a part of an Application and/or Web page that adds
significant and primary functionality to the Controls, and such end-user
complies with all other terms of this Section (J) and Sections (N) and (S)
below. NOTE: The rights granted in the foregoing subsection (2) DO NOT APPLY to
those files identified in the Software as Dbgrid.ocx and Graph32.ocx.
The license in this section to distribute the REDISTRIBUTABLES is royalty-free
provided that Licensee's software application product is developed for operation
in the Microsoft Windows or Microsoft Windows NT environment Contact Licensor
for the applicable royalties due and other licensing terms for all other uses
and/or distribution of the REDISTRIBUTABLES. The REDISTRIBUTABLES are provided
"as is" and without warranty of any kind.
7
<PAGE>
K. For Microsoft Visual C++, the following additional section is also
applicable
1. Sample Code and Microsoft Foundation Classes. Licensor grants Licensee the
--------------------------------------------
fight to use and modify the source code version of those portions of the
Software which are identified: (a) as sample code in the documentation and/or
listed in the subdirectory devstudio\vc\samples located in the Software
(collectively, "SAMPLE CODE") and (b) as the Microsoft Foundation Classes
("MFC"), for the sole purposes of designing, developing and testing Licensee's
software product(s), provided Licensee complies with Section (P) below.
2. Redistributable Files. Provided Licensee complies with Section (P) below
---------------------
(and Section (N) below, if applicable), Licensor grants Licensee a nonexclusive,
royalty-free right to reproduce and distribute the object code version of the
following portions of the Software (collectively, the "REDISTRIBUTABLES"): (a)
SAMPLE CODE (including any modifications Licensee makes), and (b) MFC (including
any modifications Licensee makes), and (c) the files identified in the
Redistrb.wri file located in the Software. For purposes of this subsection,
"modifications" shall mean enhancements to functionality of the MFC or Sample
Code.
L. For Microsoft Visual J++, the following additional section is also
applicable
1. Sample Code. Licensor grants Licensee the right to use and modify the
-----------
source code version of those portions of the Software which are identified as
sample code in the documentation , and/or listed in the subdirectory
DevStudio\VJ\Samples located in the Software ("SAMPLE CODE"), for the sole
purposes of designing, developing, and testing Licensee's software product(s),
provided Licensee complies with Section (P) below.
2. Redistributable Files. Licensor grants Licensee a nonexclusive, royalty-
---------------------
free right to reproduce and distribute the object code version of the following
portions of the Software (collectively, "REDISTRIBUTABLES"): (a) the files
identified in the REDISTVJ.WRI file listed in the subdirectory
DevStudio\VJ\Redist located in the Software; and (b) SAMPLE CODE (including any
modifications Licensee makes), provided Licensee complies with Section (P) below
(and Section (N) below if applicable).
Microsoft Internet Explorer. Licensee may use copies of the Microsoft Internet
- ---------------------------
Explorer software only in conjunction with a validly licensed copy of Microsoft
operating system products (e.g., Windows 95 or Windows NT). Licensee may make
copies of Microsoft Internet Explorer for use on all computers for which
Licensee has licensed Microsoft operating system products.
NOTE ON JAVA SUPPORT. The Software product may contain support for programs
written in Java. Java technology is not fault tolerant and is not designed,
manufactured or intended for use or resale as online control equipment in
hazardous environments requiring fail-safe performance, such as in the operation
of nuclear facilities, aircraft navigation or communications systems, air
traffic control, direct life support machines, or weapons systems, in which the
failure of Java technology could lead directly to death, personal injury, or
severe physical or environmental damage.
8
<PAGE>
M. For Microsoft Visual FoxPro, the following additional section is also
applicable
1. Sample code. Licensee is granted the right to use and modify the source
-----------
code version of those portions of the Software designated as "Sample Code"
('SAMPLE CODE") for the sole purposes of designing, developing, and testing
Licensee's software product(s), and to reproduce and distribute the SAMPLE CODE,
along with any modifications thereof, only in object code form provided that
Licensee complies with subsection (3) below.
2. Redistributable Components. Licensor grants Licensee a nonexclusive
--------------------------
royalty-free right to reproduce and distribute the object code version of any
portion of the Software except those files listed in the Software file
License.txt ("REDISTRIBUTABLE SOFTWARE"), provided that Licensee complies with
--------
subsection (3) below. In the event that Licensee has obtained the Software as
an upgrade, the rights granted in this subsection (2) also apply to the
Redistributable Software identified and provided with any prior version of the
Software licensed to Licensee.
3. Redistribution Requirements. If Licensee redistributes the SAMPLE CODE or
---------------------------
REDISTRIBUTABLE SOFTWARE (collectively, "REDISTRIBUTABLES"), Licensee agrees to:
(I) distribute the REDISTRIBUTABLES in object code only in conjunction with and
as a part of a software application product developed by Licensee which adds
significant and primary functionality to the Software; (II) not use Microsoft's
name, logo, or trademarks to market Licensee's software application product;
(III) include a valid copyright notice on Licensee's software product; (IV)
indemnify, hold harmless, and defend Licensor from and against any claims or
lawsuits, including attorneys' fees, that arise or result from the use or
distribution of Licensee's software application product; (V) not permit further
distribution of the REDISTRIBUTABLES by Licensee's end-users. Contact Licensor
for the applicable royalties due and other licensing terms for all other uses
and/or distribution of the REDISTRIBUTABLES. The REDISTRIBUTABLES are provided
"as is" and without warranty of any kind.
N. For Microsoft Visual Basic, Microsoft Visual C++, Microsoft Visual J++ and
Microsoft Visual FoxPro, the following additional section is also applicable
Microsoft Office Redistributable Components. If Licensee is developing, for
- -------------------------------------------
commercial distribution, a general purpose word-processing, spreadsheet, or
database management software product, or an integrated work or product suite
whose components include a general-purpose word-processing, spreadsheet, or
database management software product, the files comprising Microsoft JET
database functionality ("JET Files") may not be used or reproduced with
Licensee's software product, unless Licensee's product requires Licensee's
customers to license Microsoft Office for Windows, or a component of it, in
order to operate. The JET Files subject to this provision are: Vbar332.dll,
Msexcl35.dll, Msjet35.dll, Msjint35.dll, Msjter35.dll, Msltus35.dll,
Mspdox35.dll, Msrd2x35.dll, Msrepl35.dll, Mstext35.dll, Msxbse35.dll
Msexch35.dll, DA0350.dll, DA02535.tlb, MSRD02O.dll, or RDOCurs.dll in Visual
Basic, Visual C++ and Visual J++, and msj*.* in Visual Foxpro Professional.
9
<PAGE>
Note: a product which includes limited word processing, spreadsheet, or database
components along with other components which provide significant and primary
value, such as an accounting product with limited spreadsheet capability, is not
considered to be a "general purpose" product. The JET Files may be
redistributed, subject to Sections (J) and (M) above and Section (P) below, with
Licensee's commercially redistributed product in the event that Licensee's
software product is using the JET Files exclusively for importing or exporting
data to the various formats supported by the JET functionality and included in
Licensee's software product (e.g., reading data from and writing data to a
single data source at one time).
O. For Microsoft Visual InterDev, the following section is applicable
1. GRANT OF LICENSE. The Software is comprised of "Client Software" (those
----------------
components identified in the Software as Microsoft Visual InterDev, Media
Manager, Music Producer, and Inwge Composer) and "Server Software" (those
portions identified in the Software as Active Server Pages, Personal Web Server
and FrontPage Server Extensions). Licensee is granted the following rights:
a. Client Software. For each License it acquires, Licensee may install and
---------------
use up to one copy of any component identified as Client Software, or any prior
version of the same component Client Software for the same operating system, on
a single computer. The primary user of the computer on which the Software is
installed may make a second copy for his or her exclusive use on a portable
computer.
b. Server Software. Except with respect to Personal Web Server (as provided
---------------
below), for each License it acquires, Licensee may make, install and use, on any
and all server computers within Licensee's place of business that may be
accessed only by persons who are generally granted access to Heensee's internal
computer networks, one copy of die Server Software, or in its place, any prior
version of the same component Server Software.
c. Personal Web Server Software. For each License it acquires, Licensee may
----------------------------
install and use up to one copy of the Personal Web Server, or any prior version
of it, on a single computer. The primary user of the computer on which the
Software is installed may make a second copy for his or her exclusive use on a
portable computer.
d. Microsoft Internet Explorer. Licensee may use copies of the Microsoft
---------------------------
Internet Explorer software only in conjunction with a validly licensed copy of
Microsoft operating system products (e.g., Windows 95 or Windows NT). Licensee
may make copies of Microsoft Internet Explorer for use on all computers for
which Licensee has licensed Microsoft operating system products.
e. Image Composer. Solely with respect to the Client Software identified as
--------------
Image Composer, the following terms shall also apply: (a) Licensee may use,
copy, modify, adapt and adjust the size, color, brightness, etc. of the samples
that are included in the "Samples.txt" file of the Image Composer Software
Samples"), (b) combine the Samples with other images, text, animation, video,
sound, and software to create documents, products, materials and services
(collectively, "Products");
10
<PAGE>
and (c) manufacture, market, sell, lease, rent, transmit, license and otherwise
distribute, directly or indirectly, the Products containing the Samples, subject
to the following restrictions:
. Distribution. Licensee may riot distribute the Samples using the "ftp"
(file transfer protocol") for the Internet;
. Reproduction of Samples. Licensee may not grant end-users of Products any
rights to reproduce the Samples;
. Integration into Products. Licensee may not sell or license the Samples on
a stand alone basis or transmit or distribute the Samples as part of any Product
for resale; however, Licensee may transmit or distribute the Samples as part of
any promotional, marketing or advertising documents, materials, products and
services distributed through any medium including but not limited to the
following:
Corporate brochures
Trade show materials
Newspaper advertisements
Presentation handouts
Product catalogs
TV/Cable advertising
Worldwide Web pages
Corporate identity materials
Corporate logos
Annual reports
Newsletters
Promotional multimedia titles and games
Direct mail materials
Magazine advertisements
Exhibit designs
. Certain Uses Prohibited. Licensee may not use the Samples in any
pornographic, defamatory, libelous or order unlawful manner.
f. Microsoft Visual InterDev. Solely with respect to the Client Software
-------------------------
component identified as Microsoft Visual InterDev, the following terms shall
also apply.
i. Sample Code. Licensee is granted the right to use and modify the source
-----------
code version of those portions of the Software which are identified in the
Microsoft Visual InterDev Software as the Sample Code (the "SAMPLE Software
which are identified in the Microsoft Visual InterDev Software), provided
--------
Licensee complies with Section f.iii., below. Licensee may not distribute the
SAMPLE CODE, or any modified version of the SAMPLE CODE, in source code form.
ii. Redistributable Files. Licensee is granted a nonexclusive, royalty-free
---------------------
right to reproduce and distribute the object code version of those portions of
the Microsoft Visual InterDev Software
11
<PAGE>
designated as: (i) the files identified in the REDIST.TXT file; and (ii) SAMPLE
CODE (collectively, "REDISTRIBUTABLES"), provided Licensee complies
--------
with subsection f.iii, below.
iii. Redistribution Requirements. If Licensee redistributes the
---------------------------
REDISTRIBUTABLES, Licensee agrees to: (i) distribute the REDISTRIBUTABLES in
object code form only in conjunction with and as a part of Licensee's software
application product or Web page winch adds significant and primary
functionality; (ii) not use Microsoft's name, logo, or trademarks to market
Licensee's software application product; (iii) include a valid copyright notice
on Licensee's software product; (iv) indemnify, hold harmless, and defend
Licensor from and against any clauses or lawsuits, including attorneys' fees,
that arise or result from the use or distribution of Licensee's software
application product; and (v) not permit further distribution of the
REDISTRIBUTABLES by Licensee's end-user. Contact Licensor for the applicable
royalties due and other licensing terms for all other uses and/or distribution
of the REDISTRIBUTABLES.
g. Music Producer. Licensee also has the right to use the Client Software
--------------
identified as Music Producer to create musical compositions in the form of .MID
files and to license and distribute those files as part of a software,
application product, provided, that Licensee (i) does not use Microsoft's name,
logo, or trademarks to market licensee's software application product; (ii)
includes a valid copyright notice on Licensee's software product; and (iii)
indemnifies, holds harmless, and defends Licensor from and against any claims or
lawsuits, including attorneys' fees, that arise or result from the use or
distribution of Licensee's software application product.
h. Media Manager. Licensee has the right to use that portion of the Software
-------------
identified as Media Manager, in the manner described above for both "Client
Software" and "Server Software."
Microsoft Internet Explorer and the REDISTRIBUTABLES are provided "as is" and
without warranty of any kind.
NOTE ON JAVA SUPPORT. The Software product may contain support for programs
written in Java. Java technology is not fault tolerant and is not designed,
manufactured or intended for use or resale as online control equipment in
hazardous environments requiring fail-safe performance, such as in the operation
of nuclear facilities, aircraft navigation or communications systems, air
traffic control, direct life support machines, or weapons systems, in which the
failure of Java technology could lead directly to death, personal injury, or
severe physical or environmental damage.
P. For Microsoft Visual C++ and Microsoft Visual J++, the following additional
section is also applicable
Redistribution Requirements. If Licensee redistributes the REDISTRIBUTABLES,
- ---------------------------
Licensee agrees to: (I) distribute the REDISTRIBUTABLES in object code only in
conjunction with and as a part of a software application product developed by
Licensee which adds significant and primary functionality to the
REDISTRIBUTABLES ("Application"); (II) not use Microsoft's name, logo, or
trademarks to market Licensee's software application product; (III) include a
valid copyright notice on Licensee's software product; (IV) indemnify, hold
harmless, and defend Licensor from and against any claims or lawsuits, including
attorneys' fees, that arise or result from the use or distribution of
12
<PAGE>
Licensee's software application product; (V) not permit further distribution of
the REDISTRIBUTABLES by Licensee's end-users. The following exceptions apply to
subsection (V) above: (1) Licensee may permit further redistribution of the
REDISTRIBUTABLES by Licensee's distributors to Licensee's end-user customers if
Licensee's distributors only distribute the REDISTRIBUTABLES in conjunction
with, and as part of, Licensee's Application and Licensee and Licensee's
distributors comply with all other terms of this Section (P) and Sections (E),
(K), (L) and (N) above; and (2) Licensee may permit Licensee's end users to
reproduce and distribute the object code version of the files listed below,
designed to be redistributed as Component Object Model (COM) object, for use in
development of another application ("COM Files") only in conjunction with and as
a part of an Application and/or Web page that adds significant and primary
functionality to the COM Files, and such end user complies with all other terms
of this Section (P) and Sections (E), (K), (L) and (N) above. COM Files:
MSVCRT.DLL, OLEPRO32.DLL, WC42.DLL and MSVCIRT.DLL, and in Visual C++, ATL.DLL,
MSSTKPRP.DLL and AXDIST.EXE. Solely with respect to Visual J++, Licensee may
also permit Licensee's end-users to reproduce and distribute the object code
version of the files fisted below ("Limited-Use Redistributable Files") for use
in development of an application created by Licensee's end-user ('End-User
Application"), provided that Licensee's end-user agrees to: (i) distribute the
Limited-Use Redistributable Files in object code only in conjunction with and as
a part of a software application product developed by them that adds significant
and primary functionality to the Limited-Use Redistributable Files ("End-User
Application"); (ii) not use Microsoft's name, logo, or trademarks to market the
End-User Application; (iii) include a valid copyright notice on the End User
Application; (iv) indemnify, hold harmless, and defend Licensor from and against
any claims or lawsuits, including attorneys' fees, that arise or result from the
use or distribution of the End-User Application; and (v) not permit further
distribution of the Limited-Use Redistributable Files by the user of the End-
User Application. Limited-Use Redistributable Files: the Limited-Use
Redistributable Files are those files listed in subsection 3 and subsections 1
and 2 of Section 4 of REDISTVJ.WRI located in the DevStudio\VJ\Redist directory.
Contact Licensor for the applicable royalties due and other licensing terms for
all other uses and/or distribution of the REDISTRIBUTABLES. The REDISTRIBUTABLES
are provided "as is" and without warranty of any kind.
Q. For Microsoft Visual Source Safe, the following section is applicable
For each License it has acquired, Licensee may designate one individual within
Licensee's organization who will have the personal, nonexclusive license to make
and use copies of the Software for the sole purposes of managing, designing,
developing, and testing Licensee's software product(s). Each designated
individual may install copies of the Software on an unlimited number of
computers provided that such individual is the only individual using the
Software.
If Licensee redistributes the SAMPLE CODE or REDISTRIBUTABLE SOFTWARE
(collectively, "REDISTRIBUTABLES"), Licensee agrees to: (I) distribute the
REDISTRIBUTABLES in object code only in conjunction with and as a part of a
software application product developed by Licensee which adds significant and
primary functionality to the Software and that is developed to operate on the
Microsoft Windows or Microsoft Windows NT environment; (II) not use Microsoft's
name, logo, or trademarks to market Licensee's software application product;
(III) include a valid copyright notice on Licensee's software product; (IV)
indemnify, hold harmless, and defend Licensor from and
13
<PAGE>
against any claims or lawsuits, including attorneys' fees, that arise or result
from the use or distribution of Licensee's software application product; (V) not
permit further distribution of the REDISTRIBUTABLES by Licensee's end users.
Contact Licensor for the applicable royalties due and other licensing terms for
all other uses and/or distribution of the REDISTRIBUTABLES. The REDISTRIBUTABLES
are provided "as is" and without warranty of any kind.
R. For Microsoft Visual Studio, the following section is applicable
1. LICENSE TO USE SOFTWARE.
a. General. The Software is comprised of technical documentation and a suite
-------
of development tools, including Microsoft Visual Basic, Microsoft Visual C++,
and Microsoft Visual InterDev (each, a "COMPONENT PRODUCT"). Licensee's use of
each COMPONENT PRODUCT shall be governed by the applicable subsections above
("COMPONENT TERMS"), except that this Section (R) shall govern Licensee's use of
ATS (as defined below).
b. Anomaly Tracking System. With respect to the portion of the Software
-----------------------
identified as Anomaly Tracking System ("ATS"), for each License acquired,
Licensee may designate one individual within Licensee's organization who will
have the personal, nonexclusive license to install and use ATS. Each designated
individual may install copies of ATS on an unlimited number of computers
provided that such individual is the only person who uses each such copy of ATS.
Licensor further grants Licensee a nonexclusive, royalty-free right to reproduce
and distribute the object code version of ATS provided that Licensee agrees to:
(i) distribute ATS in object code only and solely in conjunction with and as a
part of a software application product or Web page developed by Licensee with
the Software that adds significant and primary functionality to ATS
("Application"); (ii) not use Microsoft's name, logo, or trademarks to market
Licensee's software application product; (iii) include a valid copyright notice
on Licensee's software product; (iv) indemnify, hold harmless, and defend
Licensor from and against any claims or lawsuits, including attorneys' fees,
that arise or result from the use or distribution of Licensee's software
application product; and (v) not permit further distribution of ATS by
Licensee's end-user. The following exception applies to subsection (v), above:
Licensee may permit further redistribution of ATS by Licensee's distributors to
Licensee's end-user customers if Licensee's distributors only distribute ATS in
conjunction with, and as part of, Licensee's Application and Licensee and
Licensee's distributors comply with all other terms of this Section (R). ATS is
provided "as is" and without warranty of any kind.
S. For Microsoft Visual Basic, Microsoft Visual C++, Microsoft Visual FoxPro,
Microsoft Visual InterDev and Microsoft Visual J++, the following additional
section is also applicable
If Licensee is an Eligible Education Customer, for each License it acquires,
Licensee may either (i) exercise the rights granted in Sections (E)(1), (J)(1)
or (O) above, OR (ii) if Licensee intends to use the Software solely for
instructional purposes in connection with a class or other educational program,
Licensee may install a single copy of the Software on a single computer for
access and use by an unlimited number of student end-users at Licensee's
educational institution, provided all such end users otherwise comply with
Sections (E) and (J) - (P) above.
14
<PAGE>
T. For Microsoft Project 98, the following additional section is also
applicable
This Section T pertains solely to portions of the Software identified as the
Microsoft Project Workgroup Message Handier "Handler") and the Microsoft Project
Workgroup Web Server ("Web Server").
1. ADDITIONAL RIGHTS. In addition to the fights granted to Licensee above,
for each License acquired, Licensor grants Licensee the following rights:
. Handler. Licensee may reproduce and distribute an unlimited number of
copies of the Handler which is comprised of those files designated in the
Software as: wgsetup.stf, wgsetup.1st, wgsetup.exe, mfc42.dll, msvcrt.dll,
openmail.exe, otmenu.ecf, opnil32.dll, olmenu.dll, msflxgrd.ocx, olepro32.dll,
regwiz.exe, oleaut32.dll, stdole2.tlb, extractexe, setup.ini, prj98_ca.dll,
acmsetup.exe, msetup.dll, acmsetup.hlp; provided that each copy shall be a true
and complete copy, including all copyright and trademark notices.
. Web Server. Licensee may use the Software to post the file designated in
the Software as mspjhttp.exe to a computer acting as a server to create a
TeamInbox. An unlimited number of other users may then connect to the server
and use the file mspjhttp.exe for the purpose of viewing Licensee's TeamInbox
and related Task Lists.
2. OTHER TERMS AND CONDITIONS. Licensee's use of the Handler and Web Server
is subject to all remaining applicable provisions of this Section I.
U. For Microsoft Outlook 98 Deployment Kit, the following section is
applicable
Software. The Software includes a copy of Microsoft Outlook 98 ("Outlook 98")
- --------
in addition to utilities and other software tools necessary to enable Licensee
to customize copies of Outlook 98. Licensee's use of the Outlook 98 component of
the Software is governed by the end user license agreement accompanying Outlook
98, e.g., as otherwise provided in this License Agreement ("Outlook 98 EULA"),
and not by this Section (U).
Customization. Licensee may reproduce and use copies of the Software solely to
- -------------
customize Licensee's validly licensed copies of Outlook 98 only as outlined in
the materials provided with the Software.
Deployment. Licensee may reproduce and install a customized copy of Outlook 98
- ----------
only on computers within Licensee's organization for which Licensee has validly
licensed copies of any version of Microsoft Outlook or other Microsoft Exchange
client, acquired either as a standalone, or as a component of another product
provided that use of the customized version of Outlook 98 is in accordance with
the Outlook 98 EULA for the applicable client on the eligible computer.
Distribution. Licensee may reproduce and distribute customized copies of
- ------------
Outlook 98 to third parties for whom Licensee provides other services provided
that: (a) Licensee must not remove the
15
<PAGE>
end user license agreement for Outlook 98 which is included in the customized
version of Outlook 98, (b) Licensee may only install a customized copy of
Outlook 98 on computers for which such third party can satisfactorily
demonstrate have a validly licensed copy of any version of Microsoft Outlook or
Microsoft Exchange client software, and (c) Licensee must comply with the export
restrictions set forth in the Outlook 98 EULA.
Licensor reserves all rights not expressly granted to Licensee.
The Software is provided "as is" without warranty or condition of any kind,
either express or implied, including, without limitation, the implied warranties
and conditions of merchantability, fitness for a particular purpose, or
noninfringement. The entire risk arising out of use or performance of the
Software remains with Licensee.
II. System Products -- For products which are classified in the Select Product
- --- ---------------
List as belonging to the System Products Pool, the following applies:
A. For system products not otherwise identified below, the following section
is applicable
Note: An amendment or addendum to this Section A may accompany certain
components of the Software. Additional software components may be distributed
to Licensee along with the Software. To the extent that a separate End-User
License Agreement ("EULX") is provided with any such additional software
component, except as specifically referenced below, use thereof shall be
governed by such EULA.
For each License it has acquired, Licensee may install and use one copy of the
Software, or in its place, any prior version of the Software, on a single
computer on which it was first installed. If the Software includes
functionality that enables Licensee's single computer to act as a network
server, any number of computers or workstations may access or otherwise utilize
the basic network services of that server; however, Licensee must acquire and
dedicate a License for each separate computer on which the Software is installed
or run from the server. A License to use the Software may not be shared or used
concurrently on different computers.
The Software may contain technology that enables applications to be shared
between two or more computers, even if an application is installed on only one
of the computers. Licensee may use this technology, if it is included in the
Software, with all Microsoft products for multi-party conferences. For non-
Microsoft applications, Licensee should consult the accompanying license
agreement or contact the Licensor to determine whether application sharing is
permitted by the Licensor.
NOTE ON JAVA SUPPORT. The Software may contain support for programs written in
Java. Java technology is not fault tolerant and is not designed, manufactured,
or intended for use or resale as on-line control equipment in hazardous
environments requiring fail-safe performance, such as in the operation of
nuclear facilities, aircraft navigation or communication systems, air traffic
control, direct life support machines, or weapons systems, in which the failure
of Java technology could lead directly to death, personal injury, or severe
physical or environmental damage.
16
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B. For Microsoft Windows 98, the following section is applicable
For each license it has acquired, Licensee has the following rights:
Systems Software. Licensee may install and use one copy of the Software on a
- ----------------
single computer, including a workstation, terminal or other digital electronic
device ("COMPUTER").
Storage/Network Use. Licensee may also store or install a copy of the Software
- -------------------
on a storage device, such as a network server, used only to install or run the
Software on Licensee's other COMPUTERS over an internal network; however,
Licensee must acquire and dedicate a license for each separate COMPUTER on or
from which the Software is installed, used, accessed, displayed or run. A
license for the Software may not be shared or used concurrently on different
COMPUTERS. Notwithstanding the foregoing, any number of COMPUTERS may access or
otherwise utilize the file and print services and peer web services of the
Software. In addition, Licensee may use the "Multiple Display" feature of the
Software to expand Licensee's desktop as described in the on-line Help file,
without obtaining a license for each display.
Application Sharing. The Software may contain Microsoft NetMeeting, a product
- -------------------
that enables applications to be shared between two or more computers, even if an
application is installed on only one of the computers. Licensee may use this
technology with all Microsoft application products for multi-party conferences.
For non-Microsoft applications, Licensee should consult the accompanying license
agreement or contact the licensor to determine whether application sharing is
permitted by the licensor.
Note: Any software provided along with the Software that is associated with a
separate end-user license agreement is licensed to Licensee under the terms of
that license agreement.
NOTE ON JAVA SUPPORT. The Software may contain support for programs written in
Java. Java technology is not fault tolerant and is not designed, manufactured,
or intended for use or resale as on-line control equipment in hazardous
environments requiring fail-safe performance, such as in the operation of
nuclear facilities, aircraft navigation or communication systems, air traffic
control, direct life support machines, or weapons systems, in which the failure
of Java technology could lead directly to death, personal injury, or severe
physical or environmental damage.
C. For Microsoft Windows NT Workstation, the following additional section is
also applicable
The Software may not be used by more than two (2) processors at any one time on
the single computer on which it is running. Licensee may install the Software
on a single computer ("Workstation Computer") for use as interactive workstation
software, but not as server software. However, Licensee may permit a maximum of
ten (10) computers to connect to the Workstation Computer to access and use
services of the Software, such as file and print services and peer web services.
The ten connection maximum includes any indirect connections made through
software or hardware which pools or aggregates connections.
17
<PAGE>
D. For Microsoft Windows NT Workstation licenses enrolled in Maintenance, the
following additional right is also applicable
Licensee may use in place of the Software the current or any prior version of
Microsoft Windows. If licensee exercises this right to use any version of
Windows for which there is a Microsoft Plus for Windows '95, licensee may also
use, in connection with such Software, the appropriate Microsoft Plus for
Windows '95.
III Server Products -- For products which are classified in the Select Product
- --- ---------------
List as belonging to the Server Products Pool the following applies:
A. For server products not otherwise identified below, the following sections
are applicable
This Microsoft product contains some or all of the following types of software:
"Server Software" that is installed and provides services on a computer acting
as a server; "Connector Software" that enables a computer running Microsoft
Exchange Server to communicate with other Servers running Microsoft Exchange
Server or other electronic mail server software; and "Client Software" that
allows a computer, workstation, terminal, handheld PC, pager, "smart phone," or
other digital electronic device ("Device") to access or utilize the services
provided by the Server Software. Note: An amendment or addendum to this Section
A may accompany certain components of the Software. Additional software
components may have been distributed to Licensee along with the Software. To the
extent that a separate End-User License Agreement ("EULA") is provided with any
such additional software component, except as specifically referenced below, use
thereof shall be governed by such EULA.
1. GRANT OF LICENSE. Licensor grants to Licensee the following rights:
(a) Installation. Licensee may install the Server Software and the Connector
------------
Software for use with only one microprocessor architecture (e.g., the X86
architecture or various RISC architectures) at any given time. Server Software.
For each server License acquired, Licensee may install one copy of the Server
Software on a single computer (the computer running the Server Software shall be
referred to as the "Server"). Connector Software. For each License acquired,
Licensee may install one copy of the Connector Software on one Server running
Microsoft Exchange Server. If Licensee chooses to make the Connector Software a
usable feature on a Microsoft Exchange Server, Licensee must also acquire a
separate license or licenses (whether as part of the license for Microsoft
Exchange Server or as a separate license for the Connector Software) to install
and/or use the Connector Software on every other Microsoft Exchange Server in
the same "Microsoft Exchange Organization." A "Microsoft Exchange Organization"
is the group of all Microsoft Exchange Servers with the same organization name
specified during the Microsoft Exchange Server installation process for the
express purpose of connecting the servers. Client Software. Licensee may install
the Client Software on any Device.
(b) Use Of The Server Software. For each License it has acquired, Licensee may
--------------------------
use one copy of the Server Software on one Server, which may be connected at any
point in time to an unlimited
18
<PAGE>
number of Devices operating on one or more networks. Licensee must acquire a
separate Client Access License for each unique Device which accesses or
otherwise utilizes the services of the Server Software, whether Licensee uses
the Client Software or any other software to do so, unless otherwise noted in
Paragraph (d) and subsection (2) below. This is known as using the Server
Software in "Per Seat Mode." However, Licensee may elect to use the Server
Software for Microsoft SQL Server, Windows NF Server (except as specified
below), Site Server, Site Server Commerce Edition, or Microsoft SNA Server (but
not Microsoft Exchange Server, Windows NT Server, Terminal Server Edition or
Microsoft Systems Management Server) in "Per Server Mode" as defined below. If
Licensee chooses Per Seat Mode, Licensee's choice is permanent If Licensee
chooses Per Server Mode, Licensee has the right to change to Per Seat Mode, as
long as Licensee acquires a Client Access License for each unique Device
accessing or utilizing the services of the Server Software, and then this choice
is permanent. Licensee also needs a Windows NT Workstation license to access or
utilize certain services of Windows NT Server as described below.
(c) Alternate Terms If Licensee Elects to use the Server Software for Microsoft
---------------------------------------------------------------------------
SOL Server, Windows NT Server, Site Server, Site Server Commerce Edition or
- ---------------------------------------------------------------------------
SNA Server in Per Server Mode. In Per Server Mode, the maximum number of
- -----------------------------
Devices that may access or otherwise utilize the services of the Server Software
at a given point in time is equal to the number of Client Access Licenses that
Licensee has acquired and designated for use exclusively with that Server.
Licensee may access any Server Software running in the Per Server Mode by using
any Microsoft or third-party client software, including Devices licensed in Per
Seat Mode, provided the additional access is within that Server's maximum
licensed capacity. If Licensee elects to change from Per Server Mode to Per Seat
Mode, Licensee may transfer any Client Access Licenses it acquired for use in
Per Server Mode to an equal number of Devices in Per Seat Mode.
(d) No Client Access License Required. Licensee does not need a Client Access
---------------------------------
License to access or otherwise utilize the services of the following Server
Software: Microsoft Internet Information Server (except to the extent that a
Server which requires a Client Access License, as described below, is accessed
or utilized by Microsoft Internet Information Server), Microsoft Proxy Server,
and Microsoft Cluster Server.
(e) Use Of The Connector Software. Licensee may use the Connector Software on
-----------------------------
one Microsoft Exchange Server.
(f) Use Of The Client Software. Licensee may use the Client Software to
--------------------------
configure and administer the Server. If Licensee uses the Client Software to
access or otherwise utilize the services of the Server Software or for any other
purpose, Licensee must acquire a separate Client Access License, unless
otherwise noted in subsection 2 below.
(g) No "Multiplexing" Or "Pooling". Use of software or hardware that reduces
------------------------------
the number of users directly accessing or utilizing the Server Software
(sometimes called "multiplexing" or "pooling" software or hardware) does not
reduce the number of Client Access Licenses required----the required number of
Client Access Licenses would equal the number of distinct inputs to the
multiplexing or pooling software or hardware "front end."
19
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(h) Installation on a Single Server. The Server Software components that make
-------------------------------
up the Software may only be installed together for use on one Server and may not
be separated, unless otherwise provided in this Section (A). By way of example,
and not limitation, the foregoing restriction applies to the Microsoft
BackOffice product suite.
2. DESCRIPTION OF OTHER RIGHTS AND LIMITATIONS.
Performance or Benchmark Testing. Licensee may not disclose the results of any
benchmark test of either the Server Software or Client Software for Microsoft
SQL Server, Microsoft Exchange Server, Microsoft Transaction Server, Microsoft
Message Queue Server, Microsoft Internet Information Server, Microsoft Site
Server, Microsoft Site Server Commerce Edition or Microsoft Proxy Server to any
third party without Licensor's prior written approval. Version Limitation. If
the Software is the Microsoft BackOffice product suite, Licensee may install one
copy of a lower version of a Server Software component that is contained in such
product suite.
(a) For Microsoft Windows NT Server (all editions)--Processor Limitation. The
--------------------------------------------------------------------
Server Software may be used by no more than four (4) processors of the Server at
any one time, unless Licensee has Windows NT Server, Enterprise Edition, in
which case the Server Software may be used by no more than eight (8) processors
of the Server at any one time (support for a greater number of processors is
available from authorized computer hardware vendors). Client Access. Licensee
needs a separate Client Access License for Windows NT Server in order to access
or otherwise utilize the following Windows NT Server basic network application
services, components, or functionality: File Services (sharing and managing
files and/or disk storage), Printing Services (sharing and managing printers),
Microsoft Message Queue Server (sending or receiving messages from Microsoft
Message Queue Server), Microsoft Transaction Server (invoicing component-based
applications managed by Microsoft Transaction Server), Remote Access Service
(accessing the server from a remote location through a communications link) and
Terminal Server Functionality (as defined below), Note: Remote Access Service
includes the use of Internet Connection Services, including Internet
Authentication Services (validation or transference of a remote access request)
or Connection Point Services (remotely configuring the Microsoft Connection
Manager Client with new phone numbers or other data). Licensee does not need a
separate Client Access License for Windows NT Server to access or otherwise
utilize any other Windows NT Server services, to access or run Microsoft or
third-party server applications on Windows NT Server, or to otherwise use the
Client Software. Note on Microsoft FrontPage Software. Windows NT Server
contains Microsoft FrontPage software, which allows a single user to develop and
maintain an Internet/intranet Web page. For each License acquired, Licensee may
install and use one copy of Microsoft FrontPage on a single computer. Note on
Microsoft Site Server Express. Licensee may freely copy and distribute Microsoft
Site Server Express for Licensee's use on any computer within Licensee's
organization.
(b)
For Windows NT Server terminal server services and Windows NT Server, Terminal
- ------------------------------------------------------------------------------
Server Edition. Licensee must acquire a Windows NT Workstation license for each
- --------------
Device using "Terminal Server Functionality" which is defined as (a) third party
software that utilizes Windows NT Server to display or use Windows-based or
Windows NT-based applications on a Device, ("Third Party Terminal Software"),
and/or (b) the services of Windows NT Server, Terminal Server Edition which
display or use Windows-based or Windows NT-based applications on a Device. Any
Device running
20
<PAGE>
a validly licensed copy of Windows NT Workstation has the right to use Terminal
Server Functionality. The Windows NT Workstation license must have the same
version number as or a higher version number than the corresponding version
number of Windows NT Server or Windows NT Server, Terminal Server Edition being
used. Licensee must acquire a Windows NT Workstation license even if the
applications are partitioned or diverted to run partially on the Device and
partially on a Server. 'Multiplexing" or 'pooling" software or hardware does not
reduce the number of Windows NT Workstation licenses required; the required
number of Windows NT Workstation licenses would equal the number of distinct
inputs to the multiplexing or pooling software or hardware 'front end." When
using Windows NT Server in conjunction with Third Party Terminal Software,
Windows NT Server may not be used in Per Server Mode. Licensee also may need
additional licenses in order to use other software products that are installed
on the Server and are utilizing Terminal Server Functionality - please consult
the license agreement accompanying any such software.
(c) For Microsoft Windows NT Server, Enterprise Edition-SQL Server Feature.
----------------------------------------------------------------------
Windows NT Server, Enterprise Edition may install an additional feature which is
a restricted version of Microsoft SQL Server. If such feature is installed,
Licensee may use it solely in support of the Microsoft Message Queue Server
directory functions. However, Licensee may not use such restricted SQL Server
feature for any other purpose. Licensee does not need to acquire a separate
Client Access License for Microsoft SQL Server to use the services of Microsoft
Message Queue Server to access or otherwise utilize the services of the
restricted Microsoft SQL Server feature of Microsoft Windows NT Server,
Enterprise Edition.
(d) For Microsoft SQL Server, Enterprise Edition and Microsoft Exchange Server,
---------------------------------------------------------------------------
Enterprise Edition - Note Regarding Use in a Clustered Environment. If
- ------------------
Licensee is using the Server Software in a clustered environment, Licensee may
use the Server Software on one other computer in the cluster for which Licensee
also has acquired a separate licensed copy of the Server Software if, and only
for so long as, the Server on which the Server Software is installed has failed
over to such other computer. At any point in time, however, the Server Software
may be used only on one computer.
(e) For Microsoft SQL Server (all editions)-Client Access. Licensee does not
-----------------------------------------------------
need a separate Client Access License for SQL Server in order to execute SQL
Server-to-SQL Server remote stored procedures (also refer-red to as database
remote procedure calls). Note regarding the use of run-time software. Licensor
hereby grants to Licensee a limited nonexclusive, royalty-free right to
reproduce and distribute those DB-Library, Net-Library, and ODBC files required
for run-time execution of compiled applications ("Run-Time Files") in
conjunction with and as a part of Licensee's application software product that
is created using the Microsoft SQL Server Software Application"), provided that
--------
Licensee complies with the Distribution Requirements listed below.
(f) For Microsoft Exchange Server (all editions). Microsoft Schedule+,
--------------------------------------------
Microsoft Exchange Forms Designer ("Forms Designee") and Microsoft Exchange
Sample Applications ("Sample Applications") provided in Microsoft Exchange
Server may only be installed and used in conjunction with the Microsoft Client
Software. However, the Sample Applications cannot be used with the Client
Software component of the chat service of Microsoft Exchange Server. Client
Access. Licensee must acquire a separate Client Access License for Microsoft
Exchange Server in order to
21
<PAGE>
use Microsoft Client Software to access and otherwise utilize Microsoft Exchange
Server and/or to access or otherwise utilize the services of any other
electronic mail server software. Licensee may also use that same Client Access
License for any other digital electronic device that Licensee uses less than
twenty percent (20%) of Licensee's total connection time. The term "total
connection time" in the previous sentence means the total amount of time that
Licensee uses Microsoft Client Software (other than the Client Software
component of the chat service) to access and otherwise use Microsoft Exchange
Server and/or the services of any other electronic mail server software from a
Device. Licensee does not, however, need a Client Access License for Microsoft
Exchange Server for anonymous access to Microsoft Exchange Server services.
Anonymous access occurs when a Device accesses information held in a Microsoft
Exchange Server without having a mailbox or custom recipient object which
identifies it, and consequently, is not validated by a Windows NT Server domain
ID. Anonymous access to Microsoft Exchange Server is currently available only to
access either the directory (through a Web browser or an LDAP client), public
folders (through a Web browser or an NNTP client), or the chat service. Note
Regarding the Use of the Chat Service. Licensee does not need to obtain a Client
Access License for Microsoft Exchange Server to use the Client Software
component of the chat service to access or otherwise utilize the services of any
other electronic mail or chat server software. Note regarding the use of the
Forms Designer and Sample Applications. The Forms Designer and its components
may only be used to create applications which utilize the services of Microsoft
Exchange Server ("Application"). Licensor grants Licensee the following non-
exclusive rights: (1) to reproduce and distribute the run-time modules of the
Forms Designer in conjunction with Licensee's Application; (ii) to reproduce,
customize and distribute the run-time modules of the Sample Applications in
conjunction with Licensee's Application; and (iii) to use and modify the source
code version of the Sample Applications and to reproduce and distribute the
object code versions of such modifications in conjunction with Licensee's
Application. Any distribution permitted under this Section must be in compliance
with the Distribution Requirements listed below. For purposes of this subsection
(d), "run-time modules" are those files identified in the written materials
accompanying Microsoft Exchange Server as required during the execution of
Licensee's software product Source Extractor, Microsoft Exchange Administrator
Program, and Microsoft Mail Connector. Microsoft Exchange Server also includes
Source Extractor software, for migrating data from other electronic mail
software, Administrator software and Microsoft Mail Connector software. The
Source Extractor, Administrator, and Microsoft Mail Connector programs contain
components which may be installed on additional machines. Licensor grants
Licensee the additional right to modify the source code version of the Source
Extractor programs. The Source Extractor programs may only be used to migrate
data to Microsoft Exchange Server. The Microsoft Mail SMTP Access Component may
only be used with Microsoft Exchange Server version 5.0. Note on Microsoft
Outlook Software. Microsoft Outlook is included as part of the Microsoft Client
Software for Microsoft Exchange Server. If Licensee has a valid Client Access
License for any version of Microsoft Exchange Server, Licensee may use Microsoft
Outlook to access or utilize the services of such version of Microsoft Exchange
Server from each Device for which Licensee has such a valid Client Access
License. Licensee may also use one copy of Microsoft Outlook on a stand-alone
basis on each Device for which Licensee has a valid Client Access License for
any version of Microsoft Exchange Server. Licensee does not have any other right
to use Microsoft Outlook on a stand-alone basis.
22
<PAGE>
(g) For Microsoft Proxy Server. For each License acquired, Licensee may
--------------------------
install and use one copy of the Server Software for its use or (for entities')
use within Licensee's organization on any Server running Windows NT Server and
Internet Information Server.
(h) For Microsoft SNA Server. Client Access. Licensee does not need a Client
------------------------
Access License for Microsoft SNA Server in order to access or utilize the
following SNA Server services solely as server-based processes: AFTP Client and
Server, FTP-AFTP Gateway Service, VSAM File Transfer Utility, Shared Folders
Gateway Service, Host Print Service, OLE DB Data Provider for VSAM and AS/400,
COM Transaction Integrator for CICS and IMS, Host Security Integration Services,
and NetView Integration Services. Note on Client Software. The SNA Server 3270
and 5250 terminal emulation applets and the ODBC/DRDA driver components of the
Client Software may be used by only one user per licensed copy of the Server
Software. Licenses for additional users must be acquired separately. Note
Regarding Use of Host Security Integration Feature. Licensee may install and use
the software identified as "Windows NT Account Synchronization Service" and
"Host Account Cache" on any computer running a validly licensed copy of Windows
NT Server within Licensee's organization. Additional Rights for Development In
addition to the rights set forth above, Licensee may install and use copies of
the OLE DB Data Provider for VSAM and AS/400 ("OLE DB Provider") and/or the COM
Transaction Integrator for CICS and IMS ("COM Transaction Integrator") and/or
the Software Development Kit (collectively 'Development Software") on one or
more computers located at Licensee's premises solely for the purpose of
developing applications that work in conjunction with the Software. Licensee may
use and modify the source code designated as "Sample Code" in the SAMPLES.TXT
file for the sole purposes of designing, developing, and testing Licensee's
software applications. Licensee may also reproduce and distribute the Sample
Code, along with any modifications Licensee makes thereto, provided that
Licensee complies with the Distribution Requirements described in the REDIS.TXT
file. For purposes of this section, "modifications" shall mean enhancements to
the functionality of the Sample Code. Portions of Development Software are also
designated as "Redistributable Code". The text file named REDIS.TXT contains a
list of such files, as well as the distribution fights associated with the
Redistributable Code.
(i) For Microsoft Systems Management Server. Licensee must acquire at least
---------------------------------------
one valid Server License for Microsoft SQL Server to use Systems Management
Server. However, Licensee does not need to acquire a Client Access License for
Microsoft SQL Server to use the administration console or utilities provided
with Systems Management Server to access or otherwise utilize the services of
Microsoft SQL Server.
(j) For Microsoft Site Server and Site Server Commerce Edition. For each
----------------------------------------------------------
License acquired, Licensee may use one copy of the Server Software to support a
single "domain" on a single Server, which may be connected at any point in time
to an unlimited number of Devices operating on one or more networks. For the
purposes of this Section (A), "domain" shall mean the description of a
computer's location on the Internet. An Internet domain is comprised of a
second-level domain name (e.g., Microsoft) and a top-level domain name (e.g.,
corn). For example, http://www.microsoft.com/ and
-------------------------
http://www.microsoft.com/products/ are part of a single domain, while
- ----------------------------------
http://www.microsoft.com/ and http://www.msn.com/ are not. The single domain
- ------------------------- -------------------
restriction shall not apply to intranet usage of the Server Software within and
for a single organization. Content
23
<PAGE>
Deployment Software: Notwithstanding the foregoing, Licensee may install and use
one copy of Content Deployment software included in the Server Software on a
single computer for staging and on a second computer for production, provided
that at least one of such computers is running a licensed copy of the Server
Software. To utilize the Content Deployment software on more than one computer,
except as expressly stated in the previous sentence, Licensee must acquire
additional licenses for the Software. Active Channel Logo: To use the "Add
Active Channel" logo or the "Add to Active Desktop" logo, Licensee must sign and
accept the terms of the Active Channel Logo Agreement located at:
http://www.microsoft.com/sbnmember/ielogo/default.asp. if Licensee does not sign
and accept those terms, Licensee may not use the logos and Licensee may not use
the Active Channel mark to refer to Licensee's content. Per Server Usage. Per
Server Mode. When a Device "visits" a Server, it is deemed to be accessing,
utilizing and/or simultaneously connecting to the Server Software. For purposes
of the previous sentence, a "visit' means a series of one or more requests from
a Device to a Server. A visit ends when such Device does not make any additional
requests of the Server Software for a period of time that exceeds the default
setting for a visit, as described in the Software documentation. A "request"
means a hit that successfully retrieves content. Commercial Use. The Software is
licensed for Licensee's use and Licensee may not use the Software to provide
Commercial Services to third parties. Each of the following is a "Commercial
Service": (a) a product or service that uses one or more services of the
Software and alleviates any third party from the obligation to obtain a separate
license to the Software for his, her or itself, and (b) a product or service
that uses the Software as part of an Internet access and/or carriage service for
any third party. Examples of Commercial Services include, but are not limited
to, the following: (a) hosting of Internet, Extranet or Intranet sites on behalf
of any third party, whether or not the sites are registered as separate domains;
(b) hosting of applications that use the services of the Software on behalf of
any third party, or (c) hosting of commerce or other services of the Software on
behalf of any third party. Software Development Kits ("SDK Software"). For each
License acquired, Licensee may install and use copies of the SDK Software on one
or more computers located at Licensee's premises solely for the purpose of
building applications that work in conjunction with the Server Software and/or
other components provided as part of or with the Software. Licensee may modify
the Sample Code to design, develop, and test Licensee's applications. For the
purposes of this section, "Sample Code" shall mean the sample source, HTML and
Active Server Page (ASP) code located in the Software's "SDK," and "samples"
directories. Portions of the Software are designated as "Redistributable Code."
The text files named redistxt and license.txt, describe the distribution rights
associated with each file of the Redistributable Code.
(k) Distribution Requirements for Microsoft SQL Server and Microsoft Exchange
-------------------------------------------------------------------------
Server Run Time Files and Sample Applications. If Licensee distributes
- ---------------------------------------------
Microsoft SQL Server Run Time Files, run time modules for the Forms Designer or
Sample Applications, or object code versions of the Sample Applications
(collectively "Redistributables") as provided above, Licensee agrees to (i)
distribute the Redistributables only in conjunction with and as a part of
Licensee's Application; (ii) not use Microsoft's name, logo, or trademarks to
market Licensee's Application; (iii) include a valid copyright notice in
Licensee's Application; (iv) if Licensee's Application contains ODBC Run-Time
Files: (x) Licensee's Application must operate in conjunction with Microsoft SQL
Server; and (y) Licensee agrees to distribute all ODBC components specified in
the README file in conjunction with Licensee's Application, (v) include an end-
user license agreement with Licensee's Application that grants a limited license
to use the Redistributables and otherwise protects Licensor's and its
24
<PAGE>
suppliers intellectual property rights in the Redistributables; and (vi)
indemnify, hold harmless, and defend Licensor and its suppliers from and against
any claims or lawsuits, including attorneys' fees, that arise or result from the
use or distribution of Licensee's Application. Licensee shall display any patent
or proprietary rights notices on each copy of its Application(s) that contains
executables or run-time modules, if and as required in the documentation or
other materials provided with Microsoft SQL Server, Forms Designer or Sample
Applications, or subsequently provided to Licensee by Licensor.
3. UPGRADES. Upgrades of a Component of the Microsoft BackOffice Product
Suite. If the Software upgrades a component of the Microsoft BackOffice product
suite and the Software is not an Enterprise Edition, the Software replaces
and/or supplements the component being upgraded and Licensee may use the
resulting component only as part of such product suite in accordance with the
terms of this Section (A). The overall product suite and the other components
of the Microsoft BackOffice product suite may be used only in accordance with
the terms of the Microsoft End-User License Agreement that accompanied the
original Microsoft BackOffice product suite. If the Software is an Enterprise
Edition which upgrades a component of the Microsoft BackOffice product suite,
then effective upon Licensee's installation of the Software, the Software
replaces the component being upgraded and Licensee may use the Software as a
standalone product in accordance with the terms of this Section (A). The
remaining components of the Microsoft BackOffice product suite may be used only
in accordance with the terms of the Microsoft End-User License Agreement that
accompanied the original Microsoft BackOffice product suite. Upgrades of
Microsoft BackOffice Small Business Server. If Licensee has acquired the
Software as an upgrade from Microsoft BackOffice Small Business Server, the
Software replaces the component(s) of Microsoft BackOffice Small Business Server
being upgraded, and Licensee may use the Software only in accordance with the
terms of this Section IIIA; provided that the component(s) being upgraded are
deemed removed from the Microsoft BackOffice Small Business Server and Licensee
may no longer use any such components; and provided further that the Microsoft
BackOffice Small Business Server (as it exists subsequent to the upgrade) and
the remaining components of such Server may be used only in accordance with the
terms of the Microsoft End-User License Agreement that accompanied the original
Microsoft BackOffice Small Business Server. If the Software Licensee acquired
as an upgrade of Microsoft BackOffice Small Business Server is Microsoft
BackOffice product suite, then each Server Software component of the Software
will be deemed to have "upgraded" the applicable component of Microsoft
BackOffice Small Business Server as set forth above only upon Licensee's
installation of such Server Software component of the Software.
NOTE ON JAVA SUPPORT. The Software may contain support for programs written in
Java. Java technology is not fault tolerant and is not designed, manufactured,
or intended for use or resale as online control equipment in hazardous
environments requiring fail-safe performance, such as in the operation of
nuclear facilities, air-craft navigation or communication systems, air traffic
control, direct life support machines, or weapons systems, in which the failure
of Java technology could lead directly to death, personal injury, or severe
physical or environmental damage.
25
<PAGE>
B. For Microsoft SQL Server, the following additional section is applicable
Internet Connector. This Section (B) describes Licensee's right to permit
- ------------------
Internet Users to access Microsoft SQL Server through a Web Server. A "Web
Server" is any server running Microsoft Internet Information Server or a similar
non-Microsoft product. An "Internet User" is any person currently connected to
the Internet, other than a person: (i) employed by Licensee (as an employee,
independent contractor, or in any other capacity) or (ii) otherwise providing
goods or services to Licensee (for example, one of Licensee's suppliers) or on
Licensee's behalf (for example, one of Licensee's distributors or resellers, or
a consulting firm hired by Licensee). Licensee's use of the Microsoft SQL
Server is governed by this Section (B) and Section (A). above.
Access to Services of the Server. Licensor grants Licensee the right to permit
an unlimited number of computers or workstations being used by Internet Users to
access the services of a single Server running Microsoft SQL Server without the
------
need to acquire a separate Client Access License for each such computer or
workstation, provided access to such Server is via a Web Server. The foregoing
right is personal to Licensee, and Licensee may not exercise this right on
behalf of or for the benefit of any third party.
C. For Microsoft Site Server and Site Server Commerce Edition, the following
additional section is also applicable
Introduction. This Section (C) describes Licensee's right to permit Internet
Users to access either Microsoft Site Server or Microsoft Site Server Commerce
Edition. As used in this Section (C), "Microsoft Site Server" shall mean either
Microsoft Site Server or Microsoft Site Server Commerce Edition, as applicable.
An "Internet User" is any person currently connected to the Internet, other than
a person (i) employed by Licensee (as an employee, independent contractor, or in
any other capacity), or (ii) who is a named and/or registered user who can be
authenticated by the Membership feature of Microsoft Site Server. Licensee's
use of Microsoft Site Server is governed by this Section (C) and the Section (A)
above. Defined terms in this Section (C) shall have the same meaning as set
forth in Section (A) above.
Access to Services of the Server Software. For each License acquired, Licensee
shall have the right to permit an unlimited number of computers or workstations
being used by Internet Users to access the services of a single Server running
------
Microsoft Site Server without the need to acquire a separate Client Access
License for each such computer or workstation. The foregoing right is personal
to Licensee, and Licensee may not exercise this right on behalf of or for the
benefit of any third party.
26
<PAGE>
D. For client access products not otherwise identified below, the following
sections are applicable
1. GRANT OF LICENSE.
(a) Overview Of The Use Of The Client Access License. This Section (D)
------------------------------------------------
describes Licensee's rights to access or otherwise utilize the services of the
Server Software or other server software as may be noted in the Server License
for Microsoft Server Products. The services of the Server Software are
considered to be accessed or utilized when there is a direct or indirect
connection between a computer or workstation, handheld PC, pager, "smart phone"
or other digital electronic device and the Server Software running on a
computer. Each Client Access License must be dedicated to one unique computer,
workstation or other digital electronic device. It permits that computer,
workstation or other digital electronic device to access or otherwise utilize
the services of the Server Software licensed by Licensee. This is known as using
the Server Software in "Per Seat Mode." However, Licensee may elect to use the
Server Software for Microsoft SQL Server, Windows NT Server, Site Server, Site
Server Commerce Edition or SNA Server (but not Microsoft Exchange Server or
Systems Management Server) in "Per Server Mode" as defined below. If Licensee
chooses Per Seat Mode, Licensee's choice is permanent. If Licensee initially
chooses Per Server Mode, Licensee has the right to change one time only to Per
Seat Mode, as long as Licensee acquires a Client Access License for each unique
workstation, computer or other digital electronic device accessing or otherwise
utilizing the services of the Server Software licensed by Licensee. This Section
(D), however, does not entitle Licensee to access any Server Software when it is
a component of Microsoft BackOffice Small Business Server.
(b) Alternate Terms if Licensee Elects to Use the Client Access Licenses for
------------------------------------------------------------------------
S(L Server, Windows NT Server, Site Server, Site Server Commerce Edition or
- ----------------------------- --
SNA Server in the Per Server Mode. In Per Server Mode, Licensee must acquire,
- ---------------------------------
and designate for exclusive use with the single computer running the Server
Software (the computer running the Server Software shall be referred to as the
"Server"), the number of Client Access Licenses equal to the maximum number of
computers, workstations or other digital electronic devices that will access or
otherwise utilize the services of that Server Software licensed by Licensee at
any given point in time. If Licensee elects to change from Per Server Mode to
Per Seat Mode, Licensee may transfer any Client Access Licenses it has acquired
for use in Per Server Mode to an equal number of workstations, computers or
other digital electronic devices for use in Per Scat Mode.
(c) Note Regarding the Use of The Client Access License for Microsoft
-----------------------------------------------------------------
BackOffice. The Client Access License for Microsoft BackOffice may only be
- ----------
used in the Per Seat Mode. Each Client Access License in the Per Seat Mode
entitles Licensee to access or utilize the services of any computer running any
Server Software component of the Microsoft BackOffice product suite (not
including any component upgrades thereto, unless otherwise permitted below),
whether licensed as part of the Microsoft BackOffice product suite or acquired
separately. If Licensee upgrades a component of the Microsoft BackOffice product
suite to an Enterprise Edition of such component with the same or lower version
number as the component being upgraded, the Microsoft BackOffice Client Access
License that Licensee acquired to access the component being upgraded (to the
extent
27
<PAGE>
applicable) entitles Licensee to access such Enterprise Edition, whether
licensed as an upgrade to the Microsoft BackOffice product suite or acquired
separately. A Client Access License for Microsoft BackOffice product suite,
however, does not entitle Licensee to access any Microsoft BackOffice Small
Business Server.
(d) Note Regarding Use of the Client Access License for Microsoft Exchange
----------------------------------------------------------------------
Server on a Digital Electronic Device. If Licensee has acquired a Client
- -------------------------------------
Access license for Microsoft Exchange Server for Licensee's computer and/or
workstation, Licensee may also use that same Client Access License for any other
digital electronic device that Licensee uses less than twenty percent (20%) of
the Licensee's total connection time. The term "total connection time" in the
previous sentence means the total amount of time that Licensee uses Microsoft
client software (other than the client software component of the Microsoft
Exchange Server chat service) to access and otherwise use Microsoft Exchange
Server and/or the services of any other electronic mad server software from a
computer, workstation and other digital electronic device.
(e) Note Regarding Use of the Client Access license for Microsoft Site Server
-------------------------------------------------------------------------
and Site Server Commerce Edition. When a computer or workstation "visits"
- --------------------------------
a Server running Microsoft Site Server or Site Server Commerce Edition in Per
Server Mode, it is deemed to be accessing, utilizing and/or simultaneously
connecting to the Server Software. A "visit' means a series of one or more
requests from a computer, workstation or other digital electronic device to a
Server. A visit ends when such computer, workstation or other digital electronic
device does not make any additional requests of the Server Software for a period
of time that exceeds the default setting for a visit, as described in the
Software documentation. A "request" means a hit that successfully retrieves
content.
2. DESCRIPTION OF OTHER RIGHTS AND LIMITATIONS.
(a) No "Multiplexing" or "Pooling". "Multiplexing" or "pooling" software or
------------------------------
hardware does not reduce the number of Client Access Licenses required-the
required number of Client Access Licenses would equal the number of distinct
inputs to the multiplexing or pooling software or hardware "front end."
(b) Transfers. Licensee may transfer the Client Access License used in the Per
Server Mode to another computer, and designate it for exclusive use with such
other computer, only on a permanent basis (that is, with no intent to transfer
again) provided that the Client Access License is no longer used to access the
services of the Server Software running on the Server to which such Client
Access License was initially designated.
3. UPGRADE.
If Licensee is upgrading from SNA Server version 2.0, Licensee is deemed to have
Client Access Licenses for as many computers or workstations as were previously
licensed. If Licensee is upgrading from Windows NT version 3.1, Licensee is
deemed to have twenty (20) users that qualify for upgrade Client Access Licenses
and if Licensee is upgrading from Windows NT Advanced Server version 3.1,
Licensee is deemed to have two hundred fifty (250) users that qualify for
upgrade
28
<PAGE>
Client Access Licenses. NOTE: Upgrading from Windows NT Server 3.5 to
Windows NT Server 3.51 is not considered an "Upgrade" for purposes of this
Section.
E. For client access products acquired under the Microsoft Enterprise License
or the Division Option of the Microsoft Enterprise License for the Variable
License Customer (the "Division Option"), the following section is applicable
The primary user of a computer on which a copy of the Software is installed or
which runs the Software from a storage device used only to install or run the
Software on Licensee's computers over an internal network may make a second copy
for his or her exclusive use on a home or portable computer provided that: (x)
the total number of second copies made by Licensee's users under all grants
evidenced by this License must maintain records that enable Licensee to
determine that it is in compliance with the limitation expressed in clause (x)
above.
F. For Microsoft Host Data Replicator, the following section is applicable
Note: An amendment or addendum to this Section (F) may accompany certain
components of the Software. Additional software components may be distributed to
Licensee along with the Software. To the extent that a separate End-User License
Agreement ("EULA") is provided with any such additional software component,
except as specifically referenced below, use thereof shall be governed by such
EULA.
1. GRANT OF LICENSE. Licensor grants Licensee the following rights:
Installation and Use - The CD-ROM or floppy disk(s) on which the Software
resides may contain several copies of the Software, each of which is compatible
with a different microprocessor architecture (such as the x86 architecture or
various RISC architectures). For each License acquired, Licensee may install the
Software for use with only one of those architectures at any given time.
Licensee may install and use one copy of the Software on a single computer.
Performance or Benchmark Testing. Licensee may not disclose the results of any
benchmark test of the Software to any third party without Licensor's prior
written approval.
NOTE ON JAVA SUPPORT. The Software may contain support for programs written in
java. Java technology is not fault tolerant and is not designed, manufactured,
or intended for use or resale as online control equipment in hazardous
environments requiring fail-safe performance, such as in the operation of
nuclear facilities, aircraft navigation or communication systems, air traffic
control, direct life support machines, or weapons systems, in which the failure
of java technology could lead directly to death, personal injury, or severe
physical or environmental damage.
G. For Microsoft Mail Gateway Server Software, the following section is
applicable
Each copy of the Software may be used on a computer system connected to a
single terminal (i.e. a single CPU) acting as a Microsoft Mail Gateway computer
as described in the user documentation for such Software. If the Software
includes software designated as a Gateway Access, Gateway
29
<PAGE>
PostOffice, and/or Message Service software, Licensee may use, for each copy of
the Software, such portion(s) of the Software on a CPUs which is acting as a
Microsoft(R) Mail "postoffice" as described in the user documentation for such
Software.
H. For Microsoft Services for NetWare the following section is applicable
This Microsoft product is comprised of two components: File & Print Services for
NetWare and Directory Service Manager for NetWare (collectively, "Software").
The Software contains software that provides services on a computer called a
"server" ("Server Software"), and software that allows a computer or workstation
to access or otherwise utilize the services provided by the Server Software
("Client Software"). Licensor grants to Licensee the following rights to the
Server Software and the Client Software:
. Software Installation and Use. Licensee may install one copy of the
-----------------------------
Server Software on a single computer (the computer running the Server
Software shall be referred to as the "Server"). Licensee may install
the Client Software on any one or more computers or workstations
connected to the Server. Licensee may install the Server Software and
the Connector Software for use with only one microprocessor
architecture (e.g., the X86 architecture or various RISC
architectures) at any given time. Licensee is only licensed to use
the Software compatible with the version of Windows NT Server
installed on the Server during installation of the Software.
. For File & Print Services for NetWare. If Licensee has already
-------------------------------------
acquired a Client Access License for Windows NT Server to access or
otherwise utilize the basic services of the Server, that Client Access
License gives Licensee the right to access and utilize the Server
Software. If not, Licensee needs a separate Client Access License for
Windows NT Server for each computer or workstation that will be
accessing or otherwise utilizing the services of the Server. Refer to
the Server License for Microsoft Windows NT Server for more
information.
. For Directory Service Manager for NetWare. Licensee does not need a
-----------------------------------------
separate Client Access License for Windows NT Server to access or
otherwise utilize the Server Software.
30
<PAGE>
EXHIBIT 10.9
Andersen Consulting LLP
Suite 600
AC Andersan 1700 Old Meadow Road . McLean, VA 22102-4311
Consulting Tel: (703) 702-2000
MASTER CONSULTING SERVICES AGREEMENT
THIS MASTER CONSULTING SERVICES AGREEMENT (the "Agreement") is made and
entered into as of the 1st day of April, 1999 ("the Effective Date") by and
between Digex, Incorporated., a Delaware corporation with offices at 6435
Virginia Manor Road, Beltsville, MD 20705 ("Digex"), and Andersen Consulting
LLP, an Illinois partnership with a place of business at 1700 Old Meadow
Road, Suite 600, McLean, Virginia, 22102 ("Consultant").
/s/ illegible
Recitals
---------
1. Consultant is in the business of providing information
technology consulting services to its clients; and,
2. Digex desires to obtain the services of Consultant to work on certain
projects in accordance with the provisions of this Agreement, and Consultant
desires to provide such services; and,
3. Consultant is currently performing services for Digex under the following
letters of authorization (identified below by project name and date):
. DCNS Production Support - November 16, 1998
. Performance Management -November 16, 1998
. DCNS Release 1.1 - January 3, 1999
. DCNS Release 1.2 - January 3, 1999
. Tech Support - January 13, 1999
, which are deemed to be Services Orders (as defined below), and are
MASTER CONSULTING SERVICES AGREEMENT
Confidential Page 1 06/18/99
<PAGE>
incorporated in, and subject to, the terms and provisions of this Agreement;
and,
4. The parties desire to enter into this Agreement in order to set forth the
terms and conditions under which Consultant will provide services to Digex
hereafter.
In consideration of the covenants and agreements set forth herein, the
parties hereto agree as follows;
1. SERVICES; SERVICE ORDERS.
A. Digex and Consultant agree that Consultant will provide the
consulting services to perform the work (the "Work") as described in one or
more individual orders ("Service Orders"), each of which shall be mutually
agreed to in writing between Digex and Consultant. Service Orders so agreed
to in writing by the parties shall be incorporated in, and subject to, the
terms and provisions of this Agreement. Each Service Order will contain, as
applicable, a reference to this Agreement, a detailed description of the
work to be performed by Consultant, including, but not necessarily limited
to the following: (i) the specific requirements and duties of both parties,
including all Work; (ii) all prices, costs or fees, expenses, and taxes
associated with the Work, including without limitation, Consultant fees and
expenses; (iii) the estimated time period and milestone schedule of
performance of the Work; (iv) deliverables, if any, and applicable
acceptance criteria; (v) Work location(s); (vi) the specific individuals
assigned to the Work, and (vii) specific terms applicable to the Service
Order.
B. To the extent of any conflict or inconsistency between the
provisions of this Agreement and those of the Service Order, the provisions
of the applicable Service Order will govern, except that the provisions of
this
MASTER CONSULTING SERVICES AGREEMENT
Confidential Page 2 06/18/99
<PAGE>
Agreement shall supercede the provisions of those Service Orders expressly
identified in Recitals (3) above, in the event of a conflict. Nothing herein
shall obligate either party to perform or pay for Work, including changed
work, unless and until such Work and the fees, costs and schedules therefor
are specifically provided for and mutually agreed to in writing in a Service
Order, or amendment(s) thereto which are executed by the parties. Changes to
the scope of the Work shall be made only in a writing executed by authorized
representatives of both parties.
C. The parties agree that the terms of this Agreement and any
applicable Service Order shall be the only terms applicable to the
performance of the Work hereunder.
D. Consultant shall make written status reports as to the Work
performed to the date of such report, from time-to-time as reasonably
requested by Digex, and as specified in the applicable Service Order.
E. If any Service Order requires the provision of third party
products, including hardware and software, Digex may, but need not, request
that Consultant provide such products, or submit a quotation or proposal
therefor. Upon such request, Consultant's affiliate, Proquire LLC
("Proquire"), shall procure such products subject to a separate, mutually
agreed to contract between Proquire and Digex, Consultant may invoice,
collect, and receive from Digex all sums that are or become due to Proquire,
including taxes and shipping charges, as applicable, it being understood
that Consultant shall indemnify and hold Digex harmless from and against any
failure or refusal by Consultant to forward any payments from Digex which
are specifically due Proquire. Nothing herein shall obligate Digex to select
Proquire for procurement of any products.
MASTER CONSULTING SERVICES AGREEMENT
Confidential Page 3 06/18/99
<PAGE>
F. The Work contemplated by this Agreement is not directed to, and
Consultant has no responsibility for, the resolution of any Year 2000 Problems
that may exist in Digex's existing hardware, software, firmware and data,
including, among other things, problems with accurately processing, providing,
and/or receiving date data from, into, and between the twentieth and twenty-
first centuries, and the years 1999 and 2000, including leap year calculations
("Digex Year 2000 Problems"). Consultant shall have no liability in the event
any Digex Year 2000 Problems disrupt, delay or prevent Consultant's performance
of its obligations pursuant to this Agreement.
G. Work provided hereunder will in no event include Consultant acting
as an expert witness or otherwise providing litigation support services.
2. TERM; TERMINATION.
A. Unless sooner terminated as provided herein, the term of this
Agreement shall commence as of the date hereof and shall remain in effect for a
period of one year or until expiration of the last outstanding Service Order,
whichever is later. The term of this Agreement shall automatically renew on a
month to month basis upon expiration of the term then in effect, until either
party notifies the other in writing of its intention to terminate this Agreement
within at least thirty (30) days of such termination.
B. Digex shall be under no obligation to compensate Consultant for
any Work performed except as specifically agreed upon in a Service Order.
MASTER CONSULTING SERVICES AGREEMENT
Confidential Page 4 06/18/99
<PAGE>
C. Either party may terminate this Agreement or any Service Order for
any reason in whole or in part at any time with at least thirty (30) day's
advance written notice to the other. In the event of termination by either
party, Digex shall pay Consultant any unpaid amounts for all Work performed in
accordance with the applicable Service Order and expenses incurred by Consultant
prior to the date of termination. In the event of any such termination by Digex,
and unless the parties may otherwise agree, the only services to be performed by
Consultant after its receipt of notice of termination shall be services
associated with "winding-down" the Work. For "wind-down' work, Digex shall pay
Consultant for all Work performed in accordance with the applicable Service
Order, plus expenses incurred by Consultant prior to the date of termination. In
addition, if Digex terminates a Service Order under this Section 2.(C), Digex
shall also pay Consultant for any reasonable and actual demobilization or other
costs resulting from such termination. Except as may be specified in a Service
Order, such winding-down services shall consist of de-installation of
Consultant-owned equipment and software, removal and stowage of Consultant-
owned materials and equipment, removal of Consultant's property (tools and the
like), payment of charges for leases of cars or apartments necessary for the
Consultant's performance of on-site Work (provided always that the same have
been approved by Digex), the loss of any non-refundable, pre-paid expenses such
as airline tickets for Consultant personnel, and reasonable fees and expenses in
connection with the stopping of work by Consultant's project team and
preparation for storage of work in process (such storage of work in process time
in no event to exceed the efforts of half the Consultant project team for one
(1) week unless otherwise mutually agreed upon). In the event of any termination
under this Section by Consultant, Digex shall not be responsible for any "wind-
down" or "demobilization" costs.
MASTER CONSULTING SERVICES AGREEMENT
Confidential Page 5 06/18/99
<PAGE>
D. Either party may, upon giving thirty (30) days' written notice
identifying specifically the basis for such notice, terminate the applicable
Service Order (and not any other Service Order) for breach of a material
term or condition of the applicable Service Order, unless the party
receiving the notice cures such breach within the thirty (30) day period. In
the event of such termination by either party, Digex shall pay Consultant
any unpaid amounts only for Work performed in accordance with the applicable
Service Order and expenses incurred by Consultant prior to the date of
termination. If Consultant terminates a Service Order for breach by Digex,
Digex shall also pay Consultant for any wind-down services, actual
demobilization, or other costs reasonably incurred prior to the date of
termination.
E. Following any termination of this Agreement or any Service
Order, whether for breach, or without cause, neither party shall have any
further liability to the other, except as provided in (C) or (D) above, as
appropriate.
F. Consultant reserves the right to determine which of its
personnel shall be assigned to perform Work under each Service Order, and to
replace or reassign such personnel during the term hereof; provided,
however, that it will, subject to scheduling and staffing considerations,
attempt to honor Digex's request for specific individuals. For Work
performed on a time and material basis, in the event Consultant replaces any
personnel that are specifically classified in the applicable Service Order
as "full time" personnel (except due to sickness, death, disability,
personal leave, termination of employment, or any legally required absence),
without the approval of Digex, Digex shall not be charged for, and will not
pay any costs or fees associated with hours spent by such replacement
personnel familiarizing themselves with Work requirements relating to the
scope of the replaced person's responsibilities under
MASTER CONSULTING SERVICES AGREEMENT
Confidential Page 6 06/18/99
<PAGE>
the applicable Service Order ("Familiarization Time"). The preceding
sentence does not apply to the temporary replacement of personnel due to
periodic training requirements of Consultant's personnel. Such
Familiarization Time will be deemed limited to a maximum of forty (40)
hours, except as the parties may mutually agree in the applicable Service
Order. Digex shall not unreasonably withhold or delay its approval of
Consultant's request for replacement of any personnel.
G. The parties agree that, in the event of a dispute or alleged
breach subject to Section 2.(D), they will work together in good faith
first, to resolve the matter internally by escalating it to higher levels of
management and, then if necessary, to use a mutually agreed alternative
dispute resolution technique prior to resorting to litigation. This
provision shall not apply to disputes involving confidentiality or
infringement of intellectual property rights (in which case either party
shall be free to seek available remedies in any forum).
3. COMPENSATION; EXPENSES.
/s/ illegible
A. Except for fixed price or fixed price incentive service orders,
Consultant shall be compensated at the hourly, project or other milestone
rates as specifically set forth in each Service Order. Invoices shall be
submitted for each Service Order monthly, in arrears, for Work performed
during the preceding period, or as otherwise expressly set forth in the
applicable Service Order. Invoices shall be paid approximately fifteen (15)
days after receipt. Any invoice remaining unpaid for more than thirty (30)
days from receipt shall accrue interest at a rate of the lesser of one and
one-half (1.5%) percent per month or the highest rate allowed by law. In the
event of any good faith dispute with regard to a portion of an invoice, the
undisputed portion shall be paid as provided herein.
MASTER CONSULTING SERVICES AGREEMENT
Confidential Page 7 06/18/99
<PAGE>
Upon resolution of the disputed portion, any amounts owed to Consultant
shall be paid with interest at the rate set forth above accruing from the
date such amounts were originally due. Any credits due to Digex shall be
offset against subsequent invoices or reimbursed to Digex by Consultant,
inclusive of interest as aforesaid. Invoices must be in form and detail
acceptable by Digex as expressly set forth in the applicable Service Order,
and each invoice shall include Consultant's certification that the amounts
charged are, to Consultant's best knowledge at the time the invoice was
billed, a true and accurate reflection of the Work performed during the
applicable invoice period.
B. Except for fixed price or fixed price incentive service
orders, and unless provided otherwise in any Service Order, Consultant shall
be reimbursed by Digex for all reasonable and actual expenses incurred by
Consultant in the performance of the Work, including, but not necessarily
limited to, travel, lodging and subsistence expenses.
C. Each monthly invoice shall include the following: (i)
cumulative fees and expenses invoiced through the applicable period, and
(ii) for fixed fee based services, the unbilled amount remaining under the
terms of the applicable Service Order through the invoice period, along with
an estimated percentage of the work completed.
D. Digex shall pay all taxes, including any interest and
penalties from any related deficiency in connection with this Agreement
(except taxes based on or measured by Consultants net income) including any
sales, use, excise, value-added, services, consumption, withholding and
other taxes and duties assessed and applicable to the provision of Work by
Consultant to Digex or on Consultant's charges to Digex under this Agreement
including the
MASTER CONSULTING SERVICES AGREEMENT
Confidential Page 8 06/18/99
<PAGE>
reimbursement of expenses. To the extent the Work under a Service Order
involves cross border or extended out-of-state staffing issues, the Service
Order will include a provision which addresses these tax and/or expenses
issues in more detail, as mutually agreed by the parties. Consultant will
identify, as a separate line item on the invoice, the amount of taxes due
from Digex to Consultant. The parties shall cooperate in good faith to
minimize such tax liabilities to the extent legally permissible.
4. RELATIONSHIP; USE OF FACILITIES.
A. In connection with this Agreement, each party is an
independent contractor and shall not have any authority to assume or create
any commitment or obligation, express or implied, on behalf of the other
party, except as expressly set forth in this Agreement.
B. Nothing contained herein shall be deemed to create any
relationship of partnership or joint venture, or of employer/employee,
master/servant, franchisor/franchisee, or fiduciary or agency relationship
between the parties for any purpose. Neither party's employees shall be
deemed "leased" employees of the other for any purpose,
C. Nothing in this Agreement shall entitle the employees of one
party to be eligible for fringe benefits accorded to the other party's
employees including, without limitation, health disability, life, and
accident insurance, retirement plan participation, profit sharing, stock
options, bonuses and the like. Each party is solely responsible for the
withholding and payment of all federal, state and local income, social
security and unemployment taxes, salaries and other payments required to be
made by it in accordance with applicable law for
MASTER CONSULTING SERVICES AGREEMENT
Confidential Page 9 06/18/99
<PAGE>
or on behalf of its employees.
5. INDEMNIFICATION; LIMITATION OF LIABILITY.
A. Each party agrees to indemnify, defend and hold the other
party (including its officers, directors, employees, principals partners,
shareholders or holders of an ownership interest, as the case may be)
harmless from and against any and all third party claims, demands, losses,
liabilities, judgments, awards, expenses and costs (including attorneys'fees
and expenses) relating to bodily injury or death of any person or damage to
real and/or tangible personal property directly caused by the negligence or
willful misconduct of the indemnifying party, its personnel or agents in
connection with the performance of the Work hereunder.
B. If Digex promptly notifies Consultant in writing of a third
party claim against Digex that any Deliverable (as defined in Section 6.
(A.) herein) developed by Consultant under this Agreement or any Service
Order infringes a United States patent, copyright, trade secret or other
intellectual property right of any third party in existence during the term
of the applicable Service Order, Consultant will indemnify and hold Digex
harmless from and against such claim and will defend any such claim at its
expense and will pay any costs or damages that may be finally awarded
against Digex. Consultant will not indemnify Digex, however, if the claim of
infringement is caused by (1) Digex's misuse or modification of the
Deliverable; (2) Digex's failure to use corrections or enhancements made
available by Consultant; (3) Dlgex's use of the Deliverable in combination
with any product or information not owned or developed by Consultant; (4)
Digex's distribution, marketing or use for the benefit of third
MASTER CONSULTING SERVICES AGREEMENT
Confidential Page 10 06/18/99
<PAGE>
parties of the Deliverable or (5) information, direction, specification or
materials provided by Digex to Consultant. If any Deliverable is, or in
Consultant's opinion is likely to be, held to be infringing, Consultant
shall at its expense and option either (a) procure the right for Digex to
continue using it, (b) replace it with a noninfringing equivalent, (c)
modify it to make it noninfringing or (d) direct the return of the
Deliverable and refund to Digex the fees paid for such Deliverable less a
reasonable amount for Digex's use of the Deliverable up to the time of
return. The foregoing remedies constitute Digex's sole and exclusive
remedies and Consultant's entire liability with respect to infringement.
C. To receive the foregoing indemnities, the party seeking
indemnification must promptly notify the other in writing of a claim or suit
and provide reasonable cooperation (at the indemnifying party's expense) and
full authority to defend or settle the claim or suit. The indemnifying party
shall have no obligation to indemnify the indemnified party under any
settlement made without the indemnifying party's written consent.
D. Except for Digex's payment obligations to Consultant pursuant
to this Agreement and all Service Orders, the limit of each party's
liability to the other for failure to perform its obligations under this
Agreement or any Service Order (whether in contract, tort, negligence,
strict liability in tort or by statute or otherwise) shall not in the
aggregate exceed the fees paid by Digex to Consultant under the applicable
Service Order. The exclusive remedy of either party for any claim arising
out of this Agreement or any Service Order arrangements shall be for the
breaching party, upon receipt of written notice pursuant to Section 2.(D),
to cure the breach at its expense, and failing that, the return of fees paid
to Consultant by Digex for the work related to the breach.
MASTER CONSULTING SERVICES AGREEMENT
Confidential Page 11 06/18/99
<PAGE>
E. IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR CONSEQUENTIAL,
INCIDENTAL, SPECIAL, PUNITIVE, OR INDIRECT LOSSES, EXPENSES, OR DAMAGES
(INCLUDING WITHOUT LIMITATION LOST PROFITS, BUSINESS INTERRUPTION, LOST
BUSINESS, OR LOST SAVINGS), HOWSOEVER ARISING, WHETHER UNDER CONTRACT, TORT,
OR OTHERWISE, AND WHETHER OR NOT SUCH PARTY HAS BEEN PREVIOUSLY ADVISED OF
THE POSSIBILITY OF SUCH LOSS OR DAMAGE. ANY ACTION BY EITHER PARTY MUST BE
BROUGHT WITHIN TWO (2) YEARS AFTER THE CAUSE OF ACTION SHOULD REASONABLY
HAVE BEEN KNOWN BY THE PARTY SEEKING RELIEF.
F. The allocations of liability in Section 5.(D.) and Section 5.
(E.) of this Agreement represent the agreed and bargained-for understanding
of the parties and Consultant's compensation for the Work reflects such
allocations. The parties agree further that they will look only to the
assets of the other party in connection with any liabilities hereunder and
in no event shall either have any claim against any affiliate, subsidiary,
shareholder, officer, director, employee, agent, partner, investor, or other
holder of an ownership interest in the other party in connection with this
Agreement.
6. PROPERTY RIGHTS.
MASTER CONSULTING SERVICES AGREEMENT
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<PAGE>
A. All original written materials, including programs, tapes,
listings, other programming documentation, and all other data, written
information and material originated and prepared for Digex, whether
individually by Consultant or jointly with Digex, pursuant to this Agreement
(collectively, for purposes hereof, the "Deliverables") shall belong to both
parties, each having the right to use and disclose such materials as it
determines without any obligation to account to the other party for any such
use or disclosure.
B. Nothing in this Agreement shall preclude either party from
developing for itself, or for others, materials which are competitive with
those produced as a result of the Work provided hereunder, irrespective of
their similarity to materials which may be delivered to Digex pursuant to
this Agreement. Furthermore, it is understood that both parties shall be
free to use and disclose without restriction their respective general
knowledge, skills and experience and any ideas, concepts, know-how, and
techniques related to the scope of any Service Order and used in the course
of providing the Work.
7. WARRANTY.
A. Consultant warrants that all Work shall (a) be performed in a
good and workmanlike manner and (b) the Deliverables developed by Consultant
pursuant to the Service Order shall substantially conform to the
specifications applicable thereto. Consultant shall, at no cost to Digex,
re-perform any work not in compliance with this warranty brought to its
attention within thirty (30) calendar days after that work is performed and
delivered to Digex.
B. Consultant warrants that any software Deliverables developed
by Consultant will, until the later to occur of either (a) March 31, 2000
MASTER CONSULTING SERVICES AGREEMENT
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<PAGE>
or (b) for a period of ninety (90) days after delivery (the "Year 2000
Warranty Period"), continue to conform to the year 2000 compliance criteria
to be mutually agreed upon between Digex and Consultant in an attachment to
the applicable Service Order ("Year 2000 Compliance Criteria"). Consultant
shall have no responsibility or liability for any failure of the
Deliverables to conform to the Year 2000 Compliance Criteria that is caused
by or related to: (i) Digex or third party hardware, firmware, software or
data that interfaces with, is manipulated by, or otherwise operates in
conjunction with, the Deliverables, including but not limited to
inconsistencies between the date handling characteristics of the
Deliverables and such Digex or third party components or data; (ii)
modification of the Deliverables by Digex or a third party, or (iii) failure
by Digex to comply with the obligations and responsibilities set forth in
this Agreement (to the extent such failure by Digex causes the
nonconformance of the Deliverables). During the Year 2000 Warranty Period,
if the Deliverables fail to conform substantially to the Year 2000
Compliance Criteria, Consultant shall use commercially reasonable efforts to
correct such non-conformance at no charge to Digex. THE PRECEDING IS
CONSULTANT'S ONLY WARRANTY AND DIGEX'S ONLY REMEDY CONCERNING THE YEAR 2000
COMPLIANCE OF THE DELIVERABLES,
C. THE PRECEDING ARE CONSULTANT'S ONLY WARRANTIES CONCERNING THE
WORK, THE DELIVERABLES AND ANY WORK PRODUCT, AND ARE MADE EXPRESSLY IN LIEU
OF ALL OTHER WARRANTIES AND REPRESENTATIONS, EXPRESS OR IMPLIED, INCLUDING
ANY IMPLIED WARRANTIES OF FITNESS FOR A PARTICULAR PURPOSE, MERCHANTABILITY
OR OTHERWISE.
8. NON-SOLICITATION; CONFLICTS-OF-INTEREST. Except as
MASTER CONSULTING SERVICES AGREEMENT
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<PAGE>
the other party expressly authorizes in writing in advance, neither party
shall knowingly solicit, offer work to, employ, or contract with, whether as
a partner, employee or independent contractor, directly or indirectly, any
of the other party's Personnel during their participation in a project
pursuant to a Service Order or during the twelve (12) months after their
involvement in such project. For purposes of this Section 8, "Personnel"
includes any individual or company a party employs as a partner, employee or
independent contractor and with which a party comes into direct contact in
the course of the Work.
9. INSURANCE. Consultant will maintain the following insurance
coverage for the term of the Agreement:
(i) Commercial General Liability, with a limit of $1 million per
occurrence, and $2 million in the aggregate, covering bodily injury and
tangible property damage (excluding money and securities) claims;
(ii) Automobile Liability, with $1 million combined single limit
for bodily injury and property damage covering hired, owned, non-owned
vehicles;
(iii) Worker's Compensation with statutory limits;
(iv) Employers Liability with limits of $500,000 per accident,
$500,000 per illness per employee and $500,000 per illness aggregate.
The above coverage shall be with insurers maintaining an AM Best Rating of
B+ VIII. Consultant agrees, upon request by Digex, to provide Digex with a
certificate of insurance evidencing such coverages and adding Digex as a
named insured. Each party waives rights of subrogation it may otherwise have
regarding the other party's insurance policies, including but not limited to
property insurance, business interruption insurance, and other first-party
insurance,
MASTER CONSULTING SERVICES AGREEMENT
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<PAGE>
10. TRADEMARKS. Neither party shall use, directly or indirectly, in whole
or in part, in connection with the such party's business hereunder or otherwise,
or as part of the party's corporate, business or personal name, any signature,
monogram, logo, service mark or trade name (a "Mark") that is now or may
hereafter be owned, licensed or used by the other party except in the manner and
to the extent approved in writing by the other party prior to any such use,
which approval may be withheld in the Mark owner's sole discretion. Any
permitted use of a Mark shall be immediately discontinued upon the termination
or expiration of this Agreement, and thereafter neither party shall use any Mark
in connection with its business or otherwise or as part of its corporate,
business or personal name which in the judgment of the other party hereto so
nearly resembles any Mark owned by that other party that confusion or
uncertainty on the part of the public is likely to result therefrom. Each Party
hereby expressly disclaims any and all right, title and interest in and to any
Mark owned by the other Party whether or not used by the Mark owner. The
covenants and disclaimers of this Section 10 shall survive the termination or
expiration of this Agreement.
11. CLIENT RESPONSIBILITIES.
A. In connection with Consultants provision of the Work, Digex shall
perform those tasks and fulfill those responsibilities specified in the
applicable Service Order ("Digex Responsibilities"). The Service Order may also
contain assumptions related to the Work. Digex understands that Consultant's
performance is dependent on Digex's timely and effective performance of Digex
Responsibilities hereunder and timely decisions and approvals by Digex. Except
to the extent a Service Order contains specific acceptance provisions, all work
MASTER CONSULTING SERVICES AGREEMENT
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<PAGE>
product provided to Digex for approval shall be deemed accepted if,
within ten (10) days after delivery, Digex has not provided to Consultant
written notice identifying specifically any basis for not approving the work
product. Consultant shall be entitled to rely on all decisions and
approvals of Digex in connection with the Work. Changes in decisions and
approvals are subject to Section 1. (B).
B. Consultant shall have reasonable use of Digex's facilities as
required in order to perform the Work. In addition to any particular items
specified in the Service Order, Digex shall supply on-site Consultant
personnel with suitable office space, desks, storage, furniture, and other
normal office equipment support, adequate computer resources (including
necessary third party rights to use software), telephone and facsimile
service, postage, copying, secretarial support, word processing, and general
office supplies which may be necessary in connection with Consultant's
performance of the Work. Misuse of Digex facilities shall be deemed a breach
of this Agreement, pursuant to Section 2. (D).
C. Neither party shall use the other's name in connection with
its use of the Deliverables or otherwise without the other party's express
written consent.
12. PROPRIETARY ITEMS. In the course of performance hereunder,
Consultant may use products, materials, tools and methodologies that are
proprietary to Consultant or to third parties (collectively "Proprietary
Items"). As between Digex and Consultant, Proprietary Items will be deemed
Confidential Information of Consultant for purposes of Section 13. Included
among the Proprietary Items of Consultant are tools that Consultant
Identifies as Solution Construction Aids ("SCAs"), which Consultant makes
available to clients under
MASTER CONSULTING SERVICES AGREEMENT
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<PAGE>
separate licensing terms. Digex shall have or obtain no rights in such
Proprietary Items (or in any modifications or enhancements to them) other
than (i) to use them as authorized by Consultant in writing from time to
time solely for purposes of performing Digex Responsibilities, (ii) to the
extent the Proprietary Items are incorporated into a Deliverable, to use
them as part of the Deliverable for purposes of Digex's internal business
only, or (iii) pursuant to Consultant's standard license for such
Proprietary Items or, in the case of Proprietary Items owned by third
parties, pursuant to terms acceptable to the applicable third party. If
Proprietary Items are made available to Digex under (i) or (ii) above, they
will be made available in an "AS IS" condition and without express or
implied warranties of any kind; those Proprietary Items made available under
(iii) above shall be subject only to applicable terms of the applicable
license.
13. CONFIDENTIAL INFORMATION.
During the course of this Agreement each party may be given access to
information (in hardcopy and/or electronic form) that relates to the other's
past, present, and future research, development, business activities,
products, services, and technical knowledge, and is identified by the
discloser as confidential ("Confidential Information"). In connection
therewith, the following subsections shall apply:
(i) The Confidential Information of the discloser may be used by
the receiver only in connection with the Work;
(ii) Each party agrees to protect the confidentiality of the
Confidential Information of the other in the same manner that it protects
the confidentiality of its own proprietary and confidential information of
like kind, but in no event shall either party exercise less than reasonable
care in protecting
MASTER CONSULTING SERVICES AGREEMENT
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<PAGE>
such Confidential Information. Access to the Confidential Information shall
be restricted to Consultant and Digex personnel engaged in a use permitted
hereby;
(iii) The Confidential Information may not be copied or
reproduced without the discloser's prior written consent;
(iv) All Confidential Information made available hereunder,
including copies thereof, shall be returned or destroyed upon the first to
occur of (a) completion of the Work or (b) request by the discloser, unless
the receiver is otherwise allowed to retain such Confidential Information.
Consultant may retain, subject to the terms of this Section, copies of
Digex's Confidential Information required for compliance with its
recordkeeping or quality assurance requirements;
(v) Nothing in this Agreement shall prohibit or limit either
party's use of information (including, but not limited to, ideas, concepts,
know-how, techniques, and methodologies) (i) previously known to it without
obligation of confidence, (ii) independently developed by or for it, (iii)
acquired by it from a third party which is not, to its knowledge, under an
obligation of confidence with respect to such information, or (iv) which is
or becomes publicly available through no breach of this Agreement;
(vi) If either party receives a subpoena or other validly issued
administrative or judicial process requesting Confidential Information of
the other party, it shall provide prompt notice to the other of such
receipt. The party receiving the subpoena shall thereafter be entitled to
comply with such subpoena or other process to that extent permitted by law;
(vii) In connection with the Work, Consultant may from time to
time undertake one or more quality assessment reviews. In order for such
reviews to be frank and candid, for the greatest benefit to both Digex and
Consultant, they should be kept confidential to the greatest extent
possible. The parties agree that any documentation created in connection
with such quality
MASTER CONSULTING SERVICES AGREEMENT
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<PAGE>
assessment reviews shall be Confidential Information of Consultant and in no
event shall such documentation or the results of such reviews be
discoverable or admissible (or used for any purpose) in any proceedings
related to this Agreement or the Work.
14. FORCE MAJEURE. Neither party shall be liable for any delays or
failures in performance (other than payment obligations hereunder) due to
circumstances beyond its reasonable control.
15. COMPLIANCE WITH LAWS. Each party hereby agrees that, performing
its obligations hereunder, it will comply with all applicable laws and
regulations of the governments of the United States, the several states
thereof, and of any other country or subdivision thereof in which such
obligations, services and activities are performed, including without
limitation: environmental laws and regulations; workplace safety laws
including OSHA; laws prohibiting discrimination and mistreatment in
employment; and United States laws and regulations prohibiting payments to
or for the benefit of any official or employee of any government (or of any
subdivision thereof) of any country or subdivision thereof, or any person
acting in an official capacity, for purposes of influencing any act or
decision of such government.
16. OTHER PROVISIONS.
A. Governing Law; Jurisdiction: This Agreement and each
---------------------------
Service Order shall be governed by, construed applied and enforced in
accordance with the internal laws of the State of New York, without giving
effect to conflict of law rules. The parties expressly agree to exclude the
application of the U.N. Convention on Contracts for the International Sale
of Goods (1980) to
MASTER CONSULTING SERVICES AGREEMENT
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<PAGE>
this Agreement and the performance of the parties contemplated herein, to
the extent that such convention might otherwise be applicable.
B. Assignment: Except for assignment by a party to any of its
----------
Affiliates, neither party may assign, sell or otherwise transfer its rights
or obligations under this Agreement or any Service Order without the prior
written consent of the other party. "Affiliate" for purposes hereof shall
mean any person or entity controlling, controlled by or under common control
with the assignor. Any such assignment by either party shall be subject to
the following conditions: (1) that assignor provides the other party to this
Agreement with written notice in advance of any such assignment, identifying
at a minimum, the full legal name of the assignee, its primary physical
address, e-mail address, federal identification number, names and phone
numbers of all principals, and the date of the assignment, and (2) that
assignee agrees in writing to be bound by the terms of this Agreement.
C. Remedies Cumulative: The remedies provided in this Agreement
-------------------
shall be cumulative, and the assertion by either party of any right or
remedy shall not preclude the assertion by such party of any other rights or
the seeking of any other remedies, including the recovery of damages, except
to the extent a remedy is expressly stated in this Agreement as a sole
and/or exclusive remedy,
D. Entire Agreement; Amendments: From and after the Effective
----------------------------
Date, this Agreement and the Service Order(s) issued and accepted hereunder
represent the entire agreement between Consultant and Digex and supersede
any prior or contemporaneous understanding or agreement, whether oral or
written, with respect to the subject matter hereof. Each Service Order,
MASTER CONSULTING SERVICES AGREEMENT
Confidential Page 21 06/18/99
<PAGE>
except as its terms otherwise expressly provide, shall be a complete
statement of its subject matter and shall supplement and modify the terms
and conditions of this Agreement for the purposes of that project only,
except that the provisions of this Agreement shall supercede the provisions
of those Service Orders expressly identified in Recitals (3) above, in the
event of a conflict. No other agreements, representations, warranties or
other matters, whether oral or written, shall be deemed to bind the parties
hereto with respect to the subject matter hereof. The parties acknowledge
that they are entering into this Agreement solely on the basis of the
agreements and representations contained herein, and for their own purposes
and not for the benefit of any third party. Neither this Agreement nor any
Service Order may be modified or amended except by the mutual written
agreement of the parties. No waiver of any provision of this Agreement shall
be effective unless it is in writing and signed by the party against which
it is sought to be enforced.
E. Separability: The parties agree that each provision of this
------------
Agreement or any Service Order shall be treated as a separate and
independent clause, and the invalidity or unenforceability of any one clause
shall in no manner affect the validity or enforceability of any of the other
clauses hereof. If any one or more of the provisions contained in this
Agreement shall for any reason be held to be excessively broad as to scope,
activity or subject so as to be unenforceable at law, such provision or
provisions shall be construed by the appropriate judicial body by limiting
and reducing it or them so as to be enforceable to the extent compatible
with the applicable law as it shall then be in effect.
F. Survival of Terms: The terms of Sections 1.(F.)(G.), 2.(E),
-----------------
3, 4(A.), 5, 6, 7, 8, 10, 12, 13, and 16(A.), shall survive termination of
this
MASTER CONSULTING SERVICES AGREEMENT
Confidential Page 22 06/18/99
<PAGE>
Agreement or completion of any Service Order,
G. Counterparts: This Agreement may be executed in any
------------
number of counterparts, some of which may be photocopies and all of which
taken together shall constitute one and the same instrument,
H. Notices: All notices, demands, consents, requests and approvals
-------
given by either party to the other hereunder shall be in writing and shall be
effective: when received if hand delivered or sent by fax (with confirmation of
receipt); the following business day if sent by Federal Express, DHL or other
generally recognized overnight delivery service (upon confirmation from the
service; or, on the date received if sent by United States certified or
registered mail, return receipt requested. Such communiques shall be addressed
as follows, unless a party designates a different address by written notice to
the other given in accordance herewith:
If to Digex: If to the Consultant:
- ------------ ---------------------
Digex Inc. Andersen Consulting LLP
9000 Muirkirk Meadows Road 1700 Old Meadow Rd., Suite
Beltsville, MD 20705 Suite 600, McLean, VA 22102
Attn: Vice President of Finance Attn: Donald J. Rippert
Fax:___________________________ Fax:_______________________
With a copy to: With a copy to:
Vanessa Allen, Esq. John S. Fanguy
Digex, Inc. Andersen Consulting LLP
6435 Virginia Manor Road 1700 Old Meadow Rd.,
Beltsville, MD 20705 Suite 600, McLean, VA 22102
MASTER CONSULTING SERVICES AGREEMENT
Confidential Page 23 06/18/99
<PAGE>
Fax:______________________________ Fax:__________________________
I. Headings: The headings and section titles in this Agreement are
--------
inserted for convenience only and shall not affect the meaning or interpretation
of this Agreement or any article or provision hereof.
J. No Waiver: The delay or failure by either party to exercise or
enforce any of its rights under this Agreement shall not constitute or be deemed
a waiver of that party's right thereafter to enforce those rights, nor shall any
single or partial exercise of any such right preclude any other or further
exercise thereof or the exercise of any other right.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the date first written above,
DIGEX, INC. ANDERSEN CONSULTING LLP
By: /s/ John F. Scott By: /s/ Donald J. Rippert
------------------------- -------------------------
Print: John F. Scott Print: Donald J. Rippert
---------------------- ----------------------
Title: VP, Finance Title: Partner
---------------------- ----------------------
Date: 6/22/99 Date: 6/22/99
----------------------- -----------------------
MASTER CONSULTING SERVICES AGREEMENT
Confidential Page 24 06/18/99
<PAGE>
May 10, 1999
Mr. John Scott
Vice President, Finance
Digex, Incorporated
6435 Virginia Manor Road
Beltsville, MD 20814
Dear John,
Andersen Consulting LLP ("Andersen Consulting") and Digex, Inc. ("Digex")
previously executed an engagement letter, dated _January 13, 1999_ ("Engagement
Letter") for Andersen Consulting to assist Digex with technical support of the
DCNS applications. This amendment letter ("Amendment") is hereby attached to and
incorporated into the Engagement Letter. This Amendment is modifies the
Engagement Letter as follows:
. Andersen Consulting will continue to provide the services of Nick Hunter for
up to 50 hours per week at a cost of $75 per hour, plus reasonable travel and
per diem expenses to and from Beltsville, MD from June 1, 1999 through October
31, 1999.
All other terms of the Engagement Letter shall remain in full force and effect.
Upon full execution of the master consulting agreement that shall govern the
services described herein and other services, this Amendment, and the Engagement
Letter to which it is attached, shall be incorporated into the master consulting
agreement.
We appreciate the opportunity to work with Digex on this important effort. If
you have any questions, please call me at (301) 346-6749. If the above is in
accordance with your understanding of the agreement between the parties, please
sign below and return the original to my attention.
Anderson Consulting, Proprietary and Confidential
<PAGE>
Very truly yours,
/s/ Donald J. Rippert (jf)
ANDERSEN CONSULTING, LLP
Donald J. Rippert, Partner
Agreed and Accepted By::
DIGEX, INC.
By: /s/ John Scott
-------------------------
Print: John Scott
----------------------
Title: VP, Finance
----------------------
Date: 7/1/99
-----------------------
Andersen Consulting, Proprietary and Confidential
<PAGE>
May 10, 1999
Mr. John Scott
Vice President, Finance
Digex, Incorporated
6435 Virginia Manor Road
Beltsville, MD 20814
Dear John,
Andersen Consulting LLP ("Andersen Consulting) and Digex, Inc. ("Digex")
previously executed an engagement letter, dated __November 16, 1998__
("Engagement Letter") for Andersen Consulting to assist Digex provide production
support of the DCNS applications. This amendment letter ("Amendment") hereby is
attached to and incorporated into the Engagement Letter. This Amendment modifies
the Engagement Letter as follows:
. Andersen Consulting will continue to provide the services on an hourly, time
and materials basis on an as needed basis as determined by Mike Zehring of
Digex from June 1, 1999 through December 31, 1999.
All other terms of the Engagement Letter shall remain in full force and effect.
Upon full execution of the master consulting agreement that shall govern the
services described herein and other services, this Amendment, and the Engagement
Letter to which it is attached, shall be incorporated into the master consulting
agreement.
We appreciate the opportunity to work with Digex Inc. on this important effort.
If you have any questions, please call me at (301) 346-6749. If the above is in
accordance with your understanding of the agreement between the parties, please
sign below and return the original to my attention.
Andersen Consulting, Proprietary and Confidential
<PAGE>
Very truly yours,
/s/ Donald J. Rippert
ANDERSEN CONSULTING, LLP
Donald J. Rippert, Partner
Agreed and Accepted By:
DIGEX, INC.
By: /s/ John Scott
-------------------------
Name: John Scott
----------------------
(typed or printed)
Title: VP, Finance
----------------------
Date: 7/1/99
-----------------------
Andersen Consulting, Proprietary and Confidential
<PAGE>
***Certain provisions of this exhibit have been filed separately with the SEC
pursuant to an application for confidential treatment.
EXHIBIT 10.10
INTERMEDIA EFFECTIVE AS OF
COMMUNICATIONS APRIL 30, 1999
Business Internet Service Order Form
<TABLE>
<CAPTION>
Section A - To be Completed by Intermedia Initial Monthly
- ----------------------------------------- Charge Charge
Customer Digex, Inc.
<S> <C> <C>
Access Type - Primary Circuit OC12 Port Speed - 405 Mbps *** ***
------- --------
Access Type - Alt Line *** ***
------- --------
Cross Connect Charges *** ***
------- --------
Service Level - Standard Access Plus: NA Pager___ UPS___
------- --------
Modern (MSS) -
------- --------
Other Services -
------- --------
Contract Term 2 year(s) ***
*** *** ***
------- --------
Special Instruction
- -------------------
</TABLE>
Section B - To Be Completed by Customer
- ---------------------------------------
<TABLE>
<S> <C>
Company Name __________________ Digex, Inc. ______________________________________________________________________________________
Site Address _____________________________________________________________________________________________________________________
City __________________________ Beltsville _____________________ State ________________ MD _______________ ZIP ___________________
Site Phone ____________________________________________________________________________ FAX ______________________________________
Primary Technical Contact ________________________________________________________________________________________________________
Phone _________________________ FAX ___________________________________ Email ____________________________________________________
Secondary Technical Contract _____________________________________________________________________________________________________
Phone _________________________ FAX ___________________________________ Email ____________________________________________________
Customer Type - Web Hoster/Reseller Existing Customer? X Yes No N/A
--- --- ---
Telco: Intermedia Provided X Customer Provided Extended Demarc
--- --- ---
Intermedia Provides Primary DNS X Yes No N/A
--- --- ---
Customer has already registered Domains X Yes No N/A
--- --- ---
Customer authorizes Intermedia to transfer Domains Yes No X N/A
--- --- ---
Number of IP addresses needed ____________________________
Requested Domain Name 1. ____________________ 2. _____________________
</TABLE>
Customer hereby orders from Intermedia the Products & Services for the term
specified in this Service Order Form. This Service Order Form is valid when
accepted by an authorized representative of Intermedia & accompanied by an
executed Intermedia Terms & Conditions agreement. Charges do not include any
special construction or inside/extended wiring costs, shipping & handling, or
applicable taxes. Telco rates are estimated based on current Telco courier
tariffs. All orders subject to credit approval. Customers will be billed
separately by InterNIC for Domain Name registration and will be charged a
$100.00 one-time Intermedia fee for each additional primary Domain Name.
Customer may be required to provide documentation to justify allocation of IP
addresses.
ACCEPTED BY CUSTOMER Intermedia
/s/ MARK K. SHULL /s/ EUGENE R. NOBLE
- ------------------------------- ---------------------------------
Customer Signature Signature
- ------------------------------- ---------------------------------
Name Date Name Date
- ------------------------------- ---------------------------------
Title Title
<PAGE>
RESELLER INTERMEDIA COMMUNICATIONS TERMS AND CONDITIONS
Intermedia Service: Customer agrees to purchase the Intermedia Products and/or
Services outlined in the front page of this Agreement par the terms and
conditions described herewith. Customer agrees to remain as a subscriber of the
service for the period identified from the date of service activation. At the
end of the service commitment this Agreement shall be automatically renewed for
successive one (1) year periods on the same terms and conditions contained
herein, with the exception of the price of services, and shall continue to be
automatically renewed until terminated by either party as provided herein.
Notice of termination shall be made in writing to the Intermedia Contract
Administration at One DIGEX Plaza, Beltsville, Maryland 20705 no less than
thirty (30) days prior to the expiration of any term of this Agreement.
Rights and Obligations of Customer: Intermedia's services are only to be used
for lawful purposes. Customer shall not transmit, retransmit or store material
in violation of any federal or state laws or regulations, including, but not
limited to, obscenity, indecency, defamation, or infringement of trademark or
copyright. In particular, by signing these terms and conditions, Customer
agrees to adhere to Intermedia's Acceptable Use Policy. Failure to comply with
these obligations shall constitute violation of these terms and conditions and
possible termination of this Agreement at Intermedia's discretion should the
infringement not be rectified to Intermedia's satisfaction. If Customer
operates hardware or software that Intermedia determines may cause hazard,
interference, or service interruption to Intermedia provided equipment or
services or the Intermedia network, Customer shall immediately remove the
offending hardware or software upon notice.
Proprietary Rights: Intermedia grants Customer a non-exclusive, non-
transferable license to use the Products and Services provided hereunder.
Title, property rights, software licenses and hardware licenses and agreements,
including all intellectual property rights to such Products and Services, are
and shall remain with Intermedia, whether or not they are embedded in any
Product or Service. Customer recognizes that the Product and Services used
hereunder constitute valuable trade secrets ofIntermedia. Customer will use its
best efforts to protect and keep confidential any and all Products and Services
used by it and shall not attempt in any way to copy, examine, alter, re-
engineer, tamper with, or otherwise misuse such Products and Services. In all
cases, the IP addresses assigned for Customer shall remain the property of
Intermedia and shall revert back to same upon Customer termination.
Installation: Installation and one-time charges set forth on the service order
are due upon order. Installation charges are nonrefundable. Customer shall
provide all necessary preparations to permit installation, maintenance and
operation of Products and Services provided hereunder unless otherwise specified
in this Agreement and shall provide to Intermedia and its suppliers reasonable
access to Customer's premises including the point at which leased telco services
are provided to Customer. Customer is also responsible for any and all
additional telco charges arising as a result of necessity to reschedule telco
suppliers, as well as all telco maintenance and diagnostics charges that may be
needed. Once Intermedia services have been installed, Customer shall be
responsible for any fees associated with relocation of services if requested by
Customer, including a one time Intermedia installation fee, and corresponding
adjusted recurring telco fees dependent on the geographical relocation. If at
any time during this contract the Customer wishes to downgrade bandwidth, the
Customer agrees to pay a one-time downgrade fee of $750 and any applicable telco
fees.
Customer Premise Equipment - Purchased by Customer: Customer is responsible for
all maintenance and upgrades of equipment purchased from Intermedia
(manufacturer's warranty may apply in some circumstances). Any unused hardware
or software purchased from Intermedia may be returned for a full refund, less a
20% restocking fee, within 15 days of receipt by Customer, provided such items
are unopened, in original packaging, and in full working order, except that if
Customer purchases equipment with a custom configuration, as detailed in an
attachment hereto, it is not returnable by Customer.
Customer Premises Equipment - Provided by Intermedia: In the event that
Intermedia provides Intermedia-owned equipment to Customer inconjunction with
service, (i) the configuration and type
2
<PAGE>
of equipment to be used shall be determined solely by Intermedia (except that
Intermedia may agree to obtain a custom equipment configuration specifically for
Customer as detailed in a separate attachment); (ii) Intermedia shall provide
the initial equipment configuration and verify operability with the Intermedia
Network; (iii) Customer is responsible for operating the equipment within the
parameters of the manufacturer's specifications; and (iv) Intermedia may choose
at its sole discretion to provide software upgrades for hardware. Additional
support of Intermedia staff to reconfigure equipment once installed, should
service be required due to Customer's action, shall be chargeable to Customer at
Intermedia's then-current support rates. In the event of failure of Intermedia-
owned equipment provided to Customer in conjunction with service, like equipment
shall be provided by Intermedia as promptly as reasonably possible via next
business day delivery to Customer site. In the case of equipment with
configuration, as detailed in an Attachment hereto, Intermedia may agree to a
shorter replacement period. Intermedia shall pre-configure equipment in
conjunction with configuration guidelines. Once operability is verified,
Customer shall return any faulty equipment to Intermedia within 15 days of
receipt of new equipment. Failure to do so shall result in the Customer being
billed for the faulty equipment in the amount equal to vendor's list price as
determined by Intermedia. At termination of the Agreement, all Intermedia-owned
equipment must be returned in good working order within 30 days. Failure to do
so shall result in liability to Customer for the cost of replacement of the non-
returned equipment in the amount equal to vendor's list price as determined by
Intermedia.
Invoicing and Payment of Service: Initial rates for the services are set forth
on the Intermedia Order Form. The initial rates shall be in effect for the
duration of the initial service commitment. During any renewal terms, the rates
shall be those contained in the then current Intermedia price list unless
otherwise agreed by the parties. Intermedia will invoice Customer for services
in advance on a monthly basis. Except that, for those Customers receiving
Intermedia burstable services, charges for burstable services above and beyond
the base tier rate are billed one month in arrears because such charges are
based upon actual usage. The price of the service described within does not
include sales,usage, excise, ad valorem, property or any other taxes now or
hereafter imposed, directly or indirectly, by any governmental authority or
agency with respect to the Service. Customer agrees to pay such taxes directly
or reimburse Intermedia for any such taxes. This bill is due and payable in
full on the date shown on the bill. Customers also have the option of prepayment
of services for term of Agreement.
Non-Payment/Customer Termination: A late charge of the lesser of 1 1/2% per
month or the maximum rate permitted by law may be applied to each of Customer's
service bills not paid by the due date. This late charge is applicable to the
unpaid balance as of the due date. Customer shall pay Intermedia all costs
including, without limitation, reasonable attorney fees, the fees of any
collection agency, and any other costs incurred by Intermedia in exercising all
of its rights under the Agreement. Customer shall be responsible and will
reimburse Company for Intermedia installation charges at list price, telephone
company or other service provided installation or any other charges, including
monthly service charges, incurred by Company in the fulfillment of this
Agreement if: (i) the Agreement is terminated after execution but prior to
initiation of the Products and Services; or (ii) there is a delay in the
initiation of the Products and Services that is caused, through action or
inaction, by the Customer. If Customer terminates the Agreement after
initiation of Products and Services, Customer will pay a lump sum equal to the
charges for the remainder of the current term of the Agreement but, except as
described in the next sentence, in no case greater than one year. If the
Customer is terminated by Intermedia for violation of the Acceptable Use Policy,
Customer shall pay immediately a lump sum equal to the charges for the remainder
of the then current term of this Agreement.
Maintenance Window: Intermedia maintains specified time periods during which it
may perform necessary network maintenance and/or network upgrades. These
specified time periods are referred to as "Scheduled Maintenance Windows". In
the event Intermedia plans to bring down the Service or the Equipment during a
Scheduled Maintenance Window, Intermedia will provide a 24-hour notice to
Customer in advance of the Scheduled Maintenance Work. In addition, Intermedia
resolves the right to perform any required maintenance work outside of the
Scheduled Maintenance Window with a minimum of 12 hoursnotification to Customer.
However, Customer understands that at any time Intermedia may perform emergency
maintenance as needed to preserve the
3
<PAGE>
overall integrity of the Products and Services offered as determined by
Intermedia with no notice.
Intermedia Service Level Guarantee: The provisions of Intermedia's Service
Level Commitments, as described on the DIGEX Web Site under "Service Level
Commitments" (currently located at http:/www.digex.net/internet/products/bis-
sites.html), as may be amended from time to time, are incorporated herein and
made a part of this Agreement.
Credit Information: Customer consents to standard credit check by Intermedia in
order to confirm credit-worthiness and to Intermedia's disclosure of account
information to or from credit reporting agencies, credit bureaus, private credit
reporting associations, or to or from other providers of telecommunications
services at any time during Customer's service with Intermedia.
Limitation of Liability: Intermedia exercises no control whatsoever over the
content of any information passing through its network and is not responsible
for damages Customer suffers for any reason, including, but not limited to, loss
or degradation of data resulting from delays, non-deliveries, wrong deliveries
and any and all service interruptions whether caused by the acts and omissions
of Intermedia and its employees, of Customers or of any other party. Intermedia
makes no representation that it can provide uninterrupted service. Furthermore,
Intermedia shall have no liabilities other than the credits outlined within due
to interrupted service unless caused by the gross negligence of Intermedia.
Intermedia shall not be liable for acts or omissions of other carriers,
equipment failures or modifications, acts of God, strikes, government actions,
or other causes beyond its reasonable control. Intermedia makes no warranties
with respect to the products or services of any kind whatsoever, express or
implied, except as specifically provided in this Agreement. The implied
warranties of merchantability and fitness for any particular purpose are hereby
disclaimed and excluded. Intermedia shall not be liable to its customer or any
third party for any special, punitive, incidental, or consequential damages.
Any legal action arising out of the provision of Intermedia's services shall be
brought within a period of one year of the occurrence or shall be deemed waived.
Customeragrees to indemnify and hold harmless Intermedia from any and all claims
resulting from Customer's use of the equipment or services which cause damage to
Customer or any other party.
Transfer and Assignment: Neither party, other than for collateral purposes, may
sell, assign or transfer this Agreement without the prior written consent of the
other party, except that Intermedia may assign this Agreement to any of its
affiliates or any person who acquires substantially all of the assets of
Intermedia.
Governing Law: This Agreement is governed by the laws of the State of MD
without regards to its choice of law provisions. Acceptance: These Terms and
Conditions of the "Agreement" together supersede all previous representations,
understandings or agreements and shall prevail notwithstanding any variance with
terms and conditions of any order submitted.
- ---------------------------------- ------------
Customer Signature Date
- ----------------------------------
Print Customer Name
- ---------------------------------- ------------
Intermedia Date
4
<PAGE>
ADDENDUM 1
TO
INTERMEDIA COMMUNICATIONS
TERMS AND CONDITIONS
The following changes are hereby made to the Intermedia Communications
terms and Conditions in the Agreement dated July 13, 1999, between Intermedia
Communications Inc. and Digex, Inc.
Most Favored Customer Status
- ----------------------------
In conjunction with provision of transit services provided under this agreement,
Intermedia hereby grants to Digex most-favored customer ("MFC) status. As an
MFC, Digex shall be entitled to fees not higher than those charged by Intermedia
to any customer of Intermedia purchasing transit services substantially similar
to the Services (in substantially similar volume), effective as of the date on
which such fees are made available by Intermedia to such customer.
Termination of Contract
- -----------------------
Local Access circuits were purchased under a three year contract in order to
obtain a reasonable price. If at the end of the two year term of this contract,
Digex chooses not to renew, Digex will be liable for any and all early
termination charges assessed by the local access provider.
Except as modified hereby the provisions of the Agreement are reaffirmed in
their entirety. In the event of any conflict or inconsistency between the
provisions of this Addendum or those of the Agreement, the provisions of this
Addendum shall take precedence.
Dated this 13th day of July, 1999.
Digex, Inc. Intermedia Communications Inc.
By: By:
--------------------------------- ---------------------------------
Title: Title:
------------------------------ ------------------------------
Date: Date:
------------------------------- -------------------------------
5
<PAGE>
***Certain provisions of this exhibit have been filed separately with the SEC
pursuant to an application for confidential treatment.
Exhibit 10.11
SAN JOSE WEB FARM TRANSIT
intermedia
COMMUNICATIONS EFFECTIVE AS OF
APRIL 30, 1999
Business Internet Service Order Form
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Section A - To be Completed by Intermedia
- -----------------------------------------
Customer Digex, Inc. Initial Monthly
Charge Charge
<S> <C> <C> <C>
Access Type- Primary Circuit OC3 Port Speed - 90 Mbps *** ***
Access Type - Alt Line *** ***
Local Loop Charge - SJC5 - SFO2 *** ***
Local Loop Charge - SJC5 - SJC2 *** ***
Service Level- Standard Access Plus: NA Pager___ UPS___ ________ ________
Modem (MSS)- ________ ________
Other Services-
Contract Term- 2 years *** *** ***
Special Instruction
- ------------------------
- -------------------------------------------------------------------------------------------
</TABLE>
Section B - To Be Completed by Customer
- ---------------------------------------
Company Name: Digex, Inc.
-------------------------------------------------------------------
Site Address:
-------------------------------------------------------------------
City State CA ZIP
------------------------ ------------------------ ------------------
Site Phone FAX
---------------------------------- --------------------------------
Primary Technical Contract
------------------------------------------------------
Phone FAX Email
--------------------- --------------- -----------------------------
Secondary Technical Contact
-----------------------------------------------------
Phone FAX Email
--------------------- --------------- -----------------------------
Customer Type-Reseller Existing Customer? X Yes No N/A
--- --- ---
Telco: X Intermedia Provided Customer Provided Extended Demarc
----------------------- --- ---
Intermedia Provides Primary DNS X Yes No N/A
--- --- ---
Customer has already registered Domains X Yes No N/A
--- --- ---
Customer authorizes Intermedia to transfer Domains Yes No X N/A
--- --- ---
Number of IP addresses needed_______________________
Requested of Domain Name:1._______________________2.____________________
- --------------------------------------------------------------------------------
Customer hereby orders from Intermedia the Products & Services for the term
specified in this Service Order Form. This Service Order form is valid when
accepted by an authorized representative of Intermedia & accompanied by an
executed Intermedia Terms & Conditions agreement. Charges do not include any
special construction or inside/extended wiring costs, shipping & handling, or
applicable taxes. Telco rates are estimated based on current Telco carrier
tariffs. All orders subject to credit approval. Customer will be billed
separately by InterNIC for Domain Name registration and will be charged a
$100.00 one-time Intermedia fee for each additional primary Domain Name.
Customer may be required to provide documentation to justify allocation of IP
addresses.
- --------------------------------------------------------------------------------
ACCEPTED BY CUSTOMER ACCEPTED BY Intermedia
/s/ Mark K. Shull /s/ Eugene R. Noble
- ---------------------------------- ------------------------------------
Customer Signature Signature
Mark K. Shull 7/13/99 Eugene R. Noble 7-1-99
- ---------------------------------- ------------------------------------
Name Date Name Date
President & CEO, Digex Inc. V.P. Data Services
- ---------------------------------- ------------------------------------
Title Title
<PAGE>
RESELLER INTERMEDIA COMMUNICATIONS TERMS AND CONDITIONS
Intermedia Service: Customer agrees to purchase the Intermedia Products and/or
Services outlined in the front page of this Agreement per the terms and
conditions described herewith, Customer agrees to remain as a subscriber of the
service for the period identified from the date of service activation. At the
end of the service commitment this Agreement shall be automatically renewed for
successive one (1) year periods on the same terms and conditions contained
herein, with the exception of the price of services, and shall continue to be
automatically renewed until terminated by either party as provided herein.
Notice of termination should be made in writing to the Intermedia Contract
Administration Department at One DIGEX Plaza, Beltsville, Maryland 20705 no less
than thirty (30) days prior to the expiration of any term of this Agreement.
Rights and Obligations of Customer: Intermedia's services are only to be used
for lawful purposes. Customer shall not transmit, retransmit or store material
in violation of any federal or state laws or regulations, including, but not
limited to, obscenity, indecency, defamation, or infringement of trademark or
copyright. In particular, by signing these terms and conditions, Customer
agrees to adhere to Intermedia's Acceptable Use Policy. Failure to comply with
these obligations shall constitute violation of these terms and conditions and
possible termination of this Agreement at Intermedia's discretion should the
infringement not be rectified to Intermedia's satisfaction. If Customer
operates hardware or software that Intermedia determines may cause hazard,
interference, or service interruption to Intermedia provided equipment or
services or the Intermedia network, Customer shall immediately remove the
offending hardware or software upon notice.
Proprietary Rights: Intermedia grants Customer a non-exclusive, non-transferable
license to use the Products and Services provided hereunder. Title, property
rights, software license and hardware license and agreements, including all
intellectual property rights to such Products and Services, are and shall remain
with Intermedia, whether or not they are embedded in any Product or Service.
Customer recognizes that the Products and Services used hereunder constitute
valuable trade secrets of Intermedia. Customer will use its best efforts to
protect and keep confidential any and all Products and Services used by it and
shall not attempt in any way to copy, examine, alter, re-engineer, tamper with,
or otherwise misuse such Products and Services. In all cases the IP addresses
assigned for Customer use remain the property of Intermedia and shall revert
back to same upon Customer termination.
Installation: Installation and one-time charges set forth on the service order
are due upon order. Installation charges are nonrefundable. Customer shall
provide all necessary preparation to permit installation, maintenance and
operation of Products and Services provided hereunder unless otherwise specified
in this Agreement and shall provide to Intermedia and its suppliers reasonable
access to Customer's premises including the point at which leased telco services
are provided to Customer. Customer is also responsible for any and all
additional telco charges arising as a result of necessity to reschedule telco
suppliers, as well as all telco maintenance and diagnostics charges that may be
needed. Once Intermedia services have been installed, Customer shall be
responsible for any fees associated with relocation of services if requested by
Customer, including a one-time Intermedia installation fee, and corresponding
adjusted recurring telco fees dependent on the geographical relocation. If at
any time during this contract the Customer wishes to downgrade bandwidth, the
Customer agrees to pay a one-time downgrade fee of $750 and anyapplicable telco
fees.
Customer Premise Equipment - Purchased by Customer: Customer is responsible for
all maintenance and upgrades of equipment purchased from Intermedia
(manufacturer's warranty may apply in some circumstances). Any unused hardware
or software purchased from Intermedia may be returned for a full refund, less a
20% restocking fee, within 15 days of receipt by Customer, provided such items
are unopened, in original packaging, and in full working order, except that if
Customer purchase equipment with a custom configuration, as detailed in an
attachment hereto, it is not returnable by Customer.
Customer Premise Equipment - Provided by Intermedia: In the event that
Intermedia provides Intermedia-owned equipment to Customer in conjunction with
service, (i) the configuration and type of equipment to be used shall be
determined solely by Intermedia (except that Intermedia may agree to obtain a
custom equipment configuration specifically for Customer as detailed in a
separate attachment): (ii) Intermedia shall provide the initial equipment
configuration and verify operability with the Intermedia network; (iii) Customer
is responsible for operating the equipment within the parameters of the
manufacturer's specifications; and (iv) Intermedia may choose at its sole
discretion to provide software upgrades for hardware. Additional support of
Intermedia staff to reconfigure equipment once installed, should service be
required due to Customer's action, shall be chargeable to Customer at
Intermedia's then-current support rates. In the event of failure of Intermedia-
owned equipment provided to Customer in conjunction with service, like equipment
shall be provided by Intermedia as promptly as reasonably possible via next
business day delivery to Customer site. In the case of equipment with a
customer configuration, as detailed in an attachment hereto, Intermedia may
agree to a shorter replacement period. Intermedia shall pre-configure equipment
in conjunction with configuration guidelines. Once operability is verified,
Customer shall return any faulty equipment to Intermedia within 15 days of
receipt of new equipment. Failure to do so shall result in the Customer being
billed for the faulty equipment in the amount equal to vendor's list price as
determined by Intermedia. At termination of the Agreement, all Intermedia-owned
equipment must be returned in good working order within 30 days. Failure to do
so shall result in liability to the Customer for the cost of replacement of the
non-returned equipment in the amount equal to vendor's list price as determined
by Intermedia.
Invoicing and Payment of Service: Initial rates for the services are set forth
on the Intermedia Order Form. The initial rates shall be in effect for the
duration of the initial service commitment. During any renewal terms, the rates
shall be those contained in the then current Intermedia price list unless
otherwise agreed by the parties. Intermedia will invoice Customer for services
in advance on a monthly basis. Except that, for those Customers receiving
Intermedia burstable services, charges for burstable services above and beyond
the base tier rate are billed on month in arrears because such charges are based
upon actual usage. The price of the service described within does not include
sales, directly or indirectly, by any governmental authority or agency with
respect to the Service Customer agrees to pay such taxes directly or reimburse
Intermedia for any such taxes. This bill is due and payable in full on the date
shown on the bill. Customers also have the option of prepayment of services for
term of Agreement.
Non-Payment/Customer Termination: A late charge of the lesser of 1-1/2% per
month or the maximum rate permitted by lawmay be applied to each of Customer's
service bills not paid by the
<PAGE>
due date. This late charge is applicable to the unpaid balance as of the due
date. Customer shall pay Intermedia all costs including, without limitation,
reasonable attorney fees, the fees of any collection agency, and any other costs
incurred by Intermedia in exercising any of its rights under the Agreement.
Customer shall be responsible and will reimburse Company for Intermedia
installation charges at list price, telephone company or other service provider
installation or any other charges, including monthly service charges, incurred
by Company in the fulfillment of this Agreement if: (i) the Agreement is
terminated after execution but prior to initiation of the Products and Services
or (ii) there is a delay in the initiation of the Products and Services that is
caused, through action or inaction, by the Customer. If Customer terminates the
Agreement after initiation of Products and Services, Customer will pay a lump
sum equal to the charges for the remainder of the then current term of the
Agreement but, except as described in the next sentence, in no case greater than
one year. If the Customer is terminated by Intermedia for violation of the
Acceptable Use Policy, Customer shall pay immediately a lump sum equal to the
charges for the remainder of the then current term of the Agreement.
Maintenance Window: Intermedia maintains specified time periods during which it
may perform necessary network maintenance and/or network upgrades. These
specified time periods are referred to as "Scheduled Maintenance Windows". In
the event Intermedia plans to bring down the Service or the Equipment during a
Scheduled Maintenance Window, Intermedia will provide a 24-hour notice to
Customer in advance of the Scheduled Maintenance Window. In addition,
Intermedia reserves the right to perform any required maintenance work outside
of the Scheduled Maintenance Window with a minimum of 12 hours notification to
Customer. However, Customer understands that at any time Intermedia may perform
emergency maintenance as needed to preserve the overall integrity of the
products and services offered as determined by Intermedia with no notice.
Intermedia Service Level Guarantee: The provisions of Intermedia's Service
Level Commitments, as described on the DIGEX Web Site under "Service Level
Commitments" (currently located at http://www.digex.net/internet/products/bis-
sics.html), as may be amended from time to time, are incorporated herein and
made a part of this Agreement.
Credit Information: Customer consents to standard credit check by Intermedia in
order to confirm credit-worthiness and to Intermedia's disclosure of account
information to or from credit reporting agencies, credit bureaus, private credit
reporting associations, or to or from other providers of telecommunications
services at any time during Customer's service with Intermedia.
Limitation Of Liability: Intermedia exercises no control whatsoever over the
content of any information passing through its network and is not responsible
for damages Customer suffers for any reason, including, but not limited to, loss
or degradation of data resulting from delays, non-deliveries, wrong deliveries
and any and all service interruptions whether caused by the acts and omissions
of Intermedia and its employees, of Customer or of an other party. Intermedia
makes no representation that it can provide uninterrupted service. Furthermore,
Intermedia shall have no liabilities other than the credits outlined within due
to interrupted service unless caused by the gross negligence of Intermedia.
Intermedia shall not be liable for acts or omissions of other carriers,
equipment failures, modifications, acts of God, strikes, government actions, or
other causes beyond its reasonable control. Intermedia makes no warranties with
respect to the products or services of any kind whatsoever, express or implied,
except as specifically provided in this agreement. The implied warranties of
merchantability and fitness for any particular purpose are hereby disclaimed and
excluded. Intermedia shall not be liable to its customer or any third party for
any special, punitive, incidental, or consequential damages. Any legal action
arising out of the provision of Intermedia's services shall be brought within a
period of one year of the occurrence or shall be deemed waived. Customer agrees
to indemnify and hold harmless Intermedia from any and all claims resulting from
Customer's use of the equipment or services which cause damage to Customer or
any other party.
Transfer and Assignment: Neither party, other than for collateral purposes, may
so assign or transfer this Agreement without the prior written consent of the
other party except that Intermedia may assign this Agreement to any of its
affiliates or any person who acquires substantially all of the assets of
Intermedia.
Governing Law: This Agreement is governed by the laws of the State of MD
without regard to its choice of law provisions. Acceptance: These Terms and
Conditions of ____ "Agreement" together supersede all previous representations,
understandings, agreements and shall prevail notwithstanding any variance with
terms and conditions any other submitted.
- ---------------------------- --------------
Customer Signature Date
- ----------------------------
Print Customer name
/s/ Eugene R. Noble 7-1-99
- ---------------------------- --------------
Intermedia Date
<PAGE>
ADDENDUM 1
TO
INTERMEDIA COMMUNICATIONS
TERMS AND C0NDITIONS
The following changes are hereby made to the Intermedia Communications
Terms and Conditions in the Agreement dated July 13, 1999, between Intermedia
Communications Inc. and Digex, Inc.
Most Favored Customer Status
- ----------------------------
In conjunction with provision of transit services provided under this agreement,
Intermedia hereby grants to Digex most-favored customer ("MFC") status. As an
MFC, Digex shall be entitled to fees not higher than those charged by Intermedia
to any customer of Intermedia purchasing transit services substantially similar
to the Services (in substantially similar volume), effective as of the date on
which such fees are made available by Intermedia to such customer.
Termination of Contract
- -----------------------
Local Access circuits were purchased under a three-year contract in order to
obtain a reasonable price. If at the end of the two-year term of this contract,
Digex chooses not to renew, Digex will be liable for any and all early
termination charges assessed by the local access provider.
Except as modified hereby the provisions of the Agreement are reaffirmed in
their entirety. In the event of any conflict or inconsistency between the
provisions of this Addendum or those of the Agreement, the provisions of this
Addendum shall take precedence.
Dated this 13/th/ day of July, 1999.
Digex, Inc. Intermedia Communications Inc.
By: /s/ Mark K. Shull By: /s/ Eugene R. Noble
----------------- -------------------
Title: President and CEO Title: V.P. Data Services
----------------- -------------------
Date: 7/13/9 Date: 7/1/99
----------------- -------------------
<PAGE>
***Certain provisions of this exhibit have been filed separately with the SEC
pursuant to an application for confidential treatment.
Exhibit 10.12
MANAGED FIREWALL EXISTING CUSTOMERS
EFFECTIVE AS OF
intermedia APRIL 30, 1999
COMMUNICATIONS
Business Internet Service Order Form
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Section A - To be Completed by Intermedia
- -----------------------------------------
<S> <C> <C> <C> <C>
Customer Initial Charge Monthly Charge
Access Type- Port Speed- CIR- _________ _________
Access Hardware- Router- _________ _________
CSU/DSU- _________ _________
Service Level- Access Plus: UPS___ _________ _________
Pager___
Modem (MSS)- _________ _________
- ---------------------------------------------------------------
Firewall Product- (Service Orders as Defined in Attachment A)
Service Level- Platform-
- ---------------------------------------------------------------
Other Services- _________
Contract Term-** year(s) Total contract value- Total
charges _________ ***
Special Instruction **Per the original Digex contract Term, see Attachment A
- -------------------
- -----------------------------------------------------------------------------------------------
</TABLE>
Section B - To Be Completed by Customer
- ---------------------------------------
Company Name: Digex, Inc.
-------------------------------------------------------------------
Site Address: 6435 Virginia Manor Rd.
-------------------------------------------------------------------
City Laurel State MD ZIP 20705
-------------------------- -------------------- --------------------
Site Phone 301-847-5000 FAX 301-847-5152
-------------------- -------------------------------------------
Primary Technical Contract
------------------------------------------------------
Phone FAX Email
--------------------- --------------- -----------------------------
Secondary Technical Contact
-----------------------------------------------------
Phone FAX Email
--------------------- --------------- -----------------------------
Customer Type-Reseller Existing Customer? X Yes No N/A
--- --- ---
Telco:__Intermedia Provided ___Customer Provided ___Extended Demarc
Intermedia Provides Primary DNS ___Yes ___ No ___N/A
Customer has already registered Domains ___Yes ___ No ___N/A
Customer authorizes Intermedia to transfer Domains ___ Yes ___ No ___N/A
Number of IP addresses needed_______________________
Requested of Domain Name:1._______________________2.____________________
- --------------------------------------------------------------------------------
Customer hereby orders from Intermedia the Products & Services for the term
specified in this Service Order Form. This Service Order Form is valid when
accepted by an authorized representative of Intermedia & accompanied by an
executed Intermedia Terms and Conditions agreement. Charges do not include any
special construction or inside/extended wiring costs, shipping & handling, or
applicable taxes. Telco rates are estimated based on current Telco carrier
tariffs. All orders subject to credit approval. Customer will be billed
separately by InterNIC for Domain Name registration and will be charged a
$100.00 one-time Intermedia fee for each additional primary Domain Name.
Customer may be required to provide documentation to justify allocation of IP
addresses.
- --------------------------------------------------------------------------------
ACCEPTED BY CUSTOMER ACCEPTED BY Intermedia
/s/ Mark K. Shull /s/ Eugene R. Noble
- ----------------------------- -------------------------------
Customer Signature Signature
Mark K. Shull 7/13/99 Eugene R. Noble 7-1-99
- ----------------------------- -------------------------------
Name Date Name Date
President & Ceo, Digex Inc. V.P. Data Services
- ----------------------------- -------------------------------
Title Title
<PAGE>
ADDENDUM TO
INTERMEDIA SECURE MANAGED FIREWALLS
TERMS AND CONDITIONS
This Addendum to the Intermedia Secure Managed Firewall Terms and
Conditions ("Addendum") is made as of this 13th day of July, 1999, by and
between Intermedia Communications, Inc. ("Company") and Digex, Inc.
("Reseller").
The parties intending to be legally bound agree as follows:
1. Applicability of Terms And Conditions. Except for those provisions that
-------------------------------------
specifically conflict with provisions of the Addendum, all of the
provisions of the Intermedia Secure Managed Firewalls Terms and Conditions
("Agreement"), including, but not limited to, the limitation of liability
and indemnification provisions shall remain in full force and effect. All
terms not specifically defined in this Addendum shall have the meaning
ascribed to them in the Agreement.
2. Access for Break/Fix. For as long as any Intermedia owned equipment is
--------------------
deployed in a Digex facility to provide service to the End-Users identified
on the attached "Service Order", Digex will provide (i) Intermedia 24x7x365
physical access to all of its Data Centers, (ii) access to documentation
for non-standard software, (iii) network access for monitoring and
reporting, (iv) unrestricted access to Intermedia-owned equipment for
repair and restoration, (v) access to staging areas at all Digex Data
Centers, and (vi) access to the spare parts inventory identified in section
3 below. In the event that an outage occurs and Digex does not provide
Intermedia immediate and unrestricted access to Intermedia equipment or
inventory, all service level agreements between Digex and Intermedia for
the service(s) provided on the equipment will be immediately suspended upon
the request for access until such time as access is granted. Delays in
access to the affected equipment will be calculated in minutes and shall
not contribute to any unavailability period for the purposes of measuring
service level agreements. In the event that Digex requires an escort for
Intermedia's access to the Data Center(s), Digex will provide the escort at
no cost to Intermedia.
3. Power, Ventilation, Rack Space, and Spare Parts. Digex will provide (i)
-----------------------------------------------
suitable power and ventilation for all Intermedia owned equipment used in
its facilities to service the End Users, (ii) adequate rack space for the
hosting of Intermedia owned equipment, (iii) adequate storage facilities at
the Data Center(s) for inventory of spare parts, (iv) unlimited and
unrestricted access to the spare parts inventory. Failure of equipment due
to Digex's action or inaction in providing adequate power and ventilation
exempts Intermedia from its obligations to the terms of the Service Level
Agreement. Digex shall use its best efforts to restrict access to the
aforementioned spare parts inventories to Intermedia Personnel.
4. Network and Out-of-Band Access. Digex will provide (i) access to any and
------------------------------
all networks required for Intermedia's proper in-band management of devices
used to deliver services to the End Users, and (ii) analog telephone
service suitable for Intermedia's standard Out-of-Band (OOB) access method.
The OOB support will be provided in all Data Centers where Intermedia does
not operate a Secure Management Center (SMC).
5. Firewall Licensing and License Violations. Intermedia Secure Managed
-----------------------------------------
Firewalls use Firewall licenses to protect a defined number of IP
Addresses. In the event that any of the End Users, identified in the
"Service Order", perform a network upgrade or network alterations that
produces a violation of the Firewall's license and the violations are
caused by the addition or creation of networks not owned by Intermedia or
Digex and Digex has failed to execute an Intermedia Service Upgrade Order,
then Digex shall have thirty (30) calendar days to produce a properly
executed "Service Order" for the then current, monthly service fee. This
monthly service fee shall be commensurate with the number of IP Addresses
being protected by the firewall. Intermedia will bill Digex at the current
service rate required for the license needed to eliminate license
violations upon the above mentioned thirty (30) days written notification.
Firewall License Violations exempt Intermedia from
<PAGE>
its obligation under the Service Level Agreement. Digex has the sole
obligation to provide for the effective execution of timely Intermedia
Service Orders to assure that no violations occur.
6. Service Level Agreements. Intermedia will provide managed firewall and/or
------------------------
VPN service to Digex at the measured uptime service levels as defined in
the Digex End User Contracts (either 98%, 99% or 99.5% monthly uptime) that
were ratified by Intermedia through the Custom Configuration process.
"Uptime service level" means that the managed firewall and/or VPN software
processes running on Intermedia-supported hardware will be available to
transmit and receive data and will operate according to industry standard
specifications at or above the stated uptime level. Uptime will be
measured periodically on a daily basis and aggregated over a period of one
calendar month for purposes of compliance. Service Level Agreements as
described above are available to Digex only when Intermedia and/or its
authorized agents maintain the sole and exclusive ability to manage,
administer, and configure the firewall and/or VPN software and the hardware
upon which it is running. Digex affirms that all uptime Service Level
Agreements are immediately and fully revoked by Intermedia should the Digex
or its agents or employees attempt to manage, administer, or configure any
element of a firewall or VPN system that has previously been managed,
administered, and/or configured by Intermedia and/or its authorized agents.
Service Level Agreements for firewalls and VPNs apply only to the firewall
or VPN software and hardware itself and do not apply to any other element
of Internet connectivity including, but not limited to, the transmission or
receipt of data across third-party networks; the potential inability of
applications in front of or behind a firewall or VPN host(s) to transmit or
receive data; the proper functioning of software, hardware, and/or
networking equipment within a network transmission path that is not owned,
operated, and maintained by Intermedia; or the functioning of any other
network element beyond the direct control of Intermedia and/or its
authorized agents. This Service Level Agreement states that data packets
will be transmitted, received, and protected by the firewall system(s)
and/or VPN system(s) at stated service levels and in accordance with
Digex's documented configuration requests and requirements. Intermedia
rejects and disclaims any promise of uptime to Digex for all End User
Contracts that did not receive the reasonable documentation provided by the
Custom Configuration Process. Under no circumstances will Intermedia's
committed uptime service level exceed those of Digex to the End User.
AGREED AND ACCEPTED by the parties hereto:
Intermedia Communications, Incorporated ("Company") Digex, Inc. ("Reseller")
By: /s/ Eugene R. Noble By: /s/ Mark K. Shull
------------------- -----------------
<PAGE>
Attachment A: Managed Firewalls Sold Through Digex
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
*** NSS Order Number CBS # Create Operational Business *** Contract Status
date date Unit Term
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
*** NSS000000000700 32005930 7/22/98 9/17/95 WSMG *** 12 OPERATIONAL
*** NSS000000000947 32026132 3/5/99 4/30/99 WSMG *** 12 OPERATIONAL
*** NSS000000000799 32005427 10/16/98 12/16/98 WSMG *** 24 OPERATIONAL
*** NSS000000000883 32023341 1/15/99 1/22/99 WSMG *** 12 OPERATIONAL
*** NSS000000001041 32025807 6/17/99 WSMG *** 12 IN PROCESS
*** NSS000000000912 32025807 2/12/99 3/22/99 WSMG *** 12 OPERATIONAL
*** NSS000000000917 32025807 2/22/99 4/15/99 WSMG *** 12 UPGRADE
*** NSS000000001044 32026620 6/17/99 WSMG *** 12 IN PROCESS
*** NSS000000000919 32025885 2/32/99 4/15/99 WSMG *** 12 OPERATIONAL
*** NSS000000000623 32000800 11/6/98 21/17/98 WSMG *** 12 OPERATIONAL
*** NSS000000000847 32006779 12/4/98 2/1/99 WSMG *** 36 OPERATIONAL
*** NSS000000000886 32023344 1/25/99 3/31/99 WSMG *** 12 OPERATIONAL
*** NSS000000000806 32006355 10/28/98 1/5/99 WSMG *** 12 OPERATIONAL
*** NSS000000000945 32026127 3/4/99 3/29/99 WSMG *** 24 OPERATIONAL
*** NSS000000001026 32026580 6/10/99 WSMG *** 12 IN PROCESS
*** NSS000000000818 32006585 11/5/98 12/17/98 WSMG *** 12 OPERATIONAL
*** NSS000000000788 32006434 10/7/98 12/16/98 WSMG *** 12 OPERATIONAL
*** NSS000000000879 32023306 1/11/99 2/4/99 WSMG *** 12 OPERATIONAL
*** NSS000000001000 32026472 5/12/99 5/27/99 WSMG *** 12 OPERATIONAL
*** NSS000000000793 32006457 10/12/98 10/26/98 WSMG *** 12 OPERATIONAL
*** NSS000000000918 32025864 2/22/99 3/25/99 WSMG *** 12 OPERATIONAL
*** NSS000000001046 32026626 6/21/99 WSMG *** 12 NEW
*** NSS000000000885 32023343 1/15/99 2/3/99 WSMG *** 12 OPERATIONAL
***
*** NSS000000000884 32023342 1/15/99 3/25/99 WSMG *** 36 OPERATIONAL
*** NSS000000000633 32006601 11/23/98 12/17/98 WSMG *** 24 OPERATIONAL
*** NSS000000001025 32020585 6/9/99 WSMG *** 12 IN PROCESS
*** NSS000000000913 32025808 2/12/99 3/3/99 WSMG *** 12 OPERATIONAL
*** NSS000000000975 32026330 4/13/99 5/6/99 WSMG *** 12 OPERATIONAL
*** NSS000000001014 32006054 5/26/99 6/16/99 WSMG *** 12 OPERATIONAL
*** NSS000000000097 32005907 7/17/98 8/11/98 WSMG *** 12 OPERATIONAL
*** NSS000000000882 32023340 1/15/99 2/9/99 WSMG *** 12 OPERATIONAL
*** NSS000000000694 32005097 7/17/98 8/10/98 WSMG *** 12 OPERATIONAL
*** NSS000000000810 32005097 11/2/98 12/17/98 WSMG *** 12 OPERATIONAL
*** NSS000000000099 32005915 7/20/98 12/8/98 WSMG *** 12 OPERATIONAL
*** NSS000000000800 32006481 10/16/98 11/10/98 WSMG *** 12 OPERATIONAL
*** NSS000000001026 32026585 6/10/99 WSMG *** 12 IN PROCESS
*** NSS000000001008 32003207 5/20/99 WSMG *** 24 IN PROCESS
*** NSS000000000881 32003286 1/13/99 1/22/99 WSMG *** 12 OPERATIONAL
*** NSS000000000624 32025866 2/23/99 3/19/99 WSMG *** 24 OPERATIONAL
*** NSS000000000838 32006605 21/3/98 1/6/99 WSMG *** 12 OPERATIONAL
*** NSS000000000916 32025850 2/19/99 3/22/99 WSMG *** 12 OPERATIONAL
*** NSS000000001011 32028513 5/24/99 WSMG *** 24 IN PROCESS
*** NSS000000001013 32026513 5/25/99 WSMG *** 24 IN PROCESS
*** NSS000000000695 32005904 7/17/98 8/7/98 WSMG *** 12 UPGRADE
*** NSS000000000696 32005904 7/17/98 8/7/98 WSMG *** 12 UPGRADE
*** NSS000000000815 32005598 11/4/98 12/17/98 WSMG *** 12 OPERATIONAL
*** NSS000000001030 32026591 6/11/99 WSMG *** 12 IN PROCESS
*** NSS000000001031 32026591 6/11/99 WSMG *** 12 IN PROCESS
*** NSS000000001032 32026591 6/11/99 WSMG *** 12 IN PROCESS
*** NSS000000001035 32002024 6/14/99 WSMG *** 12 IN PROCESS
*** NSS000000000974 32026329 41/3/99 4/22/99 WSMG *** 12 OPERATIONAL
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
*** NSS Order Number CBS # Create Operational Business *** Contract Status
date date Unit Term
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
*** NSS000000000673 32003122 1/6/99 2/3/99 WSMG *** 12 OPERATIONAL
*** NSS000000000853 32006817 12/10/98 12/18/98 WSMG *** 12 OPERATIONAL
*** NSS000000001015 32026523 5/26/99 6/16/99 WSMG *** 24 OPERATIONAL
*** NSS000000000914 32025815 2/16/99 3/19/99 WSMG *** 24 OPERATIONAL
*** NSS000000001037 32006851 6/16/99 WSMG *** 12 IN PROCESS
*** NSS000000000865 32006851 12/21/98 1/22/99 WSMG *** 36 OPERATIONAL
*** NSS000000000866 32006851 12/21/98 1/22/99 WSMG *** 36 OPERATIONAL
*** NSS000000000758 32006273 9/9/98 9/24/98 WSMG *** 12 OPERATIONAL
*** NSS000000000949 32026158 3/10/99 WSMG *** 24 IN PROCESS
*** NSS000000000805 32006522 10/28/98 12/17/98 WSMG *** 12 OPERATIONAL
*** NSS000000000540 32004594 2/20/98 2/24/98 WSMG *** 24 OPERATIONAL
*** NSS000000000159 9/18/97 9/14/97 WSMG *** OPERATIONAL
*** NSS000000000475 32003582 12/10/97 12/24/98 WSMG *** OPERATIONAL
*** NSS000000000064 32005760 6/18/98 9/25/98 WSMG *** 14 OPERATIONAL
*** NSS000000000564 32005122 3/6/98 3/17/98 WSMG *** 24 OPERATIONAL
*** NSS000000000188 N/A 9/18/97 9/21/97 WSMG *** OPERATIONAL
*** NSS000000000190 9/29/97 9/26/97 WSMG *** OPERATIONAL
- ---------------------------------------------------------------------------------------------------------------------------------
***
</TABLE>
<PAGE>
Intermedia Secured Managed Firewalls Terms and Conditions
1. Intermedia Service and Terms. CUSTOMER agrees to purchase the Intermedia
----------------------------
Communications, Inc. ("Intermedia") Products and Services as set forth on the
front side hereof (the "Service Order Form") pursuant to the Intermedia Secure
Firewalls Terms and Conditions ("Agreement") set forth below. The term of this
Agreement is also set forth on the Service Order Form and commences upon the
date of service activation. Upon expiration of the term, this Agreement shall
renew automatically for successive one (1) year periods on the same terms and
conditions as provided herein, unless and until the Agreement is terminated by
either party upon no less than thirty (30) days' written notice prior to
expiration of the then-current term.
2. Product and Service Description and Fees. The Service Description for
----------------------------------------
Intermedia Secure Managed Firewalls, including, but not limited to, the scope of
the firewall services, the managed hardware and software, monitoring, archiving,
reports, the parties' responsibilities, configuration of management, and the
security management center, is incorporated herein by reference and made a part
of this Agreement. Rates for all Intermedia Products and Services purchased by
CUSTOMER are set forth on the Service Order Form. Intermedia will invoice
CUSTOMER monthly in advance. prices do not include sales, usage, excise, ad
valorem, property or any other taxes now or hereinafter imposed, directly or
indirectly, by any governmental authority, and, to the extent applicable,
CUSTOMER shall be charged for such taxes, which shall not include taxes which
Intermedia is subject to based upon income.
3. Termination and Non-payment of Fees. Intermedia may terminate this
-----------------------------------
Agreement effective immediately upon written notice (a) due to CUSTOMER'S
failure to pay any undisputed amount within ten (10) days of the applicable due
date, or (b) pursuant to Sections 6 and 8, below. In the event of any other
breach by CUSTOMER, Intermedia shall provide written notice to CUSTOMER of such
breach and afford CUSTOMER thirty (30) days to cure such breach before
terminating this Agreement. In the event CUSTOMER terminates this Agreement or
if Intermedia terminates this Agreement due to breach thereof, CUSTOMER shall be
liable for all charges incurred as of the date of termination and all recurring
charges from the date of termination until the expiration date of the then-
current term, a late charge of the lesser of 1 1/2% per month or the maximum
rate permitted by law may be charged to CUSTOMER by Intermedia in the event
CUSTOMER does not pay any undisputed fees before the due date; however, such
late charges will not apply to fees disputed in good faith. CUSTOMER shall pay
Intermedia all costs, including reasonable attorneys' fees, the fees of any
collection agency, and any othercosts incurred by Intermedia, in exercising any
of its rights under this Agreement.
4. Credit Information. CUSTOMER consents to Intermedia's standard credit check
------------------
policy in order for Intermedia to confirm CUSTOMER's creditworthiness, and to
Intermedia's disclosure of account information to or from credit reporting
agencies, credit bureaus, private credit reporting associations, or to or from
other providers of telecommunications services at any time during the term of
this Agreement.
5. Software License. Intermedia grants CUSTOMER a non-exclusive, non-
----------------
transferrable license ("License") to use all Intermedia-owned software and
firmware provided pursuant to the Intermedia Service Order Form ("Software"),
subject to the following conditions: (i) CUSTOMER may use Software only for its
intended purposes, (ii) CUSTOMER may not copy, disclose, modify, decompile,
disassemble, translate, or reverse engineer the Software, and (iii) in the event
of a default by CUSTOMER of this Agreement and/or upon termination or expiration
of this Agreement, this Software License shall immediately terminate and
CUSTOMER shall return all Software to Intermedia. CUSTOMER shall protect and
keep confidential any and all Products and Services used by it pursuant to this
Agreement, and CUSTOMER agrees that IP addresses assigned for CUSTOMER use
remain the property of Intermedia and shall revert back to Intermedia upon
termination or expiration of this Agreement.
6. Compliance with Law and Policies; Export Administration; Indemnification.
------------------------------------------------------------------------
CUSTOMER shall use Intermedia's Products and Services only for lawful purposes.
CUSTOMER shall not transmit, retransmit or store material in violation of any
federal or state laws or regulations, and further agrees to adhere to
Intermedia's Acceptable Use Policy ("AUP"), which may be modified from time to
time by Intermedia in its sole discretion, and which AUP, as modified, is hereby
incorporated by reference and made a part hereof. CUSTOMER agrees to comply
fully with all relevant export laws and regulations of the United States and, to
the extent applicable, export or import regulations in other countries or
territories ("Export Laws") to ensure that neither the Software nor any direct
product thereof, including, but not limited to, encryption products, are (a)
exported, directly or indirectly, in violation of Export Laws, or (b) are used
or intended to be used for any purposes prohibited by the Export Laws. Failure
to comply with one (1) or more of the requirements in this Section 6 shall
permit Intermedia, as of right and in its sole discretion, to terminate this
Agreement effective upon written notice. CUSTOMER shall indemnify and hold
Intermedia harmless from and against any and
<PAGE>
all damages, losses, judgments, assessments, costs and expenses arising out of
CUSTOMER's noncompliance with this Section 6 or other actions or omissions of
CUSTOMER pursuant to this Agreement.
7. Installation. Installation and non-recurring charges are due upon order and
------------
are nonrefundable. CUSTOMER shall provide Intermedia access to its premises and
provide all other necessary preparations to permit installation, maintenance and
operation of the Products and Services provided hereunder. Following
installation, CUSTOMER shall be responsible for any fees and expenses in
connection with a CUSTOMER-requested relocation, including, but not limited to,
a one (1) time Intermedia installation fee. If CUSTOMER requests a downgrade in
service, CUSTOMER shall pay a one (1) time downgrade fee of $750 and any
applicable telco fees.
8. Equipment. In the event that Intermedia-owned equipment is provided
---------
hereunder, (a) Intermedia shall determine the configuration and type of
equipment to be used, (b) Intermedia shall provide the initial equipment
configuration and verify operability with the Intermedia network, (c) CUSTOMER
shall be responsible for operating the equipment within the parameters of the
manufacturer's specifications, and (d) Intermedia may choose, in its sole
discretion, to provide software upgrades for hardware. Should service be
required following installation to reconfigure equipment due to CUSTOMER
___________, CUSTOMER will be charged at Intermedia's then-current support
rates. If Intermedia determines that CUSTOMER-owned hardware or software may
cause hazard, interference or service interruption to Intermedia-provided
equipment or services, or the Intermedia network, CUSTOMER shall immediately
remove the offending hardware or software upon notice from Intermedia and, if
CUSTOMER fails do to so, Intermedia may terminate this Agreement effective upon
written notice.
In the event of failure of Intermedia-owned equipment provided hereunder, as
determined by Intermedia in its sole discretion, like equipment shall be
provided to CUSTOMER by Intermedia as promptly and as reasonably possible, via
next business day delivery to CUSTOMER's site. Once operability of such like
equipment is verified, CUSTOMER shall return the faulty equipment to Intermedia
within ten (10) days thereof at Intermedia's shipping expense. Failure to do so
will result in CUSTOMER being billed for the faulty equipment in an amount equal
to vendor's list price as determined by Intermedia. Upon termination or
expiration of this Agreement, CUSTOMER shall return Intermedia-owned equipment
in good working order within thirty (30) days. Failure to do so will result in
CUSTOMER liability fro the cost of repair of the faulty equipment or the cost of
replacement for non-returned equipment in an amount equal tovendor's list price
as determined by Intermedia.
9. Maintenance Window. Intermedia shall have the right to bring down service
------------------
for specified time periods for necessary maintenance and/or network upgrades
("Scheduled Maintenance Windows") upon twenty-four (24) hours' written notice to
CUSTOMER. Intermedia also shall have the right to perform maintenance outside
Scheduled Maintenance Windows upon twelve (12) hours' written notice to
CUSTOMER; provided, however, that Intermedia shall have the right, without
notice, in its sole discretion, to perform emergency maintenance at any time to
preserve the overall integrity of the products and services offered by
Intermedia.
10. Limitation of Liability. EXCEPT AS OTHERWISE PROVIDED BELOW, IN NO EVENT
-----------------------
WILL INTERMEDIA BE LIABLE TO CUSTOMER OR ANY THIRD PARTY FOR ANY DAMAGES ARISING
OUT OF THE SUBJECT MATTER OF THIS AGREEMENT, THE PRODUCT OR ANY SERVICES
HEREUNDER UNDER ANY CONTRACT, NEGLIGENCE, STRICT LIABILITY OR OTHER THEORY, FOR
ANY INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING, BUT NOT
LIMITED TO, LOST PROFITS OR REVENUE), OR FOR LOSS OR CORRUPTION OF DATA, OR FOR
COSTS OF PROCUREMENT OF SUBSTITUTE GOODS OR TECHNOLOGY, REGARDLESS OF WHETHER OR
NOT INTERMEDIA HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
11. Exclusive Warranty and Exclusive Remedy. INTERMEDIA DISCLAIMS ANY WARRANTY
---------------------------------------
OF ANY KIND, EITHER EXPRESS OR IMPLIED, AND DISCLAIMS ANY WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, EXCEPT FOR THE FOLLOWING
WARRANTY AND REMEDY, WHICH IS IN LIEU OF ANY OTHER WARRANTY OR REMEDY. THE
PARTIES ACKNOWLEDGE THAT DUE TO THE INCREASING SOPHISTICATION OF "HACKERS,"
INTERMEDIA DOES NOT AND CANNOT MAKE ANY WARRANTY OR REPRESENTATION THAT ANY
SYSTEM ATTACK OR INTRUSION WILL BE DETECTED OR PREVENTED, NOR DOES INTERMEDIA
REPRESENT THAT ANY SOFTWARE PRODUCTS EMPLOYED BY INTERMEDIA ARE ERROR FREE.
WITH RESPECT TO PRODUCTS PROVIDED HEREUNDER, INTERMEDIA'S EXCLUSIVE LIMITED
WARRANTY IS THAT, FOR A PERIOD OF ONE YEAR FOLLOWING DELIVERY, ANY SUCH
PRODUCTS, UNDER NORMAL USE AND SERVICE, WILL SUBSTANTIALLY PERFORM ALL OF THE
FUNCTIONS DESCRIBED IN THE SERVICE DESCRIPTION. IN THE EVENT INTERMEDIA
BREACHES
<PAGE>
THIS WARRANTY, CUSTOMER'S EXCLUSIVE REMEDY SHALL BE, AT INTERMEDIA'S OPTION AND
EXPENSE, (i) TO HAVE INTERMEDIA CORRECT SUCH PRODUCTS OR (ii0 INTERMEDIA SHALL
REFUND THE PRICE PAID FOR THE APPLICABLE PORTION OF THE SERVICES.
WITH RESPECT TO SERVICES, INTERMEDIA'S EXCLUSIVE WARRANTY IS THAT THE SERVICES
SHALL BE PERFORMED IN A WORKMANLIKE FASHION. IN THE EVENT INTERMEDIA REACHES
THIS WARRANTY, CUSTOMER'S EXCLUSIVE REMEDY SHALL BE, AT INTERMEDIA'S OPTION AND
EXPENSE, (i) TO HAVE INTERMEDIA CORRECT SUCH SERVICES OR (ii) INTERMEDIA SHALL
REFUND THE PRICE PAID FOR THE APPLICABLE PORTION OF THE SERVICES.
CUSTOMER ASSUMES FULL RESPONSIBILITY FOR THE CONTROL AND USE OF THE DATA
CONTAINED IN REPORTS PROVIDED BY INTERMEDIA HEREUNDER. CUSTOMER ACKNOWLEDGES THE
POTENTIAL PRIVACY AND OTHER ISSUES ASSOCIATED WITH THE COLLECTION AND USE OF THE
DATA AND ACKNOWLEDGES THAT INTERMEDIA SHALL HAVE NO LIABILITY WITH RESPECT TO
THE COLLECTION AND USE OF THIS DATA.
12. Force Majeure. Neither party will be in default or otherwise liable for
-------------
any delay or failure of performance under this Agreement due, in whole or part,
to a cause or causes beyond the reasonable control and without the fault or
negligence of such party.
13. Assignment. Neither party may assign, sell or transfer this Agreement
----------
without the prior written consent of the other party, except that Intermedia may
assign this Agreement as of right to its parent, any of its subsidiaries or
affiliates, or any entity which acquires all or substantially all of the assets
of Intermedia. CUSTOMER may not resell Intermedia Secure products and Services
of any kind from an Intermedia-provided connection without explicit written
permission from Intermedia.
14. Governing Law. This Agreement shall be governed by the laws of the State
-------------
of Maryland without regard to choice of law provisions. In the event of legal
action between the parties with respect to this Agreement, the prevailing party
will be entitled to recover reasonable attorneys' fees and court costs.
15. Severability. Each provision of this Agreement is severable from the
------------
whole, and if one provision is declared invalid, the other provisions shall
remain in full force and effect.
16. Waiver. Failure of either party to enforce any of the provisions of this
------
Agreement, or the waiver thereof in any instance, shall not be construed as a
general waiver or relinquishment of rights.
17. Notice. Except with respect to termination notices pursuant to Sections 6
------
and 8 hereof, and maintenance window notices pursuant to Section 9 hereof,
which, in addition to other means specified below, may be given by facsimile
transmission and shall be deemed effective upon receipt as confirmed by
transmission report verification, any notice given or made pursuant to this
Agreement shall be effective upon receipt if in writing and delivered in person,
by courier, by overnight delivery service, or by certified mail, return receipt
requested, and delivered to the address specified in the Service Order Form or
such other address as may hereafter be furnished by either party to the other.
18. Entire Agreement. The terms of this Agreement constitute the entire
----------------
agreement of the parties with respect to the Intermedia Products and Services
set forth on this Service Order Form. This Agreement may only be amended or
modified in a writing executed by both parties.
Intermedia Communications, Inc. CUSTOMER:
By: /s/ Eugene R. Noble By:
------------------------ ----------------------
Name: Eugene R. Noble Name:
------------------------ ----------------------
Title: V.P. Data Services Title:
------------------------ ----------------------
Date: 7/1/99 Date:
------------------------ ----------------------
<PAGE>
EXHIBIT 24.2
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints DAVID C.
RUBERG and ROBERT M. MANNING and either of them (with full power in each to act
alone), his true and lawful attorneys-in-fact, with full power of substitution,
for him and in his name, place and stead, in any and all capacitites, to sign
any and all amendments (including post-effective amendments) to the Digex
registration statement on Form S-1, filed on April 27, 1999, and to file the
same, with all exhibits thereto, and other documents in connection therewith
including, without limitation, any registration statements for the same offering
that is to be effective upon filing pursuant to Rule 462(b) under the
Securities Act with the Commission, hereby ratifying and confirming all that
said attorneys-in-fact, or their substitute or substitutes, may lawfully do or
cause to be done by virue hereof.
Signature Date
--------- ----
/s/ Mark K. Shull July 9, 1999
---------------------------
Mark K. Shull
/s/ Bradley E. Sparks July 9, 1999
---------------------------
Bradley E. Sparks
