<PAGE> 1
SCHEDULE 14A
(Rule 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[ ] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Digex, Incorporated
----------------------------------------------------
(Name of Registrant as Specified In Its Charter)
N/A
----------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
N/A
------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
N/A
------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
N/A
------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
N/A
------------------------------------------------
(5) Total fee paid:
N/A
------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
N/A
------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
N/A
------------------------------------------------
(3) Filing Party:
N/A
------------------------------------------------
(4) Date Filed:
N/A
------------------------------------------------
<PAGE> 2
(5) Total fee paid:
N/A
------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
N/A
------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
N/A
------------------------------------------------
(3) Filing Party:
N/A
------------------------------------------------
(4) Date Filed:
N/A
------------------------------------------------
2
<PAGE> 3
DIGEX, INCORPORATED
ONE DIGEX PLAZA
BELTSVILLE, MD 20705
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 1, 2000
------------------------
To the Stockholders of Digex, Incorporated:
Notice is Hereby Given that the Annual Meeting of Stockholders of Digex,
Incorporated will be held at the Hyatt Regency Hotel, One Bethesda Metro Center,
Crystal Ballroom -- Level P3, Wisconsin Avenue at Old Georgetown Road, Bethesda,
Maryland 20814, on Thursday, June 1, 2000, at 10:00 a.m. Eastern Daylight
Savings Time, for the purposes set forth below:
(1) To elect eight Directors to serve until the next Annual Meeting of
Stockholders and until their successors have been duly elected and
qualified;
(2) To ratify the Digex Long-Term Incentive Plan;
(3) To increase the number of shares of Class A Common Stock authorized for
issuance under the Digex Long-Term Incentive Plan from 9,000,000 shares
to 15,000,000 shares;
(4) To ratify the appointment of Ernst & Young LLP as the independent
auditors of the Company for the year ending December 31, 2000; and
(5) To transact such other business as may properly come before the meeting
or any adjournments thereof.
The Board of Directors has fixed the close of business on Thursday, April
6, 2000, as the record date for the determination of stockholders entitled to
notice of, and to vote at, the Annual Meeting or any adjournments thereof.
MANAGEMENT REQUESTS ALL STOCKHOLDERS TO SIGN AND DATE THE ENCLOSED FORM OF
PROXY AND RETURN IT IN THE POSTAGE PAID, SELF-ADDRESSED ENVELOPE PROVIDED FOR
YOUR CONVENIENCE. PLEASE DO THIS WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING.
SHOULD YOU ATTEND IN PERSON, YOU MAY, IF YOU WISH, WITHDRAW YOUR PROXY AND VOTE
YOUR SHARES IN PERSON.
By Order of the Board of Directors
David C. Ruberg
Chairman of the Board
April 27, 2000
<PAGE> 4
DIGEX, INCORPORATED
ONE DIGEX PLAZA
BELTSVILLE, MD 20705
------------------------
PROXY STATEMENT FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD THURSDAY, JUNE 1, 2000
------------------------
The enclosed form of Proxy is solicited by the Board of Directors of Digex,
Incorporated in connection with the Annual Meeting of Stockholders of the
Company to be held at the Hyatt Regency Hotel, One Bethesda Metro Center,
Crystal Ballroom -- Level P3, Wisconsin Avenue at Old Georgetown Road, Bethesda,
Maryland 20814, on Thursday, June 1, 2000, at 10:00 a.m. Eastern Daylight
Savings Time, and at any and all adjournments thereof (the "Annual Meeting").
The Company's principal executive offices are located at One Digex Plaza,
Beltsville, Maryland 20705. This Proxy Statement and accompanying form of Proxy
will be first mailed to stockholders on or about May 12, 2000. The Annual Report
of the Company for the fiscal year ended December 31, 1999, accompanies this
Proxy Statement but is not part of the proxy soliciting materials.
VOTING RIGHTS, SOLICITATION AND RECOVERABILITY OF PROXIES
Stockholders of record as of the close of business on April 6, 2000 (the
"Record Date"), are the only persons entitled to vote at the Annual Meeting. As
of that date, there were issued and outstanding 24,150,000 shares of the
Company's Class A Common Stock, par value $.01 per share (the "Class A Common
Stock"), and 39,350,000 shares of the Company's Class B Common Stock, par value
$.01 per share (the "Class B Common Stock" and, together with the Class A Common
Stock, the "Common Stock"), the only outstanding securities of the Company
entitled to vote at the Annual Meeting. Each share of Class A Common Stock
outstanding entitles the holder thereof to one vote. Each share of Class B
Common Stock outstanding entitles the holder thereof to ten votes. The presence,
in person or by proxy, of the holders of a majority of the voting power of the
outstanding shares of Common Stock entitled to vote at the Annual Meeting will
constitute a quorum. Except in connection with the election of Directors,
abstentions and broker non-votes (i.e. shares of Common Stock represented at the
Annual Meeting by proxies held by brokers or nominees as to which (i)
instructions have not been received from the beneficial owners or persons
entitled to vote and (ii) the broker or nominee does not have discretionary
voting power on a particular voting matter) are counted as shares represented
and voted at the Annual Meeting only for the purpose of determining the number
of votes required to approve a proposal. However, shares of Common Stock
represented by proxies that withhold authority to vote for a nominee for
election as a Director (including broker non-votes) will not be counted as a
vote represented at the Annual Meeting for the purpose of determining the number
of votes required to elect such nominee.
Any stockholder giving a proxy will have the right to revoke it at any time
prior to its exercise by giving written notice of revocation to the Company,
Attention: Secretary, by filing a new written appointment of a proxy with an
officer of the Company or by voting in person at the Annual Meeting. Attendance
at the Annual Meeting will not automatically revoke the proxy. All shares
represented by effective proxies will be voted at the Annual Meeting. UNLESS
OTHERWISE SPECIFIED IN THE PROXY (AND EXCEPT FOR BROKER NON-VOTES AS DESCRIBED
ABOVE), SHARES REPRESENTED BY EFFECTIVE PROXIES WILL BE VOTED FOR (I) FOR THE
ELECTION OF THE NOMINEES FOR DIRECTOR, (II) FOR THE PROPOSAL TO RATIFY THE DIGEX
LONG-TERM INCENTIVE PLAN, (III) FOR THE PROPOSAL TO INCREASE THE NUMBER OF
SHARES AUTHORIZED FOR ISSUANCE PURSUANT TO AWARDS GRANTED UNDER THE DIGEX LONG-
TERM INCENTIVE PLAN, (IV) FOR THE RATIFICATION OF ERNST & YOUNG LLP AS THE
COMPANY'S INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING DECEMBER 31, 2000, AND
(V) IN THE DISCRETION OF THE PROXY HOLDERS WITH RESPECT TO SUCH OTHER MATTERS AS
MAY COME BEFORE THE ANNUAL MEETING.
1
<PAGE> 5
COST OF SOLICITATION
The cost of solicitation, including the cost of preparing and mailing the
Notice of Annual Meeting of Stockholders and this Proxy Statement, is being paid
by the Company. In addition, the Company may reimburse brokers and other persons
holding stock in the name of nominees for their expenses incurred in sending
proxy materials to their principals and obtaining their proxies.
PROPOSAL ONE:
ELECTION OF DIRECTORS
Eight Directors are to be elected at the Annual Meeting, each to hold
office until the next annual meeting of stockholders and until his successor is
duly elected and qualified. The election of Directors requires the affirmative
vote of a plurality of the votes represented and entitled to vote at the Annual
Meeting. The Board of Directors of Digex has nominated the following persons for
election as Directors: David C. Ruberg, John C. Baker, Philip A. Campbell,
Richard A. Jalkut, George F. Knapp, Robert M. Manning, Jack E. Reich, and Mark
K. Shull. Each of the nominees is currently a Director of the Company. In the
event that any nominee for any reason is unable or unwilling to serve, the
proxies may be voted for such substitute nominee as the present Board of
Directors may determine. The Company is not aware of any nominee who will be
unable or unwilling to serve as a Director.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE NOMINEES LISTED BELOW.
<TABLE>
<CAPTION>
DIRECTOR
NOMINEE AGE SINCE POSITION
------- --- -------- --------
<S> <C> <C> <C>
David C. Ruberg............................ 54 1999 Chairman of the Board of Directors
Mark K. Shull.............................. 44 1999 Director, President and Chief Executive
Officer
John C. Baker.............................. 50 1999 Director
Philip A. Campbell......................... 63 1999 Director
Richard A. Jalkut.......................... 55 1999 Director
George F. Knapp............................ 68 1999 Director
Robert M. Manning.......................... 40 2000 Director
Jack E. Reich.............................. 49 1999 Director
</TABLE>
David C. Ruberg has served as Director and Chairman of the Board of
Directors of Digex since April 1999. Mr. Ruberg has served as President, Chief
Executive Officer and a Director of Intermedia Communications Inc., our majority
stockholder, since May 1993, and as Chairman of the Board of Directors 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 currently serves as a
member of the Technical Advisory Committee of Baker Capital Corp. 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 February 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 July 1993 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.
2
<PAGE> 6
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 private equity investment management firm,
since September 1995. He served as Senior Vice President of Patricof & Co.
Ventures, Inc., a multi-national venture capital firm, from 1988 until August
1995. Mr. Baker is currently a Director of QS Communications AG, a German
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.
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 January 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 HSBC Bank USA, formerly Marine Midland Bank, a
commercial bank, a Director and Chairman of the Board of Directors of Ikon
Office Solutions, Inc., a company engaged in wholesale and retail office
equipment sales, and a Director of Home Wireless Networks, a company developing
a wireless product for home and business premises.
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.
Robert M. Manning has served as Director of Digex since January 2000. Mr.
Manning has served as Senior Vice President, Chief Financial Officer of
Intermedia since September 1996. Mr. Manning joined Intermedia from DMX Inc., a
Los Angeles-based cable programmer, where he was Executive Vice President,
Senior Financial Executive and a Director of DMX-Europe from October 1991 to
September 1996. Prior to his tenure at DMX, Mr. Manning spent ten years in the
investment banking field in corporate finance and mergers and acquisitions, most
recently with Oppenheimer and Co., Inc. as Vice President, Corporate Finance,
managing their Entertainment/Leisure Time Group from October 1988 to October
1991. Mr. Manning is a graduate of Williams College.
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. and serves on their Compensation Committee.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During 1999, the Board of Directors held seven meetings and took several
actions by unanimous written consent. All of the Directors were in attendance at
more than 75% of the meetings of the Board of Directors as well as all meetings
of each committee of the Board of Directors on which they served. The Board of
Directors has an Audit Committee and a Compensation Committee.
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
3
<PAGE> 7
functions. The audit committee is composed of Philip A. Campbell, George F.
Knapp and Richard A. Jalkut. The chairman of the audit committee is Mr.
Campbell. The Audit Committee held one meeting during 1999.
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 David C. Ruberg, and Jack
E. Reich. The chairman of the Compensation Committee is Mr. Ruberg. The
Compensation Committee held one meeting during 1999.
DIRECTOR COMPENSATION
Our Directors who are not employed by either Digex or Intermedia receive an
annual fee of $16,000 and a fee of $1,000 for each meeting (or $500 for each
telephonic meeting) of the Board of Directors or committees of the Board of
Directors attended in addition to reimbursement of actual out-of-pocket expenses
incurred in connection with attending these meetings. Each such Director is also
granted stock options in accordance with the terms of the Digex Long-Term
Incentive Plan. For a description of these awards, please see "Proposal Three:
Ratify Digex Long-Term Incentive Plan -- Formula Awards."
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.
We have entered 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, known as the "indemnitee," who is or
was a party to any legal action by or in the right of Digex or against the
indemnitee due to his or her position as a Digex Director or officer, 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 $50 million in indemnification coverage for our Directors, officers
and certain employees for certain liabilities.
4
<PAGE> 8
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1999, the Compensation Committee was comprised of Messrs. Ruberg and
Reich. No member of the Compensation Committee was at any time an officer or
employee of the Company or any of its subsidiaries. Mr. Ruberg is the President
and Chief Executive Officer and a Director of Intermedia, our parent. For a
description of certain relationships between Digex and Intermedia, see "Certain
Relationships and Related Transactions."
PROPOSAL TWO:
RATIFY DIGEX LONG-TERM INCENTIVE PLAN
The Company is seeking the ratification by the stockholders of the adoption
of the Digex Long-Term Incentive Plan (the "Plan"). The Plan permits awards of
stock, stock options, stock appreciation rights, restricted stock and other
stock-based awards and is intended to tie the participants awards under the Plan
to measures of corporate profitability and, in turn, shareholder value.
The Plan was adopted by the Board of Directors on July 23, 1999, subject to
the stockholder approval. On July 23, 1999, the holders of a majority of the
votes of the outstanding Common Stock approved the Plan. The Plan will continue
in effect until July 29, 2009. The shares of Digex subject to the Plan are
authorized but unissued shares of our Class A Common Stock or treasury stock.
Currently, no more than 9,000,000 shares of our Class A Common Stock, having a
market value of $998,442,000 based on the closing price of the Class A Common
Stock on April 1, 2000, may be issued under the Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE TO RATIFY THE DIGEX LONG-TERM
INCENTIVE PLAN.
The affirmative vote of a majority of the votes present or represented and
entitled to vote at the Annual Meeting is required for ratification of the Plan.
Because the Plan was approved by the Company's stockholders prior to the
Company's initial public offering, the Plan will continue to be in effect even
if not ratified by the stockholders. If the Plan is ratified by the stockholders
and certain other conditions are met, awards issued under the Plan will qualify
as "performance based compensation" under the applicable provisions of the
Internal Revenue Code. The Internal Revenue Code precludes a deduction by a
publicly held corporation of compensation expense relating to certain employees
to the extent that the compensation for the taxable year exceeds $1,000,000.
This deduction limit does not apply to certain performance based compensation.
If the Plan is not ratified or the Company is unable to meet the other
applicable conditions, awards under the Plan will not qualify as performance
based compensation and the Company may be unable to deduct for income tax
purposes the compensation expense associated with awards under the Plan.
The essential features of the Plan are summarized below:
All current and prospective employees, officers, Directors and consultants
of the Company, and those of our subsidiaries or any person that owns over 50%
of the voting power of our authorized and outstanding voting shares (a "Parent
Company") are eligible to receive awards under the Plan (currently approximately
5,000 people).
The Plan is administered by the Compensation Committee of our Board of
Directors. The compensation committee has the authority to select the employees,
officers, Directors and consultants whose performance 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 the effectuation of its purposes. With respect to options, the Compensation
Committee of the Board of Directors 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. However, only the Company's employees are eligible for grants of
incentive stock options.
5
<PAGE> 9
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.
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 are awarded to non-employee Directors (other than
Messrs. Ruberg and Manning) based on the following formula: stock options to
acquire 25,000 shares of Class A Common Stock are granted 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 of
Directors 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 (other than Messrs. Ruberg and Manning) are also
granted a stock option to acquire 5,000 shares of Class A Common Stock 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 are granted
at the fair market value of the Class A Common Stock on the date the options are
granted and 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 reason other than 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
6
<PAGE> 10
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 thereto, provided that the Board of Directors cannot make any
amendment to the Plan increasing the number of shares of 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.
FEDERAL INCOME TAX CONSEQUENCES
The following summary generally describes the principal federal (and not
state and local) income tax consequences of awards granted under the Plan. It is
general in nature and is not intended to cover all tax consequences that may
apply to a particular employee or to the Company. The provisions of the Internal
Revenue Code, and the regulations thereunder relating to these matters are
complicated and their impact in any one case may depend upon the particular
circumstances. This discussion is based on the Internal Revenue Code as
currently in effect.
The Plan is not subject to any of the requirements of the Employee
Retirement Income Security Act (ERISA), nor is it qualified under Section 401(a)
of the Internal Revenue Code.
Non-Incentive Stock Options. If an option is granted in accordance with
the terms of the Plan, no income will be recognized by the recipient at the time
the option is granted. On exercise of a stock option, the amount by which the
fair market value of the Class A Common Stock on the date of exercise exceeds
the purchase price of such shares will generally be taxable to the holder as
ordinary income, and will be deductible for tax purposes by the Company in the
year in which the holder recognizes the ordinary income. The disposition of
shares acquired upon exercise of a stock option will ordinarily result in
long-term or short-term capital gain or loss (depending on the applicable
holding period) in an amount equal to the difference between the amount realized
on such disposition and the sum of the purchase price and the amount of ordinary
income recognized in connection with the exercise of the stock option.
Incentive Stock Options. If an incentive stock option is granted in
accordance with the terms of the Plan, no income will be recognized by the
recipient at the time the incentive stock option is granted. On exercise of an
incentive stock option, the holder will generally not recognize any income and
the Company will generally not be entitled to a deduction for tax purposes.
However, the difference between the purchase price and the fair market value of
the shares received on the date of exercise will be treated as a positive
adjustment in determining alternative minimum taxable income, which may subject
the holder to the alternative minimum tax. The disposition of shares acquired
upon exercise of an incentive stock option will ordinarily result in long-term
capital gain or loss. However, if the holder disposes of shares acquired upon
exercise of an incentive stock option within two years after the date of grant
or within one year after the date of exercise (a "disqualifying disposition"),
the holder will generally recognize ordinary income, and the Company will
generally be entitled to a deduction for tax purposes, in the amount of the
excess of the fair market value of the Class A Common Stock on the date the
incentive stock option is so exercised over the purchase price (or the gain on
sale, if less). Any excess of the amount realized by the holder on the
disqualifying disposition over the fair market value of the shares on the date
of exercise of the incentive stock option will ordinarily constitute long-term
or short-term capital gain (depending on the applicable holding period).
7
<PAGE> 11
Stock Appreciation Rights. The amount of any cash (or the fair market
value of any Class A Common Stock) received upon the exercise of stock
appreciation rights under the Plan will be includible in the holder's ordinary
income and the Company will be entitled to a deduction for such amount.
Restricted Shares. If restricted shares are awarded in accordance with the
terms of the Plan, generally no income will be recognized by such holder at the
time such award is made. A Plan participant who is awarded restricted shares
will generally be required to include in his ordinary income, as compensation,
the fair market value of such restricted shares upon the lapse of the forfeiture
provisions applicable thereto, plus the amount of any dividend equivalents on
such restricted shares, less any amount paid therefor. The holder, however, may
elect to include in his ordinary income, as compensation, at the time the
restricted shares are first issued the fair market value of such restricted
shares at the time of receipt, less any amount paid therefor. Absent the making
of the election referred to in the preceding sentence, any cash dividends or
other distributions paid with respect to restricted shares prior to lapse of the
applicable restriction will be includible in the holder's ordinary income as
compensation at the time of receipt. In each case, the Company will be entitled
to a deduction in the same amount as the holder realizes compensation income.
PROPOSAL THREE:
INCREASE THE NUMBER OF SHARES AUTHORIZED FOR
ISSUANCE UNDER THE DIGEX LONG-TERM INCENTIVE
PLAN TO 15,000,000 SHARES
PROPOSED AMENDMENT
In April 2000, the Board of Directors adopted, subject to stockholder
approval, an amendment (the "Plan Amendment") to the Plan increasing the
aggregate number of shares of Class A Common Stock authorized for issuance under
the Plan from 9,000,000 to 15,000,000. The Board of Directors believes that
options and other stock awards have been, and will continue to be, an important
compensation element in attracting and retaining key employees. As of April 1,
2000, options to purchase an aggregate of 7,213,370 shares of Class A Common
Stock were issued and outstanding under the Plan, and 2,136,630 shares of Class
A Common Stock remained available for future grants of options.
If the Plan Amendment is approved, the Plan would cover an aggregate of
15,000,000 shares of Common Stock having an aggregate market value, as of April
1, 2000, of $1,664,070,000 and after taking into account awards made under the
Plan through April 1, 2000, an aggregate of 8,136,630 shares having an aggregate
market value as of April 1, 2000 of $902,661,459 would be available for future
issuance.
The Board of Directors believes that the increase in authorized shares of
the Plan is necessary to enable it to continue to make awards under the Plan so
as to attract and retain key employees. The affirmative vote of a majority of
votes present or represented and entitled to vote at the Annual Meeting is
required for approval of the Plan Amendment.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PLAN AMENDMENT.
PROPOSAL FOUR:
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has reappointed Ernst & Young LLP as independent
auditors to audit the financial statements of the Company for the year ending
December 31, 2000. A representative of Ernst & Young LLP is expected to be
present at the Annual Meeting, at which time such representative will have an
opportunity to make a statement, if he so desires, and will be available to
respond to appropriate questions. Ratification of the appointment of Ernst &
Young LLP as the Company's independent auditors for the year ending December 31,
2000 requires the affirmative vote of a majority of the votes present or
represented and entitled to vote at the Annual Meeting. In the event that the
stockholders do not ratify the appointment of
8
<PAGE> 12
Ernst & Young LLP, such appointment will be reconsidered by the Audit Committee
of the Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF ERNST &
YOUNG LLP AS THE COMPANY'S INDEPENDENT AUDITORS FOR THE YEAR ENDING DECEMBER 31,
2000.
EXECUTIVE OFFICERS
The names of the executive officers of the Company as of the date of this
Proxy Statement, other than Mr. Shull who is also a member of the Board of
Directors, together with certain biographical information for each of them is
set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Nancy G. Faigen................................. 42 President, Sales and Service Delivery Group
Rebecca Ward.................................... 36 President, Product Management, Engineering
and Marketing Group
Bryan T. Gernert................................ 33 Senior Vice President, Sales, Distribution
and Client Services
Timothy M. Adams................................ 40 Chief Financial Officer
Marthe S. Lattinville-Pace...................... 47 Vice President, Human Resources
Robert B. Patrick............................... 28 Vice President, Strategy and Business
Development
</TABLE>
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.
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.
Timothy M. Adams has served as Chief Financial Officer since January 2000.
From April 1997 to December 1999, he held various management positions at GTE
Internetworking and BBN Planet Corporation, prior to its acquisition by GTE
Internetworking, including Vice President of Operations, Circuits Management,
Vice President of Business Operations and Vice President of Finance. From May
1989 to April 1997, he held various financial positions with Trans National
Group Services, including Chief Financial
9
<PAGE> 13
Officer of Trans National Communications from September 1995 to April 1997. Mr.
Adams holds a B.S. in accounting from Murray State University, Murray, Kentucky
and an M.B.A. from Boston University. Mr. Adams is also a certified public
accountant. From June 1982 to May 1989 he held various positions in the audit
and tax departments of Price Waterhouse LLP, a predecessor of
PricewaterhouseCoopers LLP.
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 Strategy and Business
Development of Digex since January 2000. From July 1999 to December 1999, he
served as Vice President of Marketing of Digex. 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 September 1997 through
September 1998. He joined Digex in September 1996, as Senior Manager of Windows
NT 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.
No family relationship exists between any of the Directors and executive
officers of Digex.
EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Overview and Philosophy
The Compensation Committee of the Board of Directors is composed of two
Directors, one of whom is our Chairman of the Board and an employee of our
parent, Intermedia. The Compensation Committee is responsible for developing and
making recommendations to the Board with respect to the Company's executive
compensation policies and practices. In addition, the Compensation Committee,
pursuant to authority delegated by the Board, determines on an annual basis the
compensation to be paid to the Chairman of the Board and Chief Executive Officer
and each of the other officers of the Company.
The Company's executive compensation program is designed to enhance the
value of the Company to stockholders. This is accomplished through policies and
practices which facilitate the achievement of the Company's performance
objectives, provide compensation that will attract and retain the superior
talent required by the Company's aggressive goals, and align the officers'
interests with the interests of stockholders.
The executive compensation program provides an overall level of
compensation opportunity that is competitive within the Internet services
industry, as well as with a broader group of companies of comparable size and
complexity. The Compensation Committee uses its discretion to set individual
executive compensation at levels warranted in its judgment by industry practice,
company performance, individual performance, and internal equity. It is the
Company's philosophy to target annual cash compensation in the average range and
total compensation in the third quartile as compared to industry practice.
Executive Compensation Program
The Company's executive compensation program is comprised of base salary,
annual cash incentive compensation, stock options, restricted stock awards as
well as various benefits (including medical insurance and a 401K plan) which are
generally available to all employees of the Company.
10
<PAGE> 14
Base Salary
Base salary ranges for the Company's officers are set relative to companies
in the Internet services industry and other similar companies. In determining
actual salaries, the Compensation Committee takes into account individual
responsibilities, experience, performance and specific issues particular to the
Company.
At the direction of the Compensation Committee, the Company's Human
Resources department, with the assistance of an outside consultant firm
(collectively, the "HR Group"), evaluated the salary range for each officer's
position. The HR Group surveyed the compensation practices of Internet services
companies with business lines comparable to those of the Company and a broader
sample of high growth, technology companies with comparable current and
projected revenues. The Compensation Committee determined that officers'
salaries should be targeted within a range of 20% above and below the average
salary for officers in comparable positions within the industry, based on the
experience and performance of the individual officer.
Annual Cash Incentive Compensation
To provide the Company's officers and other key employees with direct
financial incentives to achieve the Company's annual and long-range goals, the
Board currently maintains an annual performance based incentive compensation
program for officers and other key employees. Early in each fiscal year, the
Compensation Committee will set a target bonus amount for each officer. The
Compensation Committee will approve several shared corporate objectives,
individual objectives, and targets for each objective for each officer. The
achievement of these objectives will determine the officer's eligibility to
receive the target bonus.
Stock Option Program
The Company's Long-Term Incentive Plan (the "Plan") seeks to align the
long-term interests of officers, employees, directors, and consultants with the
interests of stockholders. The Plan is designed to create a strong and direct
link between compensation and stockholder return and to enable officers,
employees, and directors to develop and maintain a significant, long-term
ownership position in the Company. The Plan contributes to the Company's ability
to attract and retain the best available personnel. It also provides additional
incentive to officers, employees, directors and consultants to exert their
maximum efforts toward the success of the Company.
During 1999, the Board granted options to officers, employees, consultants,
and directors to purchase shares of Common Stock. Total options granted, net of
forfeitures, were 5,704,020 for the year. Options to purchase shares granted to
officers were 1,835,000, net of forfeitures by exiting officers. In recommending
option grants for officers, the Compensation Committee was guided by the number
of options required to attract and retain officers with the talent, experience
and skill required to help the Company achieve its goals and to insure that the
interests of these officers are aligned with those of the stockholders. In
granting options to existing officers, the Committee considered the industry
practices for similar positions, each officer's individual performance, level of
responsibility and the potential impact of their position on the Company's
performance, each officer's potential, and the number of options previously
granted to each officer.
Chief Executive Officer Compensation
The full Board, rather than the Compensation Committee alone, determined
the initial compensation package of the Company's Chief Executive Officer and
President, Mark Shull. This included a base salary of $250,000, target bonus
opportunity of 60% of salary, 100,000 stock options of Intermedia and 500,000
stock options of the Company. Mr. Shull's actual bonus was determined following
the evaluation of 1999 results, and based 75% on Company revenue performance and
25% on assessment of his performance against strategic objectives. Following the
evaluation of 1999 results, the amount was determined to be $200,616.
11
<PAGE> 15
The Compensation Committee believes that Mr. Shull's compensation package
is in line with industry and market size standards and appropriate in light of
his performance and the Company's aggressive plans for growth.
David C. Ruberg
Jack E. Reich
SUMMARY COMPENSATION TABLE
The following table sets forth the total compensation of our Chief
Executive Officer and each of our four most highly compensated executive
officers whose total salary and bonus for 1999 exceeded $100,000 (each a "named
executive officer" and, collectively, the "named executive officers").
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION -------------------------
--------------------------------- SECURITIES SECURITIES
OTHER ANNUAL UNDERLYING UNDERLYING
NAME AND PRINCIPAL POSITION(1) YEAR SALARY BONUS COMPENSATION OPTIONS(10) OPTIONS(11)
- ------------------------------ ---- ------- ------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Mark K. Shull............... 1999 125,000(3) -- -- 500,000 100,000
President and Chief 1998 -- -- -- -- --
Executive Officer 1997 -- -- -- -- --
Nancy G. Faigen............. 1999 225,000(4) 225,000 125,000(8) 300,000 100,000
President, Sales and Service 1998 11,105 50,000 -- -- --
Delivery Group(2) 1997 -- -- -- -- --
Rebecca Ward................ 1999 91,667(5) 50,000 15,810(8) 250,000 50,000
President, Product 1998 -- -- -- -- --
Management, Engineering and
Marketing Group 1997 -- -- -- -- --
Bryan T. Gernert............ 1999 173,750(6) -- 140,587(9) 400,000 --
Senior Vice President, 1998 95,000 -- 166,108(9) -- --
Sales, Distribution and
Client Services 1997 75,000 -- 126,016(9) -- 33,552(12)
Robert B. Patrick........... 1999 137,500(7) 5,000 -- 100,000 --
Vice President, Strategy 1998 92,500 5,000 -- -- 5,000(12)
and Business Development 1997 65,000 7,500 -- -- 9,586(12)
</TABLE>
- ---------------
(1) Effective January 14, 2000, Timothy M. Adams became our Chief Financial
Officer. Mr. Adams' current annual base salary is $210,000. For a
description of the terms of his employment, see "Employment Agreements."
(2) Ms. Faigen served as President and Chief Executive Officer from December
1998 to June 1999.
(3) 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.
(4) Ms. Faigen has a target annual bonus opportunity equal to 50% of her base
salary.
(5) 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.
(6) Mr. Gernert's current annual base salary is $200,000. He has a target
annual bonus opportunity equal to 60% of his base salary.
(7) 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) This amount represents relocation expense.
(9) These amounts represent commission payments.
(10) Represents the number of shares of Class A Common Stock of Digex underlying
options granted to the named executive officers.
(11) Represents the number of shares of common stock of Intermedia underlying
options granted to the named executive officers.
(12) Options issued when executive was an employee of Intermedia.
12
<PAGE> 16
OPTIONS GRANTED DURING FISCAL YEAR 1999
The following table sets forth certain information regarding grants of stock
options to purchase our Class A Common Stock to our named executive officers
during fiscal year 1999. All options set forth below will expire on July 28,
2009. The vesting provisions of the options set forth below are described under
the caption "Employment Agreements." The potential realizable value at assumed
annual rates of price appreciation for all options set forth below were
calculated using the initial public offering price of $17.00 as the market price
on the date of grant.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------------
NUMBER OF % OF TOTAL MARKET POTENTIAL REALIZABLE VALUE AT
SECURITIES OPTIONS PRICE ASSUMED ANNUAL RATES OF STOCK PRICE
UNDERLYING GRANTED TO EXERCISE OR ON DATE APPRECIATION FOR OPTION TERM
OPTIONS EMPLOYEES IN BASE PRICE OF ------------------------------------
NAME GRANTED FISCAL YEAR PER SHARE GRANT 0% 5% 10%
---- ---------- ------------ ----------- ------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Mark K. Shull.............. 250,000 4.31 $ 5.00 $17.00 $3,000,000 $5,672,500 $9,772,500
250,000 4.31 17.00 17.00 0 2,672,500 6,772,500
Nancy G. Faigen............ 150,000 2.58 5.00 17.00 1,800,000 3,403,500 5,863,500
150,000 2.58 17.00 17.00 0 1,603,500 4,063,500
Rebecca Ward............... 125,000 2.15 5.00 17.00 1,500,000 2,836,250 4,886,250
125,000 2.15 17.00 17.00 0 1,336,250 3,386,250
Bryan T. Gernert........... 300,000 5.17 5.00 17.00 3,600,000 6,807,000 11,727,000
100,000 1.72 17.00 17.00 0 1,069,000 2,709,000
Robert B. Patrick.......... 50,000 .86 5.00 17.00 600,000 1,134,500 1,954,500
50,000 .86 17.00 17.00 0 534,500 1,354,500
</TABLE>
The following table sets forth certain information regarding grants of stock
options to purchase shares of Intermedia's common stock to our named executive
officers during fiscal 1999. The vesting provisions of the options set forth
below are described under the caption "Employment Agreements."
<TABLE>
<CAPTION>
ANNUAL COMPENSATION POTENTIAL REALIZABLE VALUE
------------------------- AT ASSUMED ANNUAL RATES
NUMBER OF % OF TOTAL OF STOCK PRICE
SECURITIES OPTIONS EXERCISE APPRECIATION FOR
UNDERLYING GRANTED TO OR OPTION TERM
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION ---------------------------
NAME GRANTED FISCAL YEAR PER SHARE DATE 5% 10%
---- ---------- ------------ ---------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Mark K. Shull........... 100,000 0.016 $30.94 7/29/2009 $2,183,050 $5,168,289
Nancy G. Faigen......... 100,000 0.016 15.00 1/15/2009 943,342 2,390,614
Rebecca Ward............ 50,000 0.008 30.00 7/29/2009 1,108,967 2,556,239
Bryan T. Gernert........ -- -- -- -- -- --
Robert B. Patrick....... -- -- -- -- -- --
</TABLE>
AGGREGATE OPTION EXERCISES IN FISCAL 1999 AND FISCAL YEAR-END OPTION VALUES
The following table shows the number of shares of our Class A Common Stock
covered by both exercisable and unexercisable options as of December 31, 1999
and the year-end value of exercisable and unexercisable options to purchase
shares of our Class A Common Stock as of December 31, 1999 for each named
executive officer. No options to purchase shares of our Class A Common Stock
were exercised in 1999.
13
<PAGE> 17
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1999 DECEMBER 31, 1999
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Mark K. Shull................................ -- 500,000 -- $28,875,000
Nancy G. Faigen.............................. -- 300,000 -- 17,325,000
Rebecca Ward................................. -- 250,000 -- 14,437,500
Bryan T. Gernert............................. -- 400,000 -- 24,300,000
Robert B. Patrick............................ -- 100,000 -- 5,775,000
</TABLE>
The following table shows the number of shares of Intermedia common stock
acquired upon exercise of stock options during the last fiscal year, the
aggregate value realized from those exercises, the number of shares of
Intermedia common stock covered by both exercisable and unexercisable options as
of December 31, 1999 and the year-end value of exercisable and unexercisable
options to purchase shares of Intermedia common stock as of December 31, 1999
for each named executive officer.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
# SHARES OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED DECEMBER 31, 1999 DECEMBER 31, 1999
ON $ VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Mark K. Shull............... -- -- 8,333 91,667 $ 65,602 $ 721,649
Nancy G. Faigen............. -- -- 20,000 80,000 476,250 1,905,000
Rebecca Ward................ -- -- 4,166 45,834 36,713 403,912
Bryan T. Gernert............ 6,000 137,640 26,756 5,592 820,123 171,406
Robert B. Patrick........... 5,000 69,287 6,796 5,348 263,770 207,569
</TABLE>
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 in 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
July 29, 1999, Mr. Shull was 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 $17.00 per share. 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 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.
14
<PAGE> 18
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. Ms. Faigen also received a $275,000
signing bonus.
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 July 29, 1999, Ms. Faigen was 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 $17.00 per
share. 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 July
29, 1999, Ms. Ward was 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 $17.00 per share. 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 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.
15
<PAGE> 19
On July 29, 1999, Mr. Gernert was 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 $17.00 per share.
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 $17.00 per
share. 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.
Timothy M. Adams. Mr. Adams' employment letter agreement provides for an
initial annual base salary of $210,000, and an annual bonus opportunity of 50%
of his initial annual base salary that will be based on the achievement of
certain corporate objectives. Mr. Adams is also entitled to receive a $75,000
signing bonus.
The agreement also provides Mr. Adams with options to purchase 250,000
shares of our Class A Common Stock. 50,000 of these options will be exercisable
at $10.00 per share and the balance will be exercisable at $34.00 per share.
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 Digex or Intermedia, all of Mr. Adams' unvested Digex options will vest on
the first anniversary of the change of control if Mr. Adams continues to be
employed by Digex at that date, or upon termination by Digex of Mr. Adams'
employment (other than for cause), if earlier.
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 July 29, 1999, Mr. Patrick was 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 $17.00 per share.
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.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
SERVICE AGREEMENTS
We have entered into the General and Administrative Services Agreement and
several network services agreements with Intermedia.
General and Administrative Services Agreement
Under the General and Administrative Services Agreement, Intermedia
provides 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;
16
<PAGE> 20
- legal services;
- information management services; and
- insurance coverage and related services.
The General and Administrative Services Agreement has a two-year initial
term which expires in July 2001. 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.
We paid Intermedia approximately $16.5 million for services provided under
the General and Administrative Services Agreement during the year ended December
31, 1999. Because the level of services provided by Intermedia have not been
reduced from the levels provided in the second quarter of 1999 as originally
anticipated, this agreement was recently amended to reset the fee to be paid to
Intermedia for services during each of the fourth quarter of 1999 and the first
quarter of 2000 to the same level as provided for in the second quarter of 1999
or $6.0 million. Intermedia also agreed to work with us to develop a transition
plan designed to reduce our reliance on general and administrative services
provided by Intermedia.
We also agreed to reimburse Intermedia for 50% of the 1999 bonus awards
payable to Intermedia's officers who supported our general and administrative
services. The reimbursement amount was $1.0 million.
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
In April 1999, we entered into two Internet transit services agreements and
a managed firewall reseller agreement with Intermedia.
The two Internet transit service agreements provide, among other things,
that:
- we will purchase and Intermedia will provide us with 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;
- 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 paid to Intermedia a total of $7.8 million in 1999 for Internet transit
services during the first year of these agreements.
17
<PAGE> 21
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. Due
to these restrictions, we are required to use all of the net proceeds of our
equity offerings to purchase telecommunications related assets, in each case
within 270 days of the offering. We have entered into letter agreements 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 the
offerings. Under the letter agreements, Intermedia is expected to pay us for the
telecommunications related assets so purchased 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. During 1999, Intermedia
purchased $25.3 million of telecommunications related assets from Digex.
RESTRUCTURING TRANSACTIONS
In conjunction with our initial public offering, Business Internet, Inc., a
wholly-owned subsidiary of Intermedia, contributed to us the Web hosting
business in exchange for all the shares of our Class B Common Stock. Subsequent
to our initial public offering, Business Internet contributed our Class B Common
Stock to its wholly-owned subsidiary, Intermedia Financial Company.
EXPENSE SHARING AND INDEMNITY ARRANGEMENTS
We agreed with Intermedia to allocate and pay the expenses of our February
2000 public offering, including any amounts arising from any indemnification or
contribution obligations, in proportion to the number of shares of Class A
Common Stock sold by us and by Intermedia.
SOFTWARE, EQUIPMENT AND SERVICES PURCHASES FROM MICROSOFT AND COMPAQ
We have in the past purchased and expect to continue to purchase computer
hardware, software and certain consulting services from both Microsoft and
Compaq pursuant to arrangements negotiated prior to or in connection with the
investment by Microsoft and Compaq in Digex. During the year ended December 31,
1999, we paid $18.7 million and $3.1 million for products and services provided
by Compaq and Microsoft, respectively.
BENEFICIAL OWNERSHIP
DIGEX
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 March 31, 2000;
- beneficial ownership of our Common Stock by each of our Directors and
named executive officers, as of March 31, 2000; and
18
<PAGE> 22
- beneficial ownership of our Common Stock by all of our Directors and
executive officers as a group, as of March 31, 2000.
The percentage of Digex common stock beneficially owned was calculated
based on 24,150,000 of Class A shares and 39,350,000 of Class B shares of common
stock outstanding on March 31, 2000.
<TABLE>
<CAPTION>
PERCENTAGE
OF VOTING
NUMBER OF PERCENTAGE POWER
SECURITIES SHARES OF CLASS OF
BENEFICIALLY BENEFICIALLY BENEFICIALLY COMMON
BENEFICIAL OWNER OWNED OWNED OWNED STOCK
---------------- -------------------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
Principal Stockholders:
Intermedia Communications Inc...... Class B 39,350,000(2) 100.0% 94.2%
3625 Queen Palm Drive Common Stock
Tampa, Florida 33619
FMR Corporation.................... Class A 2,884,800(3) 11.9% 0.7%
82 Devonshire Street Common Stock
Boston, MA 02109
Microsoft Corporation.............. Class A 1,263,494(4) 5.3% 0.3%
One Microsoft Way Common Stock
Redmond, Washington 98052
CPQ Holdings, Inc.(1).............. Class A 1,263,494(5) 5.3% 0.3%
20555 SH 249 Common Stock
Houston, Texas 77070
DIRECTORS AND EXECUTIVE OFFICERS:
David C. Ruberg.................... None -- -- --
Mark K. Shull...................... None -- -- --
Nancy G. Faigen.................... None -- -- --
Rebecca Ward....................... None -- -- --
Bryan T. Gernert................... None -- -- --
Timothy M. Adams................... None -- -- --
Robert B. Patrick.................. None -- -- --
John C. Baker...................... Class A Common Stock 13,334(6) * *
Philip A. Campbell................. Class A Common Stock 13,334(6) * *
Richard A. Jalkut.................. Class A Common Stock 13,334(6) * *
George F. Knapp.................... Class A Common Stock 13,334(6) * *
Robert M. Manning.................. None -- -- --
Jack E. Reich...................... Class A Common Stock 18,334(7) * *
All Directors and executive
officers as a group (14
persons)......................... Class A Common Stock 71,670(8) * *
</TABLE>
- ---------------
* less than 1%
(1) CPQ Holdings, Inc. is a wholly-owned subsidiary of Compaq Computer
Corporation.
(2) These shares are owned by Intermedia through its indirect wholly-owned
subsidiary, Intermedia Financial Company.
(3) Based upon information set forth in a Schedule 13G filed with the Commission
on March 10, 2000.
(4) Based upon information set forth in a Schedule 13G filed with the Securities
and Exchange Commission ("Commission") on January 21, 2000. Consists of
730,994 shares of Class A Common Stock issuable upon conversion of shares of
Series A Preferred Stock and 532,500 shares of Class A Common Stock issuable
upon exercise of presently exercisable warrants.
(5) Based upon information set forth in a Schedule 13G filed with the Securities
and Exchange Commission ("Commission") on January 24, 2000. Consists of
730,994 shares of Class A Common Stock issuable
19
<PAGE> 23
upon conversion of shares of Series A Preferred Stock and 532,500 shares of
Class A Common Stock issuable upon exercise of presently exercisable
warrants.
(6) Includes shares subject to options exercisable as of March 31, 2000 or
within 60 days thereafter.
(7) Includes 5,000 shares of Class A Common Stock and 13,334 shares subject to
options exercisable as of March 31, 2000 or within 60 days thereafter.
(8) Includes 5,000 shares of Class A Common Stock and 66,670 shares subject to
options exercisable as of March 31, 2000 or within 60 days thereafter.
INTERMEDIA
The following table provides information regarding:
(i) 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;
(ii) beneficial ownership of common stock of our parent, Intermedia, by
each of our Directors and named executive officers, as of March 31,
2000; and
(iii) beneficial ownership of common stock of our parent, Intermedia, by
all of our Directors and executive officers as a group, as of March
31, 2000.
The percentage of Intermedia common stock beneficially owned was calculated
based on 53,021,766 shares outstanding on March 31, 2000.
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF INTERMEDIA
SHARES COMMON STOCK
BENEFICIALLY BENEFICIALLY
BENEFICIAL OWNER SECURITIES BENEFICIALLY OWNED OWNED OWNED
---------------- ----------------------------- ------------ -------------
<S> <C> <C> <C>
ICI Ventures LLC......................... Intermedia common stock 7,555,556(1) 12.5%
c/o Kohlberg Kravis Roberts & Co., L.P.
9 West 57th Street
New York, NY 10019
Massachusetts Financial Services
Corp. ................................. Intermedia common stock 5,433,794(2) 10.3%
500 Boylston Street
Boston, MA 02116
Capital Research and Management Co. ..... Intermedia common stock 3,540,000(3) 6.7%
33 South Hope Street
Los Angeles, CA 90071
Wellington Management Co. LLP............ Intermedia common stock 2,823,782(4) 5.3%
75 State Street
Boston, MA 02109
Putnam Investments, Inc. ................ Intermedia common stock 2,672,035(5) 5.0%
One Post Office Square
Boston, MA 02109
DIRECTORS AND EXECUTIVE OFFICERS OF
DIGEX:
David C. Ruberg.......................... Intermedia common stock 1,057,839(6) 2.0%
Mark K. Shull............................ Intermedia common stock 16,667(7) *
Nancy G. Faigen.......................... Intermedia common stock 28,333(8) *
Rebecca Ward............................. Intermedia common stock 8,333(9) *
Bryan T. Gernert......................... Intermedia common stock 32,348(10) *
Timothy M. Adams......................... None -- --
Robert B. Patrick........................ Intermedia common stock 4,362(11) *
John C. Baker............................ Intermedia common stock 81,820(12) *
</TABLE>
20
<PAGE> 24
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF INTERMEDIA
SHARES COMMON STOCK
BENEFICIALLY BENEFICIALLY
BENEFICIAL OWNER SECURITIES BENEFICIALLY OWNED OWNED OWNED
---------------- ----------------------------- ------------ -------------
<S> <C> <C> <C>
Philip A. Campbell....................... Intermedia common stock 28,000(13) *
Richard A. Jalkut........................ None -- --
George F. Knapp.......................... Intermedia common stock 57,100(14) *
Robert M. Manning........................ Intermedia common stock 255,731(15) *
Jack E. Reich............................ Intermedia common stock 500(16) *
All Directors and executive officers as a
group (14 persons)..................... Intermedia common stock 2,524,034(17) 3.0%
</TABLE>
- ---------------
* Less than 1%
(1) Based upon information set forth in a Schedule 13D filed with the
Commission on February 25, 2000. Consists of 5,555,556 shares of Intermedia
common stock issuable upon conversion of shares of 7% Series G Junior
Convertible Participating Preferred Stock and 2,000,000 shares of common
stock issuable upon exercise of presently exercisable warrants. ICI
Ventures LLC is a limited liability company of which KKR 1996 Fund L.P. is
the managing member. KKR 1996 GP L.L.C. is the sole general partner of KKR
Associates 1996 L.P., which is the sole general partner of KKR 1996 Fund
L.P. KKR 1996 GP L.L.C. is a limited liability company, the managing
members of which are Messrs. Henry R. Kravis and George R. Roberts, and the
other members of which are Messrs. Paul E. Raether, Michael W. Michelson,
James H. Greene, Jr., Michael T. Tokarz, Edward A. Gilhuly, Perry Golkin,
Scott M. Stuart and Robert I. MacDonnell. Mr. Greene is a director of
Intermedia. Each of the individuals who are members of KKR 1996 GP L.L.C.
may be deemed to share beneficial ownership of any shares beneficially
owned by KKR 1996 GP L.L.C. Each of such individuals disclaims beneficial
ownership. KKR Partners II, L.P. owns less than a 4% membership interest in
ICI Ventures LLC.
(2) Based upon information set forth in a Schedule 13G/A filed with the
Commission' on March 29, 2000.
(3) Based upon information set forth in a Schedule 13G filed with the
Commission on February 14, 2000.
(4) Based upon information set forth in a Schedule 13G/A filed with the
Commission on February 11, 2000.
(5) Based upon information set forth in a Schedule 13G/A filed with the
Commission on February 17, 2000.
(6) Includes 183,600 shares of common stock, 65,400 shares subject to certain
vesting requirements and 808,839 shares subject to options exercisable as
of March 31, 2000 or within 60 days thereafter. Excludes 481,161 shares
subject to options that are not exercisable within 60 days of March 31,
2000.
(7) Includes 16,667 shares subject to options exercisable as of March 31, 2000
or within 60 days thereafter. Excludes 83,333 shares subject to options
that are not exercisable within 60 days of March 31, 2000.
(8) Includes 28,333 shares subject to options exercisable as of March 31, 2000
or within 60 days thereafter. Excludes 71,667 shares subject to options
that are not exercisable within 60 days of March 31, 2000.
(9) Includes 8,333 shares subject to options exercisable as of March 31, 2000
or within 60 days thereafter. Excludes 41,667 shares subject to options
that are not exercisable within 60 days of March 31, 2000.
(10) Includes 32,348 shares subject to options exercisable as of March 31, 2000
or within 60 days thereafter.
(11) Includes 4,362 shares subject to options exercisable as of March 31, 2000
or within 60 days thereafter. Excludes 3,334 shares subject to options that
are not exercisable within 60 days of March 31, 2000.
(12) Includes 52,190 shares of common stock and 29,630 shares subject to options
exercisable as of March 31, 2000 or within 60 days thereafter. Excludes 408
shares subject to options that are not exercisable within 60 days of March
31, 2000.
(13) Includes 28,000 shares subject to options exercisable as of March 31, 2000
or within 60 days thereafter.
21
<PAGE> 25
(14) Includes 9,570 shares of common stock and 47,530 shares subject to options
exercisable as of March 31, 2000 or within 60 days thereafter. Excludes 408
shares subject to options that are not exercisable within 60 days of March
31, 2000.
(15) Includes 35,600 shares of common stock, 29,800 shares subject to certain
vesting requirements and 190,331 shares subject to options exercisable as
of March 31, 2000 or within 60 days thereafter. Excludes 202,499 shares
subject to options that are not exercisable within 60 days of March 31,
2000.
(16) Includes 500 shares of common stock.
(17) Includes 280,960 shares of common stock, 95,200 shares subject to certain
vesting requirements and 1,197,406 shares subject to options exercisable as
of March 31, 2000 or within 60 days thereafter. Excludes 895,444 shares
subject to options that are not exercisable within 60 days of March 31,
2000.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires Directors and executive officers
of the Company, and persons who beneficially own more than 10% of the issued and
outstanding shares of Common Stock, to file reports of beneficial ownership and
changes in beneficial ownership with the Securities and Exchange Commission
("SEC"). Directors, executive officers and greater than 10% stockholders are
required by SEC regulation to furnish the Company copies of all Section 16(a)
forms they file.
Based on a review of the copies of the forms furnished to the Company or
representations by reporting persons, all of the filing requirements applicable
to its officers, Directors and greater than 10% stockholders were met for fiscal
year 1999.
COMPARATIVE STOCK PERFORMANCE
The graph below compares the cumulative total stockholder return on the
Class A Common Stock from the date of the Company's initial public offering on
July 29, 1999 through December 31, 1999 with the cumulative total return on the
NASDAQ Stock Market Index and the Inter@ctive Week Internet Index over the same
period (assuming an investment of $100 in the Class A Common Stock, the NASDAQ
Stock Market Index and the Inter@ctive Week Internet Index on July 29, 1999, and
reinvestment of all dividends).
[line graph]
<TABLE>
<CAPTION>
INTER@CTIVE WEEK INTERNET
DIGEX, INCORPORATED NASDAQ COMPOSITE INDEX
------------------- ---------------- -------------------------
<S> <C> <C> <C>
7/29/99 100.00 100.00 100.00
9/30/99 139.34 104.02 114.58
12/31/99 404.41 154.14 203.31
</TABLE>
22
<PAGE> 26
STOCKHOLDER PROPOSALS
Stockholders who wish to submit proposals for inclusion in the Proxy
Statement for the Company's Annual Meeting to be held in 2001 must comply with
and meet the requirements of Regulation 14a-8 of the Securities Exchange Act of
1934, as amended. That regulation requires, among other things, that any
proposal be included in the Company's Proxy Statement for its annual meeting in
2001, must be received by the Company at the Company's principal executive
office, One Digex Plaza, Beltsville, Maryland 20705, Attention: Robert B.
Patrick, Secretary, by December 28, 2000. In addition, if a stockholder presents
a proposal for action at the Company's 2001 annual meeting without providing the
Company with notice of such proposal by March 13, 2001, stock represented by
such meeting by proxies solicited by the Board may be voted in the discretion of
such proxy holders.
OTHER MATTERS
The Company knows of no matters other than the matters described above
which will be presented at the Annual Meeting. However, if other matters are
properly brought before the Annual Meeting, the persons voting the proxies will
vote them as they deem in the best interest of the Company.
COPIES OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE COMPANY'S FISCAL
YEAR ENDED DECEMBER 31, 1999, AS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION, BUT EXCLUDING EXHIBITS, WILL BE PROVIDED TO STOCKHOLDERS WITHOUT
CHARGE UPON WRITTEN REQUEST TO ROBERT B. PATRICK, SECRETARY, DIGEX,
INCORPORATED, ONE DIGEX PLAZA, BELTSVILLE, MD 20705.
BY ORDER OF THE BOARD OF DIRECTORS
David C. Ruberg
Chairman of the Board
April 27, 2000
23
<PAGE> 27
DIGEX, INCORPORATED
LONG-TERM INCENTIVE PLAN
I. PURPOSE
The purpose of the Digex, Incorporated Long-Term Incentive Plan (the
"Plan") is to attract and retain and provide incentives to employees, officers,
directors and consultants of the Corporation, and to thereby increase overall
shareholder value. The Plan generally provides for the granting of stock, stock
options, stock appreciation rights, restricted shares and other stock-based
awards to the eligible participants.
II. DEFINITIONS
(a) "Award" includes, without limitation, stock options (including
incentive stock options within the meaning of Section 422(b) of the Code) with
or without stock appreciation rights, dividend equivalent rights, stock awards,
restricted share awards, or other awards that are valued in whole or in part by
reference to, or are otherwise based on, the Common Stock ("other Common
Stock-based Awards"), all on a stand alone, combination or tandem basis, as
described in or granted under this Plan.
(b) "Award Agreement" means a written agreement setting forth the terms
and conditions of each Award made under this Plan.
(c) "Cause" means (i) any continued failure by the Participant to obey
the reasonable instructions of the person to whom he reports, (ii) continued
neglect by the Participant of his duties and obligations as an employee of his
employer, or a failure to perform such duties and obligations to the reasonable
satisfaction of the person to whom he reports, (iii) willful misconduct of the
Participant or other actions in bad faith by the Participant which are to the
detriment of the Corporation, the Parent or a Subsidiary including without
limitation conviction of a felony, embezzlement or misappropriation of funds and
conviction of any act of fraud or (iv) a breach of any material provision of any
employment agreement not cured within 10 days after written notice thereof.
(d) "Change of Control" means the sale, exchange or transfer of Common
Stock or common stock of the then Parent Company whether in one transaction or a
series of related transactions occurring within one year, which results in an
accumulation of 50% or more of the voting power of the outstanding Common Stock
or common stock of the then Parent Company (on a fully diluted basis) in one
holder or several affiliate holders (or any such transaction or transactions
occurring within six months that result in an accumulation of at least 35% of
the voting power of such Common Stock or common stock of the then Parent Company
(on a fully diluted basis)) or an event involving the sale or merger of the
Corporation or the then Parent
1
<PAGE> 28
Company or their assets which results in the holders of Common Stock or common
stock of the then Parent Company immediately prior to the occurrence of such
sale or merger holding less than a majority of the voting power of the
outstanding Common Stock or common stock of the then Parent Company immediately
thereafter.
(e) "Board" means the Board of Directors of the Corporation.
(f) "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
(g) "Committee" means the Compensation Committee of the Board or such
other committee of the Board as may be designated by the Board from time to time
to administer this Plan the members of which shall consist solely of two or more
members of the Board who are "Non-Employee Directors" within the meaning of Rule
16b-3 of the Exchange Act and are "outside directors" for purposes of Code
Section 162(m)(4)(C) of the Code.
(h) "Common Stock" means the Class A common stock, $.01 par value, of
the Corporation.
(i) "Corporation" means Digex, Incorporated, a Delaware corporation.
(j) "Employee" means an employee of the Corporation, a Subsidiary or
the Parent Company.
(k) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(l) "Fair Market Value" means the closing price for the Common Stock as
officially reported on the relevant date (or if there were no sales on such
date, on the next preceding date on which such closing price was recorded) by
the principal national securities exchange on which the Common Stock is listed
or admitted to trading, or, if the Common Stock is not listed or admitted to
trading on any such national securities exchange, the closing price as furnished
by the National Association of Securities Dealers through NASDAQ or a similar
organization if NASDAQ is no longer reporting such information, or, if the
Common Stock is not quoted on NASDAQ, as determined in good faith by resolution
of the Board (whose determination shall be conclusive), based on the best
information available to it.
(m) "Parent Company" means any person that owns over 50% of the voting
power of the Corporation's authorized and outstanding voting shares.
(n) "Participant" means an Employee, officer, director or consultant
who has been granted an Award under the Plan.
(o) "Plan Year" means a twelve-month period beginning with January 1 of
each year.
2
<PAGE> 29
(p) "Person" means an individual, a corporation, a partnership, an
association, a joint-stock company, a trust, any unincorporated organization, or
a government or political subdivision.
(q) "Subsidiary" means any corporation or other entity, whether
domestic or foreign, in which the Corporation has or obtains, directly or
indirectly, a proprietary interest of more than 50% by reason of stock ownership
or otherwise.
III. ELIGIBILITY
Any Employee, officer, director or consultant of the Corporation,
a Subsidiary or Parent Company of the Corporation, selected by the Committee
is eligible to receive an Award under Sections VI (a) and (b).
IV. PLAN ADMINISTRATION
(a) Except as otherwise determined by the Board, the Plan shall be
administered by the Committee. The Board, or the Committee to the extent
determined by the Board, shall periodically make determinations with respect to
the participation of Employees, officers, directors and consultants in the Plan
and, except as otherwise required by law or this Plan, the grant terms of
Awards, including vesting schedules, price, restriction or option period,
dividend rights, post-retirement and termination rights, payment alternatives
such as cash, stock, contingent awards or other means of payment consistent with
the purposes of this Plan, and such other terms and conditions as the Board or
the Committee deems appropriate which shall be contained in an Award Agreement
with respect to a Participant.
(b) The Committee shall have authority to interpret and construe the
provisions of the Plan and any Award Agreement and make determinations pursuant
to any Plan provision or Award Agreement which shall be final and binding on all
persons. No member of the Committee shall be liable for any action or
determination made in good faith, and the members shall be entitled to
indemnification and reimbursement in the manner provided in the Corporation's
Certificate of Incorporation, as it may be amended from time to time.
(c) The Committee shall have the authority at any time to provide for
the conditions and circumstances under which Awards shall be forfeited. The
Committee shall have the authority to accelerate the vesting of any Award and
the times at which any Award becomes exercisable. The Committee shall have the
authority to modify the term of any Award provided that any such modification
that adversely affects a Participant shall require the consent of the
Participant.
V. CAPITAL STOCK SUBJECT TO THE PROVISIONS OF THIS PLAN
3
<PAGE> 30
(a) The capital stock subject to the provisions of this Plan shall be
shares of authorized but unissued Class A Common Stock and shares of Class A
Common Stock held as treasury stock (the "Common Stock"). Subject to adjustment
in accordance with the provisions of Section XI, and subject to Section V(c)
below, the total number of shares of Common Stock available for grants of Awards
shall not exceed 9,000,000.(1)
(b) The grant of a restricted share Award shall be deemed to be equal
to the maximum number of shares which may be issued under the Award. Awards
payable only in cash will not reduce the number of shares available for Awards
granted under the Plan.
(c) There shall be carried forward and be available for Awards under
the Plan all of the following: (i) any unused portion of the limit set forth in
paragraph (a) of this Section V; (ii) shares represented by Awards which are
cancelled, forfeited, surrendered, terminated, paid in cash or expire
unexercised; and (iii) the excess amount of variable Awards which become fixed
at less than their maximum limitations.
VI. AWARDS UNDER THIS PLAN
(a) Discretionary Awards. As the Board or Committee may determine, the
following types of Awards and other Common Stock-based Awards may be granted
under this Plan on a stand alone, combination or tandem basis:
(i) Stock Option. A right to buy a specified number of shares
of Common Stock at a fixed exercise price during a specified time, all
as the Committee may determine.
(ii) Incentive Stock Option. An Award in the form of a stock
option which shall comply with the requirements of Section 422 of the
Code or any successor section as it may be amended from time to time.
Subject to adjustment in accordance with the provisions of Section XI,
the aggregate number of shares which may be subject to incentive stock
option Awards under this Plan shall not exceed 9,000,000 shares,
subject to Section V above. To the extent that Section 422 of the Code
requires certain provisions to be set forth in a written plan, said
provisions are incorporated herein by this reference.
(iii) Stock Appreciation Right. 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 Common Stock) the excess
of the Fair Market Value of a share of Common
- --------
(1) The number of shares of Common Stock subject to the Plan shall equal 15% of
the Common Stock issued and outstanding after the Corporation's initial public
offering. The figure of 9,000,000 shares reflected in this subsection is based
on the assumption that 60,000,000 shares will be issued and outstanding as a
result of the Corporation's initial public offering.
4
<PAGE> 31
Stock on the date the right is surrendered over the option exercise
price or other price specified in the Award Agreement.
(iv) Restricted Shares. The issuance of Common Stock to a
Participant subject to forfeiture until such restrictions, terms and
conditions as the Committee may determine are fulfilled.
(v) Dividend or Equivalent. A right to receive dividends or
their equivalent in value in Common Stock, cash or in a combination of
both with respect to any new or previously existing Award.
(vi) Stock Award. The issuance of Common Stock, which may be
on a contingent basis, to a Participant.
(vii) Other Stock-Based Awards. Other Common Stock-based
Awards which are related to or serve a similar function to those Awards
set forth in this Section VI(a).
(b) Formula Awards. In addition to any Awards granted under Section
VI(a), each member of the Board who is not, on the date on which any option is
to be granted pursuant to this paragraph (b) to such member, an employee of the
Corporation, a Subsidiary or a Parent Company (a "Non-Employee Director") shall
be granted stock options (which shall not comply with the requirements of
Section 422 of the Code) in accordance with the following formula: (i) a stock
option to acquire 25,000 shares of Common Stock shall be granted on the Grant
Date (defined below) at the Exercise Price (defined below) which option shall
become exercisable, so long as the Non-Employee Director continues to be a
member of the Board, as to 8,334 shares on the January 1 next following the
Grant Date and as to an additional 8,333 shares on January 1 of each of the two
years thereafter and (ii) a stock option to acquire 5,000 shares of Common Stock
shall be granted on the Grant Date and on each anniversary thereof at the
Exercise Price which options shall be immediately exercisable upon grant.
Notwithstanding the foregoing, in the event a Non-Employee Director fails to
attend at least 75% of the Board meetings in any calendar year, commencing with
calendar year 1999, such person shall automatically forfeit his right to
exercise that portion of the option provided for in clause (i) above that would
have otherwise become exercisable on the next following January 1 which portion
shall cease to be of any force or effect. For purposes of this Section VI(b),
"Grant Date" shall mean (x) the date on which the initial public offering of the
Corporation's Common Stock becomes effective, with respect to each Non-Employee
Director serving in such capacity on such date and (y) the date of his election
to the Board, with respect to each Non-Employee Director who was not serving in
such capacity on the date referred to in the preceding clause (x), and "Exercise
Price" shall mean (A) the Fair Market Value of the Common Stock on the
respective Grant Dates with respect to each option granted pursuant to clause
(i) above which should be deemed to be the initial price to the public for the
options granted on the effective date of the Corporation's initial public
offering and (B) the Fair Market Value of the Common Stock on each date of grant
with respect to options granted pursuant to clause (ii) above. Options granted
pursuant to this Section VI(b) shall expire and cease to be of any force or
effect on the earlier of the fifth anniversary of the date any such
5
<PAGE> 32
option was granted or the first anniversary of the date on which a Participant
ceases to be a member of the Board.
VII. CHANGE OF CONTROL
Notwithstanding anything in this Plan to the contrary, unless otherwise
specifically provided in a Participant's employment agreement with the
Corporation, a Subsidiary or a Parent Company of the Corporation, upon a Change
of Control, the option (i) if granted to a Non-Employee Director, shall become
fully vested and immediately exercisable and will continue to be exercisable in
whole or in part through the expiration date, (ii) if granted to any other
participant will become fully vested on the earlier of one year following the
occurrence of a Change of Control if the Participant continues to be employed by
the Corporation on such date or the date upon which Participant's employment is
terminated by the Corporation (other than for Cause).
VIII. AWARD AGREEMENTS
Each Award under the Plan shall be evidenced by an Award Agreement
setting forth the terms and conditions of the Award. Unless required by the
Committee, a Participant shall not be required to execute the Participant's
Award Agreement.
IX. OTHER TERMS AND CONDITIONS
(a) Assignability. Unless provided to the contrary in any Award, no
Award shall be assignable or transferable except by will or by the laws of
descent and distribution and during the lifetime of a Participant, the Award
shall be exercisable only by such Participant.
(b) Termination of Employment or Other Relationship. Unless otherwise
determined by the Committee in connection with the grant of an Award, the
following provision shall apply:
(i) If employment of the Participant with the Corporation, or
a Subsidiary or Parent Company shall be terminated for Cause, and
immediately after such termination the Participant shall not then be
employed by the Corporation, or a Subsidiary or Parent Company, the
Award to the extent not theretofore exercised shall expire forthwith.
(ii) If the Participant's employment with the Corporation, or
a Subsidiary or Parent Company shall terminate other than by reason of
death or for Cause, and immediately after such termination the
Participant shall not then be employed by the Corporation, or a
Subsidiary or Parent Company, the Award may be exercised at any time
within three months after such termination, subject to the provisions
of clause (iv) of this subparagraph (b). The Award, to the extent
unexercised, shall expire on the day three months after the termination
of the Participant's employment with his employer.
6
<PAGE> 33
(iii) If the Participant dies (A) while employed by the
Corporation, or Subsidiary or Parent Company or (B) within three months
after the termination of his employment other than for Cause, the Award
may be exercised at any time within six months after the Participant's
death, subject to the provisions of clause (iv) of this subparagraph
(b). The Award, to the extent unexercised, shall expire on the day six
months after the Participant's death.
(iv) The Award may not be exercised pursuant to this
subparagraph (b) except to the extent that the Participant was entitled
to exercise the Award at the time of the termination of his employment,
or at the time of his death, and in any event may not be exercised on
and after the tenth anniversary of the date of the Award.
(c) Rights as a Stockholder. A Participant shall have no rights as a
stockholder with respect to shares covered by an Award until the date the
Participant is the holder of record. No adjustment will be made for dividends or
other rights for which the record date is prior to such date.
(d) No obligation to Exercise. The grant of an Award shall impose no
obligation upon the Participant to exercise the Award.
(e) Payments by Participants. The Committee may determine that Awards
for which a payment is due from a Participant may be payable: (i) in U.S.
dollars by personal check, bank draft or money order payable to the order of the
Corporation, by money transfers or direct account debits; (ii) through the
delivery or deemed delivery based on attestation to the ownership of shares of
Common Stock with a Fair Market Value equal to the total payment due from the
Participant; (iii) pursuant to a broker-assisted "cashless exercise" program if
established by the Corporation; (iv) by a combination of the methods described
in (i) through (iii) above; or (v) by such other methods as the Committee may
deem appropriate.
(f) Withholding. Except as otherwise provided by the Committee, (i) the
deduction of withholding and any other taxes required by law will be made from
all amounts paid in cash and (ii) in the case of payments of Awards in shares of
Common Stock, the Participant shall be required to pay the amount of any taxes
required to be withheld prior to receipt of such stock, or alternatively, a
number of shares the Fair Market Value of which equals the amount required to be
withheld may be deducted from the payment.
(g) Restrictions on Sale and Exercise. With respect to officers and
directors for purposes of Section 16 of the Exchange Act, and if required to
comply with rules promulgated thereunder, (i) no Award providing for exercise, a
vesting period, a restriction period or the attainment of performance standards
shall permit unrestricted ownership of Common Stock by the Participant for at
least six months from the date of grant, and (ii) Common Stock acquired pursuant
to this Plan (other than Common Stock acquired as a result of the granting of a
"derivative security") may not be sold for at least six months after
acquisition.
7
<PAGE> 34
(h) Maximum Awards. The maximum number of shares of Common Stock with
respect to which options or stock appreciation rights may be granted to any
single Participant under this Plan in any single Plan Year is 1,000,000.
X. TERMINATION, MODIFICATION AND AMENDMENTS.
(a) The Plan may from time to time be terminated, modified or amended
by the affirmative vote of the holders of a majority of the votes of the
outstanding shares of the capital stock of the Corporation present or
represented and entitled to vote at a duly held stockholders meeting.
(b) The Board may at any time terminate the Plan or from time to time
make such modifications or amendments of the Plan as it may deem advisable;
provided, however, that the Board shall not make any material amendments to the
Plan without the approval of at least the affirmative vote of the holders of a
majority of the votes of the outstanding shares of the capital stock of the
Corporation present or represented and entitled to vote at a duly held
stockholders meeting.
(c) No termination, modification or amendment of the Plan may adversely
affect the rights conferred by an Award without the consent of the recipient
thereof.
XI. RECAPITALIZATION
The aggregate number of shares of Common Stock as to which Awards may
be granted to Participants, the number of shares thereof covered by each
outstanding Award and by each option award granted or to be granted in
accordance with the formula set forth in paragraph (b) of Section VI hereof, and
the price per share thereof in each such Award, shall all be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a subdivision or consolidation of shares or other capital
adjustment, or the payment of a stock dividend or other increase or decrease in
such shares, effected without receipt of consideration by the Corporation, or
other change in corporate or capital structure; provided, however, that any
fractional shares resulting from any such adjustment shall be eliminated. The
Committee may also make the foregoing changes and any other changes, including
changes in the classes of securities available, to the extent it is deemed
necessary or desirable to preserve the intended benefits of the Plan for the
Corporation and the Participants in the event of any other reorganization,
recapitalization, merger, consolidation, spin-off, extraordinary dividend or
other distribution or similar transaction.
XII. NO RIGHT TO EMPLOYMENT
8
<PAGE> 35
Except as provided in Section VI (b) with respect to options granted to
Non-Employee Directors, no person shall have any claim or right to be granted an
Award, and the grant of an Award shall not be construed as giving a Participant
the right to be retained in the employ of, or in many other relationship with,
the Corporation, a Subsidiary or the Parent Company. Further, the Corporation,
each Subsidiary and the Parent Company expressly reserve the right at any time
to dismiss a Participant free from any liability, or any claim under the Plan,
except as provided herein or in any Award Agreement issued hereunder.
XIII. GOVERNING LAW
To the extent federal laws do not otherwise control, the Plan shall be construed
in accordance with and governed by the laws of the State of Delaware.
XIV. SAVINGS CLAUSE
This Plan is intended to comply in all aspects with applicable laws and
regulations, including, with respect to those Employees who are officers or
directors for purposes of Section 16 of the Exchange Act, Rule 16b-3 under the
Exchange Act. In case any one or more of the provisions of this Plan shall be
held invalid, illegal or unenforceable in any respect under applicable law and
regulation (including Rule 16b-3), the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby
and the invalid, illegal or unenforceable provision shall be deemed null and
void; however, to the extent permissible by law, any provision which could be
deemed null and void shall first be construed, interpreted or revised
retroactively to permit this Plan to be construed in compliance with all
applicable laws (including Rule 16b-3) so as to foster the intent of this Plan.
XV. EFFECTIVE DATE AND TERM
The Plan shall become effective upon adoption by the Board, subject to
approval of the Plan by the affirmative vote of the holders of a majority of the
votes of the outstanding shares of the capital stock of the Company entitled to
vote thereon within one year following adoption of the Plan by the Board. All
Awards granted prior to such approval by the stockholders shall be subject to
such approval and shall not be exercisable and/or transferable prior thereto. In
the event such approval is not obtained within such one-year period, the Plan
and all Awards granted thereunder shall be null and void. The Plan shall
terminate on the tenth anniversary of the date on which it becomes effective. No
Award shall be granted after the termination of the Plan.
9
<PAGE> 36
PROXY DIGEX, INCORPORATED
SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 1, 2000
The undersigned hereby appoints David C. Ruberg and Mark K. Shull, or
either of them, each with the power to appoint his substitute, and hereby
authorizes them to represent and to vote, as designated on the reverse side,
all shares of Common Stock of Digex, Incorporated (the "Company") held of
record by the undersigned on April 6, 2000 at the Annual Meeting of
Stockholders to be held on June 1, 2000 at 10:00 a.m., Eastern U.S. Time, at
the Hyatt Regency Hotel, One Bethesda Metro Center, Crystal Ballroom - Level P3,
Wisconsin Avenue at Old Georgetown Road, Bethesda, Maryland 20814, and any
adjournments thereof.
When this Proxy is properly executed, the shares to which this Proxy
relates will be voted as specified. IF NO SPECIFICATION IS MADE, WILL BE VOTED
FOR THE BOARD OF DIRECTOR NOMINEES AND FOR PROPOSALS 2, 3, AND 4. This Proxy
also authorizes the above designated Proxies to vote in their discretion on
such other business as may properly come before the meeting or any
adjournments or postponements thereof to the extent authorized by Rule 14a-4(c)
promulgated under the Securities Exchange Act of 1934, as amended.
[X] PLEASE MARK VOTES AS IN THIS EXAMPLE.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSALS:
1. ELECTION OF DIRECTORS
Nominees:
John C. Baker, Philip A. Campbell, Richard A. Jalkut, George F. Knapp,
Robert M. Manning, Jack E. Reich, David C. Ruberg, Mark K. Shull
[ ] FOR ALL NOMINEES LISTED ABOVE [ ] AGAINST [ ] ABSTAIN
Instruction: To withhold authority to vote for any individual nominee, write
that nominee's name on the space provided below:
--------------------------------
2. RATIFICATION OF THE DIGEX LONG-TERM INCENTIVE PLAN.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. AMENDMENT OF THE DIGEX LONG TERM INCENTIVE PLAN OF COMMON STOCK RESERVED FOR
ISSUANCE THEREUNDER BY 6,000,000 SHARES.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. RATIFICATION OF APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANY'S
INDEPENDENT AUDITORS.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
[See reverse side](Continued and to be signed on reverse side)
<PAGE> 37
(Continued from other side)
PLEASE SIGN EXACTLY AS YOUR NAME(S) APPEAR(S) ON THIS PROXY. IF SHARES OF STOCK
STAND OF RECORD IN THE NAMES OF TWO OR MORE PERSONS OR IN THE NAME OF HUSBAND
AND WIFE, WHETHER AS JOINT TENANTS OR OTHERWISE, BOTH OR ALL OF SUCH PERSONS
SHOULD SIGN THIS PROXY. IF SHARES OF STOCK ARE HELD OF RECORD BY A CORPORATION,
THIS PROXY SHOULD BE EXECUTED BY THE PRESIDENT OR VICE PRESIDENT AND THE
SECRETARY OR ASSISTANT SECRETARY. EXECUTORS, ADMINISTRATORS OR OTHER
FIDUCIARIES WHO EXECUTE THIS PROXY FOR A DECEASED STOCKHOLDER SHOULD GIVE THEIR
FULL TITLE. PLEASE DATE THIS PROXY.
PLEASE MARK, SIGN, DATE AND RETURN PROMPTLY USING THE ENCLOSED ENVELOPE.
MARK HERE FOR ADDRESS
CHANGE AND NOTE BELOW [ ]
----------------------------------------
----------------------------------------
----------------------------------------
Whether or not you plan to attend the
meeting in person, you are urged to
complete, date, sign and promptly mail
this Proxy in the enclosed return
envelope so that your shares may be
represented at the meeting.
Signature: Date:
--------------------------------------- -----------------------
