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[LOGO OF DIGEX BUSINESS INTERNET]
June 11, 1997
Dear Stockholder:
We are pleased to inform you that DIGEX, Incorporated (the "Company") has
entered into an Agreement and Plan of Merger (the "Merger Agreement") with
Intermedia Communications Inc. ("Intermedia") and its subsidiary Daylight
Acquisition Corp. (the "Purchaser"), that provides for the acquisition of the
Company by Intermedia. Under the terms of the Merger Agreement, the Purchaser
today commenced a tender offer to purchase all of the Company's outstanding
common stock at $13.00 per share in cash. Following the successful completion
of the tender offer, under the terms of the Merger Agreement, the Purchaser
will be merged with the Company and all shares not purchased in the tender
offer will receive the same $13.00 in cash in the merger. The acquisition is
subject to antitrust approvals and other customary conditions.
Your Board of Directors has unanimously approved the Merger Agreement, the
tender offer and the merger and determined that the terms of the tender offer
and the merger are fair to, and in the best interest of, the Company and its
stockholders. Accordingly, the Board of Directors recommends that stockholders
accept the offer and tender all of their shares pursuant to the offer.
In arriving at its recommendation, the Board of Directors gave careful
consideration to a number of factors which are described in the enclosed
Schedule 14D-9, including the opinion of the Company's financial advisor,
Friedman, Billings, Ramsey & Co., Inc., that the $13.00 per share cash
consideration to be received by stockholders pursuant to the offer and the
merger, taken as a whole, is fair to such stockholders from a financial point
of view. In addition, certain stockholders of the Company, including its two
founders, have agreed to tender an aggregate of over 50% of the Company's
outstanding shares in the tender offer.
Additional information with respect to the transaction is contained in the
enclosed Schedule 14D-9, and we urge you to consider this information
carefully.
On behalf of the management and directors of the Company, we thank you for
the support you have given to your Company.
Sincerely yours,
/s/ Christopher R. McCleary
Christopher R. McCleary
Chairman of the Board, President
and Chief Executive Officer
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
Amendment No. 1
to
SCHEDULE 14D-9
Solicitation/Recommendation Statement Pursuant to
Section 14(d)(4) of the Securities Exchange Act of 1934 and
Information Pursuant to Section 14(f) of the Securities Exchange Act of 1934
----------------
DIGEX, INCORPORATED
(Name of Subject Company)
DIGEX, INCORPORATED
(Name of Person(s) Filing Statement)
COMMON STOCK, PAR VALUE $0.01 PER SHARE
(Title of Class of Securities)
253754 10 5
(CUSIP Number of Class of Securities)
Christopher R. McCleary
President, Chairman and Chief Executive Officer
Digex, Incorporated
One Digex Plaza
Beltsville, MD 20705
(301) 847-5000
(Name, Address and Telephone Number Of Person Authorized to Receive Notice
and Communications on Behalf of the Person(s) Filing this Statement)
----------------
Copy to:
James F. Rogers, Esq.
Latham & Watkins
1001 Pennsylvania Avenue, N.W.
Suite 1300
Washington, D.C. 20004
(202) 637-2200
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ITEM 1. SECURITY AND SUBJECT COMPANY
The name of the subject company is DIGEX, Incorporated, a Delaware
corporation (the "Company"). The address of the principal executive offices of
the Company is One DIGEX Plaza, Beltsville, Maryland 20705. The title of the
class of equity securities to which this Solicitation/Recommendation Statement
on Schedule 14D-9 (this "Schedule 14D-9") relates is the Company's Common
Stock, par value $0.01 per share (the "Shares").
ITEM 2. TENDER OFFER OF THE BIDDER
This Schedule 14D-9 relates to the tender offer by Daylight Acquisition
Corp., a Delaware corporation (the "Purchaser") and a direct wholly-owned
subsidiary of Intermedia Communications Inc. ("Intermedia"), to purchase all
of the outstanding Shares at a price of $13.00 per share, net to the seller in
cash, without interest thereon, upon the terms and subject to the conditions
set forth in the Offer to Purchase, dated June 11, 1997 and the related Letter
of Transmittal (collectively , the "Offer"), filed as exhibits to the
Statement on Schedule 14D-1, dated June 11, 1997 (collectively, the "Schedule
14D-1"), filed by the Purchaser and Intermedia with the Securities and
Exchange Commission (the "Commission"). The description in this Schedule 14D-9
of any agreement, instrument, document or portion thereof filed as an exhibit
to this Schedule 14D-9 is qualified in its entirety by reference to the copy
of such agreement, instrument, document or portion thereof filed as such
exhibit hereto. According to the Schedule 14D-1, the address of the principal
executive offices of the Purchaser and Intermedia is 3625 Queen Palm Drive,
Tampa, Florida 33619.
On June 4, 1997, the Company entered into an Agreement and Plan of Merger
(the "Merger Agreement") with Purchaser and Intermedia. The Merger Agreement
provides, subject to the terms thereof, for the merger (the "Merger") of the
Purchaser with and into the Company, with the Company as the surviving
corporation (the "Surviving Corporation"). In the Merger, among other things,
each Share, other than Shares held in the treasury of the Company or by
Intermedia or any subsidiary of Intermedia or the Company and other than
Shares, if any, held by stockholders who perfect their appraisal rights under
the General Corporation Law of the State of Delaware, will be converted into,
exchanged for and represent the right to receive $13.00 in cash, without
interest thereon. See "Item 3(b). Identity and Background" for a summary of
the Merger Agreement. A copy of the Merger Agreement is filed herewith as an
exhibit and is incorporated herein by reference.
ITEM 3. IDENTITY AND BACKGROUND
(a) The name and business address of the Company, which is the person filing
this Schedule 14D-9, is set forth above under Item 1.
(b)(1) Certain contracts, agreements, arrangements or understandings between
the Company and certain of its directors and executive officers may result in
a conflict of interest between such directors and executive officers and (i)
the Company or (ii) Intermedia, the Purchaser, executive officers of directors
of Intermedia or the Purchaser or affiliates of Intermedia or the Purchaser.
Certain of the Company's directors and executive officers hold Shares and
options to purchase common stock of the Company, as described in the Company's
Proxy Statement and Notice of Annual Meeting of Stockholders, dated as of
April 25, 1997, and incorporated herein by reference. An information statement
containing the information required by Section 14(f) of the Securities
Exchange Act of 1934 and Rule 14f-1 promulgated thereunder is attached hereto
as Annex A.
(b)(2) As described in the Company's Proxy Statement and Notice of Annual
Meeting of Stockholders, dated as of April 25, 1997, certain non-employee
directors of the Company hold options to purchase Shares. These options vest
upon a change of control of the Company. The Merger Agreement provides that if
the conditions to the Offer are satisfied and Shares are purchased pursuant
thereto, Intermedia will acquire any remaining Shares pursuant to a merger
between the Company and the Purchaser. The consummation of the Offer (as well
as the consummation of the Merger) would constitute a change of control.
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(b)(3) On June 4, 1997, the Company, Purchaser, and Intermedia entered into
the Merger Agreement. In connection with the execution of the Merger Agreement
and as required by Intermedia, certain stockholders of the Company (the
"Investors") entered into the Stock Purchase Agreement, dated June 4, 1997,
pursuant to which each such Investor, severally and jointly, (i) irrevocably
agreed to validly tender and sell (and not to withdraw) such Investor's Shares
(the "Investor Shares") pursuant to and in accordance with the Offer and (ii)
granted Intermedia an option to purchase such Investor's Shares at a price of
$13.00 per share (each an "Investor Option" and collectively, the "Investor
Options"). The following is a summary of certain provisions of the Merger
Agreement and the Stock Purchase Agreement. Such summary is qualified in its
entirety by reference to the full text of the Merger Agreement and the Stock
Purchase Agreement, which have been filed as exhibits hereto, and which are
incorporated herein by reference.
The Offer. The Merger Agreement provides for the making of the Offer.
Without the prior written consent of the Company, Purchaser has agreed that it
will not (i) decrease the price per Share payable in the Offer or change the
form of consideration payable in the Offer, (ii) decrease the number of Shares
sought pursuant to the Offer, (iii) impose additional conditions to the Offer
other than those set forth below or (iv) modify the conditions of the Offer
(provided that Intermedia or Purchaser in its sole discretion may waive any
such conditions). The obligation of Purchaser to consummate the Offer and to
accept for payment and to pay for any Shares tendered pursuant to the Offer
will be subject only to the conditions set forth below. The Offer may not be
extended for more than 20 days beyond its original scheduled expiration date
unless any of the conditions to the Offer have not been satisfied; provided,
however, in the event Purchaser desires to extend the Offer beyond July 31,
1997, and the proposed length of the extension is, in the aggregate, more than
three days, the Company will have the right to consent to such longer
extension. Intermedia has agreed to cause Purchaser to, and Purchaser has
agreed to use its reasonable best efforts to, consummate the Offer as soon as
legally permissible, subject to satisfaction of the conditions to the Offer
and its right to extend for 20 additional days as provided above.
Board Representation. The Merger Agreement provides that promptly upon the
purchase by Purchaser of Shares pursuant to the Offer or the Stock Purchase
Agreement, and from time to time thereafter, Purchaser shall be entitled to
designate up to such number of directors, rounded up to the next whole number,
on the Board of Directors of the Company as will give Purchaser representation
on the Board of Directors of the Company equal to the product of the number of
directors on the Board of Directors of the Company (giving effect to the
directors elected pursuant to this sentence) multiplied by the percentage that
the aggregate number of Shares beneficially owned by Purchaser or any
affiliate of Purchaser following such purchase bears to the total number of
Shares then outstanding, and the Company shall, at such time, promptly take
all actions necessary to cause Purchaser's designees to be elected or
designated as directors of the Company, including increasing the size of the
Board of Directors of the Company or securing the resignations of incumbent
directors or both. Notwithstanding the foregoing, until the earlier of (i) the
time Purchaser acquires a majority of the then outstanding Shares on a fully
diluted basis and (ii) the consummation of the Merger (the "Effective Time"),
the Company will use its reasonable best efforts to ensure that all the
members of the Board of Directors of the Company and each committee thereof as
of June 4, 1997 who are not employees of the Company will remain members of
the Board of Directors and of such committees. The Company will also use its
reasonable best efforts to cause persons designated by Purchaser to constitute
the same percentage as persons designated by Purchaser shall constitute of the
entire Board of Directors of the Company to be on each committee of the Board
of Directors of the Company. The Company's obligations to appoint designees to
its Board of Directors shall be subject to Section 14(f) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). At the request of
Purchaser and subject to applicable law, the Company has agreed to take all
action necessary to effect any such election or appointment of Purchaser's
designees, including mailing to its stockholders the information required by
Section 14(f) of the Exchange Act and Rule 14f-l promulgated thereunder.
Purchaser and Intermedia are obligated to supply to the Company all
information with respect to themselves and their officers, directors and
affiliates required by such Section and Rule.
The Merger. The Merger Agreement provides that upon the terms and subject to
the conditions of the Merger Agreement, and in accordance with relevant law,
Purchaser shall be merged with and into the Company
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as soon as practicable following the satisfaction or waiver, if permissible,
of the conditions to the Merger. The Company shall be the Surviving
Corporation and shall continue its existence under the laws of the State of
Delaware. The Certificate of Incorporation of the Company shall be the
Certificate of Incorporation of the Surviving Corporation, provided that such
Certificate of Incorporation shall be amended in its entirety to read as
Purchaser's Certificate of Incorporation (except the name of the Surviving
Corporation shall be "DIGEX, Incorporated"). The By-Laws of the Purchaser in
effect immediately prior to the Effective Time will be the By-Laws of the
Surviving Corporation. The Directors of Purchaser immediately prior to the
Effective Time and the officers of the Company immediately prior to the
Effective Time shall be the directors and officers, respectively, of the
Surviving Corporation until their respective successors are duly elected and
qualified. Upon consummation of the Merger, each share of the common stock of
Purchaser issued and outstanding immediately prior to the Effective Time shall
be converted into and become one share of common stock of the Surviving
Corporation, which will thereupon become a direct wholly owned subsidiary of
Intermedia. The parties to the Merger Agreement shall cause the Merger to be
consummated by filing with the Secretary of State of the State of Delaware a
certificate of merger, as required by the DGCL. The Merger will become
effective upon such filing or at such time thereafter as is provided under
applicable law.
Consideration to be Paid in the Merger. In the Merger, each Share issued and
outstanding immediately prior to the Effective Time (other than Shares held by
Purchaser, Intermedia or any subsidiary of Purchaser or Intermedia or in the
treasury of the Company, all of which shall be canceled, and other than Shares
held by stockholders who have properly exercised their right(s) of appraisal),
by virtue of the Merger and without any action on the part of the holder
thereof, shall be converted into, exchanged for and represent the right to
receive in cash an amount per Share equal to the price per Share paid in the
Offer, without interest.
Company Stock Options and Warrants. At the Effective Time, all options and
warrants then outstanding under the Company's 1995 Incentive Stock Option Plan
and the 1996 Equity Participation Plan (collectively, the "Company Stock
Option Plans") will be assumed by Intermedia in such manner that Intermedia is
a corporation "assuming a stock option in a transaction to which Section
424(a) applies" within the meaning of Section 424 of the Internal Revenue Code
of 1986, as amended (the "Code"). The options and warrants assumed by
Intermedia as provided above will be exercisable upon the same terms and
conditions as under the Company Stock Option Plans and the option agreements
and warrants issued thereunder, except that each such option or warrant (i)
will be exercisable for that number of shares of Intermedia's common stock
equal to the product of (A) the number of shares of the Company's common stock
subject to such option or warrant immediately prior to the Effective Time
multiplied by (B) a fraction, the numerator of which will be $13.00 and the
denominator of which will be $27 1/8 (with any fractional share of
Intermedia's common stock being disregarded) and (ii) the exercise price per
share of Intermedia's common stock will equal the exercise price per share of
the Company's common stock theretofore in effect multiplied by a fraction, the
numerator of which will be $27 1/8 and the denominator of which will be
$13.00. From and after the Effective Time, no additional options or warrants
will be granted under the Company Stock Option Plans. In connection with the
assumption of the options outstanding under the Company Stock Option Plans,
Intermedia will use its best efforts to effect such assumption in such a
manner as to not affect the incentive stock option status of those options
which are intended to be incentive stock options at the Effective Time. The
Company has agreed not to accelerate, or take any action which would cause the
acceleration of, the vesting of any of the options outstanding under the
Company Stock Option Plans by reason of the Offer or the Merger. On June 4,
1997, Intermedia consented to the grant by the Company of options to purchase
up to 200,000 Shares at an exercise price of $3.00 per Share to certain senior
officers of the Company.
Stockholder Meeting. The Merger Agreement provides that, if required by
applicable law in order to consummate the Merger, the Company will, as soon as
practicable following consummation of the Offer, duly call, give notice of,
convene and hold a meeting of its stockholders for the purpose of considering
and taking action on the Merger Agreement and the transactions contemplated
thereby. The Merger Agreement also provides that the Company will (i) include
in the proxy statement related to such stockholders meeting the unanimous
recommendation of the Board of Directors of the Company that the stockholders
of the Company
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approve and adopt the Merger Agreement and the transactions contemplated
thereby and (ii) use its reasonable best efforts to secure such approval and
adoption. Intermedia and Purchaser have each agreed under the Merger Agreement
that, at such stockholder meeting, all of the Shares then owned by Intermedia
or Purchaser or any of their affiliates will be voted in favor of the Merger.
If Purchaser or Intermedia acquires at least 90% of the outstanding Shares,
the Merger may be effected without a meeting of the stockholders in accordance
with the "short-form" merger provisions of Section 253 of the DGCL.
Representations and Warranties. The Merger Agreement contains various
representations and warranties of the parties thereto. These include
representations and warranties by the Company with respect to corporate
existence and good standing, capital structure, subsidiaries, corporate
authorization, absence of changes, Commission filings, consents and approvals,
no violations of other agreements, investment banking fees, employee benefits,
labor relations, litigation, taxes, compliance with applicable laws,
intellectual property, real property, insurance, material contracts, related
party transactions, liens and other matters.
Purchaser and Intermedia have also made certain representations and
warranties with respect to corporate existence and good standing, corporate
authorization, Commission filings relating to the Offer and the Merger,
consents and approvals, no violations of other agreements, solvency and other
matters.
Conduct of Business and Other Covenants Pending the Merger. The Company has
agreed that, except with the prior written consent of Intermedia and
Purchaser, during the period from the date of the Merger Agreement to the
Effective Time, the Company will carry on its business in, and only in, the
ordinary and usual course in the same manner as previously conducted and, to
the extent consistent with such business, the Company will use all reasonable
efforts to preserve intact its current business organization, to keep
available the services of its current officers and employees and to preserve
the goodwill of, and maintain satisfactory relationships with, customers,
suppliers and others having business dealings with the Company. The Company
has agreed to promptly advise Intermedia and Purchaser in writing of the
occurrence of any event which will or may result in the failure to satisfy the
conditions to the Offer or the Merger.
In addition, except with the prior written consent of Intermedia and
Purchaser, prior to the time specified in the first sentence in the preceding
paragraph, the Company has agreed that it will: (i) not amend its Certificate
of Incorporation or By-Laws; (ii) maintain all of its material structures,
equipment and other tangible personal property in good repair, order and
condition, except for depletion, depreciation, ordinary wear and tear and
damage by unavoidable casualty; (iii) keep in full force and effect insurance
comparable in amount and scope of coverage to insurance currently carried by
it; (iv) perform in all material respects all of its obligations under
agreements, contracts and instruments relating to or affecting its properties,
assets and business; (v) maintain its books of account and records in the
usual, regular and ordinary manner; (vi) comply in all material respects with
all statutes, laws, ordinances, rules and regulations applicable to it and to
the conduct of its business; (vii) not enter into, assume or amend in any
material respect any material agreement, contract or commitment of the
Company, except, in certain cases, in the ordinary course of business
consistent with past practice; (viii) not enter into any additional contracts
or agreements for network capacity or local transport services which are not
terminable by the Company, without penalty or other adverse consequence, on
not more than 60 days notice; (ix) not enter into any additional customer
contracts or agreements containing rates which are materially different from
the rates charged by the Company to current customers of similar
creditworthiness, ordering similar amounts of services and over a similar
term; (x) not merge or consolidate with, or agree to merge or consolidate
with, or purchase substantially all the assets of, or otherwise acquire any
business of any corporation, partnership, association or other business
organization or division thereof; (xi) not purchase for cash and cancel any
options outstanding under the Company Stock Option Plans or otherwise amend
such Company Stock Option Plans; (xii) promptly advise Intermedia and
Purchaser in writing of any materially adverse change in the consolidated
financial condition, operations or business of the Company; (xiii) not declare
or pay dividends (cash or otherwise) or make any distribution on, or directly
or indirectly redeem, purchase or otherwise acquire, any shares of its
outstanding capital stock; (xiv) not effect any stock split or other
reclassification; (xv) not authorize the creation
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or issuance of or issue, sell or dispose of, or create any obligation to
issue, sell or dispose of, any shares of its capital stock or any securities
or obligations convertible into or exchangeable for, any shares of its capital
stock (other than pursuant to stock options or warrants heretofore
outstanding); (xvi) not issue any press releases without first consulting with
Intermedia regarding any such press release; (xvii) not create, incur, assume,
guarantee or otherwise become directly or indirectly liable with respect to
any indebtedness for borrowed money other than in the ordinary course of
business consistent with past practice under agreements existing on the date
of the Merger Agreement and identified in writing to Intermedia and Purchaser;
and (xviii) not enter into any agreement or understanding to do or engage in
any of the foregoing.
No Solicitation. The Company has agreed that it will not, directly or
indirectly, through any officer, director, agent or otherwise (a) solicit,
initiate or encourage the submission of any proposal or offer from any person
relating to any acquisition or purchase of all or (other than in the ordinary
course of business) any portion of the assets of, or any equity interest in,
the Company or any business combination (other than private network agreements
entered into by the Company in the ordinary course of business) with the
Company (a "Company takeover proposal") or (b) except to the extent required
by fiduciary obligations under applicable law as advised in writing by
independent counsel, participate in any negotiations regarding, or furnish to
any other person any information with respect to, or otherwise cooperate in
any way with, or assist or participate in, facilitate or encourage, any effort
or attempt by any other person to do or seek any of the foregoing. The Company
must notify Intermedia promptly of any Company takeover proposal or any
inquiry or contact with any person with respect thereto, that is made and
must, in any such notice to Intermedia, indicate in reasonable detail the
identity of the person making such Company takeover proposal or related
inquiry or contact and the terms and conditions of such Company takeover
proposal or related inquiry or contact. In addition, the Company may not
release any third party from, or waive any provision of, any confidentiality
or standstill agreement to which the Company is a party.
Fees and Expenses. The Merger Agreement provides that all costs and expenses
incurred in connection with the Merger Agreement and the transactions
contemplated by the Merger Agreement shall be paid by the party incurring such
expenses, except that (i) the Company will be required to pay a termination
payment and reimburse certain expenses of Intermedia and Purchaser to
Intermedia under certain circumstances described in "Termination Payment"
below and (ii) Intermedia and the Company have agreed to share evenly any
filing fees required by the Hart-Scott-Rodino Antitrust Improvements Act of
1976 (the "HSR Act").
Conditions to the Merger. Pursuant to the Merger Agreement, the respective
obligations of each party to effect the Merger are subject to the satisfaction
or waiver, prior to the proposed Effective Time, of the following conditions:
(i) unless the Merger is consummated pursuant to the "short-form" merger
provisions of Section 253 of the General Corporation Law of the State of
Delaware (the "DGCL"), the Merger and the Merger Agreement shall have been
validly approved and adopted by the affirmative votes of the holders of a
majority of the outstanding Shares; (ii) all permits, approvals and consents
of any governmental or regulatory authority or any other third party necessary
or appropriate for consummation of the Merger shall have been obtained, other
than consents the failure to obtain which would not reasonably be expected to
have, individually or in the aggregate, a material adverse effect on the
Company or a material adverse effect on the consummation of the transactions
contemplated by the Merger Agreement; (iii) Purchaser or a permitted assignee
shall have purchased all Shares validly tendered and not withdrawn pursuant to
the Offer; provided, however, that this condition shall not be applicable to
the obligations of Intermedia and Purchaser if, in breach of the Merger
Agreement or the terms of the Offer, Purchaser fails to purchase any Shares
validly tendered and not withdrawn pursuant to the Offer; (iv) no preliminary
or permanent injunction or other order of a court or governmental or
regulatory authority shall have been issued and be in effect, and no United
States federal or state statute, rule or regulation shall have been enacted or
promulgated after the date hereof and be in effect, that (A) prohibits the
consummation of the Merger or (B) imposes material limitations on the ability
of Intermedia to exercise full rights of ownership of the Company's assets or
business; (v) there shall not be any action or proceeding commenced by or
before any governmental or regulatory authority in the United States, or
threatened by any governmental or regulatory authority in the United States,
that challenges the consummation of the Merger or seeks to impose material
limitations on the ability of Intermedia to exercise full rights of
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ownership of the Company's assets or business, other than any such action or
proceeding commenced by a stockholder or stockholders of Intermedia or the
Company, either derivatively on behalf of Intermedia or the Company,
respectively, or on behalf of such stockholder or stockholders, alleging that
the directors or officers of Intermedia or the Company, respectively, have
breached their fiduciary duties to stockholders under Delaware law or
Intermedia or the Company has failed to make disclosures required to be made
under applicable state or federal securities laws, in each case in connection
with the transactions contemplated by the Merger Agreement, or making any
similar claim; and (vi) any waiting period applicable to the consummation of
the Merger under the HSR Act shall have expired or been terminated.
Conditions of the Offer. Notwithstanding any other provision of the Offer,
Purchaser shall not be required to accept for payment or pay for any Shares
tendered pursuant to the Offer, and may terminate or amend the Offer and may
postpone the acceptance for payment of and payment for Shares tendered, if (i)
the condition that there being validly tendered and not withdrawn at the
expiration of the Offer a majority of the then outstanding Shares on a fully-
diluted basis (including, without limitation, all Shares issuable upon the
conversion of any convertible securities or upon the exercise of any options,
warrants or rights) (the "Minimum Condition") shall not have been satisfied,
(ii) any applicable waiting period under the HSR Act shall not have expired or
been terminated prior to the expiration of the Offer, or (iii) at any time on
or after the date of the Merger Agreement, and prior to the acceptance for
payment of Shares, any of the following conditions shall exist:
1. there shall have been instituted or be pending any action or
proceeding before any court or governmental, administrative or
regulatory authority or agency, domestic or foreign, (i) that would
reasonably be expected to make illegal, materially delay or otherwise
directly or indirectly restrain or prohibit the making of the Offer,
the acceptance for payment of, or payment for, any Shares by
Intermedia, Purchaser or any other affiliate of Intermedia, the
purchase of Shares pursuant to the Stock Purchase Agreement, or the
consummation of any other transaction contemplated by the Merger
Agreement, or that would reasonably be expected to result in material
damages in connection with any transaction contemplated by the Merger
Agreement, (ii) that would reasonably be expected to prohibit or limit
materially the ownership or operation by the Company, Intermedia or
any of their subsidiaries of all or any material portion of the
business or assets of the Company, or to compel the Company,
Intermedia or any of their subsidiaries to dispose of or hold separate
all or any material portion of the business or assets of the Company,
Intermedia or any of their subsidiaries, as a result of the
transactions contemplated by the Merger Agreement, (iii) that would
reasonably be expected to impose or confirm limitations on the ability
of Intermedia, Purchaser or any other affiliate of Intermedia to
exercise effectively full rights of ownership of any Shares,
including, without limitation, the right to vote any Shares acquired
by Purchaser pursuant to the Offer, the Stock Purchase Agreement or
otherwise on all matters properly presented to the Company's
stockholders, including, without limitation, the approval and adoption
of the Merger Agreement and the transactions contemplated thereby,
(iv) that would reasonably be expected to require divestiture by
Intermedia, Purchaser or any other affiliate of Intermedia of any
Shares, or (v) which otherwise is a Material Adverse Change (as
defined below);
2. there shall have been any action taken, or any statute, rule,
regulation, legislation, interpretation, judgment, order or injunction
enacted, entered, enforced, promulgated, amended, issued or deemed
applicable to (i) Intermedia, the Company or any subsidiary or
affiliate of Intermedia or the Company or (ii) any transaction
contemplated by the Merger Agreement, by any legislative body, court,
government or governmental, administrative or regulatory authority or
agency, domestic or foreign, other than the routine application of the
waiting period provisions of the HSR Act to the Offer, the Stock
Purchase Agreement or the Merger, which is reasonably likely to
result, directly or indirectly, in any of the consequences referred to
in clauses (i) through (v) of paragraph (1) above;
3. there shall have occurred any change, condition, event or development
that is a Material Adverse Change. "Material Adverse Change" means
any change or effect that, individually or in the aggregate with all
other changes or effects, is or is reasonably likely to be materially
adverse to the business,
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operations, properties, condition (financial or otherwise), assets,
liabilities or prospects of the Company, except for changes or effects
that result primarily from the Offer, the contemplated Merger or the
contemplated control of the Company by Intermedia, including any action
or inaction by any employee (other than a senior executive officer or
director) of the Company or any other third party primarily due to the
Offer, the contemplated Merger or the contemplated control of the
Company by Intermedia;
4. there shall have occurred (i) any general suspension of, or
limitation on prices for, trading in securities on the Nasdaq Stock
Market for more than one trading day, (ii) any decline, measured from
June 4, 1997, in the Standard & Poor's 500 Index by an amount in
excess of 25%, (iii) a declaration of a banking moratorium or any
suspension of payments in respect of banks in the United States, (iv)
any direct material limitation (whether or not mandatory) by any
government or governmental, administrative or regulatory authority or
agency, domestic or foreign, on the extension of credit by banks or
other lending institutions, (v) a commencement of a war or armed
hostilities or other national or international calamity directly or
indirectly involving the United States or (vi) in the case of any of
the foregoing existing on the date of the Merger Agreement, a
material acceleration or worsening thereof;
5. (i) it shall have been publicly disclosed or Purchaser shall have
otherwise learned that beneficial ownership (determined for the
purposes of this paragraph as set forth in Rule 13d-3 promulgated
under the Exchange Act) of 30% or more of the then outstanding Shares
has been acquired by any person other than Intermedia or any of its
affiliates or other than those persons executing the Stock Purchase
Agreement or (ii) (A) the Board of Directors of the Company or any
committee thereof shall have withdrawn or modified in a manner
adverse to Intermedia or Purchaser the approval or recommendation of
the Offer, the Merger or the Merger Agreement, or approved or
recommended any takeover proposal or any other acquisition of Shares
other than the Offer and the Merger, (B) any corporation,
partnership, person or other entity or group shall have entered into
a definitive agreement or an agreement in principle with the Company
with respect to a tender offer or exchange offer for any Shares or a
merger, consolidation or other business combination with or involving
the Company or (C) the Board of Directors of the Company or any
committee thereof shall have resolved to do any of the foregoing;
6. any representation or warranty of the Company in the Merger Agreement
which is qualified as to materiality shall not be true and correct or
any such representation or warranty that is not so qualified shall
not be true and correct in any material respect, in each case as if
such representation or warranty was made as of such time on or after
the date of the Merger Agreement (other than representations or
warranties made as of a specific date, which shall only be made as of
such date); provided, that for purposes of this condition, the term
"Material Adverse Change" is substituted for the term "Material
Adverse Effect" in all representations and warranties containing such
term which are deemed to be made after the date of the Merger
Agreement by virtue of this paragraph, and the Company shall not have
delivered to Intermedia a certificate of the Company to such effect
signed by a duly authorized officer thereof and dated as of the date
on which Intermedia first accepts Shares for payment;
7. the Company shall have failed to perform in any material respect any
obligation or to comply in any material respect with any agreement or
covenant of the Company to be performed or complied with by it under
the Merger Agreement and, in the case of failures to perform any
agreement or covenant of the Company pursuant to Sections 5.1 (b),
(c), (d) and (f) of the Merger Agreement, such failure to perform
would reasonably be expected to have a Material Adverse Change;
8. the Merger Agreement shall have been terminated in accordance with
its terms;
9. Purchaser and the Company shall have agreed that Purchaser shall
terminate the Offer or postpone the acceptance for payment of or
payment for Shares thereunder;
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10. any holder of options to purchase shares of the Company's common stock
(other than Clyde Heintzelman) whose options vest on a change of
control shall have failed to waive the vesting of such options upon a
change of control of the Company;
which, in the reasonable judgment of Purchaser in any such case, and
regardless of the circumstances (including any action or inaction by
Intermedia or any of its affiliates) giving rise to any such condition, makes
it inadvisable to proceed with such acceptance for payment or payment.
The foregoing conditions are for the sole benefit of Purchaser, Intermedia
and their respective subsidiaries and affiliates, and may be asserted by
Purchaser or Intermedia regardless of the circumstances giving rise to any
such condition or may be waived by Purchaser or Intermedia in whole or in part
at any time and from time to time in their sole discretion subject to the
terms and conditions of the Merger Agreement. The failure by Intermedia or
Purchaser at any time to exercise any of the foregoing rights shall not be
deemed a waiver of any such right, the waiver of any such right with respect
to particular facts and other circumstances shall not be deemed a waiver with
respect to any other facts and circumstances, and each such right shall be
deemed an ongoing right that may be asserted at any time and from time to
time. Any determination by Purchaser concerning the events described in this
paragraph entitled "Conditions to the Offer" will be final and binding on all
parties.
In addition, the Company agreed that prior to the consummation of the Offer
by Purchaser (and as a condition thereto), the Company will, if Intermedia
makes available an Intermedia Loan (as defined below), repay all indebtedness
of the Company other than vendor indebtedness, it being expressly understood
that if Intermedia does not make available to the Company an Intermedia Loan,
then the repayment of such indebtedness will not be a condition to the
consummation of the Offer. To the extent requested by the Company, Intermedia
will make a loan to the Company in principal amount sufficient to pay in full
(including principal, accrued interest, fees, penalties and other charges) all
indebtedness required to be repaid by the Company pursuant to the preceding
sentence (an "Intermedia Loan"). The Intermedia Loan will (i) have a maturity
of 180 days, (ii) bear interest at a rate to be negotiated in good faith by
the parties taking into account the interest rate that could be obtained by
the Company on any bank or other financial institution financing and (iii)
have such other terms as shall be mutually agreed to by the Company and
Intermedia, acting in good faith and a commercially reasonably manner.
Termination. The Merger Agreement may be terminated at any time prior to the
Effective Time, whether before or after approval by the stockholders of the
Company: (i) by consent of the Boards of Directors of the Company, Intermedia
and Purchaser, except that in the case of termination after the consummation
of the Offer, the termination must be consented to by a majority of the
independent directors of the Company; (ii) by Intermedia and Purchaser upon
notice to the Company if any material default under or material breach of any
covenant or agreement in the Merger Agreement by the Company shall have
occurred and shall not have been cured within ten days after receipt of such
notice, or any representation or warranty contained in the Merger Agreement on
the part of the Company shall not have been true and correct in any material
respect at and as of the date made; (iii) by the Company upon notice to
Intermedia and Purchaser if any material default under or material breach of
any covenant or agreement in the Merger Agreement by Intermedia or Purchaser
shall have occurred and shall not have been cured within ten days after
receipt of such notice, or any representation or warranty contained in the
Merger Agreement on the part of Intermedia or Purchaser shall not have been
true and correct in any material respect at and as of the date made; (iv) by
Intermedia and Purchaser, on the one hand, or the Company, on the other, upon
notice to the other if the Merger shall not have become effective on or before
October 31, 1997, unless such date is extended by the consent of the Boards of
Directors of the Company, Intermedia and Purchaser evidenced by appropriate
resolutions; provided, however, that the right to terminate the Merger
Agreement under this provision is not available to any party whose failure to
fulfill any obligation under the Merger Agreement has been the cause of, or
resulted in, the failure of the Effective Time to occur on or before such
date; (v) by Intermedia if due solely to an occurrence or circumstance that
would result in a failure to satisfy any condition to the Offer, Purchaser
shall have (A) failed to commence the Offer within 60 days following the date
of the Merger Agreement, (B) terminated the Offer without having accepted any
Shares for payment thereunder or (C) failed to pay for Shares pursuant to the
Offer within 90 days following the
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commencement of the Offer, unless such failure to pay for Shares shall have
been caused by or resulted from the failure of Intermedia or Purchaser to
perform in any material respect any material covenant or agreement of either
of them contained in the Merger Agreement or the material breach by Intermedia
or Purchaser of any material representation or warranty of either of them
contained in the Merger Agreement; (vi) by the Company, upon approval of the
Board of Directors of the Company, if due to an occurrence or circumstance
that would result in a failure to satisfy any of the conditions to the Offer,
Purchaser shall have (A) failed to commence the Offer within 60 days following
the date of the Merger Agreement, (B) terminated the Offer without having
accepted any Shares for payment thereunder or (C) failed to pay for Shares
pursuant to the Offer within 90 days following the commencement of the Offer,
unless such failure to pay for Shares shall have been caused by or resulted
from the failure of the Company to perform in any material respect any
material covenant or agreement of it contained in the Merger Agreement or the
material breach by the Company of any material representation or warranty of
it contained in the Merger Agreement; (vii) by any of Intermedia, Purchaser
and the Company if the approval of the stockholders of the Company required
for consummation of the Merger shall not have been obtained by reason of the
failure to obtain the required vote at a duly held meeting of stockholders or
any adjournment thereof; (viii) by Intermedia or Purchaser if the Company
breaches the provisions of the Merger Agreement relating to solicitation of
other offers (as described above); or (ix) by Intermedia or Purchaser if, at
any time, the Company shall have withdrawn or modified in any manner adverse
to Intermedia or Purchaser its approval or recommendation of the Offer, the
Merger Agreement or the Merger.
Effect of Termination. In the event of the termination of the Merger
Agreement as provided above, the provisions of the Merger Agreement (other
than the provisions relating to confidentiality, expenses, and the termination
payment) will become void and have no effect, with no liability on the part of
any party thereto or its stockholders or directors or officers in respect
thereof, except with respect to the termination payment, provided that nothing
contained in the Merger Agreement will be deemed to relieve any party of any
liability it may have to any other party with respect to a willful breach of
its obligations under the Merger Agreement.
Termination Payment. The Company agreed to pay to Intermedia the sum of
$3,794,135 plus all reasonably documented out-of-pocket expenses (including,
but not limited to, the reasonable fees and expenses of counsel and its other
advisers) of Intermedia and Purchaser incurred in connection with the
transactions contemplated by the Merger Agreement (including the preparation
and negotiation of the Merger Agreement) ("Intermedia Expenses") promptly
after, but in no event later than two days following, whichever of the
following first occurs: (i) Intermedia or Purchaser shall have exercised its
right to terminate the Merger Agreement pursuant to the provisions described
in clauses (ii), (vii), (viii) and (ix) of the paragraph above entitled
"Termination"; (ii) Intermedia or Purchaser shall have exercised its right to
terminate the Merger Agreement pursuant to clause (v) of the paragraph above
entitled "Termination", but only because of the failure of one or more of the
conditions specified in clauses 3, 5, 6, 7 or 10 of the paragraph above
entitled "Conditions to the Offer"; (iii) the Company shall have exercised its
right to terminate the Merger Agreement pursuant to clause (vii) of the
paragraph above entitled "Termination"; or (iv) any person or group, other
than Intermedia or an affiliate thereof, shall have acquired at least 50% of
the outstanding Shares. The Company is not obligated to make such termination
payment if at the time such payment becomes due Intermedia or Purchaser is in
material breach of its obligations under the Merger Agreement.
Compliance with Conditions Precedent, etc. Intermedia, Purchaser and the
Company each agreed to use commercially reasonable efforts to cause the
conditions precedent to the Offer and the Merger to be fulfilled and, subject
to the terms and conditions in the Merger Agreement, to take, or cause to be
taken, all action, and to do or cause to be done all things necessary, proper
or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by the Merger Agreement and the
Merger, including without limitation, to lift any injunction or remove any
other impediment to the consummation of such transactions or the Merger.
Access and Information. The Company agreed to give to Intermedia and
Purchaser and their representatives reasonable access during normal business
hours to the personnel, properties, books, records, contracts and commitments
of the Company and to furnish all such information and documents relating to
the properties and business of the Company as Intermedia and Purchaser may
reasonably request.
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Public Announcements. Intermedia and the Company agreed to consult with each
other before issuing any press release or otherwise making any public
statements with respect to the Merger Agreement or any transaction
contemplated therein and not to issue any such press release or make any such
public statement prior to such consultation, except as may be required by law
or any listing agreement with a national securities exchange or the NASDAQ
National Market System to which Intermedia or the Company is a party.
Indebtedness of the Company. The Company agreed that prior to the
consummation of the Offer by Purchaser (and as a condition thereto), the
Company will, if Intermedia makes available an Intermedia Loan, repay all
indebtedness of the Company other than vendor indebtedness, it being expressly
understood that if Intermedia does not make available to the Company an
Intermedia Loan, then the repayment of such indebtedness will not be a
condition to the consummation of the Offer. To the extent requested by the
Company, Intermedia will make an Intermedia Loan to the Company in principal
amount sufficient to pay in full (including principal, accrued interest, fees,
penalties and other charges) all indebtedness required to be repaid by Company
pursuant to the preceding sentence. The Intermedia Loan will (i) have a
maturity of 180 days, (ii) bear interest at a rate to be negotiated in good
faith by the parties taking into account the interest rate that could be
obtained by the Company on any bank or other financial institution financing
and (iii) have such other terms as shall be mutually agreed to by the Company
and Intermedia, acting in good faith and in a commercially reasonably manner.
Non-Survival of Representations, Warranties and Agreements. No
representations, warranties or agreements in the Merger Agreement or in any
instrument delivered by Intermedia, Purchaser or Company pursuant to the
Merger Agreement will survive the Merger.
Parties in Interest. Nothing in the Merger Agreement is intended to confer
upon any person, other than the parties thereto, any rights or remedies.
Timing. Although Intermedia, Purchaser and the Company have agreed to use
all reasonable efforts to consummate and make effective as promptly as
practicable the transactions contemplated by the Merger Agreement, there can
be no assurance that the Merger will be consummated or as to the timing of the
Merger because the Merger is subject to certain conditions as described above.
Purchaser and its affiliates reserve the right to acquire, to the extent
permitted by applicable law and except as prohibited by the Merger Agreement,
following the consummation or termination of the Offer, additional Shares
through open market purchases, privately negotiated transactions, or
otherwise, upon such terms and at such prices as they shall determine, which
may be more or less than the price to be paid pursuant to the Offer and the
Merger.
Delaware Law. The Board of Directors of the Company has approved and adopted
the Merger Agreement and the transactions contemplated thereby, including the
Offer, the Stock Purchase Agreement and the Merger. Accordingly, the
restrictions of Section 203 of the DGCL do not apply to the transactions
contemplated by the Offer, the Stock Purchase Agreement and the Merger
Agreement. Section 203 of the DGCL prevents an "interested stockholder"
(generally, a stockholder owning or having the right to acquire 15% or more of
a corporation's outstanding voting stock or an affiliate or associate thereof)
from engaging in a "business combination" (defined to include a merger and
certain other transactions) with a Delaware corporation for a period of three
years following the date on which such stockholder became an interested
stockholder unless (i) prior to such time, the corporation's Board of
Directors approved either the business combination or the transaction which
resulted in such stockholder becoming an interested stockholder, (ii) upon
consummation of the transaction which resulted in such stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
corporation's voting stock outstanding at the time the transaction commenced
(excluding shares owned by certain employee stock plans and persons who are
directors and also officers of the corporation) or (iii) at or subsequent to
such time the business combination is approved by the corporation's Board of
Directors and authorized at an annual or special meeting of stockholders, and
not by written consent, by the affirmative vote of at least 66 2/3% of the
outstanding voting stock not owned by the interested stockholder. As described
above, Section 203 of the DGCL does not apply to the Offer, the Stock Purchase
Agreement or the Merger because the Company's Board of Directors properly
approved, among other things, the Offer, the Stock Purchase Agreement and the
Merger.
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Appraisal Rights. No appraisal rights are available to holders of Shares in
connection with the Offer. However, if the Merger is consummated, holders of
Shares may have certain rights under Section 262 of the DGCL to demand
appraisal of, and payment in cash for the fair value of, their Shares. Such
rights, if the statutory procedures are complied with, could lead to a
judicial determination of the fair value (excluding any element of value
arising from accomplishment or expectation of the Merger) required to be paid
in cash to such holders for their Shares. Any such judicial determination of
the fair value of Shares could be based upon considerations other than or in
addition to the Offer Price and the market value of the Shares, including
asset values and the investment value of the Shares. The value so determined
could be more or less than the Offer Price or the Merger Consideration.
If any holder of Shares who demands appraisal under Section 262 of the DGCL
fails to perfect, or effectively withdraws or loses such stockholder's right
to appraisal, as provided in the DGCL, the Shares of such holder will be
converted into the Merger Consideration in accordance with the Merger
Agreement. A stockholder may withdraw such stockholder's demand for appraisal
by delivery to Purchaser of a written withdrawal of such stockholder's demand
for appraisal and acceptance of the Merger.
Failure to follow the steps required by Section 262 of the DGCL for
perfecting appraisal rights may result in the loss of such rights.
Stock Purchase Agreement
Immediately after the execution of the Merger Agreement and as required by
Intermedia and Purchaser, certain stockholders of the Company and Intermedia
executed the Stock Purchase Agreement. The following is a summary of certain
provisions of the Stock Purchase Agreement. Such summary is qualified in its
entirety by reference to the full text of the Stock Purchase Agreement, which
has been filed as an exhibit hereto, and which is incorporated herein by
reference.
Tender of Shares. Each of the Investors has irrevocably agreed to validly
tender and sell (and not withdraw), pursuant to and in accordance with the
terms of the Offer, all of such Investor's Investor Shares (provided, that the
consideration in the Offer must be in cash and in an amount equal to $13.00
per Share). The Investors own an aggregate of 5,877,582 Shares, constituting
approximately 50.3% of the currently outstanding Shares (approximately 38.3%
of the outstanding Shares on a fully diluted basis). UPON CONSUMMATION OF THE
TRANSACTIONS CONTEMPLATED BY THE STOCK PURCHASE AGREEMENT, INTERMEDIA AND
PURCHASER, BY VIRTUE OF THE ACQUISITION OF APPROXIMATELY 50.3% OF THE
OUTSTANDING SHARES, WILL OWN A NUMBER OF SHARES SUFFICIENT, EVEN IF NO OTHER
SHARES ARE TENDERED INTO THE OFFER, TO CAUSE THE MERGER TO OCCUR WITHOUT THE
AFFIRMATIVE VOTE OF ANY OTHER HOLDER OF SHARES, IF NO OTHER SHARES ARE ISSUED
BY THE COMPANY.
Voting of Shares. At any meeting of the stockholders of the Company, or in
any consent in lieu of such a meeting from the date of the Stock Purchase
Agreement, until the first to occur of (i) the Effective Time, (ii) the
termination of the Stock Purchase Agreement by Intermedia or (iii) the
termination of the Merger Agreement in accordance with its terms (the
"Termination Date"), each of the Investors has agreed to vote (or cause to be
voted) all of its Investor Shares in favor of the consummation of the
transactions contemplated by the Merger Agreement, against any transactions
inconsistent therewith, and as otherwise reasonably requested by Purchaser in
order to carry out the purposes of the Merger Agreement.
Investor Option. To induce Intermedia and Purchaser to enter into the Merger
Agreement, each of the Investors has granted Intermedia an Investor Option to
purchase its Investor Shares at $13.00 per Investor Share. Intermedia may
assign to any subsidiary or affiliate of Intermedia (including Purchaser) the
right to exercise the Investor Options. Each Investor Option may be exercised
individually from each Investor, in whole or in part, at any time and from
time to time, on or after June 4, 1997 and prior to the Termination Date.
Irrevocable Proxy. Each Investor has irrevocably appointed Intermedia, until
the Termination Date, as its attorney and proxy pursuant to the provisions of
Section 212 of the DGCL, with full power of substitution, to vote and take
other actions (by written consent or otherwise) in favor of the consummation
of the transactions
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contemplated by the Merger Agreement, against any transactions inconsistent
therewith, and as otherwise reasonably required in order to carry out the
purposes of the Merger Agreement, with respect to the Investor Shares (and all
other securities issued to such Investor in respect of the Investor Shares)
which each Investor is entitled to vote at any meeting of stockholders of the
Company (whether annual or special and whether or not an adjourned or
postponed meeting) or in respect of any consent in lieu of any such meeting or
otherwise. This proxy and power of attorney is irrevocable and coupled with an
interest in favor of Intermedia. Each Investor revoked all other proxies and
powers of attorney with respect to the Investor Shares (and all other
securities issued to such Investor in respect of the Investor Shares) which it
may have heretofore appointed or granted. No subsequent proxy or power of
attorney may be given or written consent executed (and if given or executed,
will not be effective) by the Investors with respect thereto.
Restrictions on Transfer. Each Investor agreed that, until the expiration of
the Investor Options, except as contemplated by the Stock Purchase Agreement,
such Investor will not, and will not offer or agree to, sell, transfer,
tender, assign, hypothecate or otherwise dispose of, or create or permit to
exist any security interest, lien, claim, pledge, option, right of first
refusal, agreement, limitation on such Investor's voting rights, charge or
other encumbrance of any nature whatsoever with respect to the Investor
Shares.
No Solicitation. Each Investor agreed not to, directly or indirectly,
through any agent or representative or otherwise, (i) solicit, initiate or
encourage the submission of any proposal or offer from any individual,
corporation, partnership, limited partnership, syndicate, person (including,
without limitation, a "person" as defined in Section 13(d)(3) of the Exchange
Act), trust, association or entity or government, political subdivision,
agency or instrumentality of a government (collectively, other than Parent and
any affiliate of Parent, a "Person") relating to (A) any acquisition or
purchase of all or any of the Investor Shares or (B) any acquisition or
purchase of all or any portion of the assets of, or any equity interest in,
the Company or any subsidiary of the Company or any business combination with
the Company or any subsidiary of the Company or (ii) participate in any
negotiations regarding, or furnish to any Person any information with respect
to, or otherwise cooperate in any way with, or assist or participate or
facilitate or encourage, any effort or attempt by any Person to do or seek any
of the foregoing. Each Investor also agreed to notify Parent promptly if any
such proposal or offer, or any inquiry or contact with any Person with respect
thereto.
ITEM 4. THE SOLICITATION OR RECOMMENDATION
(a) Recommendation of the Board of Directors.
At a meeting of the Board of Directors on June 4, 1997, both the independent
directors of the Board and the full Board unanimously approved the Merger
Agreement, the Offer and the Merger and determined that the Offer and Merger
are fair to, and in the best interests of, the Company and its stockholders.
Accordingly, the Board of Directors of the Company unanimously recommends that
stockholders accept the Offer and tender their shares pursuant thereto. A
letter to the Company's stockholders from the Company's Chairman of the Board,
President, and Chief Executive Officer, dated June 11, 1997, which includes
the Board's recommendation to stockholders, is attached as an exhibit hereto
and is incorporated herein by reference.
(b)(i) Background
Over the course of the last several months, the Company has been approached
by a variety of other companies about possible business transactions ranging
from strategic partnerships and teaming arrangements to equity transactions.
As discussed below, some of these contacts, including the original contact
with Intermedia, arose out of customer-vendor relationships. Several were
presented by investment banking firms acting on behalf of the Company, as
these firms contacted a number of parties, including regional Bell operating
companies, other local exchange carriers, competitive local exchange carriers,
long distance companies, and other strategic industry players, to determine
the level of interest in pursuing a transaction with the Company. Although
some of the prospects contacted by these firms expressed a willingness to
discuss possible transactions, none did so on
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terms that the Company viewed as desirable. Ultimately, in light of the events
described below, the Company decided to terminate its engagement of the
investment banking firms which had initially been making these contacts.
Simultaneously with the efforts described above, the Company's general
discussions with a few of its customers evolved into broader discussions of
possible strategic combinations with, or investments in, the Company. In
particular, in the second quarter of 1997, the Company's negotiations with a
division of a Regional Bell Operating Company concerning a strategic customer-
supplier relationship developed into discussions about a possible investment
in, or purchase of, the Company. Due in part to the regulatory constraints
facing the Regional Bell Operating Companies generally and due in part to
business concerns, these discussions never ripened into an offer.
Similarly, the Company's discussions with Intermedia began in late 1996 as
general negotiations regarding the Company becoming a customer of Intermedia.
The Company, as a provider of Internet services, requires certain
telecommunications services underlying the services the Company provides to
its customers. Since the Company's telecommunication needs were in
Intermedia's service territory, Intermedia was in a position to offer the
Company telecommunications services at competitive rates.
In July 1996, the Company began using Intermedia's collocation services
through purchases from a third-party vendor. In August 1996, the Company began
using Intermedia's dedicated access services, also through purchases from a
third-party vendor. Representatives of Intermedia and the Company discussed
the kinds of services Intermedia could provide directly to the Company. During
the course of these discussions and based on the Company's stated
requirements, Intermedia established a sales team which focused on offering
equipment collocation services and dedicated access services to the Company.
The Company began using Intermedia's services through purchases directly from
Intermedia in late 1996. In 1996, Intermedia invoiced the Company an aggregate
of $16,572 for such services. The Company continues to use Intermedia's
collocation and dedicated access services, with invoices from Intermedia for
services provided directly by it being $2,238 for May 1997, and aggregate
invoices from January 1 through May 31, 1997 totalling $47,628. All rates
charges by Intermedia to the Company were, and continue to be, at the
prevailing market rates that Intermedia would charge to a similar customer
with similar term and volume requirements.
The first contact between Intermedia and the Company regarding a possible
business combination was arranged by Benji Diesbach, a consultant to the Bass
Group who was familiar with management of both companies. Mr. Diesbach
suggested that David C. Ruberg, Chairman, President and Chief Executive
Officer of Intermedia, meet with Christopher R. McCleary, Chairman, President
and Chief Executive Officer of the Company, in order to discuss potential
business opportunities for the two companies. Mr. Diesbach is not entitled to
a fee in this transaction.
Mr. Ruberg met with Mr. McCleary at Intermedia's corporate headquarters on
February 18, 1997. At this meeting, Mr. Ruberg indicated that Intermedia would
like to commence discussions about a possible business combination. Mr.
McCleary indicated to Mr. Ruberg that the Company had received indications of
interest in the past which the Company believed were inadequate. Mr. McCleary
did indicate, however, that if Intermedia were prepared to pay a fair price
for the Company, he would be interested in furthering such discussions. Mr.
Ruberg, Mr. McCleary, and Earl Galleher, the Vice President and President --
Web Site Management Group of the Company, then met at the Company's corporate
headquarters on March 1, 1997. At this meeting, Mr. Ruberg toured the
Company's facilities. Mr. Ruberg and Mr. McCleary agreed that Robert M.
Manning, Senior Vice President and Chief Financial Officer of Intermedia,
would call Mr. McCleary by telephone to begin the process of exploring the
possibility of a business combination.
Mr. Manning contacted Mr. McCleary by telephone during the week of March 24,
1997. Mr. Manning and Mr. McCleary agreed that Intermedia and the Company
should exchange confidentiality agreements, which were completed and executed
by Intermedia and the Company on March 27, 1997. Shortly after the execution
of such confidentiality agreements, the Company and Intermedia began a
substantial exchange of information and documents, which continued throughout
the months of April and May.
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On March 26, 1997, the Board of Directors of the Company held a Board
meeting via telephone conference call, during which Mr. McCleary informed the
Board of the status of the discussions with Intermedia, and the Board
authorized Mr. McCleary, on behalf of the Company, to enter into an engagement
letter with Friedman, Billings, Ramsey & Co., Inc. (the "Financial Advisor"),
to act as a financial advisor to the Company in connection with possible
transactions involving a sale of the Company to specific parties, including
Intermedia, or possible investments in the Company. The Company and the
Financial Advisor entered into such engagement letter on March 31, 1997.
Shortly after the exchange of documents commenced, Mr. Manning and Mr.
McCleary agreed that detailed due diligence visits would be required. On April
1, 1997, representatives of Intermedia, including financial advisors visited
with the Company's senior management and representatives of the Financial
Advisor at the Company's corporate headquarters to review the business plans
of the Company and the Company's historical financial results, as well as all
aspects of the Company's business.
Mr. Manning and Mr. McCleary again met at the offices of Mr. McCleary on
April 16, 1997 to discuss a possible business combination, including the broad
terms of a potential transaction. Mr. Manning and Mr. McCleary also discussed
the form of consideration, whether in cash or in securities, the various
stockholder constituencies of the Company would prefer. Mr. Manning and Mr.
McCleary decided to establish a price range per Share before determining the
structure of a business combination. In addition, Mr. Manning indicated that
because it was Intermedia's intent to retain existing senior management to
manage the Company as a separate business division of Intermedia, Intermedia
would not be interested in pursuing discussions unless Mr. McCleary and other
members of the Company's senior management would be fully supportive of any
business combination.
Several additional telephone conversations were held during the month of
April among the various members of senior management of both companies to
evaluate the business of the Company and to allow Intermedia to form a
preliminary valuation of the price per Share Intermedia would be willing to
pay.
Mr. Manning and Mr. McCleary then agreed that the Company should evaluate
Intermedia as a potential acquiror, especially with the view towards
determining the value of Intermedia common stock in the event that capital
stock of Intermedia was to be used as consideration in a transaction. Meetings
were held at the corporate headquarters of Intermedia on April 28, 1997, where
certain members of senior management of Intermedia and the Company, together
with their financial advisors, exchanged information, discussed the business
of a combined company and discussed synergies and cost savings that could be
achieved by combining both companies. During these meetings, senior executives
of Intermedia presented information about the nature of Intermedia's business,
business philosophy, strategies and long term plans. In addition, such
executives explained their view of the advantages of business combination with
the Company and discussed how the combined businesses might be operated.
Senior executives of the Company then presented similar information to
Intermedia. The meetings concluded with a conversation among Mr. Ruberg, Mr.
Manning, Mr. McCleary and Mr. William F. Earthman III, a director of the
Company, that a business combination could be in the best interests of both
companies and their stockholders, provided that an appropriate price per Share
was paid. Mr. Manning and Mr. McCleary then continued the discussions,
focusing on the possible principal concerns of the Company's stockholders in
considering a sale of the Company. Mr. Manning indicated to Mr. McCleary that
the price range for a possible business combination was between $8.50 per
Share and $10.50 per Share, but that, with more information and with a better
understanding of the future potential of the business of the Company, a higher
price could be possible.
On April 29, 1997, the Executive Committee of the Board of Directors of the
Company (Mr. McCleary, Mr. Frank A. Adams, and Mr. Earthman) held a conference
call to discuss the status of the negotiations with Intermedia.
On April 30, 1997, Mr. McCleary delivered a letter to Mr. Ruberg indicating
Mr. McCleary's belief that Intermedia and the Company should continue to
pursue a possible business combination and that a price
15
<PAGE>
per Share of $13.00, payable all in stock, would be acceptable to the
Company's venture investors, founders, and employees. Mr. McCleary also
indicated in the letter his belief that such a price would reflect a
preemptive transaction valuation obviating the need for a protracted
negotiation on the subject of breakup in the event of a competing offer.
Mr. Ruberg then telephoned Mr. McCleary, and they agreed that the price
range under discussion for a business combination was between $10.50 per Share
and $13.00 per Share.
Mr. Manning contacted Mr. McCleary during the week of May 1, 1997 to arrange
a series of follow up due diligence sessions. Mr. Manning and Mr. McCleary
agreed that two days of comprehensive meetings would be held among the members
of the senior management of both companies and would include key functional
groups of both Intermedia and the Company such as finance, accounting, MIS,
network operations, engineering, strategic planning, sales and marketing. On
May 7, 1997, the Board of Directors of the Company held a telephone conference
call to discuss the negotiations with Intermedia. The meetings between
Intermedia and the Company occurred on May 8 and 9, 1997, with certain
meetings being held at the offices of Latham & Watkins, counsel to the
Company, in Washington, D.C. and others being held at the corporate
headquarters of the Company.
On May 20, 1997, the Board of Directors of the Company held a Board meeting
in Washington, D.C. to discuss, among other things, the negotiations with
Intermedia. The Company held its 1997 Annual Meeting of Stockholders on May
21, 1997 at the Company's headquarters in Beltsville, Maryland.
Over the course of the next several days, Mr. Manning contacted Mr. McCleary
to discuss the nature of Intermedia's valuation efforts and of Intermedia's
conclusions. Mr. Manning and Mr. McCleary agreed that senior executives from
Intermedia and the Company would meet promptly in New York to continue
negotiations. On May 30, 1997, representatives of Intermedia and the Company,
and their legal and financial advisors, met at the offices of Kronish, Lieb,
Weiner & Hellman LLP, counsel to Intermedia and Purchaser, to continue to
negotiate the structure and terms of a possible transaction.
During the course of such negotiations, Intermedia stated that it was
prepared to pay a price of $13.00 per Share, but that the consideration would
be paid in combination of cash and preferred securities of Intermedia.
Intermedia stated that it was not willing to use its common stock as part of
the consideration. Intermedia also stated that the holders of a majority of
the outstanding Shares would be required to agree to grant an option to
Intermedia to acquire all of their Shares as part of any transaction. The
parties were unable to resolve several important business issues relating to
the structure and terms of the transaction, including the form of
consideration.
On May 30 and 31 and June 1, 1997, Mr. McCleary discussed the transaction
with various members of the Board of Directors of the Company. Mr. McCleary
also discussed the proposed transaction and the possible combinations of cash
and preferred securities or common stock of Intermedia with representatives of
the Financial Advisor. The directors indicated that Mr. McCleary should
attempt to negotiate an all-cash consideration transaction at a price of
$13.00 per Share.
On June 1, 1997, the Board of Directors of Intermedia convened a meeting at
which the acquisition of the Company was discussed. The Board of Directors of
Intermedia authorized management of Intermedia to continue to attempt to
negotiate an agreement, using a price of $13.00 per Share and all cash as the
consideration, subject to final approval of any such transaction and related
agreements by the Board of Directors of Intermedia.
On June 2, 1997, Mr. McCleary and Mr. Manning, in a telephone conversation,
discussed a possible transaction involving a price per Share of $13.00,
payable in all cash, subject to negotiation of satisfactory definitive
acquisition agreements and certain other terms and conditions. On the
afternoon of June 2, 1997, the Executive Committee of the Board of Directors
of the Company and Mr. Ray A. Rothrock, a director of the Company, held a
telephone conference call to consider this conversation. The Board of
Directors decided to convene a meeting for June 4, 1997 in the Baltimore,
Maryland area to consider fully a possible business
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<PAGE>
combination with Intermedia at $13.00 per Share and to listen to a
presentation by the Financial Advisor. Representatives of Intermedia and the
Company, including legal and financial advisors, then continued to negotiate
the terms and conditions of the Merger Agreement. These negotiations were
concluded on June 4, 1997.
During the morning of June 4, 1997, the Board of Directors of Intermedia met
and approved and adopted the Merger Agreement and the Stock Purchase Agreement
with a price per Share of $13.00 payable all in cash. The Board of Directors
of the Company met during the afternoon of June 4, 1997, listened to a
presentation by the Financial Advisor (which included the delivery of the
Financial Advisor's written opinion that cash consideration of $13.00 per
Share is fair to the Company's stockholders from a financial point of view),
approved and adopted the Merger Agreement and approved the Stock Purchase
Agreement after the market closed on June 4, 1997. The same day, the Investors
approved and subsequently executed the Stock Purchase Agreement.
(b)(ii) Reasons for the Recommendation
Prior to approving the Merger Agreement and the transactions contemplated
thereby, including the acquisition of Shares by the Purchaser pursuant to the
Offer, the Merger Agreement, the Merger, and the Stock Purchase Agreement, the
Board, at its meeting on June 4, 1997 considered presentations from the
President of the Company, the Company's legal counsel, and the Financial
Advisor, and reviewed the terms and conditions of the Merger Agreement and the
Stock Purchase Agreement. In reaching the conclusions set forth in paragraph
(a) above, the Board of Directors of the Company considered a number of
factors including, without limitation, the following:
(i) the historical and recent market prices for the Shares, that the
offer price of $13.00 per Share represents a premium over the closing price
of $11.125 per Share on the NASDAQ National Market System on June 3, 1997.
The Board noted that such price also represented a premium over the initial
public offering price of $10.125 per Share on October 17, 1996;
(ii) the cash offer price of $13.00 per Share is not subject to financing
or to any substantial risk of non-consummation on legal grounds;
(iii) the opinion of the Financial Advisor that the price of $13.00 per
Share is fair to the stockholders of the Company from a financial point of
view. A copy of the written opinion of the Financial Advisor, dated June 4,
1997, confirming such opinion and describing the assumptions made, matters
considered and limitations of the review undertaken by the Financial
Advisor, is attached hereto and is incorporated herein by reference.
Stockholders are encouraged to read such opinion carefully and in its
entirety;
(iv) the Company's significant growth and the ability of the Company's
existing infrastructure and capitalization to support continued growth and
competition in the rapidly evolving Internet access industry;
(v) the Company's financial condition, results of operations, assets,
liabilities, business and prospects and industry, economic and market
conditions, on an historical, current and prospective basis;
(vi) Intermedia's business reputation, which was well-known to the
Company's management and Board. The Board also noted the strategic and
geographic fit between the two companies; and
(vii) the terms and conditions of the Merger Agreement and the Stock
Purchase Agreement. In this regard, the Board considered that Intermedia
was unwilling to make an offer or to enter into any agreement for the
acquisition of the Company unless Intermedia was able to enter into the
Stock Purchase Agreement. The Board was aware that the Stock Purchase
Agreement and the provisions of the Merger Agreement make it unlikely that
another offer for the Company would emerge. The Board weighed such effect
against the fact that (a) holders of over 50% of the outstanding Shares,
including several large venture investors who were highly-sophisticated
with in-depth knowledge about the Company, its business and industry, were
willing to commit unconditionally to tender their Shares at $13.00 per
Share, (b) management of the Company had discussions with several parties
who had expressed an interest in the Company, and none of such parties had
shown a willingness to propose an acquisition offering comparable value to
shareholders,
17
<PAGE>
and (c) no other potential buyers had emerged, despite the significant
amount of recent acquisition activity in the Internet access industry and
press speculation about the future of the Company, and concluded that it
was unlikely, in its view, that an offer providing more value to
shareholders would be made by a third party. In addition, based upon the
terms of the Merger Agreement and the Stock Purchase Agreement, the Board
considered at length the risk of non-consummation of the transactions
contemplated thereby and concluded that the conditions to consummation
contained in the Merger Agreement were limited so as to provide substantial
protection against such risks.
In view of the variety of factors considered in connection with its
evaluation of the Offer and the Merger Agreement, the Board of Directors did
not assign relative weights to the specific factors considered in reaching its
decision.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED
On March 31, 1997, the Company retained the Financial Advisor to act as
financial advisor to the Company in connection with a possible transaction
with Intermedia or two other specified entities (a "Transaction"). The
Financial Advisor, upon request of the Board, rendered an opinion, dated June
4, 1997 (the "Fairness Opinion"), to the Board as to the fairness from a
financial point of view to the Company and its stockholders of the
consideration to be received in connection with the Offer. The Financial
Advisor also briefed the Board both as to Company's overall valuation and as
to the advisability of seeking equity and debt financings. A copy of the
Fairness Opinion is attached hereto as an exhibit and incorporated herein by
reference. Shareholders are urged to read the Fairness Opinion in its entirety
for information with respect to the procedures followed, assumptions made,
matters considered, and limits of the review undertaken by the Financial
Advisor in rendering the Fairness Opinion. The Company agreed to pay the
Financial Advisor, upon consummation of any Transaction, a fee equal to a
percentage of the value of the Transaction. Based on the size of the Offer,
the Financial Advisor would receive a fee of 0.625% of the aggregate fair
market value of the Shares purchased by Intermedia, or approximately $1.2
million. The Company also agreed to reimburse the Financial Advisor for its
out-of-pocket expenses and reasonable legal fees, not to exceed $20,000, and
to indemnify the Financial Advisor and certain related parties against certain
liabilities, including liabilities under the federal securities laws.
The Financial Advisor has in the past provided financial advisory and
financing services to the Company, including serving as underwriter for the
Company's initial public offering of its Shares in October 1996, and has
received fees for the rendering of such services. In addition, in the ordinary
course of its business, the Financial Advisor may trade the Shares, as well as
securities of Intermedia, for its own account and for the accounts of
customers and, accordingly, may at any time hold a long or short position in
such securities.
Except as set forth above, neither the Company nor any person acting on its
behalf has employed, retained or compensated any person to make solicitations
or recommendations to the stockholders of the Company with respect to the
Offer.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES
(a) To the best knowledge of the Company, no transactions in the Shares of
the Company have been effected in the past 60 days by the Company or any
affiliate or subsidiary of the Company, or any executive officer or director
of the Company, with the following exceptions: on April 11, 1997 and June 3,
1997, Mr. Christopher R. McCleary, the Company's President, Chairman, and
Chief Executive Officer, exercised employee stock options previously granted
to Mr. McCleary under the Company's employee stock option plans to purchase
100,781 Shares and 79,375 Shares, respectively, at an exercise price of $0.25
and $3.73 per Share, respectively.
In addition, on May 30, 1997, pursuant to elections made on December 9,
1996, certain executive officers of the Company purchased from the Company a
total of 4,195 Shares, funded through ongoing payroll deductions from December
9, 1996 through May 30, 1997, at a price of $8.075 per Share. Purchases were
made pursuant to the Company's Amended and Restated 1997 Employee Stock
Purchase Plan, which had been approved by the stockholders of the Company at
the 1997 Annual Meeting held on May 21, 1997.
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<PAGE>
Also at the 1997 Annual Meeting, Mr. Frank A. Adams, a non-employee member
of the Board of Directors of the Company, was reelected to the Board of
Directors by the stockholders of the Company, and, pursuant to the Company's
1996 Equity Participation Plan, was awarded options to purchase 8,000 Shares
at an exercise price of $8.625 per Share.
Finally, in connection with the Annual Meeting, the compensation committee
of the Board of Directors awarded two executive officers of the Company
options to purchase a total of 180,000 Shares at an exercise price of $8.625
per Share.
(b) To the best knowledge of the Company, all of the Company's executive
officers, directors and affiliates that own shares currently intend to tender
their Shares pursuant to the Offer, except to the extent that the tender of
such Shares might subject such persons to liability under the provisions of
Section 16(b) of the Exchange Act.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY
(a) The Company has agreed in the Merger Agreement not to solicit, initiate
or encourage the initiation of inquiries or proposals from or, except to the
extent required by fiduciary obligations under applicable law as advised in
writing by independent counsel, provide any confidential information to or
participate in any discussions or negotiations with, any entity, concerning
the sale of assets or Shares or any merger, consolidation, or similar
transaction involving the Company. The Company is not engaged in any
negotiation in response to the Offer which relates to or would result in (i)
an extraordinary transaction, such as a merger or reorganization, involving
the Company; (ii) a purchase, sale or transaction of a material amount of
assets by the Company; (iii) a tender offer for or other acquisition of
securities by or of the Company; or (iv) any material change in the present
capitalization or dividend policy of the Company.
(b) To the best knowledge of the Company, there are currently no
transactions, board resolutions, agreements in principle or signed contracts
in response to the Offer, other than as described in Item 3(b) of this
Schedule 14D-9, that relate to or would result in one or more of the matters
referred to in Item 7(a).
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED
At its meeting of June 4, 1997, the Board of Directors approved the purchase
of Shares contemplated by the Offer, the Merger, the Merger Agreement and the
Stockholders Agreement for purposes of Section 203 of the DGCL.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS
Exhibit 1 Letter Agreement regarding confidentiality between DIGEX,
Incorporated and Intermedia Communications Inc., dated March 27, 1997.
Exhibit 2 Agreement and Plan of Merger dated June 4, 1997 among Intermedia
Communications Inc., Daylight Acquisition Corp. and DIGEX, Incorporated
(included in copies mailed to stockholders).
Exhibit 3 Stock Purchase Agreement dated June, 4, 1997 among Intermedia
Communications Inc. and certain stockholders of DIGEX, Incorporated (included
in copies mailed to stockholders).
Exhibit 4 Opinion of Friedman, Billings, Ramsey & Co., Inc., dated June 4,
1997.
Exhibit 5 Copy of DIGEX, Incorporated Proxy Statement and Notice of Annual
Meeting of Stockholders, dated as of April 25, 1997.
Exhibit 6 Press Release issued by Intermedia Communications Inc., dated June
5, 1997 (included in copies mailed to stockholders).
Exhibit 7 Form of letter to stockholders of DIGEX, Incorporated, dated June
11, 1997 (included in copies mailed to stockholders).
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<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Date: June 11, 1997 DIGEX, Incorporated
/s/ Christopher R. McCleary
By___________________________________
Name: Christopher R. McCleary
Title: Chairman, Chief Executive
Officer and President
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<PAGE>
ANNEX A
ADDITIONAL INFORMATION PURSUANT TO SECTION 14(F)
OF THE SECURITIES EXCHANGE ACT OF 1934 AND RULE 14F-1 THEREUNDER
DIRECTOR DESIGNEE INFORMATION
This information is being furnished in connection with the possible
designation by Purchaser, pursuant to the Merger Agreement, of persons to be
elected to the Board of Directors of the Company other than at a meeting of
the Company's stockholders.
The Merger Agreement provides that promptly upon the purchase by Purchaser
of Shares pursuant to the Offer or the Stock Purchase Agreement, and from time
to time thereafter, Purchaser shall be entitled to designate up to such number
of directors, rounded up to the next whole number, on the Board of Directors
of the Company as will give Purchaser representation on the Board of Directors
of the Company equal to the product of the number of directors on the Board of
Directors of the Company (giving effect to the directors elected pursuant to
this sentence) multiplied by the percentage that the aggregate number of
Shares beneficially owned by Purchaser or any affiliate of Purchaser following
such purchase bears to the total number of Shares then outstanding, and the
Company shall, at such time, promptly take all actions necessary to cause
Purchaser's designees to be elected or designated as directors of the Company,
including increasing the size of the Board of Directors of the Company or
securing the resignations of incumbent directors or both.
CERTAIN INFORMATION CONCERNING PURCHASER'S DESIGNEE DIRECTORS FOR THE COMPANY:
It is expected that following Purchaser's acceptance of Shares for payment,
the Company will promptly either increase the size of its Board of Directors
or secure the resignation of certain of its directors or take such other
action as is necessary to enable Purchaser's designees to be elected to the
Company's Board of Directors. Purchaser has informed the Company that
Purchaser's designees under consideration shall be the individuals set forth
below.
The following information sets forth the name, age citizenship, business
address, present principal occupation or employment, and the material
occupation, positions, offices or employment for the past five years of each
director designee of Purchaser. Unless otherwise indicated below, the address
of each director and executive officer is c/o Intermedia Communications Inc.,
3625 Queen Palm Drive, Tampa, Florida 33619 and each director and executive
officer is a citizen of the United States of America.
David C. Ruberg, age 51, has been a director, President, and Chief Executive
Officer of Intermedia since May 1993 and Chairman of the Board since March
1994. He was an independent consultant to the computer and telecommunications
industries from September 1991 to May 1993. Mr. Ruberg was a Vice President
and General Manager of Data General Corporation from 1989 until September
1991.
Robert A. Rouse, age 48, has served as Executive Vice President,
Engineering, Operations and Systems of Intermedia since October 1996. Prior to
joining Intermedia, Mr. Rouse was Senior Vice President of Concert, a joint
venture company of British Telecommunications and MCI Communications Company
where he managed the engineering and operations of the Concert Global Networks
from 1991 to 1996. Mr. Rouse held various executive management positions at
MCI from 1986 to 1991, with responsibilities including product and network
design, network and systems development, network planning, operations,
provisioning, and customer services. From 1969 to 1986, he managed several
subsidiaries of Rochester Telephone, now a part of Frontier Corporation.
James F. Geiger, age 38, has served as Senior Vice President, Sales of
Intermedia since August 1995. Mr. Geiger served as the Vice President of
Alternate Channel Sales from March 1995 through August 1995 and as the
President of each of FiberNet USA, Inc. and FiberNet Telecommunications
Cincinnati, Inc. (collectively, "FiberNet") since their inception. Mr. Geiger
was one of the founding principals of FiberNet, initially serving as Vice
President of Sales & Marketing and subsequently serving as President. From
April 1989 to April 1990, Mr. Geiger served as Director of Marketing for
Associated Communications, a cellular telephone company.
<PAGE>
Robert M. Manning, age 37, 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.
Robert A. Ruh, age 52, has served as Senior Vice President, Human Resources
of Intermedia since March 1, 1996. From January 1991 through February 1996,
Dr. Ruh was an independent consultant, specializing in executive and
organization development. From 1975 to 1990, Dr. Ruh held executive positions
in human resources with Baxter Healthier Corporation and American Hospital
Supply Corporation. From 1973 to 1975, Dr. Ruh served as a consulting
psychologist for Medina and Thompson, specializing in executive assessment,
selection, and development. From 1970 to 1972, Dr. Ruh was on the corporate
organization development staff at Corning Glass Works. Dr. Ruh served as
Assistant Professor of psychology at Michigan State University from 1970 to
1972.
Michael A. Viren, age 55, has served as Senior Vice President, Strategic
Planning, Regulatory, and Industry Relations of Intermedia since October 1996.
Prior to his present position, he was Senior Vice President, Engineering and
Information Systems from January 1996 to October 1996 and served as Vice
President, Product Development from December 1992 through January 1996. Dr.
Viren joined Intermedia in February 1991 as Director of Product Development.
Dr. Viren worked for GTE Corporation from August 1986 to February 1991 as a
specialist in wide and local area networking ("WAN" and "LAN," respectively).
Prior to that he operated his own consulting firm concentrating in WAN and LAN
design; was Senior Vice President of Criterion, Inc., an Economic Consulting
Firm in Dallas, Texas; and served as the Director of the Utility Division of
the Missouri Public Service Commission. Dr. Viren taught economics for 10
years, most recently as an Associate Professor of Economics at the University
of Missouri-Columbia and prior to that at the University of Kansas.
Patricia A. Kurlin, age 42, has served as Vice President, General Counsel of
Intermedia since June 1996. From September 1995 until June 1996, Ms. Kurlin
served as Corporate Counsel and served as Director of Governmental and Legal
Affairs for Intermedia from September 1993 to September 1995. Prior to joining
Intermedia, Ms. Kurlin served as Senior Telecommunications Attorney at the
Florida Public Service Commission from May 1990 to September 1993.
Jeanne M. Walters, age 34, has served as Controller and Chief Accounting
Officer of Intermedia since May 1993. From November 1992 until May 1993 she
served as Assistant Controller. From June 1988 to November 1992, Ms. Walters
was an auditor at Ernst & Young LLP, a certified public accounting firm in
Tampa, Florida. She is licensed in the State of Florida as a certified public
accountant.
Except as described in the Offer to Purchase, the Company has been advised
by Purchaser and Intermedia that, to the best knowledge of Purchaser and
Intermedia, (i) none of the persons listed as director designees or any
associate or majority owned subsidiary of any such persons, beneficially owns
or has a right to acquire any equity security of the Company and (ii) none of
persons listed as director designees, has effected any transaction in any
equity security of the company during the past 40 days.
Except as described in the Offer to Purchase, the Company has been advised
by Purchaser and Intermedia that, to the best knowledge of Purchaser and
Intermedia, (i) none of the persons listed as director designees or any
associate or majority owned subsidiary of any such persons, has any contract,
arrangement, understanding or relationship (whether or not legally
enforceable) with any other person with respect to any securities of the
Company, including, but not limited to, any contract, arrangement,
understanding or relationship concerning the transfer or the voting of any
such securities, joint ventures, loan or option arrangements, puts or calls,
guarantees of loans, guarantees against loss, or the giving or withholding of
proxies; (ii) none of the persons listed as director designees, or any
associate or majority owned subsidiary of any such persons have had any
contracts, negotiations or transactions with the Company or any of its
directors, officers or affiliates concerning a merger, consolidation or
acquisition, a tender offer or other acquisition of securities, election of
directors or a sale of transfer of a material amount of assets, that are
required to be disclosed pursuant to the rules and regulations of the
Commission.
2
<PAGE>
[LOGO OF FRIEDMAN, BILLINGS, RAMSEY & CO. INC. Institutional
FRIEDMAN, Brokerage
BILLINGS, Research
RAMSEY & Investment Banking
CO. INC.]
Potomac Tower
1001 Nineteenth
Street North
Arlington, Virginia
22209-1710
Telephone (703) 312-9500
Fax (703) 312-9501
June 4, 1997
Board of Directors
DIGEX Incorporated
One DIGEX Plaza
Beltsville, MD 20705
Board of Directors:
We understand that DIGEX, Incorporated ("DIGEX") is considering entering
into an agreement, dated June 4, 1997, (the "Agreement") with Intermedia
Communications ("Intermedia") pursuant to which, among other things, a wholly-
owned subsidiary of Intermedia will be merged with and into DIGEX in a
transaction (the "Merger") in which each outstanding share of DIGEX common
stock, par value $0.01 per share (the "Shares"), will, as more fully described
in the Agreement, be exchanged into $13.00 in cash payable by Intermedia. The
Merger is expected to be considered and voted upon by the shareholders of
DIGEX at a special shareholders meeting to be held as soon as practicable. The
terms and conditions of the Merger are more fully set forth in the Agreement
and certain related agreements.
You have asked us whether, in our opinion, the cash consideration to be
received by the holders of the Shares in the Merger is fair to such
shareholders from a financial point of view.
In arriving at this opinion, set forth below, we have, among other things:
1. Reviewed DIGEX's Annual Reports to Stockholders for the fiscal years
ended December 31, 1993 through 1995 and DIGEX's Annual Report on Form
10-K filed with the Securities and Exchange Commission (the "SEC") for
the fiscal year ended December 31, 1996;
2. Reviewed Intermedia's Annual Reports on Form 10-K filed with the SEC
for the fiscal years ended December 31, 1995 and December 31, 1996;
3. Reviewed Intermedia's Quarterly Report on Form 10-Q for the fiscal
quarter ended March 31, 1997 filed with the SEC;
4. Reviewed DIGEX's Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 1997 filed with the SEC;
5. Conducted limited discussions with the members of senior management of
DIGEX concerning the financial condition, businesses, assets and
prospects for DIGEX;
6. Reviewed the historical market prices and trading activity for the
Shares and compared them with those of certain publicly traded
companies which we deemed to be relevant;
7. Compared the results of operations and financial condition of DIGEX
with those of certain publicly-traded Internet service providers that
we deemed to be reasonably comparable to DIGEX;
<PAGE>
FRIEDMAN, BILLINGS, RAMSEY & CO. INC.
DIGEX, Incorporated
June 4, 1997
Page 2
8. Participated in discussions and negotiations among representatives of
DIGEX and representatives of Intermedia;
9. Compared the proposed financial terms of the Agreement with the financial
terms, to the extent publicly available, of certain acquisition
transactions that we deemed to be relevant;
10. Reviewed the Agreement and the related agreements; and
11. Performed such other analyses and reviewed and analyzed such other
information as we deemed appropriate.
In rendering this opinion, we did not assume responsibility for
independently verifying, and did not independently verify, any financial or
other information concerning DIGEX furnished to us by DIGEX or the publicly-
available financial and other information regarding DIGEX, Intermedia and
other Internet service providers. We have assumed that all such information is
accurate and complete. We have further relied on the assurances of senior
management of DIGEX that they are not aware of any facts that would make such
financial or other information relating to such entities inaccurate or
misleading. We have also assumed and relied upon the senior management of
DIGEX as to the reasonableness and achievability of the financial and
operating forecasts (and the assumptions and bases therefor) discussed with
us. In that regard, we have assumed with your consent that such information
reflects the currently available estimates and judgments of management as to
the future financial performance of DIGEX. In addition, we have assumed that
there has been no material change in DIGEX's assets, financial condition,
result of operations, business or prospects since December 31, 1996. We did
not undertake an independent appraisal of the assets or liabilities of DIGEX
nor were we furnished with any such appraisals. Our conclusions and opinion
are necessarily based upon economic, market and other conditions and the
information made available to us as of the date of this opinion, and we
express no opinion on matters of a legal, regulatory, tax or accounting nature
related to the Merger.
In connection with the preparation of this opinion, with the consent of the
Board of Directors, we have not been authorized by DIGEX to solicit, nor have
we solicited, third-party indications of interest for the acquisition of all
or any part of DIGEX.
We have been retained by the Board of Directors of DIGEX as an independent
contractor to act as financial advisor to DIGEX with respect to the Merger and
will receive a fee for our services. Our opinion is directed to the Board of
Directors of DIGEX and does not constitute a recommendation to any shareholder
of DIGEX as to how such shareholder should vote at any shareholder meeting of
DIGEX held in connection with the Merger.
In the ordinary course of our business, we may effect transactions in the
securities of DIGEX or Intermedia for our own account and/or for the accounts
of our customers and, accordingly, may at any time hold long or short
positions in such securities. From time to time, principals and/or employees
of FBR may also have positions in the securities.
Based upon and subject to the foregoing, we are of the opinion that the cash
consideration to be received by the holders of the Shares in the Merger is
fair to such shareholders from a financial point of view.
<PAGE>
FRIEDMAN, BILLINGS, RAMSEY & CO. INC.
DIGEX, Incorporated
June 4, 1997
Page 3
This letter is solely for the information of the Board of Directors of DIGEX
and may not be relied upon by any other person or used for any other purpose,
reproduced, disseminated, quoted from or referred to without our prior written
consent.
Very truly yours,
FRIEDMAN, BILLINGS, RAMSEY & CO.,
INC.
By: /s/ Suzanne N. Richardson
----------------------------------
Suzanne N. Richardson
Managing Director
<PAGE>
EXHIBIT 99.(c)1
EXECUTION COPY
================================================================================
AGREEMENT AND PLAN OF MERGER
----------------------------
Among
INTERMEDIA COMMUNICATIONS INC.,
DAYLIGHT ACQUISITION CORP.
and
DIGEX, INCORPORATED
Dated June 4, 1997
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
I. THE OFFER
1.1. The Offer.................................................... 2
1.2. Company Action............................................... 3
II. THE MERGER
2.1. Merger; Surviving Corporation................................ 4
2.2. Certificate of Incorporation................................. 5
2.3. By-Laws...................................................... 5
2.4. Directors and Officers....................................... 5
2.5. Effective Time............................................... 5
2.6. Conversion of Shares......................................... 6
2.7. Purchaser Common Stock....................................... 7
2.8. Surrender of Shares.......................................... 7
2.9. Company Stock Options and Warrants........................... 9
III. REPRESENTATIONS AND WARRANTIES OF COMPANY
3.1. Organization and Authorization, etc.......................... 9
3.2. Subsidiaries................................................. 10
3.3. Non-Contravention............................................ 10
3.4. Approvals.................................................... 10
3.5. Capital Stock................................................ 11
3.6. Financial Statements......................................... 11
3.7. Periodic SEC Filings......................................... 12
3.8. Changes...................................................... 12
3.9. Taxes........................................................ 14
3.10. Material Contracts........................................... 15
3.11. Properties................................................... 15
3.12. Litigation................................................... 16
3.13. Permits...................................................... 16
3.14. Employee Plans............................................... 16
3.15. Patents, Trademarks, etc..................................... 18
3.16. Insurance.................................................... 18
3.17. No Brokers................................................... 19
3.18. Disclosure................................................... 19
3.19. Offer Documents; Schedule 14D-9; Proxy Statement;
Other Information............................................ 19
IV. REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER
4.1. Organization and Authorization, etc.......................... 20
4.2. Non-Contravention............................................ 20
4.3. Approvals.................................................... 21
4.4. No Brokers................................................... 21
4.5. Offer Documents; Proxy Statement; Other Information.......... 21
4.6. Solvency..................................................... 22
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
V. COVENANTS OF COMPANY
5.1. Conduct of Business.......................................... 22
5.2. Access and Information....................................... 24
5.3. No Solicitation.............................................. 24
VI. ADDITIONAL AGREEMENTS
6.1. Stockholders' Meeting........................................ 25
6.2. Proxy Statement.............................................. 26
6.3. Compliance with Conditions Precedent, etc.................... 26
6.4. Certain Notifications........................................ 26
6.5. Adoption by Purchaser........................................ 26
6.6. Expenses..................................................... 27
6.7. Public Announcements......................................... 27
6.8. Company Board Representation; Section 14(f).................. 27
6.9. .......................................................... 28
VII. CONDITIONS
7.1. Conditions to the Merger..................................... 28
VIII. TERMINATION, AMENDMENT AND WAIVER
8.1. Termination.................................................. 29
8.2. Effect of Termination........................................ 31
8.3. Termination Payment.......................................... 31
8.4. Amendment.................................................... 32
8.5. Waiver....................................................... 32
IX. GENERAL PROVISIONS
9.1. Definitions.................................................. 32
9.2. Non-Survival of Representations, Warranties and
Agreements................................................... 35
9.3. Notices...................................................... 35
9.4. Severability................................................. 36
9.5. Miscellaneous................................................ 36
</TABLE>
<PAGE>
AGREEMENT AND PLAN OF MERGER
----------------------------
AGREEMENT AND PLAN OF MERGER (the "Agreement") being made and entered
---------
into as of this 4th day of June, 1997 by and among INTERMEDIA COMMUNICATIONS
INC., a Delaware corporation ("Parent"), DAYLIGHT ACQUISITION CORP., a Delaware
------
corporation which is wholly owned by Parent ("Purchaser"), and DIGEX,
---------
INCORPORATED, a Delaware corporation ("Company").
-------
WHEREAS, the Boards of Directors of Parent, Purchaser and Company have
each determined that it is in the best interests of their respective
stockholders for Parent to acquire Company upon the terms and subject to the
conditions set forth herein; and
WHEREAS, in furtherance of such acquisition, it is proposed that
Purchaser shall make a cash tender offer (the "Offer") to acquire all the issued
-----
and outstanding shares of Common Stock, par value $.01 per share, of Company
("Company Common Stock") (shares of Company Common Stock being hereinafter
- ----------------------
collectively referred to as "Shares") for $13.00 per Share (such amount being
------
hereinafter referred to as the "Per Share Amount") net to the seller in cash,
----------------
upon the terms and subject to the conditions of this Agreement and the Offer;
and
WHEREAS, the Board of Directors of Company (the "Board") has
-----
unanimously approved the making of the Offer and resolved and agreed to
recommend that holders of Shares tender their Shares pursuant to the Offer; and
WHEREAS, also in furtherance of such acquisition, the Boards of
Directors of Parent, Purchaser and Company have each approved the merger (the
"Merger") of Purchaser with and into Company in accordance with the General
- -------
Corporation Law of the State of Delaware ("the GCL") following the consummation
---
of the Offer and upon the terms and subject to the conditions set forth herein;
and
WHEREAS, as a condition to the willingness of Parent and Purchaser to
consummate this Agreement, the holders of 5,877,582 Shares have entered into a
Stock Purchase Agreement, dated as of the date hereof (the "Stock Purchase
--------------
Agreement"), pursuant to which (i) such holders have granted an option to Parent
- ---------
to purchase all of the Shares held by such holders at $13.00 per Share and (ii)
each of such holders has agreed to tender all of its Shares pursuant to the
Offer, all upon the terms and subject to the conditions set forth in the Stock
Purchase Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
<PAGE>
ARTICLE I.
THE OFFER
---------
SECTION 1.1. The Offer. (a) Provided that this Agreement shall
---------
not have been terminated in accordance with Section 8.1 and none of the events
set forth in Annex A hereto shall have occurred or be existing, Purchaser shall
commence the Offer as promptly as reasonably practicable after the date hereof,
but in no event later than five business days after the initial public
announcement of Purchaser's intention to commence the Offer. The Offer shall,
unless extended as provided below, expire 20 business days after the
commencement of the Offer. The obligation of Purchaser to accept for payment
and pay for Shares tendered pursuant to the Offer shall be subject to the
condition (the "Minimum Condition") that at least a majority of the then
-----------------
outstanding Shares on a fully diluted basis (including, without limitation, all
Shares issuable upon the conversion of any convertible securities or upon the
exercise of any options, warrants or rights) shall have been validly tendered
and not withdrawn prior to the expiration of the Offer and also shall be subject
to the satisfaction of the other conditions set forth in Annex A hereto.
Purchaser expressly reserves the right to waive any such condition, to increase
the price per Share payable in the Offer, and to make any other changes in the
terms and conditions of the Offer; provided, however, that, without the consent
-------- -------
of Company, no change may be made which decreases the price per Share payable in
the Offer, which reduces the maximum number of Shares to be purchased in the
Offer or which imposes conditions to the Offer in addition to those set forth in
Annex A hereto or modifies such conditions, or which changes the form of
consideration payable in the Offer. The Per Share Amount shall, subject to
applicable withholding of taxes, be net to the seller in cash, upon the terms
and subject to the conditions of the Offer. Subject to the terms and conditions
of the Offer (including, without limitation, the Minimum Condition), Purchaser
shall pay, as promptly as practicable after expiration of the Offer, for all
Shares validly tendered and not withdrawn. The Offer may not be extended for
more than 20 days beyond its original scheduled expiration date unless any of
the conditions to the Offer shall not have been satisfied; provided, however, in
-------- -------
the event Purchaser desires to extend the Offer beyond July 31, 1997, in the
event the proposed length of the extension is, in the aggregate, more than three
days Company shall have the right to consent to such longer extension. Parent
agrees to cause Purchaser to, and Purchaser agrees to use its reasonable best
efforts to, consummate the Offer as soon as legally permissible, subject to its
right to extend for 20 additional days as provided above.
2
<PAGE>
(b) As soon as reasonably practicable on the date of commencement of
the Offer, Purchaser shall file with the Securities and Exchange Commission (the
"SEC") a Tender Offer Statement on Schedule 14D-1 (together with all amendments
---
and supplements thereto, the "Schedule 14D-1") with respect to the Offer. The
--------------
Schedule 14D-1 shall contain or shall incorporate by reference an offer to
purchase (the "Offer to Purchase") and forms of the related letter of
-----------------
transmittal and any related summary advertisement (the Schedule 14D-1, the Offer
to Purchase and such other documents, together with all supplements and
amendments thereto, being referred to herein collectively as the "Offer
-----
Documents"). Company and its counsel shall be given an opportunity to review
- ---------
the Offer Documents prior to their filing with the SEC. Parent, Purchaser and
Company agree to correct promptly any information provided by any of them for
use in the Offer Documents which shall have become false or misleading, and
Parent and Purchaser further agree to take all steps necessary to cause the
Schedule 14D-1 as so corrected to be filed with the SEC and the other Offer
Documents as so corrected to be disseminated to holders of Shares, in each case
as and to the extent required by applicable federal securities laws.
SECTION 1.2. Company Action. (a) Company hereby approves of and
--------------
consents to the Offer and represents that (i) the Board, at a meeting duly
called and held on June 4, 1997, has unanimously (A) determined that this
Agreement and the transactions contemplated hereby, including each of the Offer
and the Merger, are fair to and in the best interests of the holders of Shares,
(B) approved and adopted this Agreement and the transactions contemplated hereby
and (C) recommended that the stockholders of Company accept the Offer and
approve and adopt this Agreement and the transactions contemplated hereby, and
(ii) Friedman, Billings, Ramsey & Co. Inc. has delivered to the Board its
opinion that the consideration to be received by the holders of Shares pursuant
to each of the Offer and the Merger is fair to the holders of Shares from a
financial point of view, subject to the assumptions and qualifications contained
in such opinion, and which shall be confirmed promptly in writing. Company
hereby consents to the inclusion in the Offer Documents of the recommendation of
the Board described in the immediately preceding sentence. Assuming that
neither Parent nor Purchaser are Interested Stockholders (as such term is
defined in Section 203 of the GCL) immediately prior to the Board taking the
action described in this Section 1.2, the approval set forth in clause (a)(i)
shall, among other things, satisfy the restrictions on business combinations
contained in Section 203 of the GCL with respect to the transactions
contemplated hereby. Company has been advised by each of its directors and
executive officers that they intend either to tender all Shares beneficially
owned by them to Purchaser pursuant to the Offer or to vote such Shares in
3
<PAGE>
favor of the approval and adoption by the stockholders of Company of this
Agreement and the transactions contemplated hereby.
(b) As soon as reasonably practicable on or after the date of
commencement of the Offer, Company shall file with the SEC a Solicitation/
Recommendation Statement on Schedule 14D-9 (together with all amendments and
supplements thereto, the "Schedule 14D-9") containing the recommendation of the
--------------
Board described in Section 1.2(a) and shall disseminate the Schedule 14D-9 to
the extent required by Rule 14d-9 promulgated under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and any other applicable federal
------------
securities laws. Company, Parent and Purchaser agree to correct promptly any
information provided by any of them for use in the Schedule 14D-9 which shall
have become false or misleading, and Company further agrees to take all steps
reasonably necessary to cause the Schedule 14D-9 as so corrected to be filed
with the SEC and disseminated to holders of Shares, in each case as and to the
extent required by applicable federal securities laws.
(c) Company shall promptly furnish Purchaser with mailing labels
containing the names and addresses of all record holders of Shares and with
security position listings of Shares held in stock depositories, each as of a
recent date, together with all other available listings and computer files
containing names, addresses and security position listings of record holders and
beneficial owners of Shares. Company shall furnish Purchaser with such
additional information, including, without limitation, updated listings and
computer files of stockholders, mailing labels and security position listings,
and such other assistance as Parent, Purchaser or their agents may reasonably
request. Subject to the requirements of applicable law, and except for such
steps as are necessary to disseminate the Offer Documents and any other
documents necessary to consummate the Offer or the Merger, Parent and Purchaser
shall hold in confidence the information contained in such labels, listings and
files, shall use such information only in connection with the Offer and the
Merger, and, if this Agreement shall be terminated in accordance with Section
8.1, shall deliver to Company all copies of such information then in their or
their agents' possession.
II. THE MERGER
----------
2.1. Merger; Surviving Corporation. In accordance with the
-----------------------------
provisions of this Agreement and the GCL, at the Effective Time (as such term
and other capitalized terms used herein without definition are defined in
Section 9.1), Purchaser shall be merged with and into Company, and Company shall
be the surviving corporation (hereinafter sometimes called the "Surviving
---------
Corporation") and shall continue its corporate
- -----------
4
<PAGE>
existence under the laws of the State of Delaware. At the Effective Time the
separate corporate existence of Purchaser shall cease. All properties,
franchises and rights belonging to Company and Purchaser, by virtue of the
Merger and without further act or deed, shall be deemed to be vested in the
Surviving Corporation, which shall thenceforth be responsible for all the
liabilities and obligations of each of Purchaser and Company.
2.2. Certificate of Incorporation. At the Effective Time, the
----------------------------
Certificate of Incorporation of Company shall be the Certificate of
Incorporation of the Surviving Corporation; provided, however, that, at the
-------- -------
Effective Time, the Certificate of Incorporation of the Surviving Corporation
shall be amended in its entirety so that it will read as Purchaser's Certificate
of Incorporation, except that the name of the Surviving Corporation shall be
"DIGEX, INCORPORATED". As so amended, the Certificate of Incorporation of
Company as in effect immediately prior to the Effective Time shall thereafter
continue in full force and effect as the Certificate of Incorporation of the
Surviving Corporation until further altered or amended as provided therein or by
law.
2.3. By-Laws. The By-Laws of Purchaser in effect immediately prior
-------
to the Effective Time shall be the By-Laws of the Surviving Corporation until
altered, amended or repealed as provided therein and in the Certificate of
Incorporation of the Surviving Corporation.
2.4. Directors and Officers. The Directors of Purchaser prior to the
----------------------
Effective Time shall be the directors of the Surviving Corporation. The
officers of Company immediately prior to the Effective Time shall be the
officers of the Surviving Corporation. Each of such directors and officers
shall hold office in accordance with the Certificate of Incorporation and By-
Laws of the Surviving Corporation.
2.5. Effective Time. The Merger shall become effective at the time
--------------
of filing of a certificate of merger with the Secretary of State of the State of
Delaware in accordance with the provisions of Sections 251 or 253, as the case
may be, of the GCL (the "Certificate of Merger"), or at a later time specified
---------------------
as the effective time in the Certificate of Merger, which Certificate of Merger
shall be so filed as soon as practicable after the meeting of stockholders
contemplated in Section 6.1 and the satisfaction or, if permissible, waiver of
the conditions set forth in Article VII. The date and time when the Merger
shall become effective are referred to herein as the "Effective Time." Prior to
--------------
such filing, a closing shall be held at the offices of Kronish, Lieb, Weiner &
Hellman LLP, 1114 Avenue of the Americas, New York, New York 10036, or such
other place as shall be agreed to by the parties, for the purpose of
5
<PAGE>
confirming the satisfaction or waiver, as the case may be, of the conditions set
forth in Article VII.
2.6. Conversion of Shares. (a) Each Share issued and outstanding
--------------------
immediately prior to the Effective Time (other than shares of Company Common
Stock to be cancelled as set forth in Section 2.6(b) and 2.6(c)) shall, by
virtue of the Merger and without any action on the part of the holder thereof,
be converted into, exchanged for and represent the right to receive an amount
equal to the Per Share Amount in cash (the "Merger Consideration"), payable,
--------------------
without interest, to the holder of such Share, upon surrender, in the manner
described below, of the certificate that formerly evidenced such Share.
(b) Each Share issued and outstanding immediately prior to the
Effective Time which is then owned beneficially or of record by Parent or any
Subsidiary of Parent shall, by virtue of the Merger and without any action on
the part of the holder thereof, be cancelled and retired and cease to exist,
without any conversion thereof.
(c) Each Share held in Company's treasury immediately prior to the
Effective Time shall, by virtue of the Merger, be cancelled and retired and
cease to exist, without any conversion thereof.
(d) Notwithstanding anything in this Section 2.6 to the contrary,
shares of Company Common Stock which are issued and outstanding immediately
prior to the Effective Time and which are held by stockholders of Company who
have not voted such shares in favor of the Merger and who shall have properly
exercised their rights of appraisal for such shares in the manner provided by
the GCL (the "Dissenting Shares") shall not be converted into or be exchangeable
-----------------
for the right to receive the Merger Consideration, unless and until such holder
shall have failed to perfect or shall have effectively withdrawn or lost his
right to appraisal and payment, as the case may be. If such holder shall have
so failed to perfect or shall have effectively withdrawn or lost such right, his
shares shall thereupon be deemed to have been converted into and to have become
exchangeable for, at the Effective Time, the right to receive the Merger
Consideration, without any interest thereon. Company shall give Parent prompt
notice of any Dissenting Shares (and shall also give Parent prompt notice of any
withdrawals of such demands for appraisal rights) and Parent shall have the
right to direct all negotiations and proceedings with respect to any such
demands. Neither Company nor the Surviving Corporation shall, except with the
prior written consent of Parent, voluntarily make any payment with respect to,
or settle or offer to settle, any such demand for appraisal rights.
Stockholders of Company who shall have perfected their right of appraisal and
not withdrawn or otherwise
6
<PAGE>
lost such right of appraisal, shall be entitled to receive payment of the
appraised value of the shares of Company Common Stock held by them in accordance
with the provisions of Section 262 of the GCL.
2.7. Purchaser Common Stock. Each share of common stock of Purchaser
----------------------
issued and outstanding immediately prior to the Effective Time shall, by virtue
of the Merger and without any action on the part of Purchaser or the holder
thereof, be converted into and become one fully paid and nonassessable share of
common stock of the Surviving Corporation. From and after the Effective Time,
each outstanding certificate theretofore representing shares of Purchaser common
stock shall be deemed for all purposes to evidence ownership of and to represent
the number of shares of Surviving Corporation common stock into which such
shares of Purchaser common stock shall have been converted. Promptly after the
Effective Time, the Surviving Corporation shall issue to Parent a stock
certificate or certificates representing 100 shares of Surviving Corporation
common stock in exchange for the certificate or certificates that formerly
represented shares of Purchaser common stock, which shall be surrendered by
Parent and cancelled.
2.8. Surrender of Shares. (a) Prior to the Effective Time, Parent
-------------------
shall make available, by transferring to the Exchange Agent for the benefit of
the stockholders of Company, such amount of cash as shall be payable in exchange
for outstanding Shares pursuant to Section 2.6 hereof. Such funds shall be
invested by the Exchange Agent as directed by the Surviving Corporation,
provided that such investments shall be in obligations of or guaranteed by the
- --------
United States of America or of any agency thereof and backed by the full faith
and credit of the United States of America, or in deposit accounts, certificates
of deposit or banker's acceptances of, repurchase or reverse repurchase
agreements with, or Eurodollar time deposits purchased from, commercial banks
with capital, surplus and undivided profits aggregating in excess of $50 million
(based on the most recent financial statements of such bank which are then
publicly available at the SEC or otherwise).
(b) As soon as practicable after the Effective Time, the Exchange
Agent shall mail to each holder of record (other than to holders of Company
Common Stock to be cancelled as set forth in Section 2.6(b) or 2.6(c) or
Dissenting Shares) of a certificate or certificates that immediately prior to
the Effective Time represented outstanding shares of Company Common Stock (the
"Certificates") (i) a form letter of transmittal (which shall be in customary
- ------------- -
form and shall specify that delivery shall be effected, and risk of loss and
title to the Certificates shall pass, only upon proper delivery of the
Certificates to the
7
<PAGE>
Exchange Agent) and (ii) instructions for effecting the surrender of the
--
Certificates in exchange for the Merger Consideration.
(c) Upon surrender of a Certificate for cancellation to the Exchange
Agent, together with such letter of transmittal, duly executed, and such other
agreements as the Exchange Agent shall reasonably request, the holder of such
Certificate shall be entitled to receive in exchange therefor the Merger
Consideration, and the Certificate so surrendered shall forthwith be cancelled.
Until surrendered as contemplated by this Section 2.8, each Certificate shall be
deemed at any time after the Effective Time to represent only the right to
receive the Merger Consideration with respect to the shares of Company Common
Stock formerly represented thereby. No interest shall accrue or be paid on the
Merger Consideration payable upon the surrender of any Certificate.
(d) Any amounts of cash delivered or made available to the Exchange
Agent pursuant to this Section 2.8 and not exchanged for Certificates within six
months after the Effective Time pursuant to this Section 2.8 shall be returned
by the Exchange Agent to Parent, which thereafter shall act as Exchange Agent
subject to the rights of holders of unsurrendered Certificates under this
Article II. Thereafter such holders shall be entitled to look to the Surviving
Corporation (subject to abandoned property, escheat and other similar laws) only
as general creditors thereof with respect to any Merger Consideration that may
be payable upon due surrender of the Certificates held by them. Notwithstanding
the foregoing, neither the Surviving Corporation nor the Exchange Agent shall be
liable to any holder of a share of Company Common Stock for any Merger
Consideration delivered in respect of such Share to a public official pursuant
to any abandoned property, escheat or other similar law.
(e) If any payment of the Merger Consideration is to be made to a
person other than that in which the Certificate surrendered is registered, it
shall be a condition of payment that the Certificate so surrendered shall be
properly endorsed or otherwise in proper form for transfer and that the person
requesting such payment shall pay any transfer or other taxes required by reason
of the payment to a person other than the registered holder of the Certificate
surrendered or establish to the satisfaction of the Surviving Corporation that
such tax has been paid or is not applicable.
(f) After the Effective Time, there shall be no further registration
of transfers on the stock transfer books of the Surviving Corporation of the
shares of Company Common Stock which were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates representing such
shares are presented to the Surviving Corporation, they shall be
8
<PAGE>
cancelled and exchanged for the Merger Consideration as provided in this Article
I.
2.9. Company Stock Options and Warrants. At the Effective Time, all
----------------------------------
options and warrants then outstanding under the 1995 Incentive Stock Option Plan
and the 1996 Equity Participation Plan (collectively, the "Company Stock Option
--------------------
Plans") shall be assumed by Parent in such manner that Parent is a corporation
- -----
"assuming a stock option in a transaction to which section 424(a) applies"
within the meaning of Section 424 of the Internal Revenue Code of 1986, as
amended (the "Code"). The options and warrants assumed by Parent as provided
----
above and the warrants issued to WinStar Communications, Inc. and Electronic
Press Services, Inc. shall be exercisable upon the same terms and conditions as
under the Company Stock Option Plans and the option agreements and warrants
issued thereunder and such warrants, except that each such option or warrant (A)
shall be exercisable for that number of shares of Parent Common Stock equal to
the product of (i) the number of shares of Company Common Stock subject to such
option or warrant immediately prior to the Effective Time multiplied by (ii) a
fraction, the numerator of which shall be the Per Share Amount and the
denominator of which shall be $27 1/8 (with any fractional share of Parent
Common Stock being disregarded) and (B) the exercise price per share of Parent
Common Stock shall equal the exercise price per share of Company Common Stock
theretofore in effect multiplied by a fraction, the numerator of which shall be
$27 1/8 and the denominator of which shall be the Per Share Amount. From and
after the Effective Time, no additional options or warrants shall be granted
under Company Stock Option Plans. In connection with the assumption of the
options outstanding under Company Stock Option Plans, Parent shall use its best
efforts to effect such assumption in such a manner as to not affect the
incentive stock option status of those options which are intended to be
incentive stock options at the Effective Time. From the date hereof, Company
shall not accelerate, or take any action which would cause the acceleration of,
the vesting of any of the options outstanding under the Company Stock Option
Plans by reason of the Offer or the Merger and any agreement providing for such
acceleration shall be rescinded.
III. REPRESENTATIONS AND WARRANTIES OF COMPANY
-----------------------------------------
Company represents and warrants to Parent and Purchaser as follows
(except as set forth in the Disclosure Letter delivered by Company to Parent and
Purchaser on the date hereof):
3.1. Organization and Authorization, etc. Company is a corporation
-----------------------------------
duly organized, validly existing and in good standing under the laws of the
State of Delaware, has the
9
<PAGE>
corporate power and authority to own, lease and operate all of its properties
and assets and to carry on its business, and is duly qualified to do business as
a foreign corporation and is in good standing in each jurisdiction in which the
nature of its business or the ownership of its properties or both makes such
qualification necessary, except where failure to be so qualified would not,
individually or in the aggregate, have a Material Adverse Effect. Company has
delivered to Parent and Purchaser complete and correct copies of its Certificate
of Incorporation and By-Laws, as amended and in effect on the date of this
Agreement. Company has the corporate power to enter into this Agreement and to
carry out its obligations hereunder. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have been
duly and validly authorized by its Board of Directors and, except for the
approval of its stockholders, no other corporate proceedings on the part of
Company are necessary to authorize this Agreement and the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by Company and, assuming this Agreement constitutes the legal, valid
and binding Agreement of the other parties hereto, this Agreement constitutes
the legal, valid and binding agreement of Company, enforceable against Company
in accordance with its terms. The restrictions on business combinations
contained in Section 203 of the GCL have been satisfied with respect to the
transactions contemplated hereby.
3.2. Subsidiaries. Company has no Subsidiaries.
------------
3.3. Non-Contravention. The execution and delivery of this Agreement
-----------------
and, subject to the approval of this Agreement by Company's stockholders and
compliance with the applicable regulatory requirements set forth in Section 3.4,
the consummation of the transactions contemplated hereby will not (a) violate
-
any provision of the Amended and Restated Certificate of Incorporation or
Amended and Restated By-Laws of Company, (b) violate any material provision of
-
or result in the breach or the acceleration of or entitle any party to
accelerate (whether after the giving of notice or lapse of time or both) any
material obligation under, any material mortgage, lien, lease, agreement,
license, instrument, order, arbitration award, judgment or decree to which
Company is a party or by which it is bound, (c) result in the creation or
-
imposition of any material lien, charge, pledge, security interest or other
encumbrance upon any material property of Company or (d) violate or conflict
-
with any law, ordinance or rule to which Company, or the property of Company, is
subject.
3.4. Approvals. No consent, approval, order or authorization of, or
---------
registration, declaration or filing with, any Governmental Authority is required
in connection with the
10
<PAGE>
execution and delivery of this Agreement by Company or the consummation by
Company of the transactions contemplated hereby, except for (a) the filing of a
-
Notification and Report Form by Company under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), (b) the filing of the
------- -
Schedule 14D-9 with the SEC and the filing of the Proxy Statement with the SEC,
(c) filings and approvals required by the securities or blue sky laws of the
-
various states, (d) the filings and approvals with the FCC and state public
-
utility commissions or other Governmental Authorities identified on Schedule 3.4
hereto and (e) the filing of a Certificate of Merger with the Secretary of State
-
of the State of Delaware.
Company has delivered to Parent correct and complete copies of all
licenses and the applications related thereto of Company together with any
pending applications filed by Company for other licenses, certificates, permits
and similar authorizations.
3.5. Capital Stock. The authorized capital stock of Company consists
-------------
of 47,000,000 shares of Common Stock, par value $.01 per share, of which
11,674,261 shares are issued and outstanding, and of 3,000,000 shares of
Preferred Stock, par value $1.00 per share, none of which are issued and
outstanding. All outstanding shares of Company Common Stock are duly authorized,
validly issued, fully paid and nonassessable. As of the date hereof, Company
had reserved (a) 2,900,480 shares of Company Common Stock for issuance upon the
-
exercise of outstanding stock options granted to employees or directors of
Company, (b) 415,000 shares of Company Common Stock for issuance upon exercise
-
of currently outstanding warrants and (c) 350,000 shares of Company Common Stock
-
for issuance to employees pursuant to the Amended and Restated 1997 Employee
Stock Purchase Plan. Except as set forth herein or in the reports and other
filings referred to in Section 3.7 and except for the warrants issued to WinStar
Communications, Inc. on June 10, 1996 and to Electronic Press Services, Inc. on
January 3, 1997, there are not outstanding any offers, subscriptions, options,
warrants, rights or other agreements or commitments obligating Company to issue
or sell, or cause to be issued or sold, any shares of the capital stock of
Company or any securities or obligations convertible into or exchangeable for or
giving any Person any right to acquire any shares of such capital stock, or
obligating Company to enter into any such agreement or commitment.
3.6. Financial Statements. (a) The balance sheet as of December 31,
--------------------
1996 of Company, and the related statements of income, stockholders' equity and
changes in financial position for each of the three years then ended, examined
and reported upon by Ernst & Young, LLP, certified public accountants, complete
copies of which have previously been delivered to
11
<PAGE>
Parent, have been prepared in conformity with generally accepted accounting
principles applied on a consistent basis, and fairly present the financial
position of Company at such date and the results of its operations and changes
in its financial position for such periods. Except as disclosed or provided for
in such financial statements (including the notes thereto), as of December 31,
1996, Company had no liabilities or obligations material to the business or
condition (financial or otherwise) of Company, whether accrued, absolute,
contingent or otherwise, and whether due or to become due and which were
required to be disclosed or provided for in such financial statements in
accordance with generally accepted accounting principles.
(b) The unaudited financial statements of Company as of March 31,
1997 and for the three months then ended, complete copies of which have
previously been delivered to Parent (the "Company Interim Financials"), fairly
--------------------------
present the financial position of Company at such date and the results of its
operations for such period and, except as otherwise disclosed therein, have been
prepared in accordance with generally accepted accounting principles applied on
a basis consistent with the audited financial statements referred to in the
preceding paragraph, and reflect all adjustments (subject to normal and
recurring year end adjustments that are not expected to be material in amount)
which are necessary to a fair presentation of the results of the interim period
therein described.
3.7. Periodic SEC Filings. Company has heretofore delivered to
--------------------
Parent its (a) Annual Report on Form 10-KSB for the year ended December 31, 1996
-
as filed with the SEC; (b) a Quarterly Report on Form 10-QSB for the period
-
ended March 31, 1997; (c) proxy statements relating to Company's meetings of
-
stockholders (whether annual or special) during calendar year 1997; and (d) all
-
other reports or registration statements filed by Company with the SEC since
October 16, 1996. As of their respective dates, such reports and statements
were prepared in accordance with the requirements of the Securities Act of 1933,
as amended, and the Exchange Act, as the case may be, and the rules and
regulations thereunder and did not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading.
3.8. Changes. Except as has been otherwise disclosed by Company to
-------
Parent and Purchaser in writing prior to the date hereof, or as has been
disclosed in the Company Interim Financials or in the filings with the SEC set
forth in Section 3.7, since December 31, 1996 through the date of this Agreement
there have not been any changes in the condition (financial or otherwise),
assets, liabilities, properties, business, operations
12
<PAGE>
or prospects of Company having, individually or in the aggregate, a Material
Adverse Effect and, except as aforesaid, Company has not:
(a) issued or sold any stock, notes, bonds or other securities other
than pursuant to the exercise or conversion of outstanding securities, or
any option to purchase the same other than in the ordinary course of
business consistent with past practice, or entered into any agreement with
respect thereto, except to or with Parent or Purchaser;
(b) declared, set aside or made any dividend or other distribution on
capital stock or redeemed, purchased or acquired any shares thereof or
entered into any agreement in respect of the foregoing;
(c) amended its Certificate of Incorporation or By-Laws;
(d) other than in the ordinary course of business, (i) purchased,
-
sold, assigned or transferred any material tangible assets or any material
patent, trademark, trade name, copyright, license, franchise, design or
other intangible assets or property, (ii) mortgaged, pledged or granted or
--
suffered to exist any lien or other encumbrance or charge on any material
assets or properties, tangible or intangible, except for liens for taxes
not yet delinquent and such other liens, encumbrances or charges which do
not, individually or in the aggregate, have a Material Adverse Effect, or
(iii) to the best knowledge of Company, waived any rights of material value
----
or cancelled any material debts or claims;
(e) incurred any material obligation or liability (absolute or
contingent), except current liabilities and obligations incurred in the
ordinary course of business consistent with past practice, or paid any
material liability or obligation (absolute or contingent) other than
current liabilities and obligations incurred in the ordinary course of
business consistent with past practice;
(f) increased the compensation payable to any officer or director of
Company, or become obligated to increase any such compensation, other than
in the ordinary course of business consistent with past practice;
(g) entered into any employment agreement (except that agreements
with employees that are solely confidentiality agreements shall not be
considered employment agreements) or adopted, or amended in any material
respect, any collective
13
<PAGE>
bargaining agreement or Company Plan, other than in the ordinary course of
business consistent with past practice;
(h) incurred any damage, destruction or similar loss, whether or not
covered by insurance, materially affecting the businesses or properties of
Company;
(i) entered into any transaction of a material nature other than in
the ordinary course of business consistent with past practice; or
(j) changed its accounting methods, principles or practices.
3.9. Taxes. (a) Company has prepared and timely filed or will
-----
timely file with the appropriate Governmental Authorities all franchise, income
and all other material Tax returns and reports required to be filed for any
period ending on or before the Effective Time, taking into account any extension
of time to file granted to or obtained on behalf of Company;
(b) all material Taxes of Company in respect of the pre-Merger period
have been paid in full to the proper authorities, other than such Taxes as are
being contested in good faith by appropriate proceedings and/or are adequately
reserved for in accordance with generally accepted accounting principles;
(c) to the best knowledge of Company, no deficiency has been asserted
or assessed against Company, and no examination of Company is pending or
threatened for any material amount of Tax by any taxing authority;
(d) no extension of the period for assessment or collection of any
material Tax is currently in effect and no extension of time within which to
file any material Tax return has been requested, which Tax return has not since
been filed;
(e) no material Tax liens have been filed with respect to any Taxes;
(f) Company will not make any voluntary adjustment by reason of a
change in their accounting methods for any pre-Merger period that would affect
the taxable income or deductions of Company for any period ending after the
Effective Date;
(g) Company has made timely payments of the Taxes required to be
deducted and withheld from the wages paid to their employees;
(h) to the best knowledge of Company, there are no foreign losses as
defined in Section 904(f)(2) of the Code; and
14
<PAGE>
(i) to the best knowledge of Company, there are no transfer pricing
agreements made with any taxation authority involving Company.
3.10. Material Contracts. Company has heretofore furnished to Parent
------------------
and Purchaser a complete and correct list as of the date hereof of all
agreements, contracts and commitments of the following types, written or oral,
to which Company is a party or by which any of its properties is bound as of the
date hereof: (a) mortgages, indentures, security agreements and other
-
agreements and instruments relating to the borrowing of money by or extension of
credit to Company; (b) employment and consulting agreements; (c) Company Plans;
- -
(d) collective bargaining agreements; (e) material sales agency, manufacturer's
- -
representatives or distributorship agreements; (f) agreements, orders or
-
commitments for the purchase by Company of raw materials, supplies or finished
products exceeding $100,000; (g) agreements, orders or commitments for the sale
-
by Company of its products exceeding $250,000; (h) licenses of patent, trademark
-
and other intellectual property rights; (i) agreements or commitments for
-
capital expenditures in excess of $100,000 for any single project (it being
warranted that the commitment for all undisclosed contracts for such agreements
or commitments does not exceed $500,000 in the aggregate for all projects); (j)
-
brokerage or finder's agreements; (k) surety bonds for any single project,
-
foreign exchange contracts and letters of credit, in each case in excess of
$250,000; and (l) agreements, contracts and commitments of a type other than
-
those described in the foregoing clauses (a) through (k) which in any case
involve payments or receipts of more than $100,000. Other than for documents
that are included in Company's SEC filings, Company has delivered or made
available to Parent and Purchaser complete and correct copies of all written
agreements, contracts and commitments, together with all amendments thereto, and
accurate descriptions of all oral agreements, set forth on such list. Such
agreements, contracts and commitments are in full force and effect and, to the
best knowledge of Company, all parties thereto have performed all obligations
required to be performed by them to date and are not in default in any material
respect thereunder. No claim of default by any party has been made or is now
pending under any such agreement, contract or commitment, and, to the best
knowledge of Company, no event has occurred and is continuing that with notice
or the passing of time or both would constitute a material default thereunder or
would excuse performance by any party thereto.
3.11. Properties. Company owns and has good and marketable title in
----------
fee to all its assets and properties, tangible or intangible reflected in the
Company Interim Financials as owned by it, and valid leasehold interests in all
properties reflected in the Company Interim Financials as leased
15
<PAGE>
or licensed by it, in each case free and clear of any mortgage, lien, pledge,
charge, claim, conditional sales or other agreement, right, easement or
encumbrance except (i) to the extent stated or reserved against in the Company
-
Interim Financials, (ii) for changes occurring in the ordinary course of
--
business consistent with past practice after the date thereof, which do not
have, individually or in the aggregate, a Material Adverse Effect, and (iii) for
---
liens for taxes not yet delinquent and such other exceptions which do not
materially detract from the value or interfere with the use of the property
affected thereby. Company has delivered or made available to Parent and
Purchaser complete and correct copies of all leases of real property and
material personal property to which it is a party. All such leases are valid,
subsisting and effective in accordance with their terms and, to the knowledge of
Company, there does not exist thereunder any material default or event or
condition which, after notice or lapse of time or both, would constitute a
material default thereunder. To the knowledge of Company, all physical
properties owned or used by Company and all equipment necessary for the
operation of its businesses are in good operating condition.
3.12. Litigation. Except as disclosed in the reports and other
----------
filings referred to in Section 3.7 and except as has been otherwise disclosed by
Company to Parent and Purchaser prior to the date hereof, there are no material
actions, suits or proceedings or investigations pending or, to the knowledge of
Company, threatened against or affecting Company or any property or assets of
Company before or by any Governmental Authority. Company is not in default in
respect of any judgment, order, writ, injunction or decree of any Governmental
Authority.
3.13. Permits. Company has all material permits, licenses, orders
-------
and approvals of all Governmental Authorities required for it to conduct its
business as presently conducted. All such material permits, licenses, orders and
approvals are in full force and effect and, to the knowledge of Company, no
suspension or cancellation of any of them is threatened. Subject to obtaining
the consents referred to in Section 3.4, none of such permits, licenses, orders
or approvals will be adversely affected by the consummation of the transactions
contemplated by this Agreement. Company has complied in all material respects
with all laws and with the rules and regulations of all Governmental Authorities
having authority over it, including, without limitation, agencies concerned with
occupational safety, environmental protection and employment practices, and
Company has not received notice of violation of any such rules or regulations,
corrected or not, within the last three years.
3.14. Employee Plans. (a) Schedule 3.14 contains a true and complete
--------------
list of all bonus, deferred compensation,
16
<PAGE>
pension, profit-sharing, retirement, insurance, stock purchase, stock option,
welfare, severance, hospitalization, insurance or other employee benefit plan
(as defined in Section 3(3) of ERISA), whether formal or informal, presently
maintained by Company or maintained by it since 1992, or under which Company
has, or has had since 1992, any obligation to contribute (collectively, the
"Company Plans").
- --------------
(b) For each of the Company Plans, Company has delivered or made
available to Parent true and complete copies of (i) the plan document, (ii) any
related trust agreements, insurance contracts and other funding agreements,
(iii) the summary plan descriptions, (iv) the most recent Internal Revenue
Service determination letter, if any, (v) the most recently filed annual report
(Form 5500 Series) and accompanying schedules filed with the Department of Labor
or Internal Revenue Service, and (vi) the most recent financial statements, if
any.
(c) Except where the failure of any of the following representations
would not result in a Material Adverse Effect:
(i) Each such Company Plan which is intended to be a "qualified plan"
under Section 401(a) of the Code, has received, within the last three
years, a favorable determination letter from the IRS. With respect to any
Company Plan which has received a currently applicable determination
letter, nothing has occurred since the date of such determination letter
that would adversely affect the qualification of the Company Plan under
Section 401(a) of the Code.
(ii) Company has performed and complied with all of its obligations
under or with respect to the Company Plans, and the Company Plans have
operated in accordance with their respective terms. All Company Plans have
operated in accordance with the applicable requirements of ERISA and the
Code and other applicable laws, rules and regulations, and all reports
required by any governmental agency with respect to a Company Plan have
been timely filed.
(iii) Neither any of the Company Plans nor any employee benefit plan
(as defined in Section 3(3) of ERISA) maintained or contributed to by an
ERISA Affiliate (the Company Plans and the employee benefit plans of ERISA
Affiliates are collectively referred to as the "Company Group Plans") is
-------------------
covered by Title IV of ERISA.
(iv) No prohibited transaction (as defined in Section 406 of ERISA or
Section 4975 of the Code) has
17
<PAGE>
occurred with respect to any of the Company Group Plans.
(v) Each Company Plan which constitutes a welfare benefit plan within
the meaning of Section 3(1) of ERISA has complied and continues to comply
with the health care continuation coverage requirements of section 4980B of
the Code and Part 6 of Subtitle B of Title I of ERISA. Other than the
coverage referred to in the immediately preceding sentence, there are no
benefits to be provided to current retirees under any of the Company Plans
which constitutes a welfare benefit plan.
(vi) No action, suit or proceeding, hearing, or investigation with
respect to the administration or investment of the assets of any Company
Group Plan is pending or threatened. None of the senior executive officers
of Company has any knowledge of any basis for any such action, suit,
proceeding, hearing or investigation.
(vii) No amount paid or payable (or which may become payable)
pursuant to any Company Plan to or for the benefit of any officer, director
or employee of Company was or will constitute any excess parachute payment
(within the meaning of Section 280G of the Code) as a consequence, direct
or indirect, in whole or in part, of the consummation of the transaction
contemplated under the Agreement.
(viii) Company does not have any commitment, whether formal or
informal and whether legally binding or not, to create or amend any Company
Plan.
3.15. Patents, Trademarks, etc. Company owns, or possess adequate
------------------------
rights to use, all material patents, trade names, trademarks, copyrights,
inventions, processes, designs, formulae, trade secrets, knowhow and other
intellectual property rights necessary for the conduct of its business, with, to
the knowledge of Company, no conflict with or infringement of the asserted
rights of others. Company has no knowledge of any infringement by any third
party upon any patent, trade name, trademark or copyright owned by Company, and
Company has not taken or omitted to take any action which would have the effect
of waiving any of its rights thereunder, in each case except where such
infringement or waiver would not have a Material Adverse Effect.
3.16. Insurance. Company has heretofore furnished to Parent and
---------
Purchaser a complete and correct list as of the date
18
<PAGE>
hereof of all material insurance policies maintained by Company, and has made
available to Parent and Purchaser complete and correct copies of all such
policies, together with all riders and amendments thereto. All such policies
are in full force and effect and all premiums due thereon have been paid to the
date hereof. Company has complied in all material respects with the provisions
of all such policies.
3.17. No Brokers. All negotiations relating to this Agreement and
----------
the transactions contemplated hereby have been carried on without the
intervention of any person (other than Friedman, Billings, Ramsey & Co., Inc.)
acting on behalf of Company in such manner as to give rise to any valid claim
against Company or Parent or any of Parent's Subsidiaries for any broker's or
finder's fee or similar compensation.
3.18. Disclosure. The certificates, statements, and other
----------
information furnished to Parent or Purchaser in writing by or on behalf of
Company in connection with the transactions contemplated herein, taken as a
whole, do not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Except for facts or
conditions affecting the Internet access industry or the website hosting
industry generally, Company knows of no fact or condition which materially
adversely affects, or in the future may (so far as Company can now reasonably
foresee) materially adversely affect the condition (financial or otherwise),
properties, assets, liabilities, business, operations or prospects of Company
which has not been set forth herein or disclosed in writing to Parent and
Purchaser with reference to this Agreement.
3.19. Offer Documents; Schedule 14D-9; Proxy Statement; Other
-------------------------------------------------------
Information. Neither the Schedule 14D-9 nor any information supplied by Company
- -----------
for inclusion in the Offer Documents shall, at the respective times the Schedule
14D-9, the Offer Documents or any amendments or supplements thereto are filed
with the SEC or are first published, sent or given to stockholders of Company,
as the case may be, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements made therein, in the light of the circumstances under which
they are made, not misleading. Neither the proxy statement to be sent to the
stockholders of Company in connection with the Stockholders' Meeting (as
hereinafter defined) or the information statement to be sent to such
stockholders, as appropriate (such proxy statement or information statement, as
amended or supplemented, being referred to herein as the "Proxy Statement"),
---------------
shall, at the date the Proxy Statement (or any amendment or supplement thereto)
is first mailed to stockholders of Company, at the time of the Stockholders'
Meeting and at the
19
<PAGE>
Effective Time, be false or misleading with respect to any material fact, or
omit to state any material fact required to be stated therein or necessary in
order to make the statements made therein, in the light of the circumstances
under which they are made, not misleading or necessary to correct any statement
in any earlier communication with respect to the solicitation of proxies for the
Stockholders' Meeting which shall have become false or misleading. The Schedule
14D-9 and the Proxy Statement shall comply in all material respects as to form
with the requirements of the Exchange Act and the rules and regulations
thereunder.
IV. REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER
------------------------------------------------------
Parent and Purchaser each represent to Company as follows:
4.1. Organization and Authorization, etc. Each of Parent and
-----------------------------------
Purchaser is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware, has the corporate power and authority
to own, lease and operate all of its properties and assets and to carry on its
business, and is duly qualified to do business as a foreign corporation and is
in good standing in each jurisdiction in which the nature of its business or the
ownership of its properties or both makes such qualification necessary, except
where failure to be so qualified would not, individually or in the aggregate,
have a Material Adverse Effect. Each of Parent and Purchaser has the corporate
power to enter into this Agreement and to carry out its obligations hereunder.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
Board of Directors of each of Parent and Purchaser and no other corporate
proceedings on the part of Parent or Purchaser are necessary to authorize this
Agreement and the transactions contemplated hereby. This Agreement has been
duly and validly executed and delivered by each of Parent and Purchaser and,
assuming this Agreement constitutes the legal, valid and binding Agreement of
the other parties hereto, this Agreement constitutes the legal, valid and
binding agreement of each of Parent and Purchaser, enforceable against each in
accordance with its terms.
4.2. Non-Contravention. The execution and delivery of this Agreement
-----------------
and the consummation of the transactions contemplated hereby will not (a)
-
violate any provision of the Certificate of Incorporation or By-Laws of Parent
or any of its Subsidiaries, (b) after giving effect to the to the transactions
-
contemplated by Section 6.9, violate any material provision of or result in the
breach or the acceleration of or entitle any party to accelerate (whether after
the giving of notice or lapse of time or both) any material obligation under,
any material
20
<PAGE>
mortgage, lien, lease, agreement, license, instrument, order, arbitration award,
judgment or decree to which Parent or any of its Subsidiaries is a party or by
which any of them is bound, (c) result in the creation or imposition of any
-
material lien, charge, pledge, security interest or other encumbrance upon any
material property of Parent or any of its Subsidiaries or (d) violate or
-
conflict with any other material restriction or any law, ordinance or rule to
which Parent or any of its Subsidiaries, or the property of Parent or any of its
Subsidiaries, is subject.
4.3. Approvals. No consent, approval, order or authorization of, or
---------
registration, declaration or filing with, any Governmental Authority is required
in connection with the execution and delivery of this Agreement by Parent and
Purchaser or the consummation by Parent and Purchaser of the transactions
contemplated hereby, except for (a) the filing of a Notification and Report Form
-
by Parent under the HSR Act, (b) the filing of the Schedule 14D-1 with the SEC
-
and the filing of the Proxy Statement with the SEC, (c) filings and approvals
-
with the SEC or as required by the securities or blue sky laws of the various
states, (d) any necessary filings with and approvals of the FCC and state public
-
utility commissions or other Governmental Authorities where the operations of
Company are subject to their jurisdiction and (e) the filing of a Certificate of
-
Merger with the Secretary of State of the State of Delaware.
4.4. No Brokers. All negotiations relating to this Agreement and the
----------
transactions contemplated hereby have been carried on without the intervention
of any person acting on behalf of Parent in such manner as to give rise to any
valid claim against Parent or Company or any of Parent's Subsidiaries for any
broker's or finder's fee or similar compensation other than Bear, Stearns & Co.
Inc., whose fees shall be paid by Parent.
4.5. Offer Documents; Proxy Statement; Other Information. The Offer
---------------------------------------------------
Documents will not, at the time the Offer Documents are filed with the SEC or
are first published, sent or given to stockholders of Company, as the case may
be, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements made therein, in the light of the circumstances under which they are
made, not misleading. The information supplied by Parent for inclusion in the
Proxy Statement will not, on the date the Proxy Statement (or any amendment or
supplement thereto) is first mailed to stockholders of Company, at the time of
the Stockholders' Meeting and at the Effective Time, contain any statement
which, at such time and in light of the circumstances under which it is made, is
false or misleading with respect to any material fact, or omits to state any
material fact
21
<PAGE>
required to be stated therein or necessary in order to make the statements
therein not false or misleading or necessary to correct any statement in any
earlier communication with respect to the solicitation of proxies for the
Stockholders' Meeting which shall have become false or misleading.
Notwithstanding the foregoing, Parent and Purchaser make no representation or
warranty with respect to any information supplied by Company or any of its
representatives which is contained in any of the foregoing documents or the
Offer Documents. The Offer Documents shall comply in all material respects as
to form with the requirements of the Exchange Act and the rules and regulations
thereunder.
4.6. Solvency. Parent is not currently insolvent, as such term is
--------
defined in Title 11 of the United States Bankruptcy Code or any state statute
relating to insolvency, and none of the execution and delivery of this Agreement
by Parent, the performance of its obligations hereunder or the consummation by
Parent of the transactions contemplated hereby will render Parent insolvent or
result in Parent being unable to pay its debts as they become due.
V. COVENANTS OF COMPANY
--------------------
5.1. Conduct of Business. From the date hereof to the Effective
-------------------
Time, except with the prior written consent of Parent and Purchaser, Company
will:
(a) carry on its business in, and only in, the ordinary course in
substantially the same manner as heretofore and, to the extent consistent
with such business, use all reasonable efforts to preserve intact its
present business organization, keep available the services of its present
officers and employees, and preserve its relationships with customers,
suppliers and others having business dealings with it;
(b) maintain all of its material structures, equipment and other
tangible personal property in good repair, order and condition, except for
depletion, depreciation, ordinary wear and tear and damage by unavoidable
casualty;
(c) keep in full force and effect insurance comparable in amount and
scope of coverage to insurance now carried by it;
(d) perform in all material respects all of its obligations under
agreements, contracts and instruments relating to or affecting its
properties, assets and business;
22
<PAGE>
(e) maintain its books of account and records in the usual, regular
and ordinary manner;
(f) comply in all material respects with all statutes, laws,
ordinances, rules and regulations applicable to it and to the conduct of
its business;
(g) not amend its Certificate of Incorporation or By-Laws;
(h) not enter into, assume or amend in any material respect any
agreement, contract or commitment of the character referred to in clauses
(a) through (c) of Section 3.10 (except that agreements with employees that
are solely confidentiality agreements shall not be considered employment
agreements) or, except in the ordinary course of business consistent with
past practice, clauses (d) through (l) of such Section;
(i) not enter into any additional contracts or agreements for network
capacity or local transport services which are not terminable by Company,
without penalty or other adverse consequence, on not more than 60 days
notice;
(j) not enter into any additional customer contracts or agreements
containing rates which are materially different from the rates charged by
Company to current customers of similar creditworthiness, ordering similar
amounts of services and over a similar term;
(k) not merge or consolidate with, or agree to merge or consolidate
with, or purchase substantially all the assets of, or otherwise acquire any
business or any corporation, partnership, association or other business
organization or division thereof;
(l) not purchase for cash and cancel any options outstanding under
Company Stock Option Plans or otherwise amend such Plans;
(m) promptly advise Parent and Purchaser in writing of any materially
adverse change in the consolidated financial condition, operations or
business of Company;
(n) not declare or pay dividends (cash or otherwise) or make any
distribution on, or directly or indirectly redeem, purchase or otherwise
acquire, any shares of its outstanding capital stock;
(o) not effect any stock split or other reclassification;
23
<PAGE>
(p) not authorize the creation or issuance of or issue, sell or
dispose of, or create any obligation to issue, sell or dispose of, any
shares of its capital stock or any securities or obligations convertible
into or exchangeable for, any shares of its capital stock (other than
pursuant to stock options or warrants heretofore outstanding);
(q) not issue any press releases without first consulting with Parent
regarding any such press release;
(r) not create, incur, assume, guarantee or otherwise become directly
or indirectly liable with respect to any indebtedness for borrowed money
other than in the ordinary course of business consistent with past practice
under agreements existing on the date hereof and identified in writing to
Parent and Purchaser; and
(s) not enter into any agreement or understanding to do or engage in
any of the foregoing.
Notwithstanding anything to the contrary in this Section 5.1, Company
shall be permitted to make payment in full of the automobile loans relating to
the two Chevrolet trucks owned by Company and to purchase the 1997 BMW 528I
automobile, the Ford Explorer and the two vans, each of which is currently being
leased by Company.
5.2. Access and Information. From the date hereof to the Effective
----------------------
Time, Company shall give to Parent and Purchaser and their representatives
reasonable access during normal business hours to the personnel, properties,
books, records, contracts and commitments of Company and will furnish all such
information and documents relating to the properties and business of Company as
Parent and Purchaser may reasonably request. In the event this Agreement is
terminated and the Merger abandoned, Parent and Purchaser will keep confidential
any information (unless readily ascertainable from public information or sources
or otherwise required by law to be disclosed) obtained from Company in
connection with the Merger, will not utilize such information for any purpose
and will return to Company all documents, work papers and other written material
obtained by Parent and Purchaser from Company.
5.3. No Solicitation. From the date hereof to the Effective Time,
---------------
Company shall not, directly or indirectly, through any officer, director, agent
or otherwise, (a) solicit, initiate or encourage the submission of any proposal
or offer from any person relating to any acquisition or purchase of all or
(other than in the ordinary course of business) any portion of the assets of, or
any equity interest in, Company or any business
24
<PAGE>
combination (other than private network agreements entered into by Company in
the ordinary course of business) with Company (a "Company takeover proposal") or
(b) except to the extent required by fiduciary obligations under applicable law
as advised in writing by independent counsel, participate in any negotiations
regarding, or furnish to any other person any information with respect to, or
otherwise cooperate in any way with, or assist or participate in, facilitate or
encourage, any effort or attempt by any other person to do or seek any of the
foregoing. Company immediately shall cease and cause to be terminated all
existing discussions or negotiations with any parties conducted heretofore with
respect to any of the foregoing. Company shall notify Parent promptly of any
Company takeover proposal or any inquiry or contact with any person with respect
thereto, that is made and shall, in any such notice to Parent, indicate in
reasonable detail the identity of the person making such Company takeover
proposal or related inquiry or contact and the terms and conditions of such
Company takeover proposal or related inquiry or contact. Company shall not
release any third party from, or waive any provision of, any confidentiality or
standstill agreement to which Company is a party.
VI. ADDITIONAL AGREEMENTS
---------------------
6.1. Stockholders' Meeting. (a) If required by applicable law in
---------------------
order to consummate the Merger, Company, acting through the Board, shall, in
accordance with applicable law and Company's Certificate of Incorporation and
By-laws, (i) duly call, give notice of, convene and hold an annual or special
meeting of its stockholders as soon as practicable following consummation of the
Offer for the purpose of considering and taking action on this Agreement and the
transactions contemplated hereby (the "Stockholders' Meeting") and (ii) (A)
---------------------
include in the Proxy Statement the unanimous recommendation of the Board that
the stockholders of Company approve and adopt this Agreement and the
transactions contemplated hereby and (B) use its reasonable best efforts to
obtain such approval and adoption. At the Stockholders' Meeting, Parent and
Purchaser shall cause all Shares then owned by them and their Subsidiaries to be
voted in favor of the approval and adoption of this Agreement and the
transactions contemplated hereby.
(b) Notwithstanding the foregoing, in the event that Purchaser shall
acquire at least 90 percent of the then outstanding Shares, the parties hereto
agree, at the request of Purchaser, subject to Article VII, to take all
necessary and appropriate action to cause the Merger to become effective, in
accordance with Section 253 of Delaware Law, as soon as reasonably practicable
after such acquisition, without a meeting of the stockholders of Company.
25
<PAGE>
6.2. Proxy Statement. If required by applicable law as soon as
---------------
practicable following consummation of the Offer, Company shall file the Proxy
Statement with the SEC under the Exchange Act, and shall use its reasonable best
efforts to have the Proxy Statement cleared by the SEC. Parent, Purchaser and
Company shall cooperate with each other in the preparation of the Proxy
Statement, and Company shall notify Parent of the receipt of any comments of the
SEC with respect to the Proxy Statement and of any requests by the SEC for any
amendment or supplement thereto or for additional information and shall provide
to Parent promptly copies of all correspondence between Company or any
representative of Company and the SEC. Company shall give Parent and its
counsel the opportunity to review the Proxy Statement prior to its being filed
with the SEC and shall give Parent and its counsel the opportunity to review all
amendments and supplements to the Proxy Statement and all responses to requests
for additional information and replies to comments prior to their being filed
with, or sent to, the SEC. Each of Company, Parent and Purchaser agrees to use
its reasonable best efforts, after consultation with the other parties hereto,
to respond promptly to all such comments of and requests by the SEC and to cause
the Proxy Statement and all required amendments and supplements thereto to be
mailed to the holders of Shares entitled to vote at the Stockholders' Meeting at
the earliest practicable time.
6.3. Compliance with Conditions Precedent, etc. Parent, Purchaser and
-----------------------------------------
Company will each use commercially reasonable efforts to cause the conditions
precedent to the Offer and the Merger set forth in Annex A and in Article VII
hereof to be fulfilled and, subject to the terms and conditions herein provided,
to take, or cause to be taken, all action, and to do or cause to be done all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement
and the Merger, including without limitation to lift any injunction or remove
any other impediment to the consummation of such transactions or the Merger. In
case at any time after the Effective Time any further action is necessary or
desirable to carry out the purposes of this Agreement, the proper officers
and/or directors of Company, Parent or Purchaser, as the case may be, shall take
all such necessary action.
6.4. Certain Notifications. At all times from the date hereof until
---------------------
the Effective Time, each party shall promptly notify the others in writing of
the occurrence of any event which will or may result in the failure to satisfy
the conditions specified in Annex A or in Article VII.
6.5. Adoption by Purchaser. Parent, as the sole stockholder of
---------------------
Purchaser, by executing this Agreement, consents to the adoption of this
Agreement by Purchaser and agrees that
26
<PAGE>
such consent shall be treated for all purposes as a vote duly adopted at a
meeting of the stockholders of Purchaser held for this purpose.
6.6. Expenses. Whether or not the Merger is consummated, all costs
--------
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby and thereby shall be paid by the party incurring such
expense, except that the parties agree that Parent and Company shall share
evenly any filing fees required by the HSR Act.
6.7. Public Announcements. Parent and Company shall consult with
--------------------
each other before issuing any press release or otherwise making any public
statements with respect to this Agreement or any transaction contemplated herein
and shall not issue any such press release or make any such public statement
prior to such consultation, except as may be required by law or any listing
agreement with a national securities exchange or the Nasdaq National Market to
which Parent or Company is a party.
6.8. Company Board Representation; Section 14(f). (a) Promptly upon
-------------------------------------------
the purchase by Purchaser of Shares pursuant to the Offer or the Stock Purchase
Agreement, and from time to time thereafter, Purchaser shall be entitled to
designate up to such number of directors, rounded up to the next whole number,
on the Board as shall give Purchaser representation on the Board equal to the
product of the total number of directors on the Board (giving effect to the
directors elected pursuant to this sentence) multiplied by the percentage that
the aggregate number of Shares beneficially owned by Purchaser or any affiliate
of Purchaser following such purchase bears to the total number of Shares then
outstanding, and Company shall, at such time, promptly take all actions
necessary to cause Purchaser's designees to be elected as directors of Company,
including increasing the size of the Board or securing the resignations of
incumbent directors or both. At such time, Company shall use its reasonable
best efforts to cause persons designated by Purchaser to constitute the same
percentage as persons designated by Purchaser shall constitute of the Board of
each committee of the Board. Notwithstanding the foregoing, until the earlier
of (i) the time Purchaser acquires a majority of the then outstanding Shares on
a fully diluted basis and (ii) the Effective Time, Company shall use its
reasonable best efforts to ensure that all the members of the Board and each
committee of the Board as of the date hereof who are not employees of the
Company shall remain members of the Board and of such committees.
(b) Company shall promptly take all actions required pursuant to
Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder in order
to fulfill its obligations under this Section 6.8 and shall include in the
Schedule 14D-9 such
27
<PAGE>
information with respect to Company and its officers and directors as is
required under Section 14(f) and Rule 14f-1 to fulfill such obligations. Parent
or Purchaser shall supply to Company and be solely responsible for any
information with respect to either of them and their nominees, officers,
directors and affiliates required by such Section 14(f) and Rule 14f-1.
6.9. Indebtedness of Company. Prior to the consummation of the Offer
-----------------------
by Purchaser (and as a condition thereto), Company shall, if Parent shall have
made available a Parent Loan as described below, repay all Indebtedness (as
defined in the Parent Indenture) of Company other than Vendor Indebtedness (as
defined in the Parent Indenture), it being expressly understood that if Parent
shall not have made available to Company a Parent Loan, then the repayment of
such Indebtedness shall not be a condition to the consummation of the Offer. To
the extent requested by Company, Parent shall make a loan to Company in
principal amount sufficient to pay in full (including principal, accrued
interest, fees, penalties and other charges) all Indebtedness required to be
repaid by Company pursuant to this Section 6.9 (the "Parent Loan"). The Parent
-----------
Loan shall (i) have a maturity of 180 days, (ii) bear interest at a rate to be
negotiated in good faith by the parties taking into account the interest rate
that could be obtained by Company on any bank or other financial institution
financing and (iii) have such other terms as shall be mutually agreed to by
Company and Parent, acting in good faith and a commercially reasonably manner.
VII. CONDITIONS
----------
7.1. Conditions to the Merger. The obligations of each party to
------------------------
effect the Merger shall be subject to the satisfaction, at or prior to the
Effective Time, of each of the following conditions:
(a) the Merger and this Agreement shall have been validly approved
and adopted by the affirmative votes of the holders of a majority of the
outstanding shares of Company Common Stock entitled to vote thereon;
(b) all permits, approvals and consents of any Governmental Authority
or any other third party necessary or appropriate for consummation of the
Merger shall have been obtained, other than consents the failure to obtain
which would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect or a material adverse effect on the
consummation of the transactions contemplated hereby;
28
<PAGE>
(c) Purchaser or a permitted assignee shall have purchased all Shares
validly tendered and not withdrawn pursuant to the Offer; provided,
--------
however, that this condition shall not be applicable to the obligations of
-------
Parent and Purchaser if, in breach of this Agreement or the terms of the
Offer, Purchaser fails to purchase any Shares validly tendered and not
withdrawn pursuant to the Offer;
(d) no preliminary or permanent injunction or other order of a court
or Governmental Authority shall have been issued and be in effect, and no
United States federal or state statute, rule or regulation shall have been
enacted or promulgated after the date hereof and be in effect, that (i)
-
prohibits the consummation of the Merger or (ii) imposes material
--
limitations on the ability of Parent to exercise full rights of ownership
of Company's assets or business;
(e) there shall not be any action or proceeding commenced by or
before any Governmental Authority in the United States, or threatened by
any Governmental Authority in the United States, that challenges the
consummation of the Merger or seeks to impose material limitations on the
ability of Parent to exercise full rights of ownership of Company's assets
or business, other than any such action or proceeding commenced by a
stockholder or stockholders of Parent or Company, either derivatively on
behalf of Parent or Company, respectively, or on behalf of such stockholder
or stockholders, alleging that the directors or officers of Parent or
Company, respectively, have breached their fiduciary duties to stockholders
under Delaware law or Parent or Company has failed to make disclosures
required to be made under applicable state or federal securities laws, in
each case in connection with the transactions contemplated by this
Agreement, or making any similar claim; and
(f) any waiting period applicable to the consummation of the Merger
under the HSR Act shall have expired or been terminated.
VIII. TERMINATION, AMENDMENT AND WAIVER
---------------------------------
8.1. Termination. This Agreement may be terminated at any time prior
-----------
to the Effective Time, whether before or after approval by the stockholders of
Company:
(a) by consent of the Boards of Directors of Company, Parent and
Purchaser, except that in the case of termination after the consummation of
the Offer, the termination must be consented to by a majority of the
independent directors of Company;
29
<PAGE>
(b) by Parent and Purchaser upon notice to Company if any material
default under or material breach of any covenant or agreement in this
Agreement by Company shall have occurred and shall not have been cured
within ten days after receipt of such notice, or any representation or
warranty contained herein on the part of Company shall not have been true
and correct in any material respect at and as of the date made;
(c) by Company upon notice to Parent and Purchaser if any material
default under or material breach of any covenant or agreement in this
Agreement by Parent or Purchaser shall have occurred and shall not have
been cured within ten days after receipt of such notice, or any
representation or warranty contained herein on the part of Parent or
Purchaser shall not have been true and correct in any material respect at
and as of the date made; or
(d) by Parent and Purchaser, on the one hand, or Company, on the
other, upon notice to the other if the Merger shall not have become
effective on or before October 31, 1997, unless such date is extended by
the consent of the Boards of Directors of Company, Parent and Purchaser
evidenced by appropriate resolutions; provided, however, that the right to
-------- -------
terminate this Agreement under this Section 8.1(d) shall not be available
to any party whose failure to fulfill any obligation under this Agreement
has been the cause of, or resulted in, the failure of the Effective Time to
occur on or before such date;
(e) by Parent if due solely to an occurrence or circumstance that
would result in a failure to satisfy any condition set forth in Annex A
hereto, Purchaser shall have (i) failed to commence the Offer within 60
days following the date of this Agreement, (ii) terminated the Offer
without having accepted any Shares for payment thereunder or (iii) failed
to pay for Shares pursuant to the Offer within 90 days following the
commencement of the Offer, unless such failure to pay for Shares shall have
been caused by or resulted from the failure of Parent or Purchaser to
perform in any material respect any material covenant or agreement of
either of them contained in this Agreement or the material breach by Parent
or Purchaser of any material representation or warranty of either of them
contained in this Agreement;
(f) by Company, upon approval of the Board, if due to an occurrence
or circumstance that would result in a failure to satisfy any of the
conditions set forth in Annex A hereto, Purchaser shall have (i) failed to
commence the Offer within 60 days following the date of
30
<PAGE>
this Agreement, (ii) terminated the Offer without having accepted any
Shares for payment thereunder or (iii) failed to pay for Shares pursuant to
the Offer within 90 days following the commencement of the Offer, unless
such failure to pay for Shares shall have been caused by or resulted from
the failure of Company to perform in any material respect any material
covenant or agreement of it contained in this Agreement or the material
breach by Company of any material representation or warranty of it
contained in this Agreement;
(g) by any of Parent, Purchaser and Company if the approval of the
stockholders of Company required for consummation of the Merger shall not
have been obtained by reason of the failure to obtain the required vote at
a duly held meeting of stockholders or any adjournment thereof;
(h) by Parent or Purchaser if Company breaches the provisions of
Section 5.3; or
(i) by Parent or Purchaser if, at any time, Company shall have
withdrawn or modified in any manner adverse to Parent or Purchaser its
approval or recommendation of the Offer, this Agreement or the Merger.
8.2. Effect of Termination. In the event of the termination of this
---------------------
Agreement pursuant to the provisions of Section 8.1, the provisions of this
Agreement (other than the second sentence of Sections 5.2 and Sections 6.6, 8.2
and 8.3 hereof) shall become void and have no effect, with no liability on the
part of any party hereto or its stockholders or directors or officers in respect
thereof, except as set forth in Section 8.3, provided that nothing contained
--------
herein shall be deemed to relieve any party of any liability it may have to any
other party with respect to a willful breach of its obligations under this
Agreement.
8.3. Termination Payment. As compensation for entering into this
-------------------
Agreement, taking action to consummate the transactions hereunder and incurring
the costs and expenses related thereto and other losses and damages, including
the foregoing of other opportunities, Company and Parent agree as follows:
(a) Company shall pay to Parent the sum of $3,794,135 plus all
reasonably documented out-of-pocket expenses (including, but not limited
to, the reasonable fees and expenses of counsel and its other advisers) of
Parent and
31
<PAGE>
Purchaser incurred in connection with the transactions contemplated by this
Agreement (including the preparation and negotiation of this Agreement)
("Parent Expenses") promptly after, but in no event later than two days
----------------
following, whichever of the following first occurs:
(i) Parent or Purchaser shall have exercised its right to
terminate this Agreement pursuant to Sections 8.1(b), 8.1(g), 8.1(h) or
8.1(i) hereof.
(ii) Parent or Purchaser shall have exercised its right to
terminate this Agreement pursuant to Section 8.1(e) hereof, but only
because of the failure of one or more of the conditions specified in
paragraphs (c), (e), (f), (g) or (j) of Annex A;
(iii) Company shall have exercised its right to terminate this
Agreement pursuant to Section 8.1(g).
(iv) Any person or group other than Parent or an affiliate
thereof, shall have acquired at least 50% of the outstanding shares of
Company Common Stock.
(b) Company shall not be obligated to make any payment pursuant to
this Section 8.3, if at the time such payment becomes due Parent or
Purchaser is in material breach of its obligations under this Agreement.
8.4. Amendment. This Agreement may be amended by the parties hereto
---------
only in a writing signed on behalf of each of them, at any time before or after
approval of the Agreement by the stockholders of Company, but after such
approval no amendment shall be made which alters the rate at which shares of
Company Common Stock shall be converted into Merger Consideration pursuant to
Section 1.6 without the further approval of the stockholders of Company other
than Parent.
8.5. Waiver. Any term or provision of this Agreement (other than the
------
requirements for approval by the stockholders of Company) may be waived in
writing at any time by the party which is, or whose stockholders are, entitled
to the benefits thereof.
IX. GENERAL PROVISIONS
------------------
9.1. Definitions. As used in the Agreement, the following terms
-----------
have the following respective meanings:
Board: as defined in the recitals.
-----
Certificate of Merger: as defined in Section 2.5.
---------------------
32
<PAGE>
Certificates: as defined in Section 2.8(b).
------------
Code: as defined in Section 2.9.
----
Company: as defined in the first paragraph of this Agreement.
-------
Company Common Stock: as defined in the recitals.
--------------------
Company Group Plans: as defined in Section 3.14.
-------------------
Company Interim Financials: as defined in Section 3.6(b).
--------------------------
Company Plans: as defined in Section 3.14.
-------------
Company Stock Option Plans: as defined in Section 2.9.
--------------------------
Dissenting Shares: as defined in Section 2.6(d).
-----------------
Effective Time: as defined in Section 2.5.
--------------
ERISA: the Employee Retirement Income Security Act of 1974, as
-----
amended.
ERISA Affiliate: means an organization that is a member of a
---------------
controlled group of organizations within the meaning of Sections 414(b), (c),
(m) or (o) of the Code which includes a particular entity.
Exchange Act: as defined in Section 1.2(b).
------------
Exchange Agent: Continental Stock Transfer & Trust Company or such
--------------
other a bank or trust company to be designated by Parent prior to the Effective
Time to act as exchange agent.
FCC: the Federal Communications Commission.
---
GCL: as defined in the recitals.
---
Governmental Authority: means any United States federal, state or
----------------------
local or any foreign government, governmental, regulatory or administrative
authority, agency or commission or any court, tribunal or judicial or arbitral
body.
HSR Act: as defined in Section 3.4.
-------
Material Adverse Effect: any change or effect that, individually or in
-----------------------
the aggregate with all other changes or effects, is or is reasonably likely to
be materially adverse to the business, operations, properties, condition
(financial or
33
<PAGE>
otherwise), assets, liabilities or prospects of Company, when used with respect
to Company, or of Parent and its Subsidiaries, taken as a whole, when used with
respect to Parent.
Merger: as defined in the recitals.
------
Merger Consideration: as defined in Section 2.6(a).
--------------------
Minimum Condition: as defined in Section 1.1(a).
-----------------
Offer: as defined in the recitals.
-----
Offer Documents: as defined in Section 1.1(b).
---------------
Offer to Purchase: as defined in Section 1.1(b).
-----------------
Parent: as defined in the first paragraph of this Agreement.
------
Parent Common Stock: the Common Stock of Parent, par value $.01 per
-------------------
share.
Parent Indenture: The Indenture, dated as of June 2, 1995 and amended
----------------
and restated as of April 26, 1996, between Parent and SunTrust Bank, Central
Florida, National Association (as trustee), relating to the 13 1/2% Senior Notes
Due 2005 of Parent.
Per Share Amount: as defined in the recitals.
----------------
Person: an individual, partnership, joint venture, corporation,
------
trust, unincorporated organization and a government or any department or agency
thereof.
Proxy Statement: as defined in Section 3.20.
---------------
Purchaser: as defined in the first paragraph of this Agreement.
---------
SEC: as defined in Section 1.1(b).
---
Shares: as defined in the recitals.
------
Schedule 14D-1: as defined in Section 1.1(b).
--------------
Schedule 14D-9: as defined in Section 1.2(b).
--------------
Stockholders' Meeting: as defined in Section 6.1.
---------------------
Stock Purchase Agreement: as defined in the recitals.
------------------------
34
<PAGE>
Subsidiary: with respect to any Person, any corporation or other
----------
business entity, a majority (by number of votes) of the shares of capital stock
(or other voting interests) of which at the time outstanding is owned by such
Person directly or indirectly through Subsidiaries.
Surviving Corporation: as defined in Section 2.1.
---------------------
Tax or Taxes: means all federal, state, local and foreign taxes,
--- -----
duties, levies, governmental charges and assessments of any nature, including
employment taxes and deductibles relating to wages, salaries and benefits and
payments to subcontractors (to the extent required under applicable Tax law),
and also including all interest, penalties and additions imposed with respect to
such amounts.
9.2. Non-Survival of Representations, Warranties and Agreements. No
----------------------------------------------------------
representations, warranties or agreements in this Agreement or in any instrument
delivered by Parent, Purchaser or Company pursuant to this Agreement shall
survive the Merger.
9.3. Notices. All notices, requests, claims, demands and other
-------
communications hereunder shall be in writing and shall be deemed given if
delivered personally or by fax or mailed by registered or certified mail (return
receipt requested) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
if to Parent or Purchaser, a copy to:
Intermedia Communications Inc.
3625 Queen Palm Drive
Tampa, Florida 33619
Attention: Chief Financial Officer
Telecopy: (813) 829-2470
and
Kronish, Lieb, Weiner & Hellman LLP
1114 Avenue of the Americas
New York, NY 10036
Attention: Ralph J. Sutcliffe, Esq.
Telecopy: (212) 479-6275
if to Company, a copy to:
Digex, Incorporated
One Digex Plaza
Beltsville, Maryland 20705
Attention: Chief Executive Officer
Telecopy: (301) 847-5017
35
<PAGE>
and
Latham & Watkins
1001 Pennsylvania Avenue, N.W.
Suite 1300
Washington, D.C. 20004
Attention: James F. Rogers, Esq.
Telecopy: (202) 637-2201
9.4. Severability. If any term or other provision of this Agreement
------------
is invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated thereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in a mutually acceptable manner in
order that the transactions contemplated by this Agreement including the Merger,
be consummated as originally contemplated to the fullest extent possible.
9.5. Miscellaneous. This Agreement (including the exhibits,
-------------
documents and instruments referred to herein or therein) (a) constitute the
-
entire agreement and supersede all other prior agreements and understandings,
both written and oral, among the parties, or any of them, with respect to the
subject matter hereof and thereof; (b) are not intended to confer upon any other
-
person other than the parties hereto any rights or remedies hereunder; (c) shall
-
not be assigned by operation of law or otherwise, except that each of Parent and
Purchaser may assign its rights and obligations hereunder without the consent of
Company to one or more direct or indirect Subsidiaries of Parent (it being
recognized that such an assignment shall not release or discharge the assignor
from its obligations under this Agreement); and (d) shall be governed in all
-
respects, including validity, interpretation and effect, by the laws of the
State of Delaware. The descriptive headings contained in this Agreement are
included for convenience of reference only and shall not affect in any way the
meaning or interpretation of this Agreement. This Agreement may be executed in
two or more counterparts which together shall constitute a single instrument.
9.6. Specific Performance. The parties agree that due to the unique
--------------------
subject matter of this transaction, monetary damages will be insufficient to
compensate the non-breaching party in the event of a breach of any part of this
Agreement. Accordingly, the parties agree that the non-breaching party shall be
entitled (without prejudice to any other right or remedy to
36
<PAGE>
which it may be entitled) to an appropriate decree of specific performance, or
an injunction restraining any violation of this Agreement or other equitable
remedies to enforce this Agreement (without establishing the likelihood of
irreparable injury or posting bond or other security), and the breaching party
waives in any action or proceeding brought to enforce this Agreement the defense
that there exists an adequate remedy at law.
9.7. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY WAIVES
---------------------
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY OR AGAINST IT
ON ANY MATTERS WHATSOEVER, IN CONTRACT OR IN TORT, ARISING OUT OF OR IN ANY WAY
CONNECTED WITH THIS AGREEMENT.
[Remainder of Page Intentionally Left Blank]
37
<PAGE>
IN WITNESS WHEREOF, Parent, Purchaser and Company have caused this
Agreement to be executed by their respective duly authorized officers on the
date first above written.
INTERMEDIA COMMUNICATIONS INC.
By: /s/ Robert M. Manning
---------------------------------
Name: Robert M. Manning
Title: Senior Vice President and
Chief Financial Officer
DAYLIGHT ACQUISITION CORP.
By: /s/ Robert M. Manning
--------------------------------
Name: Robert M. Manning
Title: President
DIGEX, INCORPORATED
By: /s/ Christopher R. McCleary
---------------------------------
Name: Christopher R. McCleary
Title: President and Chief
Executive Officer
<PAGE>
ANNEX A
-------
Conditions to the Offer
-----------------------
Notwithstanding any other provision of the Offer, Purchaser shall not
be required to accept for payment or pay for any Shares tendered pursuant to the
Offer, and may terminate or amend the Offer and may postpone the acceptance for
payment of and payment for Shares tendered, if (i) the Minimum Condition shall
not have been satisfied, (ii) any applicable waiting period under the HSR Act
shall not have expired or been terminated prior to the expiration of the Offer,
or (iii) at any time on or after the date of this Agreement, and prior to the
acceptance for payment of Shares, any of the following conditions shall exist:
(a) there shall have been instituted or be pending any action or
proceeding before any court or governmental, administrative or regulatory
authority or agency, domestic or foreign, (i) that would reasonably be
expected to make illegal, materially delay or otherwise directly or
indirectly restrain or prohibit the making of the Offer, the acceptance for
payment of, or payment for, any Shares by Parent, Purchaser or any other
affiliate of Parent, the purchase of Shares pursuant to the Stock Purchase
Agreement, or the consummation of any other transaction contemplated by the
Agreement, or that would reasonably be expected to result in material
damages in connection with any transaction contemplated by the Agreement;
(ii) that would reasonably be expected to prohibit or limit materially the
ownership or operation by Company, Parent or any of their subsidiaries of
all or any material portion of the business or assets of Company, or to
compel Company, Parent or any of their subsidiaries to dispose of or hold
separate all or any material portion of the business or assets of Company,
Parent or any of their subsidiaries, as a result of the transactions
contemplated by the Agreement; (iii) that would reasonably be expected to
impose or confirm limitations on the ability of Parent, Purchaser or any
other affiliate of Parent to exercise effectively full rights of ownership
of any Shares, including, without limitation, the right to vote any Shares
acquired by Purchaser pursuant to the Offer, the Stock Purchase Agreement
or otherwise on all matters properly presented to Company's stockholders,
including, without limitation, the approval and adoption of this Agreement
and the transactions contemplated hereby; (iv) that would reasonably be
expected to require divestiture by
<PAGE>
Parent, Purchaser or any other affiliate of Parent of any Shares; or (v)
which otherwise is a Material Adverse Change (as defined below);
(b) there shall have been any action taken, or any statute, rule,
regulation, legislation, interpretation, judgment, order or injunction
enacted, entered, enforced, promulgated, amended, issued or deemed
applicable to (i) Parent, Company or any subsidiary or affiliate of Parent
or Company or (ii) any transaction contemplated by the Agreement, by any
legislative body, court, government or governmental, administrative or
regulatory authority or agency, domestic or foreign, other than the routine
application of the waiting period provisions of the HSR Act to the Offer,
the Stock Purchase Agreement or the Merger, which is reasonably likely to
result, directly or indirectly, in any of the consequences referred to in
clauses (i) through (v) of paragraph (a) above;
(c) there shall have occurred any change, condition, event or
development that is a Material Adverse Change. For purposes of this Annex
A, "Material Adverse Change" means any change or effect that, individually
or in the aggregate with all other changes or effects, is or is reasonably
likely to be materially adverse to the business, operations, properties,
condition (financial or otherwise), assets, liabilities or prospects of
Company, except for changes or effects that result primarily from the
Offer, the contemplated Merger or the contemplated control of Company by
Parent, including any action or inaction by any employee (other than a
senior executive officer or director) of Company or any other third party
primarily due to the Offer, the contemplated Merger or the contemplated
control of Company by Parent;
(d) there shall have occurred (i) any general suspension of, or
limitation on prices for, trading in securities on the Nasdaq Stock Market
for more than one trading day, (ii) any decline, measured from the date
hereof, in the Standard & Poor's 500 Index by an amount in excess of 25%,
(iii) a declaration of a banking moratorium or any suspension of payments
in respect of banks in the United States, (iv) any direct material
limitation (whether or not mandatory) by any government or governmental,
administrative or regulatory authority or agency, domestic or foreign, on
the extension of credit by banks or other lending institutions, (v) a
commencement of a war or armed hostilities or other national or
international calamity directly or
2
<PAGE>
indirectly involving the United States or (vi) in the case of any of the
foregoing existing on the date hereof, a material acceleration or worsening
thereof;
(e) (i) it shall have been publicly disclosed or Purchaser shall have
otherwise learned that beneficial ownership (determined for the purposes of
this paragraph as set forth in Rule 13d-3 promulgated under the Exchange
Act) of 30% or more of the then outstanding Shares has been acquired by any
person other than Parent or any of its affiliates or other than those
persons executing the Stock Purchase Agreement or (ii) (A) the Board or any
committee thereof shall have withdrawn or modified in a manner adverse to
Parent or Purchaser the approval or recommendation of the Offer, the Merger
or the Merger Agreement, or approved or recommended any takeover proposal
or any other acquisition of Shares other than the Offer and the Merger, (B)
any corporation, partnership, person or other entity or group shall have
entered into a definitive agreement or an agreement in principle with
Company with respect to a tender offer or exchange offer for any Shares or
a merger, consolidation or other business combination with or involving
Company or (C) the Board or any committee thereof shall have resolved to do
any of the foregoing;
(f) any representation or warranty of Company in the Merger Agreement
which is qualified as to materiality shall not be true and correct or any
such representation or warranty that is not so qualified shall not be true
and correct in any material respect, in each case as if such representation
or warranty was made as of such time on or after the date of this Agreement
(other than representations or warranties made as of a specific date, which
shall only be made as of such date); provided, that for purposes of this
--------
paragraph (f), the term "Material Adverse Change" shall be substituted for
the term "Material Adverse Effect" in all representations and warranties
containing such term which are deemed to be made after the date of this
Agreement by virtue of this paragraph (f), and Company shall not have
delivered to Parent a certificate of Company to such effect signed by a
duly authorized officer thereof and dated as of the date on which Parent
shall first accept Shares for payment;
(g) Company shall have failed to perform in any material respect any
obligation or to comply in any material respect with any agreement or
covenant of Company to be performed or complied with by it under
3
<PAGE>
the Merger Agreement and, in the case of failures to perform any agreement
or covenant of Company pursuant to Sections 5.1 (b), (c), (d) and (f) of
the Merger Agreement, such failure to perform would reasonably be expected
to have a Material Adverse Change;
(h) the Merger Agreement shall have been terminated in accordance
with its terms;
(i) Purchaser and Company shall have agreed that Purchaser shall
terminate the Offer or postpone the acceptance for payment of or payment
for Shares thereunder;
(j) any holder of options to purchase shares of Company Common Stock
(other than Clyde Heintzelman) whose options vest on a change of control
shall have failed to waive the vesting of such options upon a change of
control of Company;
which, in the reasonable judgment of Purchaser in any such case, and regardless
of the circumstances (including any action or inaction by Parent or any of its
affiliates) giving rise to any such condition, makes it inadvisable to proceed
with such acceptance for payment or payment.
The foregoing conditions are for the sole benefit of Purchaser and
Parent and may be asserted by Purchaser or Parent regardless of the
circumstances giving rise to any such condition or may be waived by Purchaser or
Parent in whole or in part at any time and from time to time in their sole
discretion. The failure by Parent or Purchaser at any time to exercise any of
the foregoing rights shall not be deemed a waiver of any such right; the waiver
of any such right with respect to particular facts and other circumstances shall
not be deemed a waiver with respect to any other facts and circumstances; and
each such right shall be deemed an ongoing right that may be asserted at any
time and from time to time.
4
<PAGE>
EXHIBIT 99.(c)2
EXECUTION COPY
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of June 4, 1997 (this "Agreement"),
among INTERMEDIA COMMUNICATIONS INC., a Delaware corporation ("Purchaser"), and
---------
the individuals and entities whose names and addresses are set forth at the foot
of this Agreement (collectively, the "Stockholders", and each, individually, a
------------
"Stockholder"), it being understood that the Stockholders are executing this
- ------------
Agreement in their capacity as stockholders of the Company (as defined below)
and not in their capacity as directors and officers of the Company.
WHEREAS, Purchaser and its wholly owned subsidiary, Daylight Acquisition
Corp. (the "Subsidiary"), propose to enter into an Agreement and Plan of Merger,
----------
dated as of the date hereof (the "Merger Agreement"), with DIGEX, Incorporated,
----------------
a Delaware corporation (the "Company"), which Merger Agreement provides, among
-------
other things, for the acquisition of the Company by Subsidiary through (i) a
tender offer (the "Offer") for any and all shares of Common Stock of the
-----
Company, par value $.01 per share ("Company Common Stock") for $13.00 per share
--------------------
(the "Per Share Amount") and (ii) the second step merger pursuant to which
----------------
Subsidiary will merge with and into the Company (the "Merger") and all
------
outstanding shares of Company Common Stock other than shares held by Purchaser
and Subsidiary will be converted into the right to receive not less than the Per
Share Amount in cash; and
WHEREAS, as of the date hereof, the Stockholders own (both beneficially and
of record) the number of shares of Company Common Stock set forth opposite their
respective names at the foot of this Agreement; and
WHEREAS, as a condition to the willingness of Purchaser and the Subsidiary
to enter into the Merger Agreement, Purchaser and the Subsidiary have required
that the Stockholders agree, and in order to induce Purchaser and the Subsidiary
to enter into the Merger Agreement, the Stockholders have agreed, to enter into
this Agreement governing the voting and disposition of the shares of Company
Common Stock now owned and which may hereafter be acquired by any of the
Stockholders (the "Shares").
------
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements contained herein, and intending to be legally bound hereby, the
parties hereto hereby agree as follows:
<PAGE>
1. Tender of Shares Pursuant to the Offer. Each Stockholder hereby
--------------------------------------
irrevocably agrees to tender and sell (and not withdraw), pursuant to and in
accordance with the terms of the Offer as amended from time to time, all of
such Stockholder's Shares (provided, that the consideration offered in any
--------
such amendment is in cash and in an amount equal to the Per Share Amount).
2. Grant of Option. Each Stockholder hereby grants to Purchaser an exclusive
---------------
and irrevocable option (each an "Option", and together the "Options") to
------ -------
purchase from such Stockholder any and all Shares held by such Stockholder
(the "Option Shares") at a price equal to the Per Share Amount per Option
-------------
Share. Purchaser may assign to any subsidiary or affiliate of Purchaser
(including Subsidiary) the right to exercise the Option. Each Option may be
exercised individually from each Stockholder, in whole or in part, at any
time or from time to time, on or after the date hereof and prior to the
Termination Date (as defined below). No Stockholder shall, prior to the
termination of the Option, take, or refrain from taking, any action which
would have the effect of preventing or disabling such Stockholder from
delivering the Option Shares or otherwise performing its obligations under
this Agreement. In the event Purchaser wishes to purchase any Option Shares
from any Stockholder, the following procedures shall be followed:
(a) Purchaser shall send a written notice to such Stockholder specifying
the number of Option Shares Purchaser will purchase and the place and
date (on or before the later of ten business days from the date such
notice is mailed and the date of expiration or termination of any
applicable waiting period under Title II of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 (the "HSR Act")) of closing of such
-------
purchase. If such closing is to occur sooner than two business days
from the date such notice is mailed, notice shall also be given at the
time such written notice is given by telephone or telecopy.
(b) At the closing of such purchase, (i) Purchaser (or any affiliate or
subsidiary of Purchaser) shall pay to such Stockholder the aggregate
price for the Option Shares so purchased by certified or cashier's
check or wire transfer of immediately available funds and (ii) such
Stockholder shall deliver to Purchaser (or, at the option of Purchaser,
an affiliate or subsidiary of
2
<PAGE>
Purchaser) a certificate or certificates, duly endorsed in blank or
accompanied by stock powers duly executed in blank, representing the
number of Option Shares purchased.
3. Voting of Shares. Each Stockholder shall, until the Termination Date, cause
----------------
the Shares owned by such Stockholder to be voted at any meeting of the
stockholders of the Company or in any consent in lieu of such a meeting in
favor of the consummation of the transactions contemplated by the Merger
Agreement, against any transactions inconsistent therewith, and as otherwise
reasonably requested by Purchaser in order to carry out the purposes of the
Merger Agreement. For the purposes of this Agreement, "Termination Date"
----------------
shall mean the earlier of (i) the termination of the Merger Agreement in
accordance with its terms, (ii) the Effective Time (as defined in the Merger
Agreement), and (iii) the termination of this Agreement by the mutual
written agreement of the parties hereto or pursuant to the terms of Section
10 of this Agreement.
4. Irrevocable Proxy. Each Stockholder hereby irrevocably appoints Purchaser,
-----------------
until the Termination Date, as its attorney and proxy pursuant to the
provisions of Section 212 of the General Corporation Law of the State of
Delaware, with full power of substitution, to vote and take other actions
(by written consent or otherwise) in favor of the consummation of the
transactions contemplated by the Merger Agreement, against any transactions
inconsistent therewith, and as otherwise reasonably required in order to
carry out the purposes of the Merger Agreement, with respect to the Shares
(and all other securities issued to the Stockholder in respect of the
Shares) which each Stockholder is entitled to vote at any meeting of
stockholders of the Company (whether annual or special and whether or not an
adjourned or postponed meeting) or in respect of any consent in lieu of any
such meeting or otherwise. This proxy and power of attorney is irrevocable
and coupled with an interest in favor of Purchaser. Each Stockholder hereby
revokes all other proxies and powers of attorney with respect to the Shares
(and all other securities issued to the Stockholder in respect of the
Shares) which it may have heretofore appointed or granted, and no subsequent
proxy or power of attorney shall be given or written consent executed (and
if given or executed, shall not be effective) by the Stockholder with
respect thereto.
3
<PAGE>
5. No Disposition or Encumbrance of Shares. Each Stockholder hereby covenants
-------------------------------------
and agrees that, until the expiration of the Options as provided in Section
2 of this Agreement, except as contemplated by this Agreement, the
Stockholder shall not, and shall not offer or agree to, sell, transfer,
tender, assign, hypothecate or otherwise dispose of, or create or permit to
exist any security interest, lien, claim, pledge, option, right of first
refusal, agreement, limitation on the Stockholder's voting rights, charge or
other encumbrance of any nature whatsoever with respect to the Shares.
6. No Solicitation of Transactions. Each Stockholder shall not, directly or
-------------------------------
indirectly, through any agent or representative or otherwise, (i) solicit,
initiate or encourage the submission of any proposal or offer from any
individual, corporation, partnership, limited partnership, syndicate, person
(including, without limitation, a "person" as defined in Section 13(d)(3) of
the Securities Exchange Act of 1934 as amended), trust, association or
entity or government, political subdivision, agency or instrumentality of a
government (collectively, other than Purchaser and any affiliate of
Purchaser, a "Person") relating to (a) any acquisition or purchase of all or
------
any of the Shares or (b) any acquisition or purchase of all or any portion
of the assets of, or any equity interest in, the Company or any subsidiary
of the Company or any business combination with the Company or any
subsidiary of the Company or (ii) participate in any negotiations regarding,
or furnish to any Person any information with respect to, or otherwise
cooperate in any way with, or assist or participate or facilitate or
encourage, any effort or attempt by any Person to do or seek any of the
foregoing. Each Stockholder immediately shall cease and cause to be
terminated all existing discussions or negotiations of the Stockholder and
its agents or other representatives with any Person conducted heretofore
with respect to any of the foregoing. Each Stockholder shall notify
Purchaser promptly if any such proposal or offer, or any inquiry or contact
with any Person with respect thereto, is made and shall, in any such notice
to Purchaser, indicate in reasonable detail the identity of the Person
making such proposal, offer, inquiry or contact and the terms and conditions
of such proposal, offer, inquiry or contact. The provisions of this Section
4 shall not apply to or restrict any action that may be taken by the
Stockholder in its capacity as an officer or director of the Company.
4
<PAGE>
7. Legend on Certificates. The certificate(s) evidencing the Shares shall be
----------------------
endorsed with a restrictive legend substantially as follows:
The shares evidenced by this certificate are subject to a stock
purchase agreement dated as of June 4, 1997 between the registered
holder hereof and Intermedia Communications Inc., a copy of which is on
file at the principal office of the Company. The holder of this
certificate, by his acceptance hereof, agrees to be bound by all the
terms of such agreement, as the same is in effect from time to time.
8. Representations and Warranties of the Stockholders. Each Stockholder hereby
--------------------------------------------------
severally represents and warrants with respect to itself and its ownership
of the Shares to Purchaser and the Subsidiary as follows:
(a) Authority Relative to this Agreement. The Stockholder has all
------------------------------------
necessary power and authority to execute and deliver this Agreement,
to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery of this
Agreement by the Stockholder and the consummation by the Stockholder
of the transactions contemplated hereby have been duly and validly
authorized by all necessary action on the part of the Stockholder.
This Agreement has been duly and validly executed and delivered by the
Stockholder and, assuming the due authorization, execution and
delivery by Purchaser, constitutes a legal, valid and binding
obligation of the Stockholder, enforceable against the Stockholder in
accordance with its terms, except that such enforceability may be
limited by bankruptcy, insolvency or similar laws affecting creditors'
rights generally.
(b) No Conflict. The execution and delivery of this Agreement by the
-----------
Stockholder does not, and the performance of this Agreement by the
Stockholder will not, (i) require any consent, approval, authorization
or permit of, or filing with or notification to (other than pursuant
to the HSR Act and the Securities Exchange Act of 1934, as amended),
any governmental or regulatory authority, domestic or foreign, (ii)
conflict with or violate the Certificate of Incorporation or By-laws
of the Stockholder, (iii) conflict with or violate any law, rule,
regulation, order, judgment
5
<PAGE>
or decree applicable to the Stockholder or by which any property or
asset of the Stockholder is bound, or (iv) result in any breach of or
constitute a default (or an event which with notice or lapse of time
or both would become a default) under, or give to others any right of
termination, amendment, acceleration or cancellation of, or result in
the creation of a lien or other encumbrance of any nature whatsoever
on any property or asset of the Stockholder pursuant to, any note,
bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which the
Stockholder is a party or by which the Stockholder or any property or
asset of the Stockholder is bound.
(c) Title to the Shares. The Shares owned by the Stockholder (as set
-------------------
forth on the signature pages hereto) are all the equity securities of
the Company owned, either of record or beneficially, by the
Stockholder. The Stockholder owns all such Shares free and clear of
all security interests, liens, claims, pledges, options, rights of
first refusal, agreements, limitations on the Stockholder's voting
rights, charges and other encumbrances of any nature whatsoever, and,
except as provided in this Agreement, the Stockholder has not
appointed or granted any proxy, which appointment or grant is still
effective, with respect to the Shares.
(d) Brokers. Other than Friedman, Billings, Ramsey & Co., Inc., no
-------
broker, finder or investment banker is entitled to any brokerage,
finder's or other fee or commission in connection with the
transactions contemplated hereby based upon arrangements made by or on
behalf of the Stockholder.
9. Representations and Warranties of Purchaser. Purchaser hereby represents
-------------------------------------------
and warrants to the Stockholders as follows:
(a) Purchaser has all necessary power and authority to execute and deliver
this Agreement, to perform its obligations hereunder and to consummate
the transactions contemplated hereby. The execution, delivery and
performance of this Agreement by Purchaser and the consummation of the
transactions contemplated hereby have been duly authorized by
6
<PAGE>
all necessary action on the part of Purchaser. This Agreement has been
duly and validly executed and delivered by Purchaser and, assuming the
due authorization, execution and delivery by the Stockholders,
constitutes a legal, valid and binding obligation of Purchaser,
enforceable against the Purchaser in accordance with its terms, except
that such enforceability may be limited by bankruptcy, insolvency or
similar laws affecting creditors' rights generally.
(b) No Conflict. The execution and delivery of this Agreement by
-----------
Purchaser does not, and the performance of this Agreement by Purchaser
will not, (i) require any consent, approval, authorization or permit
of, or filing with or notification to (other than pursuant to the HSR
Act and the Securities Exchange Act of 1934, as amended), any
governmental or regulatory authority, domestic or foreign, (ii)
conflict with or violate the Certificate of Incorporation or By-laws
of Purchaser, (iii) conflict with or violate any law, rule,
regulation, order, judgment or decree applicable to Purchaser or by
which any property or asset of Purchaser is bound, or (iv) result in
any breach of or constitute a default (or an event which with notice
or lapse of time or both would become a default) under, or give to
others any right of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or other
encumbrance of any nature whatsoever on any property or asset of
Purchaser pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or
obligation to which Purchaser is a party or by which Purchaser or any
property or asset of Purchaser is bound.
(c) Brokers. Other than Bear, Stearns & Co., Inc., no broker, finder or
-------
investment banker is entitled to any brokerage, finder's or other fee
or commission in connection with the transactions contemplated hereby
based upon arrangements made by or on behalf of Purchaser.
10. Termination of Agreement. Purchaser reserves the right in its sole
------------------------
discretion at any time hereafter to terminate this Agreement, the Options
and all irrevocable proxies granted to it hereunder.
7
<PAGE>
11. Miscellaneous.
-------------
(a) Expenses. Except as otherwise provided herein or in the Merger
--------
Agreement, all costs and expenses incurred in connection with the
transactions contemplated by this Agreement shall be paid by the party
incurring such expenses.
(b) Further Assurances. Purchaser and the Stockholders will execute and
------------------
deliver all such further documents and instruments and take all such
further action as may be necessary in order to consummate the
transactions contemplated hereby.
(c) Specific Performance. The parties hereto agree that irreparable
--------------------
damage would occur in the event any of the provisions of this
Agreement were not performed in accordance with the terms hereof and
that the parties shall be entitled to specific performance of the
terms hereof, in addition to any other remedy to which they may be
entitled at law or in equity.
(d) Entire Agreement. This Agreement constitutes the entire agreement
----------------
between Purchaser and the Stockholders with respect to the subject
matter hereof and supersedes all prior agreements and understandings,
both written and oral, between Purchaser and the Stockholders with
respect to the subject matter hereof.
(e) Assignment. This Agreement shall not be assigned by operation of law
----------
or otherwise, except that Purchaser may assign all or any of its
rights and obligations hereunder to any affiliate of Purchaser,
provided that no such assignment shall relieve Purchaser of its
obligations hereunder if such assignee does not perform such
obligations.
(f) Obligations of Successors; Parties in Interest. This Agreement shall
----------------------------------------------
be binding upon, inure solely to the benefit of, and be enforceable
by, the successors and permitted assigns of the parties hereto.
Nothing in this Agreement, express or implied, is intended to or shall
confer upon any other person any rights, benefits or remedies of any
nature whatsoever under or by reason of this Agreement.
8
<PAGE>
(g) Amendment; Waiver. This Agreement may not be amended or changed
-----------------
except by an instrument in writing signed by the parties hereto. Any
party hereto may (i) extend the time for the performance of any
obligation or other act of the other party hereto, (ii) waive any
inaccuracy in the representations and warranties contained herein or
in any document delivered pursuant hereto and (iii) waive compliance
with any agreement or condition contained herein. Any such extension
or waiver shall be valid if set forth in an instrument in writing
signed by the party or parties to be bound thereby.
(h) Severability. The invalidity or unenforceability of any provision of
------------
this Agreement shall not affect the validity or enforceability of any
other provision of this Agreement, which shall remain in full force
and effect.
(i) Notices. All notices, requests, claims, demands and other
-------
communications hereunder shall be in writing and shall be given (and
shall be deemed to have been duly given upon receipt) by delivery in
person, by cable, telecopy, telegram or telex or by registered or
certified mail (postage prepaid, return receipt requested) to the
respective parties at the following addresses (or at such other address
for a party as shall be specified in a notice given in accordance with
this Section 8(i)):
9
<PAGE>
if to Purchaser:
Intermedia Communications Inc.
3625 Queen Palm Drive
Tampa, FL 33619
Attention: Chief Financial Officer
Telecopy: (813) 829-2470
with a copy to:
Kronish, Lieb, Weiner & Hellman LLP
1114 Avenue of the Americas
New York, New York 10036
Attention: Ralph J. Sutcliffe, Esq.
Telecopy: (212) 997-3527
if to any Stockholder:
at the respective addresses of such Stockholder set forth at the foot
of this Agreement
(j) Governing Law. This Agreement shall be governed by, and construed in
-------------
accordance with, the laws of the State of Delaware applicable to
contracts executed in and to be performed in that State.
(k) Headings. The descriptive headings contained in this Agreement are
--------
included for convenience of reference only and shall not affect in any
way the meaning or interpretation of this Agreement.
(l) Parties in Interest. This Agreement shall be binding upon and inure
-------------------
solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any
other person any rights, benefits or remedies of any nature whatsoever
under or by reason of this Agreement.
(m) Counterparts. This Agreement may be executed in one or more
------------
counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an
original but all of which taken together shall constitute one and the
same agreement.
(n) WAIVER OF JURY TRIAL. EACH PARTY HERETO WAIVES ANY RIGHT IT MIGHT
--------------------
HAVE TO A JURY TRIAL OF ANY DISPUTE ARISING IN CONNECTION WITH THIS
AGREEMENT.
10
<PAGE>
IN WITNESS WHEREOF, Purchaser has caused this Agreement to be executed by
its officers thereunto duly authorized and the Stockholders have duly executed
this Agreement, as of the date first written above.
PURCHASER:
- ---------
INTERMEDIA COMMUNICATIONS INC.
By: /s/ Robert M. Manning
-------------------------
Name: Robert M. Manning
Title: Senior Vice President and
Chief Financial Officer
<TABLE>
<CAPTION>
SHAREHOLDERS: NUMBER OF SHARES OWNED:
- ------------ -----------------------
<S> <C>
GROTECH PARTNERS IV, L.P. 1,438,361
-------------
By: GROTECH CAPITAL GROUP IV, LLC
General Partner
By: /s/ Frank A. Adams
-------------------------------
Name: Frank A. Adams
Title: President & CEO
Address: 9690 Deereco Road
Timonium, MD 21093
Telecopy: 410-560-1910
GROTECH PARTNERS III, L.P. 229,050
-------------
By: Grotech Capital Group, Inc.
General Partner
By: /s/ Frank A. Adams
-------------------------------
Name: Frank A. Adams
Title: President & CEO
Address: 9690 Deereco Road
Timonium, MD 21093
Telecopy: 410-560-1910
</TABLE>
[Signature Pages Continue on Next Page]
<PAGE>
<TABLE>
<S> <C>
GROTECH III COMPANION FUND, L.P. 24,952
-------------
By: Grotech Capital Group, Inc.
General Partner
By: /s/ Frank A. Adams
-------------------------------
Name: Frank A. Adams
Title: President & CEO
Address: 9690 Deereco Road
Timonium, MD 21093
Telecopy: 410-560-1910
GROTECH III PENNSYLVANIA FUND, L.P. 14,228
-------------
By: Grotech Capital Group, Inc.
General Partner
By: /s/ Frank A. Adams
-------------------------------
Name: Frank A. Adams
Title: President & CEO
Address: 9690 Deereco Road
Timonium, MD 21093
Telecopy: 410-560-1910
VENROCK ASSOCIATES 794,229
-------------
By: /s/ Ray A. Rothrock
-------------------------------
Name: Ray A. Rothrock
Title: General Partner
Address: 30 Rockefeller Plaza, Room 5508
New York, New York 10112
Telecopy: 212-649-5788 (F)
212-649-5786 (P)
</TABLE>
[Signature Pages Continue on Next Page]
<PAGE>
<TABLE>
<S> <C>
VENROCK ASSOCIATES II, L.P. 382,051
-------------
By: /s/ Ray A. Rothrock
-------------------------------
Name: Ray A. Rothrock
Title: General Partner
Address: 30 Rockefeller Plaza, Room 5508
New York, New York 10112
Telecopy: 212-649-5788 (F)
212-649-5786 (P)
SOUTHERN VENTURE FUND II, L.P. 840,198
-------------
By: /s/ William F. Earthman III
-------------------------------
Name: William F. Earthman III
Title: General Partner
Address: 310 25th Avenue N.
Nashville, TN 37205
Telecopy: 615-329-9237
BLUE CHIP CAPITAL FUND LIMITED 429,285
PARTNERSHIP -------------
By: BLUE CHIP VENTURE COMPANY
General Partner
By: /s/ John H. Wyant
-------------------------------
Name: John H. Wyant
Title: President
Address: 2000 PNC Court
Cincinatti, OH 45208
Telecopy: 513-723-2306
DIGEX INVESTORS, LTD. 107,321
-------------
By: /s/ Stephen E. Kaufman
-------------------------------
Name: Stephen E. Kaufman
Title: President
Address: 441 Vine Street, Suite 3900
Cincinatti, OH 45202
Telecopy: 513-381-8808
</TABLE>
[Signature Pages Continue on Next Page]
<PAGE>
DOUGLAS E. HUMPHREY 970,744
-------------
/s/ Douglas E. Humphrey
-------------------------------
Address: 308 Montgomery Street
Laurel, MD 20707
Telecopy: 410-792-2985 (F)
301-598-8723 (P)
MICHAEL T. DOUGHNEY 647,163
-------------
/s/ Michael T. Doughney
-------------------------------
Address: One Digex Plaza
Beltsville, MD 20705
Telecopy: 301-419-5017
<PAGE>
EXHIBIT 99.(c)(3)
March 27, 1997
Christopher R. McCleary
Digex Inc.
6800 Virginia Manor Road
Beltsville, Maryland 20705
Personal and Confidential
- -------------------------
Dear Mr. McCleary:
The undersigned (the "Company") and you ("Digex") are about to engage in
exploratory discussions regarding a possible acquisition by the Company of, or
Investment by the company in Digex or a similar transaction (any of the
foregoing, a "Transaction"). The Company and Digex have each requested the right
to review various non-public information regarding the other (any such
information, written or oral, regarding the Company, including any of its direct
or indirect subsidiaries, "Company Evaluation Material" and any such
information, written or oral, regarding Digex, including any of its direct or
indirect subsidiaries ("Digex Evaluation Material"). The Company hereby
undertakes with respect to the Digex Evaluation Material, and Digex hereby
undertakes with respect to the Company Evaluation Material, and each of the
Company and Digex otherwise agrees as follows:
1. The Evaluation Material will be used solely for the purpose of
evaluating a possible Transaction, and until two (2) years from the
data hereof, such Evaluation Material will be kept strictly
confidential by the Company or Digex, as the case may be, and their
respective affiliates, directors, officers, employees, advisors
(including Bear, Stearns & Co. Inc. who has been retained by the
Company to act on its behalf), agents or controlling persons (such
affiliates and other persons being herein referred to collectively as
"Representatives", except that the Evaluation Material or portions
thereof may be disclosed to Representatives who need to know such
information for the purpose of evaluating a possible Transaction (it
being understood that prior to such disclosure Representatives will
be informed of the confidential nature of the Evaluation Material and
shall agree to be bound by this Agreement). The Company and Digex
agree to be responsible for any breach of this Agreement by their
respective Representatives.
2. The term "Evaluation Material" does not include any information which
(i) at the time of disclosure or thereafter is generally known by the
public (other than as a result of its disclosure by the Company or
Digex or their respective Representatives) or (ii) was or becomes
available to the
<PAGE>
Company or Digex, as the case may be, on a non-confidential basis
from a person not to the knowledge of the Company or Digex, as the
case may be, otherwise bound by a confidentiality agreement with the
other and who is not, to the knowledge of the Company or Digex, as
the case may be, otherwise prohibited from transmitting the
information to the Company or Digex, as the case may be, or (iii) is
independently developed by the Company or Digex, as the case may be,
or their respective Representatives. As used in this Agreement, the
term "person" shall be broadly interpreted to include, without
limitation, any corporation, company, joint venture, partnership or
individual and the term "affiliate" shall have the meaning set forth
in Rule 144 issued under the securities Act of 1933.
3. In the event the Company, Digex or their respective Representatives
are required by applicable law or regulation or by legal process to
disclose any Evaluation Material, each agrees to (i) immediately
notify the other of the existence, terms and circumstances
surrounding such a request, and (ii) consult with the other on the
advisability of taking legally available steps to resist or narrow
such request.
4. Prior to the earlier of two (2) years from the date hereof or the
completion of a Transaction, unless otherwise required by law in the
opinion of outside counsel, neither the Company nor Digex will,
without the prior written consent of the other, disclose to any
person either the fact that discussions or negotiations are taking
place concerning a possible Transaction, or any of the terms,
conditions or other facts with respect to any such possible
Transaction, including the status thereof and the fact that the
Evaluation Material has been made available to the Company or Digex.
5. The Company and Digex each herby acknowledges that it is aware, and
that it will advise its Representatives who receive the Evaluation
Material, that the United States securities laws prohibit any person
who has material, non-public information concerning the matters which
are the subject of this Agreement from purchasing or selling
securities of the other (and options, warrants and rights relating
thereto) or from communicating such information to any other person
under circumstances in which it is reasonably foreseeable that such
person including, without limitation any of its Representatives, is
likely to purchase or sell such securities.
6. Neither the Company nor any or its Representatives, on the one hand,
nor Digex or any of its Representatives, on the other hand, is making
any representation or warranty hereunder, express or implied, as
to the
2
<PAGE>
accuracy or completeness of the Company Evaluation Material or Digex
Evaluation Material, respectively, or any other information provided
pursuant hereto. Neither party, nor any of their respective
affiliates, Representatives, officers, director, employees, agents or
controlling persons (within the meaning of the 1934 Act) shall have
any liability hereunder to the other or any other person (including,
without limitation, any of its Representatives) resulting from use of
the Evaluation Material.
7. The Company and Digex agree that unless and until a definitive
agreement with respect to any Transaction has been executed and
delivered, neither party will be under any legal obligation of any
king whatsoever with respect to such a Transaction by virtue of (i)
this Agreement or (ii) any written or oral expression with respect to
such a Transaction except, in the case of this Agreement, for the
matters specifically agreed to herein.
8. Neither party has granted the other any license, copyright, or
similar right with respect to any of the Evaluation Material or any
other information provided pursuant hereto.
9. Upon determining not to proceed with a Transaction, the Company or
Digex, as the case may be, will promptly advise the other of that
determination in writing. In that event or at any time requested by
either the Company or Digex, all Evaluation Material, including all
copies, reproductions, summaries extracts therefor or based thereon,
previously provided to the other shall be returned or be certified in
writing to have been destroyed.
10. In consideration of the due diligence effort to be performed by the
Company and the expenses to be incurred by the Company in connection
therewith, Digex hereby agrees that for the period from the date of
this letter through April 30, 1997 and, if a definitive agreement for
a Transaction is executed prior thereto, through the date such
definitive agreement is consummated or abandoned in accordance with
its terms without default by Digex, neither Digex nor any of its
officers, directors or shareholders on behalf of Digex will solicit
any offer for a sale of Digex all or any substantial part of its
business or assets or any equity securities issued by Digex or any
subsidiary of Digex nor engage in any negotiations or permit
exploratory due diligence regarding any such offer, other than with
the Company.
11. The Company and Digex shall be entitled to equitable relief by way of
injunction for any breach or threatened breach of any of the
provisions of this Agreement by the other.
3
<PAGE>
12. The validity and interpretation of this Agreement shall be governed
by and construed and enforced in accordance with, the laws of the
State of New York applicable to agreements made and to be fully
performed therein (excluding the conflicts of laws rules). The
Company and Digex irrevocably submit to the jurisdiction of any
court of the State of New York or the United States District Court
of the Southern District of the State of New York for the purpose of
any suit, action, or other proceeding arising out of this Agreement,
or any of the agreements or transactions contemplated hereby, which
is brought by or against it and (i) hereby irrevocably agree that
all claims in respect of any such suit, action or proceeding may be
heard and determined in any such court, (ii) to the extent that
either the Company or Digex has acquired, or hereafter may acquire,
any immunity from jurisdiction of any such court or from any legal
process therein, it hereby waives to the fullest extent permitted by
law, such immunity and (iii) agrees not to commence any action, suit
or proceeding relating to this Agreement or any Transaction except
in such court. Each of the Company and Digex herby waives, and
agrees not to assert in any such suit, action or proceeding, in each
case, to the fullest extent permitted by applicable law, any claim
that (a) it is not personally subject to the jurisdiction of any
such court, (b) it is immune from any legal process (whether through
service or notice, attachment prior to judgment attachment in aid of
execution, execution or otherwise) with respect to it or its
property or (c) any such suit, action or proceeding is brought in an
inconvenient forum.
13. The benefits of this Agreement shall inure to the respective
successors and assigns of the parties and the obligations and
liabilities assumed in this Agreement by the parties hereto shall be
binding upon their respective successors and assigns.
14. If it is found in a final judgement by a court of competent
jurisdiction (not subject to further appeal) that any term or
provison hereof is invalid or unenforceable, (i) the remaining terms
and provisions hereof shall be unimpaired and shall remain in full
force and effect and (ii) the invalid or unenforceable provision or
term shall be replaced by a term or provision that is valid and
enforceable and that comes closest to expressing the intention of
such invalid or unenforceable term or provison.
15. This Agreement embodies the entire agreement and understanding of
the parties hereto and supersedes any and all prior agreements,
arrangements and understandings relating to the matters provided for
herein. No alteration, waiver, amendment, change or supplement
hereto shall be binding or effective unless the same is set forth in
a writing
4
<PAGE>
by a duly authorized Representative of each party.
16. For the convenience of the parties, any number of counterparts of this
Agreement may be executed by the parties hereto. Each such counterpart
shall be, and shall be deemed to be, an original instrument, but all
such counterparts taken together shall constitute one and the same
Agreement.
5
<PAGE>
This Agreement is being delivered to you in duplicate. Kindly execute and return
one copy of this letter which will constitute our Agreement with respect to the
subject matter of this letter.
Very truly yours,
INTERMEDIA COMMUNICATIONS INC.
By: /s/ Robert M. Manning
------------------------------------
Robert M. Manning, Senior President
Chief Financial Officer
Confirmed and agreed to
this 31 day of March, 1997
----
DIGEX
By: /s/ Brian Dedrald
------------------------------------
6
<PAGE>
EXHIBIT 99.2
EXECUTION COPY
================================================================================
AGREEMENT AND PLAN OF MERGER
----------------------------
Among
INTERMEDIA COMMUNICATIONS INC.,
DAYLIGHT ACQUISITION CORP.
and
DIGEX, INCORPORATED
Dated June 4, 1997
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
I. THE OFFER
1.1. The Offer.................................................... 2
1.2. Company Action............................................... 3
II. THE MERGER
2.1. Merger; Surviving Corporation................................ 4
2.2. Certificate of Incorporation................................. 5
2.3. By-Laws...................................................... 5
2.4. Directors and Officers....................................... 5
2.5. Effective Time............................................... 5
2.6. Conversion of Shares......................................... 6
2.7. Purchaser Common Stock....................................... 7
2.8. Surrender of Shares.......................................... 7
2.9. Company Stock Options and Warrants........................... 9
III. REPRESENTATIONS AND WARRANTIES OF COMPANY
3.1. Organization and Authorization, etc.......................... 9
3.2. Subsidiaries................................................. 10
3.3. Non-Contravention............................................ 10
3.4. Approvals.................................................... 10
3.5. Capital Stock................................................ 11
3.6. Financial Statements......................................... 11
3.7. Periodic SEC Filings......................................... 12
3.8. Changes...................................................... 12
3.9. Taxes........................................................ 14
3.10. Material Contracts........................................... 15
3.11. Properties................................................... 15
3.12. Litigation................................................... 16
3.13. Permits...................................................... 16
3.14. Employee Plans............................................... 16
3.15. Patents, Trademarks, etc..................................... 18
3.16. Insurance.................................................... 18
3.17. No Brokers................................................... 19
3.18. Disclosure................................................... 19
3.19. Offer Documents; Schedule 14D-9; Proxy Statement;
Other Information............................................ 19
IV. REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER
4.1. Organization and Authorization, etc.......................... 20
4.2. Non-Contravention............................................ 20
4.3. Approvals.................................................... 21
4.4. No Brokers................................................... 21
4.5. Offer Documents; Proxy Statement; Other Information.......... 21
4.6. Solvency..................................................... 22
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
V. COVENANTS OF COMPANY
5.1. Conduct of Business.......................................... 22
5.2. Access and Information....................................... 24
5.3. No Solicitation.............................................. 24
VI. ADDITIONAL AGREEMENTS
6.1. Stockholders' Meeting........................................ 25
6.2. Proxy Statement.............................................. 26
6.3. Compliance with Conditions Precedent, etc.................... 26
6.4. Certain Notifications........................................ 26
6.5. Adoption by Purchaser........................................ 26
6.6. Expenses..................................................... 27
6.7. Public Announcements......................................... 27
6.8. Company Board Representation; Section 14(f).................. 27
6.9. .......................................................... 28
VII. CONDITIONS
7.1. Conditions to the Merger..................................... 28
VIII. TERMINATION, AMENDMENT AND WAIVER
8.1. Termination.................................................. 29
8.2. Effect of Termination........................................ 31
8.3. Termination Payment.......................................... 31
8.4. Amendment.................................................... 32
8.5. Waiver....................................................... 32
IX. GENERAL PROVISIONS
9.1. Definitions.................................................. 32
9.2. Non-Survival of Representations, Warranties and
Agreements................................................... 35
9.3. Notices...................................................... 35
9.4. Severability................................................. 36
9.5. Miscellaneous................................................ 36
</TABLE>
<PAGE>
AGREEMENT AND PLAN OF MERGER
----------------------------
AGREEMENT AND PLAN OF MERGER (the "Agreement") being made and entered
---------
into as of this 4th day of June, 1997 by and among INTERMEDIA COMMUNICATIONS
INC., a Delaware corporation ("Parent"), DAYLIGHT ACQUISITION CORP., a Delaware
------
corporation which is wholly owned by Parent ("Purchaser"), and DIGEX,
---------
INCORPORATED, a Delaware corporation ("Company").
-------
WHEREAS, the Boards of Directors of Parent, Purchaser and Company have
each determined that it is in the best interests of their respective
stockholders for Parent to acquire Company upon the terms and subject to the
conditions set forth herein; and
WHEREAS, in furtherance of such acquisition, it is proposed that
Purchaser shall make a cash tender offer (the "Offer") to acquire all the issued
-----
and outstanding shares of Common Stock, par value $.01 per share, of Company
("Company Common Stock") (shares of Company Common Stock being hereinafter
- ----------------------
collectively referred to as "Shares") for $13.00 per Share (such amount being
------
hereinafter referred to as the "Per Share Amount") net to the seller in cash,
----------------
upon the terms and subject to the conditions of this Agreement and the Offer;
and
WHEREAS, the Board of Directors of Company (the "Board") has
-----
unanimously approved the making of the Offer and resolved and agreed to
recommend that holders of Shares tender their Shares pursuant to the Offer; and
WHEREAS, also in furtherance of such acquisition, the Boards of
Directors of Parent, Purchaser and Company have each approved the merger (the
"Merger") of Purchaser with and into Company in accordance with the General
- -------
Corporation Law of the State of Delaware ("the GCL") following the consummation
---
of the Offer and upon the terms and subject to the conditions set forth herein;
and
WHEREAS, as a condition to the willingness of Parent and Purchaser to
consummate this Agreement, the holders of 5,877,582 Shares have entered into a
Stock Purchase Agreement, dated as of the date hereof (the "Stock Purchase
--------------
Agreement"), pursuant to which (i) such holders have granted an option to Parent
- ---------
to purchase all of the Shares held by such holders at $13.00 per Share and (ii)
each of such holders has agreed to tender all of its Shares pursuant to the
Offer, all upon the terms and subject to the conditions set forth in the Stock
Purchase Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
<PAGE>
ARTICLE I.
THE OFFER
---------
SECTION 1.1. The Offer. (a) Provided that this Agreement shall
---------
not have been terminated in accordance with Section 8.1 and none of the events
set forth in Annex A hereto shall have occurred or be existing, Purchaser shall
commence the Offer as promptly as reasonably practicable after the date hereof,
but in no event later than five business days after the initial public
announcement of Purchaser's intention to commence the Offer. The Offer shall,
unless extended as provided below, expire 20 business days after the
commencement of the Offer. The obligation of Purchaser to accept for payment
and pay for Shares tendered pursuant to the Offer shall be subject to the
condition (the "Minimum Condition") that at least a majority of the then
-----------------
outstanding Shares on a fully diluted basis (including, without limitation, all
Shares issuable upon the conversion of any convertible securities or upon the
exercise of any options, warrants or rights) shall have been validly tendered
and not withdrawn prior to the expiration of the Offer and also shall be subject
to the satisfaction of the other conditions set forth in Annex A hereto.
Purchaser expressly reserves the right to waive any such condition, to increase
the price per Share payable in the Offer, and to make any other changes in the
terms and conditions of the Offer; provided, however, that, without the consent
-------- -------
of Company, no change may be made which decreases the price per Share payable in
the Offer, which reduces the maximum number of Shares to be purchased in the
Offer or which imposes conditions to the Offer in addition to those set forth in
Annex A hereto or modifies such conditions, or which changes the form of
consideration payable in the Offer. The Per Share Amount shall, subject to
applicable withholding of taxes, be net to the seller in cash, upon the terms
and subject to the conditions of the Offer. Subject to the terms and conditions
of the Offer (including, without limitation, the Minimum Condition), Purchaser
shall pay, as promptly as practicable after expiration of the Offer, for all
Shares validly tendered and not withdrawn. The Offer may not be extended for
more than 20 days beyond its original scheduled expiration date unless any of
the conditions to the Offer shall not have been satisfied; provided, however, in
-------- -------
the event Purchaser desires to extend the Offer beyond July 31, 1997, in the
event the proposed length of the extension is, in the aggregate, more than three
days Company shall have the right to consent to such longer extension. Parent
agrees to cause Purchaser to, and Purchaser agrees to use its reasonable best
efforts to, consummate the Offer as soon as legally permissible, subject to its
right to extend for 20 additional days as provided above.
2
<PAGE>
(b) As soon as reasonably practicable on the date of commencement of
the Offer, Purchaser shall file with the Securities and Exchange Commission (the
"SEC") a Tender Offer Statement on Schedule 14D-1 (together with all amendments
---
and supplements thereto, the "Schedule 14D-1") with respect to the Offer. The
--------------
Schedule 14D-1 shall contain or shall incorporate by reference an offer to
purchase (the "Offer to Purchase") and forms of the related letter of
-----------------
transmittal and any related summary advertisement (the Schedule 14D-1, the Offer
to Purchase and such other documents, together with all supplements and
amendments thereto, being referred to herein collectively as the "Offer
-----
Documents"). Company and its counsel shall be given an opportunity to review
- ---------
the Offer Documents prior to their filing with the SEC. Parent, Purchaser and
Company agree to correct promptly any information provided by any of them for
use in the Offer Documents which shall have become false or misleading, and
Parent and Purchaser further agree to take all steps necessary to cause the
Schedule 14D-1 as so corrected to be filed with the SEC and the other Offer
Documents as so corrected to be disseminated to holders of Shares, in each case
as and to the extent required by applicable federal securities laws.
SECTION 1.2. Company Action. (a) Company hereby approves of and
--------------
consents to the Offer and represents that (i) the Board, at a meeting duly
called and held on June 4, 1997, has unanimously (A) determined that this
Agreement and the transactions contemplated hereby, including each of the Offer
and the Merger, are fair to and in the best interests of the holders of Shares,
(B) approved and adopted this Agreement and the transactions contemplated hereby
and (C) recommended that the stockholders of Company accept the Offer and
approve and adopt this Agreement and the transactions contemplated hereby, and
(ii) Friedman, Billings, Ramsey & Co. Inc. has delivered to the Board its
opinion that the consideration to be received by the holders of Shares pursuant
to each of the Offer and the Merger is fair to the holders of Shares from a
financial point of view, subject to the assumptions and qualifications contained
in such opinion, and which shall be confirmed promptly in writing. Company
hereby consents to the inclusion in the Offer Documents of the recommendation of
the Board described in the immediately preceding sentence. Assuming that
neither Parent nor Purchaser are Interested Stockholders (as such term is
defined in Section 203 of the GCL) immediately prior to the Board taking the
action described in this Section 1.2, the approval set forth in clause (a)(i)
shall, among other things, satisfy the restrictions on business combinations
contained in Section 203 of the GCL with respect to the transactions
contemplated hereby. Company has been advised by each of its directors and
executive officers that they intend either to tender all Shares beneficially
owned by them to Purchaser pursuant to the Offer or to vote such Shares in
3
<PAGE>
favor of the approval and adoption by the stockholders of Company of this
Agreement and the transactions contemplated hereby.
(b) As soon as reasonably practicable on or after the date of
commencement of the Offer, Company shall file with the SEC a Solicitation/
Recommendation Statement on Schedule 14D-9 (together with all amendments and
supplements thereto, the "Schedule 14D-9") containing the recommendation of the
--------------
Board described in Section 1.2(a) and shall disseminate the Schedule 14D-9 to
the extent required by Rule 14d-9 promulgated under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and any other applicable federal
------------
securities laws. Company, Parent and Purchaser agree to correct promptly any
information provided by any of them for use in the Schedule 14D-9 which shall
have become false or misleading, and Company further agrees to take all steps
reasonably necessary to cause the Schedule 14D-9 as so corrected to be filed
with the SEC and disseminated to holders of Shares, in each case as and to the
extent required by applicable federal securities laws.
(c) Company shall promptly furnish Purchaser with mailing labels
containing the names and addresses of all record holders of Shares and with
security position listings of Shares held in stock depositories, each as of a
recent date, together with all other available listings and computer files
containing names, addresses and security position listings of record holders and
beneficial owners of Shares. Company shall furnish Purchaser with such
additional information, including, without limitation, updated listings and
computer files of stockholders, mailing labels and security position listings,
and such other assistance as Parent, Purchaser or their agents may reasonably
request. Subject to the requirements of applicable law, and except for such
steps as are necessary to disseminate the Offer Documents and any other
documents necessary to consummate the Offer or the Merger, Parent and Purchaser
shall hold in confidence the information contained in such labels, listings and
files, shall use such information only in connection with the Offer and the
Merger, and, if this Agreement shall be terminated in accordance with Section
8.1, shall deliver to Company all copies of such information then in their or
their agents' possession.
II. THE MERGER
----------
2.1. Merger; Surviving Corporation. In accordance with the
-----------------------------
provisions of this Agreement and the GCL, at the Effective Time (as such term
and other capitalized terms used herein without definition are defined in
Section 9.1), Purchaser shall be merged with and into Company, and Company shall
be the surviving corporation (hereinafter sometimes called the "Surviving
---------
Corporation") and shall continue its corporate
- -----------
4
<PAGE>
existence under the laws of the State of Delaware. At the Effective Time the
separate corporate existence of Purchaser shall cease. All properties,
franchises and rights belonging to Company and Purchaser, by virtue of the
Merger and without further act or deed, shall be deemed to be vested in the
Surviving Corporation, which shall thenceforth be responsible for all the
liabilities and obligations of each of Purchaser and Company.
2.2. Certificate of Incorporation. At the Effective Time, the
----------------------------
Certificate of Incorporation of Company shall be the Certificate of
Incorporation of the Surviving Corporation; provided, however, that, at the
-------- -------
Effective Time, the Certificate of Incorporation of the Surviving Corporation
shall be amended in its entirety so that it will read as Purchaser's Certificate
of Incorporation, except that the name of the Surviving Corporation shall be
"DIGEX, INCORPORATED". As so amended, the Certificate of Incorporation of
Company as in effect immediately prior to the Effective Time shall thereafter
continue in full force and effect as the Certificate of Incorporation of the
Surviving Corporation until further altered or amended as provided therein or by
law.
2.3. By-Laws. The By-Laws of Purchaser in effect immediately prior
-------
to the Effective Time shall be the By-Laws of the Surviving Corporation until
altered, amended or repealed as provided therein and in the Certificate of
Incorporation of the Surviving Corporation.
2.4. Directors and Officers. The Directors of Purchaser prior to the
----------------------
Effective Time shall be the directors of the Surviving Corporation. The
officers of Company immediately prior to the Effective Time shall be the
officers of the Surviving Corporation. Each of such directors and officers
shall hold office in accordance with the Certificate of Incorporation and By-
Laws of the Surviving Corporation.
2.5. Effective Time. The Merger shall become effective at the time
--------------
of filing of a certificate of merger with the Secretary of State of the State of
Delaware in accordance with the provisions of Sections 251 or 253, as the case
may be, of the GCL (the "Certificate of Merger"), or at a later time specified
---------------------
as the effective time in the Certificate of Merger, which Certificate of Merger
shall be so filed as soon as practicable after the meeting of stockholders
contemplated in Section 6.1 and the satisfaction or, if permissible, waiver of
the conditions set forth in Article VII. The date and time when the Merger
shall become effective are referred to herein as the "Effective Time." Prior to
--------------
such filing, a closing shall be held at the offices of Kronish, Lieb, Weiner &
Hellman LLP, 1114 Avenue of the Americas, New York, New York 10036, or such
other place as shall be agreed to by the parties, for the purpose of
5
<PAGE>
confirming the satisfaction or waiver, as the case may be, of the conditions set
forth in Article VII.
2.6. Conversion of Shares. (a) Each Share issued and outstanding
--------------------
immediately prior to the Effective Time (other than shares of Company Common
Stock to be cancelled as set forth in Section 2.6(b) and 2.6(c)) shall, by
virtue of the Merger and without any action on the part of the holder thereof,
be converted into, exchanged for and represent the right to receive an amount
equal to the Per Share Amount in cash (the "Merger Consideration"), payable,
--------------------
without interest, to the holder of such Share, upon surrender, in the manner
described below, of the certificate that formerly evidenced such Share.
(b) Each Share issued and outstanding immediately prior to the
Effective Time which is then owned beneficially or of record by Parent or any
Subsidiary of Parent shall, by virtue of the Merger and without any action on
the part of the holder thereof, be cancelled and retired and cease to exist,
without any conversion thereof.
(c) Each Share held in Company's treasury immediately prior to the
Effective Time shall, by virtue of the Merger, be cancelled and retired and
cease to exist, without any conversion thereof.
(d) Notwithstanding anything in this Section 2.6 to the contrary,
shares of Company Common Stock which are issued and outstanding immediately
prior to the Effective Time and which are held by stockholders of Company who
have not voted such shares in favor of the Merger and who shall have properly
exercised their rights of appraisal for such shares in the manner provided by
the GCL (the "Dissenting Shares") shall not be converted into or be exchangeable
-----------------
for the right to receive the Merger Consideration, unless and until such holder
shall have failed to perfect or shall have effectively withdrawn or lost his
right to appraisal and payment, as the case may be. If such holder shall have
so failed to perfect or shall have effectively withdrawn or lost such right, his
shares shall thereupon be deemed to have been converted into and to have become
exchangeable for, at the Effective Time, the right to receive the Merger
Consideration, without any interest thereon. Company shall give Parent prompt
notice of any Dissenting Shares (and shall also give Parent prompt notice of any
withdrawals of such demands for appraisal rights) and Parent shall have the
right to direct all negotiations and proceedings with respect to any such
demands. Neither Company nor the Surviving Corporation shall, except with the
prior written consent of Parent, voluntarily make any payment with respect to,
or settle or offer to settle, any such demand for appraisal rights.
Stockholders of Company who shall have perfected their right of appraisal and
not withdrawn or otherwise
6
<PAGE>
lost such right of appraisal, shall be entitled to receive payment of the
appraised value of the shares of Company Common Stock held by them in accordance
with the provisions of Section 262 of the GCL.
2.7. Purchaser Common Stock. Each share of common stock of Purchaser
----------------------
issued and outstanding immediately prior to the Effective Time shall, by virtue
of the Merger and without any action on the part of Purchaser or the holder
thereof, be converted into and become one fully paid and nonassessable share of
common stock of the Surviving Corporation. From and after the Effective Time,
each outstanding certificate theretofore representing shares of Purchaser common
stock shall be deemed for all purposes to evidence ownership of and to represent
the number of shares of Surviving Corporation common stock into which such
shares of Purchaser common stock shall have been converted. Promptly after the
Effective Time, the Surviving Corporation shall issue to Parent a stock
certificate or certificates representing 100 shares of Surviving Corporation
common stock in exchange for the certificate or certificates that formerly
represented shares of Purchaser common stock, which shall be surrendered by
Parent and cancelled.
2.8. Surrender of Shares. (a) Prior to the Effective Time, Parent
-------------------
shall make available, by transferring to the Exchange Agent for the benefit of
the stockholders of Company, such amount of cash as shall be payable in exchange
for outstanding Shares pursuant to Section 2.6 hereof. Such funds shall be
invested by the Exchange Agent as directed by the Surviving Corporation,
provided that such investments shall be in obligations of or guaranteed by the
- --------
United States of America or of any agency thereof and backed by the full faith
and credit of the United States of America, or in deposit accounts, certificates
of deposit or banker's acceptances of, repurchase or reverse repurchase
agreements with, or Eurodollar time deposits purchased from, commercial banks
with capital, surplus and undivided profits aggregating in excess of $50 million
(based on the most recent financial statements of such bank which are then
publicly available at the SEC or otherwise).
(b) As soon as practicable after the Effective Time, the Exchange
Agent shall mail to each holder of record (other than to holders of Company
Common Stock to be cancelled as set forth in Section 2.6(b) or 2.6(c) or
Dissenting Shares) of a certificate or certificates that immediately prior to
the Effective Time represented outstanding shares of Company Common Stock (the
"Certificates") (i) a form letter of transmittal (which shall be in customary
- ------------- -
form and shall specify that delivery shall be effected, and risk of loss and
title to the Certificates shall pass, only upon proper delivery of the
Certificates to the
7
<PAGE>
Exchange Agent) and (ii) instructions for effecting the surrender of the
--
Certificates in exchange for the Merger Consideration.
(c) Upon surrender of a Certificate for cancellation to the Exchange
Agent, together with such letter of transmittal, duly executed, and such other
agreements as the Exchange Agent shall reasonably request, the holder of such
Certificate shall be entitled to receive in exchange therefor the Merger
Consideration, and the Certificate so surrendered shall forthwith be cancelled.
Until surrendered as contemplated by this Section 2.8, each Certificate shall be
deemed at any time after the Effective Time to represent only the right to
receive the Merger Consideration with respect to the shares of Company Common
Stock formerly represented thereby. No interest shall accrue or be paid on the
Merger Consideration payable upon the surrender of any Certificate.
(d) Any amounts of cash delivered or made available to the Exchange
Agent pursuant to this Section 2.8 and not exchanged for Certificates within six
months after the Effective Time pursuant to this Section 2.8 shall be returned
by the Exchange Agent to Parent, which thereafter shall act as Exchange Agent
subject to the rights of holders of unsurrendered Certificates under this
Article II. Thereafter such holders shall be entitled to look to the Surviving
Corporation (subject to abandoned property, escheat and other similar laws) only
as general creditors thereof with respect to any Merger Consideration that may
be payable upon due surrender of the Certificates held by them. Notwithstanding
the foregoing, neither the Surviving Corporation nor the Exchange Agent shall be
liable to any holder of a share of Company Common Stock for any Merger
Consideration delivered in respect of such Share to a public official pursuant
to any abandoned property, escheat or other similar law.
(e) If any payment of the Merger Consideration is to be made to a
person other than that in which the Certificate surrendered is registered, it
shall be a condition of payment that the Certificate so surrendered shall be
properly endorsed or otherwise in proper form for transfer and that the person
requesting such payment shall pay any transfer or other taxes required by reason
of the payment to a person other than the registered holder of the Certificate
surrendered or establish to the satisfaction of the Surviving Corporation that
such tax has been paid or is not applicable.
(f) After the Effective Time, there shall be no further registration
of transfers on the stock transfer books of the Surviving Corporation of the
shares of Company Common Stock which were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates representing such
shares are presented to the Surviving Corporation, they shall be
8
<PAGE>
cancelled and exchanged for the Merger Consideration as provided in this Article
I.
2.9. Company Stock Options and Warrants. At the Effective Time, all
----------------------------------
options and warrants then outstanding under the 1995 Incentive Stock Option Plan
and the 1996 Equity Participation Plan (collectively, the "Company Stock Option
--------------------
Plans") shall be assumed by Parent in such manner that Parent is a corporation
- -----
"assuming a stock option in a transaction to which section 424(a) applies"
within the meaning of Section 424 of the Internal Revenue Code of 1986, as
amended (the "Code"). The options and warrants assumed by Parent as provided
----
above and the warrants issued to WinStar Communications, Inc. and Electronic
Press Services, Inc. shall be exercisable upon the same terms and conditions as
under the Company Stock Option Plans and the option agreements and warrants
issued thereunder and such warrants, except that each such option or warrant (A)
shall be exercisable for that number of shares of Parent Common Stock equal to
the product of (i) the number of shares of Company Common Stock subject to such
option or warrant immediately prior to the Effective Time multiplied by (ii) a
fraction, the numerator of which shall be the Per Share Amount and the
denominator of which shall be $27 1/8 (with any fractional share of Parent
Common Stock being disregarded) and (B) the exercise price per share of Parent
Common Stock shall equal the exercise price per share of Company Common Stock
theretofore in effect multiplied by a fraction, the numerator of which shall be
$27 1/8 and the denominator of which shall be the Per Share Amount. From and
after the Effective Time, no additional options or warrants shall be granted
under Company Stock Option Plans. In connection with the assumption of the
options outstanding under Company Stock Option Plans, Parent shall use its best
efforts to effect such assumption in such a manner as to not affect the
incentive stock option status of those options which are intended to be
incentive stock options at the Effective Time. From the date hereof, Company
shall not accelerate, or take any action which would cause the acceleration of,
the vesting of any of the options outstanding under the Company Stock Option
Plans by reason of the Offer or the Merger and any agreement providing for such
acceleration shall be rescinded.
III. REPRESENTATIONS AND WARRANTIES OF COMPANY
-----------------------------------------
Company represents and warrants to Parent and Purchaser as follows
(except as set forth in the Disclosure Letter delivered by Company to Parent and
Purchaser on the date hereof):
3.1. Organization and Authorization, etc. Company is a corporation
-----------------------------------
duly organized, validly existing and in good standing under the laws of the
State of Delaware, has the
9
<PAGE>
corporate power and authority to own, lease and operate all of its properties
and assets and to carry on its business, and is duly qualified to do business as
a foreign corporation and is in good standing in each jurisdiction in which the
nature of its business or the ownership of its properties or both makes such
qualification necessary, except where failure to be so qualified would not,
individually or in the aggregate, have a Material Adverse Effect. Company has
delivered to Parent and Purchaser complete and correct copies of its Certificate
of Incorporation and By-Laws, as amended and in effect on the date of this
Agreement. Company has the corporate power to enter into this Agreement and to
carry out its obligations hereunder. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have been
duly and validly authorized by its Board of Directors and, except for the
approval of its stockholders, no other corporate proceedings on the part of
Company are necessary to authorize this Agreement and the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by Company and, assuming this Agreement constitutes the legal, valid
and binding Agreement of the other parties hereto, this Agreement constitutes
the legal, valid and binding agreement of Company, enforceable against Company
in accordance with its terms. The restrictions on business combinations
contained in Section 203 of the GCL have been satisfied with respect to the
transactions contemplated hereby.
3.2. Subsidiaries. Company has no Subsidiaries.
------------
3.3. Non-Contravention. The execution and delivery of this Agreement
-----------------
and, subject to the approval of this Agreement by Company's stockholders and
compliance with the applicable regulatory requirements set forth in Section 3.4,
the consummation of the transactions contemplated hereby will not (a) violate
-
any provision of the Amended and Restated Certificate of Incorporation or
Amended and Restated By-Laws of Company, (b) violate any material provision of
-
or result in the breach or the acceleration of or entitle any party to
accelerate (whether after the giving of notice or lapse of time or both) any
material obligation under, any material mortgage, lien, lease, agreement,
license, instrument, order, arbitration award, judgment or decree to which
Company is a party or by which it is bound, (c) result in the creation or
-
imposition of any material lien, charge, pledge, security interest or other
encumbrance upon any material property of Company or (d) violate or conflict
-
with any law, ordinance or rule to which Company, or the property of Company, is
subject.
3.4. Approvals. No consent, approval, order or authorization of, or
---------
registration, declaration or filing with, any Governmental Authority is required
in connection with the
10
<PAGE>
execution and delivery of this Agreement by Company or the consummation by
Company of the transactions contemplated hereby, except for (a) the filing of a
-
Notification and Report Form by Company under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), (b) the filing of the
------- -
Schedule 14D-9 with the SEC and the filing of the Proxy Statement with the SEC,
(c) filings and approvals required by the securities or blue sky laws of the
-
various states, (d) the filings and approvals with the FCC and state public
-
utility commissions or other Governmental Authorities identified on Schedule 3.4
hereto and (e) the filing of a Certificate of Merger with the Secretary of State
-
of the State of Delaware.
Company has delivered to Parent correct and complete copies of all
licenses and the applications related thereto of Company together with any
pending applications filed by Company for other licenses, certificates, permits
and similar authorizations.
3.5. Capital Stock. The authorized capital stock of Company consists
-------------
of 47,000,000 shares of Common Stock, par value $.01 per share, of which
11,674,261 shares are issued and outstanding, and of 3,000,000 shares of
Preferred Stock, par value $1.00 per share, none of which are issued and
outstanding. All outstanding shares of Company Common Stock are duly authorized,
validly issued, fully paid and nonassessable. As of the date hereof, Company
had reserved (a) 2,900,480 shares of Company Common Stock for issuance upon the
-
exercise of outstanding stock options granted to employees or directors of
Company, (b) 415,000 shares of Company Common Stock for issuance upon exercise
-
of currently outstanding warrants and (c) 350,000 shares of Company Common Stock
-
for issuance to employees pursuant to the Amended and Restated 1997 Employee
Stock Purchase Plan. Except as set forth herein or in the reports and other
filings referred to in Section 3.7 and except for the warrants issued to WinStar
Communications, Inc. on June 10, 1996 and to Electronic Press Services, Inc. on
January 3, 1997, there are not outstanding any offers, subscriptions, options,
warrants, rights or other agreements or commitments obligating Company to issue
or sell, or cause to be issued or sold, any shares of the capital stock of
Company or any securities or obligations convertible into or exchangeable for or
giving any Person any right to acquire any shares of such capital stock, or
obligating Company to enter into any such agreement or commitment.
3.6. Financial Statements. (a) The balance sheet as of December 31,
--------------------
1996 of Company, and the related statements of income, stockholders' equity and
changes in financial position for each of the three years then ended, examined
and reported upon by Ernst & Young, LLP, certified public accountants, complete
copies of which have previously been delivered to
11
<PAGE>
Parent, have been prepared in conformity with generally accepted accounting
principles applied on a consistent basis, and fairly present the financial
position of Company at such date and the results of its operations and changes
in its financial position for such periods. Except as disclosed or provided for
in such financial statements (including the notes thereto), as of December 31,
1996, Company had no liabilities or obligations material to the business or
condition (financial or otherwise) of Company, whether accrued, absolute,
contingent or otherwise, and whether due or to become due and which were
required to be disclosed or provided for in such financial statements in
accordance with generally accepted accounting principles.
(b) The unaudited financial statements of Company as of March 31,
1997 and for the three months then ended, complete copies of which have
previously been delivered to Parent (the "Company Interim Financials"), fairly
--------------------------
present the financial position of Company at such date and the results of its
operations for such period and, except as otherwise disclosed therein, have been
prepared in accordance with generally accepted accounting principles applied on
a basis consistent with the audited financial statements referred to in the
preceding paragraph, and reflect all adjustments (subject to normal and
recurring year end adjustments that are not expected to be material in amount)
which are necessary to a fair presentation of the results of the interim period
therein described.
3.7. Periodic SEC Filings. Company has heretofore delivered to
--------------------
Parent its (a) Annual Report on Form 10-KSB for the year ended December 31, 1996
-
as filed with the SEC; (b) a Quarterly Report on Form 10-QSB for the period
-
ended March 31, 1997; (c) proxy statements relating to Company's meetings of
-
stockholders (whether annual or special) during calendar year 1997; and (d) all
-
other reports or registration statements filed by Company with the SEC since
October 16, 1996. As of their respective dates, such reports and statements
were prepared in accordance with the requirements of the Securities Act of 1933,
as amended, and the Exchange Act, as the case may be, and the rules and
regulations thereunder and did not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading.
3.8. Changes. Except as has been otherwise disclosed by Company to
-------
Parent and Purchaser in writing prior to the date hereof, or as has been
disclosed in the Company Interim Financials or in the filings with the SEC set
forth in Section 3.7, since December 31, 1996 through the date of this Agreement
there have not been any changes in the condition (financial or otherwise),
assets, liabilities, properties, business, operations
12
<PAGE>
or prospects of Company having, individually or in the aggregate, a Material
Adverse Effect and, except as aforesaid, Company has not:
(a) issued or sold any stock, notes, bonds or other securities other
than pursuant to the exercise or conversion of outstanding securities, or
any option to purchase the same other than in the ordinary course of
business consistent with past practice, or entered into any agreement with
respect thereto, except to or with Parent or Purchaser;
(b) declared, set aside or made any dividend or other distribution on
capital stock or redeemed, purchased or acquired any shares thereof or
entered into any agreement in respect of the foregoing;
(c) amended its Certificate of Incorporation or By-Laws;
(d) other than in the ordinary course of business, (i) purchased,
-
sold, assigned or transferred any material tangible assets or any material
patent, trademark, trade name, copyright, license, franchise, design or
other intangible assets or property, (ii) mortgaged, pledged or granted or
--
suffered to exist any lien or other encumbrance or charge on any material
assets or properties, tangible or intangible, except for liens for taxes
not yet delinquent and such other liens, encumbrances or charges which do
not, individually or in the aggregate, have a Material Adverse Effect, or
(iii) to the best knowledge of Company, waived any rights of material value
----
or cancelled any material debts or claims;
(e) incurred any material obligation or liability (absolute or
contingent), except current liabilities and obligations incurred in the
ordinary course of business consistent with past practice, or paid any
material liability or obligation (absolute or contingent) other than
current liabilities and obligations incurred in the ordinary course of
business consistent with past practice;
(f) increased the compensation payable to any officer or director of
Company, or become obligated to increase any such compensation, other than
in the ordinary course of business consistent with past practice;
(g) entered into any employment agreement (except that agreements
with employees that are solely confidentiality agreements shall not be
considered employment agreements) or adopted, or amended in any material
respect, any collective
13
<PAGE>
bargaining agreement or Company Plan, other than in the ordinary course of
business consistent with past practice;
(h) incurred any damage, destruction or similar loss, whether or not
covered by insurance, materially affecting the businesses or properties of
Company;
(i) entered into any transaction of a material nature other than in
the ordinary course of business consistent with past practice; or
(j) changed its accounting methods, principles or practices.
3.9. Taxes. (a) Company has prepared and timely filed or will
-----
timely file with the appropriate Governmental Authorities all franchise, income
and all other material Tax returns and reports required to be filed for any
period ending on or before the Effective Time, taking into account any extension
of time to file granted to or obtained on behalf of Company;
(b) all material Taxes of Company in respect of the pre-Merger period
have been paid in full to the proper authorities, other than such Taxes as are
being contested in good faith by appropriate proceedings and/or are adequately
reserved for in accordance with generally accepted accounting principles;
(c) to the best knowledge of Company, no deficiency has been asserted
or assessed against Company, and no examination of Company is pending or
threatened for any material amount of Tax by any taxing authority;
(d) no extension of the period for assessment or collection of any
material Tax is currently in effect and no extension of time within which to
file any material Tax return has been requested, which Tax return has not since
been filed;
(e) no material Tax liens have been filed with respect to any Taxes;
(f) Company will not make any voluntary adjustment by reason of a
change in their accounting methods for any pre-Merger period that would affect
the taxable income or deductions of Company for any period ending after the
Effective Date;
(g) Company has made timely payments of the Taxes required to be
deducted and withheld from the wages paid to their employees;
(h) to the best knowledge of Company, there are no foreign losses as
defined in Section 904(f)(2) of the Code; and
14
<PAGE>
(i) to the best knowledge of Company, there are no transfer pricing
agreements made with any taxation authority involving Company.
3.10. Material Contracts. Company has heretofore furnished to Parent
------------------
and Purchaser a complete and correct list as of the date hereof of all
agreements, contracts and commitments of the following types, written or oral,
to which Company is a party or by which any of its properties is bound as of the
date hereof: (a) mortgages, indentures, security agreements and other
-
agreements and instruments relating to the borrowing of money by or extension of
credit to Company; (b) employment and consulting agreements; (c) Company Plans;
- -
(d) collective bargaining agreements; (e) material sales agency, manufacturer's
- -
representatives or distributorship agreements; (f) agreements, orders or
-
commitments for the purchase by Company of raw materials, supplies or finished
products exceeding $100,000; (g) agreements, orders or commitments for the sale
-
by Company of its products exceeding $250,000; (h) licenses of patent, trademark
-
and other intellectual property rights; (i) agreements or commitments for
-
capital expenditures in excess of $100,000 for any single project (it being
warranted that the commitment for all undisclosed contracts for such agreements
or commitments does not exceed $500,000 in the aggregate for all projects); (j)
-
brokerage or finder's agreements; (k) surety bonds for any single project,
-
foreign exchange contracts and letters of credit, in each case in excess of
$250,000; and (l) agreements, contracts and commitments of a type other than
-
those described in the foregoing clauses (a) through (k) which in any case
involve payments or receipts of more than $100,000. Other than for documents
that are included in Company's SEC filings, Company has delivered or made
available to Parent and Purchaser complete and correct copies of all written
agreements, contracts and commitments, together with all amendments thereto, and
accurate descriptions of all oral agreements, set forth on such list. Such
agreements, contracts and commitments are in full force and effect and, to the
best knowledge of Company, all parties thereto have performed all obligations
required to be performed by them to date and are not in default in any material
respect thereunder. No claim of default by any party has been made or is now
pending under any such agreement, contract or commitment, and, to the best
knowledge of Company, no event has occurred and is continuing that with notice
or the passing of time or both would constitute a material default thereunder or
would excuse performance by any party thereto.
3.11. Properties. Company owns and has good and marketable title in
----------
fee to all its assets and properties, tangible or intangible reflected in the
Company Interim Financials as owned by it, and valid leasehold interests in all
properties reflected in the Company Interim Financials as leased
15
<PAGE>
or licensed by it, in each case free and clear of any mortgage, lien, pledge,
charge, claim, conditional sales or other agreement, right, easement or
encumbrance except (i) to the extent stated or reserved against in the Company
-
Interim Financials, (ii) for changes occurring in the ordinary course of
--
business consistent with past practice after the date thereof, which do not
have, individually or in the aggregate, a Material Adverse Effect, and (iii) for
---
liens for taxes not yet delinquent and such other exceptions which do not
materially detract from the value or interfere with the use of the property
affected thereby. Company has delivered or made available to Parent and
Purchaser complete and correct copies of all leases of real property and
material personal property to which it is a party. All such leases are valid,
subsisting and effective in accordance with their terms and, to the knowledge of
Company, there does not exist thereunder any material default or event or
condition which, after notice or lapse of time or both, would constitute a
material default thereunder. To the knowledge of Company, all physical
properties owned or used by Company and all equipment necessary for the
operation of its businesses are in good operating condition.
3.12. Litigation. Except as disclosed in the reports and other
----------
filings referred to in Section 3.7 and except as has been otherwise disclosed by
Company to Parent and Purchaser prior to the date hereof, there are no material
actions, suits or proceedings or investigations pending or, to the knowledge of
Company, threatened against or affecting Company or any property or assets of
Company before or by any Governmental Authority. Company is not in default in
respect of any judgment, order, writ, injunction or decree of any Governmental
Authority.
3.13. Permits. Company has all material permits, licenses, orders
-------
and approvals of all Governmental Authorities required for it to conduct its
business as presently conducted. All such material permits, licenses, orders and
approvals are in full force and effect and, to the knowledge of Company, no
suspension or cancellation of any of them is threatened. Subject to obtaining
the consents referred to in Section 3.4, none of such permits, licenses, orders
or approvals will be adversely affected by the consummation of the transactions
contemplated by this Agreement. Company has complied in all material respects
with all laws and with the rules and regulations of all Governmental Authorities
having authority over it, including, without limitation, agencies concerned with
occupational safety, environmental protection and employment practices, and
Company has not received notice of violation of any such rules or regulations,
corrected or not, within the last three years.
3.14. Employee Plans. (a) Schedule 3.14 contains a true and complete
--------------
list of all bonus, deferred compensation,
16
<PAGE>
pension, profit-sharing, retirement, insurance, stock purchase, stock option,
welfare, severance, hospitalization, insurance or other employee benefit plan
(as defined in Section 3(3) of ERISA), whether formal or informal, presently
maintained by Company or maintained by it since 1992, or under which Company
has, or has had since 1992, any obligation to contribute (collectively, the
"Company Plans").
- --------------
(b) For each of the Company Plans, Company has delivered or made
available to Parent true and complete copies of (i) the plan document, (ii) any
related trust agreements, insurance contracts and other funding agreements,
(iii) the summary plan descriptions, (iv) the most recent Internal Revenue
Service determination letter, if any, (v) the most recently filed annual report
(Form 5500 Series) and accompanying schedules filed with the Department of Labor
or Internal Revenue Service, and (vi) the most recent financial statements, if
any.
(c) Except where the failure of any of the following representations
would not result in a Material Adverse Effect:
(i) Each such Company Plan which is intended to be a "qualified plan"
under Section 401(a) of the Code, has received, within the last three
years, a favorable determination letter from the IRS. With respect to any
Company Plan which has received a currently applicable determination
letter, nothing has occurred since the date of such determination letter
that would adversely affect the qualification of the Company Plan under
Section 401(a) of the Code.
(ii) Company has performed and complied with all of its obligations
under or with respect to the Company Plans, and the Company Plans have
operated in accordance with their respective terms. All Company Plans have
operated in accordance with the applicable requirements of ERISA and the
Code and other applicable laws, rules and regulations, and all reports
required by any governmental agency with respect to a Company Plan have
been timely filed.
(iii) Neither any of the Company Plans nor any employee benefit plan
(as defined in Section 3(3) of ERISA) maintained or contributed to by an
ERISA Affiliate (the Company Plans and the employee benefit plans of ERISA
Affiliates are collectively referred to as the "Company Group Plans") is
-------------------
covered by Title IV of ERISA.
(iv) No prohibited transaction (as defined in Section 406 of ERISA or
Section 4975 of the Code) has
17
<PAGE>
occurred with respect to any of the Company Group Plans.
(v) Each Company Plan which constitutes a welfare benefit plan within
the meaning of Section 3(1) of ERISA has complied and continues to comply
with the health care continuation coverage requirements of section 4980B of
the Code and Part 6 of Subtitle B of Title I of ERISA. Other than the
coverage referred to in the immediately preceding sentence, there are no
benefits to be provided to current retirees under any of the Company Plans
which constitutes a welfare benefit plan.
(vi) No action, suit or proceeding, hearing, or investigation with
respect to the administration or investment of the assets of any Company
Group Plan is pending or threatened. None of the senior executive officers
of Company has any knowledge of any basis for any such action, suit,
proceeding, hearing or investigation.
(vii) No amount paid or payable (or which may become payable)
pursuant to any Company Plan to or for the benefit of any officer, director
or employee of Company was or will constitute any excess parachute payment
(within the meaning of Section 280G of the Code) as a consequence, direct
or indirect, in whole or in part, of the consummation of the transaction
contemplated under the Agreement.
(viii) Company does not have any commitment, whether formal or
informal and whether legally binding or not, to create or amend any Company
Plan.
3.15. Patents, Trademarks, etc. Company owns, or possess adequate
------------------------
rights to use, all material patents, trade names, trademarks, copyrights,
inventions, processes, designs, formulae, trade secrets, knowhow and other
intellectual property rights necessary for the conduct of its business, with, to
the knowledge of Company, no conflict with or infringement of the asserted
rights of others. Company has no knowledge of any infringement by any third
party upon any patent, trade name, trademark or copyright owned by Company, and
Company has not taken or omitted to take any action which would have the effect
of waiving any of its rights thereunder, in each case except where such
infringement or waiver would not have a Material Adverse Effect.
3.16. Insurance. Company has heretofore furnished to Parent and
---------
Purchaser a complete and correct list as of the date
18
<PAGE>
hereof of all material insurance policies maintained by Company, and has made
available to Parent and Purchaser complete and correct copies of all such
policies, together with all riders and amendments thereto. All such policies
are in full force and effect and all premiums due thereon have been paid to the
date hereof. Company has complied in all material respects with the provisions
of all such policies.
3.17. No Brokers. All negotiations relating to this Agreement and
----------
the transactions contemplated hereby have been carried on without the
intervention of any person (other than Friedman, Billings, Ramsey & Co., Inc.)
acting on behalf of Company in such manner as to give rise to any valid claim
against Company or Parent or any of Parent's Subsidiaries for any broker's or
finder's fee or similar compensation.
3.18. Disclosure. The certificates, statements, and other
----------
information furnished to Parent or Purchaser in writing by or on behalf of
Company in connection with the transactions contemplated herein, taken as a
whole, do not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Except for facts or
conditions affecting the Internet access industry or the website hosting
industry generally, Company knows of no fact or condition which materially
adversely affects, or in the future may (so far as Company can now reasonably
foresee) materially adversely affect the condition (financial or otherwise),
properties, assets, liabilities, business, operations or prospects of Company
which has not been set forth herein or disclosed in writing to Parent and
Purchaser with reference to this Agreement.
3.19. Offer Documents; Schedule 14D-9; Proxy Statement; Other
-------------------------------------------------------
Information. Neither the Schedule 14D-9 nor any information supplied by Company
- -----------
for inclusion in the Offer Documents shall, at the respective times the Schedule
14D-9, the Offer Documents or any amendments or supplements thereto are filed
with the SEC or are first published, sent or given to stockholders of Company,
as the case may be, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements made therein, in the light of the circumstances under which
they are made, not misleading. Neither the proxy statement to be sent to the
stockholders of Company in connection with the Stockholders' Meeting (as
hereinafter defined) or the information statement to be sent to such
stockholders, as appropriate (such proxy statement or information statement, as
amended or supplemented, being referred to herein as the "Proxy Statement"),
---------------
shall, at the date the Proxy Statement (or any amendment or supplement thereto)
is first mailed to stockholders of Company, at the time of the Stockholders'
Meeting and at the
19
<PAGE>
Effective Time, be false or misleading with respect to any material fact, or
omit to state any material fact required to be stated therein or necessary in
order to make the statements made therein, in the light of the circumstances
under which they are made, not misleading or necessary to correct any statement
in any earlier communication with respect to the solicitation of proxies for the
Stockholders' Meeting which shall have become false or misleading. The Schedule
14D-9 and the Proxy Statement shall comply in all material respects as to form
with the requirements of the Exchange Act and the rules and regulations
thereunder.
IV. REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER
------------------------------------------------------
Parent and Purchaser each represent to Company as follows:
4.1. Organization and Authorization, etc. Each of Parent and
-----------------------------------
Purchaser is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware, has the corporate power and authority
to own, lease and operate all of its properties and assets and to carry on its
business, and is duly qualified to do business as a foreign corporation and is
in good standing in each jurisdiction in which the nature of its business or the
ownership of its properties or both makes such qualification necessary, except
where failure to be so qualified would not, individually or in the aggregate,
have a Material Adverse Effect. Each of Parent and Purchaser has the corporate
power to enter into this Agreement and to carry out its obligations hereunder.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
Board of Directors of each of Parent and Purchaser and no other corporate
proceedings on the part of Parent or Purchaser are necessary to authorize this
Agreement and the transactions contemplated hereby. This Agreement has been
duly and validly executed and delivered by each of Parent and Purchaser and,
assuming this Agreement constitutes the legal, valid and binding Agreement of
the other parties hereto, this Agreement constitutes the legal, valid and
binding agreement of each of Parent and Purchaser, enforceable against each in
accordance with its terms.
4.2. Non-Contravention. The execution and delivery of this Agreement
-----------------
and the consummation of the transactions contemplated hereby will not (a)
-
violate any provision of the Certificate of Incorporation or By-Laws of Parent
or any of its Subsidiaries, (b) after giving effect to the to the transactions
-
contemplated by Section 6.9, violate any material provision of or result in the
breach or the acceleration of or entitle any party to accelerate (whether after
the giving of notice or lapse of time or both) any material obligation under,
any material
20
<PAGE>
mortgage, lien, lease, agreement, license, instrument, order, arbitration award,
judgment or decree to which Parent or any of its Subsidiaries is a party or by
which any of them is bound, (c) result in the creation or imposition of any
-
material lien, charge, pledge, security interest or other encumbrance upon any
material property of Parent or any of its Subsidiaries or (d) violate or
-
conflict with any other material restriction or any law, ordinance or rule to
which Parent or any of its Subsidiaries, or the property of Parent or any of its
Subsidiaries, is subject.
4.3. Approvals. No consent, approval, order or authorization of, or
---------
registration, declaration or filing with, any Governmental Authority is required
in connection with the execution and delivery of this Agreement by Parent and
Purchaser or the consummation by Parent and Purchaser of the transactions
contemplated hereby, except for (a) the filing of a Notification and Report Form
-
by Parent under the HSR Act, (b) the filing of the Schedule 14D-1 with the SEC
-
and the filing of the Proxy Statement with the SEC, (c) filings and approvals
-
with the SEC or as required by the securities or blue sky laws of the various
states, (d) any necessary filings with and approvals of the FCC and state public
-
utility commissions or other Governmental Authorities where the operations of
Company are subject to their jurisdiction and (e) the filing of a Certificate of
-
Merger with the Secretary of State of the State of Delaware.
4.4. No Brokers. All negotiations relating to this Agreement and the
----------
transactions contemplated hereby have been carried on without the intervention
of any person acting on behalf of Parent in such manner as to give rise to any
valid claim against Parent or Company or any of Parent's Subsidiaries for any
broker's or finder's fee or similar compensation other than Bear, Stearns & Co.
Inc., whose fees shall be paid by Parent.
4.5. Offer Documents; Proxy Statement; Other Information. The Offer
---------------------------------------------------
Documents will not, at the time the Offer Documents are filed with the SEC or
are first published, sent or given to stockholders of Company, as the case may
be, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements made therein, in the light of the circumstances under which they are
made, not misleading. The information supplied by Parent for inclusion in the
Proxy Statement will not, on the date the Proxy Statement (or any amendment or
supplement thereto) is first mailed to stockholders of Company, at the time of
the Stockholders' Meeting and at the Effective Time, contain any statement
which, at such time and in light of the circumstances under which it is made, is
false or misleading with respect to any material fact, or omits to state any
material fact
21
<PAGE>
required to be stated therein or necessary in order to make the statements
therein not false or misleading or necessary to correct any statement in any
earlier communication with respect to the solicitation of proxies for the
Stockholders' Meeting which shall have become false or misleading.
Notwithstanding the foregoing, Parent and Purchaser make no representation or
warranty with respect to any information supplied by Company or any of its
representatives which is contained in any of the foregoing documents or the
Offer Documents. The Offer Documents shall comply in all material respects as
to form with the requirements of the Exchange Act and the rules and regulations
thereunder.
4.6. Solvency. Parent is not currently insolvent, as such term is
--------
defined in Title 11 of the United States Bankruptcy Code or any state statute
relating to insolvency, and none of the execution and delivery of this Agreement
by Parent, the performance of its obligations hereunder or the consummation by
Parent of the transactions contemplated hereby will render Parent insolvent or
result in Parent being unable to pay its debts as they become due.
V. COVENANTS OF COMPANY
--------------------
5.1. Conduct of Business. From the date hereof to the Effective
-------------------
Time, except with the prior written consent of Parent and Purchaser, Company
will:
(a) carry on its business in, and only in, the ordinary course in
substantially the same manner as heretofore and, to the extent consistent
with such business, use all reasonable efforts to preserve intact its
present business organization, keep available the services of its present
officers and employees, and preserve its relationships with customers,
suppliers and others having business dealings with it;
(b) maintain all of its material structures, equipment and other
tangible personal property in good repair, order and condition, except for
depletion, depreciation, ordinary wear and tear and damage by unavoidable
casualty;
(c) keep in full force and effect insurance comparable in amount and
scope of coverage to insurance now carried by it;
(d) perform in all material respects all of its obligations under
agreements, contracts and instruments relating to or affecting its
properties, assets and business;
22
<PAGE>
(e) maintain its books of account and records in the usual, regular
and ordinary manner;
(f) comply in all material respects with all statutes, laws,
ordinances, rules and regulations applicable to it and to the conduct of
its business;
(g) not amend its Certificate of Incorporation or By-Laws;
(h) not enter into, assume or amend in any material respect any
agreement, contract or commitment of the character referred to in clauses
(a) through (c) of Section 3.10 (except that agreements with employees that
are solely confidentiality agreements shall not be considered employment
agreements) or, except in the ordinary course of business consistent with
past practice, clauses (d) through (l) of such Section;
(i) not enter into any additional contracts or agreements for network
capacity or local transport services which are not terminable by Company,
without penalty or other adverse consequence, on not more than 60 days
notice;
(j) not enter into any additional customer contracts or agreements
containing rates which are materially different from the rates charged by
Company to current customers of similar creditworthiness, ordering similar
amounts of services and over a similar term;
(k) not merge or consolidate with, or agree to merge or consolidate
with, or purchase substantially all the assets of, or otherwise acquire any
business or any corporation, partnership, association or other business
organization or division thereof;
(l) not purchase for cash and cancel any options outstanding under
Company Stock Option Plans or otherwise amend such Plans;
(m) promptly advise Parent and Purchaser in writing of any materially
adverse change in the consolidated financial condition, operations or
business of Company;
(n) not declare or pay dividends (cash or otherwise) or make any
distribution on, or directly or indirectly redeem, purchase or otherwise
acquire, any shares of its outstanding capital stock;
(o) not effect any stock split or other reclassification;
23
<PAGE>
(p) not authorize the creation or issuance of or issue, sell or
dispose of, or create any obligation to issue, sell or dispose of, any
shares of its capital stock or any securities or obligations convertible
into or exchangeable for, any shares of its capital stock (other than
pursuant to stock options or warrants heretofore outstanding);
(q) not issue any press releases without first consulting with Parent
regarding any such press release;
(r) not create, incur, assume, guarantee or otherwise become directly
or indirectly liable with respect to any indebtedness for borrowed money
other than in the ordinary course of business consistent with past practice
under agreements existing on the date hereof and identified in writing to
Parent and Purchaser; and
(s) not enter into any agreement or understanding to do or engage in
any of the foregoing.
Notwithstanding anything to the contrary in this Section 5.1, Company
shall be permitted to make payment in full of the automobile loans relating to
the two Chevrolet trucks owned by Company and to purchase the 1997 BMW 528I
automobile, the Ford Explorer and the two vans, each of which is currently being
leased by Company.
5.2. Access and Information. From the date hereof to the Effective
----------------------
Time, Company shall give to Parent and Purchaser and their representatives
reasonable access during normal business hours to the personnel, properties,
books, records, contracts and commitments of Company and will furnish all such
information and documents relating to the properties and business of Company as
Parent and Purchaser may reasonably request. In the event this Agreement is
terminated and the Merger abandoned, Parent and Purchaser will keep confidential
any information (unless readily ascertainable from public information or sources
or otherwise required by law to be disclosed) obtained from Company in
connection with the Merger, will not utilize such information for any purpose
and will return to Company all documents, work papers and other written material
obtained by Parent and Purchaser from Company.
5.3. No Solicitation. From the date hereof to the Effective Time,
---------------
Company shall not, directly or indirectly, through any officer, director, agent
or otherwise, (a) solicit, initiate or encourage the submission of any proposal
or offer from any person relating to any acquisition or purchase of all or
(other than in the ordinary course of business) any portion of the assets of, or
any equity interest in, Company or any business
24
<PAGE>
combination (other than private network agreements entered into by Company in
the ordinary course of business) with Company (a "Company takeover proposal") or
(b) except to the extent required by fiduciary obligations under applicable law
as advised in writing by independent counsel, participate in any negotiations
regarding, or furnish to any other person any information with respect to, or
otherwise cooperate in any way with, or assist or participate in, facilitate or
encourage, any effort or attempt by any other person to do or seek any of the
foregoing. Company immediately shall cease and cause to be terminated all
existing discussions or negotiations with any parties conducted heretofore with
respect to any of the foregoing. Company shall notify Parent promptly of any
Company takeover proposal or any inquiry or contact with any person with respect
thereto, that is made and shall, in any such notice to Parent, indicate in
reasonable detail the identity of the person making such Company takeover
proposal or related inquiry or contact and the terms and conditions of such
Company takeover proposal or related inquiry or contact. Company shall not
release any third party from, or waive any provision of, any confidentiality or
standstill agreement to which Company is a party.
VI. ADDITIONAL AGREEMENTS
---------------------
6.1. Stockholders' Meeting. (a) If required by applicable law in
---------------------
order to consummate the Merger, Company, acting through the Board, shall, in
accordance with applicable law and Company's Certificate of Incorporation and
By-laws, (i) duly call, give notice of, convene and hold an annual or special
meeting of its stockholders as soon as practicable following consummation of the
Offer for the purpose of considering and taking action on this Agreement and the
transactions contemplated hereby (the "Stockholders' Meeting") and (ii) (A)
---------------------
include in the Proxy Statement the unanimous recommendation of the Board that
the stockholders of Company approve and adopt this Agreement and the
transactions contemplated hereby and (B) use its reasonable best efforts to
obtain such approval and adoption. At the Stockholders' Meeting, Parent and
Purchaser shall cause all Shares then owned by them and their Subsidiaries to be
voted in favor of the approval and adoption of this Agreement and the
transactions contemplated hereby.
(b) Notwithstanding the foregoing, in the event that Purchaser shall
acquire at least 90 percent of the then outstanding Shares, the parties hereto
agree, at the request of Purchaser, subject to Article VII, to take all
necessary and appropriate action to cause the Merger to become effective, in
accordance with Section 253 of Delaware Law, as soon as reasonably practicable
after such acquisition, without a meeting of the stockholders of Company.
25
<PAGE>
6.2. Proxy Statement. If required by applicable law as soon as
---------------
practicable following consummation of the Offer, Company shall file the Proxy
Statement with the SEC under the Exchange Act, and shall use its reasonable best
efforts to have the Proxy Statement cleared by the SEC. Parent, Purchaser and
Company shall cooperate with each other in the preparation of the Proxy
Statement, and Company shall notify Parent of the receipt of any comments of the
SEC with respect to the Proxy Statement and of any requests by the SEC for any
amendment or supplement thereto or for additional information and shall provide
to Parent promptly copies of all correspondence between Company or any
representative of Company and the SEC. Company shall give Parent and its
counsel the opportunity to review the Proxy Statement prior to its being filed
with the SEC and shall give Parent and its counsel the opportunity to review all
amendments and supplements to the Proxy Statement and all responses to requests
for additional information and replies to comments prior to their being filed
with, or sent to, the SEC. Each of Company, Parent and Purchaser agrees to use
its reasonable best efforts, after consultation with the other parties hereto,
to respond promptly to all such comments of and requests by the SEC and to cause
the Proxy Statement and all required amendments and supplements thereto to be
mailed to the holders of Shares entitled to vote at the Stockholders' Meeting at
the earliest practicable time.
6.3. Compliance with Conditions Precedent, etc. Parent, Purchaser and
-----------------------------------------
Company will each use commercially reasonable efforts to cause the conditions
precedent to the Offer and the Merger set forth in Annex A and in Article VII
hereof to be fulfilled and, subject to the terms and conditions herein provided,
to take, or cause to be taken, all action, and to do or cause to be done all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement
and the Merger, including without limitation to lift any injunction or remove
any other impediment to the consummation of such transactions or the Merger. In
case at any time after the Effective Time any further action is necessary or
desirable to carry out the purposes of this Agreement, the proper officers
and/or directors of Company, Parent or Purchaser, as the case may be, shall take
all such necessary action.
6.4. Certain Notifications. At all times from the date hereof until
---------------------
the Effective Time, each party shall promptly notify the others in writing of
the occurrence of any event which will or may result in the failure to satisfy
the conditions specified in Annex A or in Article VII.
6.5. Adoption by Purchaser. Parent, as the sole stockholder of
---------------------
Purchaser, by executing this Agreement, consents to the adoption of this
Agreement by Purchaser and agrees that
26
<PAGE>
such consent shall be treated for all purposes as a vote duly adopted at a
meeting of the stockholders of Purchaser held for this purpose.
6.6. Expenses. Whether or not the Merger is consummated, all costs
--------
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby and thereby shall be paid by the party incurring such
expense, except that the parties agree that Parent and Company shall share
evenly any filing fees required by the HSR Act.
6.7. Public Announcements. Parent and Company shall consult with
--------------------
each other before issuing any press release or otherwise making any public
statements with respect to this Agreement or any transaction contemplated herein
and shall not issue any such press release or make any such public statement
prior to such consultation, except as may be required by law or any listing
agreement with a national securities exchange or the Nasdaq National Market to
which Parent or Company is a party.
6.8. Company Board Representation; Section 14(f). (a) Promptly upon
-------------------------------------------
the purchase by Purchaser of Shares pursuant to the Offer or the Stock Purchase
Agreement, and from time to time thereafter, Purchaser shall be entitled to
designate up to such number of directors, rounded up to the next whole number,
on the Board as shall give Purchaser representation on the Board equal to the
product of the total number of directors on the Board (giving effect to the
directors elected pursuant to this sentence) multiplied by the percentage that
the aggregate number of Shares beneficially owned by Purchaser or any affiliate
of Purchaser following such purchase bears to the total number of Shares then
outstanding, and Company shall, at such time, promptly take all actions
necessary to cause Purchaser's designees to be elected as directors of Company,
including increasing the size of the Board or securing the resignations of
incumbent directors or both. At such time, Company shall use its reasonable
best efforts to cause persons designated by Purchaser to constitute the same
percentage as persons designated by Purchaser shall constitute of the Board of
each committee of the Board. Notwithstanding the foregoing, until the earlier
of (i) the time Purchaser acquires a majority of the then outstanding Shares on
a fully diluted basis and (ii) the Effective Time, Company shall use its
reasonable best efforts to ensure that all the members of the Board and each
committee of the Board as of the date hereof who are not employees of the
Company shall remain members of the Board and of such committees.
(b) Company shall promptly take all actions required pursuant to
Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder in order
to fulfill its obligations under this Section 6.8 and shall include in the
Schedule 14D-9 such
27
<PAGE>
information with respect to Company and its officers and directors as is
required under Section 14(f) and Rule 14f-1 to fulfill such obligations. Parent
or Purchaser shall supply to Company and be solely responsible for any
information with respect to either of them and their nominees, officers,
directors and affiliates required by such Section 14(f) and Rule 14f-1.
6.9. Indebtedness of Company. Prior to the consummation of the Offer
-----------------------
by Purchaser (and as a condition thereto), Company shall, if Parent shall have
made available a Parent Loan as described below, repay all Indebtedness (as
defined in the Parent Indenture) of Company other than Vendor Indebtedness (as
defined in the Parent Indenture), it being expressly understood that if Parent
shall not have made available to Company a Parent Loan, then the repayment of
such Indebtedness shall not be a condition to the consummation of the Offer. To
the extent requested by Company, Parent shall make a loan to Company in
principal amount sufficient to pay in full (including principal, accrued
interest, fees, penalties and other charges) all Indebtedness required to be
repaid by Company pursuant to this Section 6.9 (the "Parent Loan"). The Parent
-----------
Loan shall (i) have a maturity of 180 days, (ii) bear interest at a rate to be
negotiated in good faith by the parties taking into account the interest rate
that could be obtained by Company on any bank or other financial institution
financing and (iii) have such other terms as shall be mutually agreed to by
Company and Parent, acting in good faith and a commercially reasonably manner.
VII. CONDITIONS
----------
7.1. Conditions to the Merger. The obligations of each party to
------------------------
effect the Merger shall be subject to the satisfaction, at or prior to the
Effective Time, of each of the following conditions:
(a) the Merger and this Agreement shall have been validly approved
and adopted by the affirmative votes of the holders of a majority of the
outstanding shares of Company Common Stock entitled to vote thereon;
(b) all permits, approvals and consents of any Governmental Authority
or any other third party necessary or appropriate for consummation of the
Merger shall have been obtained, other than consents the failure to obtain
which would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect or a material adverse effect on the
consummation of the transactions contemplated hereby;
28
<PAGE>
(c) Purchaser or a permitted assignee shall have purchased all Shares
validly tendered and not withdrawn pursuant to the Offer; provided,
--------
however, that this condition shall not be applicable to the obligations of
-------
Parent and Purchaser if, in breach of this Agreement or the terms of the
Offer, Purchaser fails to purchase any Shares validly tendered and not
withdrawn pursuant to the Offer;
(d) no preliminary or permanent injunction or other order of a court
or Governmental Authority shall have been issued and be in effect, and no
United States federal or state statute, rule or regulation shall have been
enacted or promulgated after the date hereof and be in effect, that (i)
-
prohibits the consummation of the Merger or (ii) imposes material
--
limitations on the ability of Parent to exercise full rights of ownership
of Company's assets or business;
(e) there shall not be any action or proceeding commenced by or
before any Governmental Authority in the United States, or threatened by
any Governmental Authority in the United States, that challenges the
consummation of the Merger or seeks to impose material limitations on the
ability of Parent to exercise full rights of ownership of Company's assets
or business, other than any such action or proceeding commenced by a
stockholder or stockholders of Parent or Company, either derivatively on
behalf of Parent or Company, respectively, or on behalf of such stockholder
or stockholders, alleging that the directors or officers of Parent or
Company, respectively, have breached their fiduciary duties to stockholders
under Delaware law or Parent or Company has failed to make disclosures
required to be made under applicable state or federal securities laws, in
each case in connection with the transactions contemplated by this
Agreement, or making any similar claim; and
(f) any waiting period applicable to the consummation of the Merger
under the HSR Act shall have expired or been terminated.
VIII. TERMINATION, AMENDMENT AND WAIVER
---------------------------------
8.1. Termination. This Agreement may be terminated at any time prior
-----------
to the Effective Time, whether before or after approval by the stockholders of
Company:
(a) by consent of the Boards of Directors of Company, Parent and
Purchaser, except that in the case of termination after the consummation of
the Offer, the termination must be consented to by a majority of the
independent directors of Company;
29
<PAGE>
(b) by Parent and Purchaser upon notice to Company if any material
default under or material breach of any covenant or agreement in this
Agreement by Company shall have occurred and shall not have been cured
within ten days after receipt of such notice, or any representation or
warranty contained herein on the part of Company shall not have been true
and correct in any material respect at and as of the date made;
(c) by Company upon notice to Parent and Purchaser if any material
default under or material breach of any covenant or agreement in this
Agreement by Parent or Purchaser shall have occurred and shall not have
been cured within ten days after receipt of such notice, or any
representation or warranty contained herein on the part of Parent or
Purchaser shall not have been true and correct in any material respect at
and as of the date made; or
(d) by Parent and Purchaser, on the one hand, or Company, on the
other, upon notice to the other if the Merger shall not have become
effective on or before October 31, 1997, unless such date is extended by
the consent of the Boards of Directors of Company, Parent and Purchaser
evidenced by appropriate resolutions; provided, however, that the right to
-------- -------
terminate this Agreement under this Section 8.1(d) shall not be available
to any party whose failure to fulfill any obligation under this Agreement
has been the cause of, or resulted in, the failure of the Effective Time to
occur on or before such date;
(e) by Parent if due solely to an occurrence or circumstance that
would result in a failure to satisfy any condition set forth in Annex A
hereto, Purchaser shall have (i) failed to commence the Offer within 60
days following the date of this Agreement, (ii) terminated the Offer
without having accepted any Shares for payment thereunder or (iii) failed
to pay for Shares pursuant to the Offer within 90 days following the
commencement of the Offer, unless such failure to pay for Shares shall have
been caused by or resulted from the failure of Parent or Purchaser to
perform in any material respect any material covenant or agreement of
either of them contained in this Agreement or the material breach by Parent
or Purchaser of any material representation or warranty of either of them
contained in this Agreement;
(f) by Company, upon approval of the Board, if due to an occurrence
or circumstance that would result in a failure to satisfy any of the
conditions set forth in Annex A hereto, Purchaser shall have (i) failed to
commence the Offer within 60 days following the date of
30
<PAGE>
this Agreement, (ii) terminated the Offer without having accepted any
Shares for payment thereunder or (iii) failed to pay for Shares pursuant to
the Offer within 90 days following the commencement of the Offer, unless
such failure to pay for Shares shall have been caused by or resulted from
the failure of Company to perform in any material respect any material
covenant or agreement of it contained in this Agreement or the material
breach by Company of any material representation or warranty of it
contained in this Agreement;
(g) by any of Parent, Purchaser and Company if the approval of the
stockholders of Company required for consummation of the Merger shall not
have been obtained by reason of the failure to obtain the required vote at
a duly held meeting of stockholders or any adjournment thereof;
(h) by Parent or Purchaser if Company breaches the provisions of
Section 5.3; or
(i) by Parent or Purchaser if, at any time, Company shall have
withdrawn or modified in any manner adverse to Parent or Purchaser its
approval or recommendation of the Offer, this Agreement or the Merger.
8.2. Effect of Termination. In the event of the termination of this
---------------------
Agreement pursuant to the provisions of Section 8.1, the provisions of this
Agreement (other than the second sentence of Sections 5.2 and Sections 6.6, 8.2
and 8.3 hereof) shall become void and have no effect, with no liability on the
part of any party hereto or its stockholders or directors or officers in respect
thereof, except as set forth in Section 8.3, provided that nothing contained
--------
herein shall be deemed to relieve any party of any liability it may have to any
other party with respect to a willful breach of its obligations under this
Agreement.
8.3. Termination Payment. As compensation for entering into this
-------------------
Agreement, taking action to consummate the transactions hereunder and incurring
the costs and expenses related thereto and other losses and damages, including
the foregoing of other opportunities, Company and Parent agree as follows:
(a) Company shall pay to Parent the sum of $3,794,135 plus all
reasonably documented out-of-pocket expenses (including, but not limited
to, the reasonable fees and expenses of counsel and its other advisers) of
Parent and
31
<PAGE>
Purchaser incurred in connection with the transactions contemplated by this
Agreement (including the preparation and negotiation of this Agreement)
("Parent Expenses") promptly after, but in no event later than two days
----------------
following, whichever of the following first occurs:
(i) Parent or Purchaser shall have exercised its right to
terminate this Agreement pursuant to Sections 8.1(b), 8.1(g), 8.1(h) or
8.1(i) hereof.
(ii) Parent or Purchaser shall have exercised its right to
terminate this Agreement pursuant to Section 8.1(e) hereof, but only
because of the failure of one or more of the conditions specified in
paragraphs (c), (e), (f), (g) or (j) of Annex A;
(iii) Company shall have exercised its right to terminate this
Agreement pursuant to Section 8.1(g).
(iv) Any person or group other than Parent or an affiliate
thereof, shall have acquired at least 50% of the outstanding shares of
Company Common Stock.
(b) Company shall not be obligated to make any payment pursuant to
this Section 8.3, if at the time such payment becomes due Parent or
Purchaser is in material breach of its obligations under this Agreement.
8.4. Amendment. This Agreement may be amended by the parties hereto
---------
only in a writing signed on behalf of each of them, at any time before or after
approval of the Agreement by the stockholders of Company, but after such
approval no amendment shall be made which alters the rate at which shares of
Company Common Stock shall be converted into Merger Consideration pursuant to
Section 1.6 without the further approval of the stockholders of Company other
than Parent.
8.5. Waiver. Any term or provision of this Agreement (other than the
------
requirements for approval by the stockholders of Company) may be waived in
writing at any time by the party which is, or whose stockholders are, entitled
to the benefits thereof.
IX. GENERAL PROVISIONS
------------------
9.1. Definitions. As used in the Agreement, the following terms
-----------
have the following respective meanings:
Board: as defined in the recitals.
-----
Certificate of Merger: as defined in Section 2.5.
---------------------
32
<PAGE>
Certificates: as defined in Section 2.8(b).
------------
Code: as defined in Section 2.9.
----
Company: as defined in the first paragraph of this Agreement.
-------
Company Common Stock: as defined in the recitals.
--------------------
Company Group Plans: as defined in Section 3.14.
-------------------
Company Interim Financials: as defined in Section 3.6(b).
--------------------------
Company Plans: as defined in Section 3.14.
-------------
Company Stock Option Plans: as defined in Section 2.9.
--------------------------
Dissenting Shares: as defined in Section 2.6(d).
-----------------
Effective Time: as defined in Section 2.5.
--------------
ERISA: the Employee Retirement Income Security Act of 1974, as
-----
amended.
ERISA Affiliate: means an organization that is a member of a
---------------
controlled group of organizations within the meaning of Sections 414(b), (c),
(m) or (o) of the Code which includes a particular entity.
Exchange Act: as defined in Section 1.2(b).
------------
Exchange Agent: Continental Stock Transfer & Trust Company or such
--------------
other a bank or trust company to be designated by Parent prior to the Effective
Time to act as exchange agent.
FCC: the Federal Communications Commission.
---
GCL: as defined in the recitals.
---
Governmental Authority: means any United States federal, state or
----------------------
local or any foreign government, governmental, regulatory or administrative
authority, agency or commission or any court, tribunal or judicial or arbitral
body.
HSR Act: as defined in Section 3.4.
-------
Material Adverse Effect: any change or effect that, individually or in
-----------------------
the aggregate with all other changes or effects, is or is reasonably likely to
be materially adverse to the business, operations, properties, condition
(financial or
33
<PAGE>
otherwise), assets, liabilities or prospects of Company, when used with respect
to Company, or of Parent and its Subsidiaries, taken as a whole, when used with
respect to Parent.
Merger: as defined in the recitals.
------
Merger Consideration: as defined in Section 2.6(a).
--------------------
Minimum Condition: as defined in Section 1.1(a).
-----------------
Offer: as defined in the recitals.
-----
Offer Documents: as defined in Section 1.1(b).
---------------
Offer to Purchase: as defined in Section 1.1(b).
-----------------
Parent: as defined in the first paragraph of this Agreement.
------
Parent Common Stock: the Common Stock of Parent, par value $.01 per
-------------------
share.
Parent Indenture: The Indenture, dated as of June 2, 1995 and amended
----------------
and restated as of April 26, 1996, between Parent and SunTrust Bank, Central
Florida, National Association (as trustee), relating to the 13 1/2% Senior Notes
Due 2005 of Parent.
Per Share Amount: as defined in the recitals.
----------------
Person: an individual, partnership, joint venture, corporation,
------
trust, unincorporated organization and a government or any department or agency
thereof.
Proxy Statement: as defined in Section 3.20.
---------------
Purchaser: as defined in the first paragraph of this Agreement.
---------
SEC: as defined in Section 1.1(b).
---
Shares: as defined in the recitals.
------
Schedule 14D-1: as defined in Section 1.1(b).
--------------
Schedule 14D-9: as defined in Section 1.2(b).
--------------
Stockholders' Meeting: as defined in Section 6.1.
---------------------
Stock Purchase Agreement: as defined in the recitals.
------------------------
34
<PAGE>
Subsidiary: with respect to any Person, any corporation or other
----------
business entity, a majority (by number of votes) of the shares of capital stock
(or other voting interests) of which at the time outstanding is owned by such
Person directly or indirectly through Subsidiaries.
Surviving Corporation: as defined in Section 2.1.
---------------------
Tax or Taxes: means all federal, state, local and foreign taxes,
--- -----
duties, levies, governmental charges and assessments of any nature, including
employment taxes and deductibles relating to wages, salaries and benefits and
payments to subcontractors (to the extent required under applicable Tax law),
and also including all interest, penalties and additions imposed with respect to
such amounts.
9.2. Non-Survival of Representations, Warranties and Agreements. No
----------------------------------------------------------
representations, warranties or agreements in this Agreement or in any instrument
delivered by Parent, Purchaser or Company pursuant to this Agreement shall
survive the Merger.
9.3. Notices. All notices, requests, claims, demands and other
-------
communications hereunder shall be in writing and shall be deemed given if
delivered personally or by fax or mailed by registered or certified mail (return
receipt requested) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
if to Parent or Purchaser, a copy to:
Intermedia Communications Inc.
3625 Queen Palm Drive
Tampa, Florida 33619
Attention: Chief Financial Officer
Telecopy: (813) 829-2470
and
Kronish, Lieb, Weiner & Hellman LLP
1114 Avenue of the Americas
New York, NY 10036
Attention: Ralph J. Sutcliffe, Esq.
Telecopy: (212) 479-6275
if to Company, a copy to:
Digex, Incorporated
One Digex Plaza
Beltsville, Maryland 20705
Attention: Chief Executive Officer
Telecopy: (301) 847-5017
35
<PAGE>
and
Latham & Watkins
1001 Pennsylvania Avenue, N.W.
Suite 1300
Washington, D.C. 20004
Attention: James F. Rogers, Esq.
Telecopy: (202) 637-2201
9.4. Severability. If any term or other provision of this Agreement
------------
is invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated thereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in a mutually acceptable manner in
order that the transactions contemplated by this Agreement including the Merger,
be consummated as originally contemplated to the fullest extent possible.
9.5. Miscellaneous. This Agreement (including the exhibits,
-------------
documents and instruments referred to herein or therein) (a) constitute the
-
entire agreement and supersede all other prior agreements and understandings,
both written and oral, among the parties, or any of them, with respect to the
subject matter hereof and thereof; (b) are not intended to confer upon any other
-
person other than the parties hereto any rights or remedies hereunder; (c) shall
-
not be assigned by operation of law or otherwise, except that each of Parent and
Purchaser may assign its rights and obligations hereunder without the consent of
Company to one or more direct or indirect Subsidiaries of Parent (it being
recognized that such an assignment shall not release or discharge the assignor
from its obligations under this Agreement); and (d) shall be governed in all
-
respects, including validity, interpretation and effect, by the laws of the
State of Delaware. The descriptive headings contained in this Agreement are
included for convenience of reference only and shall not affect in any way the
meaning or interpretation of this Agreement. This Agreement may be executed in
two or more counterparts which together shall constitute a single instrument.
9.6. Specific Performance. The parties agree that due to the unique
--------------------
subject matter of this transaction, monetary damages will be insufficient to
compensate the non-breaching party in the event of a breach of any part of this
Agreement. Accordingly, the parties agree that the non-breaching party shall be
entitled (without prejudice to any other right or remedy to
36
<PAGE>
which it may be entitled) to an appropriate decree of specific performance, or
an injunction restraining any violation of this Agreement or other equitable
remedies to enforce this Agreement (without establishing the likelihood of
irreparable injury or posting bond or other security), and the breaching party
waives in any action or proceeding brought to enforce this Agreement the defense
that there exists an adequate remedy at law.
9.7. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY WAIVES
---------------------
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY OR AGAINST IT
ON ANY MATTERS WHATSOEVER, IN CONTRACT OR IN TORT, ARISING OUT OF OR IN ANY WAY
CONNECTED WITH THIS AGREEMENT.
[Remainder of Page Intentionally Left Blank]
37
<PAGE>
IN WITNESS WHEREOF, Parent, Purchaser and Company have caused this
Agreement to be executed by their respective duly authorized officers on the
date first above written.
INTERMEDIA COMMUNICATIONS INC.
By: /s/ Robert M. Manning
---------------------------------
Name: Robert M. Manning
Title: Senior Vice President and
Chief Financial Officer
DAYLIGHT ACQUISITION CORP.
By: /s/ Robert M. Manning
--------------------------------
Name: Robert M. Manning
Title: President
DIGEX, INCORPORATED
By: /s/ Christopher R. McCleary
---------------------------------
Name: Christopher R. McCleary
Title: President and Chief
Executive Officer
<PAGE>
ANNEX A
-------
Conditions to the Offer
-----------------------
Notwithstanding any other provision of the Offer, Purchaser shall not
be required to accept for payment or pay for any Shares tendered pursuant to the
Offer, and may terminate or amend the Offer and may postpone the acceptance for
payment of and payment for Shares tendered, if (i) the Minimum Condition shall
not have been satisfied, (ii) any applicable waiting period under the HSR Act
shall not have expired or been terminated prior to the expiration of the Offer,
or (iii) at any time on or after the date of this Agreement, and prior to the
acceptance for payment of Shares, any of the following conditions shall exist:
(a) there shall have been instituted or be pending any action or
proceeding before any court or governmental, administrative or regulatory
authority or agency, domestic or foreign, (i) that would reasonably be
expected to make illegal, materially delay or otherwise directly or
indirectly restrain or prohibit the making of the Offer, the acceptance for
payment of, or payment for, any Shares by Parent, Purchaser or any other
affiliate of Parent, the purchase of Shares pursuant to the Stock Purchase
Agreement, or the consummation of any other transaction contemplated by the
Agreement, or that would reasonably be expected to result in material
damages in connection with any transaction contemplated by the Agreement;
(ii) that would reasonably be expected to prohibit or limit materially the
ownership or operation by Company, Parent or any of their subsidiaries of
all or any material portion of the business or assets of Company, or to
compel Company, Parent or any of their subsidiaries to dispose of or hold
separate all or any material portion of the business or assets of Company,
Parent or any of their subsidiaries, as a result of the transactions
contemplated by the Agreement; (iii) that would reasonably be expected to
impose or confirm limitations on the ability of Parent, Purchaser or any
other affiliate of Parent to exercise effectively full rights of ownership
of any Shares, including, without limitation, the right to vote any Shares
acquired by Purchaser pursuant to the Offer, the Stock Purchase Agreement
or otherwise on all matters properly presented to Company's stockholders,
including, without limitation, the approval and adoption of this Agreement
and the transactions contemplated hereby; (iv) that would reasonably be
expected to require divestiture by
<PAGE>
Parent, Purchaser or any other affiliate of Parent of any Shares; or (v)
which otherwise is a Material Adverse Change (as defined below);
(b) there shall have been any action taken, or any statute, rule,
regulation, legislation, interpretation, judgment, order or injunction
enacted, entered, enforced, promulgated, amended, issued or deemed
applicable to (i) Parent, Company or any subsidiary or affiliate of Parent
or Company or (ii) any transaction contemplated by the Agreement, by any
legislative body, court, government or governmental, administrative or
regulatory authority or agency, domestic or foreign, other than the routine
application of the waiting period provisions of the HSR Act to the Offer,
the Stock Purchase Agreement or the Merger, which is reasonably likely to
result, directly or indirectly, in any of the consequences referred to in
clauses (i) through (v) of paragraph (a) above;
(c) there shall have occurred any change, condition, event or
development that is a Material Adverse Change. For purposes of this Annex
A, "Material Adverse Change" means any change or effect that, individually
or in the aggregate with all other changes or effects, is or is reasonably
likely to be materially adverse to the business, operations, properties,
condition (financial or otherwise), assets, liabilities or prospects of
Company, except for changes or effects that result primarily from the
Offer, the contemplated Merger or the contemplated control of Company by
Parent, including any action or inaction by any employee (other than a
senior executive officer or director) of Company or any other third party
primarily due to the Offer, the contemplated Merger or the contemplated
control of Company by Parent;
(d) there shall have occurred (i) any general suspension of, or
limitation on prices for, trading in securities on the Nasdaq Stock Market
for more than one trading day, (ii) any decline, measured from the date
hereof, in the Standard & Poor's 500 Index by an amount in excess of 25%,
(iii) a declaration of a banking moratorium or any suspension of payments
in respect of banks in the United States, (iv) any direct material
limitation (whether or not mandatory) by any government or governmental,
administrative or regulatory authority or agency, domestic or foreign, on
the extension of credit by banks or other lending institutions, (v) a
commencement of a war or armed hostilities or other national or
international calamity directly or
2
<PAGE>
indirectly involving the United States or (vi) in the case of any of the
foregoing existing on the date hereof, a material acceleration or worsening
thereof;
(e) (i) it shall have been publicly disclosed or Purchaser shall have
otherwise learned that beneficial ownership (determined for the purposes of
this paragraph as set forth in Rule 13d-3 promulgated under the Exchange
Act) of 30% or more of the then outstanding Shares has been acquired by any
person other than Parent or any of its affiliates or other than those
persons executing the Stock Purchase Agreement or (ii) (A) the Board or any
committee thereof shall have withdrawn or modified in a manner adverse to
Parent or Purchaser the approval or recommendation of the Offer, the Merger
or the Merger Agreement, or approved or recommended any takeover proposal
or any other acquisition of Shares other than the Offer and the Merger, (B)
any corporation, partnership, person or other entity or group shall have
entered into a definitive agreement or an agreement in principle with
Company with respect to a tender offer or exchange offer for any Shares or
a merger, consolidation or other business combination with or involving
Company or (C) the Board or any committee thereof shall have resolved to do
any of the foregoing;
(f) any representation or warranty of Company in the Merger Agreement
which is qualified as to materiality shall not be true and correct or any
such representation or warranty that is not so qualified shall not be true
and correct in any material respect, in each case as if such representation
or warranty was made as of such time on or after the date of this Agreement
(other than representations or warranties made as of a specific date, which
shall only be made as of such date); provided, that for purposes of this
--------
paragraph (f), the term "Material Adverse Change" shall be substituted for
the term "Material Adverse Effect" in all representations and warranties
containing such term which are deemed to be made after the date of this
Agreement by virtue of this paragraph (f), and Company shall not have
delivered to Parent a certificate of Company to such effect signed by a
duly authorized officer thereof and dated as of the date on which Parent
shall first accept Shares for payment;
(g) Company shall have failed to perform in any material respect any
obligation or to comply in any material respect with any agreement or
covenant of Company to be performed or complied with by it under
3
<PAGE>
the Merger Agreement and, in the case of failures to perform any agreement
or covenant of Company pursuant to Sections 5.1 (b), (c), (d) and (f) of
the Merger Agreement, such failure to perform would reasonably be expected
to have a Material Adverse Change;
(h) the Merger Agreement shall have been terminated in accordance
with its terms;
(i) Purchaser and Company shall have agreed that Purchaser shall
terminate the Offer or postpone the acceptance for payment of or payment
for Shares thereunder;
(j) any holder of options to purchase shares of Company Common Stock
(other than Clyde Heintzelman) whose options vest on a change of control
shall have failed to waive the vesting of such options upon a change of
control of Company;
which, in the reasonable judgment of Purchaser in any such case, and regardless
of the circumstances (including any action or inaction by Parent or any of its
affiliates) giving rise to any such condition, makes it inadvisable to proceed
with such acceptance for payment or payment.
The foregoing conditions are for the sole benefit of Purchaser and
Parent and may be asserted by Purchaser or Parent regardless of the
circumstances giving rise to any such condition or may be waived by Purchaser or
Parent in whole or in part at any time and from time to time in their sole
discretion. The failure by Parent or Purchaser at any time to exercise any of
the foregoing rights shall not be deemed a waiver of any such right; the waiver
of any such right with respect to particular facts and other circumstances shall
not be deemed a waiver with respect to any other facts and circumstances; and
each such right shall be deemed an ongoing right that may be asserted at any
time and from time to time.
4
<PAGE>
EXHIBIT 99.3
EXECUTION COPY
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of June 4, 1997 (this "Agreement"),
among INTERMEDIA COMMUNICATIONS INC., a Delaware corporation ("Purchaser"), and
---------
the individuals and entities whose names and addresses are set forth at the foot
of this Agreement (collectively, the "Stockholders", and each, individually, a
------------
"Stockholder"), it being understood that the Stockholders are executing this
- ------------
Agreement in their capacity as stockholders of the Company (as defined below)
and not in their capacity as directors and officers of the Company.
WHEREAS, Purchaser and its wholly owned subsidiary, Daylight Acquisition
Corp. (the "Subsidiary"), propose to enter into an Agreement and Plan of Merger,
----------
dated as of the date hereof (the "Merger Agreement"), with DIGEX, Incorporated,
----------------
a Delaware corporation (the "Company"), which Merger Agreement provides, among
-------
other things, for the acquisition of the Company by Subsidiary through (i) a
tender offer (the "Offer") for any and all shares of Common Stock of the
-----
Company, par value $.01 per share ("Company Common Stock") for $13.00 per share
--------------------
(the "Per Share Amount") and (ii) the second step merger pursuant to which
----------------
Subsidiary will merge with and into the Company (the "Merger") and all
------
outstanding shares of Company Common Stock other than shares held by Purchaser
and Subsidiary will be converted into the right to receive not less than the Per
Share Amount in cash; and
WHEREAS, as of the date hereof, the Stockholders own (both beneficially and
of record) the number of shares of Company Common Stock set forth opposite their
respective names at the foot of this Agreement; and
WHEREAS, as a condition to the willingness of Purchaser and the Subsidiary
to enter into the Merger Agreement, Purchaser and the Subsidiary have required
that the Stockholders agree, and in order to induce Purchaser and the Subsidiary
to enter into the Merger Agreement, the Stockholders have agreed, to enter into
this Agreement governing the voting and disposition of the shares of Company
Common Stock now owned and which may hereafter be acquired by any of the
Stockholders (the "Shares").
------
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements contained herein, and intending to be legally bound hereby, the
parties hereto hereby agree as follows:
<PAGE>
1. Tender of Shares Pursuant to the Offer. Each Stockholder hereby
--------------------------------------
irrevocably agrees to tender and sell (and not withdraw), pursuant to and in
accordance with the terms of the Offer as amended from time to time, all of
such Stockholder's Shares (provided, that the consideration offered in any
--------
such amendment is in cash and in an amount equal to the Per Share Amount).
2. Grant of Option. Each Stockholder hereby grants to Purchaser an exclusive
---------------
and irrevocable option (each an "Option", and together the "Options") to
------ -------
purchase from such Stockholder any and all Shares held by such Stockholder
(the "Option Shares") at a price equal to the Per Share Amount per Option
-------------
Share. Purchaser may assign to any subsidiary or affiliate of Purchaser
(including Subsidiary) the right to exercise the Option. Each Option may be
exercised individually from each Stockholder, in whole or in part, at any
time or from time to time, on or after the date hereof and prior to the
Termination Date (as defined below). No Stockholder shall, prior to the
termination of the Option, take, or refrain from taking, any action which
would have the effect of preventing or disabling such Stockholder from
delivering the Option Shares or otherwise performing its obligations under
this Agreement. In the event Purchaser wishes to purchase any Option Shares
from any Stockholder, the following procedures shall be followed:
(a) Purchaser shall send a written notice to such Stockholder specifying
the number of Option Shares Purchaser will purchase and the place and
date (on or before the later of ten business days from the date such
notice is mailed and the date of expiration or termination of any
applicable waiting period under Title II of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 (the "HSR Act")) of closing of such
-------
purchase. If such closing is to occur sooner than two business days
from the date such notice is mailed, notice shall also be given at the
time such written notice is given by telephone or telecopy.
(b) At the closing of such purchase, (i) Purchaser (or any affiliate or
subsidiary of Purchaser) shall pay to such Stockholder the aggregate
price for the Option Shares so purchased by certified or cashier's
check or wire transfer of immediately available funds and (ii) such
Stockholder shall deliver to Purchaser (or, at the option of Purchaser,
an affiliate or subsidiary of
2
<PAGE>
Purchaser) a certificate or certificates, duly endorsed in blank or
accompanied by stock powers duly executed in blank, representing the
number of Option Shares purchased.
3. Voting of Shares. Each Stockholder shall, until the Termination Date, cause
----------------
the Shares owned by such Stockholder to be voted at any meeting of the
stockholders of the Company or in any consent in lieu of such a meeting in
favor of the consummation of the transactions contemplated by the Merger
Agreement, against any transactions inconsistent therewith, and as otherwise
reasonably requested by Purchaser in order to carry out the purposes of the
Merger Agreement. For the purposes of this Agreement, "Termination Date"
----------------
shall mean the earlier of (i) the termination of the Merger Agreement in
accordance with its terms, (ii) the Effective Time (as defined in the Merger
Agreement), and (iii) the termination of this Agreement by the mutual
written agreement of the parties hereto or pursuant to the terms of Section
10 of this Agreement.
4. Irrevocable Proxy. Each Stockholder hereby irrevocably appoints Purchaser,
-----------------
until the Termination Date, as its attorney and proxy pursuant to the
provisions of Section 212 of the General Corporation Law of the State of
Delaware, with full power of substitution, to vote and take other actions
(by written consent or otherwise) in favor of the consummation of the
transactions contemplated by the Merger Agreement, against any transactions
inconsistent therewith, and as otherwise reasonably required in order to
carry out the purposes of the Merger Agreement, with respect to the Shares
(and all other securities issued to the Stockholder in respect of the
Shares) which each Stockholder is entitled to vote at any meeting of
stockholders of the Company (whether annual or special and whether or not an
adjourned or postponed meeting) or in respect of any consent in lieu of any
such meeting or otherwise. This proxy and power of attorney is irrevocable
and coupled with an interest in favor of Purchaser. Each Stockholder hereby
revokes all other proxies and powers of attorney with respect to the Shares
(and all other securities issued to the Stockholder in respect of the
Shares) which it may have heretofore appointed or granted, and no subsequent
proxy or power of attorney shall be given or written consent executed (and
if given or executed, shall not be effective) by the Stockholder with
respect thereto.
3
<PAGE>
5. No Disposition or Encumbrance of Shares. Each Stockholder hereby covenants
-------------------------------------
and agrees that, until the expiration of the Options as provided in Section
2 of this Agreement, except as contemplated by this Agreement, the
Stockholder shall not, and shall not offer or agree to, sell, transfer,
tender, assign, hypothecate or otherwise dispose of, or create or permit to
exist any security interest, lien, claim, pledge, option, right of first
refusal, agreement, limitation on the Stockholder's voting rights, charge or
other encumbrance of any nature whatsoever with respect to the Shares.
6. No Solicitation of Transactions. Each Stockholder shall not, directly or
-------------------------------
indirectly, through any agent or representative or otherwise, (i) solicit,
initiate or encourage the submission of any proposal or offer from any
individual, corporation, partnership, limited partnership, syndicate, person
(including, without limitation, a "person" as defined in Section 13(d)(3) of
the Securities Exchange Act of 1934 as amended), trust, association or
entity or government, political subdivision, agency or instrumentality of a
government (collectively, other than Purchaser and any affiliate of
Purchaser, a "Person") relating to (a) any acquisition or purchase of all or
------
any of the Shares or (b) any acquisition or purchase of all or any portion
of the assets of, or any equity interest in, the Company or any subsidiary
of the Company or any business combination with the Company or any
subsidiary of the Company or (ii) participate in any negotiations regarding,
or furnish to any Person any information with respect to, or otherwise
cooperate in any way with, or assist or participate or facilitate or
encourage, any effort or attempt by any Person to do or seek any of the
foregoing. Each Stockholder immediately shall cease and cause to be
terminated all existing discussions or negotiations of the Stockholder and
its agents or other representatives with any Person conducted heretofore
with respect to any of the foregoing. Each Stockholder shall notify
Purchaser promptly if any such proposal or offer, or any inquiry or contact
with any Person with respect thereto, is made and shall, in any such notice
to Purchaser, indicate in reasonable detail the identity of the Person
making such proposal, offer, inquiry or contact and the terms and conditions
of such proposal, offer, inquiry or contact. The provisions of this Section
4 shall not apply to or restrict any action that may be taken by the
Stockholder in its capacity as an officer or director of the Company.
4
<PAGE>
7. Legend on Certificates. The certificate(s) evidencing the Shares shall be
----------------------
endorsed with a restrictive legend substantially as follows:
The shares evidenced by this certificate are subject to a stock
purchase agreement dated as of June 4, 1997 between the registered
holder hereof and Intermedia Communications Inc., a copy of which is on
file at the principal office of the Company. The holder of this
certificate, by his acceptance hereof, agrees to be bound by all the
terms of such agreement, as the same is in effect from time to time.
8. Representations and Warranties of the Stockholders. Each Stockholder hereby
--------------------------------------------------
severally represents and warrants with respect to itself and its ownership
of the Shares to Purchaser and the Subsidiary as follows:
(a) Authority Relative to this Agreement. The Stockholder has all
------------------------------------
necessary power and authority to execute and deliver this Agreement,
to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery of this
Agreement by the Stockholder and the consummation by the Stockholder
of the transactions contemplated hereby have been duly and validly
authorized by all necessary action on the part of the Stockholder.
This Agreement has been duly and validly executed and delivered by the
Stockholder and, assuming the due authorization, execution and
delivery by Purchaser, constitutes a legal, valid and binding
obligation of the Stockholder, enforceable against the Stockholder in
accordance with its terms, except that such enforceability may be
limited by bankruptcy, insolvency or similar laws affecting creditors'
rights generally.
(b) No Conflict. The execution and delivery of this Agreement by the
-----------
Stockholder does not, and the performance of this Agreement by the
Stockholder will not, (i) require any consent, approval, authorization
or permit of, or filing with or notification to (other than pursuant
to the HSR Act and the Securities Exchange Act of 1934, as amended),
any governmental or regulatory authority, domestic or foreign, (ii)
conflict with or violate the Certificate of Incorporation or By-laws
of the Stockholder, (iii) conflict with or violate any law, rule,
regulation, order, judgment
5
<PAGE>
or decree applicable to the Stockholder or by which any property or
asset of the Stockholder is bound, or (iv) result in any breach of or
constitute a default (or an event which with notice or lapse of time
or both would become a default) under, or give to others any right of
termination, amendment, acceleration or cancellation of, or result in
the creation of a lien or other encumbrance of any nature whatsoever
on any property or asset of the Stockholder pursuant to, any note,
bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which the
Stockholder is a party or by which the Stockholder or any property or
asset of the Stockholder is bound.
(c) Title to the Shares. The Shares owned by the Stockholder (as set
-------------------
forth on the signature pages hereto) are all the equity securities of
the Company owned, either of record or beneficially, by the
Stockholder. The Stockholder owns all such Shares free and clear of
all security interests, liens, claims, pledges, options, rights of
first refusal, agreements, limitations on the Stockholder's voting
rights, charges and other encumbrances of any nature whatsoever, and,
except as provided in this Agreement, the Stockholder has not
appointed or granted any proxy, which appointment or grant is still
effective, with respect to the Shares.
(d) Brokers. Other than Friedman, Billings, Ramsey & Co., Inc., no
-------
broker, finder or investment banker is entitled to any brokerage,
finder's or other fee or commission in connection with the
transactions contemplated hereby based upon arrangements made by or on
behalf of the Stockholder.
9. Representations and Warranties of Purchaser. Purchaser hereby represents
-------------------------------------------
and warrants to the Stockholders as follows:
(a) Purchaser has all necessary power and authority to execute and deliver
this Agreement, to perform its obligations hereunder and to consummate
the transactions contemplated hereby. The execution, delivery and
performance of this Agreement by Purchaser and the consummation of the
transactions contemplated hereby have been duly authorized by
6
<PAGE>
all necessary action on the part of Purchaser. This Agreement has been
duly and validly executed and delivered by Purchaser and, assuming the
due authorization, execution and delivery by the Stockholders,
constitutes a legal, valid and binding obligation of Purchaser,
enforceable against the Purchaser in accordance with its terms, except
that such enforceability may be limited by bankruptcy, insolvency or
similar laws affecting creditors' rights generally.
(b) No Conflict. The execution and delivery of this Agreement by
-----------
Purchaser does not, and the performance of this Agreement by Purchaser
will not, (i) require any consent, approval, authorization or permit
of, or filing with or notification to (other than pursuant to the HSR
Act and the Securities Exchange Act of 1934, as amended), any
governmental or regulatory authority, domestic or foreign, (ii)
conflict with or violate the Certificate of Incorporation or By-laws
of Purchaser, (iii) conflict with or violate any law, rule,
regulation, order, judgment or decree applicable to Purchaser or by
which any property or asset of Purchaser is bound, or (iv) result in
any breach of or constitute a default (or an event which with notice
or lapse of time or both would become a default) under, or give to
others any right of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or other
encumbrance of any nature whatsoever on any property or asset of
Purchaser pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or
obligation to which Purchaser is a party or by which Purchaser or any
property or asset of Purchaser is bound.
(c) Brokers. Other than Bear, Stearns & Co., Inc., no broker, finder or
-------
investment banker is entitled to any brokerage, finder's or other fee
or commission in connection with the transactions contemplated hereby
based upon arrangements made by or on behalf of Purchaser.
10. Termination of Agreement. Purchaser reserves the right in its sole
------------------------
discretion at any time hereafter to terminate this Agreement, the Options
and all irrevocable proxies granted to it hereunder.
7
<PAGE>
11. Miscellaneous.
-------------
(a) Expenses. Except as otherwise provided herein or in the Merger
--------
Agreement, all costs and expenses incurred in connection with the
transactions contemplated by this Agreement shall be paid by the party
incurring such expenses.
(b) Further Assurances. Purchaser and the Stockholders will execute and
------------------
deliver all such further documents and instruments and take all such
further action as may be necessary in order to consummate the
transactions contemplated hereby.
(c) Specific Performance. The parties hereto agree that irreparable
--------------------
damage would occur in the event any of the provisions of this
Agreement were not performed in accordance with the terms hereof and
that the parties shall be entitled to specific performance of the
terms hereof, in addition to any other remedy to which they may be
entitled at law or in equity.
(d) Entire Agreement. This Agreement constitutes the entire agreement
----------------
between Purchaser and the Stockholders with respect to the subject
matter hereof and supersedes all prior agreements and understandings,
both written and oral, between Purchaser and the Stockholders with
respect to the subject matter hereof.
(e) Assignment. This Agreement shall not be assigned by operation of law
----------
or otherwise, except that Purchaser may assign all or any of its
rights and obligations hereunder to any affiliate of Purchaser,
provided that no such assignment shall relieve Purchaser of its
obligations hereunder if such assignee does not perform such
obligations.
(f) Obligations of Successors; Parties in Interest. This Agreement shall
----------------------------------------------
be binding upon, inure solely to the benefit of, and be enforceable
by, the successors and permitted assigns of the parties hereto.
Nothing in this Agreement, express or implied, is intended to or shall
confer upon any other person any rights, benefits or remedies of any
nature whatsoever under or by reason of this Agreement.
8
<PAGE>
(g) Amendment; Waiver. This Agreement may not be amended or changed
-----------------
except by an instrument in writing signed by the parties hereto. Any
party hereto may (i) extend the time for the performance of any
obligation or other act of the other party hereto, (ii) waive any
inaccuracy in the representations and warranties contained herein or
in any document delivered pursuant hereto and (iii) waive compliance
with any agreement or condition contained herein. Any such extension
or waiver shall be valid if set forth in an instrument in writing
signed by the party or parties to be bound thereby.
(h) Severability. The invalidity or unenforceability of any provision of
------------
this Agreement shall not affect the validity or enforceability of any
other provision of this Agreement, which shall remain in full force
and effect.
(i) Notices. All notices, requests, claims, demands and other
-------
communications hereunder shall be in writing and shall be given (and
shall be deemed to have been duly given upon receipt) by delivery in
person, by cable, telecopy, telegram or telex or by registered or
certified mail (postage prepaid, return receipt requested) to the
respective parties at the following addresses (or at such other address
for a party as shall be specified in a notice given in accordance with
this Section 8(i)):
9
<PAGE>
if to Purchaser:
Intermedia Communications Inc.
3625 Queen Palm Drive
Tampa, FL 33619
Attention: Chief Financial Officer
Telecopy: (813) 829-2470
with a copy to:
Kronish, Lieb, Weiner & Hellman LLP
1114 Avenue of the Americas
New York, New York 10036
Attention: Ralph J. Sutcliffe, Esq.
Telecopy: (212) 997-3527
if to any Stockholder:
at the respective addresses of such Stockholder set forth at the foot
of this Agreement
(j) Governing Law. This Agreement shall be governed by, and construed in
-------------
accordance with, the laws of the State of Delaware applicable to
contracts executed in and to be performed in that State.
(k) Headings. The descriptive headings contained in this Agreement are
--------
included for convenience of reference only and shall not affect in any
way the meaning or interpretation of this Agreement.
(l) Parties in Interest. This Agreement shall be binding upon and inure
-------------------
solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any
other person any rights, benefits or remedies of any nature whatsoever
under or by reason of this Agreement.
(m) Counterparts. This Agreement may be executed in one or more
------------
counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an
original but all of which taken together shall constitute one and the
same agreement.
(n) WAIVER OF JURY TRIAL. EACH PARTY HERETO WAIVES ANY RIGHT IT MIGHT
--------------------
HAVE TO A JURY TRIAL OF ANY DISPUTE ARISING IN CONNECTION WITH THIS
AGREEMENT.
10
<PAGE>
IN WITNESS WHEREOF, Purchaser has caused this Agreement to be executed by
its officers thereunto duly authorized and the Stockholders have duly executed
this Agreement, as of the date first written above.
PURCHASER:
- ---------
INTERMEDIA COMMUNICATIONS INC.
By: /s/ Robert M. Manning
-------------------------
Name: Robert M. Manning
Title: Senior Vice President and
Chief Financial Officer
<TABLE>
<CAPTION>
SHAREHOLDERS: NUMBER OF SHARES OWNED:
- ------------ -----------------------
<S> <C>
GROTECH PARTNERS IV, L.P. 1,438,361
-------------
By: GROTECH CAPITAL GROUP IV, LLC
General Partner
By: /s/ Frank A. Adams
-------------------------------
Name: Frank A. Adams
Title: President & CEO
Address: 9690 Deereco Road
Timonium, MD 21093
Telecopy: 410-560-1910
GROTECH PARTNERS III, L.P. 229,050
-------------
By: Grotech Capital Group, Inc.
General Partner
By: /s/ Frank A. Adams
-------------------------------
Name: Frank A. Adams
Title: President & CEO
Address: 9690 Deereco Road
Timonium, MD 21093
Telecopy: 410-560-1910
</TABLE>
[Signature Pages Continue on Next Page]
<PAGE>
<TABLE>
<S> <C>
GROTECH III COMPANION FUND, L.P. 24,952
-------------
By: Grotech Capital Group, Inc.
General Partner
By: /s/ Frank A. Adams
-------------------------------
Name: Frank A. Adams
Title: President & CEO
Address: 9690 Deereco Road
Timonium, MD 21093
Telecopy: 410-560-1910
GROTECH III PENNSYLVANIA FUND, L.P. 14,228
-------------
By: Grotech Capital Group, Inc.
General Partner
By: /s/ Frank A. Adams
-------------------------------
Name: Frank A. Adams
Title: President & CEO
Address: 9690 Deereco Road
Timonium, MD 21093
Telecopy: 410-560-1910
VENROCK ASSOCIATES 794,229
-------------
By: /s/ Ray A. Rothrock
-------------------------------
Name: Ray A. Rothrock
Title: General Partner
Address: 30 Rockefeller Plaza, Room 5508
New York, New York 10112
Telecopy: 212-649-5788 (F)
212-649-5786 (P)
</TABLE>
[Signature Pages Continue on Next Page]
<PAGE>
<TABLE>
<S> <C>
VENROCK ASSOCIATES II, L.P. 382,051
-------------
By: /s/ Ray A. Rothrock
-------------------------------
Name: Ray A. Rothrock
Title: General Partner
Address: 30 Rockefeller Plaza, Room 5508
New York, New York 10112
Telecopy: 212-649-5788 (F)
212-649-5786 (P)
SOUTHERN VENTURE FUND II, L.P. 840,198
-------------
By: /s/ William F. Earthman III
-------------------------------
Name: William F. Earthman III
Title: General Partner
Address: 310 25th Avenue N.
Nashville, TN 37205
Telecopy: 615-329-9237
BLUE CHIP CAPITAL FUND LIMITED 429,285
PARTNERSHIP -------------
By: BLUE CHIP VENTURE COMPANY
General Partner
By: /s/ John H. Wyant
-------------------------------
Name: John H. Wyant
Title: President
Address: 2000 PNC Court
Cincinatti, OH 45208
Telecopy: 513-723-2306
DIGEX INVESTORS, LTD. 107,321
-------------
By: /s/ Stephen E. Kaufman
-------------------------------
Name: Stephen E. Kaufman
Title: President
Address: 441 Vine Street, Suite 3900
Cincinatti, OH 45202
Telecopy: 513-381-8808
</TABLE>
[Signature Pages Continue on Next Page]
<PAGE>
DOUGLAS E. HUMPHREY 970,744
-------------
/s/ Douglas E. Humphrey
-------------------------------
Address: 308 Montgomery Street
Laurel, MD 20707
Telecopy: 410-792-2985 (F)
301-598-8723 (P)
MICHAEL T. DOUGHNEY 647,163
-------------
/s/ Michael T. Doughney
-------------------------------
Address: One Digex Plaza
Beltsville, MD 20705
Telecopy: 301-419-5017
<PAGE>
[LOGO OF FRIEDMAN, BILLINGS, RAMSEY & CO. INC. Institutional
FRIEDMAN, Brokerage
BILLINGS, Research
RAMSEY & Investment Banking
CO. INC.]
Potomac Tower
1001 Nineteenth
Street North
Arlington, Virginia
22209-1710
Telephone (703) 312-9500
Fax (703) 312-9501
June 4, 1997
Board of Directors
DIGEX Incorporated
One DIGEX Plaza
Beltsville, MD 20705
Board of Directors:
We understand that DIGEX, Incorporated ("DIGEX") is considering entering
into an agreement, dated June 4, 1997, (the "Agreement") with Intermedia
Communications ("Intermedia") pursuant to which, among other things, a wholly-
owned subsidiary of Intermedia will be merged with and into DIGEX in a
transaction (the "Merger") in which each outstanding share of DIGEX common
stock, par value $0.01 per share (the "Shares"), will, as more fully described
in the Agreement, be exchanged into $13.00 in cash payable by Intermedia. The
Merger is expected to be considered and voted upon by the shareholders of
DIGEX at a special shareholders meeting to be held as soon as practicable. The
terms and conditions of the Merger are more fully set forth in the Agreement
and certain related agreements.
You have asked us whether, in our opinion, the cash consideration to be
received by the holders of the Shares in the Merger is fair to such
shareholders from a financial point of view.
In arriving at this opinion, set forth below, we have, among other things:
1. Reviewed DIGEX's Annual Reports to Stockholders for the fiscal years
ended December 31, 1993 through 1995 and DIGEX's Annual Report on Form
10-K filed with the Securities and Exchange Commission (the "SEC") for
the fiscal year ended December 31, 1996;
2. Reviewed Intermedia's Annual Reports on Form 10-K filed with the SEC
for the fiscal years ended December 31, 1995 and December 31, 1996;
3. Reviewed Intermedia's Quarterly Report on Form 10-Q for the fiscal
quarter ended March 31, 1997 filed with the SEC;
4. Reviewed DIGEX's Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 1997 filed with the SEC;
5. Conducted limited discussions with the members of senior management of
DIGEX concerning the financial condition, businesses, assets and
prospects for DIGEX;
6. Reviewed the historical market prices and trading activity for the
Shares and compared them with those of certain publicly traded
companies which we deemed to be relevant;
7. Compared the results of operations and financial condition of DIGEX
with those of certain publicly-traded Internet service providers that
we deemed to be reasonably comparable to DIGEX;
<PAGE>
FRIEDMAN, BILLINGS, RAMSEY & CO. INC.
DIGEX, Incorporated
June 4, 1997
Page 2
8. Participated in discussions and negotiations among representatives of
DIGEX and representatives of Intermedia;
9. Compared the proposed financial terms of the Agreement with the financial
terms, to the extent publicly available, of certain acquisition
transactions that we deemed to be relevant;
10. Reviewed the Agreement and the related agreements; and
11. Performed such other analyses and reviewed and analyzed such other
information as we deemed appropriate.
In rendering this opinion, we did not assume responsibility for
independently verifying, and did not independently verify, any financial or
other information concerning DIGEX furnished to us by DIGEX or the publicly-
available financial and other information regarding DIGEX, Intermedia and
other Internet service providers. We have assumed that all such information is
accurate and complete. We have further relied on the assurances of senior
management of DIGEX that they are not aware of any facts that would make such
financial or other information relating to such entities inaccurate or
misleading. We have also assumed and relied upon the senior management of
DIGEX as to the reasonableness and achievability of the financial and
operating forecasts (and the assumptions and bases therefor) discussed with
us. In that regard, we have assumed with your consent that such information
reflects the currently available estimates and judgments of management as to
the future financial performance of DIGEX. In addition, we have assumed that
there has been no material change in DIGEX's assets, financial condition,
result of operations, business or prospects since December 31, 1996. We did
not undertake an independent appraisal of the assets or liabilities of DIGEX
nor were we furnished with any such appraisals. Our conclusions and opinion
are necessarily based upon economic, market and other conditions and the
information made available to us as of the date of this opinion, and we
express no opinion on matters of a legal, regulatory, tax or accounting nature
related to the Merger.
In connection with the preparation of this opinion, with the consent of the
Board of Directors, we have not been authorized by DIGEX to solicit, nor have
we solicited, third-party indications of interest for the acquisition of all
or any part of DIGEX.
We have been retained by the Board of Directors of DIGEX as an independent
contractor to act as financial advisor to DIGEX with respect to the Merger and
will receive a fee for our services. Our opinion is directed to the Board of
Directors of DIGEX and does not constitute a recommendation to any shareholder
of DIGEX as to how such shareholder should vote at any shareholder meeting of
DIGEX held in connection with the Merger.
In the ordinary course of our business, we may effect transactions in the
securities of DIGEX or Intermedia for our own account and/or for the accounts
of our customers and, accordingly, may at any time hold long or short
positions in such securities. From time to time, principals and/or employees
of FBR may also have positions in the securities.
Based upon and subject to the foregoing, we are of the opinion that the cash
consideration to be received by the holders of the Shares in the Merger is
fair to such shareholders from a financial point of view.
<PAGE>
FRIEDMAN, BILLINGS, RAMSEY & CO. INC.
DIGEX, Incorporated
June 4, 1997
Page 3
This letter is solely for the information of the Board of Directors of DIGEX
and may not be relied upon by any other person or used for any other purpose,
reproduced, disseminated, quoted from or referred to without our prior written
consent.
Very truly yours,
FRIEDMAN, BILLINGS, RAMSEY & CO.,
INC.
By: /s/ Suzanne N. Richardson
----------------------------------
Suzanne N. Richardson
Managing Director
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Materials Pursuant to Section 240.14a-11(c) or Section
240.14a-12
DIGEX, INCORPORATED
- --------------------------------------------------------------------------------
(Name of Registrant as specified in its Charter)
DIGEX, INCORPORATED
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-(6)(i)(1) or
14a-6(j)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
/ / 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:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11: /
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
/ / Set forth the amount on which the filing fee is calculated
and state how it was determined.
/ / 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:
-----------------------------------------------------------------------
(2) Form Schedule or Registration Statement No.:
-----------------------------------------------------------------------
(3) Filing Party:
-----------------------------------------------------------------------
(4) Date Filed:
-----------------------------------------------------------------------
<PAGE>
DIGEX, INCORPORATED
One DIGEX Plaza
Beltsville, Maryland 20705
----------
Notice of Annual Meeting of Stockholders
To Be Held on May 21, 1997
----------
The 1997 Annual Meeting of Stockholders (the "Annual Meeting")
of DIGEX, Incorporated (the "Company") will be held at the Company's
headquarters, One DIGEX Plaza, Beltsville, Maryland on May 21, 1997 at
10:00 a.m. (e.d.t.), for the following purposes:
1. To elect three directors to hold office until the 2000
annual meeting of stockholders;
2. To vote upon the ratification of the appointment of Ernst &
Young LLP as independent auditors for 1997;
3. To consider and act upon the 1996 Equity Participation Plan
(the "Equity Plan"), as amended to increase the number of
shares authorized for issuance in respect of awards under
the Equity Plan by 400,000 shares;
4. To consider and act upon the Amended and Restated 1997
Employee Stock Purchase Plan (the "1997 Purchase Plan"); and
5. To transact such other business as may properly come before
the meeting.
Only holders of record of the Company's Common Stock as of the
close of business on April 18, 1997 will be entitled to notice of and
to vote at the Annual Meeting and any adjournment thereof. Whether or
not you plan to attend the Annual Meeting, stockholders are requested
to date, sign and return the enclosed proxy card in the return envelope
furnished for your convenience. No postage is required if mailed within
the United States.
A complete list of the stockholders of record entitled to vote
at the Annual Meeting will be open and available for examination by any
stockholder, for any purpose germane to the Annual Meeting at the
Company's offices at One DIGEX Plaza, Beltsville, Maryland 20705, from
May 12, 1996 through May 20, 1997, between 9:00 a.m. and 5:00 p.m.
(e.d.t.), and on May 21, 1997, from 9:00 a.m.
through the adjournment of the Annual Meeting.
A copy of the Company's 1996 Annual Report, which contains
financial statements and other information of interest with respect to
the Company and its stockholders, is enclosed.
By the Order of the Board of Directors
/s/ John C. Welling
John C. Welling
Secretary
Beltsville, Maryland
April 25, 1997
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE ANNUAL
MEETING IN PERSON. WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL
MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY AS
PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR REPRESENTATION AT THE
ANNUAL MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF MAILED
IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE.
EVEN IF YOU HAVE GIVEN YOUR PROXY, YOU MAY STILL VOTE IN
PERSON IF YOU ATTEND THE ANNUAL MEETING. PLEASE NOTE, HOWEVER, THAT IF
YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER NOMINEE AND
YOU WISH TO VOTE AT THE ANNUAL MEETING, YOU MUST OBTAIN FROM THE RECORD
HOLDER A PROXY ISSUED IN YOUR NAME.
<PAGE>
DIGEX, INCORPORATED
One DIGEX Plaza
Beltsville, Maryland 20705
----------
PROXY STATEMENT
----------
This Proxy Statement is furnished in connection with the
solicitation of proxies on behalf of the Board of Directors of DIGEX,
Incorporated ("DIGEX" or the "Company") for use at the 1997 Annual
Meeting of Stockholders (the "Annual Meeting") of the Company to be
held at the Company's headquarters, One DIGEX Plaza, Beltsville,
Maryland on May 21, 1997 at 10:00 a.m. (e.d.t.) and any adjournment
thereof. This Proxy Statement and the enclosed proxy card are scheduled
to be mailed to the stockholders commencing on or about April 25, 1997.
Holders of record of shares of the Company's Common Stock, par
value $0.01 per share (the "Common Stock"), at the close of business on
April 18, 1997 are entitled to notice of and to vote at the Annual
Meeting. The presence in person or by proxy of the holders of a
majority of the Common Stock issued and outstanding and entitled to
vote shall constitute a quorum. A quorum, once established, will not be
broken by the withdrawal from the Annual Meeting of enough votes to
leave less than a quorum, and the votes present at the Annual Meeting
after the establishment of a quorum will be sufficient to transact all
business at the Annual Meeting. As of the close of business on April
18, 1997, 11,396,069 shares of Common Stock were issued and outstanding
and entitled to notice of and to vote at the Annual Meeting.
Under the Company's bylaws and Delaware law, shares
represented by proxies that reflect abstentions or "broker non-votes"
(i.e., shares held by a broker or nominee which are represented at the
meeting, but with respect to which such broker or nominee is not
empowered to vote on a particular proposal) will be counted as shares
that are present and entitled to vote for purposes of determining the
presence of a quorum. Assuming the presence of a quorum, directors will
be elected by a favorable vote of a plurality of the votes cast in
respect of the shares of Common Stock present and entitled to vote, in
person or by proxy, at the Annual Meeting. Accordingly, abstentions or
broker non-votes as to the election of directors will not affect the
election of the candidates receiving the plurality of votes. Assuming
the presence of a quorum, the adoption of the Equity Plan, as amended,
the adoption of the 1997 Purchase Plan, and the ratification of Ernst &
Young LLP as independent auditors require the approval of a majority of
the votes cast in respect of the shares of Common Stock present and
entitled to vote, in person or by proxy, at the Annual Meeting. Except
with respect to the election of directors, abstentions as to a
particular proposal will have the same effect as votes against such
proposal. Broker non-votes, however, will be treated as unvoted for
purposes of determining approval of such proposals and will not be
counted as votes for or against such proposals.
Under the Company's Amended and Restated Certificate of
Incorporation, with respect to the proposals to be voted upon at the
Annual Meeting, the holders of Common Stock vote as a single class,
with each share of Common Stock entitled to one vote. Holders of Common
Stock are not entitled to cumulative votes in the election of
directors.
All shares of Common Stock that are represented at the Annual
Meeting by properly executed proxies received prior to or at the Annual
Meeting and not revoked will be voted at the Annual Meeting in
accordance with the instructions indicated in such proxies. Where
specific choices are not indicated, the shares of Common Stock
represented by all valid proxies received shall be voted (1) for the
nominees for director named in this Proxy Statement, (2) for
ratification of the appointment of Ernst & Young LLP as the Company's
independent auditors, (3) for approval of the Equity Plan, as amended,
and (4) for approval of the 1997 Purchase Plan.
<PAGE>
Management knows of no other matter to be presented at the
meeting. If any other matter should be presented at the Annual Meeting
upon which a vote properly may be taken other than matters set forth in
this Proxy Statement, it is intended that shares represented by proxies
in the accompanying form will be voted with respect thereto in
accordance with the judgment of the person or persons voting such
shares.
In the event that a quorum is not present at the time the
Annual Meeting is convened, a majority of the Common Stock represented
in person or by proxy may adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum
is determined to be present or represented.
Christopher R. McCleary and John C. Welling, each with full
power of substitution and revocation, have been designated on the
enclosed proxy card as proxies to vote the shares solicited hereby.
A stockholder who gives a proxy may revoke it at any time
before it is exercised by (i) filing with American Stock Transfer &
Trust Company in its capacity as transfer agent for the Company's
Common Stock (the "Transfer Agent"), at or before the Annual Meeting, a
written notice of revocation bearing a later date than the proxy, (ii)
duly executing a subsequent proxy relating to the same shares of Common
Stock and delivering it to the Transfer Agent at or before the Annual
Meeting or (iii) attending the Annual Meeting and voting in person
(although attendance at the Annual Meeting will not in and of itself
constitute a revocation of a proxy). Any written notice revoking a
proxy should be sent to American Stock Transfer & Trust Company, 40
Wall Street, New York, NY 10005, Attn: Proxy Department.
PROPOSAL 1
ELECTION OF DIRECTORS
Incumbent Members of the Board of Directors
Christopher R. McCleary, 44, joined DIGEX as President and
Chief Executive Officer in February 1996. Mr. McCleary has served as a
director since April 1996 and was elected Chairman of the Board of
Directors in June 1996, succeeding Frank A. Adams, who remains a
director. Mr. McCleary was one of the founding management team members
at American Mobil Satellite Corporation ("AMSC"), where he served as a
Vice President and General Manager, Satellite Telephone Service from
1990 until joining DIGEX in 1996. Prior to joining AMSC, Mr. McCleary
was founder and President of the Satellite Network Antenna Division of
Radiation Systems, Inc. Mr. McCleary received his Bachelor's degree
from the University of Kentucky.
Douglas E. Humphrey, 37, is the Senior Vice President, Chief
Technology Officer and co-founder of DIGEX. Mr. Humphrey has also
served as a director of the Company since 1990 and served as the
President from the Company's inception until Mr. McCleary joined DIGEX
in February 1996. Mr. Humphrey was a senior TCP/IP networking and
computer security specialist for Tandem Computers, Inc. from September
1987 to March 1993. From 1983 to 1987, Mr. Humphrey was President and
CEO of Computer Time Share Corporation. Mr. Humphrey attended the
University of Maryland at College Park.
Frank A. Adams, 51, has been a director of the Company since
April 1995. Mr. Adams served as Chairman of the Board from April 1995
until June 1996, when Mr. McCleary was elected Chairman. Mr. Adams is
currently President and CEO of Grotech Capital Group which he
co-founded in 1984. Mr. Adams has held positions with several public
companies, including PHH Corporation, RLC/Matlack and Westinghouse. Mr.
Adams is also a director of several private companies. Mr. Adams'
daughter is an employee of the Company. Mr. Adams received his
Bachelor's and Juris Doctor degrees from the University of Baltimore
and has completed advanced management programs at Stanford University
and Harvard University.
Thomas H. Cato, 54, joined DIGEX in July 1996 as a director.
Mr. Cato is a business consultant in information systems and health
care. From 1985 until founding his consulting business in June 1995,
Mr. Cato was
2
<PAGE>
president of HCA Information Services, a wholly-owned subsidiary of
Hospital Corporation of America. Mr. Cato was a co-founder of ENDATA, a
public information services company. Mr. Cato, a retired colonel from
the United States Army Reserves, received his B.B.A. from Tulane
University.
William F. Earthman, III, 45, has been a director of the
Company since April 1995. Mr. Earthman is a general partner of Southern
Venture Fund II, L.P. and a partner of Massey Burch Capital
Corporation, which he joined as Vice President in 1989. Mr. Earthman is
also a director of several private companies. Mr. Earthman received his
Bachelor's degree from the University of Virginia.
Ray A. Rothrock, 42, has been a director of the Company since
April 1995. Mr. Rothrock is a general partner of Venrock Associates and
Venrock Associates II, L.P. and has been with the firm since 1988. Mr.
Rothrock was with Sun Microsystems Inc. for four years prior to joining
Venrock. Mr. Rothrock received his M.B.A. degree from Harvard Business
School, an MS in Nuclear Engineering from Massachusetts Institute of
Technology, and a Bachelor of Science in Nuclear Engineering from Texas
A&M University. He serves as a director of Spyglass, Inc., Check Point
Software Technologies, Ltd. and several private companies.
Robert M. Stewart, 42, has been a director of the Company
since December 1995. Mr. Stewart has been a Managing Director of the
Anchor Financial Group LLC, a private investment banking firm in
Washington, D.C., since November 1995. Prior to joining Anchor
Financial Group, Mr. Stewart was a Principal with Armata Partners L.P.
from April 1993 and, prior to that, a Vice President of Legg Mason Wood
Walker, Inc., which he joined in February 1989. Mr. Stewart holds an
M.B.A. from the Babcock Graduate School of Management of Wake Forest
University and a B.A. from Hampden-Sydney College.
John H. Wyant, 50, began serving as a director of the Company
in June 1996. Mr. Wyant is the president of Blue Chip Venture Company,
which he founded in 1990. Mr. Wyant is also a director of Zaring Homes
Inc., and several private companies. Mr. Wyant received his B.A. degree
from Denison University and his J.D. degree from Chase College of Law.
Nominees for Election to the Board of Directors
The Board of Directors of the Company currently consists of
eight directors. The directors are divided into three classes. Messrs.
Adams, Humphrey and McCleary are designated Class I directors and will
serve until the Annual Meeting. Messrs. Stewart and Wyant are
designated Class II directors and will serve until the annual meeting
of stockholders in 1998. Messrs. Cato, Earthman and Rothrock are
designated Class III directors and will serve until the annual meeting
of stockholders in 1999. The Board of Directors has nominated for
re-election as directors at the Annual Meeting the three incumbent
directors, Messrs. Adams, Humphrey, and McCleary, whose terms expire at
the Annual Meeting. Mr. Michael T. Doughney, one of DIGEX's
co-founders, resigned from the Board on February 13, 1997, but did not
state any disagreement with the Company on a matter related to
operations, policies or practices in his letter of resignation. Mr.
Doughney was a Class II director whose term would have expired at the
annual meeting of stockholders in 1998. Under the Company's bylaws, the
vacancy on the Board of Directors caused by Mr. Doughney's resignation
may be filled by the affirmative vote of a majority of the remaining
directors. The remaining directors have no present intention with
respect to such vacancy.
Each of the nominees, if elected, will hold office as a
director until the annual meeting of stockholders to be held in 2000
and until his successor has been elected and qualified.
Unless otherwise instructed, the proxy holders will vote the
proxies received by them for Messrs. Adams, Humphrey and McCleary as
directors of the Company. If elected, Messrs. Adams, Humphrey and
McCleary have each consented to serve as a director for a term expiring
at the Company's 2000 annual meeting of stockholders and until their
respective successors are elected and qualified.
3
<PAGE>
If any of the nominees should not be available for election,
shares represented by proxies in the accompanying form will be voted
for such other person as the management of the Company may select. The
Board has no reason to believe that any nominee named above will be
unavailable for election.
Further information with respect to each nominee is set forth
under the preceding section entitled "Incumbent Members of the Board of
Directors."
The Board of Directors recommends a vote "FOR" the election of
all of the nominees named herein.
Board of Directors and Committees
From January 1, 1996 until April 23, 1996, the Board of
Directors consisted of six directors, four of whom were not officers or
employees of the Company. From April 23, 1996 until June 4, 1996, the
Board of Directors consisted of seven directors, four of whom were not
officers or employees of the Company. From June 4, 1996 until July 12,
1996, the Board of Directors consisted of eight directors, five of whom
were not officers or employees of the Company. From July 12, 1996 until
December 31, 1996, the Board of Directors consisted of nine directors,
six of whom were not officers or employees of the Company. The Board of
Directors met thirteen times in 1996. Each of the current directors who
was then in office attended at least 75% of the aggregate number of
meetings of the Board of Directors and all committees of the Board of
Directors on which such director served in 1996.
The Board of Directors currently has a Compensation Committee,
an Audit Committee and an Executive Committee. The Board has not
established a standing nominating committee.
The Compensation Committee currently consists of three
directors who are not officers or employees of the Company, Messrs.
Earthman (Chairman), Adams and Stewart. The Compensation Committee is
charged with administering the Company's stock option plans and making
decisions concerning salaries and incentive compensation for employees
and consultants of the Company. The Compensation Committee met three
times in 1996.
The Audit Committee consists of three directors who are not
officers or employees of the Company, Messrs. Rothrock (Chairman),
Wyant and Cato, and 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 the Company's
independent auditors, and reviews and evaluates the Company's audit and
control functions. The Audit Committee met two times in 1996.
The Executive Committee consists of three directors, Messrs.
Adams (Chairman), Earthman and McCleary and reviews, evaluates and
makes decisions and recommendations with respect to specific matters
delegated to the Executive Committee by the Board of Directors. The
Executive Committee met once in 1996.
4
<PAGE>
Compensation of Directors
Directors who are also officers of the Company receive no
additional compensation for their services as directors. Prior to the
Company's initial public offering of Common Stock in October 1996,
directors who were not officers received a fee of $10,000 per annum;
directors do not currently earn any fees for serving in such positions.
Non-employee directors receive reasonable expenses incurred by them in
attending Board meetings. Additionally, all non-employee directors are
eligible for stock options under the Company's Equity Plan. Incumbent
non-employee directors received options in 1996 to purchase 8,000
shares of Common Stock. In addition, each non-employee director will be
granted options to purchase 8,000 shares of Common Stock at each annual
meeting at which such director is re-elected as a director.
Executive Officers and Other Key Employees
Information with respect to Messrs. McCleary and Humphrey is
set forth above in "Incumbent Members of the Board of Directors." Set
forth below is a list of the Company's executive officers and certain
other key employees (including age as of April 18, 1997).
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Christopher R. McCleary 44 Chairman of the Board, President, Chief Executive Officer
Clyde A. Heintzelman 58 Senior Vice President, President -- Business Internet
Connectivity Group
Earl P. Galleher 37 Vice President, President -- Web Site Management Group
Nicholas J. Magliato 31 Vice President, General Manager -- Private Network Group
Brian M. Deobald 35 Vice President -- Business Development
John C. Welling 32 Vice President, Chief Financial Officer, Secretary, Treasurer,
Controller
Douglas E. Humphrey 37 Senior Vice President, Chief Technology Officer, Director
Sheryl R. Richeson 41 Vice President, Customer Service -- Business Internet
Connectivity Group
Edward J. Kern 28 Vice President, Network Engineering -- Business Internet
Connectivity Group
William F. Webb, Jr. 31 Vice President, Operations -- Web Site Management Group
Ian D. Brown 27 Vice President, Sales -- Business Internet Connectivity Group
James R. Stalder 29 Vice President, Product Management -- Web Site Management
Group
Eugene Noble 42 Vice President, Operations -- Business Internet Connectivity
Group
Anna Sabasteanski 38 Vice President, President -- Electronic Press Services Group
Bryan T. Gernert 30 Vice President, Sales & Distribution -- Web Site Management
Group
Lloyd W. Taylor 38 Vice President, Technical Operations -- Web Site Management
Group
Peter E. Daley 54 Vice President, Human Resources and Administration
</TABLE>
5
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
Summary Compensation. The following table sets forth all
compensation paid by the Company for the three fiscal years ended
December 31, 1996 to the Company's Chief Executive Officer, the
Company's four most highly compensated executive officers serving in
such capacity at the end of the last completed fiscal year whose total
annual salary and bonus exceeded $100,000 during the fiscal year ended
December 31, 1996 and one former executive officer who ceased serving
as an executive officer during 1996 (the "Named Executive Officers").
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Awards
--------------------------------------------------------
Other Securities
Annual Underlying
Name and Compensation Options
Principal Positions Year Salary Bonus (1)(2) (#)
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Christopher R. McCleary 1996 $133,199 $85,000 $6,142 480,000
Chairman of the Board,
President and Chief
Executive Officer
Clyde A. Heintzelman 1996 126,038 40,000 12,000 160,000
Senior Vice President 1995 50,192 2,000 200,000
William A. Pendley(3) 1996 129,114 6,600 96,000(4)
1995 75,288 20,000 6,600 120,000(4)
Douglas E. Humphrey 1996 123,271 9,193
Senior Vice President 1995 99,227 20,000 6,600
1994 41,450
Earl P. Galleher 1996 81,423 40,000 5,500 120,000
Vice President
Nicholas J. Magliato 1996 80,469 36,000 5,500 120,000
Vice President
</TABLE>
--------------------------------
(1) The annual amount of perquisites and other personal benefits,
securities or property for each of the Named Executive
Officers did not exceed the lesser of $50,000 or 10% of the
total annual salary and bonus for the named officer.
(2) These amounts represent car allowances.
(3) Mr. Pendley joined the Company in December 1994 as Chief
Financial Officer. In June 1996, he became Vice President and
Assistant General Manager -- Business Internet Connectivity
Group of the Company and served in these positions until his
resignation on March 31, 1997.
(4) Options for 121,200 of such shares were unvested at, and
terminated upon, Mr. Pendley's leaving the employ of the
Company on March 31, 1997.
6
<PAGE>
Option Grants in Last Fiscal Year. The following table sets
forth information regarding options to purchase Common Stock granted by
the Company to the Named Executive Officers in 1996.
<TABLE>
<CAPTION>
% of Total Potential Realizable Value at Assumed
Stock Market Annual Rates of Stock Price
Options Price on Appreciation for
Stock Granted to the Date Option Term
Options Employees Exercise of Grant (3)
Granted in Fiscal Price ($/Share) Expiration
---------------------------------------------------------------------------------------------------------------------
Name (#)(1) Year ($/Share) (2) Date 0% 5% 10%
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Christopher R. McCleary 241,874 12.57% $ 0.25 $ 0.91 2/5/06 $159,637 $298,060 $ 510,428
238,126 12.37 3.73 3.73 5/31/06 0 558,587 1,415,575
Clyde A. Heintzelman 10,800 0.56 0.25 0.91 1/23/06 7,128 13,309 22,791
149,200 7.75 3.73 3.73 5/31/06 0 349,987 886,941
William A. Pendley 6,400 0.33 0.25 0.91 6/29/97 4,224 7,887 13,506
89,600 4.66 3.73 3.73 6/29/97 0 16,710 33,420
Earl P. Galleher 40,000 2.08 0.25 0.91 3/11/06 26,400 49,292 84,412
16,000 0.83 3.73 3.73 5/31/06 0 37,532 95,114
64,000 3.33 10.00 10.00 7/19/06 0 402,490 1,019,993
Nicholas J. Magliato 40,000 2.08 0.25 1.38 3/25/06 45,200 79,915 133,175
16,000 0.83 3.73 3.73 5/31/06 0 37,532 95,114
64,000 3.33 10.00 10.00 7/19/06 0 402,490 1,019,993
</TABLE>
------------------------
(1) Represents options to purchase shares of Common Stock granted
under the 1995 Stock Option Plan and the Equity Plan (the
"Stock Option Plans").
(2) Represents the estimated fair market value of shares of Common
Stock on (i) January 23, February 5, March 11 or March 25,
1996, in the case of options granted when the exercise price
was $0.25, (ii) May 31, 1996, in the case of options granted
when the exercise price was $3.73, and (ii) July 19, 1996, in
the case of options granted when the exercise price was
$10.00.
(3) Based upon the estimated fair market value of shares of Common
Stock on the date of grant. See the column entitled "Market
Price on the Date of Grant" in the above table. The 5% and 10%
assumed rates of appreciation are suggested by the rules of
the S.E.C. and do not represent the Company's estimate or
projection of the future Common Stock price. There can be no
assurance that any of the values reflected in the table will
be achieved. Actual gains, if any, on stock option exercises
and Common Stock holdings are dependent upon a number of
factors, including the future performance of the Common Stock,
overall market conditions and the timing of option exercises,
if any.
7
<PAGE>
Aggregated Option Exercises and Year-End Value. None of the
Named Executive Officers exercised any options during the year ended
December 31, 1996. The following table sets forth information regarding
options held at December 31, 1996 by the Named Executive Officers.
Year-End Option Values
<TABLE>
<CAPTION>
Number of Number of
Securities Securities Value of Value of
Underlying Underlying Unexercised Unexercised
Unexercised Unexercised In-The-Money In-the-Money
Options at Options at Options at Options at
December 31, December 31, December 31, December 31,
1996(#) 1996(#) 1996($) 1996($)
Name Exercisable Unexercisable Exercisable(1) Unexercisable(1)
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Christopher R. McCleary 80,625 399,375 $ 816,328 $3,214,993
Clyde A. Heintzelman 125,400 234,600 1,269,675 1,856,109
William A. Pendley 84,266 131,734(2) 853,193 1,021,998
Earl P. Galleher 0 120,000 0 535,320
Nicholas J. Magliato 0 120,000 0 535,320
</TABLE>
--------------------------
(1) Based on the difference between the deemed fair market value on
December 31, 1996 ($10.38 per share) and the exercise price.
(2) Options for 121,200 of such shares were unvested at, and
terminated upon, Mr. Pendley's leaving the employ of the Company
in March, 1997.
Employment Agreements
In February 1996, the Company entered into an employment
agreement with Mr. McCleary. Pursuant to the terms of the agreement,
Mr. McCleary's base salary is $175,000 per year, plus a bonus to be
awarded annually as part of the Company's bonus program for its
management. Mr. McCleary's bonus was $85,000 in 1996. Mr. McCleary's
salary was increased to $195,000 per year, effective January 1, 1997.
Under the agreement, Mr. McCleary is also entitled to participate in
any Company incentive compensation plans, savings plans, retirement
plans, and other employee benefit plans as well as to receive an auto
($6,600 per year) and expense allowance. Mr. McCleary was also granted
options to purchase 241,874 shares of Common Stock of the Company at an
exercise price of $0.25 per share at the time of entering into the
agreement. The grant was made pursuant to the 1995 Stock Option Plan
and vests as follows: one-third of the options vested on the date of
the initial public offering of the Company's Common Stock and the
remaining two-thirds of the options vest ratably on a quarterly basis,
beginning March 31, 1997, for eight quarters. In May 1996, options to
purchase an additional 238,126 shares of Common Stock of the Company at
an exercise price of $3.73 per share were granted to Mr. McCleary
pursuant to the Stock Option Plans. These options vest as follows:
one-third of the options vest on the first anniversary of the date of
grant and the remaining two-thirds of the options vest ratably on a
quarterly basis during the two years following the first anniversary of
the date of grant. The initial term of the agreement expires on
December 31, 1999, but the agreement is subject to automatic renewal
terms of one year each.
In May 1995, the Company entered into an employment agreement
with Mr. Heintzelman. Pursuant to the terms of the agreement, Mr.
Heintzelman's base salary was set at $125,000 per year, plus a bonus,
which was $40,000 in 1996. Mr. Heintzelman's salary was increased to
$140,000 per year, effective January 1, 1997. In addition, Mr.
Heintzelman also receives a $12,000 per year auto allowance pursuant to
the agreement. Mr. Heintzelman was granted options to purchase 200,000
shares of Common Stock of the Company at an exercise price of $0.25 per
share at the time of entering into the agreement and additional options
to purchase 10,800 shares of
8
<PAGE>
Common Stock of the Company at an exercise price of $0.25 per share in
January 1996. Such grants were made pursuant to the 1995 Stock Option
Plan and vest as follows: 40,000 options vested 90 days after the date
of the agreement, one-third of the remaining aggregate options vested
on the first anniversary of the date of hire and the remainder will
vest ratably on a quarterly basis during the two years following the
first anniversary. In May 1996, options to purchase 149,200 shares of
Common Stock of the Company at an exercise price of $3.73 per share
were granted to Mr. Heintzelman pursuant to the Stock Option Plans.
These options vest as follows: one-third of the options will vest on
the first anniversary of the date of grant and the remaining two-thirds
of the options will vest ratably on a quarterly basis during the two
years following the first anniversary of the date of grant.
On March 24, 1995, the Company entered into an employment
agreement with Mr. Humphrey. Pursuant to the terms of the agreement,
Mr. Humphrey's base salary was set at $100,000 per year. The initial
term of the agreement expired on March 24, 1996, but the agreement
automatically extends for additional one-year periods unless either of
the parties decides, one hundred twenty (120) days prior to any
anniversary of the date of the agreement, not to renew the agreement.
Mr. Humphrey's salary was increased to $125,000 per year, effective
February 2, 1996.
In March 1996, the Company entered into employment agreements
with Messrs. Galleher and Magliato. Pursuant to the terms of this
agreement, these officers' base salaries were set at $120,000 per year,
plus a bonus to be awarded annually as part of the Company's bonus
program for management. Mr. Galleher's bonus was $40,000, and Mr.
Magliato's bonus was $36,000, in 1996. Mr. Galleher's salary was
increased to $130,000, effective January 1, 1997. Messrs. Galleher and
Magliato are also entitled to participate in any Company incentive
compensation plans, retirement plans, and other employee benefit plans
as well as to receive a $6,600 per year auto allowance. Messrs.
Galleher and Magliato were each granted options to purchase 40,000
shares of Common Stock of the Company at an exercise price of $0.25 per
share at the time of entering into their employment agreements. Grants
were made pursuant to the 1995 Stock Option Plan and vest as follows:
one-third of the options vested on the first anniversary of the date of
hire and the remaining two-thirds of the options vest on a quarterly
basis during the two years following the first anniversary. In
addition, Messrs. Galleher and Magliato were each granted options to
purchase 16,000 shares of Common Stock of the Company at an exercise
price of $3.73 per share, effective as of May 31, 1996, and options to
purchase 64,000 shares of Common Stock of the Company at an exercise
price of $10.00 per share, effective as of July 19, 1996. Grants were
made pursuant to the Stock Option Plans and vest as follows: (i) for
the May 1996 options, one-third of the options vest on the first
anniversary of the date of grant and the remaining two-thirds of the
options vest on a quarterly basis during the two years following the
first anniversary and (ii) for the July 1996 options, one-third of the
options vest on the first anniversary of the date of grant and the
remaining two-thirds of the options vest on a quarterly basis during
the two years following the first anniversary of the date of grant (or,
in the case of the second one-third of the options, on June 30, 1997 if
certain performance goals are met and, in the case of the final
one-third of the options, on December 31, 1997 if certain performance
goals are met). The initial term of the employment agreements expired
in March 1997, but the agreements are subject to automatic one-year
renewal terms.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), requires the Company's directors,
executive officers and holders of more than 10% of the Common Stock to
file with the Securities and Exchange Commission (the "S.E.C.") initial
reports of ownership and reports of changes in ownership of any equity
securities of the Company. To the Company's knowledge, for the year
ended December 31, 1996, all Section 16(a) filing requirements
applicable to its executive officers, directors and holders of more
than 10% of the Common Stock were satisfied, except that each of the
Section 16(a) filings due on the date of effectiveness of the Company's
registration statement filed with the S.E.C. with respect to the
Company's initial public offering of its Common Stock were filed
approximately two days late due to uncertainty about the share holdings
of certain individuals. This uncertainty resulted from the fact that
certain shares which would have been issued upon the exercise of
warrants were subject to cashless exercise rights by the holders of
such warrants, the price of such cashless exercise being determined by
the initial public offering price. This price was not determined in
time to permit a timely filing of the reports otherwise due on the date
of effectiveness.
9
<PAGE>
THE FOLLOWING COMPENSATION COMMITTEE REPORT AND THE
PERFORMANCE GRAPH THAT APPEARS IMMEDIATELY AFTER SUCH REPORT SHALL NOT
BE DEEMED TO BE SOLICITING MATERIAL OR TO BE FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933 OR THE
SECURITIES EXCHANGE ACT OF 1934 OR INCORPORATED BY REFERENCE IN ANY
DOCUMENT SO FILED.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The Compensation Committee is responsible for reviewing the
compensation paid to the Company's executive officers and making
recommendations to the Board with respect to such compensation. The
Board approves all compensation paid to executive officers.
Overall Compensation Objectives
The Company's overall strategy is to be a single-source
provider of reliable high-performance INDUSTRIAL STRENGTH Internet
solutions that serve the needs of business customers. In furtherance of
this strategy, the Company's compensation strategies are designed to
attract and to retain the best possible executive talent. Compensation
packages to executive officers include a base salary and cash and stock
incentives that recognize individual performance and the Company's
results of operations.
Principal Components of Executive Compensation
The principal elements of compensation to the Company's
executive officers include a base salary, annual cash bonuses and, at
appropriate intervals, grants of stock options. The Company also
provides to its executive officers medical, pension and other fringe
benefits generally available to the Company employees.
Base Salary. The decisions of the Board of Directors and the
Compensation Committee with respect to the base salary paid to the
Company's executive officers in 1996 were based primarily on
contractual commitments approved by the Board of Directors and executed
prior to the Company's initial public offering of Common Stock in
October 1996. The Company entered into certain employment agreements
with key members of its management team during such time and as
described above in "Employment Agreements." The base salary for each
executive officer was determined by direct negotiations with such
executive officer at the time of hiring. Base salary for such executive
officers under their respective agreements was determined by evaluating
the responsibilities of the position held by, and the personal
experience level of, the specific individual. In determining levels of
base salary, the Compensation Committee also decided to set an
appropriate level of base compensation to motivate and retain the
Company's executive officers in light of the Company's relative
position to its competition in the Internet carrier and Web site
management industries and the performance standards established for
such individuals.
Annual Bonus. Under the employment agreements in effect during
1996, the Company's executive officers were each eligible for a cash
bonus payment. Individual bonuses to executive officers are determined
by the subjective evaluation of the individual's contribution to the
Company's performance for the year. The Compensation Committee
recommended, and the Board approved, an $85,000 bonus to Mr. McCleary
for 1996 and bonuses totaling $170,256 to the other executive officers
for 1996.
Incentive Compensation. The Compensation Committee is
authorized to grant stock options to any executive officer or other key
employee under the Company's 1996 Equity Participation Plan for the
purpose of retaining the highest quality employees and providing such
employees with a significant interest in the long-term success of the
Company. Prior to the Company's initial public offering in October
1996, the Compensation Committee also awarded stock options under the
1995 Stock Option Plan. Stock option grants to executive officers are
made by the Compensation Committee after consultation with senior
management. Stock options are typically granted for a term not
exceeding 10 years, with an exercise price equal to the market price of
Common Stock on the date of the grant, although prior to the Company's
initial public offering of Common Stock, grants were made with
10
<PAGE>
an exercise price below the estimated fair market value of Common Stock
on the date of grant. Stock options are typically granted subject to
vesting over a period time.
In 1996, grants of stock options were made to each of the
Company's executive officers pursuant to the terms of their employment
agreements and at the discretion of the Compensation Committee. In
determining the level of stock option award for the Company's executive
officers, the Committee had available the compensation history of the
executive officers, the level of stock awards held by individuals
performing similar functions for the Company's competitors and the
long-term goals of the Company. The Compensation Committee's objective
in setting the terms of stock option awards is to incentivize the
continued employment of those executive officers deemed key to the
Company and its long-term objectives.
Section 162(m) of the Internal Revenue Code. Section 162(m) of
the Internal Revenue Code limits deductions for certain executive
compensation in excess of $1 million. Certain types of compensation in
excess of $1 million are deductible only if performance goals are
specified in detail by a compensation committee comprised solely of two
or more outside directors, payments are approved by a majority vote of
the stockholders prior to payment of such compensation and after the
material terms of the compensation are disclosed to the stockholders,
and the compensation committee certifies that the performance goals
were in fact satisfied. In particular, stock options and stock
appreciation rights ("SARs") will satisfy the "performance-based
compensation" exception if the awards are made by a qualifying
compensation committee, the plan sets the maximum number of shares that
can be granted to any person within a specified period and the
compensation is based solely on an increase in the stock price after
the grant date (i.e. the option exercise price is equal to or greater
than the fair market value of the stock subject to the award on the
grant date). The Company has attempted to structure the Equity Plan in
such a manner that, subject to obtaining stockholder approval for the
Equity Plan, the remuneration attributable to stock options and SARs
which meet the other requirements of Section 162(m) will not be subject
to the $1,000,000 limitation. The Company has not, however, requested a
ruling from the IRS or an opinion of counsel regarding this issue.
During 1996, the Compensation Committee considered the compensation
arrangements of the Company's executive officers in light of the
requirements of Section 162(m). The Section 162(m) limits did not
affect the Company's tax deductions with respect to compensation paid
in 1996.
While the Compensation Committee will continue to give due
consideration to the deductibility of compensation payments on future
compensation arrangements with the Company's executive officers, the
Compensation Committee will make its compensation decision based upon
an overall determination of what it believes to be in the best
interests of the Company and its stockholders, and deductibility will
be only one among a number of factors used by the Compensation
Committee in making its compensation decisions. Accordingly, the
Company may enter into compensation arrangements in the future under
which payments are not deductible under Section 162(m).
Compensation Committee
----------------------
William F. Earthman, III, Chairman
Frank A. Adams
Robert M. Stewart
11
<PAGE>
PERFORMANCE GRAPH
The following graph shows a comparison since the Company's
initial public offering on October 17, 1996, of the cumulative total
stockholder return on (i) Common Stock; (ii) an index including all
securities listed on the NASDAQ Stock Market ("NASDAQ") and (iii) the
CRSP Total Return Index for Nasdaq Computer and Data Processing
Services Stocks ("Peer Group"), measuring the changes in common stock
prices from October 17, 1996 through December 31, 1996. The graph
assumes an investment of $100 on October 17, 1996, and as required by
the S.E.C., all values shown assume the reinvestment of all dividends,
if any, and, in the case of the peer group, are weighed to reflect the
market capitalization of the component companies.(1)
Performance Graph
10/17/96 12/31/96
NASDAQ $100 $103.7
Peer Group $100 $102.7
DIGEX $100 $87.8
----------
(1) The material in this chart is not "soliciting material," is
not deemed "filed" with the S.E.C. and is not to be
incorporated by reference into any filing of the Company under
the 1993 Securities Act or the Exchange Act, whether made
before or after the date hereof and irrespective of any
general incorporation language in any such filing.
12
<PAGE>
EQUITY SECURITIES AND CERTAIN HOLDERS THEREOF
The following table sets forth, as of April 15, 1997, certain
information with respect to the beneficial ownership of the Company's
Common Stock by: (i) each person (or group of affiliated persons) of
the Company known by the Company to own beneficially more than five
percent of the outstanding Common Stock; (ii) each director of the
Company; (iii) the Named Executive Officers and (iv) all directors and
executive officers as a group. Except as indicated in the footnotes to
this table, the persons named in the table, based on information
provided by such persons have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by
them.
<TABLE>
<CAPTION>
Shares of Stock Percentage of Total
Name Beneficially Owned Shares
----------------------------------------------------------------------------------------
<S> <C> <C>
Grotech Investors(1)..................... 1,702,057 14.9%
Venrock Investors(2)..................... 1,176,275 10.3
Douglas E. Humphrey...................... 970,744 8.5
Southern Venture Fund II, L.P.(3)........ 840,198 7.4
Michael T. Doughney...................... 647,163 5.7
Robert M. Stewart(4)..................... 44,638 *
Frank A. Adams(1)........................ 1,704,723 15.0
Ray A. Rothrock(2)....................... 1,178,941 10.3
William F. Earthman III(3)............... 842,864 7.4
John H. Wyant(5)......................... 431,951 3.8
Christopher R. McCleary(6)............... 180,156 1.6
Thomas H. Cato(7)........................ 3,667 *
Clyde Heintzelman(8)..................... 203,600 1.8
William A. Pendley(9) ................... 94,800 *
Earl P. Galleher(10) .................... 21,999 *
Nicholas J. Magliato (11) ............... 18,666 *
All directors and executive officers
as a group (13 persons)(12).............. 5,627,048 46.7
</TABLE>
------------------------
* Less than one percent (1%).
(1) The Grotech Investors consist of Grotech IV, Grotech Partners,
Grotech Companion, and Grotech Pennsylvania. The address of
the Grotech Investors is 9690 Deereco Road, Timonium, MD
21093. The shares represent 1,438,361, 229,050, 24,952, and
14,228 shares owned by Grotech IV, Grotech Partners, Grotech
Companion, and Grotech Pennsylvania, respectively. Mr. Adams,
a director of the Company, is also the general partner of
Grotech Partners, Grotech Capital group IV, Inc. (the general
partner of Grotech IV), and Grotech Capital Group, Inc. (the
general partner of Grotech Companion and Grotech
Pennsylvania). Mr. Adams disclaims beneficial ownership of the
shares held by the Grotech Investors, except to the extent of
his economic interest in the shares held by the Grotech
Investors. The shares held by Mr. Adams include options to
purchase 2,666 shares of Common Stock, which options are
exercisable within 60 days of April 15, 1997.
(2) The Venrock Investors consist of Venrock and Venrock II. The
address of the Venrock Investors is 30 Rockefeller Plaza,
Suite 5508, New York, New York 10112. The shares represent
94,229 shares held by Venrock and 382,051 shares held by
Venrock II. Mr. Rothrock, a director of the Company, is also a
general partner of Venrock and Venrock II. Mr. Rothrock
disclaims beneficial ownership of the shares held by the
Venrock Investors, except to the extent of his economic
interest in the shares held by the Venrock Investors. The
shares held by Mr. Rothrock include options to purchase 2,666
shares of Common Stock, which options are exercisable within
60 days of April 15, 1997.
(3) The address of Southern Venture Fund II, L.P. is 310 25th
Avenue, North, Suite 103, Nashville, TN 37203. Mr. Earthman, a
director of the Company, is also the general partner of
Southern. Mr. Earthman disclaims beneficial ownership of the
shares held by Southern, except to the extent of his economic
interest in the shares held by Southern. The shares held by
Mr. Earthman include options to purchase 2,666 shares of
Common Stock, which options are exercisable within 60 days of
April 15, 1997.
(4) The shares shown as owned beneficially by Mr. Stewart include
(i) 600 shares owned by his son and daughter and (ii) options
to purchase 2,666 shares of Common Stock (which options are
exercisable within 60 days of April 15, 1997).
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(5) Mr. Wyant is the president of Blue Chip Venture Company, the
general partner of Blue Chip. Mr. Wyant disclaims beneficial
ownership of the 429,285 shares held by Blue Chip, except to
the extent of his economic interest in the shares held by Blue
Chip. The shares held by Mr. Wyant include options to purchase
2,666 shares of Common Stock, which options are exercisable
within 60 days of April 15, 1997.
(6) Mr. McCleary, the Chairman, President and Chief Executive
Officer of the Company, (i) owns 100,781 shares of Common
Stock pursuant to the exercise of options on April 11, 1997
and (ii) holds options to purchase an additional 379,219
shares of Common Stock, 79,375 of which are exercisable within
60 days of April 15, 1997.
(7) The shares held by Mr. Cato include options to purchase 2,667
shares of Common Stock, which options are exercisable within
60 days of April 15, 1997.
(8) Mr. Heintzelman, the Senior Vice President and President --
Business Internet Connectivity Group of the Company, holds
options to purchase 360,000 shares of Common Stock, 203,600 of
which are exercisable within 60 days of April 15, 1997.
(9) Mr. Pendley holds options to purchase 94,800 shares of Common
Stock, all of which are exercisable within 60 days of April
15, 1997.
(10) Mr. Galleher, the Vice President and President -- Web Site
Management Group of the Company, holds options to purchase
120,000 shares of Common Stock, 21,999 of which are
exercisable within 60 days of April 15, 1997.
(11) Mr. Magliato, the Vice President and General Manager --
Private Network Group of the Company, holds options to
purchase 120,000 shares of Common Stock, 18,666 of which are
exercisable within 60 days of April 15, 1997.
(12) Includes 663,480 options held by twelve directors and
executive officers that are presently exercisable or that will
become exercisable within 60 days of April 15, 1997. Includes
(i) 1,100 shares held by Mr. Welling and (ii) options to
purchase 18,666 shares of Common Stock held by Mr. Deobald and
options to purchase 5,333 shares of Common Stock held by Mr.
Welling, which options are exercisable within 60 days of April
15, 1997. See Notes 1-8 and 10-11.
OTHER RELATIONSHIPS
On February 23, 1996, the Company issued additional 10%
promissory notes due June 1, 1996 in the principal amount of $1,000,000
(the "February 1996 Notes") and additional warrants to purchase 166,378
shares of Common Stock to Grotech Capital Partners IV, L.P. ("Grotech
IV"), Venrock Associates ("Venrock"), Venrock Associates II, L.P.
("Venrock II"), and Southern Venture Fund II, L.P. ("Southern")
(together, the "Investors") as follows: Grotech IV purchased promissory
notes in the principal amount of $400,000 and warrants to purchase
66,551 shares of Common Stock for a cash purchase price of $400,000;
Venrock purchased promissory notes in the principal amount of $217,000
and warrants to purchase 36,104 shares of Common Stock for a cash
purchase price of $217,000; Venrock 11 purchased promissory notes in
the principal amount of $133,000 and warrants to purchase 22,128 shares
of Common Stock for a cash purchase price at $133,000; and Southern
purchased promissory notes in the principal amount of $250,000 and
warrants to purchase 41,595 shares of Common Stock for a cash purchase
price of $250,000.
On May 21, 1996, the Company issued additional promissory
notes in the principal amount of $1,000,000 (the "Convertible Notes")
convertible into shares of Series B Preferred Stock of the Company to
the Investors as follows: Grotech IV purchased promissory notes in the
principal amount of $400,000 for a cash purchase price of $400,000;
Venrock purchased promissory notes in the principal amount of $217,000
for a cash purchase price of $217,000; Venrock II purchased promissory
notes in the principal amount of $133,000 for a cash purchase price of
$133,000; and Southern purchased promissory notes in the principal
amount of $250,000 for a cash purchase price of $250,000.
On May 30, 1996, the Company's founders (Messrs. Humphrey and
Doughney), the Investors, Grotech Partners III, L.P. ("Grotech
Partners"), Grotech III Companion Fund, L.P. ("Grotech Companion"),
Grotech III Pennsylvania Fund, L.P. ("Grotech Pennsylvania"), Blue Chip
Capital Fund Limited Partnership ("Blue Chip") and Crisler Capital
Company, Limited Partnership (together with the Investors, Grotech
Partners, Grotech Companion, Grotech Pennsylvania and Blue Chip, the
"Purchasers") entered into the Purchase and Exchange Agreement, whereby
the Investors exchanged $2.0 million principal amount of November 1995
Notes and $1.0 million principal amount February 1996 Notes (together
with the right to receive $126,389 in accrued interest thereon from the
date of issuance) for 31,263.89 shares of Series B Convertible
Preferred Stock of the Company, par value $1.00 per share (the "Series
B Preferred Stock"), and converted $1.0 million principal amount of
Convertible Notes, in accordance with their terms, into 10,000 shares
of Series B Preferred Stock. In addition, the Purchasers paid
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<PAGE>
$4,000,000 in cash in exchange for a further 40,000 shares of Series B
Preferred Stock. The above-referenced exchange, conversion, and
purchase resulted in the following acquisitions of Series B Preferred
Stock: Grotech IV acquired 22,505.56 shares of Series B Preferred
Stock; Grotech Partners acquired 8,537 shares of Series B Preferred
Stock; Grotech Companion acquired 930 shares of Series B Preferred
Stock; Grotech Pennsylvania acquired 533 shares of Series B Preferred
Stock; Venrock acquired 10,914.77 shares of Series B Preferred Stock;
Venrock II acquired 5,860.92 shares of Series B Preferred Stock.
Southern acquired 11,982.64 shares of Series B Preferred Stock; Blue
Chip acquired 16,000 shares of Series B Preferred Stock; and Crisler
acquired 4,000 shares of Series B Preferred Stock.
In October 1996, the Company obtained $1.5 million in interim
financing pursuant to a bridge loan from Blue Chip, which the Company
repaid using a portion of the net proceeds of the initial public
offering. Mr. Wyant, a director of the Company, is the president of the
general partner of Blue Chip.
The holders of all outstanding shares of the Company's
preferred stock converted their outstanding shares of preferred stock
into shares of Common Stock in connection with the Company's initial
public offering of Common Stock. In addition, all holders of warrants
to purchase Common Stock (other than WinStar Communications, Inc.)
exercised such warrants to purchase shares of Common Stock in
connection with the Company's initial public offering of Common Stock.
In 1996, the Company received approximately $42,000 in Web
site management fees from Interzine Productions, Inc. Mr. Earthman, a
director of the Company, is the general partner of Southern Venture
Fund II, L.P., which owns over ten percent of Interzine Productions,
Inc. Mr. Earthman is also a director of Interzine Productions, Inc.
PROPOSAL 2
APPOINTMENT OF INDEPENDENT AUDITORS
Ernst & Young LLP has been recommended by the Board of
Directors for reappointment as the independent public accountants for
the Company. Ernst & Young LLP were the auditors for the Company for
the year ended December 31, 1996, and the firm is a member of the
S.E.C. Practice Section of the American Institute of Certified Public
Accountants. Subject to stockholder ratification, the Board of
Directors has appointed this firm as the Company's independent auditors
for 1997.
Representatives of Ernst & Young LLP will attend the Annual
Meeting and will have an opportunity to make a statement if they so
desire and to respond to appropriate questions from stockholders.
The action of the Board of Directors appointing Ernst & Young
LLP as the Company's independent auditors for the year ending December
31, 1997 is subject to approval by a majority of the votes cast in
respect of the shares of Common Stock present and entitled to vote, in
person or by proxy, at the Annual Meeting. Spaces are provided in the
accompanying form of proxy for specifying approval, disapproval or
abstention as to this proposal.
The Board of Directors recommends a vote "FOR" this proposal.
PROPOSAL 3
APPROVAL OF THE 1996 EQUITY PARTICIPATION PLAN, AS AMENDED
For a number of years the Company has utilized stock options
in its overall compensation program. The Board of Directors adopted an
Incentive Stock Option Plan (the "1995 Stock Option Plan") in 1995. To
increase the aggregate number of shares available for stock-based
incentives for employees and non-employee directors, the Board of
Directors approved the DIGEX, Incorporated 1996 Equity Participation
Plan (the "Equity Plan") in May
15
<PAGE>
1996. The Board is submitting the Equity Plan, amended to increase the
number of shares of the Company's Common Stock authorized for issuance
in respect of Awards under the Equity Plan by 400,000 shares, to the
stockholders for their approval at the Annual Meeting. The following
description of the Equity Plan, as amended, is qualified in its
entirety by reference to the full text of such plan, a copy of which is
attached as Appendix I to this Proxy Statement.
Description of the Equity Plan
The following information includes summaries of certain
provisions of the Equity Plan. This information does not purport to be
complete and is qualified in its entirety by reference to the
provisions of the Equity Plan. Unless otherwise defined, capitalized
terms used herein have the meanings ascribed to them in the Equity
Plan.
General Nature and Purpose
The Equity Plan originally was adopted by the Board effective
as of May 31, 1996 and was approved by the stockholders of the Company
effective October 15, 1996.
The Equity Plan was adopted by the Board to provide incentives
for officers, employees and consultants of the Company through granting
of options, restricted stock and other awards (collectively, "Awards"),
thereby stimulating their personal and active interest in the Company's
development and financial success, and inducing them to remain in the
Company's employ. In addition to Awards made to officers, employees or
consultants, the Equity Plan provides for the granting of nonqualified
stock options to the Company's Independent Directors, as described in
further detail below.
Under the Equity Plan, not more than 1,801,426 shares of
Common Stock (or the equivalent in other equity securities) are
authorized for issuance upon exercise of options, stock appreciation
rights ("SARs"), and other Awards, or upon vesting of restricted or
deferred stock Awards; provided however, that Awards with respect to
additional shares may be granted to the extent that options expire or
otherwise terminate unexercised under the 1995 Stock Option Plan. In
the aggregate, no more than 2,900,480 shares of Common Stock may be
outstanding under the 1995 Stock Option Plan and the Equity Plan.
Furthermore, the maximum number of shares which may be subject to
options or SARs granted under the Equity Plan on and after October 15,
1996 to any individual in any calendar year is subject to a general
limit of 60,000 shares (the "Award Limit"), subject to modification by
the stockholders and the Board or the Committee. Prior to consummation
of the Company's initial public offering, Board and stockholder
approval of certain grants in excess of this Award Limit were obtained.
No awards in excess of the Award Limit have been made since the
consummation of the Company's initial public offering, and it is not
presently anticipated that any such grants in excess of the Award Limit
will be made in the future. The shares available under the Equity Plan
upon exercise of stock options, SARs and other Awards, and for issuance
as restricted or deferred stock Awards, may be either previously
unissued shares or treasury shares, and may be equity securities of the
Company other than Common Stock, although all outstanding options are
for the purchase of Common Stock.
If any portion of a stock option, SAR or other Award
terminates or lapses unexercised, or is canceled upon grant of a new
option, SAR or other Award (which may be at a higher or lower exercise
price than the option, SAR or other Award so canceled), the shares
which were subject to the unexercised portion of such option, SAR or
other Award will continue to be available for issuance under the Equity
Plan.
Administration of the Equity Plan
The Compensation Committee of the Board or a subcommittee
thereof (the "Committee") will administer the Equity Plan with respect
to Awards made to employees and consultants and the full Board will
administer the Equity Plan with respect to options granted to
non-employee directors ("Independent Directors"). The Committee
consists of at least two members of the Board, each of whom is an
Independent Director, a "non-employee director" for purposes of Rule
16b-3 under the Securities Exchange Act of 1934, as amended ("Rule
16b-3"), and an "outside director" for purposes of Section 162(m) of
the Code. Members of the Committee, as Independent Directors, may only
be granted options under the Equity Plan and only by action of the full
Board.
Subject to the terms and conditions of the Equity Plan, the
Committee has the authority to select the persons to whom Awards are to
be made, to determine the number of shares to be subject thereto and
the terms and conditions thereof, and to make all other determinations
and to take all other actions necessary or advisable for the
administration of the Equity Plan. Similarly, the Board has discretion
to determine the terms and conditions of
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<PAGE>
options granted to Independent Directors and to interpret and
administer the Equity Plan with respect to such options, consistent
with the formula terms described in more detail below. The Committee
(and the Board) are also authorized to adopt, amend and rescind rules
relating to the administration of the Equity Plan.
Amendment and Termination of the Equity Plan
Amendments to the Equity Plan to increase the number of shares
as to which Awards may be made or to increase the Award Limit (except
for adjustments resulting from stock splits and the like, and mergers,
consolidations and other corporate transactions) require the approval
of the Company's stockholders. In all other respects the Equity Plan
can be amended, modified, suspended or terminated by the Committee or
the Board, unless such action would otherwise require stockholder
approval as a matter of applicable law, regulation or rule. Amendments
of the Equity Plan will not, without the consent of the participant,
affect such person's rights under an Award previously awarded, unless
the agreement governing such Award itself otherwise expressly so
provides. The termination of the Equity Plan will not affect the
validity of any Award outstanding under the Equity Plan on the date of
termination.
Eligibility and Participation by Employees and Consultants
Options, SARs, restricted stock and other Awards under the
Equity Plan may be granted to individuals who are then officers or
other employees of the Company or any of its present or future
subsidiaries. Such Awards also may be granted to consultants of the
Company selected by the Committee for participation in the Equity Plan.
More than one option, SAR, restricted stock Award or other Award may be
granted to an employee or consultant.
Vesting and Expiration of Awards to Employees and Consultants
The dates on which options or other Awards under the Equity
Plan first become exercisable and on which they expire will be set
forth in individual Award agreements setting forth the terms of the
Awards. Such agreements generally will provide that options and other
Awards expire upon termination of the participant's status as an
employee or consultant, although the Committee may provide that options
or other Awards granted to employees or consultants continue to be
exercisable following a termination without cause, or following a
Change in Control of the Company (as defined in the Equity Plan), or
because of the participant's retirement, death, disability or
otherwise. Similarly, restricted stock granted under the Equity Plan
which has not vested generally will be subject to repurchase by the
Company in the event of the participant's termination of employment or
consultancy, although the Committee may make exceptions, based on the
reason for termination or on other factors. The Committee (or Board
with respect to Independent Directors) has discretion under the Equity
Plan to provide that options and other rights to acquire Common Stock
will expire at specified times following, or become exercisable in full
upon, the occurrence of certain specified extraordinary corporate
events; but in such event the Committee may also give participants the
right to exercise their outstanding options or other Awards in full
during some period prior to such event, even though the options or
other Awards have not yet become fully exercisable. See "--
Extraordinary Corporate Events."
Eligibility and Participation by Independent Directors
Prior to the Company's initial public offering of Common
Stock, the Board had authority and discretion to grant Nonqualified
Stock Options ("NQSOs") to any Independent Director at such times, for
such number of shares of Common Stock and subject to such terms and
conditions as determined by the Board.
Effective with the Company's initial public offering of Common
Stock, NQSOs granted to Independent Directors of the Company shall
occur automatically and must satisfy certain formula terms specified in
the Equity Plan. Under the formula in the Equity Plan, when an
Independent Director is initially elected to the Board, he or she
automatically shall be granted an NQSO to purchase 8,000 shares of
Common Stock. During the term of the Plan, each then current
Independent Director shall automatically be granted an NQSO to purchase
8,000 shares of Common Stock at each subsequent annual meeting at which
he or she is reelected to the Board. Members of the Board who are
employees who subsequently terminate employment with the Company and
remain on the Board
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will not receive an initial NQSO grant as an Independent Director, but
to the extent they are otherwise eligible, will receive NQSOs as
described above upon reelection to the Board. As of April 23, 1997,
NQSOs to purchase 8,000 shares of Common Stock have been granted to
each of the six Independent Directors pursuant to the Equity Plan.
Vesting and Expiration of Options Granted to Independent Directors
The exercise price of the options granted to Independent
Directors at any time on and after the Company's initial public
offering shall be the fair market value of a share of Common Stock on
the date of grant. Each such option shall become exercisable in
cumulative annual installments of one-third on each on the first,
second and third annual meetings of stockholders that are subsequent to
the date of grant, subject to the Director's continued service as a
Director; provided, however, to the extent permitted by Rule 16b-3, the
Board may accelerate the exercisability of options granted to
Independent Directors upon the occurrence of certain specified
extraordinary corporate transactions or events. Options granted to
Independent Directors will expire upon the tenth anniversary of the
date of grant, subject to earlier expiration in the event of the
Independent Director's termination of services as a Director, as
follows:
. options will expire one year after termination by reason of
death or disability;
. options will expire thirty days after removal for cause (as
determined by the Board); and
. options will expire three months after termination for any
reason not specified above (unless the Independent Director
dies within such period, in which case the options will
remain exercisable for one year from the date of his or her
death).
Payment for Shares
The exercise or purchase price for all options, SARs,
restricted stock and other Awards that provide a right to acquire
Common Stock, together with any applicable tax required to be withheld,
must be paid in full in cash at the time of exercise or purchase or
may, with the approval of the Committee (or Board with respect to
Independent Directors) be paid in whole or in part in shares of Common
Stock valued at fair market value on the date of exercise (which may,
except with respect to incentive stock options, include an assignment
of the right to receive the cash proceeds from the sale of Common Stock
subject to an option or other right pursuant to a "cashless exercise"
procedure) or by delivery of other property, or by a recourse
promissory note payable to the Company, or by a combination of the
foregoing.
The Equity Plan specifies that the Company may make loans to
participants to enable them to exercise options, purchase shares or
realize the benefits of other Awards granted under the Equity Plan. The
terms and conditions of such loans, if any are made, are to be set by
the Committee (or the Board with respect to Independent Directors).
Other Terms of Awards Under the Equity Plan to Employees and
Consultants
The Equity Plan provides that the Committee may grant or issue
stock options, SARs, restricted stock, deferred stock, dividend
equivalents, performance awards, stock payments and other stock related
benefits, or any combination thereof. Each Award will be set forth in a
separate agreement with the person receiving the Award and will
indicate the type, terms and conditions of the Award. Set forth below
are general description of the Awards available under the Equity Plan.
Nonqualified Stock Options ("NQSOs") will provide for the
right to purchase Common Stock at a specified price which, except with
respect to NQSOs intended to qualify as performance-based compensation
under Section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code"), may be less than fair market value on the date of grant
(but not less than par value), and usually will become exercisable (in
the discretion of the Committee) in one or more installments after the
grant date, subject to the participant's continued employment with the
Company and/or subject to the satisfaction of individual or Company
performance targets established by the Committee. NQSOs may be granted
for any term specified by the Committee.
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<PAGE>
Incentive Stock Options ("ISOs") will be designed to comply
with certain provisions of the Code and will be subject to certain
restrictions contained in the Code. Among such restrictions, ISOs must
have an exercise price not less than the fair market value of a share
of Common Stock on the date of grant, may only be granted to employees,
must expire within a specified period of time following the
participant's termination of employment, and must be exercised within
the ten years after the date of grant; however, any option intended to
qualify as an ISO may be modified to be treated as an NQSO. In the case
of an ISO granted to an individual who owns (or is deemed to own) at
least 10% of the total combined voting power of all classes of stock of
the Company, the Equity Plan provides that the exercise price must be
at least 110% of the fair market value of a share of Common Stock on
the date of grant and the ISO must expire upon the fifth anniversary of
the date of its grant.
Restricted Stock may be sold to participants at various prices
(but not below par value) and made subject to such restrictions as may
be determined by the Committee. Restricted stock typically may be
repurchased by the Company at the original purchase price if the
applicable conditions or restrictions are not met. In general,
restricted stock may not be sold or otherwise transferred or
hypothecated until restrictions are removed or expire. Purchasers of
restricted stock, unlike optionees, will have voting rights and will
receive dividends prior to the time when the restrictions lapse.
Deferred Stock may be awarded to participants, typically
without payment of consideration, but subject to vesting conditions
based on continued employment or on performance criteria established by
the Committee. Like restricted stock, deferred stock may not be sold or
otherwise transferred or hypothecated until vesting conditions are
removed or expire. Unlike restricted stock, deferred stock will not be
issued until the deferred stock Award has vested, and recipients of
deferred stock generally will have no voting or dividend rights prior
to the time when vesting conditions are satisfied.
Stock Appreciation Rights may be granted in connection with
stock options or other Awards, or separately. SARs granted by the
Committee in connection with stock options or other Awards typically
will provide for payments to the participant based upon increases in
the price of the Company's Common Stock over the exercise price of the
related option or other Awards, but alternatively may be based upon
criteria such as book value. Except as required by Section 162(m) of
the Code with respect to an SAR intended to qualify as
performance-based compensation as described in Section 162(m)(4)(C) of
the Code, there are no restrictions specified in the Equity Plan on the
exercise of SARs or the amount of gain realizable therefrom, although
restrictions may be imposed by the Committee in the SAR agreements. The
Committee may elect to pay SARs in cash or in Common Stock or in a
combination of both.
Dividend Equivalents represent the value of the dividends per
share paid by the Company, calculated with reference to the number of
shares covered by the stock options, SARs or other Awards held by the
participant.
Performance Awards may be granted by the Committee on an
individual or group basis. Generally, these Awards will be based upon
specific performance targets and may be paid in cash or in Common Stock
or in a combination of both. Performance Awards may include "phantom"
stock Awards that provide for payments based upon increases in the
price of the Company's Common Stock over a predetermined period.
Performance Awards may also include bonuses which may be granted by the
Committee on an individual or group basis and which may be payable in
cash or in Common Stock or in a combination of both.
Stock Payments may be authorized by the Committee in the form
of shares of Common Stock or an option or other right to purchase
Common Stock as part of a deferred compensation arrangement in lieu of
all or any part of compensation, including bonuses, that would
otherwise be payable in cash to the key employee or consultant.
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Compliance with Securities Laws
Awards under the Equity Plan and the issuance and delivery of
shares of Common Stock and the payment of money under the Equity Plan
are subject to compliance with all applicable federal and state laws,
rules and regulations (including but not limited to state and federal
securities law and federal margin requirements) and to such approvals
by any listing, regulatory or governmental authority as may, in the
opinion of counsel for the Company, be necessary or advisable in
connection therewith. Any Common Stock issued under the Equity Plan
shall be subject to such restrictions, and the person acquiring such
securities shall, if requested by the Company, provide such assurances
and representations to the Company as the Company may deem necessary or
desirable to assure compliance with all applicable legal requirements.
Withholding
As a condition to the issuance or delivery of Common Stock or
payment of other compensation pursuant to the exercise or lapse of
restrictions of any option or other Award granted under the Equity
Plan, the Company requires participants to discharge applicable
withholding tax obligations. Shares of Common Stock held by or to be
issued to a participant may also be used to discharge tax withholding
obligations related to exercise of options or receipt of other Awards,
subject to the discretion of the Committee (or the Board with respect
to Independent Director) to disapprove such use. In addition, the
Committee may grant to employees a cash bonus in the amount of any tax
related to Awards.
No Special Employment Rights
Nothing in the Equity Plan or in any Award granted thereunder
will confer upon any participant any right to continue in the employ of
the Company or as a Director or shall interfere with or restrict in any
way the rights of the Company to terminate or discharge any participant
at any time for any reason whatsoever, with or without cause.
Non-Assignability
No option, SAR or other Award granted under the Equity Plan
may be assigned or transferred by the participant, except by will or
the laws of descent and distributions, although the shares underlying
such Awards may be transferred if all applicable restrictions have
lapsed. During the lifetime of the participant, only he or she may
exercise an option or other Award.
Extraordinary Corporate Events
The Committee (the Board with respect to Independent
Directors) has the discretion to make appropriate adjustments in the
number and kind of securities subject to the Equity Plan and to
outstanding Awards thereunder to reflect dividends or other
distributions; recapitalization, reclassification, stock split, reverse
stock split, or reorganization, merger or consolidation of the Company;
the split-up, spin-off, combination, liquidation or dissolution of the
Company; or disposition of all or substantially all of the assets of
the Company or exchange of Common Stock or other securities of the
Company; or other similar corporate transaction or event (an
"extraordinary corporate event").
The Committee (or Board with respect to Independent Directors)
has discretion under the Equity Plan to provide that options and other
rights to acquire Common Stock will expire at specified times
following, or become exercisable in full upon, the occurrence of
certain specified extraordinary corporate events; but in such event the
Committee may also give participants the right to exercise their
outstanding options or other Awards in full during some period prior to
such event, even though the options or other Awards have not yet become
fully exercisable, and the Committee may also provide that all
restrictions imposed on some or all shares of restricted stock and/or
20
<PAGE>
deferred stock shall lapse, and some or all shares of restricted stock
may cease to be subject to the Company's right to repurchase after such
event.
Certain Federal Income Tax Consequences with Respect to the Equity Plan
The tax consequences of the Equity Plan under current federal
law are summarized in the following discussion, which deals with the
general tax principles applicable to the Equity Plan and is intended
for general information only. Alternative minimum tax and state and
local income taxes are not discussed. Tax laws are complex and subject
to change and may vary depending on individual circumstances and from
locality to locality. The tax information summarized is not tax advice.
Nonqualified Stock Options. For federal income tax purposes,
an optionee generally will not recognize taxable income on the grant of
an NQSO, but will recognize ordinary income, and the Company generally
will be entitled to a deduction, upon the exercise of an NQSO. The
amount of income recognized (and the amount generally deductible by the
Company) generally will be equal to the excess, if any, of the fair
market value of the shares at the time of exercise over the aggregate
exercise price paid for the shares, regardless of whether the exercise
price is paid in cash or in shares or other property. An optionee's
basis for the stock for purposes of determining his or her gain or loss
upon a subsequent disposition of the shares generally will be the fair
market value of the stock on the date of exercise of the NQSO, and any
subsequent gain or loss will generally be taxable as capital gains or
losses. All of the options outstanding under the Equity Plan will be
treated as "nonqualified stock options" for federal income tax
purposes.
Incentive Stock Options. An optionee generally will not
recognize taxable income upon either the grant or exercise of an ISO;
however, the amount by which the fair market value of the shares at the
time of exercise exceeds the exercise price will be an "item of tax
preference" for the optionee. Generally, upon the sale or other taxable
disposition of the shares of the Common Stock acquired upon exercise of
an ISO, the optionee will recognize income taxable as capital gains in
an amount equal to the excess, if any, of the amount realized in such
disposition over the option exercise price, provided that no
disposition of the shares has taken place within either (a) two years
from the date of grant of the ISO or (b) one year from the date of
exercise. If the shares of Common Stock are sold or otherwise disposed
of before the end of the one-year and two-year periods specified above,
the difference between the ISO exercise price and the fair market value
of the shares on the date of exercise generally will be taxable as
ordinary income; the balance of the amount realized from such
disposition, if any, generally will be taxed as capital gain. If the
shares of Common Stock are disposed of before the expiration of the
one-year and two-year periods and the amount realized is less than the
fair market value of the shares at the date of exercise, the optionee's
ordinary income generally is limited to excess, if any, of the amount
realized in such disposition over the option exercise price paid. The
Company (or other employer corporation) generally will be entitled to a
tax deduction with respect to an ISO only to the extent the optionee
has ordinary income upon sale or other disposition of the shares of
Common Stock.
Stock Appreciation Rights. No taxable income is generally
recognized upon the receipt of an SAR, but upon exercise of the SAR the
fair market value of the shares (or cash in lieu of shares) received
generally will be taxable as ordinary income to the participant in the
year of such exercise. The Company generally will be entitled to a
compensation deduction for the same amount which the participant
recognizes as ordinary income.
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<PAGE>
Restricted Stock and Deferred Stock. An employee to whom
restricted or deferred stock is issued generally will not recognize
taxable income upon such issuance and the Company generally will not
then be entitled to a deduction, unless, in the case of restricted
stock, an election is made under Section 83(b) of the Code. However,
when restrictions on shares of restricted stock lapse, such that the
shares are no longer subject to a substantial risk of forfeiture, the
employee generally will recognize ordinary income and the Company
generally will be entitled to a deduction for an amount equal to the
excess of the fair market value of the shares at the date such
restrictions lapse over the purchase price therefor. Similarly, when
deferred stock vests and is issued to the employee, the employee
generally will recognize ordinary income and the Company generally will
be entitled to a deduction for the amount equal to the fair market
value of the shares at the date of issuance. If an election is made
under Section 83(b) with respect to qualifying restricted stock, the
employee generally will recognize ordinary income at the date of
issuance equal to the excess, if any, of the fair market value of the
shares at that date over the purchase price therefor and the Company
will be entitled to a deduction for the same amount. The Code does not
permit a Section 83(b) election to be made with respect to deferred
stock.
Dividend Equivalents. A recipient of a dividend equivalent
award generally will not recognize taxable income at the time of grant,
and the Company will not be entitled to a deduction at that time. When
a dividend equivalent is paid, the participant generally will recognize
ordinary income, and the Company will be entitled to a corresponding
deduction.
Performance Awards. A participant who has been granted a
performance award generally will not recognize taxable income at the
time of grant, and the Company will not be entitled to a deduction at
that time. When a performance award is paid, whether in cash or Common
Stock, the participant generally will recognize ordinary income, and
the Company will be entitled to a corresponding deduction.
Stock Payments. A participant who receives a stock payment in
lieu of a cash payment that would otherwise have been made will
generally be taxed as if the cash payment has been received, and the
Company generally will be entitled to a deduction for the same amount.
Deferred Compensation. Participants who defer compensation
generally will recognize no income, gain or loss for federal income tax
purposes when NQSOs are granted in lieu of amounts otherwise payable,
and the Company will not be entitled to a deduction at that time. When
and to the extent such NQSOs are exercised, the rules regarding NQSOs
outlined above will generally apply.
22
<PAGE>
Benefits Table
The following table shows all options that have been issued
under the Equity Plan as of April 23, 1997. No other Awards have been
issued under the Equity Plan as of such date. The value of future
Awards depends on the future value of Common Stock and is not
determinable at this time.
<TABLE>
<CAPTION>
Name and Position Number of Units Dollar Value(1)
---------------------------------------------------------------------
<S> <C> <C>
Christopher R. McCleary 238,126 $ 733,428
Chairman of the Board, President
and Chief Executive Officer
Clyde A. Heintzelman 149,200 459,536
Senior Vice President
William A. Pendley(2) 0 --
Douglas E. Humphrey 0 --
Senior Vice President
Earl P. Galleher 80,000 49,280
Vice President
Nicholas J. Magliato 80,000 49,280
Vice President
Current executive officers as a group 641,326 1,340,804
(including those named above)
Non-employee directors as a group 48,000 123,200
All other employees as a group 512,474 190,344
</TABLE>
(1) Based on the excess of the deemed fair market value of Common
Stock on April 22, 1997 ($6.81 per share) over the exercise
price (which ranges from $3.73 to $10.00 depending on the date
of grant). The value of options that have an exercise price in
excess of $6.81 is deemed to be zero.
(2) Mr. Pendley joined the Company in December 1994 as Chief
Financial Officer. In June 1996, he became Vice President and
Assistant General Manager -- Business Internet Connectivity
Group of the Company and served in these positions until his
resignation on March 31, 1997.
Board Recommendation
For the reasons set forth above, the Board of Directors
believes that it is in the best interests of the Company and its
stockholders to adopt the Equity Plan, as amended, in order to help
attract, retain and motivate qualified employees and non-employee
directors. A majority of the votes cast at the Annual Meeting are
necessary for the approval of this proposal.
The Board of Directors recommends a vote "FOR" this proposal.
PROPOSAL 4
APPROVAL OF THE AMENDED AND RESTATED 1997 EMPLOYEE STOCK
PURCHASE PLAN
The Board of Directors approved the DIGEX, Incorporated 1997
Employee Stock Purchase Plan effective November 12, 1996 to allow
eligible employees to purchase Common Stock pursuant to payroll
deductions and to
23
<PAGE>
provide an incentive for them to promote the continued success of the
Company. The 1997 Purchase Plan was amended and restated effective
January 7, 1997 (the "1997 Purchase Plan"). The 1997 Purchase Plan
authorizes the issuance of a maximum of 350,000 shares of Common Stock
for purchase by employees. The Board is submitting the 1997 Purchase
Plan to the stockholders for their adoption at the Annual Meeting. The
following description of the 1997 Purchase Plan is qualified in its
entirety by reference to the full text of such plan, a copy of which is
attached as Appendix II to this Proxy Statement.
Description of the 1997 Purchase Plan
The following information includes summaries of certain
provisions of the 1997 Purchase Plan. This information does not purport
to be complete and is qualified in its entirety by reference to the
provisions of the 1997 Purchase Plan. Unless otherwise defined,
capitalized terms used herein have the meanings ascribed to them in the
1997 Purchase Plan.
General Nature and Purpose
The 1997 Purchase Plan is designed to allow eligible employees
to purchase Common Stock pursuant to payroll deductions as described
below and to provide an incentive for them to promote the continued
success of the Company. The 1997 Purchase Plan is intended to be an
"employee stock purchase plan" within the meaning of Section 423 of the
Code.
The 1997 Purchase Plan will permit the purchase of up to
350,000 authorized but unissued or reacquired shares of Common Stock,
subject to adjustment to reflect events such as stock dividends, stock
splits, recapitalizations, mergers or reorganizations of or by the
Company.
Administration of the 1997 Purchase Plan
The 1997 Purchase Plan provides for administration by a
committee (the "Committee") of three officers of the Company appointed
by the Board. In addition to administering the 1997 Purchase Plan, the
Committee also is authorized to interpret the 1997 Purchase Plan and to
make and adopt rules and regulations not inconsistent with the
provisions of the 1997 Purchase Plan. Committee members may participate
in the 1997 Purchase Plan.
Amendment or Termination of the 1997 Purchase Plan
The Board of Directors, without stockholder approval, may
amend the 1997 Purchase Plan at any time, except that stockholder
approval is required to increase the number of shares issuable under
the 1997 Purchase Plan, increase materially the benefits accruing to
participants, or modify the requirements as to eligibility for
participation in the 1997 Purchase Plan. Unless sooner terminated by
the Board of Directors, the 1997 Purchase Plan will terminate on
November 30, 1997 or when all Common Stock subject to the 1997 Purchase
Plan has been purchased by participants, whichever shall occur first.
Eligibility and Participation
Participation in the 1997 Purchase Plan is voluntary. Subject
to a requirement that no employee who owns (with application of
attribution rules) 5 percent of the voting power or value of all
classes of Company stock may participate, all employees of the Company
and its subsidiaries, other than those who are scheduled to work less
than 20 hours per week and those whose customary employment is for not
more than 5 months in a calendar year, are eligible to participate in
an offering under the 1997 Purchase Plan. The number of shares that a
participant may purchase in any calendar year under the 1997 Purchase
Plan is limited to that number of shares having a fair market value
(determined at the commencement of an offering period) of $25,000.
Rights under the 1997 Purchase Plan are nontransferable otherwise than
by will or the laws of descent and distribution.
24
<PAGE>
Grant and Exercise of Purchase Rights
The first offering under the 1997 Purchase Plan commenced on
December 9, 1996 and will end on May 31, 1997, the second offering
commenced on January 31, 1997 and will also end on May 31, 1997, the
third offering will commence on June 1, 1997 and end on August 31, 1997
and the fourth offering will commence on September 1, 1997 and end on
November 30, 1997.
If an offering under the 1997 Purchase Plan is oversubscribed,
any balance in a participant's account not applied to the purchase of
Common Stock will be carried over to the next offering period. Any
balance remaining in a participant's account after the close of the
last offering period shall be refunded to such participant. A
participant may cease contributions to the 1997 Purchase Plan at any
time prior to the last day of the current offering period and may elect
to withdraw from the 1997 Purchase Plan or may elect to leave such
amounts in the 1997 Purchase Plan for the purchase of Common Stock at
the end of the current offering period. If a participant withdraws from
the 1997 Purchase Plan all accumulated payroll deductions will be
refunded. No interest will be paid on amounts withdrawn from the 1997
Purchase Plan. A participant cannot withdraw his or her payroll
deductions without the withdrawal of all payroll deductions previously
made during that particular offering period and the termination of his
or her participation in that offering.
Expiration of Purchase Right
A participant whose employment terminates due to disability or
retirement during an offering period may elect to withdraw the entire
amount in his or her Plan Account or leave such funds in the 1997
Purchase plan for the purchase of Common Stock on the last day of such
offering period.
A participant whose employment terminates for any other reason
or who otherwise ceases to be eligible to participate in the 1997
Purchase Plan will receive a refund of the amount in his or her Plan
Account within 21 days of his or her termination of employment or other
cessation of eligibility.
No Special Employment Rights
Nothing in the 1997 Purchase Plan will confer upon any
participant any right to continue in the employ of the Company or shall
interfere with or restrict in any way the rights of the Company to
terminate or discharge any participant at any time for any reason
whatsoever, with or without cause.
Purchase Price of Shares Subject to the 1997 Purchase Plan
An offering affords each eligible employee an opportunity to
purchase shares of Common Stock at a 15% discount from fair market
value as determined in accordance with the terms of the 1997 Purchase
Plan. Under the Delaware General Corporation Law, the Company may not
issue shares at a price less than the par value of a share of Common
Stock. Purchases under the 1997 Purchase Plan are made by means of
payroll deductions during an offering period. The amount deducted each
payroll period must be at least five dollars ($5.00), must be equal to
at least 1% and not more than 10% of the participant's compensation as
defined under the 1997 Purchase Plan, and is credited to a Plan Account
established in such participant's name. Except as described below, the
amount in the participant's Plan Account on the last day of an offering
period will be applied, without interest, to the purchase of that
number of whole shares of Common Stock that such amount will purchase
at the lower price of
(i) 85% of the fair market value of a share of Common Stock on
the first day of the offering period (i.e., December 9, 1996,
June 1, 1997, January 31, 1997, or September 1, 1997), or
(ii) 85% of the fair market value of a share of Common Stock
on the last day of the offering period (i.e., May 31, 1996,
August 31, 1997 or November 30, 1997).
25
<PAGE>
In addition to the limitations set forth above, no participant
may purchase more than 1,000 shares of Common Stock pursuant to the
1997 Purchase Plan. If the amount in any participant's account would
otherwise result in the purchase of more than 1,000 shares of Common
Stock (taking into account prior purchases under the 1997 Purchase
Plan), the excess will be returned to such participant (without
interest).
Non-Assignability
The right to purchase shares pursuant to the 1997 Purchase
Plan shall not be assignable or transferable by participants, either
voluntarily or by operation of law, except by will or the laws of
descent and distribution, and, during the life of the participant,
shall be exercisable only by the participant.
Certain Federal Income Tax Consequences with Respect to the 1997
Purchase Plan
The tax consequences of the 1997 Purchase Plan under current
federal law are summarized in the following discussion, which deals
with the general tax principles applicable to the 1997 Purchase Plan
and is intended for general information only. Alternative minimum tax
and state and local income taxes are not discussed. Tax laws are
complex and subject to change and may vary depending on individual
circumstances and from locality to locality. The tax information
summarized is not tax advice.
Generally, a participant will not recognize income at the time
of the grant of a purchase right under the 1997 Purchase Plan (that is,
on the first day of the offering period), nor will a participant
recognize income on the exercise of such a purchase right (that is, on
the date of purchase), provided that during the period beginning with
the first day of the offering period and ending on the date three
months before the exercise date, the participant has continuously been
employed by the Company (except that this employment requirement shall
be considered satisfied if the participant terminated employment during
such period by reason of his or her death) (the "employment
requirement"). If the employment requirement is satisfied, the Company
generally will not be entitled to a deduction in connection with either
the grant of a purchase right or the issuance of shares upon exercise
thereof.
If a participant who satisfies the employment requirement
holds shares acquired under the 1997 Purchase Plan for at least two
years following the time of the grant of the purchase right (including
a disposition at death), the participant generally will recognize
ordinary income at that time equal to the lesser of (i) the fair market
value of the shares at the time of the disposition over the amount paid
for the shares, or (ii) 15% of the fair market value of the shares at
the time the purchase right was granted. If a participant who satisfies
the employment requirement disposes of shares acquired upon exercise of
a purchase right within two years after the time of the grant of the
purchase right, the participant generally will recognize ordinary
income at the time of the disposition equal to the excess of the fair
market value of the shares at the time of exercise over the purchase
price. Any such ordinary income recognized by a participant will be
added to the participant's basis in the shares. If a disposition
described in this paragraph occurs in a taxable transaction, any gain
in excess of ordinary income recognized on the disposition will be
capital gain, and any loss will be capital loss.
If a participant fails for any reason other than the
participant's death or certain temporary leaves of absence to meet the
employment requirements, then, upon the receipt of shares upon such
exercise, the participant generally will recognize ordinary income.
If a participant recognizes ordinary income as a result of
either an exercise of a purchase right or a disposition of shares, then
the Company generally will be entitled to a deduction for the same
amount, provided the Company satisfies any applicable federal income
tax withholding requirements.
The rules governing employee stock purchase plans are quite
technical, so that the above description of tax consequences is general
in nature and does not purport to be complete. Moreover, statutory
provisions are subject to change, as are their interpretations, and
their application may vary in individual circumstances. Finally, the
consequences under applicable state and local income tax laws may not
be the same as under the federal income tax laws.
26
<PAGE>
The number of shares of Common Stock to be issued under the
1997 Purchase Plan to any participant and the value thereof will depend
on the purchase price(s) applicable under the 1997 Purchase Plan and
are not determinable at this time.
Board Recommendation
For the reasons set forth above, the Board of Directors
believes that it is in the best interests of the Company and its
stockholders to adopt the 1997 Purchase Plan in order to help attract,
retain and motivate qualified employees. A majority of the votes cast
at the Annual Meeting are necessary for the approval of this proposal.
The Board of Directors recommends a vote "FOR" this proposal.
STOCKHOLDER PROPOSALS FOR 1998
Under the rules of the S.E.C., any stockholder proposal
intended for inclusion in the proxy material for the annual meeting of
stockholders to be held in 1998 must be received by the Company by
December 15, 1997 to be eligible for inclusion in such proxy material.
Proposals should be addressed to John C. Welling, Secretary, DIGEX,
Incorporated, One DIGEX Plaza, Beltsville, Maryland 20705. Proposals
must comply with the proxy rules of the S.E.C. relating to stockholder
proposals in order to be included in the proxy materials.
Any stockholder who meets the requirements of the proxy rules
under the Securities Exchange Act of 1934 may nominate a candidate for
director of the Company. Any such nomination should be submitted in
writing by notice delivered or mailed by first-class United States
mail, postage prepaid, to John C. Welling, Secretary, DIGEX,
Incorporated, One DIGEX Plaza, Beltsville, Maryland 20705, and must be
received by December 15, 1997. Any such notice shall set forth: (a) the
name and address of the stockholder who intends to make the nomination
and of the person or persons to be nominated; (b) a representation that
the stockholder is a holder of record of Company Common Stock entitled
to vote at such meeting and intends to appear in person or by proxy at
the meeting to nominate the person or persons specified in the notice;
(c) a description of all arrangements or understandings between the
stockholder and each nominee and any other person or persons (naming
such person or persons) pursuant to which the nomination or nominations
are to be made by the stockholder; (d) such other information regarding
each nominee proposed by such stockholder as would be required to be
included in a proxy statement filed pursuant to the proxy rules of the
S.E.C., had the nominee been nominated, or intended to be nominated, by
the Board of Directors; and (e) the consent of each nominee to serve as
director of the Company if so elected. The chairman of the meeting may
refuse to acknowledge the nomination of any person not made in
compliance with the foregoing procedure.
GENERAL
The Company's Annual Report for 1996, including consolidated
financial statements and other information (the "1996 Annual Report"),
accompanies this Proxy Statement but does not form a part of the proxy
soliciting material. A complete list of the stockholders of record
entitled to vote at the Annual Meeting will be open and available for
examination by any stockholder, for any purpose germane to the Annual
Meeting at the Company's offices at One DIGEX Plaza, Beltsville,
Maryland 20705, from May 12, 1997 through May 20, 1997, between 9:00
a.m. and 5:00 p.m. (e.d.t), and on May 21, 1997, from 9:00 a.m.
through the adjournment of the Annual Meeting.
The Company will provide each of its stockholders, without
charge, upon the written request of any such person, a copy of the
Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1996 (the "1996 Form 10-KSB"), including the financial
statements required to be filed with the S.E.C. pursuant to the rules
promulgated under the Securities Exchange Act of 1934. Exhibits to the
1996 Form 10-KSB will not be supplied unless specifically requested,
for which there may be a reasonable charge. Those
27
<PAGE>
stockholders wishing to obtain a copy of the 1996 Form 10-KSB should
submit a written request to John C. Welling, Secretary, DIGEX,
Incorporated, One DIGEX Plaza, Beltsville, Maryland 20705.
In addition to solicitation by mail, proxies may be solicited
in person, or by telephone or telegraph, by directors and by officers
and other regular employees of the Company. The Company has also
retained American Stock Transfer & Trust to act as solicitation agent
on behalf of the Company. All expenses in connection with the
preparation of proxy material and the solicitation of proxies will be
borne by the Company.
By the Order of the Board of Directors
/s/ John C. Welling
John C. Welling
Secretary
Beltsville, Maryland
April 25, 1997
<PAGE>
APPENDIX I
THE DIGEX, INCORPORATED 1996 EQUITY PARTICIPATION PLAN
DIGEX, Incorporated, a Maryland corporation, has adopted the
DIGEX, Incorporated 1996 Equity Participation Plan (the "Plan"),
effective May 31, 1996, for the benefit of its eligible employees,
consultants and directors. The Plan consists of two plans, one for the
benefit of Employees (as such term is defined below) and consultants
and one for the benefit of Independent Directors (as such term is
defined below).
The purposes of this Plan are as follows:
(1) To provide an additional incentive for directors,
Employees and consultants to further the growth, development and
financial success of the Company by personally benefiting through the
ownership of Company stock and/or rights which recognize such growth,
development and financial success.
(2) To enable the Company to obtain and retain the services of
directors, Employees and consultants considered essential to the long
range success of the Company by offering them an opportunity to own
stock in the Company and/or rights which will reflect the growth,
development and financial success of the Company.
ARTICLE I
DEFINITIONS
1.1 General. Wherever the following terms are used in this
Plan they shall have the meaning specified below, unless the context
clearly indicates otherwise.
1.2 Award Limit. "Award Limit" shall mean 60,000 shares of
Common Stock.
1.3 Board. "Board" shall mean the Board of Directors of the
Company.
1.4 Change in Control. "Change in Control" shall mean any of
the following stockholder-approved transactions to which the Company is
a party:
(a) the sale, transfer, exchange or other disposition
of all or substantially all of the assets of the Company, in
complete liquidation or dissolution of the Company; or
(b) any merger or consolidation immediately after
which securities possessing more than fifty percent (50%) of
the total voting power of the outstanding voting securities of
the entity that survives the merger or consolidation are owned
by persons different from those who held more than fifty
percent (50%) of the total outstanding voting securities of
the Company immediately prior to such merger or consolidation.
1.5 Code. "Code" shall mean the Internal Revenue Code of 1986,
as amended.
<PAGE>
1.6 Committee. "Committee" shall mean the Compensation
Committee of the Board, or another committee, or a subcommittee of the
Board, appointed as provided in Section 9.1.
1.7 Common Stock. "Common Stock" shall mean the common stock
of the Company, par value $0.01 per share, and any equity security of
the Company issued or authorized to be issued in the future, but
excluding any preferred stock and any warrants, options or other rights
to purchase Common Stock. Debt securities of the Company convertible
into Common Stock shall be deemed equity securities of the Company.
1.8 Company. "Company" shall mean DIGEX, Incorporated, a
Maryland corporation.
1.9 Deferred Stock. "Deferred Stock" shall mean Common Stock
awarded under Article VII of this Plan.
1.10 Director. "Director" shall mean a member of the Board.
1.11 Dividend Equivalent. "Dividend Equivalent" shall mean a
right to receive the equivalent value (in cash or Common Stock) of
dividends paid on Common Stock, awarded under Article VII of this Plan.
1.12 DRO. "DRO" shall mean a "domestic relations order" as
defined by the Code or Title I of the Employee Retirement Income
Security Act of 1974, as amended, or the rules thereunder.
1.13 Employee. "Employee" shall mean any officer or other
employee (as defined in accordance with Section 3401(c) of the Code) of
the Company, or of any corporation which is a Subsidiary.
1.14 Exchange Act. "Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended.
1.15 Fair Market Value. "Fair Market Value" of any Plan Share
shall mean, as of any date of determination, the fair market value as
determined in good faith by the Committee; provided, however, that as
of any date of determination from and after an underwritten initial
public offering of Common Stock pursuant to a registration statement
under the Securities Act, Fair Market Value shall mean the average of
the closing prices of the sales of such Common Stock as of such date on
all national securities exchanges on which such securities may at the
time be listed, or, if there have been no sales on any such exchange on
such date, the average of the highest bid and lowest asked prices on
all such exchanges at the close of business of such date, or, if on any
date no such shares of Common Stock are so listed, the average of the
representative bid and asked prices quoted in the NASDAQ System as of
4:00 P.M., New York time, or, if on any date such securities are not
quoted in the NASDAQ System, the average of the highest bid and lowest
asked prices on such date in the domestic over-the-counter market as
reported by the National Quotation Bureau Incorporated, or any similar
successor organization, in each such case averaged over the period of
the 20 consecutive business days prior to the date of determination.
A-2
<PAGE>
1.16 Grantee. "Grantee" shall mean an Employee or consultant
granted a Performance Award, Dividend Equivalent, Stock Payment or
Stock Appreciation Right, or an award of Deferred Stock, under this
Plan.
1.17 Incentive Stock Option. "Incentive Stock Option" shall
mean an option which conforms to the applicable provisions of Section
422 of the Code and which is designated as an Incentive Stock Option by
the Committee.
1.18 Independent Director. "Independent Director" shall mean a
member of the Board who is not an Employee of the Company.
1.19 Non-Qualified Stock Option. "Non-Qualified Stock Option"
shall mean an Option which is not designated as an Incentive Stock
Option by the
Committee.
1.20 Option. "Option" shall mean a stock option granted under
Article III of this Plan. An Option granted under this Plan shall, as
determined by the Committee, be either a Non-Qualified Stock Option or
an Incentive Stock Option; provided, however, that Options granted to
Independent Directors and consultants shall be Non-Qualified Stock
Options.
1.21 Optionee. "Optionee" shall mean an Employee, consultant
or Independent Director granted an Option under this Plan.
1.22 Performance Award. "Performance Award" shall mean a cash
bonus, stock bonus or other performance or incentive award that is paid
in cash, Common Stock or a combination of both, awarded under Article
VII of this Plan.
1.23 Plan. "Plan" shall mean this DIGEX, Incorporated 1996
Equity Participation Plan.
1.24 Restricted Stock. "Restricted Stock" shall mean Common
Stock awarded under Article VI of this Plan.
1.25 Restricted Stockholder. "Restricted Stockholder" shall
mean an Employee or consultant granted an award of Restricted Stock
under Article VI of this Plan.
1.26 Rule 16b-3. "Rule 16b-3" shall mean that certain Rule
16b-3 under the Exchange Act, as such Rule may be amended from time to
time.
1.27 Stock Appreciation Right. "Stock Appreciation Right"
shall mean a stock appreciation right granted under Article VIII of
this Plan.
1.28 Stock Payment. "Stock Payment" shall mean (i) a payment
in the form of shares of Common Stock, or (ii) an option or other right
to purchase shares of Common Stock, as part of a deferred compensation
arrangement, made in lieu of all or any portion of the compensation,
including without limitation, salary, bonuses and commissions, that
would otherwise become payable to an Employee or consultant in cash,
awarded under Article VII of this Plan.
1.29 Subsidiary. "Subsidiary" shall mean any corporation in an
unbroken chain of corporations beginning with the Company if each of
the corporations other than the last corporation
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in the unbroken chain then owns stock possessing 50 percent or more of
the total combined voting power of all classes of stock in one of the
other corporations in such chain.
1.30 Termination of Consultancy. "Termination of Consultancy"
shall mean the time when the engagement of an Optionee, Grantee or
Restricted Stockholder as a consultant to the Company or a Subsidiary
is terminated for any reason, with or without cause, including, but not
by way of limitation, by resignation, discharge, death or retirement;
but excluding terminations where there is a simultaneous commencement
of employment with the Company or any Subsidiary. The Committee, in its
sole discretion, shall determine the effect of all matters and
questions relating to Termination of Consultancy, including, but not by
way of limitation, the question of whether a Termination of Consultancy
resulted from a discharge for good cause, and all questions of whether
a particular leave of absence constitutes a Termination of Consultancy.
Notwithstanding any other provision of this Plan, the Company or any
Subsidiary has an absolute and unrestricted right to terminate a
consultant's service at any time for any reason whatsoever, with or
without cause, except to the extent expressly provided otherwise in
writing.
1.31 Termination of Directorship. "Termination of
Directorship" shall mean the time when an Optionee who is an
Independent Director ceases to be a Director for any reason, including,
but not by way of limitation, a termination by resignation, failure to
be elected, removal, death or retirement. The Board, in its sole
discretion, shall determine the effect of all matters and questions
relating to Termination of Directorship with respect to Independent
Directors.
1.32 Termination of Employment. "Termination of Employment"
shall mean the time when the employee-employer relationship between an
Optionee, Grantee or Restricted Stockholder and the Company or any
Subsidiary is terminated for any reason, with or without cause,
including, but not by way of limitation, a termination by resignation,
discharge, death, disability or retirement; but excluding (i)
terminations where there is a simultaneous reemployment or continuing
employment of an Optionee, Grantee or Restricted Stockholder by the
Company or any Subsidiary, (ii) at the sole discretion of the
Committee, terminations which result in a temporary severance of the
employee-employer relationship, and (iii) at the sole discretion of the
Committee, terminations which are followed by the simultaneous
establishment of a consulting relationship by the Company or a
Subsidiary with the former employee. The Committee, in its sole
discretion, shall determine the effect of all matters and questions
relating to Termination of Employment, including, but not by way of
limitation, the question of whether a Termination of Employment
resulted from a discharge for good cause, and all questions of whether
a particular leave of absence constitutes a Termination of Employment;
provided, however, that, with respect to Incentive Stock Options, a
leave of absence, change in status from an employee to an independent
contractor or other change in the employee- employer relationship shall
constitute a Termination of Employment if, and to the extent that, such
leave of absence, change in status or other change interrupts
employment for the purposes of Section 422(a)(2) of the Code and the
then applicable regulations and revenue rulings under said Section.
Notwithstanding any other provision of this Plan, the Company or any
Subsidiary has an absolute and unrestricted right to terminate an
Employee's employment at any time for any reason whatsoever, with or
without cause, except to the extent expressly provided otherwise in
writing.
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ARTICLE II
SHARES SUBJECT TO PLAN
2.1 Shares Subject to Plan.
(a) The shares of stock subject to Options, awards of
Restricted Stock, Performance Awards, Dividend Equivalents, awards of
Deferred Stock, Stock Payments or Stock Appreciation Rights shall be
Common Stock. The aggregate number of such shares which may be issued
upon exercise of such Options or rights or upon any such awards under
the Plan shall not exceed two million five hundred thousand four
hundred eighty (2,500,480); provided however, that shares in excess of
one million four hundred one thousand four hundred twenty-six
(1,401,426) may only be issued to the extent of the number of shares
for which options granted under the Company's Incentive Stock Option
Plan and outstanding as of May 31, 1996 expire unexercised or are
otherwise cancelled during the term of this Plan. The shares of Common
Stock issuable upon exercise of such options or rights or upon any such
awards may be either previously authorized but unissued shares or
treasury shares.
(b) The maximum number of shares which may be subject to
Options or Stock Appreciation Rights granted under the Plan to any
individual in any calendar year shall not exceed the Award Limit. To
the extent required by Section 162(m) of the Code, shares subject to
Options which are canceled continue to be counted against the Award
Limit and if, after grant of an Option, the price of shares subject to
such Option is reduced, the transaction is treated as a cancellation of
the Option and a grant of a new Option and both the Option deemed to be
canceled and the Option deemed to be granted are counted against the
Award Limit. Furthermore, to the extent required by Section 162(m) of
the Code, if, after grant of a Stock Appreciation Right, the base
amount on which stock appreciation is calculated is reduced to reflect
a reduction in the Fair Market Value of the Company's Common Stock, the
transaction is treated as a cancellation of the Stock Appreciation
Right and a grant of a new Stock Appreciation Right and both the Stock
Appreciation Right deemed to be canceled and the Stock Appreciation
Right deemed to be granted are counted against the Award Limit.
2.2 Add-back of Options and Other Rights. If any Option, or
other right to acquire shares of Common Stock under any other award
under this Plan, expires or is canceled without having been fully
exercised, or is exercised in whole or in part for cash as permitted by
this Plan, the number of shares subject to such Option or other right
but as to which such Option or other right was not exercised prior to
its expiration, cancellation or exercise may again be optioned, granted
or awarded hereunder, subject to the limitations of Section 2.1.
Furthermore, any shares subject to Options or other awards which are
adjusted pursuant to Section 10.3 and become exercisable with respect
to shares of stock of another corporation shall be considered cancelled
and may again be optioned, granted or awarded hereunder, subject to the
limitations of Section 2.1. Shares of Common Stock which are delivered
by the Optionee or Grantee or withheld by the Company upon the exercise
of any Option or other award under this Plan, in payment of the
exercise price thereof, may again be optioned, granted or awarded
hereunder, subject to the limitations of Section 2.1. If any share of
Restricted Stock is forfeited by the Grantee or repurchased by the
Company pursuant to Section 6.6 hereof, such share may again be
optioned, granted or awarded hereunder, subject to the limitations of
Section 2.1. Notwithstanding the provisions of this Section 2.2, no
shares of Common Stock may again be optioned, granted or awarded if
such action would cause an Incentive Stock Option to fail to qualify as
an incentive stock option under Section 422 of the Code.
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ARTICLE III
GRANTING OF OPTIONS
3.1 Eligibility. Any Employee or consultant selected by the
Committee pursuant to Section 3.4(a)(i) shall be eligible to be granted
an Option. Each Independent Director of the Company shall be eligible
to be granted Options at the times and in the manner set forth in
Section 3.4(d).
3.2 Qualification of Incentive Stock Options. No Incentive
Stock Option shall be granted unless such Option, when granted,
qualifies as an "incentive stock option" under Section 422 of the Code.
No Incentive Stock Option shall be granted to any person who is not an
Employee.
3.3 Granting of Options
(a) The Committee shall from time to time, in its sole
discretion, and subject to applicable limitations of this Plan:
(i) Select from among the Employees or consultants
(including Employees or consultants who have previously
received Options or other awards under this Plan) such of them
as in its opinion should be granted Options;
(ii) Subject to the Award Limit, determine the number
of shares to be subject to such Options granted to the
selected Employees or consultants;
(iii) Determine whether such Options are to be
Incentive Stock Options or Non-Qualified Stock Options and
whether such Options are to qualify as performance-based
compensation as described in Section 162(m)(4)(C) of the Code;
and
(iv) Determine the terms and conditions of such
Options, consistent with this Plan; provided, however, that
the terms and conditions of Options intended to qualify as
performance-based compensation as described in Section
162(m)(4)(C) of the Code shall include, but not be limited to,
such terms and conditions as may be necessary to meet the
applicable provisions of Section 162(m) of the Code.
(b) Upon the selection of an Employee or consultant to be
granted an Option, the Committee shall instruct the Secretary of the
Company to issue the Option and may impose such conditions on the grant
of the Option as it deems appropriate. Without limiting the generality
of the preceding sentence, the Committee may, in its sole discretion
and on such terms as it deems appropriate, require as a condition on
the grant of an Option to an Employee or consultant that the Employee
or consultant surrender for cancellation some or all of the unexercised
Options, awards of Restricted Stock or Deferred Stock, Performance
Awards, Stock Appreciation Rights, Dividend Equivalents or Stock
Payments or other rights which have been previously granted to him or
her under this Plan or otherwise. An Option, the grant of which is
conditioned upon such surrender, may have an option price lower (or
higher) than the exercise price of such surrendered Option or other
award, may cover the same (or a lesser or greater) number of shares as
such surrendered Option or other award, may contain such other terms as
the Committee deems appropriate, and shall be
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exercisable in accordance with its terms, without regard to the number
of shares, price, exercise period or any other term or condition of
such surrendered Option or other award.
(c) Any Incentive Stock Option granted under this Plan may be
modified by the Committee to disqualify such option from treatment as
an "incentive stock option" under Section 422 of the Code.
(d) (i) During the term of the Plan following the Company's
initial registration of Common Stock under Section 12 of the Exchange
Act, each person who is then an Independent Director automatically
shall be granted (A) an Option to purchase eight thousand (8,000)
shares of Common Stock (subject to adjustment as provided in Section
10.3) on the date of his or her initial election to the Board and (B)
an Option to purchase eight thousand (8,000) shares of Common
Stock (subject to adjustment as provided in Section 10.3) on the date
of each annual meeting of stockholders after such initial election at
which the Independent Director is reelected to the Board (such Options
collectively, the "Formula Options").
(ii) During the term of the Plan prior to the
Company's initial registration of Common Stock under Section
12 of the Exchange Act, the Board shall from time to time, in
its discretion and subject to the applicable limitations of
this Plan,
(A) Select from among the Independent
Directors (including Independent Directors who have
previously received Options or other awards under
this Plan) such of them as in its opinion should be
granted Options;
(B) Determine the number of shares to be
subject to such Options; and
(C) Determine the terms and conditions of
such Options, consistent with this Plan.
ARTICLE IV
TERMS OF OPTIONS
4.1 Option Agreement. Each Option shall be evidenced by a
written Option Agreement, which shall be executed by the Optionee and
an authorized officer of the Company and which shall contain such terms
and conditions as the Committee (or the Board, in the case of Options
granted to Independent Directors) shall determine, consistent with this
Plan. Option Agreements evidencing Options intended to qualify as
performance-based compensation as described in Section 162(m)(4)(C) of
the Code shall contain such terms and conditions as may be necessary to
meet the applicable provisions of Section 162(m) of the Code. Option
Agreements evidencing Incentive Stock Options shall contain such terms
and conditions as may be necessary to meet the applicable provisions of
Section 422 of the Code.
4.2 Option Price. The price per share of the shares subject to
each Option shall be set by the Committee; provided, however, that such
price shall be no less than the par value of a share of Common Stock,
unless otherwise permitted by applicable state law, and (i) in the case
of Incentive Stock Options and Options intended to qualify as
performance-based compensation as described in Section 162(m)(4)(C) of
the Code, such price shall not be less than 100% of the Fair
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Market Value of a share of Common Stock on the date the Option is
granted; (ii) in the case of Incentive Stock Options granted to an
individual then owning (within the meaning of Section 424(d) of the
Code) more than 10% of the total combined voting power of all classes
of stock of the Company or any Subsidiary or parent corporation thereof
(within the meaning of Section 422 of the Code) such price shall not be
less than 110% of the Fair Market Value of a share of Common Stock on
the date the Option is granted; and (iii) in the case of Formula
Options granted to Independent Directors, such price shall equal 100%
of the Fair Market Value of a share of Common Stock on the date the
Formula Option is granted.
4.3 Option Term. The term of an Option shall be set by the
Committee in its sole discretion; provided, however, that, (i) in the
case of Formula Options granted to Independent Directors, the term
shall be ten (10) years from the date the Formula Option is granted,
subject to Section 5.7 and subject to variation or acceleration only as
determined by the Board, and (ii) in the case of Incentive Stock
Options, the term shall not be more than ten (10) years from the date
the Incentive Stock Option is granted, or five (5) years from such date
if the Incentive Stock Option is granted to an individual then owning
(within the meaning of Section 424(d) of the Code) more than 10% of the
total combined voting power of all classes of stock of the Company or
any Subsidiary or parent corporation thereof (within the meaning of
Section 422 of the Code). Except as limited by requirements of Section
422 of the Code and regulations and rulings thereunder applicable to
Incentive Stock Options, the Committee may extend the term of any
outstanding Option in connection with any Termination of Employment or
Termination of Consultancy of the Optionee, or amend any other term or
condition of such Option relating to such a termination.
4.4 Option Vesting
(a) The period during which the right to exercise an Option in
whole or in part vests in the Optionee shall be set by the Committee
and the Committee may determine that an Option may not be exercised in
whole or in part for a specified period after it is granted; provided,
however, that Formula Options granted to Independent Directors shall
become exercisable in cumulative annual installments of one third each
on each of the first, second and third annual meetings of the Company's
stockholders following the date of grant, without variation or
acceleration hereunder except as provided in Section 10.3(b). At any
time after grant of an Option, the Committee may, in its sole
discretion and subject to whatever terms and conditions it selects,
accelerate the period during which an Option (except a Formula Option
granted to an Independent Director) vests.
(b) No portion of an Option which is unexercisable at
Termination of Employment, Termination of Directorship or Termination
of Consultancy, as applicable, shall thereafter become exercisable,
except as may be otherwise provided by the Committee in the case of
Options granted to Employees or consultants either in the Option
Agreement or by action of the Committee following the grant of the
Option.
(c) To the extent that the aggregate Fair Market Value of
stock with respect to which "incentive stock options" (within the
meaning of Section 422 of the Code, but without regard to Section
422(d) of the Code) are exercisable for the first time by an Optionee
during any calendar year (under the Plan and all other incentive stock
option plans of the Company and any Subsidiary) exceeds $100,000, such
Options shall be treated as Non-Qualified Options to the extent
required by Section 422 of the Code. The rule set forth in the
preceding sentence shall be applied by taking Options into account in
the order in which they were granted. For purposes of this Section
4.4(c),
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the Fair Market Value of stock shall be determined as of the time the
Option with respect to such stock is granted.
4.5 Consideration. In consideration of the granting of an
Option, the Optionee shall agree, in the written Option Agreement, to
render faithful and efficient services to the Company or a Subsidiary,
with such duties and responsibilities as the Company or the Subsidiary
shall from time to time prescribe. Nothing in this Plan or in any
Option Agreement hereunder shall confer upon any Optionee any right to
continue in the employ of, or as a consultant for, the Company or any
Subsidiary, or as a director of the Company, or shall interfere with or
restrict in any way the rights of the Company and any Subsidiary, which
are hereby expressly reserved, to discharge any Optionee at any time
for any reason whatsoever, with or without cause.
ARTICLE V
EXERCISE OF OPTIONS
5.1 Partial Exercise. An exercisable Option may be exercised
in whole or in part. However, an Option shall not be exercisable with
respect to fractional shares and the Committee (or the Board, in the
case of Options granted to Independent Directors) may require that, by
the terms of the Option, a partial exercise be with respect to a
minimum number of shares.
5.2 Manner of Exercise. All or a portion of an exercisable
Option shall be deemed exercised upon delivery of all of the following
to the Secretary of the Company or his office:
(a) A written notice complying with the applicable rules
established by the Committee (or the Board, in the case of Options
granted to Independent Directors) stating that the Option, or a portion
thereof, is exercised. The notice shall be signed by the Optionee or
other person then entitled to exercise the Option or such portion;
(b) Such representations and documents as the Committee (or
the Board, in the case of Options granted to Independent Directors), in
its sole discretion, deems necessary or advisable to effect compliance
with all applicable provisions of the Securities Act of 1933, as
amended, and any other federal or state securities laws or regulations.
The Committee or Board may, in its sole discretion, also take whatever
additional actions it deems appropriate to effect such compliance
including, without limitation, placing legends on share certificates
and issuing stop-transfer notices to agents and registrars;
(c) In the event that the Option shall be exercised pursuant
to Section 10.1 by any person or persons other than the Optionee,
appropriate proof of the right of such person or persons to exercise
the Option; and
(d) Full cash payment to the Secretary of the Company for the
shares with respect to which the Option, or portion thereof, is
exercised. However, the Committee (or the Board, in the case of Options
granted to Independent Directors), may in its sole discretion (i) allow
a delay in payment up to thirty (30) days from the date the Option, or
portion thereof, is exercised; (ii) allow payment, in whole or in part,
through the delivery of shares of Common Stock owned by the Optionee,
duly endorsed for transfer to the Company with a Fair Market Value on
the date of delivery equal to the aggregate exercise price of the
Option or exercised portion thereof; (iii) allow payment, in whole or
in part, through the surrender of shares of Common Stock then issuable
upon
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exercise of the Option having a Fair Market Value on the date of Option
exercise equal to the aggregate exercise price of the Option or
exercised portion thereof; (iv) allow payment, in whole or in part,
through the delivery of property of any kind which constitutes good and
valuable consideration; (v) allow payment, in whole or in part, through
the delivery of a full recourse promissory note bearing interest (at no
less than such rate as shall then preclude the imputation of interest
under the Code) and payable upon such terms as may be prescribed by the
Committee or the Board, (vi) allow payment, in whole or in part,
through the delivery of a notice that the Optionee has placed a market
sell order with a broker with respect to shares of Common Stock then
issuable upon exercise of the Option, and that the broker has been
directed to pay a sufficient portion of the net proceeds of the sale to
the Company in satisfaction of the Option exercise price; or (vii)
allow payment through any combination of the consideration provided in
the foregoing subparagraphs (ii), (iii), (iv), (v) and (vi). In the
case of a promissory note, the Committee (or the Board, in the case of
Options granted to Independent Directors) may also prescribe the form
of such note and the security to be given for such note. The Option may
not be exercised, however, by delivery of a promissory note or by a
loan from the Company when or where such loan or other extension of
credit is prohibited by law.
5.3 Conditions to Issuance of Stock Certificates. The Company
shall not be required to issue or deliver any certificate or
certificates for shares of stock purchased upon the exercise of any
Option or portion thereof prior to fulfillment of all of the following
conditions:
(a) The admission of such shares to listing on all stock
exchanges on which such class of stock is then listed;
(b) The completion of any registration or other qualification
of such shares under any state or federal law, or under the rulings or
regulations of the Securities and Exchange Commission or any other
governmental regulatory body which the Committee or Board shall, in its
sole discretion, deem necessary or advisable;
(c) The obtaining of any approval or other clearance from any
state or federal governmental agency which the Committee (or Board, in
the case of Options granted to Independent Directors) shall, in its
sole discretion, determine to be necessary or advisable;
(d) The lapse of such reasonable period of time following the
exercise of the Option as the Committee (or Board, in the case of
Options granted to Independent Directors) may establish from time to
time for reasons of administrative convenience; and
(e) The receipt by the Company of full payment for such
shares, including payment of any applicable withholding tax.
5.4 Rights as Stockholders. The holders of Options shall not
be, nor have any of the rights or privileges of, stockholders of the
Company in respect of any shares purchasable upon the exercise of any
part of an Option unless and until certificates representing such
shares have been issued by the Company to such holders.
5.5 Ownership and Transfer Restrictions. The Committee (or
Board, in the case of Options granted to Independent Directors), in its
sole discretion, may impose such restrictions on the ownership and
transferability of the shares purchasable upon the exercise of an
Option as it deems appropriate. Any such restriction shall be set forth
in the respective Option Agreement and may be
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referred to on the certificates evidencing such shares. The Committee
may require the Employee to give the Company prompt notice of any
disposition of shares of Common Stock acquired by exercise of an
Incentive Stock Option within (i) two years from the date of granting
such Option to such Employee or (ii) one year after the transfer of
such shares to such Employee. The Committee may direct that the
certificates evidencing shares acquired by exercise of an Option refer
to such requirement to give prompt notice of disposition.
5.6 Limitations on Exercise of Formula Options Granted to
Independent Directors. No Formula Option granted to an Independent
Director may be exercised to any extent by anyone after the first to
occur of the following events:
(a) the expiration of twelve (12) months from the date of the
Optionee's death;
(b) the expiration of twelve (12) months from the date of the
Optionee's Termination of Directorship by reason of his or her
permanent and total disability (within the meaning of Section 22(e)(3)
of the Code);
(c) the expiration of thirty (30) days from the date of the
Optionee's Termination of Directorship by reason of removal for cause,
as determined by the Board;
(d) the expiration of three (3) months from the date of the
Optionee's Termination of Directorship for any reason other than
removal for cause or the Optionee's death or his or her permanent and
total disability, unless the Optionee dies within said three-month
period; or
(e) The expiration of ten years from the date the Option was
granted.
ARTICLE VI
AWARD OF RESTRICTED STOCK
6.1 Award of Restricted Stock
(a) The Committee may from time to time, in its sole
discretion:
(i) Select from among the Employees or consultants
(including Employees or consultants who have previously
received other awards under this Plan) such of them as in its
opinion should be awarded Restricted Stock; and
(ii) Determine the purchase price, if any, and other
terms and conditions applicable to such Restricted Stock,
consistent with this Plan.
(b) The Committee shall establish the purchase price, if any,
and form of payment for Restricted Stock; provided, however, that such
purchase price shall be no less than the par value of the Common Stock
to be purchased, unless otherwise permitted by applicable state law. In
all cases, legal consideration shall be required for each issuance of
Restricted Stock.
(c) Upon the selection of an Employee or consultant to be
awarded Restricted Stock, the Committee shall instruct the Secretary of
the Company to issue such Restricted Stock and may impose such
conditions on the issuance of such Restricted Stock as it deems
appropriate.
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6.2 Restricted Stock Agreement. Restricted Stock shall be
issued only pursuant to a written Restricted Stock Agreement, which
shall be executed by the selected Employee or consultant and an
authorized officer of the Company and which shall contain such terms
and conditions as the Committee shall determine, consistent with this
Plan.
6.3 Consideration. As consideration for the issuance of
Restricted Stock, in addition to payment of any purchase price, the
Restricted Stockholder shall agree, in the written Restricted Stock
Agreement, to render faithful and efficient services to the Company or
a Subsidiary, with such duties and responsibilities as the Company or
the Subsidiary shall from time to time prescribe. Nothing in this Plan
or in any Restricted Stock Agreement hereunder shall confer on any
Restricted Stockholder any right to continue in the employ of, or as a
consultant for, the Company or any Subsidiary or shall interfere with
or restrict in any way the rights of the Company and any Subsidiary,
which are hereby expressly reserved, to discharge any Restricted
Stockholder at any time for any reason whatsoever, with or without good
cause.
6.4 Rights as Stockholders. Upon delivery of the shares of
Restricted Stock to the escrow holder pursuant to Section 6.7, the
Restricted Stockholder shall have, unless otherwise provided by the
Committee, all the rights of a stockholder with respect to said shares,
subject to the restrictions in his Restricted Stock Agreement,
including the right to receive all dividends and other distributions
paid or made with respect to the shares; provided, however, that in the
sole discretion of the Committee, any extraordinary distributions with
respect to the Common Stock shall be subject to the restrictions set
forth in Section 6.5.
6.5 Restriction. All shares of Restricted Stock issued under
this Plan (including any shares received by holders thereof with
respect to shares of Restricted Stock as a result of stock dividends,
stock splits or any other form of recapitalization) shall, in the terms
of each individual Restricted Stock Agreement, be subject to such
restrictions as the Committee shall provide, which restrictions may
include, without limitation, restrictions concerning voting rights and
transferability and restrictions based on duration of employment with
the Company, Company performance and individual performance; provided,
however, that by action taken after the Restricted Stock is issued, the
Committee may, on such terms and conditions as it may determine to be
appropriate, remove any or all of the restrictions imposed by the terms
of the Restricted Stock Agreement. Restricted Stock may not be sold or
encumbered until all restrictions are terminated or expire. Unless
provided otherwise by the Committee, if no consideration was paid by
the Restricted Stockholder upon issuance, a Restricted Stockholder's
rights in unvested Restricted Stock shall lapse upon Termination of
Employment or, if applicable, upon Termination of Consultancy with the
Company.
6.6 Repurchase of Restricted Stock. The Committee shall
provide in the terms of each individual Restricted Stock Agreement that
the Company shall have the right to repurchase from the Restricted
Stockholder the Restricted Stock then subject to restrictions under the
Restricted Stock Agreement immediately upon a Termination of Employment
or, if applicable, upon a Termination of Consultancy between the
Restricted Stockholder and the Company, at a cash price per share equal
to the price paid by the Restricted Stockholder for such Restricted
Stock; provided, however, that provision may be made that no such right
of repurchase shall exist in the event of a Termination of Employment
or Termination of Consultancy without cause, or following a change in
control of the Company or because of the Restricted Stockholder's
retirement, death or disability, or otherwise.
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6.7 Escrow. The Secretary of the Company or such other escrow
holder as the Committee may appoint shall retain physical custody of
each certificate representing Restricted Stock until all of the
restrictions imposed under the Restricted Stock Agreement with respect
to the shares evidenced by such certificate expire or shall have been
removed.
6.8 Legend. In order to enforce the restrictions imposed upon
shares of Restricted Stock hereunder, the Committee shall cause a
legend or legends to be placed on certificates representing all shares
of Restricted Stock that are still subject to restrictions under
Restricted Stock Agreements, which legend or legends shall make
appropriate reference to the conditions imposed thereby.
ARTICLE VII
PERFORMANCE AWARDS, DIVIDEND EQUIVALENTS,
DEFERRED STOCK, STOCK PAYMENTS
7.1 Performance Awards. Any Employee or consultant selected by
the Committee may be granted one or more Performance Awards. The value
of such Performance Awards may be linked to the market value, book
value, net profits or other measure of the value of Common Stock or
other specific performance criteria determined appropriate by the
Committee, in each case on a specified date or dates or over any period
or periods determined by the Committee, or may be based upon the
appreciation in the market value, book value, net profits or other
measure of the value of a specified number of shares of Common Stock
over a fixed period or periods determined by the Committee. In making
such determinations, the Committee shall consider (among such other
factors as it deems relevant in light of the specific type of award)
the contributions, responsibilities and other compensation of the
particular key Employee or consultant.
7.2 Dividend Equivalents. Any Employee or consultant selected
by the Committee may be granted Dividend Equivalents based on the
dividends declared on Common Stock, to be credited as of dividend
payment dates, during the period between the date an Option, Stock
Appreciation Right, Deferred Stock or Performance Award is granted, and
the date such Option, Stock Appreciation Right, Deferred Stock or
Performance Award is exercised, vests or expires, as determined by the
Committee. Such Dividend Equivalents shall be converted to cash or
additional shares of Common Stock by such formula and at such time and
subject to such limitations as may be determined by the Committee. With
respect to Dividend Equivalents granted with respect to Options
intended to be qualified performance-based compensation for purposes of
Section 162(m), such Dividend Equivalents shall be payable regardless
of whether such Option is exercised.
7.3 Stock Payments. Any Employee or consultant selected by the
Committee may receive Stock Payments in the manner determined from time
to time by the Committee. The number of shares shall be determined by
the Committee and may be based upon the Fair Market Value, book value,
net profits or other measure of the value of Common Stock or other
specific performance criteria determined appropriate by the Committee,
determined on the date such Stock Payment is made or on any date
thereafter.
7.4 Deferred Stock. Any Employee or consultant selected by the
Committee may be granted an award of Deferred Stock in the manner
determined from time to time by the Committee. The number of shares of
Deferred Stock shall be determined by the Committee and may be linked
to the market value, book value, net profits or other measure of the
value of Common Stock
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or other specific performance criteria determined to be appropriate by
the Committee, in each case on a specified date or dates or over any
period or periods determined by the Committee. Common Stock underlying
a Deferred Stock award will not be issued until the Deferred Stock
award has vested, pursuant to a vesting schedule or performance
criteria set by the Committee. Unless otherwise provided by the
Committee, a Grantee of Deferred Stock shall have no rights as a
Company stockholder with respect to such Deferred Stock until such time
as the award has vested and the Common Stock underlying the award has
been issued.
7.5 Performance Award Agreement, Dividend Equivalent
Agreement, Deferred Stock Agreement, Stock Payment Agreement. Each
Performance Award, Dividend Equivalent, award of Deferred Stock and/or
Stock Payment shall be evidenced by a written agreement, which shall be
executed by the Grantee and an authorized Officer of the Company and
which shall contain such terms and conditions as the Committee shall
determine, consistent with this Plan.
7.6 Term. The term of a Performance Award, Dividend
Equivalent, award of Deferred Stock and/or Stock Payment shall be set
by the Committee in its sole discretion.
7.7 Exercise Upon Termination of Employment. A Performance
Award, Dividend Equivalent, award of Deferred Stock and/or Stock
Payment is exercisable or payable only while the Grantee is an Employee
or consultant; provided that the Committee may determine that the
Performance Award, Dividend Equivalent, award of Deferred Stock and/or
Stock Payment may be exercised or paid subsequent to Termination of
Employment or Termination of Consultancy without cause, or following a
change in control of the Company, or because of the Grantee's
retirement, death or disability, or otherwise.
7.8 Payment on Exercise. Payment of the amount determined
under Section 7.1 or 7.2 above shall be in cash, in Common Stock or a
combination of both, as determined by the Committee. To the extent any
payment under this Article VII is effected in Common Stock, it shall be
made subject to satisfaction of all provisions of Section 5.3.
7.9 Consideration. In consideration of the granting of a
Performance Award, Dividend Equivalent, award of Deferred Stock and/or
Stock Payment, the Grantee shall agree, in a written agreement, to
render faithful and efficient services to the Company or a Subsidiary,
with such duties and responsibilities as the Company or the Subsidiary
shall from time to time prescribe. Nothing in this Plan or in any
agreement hereunder shall confer on any Grantee any right to continue
in the employ of, or as a consultant for, the Company or any Subsidiary
or shall interfere with or restrict in any way the rights of the
Company and any Subsidiary, which are hereby expressly reserved, to
discharge any Grantee at any time for any reason whatsoever, with or
without good cause.
ARTICLE VIII
STOCK APPRECIATION RIGHTS
8.1 Grant of Stock Appreciation Rights. A Stock Appreciation
Right may be granted to any Employee or consultant selected by the
Committee. A Stock Appreciation Right may be granted (i) in connection
and simultaneously with the grant of an Option, (ii) with respect to a
previously granted Option, or (iii) independent of an Option. A Stock
Appreciation Right shall be subject to such terms and conditions not
inconsistent with this Plan as the Committee shall impose and
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shall be evidenced by a written Stock Appreciation Right Agreement,
which shall be executed by the Grantee and an authorized officer of the
Company. The Committee, in its sole discretion, may determine whether a
Stock Appreciation Right is to qualify as performance-based
compensation as described in Section 162(m)(4)(C) of the Code and Stock
Appreciation Right Agreements evidencing Stock Appreciation Rights
intended to so qualify shall contain such terms and conditions as may
be necessary to meet the applicable provisions of section 162(m) of the
Code. Without limiting the generality of the foregoing, the Committee
may, in its sole discretion and on such terms as it deems appropriate,
require as a condition of the grant of a Stock Appreciation Right to an
Employee or consultant that the Employee or consultant surrender for
cancellation some or all of the unexercised Options, awards of
Restricted Stock or Deferred Stock, Performance Awards, Stock
Appreciation Rights, Dividend Equivalents or Stock Payments, or other
rights which have been previously granted to him or her under this Plan
or otherwise. A Stock Appreciation Right, the grant of which is
conditioned upon such surrender, may have an exercise price lower (or
higher) than the exercise price of the surrendered Option or other
award, may cover the same (or a lesser or greater) number of shares as
such surrendered Option or other award, may contain such other terms as
the Committee deems appropriate, and shall be exercisable in accordance
with its terms, without regard to the number of shares, price, exercise
period or any other term or condition of such surrendered Option or
other award.
8.2 Coupled Stock Appreciation Rights
(a) A Coupled Stock Appreciation Right ("CSAR") shall be
related to a particular Option and shall be exercisable only when and
to the extent the related Option is exercisable.
(b) A CSAR may be granted to the Grantee for no more than the
number of shares subject to the simultaneously or previously granted
Option to which it is coupled.
(c) A CSAR shall entitle the Grantee (or other person entitled
to exercise the Option pursuant to this Plan) to surrender to the
Company unexercised a portion of the Option to which the CSAR relates
(to the extent then exercisable pursuant to its terms) and to receive
from the Company in exchange therefor an amount determined by
multiplying the difference obtained by subtracting the Option exercise
price from the Fair Market Value of a share of Common Stock on the date
of exercise of the CSAR by the number of shares of Common Stock with
respect to which the CSAR shall have been exercised, subject to any
limitations the Committee may impose.
8.3 Independent Stock Appreciation Rights
(a) An Independent Stock Appreciation Right ("ISAR") shall be
unrelated to any Option and shall have a term set by the Committee. An
ISAR shall be exercisable in such installments as the Committee may
determine. An ISAR shall cover such number of shares of Common Stock as
the Committee may determine. The exercise price per share of Common
Stock subject to each ISAR shall be set by the Committee. An ISAR is
exercisable only while the Grantee is an Employee or consultant;
provided that the Committee may determine that the ISAR may be
exercised subsequent to Termination of Employment or Termination of
Consultancy without cause, or following a change in control of the
Company, or because of the Grantee's retirement, death or disability,
or otherwise.
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(b) An ISAR shall entitle the Grantee (or other person
entitled to exercise the ISAR pursuant to this Plan) to exercise all or
a specified portion of the ISAR (to the extent then exercisable
pursuant to its terms) and to receive from the Company an amount
determined by multiplying the difference obtained by subtracting the
exercise price per share of the ISAR from the Fair Market Value of a
share of Common Stock on the date of exercise of the ISAR by the number
of shares of Common Stock with respect to which the ISAR shall have
been exercised, subject to any limitations the Committee may impose.
8.4 Payment and Limitations on Exercise
(a) Payment of the amount determined under Section 8.2(c) and
8.3(b) above shall be in cash, in Common Stock (based on its Fair
Market Value as of the date the Stock Appreciation Right is exercised)
or a combination of both, as determined by the Committee. To the extent
such payment is effected in Common Stock it shall be made subject to
satisfaction of all provisions of Section 5.3 above pertaining to
Options.
(b) Grantees of Stock Appreciation Rights may be required to
comply with any timing or other restrictions with respect to the
settlement or exercise of a Stock Appreciation Right, including a
window-period limitation, as may be imposed in the discretion of the
Board or Committee.
8.5 Consideration. In consideration of the granting of a Stock
Appreciation Right, the Grantee shall agree, in the written Stock
Appreciation Right Agreement, to render faithful and efficient services
to the Company or a Subsidiary, with such duties and responsibilities
as the Company or the Subsidiary shall from time to time prescribe.
Nothing in this Plan or in any Stock Appreciation Right Agreement
hereunder shall confer on any Grantee any right to continue in the
employ of, or as a consultant for, the Company or any Subsidiary or
shall interfere with or restrict in any way the rights of the Company
and any Subsidiary, which are hereby expressly reserved, to discharge
any Grantee at any time for any reason whatsoever, with or without good
cause.
ARTICLE IX
ADMINISTRATION
9.1 Compensation Committee. Prior to the Company's initial
registration of Common Stock under Section 12 of the Exchange Act, the
Compensation Committee shall consist of the Board (or any committee or
subcommittee thereof). Following such registration, the Compensation
Committee (or another committee or a subcommittee of the Board assuming
the functions of the Committee under this Plan) shall consist of two or
more Independent Directors appointed by and holding office at the
pleasure of the Board, each of whom, if the Board in its sole
discretion so provides, is both a "non-employee director" as defined by
Rule 16b-3 and an "outside director" for purposes of Section 162(m) of
the Code. Appointment of Committee members shall be effective upon
acceptance of appointment. Committee members may resign at any time by
delivering written notice to the Board. Vacancies in the Committee may
be filled by the Board.
9.2 Duties and Powers of Committee. It shall be the duty of
the Committee to conduct the general administration of this Plan in
accordance with its provisions. The Committee shall have the power to
interpret this Plan and the agreements pursuant to which Options,
awards of Restricted Stock or Deferred Stock, Performance Awards, Stock
Appreciation Rights, Dividend
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Equivalents or Stock Payments are granted or awarded, and to adopt such
rules for the administration, interpretation, and application of this
Plan as are consistent therewith and to interpret, amend or revoke any
such rules. Notwithstanding the foregoing, the full Board, acting by a
majority of its members in office, shall conduct the general
administration of the Plan with respect to Options granted to
Independent Directors. Any such grant or award under this Plan need not
be the same with respect to each Optionee, Grantee or Restricted
Stockholder. Any such interpretations and rules with respect to
Incentive Stock Options shall be consistent with the provisions of
Section 422 of the Code. In its sole discretion, the Board may at any
time and from time to time exercise any and all rights and duties of
the Committee under this Plan except with respect to matters which
under Rule 16b-3 or Section 162(m) of the Code, or any regulations or
rules issued thereunder, are required to be determined in the sole
discretion of the Committee.
9.3 Majority Rule; Unanimous Written Consent. The Committee
shall act by a majority of its members in attendance at a meeting at
which a quorum is present or by a memorandum or other written
instrument signed by all members of the Committee.
9.4 Compensation; Professional Assistance; Good Faith Actions.
Members of the Committee shall receive such compensation for their
services as members as may be determined by the Board. All expenses and
liabilities which members of the Committee incur in connection with the
administration of this Plan shall be borne by the Company. The
Committee may, with the approval of the Board, employ attorneys,
consultants, accountants, appraisers, brokers, or other persons. The
Committee, the Company and the Company's officers and Directors shall
be entitled to rely upon the advice, opinions or valuations of any such
persons. All actions taken and all interpretations and determinations
made by the Committee or the Board in good faith shall be final and
binding upon all Optionees, Grantees, Restricted Stockholders, the
Company and all other interested persons. No members of the Committee
or Board shall be personally liable for any action, determination or
interpretation made in good faith with respect to this Plan, Options,
awards of Restricted Stock or Deferred Stock, Performance Awards, Stock
Appreciation Rights, Dividend Equivalents or Stock Payments, and all
members of the Committee and the Board shall be fully protected by the
Company in respect of any such action, determination or interpretation.
ARTICLE X
MISCELLANEOUS PROVISIONS
10.1 Not Transferable.
(a) Options, Restricted Stock awards, Deferred Stock awards,
Performance Awards, Stock Appreciation Rights, Dividend Equivalents or
Stock Payments under this Plan may not be sold, pledged, assigned, or
transferred in any manner other than (i) a transfer made in compliance
with the federal securities laws to a trust or custodianship the
beneficiaries of which, a partnership (general or limited) the partners
of which, or a limited liability company the members of which, may
include only the Grantee, Optionee or Restricted Stockholder his or her
spouse or his or her lineal descendants by blood or adoption; provided
that such transfer is made expressly subject to this Plan and that the
transferee agrees in writing to be bound by the terms and conditions of
this Plan as if such transferee were the Optionee, Restricted
Stockholder or Grantee; (ii) by will or the laws of descent and
distribution; or (iii) pursuant to a DRO, unless and until such rights
or awards have been exercised, or the shares underlying such rights or
awards have been issued, and all restrictions applicable to such shares
have lapsed. No Option, Restricted Stock award, Deferred Stock award,
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Performance Award, Stock Appreciation Right, Dividend Equivalent or
Stock Payment or interest or right therein shall be liable for the
debts, contracts or engagements of the Optionee, Grantee or Restricted
Stockholder or his successors in interest or shall be subject to
disposition by transfer, alienation, anticipation, pledge, encumbrance,
assignment or any other means whether such disposition be voluntary or
involuntary or by operation of law by judgment, levy, attachment,
garnishment or any other legal or equitable proceedings (including
bankruptcy), and any attempted disposition thereof shall be null and
void and of no effect, except to the extent that such disposition is
permitted by the preceding sentence.
(b) During the lifetime of the Optionee or Grantee, only he or
she may exercise an Option or other right or award (or any portion
thereof) granted to him or her under the Plan, unless it has been
disposed of pursuant to the provisions of this Section 10.1. After the
death of the Optionee or Grantee or permitted transferee, any
exercisable portion of an Option or other right or award may, prior to
the time when such portion becomes unexercisable under the Plan or the
applicable Option Agreement or other agreement, be exercised by his or
her personal representative or by any person empowered to do so under
the deceased's will or under the then applicable laws of descent and
distribution.
10.2 Amendment, Suspension or Termination of this Plan. Except
as otherwise provided in this Section 10.2, this Plan may be wholly or
partially amended or otherwise modified, suspended or terminated at any
time or from time to time by the Board or the Committee. However,
without approval of the Company's stockholders given within twelve
months before or after the action by the Board or the Committee, no
action of the Board or the Committee may, except as provided in Section
10.3, increase the limits imposed in Section 2.1 on the maximum number
of shares which may be issued under this Plan or modify the Award
Limit, and no action of the Committee may be taken that would otherwise
require stockholder approval as a matter of applicable law, regulation
or rule. No amendment, suspension or termination of this Plan shall,
without the consent of the holder of Options, Restricted Stock awards,
Deferred Stock awards, Performance Awards, Stock Appreciation Rights,
Dividend Equivalents or Stock Payments, alter or impair any rights or
obligations under any Options, Restricted Stock awards, Deferred Stock
awards, Performance Awards, Stock Appreciation Rights, Dividend
Equivalents or Stock Payments theretofore granted or awarded, unless
the award itself otherwise expressly so provides. No Options,
Restricted Stock, Deferred Stock, Performance Awards, Stock
Appreciation Rights, Dividend Equivalents or Stock Payments may be
granted or awarded during any period of suspension or after termination
of this Plan, and in no event may any Incentive Stock Option be granted
under this Plan after the first to occur of the following events:
(a) The expiration of ten years from the date the Plan is
adopted by the Board; or
(b) The expiration of ten years from the date the Plan is
approved by the Company's stockholders under Section 10.4.
10.3 Changes in Common Stock or Assets of the Company,
Acquisition or Liquidation of the Company and Other Corporate Events.
(a) Subject to Section 10.3(d), in the event that the
Committee (or the Board, in the case of Options granted to Independent
Directors) determines that any dividend or other distribution (whether
in the form of cash, Common Stock, other securities, or other
property),
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recapitalization, reclassification, stock split, reverse stock split,
reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase, liquidation, dissolution, or sale, transfer, exchange or
other disposition of all or substantially all of the assets of the
Company (including, but not limited to, a Change in Control), or
exchange of Common Stock or other securities of the Company, issuance
of warrants or other rights to purchase Common Stock or other
securities of the Company, or other similar corporate transaction or
event, in the Committee's sole discretion (or in the case of Options
granted to Independent Directors, the Board's sole discretion), affects
the Common Stock such that an adjustment is determined by the Committee
to be appropriate in order to prevent dilution or enlargement of the
benefits or potential benefits intended to be made available under the
Plan or with respect to an Option, Restricted Stock award, Performance
Award, Stock Appreciation Right, Dividend Equivalent, Deferred Stock
award or Stock Payment, then the Committee (or the Board, in the case
of Options granted to Independent Directors) shall, in such manner as
it may deem equitable, adjust any or all of
(i) the number and kind of shares of Common Stock (or
other securities or property) with respect to which Options,
Performance Awards, Stock Appreciation Rights, Dividend
Equivalents or Stock Payments may be granted under the Plan,
or which may be granted as Restricted Stock or Deferred Stock
(including, but not limited to, adjustments of the limitations
in Section 2.1 on the maximum number and kind of shares which
may be issued and adjustments of the Award Limit),
(ii) the number and kind of shares of Common Stock
(or other securities or property) subject to outstanding
Options, Performance Awards, Stock Appreciation Rights,
Dividend Equivalents, or Stock Payments, and in the number and
kind of shares of outstanding Restricted Stock or Deferred
Stock, and
(iii) the grant or exercise price with respect to any
Option, Performance Award, Stock Appreciation Right, Dividend
Equivalent or Stock Payment.
(b) Subject to Section 10.3(d), in the event of any Change in
Control or other transaction or event described in Section 10.3(a) or
any unusual or nonrecurring transactions or events affecting the
Company, any affiliate of the Company, or the financial statements of
the Company or any affiliate, or of changes in applicable laws,
regulations, or accounting principles, the Committee (or the Board, in
the case of Options granted to Independent Directors) in its sole
discretion is hereby authorized to take any one or more of the
following actions whenever the Committee (or the Board, in the case of
Options granted to Independent Directors) determines that such action
is appropriate in order to prevent dilution or enlargement of the
benefits or potential benefits intended to be made available under the
Plan or with respect to any option, right or other award under this
Plan, to facilitate such transactions or events or to give effect to
such changes in laws, regulations or principles:
(i) In its sole discretion, and on such terms and
conditions as it deems appropriate, the Committee (or the
Board, in the case of Options granted to Independent
Directors) may provide, either by the terms of the agreement
or by action taken prior to the occurrence of such transaction
or event and either automatically or upon the optionee's
request, for either the purchase of any such Option,
Performance Award, Stock Appreciation Right, Dividend
Equivalent, or Stock Payment, or any Restricted Stock or
Deferred Stock for an amount of cash equal to the amount that
could have been attained upon the exercise of such option,
right or award or realization of the optionee's rights had
such option, right or award
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been currently exercisable or payable or fully vested or the
replacement of such option, right or award with other rights
or property selected by the Committee (or the Board, in the
case of Options granted to Independent Directors) in its sole
discretion;
(ii) In its sole discretion, the Committee (or the
Board, in the case of Options granted to Independent
Directors) may provide, either by the terms of such Option,
Performance Award, Stock Appreciation Right, Dividend
Equivalent, or Stock Payment, or Restricted Stock or Deferred
Stock or by action taken prior to the occurrence of such
transaction or event that it cannot be exercised after such
event;
(iii) In its sole discretion, and on such terms and
conditions as it deems appropriate, the Committee (or the
Board, in the case of Options granted to Independent
Directors) may provide, either by the terms of such Option,
Performance Award, Stock Appreciation Right, Dividend
Equivalent, or Stock Payment, Restricted Stock or Deferred
Stock or by action taken prior to the occurrence of such
transaction or event, that for a specified period of time
prior to such transaction or event, such Option or right or
award shall be exercisable as to all shares covered thereby,
notwithstanding anything to the contrary in (i) Section 4.4 or
(ii) the provisions of such Option, Performance Award, Stock
Appreciation Right, Dividend Equivalent or Stock Payment,
Restricted Stock or Deferred Stock;
(iv) In its sole discretion, and on such terms and
conditions as it deems appropriate, the Committee (or the
Board, in the case of Options granted to Independent
Directors) may provide, either by the terms of such Option,
Performance Award, Stock Appreciation Right, Dividend
Equivalent, or Stock Payment, Restricted Stock or Deferred
Stock or by action taken prior to the occurrence of such
transaction or event, that upon such event, such Option, right
or award be assumed by the successor or survivor corporation,
or a parent or subsidiary thereof, or shall be substituted for
by similar options, rights or awards covering the stock of the
successor or survivor corporation, or a parent or subsidiary
thereof, with appropriate adjustments as to the number and
kind of shares and prices;
(v) In its sole discretion, and on such terms and
conditions as it deems appropriate, the Committee (or the
Board, in the case of Options granted to Independent
Directors) may make adjustments in the number and type of
shares of Common Stock (or other securities or property)
subject to outstanding Options, Performance Award, Stock
Appreciation Rights, Dividend Equivalents, or Stock Payments
and in the number and kind of outstanding Restricted Stock or
Deferred Stock and/or in the terms and conditions of
(including the grant or exercise price), and the criteria
included in, outstanding Options, rights and awards, and
Options, rights and awards which may be granted in the future.
(c) Subject to Section 10.3(d) and 10.8, the Committee (or the
Board, in the case of Options granted to Independent Directors) may, in
its sole discretion, include such further provisions and limitations in
any Option, Performance Award, Stock Appreciation Right, Dividend
Equivalent, or Stock Payment, or Restricted Stock or Deferred Stock
agreement or certificate, as it may deem equitable and in the best
interests of the Company.
(d) With respect to Incentive Stock Options and Options and
Stock Appreciation Rights intended to qualify as performance-based
compensation under Section 162(m), no adjustment or action described in
this Section 10.3 or in any other provision of the Plan shall be
authorized to the extent that such adjustment or action would cause the
Plan to violate Section 422(b)(1) of the Code or
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would cause such option or stock appreciation right to fail to so
qualify under Section 162(m), as the case may be, or any successor
provisions thereto. Furthermore, no such adjustment or action shall be
authorized to the extent such adjustment or action would result in
short-swing profits liability under Section 16 of the Exchange Act or
violate the exemptive conditions of Rule 16b-3 unless the Committee (or
the Board, in the case of Options granted to Independent Directors)
determines that the option or other award is not to comply with such
exemptive conditions. The number of shares of Common Stock subject to
any option, right or award shall always be rounded to the next whole
number.
10.4 Approval of Plan by Stockholders. This Plan will be
submitted for the approval of the Company's stockholders within twelve
months after the date of the Board's initial adoption of this Plan.
Options, Performance Awards, Stock Appreciation Rights, Dividend
Equivalents or Stock Payments may be granted and Restricted Stock or
Deferred Stock may be awarded prior to such stockholder approval,
provided that such Options, Performance Awards, Stock Appreciation
Rights, Dividend Equivalents or Stock Payments shall not be exercisable
and such Restricted Stock or Deferred Stock shall not vest prior to the
time when this Plan is approved by the stockholders, and provided
further that if such approval has not been obtained at the end of said
twelve-month period, all Options, Performance Awards, Stock
Appreciation Rights, Dividend Equivalents or Stock Payments previously
granted and all Restricted Stock or Deferred Stock previously awarded
under this Plan shall thereupon be canceled and become null and void.
10.5 Tax Withholding. The Company shall be entitled to require
payment in cash or deduction from other compensation payable to each
Optionee, Grantee or Restricted Stockholder of any sums required by
federal, state or local tax law to be withheld with respect to the
issuance, vesting or exercise of any Option, Restricted Stock, Deferred
Stock, Performance Award, Stock Appreciation Right, Dividend Equivalent
or Stock Payment. The Committee (or the Board, in the case of Options
granted to Independent Directors) may in its discretion and in
satisfaction of the foregoing requirement allow such Optionee, Grantee
or Restricted Stockholder to elect to have the Company withhold shares
of Common Stock otherwise issuable under such Option or other award (or
allow the return of shares of Common Stock) having a Fair Market Value
equal to the sums required to be withheld.
10.6 Loans. The Committee may, in its sole discretion, extend
one or more loans to Employees in connection with the exercise or
receipt of an Option, Performance Award, Stock Appreciation Right,
Dividend Equivalent or Stock Payment granted under this Plan, or the
issuance of Restricted Stock or Deferred Stock awarded under this Plan.
The terms and conditions of any such loan shall be set by the
Committee.
10.7 Forfeiture Provisions. Pursuant to its general authority
to determine the terms and conditions applicable to awards under the
Plan, the Committee (or the Board, in the case of Options granted to
Independent Directors) shall have the right (to the extent consistent
with the applicable exemptive conditions of Rule 16b-3) to provide, in
the terms of Options or other awards made under the Plan, or to require
the recipient to agree by separate written instrument, that (i) any
proceeds, gains or other economic benefit actually or constructively
received by the recipient upon any receipt or exercise of the award, or
upon the receipt or resale of any Common Stock underlying such award,
must be paid to the Company, and (ii) the award shall terminate and any
unexercised portion of such award (whether or not vested) shall be
forfeited, if (a) a Termination of Employment, Termination of
Consultancy or Termination of Directorship occurs prior to a specified
date, or within a specified time period following receipt or exercise
of the award, or (b) the recipient at any time, or
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during a specified time period, engages in any activity in competition
with the Company, or which is inimical, contrary or harmful to the
interests of the Company, as further defined by the Committee (or the
Board, as applicable).
10.8 Limitations Applicable to Section 16 Persons and
Performance-Based Compensation. Notwithstanding any other provision of
this Plan, this Plan, and any Option, Performance Award, Stock
Appreciation Right, Dividend Equivalent or Stock Payment granted, or
Restricted Stock or Deferred Stock awarded, to any individual who is
then subject to Section 16 of the Exchange Act, shall be subject to any
additional limitations set forth in any applicable exemptive rule under
Section 16 of the Exchange Act (including any amendment to Rule 16b-3
of the Exchange Act) that are requirements for the application of such
exemptive rule. To the extent permitted by applicable law, the Plan,
Options, Performance Awards, Stock Appreciation Rights, Dividend
Equivalents, Stock Payments, Restricted Stock and Deferred Stock
granted or awarded hereunder shall be deemed amended to the extent
necessary to conform to such applicable exemptive rule. Furthermore,
notwithstanding any other provision of this Plan, any Option or Stock
Appreciation Right intended to qualify as performance-based
compensation as described in Section 162(m)(4)(C) of the Code shall be
subject to any additional limitations set forth in Section 162(m) of
the Code (including any amendment to Section 162(m) of the Code) or any
regulations or rulings issued thereunder that are requirements for
qualification as performance-based compensation as described in Section
162(m)(4)(C) of the Code, and this Plan shall be deemed amended to the
extent necessary to conform to such requirements.
10.9 Effect of Plan Upon Options and Compensation Plans. The
adoption of this Plan shall not affect any other compensation or
incentive plans in effect for the Company or any Subsidiary. Nothing in
this Plan shall be construed to limit the right of the Company (i) to
establish any other forms of incentives or compensation for Employees,
Directors or Consultants of the Company or any Subsidiary or (ii) to
grant or assume options or other rights otherwise than under this Plan
in connection with any proper corporate purpose including but not by
way of limitation, the grant or assumption of options in connection
with the acquisition by purchase, lease, merger, consolidation or
otherwise, of the business, stock or assets of any corporation,
partnership, firm or association.
10.10 Compliance with Laws. This Plan, the granting and
vesting of Options, Restricted Stock awards, Deferred Stock awards,
Performance Awards, Stock Appreciation Rights, Dividend Equivalents or
Stock Payments under this Plan and the issuance and delivery of shares
of Common Stock and the payment of money under this Plan or under
Options, Performance Awards, Stock Appreciation Rights, Dividend
Equivalents or Stock Payments granted or Restricted Stock or Deferred
Stock awarded hereunder are subject to compliance with all applicable
federal and state laws, rules and regulations (including but not
limited to state and federal securities law and federal margin
requirements) and to such approvals by any listing, regulatory or
governmental authority as may, in the opinion of counsel for the
Company, be necessary or advisable in connection therewith. Any
securities delivered under this Plan shall be subject to such
restrictions, and the person acquiring such securities shall, if
requested by the Company, provide such assurances and representations
to the Company as the Company may deem necessary or desirable to assure
compliance with all applicable legal requirements. To the extent
permitted by applicable law, the Plan, Options, Restricted Stock
awards, Deferred Stock awards, Performance Awards, Stock Appreciation
Rights, Dividend Equivalents or Stock Payments granted or awarded
hereunder shall be deemed amended to the extent necessary to conform to
such laws, rules and regulations.
A-22
<PAGE>
10.11 Titles. Titles are provided herein for convenience only
and are not to serve as a basis for interpretation or construction of
this Plan.
10.12 Governing Law. This Plan and any agreements hereunder
shall be administered, interpreted and enforced under the internal laws
of the State of Maryland without regard to conflicts of laws thereof.
A-23
<PAGE>
First Amendment to the DIGEX, Incorporated 1996 Equity
Participation Plan
Effective ______________________________, 1997, the DIGEX,
Incorporated 1996 Equity Participation Plan (the "Plan") is hereby
amended as follows:
The second sentence of Section 2.1(a) of the Plan is amended
in its entirety to read as follows:
The aggregate number of such shares which may be
issued upon exercise of such Options or rights or
upon any such awards under the Plan shall not exceed
two million nine hundred thousand four hundred and
eighty (2,900,480); provided, however, that shares in
excess of one million nine hundred one thousand four
hundred and twenty-six (1,901,426) may only be issued
to the extent of the number of shares for which
options granted under the Company's Incentive Stock
Option Plan as of May 31, 1996 expire unexercised or
are otherwise cancelled during the term of this Plan.
A-24
<PAGE>
APPENDIX II
AMENDED AND RESTATED
DIGEX, INCORPORATED
1997 EMPLOYEE STOCK PURCHASE PLAN
ARTICLE I
PURPOSE AND SCOPE OF THE PLAN
1.1 Purpose
The purpose of the DIGEX, Incorporated 1997 Employee Stock
Purchase Plan is to assist employees of DIGEX, Incorporated and its
subsidiaries in acquiring a stock ownership interest in the Company
pursuant to a plan which is intended to qualify as an "employee stock
purchase plan" under Section 423 of the Internal Revenue Code of 1986,
as amended.
1.2 Definitions
Whenever the following terms are used in this Plan, they shall
have the meaning specified below unless the context clearly indicates
to the contrary. The singular pronoun shall include the plural where
the context so indicates.
"Board" shall mean the Board of Directors of the Company.
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
"Committee" shall mean the Stock Purchase Plan Committee of
the Company, which Committee shall administer the Plan as provided in
Section 1.3 hereof.
"Common Stock" shall mean shares of common stock of the
Company.
"Company" shall mean DIGEX, Incorporated.
"Compensation" shall mean the base salary, bonuses, overtime,
and commissions paid to an Employee by the Company or a Subsidiary in
accordance with established payroll procedures.
"Eligible Employee" shall mean an Employee who (a) is
scheduled to work at least 20 hours per week and (b) whose customary
employment is more than five (5) months in a calendar year.
"Employee" shall mean any employee of the Company or a
Subsidiary.
<PAGE>
"Exercise Date" shall mean May 31, 1997 (for each of the first
two Option Periods), August 31, 1997 and November 30, 1997.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
"Fair Market Value" of a share of Common Stock as of a given
date shall mean (i) the average of the closing prices of the sales of
Common Stock on the trading date previous to such date on all national
securities exchanges on which such securities may at the time be
listed, or, if there have been no sales on any such exchange on the
trading date previous to such date, the average of the highest bid and
lowest asked prices on all such exchanges at the close of business on
the trading day previous to such date, or (ii) if on any date no such
shares of Common Stock are so listed, the average of the representative
bid and asked prices quoted in the NASDAQ System as of 4:00 P.M., New
York time on the trading date previous to such date, or (iii) if on any
date such securities are not quoted in the NASDAQ System, the average
of the highest bid and lowest asked prices on the trading date previous
to such date in the domestic over-the-counter market as reported by the
National Quotation Bureau Incorporated, or any similar successor
organization, or (iv) if Common Stock is not publicly traded or quoted
or sold in the over-the-counter market, the fair market value of a
share of Common Stock as established by the Committee acting in good
faith.
"Offering Date" shall mean December 9, 1996, January 31, 1997,
June 1, 1997 and September 1, 1997.
"Option Period" shall mean the period beginning on an Offering
Date and ending on the next succeeding Exercise Date.
"Option Price" shall mean the purchase price of a share of
Common Stock hereunder as provided in Section 3.1 hereof.
"Participant" shall mean any Eligible Employee who elects to
participate.
"Plan" shall mean this Amended and Restated DIGEX,
Incorporated 1997 Employee Stock Purchase Plan, as the same may be
amended from time to time.
"Plan Account" shall mean an account established and
maintained by the Company in the name of each Participant.
"Subsidiary" shall mean any corporation in an unbroken chain
of corporations beginning with the Company if each of the corporations
other than the last corporation in the unbroken chain then owns stock
possessing 50% or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.
B-2
<PAGE>
1.3 Administration of Plan
The Plan shall be administered by the Committee which shall be
composed of not less than three officers of the Company. Each member of
the Committee shall serve for a term commencing on a date specified by
the Board and continuing until he or she dies or resigns or is removed
from office by the Board. The Committee shall have the power to make,
amend and repeal rules and regulations for the interpretation and
administration of the Plan consistent with the qualification of the
plan under Section 423 of the Code, and the Committee also is
authorized to change the Option Periods, Offering Dates and Exercise
Dates under the Plan by providing written notice to all Employees at
least 15 days prior to the date following which such changes will take
effect. The Committee may delegate administrative tasks under the Plan
to one or more agents. The Committee's interpretation and decisions in
respect to the Plan shall be final and conclusive.
ARTICLE II
PARTICIPATION
2.1 Eligibility
An Eligible Employee may participate in the Plan if
immediately after the applicable Offering Date, such Employee would not
be deemed for purposes of Section 423(b)(3) of the Code to possess 5%
or more of the total combined voting power or value of all classes of
stock of the Company or any Subsidiary.
2.2 Election to Participate; Payroll Deductions
An Eligible Employee may participate in the Plan only by means
of payroll deduction. An Eligible Employee may elect to participate in
the Plan during an Option Period by delivering to the Company in the
calendar month preceding the Offering Date on which such Option Period
commences a written payroll deduction authorization on a form
prescribed by the Company; provided, however that for the Option Period
commencing December 9, an Eligible Employee may elect to participate in
the Plan at any time on or prior to December 9, 1996. Payroll
deductions (a) shall be equal to at least 1%, but not more than 10%, of
the Participant's Compensation as of the Offering Date; (b) must equal
at least five dollars ($5.00) per pay period; and (c) may be expressed
either as (i) a whole number percentage or (ii) a fixed dollar amount,
subject to the provisions of Sections 3.2 and 3.3 hereof. Amounts
deducted from a Participant's Compensation pursuant to this Section 2.2
shall be credited to the Participant's Plan Account.
2.3 Leave of Absence
During leaves of absence approved by the Company and meeting
the requirements of Regulation Section 1.421-7(h)(2) under the Code, a
Participant may continue
B-3
<PAGE>
participation in the Plan by making cash payments to the Company on his
or her normal payday equal to his or her authorized payroll deduction.
ARTICLE III
PURCHASE OF SHARES
3.1 Option Price
The Option Price per share of the Common Stock sold to
Participants hereunder shall be 85% of the Fair Market Value of such
share on either the Offering Date or the Exercise Date of the Option
Period, whichever is lower, but in no event shall the Option Price per
share be less than the par value per share of the Common Stock.
3.2 Purchase of Shares
(a) On each Exercise Date on which he or she is employed, each
Participant will automatically and without any action on his or her
part be deemed to have exercised his or her option to purchase at the
Option Price the largest number of whole shares of Common Stock which
can be purchased with the amount in the Participant's Plan Account;
provided, however, that no Participant shall be permitted to purchase
more than 1,000 shares of Common Stock (as adjusted pursuant to Section
4.2 hereof) pursuant to this Plan. Except as provided in subsection
(c), the balance, if any, remaining in the Participant's Plan Account
(after exercise of his or her option) as of an Exercise Date shall be
carried forward to the next Option Period, unless the Participant has
elected to withdraw from the Plan pursuant to Section 5.1 hereof.
(b) As soon as practicable following each Exercise Date, the
Company will deliver to the Participant a certificate issued in his or
her name for such number of shares. In the event the Company is
required to obtain from any commission or agency authority to issue any
such certificate, the Company will seek to obtain such authority.
Inability of the Company to obtain from any such commission or agency
authority which counsel for the Company deems necessary for the lawful
issuance of any such certificate shall relieve the Company from
liability to any Participant except to refund to him or her the amount
withheld.
(c) If, at any Exercise Date, the sum of
(i) the aggregate number of shares of Common Stock,
if any, previously purchased by the Participant pursuant to
this Plan, and
(ii) the number of shares that may otherwise be
purchased by such Participant on such Exercise Date
exceeds 1,000, the Company shall refund to such Participant within 21
days of such Exercise Date, the excess of
B-4
<PAGE>
(x) the amount in such Participant's Plan Account as
of such Exercise Date, over
(y) the amount necessary to purchase the largest
number of whole shares that when aggregated with the number of
shares, if any, previously purchased by the Participant
pursuant to the Plan shall not exceed 1,000.
(d) The balance, if any, remaining in the Participant's Plan
Account after exercise of his or her option on November 30, 1997 shall
be refunded to him or her within 21 days after such Exercise Date.
3.3 Limitations on Purchase
No Employee shall be granted an option under the Plan which
permits his or her rights to purchase Common Stock under the Plan or
any other employee stock purchase plan of the Company or any of its
Subsidiaries to accrue at a rate which exceeds $25,000 (as measured by
the Fair Market Value of such Common Stock at the time the option is
granted) for each calendar year such option is outstanding. For
purposes of this Section 3.3, the right to purchase Common Stock under
an option accrues when the option (or any portion thereof) becomes
exercisable, and the right to purchase Common Stock which has accrued
under one option under the Plan may not be carried over to any other
option.
3.4 Transferability of Rights
An option granted under the Plan shall not be transferable and
is exercisable only by the Participant. No option or interest or right
therein or part thereof shall be liable for the debts, contracts or
engagements of the Participant or his or her successors in interest or
shall be subject to disposition by alienation, anticipation, pledge,
encumbrance, assignment or any other means whether such disposition be
voluntary or involuntary or by operation of law by judgment, levy,
attachment, garnishment or any other legal or equitable proceedings
(including bankruptcy), and any attempt at disposition thereof shall be
null and void and of no effect.
ARTICLE IV
PROVISIONS RELATING TO COMMON STOCK
4.1 Common Stock Reserved
There shall be 350,000 authorized but unissued or reacquired
shares of Common Stock reserved for issuance pursuant to this Plan,
subject to adjustment in accordance with Section 4.2 hereof.
4.2 Adjustment for Changes in Common Stock
In the event that adjustments are made in the number of
outstanding shares of Common Stock or the shares are exchanged for a
different class of stock of the Company by
B-5
<PAGE>
reason of stock dividend, stock split or other subdivision, the
Committee shall make appropriate adjustments in (a) the number and
class of shares or other securities that may be reserved for purchase
hereunder and (b) the Option Price.
4.3 Merger, Acquisition or Liquidation
In the event of the merger or consolidation of the Company
into another corporation, the acquisition by another corporation of all
or substantially all of the Company's assets or 80% or more of the
Company's then outstanding voting stock or the liquidation or
dissolution of the Company, the date of exercise with respect to
outstanding options shall be the business day immediately preceding the
effective date of such merger, consolidation, acquisition, liquidation
or dissolution unless the Committee administering the Plan shall, in
its sole discretion, provide for the assumption or substitution of such
options in a manner complying with Section 425(a) of the Code.
4.4 Insufficient Shares
If the aggregate funds available for the purchase of Common
Stock on any Exercise Date would cause an issuance of shares in excess
of the number provided for in Section 4.1 hereof, (a) the Committee
shall proportionately reduce the number of shares that would otherwise
be purchased by each Participant in order to eliminate such excess, and
(b) the Plan shall automatically terminate immediately after such
Exercise Date.
4.5 Rights as Stockholders
With respect to shares of Common Stock subject to an option, a
Participant shall not be deemed to be a stockholder and shall not have
any of the rights or privileges of a stockholder. A Participant shall
have the rights and privileges of a stockholder when, but not until, a
certificate for shares has been issued to him or her following exercise
of his or her option.
ARTICLE V
TERMINATION OF PARTICIPATION
5.1 Cessation of Contributions; Voluntary Withdrawal
(a) A Participant may cease payroll deductions during an
Option Period by delivering written notice of such cessation to the
Company. Upon any such cessation, such Participant may elect either to
withdraw from the Plan pursuant to subsection (b) below or to have
amounts credited to his or her Plan Account held in the Plan for the
purchase of Common Stock pursuant to Section 3.2. A Participant who
ceases contributions to the Plan during any Option Period shall not be
permitted to resume contributions to the Plan during such Option
Period.
(b) A Participant may withdraw from the Plan at any time by
written notice to the Company prior to the close of business on an
Exercise Date. Within 21 days after the
B-6
<PAGE>
notice of withdrawal is delivered, the Company shall refund the entire
amount, if any, in a Participant's Plan Account to him or her, and
thereupon, the Participant's payroll deduction authorization, his or
her interest in the Plan and his or her option under the Plan shall
terminate. Any Eligible Employee who withdraws from the Plan may again
become a Participant in accordance with Section 2.2 hereof.
5.2 Termination of Eligibility
(a) A Participant whose employment terminates due to
disability or retirement may elect by written notice to the Company
either to
(i) withdraw the entire amount, if any, in his or her
Plan Account, in which event such amount shall be refunded to
the Participant by the Company within 21 days of the notice,
or
(ii) have the amount used to purchase whole shares of
Common Stock pursuant to Section 3.2 hereof on the next
succeeding Exercise Date and have any remaining balance
refunded.
(b) If a Participant ceases to be eligible under Section 2.1
hereof for any reason other than retirement or disability, the amount
in such Participant's Plan Account will be refunded to the Participant
or his or her designated beneficiary or estate within 21 days of his or
her termination of employment or other cessation of eligibility.
Upon payment by the Company to the Participant or his or her
beneficiary or estate of the remaining balance, if any, in
Participant's Plan Account, the Participant's interest in the Plan and
the Participant's option under the Plan shall terminate.
ARTICLE VI
GENERAL PROVISIONS
6.1 Condition of Employment
Neither the creation of the Plan nor an Employee's
participation therein shall be deemed to create any right of continued
employment or in any way affect the right of the Company or a
Subsidiary to terminate an Employee at any time with or without cause.
6.2 Amendment of the Plan
The Board may amend, suspend or terminate the Plan at any time
and from time to time; provided, however, that without approval of the
Company's stockholders given within 12 months before or after action by
the Board, the Plan may not be amended to increase the maximum number
of shares subject to the Plan or change the designation or class of
Eligible Employees.
B-7
<PAGE>
Upon termination of the Plan, the balance in each
Participant's Plan Account shall be refunded within 21 days of such
termination.
6.3 Use of Funds; No Interest Paid
All funds received by the Company by reason of purchase of
Common Stock hereunder will be included in the general funds of the
Company free of any trust or other restriction and may be used for any
corporate purpose. No interest will be paid to any Participant or
credited under the Plan.
6.4 Term; Approval by Stockholders
The Plan shall terminate on November 30, 1997. No option may
be granted during any period of suspension of the Plan nor after
termination of the Plan. The Plan will be submitted for the approval of
the Company's stockholders within 12 months after the date of the
Board's initial adoption of the Plan. Options may be granted prior to
such stockholder approval; provided, however, that such options shall
not be exercisable prior to the time when the Plan is approved by the
stockholders; provided further that if such approval has not been
obtained by the end of said 12-month period, all options previously
granted under the Plan shall thereupon be cancelled and become null and
void.
6.5 Effect Upon Other Plans
The adoption of the Plan shall not affect any other
compensation or incentive plans in effect for the Company or any
Subsidiary. Nothing in this Plan shall be construed to limit the right
of the Company or any Subsidiary (a) to establish any other forms of
incentives or compensation for employees of the Company or any
Subsidiary or (b) to grant or assume options otherwise than under this
Plan in connection with any proper corporate purpose, including, but
not by way of limitation, the grant or assumption of options in
connection with the acquisition, by purchase, lease, merger,
consolidation or otherwise, of the business, stock or assets of any
corporation, firm or association.
6.6 Conformity to Securities Laws
Notwithstanding any other provision of this Plan, this Plan
and the participation in this Plan by any individual who is then
subject to Section 16 of the Exchange Act shall be subject to any
additional limitations set forth in any applicable exemptive rule under
Section 16 of the Exchange Act (including any amendment to Rule 16b-3
of the Exchange Act) that are requirements for the application of such
exemptive rule. To the extent permitted by applicable law, the Plan
shall be deemed amended to the extent necessary to conform to such
applicable exemptive rule.
6.8 Governing Law
The Plan and all rights and obligations thereunder shall be
construed and enforced in accordance with the laws of the State of
Delaware.
B-8
<PAGE>
DIGEX, Incorporated
PROXY
The undersigned hereby appoints Christopher R. McCleary and
John C. Welling, proxies with full power of substitution and
revocation, to vote the shares of stock of DIGEX, Incorporated which
the undersigned is entitled to vote, at the annual meeting of
stockholders to be held at DIGEX, Incorporated's headquarters, One
DIGEX Plaza, Beltsville, Maryland 20705, on Wednesday May 21, 1997 at
10:00 a.m., and at any adjournment or adjournments thereof, with all
the powers the undersigned would possess if present:
(continued and to be signed on the other side)
[See Reverse Side]
<PAGE>
Please date, sign and mail your proxy card
back as soon as possible!
Annual Meeting of Shareholders
DIGEX, Incorporated
May 21, 1997
<PAGE>
Please Detach and Mail in the Envelope Provided
Please mark your
A /X/ votes as in this
example.
The Board of Directors recommends a vote FOR the
Nominees and FOR Proposals 2, 3 and 4.
1. Election of FOR WITHHOLD
Directors / / / / Nominee: Frank A. Adams
Douglas E. Humphrey
Christopher R. McCleary
FOR, except vote withheld from the following Nominee(s):
--------------------------------------------------------
2. Approval of Ernst & Young LLP as auditors
of the Company. / / / / / /
3. Approval of the Company's 1996 Equity
Participation Plan, as amended to
increase the number of shares available. / / / / / /
4. Approval of the Company's 1997
Employee Stock Purchase Plan. / / / / / /
Change of
Address/comments
on reverse side / /
I Plan to I do not
attend the plan to
meeting / / attend the
meeting / /
SIGNATURE(S)_________________________________
DATE________________________ Note: Please sign exactly as name appears
hereon Joint Owners should each sign. When signing as attorney,
executor, administrator, trustee or guardian, please give full title as
such.
<PAGE>
EXHIBIT 99.6
[LETTERHEAD OF INTERMEDIA COMMUNICATIONS]
NEWS RELEASE
CONTACT: Robert M. Manning
Chief Financial Officer
(813) 829-2403
or
Chris Brown
Sr. Vice President, Investor Relations
(813) 829-2408
INTERMEDIA COMMUNICATIONS TO ACQUIRE DIGEX INCORPORATED
----------------------------------------
COMBINATION EXTENDS INTERMEDIA'S LEADERSHIP POSITION IN FAST-GROWING
BUSINESS DATA COMMUNICATIONS MARKET
TAMPA, FLORIDA (June 5, 1997) -- Intermedia Communications (ICIX: Nasdaq/NM)
and DIGEX Incorporated (DIGEX) (DIGX: Nasdaq/NM) today announced that they have
executed a definitive agreement for the acquisition of DIGEX by Intermedia for
$13 per share or approximately $150 million. The acquisition will be
consummated through a tender offer for all outstanding DIGEX shares, which will
begin next week and will be followed by a cash merger. Management and other
DIGEX option holders will receive Intermedia stock options for their DIGEX stock
options, in lieu of receiving cash. The acquisition was unanimously approved by
the Board of Directors of both companies, and shareholders owning a majority of
the outstanding shares of DIGEX have agreed to sell their shares to Intermedia
for $13 per share.
Intermedia will hold a conference call at 9:00 AM EDT to discuss this
transaction. To participate in this conference, call (800) 236-9153. A 24-hour
replay will be available by calling (800) 633-8284, ID 2832850.
DIGEX is among the limited number of national First Tier Internet service
providers which positions the company to be a strong participant in the fastest
growing sector of the Internet market--business connectivity. It is also a
market leader in Web hosting and management and operates the world's largest
Microsoft NT Web site management facility. DIGEX has over 2,000 customers and a
staff of 450 people, including approximately 150 in sales and marketing.
Monthly annualized revenue was approximately $40 million for March 1997. The
combined company would have had annualized monthly revenue of $241 million for
the same month, with 37% of that total from enhanced data services. The
combined company will have over 18,000 business and government customers, and
over 1,500 employees.
EXCELLENT STRATEGIC FIT
"A fundamental element of Intermedia's mission and a key to its success in
acquiring business telecom market share is the continued expansion of our strong
leadership position in enhanced data
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<PAGE>
ICIX Announces Definitive Agreement
To Acquire DIGEX Incorporated
Page 2
June 5, 1997
services," commented David C. Ruberg, Intermedia's Chairman, President, and
Chief Executive Officer. "This acquisition meets all of our criteria for
strategic acquisitions. Intermedia is acquiring an established quality customer
base, accelerating its time to market with new services, expanding and
increasing network density, and adding high quality employees. With this
acquisition, Intermedia becomes a provider with one of the broadest portfolios
of high value-added data services integrated with traditional local and long
distance voice services. The combined company will have a strong base of
Internet connectivity services. These will enable Intermedia to expand delivery
of a wide range of hosted business applications including multimedia
applications, supporting the needs of electronics commerce."
SIGNIFICANT FINANCIAL SYNERGIES
"Significant financial and operational synergies will be realized upon
integrating the two companies," added Robert M. Manning, Intermedia's Chief
Financial Officer. "We expect to realize minimum cost savings of approximately
$4 million in the second half of 1997, $12 million in 1998, $14 million 1999,
and increasing savings in subsequent years."
Approximately 75% of DIGEX's backbone network overlaps existing or planned
Intermedia network routes. Additional savings should result from substantially
greater purchasing power for leased backbone circuits, from CLEC interconnection
agreements, and from Intermedia's owned local network facilities. Lastly, the
most significant benefit should come from combining the sales efforts and cross-
selling services to the 18,000 business customers of the combined company.
These opportunities were not included in Intermedia's estimate of synergies.
Manning reported that Intermedia expects the transaction to close in the
third quarter of 1997. The resulting third quarter EBITDA for the combined
company is expected to be within the current range of analysts' expectations for
Intermedia. "With the synergies we expect, and the continued rapid growth in
DIGEX's business, this acquisition should accelerate our progression toward
positive free cash flow and adds meaningfully to EBITDA beginning in 1998," he
added.
"After elimination of the duplicate network facility costs, Intermedia will
have acquired a rapidly growing revenue stream with attractive margins that
provide significant incremental return on its already invested capital
infrastructure," Manning concluded.
DIGEX's current network deployment and customer base are concentrated in the
large city markets in the eastern U.S., with service also provided in major west
coast markets. Over 80% of the cities served are covered today by both
Intermedia and DIGEX, increasing the density of Intermedia's already robust
network in the eastern U.S.
MCCLEARY TO CONTINUE LEADING THE DIGEX ORGANIZATION
Chris McCleary, DIGEX's current Chairman, President, and Chief Executive
Officer, and his management team will continue to manage the DIGEX operation.
"Chris has done an excellent job
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<PAGE>
ICIX Announces Definitive Agreement
To Acquire DIGEX Incorporated
Page 3
June 5, 1997
of building a team and a business," commented Ruberg. "We will maintain the
focus he has developed by supporting all of his team's efforts with Intermedia's
resources throughout our service territory.
"DIGEX's consultative selling approach matches Intermedia's; and the DIGEX
customer base and target markets reinforce Intermedia's, allowing us access to
more cross-selling opportunities in these markets," added Ruberg. "The skills
needed to effectively sell DIGEX's current services provide an excellent
foundation for the DIGEX staff to sell Intermedia's full suite of integrated
voice and data telecom services."
Headquartered in suburban Washington, DC, DIGEX is a leading independent
national Internet carrier focusing exclusively on business customers. DIGEX
offers a comprehensive range of Internet solutions, including high-speed
dedicated business Internet connectivity, corporate Web site management services
and private network capacity. The DIGEX Gold Ring/SM/ national fault-tolerant
fiber optic Internet network, engineered utilizing Cisco Systems (NASDAQ: CSCO)
Internet Operating System technology, provides highly reliable service for
mission-critical Internet applications. Company news, product, and service
information are available at www.digex.net.
Intermedia Communications is one of the nation's fastest growing
telecommunications companies. Intermedia provides integrated telecommunications
solutions to business and government customers. These solutions include voice,
data, and video; local and long distance services; and advanced access services
in cities throughout the eastern U.S. Its enhanced data offerings, including
frame relay, ATM, and Internet services offers seamless end-to-end service
virtually anywhere in the world.
Intermedia is headquartered in Tampa, Florida, and is traded on the Nasdaq
National Market under the symbol ICIX. Intermedia can be found on the World
Wide Web at http://www.icix.net.
Bear, Stearns & Co., Inc. acted as exclusive financial advisor to Intermedia
Communications for this transaction. Friedman, Billings, Ramsey & Co., Inc. was
the financial advisor for DIGEX Incorporated.
Statements contained in this news release regarding expected revenues and
other planned events are forward-looking statements, subject to uncertainties
and risks, including, but not limited to, the demand for Intermedia's products
and services, and the ability of the Company to successfully implement its
expanded and accelerated capital deployment plan, each of which may be impacted,
among other things, by economic, competitive or regulatory conditions. These
and other applicable risks are summarized under the caption "Risk Factors" in
the Company's Form 10-K Annual Report for its fiscal year ended December 31,
1996.
###
<PAGE>
[LOGO OF DIGEX BUSINESS INTERNET]
June 11, 1997
Dear Stockholder:
We are pleased to inform you that DIGEX, Incorporated (the "Company") has
entered into an Agreement and Plan of Merger (the "Merger Agreement") with
Intermedia Communications Inc. ("Intermedia") and its subsidiary Daylight
Acquisition Corp. (the "Purchaser"), that provides for the acquisition of the
Company by Intermedia. Under the terms of the Merger Agreement, the Purchaser
today commenced a tender offer to purchase all of the Company's outstanding
common stock at $13.00 per share in cash. Following the successful completion
of the tender offer, under the terms of the Merger Agreement, the Purchaser
will be merged with the Company and all shares not purchased in the tender
offer will receive the same $13.00 in cash in the merger. The acquisition is
subject to antitrust approvals and other customary conditions.
Your Board of Directors has unanimously approved the Merger Agreement, the
tender offer and the merger and determined that the terms of the tender offer
and the merger are fair to, and in the best interest of, the Company and its
stockholders. Accordingly, the Board of Directors recommends that stockholders
accept the offer and tender all of their shares pursuant to the offer.
In arriving at its recommendation, the Board of Directors gave careful
consideration to a number of factors which are described in the enclosed
Schedule 14D-9, including the opinion of the Company's financial advisor,
Friedman, Billings, Ramsey & Co., Inc., that the $13.00 per share cash
consideration to be received by stockholders pursuant to the offer and the
merger, taken as a whole, is fair to such stockholders from a financial point
of view. In addition, certain stockholders of the Company, including its two
founders, have agreed to tender an aggregate of over 50% of the Company's
outstanding shares in the tender offer.
Additional information with respect to the transaction is contained in the
enclosed Schedule 14D-9, and we urge you to consider this information
carefully.
On behalf of the management and directors of the Company, we thank you for
the support you have given to your Company.
Sincerely yours,
/s/ Christopher R. McCleary
Christopher R. McCleary
Chairman of the Board, President
and Chief Executive Officer
