<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
-----------------------
Date of Report (Date of earliest event reported):
May 12, 2000
- -------------------------------------------------------------------------------
Intermedia Communications, Inc.
(Exact name of registrant as specified in its charter)
- -------------------------------------------------------------------------------
Delaware 59-2913586
-------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
0-20135
-------
(Commission File Number)
3625 Queen Palm Drive
Tampa, FL 33619
(Address of principal executive offices)
(813) 829-0011
(Telephone Number)
<PAGE> 2
ITEM 5. Other Events
On May 12, 2000, a subsidiary of Intermedia Communications, Inc. (the
"Company"), Digex, Incorporated ("Digex"), filed the attached Form 10-Q for the
quarter ended March 31, 2000.
ITEM 7. Financial Statements and Exhibits
Exhibit 99.1 Form 10-Q for the Quarter Ended March 31, 2000 for Digex.
<PAGE> 3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: May 12, 2000
INTERMEDIA COMMUNICATIONS, INC.
(Registrant)
/s/ Jeanne M. Walters
----------------------------------------
Jeanne M. Walters
Vice President, Controller, and
Chief Accounting Officer
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description Page
<S> <C> <C>
99.1 Form 10-Q for the Quarter Ended March 31, 2000 for Digex.
</TABLE>
<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 000-26873
DIGEX, INCORPORATED
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 59-3582217
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
</TABLE>
ONE DIGEX PLAZA
BELTSVILLE, MD 20705
(Address of principal executive offices)
(240) 264-2000
Telephone Number
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: Yes [X] No [ ]
As of April 30, 2000, there were 24,150,000 and 39,350,000 shares of the
Registrant's Class A and Class B Common Stock outstanding, respectively.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
DIGEX, INCORPORATED
INDEX
<TABLE>
<CAPTION>
PAGE
NO.
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements (Unaudited):
Condensed Statements of Operations -- Three months ended March 31, 2000 and
1999......................................................................... 1
Condensed Balance Sheets -- March 31, 2000 and December 31, 1999............... 2
Condensed Statements of Cash Flows -- Three months ended March 31, 2000 and
1999......................................................................... 3
Notes to Condensed Financial Statements........................................ 4
Item 2 Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................... 7
Item 3 Quantitative and Qualitative Disclosures about Market Risk..................... 11
PART II. OTHER INFORMATION
Item 1 Legal Proceedings.............................................................. 12
Item 2 Changes in Securities and Use of Proceeds...................................... 12
Item 3 Defaults Upon Senior Securities................................................ 12
Item 4 Submission of Matters to a Vote of Security Holders............................ 12
Item 5 Other Information.............................................................. 12
Item 6 Exhibits and Reports on Form 8-K............................................... 12
Signatures..................................................................... 14
</TABLE>
<PAGE> 3
PART 1: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DIGEX, INCORPORATED
CONDENSED STATEMENTS OF OPERATIONS
UNAUDITED (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
2000 1999
----------- -----------
<S> <C> <C>
Revenues.................................................... $ 27,974 $ 9,392
Costs and expenses:
Cost of operations........................................ 3,940 1,652
Cost of services.......................................... 11,396 3,952
Selling, general and administrative....................... 27,776 8,069
Deferred compensation..................................... 994 --
Depreciation and amortization............................. 12,571 4,314
----------- -----------
Total costs and expenses.................................... 56,677 17,987
----------- -----------
Loss from operations........................................ (28,703) (8,595)
Other income (expense):
Interest expense.......................................... (443) --
Interest and other income................................. 3,500 --
----------- -----------
Net loss.................................................... $ (25,646) $ (8,595)
=========== ===========
Net loss per common share -- basic and diluted.............. $ (0.41) $ (0.17)
=========== ===========
Shares used in computing basic and diluted net loss per
share..................................................... 62,620,879 50,000,000
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
1
<PAGE> 4
DIGEX, INCORPORATED
CONDENSED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
MARCH 31, 2000 DECEMBER 31, 1999
-------------- -----------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 283,340 $ 88,778
Accounts receivable, net of allowance of $3,234 and $4,362
in 2000 and 1999, respectively......................... 23,006 17,271
Due from Intermedia....................................... -- 3,110
Prepaid expenses and other current assets................. 2,081 1,496
----------- -----------
Total current assets.............................. 308,427 110,655
----------- -----------
Property and equipment, net................................. 228,024 205,903
Intangible assets, net...................................... 26,215 27,213
Other assets................................................ 689 538
----------- -----------
Total assets...................................... $ 563,355 $ 344,309
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $ 17,840 $ 33,619
Due to Intermedia......................................... 2,664 --
Deferred revenue.......................................... 56 222
Current portion of note payable........................... 2,636 1,235
Current portion of capital lease obligations.............. 1,095 801
----------- -----------
Total current liabilities......................... 24,291 35,877
Note payable................................................ 1,334 2,477
Capital lease obligations................................... 15,475 15,766
----------- -----------
Total liabilities................................. 41,100 54,120
----------- -----------
Stockholders' equity:
Preferred stock, $.01 par value; 5,000,000 shares
authorized; 100,000 designated as Series A Convertible;
100,000 shares issued and outstanding.................. 1 --
Class A common stock, $.01 par value; 100,000,000 shares
authorized; 24,150,000 and 11,500,000 shares issued and
outstanding in 2000 and 1999, respectively............. 242 115
Class B common stock, $.01 par value; 50,000,000 shares
authorized; 39,350,000 and 50,000,000 shares issued and
outstanding in 2000 and 1999, respectively............. 393 500
Additional paid-in capital................................ 612,566 354,553
Accumulated deficit....................................... (78,414) (52,768)
Deferred compensation..................................... (12,533) (12,211)
----------- -----------
Total stockholders' equity........................ 522,255 290,189
----------- -----------
Total liabilities and stockholders' equity........ $ 563,355 $ 344,309
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
2
<PAGE> 5
DIGEX, INCORPORATED
CONDENSED STATEMENTS OF CASH FLOWS
UNAUDITED (AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
2000 1999
---------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss.................................................. $ (25,646) $ (8,595)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation and amortization.......................... 12,571 4,314
Provision for doubtful accounts........................ 1,990 253
Amortization of deferred compensation.................. 994 --
Loss on sale/disposals of telecommunications
equipment............................................. 196 --
Accretion of interest on long-term note payable and
capital leases........................................ 230 --
Changes in operating assets and liabilities:
Accounts receivable.................................... (7,725) (2,288)
Prepaid expenses and other current assets.............. (585) (183)
Other assets........................................... (151) (5)
Accounts payable, accrued expenses and other
liabilities........................................... (15,613) (1,532)
Due from Parent........................................ 5,774 --
Deferred revenue....................................... (166) --
---------- ---------
Net cash used in operating activities..................... (28,131) (8,036)
INVESTING ACTIVITIES:
Purchases of property and equipment....................... (33,847) (32,001)
---------- ---------
Net cash used in investing activities..................... (33,847) (32,001)
FINANCING ACTIVITIES:
Principal payments on long-term note payable and capital
leases................................................. (135) --
Proceeds from subsequent public offering, net of issuance
costs.................................................. 171,675 --
Proceeds from issuance of preferred stock................. 85,000 --
Net contributions from Intermedia......................... -- 40,037
---------- ---------
Net cash provided by financing activities................. 256,540 40,037
Net increase in cash and cash equivalents................. 194,562 --
Cash and cash equivalents at beginning of the period...... 88,778 --
---------- ---------
Cash and cash equivalents at end of period................ $ 283,340 $ --
========== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest Paid............................................. $ 443 $ --
</TABLE>
See accompanying notes to condensed financial statements.
3
<PAGE> 6
DIGEX, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION
Digex, Incorporated ("Digex") was incorporated on April 26, 1999, under the
laws of the State of Delaware. Digex's business was operated as the Web site
hosting unit of Intermedia Communications Inc. ("Intermedia") since its
acquisition by Intermedia on July 7, 1997. On that date, Intermedia acquired
Business Internet, Inc. (previously known as DIGEX, Incorporated), including the
Web site hosting unit (the "Predecessor"), in a business combination accounted
for as a purchase. The Web site hosting unit presented in the accompanying
financial statements had no legal status or existence prior to the incorporation
of Digex on April 26, 1999. Prior to April 30, 1999, the Registrant had no
assets or liabilities.
Digex's operations began in January 1996 to provide managed Web hosting
services, principally to Fortune 2000 companies. Digex's services include
implementing and maintaining secure, scaleable, high-performance Web sites on
the Internet 24 hours a day. In addition, Digex provides a comprehensive suite
of Web management services, including business process solutions and value-added
testing services directed toward improving its customers' overall Internet
performance.
2. BASIS OF PRESENTATION
The accompanying condensed interim financial statements have been prepared
by Digex, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission (the "Commission"). Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles ("GAAP") have been omitted
pursuant to such rules and regulations. The unaudited condensed interim
financial statements should be read in conjunction with the financial
statements, notes thereto and other information included in the Form 10-K of
Digex for the year ended December 31, 1999.
The accompanying unaudited condensed interim financial statements reflect,
in the opinion of management, all adjustments, which are of a normal and
recurring nature, necessary for a fair presentation of the financial condition
and results of operations and cash flows for the periods presented. The
preparation of financial statements in accordance with GAAP requires management
to make estimates and assumptions. Such estimates and assumptions affect the
reported amounts of assets and liabilities, as well as the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates. The results of operations for the
interim periods are not necessarily indicative of the results for the entire
year.
The financial statements for periods prior to April 30, 1999 represent the
carved-out operations of the managed Web site and application hosting unit of
Intermedia. Digex's accumulated deficit of $78.4 million arose after April 30,
1999. Accumulated losses and capital contributions from Intermedia were included
in owner's net investment prior to April 30, 1999 and were transferred to
additional paid-in capital upon the capitalization of Digex. Intermedia
contributed approximately $115.1 million in assets and certain liabilities on
April 30, 1999. Intermedia also contributed additional capital of $48.1 million
to Digex beginning May 1 through August 4, 1999, principally by way of
contributions of telecommunications assets. These contributions were accounted
for at Intermedia's underlying book values on the date of contribution.
3. STOCKHOLDERS' EQUITY
On January 12, 2000, Digex sold 100,000 shares of its preferred stock,
designated as Series A Convertible Preferred Stock (the "Preferred Stock"), with
detachable warrants to purchase 1,065,000 shares of its Class A Common Stock
(the "Warrants"), for an aggregate of $100.0 million, of which $15.0 million was
in the form of equipment purchase credits. The credit is netted against equity
as of March 31, 2000. The Preferred Stock has an aggregate liquidation
preference of $100.0 million, and is convertible into approximately
4
<PAGE> 7
DIGEX, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
1,462,000 shares of Class A Common Stock. The Warrants can be exercised at any
time over their three-year term at a price of $57.00 per share (the fair value
of Digex's Class A Common Stock on the transaction commitment date). The
proceeds from the offering were allocated between the Preferred Stock and the
Warrants based upon their relative fair values.
On February 16, 2000, Digex completed a public offering of 12,650,000
shares of Class A Common Stock. Digex sold 2,000,000 shares of Class A Common
Stock and received net proceeds of approximately $171.7 million. Intermedia sold
10,650,000 shares of Class B Common Stock. The Class B Common Stock sold by
Intermedia automatically converted into Class A Common Stock at the closing of
the offering. Each share of Class B Common Stock is entitled to 10 votes while
each share of Class A Common Stock is entitled to one vote. As a result, while
Intermedia owns approximately 62.0% of Digex's equity interests, it controls
approximately 94.2% of Digex's voting interest.
4. DEFERRED COMPENSATION
Digex granted options to purchase 1,347,500 shares of Class A Common Stock
under the Digex Long-Term Incentive Plan to certain employees of Digex at
exercise prices below market value. During the three months ended March 31,
2000, Digex recorded approximately $1.4 million of deferred compensation, a
separate component of stockholders' equity, to be expensed over the four-year
vesting period of the options. Deferred compensation expense of approximately
$1.0 million was expensed during the three month period ended March 31, 2000.
5. LOSS PER SHARE
The following table presents the computation of basic and diluted loss per
share of common stock:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
2000 1999
----------- -----------
<S> <C> <C>
Net loss, as reported...................................... $ (25,646) $ (8,595)
=========== ===========
Weighted average number of common shares................... 62,620,879 50,000,000
=========== ===========
Loss per share:
Basic.................................................... $ (0.41) $ (0.17)
=========== ===========
Diluted.................................................. $ (0.41) $ (0.17)
=========== ===========
</TABLE>
Convertible securities were excluded in the computation of diluted loss per
share because assumed conversion would be anti-dilutive.
6. RELATED PARTY AGREEMENTS
On April 30, 1999, Digex entered into a General and Administrative Services
Agreement (the "G&A Agreement") with Intermedia. Under the terms of the G&A
Agreement, as amended on January 17, 2000, Intermedia provides Digex with back
office and administrative services such as human resources, finance and
accounting, tax services, investor relations, and information management
services. The initial term of the agreement is two years, and the charge for
these services was $6.0 million for the three months ended March 31, 2000.
5
<PAGE> 8
DIGEX, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
Digex also entered into three two-year Network Services Agreements with
Intermedia. Under the terms of these agreements, Intermedia provides Digex with
east and west coast Internet transit, Internet access and managed firewall
services. The charges for these services amounted to $3.2 million for the three
months ended March 31, 2000.
Digex entered into three agreements with Intermedia to sell to Intermedia
certain telecommunications related assets that are purchased by Digex with the
net proceeds of certain offerings of Digex securities. The assets are sold to
Intermedia at Digex's cost. The proceeds from the sale of telecommunications
related assets to Intermedia were approximately $27.1 million during the three
months ended March 31, 2000. These proceeds were unrestricted and were used to
fund Digex's operating expenses.
7. SEGMENT INFORMATION
As a provider of managed Web site and application hosting services, Digex
has one reportable operating segment. The revenue of this single segment is
derived from service offerings as reported in Digex's statement of operations.
Substantially all of Digex's revenue is attributable to customers in the United
States. Additionally, all of Digex's assets are located within the United
States.
6
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the condensed
financial statements and related notes herein, and with the Management's
Discussion and Analysis of Financial Condition and Results of Operations and
audited financial statements and related notes included in Digex's Form 10-K, as
filed with the Commission on March 10, 2000.
OVERVIEW
We are a leading provider of managed Web hosting services to businesses
operating mission-critical, multi-functional Web sites. In addition, we provide
Web hosting services to the rapidly growing number of application service
providers enabling them to more efficiently deliver their application services
to their customers over the Internet. We provide the computer hardware,
software, network technology, and systems management necessary to provide our
customers comprehensive, managed Web site hosting and application hosting
solutions. We also offer related value-added services such as firewall
management, stress testing and consulting services, including capacity and
migration planning and database optimization. We currently provide such services
to a diversified customer base consisting of over 600 customers. As of March 31,
2000, we managed 2,911 Windows NT and UNIX-based servers in our state-of-the-art
data centers which are strategically positioned on the east and west coasts of
the United States. We believe our singular focus on delivering mission-critical
Web site and application hosting solutions has been the major contributor to our
growth.
Revenue. Our revenues consist primarily of monthly fees from our managed
Web site and application hosting services. Contracts for these services are
typically between one and three years in length. In addition to Web site and
application hosting, we also offer enterprise services and consulting services
and believe that we will begin to derive increasing amounts of revenues from the
sale of these services in the future.
Costs and Expenses. Cost and expenses include:
- cost of operations;
- cost of services;
- selling, general and administrative expenses;
- deferred compensation; and
- depreciation and amortization expense.
Cost of operations consist primarily of the costs for our network
connectivity and firewall services. We expect our network connectivity
requirements to grow in conjunction with the growth of our overall business and
accordingly expect these costs to increase in the future.
Cost of services consist primarily of facilities administration expenses
including rent, maintenance and utilities to support our data centers and
salaries and related benefits for our technical operations. We expect our cost
of services to increase in dollar amount but to decline as a percentage of
revenue due to economies of scale and expected improvements in technology and
productivity.
Selling, general and administrative expenses consist primarily of salaries
and benefits for our marketing, sales and support personnel, advertising costs,
consultants' fees, provision for doubtful accounts and other miscellaneous
expenses. We expect selling, general and administrative expenses to increase in
dollar amount and to decline as a percentage of revenue over time.
Deferred compensation expense is recorded to amortize the resulting
deferred compensation cost over the four-year vesting period of the options.
Stock options were granted by Digex to certain employees at exercise prices
below market value.
Depreciation and amortization expense consists primarily of depreciation of
our data centers, servers and related equipment and amortization of our
intangible assets. We expect these expenses to increase due to our plans to
invest significant capital to expand our data center capacity.
7
<PAGE> 10
PLAN OF OPERATION
We plan to expand our Web site and application hosting business by focusing
on large companies which are looking to develop a presence on the Internet by
both providing e-commerce business solutions to their customers and outsourcing
the management of their Web sites and web-enabled business applications. In the
fourth quarter of 1999, we significantly completed the expansion of our
state-of-the-art data centers on the east and west coasts of the United States.
We anticipate that these expanded data centers, when operating at full capacity,
will support servers generating approximately $500.0 million in annualized
revenue. In addition, we believe that the new data centers will place us in a
stronger competitive position to successfully provide outsourced solutions of
scalable Web site and application hosting solutions. We also offer value-added
services, such as firewall management, stress testing, and consulting services,
including capacity and migration planning and database optimization, and believe
that we will derive increasing amounts of revenue from these services in the
future.
RESULTS OF OPERATIONS
The following table presents certain information derived from our Unaudited
Condensed Statements of Operations for the three months ended March 31, 2000 and
1999, expressed as a percentage of revenue.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
--------------
2000 1999
------ -----
<S> <C> <C>
Revenues:................................................... 100.0% 100.0%
Costs and expenses:
Cost of operations........................................ 14.1 17.6
Cost of services.......................................... 40.7 42.1
Selling, general and administrative....................... 99.3 85.9
Deferred compensation..................................... 3.6 --
Depreciation and amortization............................. 44.9 45.9
------ -----
Total costs and expenses.......................... 202.6 191.5
------ -----
Loss from operations........................................ (102.6) (91.5)
Other income (expense):
Interest expense.......................................... (1.6) --
Interest and other income................................. 12.5 --
------ -----
Net loss.................................................... (91.7) (91.5)
====== =====
</TABLE>
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
Revenue
Total revenue increased 197.8% to $28.0 million for the first quarter of
2000 compared to $9.4 million for the same period in 1999. The increase in
revenue was due to new customer growth, a significant increase in the number of
managed servers per customer, and a rise of monthly revenue per server. Our
installed base of servers increased 122.4% to 2,911 at the end of the first
quarter of 2000 from 1,309 at the end of the first quarter of 1999.
Cost of Operations
Cost of operations increased 138.5% to $3.9 million for the first quarter
of 2000 compared to $1.7 million for the same period in 1999. The increase was
due to additional network costs resulting from our expanded customer base and
increase in service offerings. As a percentage of revenue, cost of operations
decreased to 14.1% for the first quarter of 2000 compared to 17.6% for the same
period in 1999 as a result of improved network utilization associated with the
revenue improvement discussed above.
8
<PAGE> 11
Cost of Services
Cost of services increased 188.4% to $11.4 million for the first quarter of
2000 compared to $4.0 million for the same period in 1999. The increase was
primarily related to the increased level of operations and the expansion of two
new data centers including costs related to the hiring of additional personnel
in customer service, engineering, and facilities administration supporting
server growth. As a percentage of revenue, total cost of services decreased to
40.7% for the first quarter of 2000 compared to 42.1% for the same period in
1999.
Selling, General and Administrative
Selling, general and administrative expenses increased 244.2% to $27.8
million for the first quarter of 2000 compared to $8.1 million for the same
period in 1999. As a percentage of revenue, total selling, general and
administrative expenses increased to 99.3% for the first quarter of 2000
compared to 85.9% for the same period in 1999 due primarily to the significant
administrative requirements to support our growth strategy. Through 2000, as
part of our growth strategy, we continue to build up our infrastructure to
operate as a separate public company. Increases in selling, general and
administrative expenses for 2000 include the costs associated with an increased
employee base, advertising campaigns, back office support (including the G&A
Agreement, as amended, with Intermedia), an increased provision for doubtful
accounts receivable and the addition of key executive management to support the
growth of the business. We expect that our growth strategy will continue to
require significant sales and marketing activities, including an expansion of
our sales force and further development of brand name recognition. In addition,
we will continue to build our personnel base to support our growth strategy in
the managed Web site and application hosting industry. As a result, we believe
that our selling, general and administrative expenses will continue to increase
in the future.
Deferred Compensation
Deferred compensation expense of approximately $1.0 million for the first
quarter of 2000 resulted from stock options granted to certain employees at
exercise prices below market value since July 29, 1999. We recorded
approximately $13.5 million of deferred compensation in 1999 and $1.4 million in
the first quarter of 2000 to be expensed over a four-year vesting period of the
options.
Depreciation and Amortization
Depreciation and amortization expenses increased 191.4% to $12.6 million
for the first quarter of 2000 compared to $4.3 million for the same period in
1999. The increase was principally due to additional servers and other
facilities and equipment placed in service since March 31, 1999. We expect
increases in depreciation charges though 2000 due to the continued expansion of
our new data centers and due to future increased server installations.
Interest Expense
Interest expense of $0.4 million for the first quarter of 2000 resulted
from the capital leases assigned to us by Intermedia during the second quarter
of 1999. Additionally, a note payable was issued by us to a third party during
the third quarter of 1999.
Interest and Other Income
Interest and other income of $3.5 million resulted principally from
interest earned on the cash proceeds from the investment in Digex by Microsoft
and a subsidiary of Compaq, and an initial and subsequent public equity
offering.
Net Loss
Net loss before income tax benefit increased 198.4% to $25.6 million for
the three months ended March 31, 2000 compared to $8.6 million for the same
period in 1999. As more fully discussed above, the increased loss is
attributable to growth strategy costs in excess of current period revenues.
9
<PAGE> 12
EBITDA Before Certain Charges
EBITDA before certain charges, as defined below, increased 253.6% to
$(15.1) million in the first quarter of 2000 compared to $(4.3) million for the
same period in 1999. The change is primarily attributable to costs associated
with our growth strategy. Costs associated with the administration and
maintenance of our expanded data centers and increased selling, general and
administrative costs will continue to represent a large portion of expenses
during our planned expansion. In addition, we expect to continue to experience
rapid growth in marketing and selling expenses as new customers are acquired.
EBITDA before certain charges consists of earnings (loss) before interest
expense, interest and other income, income tax benefit, deferred compensation,
and depreciation and amortization. EBITDA before certain charges does not
represent funds available for management's discretionary use and is not intended
to represent cash flow from operations. EBITDA before certain charges should
also not be construed as a substitute for operating income or a better measure
of liquidity than cash flow from operating activities, which are determined in
accordance with generally accepted accounting principles. This caption excludes
components that are significant in understanding and assessing our results of
operations and cash flows. In addition, EBITDA before certain charges is not a
term defined by generally accepted accounting principles and as a result our
measure of EBITDA before certain charges might not be comparable to similarly
titled measures used by other companies. However, we believe that EBITDA before
certain charges is relevant and useful information which is often reported and
widely used by analysts, investors and other interested parties in the Web site
and application hosting industry. Accordingly, we are disclosing this
information to permit a more comprehensive analysis of our operating
performance, as an additional meaningful measure of performance and liquidity,
and to provide additional information with respect to our ability to meet future
debt service, capital expenditure and working capital requirements. See the
unaudited condensed financial statements and notes thereto contained elsewhere
in this report for more detailed information.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $28.1 million and $8.0 million
during the three months ended March 31, 2000 and 1999, respectively. Net cash
used for operating activities in each of these periods was primarily the result
of operating losses and changes in working capital.
Net cash used for investing activities during the three months ended March
31, 2000 and 1999 was $33.8 million and $32.0 million, respectively. Net cash
used for investing activities in each of these periods was primarily the result
of capital expenditures for data center infrastructure, as well as leasehold
improvements, furniture and fixtures and computers and other equipment. Although
we have plans to invest significantly in property and equipment, we have no
material commitments for such items at this time.
On January 12, 2000, we sold 100,000 shares of our Preferred Stock and
Warrants to purchase 1,065,000 shares of Class A Common Stock to Microsoft and a
subsidiary of Compaq for aggregate gross proceeds of $100.0 million, of which
$85.0 million was paid in cash and $15.0 million was paid in the form of
equipment credits from Compaq. The Preferred Stock has an aggregate liquidation
preference of $100.0 million and is convertible into approximately 1,462,000
shares of Class A Common Stock. The Warrants can be exercised at any time over
their three-year term at a price of $57.00 per share (the fair value of our
Class A Common Stock on the transaction commitment date). The proceeds from the
offering were allocated between the Preferred Stock and the Warrants based upon
their relative fair values.
To the extent necessary to perform our obligations under our agreement with
Compaq, the proceeds from the investment by a subsidiary of Compaq will be used
toward the development of a platform for the delivery of high-performance
application hosting services, which will include capital expenditures and
research and development expenditures. Therefore, we do not expect the proceeds
of the investment by a subsidiary of Compaq to be available for general
corporate purposes. We also intend to use the proceeds of the investment by
Microsoft to fund this development project.
On February 16, 2000, Digex completed a public offering of 12,650,000
shares of Class A Common Stock. We sold 2,000,000 shares of Class A Common Stock
and received net proceeds of approximately
10
<PAGE> 13
$171.7 million. Intermedia sold 10,650,000 shares of Class B Common Stock. The
Class B Common Stock sold by Intermedia automatically converted into Class A
Common Stock at the closing of the offering.
The net proceeds of our public offerings and the cash proceeds of the
investments by Microsoft and a subsidiary of Compaq must be used to purchase
telecommunications related assets due to restrictions in Intermedia's debt
instruments. Therefore, to provide for the funding of our operating expenses, we
have made arrangements with Intermedia to sell to Intermedia certain
telecommunications related assets that are purchased by Digex with the net
proceeds of these offerings. The assets are sold to Intermedia for cash at our
cost. For the three months ended March 31, 2000, we had received approximately
$27.1 million from Intermedia related to the sale of telecommunications related
assets. These proceeds were unrestricted and were used to fund our operating
expenses. Cash payments for capital assets for the three months ended March 31,
2000 were approximately $33.8 million.
We anticipate we will have significant cash requirements for several years
as we expand our data center capacity, increase our employee base to support our
expanding operations and invest in our marketing organization. In addition, we
expect to invest significantly in the purchase of property and equipment and for
research and development, including funding the expenses associated with our
research and development alliance with Microsoft and a subsidiary of Compaq.
With our recently announced London SmartCenter(SM), we expect our capital
expenditures to increase due to our data center expansions in the United States
and abroad. Subject to the limitations discussed under the caption "Market for
Registrant's Common Equity and Related Stockholder Matters -- Use of Proceeds
from a Sale of Registered Securities" on our Form 10-K for the period ended
December 31, 1999 as filed with the Commission on March 10, 2000, we believe we
have sufficient capital to sustain our current operations and capital
expenditure plans into the first half of 2001. We intend to continue to seek
funding from external sources to meet our cash needs subsequent to that time
period. There can be no assurance that such funding will be available on terms
satisfactory to us.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the Commission issued Staff Accounting Bulletin No. 101
("SAB 101"), "Revenue Recognition in Financial Statements." SAB 101 summarizes
certain of the staff's views in applying generally accepted accounting
principles to revenue recognition in financial statements and is effective for
Digex in the second quarter of 2000. Digex is currently evaluating the impact
that SAB 101 has on its various revenue recognition policies, including those
pertaining to nonrefundable installation fees, which Digex currently recognizes
as revenue upon completion of the service. Digex has not yet fully evaluated the
impact of SAB 101 on its financial statements.
IMPACT OF YEAR 2000
As of March 31, 2000, Digex has not experienced any Year 2000 related
problems with its software and hardware systems, with its products, with its
significant suppliers, customers and critical business partners, or with its
operating environment. Accordingly, we believe that Year 2000 issues no longer
pose a threat to our results of operations or financial condition.
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
The information set forth above in "Management's Discussion and Analysis of
Financial Conditions and Results of Operations" includes forward-looking
statements that involve numerous risks and uncertainties. Forward-looking
statements can be identified by the use of forward-looking terminology such as
"estimates," "projects," "anticipates," "expects," "intends," "believes," or the
negative thereof or other variations thereon or comparable terminology or by
discussions of strategy that involve risks and uncertainties. This report
includes forward-looking statements, which could differ from actual results. See
"Risk Factors" in our Form 10-K for the year ended December 31, 1999 as filed
with the Commission on March 10, 2000.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
No changes.
11
<PAGE> 14
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We do not believe that there are any pending or threatened legal
proceedings that, if adversely determined, would have a material adverse effect
on us.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Recent Sales of Unregistered Securities
On January 12, 2000, Digex issued 50,000 shares of Preferred Stock and
Warrants to purchase 532,000 shares of Class A Common Stock, with an exercise
price of $57.00 per share, to Microsoft for an aggregate consideration of $50.0
million. On January 12, 2000, Digex also issued 50,000 shares of Preferred Stock
and Warrants to purchase 532,500 shares of Class A Common Stock, with an
exercise price of $57.00 per share, to a subsidiary of Compaq for an aggregate
consideration of $50.0 million of which $35.0 million was paid in cash and $15.0
million was paid in the form of equipment credits granted to Digex. The 100,000
shares of Preferred Stock are convertible into an aggregate of approximately
1,462,000 shares of Class A Common Stock. Based on representations by the
purchasers, the issuances were made in reliance on the exemption from
registration provided by Section 4(2) of the Securities Act of 1933, as amended,
as a transaction by an issuer not involving a public offering.
Use of Proceeds from a Sale of Registered Securities
For the three months ended March 31, 2000, we used $33.8 million of the net
proceeds of our initial public offering to purchase telecommunications related
assets held by us and $27.1 million for the purchase of telecommunications
related assets subsequently sold to Intermedia. The proceeds of the sales of
assets to Intermedia were unrestricted and were used to fund our operating
expenses.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
12
<PAGE> 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
NUMBER EXHIBIT
------ -------
<C> <S>
3.1 -- Certificate of Incorporation of Digex, as amended.
Incorporated herein by reference to Digex's Form 10-Q
(File No. 000-26873) filed with the Commission on
September 13, 1999.
3.2 -- By-laws of Digex.
3.3 -- Certificate of Designation for the Series A Preferred
Stock. Incorporated by reference to Digex's registration
statement on Form S-1 (File No. #333-94879) filed with
the Commission on January 18, 2000.
4.1 -- Warrant Agreement, dated as of January 12, 2000, among
Digex, Microsoft Corporation and CPQ Holdings, Inc.
Incorporated by reference to Digex's registration
statement on Form S-1 (File No. #333-94879) filed with
the Commission on January 18, 2000.
4.2 -- Registration Rights Agreement, dated as of January 12,
2000, among Digex, Microsoft Corporation and CPQ
Holdings, Inc. Incorporated by reference to Digex's
registration statement on Form S-1 (File No. #333-94879)
filed with the Commission on January 18, 2000.
27.1 -- Financial Data Schedule (For SEC Use Only).
</TABLE>
(b) Reports on Form 8-K
The following reports on Form 8-K of Digex were filed during the first
quarter of 2000:
Digex filed a Current Report on Form 8-K, dated January 12, 2000,
reporting under Item 5 the issuance of a press release discussing the
investment of Microsoft and a subsidiary of Compaq in Digex. Digex also
reported under Item 7 the filing of the press release as an exhibit to the
Form 8-K.
Digex filed a Current Report on Form 8-K, dated January 19, 2000,
reporting under Item 5 the issuance of a press release discussing the
appointment of Timothy M. Adams as Chief Financial Officer. Digex also
reported under Item 7 the filing of the press release as an exhibit to the
Form 8-K.
Digex filed a Current Report on Form 8-K, dated February 3, 2000,
reporting under Item 5 the issuance of a press release discussing Digex's
fourth quarter and full year 1999 results. Digex also reported under Item 7
the filing of the press release as an exhibit to the Form 8-K.
13
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DIGEX, INCORPORATED
(Registrant)
/s/ TIMOTHY M. ADAMS
------------------------------------
Timothy M. Adams
Chief Financial Officer
/s/ T. SCOTT ZIMMERMAN
------------------------------------
T. Scott Zimmerman
Vice President and Controller
Dated: May 12, 2000
14
<PAGE> 17
1
EXHIBIT 3.2
BYLAWS
OF
DIGEX, INCORPORATED
(hereinafter called the "Corporation")
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the Corporation
shall be in the City of Wilmington, County of New Castle, State of Delaware.
Section 2. Other Offices. The Corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine.
ARTICLE II
MEETING OF STOCKHOLDERS
Section 1. Place of Meetings. Meetings of the stockholders for the
election of directors or for any other purpose shall be held at such time and
place, either within or without the State of Delaware as shall be designated
from time to time by the Board of Directors. In the absence of any such
designation, stockholders= meetings shall be held at the principal executive
office of the Corporation.
Section 2. Annual Meetings. The Annual Meetings of Stockholders shall
be held each year on such date and at such
<PAGE> 18
2
time as shall be designated from time to time by the Board of Directors and
stated in the notice of the meeting. At such meetings the stockholders shall
elect by a plurality vote a Board of Directors, and transact such other business
as may properly be brought before the meeting.
Section 3. Special Meetings. Unless otherwise prescribed by law or by
the Certificate of Incorporation, Special Meetings of Stockholders, for any
purpose or purposes, may be called by either (i) the Chairman, if there be one,
or (ii) the President, (iii) any Executive Vice-President, if there be one (iv)
any Vice President, if there be one, (v) the Secretary, or (vi) any Assistant
Secretary, if there be one, and shall be called by any such officer at the
request in writing of a majority of the Board of Directors or at the request in
writing of stockholders owning a majority of the capital stock of the
Corporation issued and outstanding and entitled to vote.
Section 4. Notice of Meetings. Whenever stockholders are required or permitted
to take any action at a meeting, a written notice of the meeting shall be given
which notice shall state the place, date and hour of the meeting, and, in the
case of a Special Meeting, the purpose or purposes for which the meeting is
called. The written notice of any meeting shall be given to each stockholder
entitled to vote at such meeting not less than ten nor more than sixty days
before the date of the meeting. If mailed, notice is given when deposited in the
United States mail,
<PAGE> 19
3
postage prepaid, directed to the stockholder at this address as it appears on
the records of the Corporation. Business transacted at any meeting of
stockholders shall be limited to the purposes stated in the notice.
Section 5. Quorum. Except as otherwise provided by law or by the
Certificate of Incorporation, a majority of the voting power of the stock issued
and outstanding and entitled to vote at any meeting of stockholders, the holders
of which are present in person or represented by proxy, shall constitute a
quorum at all meetings of the stockholders for the transaction of business. A
quorum, once established, shall not be broken by the withdrawal of enough votes
to leave less than a quorum and the votes present may continue to transact
business until adjournment. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
noticed. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the
<PAGE> 20
4
adjourned meeting shall be given to each stockholder entitled to vote at the
meeting.
Section 6. Voting. When a quorum is present at any meeting, unless
otherwise required by law, the Certificate of Incorporation or these Bylaws, any
question brought before any meeting of stockholders shall be decided by the vote
of the holders of a majority of the total voting power of the stock represented
and entitled to vote thereat. Each stockholder shall have the number of votes
for each share of stock registered in his or her name on the books of the
Corporation on the record date set by the Board of Directors as provided in
Article Fourth, Section A, of the Certificate of Incorporation which provides as
follows: Each Class A stockholder represented at a meeting of shareholders shall
be entitled to cast one vote for each share of the capital stock entitled to
vote thereat held by such stockholder; Each Class B stockholder represented at a
meeting of shareholders shall be entitled to cast ten votes per share of the
capital stock entitled to vote thereat held by such stockholder.
Section 7. Proxies. At each meeting of the stockholder, each
stockholder having the right to vote may vote in person or may authorize another
person or persons to act for him by proxy appointed by an instrument in writing
subscribed by such stockholder. No proxy shall be voted on or after three years
from its date, unless such proxy provides for a longer
<PAGE> 21
5
period. All proxies must be filed with the Secretary of the Corporation at the
beginning of each meeting in order to be counted in any vote at the meeting. The
Board of Directors, in its discretion, or the officer of the Corporation
presiding at a meeting of stockholders, in his discretion, may require that any
votes cast at such meeting shall be cast by written ballot.
Section 8. Consent of Stockholders in Lieu of Meeting. Unless otherwise
provided in the Certificate of Incorporation, any action required or permitted
to be taken at any Annual or Special Meeting of Stockholders of the Corporation,
may be taken without a meeting, without prior notice and without a vote, if a
consent in writing, setting forth the action so taken, shall be signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted. Prompt notice of the
taking of the corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in writing.
Section 9. List of Stockholders Entitled to Vote. The officer of the
Corporation who has charge of the stock ledger of the Corporation shall prepare
and make, at least ten days before every meeting of stockholders, a complete
list of the stockholders entitled to vote at the meeting, arranged in
<PAGE> 22
6
alphabetical order, and showing the address of each stockholder and the number
and class of shares registered in the name of each stockholder. Such list shall
be open to the examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten days prior
to the meeting, either at a place within the city where the meeting is to be
held, which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder of the Corporation who is
present.
Section 10. Stock Ledger. The stock ledger of the Corporation shall be
the only evidence as to who are the stockholders entitled to examine the stock
ledger, the list required by Section 9 of this Article II or the books of the
Corporation, or to vote in person or by proxy at any meeting of stockholders.
Section 11. Business Properly Brought Before An Annual Meeting. At any
annual meeting of the stockholders, only such business shall be conducted as
shall have been properly brought before the meeting. To be properly brought
before an annual meeting, business must be specified in the notice of meeting
(or any supplement thereto) given by or at the direction of the
<PAGE> 23
7
board, or otherwise properly brought before the meeting by a stockholder. In
addition to any other applicable requirements, for business to be properly
brought before an annual meeting by a stockholder, the stockholder must have
given timely notice thereof in writing to the Secretary of the Corporation. To
be timely, a stockholder=s notice must be delivered to or mailed and received at
the principal executive offices of the Corporation, not less than 50 days nor
more than 60 days prior to the annual meeting; provided, however, that in the
event that less than 50 days= notice or prior public disclosure of the date of
the meeting is given or made to stockholders, notice by the stockholder to be
timely must be so received not later than the close of business on the 10th day
following the day on which such notice of the date of the annual meeting was
mailed or such public disclosure was made. A stockholder=s notice to the
Secretary shall set forth as to each matter the stockholder proposes to bring
before the annual meeting: (i) a brief description of the business desired to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting, (ii) the name and record address of the stockholder of
record proposing such business, (iii) the class and number of shares of the
Corporation which are beneficially owned by the stockholder, and (iv) any
material interest of the stockholder in such business.
<PAGE> 24
8
Notwithstanding anything in the Bylaws to the contrary, no business
shall be conducted at any annual meeting except in accordance with the
procedures set forth in this Section 11 of this Article II provided, however,
that nothing in this Section 11 of this Article II shall be deemed to preclude
discussion by any stockholder of any business properly brought before the annual
meeting in accordance with said procedure.
The chairman of an annual meeting shall, if the facts warrant,
determine and declare to the meeting that business was not properly brought
before the meeting in accordance with the provisions of this Section 11 of this
Article II, and if he should so determine, he shall so declare to the meeting
and any such business not properly brought before the meeting shall not be
transacted.
In addition to the provisions of this Section 11, a stockholder shall
also comply with the applicable requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and the rules and regulations promulgated
thereunder with respect to the matters set forth herein. Nothing in these Bylaws
shall be deemed to affect the rights of any stockholder to request inclusion of
proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under the
Exchange Act.
ARTICLE III
DIRECTORS
<PAGE> 25
9
Section 1. Nominations of Directors. Only persons who are nominated in
accordance with the following procedures shall be eligible for election as
Directors. Nominations of persons for election to the Board of the Corporation
may be made at a meeting of stockholders by or at the direction of the Board of
Directors, by any nominating committee or person appointed by the Board of
Directors or by any stockholder of the corporation entitled to vote for the
election of Directors at the meeting who complies with the notice procedures set
forth in this Section 1 of this Article III. Such nominations, other than those
made by or at the direction of the Board of Directors, shall be made pursuant to
timely notice in writing to the Secretary of the Corporation. To be timely, a
stockholder=s notice shall be delivered to or mailed and received at the
principal executive offices of the Corporation not less than 50 days nor more
than 60 days prior to the meeting; provided, however, that in the event that
less than 50 days= notice or prior public disclosure of the date of the meeting
is given or made to stockholders, notice by the stockholder to be timely must be
so received not later than the close of business on the 10th day following the
day on which such notice of the date of the annual meeting was mailed or such
public disclosure was made. Such stockholder=s notice to the Secretary shall set
forth: (a) as to each person whom the stockholder proposes to nominate for
election or re-election as a
<PAGE> 26
10
Director, (i) the name, age, business address and residence address of the
person, (ii) the principal occupation or employment of the person, (iii) the
class and number of shares of capital stock of the Corporation which are
beneficially owned by the person, (iv) any other information relating to the
person that is required to be disclosed in solicitations of proxies for election
of Directors pursuant to Regulation 14A under the Exchange Act, and (v) any
other information relating to the person that is required pursuant to any
statute, or any rule or regulation of any governmental authority; and (b) as to
the stockholder giving the notice (i) the name and record address of the
stockholder, and (ii) the class and number of shares of capital stock of the
Corporation which are beneficially owned by the stockholder. The Corporation may
require any proposed nominee to furnish such other information as may reasonably
be required by the Corporation to determine the eligibility of such proposed
nominee to serve as a Director of the Corporation. No person shall be eligible
for election as a Director of the Corporation unless nominated in accordance
with the procedures set forth herein. The chairman of the meeting shall, if the
facts warrant, determine and declare to the meeting that a nomination was not
made in accordance with the foregoing procedures, and if he should so determine,
he shall so declare to the meeting and the defective nomination shall be
disregarded.
<PAGE> 27
11
Section 2. Number and Election of Directors. The Board of Directors
shall initially be fixed by the Incorporator and thereafter from time to time by
the Board of Directors. Except as provided in Section 3 of this Article,
directors shall be elected by a plurality of the votes cast at Annual Meetings
of Stockholders. Each directors shall serve until the next annual meeting of
stockholders and until its successor is elected and qualified. Any director may
be removed from office, with or without cause and only by the affirmative vote
of the holders of at least 75% of the voting power of all the shares of the
Corporation entitled to vote generally in the election of directors, voting
together as a single class. Any director may resign at any time upon notice to
the Corporation. Directors need not be stockholders.
Section 3. Vacancies. Vacancies and newly created directorships
resulting from any increase in the authorized number of directors may be filled
by the affirmative vote of a majority of the remaining directors then in office,
even though less than a quorum, or by a sole remaining director, and the
directors so chosen shall hold office for the remainder of the full term of the
class of directors in which the new directorship was created or the vacancy
occurred and until such director=s successors shall have been duly elected and
qualified, or until their earlier resignation or removal. No decrease in the
number
<PAGE> 28
12
of directors constituting the board of directors shall shorten the term of any
incumbent director.
Section 4. Duties and Powers. The property and business of the
Corporation shall be managed by or under the direction of the Board of
Directors. In addition to the powers and authorities by these Bylaws expressly
conferred upon them, the Board may exercise all such powers of the Corporation
and do all such lawful acts and things as are not by statute or by the
Certificate of Incorporation or by these Bylaws directed or required to be
exercised or done by the stockholders.
Section 5. Meetings. The Board of Directors of the Corporation may hold
meetings, both regular and special, either within or without the State of
Delaware. Regular meetings of the Board of Directors may be held without notice
at such time and at such place as may from time to time be determined by the
Board of Directors. Special meetings of the Board of Directors may be called by
the Chairman, if there be one, the President, or any one (1) director. Notice
thereof stating the place, date and hour of the meetings shall be given to each
director either by mail not less than forty-eight (48) hours before the date of
the meeting, by telephone or telegram on twenty-four (24) hours notice, or on
such shorter notice as the person or persons calling such meeting may deem
necessary or appropriate in the circumstances.
<PAGE> 29
13
Section 6. Quorum. Except as may be otherwise specifically provided by
law, the Certificate of Incorporation or these Bylaws, at all meetings of the
Board of Directors, a majority of the entire Board of Directors shall constitute
a quorum for the transaction of business and the act of a majority of the
directors present at any meeting at which there is a quorum shall be the act of
the Board of Directors. If a quorum shall not be present at any meeting of the
Board of Directors, the directors present thereat may adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present. If only one director is authorized, such sole director
shall constitute a quorum.
Section 7. Actions of Board. Unless otherwise provided by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all the members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
Section 8. Meetings by Means of Conference Telephone. Unless otherwise
provided by the Certificate of Incorporation or these Bylaws, members of the
Board of Directors of the Corporation, or any committee designated by the Board
of
<PAGE> 30
14
Directors, may participate in a meeting of the Board of Directors or such
committee by means of a conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and such participation in a meeting pursuant to this Section 8 shall constitute
presence in person at such meeting.
Section 9. Committees. The Board of Directors may, by resolution passed
by a majority of the entire Board of Directors, designate one or more
committees, each such committee to consist of one or more of the directors of
the Corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of any such committee. In the absence or disqualification
of a member of a committee, and in the absence of a designation by the Board of
Directors of an alternate member to replace the absent or disqualified member,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any absent or disqualified member. Any committee, to the extent allowed by law
and provided in the resolution establishing such committee, shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the
<PAGE> 31
15
Corporation, and may authorize the seal of the Corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to amending the Certificate of Incorporation, adopting an
agreement of merger or consolidation, recommending to the stockholders the sale,
lease or exchange of all or substantially all of the Corporation=s property and
assets, recommending to the stockholders a dissolution of the Corporation or a
revocation of a dissolution, or amending the Bylaws of the Corporation; and,
unless the resolution or the Certificate of Incorporation expressly so provides,
no such committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock. Each committee shall keep regular minutes of
its meetings and report the same to the Board of Directors when required.
Section 10. Chairman of the Board of Directors. The Board of Directors
in its discretion may choose a Chairman of the Board of Directors (who must be a
director). The Chairman of the Board of Directors, if there be one, shall
preside at all meetings of the stockholders and of the Board of Directors. The
Chairman of the Board of Directors shall also perform such other duties and may
exercise such other powers as from time to time may be assigned to him by these
Bylaws or by the Board of Directors.
<PAGE> 32
16
Section 11. Compensation. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, the Board of Directors shall have
the authority to fix the compensation of directors. The directors may be paid
their expenses, if any, of attendance at each meeting of the Board of Directors
and may be paid a fixed sum for attendance at each meeting of the Board of
Directors or a stated salary as director. No such payment shall preclude any
director from serving the Corporation in any other capacity and receiving
compensation therefor. Members of special or standing committees may be allowed
like reimbursement of expenses for attending committee meetings.
Section 12. Interested Directors. No contract or transaction between
the Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because his or their votes are
counted for such purpose if (i) the material facts as to his or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or their
<PAGE> 33
17
committee, and the Board of Directors or committee in good faith authorizes the
contract or transaction by the affirmative votes of a majority of the
disinterested directors, even though the disinterested directors be less than a
quorum; or (ii) the material facts as to his or their relationship or interest
and as to the contract or transaction are disclosed or are known to the
shareholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the shareholders; or (iii) the
contract or transaction is fair as to the Corporation as of the time it is
authorized, approved or ratified, by the Board of Directors, a committee thereof
or the shareholders. Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the Board of Directors or
of a committee which authorizes the contract or transaction.
Section 13. Indemnification. (a) The Corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Corporation) by reason of the fact that he is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation,
<PAGE> 34
18
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys= fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interest of the Corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he reasonably believed to be in or
not opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his conduct
was unlawful.
(b) The Corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the Corporation to procure a judgment in its favor
by reason of the fact that he is or was a director, officer, employee or agent
of the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust
<PAGE> 35
19
or other enterprise against expenses (including attorneys= fees) actually and
reasonably incurred by him in connection with the defense or settlement of such
action or suit if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interest of the Corporation and except that
no such indemnification shall be made in respect of any claim, issue or matter
as to which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Court of Chancery of Delaware or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which such Court of Chancery or such other court shall deem proper.
(c) To the extent that a director, officer, employee or agent of the
Corporation shall be successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in paragraphs (a) and (b), or in defense
of any claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys= fees) actually and reasonably incurred by him in
connection herewith.
(d) Any indemnification under paragraphs (a) and (b) (unless ordered by
a court) shall be made by the Corporation only as authorized in the specific
case upon a determination that
<PAGE> 36
20
indemnification of the director, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth in
paragraphs (a) and (b). Such determination shall be made (1) by the Board of
Directors by a majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding, or (2) if such a quorum is not
obtainable, or, even if obtainable a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (3) by the
stockholders.
(e) Expenses incurred by an officer or director in defending a civil or
criminal action, suit or proceeding may be paid by the Corporation in advance of
the final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the Corporation as authorized in this Section 12. Such expenses incurred by
other employees and agents may be so paid upon such terms and conditions, if
any, as the Board of Directors deems appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other paragraphs of this Section 12 shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
stockholders
<PAGE> 37
21
or disinterested directors or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office.
(g) The Board of Directors may authorize, by a vote of a majority of a
quorum of the Board of Directors, the Corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him and incurred by him in any such capacity, or arising out of his status as
such, whether or not the Corporation would have the power to indemnify him
against such liability under the provisions of this Section 12.
(h) For the purposes of this Section 12, references to Athe
Corporation@ shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed in
a consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, and employees
or agents, so that any person who is or was a director, officer, employee or
agent of such constituent corporation, or is or was serving at the request of
such constituent corporation as a director, officer, employee or agent of
another corporation,
<PAGE> 38
22
partnership, joint venture, trust or other enterprise, shall stand in the same
position under the provisions of this Section with respect to the resulting or
surviving corporation as he would have with respect to such constituent
corporation if its separate existence had continued.
(i) For purposes of this Section, references to Aother enterprises@
shall include employee benefit plans, references to Afines@ shall include any
excise taxes assessed on a person with respect to any employee benefit plan; and
references to Aserving at the request of the Corporation@ shall include service
as a director, officer, employee or agent of the Corporation which imposes
duties on, or involves services by, such director, officer, employee or agent
with respect to an employee benefit plan, its participants or beneficiaries; and
a person who acted in good faith and in a manner he reasonably believed to be in
the interest of the participants and beneficiaries of an employee benefit plan
shall be deemed to have acted in a manner Anot opposed to the best interests of
the Corporation@ as referred to in this Section.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this Section 12 shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer,
<PAGE> 39
23
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
ARTICLE IV
OFFICERS
Section 1. General. The officers of the Corporation shall be chosen by
the Board of Directors and shall be a President, a Secretary and a Treasurer.
The Board of Directors, in its discretion, may also choose a Chief Operating
Officer, one or more Vice-Presidents, one or more Assistant Secretaries and
Assistant Treasurers, and such other officers as may be appointed in accordance
with the provisions of Section 2 hereof. Any number of offices may be held by
the same person, unless otherwise prohibited by law, the Certificate of
Incorporation or these Bylaws. The officers of the Corporation need not be
stockholders of the Corporation nor need such officers be directors of the
Corporation.
Section 2. Election. The Board of Directors, at its first meeting held
after each Annual Meeting of stockholders shall elect the officers of the
Corporation who shall hold their offices for such terms and shall exercise such
powers and perform such duties as shall be determined from time to time by the
Board of Directors; and all officers of the Corporation shall hold office until
their successors are chosen and qualified, or until their earlier resignation or
removal. Any officer elected by the
<PAGE> 40
24
Board of Directors may be removed at any time by the affirmative vote of a
majority of the Board of Directors. Any vacancy occurring in any office of the
Corporation shall be filled by the Board of Directors. The salaries of all
officers of the Corporation shall be fixed by the Board of Directors.
Section 3. Voting Securities Owned by the Corporation. Powers of
attorney, proxies, waivers of notice of meeting, consents and other instruments
relating to securities owned by the Corporation may be executed in the name of
and on behalf of the Corporation by the President or any Vice President and any
such officer may, in the name of and on behalf of the Corporation, take all such
action as any such officer may deem advisable to vote in person or by proxy at
any meeting of security holders of any corporation in which the Corporation may
own securities and at any such meeting shall possess and may exercise any and
all rights and power incident to the ownership of such securities and which, as
the owner thereof, the Corporation might have exercised and possessed if
present. The Board of Directors may, by resolution, from time to time confer
like powers upon any other person or persons.
Section 4. President and Chief Executive Officer. The President shall,
subject to the supervisory powers as may be given by the Board of Directors and,
if there be one, the Chairman of the Board of Directors, be the Chief Executive
<PAGE> 41
25
Officer of the Corporation and shall, subject to the control of the Board of
Directors, have general supervision, direction and control of the business and
officers of the Corporation and shall see that all orders and resolutions of the
Board of Directors are carried into effect. He or she shall execute all bonds,
mortgages, contracts and other instruments of the Corporation requiring a seal,
under the seal of the Corporation, except where required or permitted by law to
be otherwise signed and executed and except that the other officers of the
Corporation may sign and execute documents when so authorized by these Bylaws,
the Board of Directors or the President. In the absence or disability of the
Chairman of the Board of Directors, or if there be none, the President shall
preside at all meetings of the stockholders and the Board of Directors. The
President shall also perform such other duties and may exercise such other
powers as from time to time may be assigned to him or her by these Bylaws or by
the Board of Directors.
Section 5. Chief Operating Officer. The Chief Operating Officer shall
have the day to day responsibility for the business operations of the
Corporation, reporting to the President and subject to the control of the Board
of Directors.
Section 6. Vice-Presidents and Executive Vice-Presidents. At the
request of the President or in his absence or in the event of his inability or
refusal to act, the Executive
<PAGE> 42
26
Vice-President or Executive Vice-Presidents or the Vice-President or the
Vice-Presidents if there is more than one (in the order designated by the Board
of Directors) shall perform the duties of the President, and when so acting,
shall have all the powers of and be subject to all the restrictions upon the
President. Each Executive Vice-President or Vice-President shall perform such
other duties and have such other powers as the Board of Directors from time to
time may prescribe. If there be no Executive Vice-President or Vice-President,
the Board of Directors shall designate the officer of the Corporation who, in
the absence of the President or in the event of the inability or refusal of the
President to act, shall perform the duties of the President, and when so acting,
shall have all the powers of and be subject to all the restrictions upon the
President.
Section 7. Secretary. The Secretary shall attend all meetings of the
Board of Directors and all meetings of stockholders and record all the
proceedings thereat in a book or books to be kept for that purpose; the
Secretary shall also perform like duties for the standing committees when
required. The Secretary shall give, or cause to be given, notice of all meetings
of the stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors or
President, under whose supervision he shall be. If the Secretary shall be unable
or
<PAGE> 43
27
shall refuse to cause to be given notice of all meetings of the stockholders and
special meetings of the Board of Directors, and if there be no Assistant
Secretary, then either the Board of Directors or the President may choose
another officer to cause such notice to be given. The Secretary shall have
custody of the seal of the Corporation and the Secretary or any Assistant
Secretary, if there be one, shall have authority to affix the same to any
instrument requiring it and when so affixed, it may be attested by the signature
of the Secretary or by the signature of any such Assistant Secretary. The Board
of Directors may give general authority to any other officer to affix the seal
of the Corporation and to attest the affixing by his signature. The Secretary
shall see that all books, reports, statements, certificates and other documents
and records required by law to be kept or filed are properly kept or filed, as
the case may be.
Section 8. Treasurer. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render
<PAGE> 44
28
to the President and the Board of Directors, at its regular meetings, or when
the Board of Directors so requires, an account of all his transactions as
Treasurer and of the financial condition of the Corporation. If required by the
Board of Directors, the Treasurer shall give the Corporation a bond in such sum
and with such surety or sureties as shall be satisfactory to the Board of
Directors for the faithful performance of the duties of his office and for the
restoration to the Corporation, in case of his death, resignation, retirement or
removal from office, of all books, papers, vouchers, money and other property of
whatever kind in his possession or under his control belonging to the
Corporation.
Section 9. Assistant Secretaries. Except as may be otherwise provided
in these Bylaws, Assistant Secretaries, if there be any, shall perform such
duties and have such powers as from time to time may be assigned to them by the
Board of Directors, the President, any Vice-President, if there be one, or the
Secretary, and in the absence of the Secretary or in the event of his disability
or refusal to act, shall perform the duties of the Secretary, and when so
acting, shall have all the powers of and be subject to all the restrictions upon
the Secretary.
Section 10. Assistant Treasurers. Assistant Treasurers, if there be
any, shall perform such duties and have
<PAGE> 45
29
such powers as from time to time may be assigned to them by the Board of
Directors, the President, any Vice-President, if there be one, or the Treasurer,
and in the absence of the Treasurer or in the event of his disability or refusal
to act, shall perform the duties of the Treasurer, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
Treasurer. If required by the Board of Directors, an Assistant Treasurer shall
give the Corporation a bond in such sum and with such surety or sureties as
shall be satisfactory to the Board of Directors for the faithful performance of
the duties of his office and for the restoration to the Corporation, in case of
his death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the Corporation.
Section 11. Other Officers. Such other officers as the Board of
Directors may choose shall perform such duties and have such powers as from time
to time may be assigned to them by the Board of Directors. The Board of
Directors may delegate to any other officer of the Corporation the power to
choose such other officers and to prescribe their respective duties and powers.
ARTICLE V
STOCK
<PAGE> 46
30
Section 1. Form of Certificates. Every holder of stock in the
Corporation shall be entitled to have a certificate signed, in the name of the
Corporation (i) by the President or a Vice-President and (ii) by the Treasurer
or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the
Corporation, certifying the number of shares owned by him in the Corporation.
Section 2. Signatures. Where a certificate is countersigned by (i) a
transfer agent other than the Corporation or its employee, or (ii) a registrar
other than the Corporation or its employee, any other signature on the
certificate may be a facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate issued, it may be issued by the Corporation with the same effect as
if he were such officer, transfer agent or registrar at the date of issue.
Section 3. Lost Certificates. The Board of Directors may direct a new
certificate to be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen or destroyed. When authorizing such issue of a new certificate, the
Board of Directors may, in its discretion
<PAGE> 47
31
and as a condition precedent to the issuance thereof, require the owner of such
lost, stolen or destroyed certificate, or his legal representative, to advertise
the same in such manner as the Board of Directors shall require and/or to give
the Corporation a bond in such sum as it may direct as indemnity against any
claim that may be made against the Corporation with respect to the certificate
alleged to have been lost, stolen or destroyed.
Section 4. Transfers. Stock of the Corporation shall be transferable in
the manner prescribed by law and in these Bylaws. Transfers of stock shall be
made on the books of the Corporation only by the person named in the certificate
or by his attorney lawfully constituted in writing and upon the surrender of the
certificate therefor, which shall be canceled before a new certificate shall be
issued.
Section 5. Record Date. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or entitled to express consent to corporate action in
writing without a meeting, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock, or for the
purpose of any other lawful action, the Board of Directors may fix, in advance,
a record date, which shall not be more than sixty days nor less than ten days
before
<PAGE> 48
32
the date of such meeting, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
Section 6. Beneficial Owners. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares of the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
law.
ARTICLE VI
NOTICES
Section 1. Notices. Whenever written notice is required by law, the
Certificate of Incorporation or these Bylaws, to be given to any director,
member of a committee or stockholder, such notice may be given by mail,
addressed to such director, member of a committee or stockholder, at his address
as it appears on the records of the Corporation, with postage
<PAGE> 49
33
thereon prepaid, and such notice shall be deemed to be given at the time when
the same shall be deposited in the United States mail. Written notice may also
be given personally or by telegram, telex, facsimile or cable and shall be
deemed to be given at the time of receipt thereof if given personally or at the
time of transmission if sent by telegram, telex, facsimile or cable.
Section 2. Waivers of Notice. Whenever any notice is required by law,
the Certificate of Incorporation or these Bylaws, to be given to any director,
member of a committee or stockholder, a waiver thereof in writing, signed, by
the person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto.
ARTICLE VII
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, and may be paid in cash, in property, or in shares of the capital
stock. Before payment of any dividend, there may be set aside out of any funds
of the Corporation available for dividends such sum or sums as the Board of
Directors from time to time, in its absolute discretion, deems proper as a
reserve or reserves to meet
<PAGE> 50
34
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the Corporation, or for any proper purpose, and the Board of
Directors may modify or abolish any such reserve.
Section 2. Disbursements. All checks or demands for money and notes of
the Corporation shall be signed by such officer or officers or such other person
or persons as the Board of Directors may from time to time designate.
Section 3. Fiscal Year. The fiscal year of the Corporation shall be
fixed by resolution of the Board of Directors.
Section 4. Corporate Seal. The corporate seal shall have inscribed
thereon the name of the Corporation, the year of its organization and the words
"Corporate Seal, Delaware." The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.
ARTICLE VIII
AMENDMENTS
Section 1. These Bylaws may be altered, amended or repealed, in whole
or in part, or new Bylaws may be adopted by the stockholders or by the Board of
Directors, provided, however, that notice of such alteration, amendment, repeal
or adoption of new Bylaws be contained in the notice of such meeting of
stockholders or Board of Directors, as the case may be. All such
<PAGE> 51
35
amendments must be approved by either the holders of a majority of the
outstanding capital stock entitled to vote thereon or by a majority of the
entire Board of Directors then in office.
Section 2. Entire Board of Directors. As used in this Article VIII and
in these Bylaws generally, the term "entire Board of Directors" means the total
number of directors which the Corporation would have if there were no vacancies.
<PAGE> 52
36
CERTIFICATE OF SECRETARY
I, the undersigned, do hereby certify:
That I am the duly elected and acting Secretary of Digex, Incorporated,
a Delaware corporation; and
That the foregoing Bylaws, comprising 36 pages, constitute the Bylaws
of said Corporation as duly approved and adopted by the Board of Directors of
said Corporation as of April 26, 1999.
IN WITNESS WHEREOF, I have here unto subscribed my name this 26 day
of April, 1999.
/s/ ROBERT B. PATRICK
Name: Robert B. Patrick
Title: Secretary
<PAGE> 53
[ARTICLE] 5
[LEGEND]
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED FINANCIAL STATEMENTS AS OF AND FOR THE THREE MONTHS ENDED MARCH 31,
2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q.
[/LEGEND]
[MULTIPLIER] 1,000
<TABLE>
<S> <C>
[PERIOD-TYPE] 3-MOS
[FISCAL-YEAR-END] DEC-31-2000
[PERIOD-START] JAN-01-2000
[PERIOD-END] MAR-31-2000
[CASH] 283,340
[SECURITIES] 0
[RECEIVABLES] 26,240
[ALLOWANCES] 3,234
[INVENTORY] 0
[CURRENT-ASSETS] 308,427
[PP&E] 270,705
[DEPRECIATION] 42,681
[TOTAL-ASSETS] 563,355
[CURRENT-LIABILITIES] 24,290
[BONDS] 20,540
[PREFERRED-MANDATORY] 0
[PREFERRED] 1
[COMMON] 635
[OTHER-SE] 521,620
[TOTAL-LIABILITY-AND-EQUITY] 563,355
[SALES] 0
[TOTAL-REVENUES] 27,974
[CGS] 0
[TOTAL-COSTS] 15,336
[OTHER-EXPENSES] 0
[LOSS-PROVISION] 1,990
[INTEREST-EXPENSE] 443
[INCOME-PRETAX] (25,646)
[INCOME-TAX] 0
[INCOME-CONTINUING] (25,646)
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] (25,646)
[EPS-BASIC] (0.41)
[EPS-DILUTED] (0.41)
</TABLE>
