Document:

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                                                                     Exhibit 4.2

                               WARRANT AGREEMENT

                         Dated as of January 12, 2000

                                 By and among

                             DIGEX, INCORPORATED,

                             MICROSOFT CORPORATION

                                      and

                              CPQ HOLDINGS, INC.
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          WARRANT AGREEMENT dated as of January 12, 2000 by and among DIGEX,
INCORPORATED, a Delaware corporation (the "Company"), Microsoft Corporation, a
Delaware corporation, and CPQ Holdings, Inc., a Delaware corporation (Microsoft
Corporation and CPQ Holdings, Inc. together, the "Initial Holders").

          NOW, THEREFORE, the parties hereto hereby agree as follows:

          1.  Grant.  The Company hereby grants to the Initial Holders, in the
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amounts set forth in Exhibit A opposite their names, warrants ("Warrants") which
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shall entitle the registered holder thereof to purchase from the Company, at any
time or from time to time hereafter until 5:00 P.M., New York time, on January
12, 2003 (the "Expiration Date"), up to 1,065,000 shares (the "Warrant Shares")
of Class A Common Stock, par value $.01 per share, of the Company ("Common
Stock"), subject to adjustment as provided in Section 6, at the exercise price
of $57.00 per share, subject to adjustment as provided in Section 6 (the
"Exercise Price"), all subject to the terms and upon the conditions set forth
herein.  Each Warrant not exercised or deemed exercised on or prior to the
Expiration Date shall become invalid and all rights thereunder, and all rights
in respect thereof under this Agreement, shall cease as of that time.

          2.  Warrant Certificates.  The Warrants shall be evidenced by
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certificates issued pursuant to this Agreement (the "Warrant Certificates") in
the form set forth in Exhibit B hereto, with such appropriate insertions,
                      ---------
omissions, substitutions, and other variations as are required or permitted by
this Agreement.

          3.  Exercise of Warrant.
              -------------------

          (a) General.  Subject to the provisions of this Agreement, upon
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surrender to Continental Transfer & Trust Company (the "Transfer Agent") at its
principal office of a Warrant Certificate with the annexed Form of Election to
Purchase duly executed, together with Payment (as defined below) of the Exercise
Price then in effect, the Transfer Agent shall issue and deliver promptly to the
registered holder of such Warrant Certificate, a certificate or certificates for
the Warrant Shares or other securities or property to which the registered
holder is entitled, registered in the name of such registered holder or, upon
the written order of such registered holder, in such name or names as such
registered holder may designate.  Any certificate or certificates representing
Warrant Shares shall be deemed to have been issued and any person so designated
to be named therein shall be deemed to have become the holder of record of the
Warrant Shares as of the date of the surrender of such Warrant Certificate
(together with such duly executed Form of Election to Purchase) and Payment of
the Exercise Price.

          (b) Payment.    Payment of the Exercise Price shall not be made in
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cash.  Each registered holder of the Warrants shall exercise its rights to
receive Warrant Shares on a net basis, such that without the exchange of any
funds, such holder receives that number of Warrant Shares that would otherwise
be issuable upon a cash exercise of such Warrants less that number of Warrant
Shares having a current market price equal to the aggregate cash Exercise Price
that

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would otherwise have been paid by such holder for the number of Warrant Shares
with respect to which such Warrant is being exercised. For purposes of this
Warrant Agreement, "Payment" of the Exercise Price shall be made pursuant to the
previous sentence.

          For the purpose of any computation under this paragraph 3(b), the
current market price per share of Common Stock on any day shall be deemed to be
the average of the Closing Prices of the Common Stock for the 10 consecutive
trading days ending on the day before the day the Warrant Certificate (together
with a duly executed Form of Election to Purchase) is delivered to the Company.
The term "Closing Price" shall mean, for each trading day, the last reported
sale price on the Nasdaq National Market or, if the Common Stock is not quoted
on the Nasdaq National Market, the average of the closing bid and asked prices
in the over-the-counter market as furnished by any New York Stock Exchange
member firm selected from time to time by the Company for that purpose.  If for
any reason the current market price per share cannot be determined pursuant to
the foregoing provisions of this paragraph, the current market price per share
shall be the fair market value thereof as determined in good faith by the Board
of Directors of the Company (the "Board").

          (c)  Exercise in Whole or in Part.  The purchase rights evidenced by a
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Warrant Certificate shall be exercisable, at the election of the registered
holder thereof, in whole or in part, but only for lots of 100 (as appropriately
adjusted for any reverse stock splits and similar transactions that result in
fewer Warrant Shares issuable upon exercise) Warrant Shares or integral
multiples thereof if less than all the Warrants then held by such registered
holder are being exercised. If less than all of the Warrant Shares purchasable
under any Warrant Certificate are purchased, the Transfer Agent shall cancel
such Warrant Certificate upon the surrender thereof and shall execute and
deliver a new Warrant Certificate of like tenor for the remaining number of
Warrant Shares purchasable thereunder.

          (d)  Fractional Shares.  No fractional shares of Common Stock shall be
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issued upon exercise of any Warrants. Instead the Transfer Agent shall round the
results of an exercise up to the nearest full share of Common Stock.

          (e)  Reservation of Shares.  The Company has reserved and deposited in
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escrow with the Transfer Agent enough shares of Common Stock to permit the
exercise of the Warrants in full. From time to time, upon any adjustment of the
Exercise Price and the number of Warrant Shares deliverable hereunder pursuant
to Section 6, the Company shall reserve and deposit in escrow with the Transfer
Agent enough additional shares of Common Stock to permit the exercise of the
Warrants in full, as so adjusted. All such shares of Common Stock held by the
Transfer Agent in escrow shall not be deemed outstanding until delivered by the
Transfer Agent to a registered holder of the Warrants pursuant to the terms
hereof. All shares of Common Stock that may be issued to a registered holder of
the Warrants upon exercise shall be fully paid and nonassessable and free of all
taxes, liens and charges in respect thereof other than those resulting from any
action taken by the registered holder or as provided in Section 8 hereof. The

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Company shall endeavor to comply with all securities laws regulating the offer
and delivery of shares of Common Stock upon exercise of the Warrants.

          4.  Restrictions on Transfer.
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          (a)  Warrant Register.  The Transfer Agent shall maintain at its
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principal office a Warrant Register for registration of the Warrants and Warrant
Certificates and transfers thereof.  The Transfer Agent shall initially register
the outstanding Warrants in the name of the Initial Holders.  The Transfer Agent
may deem and treat the registered holder(s) of the Warrant Certificates as the
absolute owner(s) thereof and of the Warrants represented thereby
(notwithstanding any notation of ownership or other writing on the Warrant
Certificates made by any person) for the purpose of any exercise thereof or any
distribution to the holder(s) thereof, and for all other purposes, and neither
the Company nor the Transfer Agent shall be affected by any notice to the
contrary.

          (b)  Warrants and Warrant Shares Not Registered.  Each registered
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holder of the Warrants, by acceptance thereof, represents and acknowledges that
the Warrants and the Warrant Shares which may be purchased upon exercise of a
Warrant are not registered under the Securities Act of 1933, as amended (the
"Securities Act"), that the issuance of the Warrants and the offering and sale
of such Warrant Shares are being made in reliance on the exemption from
registration under Section 4(2) of the Securities Act as not involving any
public offering and that the Company's reliance on such exemption is predicated
in part on the representations made by the Initial Holders of the Warrants to
and with the Company that each such holder (1) is acquiring the Warrants for
investment for its own account, with no present intention of reselling or
otherwise distributing the same, (2) is an "accredited investor" as defined in
Regulation D under the Securities Act, and (3) has such knowledge and experience
in financial and business matters that it is capable of evaluating the merits
and risks of the investments made or to be made in connection with the
acquisition and exercise of the Warrants. Neither the Warrants nor the related
Warrant Shares may be transferred except (i) pursuant to an effective
registration statement under the Securities Act, or (ii) if such transferee
makes the applicable representations set forth in the preceding sentence in
writing to the Company, with the delivery to the Company and the Transfer Agent
of an opinion of counsel, reasonably satisfactory to the Company, stating that
(A) no registration is required under the Securities Act, and (B) such
disposition will also be in compliance with applicable state securities law;
provided that no such opinion of counsel shall be required for a transfer of the
Warrants or the related Warrant Shares by an Initial Holder to any of its
affiliates, provided that such affiliate assumes all of such Initial Holder's
obligations hereunder.

          (c)  Notice and Registration of Transfer.  Each registered holder
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of the Warrants, by acceptance thereof, agrees that prior to any disposition by
such holder of the Warrants or of any Warrant Shares, such holder will give
written notice to the Transfer Agent expressing such holder's intention to
effect such disposition and describing briefly such holder's intention as to the
manner in which the Warrants or the Warrant Shares theretofore issued or

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thereafter issuable upon exercise hereof, are to be disposed of together with
the opinion, if any, required by paragraph 4(b) above, whereupon, but only if
such transfer is permitted pursuant to paragraph 4(b) above, such transferring
holder shall be entitled to dispose of the Warrants and/or the Warrant Shares
theretofore issued upon the exercise thereof, all in accordance with the terms
of the notice delivered by such holder to the Transfer Agent.  In the event of
such transfer, the Transfer Agent shall register the transfer of any outstanding
Warrants in the Warrant Register upon surrender of the Warrant Certificate(s)
evidencing such Warrants to the Transfer Agent at its principal office,
accompanied by a written instrument of transfer in form satisfactory to it, duly
executed by the registered holder thereof.   Upon any such registration or
transfer, new Warrant Certificate(s) evidencing such transferred Warrants shall
be issued to the transferee(s) and the surrendered Warrant Certificate(s) shall
be canceled.

          5.  Special Agreements of the Company.  The Company covenants and
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agrees as follows:

          (a) Listing on Securities Exchanges.  If the Common Stock is listed on
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a stock exchange, the Company will use its reasonable best efforts to procure at
its sole expense the listing of all Warrant Shares (subject to issuance or
notice of issuance) on all stock exchanges on which the Common Stock is then
listed and maintain the listing of such shares and other securities after
issuance.

          (b) Actions in Avoidance; Non-Dilution.  The Company will not,
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by amendment of its Restated Certificate of Incorporation, as amended, or
through any reorganization, transfer of assets, consolidation, merger, issue or
sale of securities or otherwise, avoid or take any action which would have the
effect of avoiding the observance or performance of any of the terms to be
observed or performed hereunder by the Company but will at all times in good
faith assist in carrying out all of the provisions of the Warrants and in taking
all of such action as may be necessary or appropriate in order to protect the
rights of the registered holders of the Warrants against impairment.

          6.  Adjustment of Exercise Price and Number of Warrant Shares
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Issuable. The number and kind of shares purchasable upon the exercise of
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Warrants and the Exercise Price shall be subject to adjustment from time to time
as follows:

          (a) In case the Company shall pay or make a dividend or other
distribution on any class of capital stock of the Company in Common Stock, the
Exercise Price in effect at the opening of business on the day following the
date fixed for the determination of stockholders entitled to receive such
dividend or other distribution shall be reduced by multiplying such Exercise
Price by a fraction the numerator of which shall be the number of shares of
Common Stock outstanding at the close of business on the date fixed for such
determination and the denominator of which shall be the sum of such number of
shares and the total number shares constituting such dividend or other
distribution, such reduction to become effective immediately after the opening
of business on the day following the date fixed for such determination of the

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holders entitled to such dividends and distributions.  For the purposes of this
paragraph 6(a), the number of shares of Common Stock at any time outstanding
shall not include shares held in the treasury of the Company.  The Company will
not pay any dividend or make any distribution on shares of Common Stock held in
the treasury of the Company.

          (b) In case the Company shall issue Common Stock, any security
convertible into or exercisable for Common Stock, or rights, options or warrants
to subscribe for, purchase or acquire shares of Common Stock or other securities
convertible into or exercisable for Common Stock (excluding shares issued (i) in
any of the transactions described in paragraphs 6(a), 6(c) or 6(d) of this
Agreement, (ii) pursuant to the Company's employee incentive plans, (iii) upon
exercise of options and warrants of the Company outstanding as of the date
hereof, (iv) to shareholders of any corporation which merges into the Company or
a subsidiary of the Company in proportion to their stock holdings of such
corporation immediately prior to such merger, upon such merger, (v) upon
conversion or exchange of any preferred stock or convertible debt of the
Company, or (vi) in a bona fide offering (whether pursuant to a registered
offering or an offering pursuant to Rule 144A of the Securities Act) pursuant to
a firm commitment underwriting designed to achieve a broad distribution and in
which no person (or group of affiliated persons) has a prior arrangement to
acquire shares in the offering such that, after giving effect to the offering,
such person or group would beneficially own shares representing 5% or more of
the total shares outstanding), at a price per share (on an as converted or
exercised basis) less than the current market price per share (determined as
provided in paragraph 6(f) below) of the Common Stock on the  earliest of (x)
the date of the closing of any new issuance, (y) the date fixed for the
determination of stockholders entitled to receive such securities, and (z) the
date on which the Company becomes contractually obligated to issue such
securities, the Exercise Price in effect at the opening of business on the day
following the date fixed for such determination shall be reduced by multiplying
such Exercise Price by a fraction the numerator of which shall be the number of
shares of Common Stock outstanding at the close of business on the date fixed
for such determination plus the number of shares of Common Stock which the
aggregate offering price for the total number of shares of Common Stock so
offered for subscription, purchase or acquisition would purchase at such current
market price per share and the denominator of which shall be the number of
shares of Common Stock outstanding at the close of business on the date fixed
for such determination plus the number of shares of Common Stock so offered for
subscription, purchase or acquisition, such reduction to become effective
immediately after the opening of business on the day following the date fixed
for such determination of the holders entitled to such rights, options or
warrants.  However, upon the expiration of any right, option or warrant to
purchase Common Stock, the issuance of which resulted in an adjustment in the
Exercise Price pursuant to this paragraph 6(b), if any such right, option or
warrant shall expire and shall not have been exercised, the Exercise Price shall
be recomputed immediately upon such expiration and effective immediately upon
such expiration shall be increased to the price it would have been (but
reflecting any other adjustments to the Exercise Price made pursuant to the
provisions of this paragraph 6 after the issuance of such rights, options or
warrants) had the adjustment of the Exercise Price made upon the issuance of
such rights, options or warrants been made on the basis of offering for
subscription or purchase only that number of shares of

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Common Stock actually purchased upon the exercise of such rights, options or
warrants. No further adjustment shall be made upon exercise of any right, option
or warrant if any adjustment shall have been made upon the issuance of such
security. For the purposes of this paragraph 6(b), the number of shares of
Common Stock at any time outstanding shall not include shares held in the
treasury of the Company. The Company will not issue any rights, options or
warrants in respect of shares of Common Stock held in the treasury of the
Company.

          (c) In case the outstanding shares of Common Stock shall be subdivided
into a greater number of shares of Common Stock, the Exercise Price in effect at
the opening of business on the day following the day upon which such subdivision
becomes effective shall be reduced, and, conversely, in case the outstanding
shares of Common Stock shall each be combined into a smaller number of shares of
Common Stock, the Exercise Price in effect at the opening of business on the day
following the day upon which such combination becomes effective shall be
increased to equal the product of (x) the Exercise Price in effect on such date
and (y) a fraction the numerator of which shall be the number of shares of
Common Stock outstanding immediately prior to such subdivision or combination,
as the case may be, and the denominator of which shall be the number of shares
of Common Stock outstanding immediately after such subdivision or combination,
as the case may be.  Such reduction or increase, as the case may be, shall
become effective immediately after the opening of business on the day following
the day upon which such subdivision or combination becomes effective.

          (d) In case the Company shall, by dividend or otherwise, distribute to
all holders of its Common Stock (A) evidences of its indebtedness or (B) shares
of any class of capital stock, cash or other assets (including securities, but
excluding (x) any rights, options or warrants for which an adjustment has been
made under paragraph 6(b) above, (y) any dividend or distribution for which an
adjustment has been made under paragraph 6(a) or 6(c) above, and (z) cash
dividends paid from the Company's retained earnings, unless the sum of (1) all
such cash dividends and distributions made within the preceding 12 months in
respect of which no adjustment has been made and (2) any cash and the fair
market value of other consideration paid in respect of any repurchases of Common
Stock by the Company or any of its subsidiaries within the preceding 12 months
in respect of which no adjustment has been made, exceeds 20% of the Company's
market capitalization (being the product of the then current market price per
share (determined as provided in paragraph 6(f) below) of the Common Stock times
the aggregate number of shares of Common Stock then outstanding on the record
date for such distribution)), then in each case, the Exercise Price in effect at
the opening of business on the day following the date fixed for the
determination of holders of Common Stock entitled to receive such distribution
shall be adjusted by multiplying such Exercise Price by a fraction of which the
numerator shall be the current market price per share (determined as provided in
paragraph 6(f) below) of the Common Stock on such date of determination less the
then fair market value as determined by the Board (whose determination shall be
conclusive) of the portion of the capital stock, cash or other assets or
evidences of indebtedness so distributed (and for which an adjustment to the
Exercise Price has not previously been made pursuant to the terms of this
paragraph 6) applicable to one share of Common Stock, and the denominator shall
be such current market price per share

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of the Common Stock, such adjustment to become effective immediately after the
opening of business on the day following such date of determination of the
holders entitled to such distribution. The following transactions shall be
excluded from the foregoing clauses (1) and (2): repurchases of Common Stock
issued under the Company's stock incentive programs in accordance with the
provisions thereof.

          (e) In the case of any reclassification or change of the capital stock
of the Company, upon consummation of such reclassification or change, each
Warrant shall survive such reclassification or change and automatically become
exercisable into the kind and amount of securities, cash or other property
receivable upon such reclassification or change by a holder of the number of
shares of Common Stock into which such Warrant might have been exercised
immediately prior to such reclassification or change.  Appropriate adjustment
(as determined by the Board) shall be made in the application of the provisions
set forth herein with respect to the rights and interests thereafter of the
holders of the Warrants, to the end that the provisions set forth herein
(including the provisions with respect to changes in and other adjustment of the
Exercise Price) shall thereafter be applicable, as nearly as reasonably may be,
in relation to any shares of stock or other securities or property thereafter
deliverable upon exercise of the Warrants.

          (f) For the purpose of any computation under paragraph 6(b) or 6(d)
above, the current market price per share of Common Stock on any day shall be
deemed to be the average of the Closing Prices of the Common Stock for the 20
consecutive trading days ending  the day before the day in question; provided
that, in the case of paragraph 6(d), if the period between the date of the
public announcement of the dividend or distribution and the date for the
determination of holders of Common Stock entitled to receive such dividend or
distribution shall be less than 20 trading days, the period shall be such lesser
number of trading days but, in any event, not less than five trading days.

          (g)  No adjustment in the Exercise Price need be made until all
cumulative adjustments amount to 1% or more of the Exercise Price as last
adjusted.  Any adjustments that are not made shall be carried forward and taken
into account in any subsequent adjustment.  All calculations under this
paragraph 6 shall be made to the nearest 1/1,000th of a cent or to the nearest
1/1,000th of a share, as the case may be.

          (h)  For purposes of this paragraph 6, "Common Stock" includes any
stock of any  class of the Company which has no preference in respect of
dividends or of amounts payable in the event of any voluntary or involuntary
liquidation, dissolution or winding-up of the Company and which is not subject
to redemption by the Company (including Class A Common Stock, par value $.01 per
share, and Class B Common Stock, par value $.01 per share, of the Company).
However, subject to the provisions of paragraph 6(l) below, shares issuable on
exercise of the Warrants shall include only shares of the class designated as
Class A Common Stock of the Company on the date hereof or shares of any class or
classes or other securities or assets resulting from any reclassification
thereof; provided that, if at any time there shall be more than one such

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resulting class, the shares of each such class then so issuable shall be
substantially in the proportion which the total number of shares of such class
resulting from all such reclassifications bears to the total number of shares of
all such classes resulting from all such reclassifications.

          (i) No adjustment in the Exercise Price shall reduce the Exercise
Price below the then par value of the Common Stock.  No adjustment in the
Exercise Price need be made under paragraphs 6(a), 6(b) and 6(d) above if the
Company issues or distributes to each registered holder of Warrants the shares
of Common Stock, evidences of indebtedness, assets, rights, options or warrants
referred to in those paragraphs which each registered holder would have been
entitled to receive had the Warrants been exercised prior to the happening of
such event or the record date with respect thereto.

          (j) Whenever the Exercise Price is adjusted pursuant to paragraphs
6(a), 6(b), 6(c) or 6(d) above, (A) the number of Warrant Shares purchasable
upon exercise of any Warrant shall be adjusted by multiplying such number of
Warrant Shares by a fraction the numerator of which is the Exercise Price
immediately prior to such adjustment and the denominator of which is the
Exercise Price immediately after such adjustment and (B) the Company shall
promptly mail to registered holders of Warrants, first class, postage prepaid, a
notice of the adjustment together with a certificate from the Company's
independent public accountants briefly stating the facts requiring the
adjustment and the manner of computing it.  The certificate shall be conclusive
evidence that the adjustment is correct.

          (k)  If:

          (A) the Company takes any action which would require an adjustment in
the Exercise Price pursuant to this Section 6;

          (B) a capital reorganization of the Company occurs or the Company
consolidates or merges with, or transfers all or substantially all of its assets
to, another corporation,; or

          (C) there is a dissolution or liquidation of the Company;

the Company shall mail to registered holders of the Warrants, first class,
postage prepaid, a notice stating the proposed record or effective date, as the
case may be.  The Company shall mail the notice at least 5 days before such
proposed record or effective date.  However, failure to mail the notice or any
defect in it shall not affect the validity of any transaction referred to in
clause (A), (B) or (C) of this paragraph 6(k).

          (l) In the case of any consolidation of the Company or merger of the
Company with any other entity or the sale or transfer of all or substantially
all the assets of the Company pursuant to which the Company's Common Stock is
converted into other securities, cash or assets, upon consummation of such
transaction, each Warrant shall survive such merger

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or sale and automatically become exercisable into the kind and amount of
securities, cash or other assets receivable upon the consolidation, merger, sale
or transfer by a holder of the number of shares of Common Stock into which such
Warrant might have been exercised immediately prior to such consolidation,
merger, transfer or sale (assuming such holder of Common Stock failed to
exercise any rights of election and received per share the kind and amount of
consideration receivable per share by a plurality of non-electing shares).
Appropriate adjustment (as determined by the Board) shall be made in the
application of the provisions herein set forth with respect to the rights and
interests thereafter of the holders of Warrants, to the end that the provisions
set forth herein (including provisions with respect to changes in and other
adjustment of the Exercise Price) shall thereafter be applicable, as nearly as
reasonably may be, in relation to any shares of stock or other securities or
property thereafter deliverable upon the exercise of Warrants. If this paragraph
6(l) applies, paragraphs 6(a), 6(c) and 6(e) do not apply.

          (m) In any case in which this paragraph 6 shall require that an
adjustment as a result of any event become effective from and after a record
date, the Company may elect to defer until after the occurrence of such event
the issuance to the holder of any Warrants exercised after such record date and
before the occurrence of such event of the additional shares of Common Stock
issuable upon such exercise over and above the shares issuable on the basis of
the Exercise Price and number of Warrant Shares in effect immediately prior to
adjustment; provided, however, that if such event shall not have occurred and
authorization of such event shall be rescinded by the Company, the Exercise
Price and number of Warrant Shares shall be recomputed immediately upon such
rescission to the price that would have been in effect had such event not been
authorized, provided that such rescission is permitted by and effective under
applicable laws.

          7.  Exchange and Replacement of Warrant Certificates.  Each Warrant
              ------------------------------------------------
Certificate is exchangeable without expense, upon the surrender thereof by the
registered holder thereof at the principal executive office of the Transfer
Agent, for a new Warrant Certificate of like tenor and date representing in the
aggregate the right to purchase the same number of Warrant Shares in such
denominations as shall be designated by the registered holder thereof at the
time of such surrender.  Upon receipt by the Transfer Agent of evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation of
any Warrant Certificate, and, in case of loss, theft or destruction, of
indemnity or security reasonably satisfactory to it, and reimbursement to the
Company and/or the Transfer Agent of all reasonable expenses incidental thereto,
and upon surrender and cancellation of such Warrant Certificate, if mutilated,
the Transfer Agent will make and deliver a new Warrant Certificate of like
tenor, in lieu thereof.

          8.  Payment of Taxes.  The Company will pay all documentary stamp
              ----------------
taxes attributable to the initial issuance of the Warrants and of the Warrant
Shares upon the exercise of Warrants; provided, however, that the Company shall
not be required to pay any tax or taxes which may be payable in respect of any
transfer involved in the issuance of any Warrant Certificates or any
certificates for Warrant Shares in a name other than that of the registered
holder of such Warrant Certificate, and the Company shall not be required to
issue or deliver

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such Warrant Certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.

          9.  Statement on Warrants.  Irrespective of any adjustment in the
              ---------------------
number or kind of shares issuable upon the exercise of the Warrants or the
Exercise Price, Warrant Certificates theretofore or thereafter issued may
continue to express the same number and kind of shares and the same Exercise
Price as are stated in the Warrant Certificates  initially issuable pursuant to
this Agreement.

          10.  Registration.  The Company acknowledges that registered holders
               ------------
shall have the registration rights set forth in the Registration Rights
Agreement dated the date hereof between the Company and the Initial Holders.

          11.  Notices.
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          All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been duly made when delivered by
hand or sent by facsimile transmission (with receipt confirmed), or, if timely
delivered to an air courier guaranteeing overnight delivery service, on the next
business day, or five business days after being deposited in the mail, first
class, certified or registered, postage prepaid, return receipt requested, in
each case addressed as follows (or to such other place or places as either of
the parties shall designate by written notice to the other):

          (i)  if to registered holder, to the address set forth on the Warrant
               Register maintained by the Transfer Agent; and

          (ii) if to the Company, to:

                    Digex, Incorporated.
                    One Digex Plaza
                    Beltsville, Maryland 20705
                    Attention: Chief Financial Officer
                    Facsimile: (240) 264-2380

                    with a copy to:

                    Kronish Lieb Weiner & Hellman LLP
                    1114 Avenue of Americas
                    New York, NY 10036-7798
                    Attention: Ralph J. Sutcliffe, Esq.
                    Facsimile: (212) 479-6275

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          12.  Amendment.  The Company with the consent of the registered
               ---------
holders of the unexercised Warrants evidencing at least a majority of the
Warrant Shares underlying the unexercised Warrants may amend or supplement this
Agreement or waive compliance by the Company in a particular instance with any
provision of this Agreement; provided that without the consent of each
registered holder affected, no such amendment shall (with respect to Warrants
held by a non-consenting registered holder) increase the Exercise Price or
decrease the number of Warrant Shares issuable upon exercise of any Warrant .

          13.  Successors.  Except as otherwise provided herein, all the
               ----------
covenants and provisions of this Agreement by or for the benefit of the Company
and the registered holders of the Warrants shall inure to the benefit of their
respective successors and assigns hereunder.

          14.  Governing Law.  This Agreement and each Warrant Certificate
               -------------
issued hereunder shall be deemed to be a contract made under the laws of the
State of Delaware and for all purposes shall be construed in accordance with the
laws of such State (without regard to the conflicts of law principles thereof).

          15.  Benefits of This Agreement.  Nothing in this Agreement shall be
               --------------------------
construed to give to any person other than the Company and the registered
holders of the unexercised Warrant Certificates any legal or equitable right,
remedy or claim under this Agreement; and this Agreement shall be for the sole
and exclusive benefit of the Company and such registered holders.  Prior to the
exercise of the Warrants, no holder of a Warrant Certificate, as such, shall be
entitled to any rights of a stockholder of the Company, including, without
limitation, the right to receive dividends or subscription rights, the right to
vote, to consent, to exercise any preemptive right, to receive any notice of
meetings of stockholders for the election of directors of the Company or any
other matter or to receive any notice of any proceedings of the Company, except
as may be specifically provided for herein.  The holders of the Warrants, as
such, are not entitled to share in the assets of the Company in the event of the
liquidation, dissolution or winding up of the Company's affairs.

          16.  Counterparts.  This Agreement may be executed in any number of
               ------------
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counterparts shall together constitute one and the same
instrument.

          17.  Headings.  The headings in this Agreement are intended solely for
               --------
convenience of reference and shall be given no effect in the construction or
interpretation of this Agreement.

                            [Signature Page Follows]

                                       11
<PAGE>

          IN WITNESS WHEREOF, the parties hereto have caused this Warrant
Agreement to be duly executed as of the day and year first above written.

                              DIGEX, INCORPORATED

                              By:  /s/ MARK K. SHULL
                                  ------------------
                                 Name: Mark K. Shull
                                 Title: Chief Executive Officer

                              MICROSOFT CORPORATION

                              By:  /s/  ROBERT J. HERBOLD
                                  ------------------------
                                 Name: Robert J. Herbold
                                 Title: Chief Operating Officer

                              CPQ HOLDINGS, INC.

                              By:  /s/  BEN K. WELLS
                                  ------------------------
                                 Name: Ben K. Wells
                                 Title: Vice President & Treasurer

                                       12
<PAGE>

                                   Exhibit A

Initial Holders                       Number of Warrants
---------------                       ------------------

Microsoft Corporation                 532,500

CPQ Holdings, Inc.                    532,500

                                      -i-
<PAGE>

                                   EXHIBIT B

                         [FORM OF WARRANT CERTIFICATE]

THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY ISSUED IN A
TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT").  THE SECURITY
EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM.

THE TRANSFER OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS RESTRICTED IN
ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.

                            EXERCISABLE ON OR BEFORE
                          5:00 P.M., NEW YORK TIME, on
                                January __, 2003

No. W-

                              WARRANT CERTIFICATE

          This Warrant Certificate certifies that, for value received,
_________________ having an address at ______________ ("Holder"), is the
registered holder of warrants (the "Warrants") to purchase, at any time and from
time to time after the date hereof until 5:00 P.M. New York time, on January
___, 2003, up to [               ] fully-paid and non-assessable shares (subject
to adjustment in certain events) of Class A Common Stock, par value $.01 per
share ("Common Stock"), of DIGEX, INCORPORATED, a Delaware corporation (the
"Company"), at the exercise price per share of $57.00, subject to adjustment in
certain events (the "Exercise Price"), upon surrender of this Warrant
Certificate, together with the attached Form of Election to Purchase duly
executed, and payment of the Exercise Price at the principal office of
Continental Stock Transfer & Trust Company (the "Transfer Agent"), but subject
to the terms and conditions set forth herein and in the Warrant Agreement dated
as of January ___, 2000 between the Company and the Initial Holders (the
"Warrant Agreement"). Payment of the

                                     -ii-
<PAGE>

Exercise Price shall not be made in cash. Each registered holder of the Warrants
shall exercise its rights to receive shares of Common Stock on a net basis, such
that without the exchange of any funds, such holder receives that number of
shares of Common Stock that would otherwise be issuable upon a cash exercise of
such Warrants less that number of shares of Common Stock having a current market
price (as defined in Section 3(b) of the Warrant Agreement) equal to the
aggregate cash Exercise Price that would otherwise have been paid by such holder
for the number of shares of Common Stock with respect to which such Warrant is
being exercised.

          This Warrant may be exercised at such times and in such amounts as are
provided for in the Warrant Agreement.  Each Warrant not exercised on or prior
to January ___,2003 shall become invalid and all rights hereunder, and all
rights in respect thereof under the Warrant Agreement, shall cease as of that
time.

          The Warrants evidenced by this Warrant Certificate are issued pursuant
to the Warrant Agreement, which Warrant Agreement is hereby incorporated by
reference in and made a part of this instrument and is hereby referred to for a
description of the rights, limitation of rights, obligations, duties and
immunities thereunder of the Company and the holders (the words "holders" or
"holder" meaning the registered holders or registered holder) of the Warrants.
A copy of the Warrant Agreement may be obtained by the holder(s) hereof upon
written request directed to the Company.

          The Warrant Agreement provides that upon the occurrence of certain
events, the Exercise Price and the type and/or number of the Company's
securities issuable upon exercise of the Warrants may, subject to certain
conditions, be adjusted.

          Upon due presentment for registration of transfer of this Warrant
Certificate at the principal office of the Transfer Agent, a new Warrant
Certificate or Warrant Certificates of like tenor and evidencing in the
aggregate a like number of Warrants shall be issued to the transferee(s) in
exchange for this Warrant Certificate, subject to the limitations provided
herein and in the Warrant Agreement, without any charge except for any tax or
other governmental charge imposed in connection therewith.

          Upon the exercise of less than all of the Warrants evidenced by this
Warrant Certificate, the Transfer Agent shall forthwith issue to the holder
hereof a new Warrant Certificate representing such number of unexercised
Warrants.

          The Company and the Transfer Agent may deem and treat the registered
holder(s) hereof as the absolute owner(s) of this Warrant Certificate
(notwithstanding any notation of ownership or other writing hereon made by
anyone), for the purpose of any exercise hereof and of any distribution to the
holder(s) hereof and for all other purposes, and neither the Company nor the
Transfer Agent shall be affected by any notice to the contrary.

                                     -iii-
<PAGE>

          All terms used in this Warrant Certificate which are not defined
herein and are defined in the Warrant Agreement shall have the meanings assigned
to them in the Warrant Agreement.

          IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed under its corporate seal.

Dated: January ___, 2000

                              DIGEX, INCORPORATED

                              By:_____________________________
                                 Name:
                                 Title:

                                     -iv-
<PAGE>

                             [FORM OF ASSIGNMENT]

            (To be executed by the registered holder if such holder
                 desires to transfer the Warrant Certificate.)

          FOR VALUE RECEIVED, ________________________  hereby sells, assigns
and transfers unto ________________________________, whose address is
__________________________, this Warrant Certificate, together with all right,
title and interest therein, and does hereby irrevocably constitute and appoint
___________________________, Attorney to transfer the within Warrant Certificate
on the books of the within-named Company, with full power of substitution.

Dated:        Signature:____________________

                         (Signature must conform in all respects to name of
                         holder as specified on the face of the Warrant
                         Certificate.  Signature must be guaranteed by a bank or
                         trust company having an office or correspondent in the
                         United States or a broker or dealer which is a member
                         of a registered securities exchange or the National
                         Association of Securities Dealers, Inc.)

                         _________________________
                         (Insert Social Security or Other
                         Identifying Number of Holder)
<PAGE>

                        [FORM OF ELECTION TO PURCHASE]

          The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase ________________ shares of
Common Stock , all in accordance with the terms of the Warrant Agreement, dated
January 12, 2000, by and among Digex, Incorporated and the initial holders of
the Warrants.

          The undersigned requests that a certificate for such shares of Common
Stock be registered in the name of _________________________________________,
whose address is _____________________________________________ and that such
certificate be delivered to _______________________________________ whose
address is _____________________________________________.

Dated:                   Signature:  ___________________

                         (Signature must conform in all respects to name of
                         holder as specified on the face of the Warrant
                         Certificate.  Signature must be guaranteed by a bank or
                         trust company having an office or correspondent in the
                         United States or a broker or dealer which is a member
                         of a registered securities exchange or the National
                         Association of Securities Dealers, Inc.)

                         _________________________
                         (Insert Social Security or Other
                         Identifying Number of Holder)<PAGE>

                                                                     Exhibit 4.3

          THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and
                                                   ---------
entered into as of January 12, 2000, between Digex, Incorporated, a Delaware
corporation (the "Company") and Microsoft Corporation, a Washington corporation
                  -------
("Microsoft"), and CPQ Holdings, Inc., a Delaware corporation ("Compaq") (each
  ---------                                                     ------
of Microsoft and Compaq, a "Purchaser" and collectively, the "Purchasers").
                            ---------                         ----------

          This Agreement is made pursuant to the Purchase Agreement, dated
January 11, 2000 (the "Purchase Agreement"), by and among the Company and the
                       ------------------
Purchasers.  In order to induce the Purchasers to purchase 100,000 shares of the
Company's Series A Convertible Preferred Stock, par value $0.01 per share (the
"Series A Preferred Stock") and warrants (the "Warrants") to purchase 1,065,000
-------------------------                      --------
shares of the Company=s Class A common stock, par value $.01 per share (the
"Common Stock"), the Company has agreed to provide the registration rights set
-------------
forth in this Agreement.  The execution and delivery of this Agreement is a
condition to the obligations of the Purchasers set forth in Section 4 of the
Purchase Agreement.

          In consideration of the foregoing, the parties hereto agree as
follows:

     SECTION 1.  DEFINITIONS

          As used in this Agreement, the following capitalized terms shall have
the following meanings:

          "Act" means the Securities Act of 1933, as amended.
           ---

          "Business Day" means any day except a Saturday, Sunday or other day in
           ------------
the City of New York on which banks are authorized to close.

          "Conversion Shares" means the shares of Common Stock or other
           -----------------
securities issued or issuable upon the conversion of the Series A Preferred
Stock.

          "Exchange Act" means the Securities Exchange Act of 1934, as amended
           ------------
from time to time.

          "Holder" means any Purchaser, for so long as such Purchaser own any
           ------
Series A Preferred Stock, any Warrants or any Registrable Securities, and their
successors, assigns and direct and indirect transferees who become registered
owners of Series A Preferred Stock,  Warrants or Registrable Securities.

          "NASD" means the National Association of Securities Dealers, Inc.
           ----
<PAGE>

          "Person" means an individual, partnership, corporation, trust or
           ------
unincorporated organization, or a government or agency or political subdivision
thereof.

          "Prospectus" means the prospectus included in a Registration Statement
           ----------
at the time such Registration Statement is declared effective, as amended or
supplemented by any prospectus supplement and by all other amendments thereto,
including post-effective amendments, and all material incorporated by reference
into such Prospectus.

          "Registrable Securities" shall mean any of (a) the Conversion Shares,
           ----------------------
(b) the Warrant Shares and (c) any other securities issued or issuable in
respect of, or in exchange for, the Conversion Shares or Warrant Shares by way
of a stock dividend, stock split or distribution to stockholders, or in
connection with a combination of shares, recapitalization, reclassification,
change in capital structure, merger, consolidation, sale of assets, spin-off,
split-up, or partial or complete liquidation or other reorganization or
otherwise until such date as such security (i) is effectively registered under
the Act and disposed of in accordance with a registration statement, (ii) is
distributed to the public pursuant to Rule 144 under the Act or (iii) may be
sold or transferred without restriction pursuant to Rule 144(k) (or any similar
provision then in force) under the Act or otherwise.

          "Registration Statement" shall mean any registration statement of the
           ----------------------
Company which covers any of the Registrable Securities pursuant to the
provisions of this Agreement and all amendments and supplements to any such
Registration Statement, including post-effective amendments, in each case
including the Prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.

          "Rule 144" shall mean Rule 144 under the Act, as such Rule may be
           --------
amended from time to time, or any similar rule (other than Rule 144A) or
regulation hereafter adopted by the SEC providing for offers and sales of
securities made in compliance therewith resulting in offers and sales by
subsequent holders that are not affiliates of an issuer of such securities being
free of the registration and prospectus delivery requirements of the Act.

          "Rule 144A" shall mean Rule 144A under the Act as such Rule may be
           ---------
amended from time to time.

          "SEC" shall mean the Securities and Exchange Commission.
           ---

          "Warrant Shares" means the shares of Common Stock or other securities
           --------------
issued or issuable upon the exercise of the Warrants.

     SECTION 2.  REGISTRATION RIGHTS.

          (a)  Demand Registration.
               -------------------

                                       2
<PAGE>

          (i) Request for Registration.  At any time on or after January 12,
              ------------------------
2001, the Holders of Series A Preferred Stock, Warrants, Conversion Shares
and/or Warrant Shares representing not less than 25% of the aggregate number of
Registrable Securities then outstanding may make up to two written requests for
registration under the Act of their Registrable Securities (a "Demand
                                                               ------
Registration"); provided, however, that if Compaq or Microsoft (the "Non-
------------
Initiating Party") does not participate in the request for, and does not sell
any Registrable Securities in, the first Demand Registration, and the Non-
Initiating Party holds Series A Preferred Stock, Warrants, Conversion Shares
and/or Warrant Shares representing not less than 25% of the Registrable
Securities then outstanding, then the Non-Initiating Party shall have the
exclusive right to request the second Demand Registration.  Any such request
will specify the number of Registrable Securities proposed to be sold and will
also specify the intended method of disposition thereof.  Subject to the other
provisions of this Section 2(a), the Company shall give written notice of such
registration request within 10 days after the receipt thereof to all other
Holders.  Within 30 days after receipt of such notice by any Holder, such Holder
may request in writing that its Registrable Securities be included in such
registration and the Company shall include in the Demand Registration the
Registrable Securities of any such Holder requested to be so included.  Each
such request shall specify the number of Registrable Securities proposed to be
sold and the intended method of disposition thereof.  Upon a demand, the Company
will (x) prepare, file and use its best efforts to cause to become effective
within 120 days of such demand a Registration Statement in respect of all the
Registrable Securities which Holders request for inclusion therein; provided
                                                                    --------
that if such demand occurs during a Black Out Period (as defined below) or other
period (not to exceed 180 days) during which the Company is prohibited or
restricted from issuing or selling Common Stock pursuant to any underwriting or
purchase agreement relating to an underwritten  Rule 144A offering or registered
public offering of Common Stock or securities convertible into or exchangeable
for Common Stock (a "Lock Up Period"), the Company shall not be required to
                     --------------
notify the Holders of such demand or file such Registration Statement prior to
the end of the Black Out Period or Lock Up Period, as the case may be, in which
event, the Company will use its best efforts to cause such Registration
Statement to become effective no later than the later of (A) 180 days after the
original demand and (B) 90 days after the end of the Black Out Period or Lock Up
Period, as the case may be, and (y) keep such Registration Statement
continuously effective for the shorter of (A) 270 days (the "Fixed Effectiveness
                                                             -------------------
Period"), (B) such period of time as all of the Registrable Securities included
------
in such Registration Statement have been sold thereunder, and (C) the time that
all of the Registrable Securities may be sold under Rule 144 during a single
three month period (the shorter of (A), (B) or (C),  the "Effectiveness
                                                          -------------
Period"); provided that the Company may postpone the filing of any Registration
          --------
Statement, suspend the effectiveness of any registration, suspend the use of any
Prospectus and shall not be required to amend or supplement the Registration
Statement, any related Prospectus or any document incorporated therein by
reference (other than an effective Registration Statement being used in an
underwritten offering) (A) for a period not to exceed an aggregate of 60 days (a
"Pending Event Suspension Period") in the event that (1) an event or
 -------------------------------
circumstance occurs and is continuing as a result of which the Registration
Statement,

                                       3
<PAGE>

any related Prospectus or any document incorporated therein by
reference as then amended or supplemented would, in the Company's good faith
judgment, contain an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading, and (2)(x) the
Company determines in its good faith judgment that the disclosure of such event
at such time could reasonably be expected to have a material adverse effect on
the business, operations or prospects of the Company or (y) the disclosure
otherwise relates to a material business transaction which has not yet been
publicly disclosed or (B) in the event that the Company, for its own account,
proposes to register shares of Common Stock for sale in an underwritten public
offering on Form S-1, S-2 or S-3, their successor forms or any other form under
the Securities Act appropriate for a primary public offering by the Company
(other than for the purpose of making an acquisition or in connection with
option plans), for a period not to exceed 45 days commencing on the date of
pricing of such public offering and ending 60 days after the consummation of
such public offering (a "Pending Registration Suspension Period" and, together
                         --------------------------------------
with a Pending Event Suspension Period, a "Black Out Period"); provided, further
                                           ----------------    --------  -------
that the Fixed Effectiveness Period shall be extended by the number of days in
any Black Out Period occurring during the Effectiveness Period.  Subject to
Section 2(a)(ii), the Company shall only be required to register Registrable
Securities pursuant to this Section 2(a) once.

          In the event of the occurrence of any Black Out Period or Lock Up
Period during an Effectiveness Period, the Company will promptly notify the
Holders of Registrable Securities thereof in writing.

          (ii)  Effective Registration.  Except as specifically provided herein,
                ----------------------
the Company is only required to effect two registrations as Demand Registrations
under this Agreement (whether or not all of the Holders of Registrable
Securities elect to participate in such Demand Registrations on the basis set
forth herein).  A registration will not be deemed to have been effected as a
Demand Registration, and thereby satisfy the obligation of the Company
hereunder, unless it has been declared effective by the SEC and the Company has
complied in all material respects with its obligations under this Agreement with
respect thereto; provided that if, after it has become effective, the offering
                 --------
of Registrable Securities pursuant to such registration is or becomes the
subject of any stop order, injunction or other order or requirement of the SEC
or any other governmental or administrative agency, or if any court prevents or
otherwise limits the sale of Registrable Securities pursuant to the registration
(for any reason other than the act or omissions of the Holders) for the period
of time contemplated hereby, such registration will be deemed not to have been
effected.  If (x) a registration requested pursuant to this Section 2(a) is
deemed not to have been effected or (y) a registration requested pursuant to
this Section 2(a) does not remain effective for the Effectiveness Period, then
the Company shall continue to be obligated to effect an additional registration
pursuant to this Section 2(a). The Holders of Registrable Securities shall be
permitted to withdraw all or any part of the Registrable Securities from a
Demand Registration at any time prior to the effective date of such Demand
Registration.  If a Registration Statement is filed pursuant to a Demand
Registration, and subsequently a

                                       4
<PAGE>

sufficient number of the Registrable Securities are withdrawn from the Demand
Registration so that such Registration Statement does not cover that number of
Registrable Securities at least equal to one-quarter of the Registrable
Securities, the Holders who have not withdrawn their Registrable Securities
shall have the opportunity to include an additional number of Registrable
Securities in the Demand Registration so that such Registration Statement covers
that number of Registrable Securities at least equal to one-quarter of the
Registrable Securities. If an additional number of Registrable Securities is not
so included, the Company may withdraw the Registration Statement. Such withdrawn
Registration Statement will not count as a Demand Registration and the Company
shall continue to be obligated to effect a registration pursuant to this Section
2(a).

          (iii)  Priority in Demand Registrations Pursuant to Section 2(a).  If
                 ----------------------------------------------------------
a Demand Registration pursuant to this Section 2(a) involves an underwritten
offering and the lead managing underwriter advises the Company in writing that,
in its view, the total number of Registrable Securities requested by the Holders
to be included in such registration, together with any other securities
permitted to be included in such registration, is such as to adversely affect
the success of such offering, including the price at which such securities can
be sold: first, the securities other than the Registrable Securities of the
         -----
Holders included in such registration shall be reduced in their entirety before
any reduction of Registrable Securities; and second, to the extent the reduction
                                             ------
set forth in the immediately preceding clause is insufficient to reduce the
number of securities requested for inclusion in such registration to a number,
which, in the view of such lead managing underwriter, can be sold without
adversely affecting the success of the offering, including the price at which
such securities can be sold, the number of such Registrable Securities to be
included in such registration shall be allocated pro rata among all requesting
                                                 --- ----
Holders on the basis of the relative number of Registrable Securities then held
by each such Holder (provided that any Registrable Securities thereby allocated
to any such Holder that exceed such Holder's request shall be reallocated among
the remaining requesting Holders in like manner); provided, however, that if the
Demand Registration at issue is the second Demand Registration and either Compaq
or Microsoft was exclusively entitled pursuant to Section 2(a)(i) hereof to
request such Demand Registration (the Purchaser so entitled, the "Requesting
Party" and the other Purchaser, the "Non-Requesting Party"), then the
Registrable Securities held by the Non-Requesting Party shall be reduced in
their entirety before any reduction of Registrable Securities held by the
Requesting Party.  In the event that the number of Registrable Securities
requested to be included in such registration is less than the number which, in
the view of the lead managing underwriter, can be sold without adversely
affecting the success of such offering, including the price at which such
securities can be sold, the Company may include in such registration securities
that the Company or any other Person proposes to sell up to the number of
securities that, in the view of the lead managing underwriter, can be sold
without adversely affecting the success of such offering, including the price at
which such securities can be sold.

          (iv)  Selection of Underwriter.  If the Holders so elect, the offering
                ------------------------
of such Registrable Securities pursuant to such Demand Registration shall be in
the form of an underwritten offering.  The investment banker or investment
bankers and manager or managers

                                       5
<PAGE>

that will administer such underwritten offering will be selected by the Holders
of a majority in number of the Registrable Securities included in such offering;
provided, that such investment bankers and managers must be reasonably
satisfactory to the Company.

          (b)  Piggy-Back Registration.
               -----------------------

          (i)  Notice of Registration.  If and whenever at any time after
               ----------------------
January 12, 2001 the Company proposes to file a Registration Statement on Form
S-1, S-2 or S-3, their successor forms or any other form under the Act
appropriate for a primary public offering (other than for the purpose of making
an acquisition or in connection with option plans or to satisfy a Demand
Registration request) with respect to an underwritten offering of any class of
Common Stock by the Company for its own account or for the account of any of its
respective securityholders (a "Proposed Registration") then the Company shall
                               ---------------------
give prompt written notice of such Proposed Registration to the Holders of
Registrable Securities (a "Company Notice") and such Company Notice shall offer
                           --------------
such Holders the opportunity to register such number of Registrable Securities
as each such Holder may request by written notice delivered to the Company
within 10 days of receipt of the Company Notice by such Holder (a "Piggy-Back
                                                                   ----------
Registration").  Any such request by a Holder shall specify the Registrable
------------
Securities intended to be disposed of by such Holder and the intended method of
distribution thereof.  The Company shall use its best efforts to cause the
managing underwriter or underwriters of such Proposed Registration to permit the
Registrable Securities requested to be included in a Piggy-Back Registration to
be included on the same terms and conditions as any similar securities of the
Company or any other securityholder included therein and to permit the sale or
other disposition of such Registrable Securities in accordance with the intended
method of distribution thereof; provided, however, in no event shall the Company
                                --------  -------
be required to reduce the number of securities proposed to be sold by the
Company or alter the terms of the securities proposed to be sold by the Company
in order to induce the managing underwriter or underwriters to permit
Registrable Securities to be included.  The Company may withdraw a Proposed
Registration at any time prior to the time it becomes effective; provided that
                                                                 --------
the Company shall give prompt notice thereof to participating Holders.

          No registration effected under this Section 2(b) shall relieve the
Company of its obligation to effect a registration upon the request of the
Holders pursuant to Section 2(a).

          (ii)  Reduction of Offering.  If the lead managing underwriter of any
                ---------------------
Proposed Registration has informed, in writing, the Company and the Holders of
the Registrable Securities requesting inclusion in such offering that it is its
view that the total number of securities which the Company, the Holders and any
other Persons desiring to participate in such registration intend to include in
such offering is such as to adversely affect the success of such offering,
including the price at which such securities can be sold, then the number of
Registrable Securities to be offered for the account of such Holders and the
number of such securities to be offered for the account of all such other
Persons (other than the Company) participating in such

                                       6
<PAGE>

registration shall be reduced or limited pro rata in proportion to the
                                         --- ----
respective number of securities requested to be registered to the extent
necessary to reduce the total number of securities requested to be included in
such offering to the number of securities, if any, recommended by such lead
managing underwriter, unless such offering is being made pursuant to exercise of
a demand registration right granted by the Company to other Persons, in which
case the number of securities to be offered for the account of all Persons not
exercising demand registration rights (including the Holders) shall be
eliminated or reduced pro rata in proportion to the respective number of
securities requested to be registered by such Persons to reduce the total number
of securities requested to be included in such offering to the number of
securities, if any, recommended by such lead managing underwriter before any
reduction is made in securities requested to be registered by Persons exercising
a demand registration right. If the lead managing underwriter of any Proposed
Offering notifies the Holders requesting inclusion of Registrable Securities in
such offering, that the kind of securities that such Holders and any other
Persons desiring to participate in such registration intend to include in such
offering is such as to adversely affect the success of such offering, (x) the
Registrable Securities to be included in such offering shall be reduced as
described in the preceding sentence or (y) if a reduction in the Registrable
Securities pursuant to the preceding sentence would, in the judgment of the lead
managing underwriter, be insufficient to substantially eliminate the adverse
effect that inclusion of the Registrable Securities requested to be included
would have on such offering, such Registrable Securities will be excluded from
such offering.

          (iii) Withdrawal Election. Any Holder may elect to withdraw its
                -------------------
request to include Registrable Securities in any Proposed Registration by giving
written notice to the Company of its request to withdraw prior to the
effectiveness of the Registration Statement (a "Withdrawal Election"); provided
                                                -------------------    --------
that a Withdrawal Election shall be irrevocable and, after making a Withdrawal
Election, a Holder shall no longer have any right to include Registrable
Securities in the registration as to which such Withdrawal Election was made.

          (c)  Lock Up of Holders.  If the Company has complied in all material
               ------------------
respects  with its obligations with respect to a Demand Registration or a Piggy-
Back Registration that is a firm commitment underwritten public offering, all
Holders of Series A Preferred Stock, Warrants and Registrable Securities shall,
upon request of the lead managing underwriter with respect to such underwritten
public offering, agree not to sell or otherwise dispose of any Series A
Preferred Stock, Warrants or any Registrable Securities owned by them for a
period not to exceed 180 days from the consummation of such underwritten public
offering; provided that Registrable Securities which had been requested for
          --------
inclusion in a Demand Registration or a Piggy-Back Registration but which were
not so included pursuant to Section 2(a)(iii) or Section 2(b)(ii) shall only be
subject to the restriction on sale and disposition in this Section 2(c) for a
period not to exceed 90 days from the consummation of such underwritten public
offering.

          (d)  Assignment of Registration Rights.  The rights to cause the
               ---------------------------------
Company to register Registrable Securities pursuant to this Section 2 may be
assigned or otherwise

                                       7
<PAGE>

transferred (but only with all related obligations) to a transferee or assignee
in connection with the transfer of Registrable Securities, provided: (a) the
transferor provides the Company with written notice of the proposed transfer;
(b) such transferee or assignee agrees in writing to be bound by all obligations
under this Agreement; and (c) such assignment shall be effective only if
immediately following such transfer the further disposition of such securities
by the transferee or assignee is restricted under the Act.

     SECTION 3.  REGISTRATION PROCEDURES.

          (a)   General Provisions
                ------------------
          In connection with the obligations of the Company with respect to any
Registration Statement to be filed pursuant to Sections 2(a) or 2(b) hereof, the
Company shall:

          (i)  A reasonable period of time prior to the effectiveness of a
Registration Statement or Prospectus and a reasonable period of time prior to
the filing of any amendment or supplement thereto, furnish to the Holders of the
Registrable Securities included in such Registration Statement, and the managing
underwriters, if any, copies of all such documents substantially in the form
filed or proposed to be filed, which documents will be subject to the review of
such Holders, and such underwriters, if any, and use best efforts to cause the
officers and directors of the Company, counsel to the Company and independent
certified public accountants to the Company to respond to such reasonable
inquiries as shall be necessary, in the opinion of respective counsel to such
Holders and such underwriters, to conduct a reasonable investigation within the
meaning of the Act.  The Company shall not cause to become effective any such
Registration Statement or related Prospectus or any amendments or supplements
thereto to which the underwriters, if any, or the Holders of a majority of the
Registrable Securities included in such Registration Statement shall reasonably
object on a timely basis;

          (ii) Other than during a Black Out Period: prepare and file with the
SEC such amendments, including post-effective amendments, to each Registration
Statement as may be necessary to keep such Registration Statement continuously
effective for the applicable time period required hereunder; cause the related
Prospectus to be supplemented by any required Prospectus supplement, and as so
supplemented to be filed pursuant to Rule 424 under the Act; and comply with the
provisions of the Act and the Exchange Act with respect to the disposition of
all securities covered by such Registration Statement during such period in
accordance with the intended methods of disposition by the sellers thereof set
forth in such Registration Statement as so amended or in such Prospectus as so
supplemented;

          (iii)  Notify the Holders of Registrable Securities to be sold and the
managing underwriters, if any, promptly, and (if requested by any such person),
confirm such notice in writing, (1)(A) when a Prospectus or any Prospectus
supplement or post-effective amendment has been filed, and (B) with respect to a
Registration Statement or any post-effective amendment, when the same has become
effective, (2) of any request by the SEC or any other Federal or state

                                       8
<PAGE>

governmental authority for amendments or supplements to a Registration Statement
or related Prospectus or for additional information, (3) of the issuance by the
SEC, any state securities commission, any other governmental agency or any court
of any stop order, order or injunction suspending or enjoining the use of a
Prospectus or the effectiveness of a Registration Statement or the initiation of
any proceedings for that purpose, (4) of the receipt by the Company of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any
jurisdiction, or the initiation or threatening of any proceeding for such
purpose, and (5) of the happening of any event or information becoming known
that makes any statement made in a Registration Statement or related Prospectus
untrue in any material respect or that requires the making of any changes in
such Registration Statement or Prospectus so that, in the case of a Registration
Statement, it will not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading, and that in the case of a Prospectus, it will not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading;

          (iv) Other than during a Black Out Period, use its best efforts to
avoid the issuance of or, if issued, obtain the withdrawal of any order
enjoining or suspending the use of a Prospectus or the effectiveness of a
Registration Statement or the lifting of any suspension of the qualification (or
exemption from qualification) of any of the Registrable Securities for sale in
any jurisdiction described in Section 3(a)(viii), at the earliest practicable
moment;

          (v)  If requested by the selling Holders or the managing underwriters,
if any, other than during a Black Out Period, (x) promptly incorporate in a
Prospectus supplement or post-effective amendment such information as the
selling Holders or the managing underwriters, if any, reasonably believe is
required to be included therein, and (y) make all required filings of such
Prospectus supplement or such post-effective amendment under the Act as soon as
practicable after the Company has received notification of the matters to be
incorporated in such Prospectus supplement or post-effective amendment;

          (vi)  Furnish to each Holder of Registrable Securities to be sold
pursuant to a Registration Statement and each managing underwriter, if any,
without charge, at least one conformed copy of such Registration Statement and
each amendment thereto, including financial statements and schedules and,  to
the extent requested by such Holder of managing underwriter,  all documents
incorporated or deemed to be incorporated therein by reference and all exhibits
thereto (including those previously furnished or incorporated by reference) as
soon as practicable after the filing of such documents with the SEC;

          (vii)  Deliver to each Holder of Registrable Securities to be sold
pursuant to a Registration Statement, and the underwriters, if any, without
charge, as many copies of the

                                       9
<PAGE>

Prospectus (including each form of prospectus) and each amendment or supplement
thereto as such persons reasonably request; and the Company hereby consents to
the use of such Prospectus and each amendment or supplement thereto by each of
the selling Holders of Registrable Securities and the underwriters, if any, in
connection with the offering and sale of the Registrable Securities covered by
such Prospectus and any amendment or supplement thereto;

          (viii)  Prior to any public offering of Registrable Securities, use
its best efforts to register or qualify or cooperate with the Holders of
Registrable Securities to be sold, the underwriters, if any, and their
respective counsel in connection with the registration or qualification (or
exemption from such registration or qualification) of such Registrable
Securities for offer and sale under the securities or Blue Sky laws of such
jurisdictions as any such Holder or underwriter reasonably requests in writing;
keep each such registration or qualification (or exemption therefrom) effective
during the period such Registration Statement is required to be kept effective
hereunder and do any and all other acts or things necessary or advisable to
enable the disposition in such jurisdictions of the Registrable Securities
covered by the applicable Registration Statement; provided, however, that the
                                                  --------  -------
Company shall not be required to (x) qualify generally to do business in any
jurisdiction where it is not then so qualified or (y) take any action which
would subject it to general service of process or to taxation in any
jurisdiction where it is not so subject;

          (ix)  In connection with any sale or transfer of Registrable
Securities that will result in such securities no longer being Registrable
Securities, cooperate with the Holders thereof and the managing underwriters, if
any, to facilitate the timely preparation and delivery of certificates
representing Registrable Securities to be sold, which certificates shall not
bear any restrictive legends and to enable such Registrable Securities to be in
such denominations and registered in such names as the managing underwriters, if
any, or such Holders may request at least two Business Days prior to any sale of
Registrable Securities;

          (x) Other than during a Black Out Period, upon the occurrence of any
event contemplated by Section 3(a)(iii)(5), as promptly as practicable, prepare
a supplement or amendment, including, if appropriate, a post-effective
amendment, to each Registration Statement or a supplement to the related
Prospectus or any document incorporated or deemed to be incorporated therein by
reference, and file any other required document so that, as thereafter
delivered, such Prospectus will not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading;

          (xi)  Enter into such agreements (including an underwriting agreement
in form, scope and substance as is customary in underwritten offerings) and take
all such other reasonable actions in connection therewith (including those
reasonably requested by the managing underwriters, if any) in order to expedite
or facilitate the disposition of such Registrable Securities, and, if the
registration is an underwritten registration or if otherwise requested by the

                                       10
<PAGE>

selling Holders, (1) make such representations and warranties to the
underwriters, if any, and selling Holders with respect to the business of the
Company and its subsidiaries, the Registration Statement, Prospectus and
documents, if any, incorporated or deemed to be incorporated by reference
therein, in each case, in form, substance and scope as are customarily made by
issuers to underwriters in underwritten offerings, and confirm the same if and
when requested; (2) obtain opinions of counsel to the Company and updates
thereof (which counsel and opinions (in form, scope and substance) shall be
reasonably satisfactory to the managing underwriters if any, addressed to each
of the underwriters, if any, and selling Holders), covering the matters
customarily covered in opinions requested in underwritten offerings and such
other matters as may be reasonably requested by such underwriters or selling
Holders; (3) use their best efforts to obtain customary "cold comfort" letters
and updates thereof from the independent certified public accountants of the
Company addressed (where reasonably possible) to each of the underwriters, if
any,  and selling Holders, such letters to be in customary form and covering
matters of the type customarily covered in "cold comfort" letters in connection
with underwritten offerings; and (4) deliver such documents and certificates as
may be reasonably requested by the managing underwriters, if any, to evidence
the continued validity of the representations and warranties made pursuant to
clause (1) above and to evidence compliance with any customary conditions
contained in the underwriting agreement or other agreement entered into by the
Company;

          (xii)  Make available for inspection by a representative of any
underwriter participating in any such disposition of Registrable Securities, and
any attorney, consultant or accountant retained by such selling Holders or
underwriter, at the offices where normally kept, during reasonable business
hours, all pertinent financial and other records, corporate documents and
properties of the Company and its subsidiaries (including with respect to
businesses and assets acquired or to be acquired to the extent that such
information is available to the Company), and cause the officers, directors,
agents and employees of the Company and its subsidiaries to supply all
information in each case reasonably requested by any such representative,
underwriter, attorney, consultant or accountant in connection with such
Registration Statement;

          (xiii)  Comply with all applicable rules and regulations of the SEC
and make generally available to their securityholders earnings statements
satisfying the provisions of Section 11(a) of the Act and Rule 158 under the
Act, no later than 45 days after the end of any 12-month period (or 90 days
after the end of any 12-month period if such period is a fiscal year) (x)
commencing at the end of any fiscal quarter in which Registrable Securities are
sold to underwriters in a firm commitment or reasonable efforts underwritten
offering and (y) if not sold to underwriters in such an offering, commencing on
the first day of the first fiscal quarter after the effective date of a
Registration Statement, which statement shall cover said period, consistent with
the requirements of Rule 158 under the Act;

          (xiv) Cause all Registrable Securities covered by the Registration
Statement to be listed on each securities exchange on which similar securities
issued by the Company are then

                                       11
<PAGE>

listed if requested by the Holders of a majority of the Registrable Securities
covered by the Registration Statement or the managing underwriters, if any; and

          (xv)  Cooperate with each seller of Registrable Securities covered by
any Registration Statement and each underwriter, if any, participating in the
disposition of such Registrable Securities and their respective counsel in
connection with any filings required to be made with the NASD.

          (b)     Information to be Furnished by Holders.
                  --------------------------------------

          The Company may require a Holder of Registrable Securities to be
included in a Registration Statement to furnish to the Company such information
regarding (w) the intended method of distribution of such Registrable Securities
(x) such Holder, (y) the Registrable Securities held by such Holder and (z) such
other matters as are required by law to be disclosed in such Registration
Statement and the Company may exclude from such Registration Statement the
Registrable Securities of any Holder who fails to furnish such information
within a reasonable time after receiving such request.  The Company shall not be
required to provide indemnification to any underwriter or any other person
relating to information referred to in clauses (w), (x), (y) and (z) provided to
the Company in writing specifically for inclusion in such Registration
Statement.

          (c)    Restriction on Holders.
                 ----------------------

          Each Holder of Registrable Securities agrees by acquisition of such
Registrable Securities that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 3(a)(iii)(2)-(5) hereof,
such Holder will forthwith discontinue disposition of such Registrable
Securities covered by such Registration Statement or Prospectus until such
Holder's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 3(a)(x) hereof, or until it is advised in writing (the
"Advice") by the Company that the use of the applicable Prospectus may be
-------
resumed.  If the Company shall give any such notice, the Fixed Effectiveness
Period shall be extended by the number of days during such period from and
including the date of the giving of such notice to and including the date when
each Holder of Registrable Securities covered by such Registration Statement
shall have received (x) the copies of the supplemented or amended Prospectus
contemplated by Section 3(a)(x) hereof or (y) the Advice.

     SECTION 4.  REGISTRATION EXPENSES

          (a)   All expenses incident to the Company's performance of or
compliance with this Agreement will be borne by the Company, regardless of
whether a Registration Statement becomes effective, including without
limitation: (i) all registration and filing fees and expenses;

                                       12
<PAGE>

(ii) all fees and expenses of compliance with federal securities and state Blue
Sky or securities laws; (iii) all expenses of printing (including printing
certificates for the Conversion Shares, the Warrant Shares and printing of
Prospectuses), messenger and delivery services and telephone; (iv) all fees and
disbursements of counsel for the Company and, in accordance with Section 4(b)
below, the Holders of Registrable Securities; (v) all application and filing
fees in connection with listing the Conversion Shares and the Warrant Shares on
a national exchange or automated quotation system if required hereunder; and
(vi) all fees and disbursements of independent certified public accountants of
the Company (including the expenses of any special audit and comfort letters
required by or incident to such performance).

          The Company will, in any event, bear its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expenses of any annual audit and the
fees and expenses of any Person, including special experts, retained by the
Company.

          Each Holder shall pay all underwriting discounts and commissions and
transfer taxes, if any, relating to the sale or disposition of such Holder's
Registrable Securities pursuant to a Registration Statement.

          (b)  In connection with any Registration Statement required by this
Agreement, the Company will reimburse the Holders of Registrable Securities
being registered pursuant to a Demand Registration or Piggy-Back Registration,
as applicable, for the reasonable fees and disbursements of not more than one
counsel chosen by the Holders of a majority of the Registrable Securities for
whose benefit such Registration Statement is being prepared.

     SECTION 5.  INDEMNIFICATION

          (a)   The Company agrees to indemnify and hold harmless each selling
Holder,  each person, if any, who controls a selling Holder within the meaning
of Section 15 of the Act or Section 20(a) of the Exchange Act and the respective
officers, directors, partners, employees, representatives and agents of any
selling Holder or any controlling person to the fullest extent lawful, from and
against any and all losses, liabilities, claims, damages and expenses whatsoever
(including but not limited to attorneys' fees and any and all expenses
whatsoever incurred in investigating, preparing or defending against any
investigation, litigation or other action, commenced or threatened, or any claim
whatsoever, and any and all amounts paid in settlement of any claim or
litigation)(collectively "Losses"), joint or several, to which they or any of
                          ------
them may become subject under the Act, the Exchange Act or otherwise, insofar as
such Losses arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement or
the Prospectus, or in any supplement thereto or amendment thereof, or arise out
of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, or arise out of any

                                       13
<PAGE>

violation or alleged violation by the Company of the Act, the Exchange Act, any
state securities law or a rule or regulation promulgated under the Act, the
Exchange Act or any state securities law; provided, however, that the Company
will not be liable in any such case to the extent, but only to the extent, that
(i) any such Losses arise out of or are based upon any such untrue statement or
alleged untrue statement or omission or alleged omission made therein in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of such party expressly for use therein and (ii) the
foregoing indemnity with respect to any untrue statement contained in or omitted
from a Registration Statement or the Prospectus shall not inure to the benefit
of any party (or any person controlling such party) from whom the person
asserting any such Losses purchased any of the Registrable Securities if it is
finally judicially determined that such Losses resulted solely from the fact
that such party sold Registrable Securities to a person to whom there was not
sent or given, at or prior to the written confirmation of such sale, a copy of
the Registration Statement or the Prospectus, as amended or supplemented, and
(x) the Company shall have previously and timely furnished sufficient copies of
the Registration Statement or Prospectus, as so amended or supplemented, to such
party in accordance with this Agreement and (y) the Registration Statement or
Prospectus, as so amended or supplemented, would have corrected such untrue
statement or omission of a material fact. This indemnity agreement will be in
addition to any liability which the Company may otherwise have, including, under
this Agreement.

          (b)  Each selling Holder, severally and not jointly, agrees to
indemnify and hold harmless the Company, the other selling Holders  and each
person, if any, who controls any such party within the meaning of Section 15 of
the Act or Section 20(a) of the Exchange Act, against any Losses, joint or
several, to which they or any of them may become subject under the Act, the
Exchange Act or otherwise, insofar as such Losses arise out of or are based upon
any untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement or the Prospectus, or in any amendment thereof or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, in each case to the extent, but only
to the extent, that any such Losses arise out of or are based upon any untrue
statement or alleged untrue statement or omission or alleged omission made
therein in reliance upon and in conformity with written information furnished to
the Company by or on behalf of such Holder expressly for use therein.  This
indemnity will be in addition to any liability which a Holder may otherwise
have, including under this Agreement.  In no event, however, shall the liability
of any selling Holder hereunder be greater in amount than (x) the dollar amount
of the proceeds received by such Holder upon its sale of the Registrable
Securities giving rise to such indemnification obligation less (y) the dollar
amount paid by a Purchaser for the Series A Preferred Stock and/or Warrants
pursuant to which such Registrable Securities were issued.

          (c)  Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such indemnified
party shall, if a claim in

                                       14
<PAGE>

respect thereof is to be made against the indemnifying party under such
subsection, notify each party against whom indemnification is to be sought in
writing of the commencement thereof (but the failure so to notify an
indemnifying party shall not relieve it from any liability which it may have
under this Section 5, except to the extent that it has been prejudiced in any
material respect by such failure, or from any liability which it may otherwise
have). In case any such action is brought against any indemnified party, and it
notifies an indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate therein, and to the extent it may elect by
written notice delivered to the indemnified party promptly after receiving the
aforesaid notice from such indemnified party, to assume the defense thereof with
counsel reasonably satisfactory to such indemnified party. Notwithstanding the
foregoing, the indemnified party or parties shall have the right to employ its
or their own counsel in any such case, but the fees and expenses of such counsel
shall be at the expense of such indemnified party or parties unless (i) the
employment of such counsel shall have been authorized in writing by the
indemnifying parties in connection with the defense of such action, (ii) the
indemnifying parties shall not have employed counsel to take charge of the
defense of such action within a reasonable time after notice of commencement of
the action, or (iii) such indemnified party or parties shall have reasonably
concluded that there may be defenses available to it or them which are different
from or additional to those available to one or all of the indemnifying parties
(in which case the indemnifying party or parties shall not have the right to
direct the defense of such action on behalf of the indemnified party or
parties), in any of which events such fees and expenses of counsel shall be
borne by the indemnifying parties; provided, however, that the indemnifying
party under subsection (a) or (b) above, shall only be liable for the legal
expenses of one counsel (in addition to any local counsel) for all indemnified
parties in each jurisdiction in which any claim or action is brought. Anything
in this subsection to the contrary notwithstanding, an indemnifying party shall
not be liable for any settlement of any claim or action effected without its
prior written consent, provided, however, that such consent was not unreasonably
withheld.

          (d)  In order to provide for contribution in circumstances in which
the indemnification provided for in this Section 5 is for any reason held to be
unavailable or is insufficient to hold harmless a party indemnified thereunder,
the Company and each selling Holder shall contribute to the aggregate Losses of
the nature contemplated by such indemnification provision in such proportion as
is appropriate to reflect the relative benefits received by the Company from the
issuance of the shares of Series A Preferred Stock and/or Warrants pursuant to
which the Registrable Securities sold by such Holder were issued and by any such
Holder from its sale of Registrable Securities or, if such allocation is not
permitted by applicable law or indemnification is not available as a result of
the indemnifying party not having received notice as provided in this Section 5,
in such proportion as is appropriate to reflect not only the relative benefits
referred to above but also the relative fault of the Company and the Holders in
connection with the statements or omissions which resulted in such Losses, as
well as any other relevant equitable considerations.  The relative benefits
received by the Company and any Holder shall be deemed to be in the same
proportion as (x) the total proceeds received by the Company from the issuance
of the shares of Series A Preferred Stock and/or Warrants pursuant

                                       15
<PAGE>

to which the Registrable Securities which would otherwise give rise to the
indemnification obligation were issued and (y) the total proceeds received by
such Holder upon its sale of the Registrable Securities less the amount paid by
a Purchaser for the Series A Preferred Stock and/or Warrants pursuant to which
such Registrable Securities were issued. The relative fault of the Company and
of the Holders shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company or the Holders and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and each Holder agree that it would not be just and equitable if
contribution pursuant to this Section 5 were determined by pro rata allocation
or by any other method of allocation which does not take into account the
equitable considerations referred to above. Notwithstanding the provisions of
this Section 5, (i) no Holder shall be required to contribute, in the aggregate,
any amount in excess of the amount by which the total received by such Holder
with respect to the sale of its Registrable Securities exceeds the sum of (A)
the amount paid by a Purchaser for the Series A Preferred Stock and/or Warrants
pursuant to which such Registrable Securities were issued plus (B) the amount of
any damages which such Holder has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission and (ii)
no person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. For purposes of this Section 5, (A)
each person, if any, who controls a Holder within the meaning of Section 15 of
the Act or Section 20(a) of the Exchange Act and (B) the respective officers,
directors, partners, employees, representatives and agents of a Holder or any
controlling person shall have the same rights to contribution as such Holder,
and each person, if any, who controls the Company within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act shall have the same rights to
contribution as the Company, subject in each case to clauses (i) and (ii) of
this Section 5(d). Any party entitled to contribution will, promptly after
receipt of notice of commencement of any action, suit or proceeding against such
party in respect of which a claim for contribution may be made against another
party or parties under this Section 5, notify such party or parties from whom
contribution may be sought, but the failure to so notify such party or parties
shall not relieve the party or parties from whom contribution may be sought from
any obligation it or they may have under this Section 5 or otherwise. No party
shall be liable for contribution with respect to any action or claim settled
without its prior written consent; provided, however, that such written consent
was not unreasonably withheld.

          (e)  The obligations of the Company and the Holders under this Section
5 shall survive the completion of any offering of Registrable Securities in a
Registration Statement hereunder, or otherwise.

     SECTION 6.  MISCELLANEOUS

                                       16
<PAGE>

          (a)  Remedies.  Each Holder, in addition to being entitled to exercise
               --------
all rights provided herein, will be entitled to specific performance of its
rights under this Agreement.  The Company agrees that monetary damages would not
be adequate compensation for any loss incurred by reason of a breach by it of
the provisions of this Agreement and hereby agrees to waive the defense in any
action for specific performance that a remedy at law would be adequate.

          (b)  No Inconsistent Agreements.  The Company will not on or after the
               --------------------------
date of this Agreement enter into any agreement with respect to its securities
that conflicts with the rights granted to the Holders in this Agreement or
otherwise conflicts with the provisions hereof.  The rights granted to the
Holders hereunder do not in any way conflict with and are not inconsistent with
the rights granted to the holders of the Company's securities under any
agreement in effect on the date hereof, except where a waiver with respect
thereto has been obtained prior to the date of effectiveness of any registration
statement required under this Agreement.

          (c)  Amendments and Waivers.  The provisions of this Agreement may not
               ----------------------
be amended, modified or supplemented, and waivers or consents to or departures
from the provisions hereof may not be given unless the Company has obtained the
written consent of Holders of a majority of the outstanding Registrable
Securities, and the consent of the Holders of a majority of the outstanding
Registrable Securities shall be binding on every Holder of Registrable
Securities.

          (d)  Notices.  All notices and other communications provided for or
               -------
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier, or air
courier guaranteeing overnight delivery:

             (i)  if to a Holder, at the address set forth on the records of the
     Company; and

             (ii)  if to the Company:

               Digex, Incorporated
               One Digex Plaza
               Beltsville, Maryland 20705
               Telecopier No.:  (301) 847-6694
               Attention: Chief Financial Officer

               With a copy to:

               Kronish Lieb Weiner & Hellman LLP
               1114 Avenue of the Americas, 46th Floor
               New York, New York   10036
               Telecopier No.: (212) 479-6275

                                       17
<PAGE>

               Attention: Ralph J. Sutcliffe, Esq.

          All such notices and communications shall be deemed to have been duly
given at the time delivered by hand, if personally delivered; five Business Days
after being deposited in the mail, postage prepaid, if mailed; when answered
back, if telexed; when receipt acknowledged, if telecopied; and on the next
Business Day, if timely delivered to an air courier guaranteeing overnight
delivery.

          (e)  Successors and Assigns.  This Agreement shall inure to the
               ----------------------
benefit of and be binding upon the successors and assigns of each of the
parties, including without limitation and without the need for an express
assignment, subsequent Holders of Registrable Securities.

          (f)  Counterparts.  This Agreement may be executed in any number of
               ------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.

          (g)  Headings.  The headings in this Agreement are for convenience of
               --------
reference only and shall not limit or otherwise affect the meaning hereof.

          (h)  Governing Law.  THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
               -------------
IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO THE
CONFLICT OF LAW RULES THEREOF.

          (i)  Severability.  In the event that any one or more of the
               ------------
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.

          (j)  Entire Agreement.  This Agreement together with the other
               ----------------
Operative Documents (as defined in the Purchase Agreement) is intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein.  There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein with respect to the registration rights granted by the Company with
respect to the Registrable Securities.  This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.

                           [SIGNATURE PAGE FOLLOWS]

                                       18
<PAGE>

          IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.

                                          DIGEX, INCORPORATED

                                          By: /s/ MARK K. SHULL
                                              -----------------
                                          Name:  Mark K. Shull
                                          Title:  Chief Executive Officer

                                          MICROSOFT CORPORATION

                                          By:  /s/  ROBERT J. HERBOLD
                                              -----------------------
                                          Name:  Robert J. Herbold
                                          Title:  Chief Operating Officer

                                          CPQ HOLDINGS, INC.

                                          By:  /s/  BEN K. WELLS
                                               -----------------
                                          Name:  Ben K. Wells
                                          Title:  Vice President & Treasurer

                                       19

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