SC TO-T

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE TO

Tender Offer Statement under Section 14(d)(1) or 13(e)(1)
of the Securities Exchange Act of 1934

DIGITAL ISLAND, INC.
(Name of Subject Company (Issuer))

DALI ACQUISITION CORP.
CABLE AND WIRELESS PLC
(Names of Filing Persons—Offerors)

Common Stock, Par Value $0.001 Per Share
(Title of Class of Securities)

25385N-10-1
(CUSIP Number of Class of Securities)

Robert Drolet
124 Theobalds Road
London WC1X 8RX
England
44 207 315 4000
(Name, address and telephone numbers of person authorized to
receive notices and communications on behalf of filing persons)

Copies to:
Nathaniel M. Cartmell III, Esq.
P. Joseph Campisi, Jr., Esq.
Patrick J. Devine, Esq.
PILLSBURY WINTHROP LLP
P.O. Box 7880
San Francisco, CA 94120-7880

CALCULATION OF FILING FEE

Transaction Valuation: $281,613,280.60(*) Amount of Filing Fee: $56,322.66

(*)

Determined in accordance with Rule 0-11(d) under the Securities Exchange Act of 1934 (the "Exchange Act"). This Transaction Valuation assumes, solely for purposes of calculating the Filing Fee for this Schedule TO, that the Purchaser purchases all outstanding shares of Common Stock, par value $0.001 per share ("Shares"), of Digital Island, Inc. at $3.40 per Share net to the seller in cash. Digital Island, Inc. has informed the Purchaser that 82,226,556 Shares are issued and outstanding as of May 10, 2001, the last date as to which the number of Shares was readily ascertainable, and that as of June 18, 2001, the expiration of the Offer, options and warrants to purchase a total of 1,075,2580 Shares will be exercisable at exercise prices below $3.40 per Share. Such options and warrants have a weighted average exercise price of $1.50 per Share. The Transaction Valuation assumes that all such options and warrants will be exercised in full and the Purchaser will purchase the Shares obtained upon exercise thereof.

/ /

Check the box if any part of the fee is offset as provided by Rule 0-11 (a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

Amount Previously Paid:	Not applicable.
Form or Registration No.:	Not applicable.
Filing Party:	Not applicable.
Date Filed:	Not applicable.

/ /	Check the box if the filing relates solely to preliminary communications made before the commencement of a tender offer.
	Check the appropriate boxes below to designate any transactions to which the statement relates:

/x/	third-party tender offer subject to Rule 14d-1
/ /	issuer tender offer subject to Rule 13e-4
/ /	going-private transaction subject to Rule 13e-3
/ /	amendment to Schedule 13D under Rule 13d-2

Check the following box if the filing is a final amendment reporting the results of the tender offer: / /

    This Tender Offer Statement on Schedule TO relates to an offer by Dali Acquisition Corp., a Delaware corporation ("Purchaser") and a wholly owned subsidiary of Cable and Wireless plc, a public limited company incorporated under the laws of England and Wales ("Cable & Wireless" or "Parent"), to purchase all outstanding shares of Common Stock, par value $0.001 per share (the "Shares"), of Digital Island, Inc., a Delaware corporation ("Digital Island" or the "Company"), at $3.40 per share, net to the seller in cash, without interest thereon, and less any required withholding taxes upon the terms and subject to the conditions set forth in its Offer to Purchase dated May 21, 2001 (the "Offer to Purchase") and in the related Letter of Transmittal, copies of which are attached hereto as Exhibits (a)(1)(A) and (a)(1)(B), respectively (which, together with any amendments or supplements thereto, collectively constitute the "Offer"). Cable & Wireless intends to contribute its ownership interest in Purchaser to Cable & Wireless USA, Inc., a Delaware corporation and a wholly owned subsidiary of Cable & Wireless ("Cable & Wireless USA"), prior to the consummation of the Offer. This Schedule TO is being filed on behalf of Purchaser and Parent.

    The information set forth in the Offer to Purchase, including Schedule I thereto, is incorporated herein by reference in answer to Items 1 through 9 and 11 of this Schedule TO, and is supplemented by the information specifically provided herein.

Item 3. Identity and Background of Filing Person.

    Neither Parent, Cable & Wireless USA, Purchaser nor, to the best knowledge of Parent, Cable & Wireless USA and Purchaser, any of the persons listed in Schedule I to the Offer to Purchase has during the last five years been (i) convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or (ii) a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting activities subject to, federal or state securities laws or finding any violation of such laws.

Item 10. Financial Statements of Certain Bidders.

    Not Applicable.

Item 12. Material to be Filed as Exhibits.

(a)(1)(A)	Offer to Purchase dated May 21, 2001.
(a)(1)(B)	Letter of Transmittal.
(a)(1)(C)	Notice of Guaranteed Delivery.
(a)(1)(D)	Letter to Stockholders.
(a)(1)(E)	Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees.
(a)(1)(F)	Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees.
(a)(1)(G)	Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9.
(a)(1)(H)	Joint press release issued by the Company and Parent on May 14, 2001 announcing the intention of the Purchaser to commence the Offer (incorporated by reference to the Schedule TO-C filed by Parent and Purchaser on May 14, 2001).
(a)(1)(I)	Summary Advertisement as published in The Wall Street Journal on May 21, 2001.
(b)	Not applicable.

2

(d)(1)	Agreement and Plan of Merger, dated May 14, 2001, by and among the Company, Purchaser and Parent.
(d)(2)	Confidentiality Agreement, dated September 21, 2000, between Parent and the Company.
(d)(3)	Employment Agreement, dated as of May 13, 2001, by and among the Company, Parent and Ruann Ernst.
(d)(4)	Employment Offer Letter, dated May 13, 2001, from Parent to Ruann Ernst.
(d)(5)	Employment Agreement, dated as of May 13, 2001, by and among the Company, Parent and Charles Picasso.
(d)(6)	Employment Offer Letter, dated May 13, 2001 from Parent to Charles Picasso.
(d)(7)	Employment Agreement, dated as of May 13, 2001, by and among the Company, Parent and Timothy Wilson.
(d)(8)	Employment Offer Letter, dated May 13, 2001, from Parent to Timothy Wilson.
(d)(9)	Employment Agreement, dated as of May 14, 2001, by and among the Company, Parent and Addo Barrows.
(d)(10)	Employment Offer Letter, dated May 14, 2001, from Parent to Addo Barrows.
(g)	Not applicable.
(h)	Not applicable.

Item 13. Information Required by Schedule 13E-3.

    Not applicable.

3

SIGNATURE

    After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct.

    Dated: May 21, 2001.

DALI ACQUISITION CORP.
By	/s/ ROBERT DROLET
	Name: Robert Drolet Title: President
CABLE AND WIRELESS PLC
By	/s/ ROBERT DROLET
	Name: Robert Drolet Title: Chief Commercial Officer, Global           Cable and Wireless plc

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INDEX TO EXHIBITS

Exhibit No.	Description
(a)(1)(A)	Offer to Purchase dated May 21, 2001.
(a)(1)(B)	Letter of Transmittal.
(a)(1)(C)	Notice of Guaranteed Delivery.
(a)(1)(D)	Letter to Stockholders.
(a)(1)(E)	Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees.
(a)(1)(F)	Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees.
(a)(1)(G)	Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9.
(a)(1)(H)	Joint press release issued by the Company and Parent on May 14, 2001 announcing the intention of the Purchaser to commence the Offer (incorporated by reference to the Schedule TO-C filed by Parent and Purchaser on May 14, 2001).
(a)(1)(I)	Summary Advertisement as published in The Wall Street Journal on May 21, 2001.
(b)	Not applicable.
(d)(1)	Agreement and Plan of Merger, dated May 14, 2001, by and among the Company, Purchaser and Parent.
(d)(2)	Confidentiality Agreement, dated September 21, 2000, between Parent and the Company.
(d)(3)	Employment Agreement, dated as of May 13, 2001, by and among the Company, Parent and Ruann Ernst.
(d)(4)	Employment Offer Letter, dated May 13, 2001, from Parent to Ruann Ernst.
(d)(5)	Employment Agreement, dated as of May 13, 2001, by and among the Company, Parent and Charles Picasso.
(d)(6)	Employment Offer Letter, dated May 13, 2001, from Parent to Charles Picasso.
(d)(7)	Employment Agreement, dated as of May 13, 2001, by and among the Company, Parent and Timothy Wilson.
(d)(8)	Employment Offer Letter, dated May 13, 2001, from Parent to Timothy Wilson.
(d)(9)	Employment Agreement, dated as of May 14, 2001, by and among the Company, Parent and Addo Barrows.
(d)(10)	Employment Offer Letter, dated May 14, 2001, from Parent to Addo Barrows.
(g)	Not applicable.
(h)	Not applicable

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Item 3. Identity and Background of Filing Person.
Item 10. Financial Statements of Certain Bidders.
Item 12. Material to be Filed as Exhibits.
Item 13. Information Required by Schedule 13E-3.
SIGNATURE
INDEX TO EXHIBITS

EX-99.(A)(1)(A)

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Offer to Purchase for Cash
All Outstanding Shares of Common Stock
of
Digital Island, Inc.
at
$3.40 Net Per Share
by
Dali Acquisition Corp.
a wholly owned subsidiary of
Cable and Wireless plc

THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT,
NEW YORK CITY TIME, ON MONDAY, JUNE 18, 2001, UNLESS THE OFFER IS EXTENDED.

   The Offer is being made pursuant to the terms of an Agreement and Plan of Merger, dated as of May 14, 2001 (the "Merger Agreement"), by and among Cable and Wireless plc, a public limited company incorporated under the laws of England and Wales ("Cable & Wireless" or "Parent"), Dali Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of Parent ("Purchaser"), and Digital Island, Inc., a Delaware corporation ("Digital Island"). After commencement, but prior to consummation, of the Offer, Cable & Wireless intends to transfer all the shares of Purchaser to Cable & Wireless USA, Inc., a Delaware corporation and a wholly owned subsidiary of Cable & Wireless ("Cable & Wireless USA"). The Offer is conditioned upon, among other things, (i) there having been validly tendered and not properly withdrawn prior to the expiration of the Offer at least the number of shares of common stock of Digital Island par value $0.001 per share ("Shares") that, when added to the Shares already owned by Parent and its direct and indirect wholly owned subsidiaries, if any, shall constitute a majority of the then outstanding Shares on a fully diluted basis (including, without limitation, all Shares issuable upon the conversion of any outstanding convertible securities or upon the exercise of any outstanding options or warrants which are vested as of the date of the Merger Agreement or are capable of vesting during the ninety (90) day period following the consummation of the Offer and have an exercise price of $10.00 per Share or less) (the "Minimum Condition") and (ii) any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, the U.K. Fair Trading Act of 1973, the appropriate provisions of the E.C. Merger Regulation 4064/89 or any other applicable foreign antitrust law, having expired or been terminated prior to the expiration of the Offer (the "Antitrust Condition"). The Offer also is subject to certain other conditions contained in this Offer to Purchase. See "Section 1. Terms of the Offer; Expiration Date," "Section 14. Certain Conditions of the Offer" and "Section 15. Certain Legal Matters and Regulatory Approvals" which set forth in full the conditions to the Offer.

THE BOARD OF DIRECTORS OF DIGITAL ISLAND HAS UNANIMOUSLY DETERMINED THAT THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING EACH OF THE OFFER AND THE MERGER, ARE FAIR TO, AND IN THE BEST INTEREST OF, THE COMPANY AND THE HOLDERS OF SHARES, HAS APPROVED, ADOPTED AND DECLARED ADVISABLE THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING EACH OF THE OFFER AND THE MERGER, AND HAS RESOLVED TO RECOMMEND THAT THE HOLDERS OF SHARES ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER.

IMPORTANT

   Any stockholder desiring to tender all or any portion of such stockholder's Shares should either (i) complete and sign the accompanying Letter of Transmittal in accordance with the instructions in the Letter of Transmittal and mail or deliver it together with the certificate(s) evidencing tendered Shares, and any other required documents, to the Depositary or tender such Shares pursuant to the procedure for book-entry transfer set forth in "Section 3. Procedures for Accepting the Offer and Tendering Shares" or (ii) request such stockholder's broker, dealer, commercial bank, trust company or other nominee to effect the transaction for such stockholder. Any stockholder whose Shares are registered in the name of a broker, dealer, commercial bank, trust company or other nominee must contact such broker, dealer, commercial bank, trust company or other nominee if such stockholder desires to tender such Shares.

   Any stockholder who desires to tender Shares and whose certificates evidencing such Shares are not immediately available, or who cannot comply with the procedure for book-entry transfer on a timely basis, may tender such Shares by following the procedure for guaranteed delivery set forth in "Section 3. Procedures for Accepting the Offer and Tendering Shares."

   Questions or requests for assistance may be directed to the Information Agent or to the Dealer Managers at their respective addresses and telephone numbers set forth on the back cover of this Offer to Purchase. Additional copies of this Offer to Purchase, the Letter of Transmittal and the Notice of Guaranteed Delivery also may be obtained from the Information Agent or from brokers, dealers, commercial banks or trust companies.

The Dealer Managers for the Offer are:

Greenhill                Merrill Lynch & Co.

May 21, 2001

TABLE OF CONTENTS

		Page
SUMMARY TERM SHEET		ii
INTRODUCTION		1
1.	Terms of the Offer; Expiration Date	4
2.	Acceptance for Payment and Payment for Shares	6
3.	Procedures for Accepting the Offer and Tendering Shares	7
4.	Withdrawal Rights	9
5.	Certain Federal Income Tax Consequences	10
6.	Price Range of Shares; Dividends	11
7.	Certain Information Concerning Digital Island	12
8.	Certain Information Concerning Cable & Wireless, Cable & Wireless USA and Purchaser	15
9.	Financing of the Offer and the Merger	17
10.	Background of the Offer; the Merger Agreement and Related Agreements	17
11.	Purpose of the Offer; Plans for Digital Island After the Offer and the Merger; Effect on Convertible Notes	35
12.	Dividends and Distributions	39
13.	Possible Effects of the Offer on the Market for Shares, Nasdaq Listing, Margin Regulations and Exchange Act Registration	39
14.	Certain Conditions of the Offer	40
15.	Certain Legal Matters and Regulatory Approvals	42
16.	Fees and Expenses	45
17.	Miscellaneous	46

SCHEDULES

    Schedule I Directors and Executive Officers of Cable & Wireless, Cable & Wireless USA and Purchaser

i

SUMMARY TERM SHEET

    This summary term sheet highlights selected information from this Offer to Purchase, and may not contain all of the information that is important to you. To better understand our Offer to you and for a complete description of the legal terms of the Offer, you should read carefully this entire Offer to Purchase and the accompanying Letter of Transmittal. Questions or requests for assistance may be directed to the Information Agent or either one of the Dealer Managers at their respective addresses and telephone numbers on the last page of this Offer to Purchase.

Who is offering to buy my securities?

•

We are Dali Acquisition Corp., a newly formed Delaware corporation and a wholly owned subsidiary of Cable & Wireless, a public limited company incorporated under the laws of England and Wales. We were organized in connection with this Offer and have not carried on any activities other than in connection with this Offer. After commencement of the Offer, but prior to its consummation, Cable & Wireless intends to transfer the ownership of all of its shares of Purchaser to one of its wholly owned subsidiaries, Cable & Wireless USA, Inc. ("Cable & Wireless USA"). See "Section 8. Certain Information Concerning Cable & Wireless, Cable & Wireless USA and Purchaser."



•

Cable & Wireless USA serves as the holding company for businesses of Cable & Wireless in the United States and is responsible for developing, coordinating and maintaining the overall business strategy of Cable & Wireless in the United States. See "Section 8. Certain Information Concerning Cable & Wireless, Cable & Wireless USA and Purchaser."



•

Parent is a major global telecommunications business. See "Section 8. Certain Information Concerning Cable & Wireless, Cable & Wireless USA and Purchaser."

What are the classes and amounts of securities sought in this Offer?

•

We are seeking to purchase all of the issued and outstanding shares of common stock, par value $0.001 per share, of Digital Island. See "Introduction" and "Section 1. Terms of the Offer; Expiration Date."



•

The Offer is not being made for (nor will tenders be accepted under the Offer for) any of Digital Island's 6% Convertible Subordinated Notes due February 15, 2005. Holders of the Convertible Notes who wish to participate in the Offer must first convert their Convertible Notes into Digital Island shares. After the consummation of the Offer, Digital Island will mail a written notice setting forth the procedure for the holders of Convertible Notes to exercise their right to require Digital Island to repurchase their Convertible Notes. See "Introduction" and "Section 11. Purpose of the Offer, Plans for Digital Island After the Offer and the Merger; Effect on Convertible Notes."

How much are you offering to pay and what is the form of payment?

•

We are offering to pay $3.40 per share of common stock of Digital Island, net to the seller in cash (subject to applicable withholding taxes) and without interest thereon. See "Introduction," "Section 1. Terms of the Offer; Expiration Date" and "Section 5. Certain Federal Income Tax Consequences."



•

If you tender your Digital Island shares in the Offer, you will not be obligated to pay brokerage fees or commissions or, except as otherwise provided in Instruction 6 of the Letter of Transmittal, stock transfer taxes with respect to the sale of your shares pursuant to the Offer. See "Introduction."

ii

What are the most significant conditions of the Offer?

•

We are not obligated to purchase any Digital Island shares unless there have been validly tendered and not properly withdrawn prior to the expiration of the Offer at least the number of Shares that, when added to the shares already owned by Parent and its direct and indirect wholly owned subsidiaries, shall constitute a majority of the then outstanding Shares on a fully diluted basis (including, without limitation, all shares issuable upon the conversion of any outstanding convertible securities or upon the exercise of any outstanding options or warrants which are vested as of the date of the Merger Agreement or are capable of vesting during the ninety (90) day period following the consummation of the Offer and have an exercise price of $10.00 per share or less).



•

We are not obligated to purchase any Digital Island shares unless prior to the expiration of the Offer any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, the U.K. Fair Trading Act of 1973, the appropriate provisions of the E.C. Merger Regulation 4064/89 or any other applicable foreign antitrust law, have expired or been terminated. See "Section 15. Certain Legal Matters and Regulatory Approvals."

    These and other conditions to our obligation to purchase Digital Island shares tendered in the Offer are described in greater detail in "Section 1. Terms of the Offer; Expiration Date," "Section 14. Certain Conditions of the Offer" and "Section 15. Certain Legal Matters and Regulatory Approvals."

Do you have the financial resources to make the offered payment?

•

Yes. Cable & Wireless will provide us with sufficient funds to purchase all tendered shares of Digital Island and to provide funding for the Merger that is expected to follow the successful completion of the Offer. Parent also will provide us with sufficient funds to purchase the Convertible Notes as and when they become due and payable.

Is your financial condition relevant to my decision to tender in the Offer?

•

We do not think that our financial condition is relevant to your decision to tender in the Offer because the form of payment for your Digital Island shares consists solely of cash and the Offer is not subject to a financing condition. In addition, no relevant historical information concerning Dali Acquisition Corp. is available because we have not carried on any activities other than in connection with this Offer.

How long do I have to decide whether to tender in the Offer?

•

You will have at least until 12:00 midnight, New York City time, on Monday, June 18, 2001, to decide whether to tender your Digital Island shares in the Offer. If you cannot deliver everything that is required in order to make a valid tender by that time, you may be able to use a guaranteed delivery procedure which is described in "Section 3. Procedures for Accepting the Offer and Tendering Shares."

Can the Offer be extended, and under what circumstances?

•

We may, without the consent of Digital Island, but subject to the terms of the Merger Agreement and applicable law, extend the period of time during which the Offer remains open. We have agreed in the Merger Agreement that we may extend the Offer in the event any or certain of the conditions to the Offer have not been satisfied. See "Section 1. Terms of Offer; Expiration Date."

How will I be notified if the Offer is extended?

•

If we decide to extend the Offer, we will inform Computershare Trust Company of New York, the Depositary, of that fact, and will issue a press release giving the new expiration date no later than 9:00 a.m., New York City time, on the day after the day on which the Offer was previously scheduled to expire. See "Section 1. Terms of Offer; Expiration Date."

iii

How do I tender my shares?

    To tender your Digital Island shares in the Offer, you must:

•

complete and sign the accompanying Letter of Transmittal in accordance with the instructions in the Letter of Transmittal and mail or deliver it together with your share certificates, and any other required documents, to the Depositary;



•

tender your Digital Island shares pursuant to the procedure for book-entry transfer described in "Section 3. Procedures for Accepting the Offer and Tendering Shares;" or



•

if your share certificates are not immediately available or if you cannot deliver your share certificates and any other required documents to Computershare Trust Company of New York prior to the expiration of the Offer, or you cannot complete the procedure for delivery by book-entry transfer on a timely basis, you may still tender your Digital Island shares if you comply with the guaranteed delivery procedures described in "Section 3. Procedures for Accepting the Offer and Tendering Shares;" or



•

if you hold your shares through a broker or a bank, give instructions that your shares be tendered.

Until what time can I withdraw previously tendered shares?

•

You may withdraw previously tendered shares any time prior to the expiration of the Offer, and, unless we have accepted the shares for payment pursuant to the Offer, you may also withdraw any tendered shares at any time after July 19, 2001 to the extent the Offer has not expired or been terminated prior to such date. See "Section 4. Withdrawal Rights."

How do I withdraw previously tendered shares?

•

To withdraw previously tendered shares, you must deliver a written or facsimile notice of withdrawal with the required information to Computershare Trust Company of New York while you still have the right to withdraw. If you tendered shares by giving instructions to a broker or bank, you must instruct the broker or bank to arrange for the withdrawal of your shares. See "Section 4. Withdrawal Rights."

What does the Board of Directors of Digital Island think of the Offer?

•

The Board of Directors of Digital Island has unanimously determined that the Merger Agreement and the transactions contemplated thereby, including each of the Offer and the Merger, are fair to, and in the best interests of, Digital Island's stockholders, has approved, adopted and declared advisable the Merger Agreement and the transactions contemplated thereby, including each of the Offer and the Merger, and has resolved to recommend that Digital Island's stockholders accept the Offer and tender their shares pursuant to the Offer. See "Introduction."

What if another bidder wants to buy Digital Island shares for a higher price?

•

If another bidder offers a higher purchase price than the price we are offering and Digital Island's board of directors determines that the other bidder's offer is superior and determines to enter into an agreement with the other bidder, we have the opportunity to match the superior offer. If we decide not to match the superior offer and Digital Island terminates the Merger Agreement, Digital Island will have to pay us $8.4 million. See "Section 10. Background of the Offer; the Merger Agreement and Related Agreements."

Will Digital Island continue as a public company?

•

If the Merger occurs, Digital Island will no longer be publicly owned. Even if the Merger does not occur, if we purchase all the tendered shares, there may be so few remaining stockholders and publicly held shares that the shares will no longer be eligible to be traded through the Nasdaq

iv

National Market or another securities market, there may not be a public trading market for the shares and Digital Island may cease making filings with the Securities and Exchange Commission or otherwise cease being required to comply with Securities and Exchange Commission rules relating to publicly held companies. See "Section 13. Possible Effects of the Offer on the Market for Shares, Nasdaq Listing, Margin Regulations and Exchange Act Registration."

Will the Offer be followed by a merger if all the shares are not tendered?

•

If we accept for payment and pay for at least the number of Digital Island shares that, when added to any Digital Island shares already owned by Parent or direct and indirect wholly owned subsidiaries, if any, is equal to at least a majority of the then outstanding shares on a fully diluted basis (including, without limitation, all shares issuable upon the conversion of any outstanding convertible securities or upon the exercise of any outstanding options or warrants which are vested as of the date of the Merger Agreement or are capable of vesting during the ninety (90) day period following the consummation of the Offer and have an exercise price of $10.00 per share or less) we will merge into Digital Island. If the Merger occurs, Digital Island will become a wholly owned subsidiary of Cable & Wireless USA and an indirect wholly owned subsidiary of Cable & Wireless, and each issued and then outstanding Digital Island share (other than any shares held in the treasury of Digital Island, or owned by us, Cable & Wireless or any direct or indirect wholly owned subsidiary of Cable & Wireless or Digital Island and any shares held by stockholders seeking appraisal for their shares) shall be canceled and converted automatically into the right to receive $3.40 per share, net to the seller (subject to applicable withholding taxes) in cash (or any greater amount per share paid pursuant to the Offer), without interest. See "Introduction."

If I decide not to tender, how will the Offer affect my shares?

•

If you decide not to tender your shares in the Offer and the Merger occurs, you will receive the same amount of cash per share as if you would have tendered your shares in the Offer, unless you have exercised your appraisal rights under the General Corporation Law of the State of Delaware. See "Section 11. Purpose of the Offer; Plans for Digital Island After the Offer and the Merger; Effect on Convertible Notes."



•

If you decide not to tender your shares in the Offer and the Merger does not occur, and we purchase all the tendered shares, there may be so few remaining stockholders and publicly held shares that the shares will no longer be eligible to be traded through the Nasdaq National Market or another securities market, there may not be a public trading market for the shares and Digital Island may cease making filings with the Securities and Exchange Commission or otherwise cease being required to comply with Securities and Exchange Commission rules relating to publicly held companies. See "Section 13. Possible Effects of the Offer on the Market for Shares, Nasdaq Listing, Margin Regulations and Exchange Act Registration."



•

Following the Offer it is possible that the shares might no longer constitute "margin securities" for purposes of the margin regulations of the Federal Reserve Board, in which event the shares could no longer be used as collateral for loans made by brokers. See "Section 13. Possible Effects of the Offer on the Market of Shares, Nasdaq Listing, Margin Regulations and Exchange Act Registration."

What is a recent market value of my shares?

•

On May 18, 2001, the last full trading day before we commenced our Offer, the last reported closing price per Digital Island share reported on the Nasdaq National Market was $3.35 per share. See "Section 7. Certain Information Concerning Digital Island."

With whom may I speak if I have questions about the offer?

•

You may call MalCon Proxy Advisors, Inc., the Information Agent, at (800) 475-9320, or Greenhill at (212) 389-1799 (collect) or (866) 211-8609, or Merrill Lynch & Co. at (212) 236-3790 (collect), the Dealer Managers. See the back cover of this Offer to Purchase for additional contact information.

v

To the Holders of Common Stock of
Digital Island, Inc.:

INTRODUCTION

    Dali Acquisition Corp., a Delaware corporation ("Purchaser"), a wholly owned subsidiary of Cable and Wireless plc, a public limited company incorporated under the laws of England and Wales ("Cable & Wireless" or "Parent"), hereby offers to purchase all the issued and outstanding shares of common stock, par value $0.001 per share ("Shares"), of Digital Island, Inc., a Delaware corporation ("Digital Island" or the "Company"), for $3.40 per share net to the seller in cash (subject to applicable withholding taxes) (such amount, or any greater amount per Share paid pursuant to the Offer (as defined below), being the "Per Share Amount"), without interest, upon the terms and subject to the conditions described in this Offer to Purchase and in the related Letter of Transmittal (which, together with this Offer to Purchase and any amendments or supplements hereto or thereto, collectively constitute the "Offer"). After commencement, but prior to consummation, of the Offer, Cable & Wireless intends to transfer all the shares of Purchaser to Cable & Wireless USA, Inc., a Delaware corporation and one of its wholly owned subsidiaries ("Cable & Wireless USA"). See "Section 8. Certain Information Concerning Cable & Wireless, Cable & Wireless USA and Purchaser" for additional information concerning Cable & Wireless, Cable & Wireless USA and Purchaser.

    Tendering stockholders will not be obligated to pay brokerage fees or commissions or, except as otherwise provided in Instruction 6 of the Letter of Transmittal, stock transfer taxes with respect to the purchase of Shares by Purchaser pursuant to the Offer. However, any tendering stockholder or other payee who fails to complete and sign the Substitute Form W-9 that is included in the Letter of Transmittal may be subject to a required backup U.S. federal income tax withholding of 31% of the gross proceeds payable to such stockholder or other payee pursuant to the Offer. See "Section 5. Certain Federal Income Tax Consequences." Purchaser or Cable & Wireless will pay all charges and expenses of Greenhill & Co., LLC ("Greenhill") and Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), which are acting as Dealer Managers for the Offer (Greenhill, together with Merrill Lynch, the "Dealer Managers"), Computershare Trust Company of New York (the "Depositary") and MalCon Proxy Advisors, Inc., (the "Information Agent") incurred in connection with the Offer. See "Section 16. Fees and Expenses."

The Board of Directors of Digital Island (the "Board") has unanimously determined that the Merger Agreement (as defined below) and the transactions contemplated thereby, including each of the Offer and the Merger (as defined below), are fair to, and in the best interest of, the Company and the holders of Shares, has approved, adopted and declared advisable the Merger Agreement and the transactions contemplated thereby, including each of the Offer and the Merger, and has resolved to recommend that the holders of Shares accept the Offer and tender their Shares pursuant to the Offer.

    Credit Suisse First Boston Corporation ("CSFB") has delivered to the Board its written opinion dated May 13, 2001 to the effect that, based upon and subject to various considerations and assumptions described in such opinion, the $3.40 per share cash consideration to be received by the holders of Shares pursuant to the Offer and the Merger is fair to such holders from a financial point of view. A copy of the written opinion of CSFB is contained in Digital Island's Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9"), which has been filed by Digital Island with the Securities and Exchange Commission (the "SEC") in connection with the Offer and which is being mailed to Digital Island's stockholders with this Offer to Purchase. Digital Island's stockholders are urged to read such opinion carefully in its entirety for a description of the assumptions made, matters considered and limitations of the review undertaken by CSFB.

    The Offer is being made pursuant to an Agreement and Plan of Merger, dated as of May 14, 2001, by and among Cable & Wireless, Purchaser and Digital Island (the "Merger Agreement"). The Merger Agreement provides that upon the acceptance for payment pursuant to the Offer of a number of Shares

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that satisfies the Minimum Condition, Cable & Wireless shall be entitled to designate up to such number of directors, rounded up to the next whole number, on the Board equal to the product of the total number of directors on the Board (giving effect to the directors elected pursuant to the provision described in this paragraph) multiplied by the percentage that the aggregate number of Shares then beneficially owned by Purchaser and Cable & Wireless bears to the total number of Shares then outstanding of Digital Island. In the Merger Agreement, Digital Island has agreed, at such time, to take all action necessary to cause Cable & Wireless' designees to be elected or appointed as directors of Digital Island, including, without limitation, increasing the size of the Board or seeking and accepting the resignations of incumbent directors.

The Offer is conditioned upon, among other things, (i) there having been validly tendered and not properly withdrawn prior to the expiration of the Offer at least the number of Shares that, when added to the Shares already owned by Cable & Wireless and its direct and indirect wholly owned subsidiaries, if any, shall constitute a majority of the then outstanding Shares on a fully diluted basis (including, without limitation, all Shares issuable upon the conversion of any outstanding convertible securities or upon the exercise of any outstanding options or warrants which are vested as of the date of the Merger Agreement or are capable of vesting during the ninety (90) day period following the consummation of the Offer and have an exercise price of $10.00 per share or less) and (ii) any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, the U.K. Fair Trading Act of 1973, the appropriate provisions of the E.C. Merger Regulation 4064/89 or any other applicable foreign antitrust law, having expired or been terminated prior to the expiration of the Offer. The Offer also is subject to certain other conditions contained in the Offer to Purchase. See "Section 1. Terms of the Offer; Expiration Date," "Section 14. Certain Conditions of the Offer" and "Section 15. Certain Legal Matters and Regulatory Approvals" of the Offer to Purchase, which set forth in full the conditions to the Offer.

    The Merger Agreement provides, among other things, that as promptly as practicable after the purchase of Shares pursuant to the Offer and the satisfaction or, if permissible, waiver, of the conditions described in the Merger Agreement, and in accordance with the relevant provisions of the General Corporation Law of the State of Delaware (the "DGCL"), Purchaser will be merged with and into Digital Island (the "Merger"). As a result of the Merger, Digital Island, which will continue as the surviving corporation (the "Surviving Corporation"), will become a wholly owned subsidiary of Cable & Wireless USA, and an indirect wholly owned subsidiary of Parent. At the effective time of the Merger (the "Effective Time"), each Share issued and outstanding immediately prior to the Effective Time (other than Shares held in the treasury of Digital Island or Shares owned by Purchaser, Cable & Wireless, Cable & Wireless USA or any direct or indirect wholly owned subsidiary of Parent or of Digital Island, and other than Shares held by stockholders who shall have properly demanded and perfected appraisal rights under the DGCL) shall be canceled and converted automatically into the right to receive the Per Share Amount in cash, without interest (but subject to any applicable withholding tax) (the "Merger Consideration"). Stockholders who demand and fully perfect appraisal rights under the DGCL will be entitled to receive, in connection with the Merger, cash for the fair value of their Shares as determined pursuant to the procedures prescribed by the DGCL. See "Section 11. Purpose of the Offer; Plans for Digital Island After the Offer and the Merger; Effect on Convertible Notes." The Merger Agreement is more fully described in "Section 10. Background of the Offer; the Merger Agreement and Related Agreements." Certain federal income tax consequences of the sale of Shares pursuant to the Offer and the Merger are described in "Section 5. Certain Federal Income Tax Consequences."

    The obligations of each party to effect the Merger is subject to the satisfaction or waiver of certain conditions, including the consummation of the Offer, and, if necessary, the approval and adoption of the Merger Agreement and the Merger by the requisite vote of the stockholders of Digital Island. For a more detailed description of the conditions to the Merger, see "Section 10. Background of the Offer; the Merger Agreement and Related Agreements." Under the DGCL, the affirmative vote of the holders of a majority of the outstanding Shares is required to approve and adopt the Merger Agreement and the Merger.

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Consequently, if Purchaser acquires (pursuant to the Offer or otherwise) at least a majority of the outstanding Shares, then Purchaser will have sufficient voting power to approve and adopt the Merger Agreement and the Merger without the vote of any other stockholder. See "Section 10. Background of the Offer; the Merger Agreement and Related Agreements" and "Section 11. Purpose of the Offer; Plans for Digital Island After the Offer and the Merger; Effect on Convertible Notes."

    Under the DGCL, if Purchaser acquires, pursuant to the Offer or otherwise, at least 90% of the then outstanding Shares, the Board of Digital Island (a majority of which will be appointed by Parent) will be able to approve and adopt the Merger Agreement and the Merger without a vote of the stockholders of Digital Island. In such event, Cable & Wireless, Purchaser and Digital Island have agreed to take, at the request of Purchaser, all necessary and appropriate action to cause the Merger to become effective in accordance with the DGCL as promptly as reasonably practicable after such acquisition, without a meeting of the stockholders of Digital Island. If, however, Purchaser does not acquire at least 90% of the then outstanding Shares pursuant to the Offer or otherwise, and a vote of the stockholders of Digital Island is required under the DGCL, a significantly longer period of time will be required to effect the Merger. See "Section 11. Purpose of the Offer; Plans for Digital Island After the Offer and the Merger; Effect on Convertible Notes."

    Digital Island has advised Purchaser that, as of May 10, 2001, there were 82,226,556 Shares issued and outstanding, as well as 4,821,317 Shares reserved for issuance pursuant to outstanding employee stock options or stock incentive rights at an exercise price per share below $10.00 per Share, no Shares were held in the treasury of Digital Island and no Shares are held by any subsidiary of Digital Island. Assuming all these options are exercised and outstanding, the Minimum Condition would be satisfied and Purchaser could cause the Merger to become effective in accordance with the DGCL without the approval of any other stockholder of Digital Island, if Purchaser acquires 43,523,937 Shares.

    Purchaser may provide for a subsequent offering period in connection with the Offer. If Purchaser elects to provide a subsequent offering period, it will notify the Depositary and will make a public announcement thereof on the next business day after the previously scheduled Expiration Date (as defined below).

    No appraisal rights are available in connection with the Offer; however, stockholders of Digital Island may have appraisal rights in connection with the Merger regardless of whether the Merger is consummated with or without a vote of Digital Island's stockholders. See "Section 11. Purpose of the Offer; Plans for Digital Island After the Offer and the Merger; Effect on Convertible Notes."

    The Offer is not being made for (nor will tenders be accepted of) any of the Convertible Notes. Holders of Digital Island's 6% Convertible Notes due February 15, 2005 (the "Convertible Notes") who wish to participate in the Offer must first convert their Convertible Notes into Shares in accordance with the terms of the Indenture dated as of February 29, 2000 between Digital Island and State Street Bank and Trust Company of California, N.A., as Trustee (the "Indenture"), and tender the Shares issued upon such conversion pursuant to the Offer. Under the Indenture, any holder of a Convertible Note may convert the principal amount of such Convertible Note (or any portion thereof equal to $1,000 or any integral multiple of $1,000 thereof) into that number of Shares obtained by dividing the principal amount thereof by the conversion price of $131.61 per share (7.5982 Shares per $1,000 principal amount of Convertible Notes), subject to adjustment under certain circumstances. Holders of Convertible Notes who convert such Convertible Notes into Shares will have no right under the Indenture to revoke an effective conversion. Accordingly, if the Offer terminates or expires without the purchase of any Shares or if any Shares tendered after conversion by any holder of Convertible Notes are not purchased for any reason, the converting holders will no longer have any rights with respect to Shares under the Indenture. According to the Indenture, after consummation of the Merger, each holder of a Convertible Note then outstanding would be entitled to receive the consideration receivable upon consummation of the Merger by such holder of the number of Shares which would have been issuable upon conversion of such Convertible Note

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immediately prior to the Merger, or $25.83 per $1,000 principal amount of Convertible Notes. See "Section 11. Purpose of the Offer; Plans for Digital Island After the Offer and the Merger; Effect on Convertible Notes."

    Subject to the terms and conditions of the Indenture, upon the consummation of the Offer, the holders of Convertible Notes, will have the right to require Digital Island to repurchase their Convertible Notes at a purchase price equal to the principal amount thereof plus accrued and unpaid interest up to, but excluding, the date of repurchase. See "Section 11. Purpose of the Offer; Plans for Digital Island After the Offer and the Merger; Effect on Convertible Notes."

    This Offer to Purchase and the related Letter of Transmittal contain important information which should be read carefully in their entirety before any decision is made with respect to the Offer.

1.  Terms of the Offer; Expiration Date.

    Upon the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended, the terms and conditions of such extension or amendment), Purchaser will accept for payment and pay for all Shares validly tendered (and not properly withdrawn in accordance with the procedures described in "Section 4. Withdrawal Rights") on or prior to the Expiration Date. "Expiration Date" means 12:00 midnight, New York City time, on Monday, June 18, 2001, unless and until Purchaser (subject to the terms and conditions of the Merger Agreement) shall have extended the period during which the Offer is open, in which case Expiration Date shall mean the latest time and date at which the Offer, as may be extended by Purchaser, shall expire.

    The Offer is subject to the conditions described under "Section 14. Certain Conditions of the Offer," including the satisfaction of the Minimum Condition and the Antitrust Condition. Subject to the applicable rules and regulations of the SEC and subject to the terms and conditions of the Merger Agreement, Purchaser expressly reserves the right to waive any such condition, in whole or in part, in its sole discretion. Subject to the applicable rules and regulations of the SEC and subject to the terms and conditions of the Merger Agreement, Purchaser also expressly reserves the right to increase the Per Share Amount and to make any other changes in the terms and conditions of the Offer; provided, however, that Purchaser may not, without the prior consent of Digital Island, decrease the Per Share Amount, change the form of consideration payable in the Offer, waive the Minimum Condition, reduce the number of Shares to be purchased in the Offer, impose conditions to the Offer in addition to those set forth in "Section 14. Certain Conditions of the Offer," or amend any term of the Offer in any other manner materially adverse to the holders of Shares.

    The Merger Agreement provides that Purchaser may, without the consent of Digital Island, (i) extend the Offer beyond the scheduled expiration date, which shall be 20 business days following the commencement of the Offer, if, at the scheduled expiration of the Offer, any of the conditions to Purchaser's obligation to accept Shares for payment shall not be satisfied or waived, (ii) extend the Offer for any period required by any rule or regulation of the SEC, or the staff thereof, applicable to the Offer, or (iii) extend the Offer for an aggregate period of not more than 10 business days beyond the latest applicable date that would otherwise be permitted under clause (i) or (ii) of this sentence, if, as of such date, all of the conditions to Purchaser's obligations to accept for payment Shares are satisfied or waived, but the number of Shares validly tendered and not withdrawn pursuant to the Offer totals less than 90% of the then outstanding Shares. Under the Merger Agreement, Purchaser expressly reserves the right, in its sole discretion (but subject to the terms and conditions of the Merger Agreement and subject to the applicable rules of the SEC), at any time and from time to time, to extend for any reason the period of time during which the Offer is open, including upon the occurrence of any of the conditions to the Offer specified in "Section 14. Certain Conditions of the Offer" of the Offer to Purchase, and thereby delay acceptance for payment of, and payment for, any Shares. During any such extension, all Shares previously tendered and not withdrawn will remain subject to the Offer and subject to the right of a tendering stockholder to withdraw such stockholder's Shares. See "Section 4. Withdrawal Rights." Under no

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circumstances will interest be paid on the purchase price for tendered Shares, whether or not the Offer is extended.

    Cable & Wireless and Purchaser shall consummate the Offer and pay for all Shares validly tendered and not properly withdrawn as promptly as practicable following satisfaction of the Minimum Condition. Notwithstanding the immediately preceding sentence and subject to the applicable rules of the SEC and the terms and conditions of the Offer, Purchaser expressly reserves the right (i) to delay payment for Shares in order to comply in whole or in part with applicable laws (any such delay shall be effected in compliance with Rule 14e1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which requires Purchaser to pay the consideration offered or to return Shares deposited by or on behalf of stockholders promptly after the termination or withdrawal of the Offer), (ii) to extend or terminate the Offer and not to accept for payment or pay for any Shares not theretofore accepted for payment or paid for, upon the occurrence of any of the conditions to the Offer specified in "Section 14. Certain Conditions of the Offer," and (iii) to amend the Offer or to waive any conditions to the Offer in any respect consistent with the provisions of the Merger Agreement described above, in each case by giving oral or written notice of such delay, termination, waiver or amendment to the Depositary.

    Any such extension, delay, termination, waiver or amendment will be followed as promptly as practicable by public announcement thereof. In the case of an extension, the announcement will be made no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date. Subject to applicable law (including Rules 14d-4(d)(i), 14d-6(c) and 14e-1 under the Exchange Act, which require that material changes be promptly disseminated to stockholders in a manner reasonably designed to inform them of such changes) and without limiting the manner in which Purchaser may choose to make any public announcement, Purchaser will have no obligation to publish, advertise or otherwise communicate any such public announcement other than by issuing a press release to the Dow Jones News Service or the Public Relations Newswire.

    If Purchaser makes a material change to the terms of the Offer or the information concerning the Offer, or if Purchaser waives a material condition of the Offer, Purchaser will extend the Offer and disseminate additional tender offer materials to the extent required by Rule 14e-1 under the Exchange Act. Subject to the terms of the Merger Agreement, if, prior to the Expiration Date, Purchaser should decide to increase the consideration being offered in the Offer, such increase in the consideration being offered will be applicable to all stockholders whose Shares are accepted for payment pursuant to the Offer and, if at the time notice of any such increase in the consideration being offered is first published, sent or given to holders of such Shares, the Offer is scheduled to expire at any time earlier than the period ending on the tenth business day from and including the date that such notice is first so published, sent or given, the Offer will be extended at least until the expiration of such 10 business day period. For purposes of the Offer, a "business day" means any day on which the principal offices of the SEC in Washington D.C. are open to accept filings; or, in the case of determining a date when any payment is due, any day (other than a Saturday or Sunday) on which banks are not required or authorized to close in the City of New York.

    Purchaser may provide for a subsequent offering period in connection with the Offer. If Purchaser does provide for such subsequent offering period, subject to the applicable rules and regulations of the SEC, Purchaser may elect to extend its offer to purchase Shares beyond the Expiration Date for a subsequent offering period of three business days to 20 business days (the "Subsequent Offering Period"), if, among other things, upon the Expiration Date (i) all of the conditions to Purchaser's obligations to accept for payment, and to pay for, the Shares are satisfied or waived and (ii) Purchaser immediately accepts for payment, and promptly pays for, all Shares validly tendered (and not properly withdrawn in accordance with the procedures set forth in "Section 4. Withdrawal Rights") prior to the Expiration Date. Shares tendered during the Subsequent Offering Period may not be withdrawn. See "Section 4. Withdrawal Rights." Purchaser will immediately accept for payment, and promptly pay for, all validly tendered Shares as they are received during the Subsequent Offering Period. Any election by the Purchaser to provide for a Subsequent Offering Period may be effected by Purchaser giving oral or written notice of the Subsequent Offering Period to the Depositary. If Purchaser decides to provide for a Subsequent Offering Period, it will

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make an announcement to that effect by issuing a press release to the Dow Jones New Services or the Public Relations Newswire no later than 9:00 a.m. New York City Time on the next business day after the previously scheduled Expiration Date.

    Digital Island has provided Purchaser with Digital Island's stockholder list and security position listings for the purpose of disseminating the Offer to the holders of Shares. This Offer to Purchase and the related Letter of Transmittal will be mailed by Purchaser to record holders of Shares whose names appear on Digital Island's stockholder list and will be furnished, for subsequent transmittal to beneficial owners of Shares, to brokers, dealers, commercial banks, trust companies and similar persons whose names, or the names of whose nominees, appear on the stockholder list or, if applicable, who are listed as participants in a clearing agency's security position listings.

2.  Acceptance for Payment and Payment for Shares.

    Upon the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended, the terms and conditions of the Offer as so extended or amended), Purchaser will accept for payment all Shares validly tendered (and not properly withdrawn in accordance with "Section 4. Withdrawal Rights") prior to the Expiration Date promptly after the Expiration Date. Purchaser shall pay for all Shares validly tendered and not properly and promptly withdrawn following the acceptance of Shares for payment pursuant to the Offer. Subject to applicable rules and regulations of the SEC and the terms of the Merger Agreement, Purchaser reserves the right to delay acceptance of or payment for Shares in order to comply in whole or in part with applicable laws. See "Section 1. Terms of the Offer; Expiration Date" and "Section 15. Certain Legal Matters and Regulatory Approvals."

    In all cases (including during any Subsequent Offering Period), Purchaser will pay for Shares tendered and accepted for payment pursuant to the Offer only after timely receipt by the Depositary of (i) the certificates evidencing such Shares (the "Share Certificates") or timely confirmation (a "Book-Entry Confirmation") of a book-entry transfer of such Shares into the Depositary's account at The Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedures described in "Section 3. Procedures for Accepting the Offer and Tendering Shares," (ii) the Letter of Transmittal, properly completed and duly executed (or a manually signed facsimile thereof), with any required signature guarantees, in the case of a book-entry transfer, or an Agent's Message (as defined below) and (iii) any other documents required under the Letter of Transmittal. The term "Agent's Message" means a message, transmitted by the Book-Entry Transfer Facility to, and received by, the Depositary and forming a part of the Book-Entry Confirmation which states that the Book-Entry Transfer Facility has received an express acknowledgment from the participant in the Book-Entry Transfer Facility tendering the Shares that are the subject of such Book-Entry Confirmation, that the participant has received and agrees to be bound by the Letter of Transmittal and that Purchaser may enforce such agreement against such participant.

    For purposes of the Offer (including during any Subsequent Offering Period), Purchaser will be deemed to have accepted for payment (and thereby purchased) Shares validly tendered and not properly withdrawn as, if and when Purchaser gives oral or written notice to the Depositary of Purchaser's acceptance for payment of such Shares pursuant to the Offer. Upon the terms and subject to the conditions of the Offer, payment for Shares purchased pursuant to the Offer will be made by deposit of the purchase price therefor with the Depositary, which will act as agent for tendering stockholders whose Shares have been accepted for payment for the purpose of receiving payments from Purchaser and transmitting such payments to validly tendering stockholders. Under no circumstances will Purchaser pay interest on the purchase price for Shares, regardless of any delay in making such payment.

    If Purchaser does not purchase any Shares pursuant to the Offer, or if Share Certificates are submitted evidencing more Shares than are tendered, Share Certificates evidencing unpurchased Shares will be returned, without expense to the tendering stockholder (or, in the case of Shares tendered by book-entry transfer into the Depositary's account at the Book-Entry Transfer Facility pursuant to the procedure described in "Section 3. Procedures for Accepting the Offer and Tendering Shares," such Shares will be

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credited to an account maintained at such Book-Entry Transfer Facility), as promptly as practicable following the expiration or termination of the Offer.

    Purchaser reserves the right to transfer or assign, in whole or from time to time in part, to one or more of its affiliates, the right to purchase all or any portion of the Shares tendered in the Offer, but any such transfer or assignment will not relieve Purchaser of its obligations under the Offer and will in no way prejudice the rights of tendering stockholders to receive payment for Shares validly tendered and accepted for payment pursuant to the Offer.

3.  Procedures for Accepting the Offer and Tendering Shares.

    Valid Tender of Securities.  In order for a holder of Shares to validly tender Shares pursuant to the Offer, the Depositary must receive the Letter of Transmittal, properly completed and duly executed, together with any required signature guarantees or, in the case of a book-entry transfer, an Agent's Message, and any other documents required by the Letter of Transmittal, at one of its addresses set forth on the back cover of this Offer to Purchase. In addition, either (i) the Share Certificates evidencing tendered Shares must be received by the Depositary at such address or such Shares must be tendered pursuant to the procedure for book-entry transfer described below and the Depositary must receive a Book-Entry Confirmation (including an Agent's Message), in each case prior to the Expiration Date or the expiration of the Subsequent Offering Period, if any, or (ii) the tendering stockholder must comply with the guaranteed delivery procedures described below.

    The method of delivery of Share Certificates and all other required documents, including delivery through the Book-Entry Transfer Facility, is at the option and risk of the tendering stockholder, and the delivery will be deemed made only when actually received by the Depositary. If delivery is by mail, registered mail with return receipt requested, properly insured, is recommended. In all cases, sufficient time should be allowed to ensure timely delivery.

    Book-Entry Transfer.  The Depositary will establish accounts with respect to Shares at the Book-Entry Transfer Facility for purposes of the Offer within two business days after the date of this Offer to Purchase. Any financial institution that is a participant in the system of the Book-Entry Transfer Facility may make a book-entry delivery of Shares by causing the Book-Entry Transfer Facility to transfer such Shares into the Depositary's account at the Book-Entry Transfer Facility in accordance with the Book-Entry Transfer Facility's procedures for such transfer. However, although delivery of Shares may be effected through book-entry transfer at the Book-Entry Transfer Facility, an Agent's Message, and any other required documents, must, in any case, be received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase prior to the Expiration Date or the expiration of the Subsequent Offering Period, if any, or the tendering stockholder must comply with the guaranteed delivery procedure described below. Delivery of documents to the Book-Entry Transfer Facility does not constitute delivery to the Depositary.

    Signature Guarantees.  Signatures on all Letters of Transmittal must be guaranteed by a firm which is a member of the Security Transfer Agent Medallion Signature Program, or by any other "eligible guarantor institution," as such term is defined in Rule 17Ad-15 under the Exchange Act (each of the foregoing being referred to as an "Eligible Institution"), except in cases where Shares are tendered (i) by a registered holder of Shares who has not completed either the box entitled "Special Payment Instructions" or the box entitled "Special Delivery Instructions" on the Letter of Transmittal or (ii) for the account of an Eligible Institution. If a Share Certificate is registered in the name of a person other than the signer of the Letter of Transmittal, or if payment is to be made, or a Share Certificate not accepted for payment or not tendered is to be returned, to a person other than the registered holder(s), then the Share Certificate must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name(s) of the registered holder(s) appear on the Share Certificate, with the signature(s) on such Share Certificate or stock powers guaranteed by an Eligible Institution. See Instructions 1 and 5 of the Letter of Transmittal.

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    Guaranteed Delivery.  If a stockholder desires to tender Shares pursuant to the Offer and such stockholder's Share Certificates evidencing such Shares are not immediately available or such stockholder cannot deliver the Share Certificates and all other required documents to the Depositary prior to the Expiration Date, or such stockholder cannot complete the procedure for delivery by book-entry transfer on a timely basis, such Shares may nevertheless be tendered, provided that all the following conditions are satisfied:

    (i)  such tender is made by or through an Eligible Institution;

    (ii) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form made available by Purchaser, is received by the Depositary prior to the Expiration Date as provided below; and

    (iii) the Share Certificates (or a Book-Entry Confirmation) evidencing all tendered Shares, in proper form for transfer, in each case together with the Letter of Transmittal, properly completed and duly executed (or a manually signed facsimile thereof), with any required signature guarantees or, in the case of a book-entry transfer, an Agent's Message, and any other documents required by the Letter of Transmittal are received by the Depositary within three Nasdaq National Market ("Nasdaq") trading days after the date of execution of such Notice of Guaranteed Delivery.

    The Notice of Guaranteed Delivery may be delivered to the Depositary by hand or mail or by facsimile transmission and must include a guarantee by an Eligible Institution in the form set forth in the form of Notice of Guaranteed Delivery made available by Purchaser.

    In all cases (including any Subsequent Offering Period), payment for Shares tendered and accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of the Share Certificates evidencing such Shares, or a Book-Entry Confirmation of the delivery of such Shares, and the Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, with any required signature guarantees or, in the case of a book-entry transfer, an Agent's Message, and any other documents required by the Letter of Transmittal.

    Determination of Validity.  All questions as to the form of documents and the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of Shares will be determined by Purchaser, in its sole discretion, which determination shall be final and binding on all parties. Purchaser reserves the absolute right to reject any and all tenders determined by it not to be in proper form or the acceptance for payment of which may, in the opinion of its counsel, be unlawful. Purchaser also reserves the absolute right to waive any condition of the Offer to the extent permitted by applicable law and the Merger Agreement or any defect or irregularity in the tender of any Shares of any particular stockholder, whether or not similar defects or irregularities are waived in the case of other stockholders. No tender of Shares will be deemed to have been validly made until all defects and irregularities have been cured or waived. None of Purchaser, Parent or any of their respective affiliates or assigns, the Dealer Managers, the Depositary, the Information Agent or any other person will be under any duty to give notification of any defects or irregularities in tenders or incur any liability for failure to give any such notification. Purchaser's interpretation of the terms and conditions of the Offer (including the Letter of Transmittal and the instructions thereto) will be final and binding.

    A tender of Shares pursuant to any of the procedures described above will constitute the tendering stockholder's acceptance of the terms and conditions of the Offer, as well as the tendering stockholder's representation and warranty to Purchaser that (i) such stockholder has the full power and authority to tender, sell, assign and transfer the tendered Shares (and any and all other Shares or other securities issued or issuable in respect of such Shares), and (ii) when the same are accepted for payment by Purchaser, Purchaser will acquire good and unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claims.

    The acceptance for payment by Purchaser of Shares pursuant to any of the procedures described above will constitute a binding agreement between the tendering stockholder and Purchaser upon the terms and subject to the conditions of the Offer.

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    Appointment as Proxy.  By executing the Letter of Transmittal, or through delivery of an Agent's Message, as described above, a tendering stockholder irrevocably appoints each designee of Purchaser as such stockholder's agent, attorney-in-fact and proxy, each with full power of substitution, in the manner set forth in the Letter of Transmittal, to the full extent of such stockholder's rights with respect to the Shares tendered by such stockholder and accepted for payment by Purchaser (and with respect to any and all other Shares or other securities issued or issuable in respect thereof). All such powers of attorney and proxies shall be considered irrevocable and coupled with an interest in the tendered Shares. Such appointment will be effective when, and only to the extent that, Purchaser accepts such Shares for payment. Upon such acceptance for payment, all prior powers of attorney and proxies given by such stockholder with respect to such Shares (and such other Shares and securities) will be revoked, without further action, and no subsequent powers of attorney or proxies may be given nor any subsequent written consent executed by such stockholder (and, if given or executed, will not be deemed to be effective) with respect thereto. Purchaser's designees will, with respect to the Shares for which the appointment is effective, be empowered to exercise all voting and other rights of such stockholder as they in their sole discretion may deem proper at any annual or special meeting of the holders of Shares or any adjournment or postponement thereof, by written consent in lieu of any such meeting or otherwise. Purchaser reserves the right to require that, in order for Shares to be deemed validly tendered, immediately upon Purchaser's payment for such Shares, Purchaser must be able to exercise full voting rights with respect to such Shares (and such other Shares and securities), including, without limitation, voting at any meeting of Digital Island's stockholders then scheduled.

    Under the "backup withholding" provisions of U.S. federal income tax law, the Depositary may be required to withhold 31% of any payments of cash pursuant to the Offer. To prevent backup federal income tax withholding with respect to payment to certain stockholders of the purchase price of Shares purchased pursuant to the Offer, each such stockholder must provide the Depositary with such stockholder's correct taxpayer identification number and certify that such stockholder is not subject to backup federal income tax withholding by completing the Substitute Form W-9 in the Letter of Transmittal. See Instruction 9 of the Letter of Transmittal.

4.  Withdrawal Rights.

    Tenders of Shares made pursuant to the Offer are irrevocable, except that such Shares may be withdrawn at any time prior to the Expiration Date and, unless theretofore accepted for payment by Purchaser pursuant to the Offer, also may be withdrawn at any time after July 19, 2001. If Purchaser extends the Offer, is delayed in its acceptance for payment of Shares or is unable to accept Shares for payment pursuant to the Offer for any reason, then, without prejudice to Purchaser's rights under the Offer, the Depositary may, nevertheless, on Purchaser's behalf, retain tendered Shares, and such Shares may not be withdrawn except to the extent that tendering stockholders are entitled to withdrawal rights as described in this "Section 4. Withdrawal Rights," subject to Rule 14e-1(c) under the Exchange Act. Any such delay will be by an extension of the Offer to the extent required by law. During any such extension, all Shares previously tendered and not withdrawn will remain subject to the Offer and subject to the right of a tendering stockholder to withdraw such stockholder's shares. If Purchaser decides to include a Subsequent Offering Period, during such Subsequent Offering Period, stockholders may not withdraw Shares previously tendered in the Offer and stockholders may not withdraw Shares tendered during the Subsequent Offering Period. See "Section 1. Terms of the Offer; Expiration Date."

    For a withdrawal of Shares to be effective, a written or facsimile transmission notice of withdrawal must be timely received by the Depositary at one of its addresses set forth on the back cover page of this Offer to Purchase. Any such notice of withdrawal must specify the name of the person who tendered the Shares to be withdrawn, the number of Shares to be withdrawn and the name of the registered holder of such Shares, if different from that of the person who tendered such Shares. If Share Certificates evidencing Shares to be withdrawn have been delivered or otherwise identified to the Depositary, then, prior to the physical release of such Share Certificates, the serial numbers shown on such Share Certificates must be

9

submitted to the Depositary and the signature(s) on the notice of withdrawal must be guaranteed by an Eligible Institution, unless such Shares have been tendered for the account of an Eligible Institution. If Shares have been tendered pursuant to the procedure for book-entry transfer as described in "Section 3. Procedures for Accepting the Offer and Tendering Shares," any notice of withdrawal must specify the name and number of the account at the Book-Entry Transfer Facility to be credited with the Shares being withdrawn.

    All questions as to the form and validity (including time of receipt) of any notice of withdrawal will be determined by Purchaser, in its sole discretion, which determination will be final and binding. None of Purchaser, Cable & Wireless or any of their respective affiliates or assigns, the Dealer Managers, the Depositary, the Information Agent or any other person will be under any duty to give any notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification.

    Withdrawals of Shares may not be rescinded. Any Shares properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the Offer. However, withdrawn Shares may be re-tendered at any time prior to the Expiration Date (or during the Subsequent Offering Period, if any) by following one of the procedures described in "Section 3. Procedures for Accepting the Offer and Tendering Shares."

5.  Certain Federal Income Tax Consequences.

    General.  The following discussion is a summary of the material United States federal income tax consequences of the Offer and the Merger to holders whose Shares are purchased pursuant to the Offer or whose Shares are converted into the right to receive cash in the Merger (whether upon receipt of the Merger Consideration or pursuant to the proper exercise of dissenter's rights). This discussion is based on currently existing provisions of the Internal Revenue Code, existing and proposed Treasury regulations thereunder and current administrative rulings and court decisions, all of which are subject to change. Any such change, which may or may not be retroactive, could alter the tax consequences to holders as described herein.

    Holders should be aware that this discussion does not deal with all federal income tax considerations that may be relevant to particular holders in light of their particular circumstances, such as holders who are dealers in securities; are subject to the alternative minimum tax provisions of the Internal Revenue Code; are foreign persons; do not hold their Shares as capital assets; acquired their Shares in connection with stock option or stock purchase plans or in other compensatory transactions; or acquired their Shares as part of an integrated investment such as a hedge, straddle or other risk reduction transaction.

    In addition, the following discussion does not address the tax consequences of the Offer and the Merger under foreign, state or local tax laws. Accordingly, holders are urged to consult their own tax advisors as to the specific tax consequences to them of the Offer and the Merger, including the applicable federal, state, local and foreign tax consequences.

Gain or Loss Recognized on Sale or Exchange.

    The receipt of cash in exchange for the Shares pursuant to the Offer and the receipt of cash in exchange for the Shares pursuant to the Merger (whether as Merger Consideration or pursuant to the proper exercise of dissenter's rights) will both be taxable transactions for federal income tax purposes. A holder of Shares generally will recognize gain or loss equal to the difference between such holder's adjusted tax basis in the Shares sold pursuant to the Offer or converted to cash in the Merger and the amount of cash received. Gain or loss must be determined separately for each block of Shares (i.e., Shares acquired at the same cost in a single transaction) sold pursuant to the Offer or converted to cash in the Merger. Such gain or loss will be capital gain or loss. Individual holders will be subject to tax on the net amount of such gain at a maximum rate of 20%, provided that the Shares were held for more than one year. Special rules (and generally lower maximum rates) apply to individuals in lower tax brackets. The

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deduction of capital losses is subject to certain limitations. Stockholders should consult their own tax advisors in this regard.

Information Reporting and Backup Withholding.

    Payments in connection with the Offer or the Merger may be subject to backup withholding at a rate of 31%. Backup withholding generally applies if a holder (i) fails to furnish such holder's social security number or taxpayer identification number ("TIN"), (ii) furnishes an incorrect TIN, (iii) fails to properly report interest or dividends or (iv) under certain circumstances, fails to provide a certified statement, signed under penalties of perjury, that the TIN provided is such holder's correct number and that such holder is not subject to backup withholding. Backup withholding is not an additional tax but merely an advance payment, which may be refunded to the extent it results in an overpayment of tax. Certain persons, including corporations and financial institutions generally, are exempt from backup withholding. Certain penalties apply for failure to furnish correct information and for failure to include the reportable payments in income. Each holder should consult with such holder's own tax advisor as to such holder's qualifications for exemption from withholding and the procedure for obtaining such exemption.

6.  Price Range of Shares; Dividends.

    The Shares are listed and principally traded on Nasdaq under the symbol "ISLD." Digital Island went public on June 29, 1999. The following table sets forth, for the calendar quarters indicated, the high and low sales prices per Share on Nasdaq as reported on the Dow Jones News Service. No dividends have been declared or paid on the Shares during the quarters indicated.

		High		Low
Fiscal 1999:
	First Quarter		—		—
	Second Quarter (since June 29, 1999)	$	20.50	$	8.66
	Third Quarter	$	40.44	$	12.75
	Fourth Quarter	$	156.94	$	20.44
Fiscal 2000:
	First Quarter	$	129.50	$	54.88
	Second Quarter	$	61.25	$	15.50
	Third Quarter	$	57.38	$	18.00
	Fourth Quarter	$	21.63	$	2.94
Fiscal 2001:
	First Quarter	$	7.22	$	1.50
	Second Quarter	$	6.78	$	1.63

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    On May 11, 2001, the last full trading day prior to the announcement of the execution of the Merger Agreement and of Purchaser's intention to commence the Offer, the closing price per Share as reported on Nasdaq was $3.13. On May 18, 2001, the last full trading day prior to the commencement of the Offer, the closing price per Share as reported on Nasdaq was $3.35. As of May 16, 2001, the approximate number of holders of record of Shares was 802.

    Stockholders are urged to obtain a current market quotation for the Shares.

7.  Certain Information Concerning Digital Island.

    Except as otherwise described in this Offer to Purchase, all of the information concerning Digital Island contained in this Offer to Purchase, including financial information, has been furnished by Digital Island or has been taken from or based upon publicly available information. Neither Cable & Wireless, Cable & Wireless USA nor Purchaser assumes any responsibility for the accuracy or completeness of this information or for any failure by Digital Island to disclose events which may have occurred or may affect the significance or accuracy of any such information but which are unknown to Cable & Wireless, Cable & Wireless USA or Purchaser.

    General.  Digital Island is a Delaware corporation with its principal executive offices located at 45 Fremont Street, San Francisco, California 94105. Digital Island's telephone number at that address is (415) 738-4100. Digital Island is a global e-Business delivery network and offers a suite of services for enterprises that use the Internet to deploy critical business applications and conduct e-commerce worldwide. Digital Island offers a managed Internet infrastructure that integrates content delivery, hosting, intelligent networking and applications services. Digital Island targets global enterprises that increasingly rely on the Internet to conduct business, but are constrained by the unreliability, slow performance and limited range of functions of the public Internet. Digital Island's customers use its services and proprietary technology to facilitate the deployment of a wide variety of electronic commerce applications, including online marketing and sales, customer service, fulfillment, software, document and multimedia distribution and online training.

    Financial Information.  The following selected consolidated financial information relating to Digital Island has been taken or derived from the audited consolidated financial statements for the fiscal years ended September 30, 1998, 1999 and 2000 contained in Digital Island's Annual Report on Form 10-K for the fiscal year ended September 30, 2000 (the "2000 Form 10-K") and the unaudited financial statements for the six months ended March 31, 2001 contained in Digital Island's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2001 (the "March 31, 2001 Form 10-Q") and is qualified in its entirety by reference to such reports and all of the financial statements and related notes contained therein. The 2000 Form 10-K, the March 31, 2001 Form 10-Q, and other documents may be examined and copies may be obtained from the offices of the SEC as described below.

    The financial information for the six-month period ended March 31, 2001 has not been audited and, in the opinion of the management of Digital Island, reflects all adjustments (consisting of normal recurring adjustments) which are necessary for a fair presentation of such information. Results for the six-month period are not necessarily indicative of results for the full year.

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DIGITAL ISLAND, INC.

SELECTED CONSOLIDATED FINANCIAL INFORMATION
(in thousands, except per share data)

			Years Ended September 30,									Six Months Ended March 31,
			1998			1999			2000			2001			2000
Revenue			$	2,343		$	12,431		$	59,055		$	64,470		$	18,929
Costs and expenses:
	Cost of revenue			9,039			29,496			111,695			94,130			39,897
	Sales and marketing			4,847			16,010			50,901			38,313			20,502
	Product development			1,694			6,357			21,586			19,887			7,192
	General and administrative			2,845			6,595			24,450			31,772			8,757
	Depreciation			547			3,235			27,572			33,412			8,371
	Amortization of intangible assets			—			18			162,623			145,998			53,383
	Stock compensation expense			487			3,207			2,662			—	(a)		—	(a)
	Impairment of goodwill and intangible assets			—			—			—			1,039,200			—
		Total costs and expenses		19,459			64,918			401,489			1,402,712			138,102
	Loss from operations			(17,116	)		(52,487	)		(342,434	)		(1,338,242	)		(119,173	)
Interest income				482			2,040			26,286			14,976			4,914
Interest expense				(128	)		(494	)		(13,571	)		(11,660	)		(2,382	)
Other income (expense)				—			5			(140	)		1,446			(43	)
	Loss before income taxes			(16,762	)		(50,936	)		(329,875	)		(1,333,480	)		(116,684	)
Provision for income taxes				2			2			16			491			7
	Net loss		$	(16,764	)	$	(50,938	)	$	(329,859	)	$	(1,333,971	)	$	(116,691	)
Basic and diluted net loss per share			$	(7.50	)	$	(4.58	)	$	(5.59	)	$	(16.99	)	$	(2.36	)
Weighted average shares outstanding used in per share calculation				2,236,452			11,127,462			58,996,935			78,522,835			49,386,278

(a)

For the six-month periods ended March 31, 2001 and March 31, 2000 stock compensation expense was allocated to cost of revenue ($866 and $751, respectively); sales and marketing ($1,711 and $410, respectively); product development ($845 and $157, respectively); and general and administrative ($1,693 and $165, respectively).

Consolidated Balance Sheet Data:

	September 30,
							March 31, 2001
	1998		1999		2000
Cash and cash equivalents	$	5,711	$	43,315	$	176,929	$	197,392
Investments		10,123		31,691		413,671		142,336
Working capital		12,883		59,506		443,411		254,535
Total assets		22,617		107,648		2,116,126		816,323
Long-term obligations, including current portion		3,992		11,092		365,236		377,786
Total stockholders' equity	$	15,490	$	79,218	$	1,681,985	$	355,891

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    Certain Projected Financial Data of Digital Island.  Prior to entering into the Merger Agreement, Cable & Wireless conducted a due diligence review of Digital Island and in connection with such review received certain projections of Digital Island's future operating performance. Digital Island does not in the ordinary course publicly disclose projections and these projections were not prepared with a view to public disclosure and are included herein only because they were provided to Cable & Wireless. Digital Island has advised Cable & Wireless and Purchaser that these projections were prepared by Digital Island's management based on numerous assumptions, including, among others, projections of revenues, operating income, benefits and other expenses, depreciation and amortization, capital expenditures and working capital requirements. No assurances can be given with respect to any such assumptions. These projections do not give effect to the Offer or the potential combined operations of Cable & Wireless or any of its affiliates and Digital Island or any alterations that Parent or any of its affiliates may make to Digital Island's operations or strategy after the consummation of the Offer. The information set forth below is presented for the limited purpose of giving the stockholders access to the financial projections prepared by Digital Island's management that were made available to Cable & Wireless in connection with the Merger Agreement and the Offer.

	Fiscal Year Ending September 30,
	2001			2002			2003			2004			2005
	(in millions, except percent data)
Total Revenue	$	153.3		$	308.8		$	583.9		$	939.0		$	1,407.6
Cost of Revenue		185.2			174.2			241.6			340.4			476.2
Gross Profit		(31.9	)		134.6			342.3			598.6			931.4
Gross Margin		(21%	)		44%			59%			64%			66%
EBITDA	$	(192.4	)	$	(41.8	)	$	117.2		$	313.3		$	566.8
EBITDA Margin		(125%	)		(14%	)		20%			33%			40%
Total Capital Expenditures	$	206.5		$	90.0		$	132.2		$	129.6		$	129.1
Ending Cash and Short Term Investments	$	147.0		$	(24.0	)	$	(103.0	)	$	(7.0	)	$	297.0

    Certain matters discussed herein, including, but not limited to these projections, are forward-looking statements that involve risks and uncertainties. Forward-looking statements include those preceded by, followed by or that include the words "believes," "expects," "anticipates" or similar expressions and also the information described above under "Certain Projected Financial Data of Digital Island." While presented with numerical specificity, these projections were not prepared by Digital Island in the ordinary course and are based upon a variety of estimates and hypothetical assumptions which may not be accurate, may not be realized, and also are inherently subject to significant business, economic and competitive uncertainties and contingencies, all of which are difficult to predict, and most of which are beyond the control of Digital Island. Accordingly, there can be no assurance that any of the projections will be realized and the actual results for the fiscal years ending September 30, 2001, 2002, 2003, 2004 and 2005 may vary materially from those shown above.

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    In addition, these projections were not prepared in accordance with generally accepted accounting principles, and neither Cable & Wireless', Cable & Wireless USA's, Purchaser's nor Digital Island's independent accountants have examined or compiled any of these projections or expressed any conclusion or provided any other form of assurance with respect to these projections and accordingly assume no responsibility for these projections. These projections were prepared with a limited degree of precision, and were not prepared with a view to public disclosure or compliance with the published guidelines of the SEC or the guidelines established by the American Institute of Certified Public Accountants regarding projections, which would require a more complete presentation of data than as shown above. The inclusion of these projections in this Offer to Purchase should not be regarded as an indication that any of Cable & Wireless, Cable & Wireless USA, Purchaser or Digital Island or their respective affiliates or representatives considered or consider the projections to be a reliable prediction of future events and the projections should not be relied on as such. Neither Cable & Wireless, Cable & Wireless USA, Purchaser, nor any other person to whom these projections were provided assumes any responsibility for the accuracy or validity of the foregoing projections. Neither Cable & Wireless, Cable & Wireless USA, Purchaser nor any of their respective affiliates or representatives has made or makes any representation to any person regarding the ultimate performance of Digital Island compared to the information contained in the projections, and none of them intends to update or otherwise revise the projections to reflect the occurrence of future events even in the event that any or all of the assumptions underlying the projections are shown to be in error.

    Available Information.  Digital Island is subject to the informational filing requirements of the Exchange Act and, in accordance therewith, is required to file periodic reports, proxy statements and other information with the SEC relating to its business, financial condition and other matters. Information as of particular dates concerning Digital Island's directors and officers, their remuneration, stock options granted to them, the principal holders of Digital Island's securities and any material interest of such persons in transactions with Digital Island is required to be disclosed in proxy statements distributed to Digital Island's stockholders and filed with the SEC. Such reports, proxy statements and other information should be available for inspection at the public reference facilities maintained by the SEC at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and also should be available for inspection at the SEC's regional offices located at Seven World Trade Center, 13th Floor, New York, New York 10048 and the Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such materials also may be obtained by mail, upon payment of the SEC's customary fees, by writing to the SEC at its principal office at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. The SEC also maintains a World Wide Website on the Internet at http://www.sec.gov that contains reports and other information regarding issuers that file electronically with the SEC.

8.  Certain Information Concerning Cable & Wireless, Cable & Wireless USA and Purchaser.

    General.  Purchaser is a newly incorporated Delaware corporation organized in connection with the Offer and the Merger and has not carried on any activities other than in connection with the Offer and the Merger. The principal offices of Purchaser are located at 124 Theobalds Road, London, WC1X 8RX England and its telephone number is +44 (207) 315-4000. Purchaser is a wholly owned subsidiary of Parent. After commencement, but prior to consummation, of the Offer, Cable & Wireless intends to transfer its ownership of all the shares of Purchaser to Cable & Wireless USA.

    Until immediately prior to the time that Purchaser will purchase Shares pursuant to the Offer, it is not anticipated that Purchaser will have any significant assets or liabilities or engage in activities other than those incident to its formation and capitalization and the transactions contemplated by the Offer and the Merger. Because Purchaser is newly formed and has minimal assets and capitalization, no meaningful financial information regarding Purchaser is available.

    Cable & Wireless USA is a Delaware corporation, with its principal offices located at 8219 Leesburg Pike, Vienna, Virginia 22182. Cable & Wireless USA's telephone number is (703) 905-5785. All of the

15

outstanding shares of capital stock of Cable & Wireless USA are owned by Cable & Wireless Holdings, Inc., a Virginia corporation, which is a wholly owned subsidiary of C&W Global Businesses International, SaRL, a company organized under the laws of Luxembourg ("C&W Global"). C&W Global is a direct wholly owned subsidiary of C&W Western Hemisphere, SaRL, a company organized under the laws of Luxembourg, which is a wholly owned subsidiary of C&W International Holdings Ltd., a company organized under the laws of Ireland, which is a wholly owned subsidiary of C&W International Treasury, a company organized under the laws of Ireland, which is a wholly owned subsidiary of C&W Global Finance, Ltd., a company organized under the laws of England, which is a wholly owned subsidiary of C&W Western Hemisphere, Ltd., a company organized under the laws of England and which is a wholly owned subsidiary of Parent. Cable & Wireless USA serves as the holding company for businesses of Cable & Wireless in the United States and is responsible for developing, coordinating and maintaining the overall business strategy of Cable & Wireless in the United States.

    Cable & Wireless is a public limited company incorporated under the laws of England and Wales with its principal executive offices located at 124 Theobalds Road, London WC1X 8RX, England. The telephone number of Cable & Wireless is +44 (207) 315-4000. Cable & Wireless is a major global telecommunications business with revenue of over £9 billion (US$13 billion) in the year ended March 31, 2000, and customers in 70 countries. Cable & Wireless' focus for future growth is on IP (Internet protocol) and data services and solutions for business customers. It is developing advanced IP networks and value-added services in the U.S., Europe and the Asia-Pacific region in support of this strategy. With the capability of its global IP infrastructure and its strength in key markets, Cable & Wireless holds a unique position in terms of global coverage and services to business customers.

    The name, business address, current principal occupation or employment, five-year employment history and citizenship of each executive officer and director of the Cable & Wireless, Cable & Wireless USA and Purchaser are set forth in Schedule I hereto.

    Except as set forth in this Offer to Purchase, neither Cable & Wireless, Cable & Wireless USA, Purchaser nor, to the best knowledge of Cable & Wireless, Cable & Wireless USA and Purchaser, any person listed on Schedule I hereto, or any majority owned subsidiary or associate of Cable & Wireless, Cable & Wireless USA, Purchaser or of any person so listed, owns beneficially or has a right to acquire any Shares, and, except as set forth in this Offer to Purchase, neither Cable & Wireless, Cable & Wireless USA or Purchaser or, to the best knowledge of Cable & Wireless, Cable & Wireless USA and Purchaser, any of the persons or entities referred to above, or any of the respective executive officers, directors or subsidiaries of any of the foregoing, effected any transactions in the Shares during the past 60 days.

    Except as described in this Offer to Purchase, neither Cable & Wireless, Cable & Wireless USA, Purchaser nor, to the best knowledge of Cable & Wireless, Cable & Wireless USA and Purchaser, any person listed on Schedule I hereto, has any contract, arrangement, understanding or relationship with any other person with respect to any securities of Digital Island, including, but not limited to, any contract, arrangement, understanding or relationship concerning the transfer or the voting of any securities of Digital Island, joint ventures, loan or option arrangements, puts or calls, guaranties of loans, guaranties against loss, or the giving or withholding of proxies. Except as disclosed herein, there have been no contacts, negotiations or transactions since May 14, 1999, between Cable & Wireless, Cable & Wireless USA or Purchaser or, to the best knowledge of Cable & Wireless, Cable & Wireless USA and Purchaser, any person listed on Schedule I hereto, on the one hand, and Digital Island or its affiliates, on the other hand, concerning a merger, consolidation or acquisition, a tender offer or other acquisition of securities, an election of directors, or a sale or other transfer of a material amount of assets. Except as set forth herein, neither Cable & Wireless, Cable & Wireless USA, Purchaser nor, to the best knowledge of the Cable & Wireless, Cable & Wireless USA and Purchaser, the persons listed on Schedule I hereto, has had any business relationships or has entered into any transactions with Digital Island or any of its executive officers, directors or affiliates that would be required to be disclosed herein pursuant to the rules and regulations of the SEC.

16

    Cable & Wireless is subject to the informational reporting requirements of the Exchange Act and, in accordance therewith, files periodic reports, documents and other information with the SEC relating to its business, financial condition and other matters. Information, as of particular dates, concerning Cable & Wireless and its directors and officers, their remuneration, options granted to them, the principal holders of Cable & Wireless' securities and any material interest of such persons in transactions with Cable & Wireless is required to be disclosed in proxy statements and other information filed by Cable & Wireless should be available for inspection and copying at the SEC in the same manner as set forth with respect to information concerning Digital Island in Section 7 above under "Available Information." Such material also should be available at the New York Stock Exchange, Inc., 20 Broad Street, New York, New York.

9.  Financing of the Offer and the Merger.

    The total amount of funds required by Purchaser to consummate the Offer and the Merger and to pay related fees and expenses, including repayment of the Convertible Notes, is estimated to be approximately $640 million. Cable & Wireless and its affiliates will finance the Offer and the Merger with internally available funds.

10. Background of the Offer; the Merger Agreement and Related Agreements.

    Background of the Offer and the Merger.  On an ongoing basis, Digital Island's board of directors has evaluated Digital Island's financial performance against its business plan and strategic alternatives, including potential business combinations and strategic investments. Between February and August 2000, Digital Island's executive management and board of directors evaluated the impact of certain developments in Digital Island's industry, including potential changes in the competitive landscape, as well as the impact of current market and economic conditions, on Digital Island's short-term and long-term strategies. Based on this evaluation, Digital Island's board of directors and executive management, in consultation with its outside financial advisor, CSFB, determined that an acquisition of Digital Island would be one of the possible courses of action that could enhance stockholder value.

    Beginning in August 2000, Digital Island and CSFB contacted numerous potential acquirors, but deteriorating market conditions stalled most discussions in the preliminary stages. On August 15, 2000, at the request of Digital Island, CSFB contacted representatives of Cable & Wireless to determine Cable & Wireless' interest in a strategic transaction with Digital Island. After considering the proposal, on September 12, 2000, representatives of Cable & Wireless subsequently contacted CSFB to determine if representatives of Digital Island's management team would be available to meet with Cable & Wireless' representatives during a planned visit to the United States on September 21, 2000. During this period, Cable & Wireless was considering a wide range of strategic options and meeting with various companies as part of its evaluation process. On September 21, 2000, Cable & Wireless and Digital Island executed and delivered a confidentiality agreement, and discussions between the parties' representatives took place relating to Digital Island's business model and its implication on Digital Island's financial condition and future performance.

    On October 10, 2000, a representative of Cable & Wireless provided a list of questions to CSFB to be used as part of Cable & Wireless' due diligence review. On November 29, 2000, Cable & Wireless sent to San Francisco a small team of representatives to conduct a preliminary due diligence investigation and to meet with certain members of Digital Island's management team to further discuss Digital Island, its products and its marketing and business development strategies.

    During the period September through December, 2000, Cable & Wireless' management held numerous meetings and telephone conversations to consider the strategic alternatives available to it, including the potential advantages which might result from combining certain of the operations of Cable & Wireless with those of Digital Island, as well as the potential advantages any such combination might create for Cable & Wireless' customers. This process culminated on January 16, 2001, with the approval by

17

Cable & Wireless' management of a strategic plan for Cable & Wireless' United States operations which concluded that acquisitions should be considered in the sphere of activities in which Cable & Wireless would engage.

    In late January 2001, CSFB and Digital Island's executive management began a process to solicit a private investment to finance its operations. During the preliminary stages of the process, Digital Island's executive management and CSFB approached a number of potential investors.

    At the end of January, 2001, Cable & Wireless engaged both Greenhill and Merrill Lynch as its financial advisors in connection with its decision to pursue a potential business combination involving Digital Island.

    On February 2, 2001, representatives of CSFB contacted representatives of Cable & Wireless to determine if Cable & Wireless had any interest in making a strategic investment in Digital Island, and thereafter provided to Cable & Wireless copies of Digital Island's publicly available information, its business model and a preliminary investment term sheet. Representatives of Cable & Wireless contacted CSFB's representatives on February 9, 2001, to advise them that Cable & Wireless was in the process of examining the material provided to it by CSFB and was interested in exploring opportunities involving Digital Island.

    Greenhill and Merrill Lynch contacted representatives of CSFB on February 13, 2001, to indicate that they had been engaged to represent Cable & Wireless and to again express Cable & Wireless' interest in participating in Digital Island's process. During this conversation, Greenhill and Merrill Lynch also inquired as to whether a sale of Digital Island was still being considered, and were informed that Digital Island was at that time evaluating the possibility of raising equity from potential strategic partners and no longer was actively exploring a sale of Digital Island. However, Greenhill and Merrill Lynch also were informed by CSFB at that time that should a proposal for an acquisition be received by Digital Island during the process, it would be carefully considered.

    On February 16, 2001, representatives of Greenhill and Merrill Lynch contacted representatives of CSFB and stated that Cable & Wireless was interested in more than making a strategic investment in Digital Island and was interested in acquiring Digital Island. CSFB indicated that Digital Island's intent was to raise strategic equity capital, but Digital Island would not actively discourage Cable & Wireless from doing its due diligence and providing an acquisition proposal. However, it would be Digital Island's preference that Cable & Wireless be a strategic investor and provide necessary capital. CSFB also was told that certain representatives of Cable & Wireless wished to speak to Digital Island's chief executive officer, and other representatives of Digital Island, on February 26, 2001, to make clear their intent. Additionally, Greenhill and Merrill Lynch indicated that Cable & Wireless and its representatives wished to schedule additional due diligence meetings, including management presentations, from February 28, 2001 to March 2, 2001. Additional information provided by other representatives of CSFB confirmed Cable & Wireless' interest in acquiring Digital Island.

    On February 22, 2001, in response to Cable & Wireless' request, CSFB provided to Greenhill and Merrill Lynch a list of available due diligence materials. In return, Greenhill and Merrill Lynch supplied to CSFB a list of Cable & Wireless' representatives that would be participating in the due diligence sessions, a list of requests for one-on-one interviews with members of Digital Island's management, and a list of due diligence questions by functional area.

    Between February 28, 2001, and March 2, 2001 (inclusive), members of Cable & Wireless' management and representatives of Greenhill, Merrill Lynch, Pillsbury Winthrop LLP, Cable & Wireless' legal counsel ("Pillsbury Winthrop"), and other advisors retained by Cable & Wireless met in San Francisco with representatives of Digital Island, CSFB, and Brobeck, Phleger & Harrison LLP, legal counsel to Digital Island ("Brobeck"), to discuss Digital Island's products, strategy, technology and recent acquisitions. While in San Francisco, Cable & Wireless' representatives commenced business, financial,

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technical and legal due diligence investigations of Digital Island and its operations. In addition to the customary aspects of the due diligence process, Cable & Wireless held numerous discussions with members of Digital Island's senior management. Cable & Wireless' due diligence investigation continued after conclusion of the March 2, 2001, meetings with requests for additional information and for responses to specific questions being made primarily by representatives of Greenhill and Merrill Lynch to representatives of CSFB.

    On March 6, 2001, representatives of Greenhill and Merrill Lynch contacted representatives of CSFB to indicate that their client would like to schedule a conference call with certain representatives of Digital Island. Representatives of Greenhill and Merrill Lynch indicated that the overall sentiment at Cable & Wireless towards a transaction was positive, that their client and its legal team continued to do the necessary work to come to a conclusion and that the entire team was very encouraged by the information provided to date. Merrill Lynch and Greenhill warned that Cable & Wireless would be unlikely to provide a specific proposal during the requested conference call, but one of the conversation topics would be the manner and the time required to arrive at a proposal.

    On March 23, 2001, Cable & Wireless delivered to Digital Island a letter stating its interest to proceed with further due diligence and its non-binding intent to discuss the possibility of proceeding with an acquisition of Digital Island, indicating a possible price per share of Digital Island's common stock equal to a 75% premium to the then market price of Digital Island's common stock, subject to successful completion of its ongoing due diligence.

    During the week of March 26, 2001, Digital Island met with representatives of CSFB and Brobeck to review Cable & Wireless' proposal letter and determined that, based on the terms and conditions set forth in such letter, Digital Island would permit Cable & Wireless and its representatives to complete their due diligence investigation with the expectation that Cable & Wireless would continue to work toward proposing an acquisition of one hundred percent of Digital Island.

    On March 27, 2001, representatives of CSFB spoke to representatives of Merrill Lynch and Greenhill about the timing of the transaction proposed by Cable & Wireless. CSFB, Greenhill and Merril Lynch were unable to agree upon a timetable for negotiating and executing definitive agreements relating to a transaction. Representatives of CSFB told representatives of Greenhill and Merrill Lynch that it would need more details on the steps necessary to reach a proposal to adequately counsel the Digital Island Board. The parties also scheduled additional meetings to discuss the details and resolve outstanding due diligence matters.

    On March 31, 2001, representatives of Cable & Wireless provided a list of final due diligence questions to be addressed during the upcoming meetings in San Francisco.

    During the week of April 5, 2001, representatives of Cable & Wireless conducted additional on-site due diligence review in San Francisco, including meetings with members of Digital Island's senior management. In addition to examining in further detail the topics discussed in previous sessions, Digital Island's executive management provided insight into projected results for the fiscal second quarter ended March 31, 2001. Also discussed were the potential synergies and the business model of the combined operations. Cable & Wireless presented its corporate overview as well as overviews of its network, software and hosting businesses.

    On April 6 and 7, 2001, Digital Island's chief executive officer had two days of meetings in London with certain representatives of Cable & Wireless including the chief executive officer of Cable & Wireless. During the meetings, Cable & Wireless indicated that there were still several outstanding issues, including concerns regarding the effect of the transaction on Digital Island's convertible subordinated notes. Cable & Wireless' chief executive officer indicated concern regarding Digital Island's financial condition and proposed path to profitability.

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    On April 13, 2001, Digital Island's chief executive officer spoke to representatives of Cable & Wireless regarding the timing of an acquisition proposal. It was agreed that Cable & Wireless' process would be to come to an agreement on terms, after which a joint business plan would be constructed. Cable & Wireless' representatives did not promise to propose a price until the following week, but indicated that Greenhill and Merrill Lynch would send terms and conditions during the following week.

    From April 17 through April 22, 2001, Cable & Wireless and its financial and legal advisors reviewed the results of the due diligence investigation and obtained the approvals of Cable & Wireless' senior management necessary to proceed with the proposed transaction. During this period, on April 17, 2001, Pillsbury Winthrop delivered to Cable & Wireless, Greenhill and Merrill Lynch for their review and comment an initial draft of the Merger Agreement. Cable & Wireless' management and its legal and financial advisors held a telephone conference on April 19, 2001, to discuss the proposed Merger Agreement and the terms and conditions of the offer which would be submitted to Digital Island. All such activity was conducted with the support and approval of Cable & Wireless' senior management.

    On April 23, 2001, Cable & Wireless sent to Digital Island a letter outlining the proposed terms of its offer more specifically than the March 23rd letter, delivering the draft Merger Agreement to Digital Island and requesting that Digital Island reply no later than April 30, 2001. The offer did not include a written notification of the value of the offer, either in the aggregate or on a per share basis. Greenhill and Merrill Lynch did, however, indicate to CSFB verbally that the price per share being offered by Cable & Wireless as of the date the preliminary and non-binding offer was submitted was $2.25 per Share. The closing price of Digital Island's common stock on April 23, 2001 was $2.32 per share.

    After carefully considering the terms of Cable & Wireless' offer, including the terms and conditions of the draft Merger Agreement, and meeting with its financial and legal advisors, the Board instructed CSFB to contact Greenhill and Merrill Lynch and indicate that Digital Island was interested in engaging in negotiations with Cable & Wireless relating to the sale of Digital Island provided that the price per Share offer was increased by Cable & Wireless to at least $3.25. Digital Island's Board requested that Brobeck convey to Pillsbury Winthrop the principal issues raised by the draft Merger Agreement and did so during a conference call on Thursday, April 26, 2001 with the legal and financial advisors of Cable & Wireless.

    During the week of April 30, 2001, representatives of Greenhill and Merrill Lynch contacted representatives of CSFB to indicate that Parent wished to proceed toward completion of its due diligence investigation and to have its legal representatives engage in contract discussions with Digital Island's legal representatives. However, Cable & Wireless would not agree to increase its offer to $3.25 per Share as requested by CSFB. Representatives of Cable & Wireless indicated verbally to Digital Island's representatives that Cable & Wireless might be willing to increase its offer if certain favorable developments were to occur with respect to the business and affairs of Digital Island.

    Although no definitive per share price had been established, the Board directed Digital Island's management and advisors to continue holding discussions with Cable & Wireless and its representatives. From April 30 through May 4, 2001, Digital Island's and Cable & Wireless' legal and financial representatives continued to engage in discussions regarding the principal terms and conditions (excluding price) of the proposed acquisition.

    Upon instructions received from representatives of Cable & Wireless, representatives of Pillsbury Winthrop and Brobeck met on May 9, 2001, in San Francisco to discuss the draft Merger Agreement but did not reach agreement with respect to the principal terms and conditions to be contained therein. Later that same day, Cable & Wireless' legal and financial advisors updated Cable & Wireless' management on the proposed terms of a transaction, the status of the outstanding issues (including the principal terms and conditions of the Merger Agreement and the price per Share to be paid) and the status of the ongoing negotiations.

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    On May 10, 2001, Digital Island issued a press release announcing a new agreement with Microsoft Corporation pursuant to which Digital Island would deliver all of Microsoft's online advertisements. Subsequent to the issuance of the press release, the trading price per share of Digital Island's common stock increased from $2.00, the closing price per share on May 9, 2001, the day immediately preceding the announcement of the Microsoft agreement, to $3.69, the closing price per share of Digital Island's common stock on May 10th.

    On May 10, 2001, representatives of Cable & Wireless' management, along with its legal and financial advisors, met to review and discuss the proposed transaction, including the offer price. Greenhill and Merrill Lynch subsequently met with representatives of CSFB to discuss the offer price. During this meeting, Cable & Wireless' financial advisors informed CSFB that Cable & Wireless had been prepared to consider a price per Share in excess of its original $2.25, potentially as high as the $3.25 requested by the Board. However, as a consequence of the significant increase in the NASDAQ trading price of the Shares on Thursday, May 10, Cable & Wireless was not then in a position to make a determination with respect to any increase in the price per Share it would be willing to offer. The financial advisors of each of Digital Island and Cable & Wireless agreed to defer all discussions relating to price per Share until after the close of the financial markets on Friday, May 11, 2001. Also on May 10, 2001, representatives of Cable & Wireless and Digital Island, along with each of their respective advisors, continued negotiations with respect to the draft Merger Agreement.

    After the close of the financial markets on May 11, 2001, representatives of Greenhill and Merrill Lynch met with representatives of CSFB to indicate that Parent's board of directors had preliminarily approved an offer price of $3.40 per Share, and also to convey Cable & Wireless' position on the principal issues raised by the draft Merger Agreement which remained unresolved. Concurrently with such meeting, certain of Digital Island's key employees met with representatives of Cable & Wireless to discuss employment and retention matters. A meeting between representatives of the parties' respective financial advisors was convened later that evening whereupon CSFB informed Greenhill and Merrill Lynch that it had reviewed with Digital Island the revised offer of Cable & Wireless and that Digital Island's counter-proposal was $4.10 per Share. Representatives of CSFB also communicated Digital Island's counter-proposal on the principal contractual issues previously communicated by Greenhill and Merrill Lynch. On May 12, 2001, Greenhill and Merrill Lynch telephoned CSFB to communicate that they had received authorization from Cable & Wireless to accept Digital Island's counter-proposal with respect to the Merger Agreement; however, the price per Share being offered by Cable & Wireless remained at $3.40.

    On May 12, 2001, certain members of Digital Island's Board held a special telephonic meeting to discuss the proposed per share offer price as well as the outstanding issues regarding the specific terms of the transaction. Representatives of CSFB and Brobeck, as well as other members of Digital Island's management team, briefed Digital Island's Board on the current status of discussions with Cable & Wireless, as well as the terms and implications of the proposed acquisition. Due to the absence of two of the members of Digital Island's Board, no motion was forwarded with respect to the proposal at that time. Additionally, Digital Island's chief executive officer had a conversation with the chief executive officer of Cable & Wireless during which our counter-proposal of $4.10 per share was rejected.

    On May 13, 2001, the Board reconvened in its entirety and held a special telephonic meeting of the Board. During the meeting of the Board, members of Digital Island's management and representatives of CSFB and Brobeck provided Digital Island's Board with an update on the terms of the Merger Agreement and related documents, retention plans and diligence items. Digital Island's Board also received an opinion from CSFB that, as of the date of the meeting, the $3.40 cash per Share that would be received by the holders thereof in the Merger Agreement was fair from a financial point of view to Digital Island's

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stockholders. Following additional discussion of the terms of the proposed acquisition, the Board unanimously:

•

determined that the Merger Agreement is advisable and fair to, and in the best interests of, Digital Island and its stockholders, the Offer and all of the transactions contemplated thereby are approved and declared advisable;



•

approved the execution, delivery and performance of the Merger Agreement and the completion of the transactions contemplated by the Merger Agreement, including the Merger and the Offer; and



•

declared the advisability of the Merger Agreement and resolved to recommend acceptance of the Offer and adoption of the Merger Agreement by the holders of Shares.

    CSFB contacted representatives of Greenhill and Merrill Lynch after the Board meeting on Sunday, May 13, 2001, to indicate that the Board had accepted Cable & Wireless' offer of $3.40 per Share, subject to finalization of certain contractual terms in accordance with its earlier proposal on the outstanding issues.

    From the afternoon of May 13, 2001 through the morning of May 14, 2001, the parties resolved all outstanding contractual issues and Dali Acquisition Corp., Cable & Wireless and Digital Island executed the definitive Merger Agreement as of May 14, 2001. Four executive officers of Digital Island also executed as of May 14, 2001, employment agreements, copies of which have been filed as exhibits to the Schedule 14D-9 that Digital Island has filed with the Commission in connection with the Offer and which are described in this Section 10 of this Offer to Purchase.

    On the morning of May 14, 2001, Cable & Wireless and Digital Island issued a joint press release announcing the execution of the Merger Agreement. A copy of the press release issued by Cable & Wireless has been filed as an exhibit to the Tender Offer Statement on Schedule TO-C filed by Cable & Wireless and Purchaser with the SEC in connection with the Offer and is incorporated herein by reference.

THE MERGER AGREEMENT

    The following is a summary of certain provisions of the Merger Agreement. This summary is qualified in its entirety by reference to the Merger Agreement, which is incorporated herein by reference, and a copy of which has been filed as an Exhibit to the Tender Offer Statement on Schedule TO (the "Schedule TO") filed by Parent, Cable & Wireless USA and Purchaser with the SEC in connection with the Offer. Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Merger Agreement. The Merger Agreement may be examined and copies may be obtained at the places set forth in "Section 7. Certain Information Concerning Digital Island."

    The Offer.  The Merger Agreement provides for the commencement of the Offer as promptly as reasonably practicable, but in no event later than 5 business days after the date of the Merger Agreement. The obligation of Purchaser to accept for payment Shares tendered pursuant to the Offer is subject to the satisfaction of the Minimum Condition and certain other conditions that are described in "Section 14. Certain Conditions of the Offer" hereof. Parent and Purchaser have agreed that without the prior written consent of Digital Island no change in the Offer may be made which decreases the Per Share Amount or changes the form of consideration payable in the Offer, waives the Minimum Condition, reduces the maximum number of Shares to be purchased in the Offer, imposes conditions to the Offer in addition to those set forth in "Section 14. Certain Conditions of the Offer" hereof, or amends any terms of the Offer in any other manner materially adverse to the holders of the Shares without the prior consent of Digital Island.

    Conduct of Business by Digital Island Pending the Merger.  Pursuant to the Merger Agreement, Digital Island has covenanted and agreed that, between the date of the Merger Agreement and the Effective Time, unless Cable & Wireless shall otherwise agree in writing and except for actions taken or omitted for

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the purpose of complying with the Merger Agreement, the businesses of Digital Island and its subsidiaries (collectively the "Subsidiaries" and, individually, a "Subsidiary") shall be conducted only in the ordinary course of business and in a manner consistent with Digital Island's current business plan; and Digital Island shall use its reasonable best efforts to preserve intact the business organization of Digital Island, to keep available the services of the current officers, employees and consultants of Digital Island and to preserve the current relationships of Digital Island with customers, suppliers and other persons with which Digital Island has business relations.

    The Merger Agreement provides that, by way of amplification and not limitation, except as expressly contemplated therein, Digital Island shall not, between the date of the Merger Agreement and the Effective Time, directly or indirectly, do, any of the following, without the prior written consent of Cable & Wireless (a) amend or otherwise change its Certificate of Incorporation or By-laws or equivalent organizational documents; (b) (i) issue, sell, pledge, dispose of, grant, encumber, or authorize the issuance, sale, pledge, disposition, grant or encumbrance of, (A) any shares of any class of capital stock of Digital Island or any Subsidiary, or any options, warrants, convertible securities or other rights of any kind to acquire any shares of such capital stock, or any other ownership interest (including, without limitation, any phantom interest), of Digital Island or any Subsidiary or (B) except in the ordinary course of business, except the issuance of Shares pursuant to the exercise of Company Stock Options or pursuant to the ESPP or pursuant to the Warrants or the Convertible Notes, any property or assets of Digital Island or any Subsidiary, (ii) modify any Company Stock Options outstanding on the date of the Merger Agreement, or (iii) accelerate the vesting or other benefit of any option, shares, or award whether or not pursuant to Digital Island Stock Option Plans, other than in accordance with the express terms of such option, share or award as in effect immediately prior to the Merger Agreement; (c) declare, set aside, make or pay any dividend or other distribution, payable in cash, stock, property or otherwise, with respect to any of its capital stock, except for dividends by any direct or indirect wholly owned subsidiary of Digital Island, to Digital Island or any other Subsidiary; (d) reclassify, combine, split, subdivide or redeem, or purchase or otherwise acquire, directly or indirectly, any of its capital stock (or securities convertible into or exercisable for any shares of its capital stock) except for acquisition of restricted stock held by employees of Digital Island and its Subsidiaries upon termination upon employment; (e) (i) acquire (including, without limitation, by merger, consolidation, or acquisition of stock or assets or any other business combination) any interest in any corporation, partnership, other business organization or person or any division thereof or any significant amount of assets, except in the ordinary course of business and in a manner consistent with Digital Island's current business plan, (ii) incur any indebtedness for borrowed money or issue any debt securities or assume, guarantee or endorse, or otherwise become responsible for, the obligations of any person, or make any loans, investments, capital contributions or advances, (iii) enter into any material contract or agreement other than in the ordinary course of business and in a manner consistent with Digital Island's current business plan, (iv) authorize any capital expenditure in excess of $500,000 in the aggregate except to the extent consistent with Digital Island's existing business plan, or (v) enter into or amend any material contract, agreement, commitment or arrangement with respect to any of the foregoing matters; (f) increase the compensation payable or to become payable or the benefits provided to its directors, officers, employees, agents or other representatives except for increases in the ordinary course of business in salaries or wages of employees of Digital Island or any Subsidiary or, except as otherwise provided pursuant to the terms of agreements in effect on January 1, 2001, grant any severance or termination pay to, or enter into any new severance agreement with any director, officer, employee, agent or other representative of Digital Island or of any Subsidiary, or enter into any employment agreement with any director, officer, employee, agent or other representative (other than with a newly hired employee) of Digital Island or any Subsidiary, or establish, adopt, enter into or amend (except as may be required by law) any collective bargaining, bonus, profit-sharing, thrift, compensation, stock option, restricted stock, pension, retirement, deferred compensation, employment, termination, severance or other plan, agreement, trust, fund, policy or arrangement for the benefit of any director, officer or employee; (g) except as required by applicable law or by U.S. GAAP, take any action, other than reasonable and usual

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actions in the ordinary course of business and consistent with past practice, with respect to accounting policies, practices or procedures; (h) incur any material obligation to make any payment of, or in respect of, any Tax, take or cause to be taken, any action that would prevent Digital Island from filing a consolidated federal Tax Return for the year ending September 30, 2001 except in the ordinary course of business, make or change any Tax election, change any annual Tax accounting period, adopt or change any method of Tax accounting, file any amended Tax Returns or claims for Tax refunds, enter into any closing agreement, surrender, settle or compromise any material Tax claim, liability, audit or assessment, surrender any rights to claim any material Tax refund, offset or other reduction in Tax liability, consent to any extension or waiver of the limitations period applicable to any Tax claim or assessment or take or omit to take any other action, if any such action or omission would have the effect of increasing in any material respect the Tax liability or reducing any Tax asset of Digital Island; (i) amend, modify or consent to the termination of any Material Contract, or amend, waive, modify or consent to the termination of Digital Island's material rights thereunder, except for amendments, modifications or consents which are not materially adverse to Digital Island's rights and expected benefits under any such Material Contract; (j) settle any material Action; or (k) publicly announce an intention, enter into any formal or informal agreement (oral or written) or otherwise make a commitment, to do any of the foregoing.

    Company Board Representation.  The Merger Agreement provides that, upon acceptance for payment pursuant to the Offer of a number of Shares that satisfies the Minimum Condition, Cable & Wireless shall be entitled to designate up to such number of directors, rounded up to the next whole number, on the Board equal to the product of the total number of directors on the Board (giving effect to the directors elected pursuant to the provision described in this paragraph), multiplied by the percentage that the aggregate number of Shares beneficially owned by Cable & Wireless or any affiliate of Parent following such purchase bears to the total number of Shares then outstanding, and Digital Island shall, at such time, take all action necessary to cause Cable & Wireless' designees to be elected as directors of Digital Island, including, without limitation, increasing the size of the Board and seeking and accepting the resignations of incumbent directors. The Merger Agreement also provides that, at such time, Digital Island shall use its best efforts to cause persons designated by Cable & Wireless to constitute the number of members of each committee of the Board (and the board of directors of each Subsidiary of Digital Island (and each committee thereof)) that represents the same percentage as such individuals represent on the Board. Notwithstanding the foregoing, until the Effective Time, Cable & Wireless and Company have agreed to use their reasonable best efforts to ensure that at least two members of the Board as of the date of the Merger Agreement who are not employees of Digital Island remain members of the Board until the Effective Time.

    The Merger Agreement provides that, following the election or appointment of Cable & Wireless' designees in accordance with the provision described above and until the Effective Time, any amendment of the Merger Agreement, any termination of the Merger Agreement by Digital Island, any extension by Digital Island of the time for the performance of any of obligation or action under the Merger Agreement of Cable & Wireless or Purchaser, or waiver of compliance with any of the agreements or conditions contained in the Merger Agreement for the benefit of Digital Island, will require the approval of at least two (2) members of the Board of Digital Island then in office who were neither designated by Cable & Wireless and who are not employees of Digital Island.

    Conditions to the Merger.  Under the Merger Agreement, the respective obligations of each party to effect the Merger are subject to the satisfaction, at or prior to the Effective Time, of the following conditions: (a) if and to the extent required by the DGCL, the Merger Agreement and the Transactions shall have been approved and adopted by the affirmative vote of the stockholders of Digital Island; (b) any waiting period (and any extension thereof) applicable to the consummation of the Merger under the HSR Act, the Fair Trading Act, and the E.C. Merger Regulation, shall have expired or been terminated; (c) no provision of any applicable Law and no judgment, restraining order, preliminary or permanent injunction, order or decree of any court or other Governmental Authority of competent jurisdiction shall be in effect

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and have the effect of prohibiting or enjoining the consummation of the Merger; and (d) Purchaser or its permitted assignee shall have purchased all Shares validly tendered and not withdrawn pursuant to the Offer; provided, however, that this condition shall, at the sole discretion of Digital Island, be deemed satisfied if, in breach of the Merger Agreement or the terms of the Offer, Purchaser fails to purchase any Shares validly tendered and not withdrawn pursuant to the Offer.

    The Merger.  The Merger Agreement provides that, upon the terms and subject to the conditions thereof, and in accordance with the DGCL, Purchaser shall be merged with and into Digital Island. As a result of the Merger, the separate corporate existence of Purchaser will cease and Digital Island will continue as the Surviving Corporation. Upon consummation of the Merger, each Share issued and outstanding immediately prior to the Effective Time (other than Shares held in the treasury of Digital Island or Shares owned by Purchaser, Cable & Wireless or any direct or indirect wholly owned subsidiary of Cable & Wireless or of Digital Island, and any Shares which are held by stockholders who shall have not voted in favor of the Merger or consented thereto in writing and who have properly and perfected appraisal rights under the DGCL) shall be canceled and converted automatically into the right to receive an amount equal to the Per Share Amount (the "Merger Consideration").

    Pursuant to the Merger Agreement, each Share held in treasury of Digital Island and each Share owned by Purchaser, Cable & Wireless or any direct or indirect wholly owned subsidiary of Cable & Wireless or of Digital Island immediately prior to the Effective Time shall be canceled without any conversion thereof and no payment or distribution shall be made with respect thereto, and each share of common stock, par value $0.01 per share, of Purchaser issued and outstanding immediately prior to the Effective Time shall be converted into and exchanged for one validly issued, fully paid and non-assessable share of common stock, par value $0.01 per share, of the Surviving Corporation.

    The Merger Agreement provides that Sarah Byrne-Quinn, Robert Drolet, Avery Duff, J. Daniel Fitz, Marc Lefar, R. Michael McTighe and Donald Reed will be the initial directors of the Surviving Corporation and that the officers of Digital Island immediately prior to the Effective Time will be the initial officers of the Surviving Corporation. Subject to the Merger Agreement, at the Effective Time, the Certificate of Incorporation of Digital Island, as in effect immediately prior to the Effective Time, shall be the Certificate of Incorporation of the Surviving Corporation until thereafter amended as provided by Law (as defined below) and such Certificate of Incorporation; provided, however, that, at the Effective Time the Certificate of Incorporation of the Surviving Corporation shall be amended in its entirety so that it will read as Purchaser's Certificate of Incorporation, except that Article I of the Certificate of Incorporation of the Surviving Corporation shall read as follows: "The name of the corporation is Digital Island, Inc." Subject to the Merger Agreement, at the Effective Time and without any further action on the part of Digital Island or Purchaser, the By-laws of Purchaser, as in effect immediately prior to the Effective Time, shall be the By-laws of the Surviving Corporation until thereafter amended as provided by law, the Certificate of Incorporation of the Surviving Corporation and such By-laws.

    Stockholders' Meeting.  Pursuant to the Merger Agreement, Digital Island, acting through the Board, shall, if required by applicable Law in order to consummate the Merger, duly call, give notice of, convene and hold an annual or special meeting of its stockholders (the "Stockholders' Meeting") as promptly as practicable following consummation of the Offer for the purpose of considering and taking action on the Merger Agreement and the transactions contemplated thereby, including the Offer and the Merger (collectively, the "Transactions"). If Purchaser acquires at least a majority of the outstanding Shares, Purchaser will have sufficient voting power to approve the Merger, even if no other stockholder votes in favor of the Merger.

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    Proxy Statement.  The Merger Agreement provides that Digital Island shall, if approval of Digital Island's stockholders is required by applicable law to consummate the Merger, promptly following consummation of the Offer, file with the SEC under the Exchange Act, and use its best efforts to have cleared by the SEC promptly, a proxy statement and related proxy materials (the "Proxy Statement") with respect to the Stockholders' Meeting and shall cause the Proxy Statement and all required amendments and supplements thereto to be mailed to stockholders of Digital Island at the earliest practicable time. Ditigal Island has agreed to include in the Proxy Statement, and not subsequently withdraw or modify in any manner adverse to Purchaser or Cable & Wireless (other than as provided in the Merger Agreement), the unanimous recommendation of the Board that the stockholders of Digital Island approve and adopt the Merger Agreement and the Transactions and to use its reasonable best efforts to obtain such approval and adoption. Cable & Wireless and Purchaser have agreed to cause all Shares then owned by them and their subsidiaries, if any, to be voted in favor of approval and adoption of the Merger Agreement and the Transactions. The Merger Agreement provides that, in the event that Purchaser shall acquire at least 90% of the then outstanding Shares, Cable & Wireless, Purchaser and Digital Island will take all necessary and appropriate action to cause the Merger to become effective, in accordance with the DGCL, as promptly as reasonably practicable after such acquisition, without a meeting of Digital Island's stockholders.

    Access to Information.  Pursuant to the Merger Agreement, until the Effective Time, Digital Island shall, and shall cause the Subsidiaries and the officers, directors, employees, auditors, agents and other representatives of Digital Island and the Subsidiaries to, afford the officers, employees, representatives and agents of Cable & Wireless and Purchaser reasonable access at all reasonable times to the officers, employees, agents, properties, offices, and other facilities, books and records (including contracts and agreements) of Digital Island and each Subsidiary, and shall furnish Cable & Wireless and Purchaser with such financial, operating and other data and information as Cable & Wireless or Purchaser, through its officers, employees or agents, may reasonably request, provided that the fulfillment of any such request shall not unreasonably interfere with the conduct of the business of Digital Island.

    Employee Stock Options and Other Employee Benefits.  Outstanding stock options under Digital Island's 1999 Stock Incentive Plan and 2000 Supplemental Stock Option Plan, each as amended through the date of the Merger Agreement (the "Stock Option Plans") or assumed by Digital Island pursuant to the terms of the Sandpiper Networks, Inc. 1997 Stock Plan and SoftAware, Inc. 1999 Stock Option/Stock Issuance Plan, outstanding rights to purchase Shares under Digital Island's 1999 Employee Stock Purchase Plan, as amended through the date of the Merger Agreement (the "ESPP") and outstanding Shares issued under Digital Island's 1999 Stock Incentive Plan pursuant to the option exchange program implemented by Digital Island in April 2001 (the "Restricted Stock") shall be treated as set forth below.

    Immediately prior to the completion of the Offer, each outstanding option to purchase Shares under the Stock Option Plans (each, a "Company Stock Option") which, according to its terms would accelerate upon a "change in control" as defined in the Stock Option Plans or the applicable Company Stock Option agreement, and which has an exercise price that is equal to or greater than the Per Share Amount, shall vest and become exercisable for all of the Shares subject to those Options and those Options shall be cancelled upon the completion of the Offer. Immediately prior to the Effective Time, each Company Stock Option which according to its terms would accelerate upon a "corporate transaction" as defined in the Stock Option Plans or the applicable Company Stock Option agreement, which has an exercise price that is equal to or greater than the Per Share Amount, shall vest and become exercisable on an accelerated basis for all of the Shares subject to those Options and shall be cancelled at the Effective Time.

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    Upon the completion of the Offer, except as otherwise agreed upon in writing between a holder of a Company Stock Option ("Optionholder") and Parent, each Company Stock Option which, according to its terms would accelerate upon a "change in control" as defined in the Stock Option Plans or the applicable Company Stock Option agreement, and which has an exercise price that is less than the Per Share Amount shall be cancelled and such cancellation shall not result in any acceleration of vesting or exercisability of such Company Stock Option due to a "change in control." Instead, each Optionholder shall be entitled to a cash payment per Option Share equal to the difference between the exercise price of the Optionholder's Company Stock Option and the Per Share Price (the "Cancellation Payment"). To the extent that the Optionholder's Company Stock Option was vested and exercisable in accordance with its terms immediately prior to completion of the Offer (without regard to any provisions for acceleration of vesting on a change in control), the Cancellation Payment shall be paid by Purchaser to the Optionholder at the completion of the Offer upon surrender of the Company Stock Option. The remainder of the Cancellation Payment shall be made at such times as the Company Stock Option would have vested in accordance with its terms if it had continued in effect, provided that the Optionholder meets the terms and conditions of vesting set forth in Digital Island Stock Option Plans or the applicable Company Stock Option agreement.

    At the Effective Time, except as otherwise agreed upon in writing between the Optionholder and Parent, each Company Stock Option which, according to its terms would accelerate upon a "corporate transaction" as defined in Digital Island Stock Option Plans or the applicable Company Stock Option agreement, and which has an exercise price that is less than the Per Share Amount shall be cancelled and such cancellation shall not result in any acceleration of vesting or exercisability of such Company Stock Option due to a "corporate transaction." Instead, each holder of a cancelled Company Stock Option (each, an "Optionholder") shall be entitled to the Cancellation Payment. To the extent that the Optionholder's Company Stock Option was vested and exercisable in accordance with its terms immediately prior to cancellation (without regard to any provisions for acceleration of vesting on a change in control), the Cancellation Payment shall be paid by Cable & Wireless to the Optionholder at the Effective Time upon surrender of the Company Stock Option. The remainder of the Cancellation Payment shall be made at such times as the Company Stock Option would have vested in accordance with its terms if it had continued in effect, provided that the Optionholder meets the terms and conditions of vesting set forth in the Stock Option Plans or the applicable Company Stock Option agreement.

    Under the Merger Agreement, Digital Island has agreed to use its best efforts to provide all participants in the ESPP with at least ten (10) days written notice of consummation of the Offer and of their choice to (A) terminate their outstanding purchase rights and have all payroll deduction amounts refunded to them, or (B) let their outstanding purchase rights under the ESPP be exercised automatically on one final purchase date immediately prior to the consummation of the Offer. Each participant who elects to receive a refund of his or her payroll deductions shall promptly receive the cash equal to his or her payroll deductions for the final purchase interval. The ESPP shall terminate with the final purchase date, and no further purchase rights shall be granted under the terminated ESPP.

    Upon the completion of the Offer, except as otherwise agreed upon in writing between the holder of Restricted Stock, (each, a "Restricted Stockholder"), and Digital Island and the Parent, the Restricted Stock issued and outstanding immediately prior to the change in control shall be cancelled and forfeited, and such cancellation and forfeiture shall not result in any accelerated vesting of the Restricted Stock under the terms of the applicable Restricted Stock issuance agreement between the Restricted Stockholder and Digital Island due to a "change in control" or "corporate transaction". Instead, each Restricted Stockholder shall be entitled to receive a Cancellation Payment equal to the Per Share Amount multiplied by the number of shares of Restricted Stock he or she held immediately prior to the completion of the Offer. To the extent that the Restricted Stockholder's Restricted Stock was vested in accordance with its terms immediately prior to completion of the Offer (without regard to any provisions for accelerated vesting of the Restricted Stock on a change in control or corporate transaction), the Cancellation Payment shall be paid by Purchaser to the Restricted Stockholder at the completion of the Offer. The remainder of

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the Cancellation Payment shall be made at such times as the Restricted Stock would have vested in accordance with the terms of the Restricted Stockholder's Restricted Stock issuance agreement if it such agreement had continued in effect, provided that the Restricted Stockholder meets the terms and conditions of vesting set forth in Digital Island Stock Option Plans and the applicable Restricted Stock issuance agreement.

    Effective as of the Effective Time, Digital Island shall take all necessary action, including obtaining the consent of the individual Optionholders and Restricted Stockholders, if necessary, to (A) terminate the Stock Option Plans, (B) cancel, upon the completion of the Offer or the Effective Time, as applicable, each outstanding Company Stock Option that is outstanding and unexercised, whether or not vested and exercisable as of such date, and (C) cancel upon the completion of the Offer, each Outstanding Restricted Share, whether or not vested as of such date.

    From and after the Effective Time, Cable & Wireless shall cause the Surviving Corporation and its subsidiaries to honor in accordance with their terms, all contracts, agreements, arrangements, policies, plans and commitments of Digital Island and the Subsidiaries with respect to benefits or entitlements that accrued prior to the Effective Time that are applicable to any current or former employees or directors of Digital Island or any Subsidiary. Employees of Digital Island or any Subsidiary shall receive credit for purposes of eligibility to participate and vesting (but not for benefit accruals) under any employee benefit plan, program or arrangement established or maintained by the Surviving Corporation or any of its subsidiaries for service accrued or deemed accrued prior to the Effective Time with Digital Island or any Subsidiary; provided, however, that such crediting of service shall not operate to duplicate any benefit or the funding of any such benefit and provided further that in determining the amount of vacation pay owed to any such Company employee from and after the Effective Time under the applicable terms of the vacation plan of the Surviving Corporation, credit shall be given for such employee's service with Digital Island or any Subsidiary prior to the Effective Time.

    With respect to any employee benefit plans in which any employees of Digital Island or any Subsidiary first become eligible to participate on or after the Effective Time or in which the employees of Digital Island or any Subsidiary did not participate prior to the Effective Time, Cable & Wireless shall: (i) waive all pre-existing conditions, exclusions and waiting periods with respect to participation and coverage requirements applicable to the employees of Digital Island or any Subsidiary under any such plans in which such employees may be eligible to participate after the Effective Time, except to the extent such pre-existing conditions, exclusions or waiting periods would apply under the analogous plan prior to the Effective Time; (ii) provide each employee of Digital Island and the Subsidiaries with credit for any co-payments and deductibles paid prior to the Effective Time (to the same extent such credit was given under the analogous plan prior to the Effective Time) in satisfying any applicable deductible or out-of-pocket co-payment requirements under any such new plan in which such employees may be eligible to participate after the Effective Time; and (iii) with respect to flexible spending accounts, provide each employee of Digital Island and its subsidiaries with a credit for any salary reduction contributions made thereto and a debit for any expenses incurred thereunder with respect to the plan year in which the Effective Time occurs; provided that the foregoing shall not apply to the extent it would result in duplications of benefits.

    Directors' and Officers' Indemnification Insurance.  The Merger Agreement provides that after the Effective Time, Cable & Wireless shall and shall cause the Surviving Corporation to indemnify each person who is now, or has been at any time prior to the Effective Time, a director or officer of Digital Island or any Subsidiary (individually an "Indemnified Party" and collectively the "Indemnified Parties"), to the fullest extent permitted by Law, with respect to any claim, liability, loss, damage, judgment, fine, penalty, amount paid in settlement or compromise, cost or expense (including reasonable fees and expenses of legal counsel), whenever asserted or claimed, based in whole or in part on, or arising in whole or in part out of, any facts or circumstances occurring at or prior to the Effective Time whether commenced, asserted or claimed before or after the Effective Time, including liability arising under the Securities Act, the Exchange Act or state Law. The Merger Agreement further provides that Cable & Wireless shall cause the

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Surviving Corporation and any of its Subsidiaries (or their successors) to maintain in effect for a period of six (6) years provisions in its certificate of incorporation or by-laws or equivalent organizational documents providing for indemnification and exculpation of Indemnified Parties, to the extent set forth in Digital Island's Certificate of Incorporation and By-laws as of the date of the Merger Agreement with respect to facts or circumstances occurring at or prior to the Effective Time; provided that the foregoing shall not in any way restrict or preclude any sale, liquidation or dissolution of any Subsidiary of Cable & Wireless (including the Surviving Corporation) at any time after the Effective Time.

    The Merger Agreement also provides that Cable & Wireless shall, or shall cause the Surviving Corporation to, maintain in effect for not less than six (6) years after the Effective Time the current policies of directors' and officers' liability insurance maintained by Digital Island and its Subsidiaries on the date hereof (provided that Cable & Wireless may substitute therefor policies with reputable and financially sound carriers having at least the same coverage and amounts thereof and containing terms and conditions which are no less advantageous to the persons currently covered by such policies as the insured) with respect to facts or circumstances occurring at or prior to the Effective Time. Cable & Wireless agrees to pay all expenses (including fees and expenses of counsel) that may be incurred by any Indemnified Party in successfully enforcing the indemnity or other obligations under the Merger Agreement.

    Further Action; Reasonable Best Efforts.  The Merger Agreement provides that, subject to its terms and conditions, each of the parties thereto shall (i) make promptly its respective filings, and thereafter make any other required submissions, if any, under the HSR Act, the Fair Trading Act, the E.C. Merger Regulation or any other applicable foreign antitrust filing with respect to the Transactions and (ii) use its reasonable best efforts to take, or cause to be taken, all appropriate action, and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the Transactions, including, without limitation, using its reasonable best efforts to obtain all Permits, consents, approvals, authorizations, qualifications and orders of Governmental Authorities and parties to contracts with Digital Island and the Subsidiaries as are necessary for the consummation of the Transactions, and to fulfill the conditions to the Offer and the Merger; provided that neither Purchaser nor Cable & Wireless will be required to (A) accept any prohibition or limitation on the ownership or operation by Digital Island, Cable & Wireless, Purchaser or any of their Subsidiaries of any business or assets of Digital Island, Cable & Wireless, Purchaser or any of their Subsidiaries or compel Digital Island, Cable & Wireless, Purchaser or any of their Subsidiaries, as a result of the Transactions, to dispose of or to hold separate any business or assets of Digital Island, Cable & Wireless, Purchaser or any of their Subsidiaries or (B) divest any Shares which, in the case of each of clauses (A) and (B) of this paragraph, has an economic detriment to Parent or Digital Island that is material in relation to Digital Island and its Subsidiaries taken as a whole. At any time after the Effective Time, the proper officers and directors of each party to the Merger Agreement shall use their reasonable best efforts to take any further action is necessary or desirable to carry out the purposes of the Merger Agreement.

    The Merger Agreement also provides that each of the parties thereto will cooperate and use its reasonable best efforts to vigorously contest and resist any Action, including administrative or judicial Action, and to have vacated, lifted, reversed or overturned any decree, judgment, injunction or other order (whether temporary, preliminary or permanent) that is in effect and that restricts, prevents or prohibits consummation of the Transactions including, without limitation, by vigorously pursuing all available avenues of administrative and judicial appeal.

    Indebtedness of Digital Island.  Pursuant to the Merger Agreement and as and to the extent necessary for Digital Island to comply with its obligations under the Indenture, Cable & Wireless has agreed to provide Digital Island the funds necessary for Digital Island to comply with such obligations when and if such obligations become due and payable as a result of the consummation of the Offer. Pursuant to the terms of the Indenture and the Merger Agreement Digital Island has agreed to give or to cause the trustee under the Indenture to give Notice (as such term is defined in the Indenture) on, and not prior to, the

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thirtieth (30th) day following the date on which funds are transferred by Cable & Wireless or Purchaser to the Paying Agent pursuant to the Offer.

    Representations and Warranties.  The Merger Agreement contains various customary representations and warranties of the parties thereto including, among others, representations by Digital Island as to the absence of certain changes or events concerning Digital Island's business, compliance with law, filings and financial statements, litigation, employee benefit plans, labor and employment matters, property and leases, intellectual property, environmental matters, taxes, material contracts, customers and suppliers, insurance and brokers.

    Nonsolicitation.  Under the Merger Agreement, Digital Island has agreed that it shall not and shall cause its Subsidiaries not to, and shall use its best efforts to cause the officers, directors, employees and other agents and advisors (including, without limitation, any investment bank, attorney or accountant retained by Digital Island) of Digital Island and its Subsidiaries not to, directly or indirectly, (i) take any action to solicit, initiate or knowingly encourage or otherwise knowingly facilitate any Acquisition Proposal or any inquiries, proposals or offers from any Person (other than Cable & Wireless or Purchaser) relating to any Acquisition Proposal, (ii) grant any waiver or release under any standstill or similar agreement with respect to any class of equity securities of Digital Island or any Subsidiary or (iii) furnish any information to or participate in any discussions or negotiations with any Person that has made or, to the Knowledge of Digital Island, intends to make an Acquisition Proposal except to the extent the foregoing could not reasonably be expected to be relevant to an Acquisition Proposal; provided, however, that nothing contained in this paragraph shall prohibit the Board from taking any action described in clause (iii) above with respect to any Person that has made an unsolicited (as such term relates to the period from and after the date hereof) bona fide written Superior Proposal if, and only to the extent that, (A) the acceptance for payment of any Shares pursuant to the Offer shall not have occurred, (B) the Board, after consultation with outside legal counsel, determines in good faith that such action would, in the absence of the foregoing proscriptions, be required by its fiduciary duties under the DGCL or its duties or obligations under other applicable Law, and (C) prior to taking such action, Digital Island receives from such Person an executed confidentiality agreement in reasonably customary form and in any event containing terms at least as stringent as those contained in the Confidentiality Agreement. Within twenty-four (24) hours after determining to take any action described in clause (iii) of the preceding sentence, Digital Island shall notify Cable & Wireless of any such Superior Proposal (including, without limitation, the material terms and conditions thereof and the identity of the Person making it), and shall thereafter inform Cable & Wireless on a prompt basis of any material changes to the terms and conditions of such Superior Proposal and, upon the reasonable request of Parent, any material change to the status of any discussion with such third party. Digital Island shall, and shall cause its Subsidiaries and the officers, directors, employees and other agents and advisors of Digital Island and its Subsidiaries to, immediately cease and cause to be terminated all discussions and negotiations, if any, that have taken place prior to the date of the Merger Agreement with any parties with respect to any Acquisition Proposal. Nothing contained in the Merger Agreement prevents the Board from complying with Rule 14e-2 under the Exchange Act with respect to any Acquisition Proposal; provided, however, that in connection therewith Digital Island and the Board of Directors shall be subject to the provisions of the next paragraph.

    Notwithstanding anything in the Merger Agreement to the contrary, the Board may not withdraw or modify, or propose to withdraw or modify, in a manner adverse to Cable & Wireless or Purchaser, its approval or recommendation of the Merger Agreement, the Offer or the Merger unless the Board, after consultation with its outside legal counsel, determines in good faith that such action is required by its fiduciary duties under the DGCL or under other applicable law; provided, however, the Board may not approve or recommend an Acquisition Proposal (or in connection therewith, withdraw or modify its approval or recommendation of the Merger Agreement, the Offer or the Merger) (including with respect to any statements pursuant to Rule 14e-2 under the Exchange Act) unless (i) the Acquisition Proposal is a Superior Proposal, (ii) Digital Island has complied in all material respects with is nonsolicitation

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obligations in the Merger Agreement, (iii) it determines in good faith (after consultation with its outside legal counsel) that such action is required by its fiduciary duties under the DGCL or under other applicable Law and (iv) Digital Island has negotiated, and the Board has determined to enter into, a definitive agreement with respect to the Superior Proposal; and provided further, (x) the Board in the twenty-four (24) hours subsequent to the determination described in clause (iv) of the foregoing proviso notifies Cable & Wireless of such determination and of all the material terms and conditions of such definitive agreement, (y) the Board is prohibited for a period of three (3) calendar days after the date of receipt by Cable & Wireless of such notification from executing the definitive agreement relating to such Superior Proposal and from approving or recommending such Superior Proposal (or, in connection therewith, withdraw or modify its approval or recommendation of the Merger Agreement, the Offer or the Merger) and during such three (3) day period Parent is permitted to make any such adjustment to the terms and conditions of the Merger Agreement as Parent deems advisable (the "Adjusted Agreement") and (z) the Board determines that the Acquisition Proposal reflected by the definitive agreement is a Superior Proposal relative to the Adjusted Agreement. In the event that the Board is permitted by the foregoing to approve or recommend an Acquisition Proposal, it may terminate the Merger Agreement. In the event that the Board, pursuant to clause (z) of the second preceding sentence, determines that the Acquisition Proposal reflected by the definitive agreement is not a Superior Proposal relative to the Adjusted Agreement, Digital Island will execute an amendment to the Merger Agreement to conform the Merger Agreement to the Adjusted Agreement and will terminate all discussions with such other Person.

    Termination.  The Merger Agreement provides that it may be terminated and the Merger and the other Transactions, may be abandoned at any time prior to the Effective Time, notwithstanding any requisite approval and adoption of the Merger Agreement and the Transactions by the stockholders of Digital Island:

    (a) by mutual written consent of each of Cable & Wireless, Purchaser and Digital Island duly authorized by the Boards of Directors of Cable & Wireless, Purchaser and Digital Island; or

    (b) by either Cable & Wireless or Digital Island if (i) the Effective Time shall not have occurred on or before February 9, 2002; provided, however, that this right to terminate the Merger Agreement shall not be available to any party whose failure to fulfill any covenant, agreement, conditions or other obligation under the Merger Agreement has been the cause of, or resulted in, the failure of the Effective Date to occur on or before such dates, or (ii) any Governmental Authority or court of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any judgment, injunction, order, decree or ruling or taken any other action which has become final and nonappealable and has the effect of making consummation of the Offer or the Merger illegal or otherwise preventing or prohibiting consummation of the Offer or the Merger; or

    (c) by Cable & Wireless if (i) due to an occurrence or circumstance that would result in a failure to satisfy any condition set forth in "Section 14. Certain Conditions of the Offer" hereto, Purchaser shall have (A) failed to commence the Offer within 30 days following the date of the Merger Agreement, (B) terminated the Offer without having accepted any Shares for payment thereunder or (C) failed to accept Shares for payment pursuant to the Offer within 90 days following the commencement of the Offer, unless the existence of any such condition set forth in "Section 14. Certain Conditions of the Offer" hereto shall have been caused by or resulted from the failure of Cable & Wireless or Purchaser to perform, in any material respect, any of their material covenants or agreements contained in the Merger Agreement, or the breach by Cable & Wireless or Purchaser of any of their representations or warranties contained in the Merger Agreement or (ii) prior to the purchase of Shares pursuant to the Offer, the Board or any committee thereof shall have withdrawn or modified in a manner adverse to Purchaser or Parent its approval or recommendation of the Merger Agreement, the Offer or the Merger, or shall have recommended or approved any Acquisition Proposal, or shall have resolved to do any of the foregoing; or

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    (d) by Digital Island, upon approval of the Board, if Purchaser and Cable & Wireless (i) fails to commence the Offer within 30 days following the date of the Merger Agreement, (ii) terminates the Offer without having accepted any Shares for payment thereunder or (iii) fails to accept Shares for payment pursuant to the Offer within 90 days following the commencement of the Offer, unless such action or inaction under (i), (ii) or (iii) above is caused by or is a result of the failure of Digital Island to perform, in any material respect, any of its material covenants or agreements contained in the Merger Agreement or the breach in any material respect by Digital Island of any of its representations or warranties contained in the Merger Agreement;

    (e) by Parent prior to the purchase of Shares pursuant to the Offer in the event Digital Island breaches of any representation, warranty, covenant or other agreement contained in the Merger Agreement which (i) would give rise to the failure of a condition set forth in paragraphs (e) or (f) of "Section 14. Certain Conditions of the Offer" and (ii) in the case of a breach of a material agreement or covenant, cannot be or is not cured within ten (10) days after giving written notice to Digital Island, or, in the case of a breach of a representation or warranty, cannot be or is not cured within twenty (20) days after giving written notice by Digital Island;

    (f) by Digital Island, if (i) any of the representations or warranties of Cable & Wireless or Purchaser set forth in the Merger Agreement (without regard to materiality qualifiers contained therein) are not true and correct in any respect, except to the extent the effect of such breach, either individually or in the aggregate with all other such breaches, does not have a material adverse effect on Cable & Wireless, or (ii) Cable & Wireless or Purchaser fails to perform in any material respect any material obligation or comply in any material respect with any material agreement or covenant of Cable & Wireless or Purchaser to be performed or complied with by it under the Merger Agreement and, in the case of (i), such untruth or incorrectness cannot be or is not cured within thirty (30) days after giving written notice to Cable & Wireless or Purchaser, and, in the case of (ii), such failure cannot be or is not cured within twenty (20) days after the giving of written notice to Cable & Wireless or Purchaser; or

    (g) by the Board of Directors of Digital Island pursuant to the termination rights described above under "Nonsolicitation."

    Effect of Termination.  In the event of the termination of the Merger Agreement, the Merger Agreement will become void, and there shall be no liability on the part of any party thereto, except (i) as set forth below under the section entitled "Fees" and (ii) nothing in the Merger Agreement shall relieve any party from liability for any breach thereof prior to the date of such termination, provided, however, that the Confidentiality Agreement shall survive any termination of the Merger Agreement.

    Fees.  The Merger Agreement provides that in the event that the Merger Agreement is terminated pursuant to

    (i)(A) paragraph (c) above in "Termination" (as a result of the failure of the Minimum Condition) or paragraph (e) above in "Termination" (provided neither Cable & Wireless nor Purchaser is in breach in any material respect of any of its representations, warranties and covenants set forth in the Merger Agreement to the extent (and only to the extent) such breach causes the basis for termination of the Merger Agreement pursuant to paragraph (e) above in "Termination,") (B) prior to such termination any Person shall have commenced, publicly proposed or communicated to Digital Island an Acquisition Proposal that is publicly disclosed and which shall be continuing and not withdrawn prior to the date of such termination, and (C) within one hundred eighty (180) days after such termination, Digital Island consummates either (1) a merger, consolidation, or other business combination between Digital Island and any other Person (other than Parent of an Affiliate thereof) or (2) the sale of more than thirty-five percent (35%) (in voting power) of the voting securities of Digital Island to the Person making such Acquisition Proposal or the sale of thirty-five percent (35%) or more (in fair market value) of the assets of Digital Island;

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    (ii) paragraph (c) above in "Termination;" or

    (iii) paragraph (g) above in "Termination;"

Digital Island will pay Cable & Wireless promptly (but in no event later than one Business Day after the first of such events shall have occurred) a fee in an amount equal to $8,400,000 (the "Termination Fee"), Cable & Wireless payable in immediately available funds.

    Except as set forth under this Section "Fees," all costs and expenses incurred in connection with the Merger Agreement and the Transactions (including reasonable attorney's fees and expenses), shall be paid by the party incurring such expenses, whether or not any Transaction is consummated. In the event that Digital Island shall fail to pay all or any portion of the Termination Fee it shall also pay interest on such unpaid amount, commencing on the date that the Termination Fee became due, at a rate equal to the rate of interest publicly announced by Citibank, N.A., from time to time, in the City of New York, as such bank's Base Rate plus two percent.

RELATED AGREEMENTS

    Employment Arrangements.  Digital Island is party to employment agreements with each of the executive officers (other than Mr. Thompson, who resigned on April 30 of this year) as described in Digital Island's 2001 proxy statement. Of these executive officers, Ms. Ruann Ernst (President and Chief Executive Officer), Mr. Charles Picasso (Chief Operating Officer), Mr. Timothy Wilson (Chief Marketing Officer) and Mr. Addo Barrows (Vice-President, Treasurer) have entered into new employee agreements with Digital Island and Cable & Wireless. Copies of these agreements are filed with the SEC as exhibits to the Tender Offer Statement on Schedule TO. These new employment agreements, which will become effective only upon the successful completion of the Offer and are contingent upon such completion, supercede all prior understandings or agreements with respect to such executive officers' employment with Digital Island. The following summarizes certain provisions of these agreements.

    Pursuant to these employment agreements, each executive (i) irrevocably waives any and all claims to benefits that would have been receivable on account of a "change in control" of or a "corporate transaction" with respect to Digital Island, including but not limited to salary continuation payments, bonus payments, and acceleration of vesting of Restricted Stock or Company Stock Options, and (ii) agrees that any Company Stock Options and Restricted Stock granted to the executive under the Stock Option Plans will be cancelled and forfeited. Instead, under the employment agreements, each executive will be entitled to awards of restricted shares of Cable & Wireless ("Restricted Parent Shares"), determined in the following manner: (i) the "rollover value" of the executive's cancelled shares of Restricted Stock will be determined by multiplying the number of such shares by the Per Share Amount paid in the Offer; (ii) the "rollover value" of the executive's cancelled Company Stock Options will be determined by multiplying the number of shares of Company common stock subject to such Company Stock Option by the excess, if any, of the Per Share Amount paid in the Offer over the exercise price in effect for that Company Stock Option (any Company Stock Option which has an exercise price equal to or greater than the Per Share Amount will have a zero rollover value); (iii) the combined rollover value of the executive's Restricted Stock and Company Stock Options will then be divided by the average closing selling price per common share of Parent for the five (5) consecutive trading days ending with the completion date of the Offer to determine the aggregate number of Restricted Parent Shares (the "ARPS"); and (iv), the executive's ARPS will be awarded in installments on specified anniversaries of the completion of the Offer over the 24-month period following the completion of the Offer. The combined rollover value for each executive officer is as follows: Ms. Ernst ($2,411,364); Mr. Picasso ($1,113,332); Mr. Wilson ($810,902); and Mr. Barrows ($75,278). In addition, subject to substantial achievement of Company performance against the agreed business plan, the executive may be awarded bonus shares of Cable & Wireless stock in specified percentages of the ARPS, for each executive, payable at specified installment dates.

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    In connection with each executive's continued employment with Digital Island, such executive also will be granted (within 45 days following the completion of the Offer) stock options to purchase common shares of Cable & Wireless with an exercise price per share equal to the closing selling price per share on the date of grant (the "Parent Options"). The aggregate exercise price of the executive's stock options generally will be equal to a specified multiple of annual base salary. Cable & Wireless expects to adopt and obtain the requisite shareholder approval of a plan under which these stock options would vest at a rate of 25% per year over the four-year period measured from the date of grant. In the absence of the requisite shareholder approval, these stock options will vest in accordance with the performance-based and other requirements of the Cable & Wireless' current Senior Employees Share Option Scheme.

    The stock-based compensation package described above, including the Parent Options and the Restricted Parent Shares, is contingent on approval by the Board of Directors of Cable & Wireless. If the Board of Directors of Cable & Wireless does not approve this compensation package, the executive instead will be provided with cash payments on each relevant vesting date that provide the same economic benefit as the proposed Parent Options and Restricted Parent Shares.

    In consideration for each executive's continued employment with Digital Island, each executive will be paid a deferred bonus generally equal to a multiple of annual base salary. If the executive remains employed with Digital Island for a period of three consecutive months after the successful completion of the Offer, the executive will be paid 40% of such bonus; the remaining 60% will be paid if the employee remains with Digital Island for an additional six months thereafter.

    If Digital Island terminates the executive's employment with Digital Island for any reason other than for Cause or if the executive terminates her employment with Digital Island for Good Reason (as Cause and Good Reason are defined in the executive's employment agreement), then (a) the executive's Parent Options and Restricted Parent Shares will vest fully and immediately, and the executive generally will also immediately vest in and become entitled to the maximum number of corresponding bonus shares, (b) the executive will be entitled to salary continuation payments at the base salary effective at the time of termination for a period of between six and twelve months, and (c) the executive and eligible dependents will be entitled to continued health care coverage under Digital Island's group health plan at no cost to the executive for a period of between six and twelve months.

    If Digital Island terminates the executive's employment with Digital Island for any reason other than for Cause or if the executive terminates her employment with Digital Island for Good Reason (as Cause and Good Reason are defined in the executive's employment agreement) within nine months of the completion of the Offer, the executive will be entitled to payment of that portion of the deferred bonus that was unpaid on the date of termination.

    If the executive terminates employment (other than for Good Reason) with Digital Island during the 12-month period commencing immediately after the completion of the Offer, the executive will be entitled to a severance payment equal to the sum of (a) the amount the executive would have received if the executive had exercised all Company Stock Options that would have become vested had the options continued in effect until termination of employment (without regard to any Company Stock Options that would have vested solely on account of a "change in control" or "corporate transaction" as defined in the Stock Option Plans or the applicable Company Stock Option agreement) and tendered the stock acquired upon exercise under the Offer, plus (b) the amount the executive would have received if the executive had tendered under the Offer all shares of Restricted Stock that would have become vested had the executive continued to hold the Restricted Stock until termination of employment (without regard to any shares of Restricted Stock that would have vested solely on account of a "change in control" or "corporate transaction" as defined in the Stock Option Plans or the applicable Restricted Stock issuance agreement).

    Confidentiality Agreement.  The following is a summary of certain provisions of the Confidentiality Agreement dated September 21, 2000 (the "Confidentiality Agreement") between Cable & Wireless and Digital Island. This summary is qualified in its entirety by reference to the Confidentiality Agreement,

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which is incorporated herein by reference, and a copy of which has been filed with the SEC as an exhibit to the Schedule TO. Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Confidentiality Agreement. The Confidentiality Agreement may be examined and copies may be obtained at the places set forth in "Section 7. Certain Information Concerning Digital Island."

    The Confidentiality Agreement provides that the Receiving Party of Proprietary Information (a) except as required by law, shall keep all Proprietary Information confidential, shall not disclose or reveal any Proprietary Information to any person, other than its Representatives who are actively and directly participating in the Proposed Transaction or who otherwise need to know the Proprietary Information to evaluate the Proposed Transaction, and shall cause those persons to observe the terms of the Confidentiality Agreement; (b) shall not use Proprietary Information for any purpose other than in connection with its evaluation of the Proposed Transaction or the consummation of the Proposed Transaction in a manner the Disclosing Party has approved; and (c) except as required by law, shall not disclose to any person (other than its Representatives who are actively and directly participating in the Proposed Transaction or who otherwise need to know the Proprietary Information to evaluate the Proposed Transaction) any information about the Proposed Transaction, or the terms and conditions or any other facts relating thereto, including, the fact that discussions are taking place with respect thereto or the status thereof, or the fact that Proprietary Information has been made available to the Receiving Party or its Representatives. The parties to the Confidentiality Agreement agreed that for a period of eighteen (18) months from the date of the Confidentiality Agreement neither party would directly or indirectly solicit to employ any person who was then employed by the other party.

11. Purpose of the Offer; Plans for Digital Island After the Offer and the Merger; Effect on Convertible Notes.

    Purpose of the Offer.  The Offer is being made pursuant to the Merger Agreement. The purpose of the Offer and the Merger is for Cable & Wireless to acquire control of, and the entire equity interest in, Digital Island. The Offer, as the first step in the acquisition of Digital Island, is intended to facilitate the acquisition of all of the Shares. The purpose of the Merger is for Cable & Wireless to acquire all Shares not purchased pursuant to the Offer. Upon consummation of the Merger, Digital Island will become a wholly owned subsidiary of Cable & Wireless USA and an indirect wholly owned subsidiary of Cable & Wireless.

    Under the DGCL, the approval of the Board and the affirmative vote of the holders of a majority of the outstanding Shares is required to approve and adopt the Merger Agreement and the Transactions, including the Offer and the Merger. The Board has unanimously determined that the Merger Agreement and the Transactions, including each of the Offer and the Merger, are fair to, and in the best interests of, Digital Island and the holders of Shares, has approved, adopted and declared advisable the Merger Agreement and the Transactions, including each of the Offer and the Merger (such approval and adoption having been made in accordance with the DGCL, including, without limitation, Section 203 thereof) and has resolved to recommend that the holders of Shares accept the Offer and tender their Shares pursuant to the Offer, and approve and adopt the Merger Agreement and the Transactions. Unless the Merger is consummated pursuant to the short-form merger provisions under the DGCL described below, the only remaining required corporate action of Digital Island is the approval and adoption of the Merger Agreement and the Merger by the affirmative vote of the holders of a majority of Shares. Accordingly, if the Minimum Condition is satisfied, Purchaser will have sufficient voting power to cause the approval and adoption of the Merger Agreement and the Merger without the affirmative vote of any other stockholder.

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    In the Merger Agreement, Digital Island has agreed to duly call, give notice of, convene and hold an annual or special meeting of its stockholders as promptly as practicable following consummation of the Offer for the purpose of considering and taking action on the Merger Agreement and the Transactions, if such action is required by the DGCL in order to consummate the Merger. Cable & Wireless and Purchaser have agreed that all Shares owned by them and their subsidiaries will be voted in favor of the approval and adoption of the Merger Agreement and Merger.

    The Merger Agreement provides that, promptly upon the acceptance of Shares by Purchaser of Shares pursuant to the Offer, Purchaser will be entitled to designate representatives to serve on the Board in proportion to Purchaser's ownership of Shares following such acceptance. See "Section 10. Background of the Offer; the Merger Agreement and Related Agreements." Purchaser expects that such representation would permit Purchaser to exert substantial influence over Digital Island's conduct of its business and operations.

    Short-Form Merger.  Under the DGCL, if Purchaser acquires, pursuant to the Offer or otherwise, at least 90% of the then outstanding Shares, Purchaser will be able to approve the Merger without a vote of Digital Island's stockholders. In such event, Cable & Wireless, Purchaser and Digital Island have agreed in the Merger Agreement to take all necessary and appropriate action to cause the Merger to become effective as promptly as reasonably practicable after such acquisition, without a meeting of Digital Island's stockholders. If, however, Purchaser does not acquire at least 90% of the then outstanding Shares pursuant to the Offer or otherwise and a vote of Digital Island's stockholders is required under the DGCL, a significantly longer period of time would be required to effect the Merger.

    Appraisal Rights.  No appraisal rights are available in connection with the Offer. However, if the Merger is consummated, stockholders who have not tendered their Shares will have certain rights under the DGCL to dissent from the Merger and demand appraisal of, and to receive payment in cash of the fair value of, their Shares. Stockholders who perfect such rights by complying with the procedures set forth in Section 262 of the DGCL ("Section 262") will have the "fair value" of their Shares (exclusive of any element of value arising from the accomplishment or expectation of the Merger) determined by the Delaware Court of Chancery and will be entitled to receive a cash payment from the Surviving Corporation equal to such fair value. In addition, such dissenting stockholders would be entitled to receive payment of a fair rate of interest from the date of consummation of the Merger on the amount determined to be the fair value of their Shares. In determining the fair value of the Shares, the court is required to take into account all relevant factors. Accordingly, such determination could be based upon considerations other than, or in addition to, the market value of the Shares, including, among other things, asset values and earning capacity. In Weinberger v. UOP, Inc., the Delaware Supreme Court stated, among other things, that "proof of value by any techniques or methods which are generally considered acceptable in the financial community and otherwise admissible in court" should be considered in an appraisal proceeding. The Weinberger court also noted that under Section 262, fair value is to be determined "exclusive of any element of value arising from the accomplishment or expectation of the merger." In Cede & Co. v. Technicolor, Inc., however, the Delaware Supreme Court stated that, in the context of a two-step cash merger, "to the extent that value has been added following a change in majority control before cash-out, it is still value attributable to the going concern," to be included in the appraisal process. As a consequence, the value so determined in any appraisal proceeding could be the same, more or less than the purchase price per Share in the Offer or the Merger Consideration.

    In addition, several decisions by Delaware courts have held that, in certain circumstances, a controlling stockholder of a company involved in a merger has a fiduciary duty to other stockholders which requires that the merger be fair to such other stockholders. In determining whether a merger is fair to minority stockholders, Delaware courts have considered, among other things, the type and amount of consideration to be received by the stockholders and whether there was fair dealing among the parties. The Delaware Supreme Court stated in Weinberger and Rabkin v. Philip A. Hunt Chemical Corp. that the remedy ordinarily available to minority stockholders in a cash-out merger is the right to appraisal

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described above. However, a damages remedy or injunctive relief may be available if a merger is found to be the product of procedural unfairness, including fraud, misrepresentation or other misconduct.

    Neither Cable & Wireless nor Purchaser intends to object, assuming the proper procedures are followed, to the exercise of appraisal rights by any stockholder and the demand for appraisal of, and payment in cash for the fair value of, Shares. Cable & Wireless intends, however, to cause the Surviving Corporation to argue in an appraisal proceeding that, for purposes of such proceeding, the fair value of each Share is less than or equal to the Merger Consideration. In this regard, stockholders should be aware that opinions of investment banking firms as to the fairness from a financial point of view (including CSFB) are not necessarily opinions as to "fair value" under Section 262.

    The foregoing summary of the rights of dissenting stockholders under the DGCL does not purport to be a complete statement of the procedures to be followed by stockholders desiring to exercise any dissenters' rights under the DGCL. The preservation and exercise of dissenters' rights require strict adherence to the applicable provisions of the DGCL.

    Going Private Transactions.  The SEC has adopted Rule 13e-3 under the Exchange Act which is applicable to certain "going private" transactions and which may under certain circumstances be applicable to the Merger or another business combination following the purchase of Shares pursuant to the Offer in which Purchaser seeks to acquire the remaining Shares not held by it or its affiliates. Purchaser believes that Rule 13e-3 will not be applicable to the Merger. Rule 13e-3 requires, among other things, that certain financial information concerning Digital Island and certain information relating to the fairness of the proposed transaction and the consideration offered to minority stockholders in such transaction be filed with the SEC and disclosed to stockholders prior to consummation of the transaction.

    Plans for Digital Island.  Except as disclosed in this Offer to Purchase, neither Cable & Wireless, Cable & Wireless USA nor Purchaser has any present plans or proposals that would result in an extraordinary corporate transaction, such as a merger, reorganization, liquidation, or sale or transfer of a material amount of assets, involving Digital Island or any of its subsidiaries, or any material changes in Digital Island's capitalization, corporate structure, business or composition of its management. Cable & Wireless and Cable & Wireless USA will continue to evaluate and review Digital Island and its business, assets, corporate structure, capitalization, operations, properties, policies, management and personnel with a view towards determining how optimally to realize any potential benefits which arise from the rationalization of the operations of Digital Island with those of other business units and subsidiaries of Cable & Wireless and Cable & Wireless USA. Such evaluation and review is ongoing and is not expected to be completed until after the consummation of the Offer and the Merger. If, as and to the extent that Cable & Wireless and Cable & Wireless USA acquire control of Digital Island, Cable & Wireless and Cable & Wireless USA will complete such evaluation and review of Digital Island and will determine what, if any, changes would be desirable in light of the circumstances and the strategic business portfolio which then exist. Such changes could include, among other things, restructuring Digital Island through changes in Digital Island's business, corporate structure, Certificate of Incorporation, By-laws, capitalization or management or could involve consolidating and streamlining certain operations and reorganizing other businesses and operations.

    Cable & Wireless, Cable & Wireless USA, Purchaser or an affiliate of Cable & Wireless may, following the consummation or termination of the Offer, seek to acquire additional Shares through open market purchases, privately negotiated transactions, a tender offer or exchange offer or otherwise, upon such terms and at such prices as they shall determine, which may be more or less than the price paid in the Offer.

    Effect on Convertible Notes.  According to the March 31, 2001 Form 10-Q, $345,000,000 aggregate principal amount of the Convertible Notes was outstanding as of such date. The Offer is not being made for (nor will tenders be accepted of) any of the Convertible Notes. Holders of Convertible Notes who wish

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to participate in the Offer must first convert their Convertible Notes into Shares in accordance with the terms of the Indenture, and then tender the Shares issued upon such conversion pursuant to the Offer. Under the Indenture, any holder of a Convertible Note may convert the principal amount of such Convertible Note (or any portion equal to $1,000 or any integral multiple of $1,000) into that number of Shares obtained by dividing the principal amount thereof by the conversion price of $131.61 per share (7.5982 Shares per $1,000 principal amount of Convertible Notes), subject to adjustment under certain circumstances. Holders of Convertible Notes who convert such Convertible Notes into Shares will have no right under the Indenture to revoke an effective conversion. Accordingly, if the Offer terminates or expires without the purchase of any Shares or if any Shares tendered after conversion by any holder of Convertible Notes are not purchased for any reason, the converting holders will no longer have any rights with respect to Shares under the Indenture.

    Under the Indenture, after consummation of the Merger, each holder of a Convertible Note then outstanding would be entitled to receive, upon conversion, the amount of shares of stock and other securities and property (including cash) receivable upon the Merger by the holders of the number of Shares which would have been issuable upon conversion of such Convertible Note immediately prior to such Merger. Accordingly, each $1,000 principal amount of Convertible Notes would be convertible into $25.83 upon consummation of the Merger.

    The Indenture provides that Digital Island may not consolidate with or merge into any other corporation or convey or transfer substantially all of its assets unless the acquirer is a U.S. corporation and it expressly assumes (by a supplemental indenture) the payment of principal, premium and interest on the Convertible Notes, as well as Digital Island's covenants under the Indenture. The Indenture further requires that Digital Island, or the successor corporation, execute and deliver to the Trustee, as a condition precedent to the Merger, a supplemental indenture providing that holders of each Convertible Note then outstanding shall have the right to convert such Convertible Note into the cash receivable by a holder of the number of Shares deliverable upon conversion of such Convertible Note immediately prior to the Merger.

    The Indenture provides that upon a "Change of Control" of Digital Island the holders of the Convertible Notes have the right to require Digital Island to purchase their Convertible Notes at a purchase price equal to the principal amount of the Convertible Notes, plus accrued and unpaid interest up to, but excluding, the date that is 60 days after Digital Island Notice Date (as defined below) (the "Repurchase Date"). The consummation of the Offer on the terms described in this Offer to Purchase will constitute a Change of Control under the Indenture. However, the consummation of the Offer will not be deemed to be a Change of Control for purposes of the Indenture if the closing price of the Shares for any five trading days during the 10 trading days immediately preceding the consummation of the Offer is at least equal to 105% of the conversion price of the Convertible Notes (105% of the current conversion price of $131.61 is $138.19) in effect on such trading date.

    Within 30 days after the occurrence of a Change in Control, Digital Island, or at Digital Island's request the trustee under the Indenture, will mail a written notice to each holder of Convertible Notes (and to beneficial owners as required by applicable law) (the "Company Notice Date"). Digital Island also will give notice to the trustee. Such notice will include a form of the Notice of Election of Holder to Require Repurchase (as defined below) and will state, among other things, the Repurchase Date, the repurchase price, the procedures that the holder of Convertible Notes must follow to exercise the rights described on the previous paragraph, the conversion rights, the conversion price and any adjustment thereto, the date by which the Notice of Election of Holder to Require Repurchase must be given, and the name and address of each Paying Agent and Conversion Agent (as defined in the Indenture). A holder of Convertible Notes may exercise the rights described in the previous paragraph upon delivery of a written notice (the "Notice of Election of Holder to Require Repurchase") to any Paying Agent (as defined in the Indenture) at any time prior to the close of business on the thirtieth (30th) day following Digital Island

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Notice Date. See "Indebtedness of Digital Island" in Section 10. Background of the Offer; the Merger Agreement and Related Agreements.

12. Dividends and Distributions.

    The Merger Agreement provides that Digital Island will not, between the date of the Merger Agreement and the Effective Time, without the prior written consent of Parent (a) issue, sell, pledge, license, dispose of, grant, encumber, or authorize the issuance, sale, pledge, disposition, grant or encumbrance of, (i) any shares of any class of capital stock of Digital Island or any Subsidiary, or any options, warrants, convertible securities or other rights of any kind to acquire any shares of such capital stock, or any other ownership interest (including, without limitation, any phantom interest), of Digital Island or any Subsidiary, or (ii) except in the ordinary course of business, except the issuance of Shares pursuant to the exercise of Company Stock Options or pursuant to the ESPP or pursuant to the Warrants or the Convertible Notes, any property or assets of Digital Island or any Subsidiary, (ii) modify any Company Stock Options outstanding on the date of the Merger Agreement, or (iii) accelerate the vesting or other benefit of any option, share or award whether or not pursuant to Digital Island Stock Option Plans, other than in accordance with the express terms of such option, share or award as in effect immediately prior to the date of the Merger Agreement; (b) declare, set aside, make or pay any dividend or other distribution, payable in cash, stock, property or otherwise, with respect to any of its capital stock, except for dividends by any direct or indirect wholly owned Subsidiary to Digital Island or any other Subsidiary; or (c) reclassify, combine, split, subdivide or redeem, or purchase or otherwise acquire, directly or indirectly, any of its capital stock (or securities convertible into or exercisable for any shares of its capital stock) except for acquisitions of restricted stock held by employees of Digital Island and its Subsidiaries upon termination of employment. See "Section 10. Background of the Offer; the Merger Agreement and Related Agreements."

13. Possible Effects of the Offer on the Market for Shares, Nasdaq Listing, Margin Regulations and Exchange Act Registration.

    Possible Effects of the Offer on the Market for the Shares.  The purchase of Shares by Purchaser in the Offer will reduce the number of Shares that might otherwise trade publicly and will reduce the number of holders of Shares, which could adversely affect the liquidity and market value of the remaining Shares held by the public. Cable & Wireless intends to cause the delisting of the Shares by Nasdaq following consummation of the Offer.

    Nasdaq Listing.  Depending upon the number of Shares purchased pursuant to the Offer, the Shares may no longer meet the standards for continued listing on Nasdaq. According to Nasdaq's published guidelines, Shares would not be eligible to be included for listing if, among other things, the number of Shares publicly held falls below 500,000, the number of beneficial owners of Shares falls below 300 or the market value of such publicly held Shares is not at least $1,000,000. If, as a result of the purchase of Shares pursuant to the Offer, the Merger or otherwise, the Shares no longer meet the requirements of Nasdaq for continued listing, the listing of the Shares will be discontinued. In such event, the market for the Shares would be adversely affected. In the event the Shares were no longer eligible for listing on Nasdaq, quotations might still be available from other sources. The extent of the public market for the Shares and the availability of such quotations would, however, depend upon the number of holders of such Shares remaining at such time, the interest in maintaining a market in such Shares on the part of securities firms, the possible termination of registration of such Shares under the Exchange Act as described below and other factors.

    Exchange Act Registration.  The Shares are currently registered under the Exchange Act. Such registration may be terminated upon application by Digital Island to the SEC if the Shares are not listed on a "national securities exchange" and there are fewer than 300 record holders. The termination of the registration of the Shares under the Exchange Act would substantially reduce the information required to

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be furnished by Digital Island to holders of Shares and to the Commission and would make certain provisions of the Exchange Act, such as the short-swing profit recovery provisions of Section 16(b), the requirement of furnishing a proxy statement in connection with stockholders' meetings pursuant to Section 14(a) or 14(c) of the Exchange Act and the related requirements of an annual report, and the requirements of Rule 13e-3 under the Exchange Act with respect to "going private" transactions, no longer applicable to the Shares. In addition, "affiliates" of Digital Island and persons holding "restricted securities" of Digital Island may be deprived of the ability to dispose of such securities pursuant to Rule 144 promulgated under the Securities Act of 1933, as amended. If registration of the Shares under the Exchange Act were terminated, the Shares would no longer be eligible for Nasdaq reporting. Purchaser currently intends to seek to cause Digital Island to terminate the registration of the Shares under the Exchange Act as soon after consummation of the Offer as the requirements for termination of registration are met.

    Margin Regulations.  The Shares are currently "margin securities," as such term is defined under the rules of the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"), which has the effect, among other things, of allowing brokers to extend credit on the collateral of such securities. Depending upon factors similar to those described above regarding listing and market quotations, following the Offer it is possible that the Shares might no longer constitute "margin securities" for purposes of the margin regulations of the Federal Reserve Board, in which event such Shares could no longer be used as collateral for loans made by brokers. In addition, if registration of the Shares under the Exchange Act were terminated, such Shares would no longer constitute "margin securities."

14. Certain Conditions of the Offer.

    Notwithstanding any other provision of the Offer, Cable & Wireless will not be required to accept for payment or to pay for any Shares tendered pursuant to the Offer, if (i) immediately prior to the expiration of the Offer, the Minimum Condition is not satisfied, (ii) any applicable waiting period under the HSR Act, the Fair Trading Act, the E.C. Merger Regulation or any other applicable foreign antitrust law has not expired or been terminated prior to the expiration of the Offer or (iii) at any time on or after the date of the Merger Agreement and prior to the expiration of the Offer, any of the following conditions exist (other than as a result of any action or inaction of Parent or Purchaser that constitutes a breach of the Merger Agreement):

    (a) any Action by any Governmental Authority has been instituted or is pending (i) challenging or seeking to make illegal, delay, or otherwise, directly or indirectly, restrain or prohibit or increase the cost of the making of the Offer, the acceptance for payment of any Shares by Cable & Wireless, Purchaser or any other Affiliate of Cable & Wireless, or the consummation of any other Transaction, or seeking to obtain damages in connection with any Transaction; (ii) seeking to prohibit or limit the ownership or operation by Digital Island, Cable & Wireless, Purchaser or any of their Subsidiaries of any business or assets of Digital Island, Cable & Wireless, Purchaser or any of their Subsidiaries or to compel Digital Island, Cable & Wireless, Purchaser or any of their Subsidiaries, as a result of the Transactions, to dispose of or to hold separate any business or assets of Digital Island, Cable & Wireless, Purchaser or any of their Subsidiaries; (iii) seeking to impose or confirm any limitation on the ability of Cable & Wireless, Purchaser or any other Affiliate of Cable & Wireless to exercise effectively full rights of ownership of any Shares, including, without limitation, the right to vote any Shares acquired by Purchaser pursuant to the Offer or otherwise on all matters properly presented to Digital Island's stockholders, including, without limitation, the approval and adoption of the Merger Agreement and the Transactions; or (iv) seeking to require divestiture by Cable & Wireless, Purchaser or any other Affiliate of Cable & Wireless of any Shares which, in the case of each of clauses (i) through (iv) of this paragraph (a) has an economic detriment to Cable & Wireless or Digital Island that is material in relation to Digital Island and its Subsidiaries taken as a whole;

    (b) any statute, rule, regulation, legislation or interpretation is enacted, promulgated, amended, issued or deemed applicable to (i) Cable & Wireless, Digital Island or any Subsidiary or Affiliate of

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Cable & Wireless or Digital Island or (ii) any Transaction, by any United States or foreign legislative body or Governmental Authority with appropriate jurisdiction, other than the routine application of the waiting period provisions of the HSR Act, the Fair Trading Act, the E.C. Merger Regulation or any other applicable foreign antitrust law to the Offer or the Merger, that is reasonably likely to result, directly or indirectly, in any of the consequences referred to in clauses (i) through (iv) of paragraph (a) above;

    (c) (i) the Board, or any committee thereof, withdraws or modifies, in a manner adverse to Cable & Wireless or Purchaser, the approval or recommendation of the Offer, the Merger, the Merger Agreement, or approves or recommends any Acquisition Proposal or any other acquisition of Shares other than the Offer, the Merger or (ii) the Board, or any committee thereof, resolves to do any of the foregoing;

    (d) any Material Adverse Change (which includes, among other things, the departure of any one of certain key officers of Digital Island (including Ms. Ruann Ernst, Mr. Charles Picasso and Mr. Timothy Wilson, each of whom has entered into an employment agreement with Cable & Wireless and Digital Island) or the departure of a majority of certain key officers and employees as agreed upon by Cable & Wireless and Digital Island, (some of whom have been offered, as of the date hereof, written employment agreements by Cable & Wireless) but excludes general financial and economic related conditions. See "Section 10. Background of the Offer; the Merger Agreement and Related Agreements.");

    (e) any representation or warranty of Digital Island in the Merger Agreement (i) that is qualified by materiality or Material Adverse Effect is not true and correct in any respect as so qualified or (ii) that is not qualified by materiality or Material Adverse Effect is not true and correct in all material respects, except to the extent the effect of any such breach, either individually or in the aggregate with all such other breaches, would not have a Material Adverse Effect;

    (f)  Digital Island fails to perform, in any material respect, any obligation or to comply, in any material respect, with any material agreement or covenant of Digital Island to be performed or complied with by it under the Merger Agreement;

    (g) the Merger Agreement has been terminated by Parent or Digital Island in accordance with its terms; or

    (h) there shall have occurred and be continuing (i) any general suspension of trading in, or limitation on prices for, securities on a national securities exchange in the United States (excluding any coordinated trading halt triggered solely as a result of a specified increase or decrease in a market index or similar "circuit breaker" process) which materially and adversely affects the extension of credit in the United States, the United Kingdom or the European Union generally by banks or other lending institutions, (ii) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, the United Kingdom or the European Union generally which materially and adversely affects the extension of credit in the United States, the United Kingdom or the European Union generally by banks or other lending institutions, (iii) any newly initiated material limitation (whether mandatory or not) by any Governmental Authority on, or other similar event that materially and adversely affects, the extension of credit in the United States, the United Kingdom or the European Union generally by banks or other lending institutions or (iv) a commencement of a war or armed hostilities or other national or international calamity directly or indirectly involving the United States, the United Kingdom or the European Union generally which materially and adversely affects the extension of credit in the United States, the United Kingdom or the European Union generally by banks or other lending institutions, and in the case of clauses (i) through (iv) of this paragraph (h), as a result thereof, notwithstanding Cable & Wireless' reasonable best efforts, Cable & Wireless' ability to access the Funds or to effect payment therewith for the Shares is materially and adversely affected,

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which in the judgment of Cable & Wireless in any such case, makes it inadvisable to proceed with such acceptance for payment of or payment for the Shares or to proceed with the Merger.

    The foregoing conditions are for the sole benefit of Purchaser and Cable & Wireless and may be asserted by Purchaser or Cable & Wireless regardless of the circumstances giving rise to any such condition or may be waived by Purchaser or Cable & Wireless in whole or in part at any time and from time to time in their sole discretion; provided, that, Purchaser and Cable & Wireless may not avail themselves of any such condition at any time during which either Purchaser or Cable & Wireless is in breach in any material respect of any of its representations, warranties and covenants set forth in the Merger Agreement to the extent (and only to the extent) such breach causes the failure of the Minimum Condition or any of the conditions set forth in this Section 14. The failure by Cable & Wireless or Purchaser at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right; the waiver of any such right with respect to particular facts and other circumstances shall not be deemed a waiver with respect to any other facts and circumstances; and each such right shall be deemed an ongoing right that may be asserted at any time and from time to time.

15. Certain Legal Matters and Regulatory Approvals.

    General.  The Purchaser is not aware of any pending legal proceeding relating to the Offer. Based upon Purchaser's review of publicly available information regarding Digital Island and the review of information furnished by Digital Island to Cable & Wireless and discussions between Cable & Wireless' representatives and representatives of Digital Island (see "Section 10. Background of the Offer; the Merger Agreement and Related Agreements"), neither Purchaser, Cable & Wireless USA nor Cable & Wireless is aware of (i) any license or other regulatory permit that appears to be material to the business of Digital Island or any of its subsidiaries, taken as a whole, which might be adversely affected by the acquisition of Shares by Purchaser pursuant to the Offer or (ii) except as described below, of any approval or other action by any domestic (federal or state) or foreign Governmental Authority which would be required prior to the acquisition of Shares by Purchaser pursuant to the Offer. Should any such approval or other action be required, it is Purchaser's present intention to seek such approval or action. Purchaser does not currently intend, however, to delay the purchase of Shares tendered pursuant to the Offer pending the outcome of any such action or the receipt of any such approval (subject to Purchaser's right to decline to purchase Shares if any of the conditions in "Section 14. Certain Conditions of the Offer" shall have occurred). There can be no assurance that any such approval or other action, if needed, would be obtained without substantial conditions or that adverse consequences might not result to the business of Digital Island, Cable & Wireless, Cable & Wireless USA or Purchaser or that certain parts of the business of Digital Island, Cable & Wireless, Cable & Wireless USA or Purchaser might not have to be disposed of or held separate or other substantial conditions complied with in order to obtain such approval or other action or in the event that such approval was not obtained or such other action was not taken. Purchaser's obligation under the Offer to accept for payment and pay for Shares is subject to certain conditions, including conditions relating to the legal matters discussed in this "Section 15. Certain Legal Matters and Regulatory Approvals." See "Section 14. Certain Conditions of the Offer" for certain conditions of the Offer.

    State Takeover Laws.  Digital Island is incorporated under the laws of the State of Delaware. In general, Section 203 of the DGCL prevents an "interested stockholder" (generally a person who owns or has the right to acquire 15% or more of a corporation's outstanding voting stock, or an affiliate or associate thereof) from engaging in a "business combination" (defined to include mergers and certain other transactions) with a Delaware corporation for a period of three years following the date such person became an interested stockholder unless, among other things, prior to such date the board of directors of the corporation approved either the business combination or the transaction in which the interested stockholder became an interested stockholder. On May 13, 2001, prior to the execution of the Merger Agreement, the Board by unanimous vote of all directors present at a meeting held on such date, approved

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the Merger Agreement, determined that each of the Offer and the Merger is fair to, and in the best interest of, Digital Island and the stockholders of Digital Island. Accordingly, Section 203 is inapplicable to the Offer and the Merger.

    A number of other states have adopted laws and regulations applicable to attempts to acquire securities of corporations which are incorporated, or have substantial assets, stockholders, principal executive offices or principal places of business, or whose business operations otherwise have substantial economic effects, in such states. In Edgar v. MITE Corp., the Supreme Court of the United States invalidated on constitutional grounds the Illinois Business Takeover Statute, which, as a matter of state securities law, made takeovers of corporations meeting certain requirements more difficult. However, in 1987 in CTS Corp. v. Dynamics Corp. of America, the Supreme Court held that the State of Indiana may, as a matter of corporate law and, in particular, with respect to those aspects of corporate law concerning corporate governance, constitutionally disqualify a potential acquiror from voting on the affairs of a target corporation without the prior approval of the remaining stockholders. The state law before the Supreme Court was by its terms applicable only to corporations that had a substantial number of stockholders in the state and were incorporated there.

    Digital Island, directly or through its subsidiaries, conducts business in a number of states throughout the United States, some of which have enacted takeover laws. Purchaser does not know whether any of these laws will, by their terms, apply to the Offer or the Merger and it has not complied with any such laws. Should any person seek to apply any state takeover law, Purchaser will take such action as then appears desirable, which may include challenging the validity or applicability of any such statute in appropriate court proceedings. In the event it is asserted that one or more state takeover laws is applicable to the Offer or the Merger, and an appropriate court does not determine that it is inapplicable or invalid as applied to the Offer, Purchaser might be required to file information with, or receive approvals from, the relevant state authorities. In addition, if enjoined, Purchaser might be unable to accept for payment any Shares tendered pursuant to the Offer, or be delayed in continuing or consummating the Offer, and the Merger. In such case, Purchaser may not be obligated to accept for payment any Shares tendered. See "Section 14. Certain Conditions of the Offer."

    Exon-Florio.  Under Exon-Florio, the President of the United States is authorized to prohibit or suspend acquisitions, mergers or takeovers by foreign persons of persons engaged in interstate commerce in the United States if the President determines, after investigation, that such foreign persons in exercising control of such acquired persons might take action that threatens to impair the national security of the United States and that other provisions of existing law do not provide adequate authority to protect national security. Pursuant to Exon-Florio, notice of an acquisition by a foreign person may be made to the Committee on Foreign Investment in the United States ("CFIUS") either voluntarily by the parties to such proposed acquisition, merger or takeover or by any member of CFIUS. CFIUS is comprised of representatives of the Departments of the Treasury, State, Commerce, Defense and Justice, the Office of Management and Budget, the Office of Science and Technology Policy, the United States Trade Representative's Office and the Council of Economic Advisors, as well as the Assistant to the President for National Security Affairs and the Assistant to the President for Economic Policy.

    A determination that an investigation is called for must be made within thirty days after notification of a proposed acquisition, merger or takeover is first filed with CFIUS. Any such investigation must be completed within forty-five days of such determination. Any decision by the President to take action must be announced within fifteen days of the completion of the investigation. Although Exon-Florio does not require the filing of a notification, nor does it prohibit the consummation of an acquisition, merger or takeover if the notification is not made, such an acquisition, merger or takeover thereafter remains indefinitely subject to divestment should the President subsequently determine that the national security of the United States has been threatened or impaired. The Purchaser and Digital Island intend to file with CFIUS a joint notice of the transactions contemplated by the Merger Agreement promptly. Although the Purchaser believes that the transactions contemplated by the Merger Agreement should not raise any

43

national security concerns, there can be no assurance that CFIUS will not determine to conduct an investigation of the proposed transaction and, if an investigation is commenced, there can be no assurance regarding the outcome of such investigation.

    United States Antitrust Compliance.  Under the HSR Act and the rules that have been issued by the Federal Trade Commission ("FTC"), certain acquisition transactions may not be consummated unless certain information has been furnished to the Antitrust Division of the Department of Justice (the "Antitrust Division") and the FTC and certain waiting period requirements have been satisfied. Purchaser's acquisition of Shares pursuant to the Offer is subject to these requirements. See "Section 2. Acceptance for Payment and Payment for Shares."

    Under the HSR Act, on May 18, 2001, Cable & Wireless filed a Premerger Notification and Report Form in connection with the purchase of the Shares pursuant to the Offer with the Antitrust Division and the FTC. Under the provisions of the HSR Act applicable to the Offer, the purchase of Shares pursuant to the Offer may not be consummated until the expiration of a 15-calendar day waiting period following the filing by Cable & Wireless. Accordingly, the waiting period under the HSR Act applicable to the purchase of the Shares pursuant to the Offer will expire at 11:59 p.m., New York City time, on or about June 4, 2001, unless such waiting period is earlier terminated by the FTC and the Antitrust Division or extended by a request from the FTC or the Antitrust Division for additional information or documentary material prior to the expiration or the waiting period. Pursuant to the HSR Act, Cable & Wireless has requested early termination of the waiting period applicable to the Offer. There can be no assurance, however, that the 15-day HSR Act waiting period will be terminated early. If either the FTC or the Antitrust Division were to request additional information or documentary material from Parent or Cable & Wireless USA with respect to the Offer, the waiting period would expire at 11:59 p.m., New York City time, on the tenth calendar day after the date of substantial compliance with such request. Thereafter, the waiting period could be extended only by court order. If the acquisition is delayed pursuant to a request by the FTC or the Antitrust Division for additional information or documentary material pursuant to the HSR Act, the Offer may, but need not, be extended and, in any event, the purchase of and payment for Shares will be deferred until 10 days after the request is substantially complied with, unless the waiting period is sooner terminated by the FTC and the Antitrust Division; provided, however that the Offer can be extended no longer than ninety (90) days without the consent Cable & Wireless and Digital Island. Only one extension of such waiting period pursuant to a request for additional information is authorized by the HSR Act and the rules promulgated thereunder, except by court order. Any such extension of the waiting period will not give rise to any withdrawal rights not otherwise provided for by applicable law. See "Section 4. Withdrawal Rights." It is a condition to the Offer that the waiting period applicable under the HSR Act to the Offer expire or be terminated. See "Section 1. Terms of the Offer; Expiration Date" and "Section 14. Certain Conditions of the Offer."

    The FTC and the Antitrust Division frequently scrutinize the legality under the antitrust laws of transactions such as the proposed purchase of Shares by Purchaser pursuant to the Offer. At any time before or after the purchase of Shares pursuant to the Offer, the FTC or the Antitrust Division could take such action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the purchase of Shares pursuant to the Offer or seeking the divestiture of Shares purchased by Purchaser or the divestiture of substantial assets of Cable & Wireless, Digital Island or their respective Subsidiaries. Private parties and state attorneys general may also bring legal action under federal or state antitrust laws under certain circumstances. Based upon an examination of information available to Cable & Wireless relating to the businesses in which Cable & Wireless, Digital Island and their respective subsidiaries are engaged, Cable & Wireless and Purchaser believe that the Offer will not violate the antitrust laws. Nevertheless, there can be no assurance that a challenge to the Offer on antitrust grounds will not be made or, if such a challenge is made, what the result would be. See "Section 14. Certain Conditions of the Offer" for certain conditions to the Offer, including conditions with respect to litigation.

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    European National Merger Regulation.  Purchaser and Digital Island each conduct substantial operations in the European Economic Area. European Council Regulation 4064/89, as amended, and Article 57 of the European Economic Area Agreement require that concentrations with a "Community or EFTA dimension" be notified in prescribed form to the Commission of the European Communities for review and approval. In these cases, the European Commission, as opposed to the individual countries within the European Economic Area, will, with certain exceptions, have exclusive jurisdiction to review the concentration. Approval by the European Commission is, with certain very limited exceptions, required prior to completion of transactions, with "Community or EFTA dimensions."

    Cable & Wireless and Digital Island have determined that the Offer and the Merger have a "community dimension," and thus, intend to file notification in the prescribed form with the European Commission in accordance with the European Regulation promptly.

    This filing will trigger a one-month review period in which the European Commission is required to determine whether the proposed Merger is compatible with the European common market or that there is sufficiently "serious doubt" about the proposed Merger's compatibility with the common market to require a more complete review of the proposed merger.

    The one-month review period can be extended to six weeks if the parties offer undertakings to address certain concerns the European Commission may have. If after the initial one-month (or six weeks) review period, the European Commission continues to have serious doubts regarding the compatibility of the Merger with the European common market, the total review period can be as long as five months from the date of complete notification. During the review process conditions can be imposed and obligations by the parties may become necessary.

    U.K. Fair Trading Act.  The United Kingdom Fair Trading Act 1973 will apply to an acquisition of Digital Island by the Purchaser. Under the U.K. Fair Trading Act, the Director General of Fair Trading can recommend to the Secretary of State for Trade and Industry that the Secretary refer the proposed acquisition to the Competition Commission which would then be required to determine whether the proposed acquisition "operates, or may be expected to operate, against the public interest." The Secretary of State for Trade and Industry has statutory powers to order, among other things, a disinvestment if the Competition Commission reports unfavorably on any acquisition. Purchaser intends to file notice of the Offer and Merger with the Office of Fair Trading and to seek confirmation that the Secretary of State does not intend to refer the Offer and Merger to the Competition Commission.

    Other Applicable Foreign Antitrust Laws.  Other than the filings described above, Parent and Digital Island do not believe that any additional material antitrust filings are required with respect to the Offer or the Merger. To the extent that any additional antitrust filings are required pursuant to other applicable foreign antitrust laws, Cable & Wireless and Digital Island will make such filings.

    Other Laws and Legal Matters.  According to Digital Island's 2000 Form 10-K, Digital Island conducts operations in a number of foreign countries. In the event that one or more foreign laws is deemed to be applicable to the Offer, Purchaser and/or Digital Island may be required to file certain information or to receive the approval of the relevant foreign authority. Such government may also attempt to impose additional conditions on Digital Island's operations conducted in such countries. After completion of the Offer, Purchaser will seek further information regarding the applicability of any such laws and presently intends to take such action as such laws may require.

16. Fees and Expenses.

    Except as set forth below, Purchaser will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of Shares pursuant to the Offer.

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    Greenhill and Merrill Lynch are acting as Dealer Managers in connection with the Offer and each has provided certain financial advisory services to Cable & Wireless, Cable & Wireless USA and Purchaser in connection with the Offer and Merger. Cable & Wireless has agreed to pay each of Greenhill and Merrill Lynch reasonable and customary compensation for its services as financial advisor in connection with the Offer (including the services of each as a Dealer Manager. Cable & Wireless has also agreed to reimburse each of Greenhill and Merrill Lynch for all reasonable out-of-pocket expenses incurred by each Dealer Manager and to indemnify each Dealer Manager against certain liabilities and expenses in connection with its engagement, including certain liabilities under the federal securities laws.

    Purchaser and Cable & Wireless retained MalCon Proxy Advisors, Inc. as the Information Agent, and Computershare Trust Company of New York as the Depositary, in connection with the Offer. The Information Agent may contact holders of Shares by mail, telephone, telex, telecopy, telegraph and personal interview and may request banks, brokers, dealers and other nominee stockholders to forward materials relating to the Offer to beneficial owners. As compensation for acting as Information Agent in connection with the Offer, Purchaser will pay the Information Agent reasonable and customary compensation for its services in connection with the Offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Information Agent against certain liabilities and expenses in connection therewith, including certain liabilities under the federal securities laws.

    Purchaser will pay the Depositary reasonable and customary compensation for its services in connection with the Offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Depositary against certain liabilities and expenses in connection therewith, including under federal securities laws. Brokers, dealers, commercial banks and trust companies will be reimbursed by Purchaser for customary handling and mailing expenses incurred by them in forwarding material to their customers.

17. Miscellaneous.

    The Offer is being made solely by this Offer to Purchase and the related Letter of Transmittal and is being made to holders of Shares. Purchaser is not aware of any jurisdiction where the making of the Offer or the acceptance of Shares pursuant thereto is prohibited by any administrative or judicial action or by any valid state statute. If Purchaser becomes aware of any valid state statute prohibiting the making of the Offer or the acceptance of Shares pursuant thereto, Purchaser will make a good faith effort to comply with any such state statute or seek to have such statute declared inapplicable to the Offer. If, after such good faith effort, Purchaser cannot comply with any such state statute, the Offer will not be made to (nor will tenders be accepted from or on behalf of) the holders of Shares in such state. In any jurisdiction where the securities, blue sky or other laws require the Offer to be made by a licensed broker or dealer, the Offer shall be deemed to be made on behalf of Purchaser by the Dealer Managers or by one or more registered brokers or dealers licensed under the laws of such jurisdiction.

    Purchaser has not authorized any person to give any information or make any representation on its behalf not contained in this Offer to Purchase or in the Letter of Transmittal, and if given or made, holders of Shares should not rely on such information or representation as having been authorized.

    Pursuant to Rule 14d-3 of the General Rules and Regulations under the Exchange Act, Cable & Wireless, Cable & Wireless USA and Purchaser have filed with the SEC the Schedule TO, together with exhibits, furnishing certain additional information with respect to the Offer. The Schedule TO and any amendments thereto, including exhibits, may be inspected at, and copies may be obtained from, the same places and in the same manner as set forth in "Section 7. Certain Information Concerning Digital Island" (except that they will not be available at the regional offices of the SEC).

Dali Acquisition Corp.

Dated: May 21, 2001

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SCHEDULE I

INFORMATION CONCERNING THE DIRECTORS AND EXECUTIVE
OFFICERS OF CABLE AND WIRELESS PLC, CABLE & WIRELESS USA, INC. AND
DALI ACQUISITION CORP.

1. Directors and Executive Officers of Cable & Wireless.

    The following table sets forth the name, current business address, citizenship and current principal occupation or employment, and material occupations, positions, offices or employments and business addresses for the past five years of each director and executive officer of Cable & Wireless. Unless otherwise indicated, each such person is a citizen of the United Kingdom and the business address of each such person is c/o Cable and Wireless plc, 124 Theobalds Road, London WC1X 8RX England. Unless otherwise indicated, each occupation set forth opposite an individual's name refers to employment with Cable & Wireless. Unless otherwise indicated, each such person has held his or her present occupation as set forth below, or has been an executive officer at Cable & Wireless for the past five years.

Name and Current Address	Present Principal Occupation or Employment; Material Positions Held During the Past Five Years
Sir Ralph Robins	Chairman and Non-executive Director.
	Sir Ralph Robins was appointed to the Board in April 1994 and became Chairman in June 1998. He is a member of the Audit Committee and the Remuneration Committee and also Chairman of Cable & Wireless Optus. Sir Ralph has been Chairman of Rolls-Royce plc since 1992, having joined the company as a graduate apprentice in 1955. He is Chairman of the Defence Industries Council, a Non-executive Director of Marks & Spencer plc, Schroders plc, Standard Chartered plc and a past President of the Society of British Aerospace Companies.
Graham M. Wallace	Chief Executive.
	Graham Wallace was appointed Chief Executive in February 1999, having been a Director since September 1998. He was Chief Executive of Cable & Wireless Communications plc from February 1997 to February 1999. Mr. Wallace joined Cable & Wireless from Granada Group plc, where he was a Main Board Director and Chief Executive of the Restaurants and Services Division from 1995 to 1997. He was formerly Chief Executive of the Granada Group's UK television and video rental business and before that Finance Director of Granada Group plc. His previous career included eight years with Xerox in the UK and US. He is also a Director of NTL Incorporated.
Sir Winfried F. W. Bischoff	Non-executive Director and Deputy Chairman.
	Sir Winfried Bischoff was appointed a Non-executive Director in 1991 and Deputy Chairman in 1995. He is also Chairman of the Remuneration Committee and a member of the Audit Committee. He joined Schroders plc in London in 1966 and was appointed Managing Director of Schroders Asia Limited, Hong Kong in 1971. Sir Winfried was appointed Chairman of J. Henry Schroder & Co. Limited in October 1983, Group Chief Executive of Schroders plc from December 1984 and Chairman of Schroders plc in May 1995. He is also a Non-executive Director of Land Securities PLC, Eli Lilly & Company and The McGraw-Hill Companies Inc. In May, 2000 he joined Citigroup as Chairman of Citigroup Europe.

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Robert E. Lerwill	Executive Director, Finance and Chief Executive Regional Businesses.
	Robert Lerwill has been Chief Executive, Regional Businesses since May 2000. Mr. Lerwill joined Cable & Wireless as Executive Director, Finance in January 1997. He is also a Director of Cable & Wireless Optus and has additional responsibility for Cable & Wireless Regional Businesses. From March 1986 to December 1996, Mr. Lerwill was Group Finance Director of WPP Group plc, the world-wide marketing services company. He earlier spent 10 years with Arthur Andersen & Co. where he qualified as a Chartered Accountant. He is a Non-executive Director of Aegis Group plc.
Stephen R. Pettit	Executive Director, Corporate Development.
	Stephen Pettit was appointed Executive Director, Corporate Development, in May 1999. He was Executive Director, Global Businesses from April 1997. He is also a Director of Cable & Wireless Optus. Mr. Pettit joined Cable & Wireless in March 1994 as Managing Director for Europe, and in 1995 became Executive Director, Europe and Mobile and was responsible for the establishment of Cable & Wireless Communications plc in the UK. He joined the Board in November 1995. Mr. Pettit was formerly Chief Executive of British Petroleum's Petrochemicals business. He is a Non-executive Director of KBC Advanced Technologies plc, Norwood Systems Limited, Pure Entertainment Games plc and Gorilla Park B.V.
Dr. Janet P. Morgan	Non-executive Director.
	Dr. Janet Morgan was appointed a Non-executive Director in 1988. She is a member of the Audit Committee, the Remuneration Committee and the Community Investment Committee. Dr. Morgan is also a Non-executive Director of the Scottish American Investment Company plc, the Scottish Life Assurance Company, the Nuclear Generation Decommissioning Fund Ltd., the Scottish Oriental Smaller Companies Investment Trust plc, NMT Group plc and BPB plc.
David P. Nash	Non-executive Director.
	David Nash was appointed a Non-executive Director in September 1995. He is Chairman of the Audit Committee and a member of the Remuneration Committee. Mr. Nash was Chairman of Cable & Wireless Communications plc from December 1998 until its sale in 2000. Formerly Group Finance Director of Grant Metropolitan plc and then Chairman and Chief Executive of Grand Metropolitan's food and retailing businesses, he previously worked for ICI plc and Cadbury Schweppes plc. Mr. Nash is Chairman of Kenwood Appliances Plc, and a Non-executive Director of Sun Life and Provincial Holdings Plc. He is also Honorary Treasurer of the Prince of Wales' Business Leaders Forum. He is a former Chairman of General Healthcare Group Limited.

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The Honorable Raymond Seitz	Non-executive Director.
	Raymond Seitz became a Non-executive Director in February 1995 and is a member of the Audit Committee and the Remuneration Committee. He is Vice Chairman at Lehman Brothers and a Non-executive Director of Rio Tinto Plc, British Airways plc, Marconi plc, and Authoriszor Inc. Mr. Seitz was formerly the United States Ambassador to the United Kingdom. During a career in the US Diplomatic Service spanning 28 years, he was Executive Assistant to Secretary of State George Shultz from 1981-84, Minister at the US Embassy in London from 1984-89, and Assistant Secretary of State for Europe, based in Washington, between 1989 and 1991. Mr. Seitz is a United States citizen.
R. Michael McTighe	CEO, Global Operations.
	Michael McTighe joined Cable & Wireless as CEO Global Operations in May 1999 and was appointed to the Board in August 2000. From October 1998 to May 1999, Mr. McTighe was self-employed. From June 1997 to September 1998, Mr. McTighe was president and CEO of Philips, Consumer Communications LLP, a joint venture between Philips Electronics NV and Lucent Technologies Inc. From June 1995 to June 1997, Mr. McTighe was Managing Director of Philips Consumer Communications. He is a Non-executive Director of Alliance & Leicester and European Telecom plc.
Donald B. Reed	CEO, Global Services.
	Donald Reed was appointed CEO, Global Services in May 2000 having been with the Group since June 1998. He was appointed to the Board of Cable & Wireless plc on 21 August 2000. Prior to his appointment as CEO Global Services, Mr. Reed was CEO Regional Businesses from May 1999 and before that his area of responsibility covered the Group's Mobile, Middle East, Group Technology, Strategic Planning and Business Development, Government Relations, Group Purchasing, Group Marketing and Customer Services operations. Before joining Cable & Wireless Mr. Reed was President and Group Executive of NYNEX, directing its regional, national and international government affairs, public policy initiatives, legislative and regulatory matters and public relations. Mr. Reed is a Commissioner of the Global Information Infrastructure Commission and is Co-Chair of its Policy Task Force. He is also Vice Chairman of the US-Thailand Business Council and sits on the Advisory Board of the Center for Strategy and International Studies. Mr. Reed is a United States citizen.

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2. Directors and Executive Officers of Cable & Wireless USA.

    The following table sets forth the name, current business address, citizenship and present principal occupation or employment, and material occupations, positions, offices or employments and business addresses thereof for the past five years of each director and executive officer of Cable & Wireless USA. Unless otherwise indicated, the current business address of each person is c/o Cable & Wireless USA, 8219 Leesburg Pike, Vienna, Virginia 22182. Unless otherwise indicated, each such person is a citizen of the United States, and each occupation set forth opposite an individual's name refers to employment with Cable & Wireless USA.

Name and Current Address	Present Principal Occupation or Employment; Material Positions Held During the Past Five Years
Trey Smith	Director, President.
	Trey Smith was appointed to the Board of Directors in March 2001 and has been President since such date. Mr. Smith is also the Chief Technology, Global, Cable & Wireless plc. From 1999 to March 2001, he was Senior Vice President and Chief Technology Officer of Road Runner, LLC. Prior to joining Road Runner, from 1998 to 1999, Mr. Smith was Vice President, Advanced Consumer Products at COMPAQ Computer Corporation. During 1998, he was Vice President, Chief Technology Officer of Compaq. From 1985 to 1997, Mr. Smith held a variety of positions at IBM Corporation, including Chief Technology Officer during 1997.
Richard H. Goshorn	Director, Secretary.
	Mr. Goshorn joined Cable & Wireless USA in September 1998 as Vice President and General Counsel. Mr. Goshorn also has been Senior Vice President and General Counsel, Global, Cable & Wireless since June 1999. From September 1997 to September 1998, Mr. Goshorn was Director of Legal Services, Global Businesses for Cable & Wireless plc. From February 1997 to September 1997, he was Director of Legal Affairs, Asia Pacific for Cable & Wireless plc. From January 1996 to January 1997, Mr. Goshorn was Director of Legal Services, Cable & Wireless Europe.
Patricia Lee	Vice President, Associate General Counsel and Assistant Secretary
	Ms. Lee joined Cable & Wireless USA in June 2000. From April 1996 to June 2000, Ms. Lee was a partner in the law firm of Holland & Knight LLP in Washington, D.C. From March 1995 to March 1996, Ms. Lee was a trial attorney at the U.S. Department of Justice.
Siobhan Deleeuw	Vice President, Finance.
	Ms. Deleeuw joined Cable & Wireless USA in June 1995 and has been Vice President, Finance since April 2001. From June 1995 to May 1997, Ms. Deleeuw was Director, Finance Planning and Reporting. From June 1997 to March 2001, Ms. Deleeuw was Vice President and Controller. Ms. Deleeuw is a citizen of Ireland.

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David Wheatley	Assistant Treasurer.
	Mr. Wheatley joined Cable & Wireless USA in July 2000. From December 1998 to July 2000, Mr. Wheatley was Senior Tax Manager of Cable and Wireless plc. From January 1994 to December 1998, Mr. Wheatley worked as a tax consultant. Mr. Wheatley is a citizen of the United Kingdom.
Robert N. Walton	Assistant Secretary.
	Mr. Walton joined Cable & Wireless USA in May 1999 as Senior Corporate Counsel and was appointed to the position of Vice President and Associate General Counsel in May 2000. From September 1998 to April 1999 Mr. Walton was an attorney with Rogers & Wells; prior to that, between January 1996 and April 1998 he was an attorney with Cole Raywid & Braverman.

3. Directors and Executive Officers of Purchaser.

    The following table sets forth the name, current business address, citizenship and present principal occupation or employment, and material occupations, positions, offices or employments and business addresses thereof for the past five years of each director and executive officer of Purchaser. Unless otherwise indicated, the current business address of each person is c/o Cable and Wireless plc, 124 Theobalds Road, London WC1X 8RX England. Unless otherwise indicated, each such person is a citizen of the United Kingdom, and each occupation set forth opposite an individual's name refers to employment with Purchaser.

Name and Current Address	Present Principal Occupation or Employment; Material Positions Held During the Past Five Years
Robert Drolet	Director, President and Treasurer.
	Mr. Drolet is also Chief Commercial Officer, Global, Cable and Wireless plc. From March 1999 to June 2000, Mr. Drolet was General Counsel of Cable & Wireless Communications plc, and from June 1997 to March 1999 he was Legal Director and Secretary. From June 1996 to June 1997, Mr. Drolet was General Counsel and Secretary of Bell Cablemedia plc. Mr. Drolet is a citizen of Canada and the United Kingdom.
Sarah Byrne-Quinn	Director, Vice President and Secretary.
	Ms. Byrne-Quinn is also Senior Vice President, Strategy and Business Development, Global, Cable and Wireless plc. Ms. Byrne-Quinn joined Cable & Wireless in January 2000. From September 1993 to December 1999, Ms. Byrne-Quinn was Vice President Strategy and Business Development at Ameritech Telecommunications. Ms. Byrne-Quinn is a United States citizen.

I–5

    The Letter of Transmittal, manually signed, and certificates evidencing Shares and any other required documents should be sent or delivered by each stockholder or such stockholder's broker, dealer, commercial bank, trust company or other nominee to the Depositary at one of its addresses set forth below.

The Depositary for the Offer is:

COMPUTERSHARE TRUST COMPANY OF NEW YORK

By Mail: Computershare Trust Company of New York Reorganization Department Wall Street Station P.O. Box 1010 New York, NY 10268-1010	By Overnight Courier: Computershare Trust Company of New York Reorganization Department Wall Street Plaza 88 Pine Street, 19th Floor New York, NY 10005	By Hand: Computershare Trust Company of New York Reorganization Department Wall Street Plaza 88 Pine Street, 19th Floor New York, NY 10005
By Facsimile Transmission (For Eligible Institutions Only): (212) 701-7636 Confirm Receipt of Facsimile by Telephone Only: (212) 701-7624

    Questions or requests for assistance may be directed to the Information Agent or the Dealer Managers at their respective addresses and telephone numbers listed below. Additional copies of this Offer to Purchase, the Letter of Transmittal and the Notice of Guaranteed Delivery may be obtained from the Information Agent. A stockholder may also contact brokers, dealers, commercial banks or trust companies for assistance concerning the Offer.

The Information Agent for the Offer is:

MalCon Proxy Advisors, Inc.

130 William Street
New York, New York 10038
email: info@malconproxy.com
Banks and Brokers Call Collect: (212) 619-4565
All Others Call Toll Free: (800) 475-9320

The Dealer Managers for the Offer are:

Greenhill
300 Park Avenue, 23rd Floor
New York, New York 10022
Call Toll Free: (866) 211-8609
Call Collect: (212) 389-1799
Merrill Lynch & Co.
Four World Financial Center
New York, New York 10080
Call Collect: (212) 236-3790

QuickLinks

IMPORTANT
TABLE OF CONTENTS
SUMMARY TERM SHEET
INTRODUCTION
DIGITAL ISLAND, INC. SELECTED CONSOLIDATED FINANCIAL INFORMATION (in thousands, except per share data)
THE MERGER AGREEMENT
RELATED AGREEMENTS
INFORMATION CONCERNING THE DIRECTORS AND EXECUTIVE OFFICERS

EX-99.(A)(1)(B)

LETTER OF TRANSMITTAL
To Tender Shares of Common Stock

of

Digital Island, Inc.

Pursuant to the Offer to Purchase
dated May 21, 2001
by
Dali Acquisition Corp.
a wholly owned subsidiary of
Cable and Wireless plc

    THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT,
NEW YORK CITY TIME, ON MONDAY, JUNE 18, 2001, UNLESS THE OFFER IS EXTENDED.

The Depositary for the Offer is:

COMPUTERSHARE TRUST COMPANY OF NEW YORK

By Mail:
Computershare Trust Company
of New York
Reorganization Department
of New York
Wall Street Station
P.O. Box 1010
New York, NY 10268-1010 By Overnight Courier:
Computershare Trust Company
of New York
Reorganization Department
Wall Street Plaza
88 Pine Street, 19^th Floor
New York, NY 10005 By Hand:
Computershare Trust Company
of New York
Reorganization Department
Wall Street Plaza
88 Pine Street, 19^th Floor
New York, NY 10005

By Facsimile Transmission:
(For Eligible Institutions Only)

(212) 701-7636

Confirm Receipt of Facsimile by Telephone Only:

(212) 701-7624

    DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS, OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.

    THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.

DESCRIPTION OF SHARES TENDERED
Name(s) and Address(es) of Registered Holder(s) (Please fill in, if blank, exactly as name(s) appear(s) on Share Certificate(s))	Share Certificate(s) and Share(s) Tendered (Attach additional list if necessary)
	Share Certificate Number(s)*	Total Number of Shares Evidenced by Share Certificate(s)*	Number of Shares Tendered**
	Total Shares
*   Need not be completed by stockholders delivering Shares by book-entry transfer.
** Unless otherwise indicated, it will be assumed that all Shares evidenced by each Share Certificate delivered to the Depositary are being      tendered hereby. See Instruction 4.

/ / CHECK HERE IF CERTIFICATES HAVE BEEN LOST, DESTROYED OR STOLEN. SEE INSTRUCTION 10.

    This Letter of Transmittal is to be completed by stockholders of Digital Island, Inc. either if certificates evidencing Shares (as defined below) are to be forwarded herewith or unless an Agent's Message (as defined in the Offer to Purchase) is utilized or if delivery of Shares is to be made by book-entry transfer to the Depositary's account at The Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the book-entry transfer procedure set forth in "Section 3. Procedures for Accepting the Offer and Tendering Shares" of the Offer to Purchase. Delivery of documents to the Book-Entry Transfer Facility does not constitute delivery to the Depositary.

    Stockholders whose certificates evidencing Shares ("Share Certificates") are not immediately available or who cannot deliver their Share Certificates and all other documents required hereby to the Depositary prior to the Expiration Date (as defined in "Section 1. Terms of the Offer; Expiration Date" of the Offer to Purchase) or who cannot complete the procedure for delivery by book-entry transfer on a timely basis and who wish to tender their Shares must do so pursuant to the guaranteed delivery procedure described in "Section 3. Procedures for Accepting the Offer and Tendering Shares" of the Offer to Purchase. See Instruction 2.

/ /  CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE DEPOSITARY'S ACCOUNT AT THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:

    Name of Tendering Institution__________________________________________________________________

    Account Number_____________________________________________________________________________

    Transaction Code Number_____________________________________________________________________

/ /  CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE FOLLOWING:

    Name(s) of Registered Holder(s)_______________________________________________________________

    Window Ticket No. (if any)____________________________________________________________________

    Date of Execution of Notice of Guaranteed Delivery______________________________________________

    Name of Institution that Guaranteed Delivery_______________________________________________________

    If delivery is by book-entry transfer, give the following information:

    Account Number_______________________________________________________________________

    Transaction Code Number_______________________________________________________________

NOTE:

YOU MUST SIGN THIS LETTER OF TRANSMITTAL IN THE APPROPRIATE SPACE ON PAGE 6 AND COMPLETE THE SUBSTITUTE FORM W-9 SET FORTH ON PAGE 11. PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY.

2

NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY

Ladies and Gentlemen:

    The undersigned hereby tenders to Dali Acquisition Corp., a Delaware corporation ("Purchaser") and a wholly owned subsidiary of Cable and Wireless plc, a public limited company incorporated under the laws of England and Wales ("Parent"), the above-described shares of common stock, par value $0.001 per share ("Shares"), of Digital Island, Inc., a Delaware corporation (the "Company"), pursuant to Purchaser's offer to purchase all the issued and outstanding Shares at $3.40 per Share, net to the seller in cash, without interest and less any required withholding taxes, upon the terms and subject to the conditions described in the Offer to Purchase dated May 21, 2001 (the "Offer to Purchase"), receipt of which is hereby acknowledged, and in this Letter of Transmittal (which, together with the Offer to Purchase and any amendments or supplements hereto or thereto, collectively constitute the "Offer"). After commencement, but prior to consummation of the Offer, Parent intends to transfer its ownership of all of the shares of Purchaser to Cable & Wireless USA, Inc., a Delaware corporation and a wholly owned subsidiary of Parent. The undersigned will not be obligated to pay brokerage fees or commissions, or except as set forth in Instruction 6 of this Letter of Transmittal, stock transfer taxes on the transfer and sale of Shares pursuant to the Offer. Purchaser will pay all fees and expenses of Computershare Trust Company of New York, as Depositary (the "Depositary"), Greenhill & Co., LLC, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as Dealer Managers (the "Dealer Managers") and MalCon Proxy Advisors, Inc. as Information Agent (the "Information Agent"), incurred in connection with the Offer. The undersigned understands that Purchaser reserves the right to transfer or assign, in whole or from time to time in part, to one or more of its affiliates, the right to purchase all or any portion of the Shares tendered pursuant to the Offer.

    Upon the terms and subject to the conditions of the Offer (and if the Offer is extended or amended, the terms of any such extension or amendment), and subject to and effective upon acceptance for payment of Shares tendered herewith, in accordance with the terms of the Offer, the undersigned hereby sells, assigns and transfers to or upon the order of Purchaser all right, title and interest in and to all Shares that are being tendered hereby and all dividends, distributions (including, without limitation, distributions of additional Shares) and rights declared, paid or distributed in respect thereof (collectively, "Distributions") and irrevocably appoints the Depositary the true and lawful agent and attorney-in-fact of the undersigned with respect to such Shares (and all Distributions), with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest), to (i) deliver Share Certificates evidencing such Shares (and all Distributions), or transfer ownership of such Shares (and all Distributions) on the account books maintained by the Book-Entry Transfer Facility, together, in either case, with all accompanying evidences of transfer and authenticity, to the Depositary for the account of Purchaser upon receipt by the Depositary of the purchase price, (ii) present such Shares (and all Distributions) for transfer on the books of the Company and (iii) receive all benefits and otherwise exercise all rights of beneficial ownership of such Shares (and all Distributions), all in accordance with the terms and subject to the conditions of the Offer.

    By executing this Letter of Transmittal, the undersigned hereby irrevocably appoints each designee of Purchaser, as the attorney-in-fact and proxy of the undersigned, each with full power of substitution, to vote in such manner as each such attorney and proxy or his substitute shall, in its sole discretion, deem proper and otherwise act (by written consent or otherwise) with respect to all Shares tendered hereby which have been accepted for payment by Purchaser prior to the time of such vote or other action and all Shares and other securities issued in Distributions in respect of such Shares, which the undersigned is entitled to vote at any meeting of stockholders of the Company (whether annual or special and whether or not an adjourned or postponed meeting) or consent in lieu of any such meeting or otherwise. This proxy and power of attorney is coupled with an interest in Shares tendered hereby, is irrevocable and is granted in consideration of, and is effective upon, the acceptance for payment of such Shares by Purchaser in accordance with other terms of the Offer. Such acceptance for payment shall revoke all other proxies and powers of attorney granted by the undersigned at any time with respect to such Shares (and all Shares and other securities issued in Distributions in respect of such Shares), and no subsequent proxies, powers of attorney, consents or revocations may be given by the undersigned with respect thereto (and if given will not be deemed effective). The undersigned understands that, in order for Shares or Distributions to be deemed validly tendered, immediately upon Purchaser's acceptance of such Shares for payment, Purchaser must be able to exercise full voting and other rights with respect to such Shares (and any and all Distributions), including, without limitation, voting at any meeting of the Company's stockholders then scheduled.

    The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, sell, assign and transfer Shares tendered hereby and all Distributions, that when such Shares are accepted for payment

3

by Purchaser, Purchaser will acquire good, marketable and unencumbered title thereto and to all Distributions, free and clear of all liens, restriction, charges and encumbrances, and that none of such Shares and Distributions will be subject to any adverse claim. The undersigned, upon request, shall execute and deliver all additional documents deemed by the Depositary or Purchaser to be necessary or desirable to complete the sale, assignment and transfer of Shares tendered hereby and all Distributions. In addition, the undersigned shall remit and transfer promptly to the Depositary for the account of Purchaser all Distributions in respect of Shares tendered hereby, accompanied by appropriate documentation of transfer, and pending such remittance and transfer or appropriate assurance thereof, Purchaser shall be entitled to all rights and privileges as owner of each such Distribution and may withhold the entire purchase price of Shares tendered hereby, or deduct from such purchase price, the amount or value of such Distribution as determined by Purchaser in its sole discretion.

    All authority herein conferred or agreed to be conferred shall not be affected by and shall survive the death or incapacity of the undersigned. All obligations of the undersigned hereunder shall be binding upon the heirs, personal representatives, successors and assigns of the undersigned. Except as stated in the Offer to Purchase, this tender is irrevocable.

    The undersigned understands that the valid tender of Shares pursuant to any one of the procedures described in "Section 3. Procedures for Accepting the Offer and Tendering Shares" of the Offer to Purchase and in the Instructions hereto will constitute the undersigned's acceptance of the terms and conditions of the Offer. Purchaser's acceptance of such Shares for payment will constitute a binding agreement between the undersigned and Purchaser upon the terms and subject to the conditions of the Offer (and if the Offer is extended or amended, the terms or conditions of any such extension or amendment).

    Unless otherwise indicated in the box entitled "Special Payment Instructions" on page 5 hereof, please issue the check for the purchase price of all Shares purchased and return all Share Certificates evidencing Shares not tendered or not accepted for payment in the name(s) of the registered holder(s) appearing above (under "Description of Shares Tendered"). Similarly, unless otherwise indicated in the box entitled "Special Delivery Instructions" on page 5 hereof, please mail the check for the purchase price of all Shares purchased and return all Share Certificates evidencing Shares not tendered or not accepted for payment (and accompanying documents, as appropriate) to the address(es) of the registered holder(s) appearing under "Description of Shares Tendered" on the cover page hereof. In the event that the boxes on page 5 hereof entitled "Special Payment Instructions" and "Special Delivery Instructions" are both completed, please issue the check for the purchase price of all Shares purchased and return all Share Certificates evidencing Shares not tendered or not accepted for payment in the name(s) of, and deliver such check and return such Share Certificates (and any accompanying documents, as appropriate) to, the person(s) so indicated. Unless otherwise indicated in the box entitled "Special Payment Instructions" on page 5 hereof, please credit any Shares tendered hereby and delivered by book-entry transfer that are not accepted for payment by crediting the account at the Book-Entry Transfer Facility designated above. The undersigned recognizes that Purchaser has no obligation, pursuant to the Special Payment Instructions, to transfer any Shares from the name of the registered holder(s) thereof if Purchaser does not accept for payment any Shares tendered hereby.

4

SPECIAL PAYMENT INSTRUCTIONS
(See Instructions 1, 6, 7 and 9)

    To be completed ONLY if the check for the purchase price of Shares and Share Certificates evidencing Shares not tendered or not purchased are to be issued in the name of someone other than the undersigned.

Issue Check and/or Share Certificate(s) to:

Name:
	(Please Print)
Address:
(Zip Code)
(Tax Identification or Social Security Number) (See Substitute Form W-9 on page 11)

SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 1, 6, 7 and 9)

    To be completed ONLY if the check for the purchase price of Shares purchased and Share Certificates evidencing Shares not tendered or not purchased are to be mailed to someone other than the undersigned, or the undersigned at an address other than that under "Description of Shares Tendered."

Mail Check and Share Certificate(s) to:

Name:
	(Please Print)
Address:
(Zip Code)
(Tax Identification or Social Security Number) (See Substitute Form W-9 on page 11)

5

IMPORTANT

STOCKHOLDERS: SIGN HERE
(Please Complete Substitute Form W-9 on page 10)

Signature(s) of Holder(s)

Dated:                         , 2001                                                   

Name(s): 

(Please Print)

Capacity (full title): 

Address: 

(Include Zip Code)

Daytime Area Code and Telephone No.:

Taxpayer Identification or Social Security No.:

(See Substitute Form W-9 on page 11)

--> (Must be signed by registered holder(s) exactly as name(s) appear(s) on Share Certificates or on a security position listing by person(s) authorized to become registered holder(s) by certificates and documents transmitted herewith. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, please provide the following information and see Instruction 5.) <--

GUARANTEE OF SIGNATURE(S)
(See Instructions 1 and 5)

FOR USE BY FINANCIAL INSTITUTIONS ONLY.
FINANCIAL INSTITUTIONS: PLACE MEDALLION
GUARANTEE IN SPACE BELOW

Authorized Signature:

Name of Firm:

Address:

Area Code and Telephone Number:

Dated:

6

INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER

    1.  Guarantee of Signatures.  All signatures on this Letter of Transmittal must be guaranteed by a firm which is a member of the Security Transfer Agent Medallion Signature Program, or by any other "eligible guarantor institution," as such term is defined in Rule 17Ad-15 promulgated under the Securities Exchange Act of 1934, as amended (each of the foregoing being an "Eligible Institution") unless (i) this Letter of Transmittal is signed by the registered holder(s) of Shares (which term, for purposes of this document, shall include any participant in the Book-Entry Transfer Facility whose name appears on a security position listing as the owner of Shares) tendered hereby and such holder(s) has (have) NOT completed the box entitled "Special Payment Instructions" or "Special Delivery Instructions" on page 5 hereof or (ii) such Shares are tendered for the account of an Eligible Institution. See Instruction 5.

    2.  Delivery of Letter of Transmittal and Share Certificates.  This Letter of Transmittal is to be completed by stockholders either if Share Certificates are to be forwarded herewith or unless an Agent's Message is utilized or if tenders are to be made pursuant to the procedures for tenders by book-entry transfer pursuant to the procedure set forth in "Section 3. Procedures for Accepting the Offer and Tendering Shares" of the Offer to Purchase. Share Certificates evidencing all physically tendered Shares, or a timely confirmation of a book-entry transfer into the Depositary's account at the Book-Entry Transfer Facility of all Shares delivered by book-entry transfer, as well as a properly completed and duly executed Letter of Transmittal (or facsimile hereof), or in the case of a book-entry transfer, an Agent's Message (as defined in "Section 3. Procedures for Accepting the Offer and Tendering Shares" of the Offer to Purchase), and any other documents required by this Letter of Transmittal, must be received by the Depositary at one of its addresses on the back page hereof prior to the Expiration Date (as defined in "Section 1. Terms of the Offer; Expiration Date" of the Offer to Purchase). If Share Certificates are forwarded to the Depositary in multiple deliveries, a properly completed and duly executed Letter of Transmittal must accompany each such delivery. Stockholders whose Share Certificates are not immediately available, who cannot deliver their Share Certificates and all other required documents to the Depositary on or prior to the Expiration Date or who cannot complete the procedure for delivery by book-entry transfer on a timely basis may tender their Shares pursuant to the guaranteed delivery procedure described in "Section 3. Procedures for Accepting the Offer and Tendering Shares" of the Offer to Purchase. Pursuant to such procedure: (i) such tender must be made by or through an Eligible Institution; (ii) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form made available by Purchaser, must be received by the Depositary prior to the Expiration Date; and (iii) the Share Certificates evidencing all physically delivered Shares in proper form for transfer by delivery, or a confirmation of a book-entry transfer into the Depositary's account at the Book-Entry Transfer Facility of all Shares delivered by book-entry transfer, in each case together with a Letter of Transmittal, properly completed and duly executed, with any required signature guarantees (or in the case of a book-entry transfer, an Agent's Message (as defined in "Section 3. Procedures for Accepting the Offer and Tendering Shares" of the Offer to Purchase)) and any other documents required by this Letter of Transmittal, must be received by the Depositary within three Nasdaq National Market (Nasdaq) trading days after the date of execution of such Notice of Guaranteed Delivery, all as described in "Section 3. Procedures for Accepting the Offer and Tendering Shares" of the Offer to Purchase.

THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, SHARE CERTIFICATES AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK-ENTRY TRANSFER FACILITY, IS AT THE OPTION AND RISK OF THE TENDERING STOCKHOLDER (INCLUDING IN THE CASE OF BOOK-ENTRY TRANSFER BY BOOK-ENTRY CONFIRMATION). DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.

    No alternative, conditional or contingent tenders will be accepted, and no fractional Shares will be purchased. By execution of this Letter of Transmittal, all tendering stockholders waive any right to receive any notice of the acceptance of their Shares for payment.

    3.  Inadequate Space.  If the space provided on the cover page hereof under "Description of Shares Tendered" is inadequate, the Share Certificate numbers, the number of Shares evidenced by such Share Certificates and the number of Shares tendered should be listed on a separate signed schedule and attached hereto.

    4.  Partial Tenders (not applicable to stockholders who tender by book-entry transfer).  If fewer than all Shares evidenced by any Share Certificate delivered to the Depositary herewith are to be tendered hereby, fill in the number of Shares that are to be tendered in the box entitled "Number of Shares Tendered." In such cases, new Share

7

Certificate(s) evidencing the remainder of Shares that were evidenced by the Share Certificates delivered to the Depositary herewith will be sent to the person(s) signing this Letter of Transmittal, unless otherwise provided in the box entitled "Special Delivery Instructions" on page 5 hereof, as soon as practicable after the Expiration Date or the termination of the Offer. All Shares evidenced by Share Certificates delivered to the Depositary will be deemed to have been tendered unless otherwise indicated.

    5.  Signatures on Letter of Transmittal; Stock Powers and Endorsements.  If this Letter of Transmittal is signed by the registered holder(s) of Shares tendered hereby, the signature(s) must correspond with the name(s) as written on the face of the Share Certificates evidencing such Shares without alteration, enlargement or any other change whatsoever.

    If any Shares tendered hereby are held of record by two or more persons, all such persons must sign this Letter of Transmittal.

    If any Shares tendered hereby are registered in different names, it will be necessary to complete, sign and submit as many separate Letters of Transmittal as there are different registrations of such Shares.

    If this Letter of Transmittal is signed by the registered holder(s) of Shares tendered hereby, no endorsements of Share Certificates or separate stock powers are required, unless payment is to be made to, or Share Certificates evidencing Shares not tendered or not accepted for payment are to be issued in the name of, a person other than the registered holder(s).

    If this Letter of Transmittal is signed by a person other than the registered holder(s) of the Share Certificate(s) evidencing Shares tendered, the Share Certificate(s) tendered hereby must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name(s) of the registered holder(s) appear(s) on such Share Certificate(s). Signatures on such Share Certificate(s) and stock powers must be guaranteed by an Eligible Institution.

    If this Letter of Transmittal or any Share Certificate or stock power is signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, such person should so indicate when signing, and proper evidence satisfactory to Purchaser of such persons authority so to act must be submitted.

    6.  Stock Transfer Taxes.  Except as otherwise provided in this Instruction 6, Purchaser will pay all stock transfer taxes with respect to the sale and transfer of any Shares to it or its order pursuant to the Offer. If, however, payment of the purchase price of any Shares purchased is to be made to, or Share Certificate(s) evidencing Shares not tendered or not accepted for payment are to be issued in the name of, any person other than the registered holder(s) or if tendered certificates are registered in the name of any person other than the person(s) signing the Letter of Transmittal, the amount of any stock transfer taxes (whether imposed on the registered holder(s), or such other person, or otherwise) payable on account of the transfer to such other person will be deducted from the purchase price of such Shares purchased, unless evidence satisfactory to Purchaser of the payment of such taxes, or exemption therefrom, is submitted.

    Except as provided in this Instruction 6, it will not be necessary for transfer tax stamps to be affixed to the Share Certificates evidencing Shares tendered hereby.

    7.  Special Payment and Delivery Instructions.  If a check for the purchase price of any Shares tendered hereby is to be issued in the name of, and/or Share Certificate(s) evidencing Shares not tendered or not accepted for payment are to be issued in the name of and/or returned to, a person other than the person(s) signing this Letter of Transmittal, or if such check or any such Share Certificate is to be sent to a person other than the signor of this Letter of Transmittal or to the person(s) signing this Letter of Transmittal but at an address other than that shown in the box entitled "Description of Shares Tendered" on the cover page hereof, the appropriate boxes herein must be completed.

    8.  Questions and Requests for Assistance or Additional Copies.  Questions and requests for assistance may be directed to the Information Agent or the Dealer Managers at their respective addresses or telephone numbers set forth on the back page hereof. Additional copies of the Offer to Purchase, this Letter of Transmittal, the Notice of Guaranteed Delivery and the Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 may be obtained from the Information Agent.

    9.  Substitute Form W-9.  Each tendering stockholder is required to provide the Depositary with a correct Taxpayer Identification Number ("TIN") on the Substitute Form W-9 which is provided under "Important Tax Information" below, and to certify, under penalty of perjury, that such number is correct and that such stockholder is not subject to backup withholding of federal income tax. If a tendering stockholder has been notified by the Internal

8

Revenue Service that such stockholder is subject to backup withholding, such stockholder must cross out item (2) of the Certification box of the Substitute Form W-9, unless such stockholder has since been notified by the Internal Revenue Service that such stockholder is no longer subject to backup withholding. Failure to provide the information on the Substitute Form W-9 may subject the tendering stockholder to 31% federal income tax withholding on the payment of the purchase price of all Shares purchased from such stockholder. If the tendering stockholder has not been issued a TIN and has applied for one or intends to apply for one in the near future, such stockholder should write "Applied For" in the space provided for the TIN in Part I of the Substitute Form W-9, and sign and date the Substitute Form W-9. If "Applied For" is written in Part I and the Depositary is not provided with a TIN within 60 days, the Depositary will withhold 31% on all payments of the purchase price to such stockholder until a TIN is provided to the Depositary.

    10.  Lost, Destroyed, or Stolen Certificates.  If any certificate evidencing Shares has been lost, destroyed, or stolen, the stockholder should promptly notify EquiServe LP at (781) 575-3400. The stockholder will be instructed as to the steps that must be taken in order to replace the certificate. This Letter of Transmittal and related documents cannot be processed until the procedures for replacing lost or destroyed certificates have been followed.

    11.  Waiver of Conditions.  The conditions of the Offer may be waived by Purchaser in whole or in part, subject to the Offer to Purchase and any other applicable laws, at any time and from time to time in its sole discretion.

IMPORTANT: THIS LETTER OF TRANSMITTAL, PROPERLY COMPLETED AND DULY EXECUTED (TOGETHER WITH ANY REQUIRED SIGNATURE GUARANTEES (OR, IN THE CASE OF A BOOK-ENTRY TRANSFER, AN AGENT'S MESSAGE) AND SHARE CERTIFICATES OR CONFIRMATION OF BOOK-ENTRY TRANSFER AND ALL OTHER REQUIRED DOCUMENTS) OR A PROPERLY COMPLETED AND DULY EXECUTED NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE DEPOSITARY PRIOR TO THE EXPIRATION DATE (AS DEFINED IN THE OFFER TO PURCHASE).

9

IMPORTANT TAX INFORMATION

    Under U.S. federal income tax law, a stockholder whose tendered Shares are accepted for payment is generally required to provide the Depositary (as payer) with such stockholder's correct TIN on Substitute Form W-9 provided herewith. If such stockholder is an individual, the TIN generally is such stockholder's social security number. If the Depositary is not provided with the correct TIN, the stockholder may be subject to a $50 penalty imposed by the Internal Revenue Service and payments that are made to such stockholder with respect to Shares purchased pursuant to the Offer may be subject to backup withholding of 31%. In addition, if a stockholder makes a false statement that results in no imposition of backup withholding, and there was no reasonable basis for making such statement, a $500 penalty may also be imposed by the Internal Revenue Service.

    Certain stockholders (including, among others, corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements. In order for a foreign individual to qualify as an exempt recipient, such individual must submit a statement (Internal Revenue Service Form W-8), signed under penalties of perjury, attesting to such individual's exempt status. Forms of such statements can be obtained from the Depositary. See the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for additional instructions. A stockholder should consult his or her tax advisor as to such stockholder's qualification for exemption from backup withholding and the procedure for obtaining such exemption.

    If backup withholding applies, the Depositary is required to withhold 31% of any payments made to the stockholder. Backup withholding is not an additional tax. Rather, the federal income tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained provided that the required information is furnished to the Internal Revenue Service.

Purpose of Substitute Form W-9

    To prevent backup withholding on payments that are made to a stockholder with respect to Shares purchased pursuant to the Offer, the stockholder is required to notify the Depositary of such stockholder's correct TIN by completing the form on page 11 certifying that (a) the TIN provided on Substitute Form W-9 is correct (or that such stockholder is awaiting a TIN), and (b) (i) such stockholder has not been notified by the Internal Revenue Service that he is subject to backup withholding as a result of a failure to report all interest or dividends or (ii) the Internal Revenue Service has notified such stockholder that such stockholder is no longer subject to backup withholding.

What Number to Give the Depositary

    The stockholder is required to give the Depositary the TIN (e.g., social security number or employer identification number) of the record holder of Shares tendered hereby. If Shares are in more than one name or are not in the name of the actual owner, consult the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for additional guidance on which number to report. If the tendering stockholder has not been issued a TIN and has applied for a number or intends to apply for a number in the near future, the stockholder should write "Applied For" in the space provided for the TIN in Part I, and sign and dated the Substitute Form W-9. If "Applied For" is written in Part I and the Depositary is not provided with a TIN within 60 days, the Depositary will withhold 31% of all payments of the purchase price to such stockholder until a TIN is provided to the Depositary.

10

PAYER'S NAME: COMPUTERSHARE TRUST COMPANY OF NEW YORK

SUBSTITUTE Form W-9 Department of the Treasury Internal Revenue Service Payer's Request for Taxpayer Identification Number ("TIN") and Certification	Part I — Taxpayer Identification Number—For all accounts, enter your taxpayer identification number in the box at right. (For most individuals, this is your social security number. If you do not have a number, see "Obtaining a Number" in the enclosed Guidelines.) Certify by signing and dating below. Note: If the account is in more than one name, see the chart in the enclosed Guidelines to determine which number to give the payer.	Social Security Number OR  Employer Identification Number (If awaiting TIN write "Applied For")
	Part II — For Payees Exempt from Backup Withholding, see the enclosed Guidelines and complete as instructed therein.
Certification — Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct Taxpayer Identification Number (or I am waiting for a number to be issued to me), and
(2) I am not subject to backup withholding because: (a) I am exempt from backup withholding, or (b) I have not been notified by the Internal Revenue Service (the "IRS") that I am subject to back-up withholding as a result of failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding.

SIGNATURE                                                                                        DATE             , 2001

Certificate Instructions — You must cross out item (2) above if you have been notified by the IRS that you are currently subject to backup withholding because of underreporting interest or dividends on your tax return. However, if after being notified by the IRS that you were subject to backup withholding you received another notification from the IRS that you are no longer subject to backup withholding, do not cross out item (2). (Also see instructions in the enclosed Guidelines.)

NOTE:	FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THIS OFFER. PLEASE REVIEW THE ENCLOSED "GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9" FOR ADDITIONAL DETAILS.
NOTE:	YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU ARE AWAITING A TAXPAYER IDENTIFICATION NUMBER.

CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER

I certify under penalties of perjury that a taxpayer identification number has not been issued to me, and either (1) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration office or (2) I intend to mail or deliver an application in the near future. I understand that if I do not provide a taxpayer identification number by the time of payment, 31% of all reportable cash payments made to me thereafter will be withheld until I provide a taxpayer identification number.

SIGNATURE                                                                                        DATE               , 2001

11

    The Letter of Transmittal and Share Certificates and any other required documents should be sent or delivered by each stockholder or such stockholder's broker, dealer, commercial bank, trust company or other nominee to the Depositary at one of its addresses set forth below.

The Depositary for the Offer is:

COMPUTERSHARE TRUST COMPANY OF NEW YORK

By Mail:
Computershare Trust Company
of New York
Reorganization Department
Wall Street Station
P.O. Box 1010
New York, NY 10268-1010 By Overnight Courier:
Computershare Trust Company
of New York
Reorganization Department
Wall Street Plaza
88 Pine Street, 19^th Floor
New York, NY 10005 By Hand:
Computershare Trust Company
of New York
Reorganization Department
Wall Street Plaza
88 Pine Street, 19^th Floor
New York, NY 10005

By Facsimile Transmission
(For Eligible Institutions Only):

(212) 701-7636

Confirm Receipt of Facsimile by Telephone Only:

(212) 701-7624

    Questions or requests for assistance may be directed to the Information Agent at its address and telephone numbers listed below. Additional copies of the Offer to Purchase, this Letter of Transmittal and the Notice of Guaranteed Delivery may be obtained from the Information Agent. A stockholder may also contact brokers, dealers, commercial banks or trust companies for assistance concerning the Offer.

The Information Agent for the Offer is:

MalCon Proxy Advisors, Inc.

130 William Street
New York, New York 10038
email: info@malconproxy.com
Banks and Brokers Call Collect: (212) 619-4565
All Others Call Toll Free: (800) 475-9320

The Dealer Managers for the Offer are:

Greenhill	Merrill Lynch & Co.
300 Park Avenue New York, New York 10022 Call Toll Free: (866) 211-8609 Call Collect: (212) 389-1799	Four World Financial Center New York, New York 10080 Call Collect: (212) 236-3790

EX-99.(A)(1)(C)

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Notice of Guaranteed Delivery
for
Offer to Purchase for Cash
All Outstanding Shares of Common Stock
of
Digital Island, Inc.
Pursuant to the Offer to Purchase
dated May 21, 2001
by
Dali Acquisition Corp.
a wholly owned subsidiary of
Cable and Wireless plc
(Not to be used for Signature Guarantees)

THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT,
NEW YORK CITY TIME, ON MONDAY, JUNE 18, 2001, UNLESS THE OFFER IS EXTENDED.

    This Notice of Guaranteed Delivery, or a form substantially equivalent hereto, must be used to accept the Offer (as defined below) if (i) certificates (the "Certificates") evidencing shares of common stock, par value $0.001 per share ("Shares"), of Digital Island, Inc., a Delaware corporation (the "Company"), are not immediately available, (ii) the Certificates evidencing Shares and all other required documents cannot be delivered to Computershare Trust Company of New York, as Depositary (the "Depositary"), on or prior to the Expiration Date (as defined in "Section 1. Terms of the Offer; Expiration Date" of the Offer to Purchase (as defined below)) or (iii) the procedure for delivery by book-entry transfer cannot be completed on a timely basis. This Notice of Guaranteed Delivery may be delivered by hand or mail or transmitted by telegram, or facsimile transmission to the Depositary. See "Section 3. Procedures for Accepting the Offer and Tendering Shares" of the Offer to Purchase.

The Depositary for the Offer is:

COMPUTERSHARE TRUST COMPANY OF NEW YORK

By Facsimile Transmission
(for Eligible Institutions only):
(212) 701-7636

Confirm by Telephone:
(212) 701-7624

By Mail:
Reorganization Department
Wall Street Station
P.O. Box 1010
New York, NY 10268-1010 By Overnight Courier:
Reorganization Department
Wall Street Plaza
88 Pine Street, 19^th Floor
New York, NY 10005 By Hand:
Reorganization Department
Wall Street Plaza
88 Pine Street, 19^th Floor
New York, NY 10005

DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY TO THE DEPOSITARY.

THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE GUARANTEED BY AN "ELIGIBLE INSTITUTION" (AS DEFINED IN THE OFFER TO PURCHASE) UNDER THE INSTRUCTIONS THERETO, SUCH SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE SIGNATURE BOX ON THE LETTER OF TRANSMITTAL.

THE ATTACHED GUARANTEE MUST BE COMPLETED.

Ladies and Gentlemen:

    The undersigned hereby tenders to Dali Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of Cable and Wireless plc, a public limited company incorporated under the laws of England and Wales, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated May 21, 2001 (the "Offer to Purchase"), and in the related Letter of Transmittal (which, together with the Offer to Purchase and any amendments or supplements thereto, collectively constitute the "Offer"), receipt of each of which is hereby acknowledged, the number of Shares specified below pursuant to the guaranteed delivery procedure set forth in "Section 3. Procedures for Accepting the Offer and Tendering Shares" of the Offer to Purchase.

Number of Shares:________________________________________________________________________

Certificate Nos. (If Available):_____________________________________________________________

___________________________________________________________________________________________

Signature(s) of Holder(s)

___________________________________________________________________________________________

(Please Type or Print)

Dated:________________________________________________________________________________, 2001

Address:___________________________________________________________________________________

Zip Code

___________________________________________________________________________________________

Daytime Area Code and Telephone No.

/ /  Check this box if Shares will be delivered by book-entry transfer.

Book-Entry Transfer Facility

Account Number:__________________________________________________________________________

2

GUARANTEE
(Not to be used for signature guarantee)

    The undersigned, a participant in the Security Transfer Agents Medallion Program or an "eligible guarantor institution," as such term is defined in Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), (a) represents that the above named person(s) "own(s)" the Shares tendered hereby within the meaning of Rule 14e-4(b)(2) under the Exchange Act, (b) represents that the tender of those Shares complies with Rule 14e-4, and (c) guarantees to deliver to the Depositary either certificates representing the Shares tendered hereby, in proper form for transfer, or confirmation of book-entry transfer of such Shares into the Depositary's account at The Depository Trust Company, in each case with delivery of a properly completed and duly executed Letter of Transmittal (or facsimile thereof), with any required signature guarantees, or an Agent's Message (as defined in the Offer to Purchase) in the case of book-entry delivery, and any other documents required by the Letter of Transmittal, within three (3) Nasdaq National Market trading days after the date hereof.

    The Eligible Institution that completes this form must communicate the guarantee to the Depositary and must deliver the Letter of Transmittal and certificates for Shares to the Depositary within the time period shown herein. Failure to do so could result in a financial loss to such Eligible Institution.

Name of Firm:____________________________________________________________________________

___________________________________________________________________________________________

(Authorized Signature)

Address:___________________________________________________________________________________

Zip Code

Area Code and Tel. No.:___________________________________________________________________

Name:_____________________________________________________________________________________

(Please Type or Print)

Title:_____________________________________________________________________________________

Dated: ________________, 2001

DO NOT SEND CERTIFICATES WITH THIS NOTICE OF GUARANTEED DELIVERY.
CERTIFICATES SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL.

3

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GUARANTEE (Not to be used for signature guarantee)

EX-99.(A)(1)(D)

45 Fremont Street, 12th Floor
San Francisco, CA 94105
Tel: 415 738-4100
Fax: 415 738-4141
www.digitalisland.net

May 21, 2001

Dear Stockholder:

    We are pleased to inform you that, on May 14, 2001, Digital Island entered into an Agreement and Plan of Merger with Cable and Wireless, plc, a public limited company organized under the laws of England, and Dali Acquisition Corp., a Delaware corporation and wholly owned subsidiary of Cable and Wireless, providing for the acquisition of Digital Island. Dali Acquisition Corp. has commenced a tender offer under the agreement to purchase all of the outstanding shares of Digital Island's common stock for $3.40 per share, net to the seller, in cash. The tender offer is conditioned upon, among other things, at least a majority of Digital Island's shares being tendered and not withdrawn and the receipt of required regulatory approvals. The tender offer will be followed by a merger in which each share of Digital Island's common stock not purchased in the tender offer will be converted into the right to receive $3.40 per share in cash.

    YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY (1) DETERMINED THAT EACH OF THE MERGER AGREEMENT, THE OFFER AND MERGER ARE ADVISABLE, AND IN THE BEST INTERESTS OF DIGITAL ISLAND AND ITS STOCKHOLDERS, (2) DULY APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, AND (3) RECOMMENDED THAT DIGITAL ISLAND'S STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES OF DIGITAL ISLAND COMMON STOCK PURSUANT TO THE OFFER.

    In arriving at its recommendation, the Board of Directors considered a number of factors, as described in the attached Schedule 14D-9, including the opinion of the Company's financial advisor, Credit Suisse First Boston Corporation, that, based upon and subject to the assumptions and limitations described in the opinion, the cash consideration to be received by the holders of shares of our common stock, pursuant to the tender offer and the merger, is fair from a financial point of view to such holders. A copy of such opinion setting forth the assumptions made, procedures followed, matters considered and limits on the review undertaken by Credit Suisse First Boston in rendering its opinion, can be found in Annex A to the Schedule 14D-9. You should read the opinion carefully and in its entirety.

    Also enclosed are the Offer to Purchase by Dali Acquisition Corp., dated May 21, 2001, and Letter of Transmittal and related documents. These documents set forth the terms and conditions of the tender offer. The Schedule 14D-9 describes in more detail the reasons for your Board's conclusions and contains other information relating to the tender offer. We urge you to consider this information carefully.

Ruann F. Ernst
Chief Executive Officer and President

EX-99.(A)(1)(E)

Offer to Purchase for Cash
All Outstanding Shares of Common Stock
of
Digital Island, Inc.
at
$3.40 Net Per Share in Cash
by
Dali Acquisition Corp.
a wholly owned subsidiary of
Cable and Wireless plc

    THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT,
NEW YORK CITY TIME, ON MONDAY, JUNE 18, 2001, UNLESS THE OFFER IS EXTENDED.

May 21, 2001

To Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees:

    We have been appointed by Dali Acquisition Corp., a Delaware corporation ("Purchaser") and a wholly owned subsidiary of Cable and Wireless plc, a public limited company incorporated under the laws of England and Wales ("Parent"), to act as Dealer Managers in connection with Purchaser's offer to purchase for cash all the issued and outstanding shares of common stock, par value $0.001 per share ("Shares"), of Digital Island, Inc., a Delaware corporation (the "Company"), at a purchase price of $3.40 per Share, net to the seller in cash, without interest thereon and less any required withholding taxes, upon the terms and subject to the conditions described in the Purchaser's Offer to Purchase dated May 21, 2001 (the "Offer to Purchase") and the related Letter of Transmittal (which, together with the Offer to Purchase and any amendments or supplements thereto, collectively constitute the "Offer") enclosed herewith. After commencement, but prior to consummation, of the Offer, Parent intends to transfer its ownership of all of the shares of Purchaser to Cable & Wireless USA, Inc., a Delaware corporation and a wholly owned subsidiary of Parent. Please furnish copies of the enclosed materials to those of your clients for whose accounts you hold Shares registered in your name or in the name of your nominee.

    The Offer is being made in connection with the Agreement and Plan of Merger, dated as of May 14, 2001, by and among Parent, Purchaser and the Company (the "Merger Agreement"). Holders of Shares whose certificates for such Shares are not immediately available or who cannot deliver their certificates and all other required documents to Computershare Trust Company of New York (the "Depositary") or complete the procedures for book-entry transfer prior to the Expiration Date (as defined in Section 1 of the Offer to Purchase) must tender their Shares according to the guaranteed delivery procedures set forth in Section 3 of the Offer to Purchase.

The Offer is conditioned upon, among other things, (i) there having been validly tendered and not properly withdrawn prior to the expiration of the Offer at least the number of Shares that, when added to the Shares already owned by Parent and its direct and indirect wholly owned subsidiaries, if any, shall constitute a majority of the then outstanding Shares on a fully diluted basis (including, without limitation, all Shares issuable upon the conversion of any outstanding convertible securities or upon the exercise of any outstanding options or warrants which are vested as of the date of the Merger Agreement or are capable of vesting during the ninety (90) day period following consummation of the Offer and have an exercise price of $10.00 per Share or less) and (ii) the receipt by Purchaser and the Company of certain governmental and regulatory approvals. The Offer also is subject to certain other conditions contained in the Offer to Purchase. See "Section 1. Terms of the Offer; Expiration Date," "Section 14. Certain Conditions of the Offer" and "Section 15. Certain Legal Matters and Regulatory Approvals" of the Offer to Purchase, which set forth in full the conditions to the Offer.

    For your information and for forwarding to your clients for whom you hold Shares registered in your name or in the name of your nominee, we are enclosing the following documents:

1.

Offer to Purchase dated May 21, 2001;

2.

Letter of Transmittal for your use in accepting the Offer and tendering Shares and for the information of your clients;

3.

Notice of Guaranteed Delivery to be used to accept the Offer if the Shares and all other required documents are not immediately available or cannot be delivered to the Depositary prior to the Expiration Date (as defined in the Offer to Purchase) or if the procedure for book-entry transfer cannot be completed prior to the Expiration Date;

4.

A letter to stockholders of the Company from Ruann Ernst, President and Chief Executive Officer of the Company, together with a Solicitation/Recommendation Statement on Schedule 14D-9 filed by the Company with the Securities and Exchange Commission;

5.

A letter which may be sent to your clients for whose accounts you hold Shares registered in your name or in the name of your nominee, with space provided for obtaining such clients' instructions with regard to the Offer;

6.

Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9; and

7.

Return envelope addressed to the Depositary.

    Upon the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended, the terms and conditions of any such extension or amendment), Purchaser will accept for payment and will pay for all Shares validly tendered and not properly withdrawn prior to the Expiration Date as soon as permitted under applicable law. For purposes of the Offer, Purchaser will be deemed to have accepted for payment, and thereby purchased, tendered Shares if, as and when Purchaser gives oral and written notice to the Depositary of Purchaser's acceptance of such Shares for payment. In all cases, payment for Shares accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of (i) certificates for Shares or timely confirmation of book-entry transfer of such Shares, if such procedure is available, into the Depositary's account at The Depository Trust Company, pursuant to the procedures set forth in Section 3 of the Offer to Purchase, (ii) the Letter of Transmittal (or facsimile thereof), properly completed and duly executed, or, in the case of a book-entry transfer, an Agent's Message (as defined in the Offer to Purchase) and (iii) any other documents required by the Letter of Transmittal.

    Your attention is invited to the following:

1.

The tender price is $3.40 per Share, net to you in cash, without interest thereon, upon the terms and subject to the conditions set forth in the Offer to Purchase;

2.

The Offer is being made for all the issued and outstanding Shares;

3.

The Offer is being made pursuant to the terms of the Merger Agreement. The Merger Agreement provides, among other things, for the making of the Offer by Purchaser, and further provides that, as soon as practicable following completion of the Offer, Purchaser will be merged with and into the Company (the "Merger"). The Company will continue after the Merger as the surviving corporation and will be an indirect wholly owned subsidiary of Parent;

4.

The Board of Directors of the Company has unanimously determined that the Merger Agreement and the transactions contemplated thereby, including each of the Offer and the Merger, are fair to, and in the best interest of, the Company and holders of Shares, has approved, adopted and declared advisable the Merger Agreement and the transactions contemplated thereby, including each of the Offer and the Merger, and has resolved to recommend that the holders of Shares accept the Offer and tender their Shares pursuant to the Offer;

2

5.

The Offer and withdrawal rights will expire at 12:00 midnight, New York City time, on Monday, June 18, 2001, unless the Offer is extended;

6.

The Offer is conditioned upon, among other things, the satisfaction or waiver of certain conditions, including (i) there having been validly tendered and not withdrawn prior to the expiration of the Offer at least the number of Shares that, when added to the Shares already owned by Parent and its direct and indirect wholly owned subsidiaries, if any, shall constitute a majority of the then outstanding Shares on a fully diluted basis (including, without limitation, all Shares issuable upon the conversion of any outstanding convertible securities or upon the exercise of any outstanding options or warrants which are vested as of the date of the Merger Agreement or are capable of vesting during the ninety (90) day period following consummation of the Offer and have an exercise price of $10.00 per Share or less) and (ii) the receipt by Purchaser and the Company of certain governmental and regulatory approvals. The Offer also is subject to certain other conditions contained in the Offer to Purchase. See "Section 1. Terms of the Offer; Expiration Date," "Section 14. Certain Conditions of the Offer" and "Section 15. Certain Legal Matters and Regulatory Approvals" of the Offer to Purchase, which set forth in full the conditions to the Offer; and

7.

Tendering stockholders will not be obligated to pay brokerage fees or commissions or, except as otherwise provided in Instruction 6 of the Letter of Transmittal, stock transfer taxes with respect to the purchase of Shares by Purchaser pursuant to the Offer.

YOUR PROMPT ACTION IS REQUESTED. WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE. PLEASE NOTE THAT THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON MONDAY, JUNE 18, 2001, UNLESS THE OFFER IS EXTENDED.

    If holders of Shares wish to tender, but it is impracticable for them to forward their certificates or other required documents prior to the expiration of the Offer, a tender may be effected by following the guaranteed delivery procedure described in "Section 3. Procedures for Accepting the Offer and Tendering Shares" of the Offer to Purchase.

    Purchaser will not pay any fees or commissions to any broker, dealer or other person (other than the Dealer Managers, the Depositary and the Information Agent as described in the Offer to Purchase) in connection with the solicitation of tenders of Shares pursuant to the Offer. However, Purchaser will, upon request, reimburse you for customary mailing and handling expenses incurred by you in forwarding any of the enclosed materials to your clients. Purchaser will pay or cause to be paid any stock transfer taxes payable with respect to the transfer of Shares to it, except as otherwise provided in Instruction 6 of the Letter of Transmittal.

    Any inquiries you may have with respect to the Offer should be addressed to Greenhill or Merrill Lynch & Co. (the "Dealer Managers"), or MalCon Proxy Advisors, Inc. (the "Information Agent") at their respective addresses and telephone numbers set forth on the back cover page of the Offer to Purchase.

    Additional copies of the enclosed material may be obtained from the Information Agent or either of the Dealer Managers at their respective address and telephone number set forth on the back cover page of the Offer to Purchase.

Very truly yours,
Greenhill
Merrill Lynch & Co.

NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY OTHER PERSON THE AGENT OF PARENT, PURCHASER, THE COMPANY, THE DEALER MANAGERS, THE INFORMATION AGENT OR THE DEPOSITARY, OR OF ANY AFFILIATE OF ANY OF THE FOREGOING, OR AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR TO MAKE ANY STATEMENT ON BEHALF OF ANY OF THE FOREGOING IN CONNECTION WITH THE OFFER OTHER THAN THE ENCLOSED DOCUMENTS AND THE STATEMENTS CONTAINED THEREIN.

3

EX-99.(A)(1)(F)

Offer to Purchase for Cash
All Outstanding Shares of Common Stock
of
Digital Island, Inc.
at
$3.40 Net Per Share in Cash
by
Dali Acquisition Corp.
a wholly owned subsidiary of
Cable and Wireless plc

    THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT,
NEW YORK CITY TIME, ON MONDAY, JUNE 18, 2001, UNLESS THE OFFER IS EXTENDED.

May 21, 2001

To Our Clients:

    Enclosed for your consideration are the Offer to Purchase, dated May 21, 2001 (the "Offer to Purchase"), and the related Letter of Transmittal (which, together with the Offer to Purchase and any amendments or supplements thereto, collectively constitute the "Offer") in connection with the offer by Dali Acquisition Corp., a Delaware corporation ("Purchaser") and a wholly owned subsidiary of Cable and Wireless plc, a public limited company incorporated under the laws of England and Wales ("Parent"), to purchase all of the issued and outstanding shares of common stock, par value $0.001 per share ("Shares"), of Digital Island, Inc., a Delaware corporation (the "Company"), at a price of $3.40 per Share (such amount, or any greater amount per Share paid pursuant to the Offer, being the "Per Share Amount"), net to the seller in cash, without interest, upon the terms and subject to the conditions described in the Offer to Purchase and in the related Letter of Transmittal. After commencement, but prior to consummation, of the Offer, Parent intends to transfer its ownership of all of the shares of Purchaser to Cable & Wireless USA, Inc., a Delaware corporation and a wholly owned subsidiary of Parent. We are (or our nominee is) the holder of record of Shares held by us for your account. The enclosed Letter of Transmittal is furnished to you for your information only and cannot be used by you to tender Shares held by us for your account. A tender of Shares may be made only by us as the holder of record and pursuant to your instructions.

    Holders of Shares whose certificates for such Shares (the "Certificates") are not immediately available or who cannot deliver their Certificates and all other required documents to Computershare Trust Company of New York (the "Depositary") or complete the procedures for book-entry transfer prior to the Expiration date (as defined in Section 1 of the Offer to Purchase) must tender their Shares according to the guaranteed delivery procedures set forth in Section 3 of the Offer to Purchase.

    We request instructions as to whether you wish to have us tender on your behalf any or all Shares held by us for your account, upon the terms and subject to the conditions set forth in the Offer.

    Your attention is invited to the following:

1.

The tender price is $3.40 per Share, net to you in cash, without interest thereon, upon the terms and subject to the conditions set forth in the Offer to Purchase;



2.

The Offer is being made for all the issued and outstanding Shares;



3.

The Offer is being made pursuant to the terms of an Agreement and Plan of Merger, dated as of May 14, 2001, by and among Parent, Purchaser and the Company (the "Merger Agreement"). The Merger Agreement provides, among other things, for the making of the Offer by Purchaser, and further provides that, as soon as practicable following completion of the Offer, Purchaser will be merged with and into the Company (the "Merger"). The

Company will continue after the Merger as the surviving corporation and will be an indirect wholly owned subsidiary of Parent;

4.

The Board of Directors of the Company has unanimously determined that the Merger Agreement and the transactions contemplated thereby, including each of the Offer and the Merger, are fair to, and in the best interest of, the holders of Shares, has approved, adopted and declared advisable the Merger Agreement and the transactions contemplated thereby, including each of the Offer and the Merger, and has resolved to recommend that the holders of Shares accept the Offer and tender their Shares pursuant to the Offer;



5.

The Offer and withdrawal rights will expire at 12:00 midnight, New York City time, on Monday, June 18, 2001, unless the Offer is extended;



6.

The Offer is conditioned upon, among other things, the satisfaction or waiver of certain conditions, including (i) there having been validly tendered and not withdrawn prior to the expiration of the Offer at least the number of Shares that, when added to the Shares already owned by Parent and its direct and indirect wholly owned subsidiaries, if any, shall constitute a majority of the then outstanding Shares on a fully diluted basis (including, without limitation, all Shares issuable upon the conversion of any outstanding convertible securities or upon the exercise of any outstanding options or warrants which are vested as of the date of the Merger Agreement or are capable of vesting during the ninety (90) day period following consummation of the Offer and have an exercise price of $10.00 per Share or less) and (ii) the receipt by Purchaser and the Company of certain governmental and regulatory approvals. The Offer also is subject to certain other conditions contained in the Offer to Purchase. See "Section 1. Terms of the Offer; Expiration Date," "Section 14. Certain Conditions of the Offer" and "Section 15. Certain Legal Matters and Regulatory Approvals" of the Offer to Purchase, which set forth in full the conditions to the Offer; and

7.

Tendering stockholders will not be obligated to pay brokerage fees or commissions or, except as otherwise provided in Instruction 6 of the Letter of Transmittal, stock transfer taxes with respect to the purchase of Shares by Purchaser pursuant to the Offer.

    If you wish to have us tender any or all of your Shares, please so instruct us by completing, executing and returning to us the instruction form contained in this letter. An envelope in which to return your instructions to us is enclosed. If you authorize the tender of your Shares, all such Shares will be tendered unless otherwise specified in your instructions. Your instructions should be forwarded to us in ample time to permit us to submit a tender on your behalf prior to the expiration of the Offer.

    The Offer is being made solely by the Offer to Purchase and the related Letter of Transmittal and is being made to all holders of Shares. Purchaser is not aware of any jurisdiction where the making of the Offer or the acceptance of Shares pursuant thereto is prohibited by any administrative or judicial action or by any valid state statute. If Purchaser becomes aware of any valid state statute prohibiting the making of the Offer or the acceptance of Shares pursuant thereto, Purchaser will make a good faith effort to comply with such state statute or seek to have such statute declared inapplicable to the Offer. If, after such good faith effort, Purchaser cannot comply with such state statute, the Offer will not be made to (nor will tenders be accepted from or on behalf of) the holders of Shares in such state. In any jurisdiction where the securities, blue sky or other laws require the Offer to be made by a licensed broker or dealer, the Offer shall be deemed to be made on behalf of Purchaser by either Greenhill & Co., LLC or Merrill Lynch, Pierce, Fenner & Smith Incorporated in their capacity as dealer managers or one or more registered brokers or dealers licensed under the laws of such jurisdiction.

2

Instructions With Respect to
the Offer to Purchase for Cash
All Outstanding Shares of Common Stock
of
Digital Island, Inc.
by
Dali Acquisition Corp.
a wholly owned subsidiary of
Cable and Wireless plc

    The undersigned acknowledge(s) receipt of your letter and the enclosed Offer to Purchase, dated May 21, 2001 and the related Letter of Transmittal (which, together with the Offer to Purchase and any amendments or supplements thereto, collectively constitute the "Offer") in connection with the offer by Dali Acquisition Corp., a Delaware corporation, a wholly owned subsidiary of Cable and Wireless plc, a public limited company incorporated under the laws of England and Wales, to purchase all of the issued and outstanding shares of common stock, par value $0.001 per share ("Shares"), of Digital Island, Inc., a Delaware corporation, for $3.40 per Share, net to the seller in cash, without interest, upon the terms and subject to the conditions described in the Offer to Purchase and related Letter of Transmittal.

    This will instruct you to tender to Purchaser the number of Shares indicated below (or, if no number is indicated below, all Shares) that are held by you for the account of the undersigned, upon the terms and subject to the conditions described in the Offer.

Dated:                         , 2001

Number of Shares to be Tendered:*
	SIGN HERE
	Signature(s)
Account Number:
Date:                                                       , 2001
	Please type or print name(s)
	Please type or print address
	(Area Code and Telephone Number)
	(Taxpayer Identification or Social Security Number)

*

Unless otherwise indicated, it will be assumed that all Shares held by us for your account are to be tendered.

THIS FORM MUST BE RETURNED TO THE BROKERAGE FIRM MAINTAINING YOUR ACCOUNT.

3

EX-99.(A)(1)(G)

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GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9

Guidelines for Determining the Proper Identification Number for the Payee (You) to Give the Payer.—Social security numbers have nine digits separated by two hyphens: i.e., 000-00-0000. Employer identification numbers have nine digits separated by only one hyphen: i.e., 00-0000000. The table below will help determine the number to give the payer. All "Section" references are to the Internal Revenue Code of 1986, as amended. "IRS" is the Internal Revenue Service.

For this type of account:		Give the social security number of—	For this type of account:		Give the employer identification number of—
1.	Individual	The individual	8.	Sole proprietorship	The owner(4)
2.	Two or more individuals (joint account)	The actual owner of the account or, if combined funds, the first individual on the accounts(1)	9.	A valid trust, estate, or pension trust	The legal entity(5)
3.	Husband and wife (joint account)	The actual owner of the account or, if combined funds, either person1	10.	Corporate	The corporation
4.	Custodian account of a minor (Uniform Gift to Minors Act)	The minor(2)	11.	Association, club, religious, charitable, educational, or other tax-exempt organization	The organization
5.	Adult and minor (joint account)	The adult or, if the minor is the only contributor, the minor(1)	12.	Partnership	The partnership
6.	Account in the name of a guardian or committee for a designated ward, minor or incompetent person	The ward, minor or incompetent person(3)	13.	A broker or registered nominee	The broker or nominee
7.	a. The usual revocable savings trust account (grantor also is trustee)	The grantor-trustee(1)	14.	Account with the Department of Agriculture in the name	The public entity
	b. So-called trust account that is not a legal or valid trust under state law	The actual owner(1)		of a public entity (such as a State or local government, school district, or prison) that receives agricultural program payments

(1)

List first and circle the name of the person whose number you furnish. If only one person on a joint account has a social security number, that person's number must be furnished.

(2)

Circle the minor's name and furnish the minor's social security number.

(3)

Circle the ward's, minor's or incompetent person's name and furnish such person's social security number.

(4)

You must show your individual name, but you also may enter your business or "doing business as" name. You may use either your social security number or your employer identification number (if you have one).

(5)

List first and circle the name of the legal trust, estate, or pension trust. (Do not furnish the taxpayer identification number of the personal representative or trustee unless the legal entity itself is not designated in the account title.)

NOTE: If no name is circled when there is more than one name listed, the number will be considered to be that of the first name listed.

GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER OF SUBSTITUTE FORM W-9
Page 2

Obtaining a Number

If you do not have a taxpayer identification number or you do not know your number, obtain Form SS-5, Application for a Social Security Card, at the local Social Security Administration office, or Form SS-4, Application for Employer Identification Number (for business and all other entities), or Form W-7 for Individual Taxpayer Identification Number (for alien individuals required to file U.S. tax returns), by calling 1 (800) TAX-FORM, or at an office of the Social Security Administration or the Internal Revenue Service.

Payees Exempt from Backup Withholding

Payees specifically exempted from withholding include:

•

An organization exempt from tax under Section 501(a), an individual retirement account (IRA), or a custodial account under Section 403(b)(7), if the account satisfies the requirements of Section 401(f)(2).

•

The United States or a state thereof, the District of Columbia, a possession of the United States, or a political subdivision or wholly owned agency or instrumentality of any one or more of the foregoing.

•

An international organization or any agency or instrumentality thereof.

•

A foreign government and any political subdivision, agency or instrumentality thereof.

Payees that may be exempt from backup withholding include:

•

A corporation.

•

A financial institution.

•

A dealer in securities or commodities required to register in the United States, the District of Columbia, or a possession of the United States.

•

A real estate investment trust.

•

A common trust fund operated by a bank under Section 584(a).

•

An entity registered at all times during the tax year under the Investment Company Act of 1940.

•

A middleman known in the investment community as a nominee or who is listed in the most recent publication of the American Society of Corporate Secretaries, Inc., Nominee List.

•

A futures commission merchant registered with the Commodity Futures Trading Commission.

•

A foreign central bank of issue.

•

A trust exempt from tax under Section 664 or described in Section 4947.

Payments of dividends and patronage dividends generally exempt from backup withholding include:

•

Payments to non-resident aliens subject to withholding under Section 1441.

•

Payments to partnerships not engaged in a trade or business in the United States and that have at least one non-resident alien partner.

•

Payments of patronage dividends not paid in money.

•

Payments made by certain foreign organizations.

•

Section 404(k) payments made by an ESOP.

Payments of interest generally exempt from backup withholding include:

•

Payments of interest on obligations issued by individuals. Note: You may be subject to backup withholding if this interest is $600.00 or more and you have not provided to the payer your correct taxpayer identification number.

•

Payments of tax-exempt interest (including exempt-interest dividends under Section 852).

•

Payments to non-resident aliens described in Section 6049(b)(5).

•

Payments on tax-free covenant bonds under Section 1451.

•

Payments made by certain foreign organizations.

•

Mortgage or student loan interest paid to you.

Certain payments, other than payments of interest, dividends, and patronage dividends, that are exempt from information reporting also are exempt from backup withholding. For details, see Sections 6041, 6041A, 6042, 6044, 6045, 6049, 6050A and 6050N and the regulations thereunder.

Exempt payees should complete a substitute Form W-9 to avoid possible erroneous backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" IN PART 2 OF THE FORM, SIGN AND DATE THE FORM AND RETURN IT TO THE PAYER IF THE PAYMENTS ARE OF INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS.

Privacy Act Notice—Section 6109 requires most recipients of dividend, interest or other payments to provide your correct taxpayer identification number to payers who must report the payments to the IRS. The IRS uses the numbers for identification purposes and to help verify the accuracy of your return and also may provide this information to various government agencies for tax enforcement or litigation purposes. Payers must be given the numbers whether or not recipients are required to file tax returns. Payers generally must withhold 31% of taxable interest, dividend, and certain other payments to a payee who does not furnish to a payer a taxpayer identification number. Certain penalties also may apply.

Penalties

   (1) Failure to Furnish Taxpayer Identification Number.—If you fail to furnish to a payer your taxpayer identification number, you are subject to a penalty of $50.00 for each such failure unless your failure is due to reasonable cause and not to willful neglect.

   (2) Civil Penalty for False Information With Respect to Withholding.—If you make a false statement with no reasonable basis that results in no backup withholding, you are subject to a $500.00 penalty.

   (3) Criminal Penalty for Falsifying Information.—Willfully falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment.

FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE SERVICE.

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GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER OF SUBSTITUTE FORM W-9 Page 2

EX-99.(A)(1)(I)

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EXHIBIT (a)(1)(I)

    This announcement is neither an offer to purchase nor a solicitation of an offer to sell Shares (as defined below). The Offer (as defined below) is being made solely by the Offer to Purchase dated May 21, 2001 and the related Letter of Transmittal (and any amendments or supplements thereto) and is being made to all holders of Shares (as defined below). Purchaser (as defined below) is not aware of any jurisdiction where the making of the Offer or the acceptance of Shares pursuant thereto is prohibited by any administrative or judicial action or by any valid state statute. If Purchaser becomes aware of any valid state statute prohibiting the making of the Offer or the acceptance of Shares pursuant thereto, Purchaser will make a good faith effort to comply with such state statute or seek to have such statute declared inapplicable to the Offer. If, after such good faith effort, Purchaser cannot comply with such state statute, the Offer will not be made to (nor will tenders be accepted from or on behalf of) the holders of Shares in such state. In any jurisdiction where the securities, blue sky or other laws require the Offer to be made by a licensed broker or dealer, the Offer shall be deemed to be made on behalf of Purchaser by Greenhill & Co., LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated (the "Dealer Managers") or one or more registered brokers or dealers licensed under the laws of such jurisdiction.

Notice of Offer to Purchase for Cash All Outstanding Shares of Common Stock
of
Digital Island, Inc.
at
$3.40 Net Per Share
by
Dali Acquisition Corp.
a wholly owned subsidiary of
Cable and Wireless plc

    Dali Acquisition Corp., a Delaware corporation ("Purchaser"), a wholly owned subsidiary of Cable and Wireless plc, a public limited company incorporated under the laws of England and Wales ("Cable & Wireless"), is offering to purchase all the issued and outstanding shares of common stock, par value $0.001 per share ("Shares"), of Digital Island, Inc., a Delaware corporation (the "Company"), for $3.40 per Share, net to the seller in cash, without interest, upon the terms and subject to the conditions described in the Offer to Purchase dated May 21, 2001 (the "Offer to Purchase") and in the related Letter of Transmittal (which, together with the Offer to Purchase and any amendments or supplements thereto, collectively constitute the "Offer"). After commencement, but prior to consummation, of the Offer, Cable & Wireless intends to transfer its ownership of all of the shares of Purchaser to Cable & Wireless USA, Inc., a Delaware corporation and a wholly owned subsidiary of Cable & Wireless ("Cable & Wireless USA"). Following the Offer, Purchaser intends to effect the Merger described below.

    THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON MONDAY, JUNE 18, 2001, UNLESS THE OFFER IS EXTENDED.

    The Offer is conditioned upon, among other things, (i) there having been validly tendered and not withdrawn prior to the expiration of the Offer at least the number of Shares that, when added to the Shares already owned by Cable & Wireless and its direct and indirect wholly owned subsidiaries, shall constitute a majority of the then outstanding Shares on a fully diluted basis (including, without limitation, all Shares issuable upon the conversion of any outstanding convertible securities or upon the exercise of any outstanding options or warrants which are vested as of the date of the Merger Agreement (as defined below) or are capable of vesting during the ninety (90) day period following the consummation of the Offer and have an exercise price of $10.00 per Share or less) and (ii) any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as

amended, the U.K. Fair Trading Act of 1973, the appropriate provisions of the E.C. Merger Regulation 4064/89 or any other applicable foreign antitrust law, having expired or been terminated prior to the expiration of the Offer. The Offer also is subject to certain other conditions contained in the Offer to Purchase. See "Section 1. Terms of the Offer; Expiration Date" and "Section 14. Certain Conditions of the Offer" of the Offer to Purchase, which set forth in full the conditions to the Offer.

    The Offer is being made pursuant to an Agreement and Plan of Merger dated as of May 14, 2001 (the "Merger Agreement") by and among Cable & Wireless, Purchaser and the Company. The Merger Agreement provides, among other things, that as promptly as practicable after the purchase of Shares pursuant to the Offer and the satisfaction or, if permissible, waiver, of the other conditions described in the Merger Agreement, and in accordance with the relevant provisions of the General Corporation Law of the State of Delaware (the "DGCL"), Purchaser will be merged with and into the Company (the "Merger"). As a result of the Merger, the Company, which will continue as the surviving corporation (the "Surviving Corporation"), will become an indirect wholly owned subsidiary of Cable & Wireless. At the effective time of the Merger (the "Effective Time"), each Share issued and outstanding immediately prior to the Effective Time (other than Shares held in the treasury of the Company or Shares owned by Purchaser, Cable & Wireless, Cable & Wireless USA or any direct or indirect wholly owned subsidiary of Cable & Wireless or of the Company, and other than Shares held by stockholders who are entitled to and shall have properly exercised appraisal rights under the DGCL) shall be canceled and converted automatically into the right to receive $3.40 per Share (or any greater amount per Share paid pursuant to the Offer) in cash, without interest.

    The Board of Directors of the Company has unanimously determined that the Merger Agreement and the transactions contemplated thereby, including each of the Offer and the Merger, are fair to, and in the best interest of, the Company and the holders of Shares, has approved, adopted and declared advisable the Merger Agreement and the transactions contemplated thereby, including each of the Offer and the Merger, and has resolved to recommend that the holders of Shares accept the Offer and tender their Shares pursuant to the Offer.

    For purposes of the Offer, Purchaser will be deemed to have accepted for payment (and thereby purchased) Shares validly tendered and not properly withdrawn as, if and when Purchaser gives oral or written notice to Computershare Trust Company of New York (the "Depositary") of Purchaser's acceptance for payment of such Shares pursuant to the Offer. Upon the terms and subject to the conditions of the Offer, payment for Shares purchased pursuant to the Offer will be made by deposit of the purchase price therefor with the Depositary, which will act as agent for tendering stockholders whose Shares have been accepted for payment for the purpose of receiving payments from Purchaser and transmitting such payments to validly tendering stockholders. Under no circumstances will Purchaser pay interest on the purchase price for Shares, regardless of any extension of the Offer or any delay in making such payment. In all cases, Purchaser will pay for Shares tendered and accepted for payment pursuant to the Offer only after timely receipt by the Depositary of (i) the certificates evidencing such Shares (the "Share Certificates") or timely confirmation of a book-entry transfer of such Shares into the Depositary's account at the Book-Entry Transfer Facility (as defined in "Section 2. Acceptance for Payment and Payment for Shares" of the Offer to Purchase) pursuant to the procedures described in "Section 3. Procedures for Accepting the Offer and Tendering Shares" of the Offer to Purchase, (ii) the Letter of Transmittal, properly completed and duly executed (or a manually signed facsimile thereof), with any required signature guarantees, in the case of a book-entry transfer, or an Agent's Message (as defined in "Section 2. Acceptance for Payment and Payment for Shares" of the Offer to Purchase) and (iii) any other documents required under the Letter of Transmittal.

    Purchaser expressly reserves the right, in its sole discretion (but subject to the terms and conditions of the Merger Agreement and subject to the applicable rules of the United States Securities and Exchange Commission), at any time and from time to time, to extend for any reason the period of time during which the Offer is open, including upon the occurrence of any of the conditions to the Offer specified in "Section 14. Certain Conditions of the Offer" of the Offer to Purchase, and thereby delay acceptance for payment of, and payment for, any Shares. In lieu of an extension, the Purchaser may elect to provide for a "subsequent offering period" within the meaning of Rule 14d-11 of the

General Rules and Regulations under the Securities Exchange Act of 1934, as amended. Purchaser shall give oral or written notice of such extension or subsequent offering to the Depositary. Any such extension or subsequent offering will be followed as promptly as practicable by public announcement thereof and such announcement will be made no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date (as defined below). During any such extension, all Shares previously tendered and not withdrawn will remain subject to the Offer and subject to the right of a tendering stockholder to withdraw such stockholder's Shares. During a subsequent offering period, stockholders would not be able to withdraw Shares previously tendered in the Offer and stockholders would not be able to withdraw Shares tendered during the subsequent offering period.

    Tenders of Shares made pursuant to the Offer are irrevocable, except that such Shares may be withdrawn at any time prior to 12:00 midnight, New York City time, on Monday, June 18, 2001 (or the latest time and date at which the Offer, if extended by Purchaser, shall expire) (the "Expiration Date") and, unless theretofore accepted for payment by Purchaser pursuant to the Offer, may also be withdrawn at any time after July 19, 2001. For a withdrawal of Shares to be effective, a written or facsimile transmission notice of withdrawal must be timely received by the Depositary at one of its addresses set forth on the back cover page of the Offer to Purchase. Any such notice of withdrawal must specify the name of the person who tendered the Shares to be withdrawn, the number of Shares to be withdrawn and the name of the registered holder of such Shares, if different from that of the person who tendered such Shares. If Share Certificates evidencing Shares to be withdrawn have been delivered or otherwise identified to the Depositary, then, prior to the physical release of such Share Certificates, the serial numbers shown on such Share Certificates must be submitted to the Depositary and the signature(s) on the notice of withdrawal must be guaranteed by an Eligible Institution (as defined in "Section 3. Procedures for Accepting the Offer and Tendering Shares" of the Offer to Purchase), unless such Shares have been tendered for the account of an Eligible Institution. If Shares have been tendered pursuant to the procedure for book-entry transfer as described in "Section 3. Procedures for Accepting the Offer and Tendering Shares" of the Offer to Purchase, any notice of withdrawal must specify the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Shares. All questions as to the form and validity (including the time of receipt) of any notice of withdrawal will be determined by Purchaser, in its sole discretion, whose determination will be final and binding.

    The information required to be disclosed by Rule 14d-6(d)(1) of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended, is contained in the Offer to Purchase and is incorporated herein by reference.

    The Company has provided Purchaser with the Company's stockholder list and security position listings for the purpose of disseminating the Offer to holders of Shares. The Offer to Purchase and the related Letter of Transmittal will be mailed by Purchaser to record holders of Shares whose names appear on the Company's stockholder list and will be furnished, for subsequent transmittal to beneficial owners of Shares, to brokers, dealers, commercial banks, trust companies and similar persons whose names, or the names of whose nominees, appear on the stockholder list or, if applicable, who are listed as participants in a clearing agency's security position listings.

    The Offer to Purchase and the related Letter of Transmittal contain important information which should be read carefully before any decision is made with respect to the Offer.

    Questions and requests for assistance or for additional copies of the Offer to Purchase and the related Letter of Transmittal and other Offer materials may be directed to the Information Agent or either of the Dealer Managers at their respective addresses and telephone numbers listed below, and copies will be furnished promptly at Purchaser's expense. No fees or commissions will be paid to brokers, dealers or other persons (other than the Information Agent, the Depositary and the Dealer Managers) for soliciting tenders of Shares pursuant to the Offer.

    The Information Agent for the Offer is:

MalCon Proxy Advisors, Inc.
130 William Street
New York, New York 10038
email: info@malconproxy.com
Banks and Brokers Call Collect: (212) 619-4565
All Others Call Toll Free: (800) 475-9320

    The Dealer Managers for the Offer are:

Greenhill
300 Park Avenue
New York, New York 10022
Call Toll Free: (866) 211-8609
Call Collect: (212) 389-1799

Merrill Lynch & Co.
Four World Financial Center
New York, New York 10080
Call Collect: (212) 236-3790

May 21, 2001

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EXHIBIT (a)(1)(I)

EX-99.(D)(1)

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EXHIBIT (d)(1)

    AGREEMENT AND PLAN OF MERGER

by and among

CABLE AND WIRELESS PLC,

DALI ACQUISITION CORP.

and

DIGITAL ISLAND, INC.

Dated as of May 14, 2001

TABLE OF CONTENTS

			Page
ARTICLE I		DEFINITIONS	1
	Section 1.1	Definitions	1
ARTICLE II		THE OFFER	6
	Section 2.1	The Offer	6
	Section 2.2	Company Action	8
	Section 2.3	Directors	9
	Section 2.4	Indebtedness of the Company	10
ARTICLE III		THE MERGER	11
	Section 3.1	The Merger	11
	Section 3.2	Effective Time; Closing	11
	Section 3.3	Effect of the Merger	11
	Section 3.4	Certificate of Incorporation; By-laws	11
	Section 3.5	Directors and Officers	12
	Section 3.6	Conversion of Securities	12
	Section 3.7	Employee Stock Options/Employee Stock Purchase Plan/Restricted Stock	12
	Section 3.8	Dissenting Shares	15
	Section 3.9	Surrender of Shares; Stock Transfer Books	15
ARTICLE IV		REPRESENTATIONS AND WARRANTIES OF THE COMPANY	17
	Section 4.1	Organization and Qualification; Subsidiaries	17
	Section 4.2	Certificate of Incorporation and By-laws	18
	Section 4.3	Capitalization	18
	Section 4.4	Authority Relative to this Agreement	18
	Section 4.5	No Conflict; Required Filings and Consents	19
	Section 4.6	Permits; Compliance	20
	Section 4.7	SEC Filings; Financial Statements	20
	Section 4.8	Absence of Certain Changes or Events	21
	Section 4.9	Absence of Litigation	21
	Section 4.10	Employee Benefit Plan	21
	Section 4.11	Labor and Employment Matters	23
	Section 4.12	Offer Documents; Schedule 14D-9; Proxy Statement	24
	Section 4.13	Property and Leases	25
	Section 4.14	Intellectual Property	25
	Section 4.15	Taxes	26
	Section 4.16	Environmental Matters	27
	Section 4.17	Material Contracts	27
	Section 4.18	Customers and Suppliers	27
	Section 4.19	Brokers	27
	Section 4.20	Antitakeover Statutes	28
	Section 4.21	Vote Required	28
	Section 4.22	Fairness Opinion	28
ARTICLE V		REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB	28
	Section 5.1	Corporate Organization	28
	Section 5.2	Authority Relative to This Agreement	28
	Section 5.3	No Conflict; Required Filings and Consents	29
	Section 5.4	Financing	29

i

	Section 5.5	Offer Documents; Proxy Statement	30
	Section 5.6	Interim Operations of Merger Sub	30
ARTICLE VI		CONDUCT OF BUSINESS PENDING THE MERGER	30
	Section 6.1	Conduct of Business by the Company Pending the Merger	30
ARTICLE VII		ADDITIONAL AGREEMENTS	32
	Section 7.1	Stockholders' Meeting	32
	Section 7.2	Proxy Statement	33
	Section 7.3	Access to Information; Confidentiality	33
	Section 7.4	Acquisition Proposals.	33
	Section 7.5	Employee Benefits Matters	35
	Section 7.6	Directors' and Officers' Indemnification and Insurance	36
	Section 7.7	Notification of Certain Matters	36
	Section 7.8	Further Action; Reasonable Best Efforts	37
	Section 7.9	Public Announcements	37
	Section 7.10	Confidentiality Agreement	38
ARTICLE VIII		CONDITIONS TO THE MERGER	38
	Section 8.1	Conditions to the Obligations of Each Party	38
ARTICLE IX		TERMINATION, AMENDMENT AND WAIVER	37
	Section 9.1	Termination	37
	Section 9.2	Effect of Termination	38
	Section 9.3	Termination Fees	38
	Section 9.4	Amendment	38
	Section 9.5	Waiver	39
ARTICLE X		GENERAL PROVISIONS	39
	Section 10.1	Notices	39
	Section 10.2	Severability	40
	Section 10.3	Entire Agreement; Assignment	40
	Section 10.4	Parties in Interest	40
	Section 10.5	Specific Performance	40
	Section 10.6	Governing Law	40
	Section 10.7	Waiver of Jury Trial	41
	Section 10.8	Headings	41
	Section 10.9	Counterparts	41
	Section 10.10	Interpretation	41

ii

AGREEMENT AND PLAN OF MERGER

    AGREEMENT AND PLAN OF MERGER, dated as of May 14, 2001 (this "Agreement"), by and among CABLE AND WIRELESS PLC, a corporation organized and existing under the laws of England ("Parent"), DALI ACQUISITION CORP., a Delaware corporation and a wholly owned subsidiary of Parent ("Merger Sub"), and DIGITAL ISLAND, INC., a Delaware corporation (the "Company").

W I T N E S S E T H:

    WHEREAS, the Boards of Directors of Parent, Merger Sub and the Company each have determined that it is fair to and in the best interests of their respective stockholders for Parent to acquire the Company upon the terms and subject to the conditions set forth herein;

    WHEREAS, in furtherance of such acquisition, Merger Sub shall make a cash tender offer (the "Offer") to acquire all the issued and outstanding shares of common stock, par value $0.001 per share, of the Company (each a "Share" and collectively, the "Shares") for $3.40 per Share in cash (such amount, or any greater amount per Share paid pursuant to the Offer, being the "Per Share Amount"), net to the sellers of the Shares in cash, upon the terms and subject to the conditions of this Agreement and the Offer including Annex A hereto;

    WHEREAS, the Board of Directors of the Company (the "Board") has unanimously approved the making of the Offer and resolved to recommend that holders of Shares tender their Shares pursuant to the Offer; and

    WHEREAS, also in furtherance of such acquisition, the Boards of Directors of Parent, Merger Sub and the Company each have unanimously approved this Agreement and declared its advisability and approved the merger of Merger Sub with and into the Company (the "Merger") in accordance with the General Corporation Law of the State of Delaware (the "DGCL"), following the consummation of the Offer and upon the terms and subject to the conditions set forth herein;

    NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements herein contained, and intending to be legally bound hereby, Parent, Merger Sub and the Company hereby agree as follows:

ARTICLE I

DEFINITIONS

     Section 1.1  Definitions.  (a) For purposes of this Agreement:

    "Acquisition Proposal" means (i) any proposal or offer from any Person relating to any direct or indirect acquisition of (A) thirty-five percent (35%) or more of the assets of the Company or (B) more than thirty-five percent (35%) (in voting power) of the voting securities of the Company or of any Subsidiary; (ii) any tender offer or exchange offer, as defined pursuant to the Exchange Act, that, if consummated, would result in any Person beneficially owning thirty-five percent (35%) or more (in voting power) of the voting securities of the Company or any Subsidiary; (iii) the sale of thirty-five percent (35%) or more (in fair market value) of the assets of the Company; or (iv) any merger, consolidation, business combination, recapitalization, liquidation, dissolution or similar transaction involving the Company other than one in which the Company is the surviving corporation and the Company's stockholders immediately prior to the consummation of such transaction own not less than sixty-five percent (65%) of the voting securities of the surviving corporation after consummation of such transaction, in each case other than the Transactions.

1

    "Affiliate" of a specified Person means a Person who, directly or indirectly, through one or more intermediaries, Controls, is Controlled by, or is under Common Control with, such specified person.

    "Beneficial Owner" with respect to any Shares, has the meaning ascribed to such term under Rule 13d-3(a) of the Exchange Act.

    "Business Day" means any day on which the principal offices of the SEC in Washington, D.C., are open to accept filings; or, in the case of determining a date when any payment is due, any day (other than a Saturday or Sunday) on which banks are not required or authorized to close in the City of New York.

    "Control" (including the terms "Controlled by" and "under Common Control with") means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract or otherwise.

    "Environmental Laws" means any United States federal, state, local or foreign laws relating to (i) Releases or threatened Releases of Hazardous Substances or materials containing Hazardous Substances; (ii) the manufacture, handling, transport, use, treatment, storage or disposal of Hazardous Substances or materials containing Hazardous Substances; or (iii) pollution or protection of the environment.

    "ERISA Affiliate" means any trade or business (whether or not incorporated) under Common Control with the Company or any Subsidiary and which, together with the Company or any Subsidiary, is treated as a single employer within the meaning of Section 414(b), (c), (m) or (o) of the Code.

    "Hazardous Substances" means (i) those substances defined in or regulated under the following United States federal statutes and their state counterparts, as each may be amended from time to time, and all regulations thereunder: the Hazardous Materials Transportation Act, the Resource Conservation and Recovery Act, the Comprehensive Environmental Response, Compensation and Liability Act, the Clean Water Act, the Safe Drinking Water Act, the Atomic Energy Act, the Federal Insecticide, Fungicide, and Rodenticide Act, the Toxic Substances Control Act, the Occupational Safety and Health Act, the Emergency Planning and Community Right-to Know Act, the Oil Pollution Act and the Clean Air Act; (ii) petroleum and petroleum products, including crude oil and any fractions thereof; (iii) natural gas, synthetic gas, and any mixtures thereof; (iv) polychlorinated biphenyls, asbestos and radon; and (v) any substance, material or waste regulated by any Governmental Authority pursuant to any Environmental Law.

    "Intellectual Property" means (i) United States, foreign, and international patents, patent applications and invention registrations of any type, (ii) trademarks, service marks, domain names, internet web sites, trade dress, logos, trade names, corporate names and other source identifiers, and registrations and applications for registration thereof, (iii) copyrightable works, copyrights, and registrations and applications for registration thereof, (iv) Software, (v) trade secrets and know-how and (vi) any other similar intellectual property rights, whether or not subject to statutory registration or protection.

    "Knowledge of the Company" means the current actual knowledge of any director or executive officer of the Company.

    "Licenses" mean (i) licenses of Intellectual Property by the Company or any Subsidiary to third parties, (ii) licenses of Intellectual Property by third parties to the Company or any Subsidiary, and (iii) agreements between the Company or any Subsidiary and third parties relating to the development or use of Intellectual Property excluding (A) shrink-wrap, commodity and similar licenses available generally to the public or industry participants, (B) end-user licenses and (C) licenses for off-the-shelf Software of third parties.

2

    "Material Adverse Effect" or "Material Adverse Change" means (i) the occurrence of any event, circumstance, change, development or effect that, either individually or in the aggregate, has had or is reasonably likely to have a material adverse effect on the assets, liabilities, business, financial condition or results of operations of the Company and its Subsidiaries taken as a whole, or (ii) at any time prior to the acceptance for payment by Parent of the Shares pursuant to the Offer, the loss by the Company of (A) any one of the "executive officers" of the Company identified in Section A of the Employment Letter (the "Employment Letter") from Parent to the Company dated as of the date hereof (the "Executive Officers") (other than as a result of the death or disability of such Executive Officers) or (B) fifty percent (50%) or more of the "key employees" identified in Sections B and C of the Employment Letter (the "Key Employees"), in each case including as a lost employee any such employee who is not employed by the Company at the time of consummation of the Offer or has given any written notice or other written indication to the Company prior to the consummation of the Offer that such employee is not willing to continue to be employed by the Surviving Corporation following the Effective Time, other than, in the case of clauses (i) and (ii) above, any event, circumstance, change, development, or effect occurring as a result of (1) general economic and financial conditions, (2) conditions affecting the industry in general in which the Company operates and not specifically relating to (or having the effect of specifically relating to or having a materially disproportionate effect (relative to most other industry participants) on) the Company, (3) changes in the financial markets, trading prices of the Company's securities or trading volumes of the Company's securities, (4) any change arising, in whole or in part, from the public announcement or pendency of the Transactions including, but not limited to, customer attrition associated therewith (but specifically excluding any loss of employees as contemplated by clause (ii) of this definition) or (5) any change arising from or relating to any matters set forth in Section 1.1 of the Disclosure Schedule.

    "Person" means an individual (including, without limitation, a "person" as defined in Section 13(d)(3) of the Exchange Act), corporation, partnership, limited partnership, limited liability company, syndicate, trust, association or entity or government, political subdivision, agency or instrumentality of a government.

    "Release" means any release, spill, emission, discharge, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching or migration into or through the indoor or outdoor environment (including, without limitation, ambient air, surface water, groundwater, and surface or subsurface strata) or into or out of any property, including the movement of Hazardous Substances through or in the air, soil, surface water, groundwater or property.

    "Software" means computer software, programs and databases in any form, all versions, updates, corrections, enhancements, and modifications thereof.

    "Subsidiary" or "Subsidiaries" of the Company, the Surviving Corporation, Parent, Merger Sub or any other Person means an Affiliate Controlled by such Person, directly or indirectly, through one or more intermediaries.

    "Superior Proposal" means any Acquisition Proposal with respect to which the Board (a) determines in good faith that such proposal, if accepted, is reasonably capable of being consummated, taking into account all legal, financial, regulatory and other aspects of the proposal and the Person making such Acquisition Proposal and (b) believes in good faith, based on the advice of CSFB or another nationally recognized investment bank or financial advisor, that such Acquisition Proposal, if consummated, would result in a transaction more favorable to the Company's stockholders from a financial point of view (taking into account all terms and conditions of the Acquisition Proposal and the likelihood of consummation) than the Offer and the Merger.

    "Taxes" shall mean any and all federal, state, local and foreign taxes, fees, levies, duties, tariffs, imposts, assessments, withholdings and other charges of any kind (together with any and all interest, penalties, additions to tax and additional amounts with respect thereto) imposed by any Governmental

3

Authority or taxing authority, including, without limitation: income, franchise, alternative or add-on minimum, windfall or other profits, gross receipts, property, sales, escheats, use, capital stock, payroll, employment, occupation, social security, workers' compensation, unemployment compensation or net worth taxes; taxes or other charges in the nature of excise, withholding, ad valorem, stamp, transfer, value-added, intangible or gains taxes; license, registration and documentation fees; and customs, duties, tariffs and similar charges.

    "Tax Returns" shall mean all returns, declarations, reports, estimates, information returns, and statements of any nature relating to Taxes.

(b)

The following terms have the meaning set forth in the Sections set forth below:

Term	Section Reference
Action	§4.9
Adjusted Agreement	§7.4(b)
Agreement	Preamble
Blue Sky Laws	§4.5(b)
Board	Recitals
Cancellation Payment	§3.7(a)
Certificate of Merger	§3.2
Certificates	§3.9(b)
Code	§4.10(b)
Company	Preamble
Company Licensed Intellectual Property	§4.14(b)
Company Owned Intellectual Property	§4.14(b)
Company Notice Date	§2.4
Company Preferred Stock	§4.3
Company Stock Option	§3.7(a)
Company Stock Option Plans	§3.7(a)
Confidentiality Agreement	§7.3(b)
Convertible Notes	§4.3
CSFB	§2.2(a)
DGCL	Recitals
Disclosure Schedule	§4
Dissenting Shares	§3.8(a)
E.C. Merger Regulation	§4.5(b)
Effective Time	§3.2
Employment Letter	§1.1
Encumbrances	§4.1(c)
Environmental Permits	§4.16
ERISA	§4.10(a)
ESPP	§3.7(a)
Exchange Act	§2.1(a)
Executive Officers	§1.1
Fair Trading Act	§4.5(b)
Fairness Opinion	§2.2(a)
Funds	§5.4
Governmental Authority	§4.5(b)
HSR Act	§4.5(b)
Indemnified Parties	§7.6(a)
Indemnified Party	§7.6(a)
Indenture	§5.4

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IRS	§4.10(a)
Key Employees	§1.1
Law	§4.5(a)
Material Contracts	§4.17(a)
Merger	Recitals
Merger Sub	Preamble
Merger Consideration	§3.6(a)
Minimum Condition	§2.1(a)
Multiemployer Plan	§4.10(b)
Multiple Employer Plan	§4.10(b)
Offer	Recitals
Offer Documents	§2.1(b)
Offer to Purchase	§2.1(b)
Optionholder	§3.7(a)
Parent	Preamble
Parent Note	§2.4
Paying Agent	§3.9(a)
Permits	§4.6
Per Share Amount	Recitals
Plans	§4.10(a)
Proprietary Names	§4.14(a)
Proxy Statement	§4.12
Restricted Stock	§3.7(a)
Restricted Stockholder	§3.7(a)
Schedule 14D-9	§2.2(b)
Schedule TO	§2.1(b)
SEC	§2.1(a)
SEC Reports	§4.7(a)
Securities Act	§4.7(a)
Share	Recitals
Shares	Recitals
Stockholders' Meeting	§7.1(a)
Surviving Corporation	§3.1
Termination Date	§9.1(b)
Termination Fee	§9.3(a)
Transactions	§2.2(a)
Warrants	§4.3
2000 Balance Sheet	§4.7(c)
U.S. GAAP	§4.7(b)
Vested Shares	§3.7(a)

ARTICLE II

THE OFFER

    Section 2.1  The Offer.  (a) Provided that this Agreement shall not have been terminated in accordance with its terms and none of the conditions set forth in Annex A hereto shall have occurred or be continuing, Parent shall cause Merger Sub to, and Merger Sub shall, commence the Offer as promptly as reasonably practicable after the date hereof, but in no event later than five (5) Business Days after the date hereof. The obligation of Merger Sub to accept for payment Shares tendered

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pursuant to the Offer shall be subject to (i) the condition that at least the number of Shares that when added to Shares already owned by Parent and its direct and indirect wholly owned Subsidiaries, if any, shall constitute a majority of the then outstanding Shares on a fully diluted basis (including, without limitation, all Shares issuable upon the conversion of any outstanding convertible securities or upon the exercise of any outstanding options or warrants which are vested as of the date hereof or are capable of vesting during the ninety (90) day period following the consummation of the Offer and have an exercise price of $10.00 per Share or less) shall have been validly tendered and not withdrawn prior to the expiration of the Offer (the "Minimum Condition") and (ii) there shall not have occurred or be continuing any of the conditions set forth in Annex A hereto. Parent expressly reserves the right to waive any such condition, to increase the Per Share Amount, and to make any other changes in the terms and conditions of the Offer; provided, however, that no change may be made by Parent without the prior written consent of the Company which (A) decreases the Per Share Amount or changes the form of consideration payable in the Offer, (B) waives the Minimum Condition, (C) reduces the maximum number of Shares to be purchased in the Offer, (D) imposes conditions to the Offer in addition to those set forth in Annex A hereto or (E) amends any term of the Offer in any other manner materially adverse to the holders of the Shares.

    Notwithstanding the foregoing, Merger Sub may, without the consent of the Company, (i) extend the Offer beyond the scheduled expiration date, which shall be twenty (20) Business Days following the commencement of the Offer, if, at the scheduled expiration of the Offer, any of the conditions to Merger Sub's obligation to accept for payment Shares shall not be satisfied or waived, (ii) extend the Offer for any period required by any rule, regulation, interpretation or position of the United States Securities and Exchange Commission (the "SEC"), or the staff thereof, applicable to the Offer, or (iii) extend the Offer for an aggregate period of not more than ten (10) Business Days beyond the latest applicable date that would otherwise be permitted under clause (i) or (ii) of this sentence, if, as of such date, all of the conditions to Merger Sub's obligations to accept for payment Shares are satisfied or waived, but the number of Shares validly tendered and not withdrawn pursuant to the Offer totals less than ninety percent (90%) of the issued and outstanding Shares on a fully diluted basis. The Per Share Amount shall, subject to any applicable withholding of Taxes, be net to the sellers of the Shares in cash, upon the terms and subject to the conditions of the Offer. Subject to the terms and conditions of the Offer and this Agreement, Parent shall cause Merger Sub to, and Merger Sub shall, accept for payment and pay for all Shares validly tendered and not withdrawn as promptly as practicable following satisfaction of the Minimum Condition. Notwithstanding the immediately preceding sentence and subject to the applicable rules of the SEC and the terms and conditions of the Offer, Merger Sub expressly reserves the right to delay payment for Shares in order to comply in whole or in part with applicable Laws. Any such delay shall be effected in compliance with Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). If the payment equal to the Per Share Amount in cash is to be made to a Person other than the Person in whose name the surrendered certificate formerly evidencing Shares is registered on the stock transfer books of the Company, it shall be a condition of payment that the certificate so surrendered shall be endorsed properly or otherwise be in proper form for transfer and that the Person requesting such payment shall have paid all transfer and other Taxes required by reason of the payment of such amount to a Person other than the registered holder of the certificate surrendered, or shall have established to the satisfaction of Merger Sub that such Taxes either have been paid or are not applicable. If this Agreement is terminated by Parent or by the Company, Parent shall cause Merger Sub to, and Merger Sub shall, terminate promptly the Offer.

    (b) As promptly as reasonably practicable on the date of commencement of the Offer, Parent shall file with the SEC a Tender Offer Statement on Schedule TO (together with all amendments and supplements thereto, the "Schedule TO") with respect to the Offer. The Schedule TO shall contain or shall incorporate by reference an offer to purchase (the "Offer to Purchase") and forms of the related letter of transmittal and any related summary advertisement (the Schedule TO, the Offer to Purchase

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and such other documents, together with all supplements and amendments thereto, being referred to herein collectively as the "Offer Documents"). Each of Parent, Merger Sub and the Company agrees to correct promptly any information provided by it for use in the Offer Documents that shall have become false or misleading in any material respect, and Parent and Merger Sub further agree to take all steps necessary to cause the Schedule TO, as so corrected, to be filed with the SEC, and the other Offer Documents, as so corrected, to be disseminated to holders of Shares, in each case as and to the extent required by applicable federal securities laws. Parent and Merger Sub shall give the Company and its counsel a reasonable opportunity to review and comment on the Offer Documents prior to such documents being filed with the SEC or disseminated to holders of Shares. Parent and Merger Sub shall provide the Company and its counsel with copies of any comments Parent, Merger Sub or their counsel may receive from the SEC or its staff with respect to the Offer Documents promptly after the receipt of such comments and shall provide the Company and its counsel with a reasonable opportunity to participate in the formulation of the response of Parent or Merger Sub to such comments.

    Section 2.2  Company Action.  (a) The Company hereby approves of and consents to the Offer and represents and warrants to Parent and Merger Sub that (i) the Board, at a meeting duly called and held on May 13, 2001, has unanimously (A) determined that this Agreement and the transactions contemplated hereby, including each of the Offer and the Merger (the Offer and the Merger, collectively, the "Transactions"), are fair to, and in the best interests of, the holders of Shares, (B) approved, adopted and declared advisable this Agreement and the Transactions (such approval and adoption having been made in accordance with the DGCL, including, without limitation, Section 203 thereof assuming that neither Parent nor Merger Sub are Interested Stockholders (as such term is defined in Section 203 of the DGCL with respect to the Transactions)) and (C) resolved to recommend that the holders of Shares accept the Offer and tender their Shares pursuant to the Offer, and approve and adopt this Agreement and the Transactions, and (ii) Credit Suisse First Boston Corporation ("CSFB") has delivered to the Board its opinion that, as of the date of such opinion, the consideration to be received by the holders of Shares pursuant to each of the Offer and the Merger is fair to the holders of Shares from a financial point of view (the "Fairness Opinion"), subject to the assumptions and qualifications contained in such opinion. The Company hereby consents to the inclusion in the Offer Documents of the recommendation of the Board described in the immediately preceding sentence, and neither the Board nor the Company shall withdraw or modify such recommendation in any manner adverse to Merger Sub or Parent except as and to the extent expressly provided in Section 7.4(b).

    (b) On the date the Offer Documents are filed with the SEC, the Company shall file with the SEC a Solicitation/Recommendation Statement on Schedule 14D-9 containing the Fairness Opinion and, except and to the extent expressly provided in Section 7.4(b), the recommendation of the Board described in Section 2.2(a), and an information statement (together with all amendments and supplements thereto, the "Schedule 14D-9"), and shall disseminate the Schedule 14D-9 to the extent required by Rule 14d-9 promulgated under the Exchange Act, and any other applicable federal securities laws. Each of Parent, Merger Sub and the Company agrees to correct promptly any information provided by it for use in the Schedule 14D-9 which shall have become false or misleading in any material respect, and the Company further agrees to take all steps necessary to cause the Schedule 14D-9, as so corrected, to be filed with the SEC and disseminated to holders of Shares, in each case as and to the extent required by applicable federal securities laws. The Company shall give Parent and its counsel a reasonable opportunity to review and comment on the Schedule 14D-9 prior to such document being filed with the SEC or disseminated to holders of Shares. The Company shall provide Parent and its counsel with copies of any comments the Company or its counsel may receive from the SEC or its staff with respect to the Schedule 14D-9 after the receipt of such comments and shall provide Parent and its counsel with a reasonable opportunity to participate in the response of the Company to such comments.

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    (c) The Company shall cooperate with and promptly furnish Parent and Merger Sub with the names and addresses of all record holders of Shares and with security position listings of Shares held in stock depositories, in each case that are true and correct as of the most recent practicable date, together with all other available listings and computer files containing names, addresses and security position listings of record holders and Beneficial Owners of Shares. The Company shall cooperate with and promptly furnish Parent and Merger Sub with such additional information, including, without limitation, updated listings and computer files of stockholders, mailing labels and security position listings, and such other assistance in disseminating the Offer Documents to holders of Shares, as Parent or Merger Sub may reasonably request in connection with the Offer. Subject to the requirements of applicable Law, and except for such steps as are necessary to disseminate the Offer Documents and any other documents necessary to consummate the Offer or the Merger, Parent and Merger Sub shall hold in confidence the information contained in such labels, listings and files, shall use such information only in connection with the Transactions, and, if this Agreement shall be terminated in accordance with Section 9.1, shall deliver to the Company all copies of such information.

    Section 2.3  Directors.  (a) Effective upon the acceptance for payment pursuant to the Offer of a number of Shares that satisfies the Minimum Condition, Parent shall be entitled to designate that number of directors on the Board, rounded up to the nearest whole number, on the Board equal to the product of (i) the total number of directors on the Board (giving effect, if applicable, to (A) the number of newly created directorships if the size of the Board is increased pursuant to this Section 2.3(a) and (B) the number of vacancies if the resignation of any director is secured pursuant to this Section 2.3(a)) and (ii) the percentage that the number of Shares beneficially owned in the aggregate by Parent and Merger Sub bears to the total number of Shares outstanding, and the Company, at such time, shall take all action necessary to cause Parent's designees to be elected or appointed to the Board, including, without limitation, increasing the number of directors, and seeking and accepting resignations of incumbent directors. At such time, the Company also will use its best efforts to cause individuals designated by Parent to constitute the number of members, rounded up to the nearest whole number, on (i) each committee of the Board and (ii) the board of directors of each Subsidiary of the Company (and each committee thereof) that represents the same percentage as such individuals represent on the Board. Notwithstanding the foregoing, the Parent and the Company shall use their reasonable best efforts to ensure that at least two (2) members of the Board as of the date hereof who are not employees of the Company (the "Continuing Directors") shall remain members of the Board until the Effective Time.

    (b) The Company's obligations to appoint Parent's designees to the Board shall be subject to Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder. The Company, at its sole expense, shall take promptly all actions, and shall include in the Schedule 14D-9 such information with respect to the Company and its officers and directors, as Section 14(f) or the Exchange Act and Rule 14f-1 promulgated thereunder require in order to fulfill its obligations under this Section 2.3. Parent shall supply to the Company in writing and be solely responsible for any information with respect to itself and its nominees, officers, directors and Affiliates required by Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder.

    (c) Following the election or appointment of Parent's designees pursuant to Section 2.3(a) and until the Effective Time, the approval of a majority of the Continuing Directors shall be required to authorize (and such authorization shall constitute the authorization of the Board and no other action on the part of the Company, including any action by any other director of the Company, shall be required to authorize) any termination of this Agreement by the Company, any amendment of this Agreement requiring action by the Board, any extension of time for performance of any obligation or action hereunder by Parent or Merger Sub and any waiver of compliance with any of the agreements or conditions contained herein for the benefit of the Company. For the avoidance of doubt, the approval of a majority of the Continuing Directors shall not be required to authorize any payments required to

8

be made by the Company, pursuant to, or to otherwise comply with the terms and conditions of, the Parent Note.

    Section 2.4  Indebtedness of the Company.  As and to the extent necessary for the Company to comply with its obligations under the Indenture, Parent shall or shall cause one of its Affiliates to provide to the Company from time to time the funds necessary for the Company to comply with such obligations when and if such obligations become due and payable as a result of the consummation of the Offer contemplated herein; provided that the aggregate amount to be provided by Parent (or its Affiliate) to the Company pursuant to this Section 2.4 shall not exceed the aggregate principal amount plus accrued (but unpaid) interest of all indebtedness which may be required to be repaid by the Company pursuant to the Indenture. Any and all amounts to be provided by Parent (or its Affiliates) to the Company in accordance with this Section 2.4 shall (a) if in the form of a loan, be evidenced by the Interim Financing Non-Negotiable Promissory Note in the form attached hereto as Annex B (the "Parent Note") and (b) if in the form of a capital contribution, entitle Parent to receive that number of Shares and/or other voting securities substantially equivalent to the Shares equal to the amount of such contribution divided by the Per Share Amount. The Company hereby agrees to give or to cause the Trustee (as such term is defined in the Indenture) to give the Company Notice (as such term is defined in the Indenture) on, and not prior to, the thirtieth (30^th) day following the date on which funds are transferred by Parent or Merger Sub to the Paying Agent pursuant to the Offer (the "Company Notice Date").

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ARTICLE III

THE MERGER

    Section 3.1  The Merger  Upon the terms and subject to the satisfaction or waiver of the conditions set forth in this Agreement, and in accordance with the DGCL and any other applicable Law, as soon as practicable following completion of the Offer, Merger Sub shall be merged with and into the Company, whereupon the separate existence of Merger Sub shall cease, and the Company shall continue as the surviving corporation and a wholly owned subsidiary of Parent (the "Surviving Corporation").

    Section 3.2  Effective Time; Closing  As promptly as practicable after the satisfaction or, if permissible, waiver of the conditions set forth in Article VIII, the parties hereto shall cause the Merger to be consummated by filing this Agreement or a certificate of merger or certificate of ownership and merger (in either case, the "Certificate of Merger") with the Secretary of State of the State of Delaware, in such form as is required by, and executed in accordance with, the relevant provisions of the DGCL (the date and time of such filing being the "Effective Time"). Prior to such filing, a closing shall be held at the offices of Pillsbury Winthrop LLP, 50 Fremont Street, San Francisco, California 94105, or such other place as the parties shall agree, for the purpose of confirming the satisfaction or waiver, as the case may be, of the conditions set forth in Article VIII.

    Section 3.3  Effect of the Merger  As a result of the Merger, the separate corporate existence of Merger Sub shall cease and the Company shall continue as the Surviving Corporation. At the Effective Time, the Merger will have the effects set forth in Section 259 of the DGCL. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, all of the property, rights, privileges, powers and franchises of the Company and Merger Sub shall vest in the Surviving Corporation, and all debts, liabilities, obligations, restrictions, disabilities and duties of the Company and Merger Sub shall become the debts, liabilities, obligations, restrictions, disabilities and duties of the Surviving Corporation.

    Section 3.4  Certificate of Incorporation; By-laws  (a) At the Effective Time and without any further action on the part of the Company or Merger Sub, the Certificate of Incorporation of the Company, as in effect immediately prior to the Effective Time, shall be the Certificate of Incorporation of the Surviving Corporation until thereafter amended as provided by Law and such Certificate of Incorporation; provided, however, that, at the Effective Time the Certificate of Incorporation of the Surviving Corporation shall be amended in its entirety so that it will read as Merger Sub's Certificate of Incorporation, except that Article I of the Certificate of Incorporation of the Surviving Corporation shall read as follows: "The name of the corporation is Digital Island, Inc."

    (b) At the Effective Time and without any further action on the part of the Company or Merger Sub, the By-laws of Merger Sub, as in effect immediately prior to the Effective Time, shall be the By-laws of the Surviving Corporation until thereafter amended as provided by law, the Certificate of Incorporation of the Surviving Corporation and such By-laws.

    Section 3.5  Directors and Officers  The initial directors of the Surviving Corporation shall be the individuals listed on Schedule 3.5, each to hold office in accordance with the Certificate of Incorporation and By-laws of the Surviving Corporation, and the officers of the Company immediately prior to the Effective Time shall be the initial officers of the Surviving Corporation, in each case until their respective successors are duly elected or appointed and qualified or until their earlier death, resignation or removal.

    Section 3.6  Conversion of Securities  At the Effective Time, by virtue of the Merger and without any action on the part of Parent, Merger Sub, the Company or the holders of any of the following securities:

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    (a) each Share issued and outstanding immediately prior to the Effective Time (other than any Shares to be canceled pursuant to Section 3.6(b) and any Dissenting Shares (as hereinafter defined)) shall be canceled and shall be converted automatically into the right to receive an amount equal to the Per Share Amount (the "Merger Consideration") payable, without interest, to the holder of such Share, upon surrender, in the manner provided in Section 3.9, of the certificate that formerly evidenced such Share;

    (b) each Share held in the treasury of the Company and each Share owned by Merger Sub, Parent or any direct or indirect wholly owned Subsidiary of Parent or of the Company immediately prior to the Effective Time shall be canceled and shall cease to exist without any conversion thereof and no payment or distribution shall be made with respect thereto; and

    (c) each share of common stock, par value $0.01 per share, of Merger Sub issued and outstanding immediately prior to the Effective Time shall be converted into and exchanged for one validly issued, fully paid and nonassessable share of common stock, par value $0.01 per share, of the Surviving Corporation.

    Section 3.7  Employee Stock Options/Employee Stock Purchase Plan/Restricted Stock.

    (a) Outstanding stock options under the Company's 1999 Stock Incentive Plan and 2000 Supplemental Stock Option Plan, each as amended through the date of this Agreement (the "Company Stock Option Plans") or assumed by the Company pursuant to the terms of the Sandpiper Networks, Inc. 1997 Stock Plan and SoftAware, Inc. 1999 Stock Option/Stock Issuance Plan, outstanding rights to purchase Shares under the Company's 1999 Employee Stock Purchase Plan, as amended through the date of this Agreement (the "ESPP") and outstanding Shares issued under the Company's 1999 Stock Incentive Plan pursuant to the option exchange program implemented by the Company in April 2001 (the "Restricted Stock") shall be treated as follows:

    (i) Immediately prior to the completion of the Offer, each outstanding option to purchase shares of Company Common Stock under the Company Stock Option Plans (each, a "Company Stock Option") which, according to its terms would accelerate upon a "change in control" as defined in the Company Stock Option Plans or the applicable Company Stock Option Agreement, and which has an exercise price that is equal to or greater than the Per Share Amount, shall vest and become exercisable for all of the Shares subject to those Options and those Options shall be cancelled upon the completion of the Offer. Immediately prior to the Effective Time, each Company Stock Option which according to its terms would accelerate upon a "corporate transaction" as defined in the Company Stock Option Plans or the applicable Company Stock Option Agreement, which has an exercise price that is equal to or greater than the Per Share Amount, shall vest and become exercisable on an accelerated basis for all of the Shares subject to those Options and shall be cancelled at the Effective Time.

    (ii) At the completion of the Offer, except as otherwise agreed upon in writing between a holder of a Company Stock Option ("Optionholder") and Parent, each Company Stock Option which, according to its terms would accelerate upon a "change in control" as defined in the Company Stock Option Plans or the applicable Company Stock Option Agreement, and which has an exercise price that is less than the Per Share Amount shall be cancelled and such cancellation shall not result in any acceleration of vesting or exercisability of such Company Stock Option due to a "change in control." Instead, each Optionholder shall be entitled to a cash payment per Option Share equal to the difference between the exercise price of the Optionholder's Company Stock Option and the Per Share Price (the "Cancellation Payment"). To the extent that the Optionholder's Company Stock Option was vested and exercisable in accordance with its terms immediately prior to completion of the Offer (without regard to any provisions for acceleration of vesting on a change in control), the Cancellation Payment shall

12

be paid by Merger Sub to the Optionholder at the completion of the Offer upon surrender of the Company Stock Option. The remainder of the Cancellation Payment shall be made at such times as the Company Stock Option would have vested in accordance with its terms if it had continued in effect, provided that the Optionholder meets the terms and conditions of vesting set forth in the Company Stock Option Plans or the applicable Company Stock Option agreement.

    (iii) At the Effective Time, except as otherwise agreed upon in writing between the Optionholder and Parent, each Company Stock Option which, according to its terms would accelerate upon a "corporate transaction" as defined in the Company Stock Option Plans or the applicable Company Stock Option Agreement, and which has an exercise price that is less than the Per Share Amount shall be cancelled and such cancellation shall not result in any acceleration of vesting or exercisability of such Company Stock Option due to a "corporate transaction." Instead, each holder of a cancelled Company Stock Option (each, an "Optionholder") shall be entitled to the Cancellation Payment. To the extent that the Optionholder's Company Stock Option was vested and exercisable in accordance with its terms immediately prior to cancellation (without regard to any provisions for acceleration of vesting on a change in control), the Cancellation Payment shall be paid by Parent to the Optionholder at the Effective Time upon surrender of the Company Stock Option. The remainder of the Cancellation Payment shall be made at such times as the Company Stock Option would have vested in accordance with its terms if it had continued in effect, provided that the Optionholder meets the terms and conditions of vesting set forth in the Company Stock Option Plans or the applicable Company Stock Option agreement.

    (iv) The Company shall use its best efforts to provide all participants in the ESPP with at least ten (10) days written notice of consummation of the Offer and of their choice to (A) terminate their outstanding purchase rights and have all payroll deduction amounts refunded to them, or (B) let their outstanding purchase rights under the ESPP be exercised automatically on one final purchase date immediately prior to the consummation of the Offer. Each participant who elects to receive a refund of his or her payroll deductions shall promptly receive the cash equal to his or her payroll deductions for the final purchase interval. The ESPP shall terminate with the final purchase date, and no further purchase rights shall be granted under the terminated ESPP.

    (v) Upon completion of the Offer, except as otherwise agreed upon in writing between the holder of Restricted Stock, (each, a "Restricted Stockholder"), and the Company and Parent, the Restricted Stock issued and outstanding immediately prior to the change in control shall be cancelled and forfeited, and such cancellation and forfeiture shall not result in any accelerated vesting of the Restricted Stock under the terms of the applicable Restricted Stock issuance agreement between the Restricted Stockholder and the Company due to a "change in control" or "corporate transaction ". Instead, each Restricted Stockholder shall be entitled to receive a Cancellation Payment equal to the Per Share Amount multiplied by the number of shares of Restricted Stock he or she held immediately prior to the completion of the Offer. To the extent that the Restricted Stockholder's Restricted Stock was vested in accordance with its terms immediately prior to completion of the Offer (without regard to any provisions for accelerated vesting of the Restricted Stock on a change in control or corporate transaction), the Cancellation Payment shall be paid by Merger Sub to the Restricted Stockholder at the completion of the Offer. The remainder of the Cancellation Payment shall be made at such times as the Restricted Stock would have vested in accordance with the terms of the Restricted Stockholder's Restricted Stock issuance agreement if it such agreement had continued in effect, provided that the Restricted Stockholder meets the terms and conditions

13

of vesting set forth in the Company Stock Option Plans and the applicable Restricted Stock issuance agreement.

    (vi) Effective as of the Effective Time, the Company shall take all necessary action, including obtaining the consent of the individual Optionholders and Restricted Stockholders, if necessary, to (A) terminate the Company Stock Plans, (B) cancel, at the completion of the Offer or the Effective Time, as applicable, each outstanding Company Stock Option that is outstanding and unexercised, whether or not vested and exercisable as of such date, and (C) cancel at the consummation of the Offer, each Outstanding Restricted Share, whether or not vested as of such date.

    (vii) All payments made pursuant to this Section 3.7 shall be subject to all applicable Tax withholding requirements.

    (b) Prior to the Effective Time, the Company shall use its reasonable best efforts to (i) obtain any consents from Optionholders and Restricted Stockholders and (ii) make any amendments to the terms of such Company Stock Options or the Company Stock Option Plans that are necessary or appropriate to give effect to the transactions contemplated by Section 3.7(a).

    Section 3.8  Dissenting Shares  (a) Notwithstanding any provision of this Agreement to the contrary, Shares that are outstanding immediately prior to the Effective Time and that are held by stockholders who shall have neither voted in favor of the Merger nor consented thereto in writing and who shall have demanded appraisal for such Shares in accordance with Section 262 of DGCL (collectively, the "Dissenting Shares") shall not be converted into, or represent the right to receive, the Merger Consideration. Such stockholders shall be entitled to receive, subject to and net of any applicable withholding of Taxes, payment of the appraised value of such Shares held by them in accordance with the provisions of Section 262 of the DGCL, except that all Dissenting Shares held by stockholders who shall have failed to perfect or who shall have effectively withdrawn or lost their rights to appraisal of such Shares under Section 262 of the DGCL shall thereupon be deemed to have been converted into, and to have become exchangeable for, as of the Effective Time, the right to receive the Merger Consideration, without any interest thereon, upon surrender, in the manner provided in Section 3.9, of the certificate or certificates that formerly evidenced such Shares.

    (b) The Company shall give Parent (i) prompt notice of any demands for appraisal received by the Company, withdrawals of such demands, and any other instruments served on or otherwise received by the Company pursuant to the DGCL and (ii) following acceptance of the Shares for payment pursuant to the Offer, the opportunity to direct all negotiations and proceedings with respect to demands for appraisal under the DGCL. The Company shall not, except with the prior written consent of Parent (which shall not be unreasonably delayed or withheld), make any payment with respect to any demands for appraisal or offer to settle or settle any such demands.

    Section 3.9  Surrender of Shares; Stock Transfer Books  (a) Prior to the Effective Time, Parent shall designate a bank or trust company to act as agent (the "Paying Agent") for the purpose of exchanging certificates representing Shares for the payment of the Merger Consideration to which holders of Shares shall become entitled pursuant to Section 3.6(a). At the Effective Time, Parent will make available to the Paying Agent, in cash in the amount of the aggregate Merger Consideration to be paid pursuant to Section 3.6(a) in exchange for outstanding Shares, and such funds shall be invested by the Paying Agent as directed by Parent provided, that such investments be in obligations of or guaranteed by, the United States of America or any agency thereof and backed by the full faith and credit of the United States of America, or in deposit accounts, certificates of deposit or banker's acceptances of, repurchase or reverse repurchase agreements with, or Eurodollar time deposits purchased from, United States commercial banks with capital surpluses and undivided profits aggregating in excess of U.S. $1 billion.

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    (b) As soon as practicable after the Effective Time, the Surviving Corporation shall cause to be mailed to each Person who was, at the Effective Time, a holder of record of Shares entitled to receive the Merger Consideration pursuant to Section 3.6(a) a letter of transmittal in customary form (which shall specify that delivery shall be effected, and risk of loss and title to the certificates evidencing such Shares (the "Certificates") shall pass, only upon proper delivery of the Certificates to the Paying Agent) and instructions for use in effecting the surrender of the Certificates pursuant to such letter of transmittal. Upon surrender to the Paying Agent of a Certificate, together with such letter of transmittal, duly completed and validly executed in accordance with the instructions thereto, and such other documents as may be required pursuant to such instructions, the holder of such Certificate shall be entitled to receive in exchange therefor, subject to and net of any applicable withholding of Taxes, the Merger Consideration for each Share formerly evidenced by such Certificate, and such Certificate shall then be canceled. No interest shall accrue or be paid on the Merger Consideration payable upon the surrender of any Certificate for the benefit of the holder of such Certificate. If the payment equal to the Merger Consideration is to be made to a Person other than the Person in whose name the surrendered certificate formerly evidencing Shares is registered on the stock transfer books of the Company, it shall be a condition of payment that the certificate so surrendered shall be endorsed properly or otherwise be in proper form for transfer and that the Person requesting such payment shall have paid all transfer and other Taxes required by reason of the payment of the Merger Consideration to a Person other than the registered holder of the certificate surrendered, or shall have established to the satisfaction of Merger Sub that such Taxes either have been paid or are not applicable.

    (c) Any portion of the Merger Consideration made available to the Paying Agent pursuant to Section 3.9(a) that remains unclaimed by holders of Shares one hundred eighty (180) days after the Effective Time shall be returned to Parent, upon demand, and, thereafter, such holders shall be entitled to look to the Surviving Corporation and Parent (subject to abandoned property, escheat and other similar laws) only as general creditors thereof with respect to any Merger Consideration that may be payable upon due surrender of the Certificates held by them. Notwithstanding the foregoing, neither the Surviving Corporation nor the Paying Agent shall be liable to any holder of a Share or Shares for any Merger Consideration delivered in respect of such Share or Shares to a public official pursuant to any abandoned property, escheat or other similar Law.

    (d) At the close of business on the day of the Effective Time, the stock transfer books of the Company shall be closed and thereafter there shall be no further registration of transfers of Shares on the records of the Company. From and after the Effective Time, the holders of Shares outstanding immediately prior to the Effective Time shall cease to have any rights with respect to such Shares except as otherwise provided herein or by applicable Law.

    (e) If any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such Certificate to be lost, stolen or destroyed before the Company has notice that the Certificate has been acquired by a "protected purchaser" (as such term is defined in Section 8-303 of the Delaware Uniform Commercial Code), and, if required by the Surviving Corporation, the posting by such Person of a bond, in such reasonable amount as the Surviving Corporation may direct, as indemnity against any claim that may be made against it with respect to such Certificate or the payment of the Merger Consideration, the Paying Agent will pay, in exchange for such lost, stolen or destroyed Certificate, the Merger Consideration to be paid in respect of the Shares represented by such Certificate, as contemplated by this Article III.

    (f) Parent and Merger Sub shall be entitled to deduct and withhold, or cause its agents to deduct and withhold, from the Per Share Amount or the Merger Consideration or the appraised value contemplated by Section 3.8, as the case may be, payable to a holder of Shares pursuant to the Offer or the Merger or the appraisal of their Shares, as contemplated by Section 3.8, as applicable, any Taxes that are required to be so withheld or deducted under any applicable provision of any Tax Law. To the extent that amounts are so withheld by Parent or Merger Sub or their agents, such deducted or

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withheld amounts shall be treated for all purposes of this Agreement and the Transactions as having been paid to the holder of the Shares in respect of which such deduction or withholding was made by Parent or Merger Sub or their agents.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

    As an inducement to Parent and Merger Sub to enter into this Agreement, except as set forth in the SEC Reports (except for any and all disclosure set forth under the headings "Quantitative and Qualitative Disclosures About Market Risk" and "Risk Factors Which May Affect Future Results" in any such SEC Reports, in each case which are not identified on Section 1.1 of the Disclosure Schedule) or the Disclosure Schedule delivered by the Company to Parent and Merger Sub prior to the execution and delivery of this Agreement (the "Disclosure Schedule") the Company hereby represents and warrants to Parent and Merger Sub that:

    Section 4.1  Organization and Qualification; Subsidiaries  (a) The Company and each Subsidiary of the Company is a corporation or other entity duly organized, validly existing and, if such concept is applicable in its jurisdiction of organization, in good standing under the laws of the jurisdiction of its incorporation and has the requisite corporate or other power and authority and all necessary governmental approvals to own, lease and operate its properties and to carry on its business as it is now being conducted, except where the failure to have such power, authority or approvals would not have a Material Adverse Effect. The Company and each Subsidiary is duly qualified or licensed as a foreign corporation to do business and, if such concept is applicable in its jurisdiction of organization, is in good standing, in each jurisdiction where the character of the properties owned, leased or operated by it or the nature of its business makes such qualification or licensing necessary except to the extent that the failure to be so qualified or licensed would not have a Material Adverse Effect.

    (b) A true and complete list of all the Subsidiaries, together with the jurisdiction of incorporation of each such Subsidiary, the percentage of the outstanding capital stock of each such Subsidiary owned by the Company and each other Subsidiary is set forth in the SEC Reports. The Company does not directly or indirectly own any equity or similar interest in, or any interest convertible into or exchangeable or exercisable for any equity or similar interest in, any corporation, partnership, joint venture or other business association or entity.

    (c) Each outstanding share of capital stock of each Subsidiary is duly authorized, validly issued, fully paid and nonassessable, and each such share is owned by the Company or another Subsidiary free and clear of all security interests, liens, claims, pledges, options, rights of first refusal, preemptive rights, agreements, limitations on the Company's or any such Subsidiary's voting rights, charges and other encumbrances of any nature whatsoever ("Encumbrances") except for Encumbrances which would not have a Material Adverse Effect.

    (d) The Company does not have any "significant subsidiary" (within the meaning of Rule 1-02(w) of Regulation S-X under the Rules and Regulations of the Exchange Act).

    Section 4.2  Certificate of Incorporation and By-laws  The Company has heretofore furnished or otherwise made available to Parent a true, complete and correct copy of the Certificate of Incorporation and the By-laws or equivalent organizational documents, each as amended to date, of the Company and each Subsidiary. Such Certificates of Incorporation, By-laws or equivalent organizational documents are in full force and effect. The Company is not in violation of any of the provisions of its Certificate of Incorporation, By-laws or equivalent organizational documents.

    Section 4.3  Capitalization  The authorized capital stock of the Company consists of (a) 200,000,000 Shares and (b) 10,000,000 shares of preferred stock, par value $0.001 per share (the "Company Preferred Stock"). As of the close of business on May 10, 2001, there were outstanding

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(i) 82,226,556 Shares, (ii) stock options to purchase an aggregate of 14,081,953 Shares at a weighted average exercise price of $12.50 per Share under the Company Stock Option Plans, (iii) warrants listed on Schedule 4.5 (collectively, the "Warrants") to purchase an aggregate of 120,393 Shares at a weighted average exercise price of $68.11 per Share, (iv) stock purchase rights to purchase up to 200,000 Shares in the aggregate at a purchase price determined in accordance with the terms of the ESPP and (v) $345,000,000 principal amount of notes (the "Convertible Notes") convertible into an aggregate of approximately 2,621,381 Shares at a conversion price of $131.61 per Share. All the outstanding Shares of the Company's capital stock are, and all Shares which may be issued in connection with the Company Stock Option Plans or the ESPP, the exercise of the Warrants and the conversion of the Convertible Notes, will be, if and when issued in accordance with the respective terms thereof, duly authorized, validly issued, fully paid and non-assessable. Except as set forth in this Section 4.3, and except for changes since March 31, 2001, resulting from (a) the exercise or conversion of Company Stock Options, Warrants or Convertible Notes outstanding on such date in accordance with their respective terms, (b) the purchase of Shares pursuant to the terms of the ESPP and (c) the exercise or conversion of Company Stock Options granted in the ordinary course of business and capital stock issued upon the exercise thereof since such date, there are no outstanding (i) shares of capital stock or other voting securities of the Company, (ii) securities of the Company convertible into or exchangeable for shares of capital stock or voting securities of the Company or (iii) options, warrants, calls, commitments, agreements or other rights to acquire from the Company, or other obligation of the Company to issue, deliver, transfer or sell, or cause to be issued, delivered, transferred or sold, any capital stock, voting securities or securities convertible into or exchangeable for capital stock or voting securities of the Company. Except with respect to the Convertible Notes, neither the Company nor any of its Subsidiaries has any contractual obligation to repurchase, redeem or otherwise acquire any of the securities referred to above. Except as contemplated in connection with the execution of this Agreement or as set forth in the SEC Reports, there are no shareholder agreements, voting trusts or other agreements or understandings to which the Company or any of its Subsidiaries is a party or to which it is bound relating to the voting of any shares of capital stock of the Company or any of its Subsidiaries. No bonds, debentures, notes or other debentures of the Company having the right to vote on any matters on which the stockholders may vote are issued or outstanding.

    Section 4.4  Authority Relative to this Agreement  The Company has all necessary corporate power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the Transactions. The execution and delivery of this Agreement by the Company and the consummation by the Company of the Transactions have been duly and validly authorized by all necessary corporate action, and no other corporate proceedings on the part of the Company are necessary to authorize this Agreement or to consummate the Transactions (other than, with respect to the Merger, the approval and adoption of this Agreement by the holders of a majority of the then-outstanding Shares, if and to the extent required by applicable Law, and the filing and recordation of appropriate merger documents as required by the DGCL). This Agreement has been duly and validly executed and delivered by the Company and, assuming the due authorization, execution and delivery by Parent and Merger Sub, constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except that (i) such enforcement may be subject to applicable bankruptcy, insolvency or other similar laws, now or hereafter in effect, affecting creditors' rights generally and (ii) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. At a meeting duly called and held on May 13, 2001, the Board unanimously approved this Agreement and the Transactions, and such approvals are sufficient so that the restrictions on business combinations set forth in Section 203(a) of the DGCL shall not apply to the Transactions.

    Section 4.5  No Conflict; Required Filings and Consents  (a) The execution and delivery of this Agreement by the Company do not, and the performance of this Agreement by the Company and the

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consummation of the Transactions will not, (i) conflict with or violate the Certificate of Incorporation or By-laws of the Company, (ii) assuming that all consents, approvals, authorizations and other actions described in Section 4.5(b) have been obtained and all filings and obligations described in Section 4.5(b) have been made, conflict with or violate any United States or foreign national, state, provincial, municipal, county or local statute, law, ordinance, regulation, rule, code, executive order, injunction, judgment, decree or other order ("Law") applicable to the Company or by which any property or asset of the Company or any Subsidiary is bound or affected, or (iii) result in any breach of or constitute a material default (or an event which, with notice or lapse of time or both, would become a material default) under, or give to others any right of termination, amendment, acceleration or cancellation of, or result in the creation of a material Encumbrance on any property or asset of the Company pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which the Company is a party or by which any property or asset of the Company is bound or affected, except, with respect to clauses (ii) and (iii), for any such conflicts, violations, breaches, defaults, rights, Encumbrances or other occurrences which would not (A) prevent or materially delay consummation of the Offer or the Merger, or otherwise prevent or materially delay the Company from performing its obligations under this Agreement and (B) have a Material Adverse Effect.

    (b) The execution and delivery of this Agreement by the Company do not, and the performance of this Agreement by the Company and the consummation of the Transactions will not, require any consent, approval, authorization, registration, order, declaration or permit of, or filing with or notification to, any United States or foreign national, state, provincial, municipal, county or local government, governmental, regulatory or administrative authority, agency, instrumentality or commission or any court, tribunal, or judicial or arbitral body (a "Governmental Authority"), except (i) for applicable requirements, if any, of the Exchange Act, state securities or "blue sky" laws ("Blue Sky Laws"), (ii) the pre-merger notification requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), (iii) the pre-merger notification requirements of the U.K. Fair Trading Act of 1973 (the "Fair Trading Act") and the E.C. Merger Regulation 4064/89 (the "E.C. Merger Regulation"), (iv) the requirements of any other applicable foreign antitrust law, (v) the filing and recordation of appropriate merger documents as required by the DGCL and the National Association of Securities Dealers, Inc., and (vi) where the failure to obtain such consents, approvals, authorizations or permits, or to make such filings or notifications, would not (A) prevent or materially delay consummation of the Offer or the Merger, or otherwise prevent or materially delay the Company from performing its obligations under this Agreement and (B) have a Material Adverse Effect.

    Section 4.6  Permits; Compliance  The Company is in possession of all franchises, grants, authorizations, licenses, permits, easements, variances, exceptions, consents, certificates, approvals and orders of any Governmental Authority necessary for the Company to own, lease and operate its properties or to carry on its business as it is now being conducted, or as presently contemplated to be conducted (the "Permits"), except where the failure to have, or the suspension or cancellation of, any of the Permits would not have a Material Adverse Effect. No suspension or cancellation of any of the Permits, which if adversely determined, would have a Material Adverse Effect, is pending or, to the Knowledge of the Company, threatened. The Company is not in conflict with, or in default, breach or violation of, (a) any Law applicable to the Company or by which any property or asset of the Company is bound or affected, or (b) any note, bond, mortgage, indenture, contract, agreement, lease, license, Permit, franchise or other instrument or obligation to which the Company is a party or by which the Company or any property or asset of the Company is bound, except for any such conflicts, defaults, breaches or violations that would not (A) prevent or materially delay consummation of the Offer or the Merger or otherwise prevent or materially delay the Company from performing its obligations under this Agreement and (B) have a Material Adverse Effect.

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    Section 4.7  SEC Filings; Financial Statements  (a) The Company has timely filed all forms, reports and documents required to be filed by it with the SEC since June 29, 1999. Without limiting the generality of the foregoing, the Company has filed: (i) its Annual Report on Form 10-K for the fiscal years ended September 30, 1999 and 2000, respectively, (ii) its Quarterly Reports on Form 10-Q for the periods ended December 31, 2000 and March 31, 2001, (iii) all proxy statements relating to the Company's meetings of stockholders (whether annual or special) held since June 29, 1999 and (iv) all current reports filed on Form 8-K (the forms, reports and other documents referred to in clauses (i), (ii), (iii) and (iv) above (including any exhibits, annexes and any amendments thereto) being, collectively, the "SEC Reports"). The SEC Reports (i) were prepared in all material respects in accordance with the requirements of either the Securities Act of 1933, as amended (the "Securities Act"), or the Exchange Act, as the case may be, and the rules and regulations promulgated thereunder, and (ii) (A) in the case of SEC Reports filed pursuant to the Securities Act, did not, at the time they were filed, or, if amended, as of the date of and giving effect to such amendment, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein not misleading and (B) in the case of SEC Reports filed pursuant to the Exchange Act, did not, as of the respective dates filed with the SEC or first mailed to stockholders, as applicable, contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. No Subsidiary of the Company is required to file any form, report or other document with the SEC.

    (b) Each of the consolidated financial statements (including, in each case, any notes thereto) contained in the SEC Reports (i) was prepared in all material respects in accordance with United States generally accepted accounting principles ("U.S. GAAP") applied on a consistent basis throughout the periods indicated (except as may be indicated in the notes thereto), (ii) complies as to form in all material respects with the applicable rules and regulations of the SEC with respect thereto and (iii) fairly presents, in all material respects, the consolidated financial position, results of operations and cash flows of the Company and its consolidated Subsidiaries as at the respective dates thereof and for the respective periods indicated therein except as otherwise noted therein.

    (c) Except as and to the extent set forth on the consolidated balance sheet of the Company and the consolidated Subsidiaries as at September 30, 2000, including the notes thereto (the "2000 Balance Sheet") or as specifically disclosed in SEC Reports filed since September 30, 2000, and prior to the date of this Agreement, neither the Company nor any Subsidiary has incurred any liability, debt, obligation or claim of any nature (whether accrued, absolute, contingent or otherwise), except for (i) liabilities and obligations incurred in the ordinary course of business consistent with past practice since September 30, 2000 and (ii) liabilities or obligations which would not, individually or in the aggregate, have a Material Adverse Effect.

    (d) The Company has heretofore furnished to Parent complete and correct copies of all amendments and modifications that have not been filed by the Company with the SEC to all agreements, documents and other instruments that previously had been filed by the Company with the SEC and are currently in effect.

    Section 4.8  Absence of Certain Changes or Events  Since September 30, 2000, except as expressly contemplated by this Agreement, (a) the Company has conducted its business substantially in the ordinary course and in a manner consistent with the Company's then existing business plan and (b) there has not been any Material Adverse Change. Since March 31, 2001, the Company has not taken any action that, if taken after the date of this Agreement, would constitute a breach of any of the covenants set forth in paragraphs (c), (e)(ii),(iv) and (v) (as paragraph (e)(v) relates to paragraphs (e)(ii) and (iv)), (g), (h), (i) and (k) (as paragraph (k) relates to each of the foregoing paragraphs only) of Section 6.1.

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    Section 4.9  Absence of Litigation  Except as set forth in Section 4.9 of the Disclosure Schedule or in any SEC Report under the caption "Legal Proceedings" filed by the Company as of the date hereof, there is no litigation, suit, claim, action, proceeding, arbitration or investigation (an "Action") pending or, to the Knowledge of the Company, threatened against the Company or any Subsidiary, or any property or asset of the Company, before any Governmental Authority that would have a Material Adverse Effect.

    Section 4.10  Employee Benefit Plan  (a) Section 4.10(a) of the Disclosure Schedule lists (i) all employee benefit plans (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")) and all bonus, stock option, stock purchase, restricted stock, incentive, deferred compensation, retiree medical or life insurance, supplemental retirement, severance or other benefit plans, programs or arrangements, and all employment, termination, severance or other contracts or agreements, whether legally enforceable or not, to which the Company or any ERISA Affiliate is a party, with respect to which the Company or any ERISA Affiliate has any obligation or which are maintained, contributed to or sponsored by the Company or any ERISA Affiliate for the benefit of any current or former employee, officer or director of, or any current or former consultant to, the Company or any ERISA Affiliate, (ii) each employee benefit plan for which the Company or any ERISA Affiliate could incur liability under Section 4069 of ERISA in the event such plan has been or were to be terminated, (iii) any plan in respect of which the Company or any ERISA Affiliate could incur liability under Section 4212(c) of ERISA, and (iv) any contracts, arrangements or understandings between the Company or any Subsidiary and any employee of the Company or any Subsidiary including, without limitation, any contracts, arrangements or understandings relating in any way to a sale of the Company or any Subsidiary (collectively, the "Plans"). Each Plan is in writing (or a written summary exists) and the Company has made available to Parent a true and complete copy of each Plan and has delivered to Parent a true and complete copy of each material document, if any, prepared in connection with each such Plan, including, without limitation, (i) a copy of each trust or other funding arrangement, (ii) each summary plan description and summary of material modifications thereto, (iii) the most recently filed Internal Revenue Service ("IRS") Form 5500, (iv) the most recently received IRS determination letter for each such Plan, and (v) the most recently prepared actuarial report and financial statement in connection with each such Plan.

    (b) None of the Plans is a multiemployer plan (within the meaning of Section 3(37) or 4001(a)(3) of ERISA) (a "Multiemployer Plan") or a single-employer plan (within the meaning of Section 4001(a)(15) of ERISA) for which the Company or any ERISA Affiliate could incur liability under Section 4063 or 4064 of ERISA (a "Multiple Employer Plan"). Other than as set forth on Section 4.10(a) of the Disclosure Schedule, none of the Plans (i) provides for the payment of separation, severance or similar-type benefits to any Person, (ii) obligates the Company or any Subsidiary to pay separation, severance or similar-type benefits solely or partially as a result of any transaction contemplated by this Agreement, or (iii) obligates the Company or any Subsidiary to make any payment or provide any benefit as a result of a "change in control", within the meaning of such term under Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"). None of the Plans provides for or promises retiree medical, disability or life insurance benefits to any current or former employee, officer or director of the Company or any ERISA Affiliate.

    (c) Each Plan is now and always has been operated in all material respects in accordance with its terms and the requirements of all applicable Laws including, without limitation, ERISA and the Code. The Company and the Subsidiaries have performed all material obligations required to be performed by them under, are not in any material respect in default under or in violation of, and to the Knowledge of the Company there is no material default or violation by any party to, any Plan. No Action is pending or, to the Knowledge of the Company, threatened with respect to any Plan (other than claims for benefits in the ordinary course) and to the knowledge of the Company no fact or event exists that could reasonably be expected to give rise to any such Action.

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    (d) Each Plan that is intended to be qualified under Section 401(a) of the Code has timely received a favorable determination, opinion, advisory or notification letter from the IRS covering all of the provisions applicable to the Plan for which such letters are currently available that the Plan is so qualified and each trust established in connection with any Plan which is intended to be exempt from federal income taxation under Section 501(a) of the Code has received an opinion, advisory or modification letter from the IRS that it is so exempt, and no fact or event has occurred since the date of such letter or letters from the IRS that could reasonably be expected to adversely affect the qualified status of any such Plan or the exempt status of any such trust.

    (e) There has not been any prohibited transaction (within the meaning of Section 406 of ERISA or Section 4975 of the Code) that is not otherwise exempt or for which an administrative class exemption exists with respect to any Plan. Neither the Company nor any ERISA Affiliate has incurred any liability under, arising out of or by operation of Title IV of ERISA (other than liability for premiums to the Pension Benefit Guaranty Corporation arising in the ordinary course), including, without limitation, any liability in connection with (i) the termination or reorganization of any employee benefit plan subject to Title IV of ERISA, or (ii) the withdrawal from any Multiemployer Plan or Multiple Employer Plan, and no fact or event exists which could reasonably be expected to give rise to any such liability.

    (f)  All contributions, premiums or payments required to be made with respect to any Plan have been made on or before their due dates except when the failure to do so would not have a Material Adverse Effect. All such contributions have been fully deducted for income tax purposes and no such deduction has been challenged or disallowed by any Governmental Authority and, to the Knowledge of the Company, no fact or event exists which could reasonably be expected to give rise to any such challenge or disallowance.

    (g) All directors, officers, management employees, and technical and professional employees of the Company and the Subsidiaries are under written obligation to the Company and the Subsidiaries to maintain in confidence all confidential or proprietary information acquired by them in the course of their employment and to assign to the Company and the Subsidiaries all inventions made by them within the scope of their employment during such employment and for a reasonable period thereafter.

    (h) Except as set forth in Section 4.10(a) of the Disclosure Schedule, none of the Plans are subject to the laws of any country other than the United States except to the extent being subject to any such law would not have a Material Adverse Effect.

    Section 4.11  Labor and Employment Matters.  (a) Except as set forth in Section 4.11 of the Disclosure Schedule, (i) there are no controversies pending or, to the Knowledge of the Company, threatened between the Company or any Subsidiary and any of their respective employees, which controversies would (A) prevent or materially delay consummation of the Offer or the Merger or otherwise prevent or materially delay the Company from performing its obligations under this Agreement or (B) have a Material Adverse Effect; (ii) neither the Company nor any Subsidiary is a party to any collective bargaining agreement or other labor union contract applicable to Persons employed by the Company or any Subsidiary, nor, to the Knowledge of the Company, are there any activities or proceedings of any labor union to organize any such employees; (iii) there are no unfair labor practice complaints pending against the Company or any Subsidiary before the National Labor Relations Board or any current union representation questions involving employees of the Company or any Subsidiary; and (iv) there is no strike, slowdown, work stoppage or lockout, or, to the Knowledge of the Company, threat thereof, by or with respect to any employees of the Company or any Subsidiary.

    (b) The Company and the Subsidiaries are in compliance with all applicable Laws relating to the employment of labor, including those related to wages, hours, collective bargaining and the payment and withholding of Taxes and other sums as required by the appropriate Governmental Authority, and have withheld and paid to the appropriate Governmental Authority or are holding for payment not yet

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due to such Governmental Authority all amounts required to be withheld from employees of the Company or any Subsidiary and are not liable for any arrears of wages, Taxes, penalties or other sums for failure to comply with any of the foregoing, except where the failure to do so would not constitute a Material Adverse Effect. The Company and the Subsidiaries have paid in full to all employees or adequately accrued for in accordance with U.S. GAAP consistently applied all wages, salaries, commissions, bonuses, benefits and other compensation due to or on behalf of such employees, and there is no claim with respect to payment of wages, salary or overtime pay that has been asserted or is now pending or threatened before any Governmental Authority with respect to any persons currently or formerly employed by the Company or any Subsidiary, except to the extent as would not constitute a Material Adverse Effect. Neither the Company nor any Subsidiary is a party to, or otherwise bound by, any consent decree with, or citation by, any Governmental Authority relating to employees or employment practices. There is no charge of discrimination in employment or employment practices, for any reason, including, without limitation, age, gender, race, religion or other legally protected category, which has been asserted or is now pending or, to the Knowledge of the Company, threatened before the United States Equal Employment Opportunity Commission, or any other Governmental Authority in any jurisdiction in which the Company or any Subsidiary have employed or employ any person, except as would not (A) prevent or materially delay consummation of the Offer or the Merger or otherwise prevent or materially delay the Company from performing its obligations under this Agreement and (B) have a Material Adverse Effect.

    Section 4.12  Offer Documents; Schedule 14D-9; Proxy Statement.  Neither the Schedule 14D-9 nor any information supplied by or on behalf of the Company to Parent for purposes of inclusion in the Offer Documents (including, without limitation, information incorporated by reference to documents filed by the Company with the SEC) shall, at the times the Schedule 14D-9, the Offer Documents or any amendments or supplements thereto are filed with the SEC or are first published, sent or given to stockholders of the Company, as the case may be, contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. Neither the proxy statement to be sent to the stockholders of the Company in connection with the Stockholders' Meeting (as hereinafter defined) or the information statement to be sent to such stockholders, as appropriate (such proxy statement or information statement, as amended or supplemented, being referred to herein as the "Proxy Statement"), shall, as of the date the Proxy Statement (or any amendment or supplement thereto) is first mailed to stockholders of the Company, at the time of the Stockholders' Meeting and at the Effective Time, contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading or otherwise omit to state any material fact necessary to correct any statement in any earlier communication with respect to the solicitation of proxies for the Stockholders' Meeting which shall have become false or misleading. Notwithstanding the foregoing, the Company makes no representation or warranty with respect to any information supplied by Parent, Merger Sub or any of Parent's or Merger Sub's representatives for inclusion in the foregoing documents. The Schedule 14D-9 and the Proxy Statement shall comply in all material respects as to form with the requirements of the Exchange Act and the rules and regulations thereunder.

    Section 4.13  Property and Leases.  (a) The Company has good and valid title to or, in the case of leased property have valid leasehold interests in, all of its properties and assets reflected on the Company's balance sheet dated as of March 31, 2001, and included in the Company's Form 10-Q for such period as will be filed with the SEC or otherwise necessary to conduct their respective businesses as currently conducted, or as contemplated to be conducted, except (i) for assets and properties disposed of by the Company in the ordinary course of business since March 31, 2001 or (ii) where the failure to have such valid title or valid leasehold interest would not have a Material Adverse Effect.

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    (b) All material leases of real property leased for the use or benefit of the Company to which the Company is a party and all amendments and modifications thereto are in full force and effect and have not been modified or amended, and there exists no default under any such lease by the Company or, to the Knowledge of the Company, any other party thereto, or any event which, with notice or lapse of time or both, would constitute a default thereunder by the Company or, to the Knowledge of the Company, any other party thereto, except as would not have a Material Adverse Effect.

    Section 4.14  Intellectual Property.  (a) Section 4.14(a) of the Disclosure Schedule sets forth a true and complete list of (i) all filed U.S. and foreign patents and patent applications, (ii) all registered trademarks, servicemarks, trade names, brand names or the like (collectively, "Proprietary Names"), and applications for registration of such Proprietary Names in all countries of the world, (iii) all registered copyrights and any Applications therefor in all countries of the world, and (iv) all Licenses which are owned or Controlled by the Company and any of its Subsidiaries and which if not valid and enforceable would have a Material Adverse Effect.

    (b) Except as set forth in Section 4.14(b) of the Disclosure Schedule, to the Knowledge of the Company: (i) the conduct of the business of the Company, the use of each item of Intellectual Property owned by the Company (the "Company Owned Intellectual Property") in connection therewith, do not conflict with, infringe upon, misappropriate or otherwise violate the Intellectual Property rights of any third party, and no written notice has been received by the Company of any claim asserted against the Company that the conduct of the business of the Company as currently conducted conflicts with, infringes upon or might infringe upon, misappropriates or otherwise violates the Intellectual Property rights of any third party; (ii) with respect to each item of Company Owned Intellectual Property, the Company is the exclusive owner of the entire unencumbered right, title and interest in and to such Company Owned Intellectual Property and is entitled to use such Company Owned Intellectual Property without limitation; (iii) with respect to each item of Intellectual Property licensed to the Company pursuant to a License (the "Company Licensed Intellectual Property"), the Company has the valid right to use such Company Licensed Intellectual Property in accordance with the terms of the License governing such Company Licensed Intellectual Property; (iv) the Company Owned Intellectual Property is valid and enforceable, and has not been adjudged invalid or unenforceable in whole or in part; (v) the Company has not received any written notice of any Person engaging in any activity that infringes upon or misappropriates the Company Owned Intellectual Property or the Company Licensed Intellectual Property; (vi) each License of the Company Licensed Intellectual Property is valid, binding and enforceable against the Company, and, to the Knowledge of the Company, each of the other parties thereto, and is in full force and effect; (vii) neither the Company, nor, to the Knowledge of the Company, any party to any license covering the Company Licensed Intellectual Property is in breach thereof or default thereunder; and (viii) neither the execution of this Agreement nor the consummation of any Transaction shall adversely affect any of the Company's rights with respect to the Company Owned Intellectual Property or the Company Licensed Intellectual Property except where the failure of any of the representations set forth in this Section 4.14(b) to be true and correct would not have a Material Adverse Effect.

    (c) The Company has taken reasonable steps in accordance with normal industry practice to maintain the confidentiality of its trade secrets and other Intellectual Property.

    Section 4.15  Taxes.  The Company and the Subsidiaries have duly and timely filed or caused to be filed all Tax Returns required to be filed by them, including the Company's consolidated federal Tax Return for its taxable year ended September 30, 2000, which will be filed on or before June 15, 2001, and all such Tax Returns are true, correct and complete, and all Taxes owing by the Company and its Subsidiaries have been paid. No material penalties or charges are due with respect to the late filing of any Tax Return required to be filed by, or with respect to, the Company or any of the Subsidiaries. Neither the IRS nor any other United States federal, state, local or foreign taxing authority or agency or other Governmental Authority is now asserting or threatening to assert against the Company or any

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Subsidiary any material deficiency or claim for any Taxes. Neither the Company nor any Subsidiary has granted any waiver of any statute of limitations with respect to, or any extension of time for, the assessment or payment of any Tax or the filing of any Tax Return. There are no material Tax liens upon any property or assets of the Company or any of the Subsidiaries except liens for current Taxes not yet due. Neither the Company nor any of the Subsidiaries has been required to include in income any adjustment pursuant to Section 481 of the Code or any similar provision of state, local or foreign Law by reason of a voluntary change in accounting method initiated by the Company or any of the Subsidiaries, and no Governmental Authority or taxing authority has initiated or proposed any such adjustment or change in accounting method. The Company and the Subsidiaries have complied in all material respects with all applicable laws, rules and regulations relating to the payment and withholding of Taxes (including withholding of Taxes pursuant to Section 1441 and 1442 of the Code or similar provisions under any state, local or foreign laws) and have, within the time and the manner prescribed by law, withheld and paid over to the proper Tax authority all material amounts required to be so withheld and paid over under applicable laws. Neither the Company nor any Subsidiary has been a member of any affiliated group within the meaning of Section 1504(a) of the Code, or any similar state, local or foreign law (other than the affiliated group the common parent of which is the Company) and neither the Company nor any Subsidiary has any liability for Taxes of any Person (other than the Company and the Subsidiaries) under Treasury Regulation Section 1.1502-6 or any similar provision of state, local or foreign law as a transferee or successor, or by contract or arrangement (whether or not written) or otherwise. Neither the Company nor any Subsidiary has received written notice of any material claim made by any authority in a jurisdiction where it does not file Tax Returns that it is or may be subject to taxation by that jurisdiction. Neither the Company nor any Subsidiary has made any material change in Tax elections, requested a ruling from any Tax authority or signed any agreement with respect thereto, granted any power of attorney with respect to any matter relating to Taxes or signed any closing agreement with respect to any Tax year.

    Section 4.16  Environmental Matters.  Except as would not have a Material Adverse Effect, to the Knowledge of the Company, (a) the Company has not violated and is not in violation of any Environmental Law and no Governmental Authority or third party has alleged or is alleging any such violation; (b) none of the properties currently or formerly owned, leased or operated by the Company (including, without limitation, soils and surface and ground waters) are contaminated with any Hazardous Substance; (c) the Company is not actually or potentially liable under any Environmental Law (including, without limitation, pending or threatened liens); (d) the Company has obtained all Permits required under any Environmental Law ("Environmental Permits") and all such Environmental Permits are in full force and effect; and (e) the Company is in compliance with its Environmental Permits.

    Section 4.17  Material Contracts.  Except as would not (a) prevent or materially delay consummation of the Offer or the Merger or otherwise prevent or materially delay the Company from performing its obligations under this Agreement and (b) have a Material Adverse Effect, (i) each of the contracts listed as an exhibit to the Company's SEC Reports and each of the customer contracts set forth in Section 4.17 of the Disclosure Schedule (collectively, the "Material Contracts") is a legal, valid and binding agreement enforceable against the Company and, to the Knowledge of the Company, all other parties thereto in accordance with its terms, and none of the Material Contracts is in default by its terms or has been canceled by the other party; (ii) to the Knowledge of the Company, no other party is in breach or violation of, or default under, any Material Contract and (iii) the Company is not in receipt of any claim of default under any such agreement. All material contracts to which the Company is a party which are required to be filed with the SEC (as exhibits to the SEC Reports) as "Material Contracts" (as such are described in paragraph (b)(10) of Item 601 of Regulation S-K) have been so filed. The Company has furnished or otherwise made available to Parent true and complete copies of all Material Contracts, including any amendments thereto.

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    Section 4.18  Customers and Suppliers.  As of the date of this Agreement, none of the Company's customers listed in Section 4.17 of the Disclosure Schedule, (a) has cancelled or otherwise terminated any contract with the Company prior to the expiration of the applicable contract term or (b) to the Knowledge of the Company, has threatened or indicated its intention to cancel or otherwise terminate its relationship with the Company or to substantially reduce its purchases from the Company of any services other than as a consequence of the conditions described in clauses (1) through (4) of the definition of "Material Adverse Effect."

    Section 4.19  Brokers.  Except as set forth in Section 4.19 of the Disclosure Schedule, no broker, finder, financial advisor, investment bank or other agent (other than CSFB) is entitled to any brokerage, finder's or other fee or commission in connection with, or arising as a result of, the Transactions based upon arrangements made by or on behalf of the Company. The Company has heretofore furnished to Parent a complete and correct copy of all agreements between the Company and CSFB pursuant to which such firm would be entitled to any payment relating to the Transactions.

    Section 4.20  Antitakeover Statutes.  The Board has approved this Agreement and the Transactions, and such approval is sufficient to render inapplicable to this Agreement and the Transactions the provisions of Section 203 of the DGCL and any other antitakeover or similar Law to which the Company is subject or any antitakeover or similar provision in the Company's Certificate of Incorporation or By-laws.

    Section 4.21  Vote Required.  Unless Merger Sub owns at least ninety percent (90%) of the issued and outstanding Shares, the adoption of this Agreement by the affirmative vote of the holders of Shares entitling such holders to exercise at least a majority of the voting power of the Shares is the only vote of holders of any class or series of the capital stock of the Company required to approve the Merger or any of the Transactions.

    Section 4.22  Fairness Opinion.  The Company has received the written opinion of CSFB, dated as of the date hereof, to the effect that, as of such date, the Per Share Amount and the Merger Consideration are fair from a financial point of view to the holders of Shares (other than Parent and its Affiliates). A true and correct copy of such opinion has been delivered to Parent and Merger Sub.

ARTICLE V

REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB

    As an inducement to the Company to enter into this Agreement, Parent and Merger Sub hereby, jointly and severally, represent and warrant to the Company that:

    Section 5.1  Corporate Organization.  Each of Parent and Merger Sub is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has the requisite corporate power and authority and all necessary governmental approvals to own, lease and operate its properties and to carry on its business as it is now being conducted, except where the failure to be so organized, existing or in good standing or to have such power, authority and governmental approvals would not prevent or materially delay consummation of the Transactions, or otherwise prevent Parent or Merger Sub from performing its material obligations under this Agreement.

    Section 5.2  Authority Relative to This Agreement.  Each of Parent and Merger Sub has all necessary corporate power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the Transactions. The execution and delivery of this Agreement by Parent and Merger Sub and the consummation by Parent and Merger Sub of the Transactions have been duly and validly authorized by all necessary corporate action, and no other corporate proceedings on the part of Parent or Merger Sub are necessary to authorize this Agreement or to consummate the Transactions (other than, with respect to the Merger, the filing and recordation

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of appropriate merger documents as required by Delaware Law). This Agreement has been duly and validly executed and delivered by Parent and Merger Sub and, assuming due authorization, execution and delivery by the Company, constitutes a legal, valid and binding obligation of each of Parent and Merger Sub enforceable against each of Parent and Merger Sub in accordance with its terms.

    Section 5.3  No Conflict; Required Filings and Consents.  (a) The execution and delivery of this Agreement by Parent and Merger Sub do not, and the performance of this Agreement by Parent and Merger Sub and the consummation of the Transactions will not, (i) conflict with or violate the Certificate of Incorporation or By-laws of either Parent or Merger Sub, (ii) assuming that all consents, approvals, authorizations and other actions described in Section 5.3(b) have been obtained and all filings and obligations described in Section 5.3(b) have been made, conflict with or violate any Law applicable to Parent or Merger Sub or by which any property or asset of either of them is bound or affected, or (iii) result in any breach of, or constitute a default (or an event which, with notice or lapse of time or both, would become a default) under, or give to others any right of termination, amendment, acceleration or cancellation of, or result in the creation of a lien or other encumbrance on any property or asset of Parent or Merger Sub pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which Parent or Merger Sub is a party or by which any property or asset of either of them is bound or affected, except, with respect to clause (ii) or (iii), for any such conflicts, violations, breaches, defaults or other occurrences which would not prevent or materially delay consummation of the Offer or Merger, or otherwise prevent or materially delay Parent and Merger Sub from performing their obligations under this Agreement.

    (b) The execution and delivery of this Agreement by Parent and Merger Sub do not, and the performance of this Agreement by Parent and Merger Sub and the consummation of the Transactions will not, require any consent, approval, authorization or permit of, or filing with, or notification to, any Governmental Authority, except (i) for applicable requirements, if any, of the Exchange Act, Blue Sky Laws and state takeover laws, (ii) the pre-merger notification requirements of the HSR Act, (iii) the pre-merger notification requirements of the Fair Trading Act and the E.C. Merger Regulation, (iv) the requirements of any other applicable foreign antitrust law, (v) filing and recordation of appropriate merger documents as required by the DGCL, and (vi) where the failure to obtain such consents, approvals, authorizations or permits, or to make such filings or notifications, would not prevent or materially delay consummation of the Offer or Merger, or otherwise prevent or materially delay Parent or Merger Sub from performing their obligations under this Agreement.

    Section 5.4  Financing.  At all times from the date hereof until the consummation of the Transactions, Parent has and will make available to Merger Sub sufficient funds (the "Funds") to permit Merger Sub to consummate the Transactions, including, without limitation, acquiring all the outstanding Shares in the Offer and the Merger, to make all necessary Cancellation Payments and payments for Vested Shares pursuant to Section 3.7, to assume or repay the Company's obligations under the Indenture, dated as of February 29, 2000 (the "Indenture"), between the Company and State Street Bank and Trust Company of California, N.A., as Trustee, and to pay all transaction related expenses of Parent, Merger Sub and any of their Affiliates.

    Section 5.5  Offer Documents; Proxy Statement.  The Offer Documents shall not, at the time the Offer Documents are filed with the SEC or are first published, sent or given to stockholders of the Company, as the case may be, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. The information supplied by Parent for purposes of inclusion in the Proxy Statement shall not, at the date the Proxy Statement (or any amendment or supplement thereto) is first mailed to stockholders of the Company, at the time of the Stockholders' Meeting or at the Effective Time, contain any untrue statement of a material fact, or omit to state any material fact required to be stated therein or necessary in order to

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make the statements therein, in light of the circumstances under which they were made, not false or misleading, or necessary to correct any statement in any earlier communication with respect to the solicitation of proxies for the Stockholders' Meeting which shall have become false or misleading. Notwithstanding the foregoing, Parent and Merger Sub make no representation or warranty with respect to any information supplied by the Company or any of its representatives for inclusion in any of the foregoing documents or the Offer Documents. The Offer Documents shall comply in all material respects as to form with the requirements of the Exchange Act and the rules and regulations thereunder.

    Section 5.6  Interim Operations of Merger Sub.  Merger Sub is not a party to any agreement, has not conducted any activities and has no liabilities other than in connection with its organization, the negotiation and execution of this Agreement and the consummation of the Transactions.

ARTICLE VI

CONDUCT OF BUSINESS PENDING THE MERGER

    Section 6.1  Conduct of Business by the Company Pending the Merger.  The Company agrees that, between the date of this Agreement and the Effective Time, unless Parent shall otherwise consent in writing (such consent not to be unreasonably delayed or withheld) and except for actions taken or omitted for the purpose of complying with this Agreement, the businesses of the Company and the Subsidiaries shall be conducted only in the ordinary course of business and in a manner consistent with the Company's current business plan, and the Company shall use its reasonable best efforts to preserve intact the business organization of the Company to keep available the services of the current officers, employees and consultants of the Company and to preserve the current relationships of the Company with customers, suppliers and other Persons with which the Company has business relations. By way of amplification and not limitation, except as expressly contemplated by this Agreement and Section 6.1 of the Disclosure Schedule, the Company shall not, between the date of this Agreement and the Effective Time, directly or indirectly, do any of the following without the prior written consent of Parent:

    (a) amend or otherwise change its Certificate of Incorporation or By-laws or equivalent organizational documents;

    (b) (i) issue, sell, pledge, license, dispose of, grant, encumber, or authorize the issuance, sale, pledge, disposition, grant or encumbrance of, (A) any shares of any class of capital stock of the Company or any Subsidiary, or any options, warrants, convertible securities or other rights of any kind to acquire any shares of such capital stock, or any other ownership interest (including, without limitation, any phantom interest), of the Company or any Subsidiary, or (B) except in the ordinary course of business, except the issuance of Shares pursuant to the exercise of Company Stock Options or pursuant to the ESPP or pursuant to the Warrants or the Convertible Notes, any property or assets of the Company or any Subsidiary, (ii) modify any Company Stock Options outstanding on the date of this Agreement, or (iii) accelerate the of vesting or other benefit of any option, share or award whether or not pursuant to the Company Stock Option Plans, other than in accordance with the express terms of such option, share or award as in effect immediately prior to the date of this Agreement;

    (c) declare, set aside, make or pay any dividend or other distribution, payable in cash, stock, property or otherwise, with respect to any of its capital stock, except for dividends by any direct or indirect wholly owned Subsidiary to the Company or any other Subsidiary;

    (d) reclassify, combine, split, subdivide or redeem, or purchase or otherwise acquire, directly or indirectly, any of its capital stock (or securities convertible into or exercisable for any shares of its capital stock) except for acquisitions of restricted stock held by employees of the Company and its Subsidiaries upon termination of employment;

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    (e) (i) acquire (including, without limitation, by merger, consolidation, or acquisition of stock or assets or any other business combination) any interest in any corporation, partnership, other business organization or Person or any division thereof or any significant amount of assets, except in the ordinary course of business and in a manner consistent with the Company's current business plan; (ii) incur any indebtedness for borrowed money or issue any debt securities or assume, guarantee or endorse, or otherwise become responsible for, the obligations of any Person, or make any loans, investments, capital contributions or advances; (iii) enter into any material contract or agreement other than in the ordinary course of business and in a manner consistent with the Company's current business plan; (iv) authorize any capital expenditure in excess of $500,000 in the aggregate except to the extent consistent with the Company's existing business plan; or (v) enter into or amend any material contract, agreement, commitment or arrangement with respect to any matter prohibited by this Section 6.1(e);

    (f)  increase the compensation payable or to become payable or the benefits provided to its directors, officers, employees, agents or other representatives, except for increases in the ordinary course of business in salaries or wages of employees of the Company or any Subsidiary or, except as otherwise provided pursuant to the terms of agreements in effect on January 1, 2001, grant any severance or termination pay to, or enter into any new severance agreement with, any director, officer, employee, agent or other representative of the Company or of any Subsidiary, or enter into any employment agreement with any director, officer, employee, agent or other representative (other than with a newly hired employee) of the Company or any Subsidiary, or establish, adopt, enter into or amend (except as may be required by Law) any collective bargaining, bonus, profit-sharing, thrift, compensation, stock option, restricted stock, pension, retirement, deferred compensation, employment, termination, severance or other plan, agreement, trust, fund, policy or arrangement for the benefit of any director, officer or employee;

    (g) except as required by applicable Law or by U.S. GAAP, take any action, other than reasonable and usual actions in the ordinary course of business and consistent with past practice, with respect to accounting policies, practices or procedures;

    (h) incur any material obligation to make any payment of, or in respect of, any Tax, take or cause to be taken any action would prevent the Company from filing a consolidated federal Tax Return for the year ending September 30, 2001, except in the ordinary course of business, make or change any Tax election, change any annual Tax accounting period, adopt or change any method of Tax accounting, file any amended Tax Returns or claims for Tax refunds, enter into any closing agreement, surrender, settle or compromise any material Tax claim, liability, audit or assessment, surrender any right to claim any material Tax refund, offset or other reduction in Tax liability, consent to any extension or waiver of the limitations period applicable to any Tax claim or assessment or take or omit to take any other action, if any such action or omission would have the effect of increasing in any material respect the Tax liability or reducing any Tax asset of the Company;

    (i)  amend, modify or consent to the termination of any Material Contract, or amend, waive, modify or consent to the termination of the Company's material rights thereunder, except for amendments, modifications or consents which are not materially adverse to the Company's rights and expected benefits under any such Material Contract;

    (j)  settle any material Action; or

    (k) publicly announce an intention, enter into any formal or informal agreement (oral or written) or otherwise make a commitment, to do any of the foregoing.

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ARTICLE VII

ADDITIONAL AGREEMENTS

    Section 7.1  Stockholders' Meeting.  (a) If required by applicable Law in order to consummate the Merger and following consummation of the Offer, the Company, acting through the Board, shall, in accordance with applicable Law and the Company's Certificate of Incorporation and By-laws, (i) duly call, give notice of, convene and hold an annual or special meeting of its stockholders as promptly as practicable following consummation of the Offer for the purpose of considering and taking action on this Agreement and the Transactions (the "Stockholders' Meeting") and (ii) except as and to the extent expressly provided in Section 7.4, (A) include in the Proxy Statement, and not subsequently withdraw or modify in any manner adverse to Merger Sub or Parent, the unanimous recommendation of the Board that the stockholders of the Company approve and adopt this Agreement and the Transactions and (B) use its reasonable best efforts to obtain such approval and adoption. At the Stockholders' Meeting, Parent and Merger Sub shall cause all Shares then owned by them and their Subsidiaries to be voted in favor of the approval and adoption of this Agreement and the Transactions.

    (b) Notwithstanding the foregoing, in the event that Merger Sub shall acquire at least ninety percent (90%) of the then outstanding Shares, the parties shall take all necessary and appropriate action to cause the Merger to become effective, in accordance with Section 253 of the DGCL, as promptly as reasonably practicable after such acquisition, without a meeting of the stockholders of the Company.

    Section 7.2  Proxy Statement.  If approval of the Company's stockholders is required by applicable Law to consummate the Merger, promptly following consummation of the Offer, the Company shall file with the SEC under the Exchange Act the Proxy Statement, and shall use its reasonable best efforts to have the Proxy Statement cleared by the SEC as promptly as practicable. Parent, Merger Sub and the Company shall cooperate with each other in the preparation of the Proxy Statement, and the Company shall notify Parent of the receipt of any comments of the SEC with respect to the Proxy Statement and of any requests by the SEC for any amendment or supplement thereto or for additional information and shall provide to Parent promptly copies of all correspondence between the Company or any representative of the Company and the SEC with respect thereto. The Company shall give Parent and its counsel the opportunity to review the Proxy Statement, including all amendments and supplements thereto, prior to its being filed with the SEC and shall give Parent and its counsel the opportunity to review all responses to requests for additional information and replies to comments prior to their being filed with, or sent to, the SEC. Each of the Company, Parent and Merger Sub agrees to use its reasonable best efforts, after consultation with the other parties hereto, to respond promptly to all such comments of and requests by the SEC and to cause the Proxy Statement and all required amendments and supplements thereto to be mailed to the holders of Shares entitled to vote at the Stockholders' Meeting at the earliest practicable time.

    Section 7.3  Access to Information; Confidentiality.  (a) From the date hereof until the Effective Time, the Company shall, and shall cause the Subsidiaries and the officers, directors, employees, auditors, agents and other representatives of the Company and the Subsidiaries to, afford the officers, employees, representatives and agents of Parent and Merger Sub reasonable access at all reasonable times to the officers, employees, agents, properties, offices and other facilities, books and records (including contracts and agreements) of the Company and each Subsidiary, and shall furnish Parent and Merger Sub with such financial, operating and other data and information as Parent or Merger Sub, through its officers, employees or agents, may reasonably request, provided that the fulfillment of any such request shall not unreasonably interfere with the conduct of the business of the Company.

    (b) All information obtained by Parent or Merger Sub pursuant to this Section 7.3 shall be kept confidential in accordance with the confidentiality agreement, dated September 21, 2000 (the "Confidentiality Agreement"), between Parent and the Company.

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    (c) No investigation pursuant to this Section 7.3 shall affect any representation or warranty in this Agreement of any party hereto or any condition to the obligations of the parties hereto or any condition to the Offer.

    Section 7.4  Acquisition Proposals.  (a) From the date hereof until the termination hereof, the Company shall not and shall cause the Subsidiaries not to, and shall use its best efforts to cause the officers, directors, employees and other agents and advisors (including, without limitation, any investment bank, attorney or accountant retained by the Company) of the Company and its Subsidiaries not to, directly or indirectly, (i) take any action to solicit, initiate or knowingly encourage or otherwise knowingly facilitate any Acquisition Proposal or any inquiries, proposals or offers from any Person (other than Parent or Merger Sub) relating to any Acquisition Proposal, (ii) grant any waiver or release under any standstill or similar agreement with respect to any class of equity securities of the Company or any Subsidiary or (iii) furnish any information to or participate in any discussions or negotiations with any Person that has made or, to the Knowledge of the Company, intends to make an Acquisition Proposal except to the extent the foregoing could not reasonably be expected to be relevant to an Acquisition Proposal; provided, however, that nothing contained in this Section 7.4(a) shall prohibit the Board from taking any action described in clause (iii) above with respect to any Person that has made an unsolicited (as such term relates to the period from and after the date hereof) bona fide written Superior Proposal if, and only to the extent that, (A) the acceptance for payment of any Shares pursuant to the Offer shall not have occurred, (B) the Board, after consultation with outside legal counsel, determines in good faith that such action would, in the absence of the foregoing proscriptions, be required by its fiduciary duties under the DGCL or its duties or obligations under other applicable Law, and (C) prior to taking such action, the Company receives from such Person an executed confidentiality agreement in reasonably customary form and in any event containing terms at least as stringent as those contained in the Confidentiality Agreement. Within twenty-four (24) hours after determining to take any action described in clause (iii) of the preceding sentence, the Company shall notify Parent of any such Superior Proposal (including, without limitation, the material terms and conditions thereof and the identity of the Person making it), and shall thereafter inform Parent on a prompt basis of any material changes to the terms and conditions of such Superior Proposal and, upon the reasonable request of Parent, any material change to the status of any discussion with such third party. The Company shall, and shall cause its Subsidiaries and the officers, directors, employees and other agents and advisors of the Company and its Subsidiaries to, immediately cease and cause to be terminated all discussions and negotiations, if any, that have taken place prior to the date hereof with any parties with respect to any Acquisition Proposal. Nothing contained in this Agreement shall prevent the Board of Directors of the Company from complying with Rule 14e-2 under the Exchange Act with respect to any Acquisition Proposal; provided, however, that in connection therewith the Company and the Board of Directors shall be subject to the provisions of Section 7.4(b).

    (b) Notwithstanding anything in this Agreement to the contrary, the Board may not withdraw or modify, or propose to withdraw or modify, in a manner adverse to Parent or Merger Sub, its approval or recommendation of this Agreement, the Offer or the Merger unless the Board, after consultation with its outside legal counsel, determines in good faith that such action is required by its fiduciary duties under the DGCL or under other applicable Law; provided, however, the Board may not approve or recommend an Acquisition Proposal (or in connection therewith, withdraw or modify its approval or recommendation of this Agreement, the Offer or the Merger) (including with respect to any statements pursuant to Rule 14e-2 under the Exchange Act) unless (i) the Acquisition Proposal is a Superior Proposal, (ii) the Company has complied in all material respects with the terms of this Section 7.4, (iii) it determines in good faith (after consultation with its outside legal counsel) that such action is required by its fiduciary duties under the DGCL or under other applicable Law and (iv) the Company has negotiated, and the Board has determined to enter into, a definitive agreement with respect to the Superior Proposal; and provided further, (x) the Board in the twenty-four (24) hours subsequent to the determination described in clause (iv) of the foregoing proviso shall have notified Parent of such

32

determination and of all the material terms and conditions of such definitive agreement, (y) the Board shall be prohibited for a period of three (3) calendar days after the date of receipt by Parent of such notification from executing the definitive agreement relating to such Superior Proposal and from approving or recommending such Superior Proposal (or, in connection therewith, withdraw or modify its approval or recommendation of this Agreement, the Offer or the Merger) and during such three (3) day period Parent shall be permitted to make any such adjustment to the terms and conditions of this Agreement as Parent deems advisable (the "Adjusted Agreement") and (z) the Board determines that the Acquisition Proposal reflected by the definitive agreement is a Superior Proposal relative to the Adjusted Agreement. In the event that the Board is permitted by the foregoing to approve or recommend an Acquisition Proposal, it may terminate this Agreement. In the event that the Board, pursuant to clause (z) of the second preceding sentence, determines that the Acquisition Proposal reflected by the definitive agreement is not a Superior Proposal relative to the Adjusted Agreement, the Company shall execute an amendment to this Agreement to conform this Agreement to the Adjusted Agreement and shall terminate all discussions with such other Person. The fact that an Acquisition Proposal received by the Company after the date hereof is determined by the Board not to be a Superior Proposal shall not affect the rights and obligations of either Parent or the Company set forth in this Section 7.4 with respect to any subsequent Acquisition Proposal.

    Section 7.5  Employee Benefits Matters.  (a) From and after the Effective Time, Parent shall cause the Surviving Corporation and its subsidiaries to honor in accordance with their terms, all contracts, agreements, arrangements, policies, plans and commitments of the Company and the Subsidiaries with respect to benefits or entitlements that accrued prior to the Effective Time that are applicable to any current or former employees or directors of the Company or any Subsidiary. Employees of the Company or any Subsidiary shall receive credit for purposes of eligibility to participate and vesting (but not for benefit accruals) under any employee benefit plan, program or arrangement established or maintained by the Surviving Corporation or any of its subsidiaries for service accrued or deemed accrued prior to the Effective Time with the Company or any Subsidiary, including credit for such service for purposes of determining any amounts which subsequently become payable pursuant to the provisions of Section 3.7(a); provided, however, that such crediting of service shall not operate to duplicate any benefit or the funding of any such benefit and provided, further that in determining the amount of vacation pay owed to any such Company employee from and after the Effective Time under the applicable terms of the vacation plan of the Surviving Corporation, credit shall be given for such employee's service with the Company or any Subsidiary prior to the Effective Time.

    (b) With respect to any employee benefit plans in which any employees of the Company or any Subsidiary first become eligible to participate on or after the Effective Time or in which the employees of the Company or any Subsidiary did not participate prior to the Effective Time, Parent shall: (i) waive all pre-existing conditions, exclusions and waiting periods with respect to participation and coverage requirements applicable to the employees of the Company or any Subsidiary under any such plans in which such employees may be eligible to participate after the Effective Time, except to the extent such pre-existing conditions, exclusions or waiting periods would apply under the analogous plan prior to the Effective Time; (ii) provide each employee of the Company and the Subsidiaries with credit for any co-payments and deductibles paid prior to the Effective Time (to the same extent such credit was given under the analogous plan prior to the Effective Time) in satisfying any applicable deductible or out-of-pocket co-payment requirements under any such new plan in which such employees may be eligible to participate after the Effective Time; and (iii) with respect to flexible spending accounts, provide each employee of the Company and its subsidiaries with a credit for any salary reduction contributions made thereto and a debit for any expenses incurred thereunder with respect to the plan year in which the Effective Time occurs; provided, that the foregoing shall not apply to the extent it would result in duplications of benefits.

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    Section 7.6  Directors' and Officers' Indemnification and Insurance.  (a) After the Effective Time, Parent shall and shall cause the Surviving Corporation to indemnify each person who is now, or has been at any time prior to the Effective Time, a director or officer of the Company or any Subsidiary (individually an "Indemnified Party" and collectively the "Indemnified Parties"), to the fullest extent permitted by Law, with respect to any claim, liability, loss, damage, judgment, fine, penalty, amount paid in settlement or compromise, cost or expense (including reasonable fees and expenses of legal counsel), whenever asserted or claimed, based in whole or in part on, or arising in whole or in part out of, any facts or circumstances occurring at or prior to the Effective Time whether commenced, asserted or claimed before or after the Effective Time, including liability arising under the Securities Act, the Exchange Act or state Law.

    (b) Parent shall, or shall cause the Surviving Corporation to, maintain in effect for not less than six (6) years after the Effective Time the current policies of directors' and officers' liability insurance maintained by the Company and its Subsidiaries on the date hereof (provided that Parent may substitute therefor policies with reputable and financially sound carriers having at least the same coverage and amounts thereof and containing terms and conditions which are no less advantageous to the persons currently covered by such policies as the insured) with respect to facts or circumstances occurring at or prior to the Effective Time. Parent agrees to pay all expenses (including fees and expenses of counsel) that may be incurred by any Indemnified Party in successfully enforcing the indemnity or other obligations under this Section 7.6.

    (c) Parent agrees to cause the Surviving Corporation and any of its Subsidiaries (or their successors) to maintain in effect for a period of six (6) years provisions in its certificate of incorporation or by-laws or equivalent organizational documents providing for indemnification and exculpation of Indemnified Parties, with respect to facts or circumstances occurring at or prior to the Effective Time, to the extent set forth in the Company's Certificate of Incorporation and By-laws as of the date hereof; provided that the foregoing shall not in any way restrict or preclude any sale, liquidation or dissolution of any Subsidiary of Parent (including the Surviving Corporation) at any time after the Effective Time.

    (d) The rights under this Section 7.6 shall survive consummation of the Merger and are expressly intended to benefit each Indemnified Party.

    Section 7.7  Notification of Certain Matters.  The Company shall give prompt notice to Parent, and Parent shall give prompt notice to the Company, of (a) the occurrence, or non-occurrence, of any event the occurrence, or non-occurrence, of which reasonably could be expected to cause any representation or warranty contained in this Agreement to be untrue or inaccurate in any material respect, (b) any failure of the Company, Parent or Merger Sub, as the case may be, to comply with, perform or satisfy in any material respect any covenant or agreement to be complied with, performed or satisfied by it hereunder, (c) any notice or other communication received from any Person alleging that the consent of such Person is or may be required in connection with the Transactions, (d) any notice or other communication received from any Governmental Authority in connection with or relating to the Transactions and (e) any Action commenced or, to the Knowledge of the Company, threatened against, relating to or involving or otherwise affecting the Company or any Subsidiary which, if pending on the date of this Agreement, would have been required to have been disclosed pursuant to Section 4.9 or which relate to the consummation of the Transactions; provided, however, that the delivery of any notice pursuant to this Section 7.7 shall not limit or otherwise affect the remedies available hereunder to the party receiving such notice.

    Section 7.8  Further Action; Reasonable Best Efforts.  (a) Upon the terms and subject to the conditions hereof, each of the parties hereto shall (i) make promptly its respective filings, if any, and thereafter make any other required submissions, if any, under the HSR Act, the Fair Trading Act, the E.C. Merger Regulation or any other applicable foreign antitrust law with respect to the Transactions

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and (ii) use its reasonable best efforts to take, or cause to be taken, all appropriate action, and to do, or cause to be done, all things necessary, proper or advisable under applicable Laws and regulations to consummate and make effective the Transactions, including, without limitation, using its reasonable best efforts to obtain all Permits, consents, approvals, authorizations, qualifications and orders of Governmental Authorities and parties to contracts with the Company and the Subsidiaries as are necessary for the consummation of the Transactions and to fulfill the conditions to the Offer and the Merger; provided that neither Parent nor Merger Sub will be required by this Section 7.8 to (A) prohibit or limit the ownership or operation by the Company, Parent, Merger Sub or any of their Subsidiaries of any business or assets of the Company, Parent, Merger Sub or any of their Subsidiaries or compel the Company, Parent, Merger Sub or any of their Subsidiaries, as a result of the Transactions, to dispose of or to hold separate any business or assets of the Company, Parent, Merger Sub or any of their Subsidiaries or (B) divest any Shares which, in the case of each of clauses (A) and (B) of this Section 7.8(a), has an economic detriment to Parent or the Company that is material in relation to the Company and its Subsidiaries taken as a whole. If, at any time after the Effective Time, any further action is necessary or desirable to carry out the purposes of this Agreement, the proper officers and directors of each party to this Agreement shall use their reasonable best efforts to take all such action.

    (b) Each of the parties hereto agrees to cooperate and use its reasonable best efforts to vigorously contest and resist any Action, including administrative or judicial Action, and to have vacated, lifted, reversed or overturned any decree, judgment, injunction or other order (whether temporary, preliminary or permanent) that is in effect and that restricts, prevents or prohibits consummation of the Transactions, including, without limitation, by vigorously pursuing all available avenues of administrative and judicial appeal.

    Section 7.9  Public Announcements.  Parent and the Company agree that no public release or announcement concerning this Agreement, the Transactions, the Offer or the Merger shall be issued by either party without the prior written consent of the other party (which consent shall not be unreasonably withheld), except as such release or announcement may be required by applicable Law or the rules or regulations of any United States or foreign securities exchange, in which case the party required to make the release or announcement shall use its reasonable best efforts to allow the other party reasonable time to comment on such release or announcement in advance of such issuance.

    Section 7.10  Confidentiality Agreement.  The Company hereby waives the provisions of the Confidentiality Agreement as and to the extent necessary to permit the consummation of each Transaction. Upon the acceptance for payment of Shares pursuant to the Offer, the Confidentiality Agreement shall be deemed to have terminated without further action by the parties thereto.

ARTICLE VIII

CONDITIONS TO THE MERGER

    Section 8.1  Conditions to the Obligations of Each Party.  The obligations of each party to effect the Merger shall be subject to the satisfaction, at or prior to the Effective Time, of the following conditions:

    (a) Stockholder Approval. If and to the extent required by the DGCL, this Agreement and the Transactions shall have been approved and adopted by the affirmative vote of the stockholders of the Company;

    (b) Competition Filings. Any waiting period (and any extension thereof) applicable to the consummation of the Merger under the HSR Act, the Fair Trading Act, and the E.C. Merger Regulation, shall have expired or been terminated;

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    (c) No Order or Injunction. No provision of any applicable Law and no judgment, restraining order, preliminary or permanent injunction, order or decree of any court or other Governmental Authority of competent jurisdiction shall be in effect and have the effect of prohibiting or enjoining the consummation of the Merger; and

    (d) Offer. Merger Sub or its permitted assignee shall have purchased all Shares validly tendered and not withdrawn pursuant to the Offer; provided, however, that this condition shall, at the sole discretion of the Company, be deemed satisfied if, in breach of this Agreement or the terms of the Offer, Merger Sub fails to purchase any Shares validly tendered and not withdrawn pursuant to the Offer.

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ARTICLE IX

TERMINATION, AMENDMENT AND WAIVER

    Section 9.1  Termination.  This Agreement may be terminated and the Merger and the other Transactions may be abandoned at any time prior to the Effective Time, notwithstanding any requisite approval and adoption of this Agreement and the Transactions by the stockholders of the Company:

    (a) by mutual written consent of each of Parent, Merger Sub and the Company duly authorized by the Board and by the Boards of Directors of Parent and Merger Sub; or

    (b) by either Parent or the Company if (i) the Effective Time shall not have occurred on or before the date which is two hundred seventy (270) days after the date hereof (the "Termination Date"); provided, however, that the right to terminate this Agreement under this Section 9.1(b) shall not be available to any party whose failure to fulfill any covenant, agreement, condition or other obligation under this Agreement has been the cause of, or resulted in, the failure of the Effective Time to occur on or before such date, or (ii) any Governmental Authority or court of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any judgment, injunction, order, decree or ruling or taken any other action which has become final and nonappealable and has the effect of making consummation of the Offer or the Merger illegal or otherwise preventing or prohibiting consummation of the Offer or the Merger; or

    (c) by Parent if (i) due to an occurrence or circumstance that would result in the existence of any condition set forth in Annex A hereto, Merger Sub shall have (A) failed to commence the Offer within thirty (30) days following the date of this Agreement, (B) terminated the Offer without having accepted for payment thereunder any Shares or (C) failed to accept Shares for payment pursuant to the Offer within ninety (90) days following the commencement of the Offer, unless the existence of any such condition set forth in Annex A shall have been caused by or resulted from the failure of Parent or Merger Sub to perform, in any material respect, any of their material covenants or agreements contained in this Agreement, or the breach by Parent or Merger Sub, in any material respect, of any of their representations or warranties contained in this Agreement, or (ii) prior to the purchase of Shares pursuant to the Offer, the Board or any committee thereof shall have withdrawn or modified in a manner adverse to Merger Sub or Parent its approval or recommendation of this Agreement, the Offer or the Merger, or shall have recommended or approved any Acquisition Proposal, or shall have resolved to do any of the foregoing;

    (d) by the Company, upon approval of the Board, if Parent and Merger Sub shall have (i) failed to commence the Offer within thirty (30) days following the date of this Agreement, (ii) terminated the Offer without having accepted for payment thereunder any Shares or (iii) failed to accept Shares for payment pursuant to the Offer within ninety (90) days following the commencement of the Offer, unless such action or inaction under clauses (i), (ii) or (iii) shall have been caused by or resulted from the failure of the Company to perform, in any material respect, any of its material covenants or agreements contained in this Agreement or the breach in any material respect by the Company of any of its representations or warranties contained in this Agreement.

    (e) by Parent prior to the purchase of Shares pursuant to the Offer in the event of a breach by the Company of any representation, warranty, covenant or other agreement contained in this Agreement which (i) would give rise to the failure of a condition set forth in paragraph (e) or (f) of Annex A and (ii) in the case of a breach of a material agreement or covenant, cannot be or has not been cured within ten (10) days after the giving of written notice to the Company, or, in the case of a breach of a representation or warranty, cannot be or has not been cured within twenty (20) days after the giving of written notice by the Company;

    (f)  by the Company, if (i) any of the representations or warranties of Parent or Merger Sub set forth in this Agreement (without regard to materiality qualifiers contained therein) shall not be true

37

and correct in any respect, except to the extent the effect of such breach, either individually or in the aggregate with all other such breaches, would not have a material adverse effect on Parent, or (ii) Parent or Merger Sub shall have failed to perform in any material respect any material obligation or to comply in any material respect with any material agreement or covenant of Parent or Merger Sub to be performed or complied with by it under this Agreement and, in the case of (i), such untruth or incorrectness cannot be or has not been cured within thirty (30) days after the giving of written notice to Parent or Merger Sub, and, in the case of (ii), such failure cannot be or has not been cured within twenty (20) days after the giving of written notice to Parent or Sub; or

    (g) by the Company in accordance with the provisions of Section 7.4(b).

    Section 9.2  Effect of Termination.  In the event of the termination of this Agreement pursuant to Section 9.1, this Agreement shall forthwith become void, and there shall be no liability on the part of any party hereto, except as set forth in Section 9.3 and Article X; provided, however, that the Confidentiality Agreement shall survive any termination of this Agreement.

    Section 9.3  Termination Fees.  (a) In the event that:

     (i) (A) this Agreement is terminated pursuant to Section 9.1(c)(i) (as a result of the failure of the Minimum Condition) or Section 9.1(e) (provided neither Parent nor Merger Sub is in breach in any material respect of any of its representations, warranties and covenants set forth in this Agreement to the extent (and only to the extent) such breach causes the basis for termination of the Agreement pursuant to Section 9.1(e)), (B) prior to such termination any Person shall have commenced, publicly proposed or communicated to the Company an Acquisition Proposal that is publicly disclosed and which shall be continuing and not withdrawn prior to the date of such termination, and (C) within one hundred eighty (180) days after such termination, the Company consummates either (1) a merger, consolidation, or other business combination between the Company and any other Person (other than Parent of an Affiliate thereof) or (2) the sale of more than thirty-five percent (35%) (in voting power) of the voting securities of the Company to the Person making such Acquisition Proposal or the sale of thirty-five percent (35%) or more (in fair market value) of the assets of the Company;

    (ii) this Agreement is terminated pursuant to Section 9.1(c)(ii); or

    (iii) this Agreement is terminated pursuant to Section 9.1(g),

then, in any such event, the Company shall pay Parent promptly (but in no event later than one Business Day after the first of such events shall have occurred) a fee in an amount equal to $8,400,000 (the "Termination Fee"), which amount shall be payable in immediately available funds.

    (b) Except as set forth in this Section 9.3, all costs and expenses incurred in connection with this Agreement and the Transactions (including reasonable attorneys' fees and expenses) shall be paid by the party incurring such expenses, whether or not any Transaction is consummated.

    (c) In the event that the Company shall fail to pay all or any portion of the Termination Fee, the Company also shall pay to Parent interest on such unpaid amount, commencing on the date that such amount becomes due, at a rate equal to the rate of interest publicly announced by Citibank, N.A., from time to time, in the City of New York, as such bank's Base Rate plus two percent (2%).

    (d) The expenses provided for in this Section 9.3 are not intended to be exclusive remedies with respect to any liability for a breach of this Agreement, and no party hereto shall be precluded from seeking damages or remedies or at law or in equity as a result of any such matter.

    Section 9.4  Amendment.  Subject to Section 2.3, this Agreement may be amended by the parties hereto by action taken by or on behalf of their respective Boards of Directors at any time prior to the Effective Time; provided, however, that, after consummation of the Offer no amendment may be made

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that would reduce the amount or change the type of consideration into which each Share shall be converted upon consummation of the Merger. This Agreement may not be amended except by an instrument in writing signed Parent and the Company.

    Section 9.5  Waiver.  Subject to Section 2.3, at any time prior to the Effective Time, any party hereto may (a) extend the time for the performance of any obligation or other act of any other party hereto, (b) waive any inaccuracy in the representations and warranties of any other party contained herein or in any document delivered pursuant hereto and (c) waive compliance with any agreement of any other party or any condition to its own obligations contained herein. Any such extension or waiver shall be valid if set forth in an instrument in writing signed by the party or parties to be bound thereby. The failure or any party hereto to enforce at any time any of the provisions of this Agreement shall in no way be construed to be a waiver of any such provision, or in any way to affect the validity of this Agreement or any part hereof or the right of such party thereafter to enforce each and every such provision.

ARTICLE X

GENERAL PROVISIONS

    Section 10.1  Notices.  All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly given upon receipt) by delivery in person, by overnight courier or by registered or certified mail (postage prepaid, return receipt requested) to the respective parties at the following addresses (or at such other address for a party as shall be specified in a notice given in accordance with this Section 10.1):

    if to Parent or Merger Sub:

Cable and Wireless plc
124 Theobalds Road
London WC1X 8RX England
Telephone: 44 207 315 4000
Telecopy: 44 207 315 5000
Attention: Company Secretary

    with a copy to:

Pillsbury Winthrop LLP
50 Fremont Street
San Francisco, California 94105
Telephone: (415) 983-1000
Telecopy: (415) 983-1200
Attention: Nathaniel M. Cartmell III, Esq.
                  P. Joseph Campisi, Jr., Esq.

    if to the Company:

Digital Island, Inc.
45 Fremont Street
San Francisco, California 94105
Telephone: (415) 738-4100
Telecopy: (415) 738-4141
Attention: General Counsel

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    with a copy to:

Brobeck, Phleger & Harrison LLP
Two Embarcadero Place
2200 Geng Road
Palo Alto, California 94303
Telephone: (650) 424-0160
Telecopy: (650) 496-2885
Attention: Curtis L. Mo, Esq.

    with a copy to:

Brobeck, Phleger & Harrison LLP
1633 Broadway
New York, New York 10019
Telephone: (212) 237-2528
Telecopy: (212) 586-7878
Attention: Eric Simonson, Esq.

    Section 10.2  Severability.  If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law, or public policy, all other terms, conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the Transactions is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the Transactions be consummated as originally contemplated to the fullest extent possible.

    Section 10.3  Entire Agreement; Assignment.  This Agreement, the Confidentiality Agreement and the Parent Note constitute the entire agreement among the parties with respect to the subject matter hereof and thereof and supersede all prior agreements, negotiations and undertakings, both written and oral, among the parties, or any of them, with respect to the subject matter hereof. This Agreement shall not be assigned (whether pursuant to a merger, by operation of law or otherwise), except that Parent and Merger Sub may assign all or any of its rights and obligations hereunder to any Affiliate of Parent, provided that (i) no such assignment shall relieve the assigning party of its obligations hereunder if such assignee does not perform such obligations and (ii) the assignee is able to make and makes for the benefit of the Company pursuant to a written instrument delivered to the Company the representation and warranty set forth in Section 5.6 (which representation shall be deemed to be part of this Agreement).

    Section 10.4  Parties in Interest.  This Agreement shall be binding upon and inure solely to the benefit of each party hereto, and nothing in this Agreement, express or implied, is intended to or shall confer upon any other Person any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement, other than Sections 3.7, 7.5 and 7.6 (which are intended to be for the benefit of the Persons covered thereby and may be enforced by such Persons).

    Section 10.5  Specific Performance.  The parties hereto agree that irreparable damage would occur in the event any provision of this Agreement were not performed in accordance with the terms hereof and that the parties shall be entitled to specific performance of the terms hereof, in addition to any other remedy at law or equity.

    Section 10.6  Governing Law.  This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware applicable to contracts executed in and to be performed in that State. All actions and proceedings arising out of or relating to this Agreement shall be heard and determined exclusively in any Delaware state or federal court. The parties hereto hereby (a) submit to the exclusive jurisdiction of any state or federal court sitting in the State of Delaware for the purpose of any Action arising out of or relating to this Agreement brought by any party hereto, and

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(b) irrevocably waive, and agree not to assert by way of motion, defense, or otherwise, in any such Action, any claim that it is not subject personally to the jurisdiction of the above-named courts, that its property is exempt or immune from attachment or execution, that the Action is brought in an inconvenient forum, that the venue of the Action is improper, or that this Agreement or the Transactions may not be enforced in or by any of the above-named courts.

    Section 10.7  Waiver of Jury Trial.  Each of the parties hereto hereby waives to the fullest extent permitted by applicable law any right it may have to a trial by jury with respect to any litigation directly or indirectly arising out of, under or in connection with this Agreement or the Transactions. Each of the parties hereto (a) certifies that no representative, agent or attorney of any other party has represented, expressly or otherwise, that such other party would not, in the event of litigation, seek to enforce that foregoing waiver and (b) acknowledges that it and the other hereto have been induced to enter into this Agreement and the Transactions, as applicable, by, among other things, the mutual waivers and certifications in this Section 10.7.

    Section 10.8  Headings.  The descriptive headings contained in this Agreement are included for convenience of reference only and shall not affect in any way the meaning or interpretation of this Agreement.

    Section 10.9  Counterparts.  This Agreement may be executed and delivered (including by facsimile transmission) in one or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same agreement.

    Section 10.10  Interpretation.  (a) The captions herein are included for convenience of reference only and shall be ignored in the construction or interpretation hereof.

    (b) In the event of an ambiguity or question of intent or interpretation, this Agreement shall be construed as if drafted jointly by the parties and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the extent to which any such party or its counsel participated in the drafting of any provision hereof or by virtue of the extent to which any such provision is inconsistent with any prior draft hereof.

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    IN WITNESS WHEREOF, Parent, Merger Sub and the Company have caused this Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized.

CABLE AND WIRELESS PLC
By:	/s/ Robert Drolet
Name:	Robert Drolet
Title:	Chief Commercial Officer, Global Cable and Wireless plc
DALI ACQUISITION CORP.
By:	/s/ Robert Drolet
Name:	Robert Drolet
Title:	President
DIGITAL ISLAND, INC.
By:	/s/ Ruann Ernst
Name:	Ruann Ernst
Title:	President and Chief Executive Officer

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Annex A

CONDITIONS TO THE OFFER

    Notwithstanding any other provision of the Offer, but subject to the terms of Section 2.1, Merger Sub shall not be required to accept for payment or to pay for any Shares tendered pursuant to the Offer, if (i) immediately prior to the expiration of the Offer, the Minimum Condition shall not have been satisfied, (ii) any applicable waiting period under the HSR Act, the Fair Trading Act, the E.C. Merger Regulation or any other applicable foreign antitrust law shall not have expired or been terminated prior to the expiration of the Offer or (iii) at any time on or after the date of this Agreement and prior to the expiration of the Offer, any of the following conditions shall exist (other than as a result of any action or inaction of Parent or Merger Sub that constitutes a breach of this Agreement):

    (a) there shall have been instituted or be pending any Action by any Governmental Authority (i) challenging or seeking to make illegal, delay, or otherwise, directly or indirectly, restrain or prohibit or increase the cost of the making of the Offer, the acceptance for payment of any Shares by Parent, Merger Sub or any other Affiliate of Parent, or the consummation of any other Transaction, or seeking to obtain damages in connection with any Transaction; (ii) seeking to prohibit or limit the ownership or operation by the Company, Parent, Merger Sub or any of their Subsidiaries of any business or assets of the Company, Parent, Merger Sub or any of their Subsidiaries or to compel the Company, Parent, Merger Sub or any of their Subsidiaries, as a result of the Transactions, to dispose of or to hold separate any business or assets of the Company, Parent, Merger Sub or any of their Subsidiaries; (iii) seeking to impose or confirm any limitation on the ability of Parent, Merger Sub or any other Affiliate of Parent to exercise effectively full rights of ownership of any Shares, including, without limitation, the right to vote any Shares acquired by Merger Sub pursuant to the Offer or otherwise on all matters properly presented to the Company's stockholders, including, without limitation, the approval and adoption of this Agreement and the Transactions; or (iv) seeking to require divestiture by Parent, Merger Sub or any other Affiliate of Parent of any Shares which, in the case of each of clauses (i) through (iv) of this paragraph (a) has an economic detriment to Parent or the Company that is material in relation to the Company and its Subsidiaries taken as a whole;

    (b) there shall have been any statute, rule, regulation, legislation or interpretation enacted, promulgated, amended, issued or deemed applicable to (i) Parent, the Company or any Subsidiary or Affiliate of Parent or the Company or (ii) any Transaction, by any United States or foreign legislative body or Governmental Authority with appropriate jurisdiction, other than the routine application of the waiting period provisions of the HSR Act, the Fair Trading Act, the E.C. Merger Regulation or any other applicable foreign antitrust law to the Offer or the Merger, that is reasonably likely to result, directly or indirectly, in any of the consequences referred to in clauses (i) through (iv) of paragraph (a) above;

    (c) (i) the Board, or any committee thereof, shall have withdrawn or modified, in a manner adverse to Parent or Merger Sub, the approval or recommendation of the Offer, the Merger, the Agreement, or approved or recommended any Acquisition Proposal or any other acquisition of Shares other than the Offer, the Merger or (ii) the Board, or any committee thereof, shall have resolved to do any of the foregoing;

    (d) any Material Adverse Change;

    (e) any representation or warranty of the Company in the Agreement (i) that is qualified by materiality or Material Adverse Effect shall not be true and correct in any respect as so qualified or (ii) that is not qualified by materiality or Material Adverse Effect shall not be true and correct

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in all material respects, except to the extent the effect of any such breach, either individually or in the aggregate with all such other breaches, would not have a Material Adverse Effect;

    (f)  the Company shall have failed to perform, in any material respect, any obligation or to comply, in any material respect, with any material agreement or covenant of the Company to be performed or complied with by it under the Agreement;

    (g) the Agreement shall have been terminated by Parent or the Company in accordance with its terms; or

    (h) there shall have occurred and be continuing (i) any general suspension of trading in, or limitation on prices for, securities on a national securities exchange in the United States (excluding any coordinated trading halt triggered solely as a result of a specified increase or decrease in a market index or similar "circuit breaker" process) which materially and adversely affects the extension of credit in the United States, the United Kingdom or the European Union generally by banks or other lending institutions, (ii) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, the United Kingdom or the European Union generally which materially and adversely affects the extension of credit in the United States, the United Kingdom or the European Union generally by banks or other lending institutions, (iii) any newly initiated material limitation (whether mandatory or not) by any Governmental Authority on, or other similar event that materially and adversely affects, the extension of credit in the United States, the United Kingdom or the European Union generally by banks or other lending institutions or (iv) a commencement of a war or armed hostilities or other national or international calamity directly or indirectly involving the United States, the United Kingdom or the European Union generally which materially and adversely affects the extension of credit in the United States, the United Kingdom or the European Union generally by banks or other lending institutions, and in the case of clauses (i) through (iv) of this paragraph (h), as a result thereof, notwithstanding Parent's reasonable best efforts, Parent's ability to access the Funds or to effect payment therewith for the Shares is materially and adversely affected,

which in the judgment of Parent in any such case, makes it inadvisable to proceed with such acceptance for payment of or payment for the Shares or to proceed with the Merger.

    The foregoing conditions are for the sole benefit of Merger Sub and Parent and may be asserted by Merger Sub or Parent regardless of the circumstances giving rise to any such condition or may be waived by Merger Sub or Parent in whole or in part at any time and from time to time in their sole discretion; provided, that, Merger Sub and Parent may not avail themselves of any such condition at any time during which either Merger Sub or Parent is in breach in any material respect of any of its representations, warranties and covenants set forth in the Agreement to the extent (and only to the extent) such breach causes the failure of the Minimum Condition or any of the conditions set forth in this Annex A. The failure by Parent or Merger Sub at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right; the waiver of any such right with respect to particular facts and other circumstances shall not be deemed a waiver with respect to any other facts and circumstances; and each such right shall be deemed an ongoing right that may be asserted at any time and from time to time.

    Capitalized terms used in this Annex A shall have the respective meanings set forth in the Agreement to which it is annexed.

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EXHIBIT (d)(1)
TABLE OF CONTENTS
AGREEMENT AND PLAN OF MERGER
ARTICLE I
ARTICLE II
ARTICLE III THE MERGER
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY
ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
ARTICLE VI CONDUCT OF BUSINESS PENDING THE MERGER
ARTICLE VII ADDITIONAL AGREEMENTS
ARTICLE VIII CONDITIONS TO THE MERGER
ARTICLE IX
ARTICLE X
Annex A
CONDITIONS TO THE OFFER

EX-99.(D)(2)

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Exhibit (d)(2)

    September 21, 2000

Cable and Wireless plc
124 Theobolds Road
London WC1X 8RX

UNITED KINGDOM

Confidentiality Agreement

Ladies and Gentlemen:

    In connection with the possible transaction ("Proposed Transaction") between Digital Island, Inc. (the "Company") and Cable and Wireless plc ("You"), and in order to allow the Company and You to evaluate the Proposed Transaction, each of the Company and You have and will deliver to the other party hereto, upon the execution and delivery of this letter agreement by such other party, certain information about its properties, employees, finances, businesses and operations (such party when disclosing such information being the "Disclosing Party" and when receiving such information being the "Receiving Party"). All information (i) about the Disclosing Party or (ii) about any third party (which information was provided to the Disclosing Party subject to an applicable confidentiality obligation to such third party), furnished by the Disclosing Party or its Representatives (as defined below) to the Receiving Party or its Representatives, whether furnished before or after the date hereof, and regardless of the manner in which it is furnished, is referred to in this letter agreement as "Proprietary Information." Proprietary Information shall not include, however, information which (i) is or becomes generally available to the public other than as a result of a disclosure by the Receiving Party or its Representatives in violation of this letter agreement; (ii) was available to the Receiving Party on a nonconfidential basis prior to its disclosure by the Disclosing Party or its Representatives; (iii) becomes available to the Receiving Party on a nonconfidential basis from a person other than the Disclosing Party or its Representatives who is not otherwise bound by a confidentiality agreement with the Disclosing Party or any of its Representatives, or is otherwise not known to the Receiving Party to be under an obligation to the Disclosing Party or any of its Representatives not to transmit the information to the Receiving Party; (iv) was independently developed by the Receiving Party without reference to or use of the Proprietary Information; or (v) is disclosed by the Receiving Party to satisfy a requirement of, or demand by, a competent court of law or governmental or regulatory body, in compliance with this Agreement, and which is not accorded confidential treatment by such court of law, or governmental or regulatory body. For purposes of this letter agreement, (i) "Representative" shall mean, as to any person, its directors, officers, employees, agents and advisors (including, without limitation, financial advisors, attorneys and accountants); and (ii) "person" shall be broadly interpreted to include, without limitation, any corporation, company, partnership, other entity or individual.

    Subject to the immediately succeeding paragraph, unless otherwise agreed to in writing by the Disclosing Party, the Receiving Party (i) except as required by law or by the rules of any applicable securities exchange, shall keep all Proprietary Information confidential, shall not disclose or reveal any Proprietary Information to any person other than its Representatives who are actively and directly participating in its evaluation of the Proposed Transaction or who otherwise need to know the Proprietary Information for the purpose of evaluating the Proposed Transaction and shall cause those persons to observe the terms of this letter agreement; (ii) shall not use Proprietary Information for any purpose other than in connection with its evaluation of the Proposed Transaction or the consummation of the Proposed Transaction in a manner that the Disclosing Party has approved; and (iii) except as required by law or by the rules of any applicable securities exchange, shall not disclose to any person (other than those of its Representatives who are actively and directly participating in its evaluation of the Proposed Transaction or who otherwise need to know for the purpose of evaluating the Proposed Transaction and, in the case of its Representatives, whom it will cause to observe the terms of this letter agreement) any information about the Proposed Transaction, or the terms or conditions or any

other facts relating thereto, including, without limitation, the fact that discussions are taking place with respect thereto or the status thereof, or the fact that Proprietary Information has been made available to the Receiving Party or its Representatives. The Receiving Party shall be responsible for any breach of the terms of this letter agreement by it or its directors, officers or employees.

    In the event that the Receiving Party or any of its Representatives are requested pursuant to, or required by, applicable law or regulation (including, without limitation. any rule; regulation or policy statement of any applicable securities exchange, market or automated quotation system on which any of the Receiving Party's securities are listed or quoted) or by legal process to disclose any Proprietary Information or any other information concerning the Disclosing Party or the Proposed Transaction, the Receiving Party shall provide the Disclosing Party with prompt notice of such request or requirement in order to enable the Disclosing Party (i) to seek an appropriate protective order or other remedy, (ii) to consult with the Receiving Party with respect to the Disclosing Party's taking steps to resist or narrow the scope of such request or legal process (provided, however, that for purposes of (i) and (ii) above, the Disclosing Party agrees to respond to such notice within a reasonable time not to exceed 48 hours from receipt), or (iii) to waive compliance, in whole or in part, with the terms of this letter agreement. In the event that such protective order or other remedy is not obtained, or the Disclosing Party waives compliance, in whole or in part, with the terms of this letter agreement, the Receiving Party or its Representative shall use commercially reasonable efforts to disclose only that portion of the Proprietary Information which is legally required to be disclosed and use commercially reasonable efforts to ensure that all Proprietary Information that is so disclosed will be accorded confidential treatment. In the event that the Receiving Party or its Representatives shall have complied fully with the provisions of this paragraph, such disclosure may be made by the Receiving Party or its Representatives without any liability hereunder.

    Each party agrees that neither it nor its Representatives will at any time from the date of this letter agreement until eighteen (18) months after such date, directly or indirectly, solicit for employment or employ any employee of the other party. For purposes of this restriction, the term "solicit" and "employ any employee" do not include searches for employees, through general recruitment efforts or otherwise, that are not focused on persons employed by the other Party.

    To the extent that any Proprietary Information may include material subject to the attorney-client privilege, work product doctrine or any other applicable privilege concerning pending or threatened legal proceedings or governmental investigations, the parties understand and agree that they have a commonality of interest with respect to such matters and it is their desire, intention and mutual understanding that the sharing of such material is not intended to, and shall not, waive or diminish in any way the confidentiality of such material or its continued protection under the attorney-client privilege, work product doctrine or other applicable privilege. All Proprietary Information provided by a party that is entitled to protection under the attorney-client privilege, work product doctrine or other applicable privilege shall remain entitled to such protection under these privileges, this agreement, and under the joint defense doctrine. Nothing in this letter agreement obligates any party to reveal material subject to the attorney-client privilege, work product doctrine or any other applicable privilege.

    Notwithstanding anything in this letter agreement to the contrary, the Disclosing Party hereby represents and warrants that such party may rightfully disclose or make available the Proprietary Information to the Receiving Party without the violation of any contractual, legal, fiduciary or other obligation to any person.

    If either party hereto shall determine that it does not wish to proceed with the Proposed Transaction, such party shall promptly advise the other party of that decision. In that case, or in the event that the Disclosing Party, in its sole discretion, so requests or the Proposed Transaction is not consummated by the Receiving Party, the Receiving Party shall, upon the Disclosing Party's written request, promptly deliver to the Disclosing Party all Proprietary Information, and, at the Receiving

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Party's election, return or destroy (provided that any such destruction shall be certified by a duly authorized Representative of the Receiving Party) all copies, reproductions, summaries, analyses or extracts thereof or based thereon (whether in hard-copy form or on intangible media, such as electronic mail or computer files) in the Receiving Party's possession or in the possession of any Representative of the Receiving Party; provided, however, that if a legal proceeding has been instituted to seek disclosure of the Proprietary Information, such material shall not be destroyed until the proceeding is settled or a final judgment with respect thereto has been rendered.

    Subject to the terms and conditions of a definitive agreement regarding the Proposed Transaction and without prejudice thereto, each party hereto acknowledges that neither it nor its Representatives nor any of the officers, directors, employees, agents or controlling persons of such Representatives makes any express or implied representation or warranty as to the completeness of the Proprietary Information. The Receiving Party shall not be entitled to rely on the completeness of any Proprietary Information, but shall be entitled to rely solely on such representations and warranties regarding the completeness of the Proprietary Information as may be made to it in any definitive agreement relating to the Proposed Transaction, subject to the terms and conditions of such agreement.

    Until a definitive agreement regarding the Proposed Transaction has been executed by the parties hereto, neither party hereto shall be under any legal obligation or have any liability to the other party of any nature whatsoever with respect to the Proposed Transaction by virtue of this letter agreement or otherwise (other than with respect to the confidentiality and other matters set forth herein). Each party hereto and its Representatives (i) may conduct the process that may or may not result in the Proposed Transaction in such manner as such party, in its sole discretion, may determine (including, without limitation, negotiating and entering into a definitive agreement with any third party without notice to the other party) and (ii) reserves the right to change (in its sole discretion, at any time and without notice to the other party) the procedures relating to the parties' consideration of the Proposed Transaction (including, without limitation, terminating all further discussions with the other party and requesting that the other party return or destroy the Proprietary Information as described above).

    Each party is aware, and will advise its Representatives who are informed of the matters that are the subject of this letter agreement, of the restrictions imposed by the United States securities laws on the purchase or sale of securities by any person who has received material, non-public information from the issuer of such securities and on the communication of such information to any other person when it is reasonably foreseeable that such other person is likely to purchase or sell such securities in reliance upon such information.

    Without prejudice to the rights and remedies otherwise available to either party hereto, each party hereto shall be entitled to equitable relief by way of injunction or otherwise if the other party or any of its directors, officers or employees breach or threaten to breach any of the provisions of this letter agreement. In the event of litigation relating to this letter agreement, if a court of competent jurisdiction determines in a final order from which there is no appeal that this letter agreement has been breached by a party or by its directors, officers or employees, the breaching party or the party whose directors, officers or employees have breached this Agreement, as the case may be, will reimburse the other party for its reasonable legal fees and expenses incurred in connection with the enforcement of this letter agreement and such litigation.

    It is further understood and agreed that no failure or delay by either party hereto in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any right, power or privilege hereunder.

    This letter agreement shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to its principles or rules regarding conflicts of laws, other than such principles directing application of New York law. Each party hereby consents to the institution and

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resolution of any action or proceeding of any kind or nature with respect to or arising out of this agreement brought by any party hereto in the federal or state courts located in the Borough of Manhattan in the City of New York.

    This letter agreement contains the entire agreement between the parties hereto concerning confidentiality of their respective Proprietary Information, and no modification of this letter agreement or waiver of the terms and conditions hereof shall be binding upon either party hereto, unless approved in writing by each such party.

    Please confirm your agreement with the foregoing by signing and returning to the undersigned the duplicate copy of this letter enclosed herewith.

		Digital Island, Inc.
		By	/s/ CHRIS ALBINSON Chris Albinson Vice President of Corporate Development
ACCEPTED AND AGREED as of the date first written above:
Cable and Wireless plc
By	/s/ L. A. BATTY L. A. Batty Manager, Corporate Finance

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Exhibit (d)(2)
Confidentiality Agreement

EX-99.(D)(3)

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EXHIBIT (d)(3)

EMPLOYMENT AGREEMENT

    AGREEMENT, dated as of this 13 day of May, 2001 (the "Agreement"), by and among Digital Island, Inc., a corporation organized under the laws of Delaware (the "Employer"), Cable & Wireless plc, a corporation organized under the laws of England, and Ruann Ernst (the "Employee").

1.

Employment, Duties and Agreements.

    (a) The Employer hereby agrees to continue to employ the Employee as President and Chief Executive Officer, and the Employee hereby accepts such position and agrees to serve the Employer in such capacity during the employment period set forth in Section 3 hereof (the "Employment Period") at the Employer's San Francisco offices. The Employee shall be subject to, and shall act in accordance with, all reasonable instructions and directions of the Employer and all applicable policies and rules thereof as are consistent with the above job description. The Employee's duties and responsibilities shall be such duties and responsibilities as are customarily held by senior executives of corporations comparable to the Employer as well as any other duties as may from time to time be assigned by the Employer.

    (b) During the Employment Period, excluding any periods of vacation and sick leave, and other leave, to which the Employee is entitled, the Employee shall devote Employee's full business time, energy and attention to the performance of Employee's duties and responsibilities hereunder, except as provided in Section 1(c) below.

    (c) During the Employment Period, the Employee may not, without the prior written consent of the Board, which consent shall not be unreasonably withheld, operate, participate in the management, operations or control of, or act as an employee, officer, consultant, agent or representative of, any type of business or service (other than as an employee of the Employer), provided that it shall not be a violation of the foregoing for the Employee to act or serve as a director on the boards of directors of any type of civil, cultural, philanthropic or professional organization so long as such activities do not interfere with the performance of Employee's duties and responsibilities to the Employer as provided hereunder.

2.

Compensation.

    (a) As compensation for the agreements made by the Employee herein and the performance by the Employee of Employee's obligations hereunder, during the Employment Period, the Employer shall pay the Employee, not less than twice a month, a base salary at the rate of U.S. $250,000 per annum (the "Base Salary").

    (b) During the Employment Period, the Employee shall be eligible to receive bonus payments as set forth in the offer letter by and between the Employee and the Employer dated May 13, 2001 attached hereto as Exhibit B (the "Offer Letter"), and thereafter and/or in additional thereto, other bonus payments subject to the rules of any then existing applicable bonus plan and in the Employer's sole and absolute discretion.

    (c) During the Employment Period, the Employee shall be eligible to receive stock-based compensation as set forth in the Offer Letter.

    (d) During the Employment Period, the Employee shall be entitled to holidays, vacation, sick, personal, and paid time-off ("PTO") days in accordance with the policies of the Employer.

    (e) During the Employment Period, the Employee shall be entitled to participate in any and all employee welfare and benefit plans applicable to similarly situated employees to the extent permitted by the particular plan and applicable law.

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    (f)  The compensation provided in this Agreement shall be treated as such for income tax purposes by the Employer and the Employee and shall be paid subject to any deductions authorized by the Employee and any and all tax and related withholdings required by applicable law.

3.

Employment Period.

    (a) The Employment Period is indefinite and shall be terminable at will by either the Employee or the Employer, subject to the rights and obligations set forth in the Offer Letter and Sections 4 and 5 below. This Agreement shall become effective only upon the successful completion of the tender offer for the outstanding shares of the Employer's common stock in accordance with the provisions of Article II of the Agreement and Plan of Merger by and among Cable & Wireless plc, the Employer, and Dali Acquisition Corp. dated May 13, 2001 (the "Tender Offer"). Unless and until the Tender Offer has been successfully completed, this Agreement shall be void and of no force and effect.

    (b) For purposes of this Agreement, the term "Disability" shall mean that, as a result of the Employee's incapacity due to physical or mental illness, the Employee shall have been unable to substantially perform Employee's duties hereunder, either with or without reasonable accommodation, for a period of six (6) consecutive months or 180 days within any 270 day period.

    (c) For purposes of this Agreement, the term "Cause" shall mean (i) willful misconduct or dishonesty on the part of the Employee, which in either case is materially and demonstrably injurious to the Employer, (ii) the willful and continued failure by the Employee to perform substantially Employee's duties with the Employer (other than any such failure resulting from Employee's incapacity due to physical or mental illness) for a period of thirty (30) consecutive days after a written demand for substantial performance is delivered to Employee by the Employer, which specifically identifies the manner in which the Employer believes that the Employee has not substantially performed Employee's duties, or (iii) the willful engaging by the Employee in illegal conduct which is materially and demonstrably injurious to the Employer.

    (d) For purposes of this Agreement, termination by the Employee of the Employee's employment for "Good Reason" means the Employee's resignation within ninety (90) days following (i) a material reduction in the scope of Employee's duties and responsibilities, (ii) a reduction in Employee's Base Salary, or (iii) a relocation of Employee's principal place of employment by more than thirty-five (35) miles.

4.

Termination Procedure.

    (a) Notice of Termination. Any termination of the Employee's employment by the Employer or by the Employee during the Employment Period shall be communicated by written "Notice of Termination" to the other party hereto in accordance with Section 8(a).

    (b) Termination Date. For purposes of this Agreement, "Termination Date" shall mean (i) if the Employee's employment is terminated by Employee's death, the date of Employee's death, (ii) if the Employee's employment is terminated for Cause, the date on which the Employer communicates the termination to the Employee, (iii) if the Employee's employment is terminated on account of the Employee's Disability, thirty (30) days after Notice of Termination (provided that the Employee shall not have returned to the substantial performance of the Employee's duties on a full-time basis during such thirty (30) day period), and (iv) if the Employee's employment is terminated for any other reason, the date on which a Notice of Termination is given or any later date set forth in such Notice of Termination.

5.

Severance Arrangements.

    If the Employer terminates the Employee's employment with the Employer for any reason other than Cause, or the Employee terminates the Employee's employment for Good Reason, the Employee shall be entitled to (i) salary continuation payments at the Employee's base salary effective at the time

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of termination, and (ii) continued coverage for the Employee and Employee's dependents under the Employer's group health plans at the Employer's full expense. The Employee shall be entitled to the salary continuation payments and the continued group health plan coverage for a period of six months or such longer period specified in the Offer Letter, if any. The Employee shall be entitled to any severance arrangements provided in the Offer Letter.

6.

Restrictive Covenants.

    (a) The Employee agrees that during the Employment Period and thereafter Employee will not appropriate for Employee's own use, disclose, divulge, furnish or make available to any person, unless authorized by the Employer in writing, any confidential or proprietary information concerning the Employer or its affiliates, including without limitation any confidential or proprietary information concerning the operations, plans or methods (proposed or otherwise) of doing business of the Employer or any of its affiliates (the "Information"); provided, that the term "Information" shall not include such information which is or becomes generally available to the public other than as a result of a disclosure by the Employee in violation of this Agreement or any other unauthorized disclosure. Notwithstanding the foregoing, the Employee may disclose Information to the extent Employee is compelled to do so by lawful service of process, subpoena, court order, or as Employee is otherwise compelled to do by law or the rules or regulations of any regulatory body to which Employee is subject, in which event Employee agrees to provide the Employer with a copy of the documents seeking disclosure of such information promptly upon receipt of such documents and prior to Employee's disclosure of any such information, so that the Employer may, upon notice to the Employee, take such action as the Employer deems appropriate in relation to such subpoena or request.

    (b) The Employee agrees that all right, title and interest to all works of whatever nature generated in the course of Employee's employment with the Employer or its affiliates resides with the Employer. The Employee agrees that Employee will return to the Employer or its affiliates, not later five (5) days after the Termination Date, all property, in whatever form (including computer files and other electronic data), of the Employer in Employee's possession, including without limitation, all copies (in whatever form) of all files or other information pertaining to the Employer, its officers, directors, shareholders, customers or affiliates, and any business or business opportunity of the Employer and its affiliates.

    (c) Except with the prior written consent of the Employer, the Employee shall not, during the Employment Period and for the one-year period immediately following the Termination Date, hire, offer to hire, entice away or in any manner persuade or attempt to persuade any officer, employee or agent of the Employer, or any of its affiliates, or any then current or prospective customer, client or supplier of the Employer, or any of its affiliates, to discontinue or limit his or her relationship with the Employer, or affiliates or to otherwise do business with any competing business of the Employer.

    (d) The parties hereto hereby declare that it is impossible to measure in money the damages which will accrue to Employer by reason of a failure by Employee to perform any of Employee's obligations under this Section 6. Accordingly, if Employer or any of its affiliates institutes any action or proceeding to enforce the provisions hereof, to the extent permitted by applicable law, the Employer shall be entitled to seek injunctive relief and specific performance in addition to any other remedies available to the Employer.

    (e) The restrictions in this Section 6 shall be in addition to any restrictions imposed on Employee by statute or at common law.

7.

Representations and Acknowledgments.

    The Employee hereby represents and warrants to the Employer that the execution, delivery and performance of this Agreement does not violate any provision of any agreement which the Employee has with any former employer (a "Former Employer"). The Employee further acknowledges that to the

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extent the Employee has an obligation to the Former Employer not to disclose certain confidential information, Employee intends to honor such obligation and that honoring such obligation does not violate the foregoing representations and warranties made by the Employee.

8.

Miscellaneous.

    (a) Any notice or other communication required or permitted under this Agreement shall be effective only if it is in writing and delivered personally or sent by registered or certified mail, postage prepaid, addressed as follows (or if it is sent through any other method agreed upon by the parties):

If to the Employer:
Digital Island, Inc.
45 Fremont Street, Suite 1200
San Francisco, CA 94105
Attention: Office of the General Counsel

If to the Employee:
Ruann Ernst
28525 Matadero Creek Lane
Los Altos Hills, CA 94022

or to such other address as any party hereto may designate by notice to the other, and if delivered personally, shall be deemed to have been received upon receipt or if sent by registered mail, shall be deemed to have been received three days after it is postmarked.

    (b) This Agreement, together with the Offer Letter and any exhibits attached hereto, constitutes the entire Agreement among the parties hereto with respect to the Employee's employment, and supersedes and is in full substitution for any and all prior understandings or agreements with respect to the Employee's employment with the Employer. To the extent any provision of this Agreement conflicts with any provision of the Offer Letter, the provision most favorable to the Employee shall control.

    (c) This Agreement may be amended only by an instrument in writing signed by the parties hereto, and any provision hereof may be waived only by an instrument in writing signed by the party or parties against whom or which enforcement of such waiver is sought. The failure of any party hereto at any time to require the performance by any other party hereto of any provision hereof shall in no way affect the full right to require such performance at any time thereafter, nor shall the waiver by any party hereto of a breach of any provision hereof be taken or held to be a waiver of any succeeding breach of such provision or a waiver of the provision itself or a waiver of any other provision of this Agreement.

    (d) 

     (i) This Agreement is binding on and is for the benefit of the parties hereto and their respective successors, heirs, executors, administrators and other legal representatives. Neither this Agreement nor any right or obligation hereunder may be assigned by the Employee.

    (ii) The Employer shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Employer expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Employer would have been required to perform it if no such succession had taken place. As used in this Agreement, "the Employer" shall mean both the Employer as defined above and any such successor that assumes and agrees to perform this Agreement, by operation of law or otherwise.

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    (e) If any provision of this Agreement or portion thereof is so broad, in scope or duration, so as to be unenforceable, such provision or portion thereof shall be interpreted to be only so broad as is enforceable.

    (f)  The Employer may withhold from any amounts payable to the Employee hereunder all federal, state, city or other taxes that the Employer may reasonably determine are required to be withheld pursuant to any applicable law or regulation.

    (g) This Agreement shall be governed by and construed in accordance with the laws of the state of California, without reference to its principles of conflicts of law. The Employer and the Employee agree that any dispute arising out of or related to this Agreement shall be resolved in accordance with the Arbitration Agreement attached hereto as Exhibit A. To the extent consistent with the Arbitration Agreement attached hereto as Exhibit A, the Employer and the Employee hereby consent to the exclusive jurisdiction of the courts of the state of California and the United States District Court for the Northern District of California and superior federal courts.

    (h) This Agreement may be executed in several counterparts, including by the exchange of facsimile signature pages containing the signatures of one or both parties, each of which shall be deemed an original, but all of which shall constitute one and the same instrument.

    (i)  The headings in this Agreement are inserted for convenience of reference only and shall not be a part of or control or affect the meaning of any provision hereof.

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

/s/ Ruann Ernst (Signature)
Ruann Ernst
/s/ Howard Lasky DIGITAL ISLAND, INC. By: Howard Lasky Title: General Counsel	/s/ Avery Duff CABLE & WIRELESS PLC By: Avery Duff Title: Executive Vice President, Human Resources

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EXHIBIT A: ARBITRATION AGREEMENT

1.

To the maximum extent permitted by law, I, Ruann Ernst and Digital Island, Inc. (the "Company") (collectively, the "parties") agree that, except as noted below, any controversy, claim or dispute arising out of or related to my employment or the termination thereof ("claims") shall be arbitrated in accordance with the following procedure:

(a)

Any and all claims shall be submitted to final and binding arbitration before the American Arbitration Association ("AAA") in the city closest to my place of work at the Company where the AAA has an office. Such arbitration shall be in accordance with the AAA's then current version of the National Rules for the Resolution of Employment Disputes. The arbitrator shall be selected in accordance with the AAA's selection procedures in effect at the time, and shall be a member of the AAA's panel of arbitrators for employment disputes. Either party may initiate arbitration proceedings by filing a demand for arbitration with the AAA in the city closest to my place of work at the Company where AAA has an office.

(b)

The arbitrator shall have the authority to grant any relief authorized by law.

(c)

The arbitrator shall have exclusive authority to resolve all claims covered by this arbitration agreement, and any dispute relating to the interpretation, applicability, enforceability or formation of this arbitration agreement, including, but not limited to, any claim that all or any part of this arbitration agreement is void or voidable. Any issues involving the arbitrability of a dispute shall be governed by the Federal Arbitration Act, 9 U.S.C. § 1 et seq.

(d)

The Company will pay all arbitration fees, deposits and administrative costs assessed by the AAA; except that I may be required to pay administrative fees to the AAA not to exceed the amount of the then-current filing fee for a civil action filed in the court of general jurisdiction in the state where I was last employed by the Company. The arbitrator shall have power to award attorneys' fees, expert witness fees and costs according to statute, or according to a separate written agreement between the parties, or the National Rules for the Resolution of Employment Disputes of the AAA, but shall have no other power to award attorneys' fees, costs or expert witness fees.

(e)

The claims covered by the above include, but are not limited to, claims for wrongful termination, unpaid wages or compensation, breach of contract, torts, violation of public policy, claims for harassment or discrimination (including, but not limited to, race, sex, religion, national origin, age, marital status, medical condition, disability, or sexual orientation), claims for benefits (except where an employee benefit or pension plan specifies a procedure for resolving claims different from this one), claims for physical or mental harm or distress, or any other employment-related claims under any federal, state or other governmental law, statute, regulation or ordinance, including, but not limited to, Title VII of the Civil Rights Act of 1965, the Americans With Disabilities Act, the Age Discrimination in Employment Act, the California Fair Employment and Housing Act, and any other statutes or laws relating to an employee's relationship with his/her employer. However, claims for workers' compensation benefits and unemployment compensation benefits are not covered by this arbitration agreement, and such claims may be presented to the appropriate court or government agency.

(f)

Notwithstanding this agreement to arbitrate, neither party waives the right to seek through judicial process, preliminary injunctive relief to preserve the status quo or prevent irreparable injury before the matter can be heard in arbitration.

(g)

The arbitrator shall issue a written arbitration decision stating the arbitrator's essential findings and conclusions upon which any award is based. A party's right for review of the decision is limited to grounds provided under applicable law.

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(h)

The parties agree that the arbitration shall be final and binding and any arbitration award shall be enforceable in any court having jurisdiction to enforce this arbitration agreement.

2.

BY AGREEING TO THIS BINDING ARBITRATION PROVISION, BOTH THE COMPANY AND I GIVE UP ALL RIGHTS TO TRIAL BY JURY, EXCEPT AS EXPRESSLY PROVIDED HEREIN.

3.

I agree that this agreement to arbitrate shall survive the termination of my employment. This is the complete agreement of the parties on the subject of arbitration of disputes. This agreement supersedes any prior or contemporaneous oral or written understanding on the subject. This agreement cannot be changed unless in writing, signed by me and the Chief Executive Officer of the Company or his or her delegate.

AGREED TO AND ACCEPTED:
/s/ Ruann Ernst (Signature)	Dated: May 13, 2001
Ruann Ernst
/s/ Howard Lasky DIGITAL ISLAND, INC. By: Howard Lasky Title: General Counsel	/s/ Avery Duff CABLE & WIRELESS PLC By: Avery Duff Title: Executive Vice President, Human Resources

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EMPLOYMENT AGREEMENT
EXHIBIT A: ARBITRATION AGREEMENT

EX-99.(D)(4)

EXHIBIT (d)(4)

Digital Island, Inc.
45 Fremont Street, Suite 1200
San Francisco, CA 94105

May 13, 2001

Ruann Ernst
28525 Matadero Creek Lane
Los Altos Hills, CA 94022

Dear Ruann:

    We take great pleasure in confirming your continued employment with Digital Island, Inc. (the "Company"). As you are aware, Cable & Wireless plc ("Cable & Wireless") is acquiring the Company. As a result, Digital Island, Inc. will become a wholly owned subsidiary of Cable & Wireless. Your continued employment with the Company is subject to your signing a formal Employment Agreement with the Company. The new Employment Agreement will become effective upon the successful completion of the tender offer for the outstanding shares of the Company's common stock in accordance with the provisions of Article II of the Agreement and Plan of Merger by and among Cable & Wireless, the Company and Dali Acquisition Corp., dated May 14, 2001 (the "Merger Agreement"). Capitalized terms used in this offer letter but not otherwise defined herein will have the same meaning as assigned to them in the Merger Agreement.

    As an employee of the Company, the terms of your continued employment include:

POSITION

    Effective the day following the Closing (as defined below), you will hold the position of President and Chief Executive Officer of the Company, reporting to the Chief Executive Officer of Cable & Wireless Global.

BASE SALARY

    Your base salary will be $250,000 per year. Your first review will be in October 2001.

BONUS

    In addition to your base salary, your remuneration will include a bonus amount, subject to the rules of any applicable bonus plan. The target bonus is a percentage of your base salary, but all determinations of your bonus amount will be in the Company's discretion. For the remainder of fiscal 2001, your bonus targets will remain as in effect on May 1, 2001, and payments will include the unpaid portion of the bonus for your service prior to the acquisition. Within 120 days of the date of this offer letter, the Company will provide you with the details of a new bonus plan for the next bonus period.

WELCOME BONUS

    You will be paid a conditional welcome bonus equal to $625,000 (the "Welcome Bonus") if you satisfy the following conditions. If you remain employed with the Company for a period of three (3) consecutive months after the successful completion of the tender offer (the "Closing"), you will be paid 40% of your Welcome Bonus. If you remain employed with the Company for a period of nine (9) consecutive months after the Closing, you will be paid the remaining 60% of your Welcome Bonus. Should your employment terminate by reason of Disability (as defined in your Employment Agreement) prior to the completion of the applicable three (3) month or nine (9) month service requirement, the portion of your Welcome Bonus for the applicable period will be pro-rated on the basis of number of months of employment completed during that period (rounded to next whole month).

STOCK-BASED COMPENSATION

    In exchange for your effective and irrevocable waivers as set forth below, you will receive the stock-based compensation package described below, after approval by the Board of Directors of Cable & Wireless (the "Board of Directors"). If the Board of Directors does not approve this compensation package, then you will become entitled instead to cash payments from the Company which provide you with the same economic benefit as the equity compensation proposed below, with such cash payments to be made on each vesting date for your proposed Cable & Wireless stock options and restricted Cable & Wireless stock awards.

1.

Stock options in shares of Cable & Wireless stock. Within forty-five (45) days following the completion of the Offer, you will be granted stock options to purchase 150,000 common shares of Cable & Wireless with an exercise price per share equal to the closing selling price per share on the date of grant. Cable & Wireless expects to adopt and obtain the requisite shareholder approval of a plan under which these stock options would vest at a rate of 25% per year over the four-year period measured from the date of grant. The stock options will be incentive stock options within the meaning of Section 422 of the U.S. Internal Revenue Code, to the maximum extent permissible. In the absence of the requisite shareholder approval, these stock options will vest in accordance with the current Senior Employees Share Option Scheme, with the vesting measured from the date of grant.



2.

Restricted shares of Cable & Wireless stock. At the completion of the Offer, all of your restricted shares of the Company's common stock, whether vested or unvested (the "Restricted Shares") and all of your outstanding stock options, whether vested or unvested, to purchase shares of the Company's common stock will be cancelled, and in return for those cancelled shares and options, you will be awarded restricted shares of Cable & Wireless common stock ("Cable & Wireless Shares"). The conversion process will be effected as follows:

The rollover value of your cancelled Restricted Shares will be determined by multiplying the number of your Restricted Shares by the Per Share Amount paid in the Offer.

The rollover value of each of your cancelled options will be determined by multiplying the number of shares of Company common stock subject to each such option by the excess (if any) of the Per Share Amount paid in the Offer over the exercise price in effect for that option. Any option which has an exercise price equal to or greater than the Per Share Amount will have a zero rollover value.

The combined rollover value of your Restricted Shares and your options will then be divided by the average closing selling price per common share of Cable & Wireless for the five (5) consecutive trading days ending with the completion date of the Offer to determine the number of Cable & Wireless Shares.

3.

Timing of Awards. Your restricted Cable & Wireless Shares will be awarded as follows:



(a)

You will be awarded 25% of your restricted shares on the 6-month anniversary of the Closing if you are then employed by the Company.



(b)

You will be awarded another 25% of your restricted shares on the 12-month anniversary of the Closing if you are then employed by the Company. In addition, subject to the development and delivery of an integration plan, you will be awarded bonus shares equal to 150% of the restricted shares awarded under paragraph (a) and the first sentence of this paragraph (b). As a further incentive, you will be awarded additional bonus shares up to an amount equal to 150% of the restricted shares awarded under paragraph (a) and the first sentence of this paragraph (b), with the actual number of such shares to be determined on a pro-rata basis to the extent the Company achieves certain performance targets in accordance with the following: you will present the formal business plan for the Company for the twelve-month period measured from the Closing, with assumptions as to funding levels by Cable &

Wireless, headcount and other available resources and assets, and the operation of the Company as a separate profit and loss center, and the Company's performance will be evaluated on the basis of those assumptions. If the Company achieves one hundred percent of the specified targets in the business plan, then you will receive the entire 150% of the bonus shares award. If the Company achieves less than one hundred percent of the specified targets in the business plan, then you will receive a pro-rated portion of the bonus shares award. Should Cable & Wireless not provide the assumed level of funding or should any of the other assumptions stated in the business plan prove inaccurate during the measurement period, then the performance targets will be appropriately adjusted to reflect such modifications, without prejudice to your maximum allotment of additional bonus shares under this paragraph (b).

(c)

You will be awarded another 25% of your restricted shares on the 18-month anniversary of the Closing if you are then employed by the Company.



(d)

You will be awarded the remaining 25% of your restricted shares on the 24-month anniversary of the Closing if you are then employed by the Company. In addition, subject to the development and delivery of an integration plan, you will be awarded bonus shares equal to 150% of the restricted shares awarded under paragraph (c) and the first sentence of this paragraph (d). As a further incentive, you will be awarded additional bonus shares up to an amount equal to 150% of the restricted shares awarded under paragraph (c) and the first sentence of this paragraph (d), with the actual number of such shares to be determined on a pro-rata basis to the extent the Company achieves certain performance targets in accordance with the following: you will present the formal business plan for the Company for the twelve-month period measured from the Closing, with assumptions as to funding levels by Cable & Wireless, headcount and other available resources and assets, and the operation of the Company as a separate profit and loss center, and the Company's performance will be evaluated on the basis of those assumptions. If the Company achieves one hundred percent of the specified targets in the business plan, then you will receive the entire 150% of the bonus shares award. If the Company achieves less than one hundred percent of the specified targets in the business plan, then you will receive a pro-rated portion of the bonus shares award. Should Cable & Wireless not provide the assumed level of funding or should any of the other assumptions stated in the business plan prove inaccurate during the measurement period, then the performance targets will be appropriately adjusted to reflect such modifications, without prejudice to your maximum allotment of additional bonus shares under this paragraph (d).



4.

Additional grants. In addition to the above, you will be eligible for consideration of grants of stock options in shares of Cable & Wireless stock (together with the stock options described in item 1 of this section, "Cable & Wireless Options"). In cases of outstanding performance, you also may be eligible for consideration of grants of Cable & Wireless Shares.

TERM OF EMPLOYMENT

    Your employment is terminable by you if you provide 3-months written notice to the Company. Your employment is terminable by the Company if the Company provides 12-months written notice to you.

SEVERANCE ARRANGEMENTS

    (a) If the Company terminates your employment with the Company for any reason other than for Cause (as defined in your Employment Agreement) or if you terminate your employment with the Company for Good Reason (as defined in this offer letter), then (a) your Cable & Wireless Options and Cable & Wireless Shares will vest fully and immediately, you will also immediately vest and become entitled to 75% of the maximum number of bonus shares awardable to you pursuant to the employment retention and performance target provisions of paragraphs (b) and (d) of section 3 of the Stock-Based Compensation section of this letter agreement, whether or not the performance targets are in fact attained, and you will have a twelve-month period following the termination of your employment

in which to exercise your Cable & Wireless Options, (b) you and your eligible dependents will be entitled to continued health coverage under the Company's medical plan at no cost to you for a period of twelve months after your termination, (c) you will be entitled to salary continuation payments at your base salary rate effective upon termination for a period of twelve months after your termination, and (d) you will be entitled to 50% of your bonus payable for the fiscal year during which you were terminated within 90 days after the close of such fiscal year.

    (b) If the Company terminates your employment with the Company for any reason other than for Cause (as defined in your Employment Agreement) or if you terminate your employment with the Company for Good Reason (as defined in this offer letter) within 9 months of the Closing, you will be entitled to payment of the portion of your Welcome Bonus that was unpaid on the date of your termination.

    (c) If you terminate your employment with the Company for any reason other than Good Reason (as defined in this offer letter) during the 12-month period commencing immediately after the Closing, you will be entitled to a severance payment equal to the sum of (a) the amount you would have received if you had exercised all of your vested Company stock options and the options that would have become vested had the options continued in effect until your termination of employment (without regard to any options that would have vested solely on account of a "change in control" or "corporate transaction" as defined in the Stock Plans or your stock option agreements) and tendered the stock acquired upon exercise under the Offer, plus (b) the amount you would have received if you had tendered under the Offer all of your vested Restricted Shares in the Company and the Restricted Shares that would have become vested had you continued to hold the Restricted Shares until your termination of employment (without regard to any restricted shares that would have vested solely on account of a "change in control" or "corporate transaction" as defined in the Stock Plans or your restricted stock issuance agreement).

    (d) For purposes of this offer letter, Good Reason means your voluntary resignation for any of the following reasons: (i) a material reduction in the scope of the duties and responsibilities initially assigned to you under your Employment Agreement, (ii) the elimination of the Company as a separate profit and loss center of Cable & Wireless, (iii) a reduction in your level of base salary, or (iv) a relocation of your principal place of employment by more than thirty-five (35) miles.

    (e) In addition, for purposes of determining your eligibility for the severance benefits and arrangements provided under the paragraphs (a) and (b) of this section, your employment will be deemed to have terminated for Good Reason in the event you should die while you remain in the Company's employ, and those severance benefits and payments will be paid to the executors or administrators of your estate.

GROSS-UP PAYMENT

    In the event that it shall be determined that any payment or distribution by the Company to you (determined without regard to any additional payments required under this paragraph) (a "Payment") would be subject to the 20% excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended, or any interest or penalties incurred by you with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter referred to as the "Excise Tax"), you will be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after a reduction reflecting your total tax liability, including, without limitation, your total income tax (including any applicable federal, state, or local income taxes) and Excise Tax liability with respect to the Gross-Up Payment, you would retain an amount of the Gross-Up Payment equal to the Excise Tax imposed on the Payments.

LOANS

    The terms of any loans by and between you and the Company, together with the existing cash bonus arrangement which provides you with funds from time to time to repay such loans, shall remain unchanged by this offer letter.

VACATION AND PERSONAL DAYS

    You will be entitled to vacation and personal days in accordance with the policies established by the Company.

HEALTH AND WELFARE BENEFITS

    You will be entitled to participate in any and all employee welfare and health benefit plans applicable to similarly situated employees to the extent permitted by the particular plan and applicable law.

WAIVERS

    As a condition of receiving Cable & Wireless Options and Cable & Wireless Shares, you irrevocably waive, effective upon the successful completion of the Offer, any and all claims to benefits that would have been payable to you on account of a "change in control" of or a "corporate transaction" with respect to the Company (as such terms may be defined in any Company stock option plan or any stock option agreement, restricted stock issuance agreement, employment agreement, or other agreement entered into by and between you and the Company), which benefits include but are not limited to salary continuation payments, bonus payments, and acceleration of vesting of restricted stock or options.

    You understand and agree that the Restricted Shares granted to you under the Digital Island, Inc. 1999 Stock Incentive Plan will be forfeited upon the successful completion of the Offer and that you waive any and all rights as a holder of those Restricted Shares upon such forfeiture. As a result of your signing this offer letter, the Restricted Shares shall automatically be deemed forfeited upon the successful completion of the Offer and the Company shall be deemed the owner and holder of those shares upon such forfeiture, whether or not the certificates therefor have been delivered to the Company.

    You further understand and agree that, as a result of your signing this offer letter, any and all stock options granted with respect to stock in the Company under the Digital Island, Inc. 1999 Stock Incentive Plan or the Digital Island, Inc. 2000 Supplemental Stock Option Plan (collectively the "Stock Plans") will be cancelled upon the successful completion of the Offer, and that you waive any and all rights or entitlements to purchase stock in the Company pursuant to those cancelled options. You also waive your rights to accelerated vesting of any such options, to the extent such acceleration would occur upon the purchase by Cable & Wireless of Digital Island, Inc.

CONFIDENTIALITY PROVISION

    Your acceptance shall include agreement to maintain all of the terms and conditions of this offer letter in strict confidence as shall the Company. To fulfill this obligation, you shall not directly or indirectly communicate, make known, or divulge to any person, agency or court, except your spouse, accountant or attorney, any information whatsoever regarding this offer letter, unless compelled to do so by legal process or unless prior approval is given in writing by the Chief Executive Officer of Cable & Wireless Global. You shall direct your spouse, accountant, and attorney not to breach this confidentiality commitment.

    If you accept our offer letter, please sign the original offer letter and the Employment Agreement and return these materials to us in accordance with our discussions. Please make a copy for your records.

    I am very pleased that you will be joining us and I look forward to working with you. Should you have any questions concerning this offer and contract, please do not hesitate to discuss them with me.

Sincerely,

/s/ Avery Duff

Avery Duff
Executive Vice President, Human Resources
Cable & Wireless Global

    I, Ruann Ernst, do hereby accept and confirm the terms of this offer of continued employment and acknowledge that I have read the above described offer letter and certify that I have not signed an agreement of confidentiality, covenant not to compete, nor any other type of agreement with restrictive covenants of any kind or nature with any of my employers, past or present, that would restrict, prevent, or otherwise preclude my employment with the Company.

/s/ Ruann Ernst SIGNATURE May 13, 2001 DATE

EX-99.(D)(5)

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Exhibit (d)(5)

EMPLOYMENT AGREEMENT

    AGREEMENT, dated as of this 13 day of May, 2001 (the "Agreement"), by and among Digital Island, Inc., a corporation organized under the laws of Delaware (the "Employer"), Cable & Wireless plc, a corporation organized under the laws of England, and Charles Picasso (the "Employee").

    1.  Employment, Duties and Agreements.

    (a) The Employer hereby agrees to continue to employ the Employee as Chief Operating Officer, and the Employee hereby accepts such position and agrees to serve the Employer in such capacity during the employment period set forth in Section 3 hereof (the "Employment Period") at the Employer's San Francisco offices. The Employee shall be subject to, and shall act in accordance with, all reasonable instructions and directions of the Employer and all applicable policies and rules thereof as are consistent with the above job description. The Employee's duties and responsibilities shall be such duties and responsibilities as are customarily held by senior executives of corporations comparable to the Employer as well as any other duties as may from time to time be assigned by the Employer.

    (b) During the Employment Period, excluding any periods of vacation and sick leave, and other leave, to which the Employee is entitled, the Employee shall devote Employee's full business time, energy and attention to the performance of Employee's duties and responsibilities hereunder, except as provided in Section 1(c) below.

    (c) During the Employment Period, the Employee may not, without the prior written consent of the Board, which consent shall not be unreasonably withheld, operate, participate in the management, operations or control of, or act as an employee, officer, consultant, agent or representative of, any type of business or service (other than as an employee of the Employer), provided that it shall not be a violation of the foregoing for the Employee to act or serve as a director on the boards of directors of any type of civil, cultural, philanthropic or professional organization so long as such activities do not interfere with the performance of Employee's duties and responsibilities to the Employer as provided hereunder.

    2.  Compensation.

    (a) As compensation for the agreements made by the Employee herein and the performance by the Employee of Employee's obligations hereunder, during the Employment Period, the Employer shall pay the Employee, not less than twice a month, a base salary at the rate of U.S. $250,000 per annum (the "Base Salary").

    (b) During the Employment Period, the Employee shall be eligible to receive bonus payments as set forth in the offer letter by and between the Employee and the Employer dated May 13, 2001 attached hereto as Exhibit B (the "Offer Letter"), and thereafter and/or in additional thereto, other bonus payments subject to the rules of any then existing applicable bonus plan and in the Employer's sole and absolute discretion.

    (c) During the Employment Period, the Employee shall be eligible to receive stock-based compensation as set forth in the Offer Letter.

    (d) During the Employment Period, the Employee shall be entitled to holidays, vacation, sick, personal, and paid time-off ("PTO") days in accordance with the policies of the Employer.

    (e) During the Employment Period, the Employee shall be entitled to participate in any and all employee welfare and benefit plans applicable to similarly situated employees to the extent permitted by the particular plan and applicable law.

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    (f)  The compensation provided in this Agreement shall be treated as such for income tax purposes by the Employer and the Employee and shall be paid subject to any deductions authorized by the Employee and any and all tax and related withholdings required by applicable law.

    3.  Employment Period.

    (a) The Employment Period is indefinite and shall be terminable at will by either the Employee or the Employer, subject to the rights and obligations set forth in the Offer Letter and Sections 4 and 5 below. This Agreement shall become effective only upon the successful completion of the tender offer for the outstanding shares of the Employer's common stock in accordance with the provisions of Article II of the Agreement and Plan of Merger by and among Cable & Wireless plc, the Employer, and Dali Acquisition Corp. dated May 14, 2001 (the "Tender Offer"). Unless and until the Tender Offer has been successfully completed, this Agreement shall be void and of no force and effect.

    (b) For purposes of this Agreement, the term "Disability" shall mean that, as a result of the Employee's incapacity due to physical or mental illness, the Employee shall have been unable to substantially perform Employee's duties hereunder, either with or without reasonable accommodation, for a period of six (6) consecutive months or 180 days within any 270 day period.

    (c) For purposes of this Agreement, the term "Cause" shall mean (i) willful misconduct or dishonesty on the part of the Employee, which in either case is materially and demonstrably injurious to the Employer, (ii) the willful and continued failure by the Employee to perform substantially Employee's duties with the Employer (other than any such failure resulting from Employee's incapacity due to physical or mental illness) for a period of thirty (30) consecutive days after a written demand for substantial performance is delivered to Employee by the Employer, which specifically identifies the manner in which the Employer believes that the Employee has not substantially performed Employee's duties, or (iii) the willful engaging by the Employee in illegal conduct which is materially and demonstrably injurious to the Employer.

    (d) For purposes of this Agreement, termination by the Employee of the Employee's employment for "Good Reason" means the Employee's resignation within ninety (90) days following (i) a material reduction in the scope of Employee's duties and responsibilities, (ii) a reduction in Employee's Base Salary, or (iii) a relocation of Employee's principal place of employment by more than thirty-five (35) miles.

    4.  Termination Procedure.

    (a) Notice of Termination. Any termination of the Employee's employment by the Employer or by the Employee during the Employment Period shall be communicated by written "Notice of Termination" to the other party hereto in accordance with Section 8(a).

    (b) Termination Date. For purposes of this Agreement, "Termination Date" shall mean (i) if the Employee's employment is terminated by Employee's death, the date of Employee's death, (ii) if the Employee's employment is terminated for Cause, the date on which the Employer communicates the termination to the Employee, (iii) if the Employee's employment is terminated on account of the Employee's Disability, thirty (30) days after Notice of Termination (provided that the Employee shall not have returned to the substantial performance of the Employee's duties on a full-time basis during such thirty (30) day period), and (iv) if the Employee's employment is terminated for any other reason, the date on which a Notice of Termination is given or any later date set forth in such Notice of Termination.

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    5.  Severance Arrangements.

    If the Employer terminates the Employee's employment with the Employer for any reason other than Cause, or the Employee terminates the Employee's employment for Good Reason, the Employee shall be entitled to (i) salary continuation payments at the Employee's base salary effective at the time of termination, and (ii) continued coverage for the Employee and Employee's dependents under the Employer's group health plans at the Employer's full expense. The Employee shall be entitled to the salary continuation payments and the continued group health plan coverage for a period of six months or such longer period specified in the Offer Letter, if any. The Employee shall be entitled to any severance arrangements provided in the Offer Letter.

    6.  Restrictive Covenants.

    (a) The Employee agrees that during the Employment Period and thereafter Employee will not appropriate for Employee's own use, disclose, divulge, furnish or make available to any person, unless authorized by the Employer in writing, any confidential or proprietary information concerning the Employer or its affiliates, including without limitation any confidential or proprietary information concerning the operations, plans or methods (proposed or otherwise) of doing business of the Employer or any of its affiliates (the "Information"); provided, that the term "Information" shall not include such information which is or becomes generally available to the public other than as a result of a disclosure by the Employee in violation of this Agreement or any other unauthorized disclosure. Notwithstanding the foregoing, the Employee may disclose Information to the extent Employee is compelled to do so by lawful service of process, subpoena, court order, or as Employee is otherwise compelled to do by law or the rules or regulations of any regulatory body to which Employee is subject, in which event Employee agrees to provide the Employer with a copy of the documents seeking disclosure of such information promptly upon receipt of such documents and prior to Employee's disclosure of any such information, so that the Employer may, upon notice to the Employee, take such action as the Employer deems appropriate in relation to such subpoena or request.

    (b) The Employee agrees that all right, title and interest to all works of whatever nature generated in the course of Employee's employment with the Employer or its affiliates resides with the Employer. The Employee agrees that Employee will return to the Employer or its affiliates, not later five (5) days after the Termination Date, all property, in whatever form (including computer files and other electronic data), of the Employer in Employee's possession, including without limitation, all copies (in whatever form) of all files or other information pertaining to the Employer, its officers, directors, shareholders, customers or affiliates, and any business or business opportunity of the Employer and its affiliates.

    (c) Except with the prior written consent of the Employer, the Employee shall not, during the Employment Period and for the one-year period immediately following the Termination Date, hire, offer to hire, entice away or in any manner persuade or attempt to persuade any officer, employee or agent of the Employer, or any of its affiliates, or any then current or prospective customer, client or supplier of the Employer, or any of its affiliates, to discontinue or limit his or her relationship with the Employer, or affiliates or to otherwise do business with any competing business of the Employer.

    (d) The parties hereto hereby declare that it is impossible to measure in money the damages which will accrue to Employer by reason of a failure by Employee to perform any of Employee's obligations under this Section 6. Accordingly, if Employer or any of its affiliates institutes any action or proceeding to enforce the provisions hereof, to the extent permitted by applicable law, the Employer shall be entitled to seek injunctive relief and specific performance in addition to any other remedies available to the Employer.

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    (e) The restrictions in this Section 6 shall be in addition to any restrictions imposed on Employee by statute or at common law.

    7.  Representations and Acknowledgments.

    The Employee hereby represents and warrants to the Employer that the execution, delivery and performance of this Agreement does not violate any provision of any agreement which the Employee has with any former employer (a "Former Employer"). The Employee further acknowledges that to the extent the Employee has an obligation to the Former Employer not to disclose certain confidential information, Employee intends to honor such obligation and that honoring such obligation does not violate the foregoing representations and warranties made by the Employee.

    8.  Miscellaneous.

    (a) Any notice or other communication required or permitted under this Agreement shall be effective only if it is in writing and delivered personally or sent by registered or certified mail, postage prepaid, addressed as follows (or if it is sent through any other method agreed upon by the parties):

If to the Employer:
Digital Island, Inc.
45 Fremont Street, Suite 1200
San Francisco, CA 94105
Attention: Office of the General Counsel

If to the Employee:
Charles Picasso
58 Bret Harte Lane
San Rafael, CA 94901

or to such other address as any party hereto may designate by notice to the other, and if delivered personally, shall be deemed to have been received upon receipt or if sent by registered mail, shall be deemed to have been received three days after it is postmarked.

    (b) This Agreement, together with the Offer Letter and any exhibits attached hereto, constitutes the entire Agreement among the parties hereto with respect to the Employee's employment, and supersedes and is in full substitution for any and all prior understandings or agreements with respect to the Employee's employment with the Employer. To the extent any provision of this Agreement conflicts with any provision of the Offer Letter, the provision most favorable to the Employee shall control.

    (c) This Agreement may be amended only by an instrument in writing signed by the parties hereto, and any provision hereof may be waived only by an instrument in writing signed by the party or parties against whom or which enforcement of such waiver is sought. The failure of any party hereto at any time to require the performance by any other party hereto of any provision hereof shall in no way affect the full right to require such performance at any time thereafter, nor shall the waiver by any party hereto of a breach of any provision hereof be taken or held to be a waiver of any succeeding breach of such provision or a waiver of the provision itself or a waiver of any other provision of this Agreement.

    (d) 

     (i) This Agreement is binding on and is for the benefit of the parties hereto and their respective successors, heirs, executors, administrators and other legal representatives. Neither this Agreement nor any right or obligation hereunder may be assigned by the Employee.

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    (ii) The Employer shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Employer expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Employer would have been required to perform it if no such succession had taken place. As used in this Agreement, "the Employer" shall mean both the Employer as defined above and any such successor that assumes and agrees to perform this Agreement, by operation of law or otherwise.

    (e) If any provision of this Agreement or portion thereof is so broad, in scope or duration, so as to be unenforceable, such provision or portion thereof shall be interpreted to be only so broad as is enforceable.

    (f)  The Employer may withhold from any amounts payable to the Employee hereunder all federal, state, city or other taxes that the Employer may reasonably determine are required to be withheld pursuant to any applicable law or regulation.

    (g) This Agreement shall be governed by and construed in accordance with the laws of the state of California, without reference to its principles of conflicts of law. The Employer and the Employee agree that any dispute arising out of or related to this Agreement shall be resolved in accordance with the Arbitration Agreement attached hereto as Exhibit A. To the extent consistent with the Arbitration Agreement attached hereto as Exhibit A, the Employer and the Employee hereby consent to the exclusive jurisdiction of the courts of the state of California and the United States District Court for the Northern District of California and superior federal courts.

    (h) This Agreement may be executed in several counterparts, including by the exchange of facsimile signature pages containing the signatures of one or both parties, each of which shall be deemed an original, but all of which shall constitute one and the same instrument.

    (i)  The headings in this Agreement are inserted for convenience of reference only and shall not be a part of or control or affect the meaning of any provision hereof.

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

/s/ CHARLES PICASSO (Signature)
Charles Picasso
/s/ RUANN ERNST DIGITAL ISLAND, INC.	/s/ AVERY DUFF CABLE & WIRELESS PLC
By: Ruann Ernst Title: Chairman & CEO	By: Avery Duff Title: Executive Vice President, Human Resources

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EXHIBIT A: ARBITRATION AGREEMENT

1.

To the maximum extent permitted by law, I, Charles Picasso and Digital Island, Inc. (the "Company") (collectively, the "parties") agree that, except as noted below, any controversy, claim or dispute arising out of or related to my employment or the termination thereof ("claims") shall be arbitrated in accordance with the following procedure:



(a)

Any and all claims shall be submitted to final and binding arbitration before the American Arbitration Association ("AAA") in the city closest to my place of work at the Company where the AAA has an office. Such arbitration shall be in accordance with the AAA's then current version of the National Rules for the Resolution of Employment Disputes. The arbitrator shall be selected in accordance with the AAA's selection procedures in effect at the time, and shall be a member of the AAA's panel of arbitrators for employment disputes. Either party may initiate arbitration proceedings by filing a demand for arbitration with the AAA in the city closest to my place of work at the Company where AAA has an office.



(b)

The arbitrator shall have the authority to grant any relief authorized by law.



(c)

The arbitrator shall have exclusive authority to resolve all claims covered by this arbitration agreement, and any dispute relating to the interpretation, applicability, enforceability or formation of this arbitration agreement, including, but not limited to, any claim that all or any part of this arbitration agreement is void or voidable. Any issues involving the arbitrability of a dispute shall be governed by the Federal Arbitration Act, 9 U.S.C. § 1 et seq.

(d)

The Company will pay all arbitration fees, deposits and administrative costs assessed by the AAA; except that I may be required to pay administrative fees to the AAA not to exceed the amount of the then-current filing fee for a civil action filed in the court of general jurisdiction in the state where I was last employed by the Company. The arbitrator shall have power to award attorneys' fees, expert witness fees and costs according to statute, or according to a separate written agreement between the parties, or the National Rules for the Resolution of Employment Disputes of the AAA, but shall have no other power to award attorneys' fees, costs or expert witness fees.



(e)

The claims covered by the above include, but are not limited to, claims for wrongful termination, unpaid wages or compensation, breach of contract, torts, violation of public policy, claims for harassment or discrimination (including, but not limited to, race, sex, religion, national origin, age, marital status, medical condition, disability, or sexual orientation), claims for benefits (except where an employee benefit or pension plan specifies a procedure for resolving claims different from this one), claims for physical or mental harm or distress, or any other employment-related claims under any federal, state or other governmental law, statute, regulation or ordinance, including, but not limited to, Title VII of the Civil Rights Act of 1965, the Americans With Disabilities Act, the Age Discrimination in Employment Act, the California Fair Employment and Housing Act, and any other statutes or laws relating to an employee's relationship with his/her employer. However, claims for workers' compensation benefits and unemployment compensation benefits are not covered by this arbitration agreement, and such claims may be presented to the appropriate court or government agency.



(f)

Notwithstanding this agreement to arbitrate, neither party waives the right to seek through judicial process, preliminary injunctive relief to preserve the status quo or prevent irreparable injury before the matter can be heard in arbitration.

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(g)

The arbitrator shall issue a written arbitration decision stating the arbitrator's essential findings and conclusions upon which any award is based. A party's right for review of the decision is limited to grounds provided under applicable law.



(h)

The parties agree that the arbitration shall be final and binding and any arbitration award shall be enforceable in any court having jurisdiction to enforce this arbitration agreement.

2.

BY AGREEING TO THIS BINDING ARBITRATION PROVISION, BOTH THE COMPANY AND I GIVE UP ALL RIGHTS TO TRIAL BY JURY, EXCEPT AS EXPRESSLY PROVIDED HEREIN.



3.

I agree that this agreement to arbitrate shall survive the termination of my employment. This is the complete agreement of the parties on the subject of arbitration of disputes. This agreement supersedes any prior or contemporaneous oral or written understanding on the subject. This agreement cannot be changed unless in writing, signed by me and the Chief Executive Officer of the Company or his or her delegate.

AGREED TO AND ACCEPTED:
/s/ CHARLES PICASSO (Signature)	Dated: May 13, 2001
Charles Picasso
/s/ RUANN ERNST DIGITAL ISLAND, INC.	/s/ AVERY DUFF CABLE & WIRELESS PLC
By: Ruann Ernst Title: Chairman & CEO	By: Avery Duff Title: Executive Vice President, Human Resources

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Exhibit (d)(5)
EMPLOYMENT AGREEMENT
EXHIBIT A: ARBITRATION AGREEMENT

EX-99.(D)(6)

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Exhibit (d)(6)

Digital Island, Inc.
45 Fremont Street, Suite 1200
San Francisco, CA 94105

May 13, 2001

Charles Picasso
58 Bret Harte Lane
San Rafael, CA 94901

Dear Charles:

We take great pleasure in confirming your continued employment with Digital Island, Inc. (the "Company"). As you are aware, Cable & Wireless plc ("Cable & Wireless") is acquiring the Company. As a result, Digital Island, Inc. will become a wholly owned subsidiary of Cable & Wireless. Your continued employment with the Company is subject to your signing a formal Employment Agreement with the Company. The new Employment Agreement will become effective upon the successful completion of the tender offer for the outstanding shares of the Company's common stock in accordance with the provisions of Article II of the Agreement and Plan of Merger by and among Cable & Wireless, the Company and Dali Acquisition Corp., dated May 14, 2001 (the "Merger Agreement"). Capitalized terms used in this offer letter but not otherwise defined herein will have the same meaning as assigned to them in the Merger Agreement.

As an employee of the Company, the terms of your continued employment include:

POSITION

Effective the day following the Closing, you will hold the position of Chief Operating Officer with the Company.

BASE SALARY

Your base salary will be $250,000 per year. Your first review will be in October 2001.

BONUS

In addition to your base salary, your remuneration will include a bonus amount, subject to the rules of any applicable bonus plan. The target bonus is a percentage of your base salary, but all determinations of your bonus amount will be in the Company's discretion. For the remainder of fiscal 2001, your bonus targets will remain as in effect on May 1, 2001, and payments will include the unpaid portion of the bonus for your service prior to the acquisition. Within 120 days of the date of this offer letter, the Company will provide you with the details of a new bonus plan for the next bonus period.

WELCOME BONUS

You will be paid a conditional welcome bonus equal to the sum of one times your annual base salary and one times your target bonus (the "Welcome Bonus") if you satisfy the following conditions. If you remain employed with the Company for a period of three (3) consecutive months after the successful completion of the tender offer (the "Closing"), you will be paid 40% of your Welcome Bonus. If you remain employed with the Company for a period of nine (9) consecutive months after the Closing, you will be paid the remaining 60% of your Welcome Bonus. Should your employment terminate by reason of death or Disability (as defined in your Employment Agreement) prior to the completion of the applicable three (3) month or nine (9) month service requirement, the portion of your Welcome Bonus for the applicable period will be pro-rated on the basis of number of months of employment completed during that period (rounded to next whole month).

STOCK-BASED COMPENSATION

In exchange for your effective and irrevocable waivers as set forth below, you will receive the stock-based compensation package described below, after approval by the Board of Directors of Cable & Wireless (the "Board of Directors"). If the Board of Directors does not approve this compensation package, you will become entitled instead to cash payments from the Company which provide you with the same economic benefit as the equity compensation proposed below, with such cash payments to be made on each vesting date for your proposed Cable & Wireless stock options and restricted Cable & Wireless stock awards.

1.

Stock options in shares of Cable & Wireless stock.  Within forty-five (45) days following the completion of the Offer, you will be granted stock options to purchase common shares of Cable & Wireless with an exercise price per share equal to the closing selling price per share on the date of grant. The aggregate exercise price of your stock options will be equal to three times your annual base salary. Cable & Wireless expects to adopt and obtain the requisite shareholder approval of a plan under which these stock options would vest at a rate of 25% per year over the four-year period measured from the date of grant. The stock options will be incentive stock options within the meaning of Section 422 of the U.S. Internal Revenue Code, to the maximum extent permissible. In the absence of the requisite shareholder approval, these stock options will vest in accordance with the current Senior Employees Share Option Scheme, with the vesting measured from the date of grant.



2.

Restricted shares of Cable & Wireless stock.  At the completion of the Offer, all of your restricted shares of the Company's common stock, whether vested or unvested (the "Restricted Shares") and all of your outstanding stock options, whether vested or unvested, to purchase shares of the Company's common stock will be cancelled, and in return for those cancelled shares and options, you will be awarded restricted shares of Cable & Wireless common stock ("Cable & Wireless Shares"). The conversion process will be effected as follows:

The rollover value of your cancelled Restricted Shares will be determined by multiplying the number of your Restricted Shares by the Per Share Amount paid in the Offer.

The rollover value of each of your cancelled options will be determined by multiplying the number of shares of Company common stock subject to each such option by the excess (if any) of the Per Share Amount paid in the Offer over the exercise price in effect for that option. Any option which has an exercise price equal to or greater than the Per Share Amount will have a zero rollover value.

The combined rollover value of your Restricted Shares and your options will then be divided by the average closing selling price per common share of Cable & Wireless for the five (5) consecutive trading days ending with the completion date of the Offer to determine the number of Cable & Wireless Shares.

3.

Timing of Awards.  Your restricted Cable & Wireless Shares will be awarded as follows:



(a)

You will be awarded 50% of your restricted shares on the 12-month anniversary of the Closing if you are then employed by the Company. In addition, subject to substantial achievement of Company performance against the agreed business plan, you will be awarded bonus shares in an amount equal to 25% of the restricted shares awarded under this paragraph (a).



(b)

You will be awarded another 50% of your restricted shares on the 24-month anniversary of the Closing if you are then employed by the Company. In addition, subject to substantial achievement of Company performance against the agreed business plan, you will be awarded

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bonus shares in an amount equal to 50% of the restricted shares awarded under this paragraph (b).

4.

Additional grants.  In addition to the above, you may be eligible for consideration of grants of stock options in shares of Cable & Wireless stock (together with the stock options described in item 1 of this section, the "Cable & Wireless Options"). In cases of outstanding performance, you also may be eligible for consideration of grants of Cable & Wireless Shares.

TERM OF EMPLOYMENT

Your employment is terminable at will by either you or the Company.

SEVERANCE ARRANGEMENTS

If the Company terminates your employment with the Company for any reason other than for Cause or if you terminate your employment with the Company for Good Reason (as Cause and Good Reason are defined in your Employment Agreement), then (a) your Cable & Wireless Options and Cable & Wireless Shares will vest fully and immediately, and you will also immediately vest in and become entitled to the maximum number of bonus shares described in item 3 of the Stock-Based Compensation section of this offer letter, (b) you will be entitled to salary continuation payments at your base salary rate effective upon termination for a period of twelve months after your termination, and (c) you will be entitled to continued health coverage under the Company's medical plan at no cost to you for a period of twelve months after your termination.

If the Company terminates your employment with the Company for any reason other than for Cause or if you terminate your employment with the Company for Good Reason (as Cause and Good Reason are defined in your Employment Agreement) within 9 months of the Closing, you will be entitled to payment of the portion of your Welcome Bonus that was unpaid on the date of your termination.

If you terminate your employment with the Company during the 12-month period commencing immediately after the Closing, you will be entitled to a severance payment equal to the sum of (a) the amount you would have received if you had exercised all of your vested Company stock options and the options that would have become vested had the options continued in effect until your termination of employment (without regard to any options that would have vested solely on account of a "change in control" or "corporate transaction" as defined in the Stock Plans or your stock option agreements) and tendered the stock acquired upon exercise under the Offer, plus (b) the amount you would have received if you had tendered under the Offer all of your vested Restricted Shares in the Company and the Restricted Shares that would have become vested had you continued to hold the Restricted Shares until your termination of employment (without regard to any restricted shares that would have vested solely on account of a "change in control" or "corporate transaction" as defined in the Stock Plans or your restricted stock issuance agreement).

In the event that any benefits or payments to which you become entitled upon a termination of your employment within twelve (12) months following the Closing would otherwise constitute an excess parachute payment under Section 280G of the U.S. Internal Revenue Code, then such benefits or payments shall be subject to reduction to the extent necessary to assure that you receive the greater of (i) the amount that would not constitute an excess parachute payment, or (ii) the amount which yields you the greatest after-tax amount of benefits after taking into account any excise tax imposed on the benefits provided to you under this offer letter (or any other benefits to which you may be entitled in connection with your termination) under Section 4999 of the U.S. Internal Revenue Code.

Should any reduction in your benefits or payments become necessary as a result of such limitation, then you will have the right to select the particular benefits or payments which are to be reduced.

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VACATION AND PERSONAL DAYS

You will be entitled to vacation and personal days in accordance with the policies established by the Company.

HOUSING LOANS

The terms of the promissory note and Note Secured by Deed of Trust (each dated November 8, 2000) by and between you and the Company shall remain unchanged by this offer letter.

HEALTH AND WELFARE BENEFITS

You will be entitled to participate in any and all employee welfare and health benefit plans applicable to similarly situated employees to the extent permitted by the particular plan and applicable law.

WAIVERS

As a condition of receiving Cable & Wireless Options and Cable & Wireless Shares, you irrevocably waive, effective upon the successful completion of the Offer, any and all claims to benefits that would have been payable to you on account of a "change in control" of or a "corporate transaction" with respect to the Company (as such terms may be defined in any Company stock option plan or any stock option agreement, restricted stock issuance agreement, employment agreement, or other agreement entered into by and between you and the Company), which benefits include but are not limited to salary continuation payments, bonus payments, and acceleration of vesting of restricted stock or options.

You understand and agree that the Restricted Shares granted to you under the Digital Island, Inc. 1999 Stock Incentive Plan will be forfeited upon the successful completion of the Offer and that you waive any and all rights as a holder of those Restricted Shares upon such forfeiture. As a result of your signing this offer letter, the Restricted Shares shall automatically be deemed forfeited upon the successful completion of the Offer and the Company shall be deemed the owner and holder of those shares upon such forfeiture, whether or not the certificates therefor have been delivered to the Company.

You further understand and agree that, as a result of your signing this offer letter, any and all stock options granted with respect to stock in the Company under the Digital Island, Inc. 1999 Stock Incentive Plan or the Digital Island, Inc. 2000 Supplemental Stock Option Plan (collectively the "Stock Plans") will be cancelled upon the successful completion of the Offer, and that you waive any and all rights or entitlements to purchase stock in the Company pursuant to those cancelled options. You also waive your rights to accelerated vesting of any such options, to the extent such acceleration would occur upon the purchase by Cable & Wireless of Digital Island, Inc.

CONFIDENTIALITY PROVISION

Your acceptance shall include agreement to maintain all of the terms and conditions of this offer letter in strict confidence as shall the Company. To fulfill this obligation, you shall not directly or indirectly communicate, make known, or divulge to any person, agency or court, except your spouse, accountant or attorney, any information whatsoever regarding this offer letter, unless compelled to do so by legal process or unless prior approval is given in writing by the Chief Executive Officer of Cable & Wireless Global. You shall direct your spouse, accountant, and attorney not to breach this confidentiality commitment.

If you accept our offer letter, please sign the original offer letter and the Employment Agreement and return these materials to us in accordance with our discussions. Please make a copy for your records.

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I am very pleased that you will be joining us and I look forward to working with you. Should you have any questions concerning this offer and contract, please do not hesitate to discuss them with me.

Sincerely,

/s/ Avery Duff                        

Avery Duff
Executive Vice President, Human Resources
Cable & Wireless Global

I, Charles Picasso, do hereby accept and confirm the terms of this offer of continued employment and acknowledge that I have read the above described offer letter and certify that I have not signed an agreement of confidentiality, covenant not to compete, nor any other type of agreement with restrictive covenants of any kind or nature with any of my employers, past or present, that would restrict, prevent, or otherwise preclude my employment with the Company.

/s/ Charles Picasso	May 13, 2001
SIGNATURE	DATE

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Exhibit (d)(6)

EX-99.(D)(7)

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Exhibit (d)(7)

EMPLOYMENT AGREEMENT

    AGREEMENT, dated as of this 13 day of May, 2001 (the "Agreement"), by and among Digital Island, Inc., a corporation organized under the laws of Delaware (the "Employer"), Cable & Wireless plc, a corporation organized under the laws of England, and Timothy Wilson (the "Employee").

    1.  Employment, Duties and Agreements.

    (a) The Employer hereby agrees to continue to employ the Employee as Chief Marketing Officer, and the Employee hereby accepts such position and agrees to serve the Employer in such capacity during the employment period set forth in Section 3 hereof (the "Employment Period") at the Employer's San Francisco offices. The Employee shall be subject to, and shall act in accordance with, all reasonable instructions and directions of the Employer and all applicable policies and rules thereof as are consistent with the above job description. The Employee's duties and responsibilities shall be such duties and responsibilities as are customarily held by senior executives of corporations comparable to the Employer as well as any other duties as may from time to time be assigned by the Employer.

    (b) During the Employment Period, excluding any periods of vacation and sick leave, and other leave, to which the Employee is entitled, the Employee shall devote Employee's full business time, energy and attention to the performance of Employee's duties and responsibilities hereunder, except as provided in Section 1(c) below.

    (c) During the Employment Period, the Employee may not, without the prior written consent of the Board, which consent shall not be unreasonably withheld, operate, participate in the management, operations or control of, or act as an employee, officer, consultant, agent or representative of, any type of business or service (other than as an employee of the Employer), provided that it shall not be a violation of the foregoing for the Employee to act or serve as a director on the boards of directors of any type of civil, cultural, philanthropic or professional organization so long as such activities do not interfere with the performance of Employee's duties and responsibilities to the Employer as provided hereunder.

    2.  Compensation.

    (a) As compensation for the agreements made by the Employee herein and the performance by the Employee of Employee's obligations hereunder, during the Employment Period, the Employer shall pay the Employee, not less than twice a month, a base salary at the rate of U.S. $200,000 per annum (the "Base Salary").

    (b) During the Employment Period, the Employee shall be eligible to receive bonus payments as set forth in the offer letter by and between the Employee and the Employer dated May 13, 2001 attached hereto as Exhibit B (the "Offer Letter"), and thereafter and/or in additional thereto, other bonus payments subject to the rules of any then existing applicable bonus plan and in the Employer's sole and absolute discretion.

    (c) During the Employment Period, the Employee shall be eligible to receive stock-based compensation as set forth in the Offer Letter.

    (d) During the Employment Period, the Employee shall be entitled to holidays, vacation, sick, personal, and paid time-off ("PTO") days in accordance with the policies of the Employer.

    (e) During the Employment Period, the Employee shall be entitled to participate in any and all employee welfare and benefit plans applicable to similarly situated employees to the extent permitted by the particular plan and applicable law.

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    (f)  The compensation provided in this Agreement shall be treated as such for income tax purposes by the Employer and the Employee and shall be paid subject to any deductions authorized by the Employee and any and all tax and related withholdings required by applicable law.

    3.  Employment Period.

    (a) The Employment Period is indefinite and shall be terminable at will by either the Employee or the Employer, subject to the rights and obligations set forth in the Offer Letter and Sections 4 and 5 below. This Agreement shall become effective only upon the successful completion of the tender offer for the outstanding shares of the Employer's common stock in accordance with the provisions of Article II of the Agreement and Plan of Merger by and among Cable & Wireless plc, the Employer, and Dali Acquisition Corp. dated May 14, 2001 (the "Tender Offer"). Unless and until the Tender Offer has been successfully completed, this Agreement shall be void and of no force and effect.

    (b) For purposes of this Agreement, the term "Disability" shall mean that, as a result of the Employee's incapacity due to physical or mental illness, the Employee shall have been unable to substantially perform Employee's duties hereunder, either with or without reasonable accommodation, for a period of six (6) consecutive months or 180 days within any 270 day period.

    (c) For purposes of this Agreement, the term "Cause" shall mean (i) willful misconduct or dishonesty on the part of the Employee, which in either case is materially and demonstrably injurious to the Employer, (ii) the willful and continued failure by the Employee to perform substantially Employee's duties with the Employer (other than any such failure resulting from Employee's incapacity due to physical or mental illness) for a period of thirty (30) consecutive days after a written demand for substantial performance is delivered to Employee by the Employer, which specifically identifies the manner in which the Employer believes that the Employee has not substantially performed Employee's duties, or (iii) the willful engaging by the Employee in illegal conduct which is materially and demonstrably injurious to the Employer.

    (d) For purposes of this Agreement, termination by the Employee of the Employee's employment for "Good Reason" means the Employee's resignation within ninety (90) days following (i) a material reduction in the scope of Employee's duties and responsibilities, (ii) a reduction in Employee's Base Salary, or (iii) a relocation of Employee's principal place of employment by more than thirty-five (35) miles.

    4.  Termination Procedure.

    (a) Notice of Termination. Any termination of the Employee's employment by the Employer or by the Employee during the Employment Period shall be communicated by written "Notice of Termination" to the other party hereto in accordance with Section 8(a).

    (b) Termination Date. For purposes of this Agreement, "Termination Date" shall mean (i) if the Employee's employment is terminated by Employee's death, the date of Employee's death, (ii) if the Employee's employment is terminated for Cause, the date on which the Employer communicates the termination to the Employee, (iii) if the Employee's employment is terminated on account of the Employee's Disability, thirty (30) days after Notice of Termination (provided that the Employee shall not have returned to the substantial performance of the Employee's duties on a full-time basis during such thirty (30) day period), and (iv) if the Employee's employment is terminated for any other reason, the date on which a Notice of Termination is given or any later date set forth in such Notice of Termination.

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    5.  Severance Arrangements.

    If the Employer terminates the Employee's employment with the Employer for any reason other than Cause, or the Employee terminates the Employee's employment for Good Reason, the Employee shall be entitled to (i) salary continuation payments at the Employee's base salary effective at the time of termination, and (ii) continued coverage for the Employee and Employee's dependents under the Employer's group health plans at the Employer's full expense. The Employee shall be entitled to the salary continuation payments and the continued group health plan coverage for a period of six months or such longer period specified in the Offer Letter, if any. The Employee shall be entitled to any severance arrangements provided in the Offer Letter.

    6.  Restrictive Covenants.

    (a) The Employee agrees that during the Employment Period and thereafter Employee will not appropriate for Employee's own use, disclose, divulge, furnish or make available to any person, unless authorized by the Employer in writing, any confidential or proprietary information concerning the Employer or its affiliates, including without limitation any confidential or proprietary information concerning the operations, plans or methods (proposed or otherwise) of doing business of the Employer or any of its affiliates (the "Information"); provided, that the term "Information" shall not include such information which is or becomes generally available to the public other than as a result of a disclosure by the Employee in violation of this Agreement or any other unauthorized disclosure. Notwithstanding the foregoing, the Employee may disclose Information to the extent Employee is compelled to do so by lawful service of process, subpoena, court order, or as Employee is otherwise compelled to do by law or the rules or regulations of any regulatory body to which Employee is subject, in which event Employee agrees to provide the Employer with a copy of the documents seeking disclosure of such information promptly upon receipt of such documents and prior to Employee's disclosure of any such information, so that the Employer may, upon notice to the Employee, take such action as the Employer deems appropriate in relation to such subpoena or request.

    (b) The Employee agrees that all right, title and interest to all works of whatever nature generated in the course of Employee's employment with the Employer or its affiliates resides with the Employer. The Employee agrees that Employee will return to the Employer or its affiliates, not later five (5) days after the Termination Date, all property, in whatever form (including computer files and other electronic data), of the Employer in Employee's possession, including without limitation, all copies (in whatever form) of all files or other information pertaining to the Employer, its officers, directors, shareholders, customers or affiliates, and any business or business opportunity of the Employer and its affiliates.

    (c) Except with the prior written consent of the Employer, the Employee shall not, during the Employment Period and for the one-year period immediately following the Termination Date, hire, offer to hire, entice away or in any manner persuade or attempt to persuade any officer, employee or agent of the Employer, or any of its affiliates, or any then current or prospective customer, client or supplier of the Employer, or any of its affiliates, to discontinue or limit his or her relationship with the Employer, or affiliates or to otherwise do business with any competing business of the Employer.

    (d) The parties hereto hereby declare that it is impossible to measure in money the damages which will accrue to Employer by reason of a failure by Employee to perform any of Employee's obligations under this Section 6. Accordingly, if Employer or any of its affiliates institutes any action or proceeding to enforce the provisions hereof, to the extent permitted by applicable law, the Employer shall be entitled to seek injunctive relief and specific performance in addition to any other remedies available to the Employer.

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    (e) The restrictions in this Section 6 shall be in addition to any restrictions imposed on Employee by statute or at common law.

    7.  Representations and Acknowledgments.

    The Employee hereby represents and warrants to the Employer that the execution, delivery and performance of this Agreement does not violate any provision of any agreement which the Employee has with any former employer (a "Former Employer"). The Employee further acknowledges that to the extent the Employee has an obligation to the Former Employer not to disclose certain confidential information, Employee intends to honor such obligation and that honoring such obligation does not violate the foregoing representations and warranties made by the Employee.

    8.  Miscellaneous.

    (a) Any notice or other communication required or permitted under this Agreement shall be effective only if it is in writing and delivered personally or sent by registered or certified mail, postage prepaid, addressed as follows (or if it is sent through any other method agreed upon by the parties):

If to the Employer:
Digital Island, Inc.
45 Fremont Street, Suite 1200
San Francisco, CA 94105
Attention: Office of the General Counsel

If to the Employee:
Timothy Wilson
1065 Via Baja
Lafayette, CA 94549

or to such other address as any party hereto may designate by notice to the other, and if delivered personally, shall be deemed to have been received upon receipt or if sent by registered mail, shall be deemed to have been received three days after it is postmarked.

    (b) This Agreement, together with the Offer Letter and any exhibits attached hereto, constitutes the entire Agreement among the parties hereto with respect to the Employee's employment, and supersedes and is in full substitution for any and all prior understandings or agreements with respect to the Employee's employment with the Employer. To the extent any provision of this Agreement conflicts with any provision of the Offer Letter, the provision most favorable to the Employee shall control.

    (c) This Agreement may be amended only by an instrument in writing signed by the parties hereto, and any provision hereof may be waived only by an instrument in writing signed by the party or parties against whom or which enforcement of such waiver is sought. The failure of any party hereto at any time to require the performance by any other party hereto of any provision hereof shall in no way affect the full right to require such performance at any time thereafter, nor shall the waiver by any party hereto of a breach of any provision hereof be taken or held to be a waiver of any succeeding breach of such provision or a waiver of the provision itself or a waiver of any other provision of this Agreement.

    (d) 

     (i) This Agreement is binding on and is for the benefit of the parties hereto and their respective successors, heirs, executors, administrators and other legal representatives. Neither this Agreement nor any right or obligation hereunder may be assigned by the Employee.

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    (ii) The Employer shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Employer expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Employer would have been required to perform it if no such succession had taken place. As used in this Agreement, "the Employer" shall mean both the Employer as defined above and any such successor that assumes and agrees to perform this Agreement, by operation of law or otherwise.

    (e) If any provision of this Agreement or portion thereof is so broad, in scope or duration, so as to be unenforceable, such provision or portion thereof shall be interpreted to be only so broad as is enforceable.

    (f)  The Employer may withhold from any amounts payable to the Employee hereunder all federal, state, city or other taxes that the Employer may reasonably determine are required to be withheld pursuant to any applicable law or regulation.

    (g) This Agreement shall be governed by and construed in accordance with the laws of the state of California, without reference to its principles of conflicts of law. The Employer and the Employee agree that any dispute arising out of or related to this Agreement shall be resolved in accordance with the Arbitration Agreement attached hereto as Exhibit A. To the extent consistent with the Arbitration Agreement attached hereto as Exhibit A, the Employer and the Employee hereby consent to the exclusive jurisdiction of the courts of the state of California and the United States District Court for the Northern District of California and superior federal courts.

    (h) This Agreement may be executed in several counterparts, including by the exchange of facsimile signature pages containing the signatures of one or both parties, each of which shall be deemed an original, but all of which shall constitute one and the same instrument.

    (i)  The headings in this Agreement are inserted for convenience of reference only and shall not be a part of or control or affect the meaning of any provision hereof.

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

/s/ TIMOTHY WILSON (Signature)
Timothy Wilson
/s/ RUANN ERNST DIGITAL ISLAND, INC.	/s/ AVERY DUFF CABLE & WIRELESS PLC
By: Ruann Ernst Title: Chairman & CEO	By: Avery Duff Title: Executive Vice President, Human Resources

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EXHIBIT A: ARBITRATION AGREEMENT

1.

To the maximum extent permitted by law, I, Timothy Wilson and Digital Island, Inc. (the "Company") (collectively, the "parties") agree that, except as noted below, any controversy, claim or dispute arising out of or related to my employment or the termination thereof ("claims") shall be arbitrated in accordance with the following procedure:



(a)

Any and all claims shall be submitted to final and binding arbitration before the American Arbitration Association ("AAA") in the city closest to my place of work at the Company where the AAA has an office. Such arbitration shall be in accordance with the AAA's then current version of the National Rules for the Resolution of Employment Disputes. The arbitrator shall be selected in accordance with the AAA's selection procedures in effect at the time, and shall be a member of the AAA's panel of arbitrators for employment disputes. Either party may initiate arbitration proceedings by filing a demand for arbitration with the AAA in the city closest to my place of work at the Company where AAA has an office.



(b)

The arbitrator shall have the authority to grant any relief authorized by law.



(c)

The arbitrator shall have exclusive authority to resolve all claims covered by this arbitration agreement, and any dispute relating to the interpretation, applicability, enforceability or formation of this arbitration agreement, including, but not limited to, any claim that all or any part of this arbitration agreement is void or voidable. Any issues involving the arbitrability of a dispute shall be governed by the Federal Arbitration Act, 9 U.S.C. § 1 et seq.

(d)

The Company will pay all arbitration fees, deposits and administrative costs assessed by the AAA; except that I may be required to pay administrative fees to the AAA not to exceed the amount of the then-current filing fee for a civil action filed in the court of general jurisdiction in the state where I was last employed by the Company. The arbitrator shall have power to award attorneys' fees, expert witness fees and costs according to statute, or according to a separate written agreement between the parties, or the National Rules for the Resolution of Employment Disputes of the AAA, but shall have no other power to award attorneys' fees, costs or expert witness fees.



(e)

The claims covered by the above include, but are not limited to, claims for wrongful termination, unpaid wages or compensation, breach of contract, torts, violation of public policy, claims for harassment or discrimination (including, but not limited to, race, sex, religion, national origin, age, marital status, medical condition, disability, or sexual orientation), claims for benefits (except where an employee benefit or pension plan specifies a procedure for resolving claims different from this one), claims for physical or mental harm or distress, or any other employment-related claims under any federal, state or other governmental law, statute, regulation or ordinance, including, but not limited to, Title VII of the Civil Rights Act of 1965, the Americans With Disabilities Act, the Age Discrimination in Employment Act, the California Fair Employment and Housing Act, and any other statutes or laws relating to an employee's relationship with his/her employer. However, claims for workers' compensation benefits and unemployment compensation benefits are not covered by this arbitration agreement, and such claims may be presented to the appropriate court or government agency.



(f)

Notwithstanding this agreement to arbitrate, neither party waives the right to seek through judicial process, preliminary injunctive relief to preserve the status quo or prevent irreparable injury before the matter can be heard in arbitration.

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(g)

The arbitrator shall issue a written arbitration decision stating the arbitrator's essential findings and conclusions upon which any award is based. A party's right for review of the decision is limited to grounds provided under applicable law.



(h)

The parties agree that the arbitration shall be final and binding and any arbitration award shall be enforceable in any court having jurisdiction to enforce this arbitration agreement.

2.

BY AGREEING TO THIS BINDING ARBITRATION PROVISION, BOTH THE COMPANY AND I GIVE UP ALL RIGHTS TO TRIAL BY JURY, EXCEPT AS EXPRESSLY PROVIDED HEREIN.



3.

I agree that this agreement to arbitrate shall survive the termination of my employment. This is the complete agreement of the parties on the subject of arbitration of disputes. This agreement supersedes any prior or contemporaneous oral or written understanding on the subject. This agreement cannot be changed unless in writing, signed by me and the Chief Executive Officer of the Company or his or her delegate.

AGREED TO AND ACCEPTED:
/s/ TIMOTHY WILSON (Signature)	Dated: May 13, 2001
Timothy Wilson
/s/ RUANN ERNST DIGITAL ISLAND, INC.	/s/ AVERY DUFF CABLE & WIRELESS PLC
By: Ruann Ernst Title: Chairman & CEO	By: Avery Duff Title: Executive Vice President, Human Resources

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Exhibit (d)(7)
EMPLOYMENT AGREEMENT
EXHIBIT A: ARBITRATION AGREEMENT

EX-99.(D)(8)

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Exhibit (d)(8)

Digital Island, Inc.
45 Fremont Street, Suite 1200
San Francisco, CA 94105

May 13, 2001

Timothy Wilson
1065 Via Baja
Lafayette, CA 94549

Dear Tim:

We take great pleasure in confirming your continued employment with Digital Island, Inc. (the "Company"). As you are aware, Cable & Wireless plc ("Cable & Wireless") is acquiring the Company. As a result, Digital Island, Inc. will become a wholly owned subsidiary of Cable & Wireless. Your continued employment with the Company is subject to your signing a formal Employment Agreement with the Company. The new Employment Agreement will become effective upon the successful completion of the tender offer for the outstanding shares of the Company's common stock in accordance with the provisions of Article II of the Agreement and Plan of Merger by and among Cable & Wireless, the Company and Dali Acquisition Corp., dated May 14, 2001 (the "Merger Agreement"). Capitalized terms used in this offer letter but not otherwise defined herein will have the same meaning as assigned to them in the Merger Agreement.

As an employee of the Company, the terms of your continued employment include:

POSITION

Effective the day following the completion of the Offer, you will hold the position of Chief Marketing Officer with the Company.

BASE SALARY

Your base salary will be $200,000 per year. Your first review will be in October 2001.

BONUS

In addition to your base salary, your remuneration will include a bonus amount, subject to the rules of any applicable bonus plan. The target bonus is a percentage of your base salary, but all determinations of your bonus amount will be in the Company's discretion. For the remainder of fiscal 2001, your bonus targets will remain as in effect on May 1, 2001, and payments will include the unpaid portion of the bonus for your service prior to the acquisition. Within 120 days of the date of this offer letter, the Company will provide you with the details of a new bonus plan for the next bonus period.

WELCOME BONUS

You will be paid a conditional welcome bonus equal to one times your annual base salary (the "Welcome Bonus") if you satisfy the following conditions. If you remain employed with the Company for a period of three (3) consecutive months after the successful completion of the tender offer (the "Closing"), you will be paid 40% of your Welcome Bonus. If you remain employed with the Company for a period of nine (9) consecutive months after the Closing, you will be paid the remaining 60% of your Welcome Bonus. Should your employment terminate by reason of death or Disability (as defined in your Employment Agreement) prior to the completion of the applicable three (3) month or nine (9) month service requirement, the portion of your Welcome Bonus for the applicable period will be pro-rated on the basis of number of months of employment completed during that period (rounded to next whole month).

STOCK-BASED COMPENSATION

In exchange for your effective and irrevocable waivers as set forth below, you will receive the stock-based compensation package described below, after approval by the Board of Directors of Cable & Wireless (the "Board of Directors"). If the Board of Directors does not approve this compensation package, you will become entitled instead to cash payments from the Company which provide you with the same economic benefit as the equity compensation proposed below, with such cash payments to be made on each vesting date for your proposed Cable & Wireless stock options and restricted Cable & Wireless stock awards.

1.

Stock options in shares of Cable & Wireless stock.  Within forty-five (45) days following the completion of the Offer, you will be granted stock options to purchase 75,000 common shares of Cable & Wireless with an exercise price per share equal to the closing selling price per share on the date of grant. Cable & Wireless expects to adopt and obtain the requisite shareholder approval of a plan under which these stock options would vest at a rate of 25% per year over the four-year period measured from the date of grant. The stock options will be incentive stock options within the meaning of Section 422 of the U.S. Internal Revenue Code, to the maximum extent permissible. In the absence of the requisite shareholder approval, these stock options will vest in accordance with the current Senior Employees Share Option Scheme, with the vesting measured from the date of grant.



2.

Restricted shares of Cable & Wireless stock.  At the completion of the Offer, all of your restricted shares of the Company's common stock, whether vested or unvested (the "Restricted Shares") and all of your outstanding stock options, whether vested or unvested, to purchase shares of the Company's common stock will be cancelled, and in return for those cancelled shares and options, you will be awarded restricted shares of Cable & Wireless common stock ("Cable & Wireless Shares"). The conversion process will be effected as follows:

The rollover value of your cancelled Restricted Shares will be determined by multiplying the number of your Restricted Shares by the Per Share Amount paid in the Offer.

The rollover value of each of your cancelled options will be determined by multiplying the number of shares of Company common stock subject to each such option by the excess (if any) of the Per Share Amount paid in the Offer over the exercise price in effect for that option. Any option which has an exercise price equal to or greater than the Per Share Amount will have a zero rollover value.

The combined rollover value of your Restricted Shares and your options will then be divided by the average closing selling price per common share of Cable & Wireless for the five (5) consecutive trading days ending with the completion date of the Offer to determine the number of Cable & Wireless Shares.

3.

Timing of Awards.  Your restricted Cable & Wireless Shares will be awarded as follows:



(a)

You will be awarded 25% of your restricted shares on the 6-month anniversary of the Closing if you are then employed by the Company.



(b)

You will be awarded another 25% of your restricted shares on the 12-month anniversary of the Closing if you are then employed by the Company. In addition, subject to substantial achievement of Company performance against the agreed business plan, you will be awarded bonus shares in an amount equal to 25% of the restricted shares awarded under paragraphs (a) and (b).



(c)

You will be awarded the remaining 50% of your restricted shares on the 24-month anniversary of the Closing if you are then employed by the Company. In addition, subject to substantial

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achievement of Company performance against the agreed business plan, you will be awarded bonus shares in an amount equal to 50% of the restricted shares awarded under this paragraph (c).

4.

Additional grants.  In addition to the above, you may be eligible for consideration of grants of stock options in shares of Cable & Wireless stock (together with the stock options described in item 1 of this section, the "Cable & Wireless Options"). In cases of outstanding performance, you also may be eligible for consideration of grants of Cable & Wireless Shares.

TERM OF EMPLOYMENT

Your employment is terminable at will by either you or the Company.

SEVERANCE ARRANGEMENTS

If the Company terminates your employment with the Company for any reason other than for Cause or if you terminate your employment with the Company for Good Reason (as Cause and Good Reason are defined in your Employment Agreement), then (a) your Cable & Wireless Options and Cable & Wireless Shares will vest fully and immediately, and you will also immediately vest in and become entitled to the maximum number of bonus shares described in item 3 of the Stock-Based Compensation section of this offer letter, (b) you will be entitled to salary continuation payments at the your base salary effective at the time of termination for a period of six months, and (c) you and your eligible dependents will be entitled to continued health care coverage under the Company's group health plan at no cost to you for a period of six months.

If the Company terminates your employment with the Company for any reason other than for Cause or if you terminate your employment with the Company for Good Reason (as Cause and Good Reason are defined in your Employment Agreement) within 9 months of the Closing, you will be entitled to payment of the portion of your Welcome Bonus that was unpaid on the date of your termination.

If you terminate your employment with the Company during the 12-month period commencing immediately after the Closing, you will be entitled to a severance payment equal to the sum of (a) the amount you would have received if you had exercised all of your vested Company stock options and the options that would have become vested had the options continued in effect until your termination of employment (without regard to any options that would have vested solely on account of a "change in control" or "corporate transaction" as defined in the Stock Plans or your stock option agreements) and tendered the stock acquired upon exercise under the Offer, plus (b) the amount you would have received if you had tendered under the Offer all of your vested Restricted Shares in the Company and the Restricted Shares that would have become vested had you continued to hold the Restricted Shares until your termination of employment (without regard to any restricted shares that would have vested solely on account of a "change in control" or "corporate transaction" as defined in the Stock Plans or your restricted stock issuance agreement).

In the event that any benefits or payments to which you become entitled upon a termination of your employment within twelve (12) months following the Closing would otherwise constitute an excess parachute payment under Section 280G of the U.S. Internal Revenue Code, then such benefits or payments shall be subject to reduction to the extent necessary to assure that you receive the greater of (i) the amount that would not constitute an excess parachute payment, or (ii) the amount which yields you the greatest after-tax amount of benefits after taking into account any excise tax imposed on the benefits provided to you under this offer letter (or any other benefits to which you may be entitled in connection with your termination) under Section 4999 of the U.S. Internal Revenue Code.

Should any reduction in your benefits or payments become necessary as a result of such limitation, then you will have the right to select the particular benefits or payments which are to be reduced.

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VACATION AND PERSONAL DAYS

You will be entitled to vacation and personal days in accordance with the policies established by the Company.

SABBATICAL ARRANGEMENTS

Any sabbatical arrangement previously existing between you and the Company will remain unchanged by this offer letter.

HEALTH AND WELFARE BENEFITS

You will be entitled to participate in any and all employee welfare and health benefit plans applicable to similarly situated employees to the extent permitted by the particular plan and applicable law.

WAIVERS

As a condition of receiving Cable & Wireless Options and Cable & Wireless Shares, you irrevocably waive, effective upon the successful completion of the Offer, any and all claims to benefits that would have been payable to you on account of a "change in control" of or a "corporate transaction" with respect to the Company (as such terms may be defined in any Company stock option plan or any stock option agreement, restricted stock issuance agreement, employment agreement, or other agreement entered into by and between you and the Company), which benefits include but are not limited to salary continuation payments, bonus payments, and acceleration of vesting of restricted stock or options.

You understand and agree that the Restricted Shares granted to you under the Digital Island, Inc. 1999 Stock Incentive Plan will be forfeited upon the successful completion of the Offer and that you waive any and all rights as a holder of those Restricted Shares upon such forfeiture. As a result of your signing this offer letter, the Restricted Shares shall automatically be deemed forfeited upon the successful completion of the Offer and the Company shall be deemed the owner and holder of those shares upon such forfeiture, whether or not the certificates therefor have been delivered to the Company.

You further understand and agree that, as a result of your signing this offer letter, any and all stock options granted with respect to stock in the Company under the Digital Island, Inc. 1999 Stock Incentive Plan or the Digital Island, Inc. 2000 Supplemental Stock Option Plan (collectively the "Stock Plans") will be cancelled upon the successful completion of the Offer, and that you waive any and all rights or entitlements to purchase stock in the Company pursuant to those cancelled options. You also waive your rights to accelerated vesting of any such options, to the extent such acceleration would occur upon the purchase by Cable & Wireless of Digital Island, Inc.

CONFIDENTIALITY PROVISION

Your acceptance shall include agreement to maintain all of the terms and conditions of this offer letter in strict confidence as shall the Company. To fulfill this obligation, you shall not directly or indirectly communicate, make known, or divulge to any person, agency or court, except your spouse, accountant or attorney, any information whatsoever regarding this offer letter, unless compelled to do so by legal process or unless prior approval is given in writing by the Chief Executive Officer of Cable & Wireless Global. You shall direct your spouse, accountant, and attorney not to breach this confidentiality commitment.

If you accept our offer letter, please sign the original offer letter and the Employment Agreement and return these materials to us in accordance with our discussions. Please make a copy for your records.

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I am very pleased that you will be joining us and I look forward to working with you. Should you have any questions concerning this offer and contract, please do not hesitate to discuss them with me.

Sincerely,

/s/ Avery Duff                        

Avery Duff
Executive Vice President, Human Resources
Cable & Wireless Global

I, Timothy Wilson, do hereby accept and confirm the terms of this offer of continued employment and acknowledge that I have read the above described offer letter and certify that I have not signed an agreement of confidentiality, covenant not to compete, nor any other type of agreement with restrictive covenants of any kind or nature with any of my employers, past or present, that would restrict, prevent, or otherwise preclude my employment with the Company.

/s/ Timothy Wilson	May 13, 2001
SIGNATURE	DATE

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Exhibit (d)(8)

EX-99.(D)(9)

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Exhibit (d)(9)

EMPLOYMENT AGREEMENT

    AGREEMENT, dated as of this 14 day of May, 2001 (the "Agreement"), by and among Digital Island, Inc., a corporation organized under the laws of Delaware (the "Employer"), Cable & Wireless plc, a corporation organized under the laws of England, and Addo Barrows (the "Employee").

    1.  Employment, Duties and Agreements.

    (a) The Employer hereby agrees to continue to employ the Employee as Vice-President, Treasurer, and the Employee hereby accepts such position and agrees to serve the Employer in such capacity during the employment period set forth in Section 3 hereof (the "Employment Period") at the Employer's San Francisco offices. The Employee shall be subject to, and shall act in accordance with, all reasonable instructions and directions of the Employer and all applicable policies and rules thereof as are consistent with the above job description. The Employee's duties and responsibilities shall be such duties and responsibilities as are customarily held by senior executives of corporations comparable to the Employer as well as any other duties as may from time to time be assigned by the Employer.

    (b) During the Employment Period, excluding any periods of vacation and sick leave, and other leave, to which the Employee is entitled, the Employee shall devote Employee's full business time, energy and attention to the performance of Employee's duties and responsibilities hereunder, except as provided in Section 1(c) below.

    (c) During the Employment Period, the Employee may not, without the prior written consent of the Board, which consent shall not be unreasonably withheld, operate, participate in the management, operations or control of, or act as an employee, officer, consultant, agent or representative of, any type of business or service (other than as an employee of the Employer), provided that it shall not be a violation of the foregoing for the Employee to act or serve as a director on the boards of directors of any type of civil, cultural, philanthropic or professional organization so long as such activities do not interfere with the performance of Employee's duties and responsibilities to the Employer as provided hereunder.

    2.  Compensation.

    (a) As compensation for the agreements made by the Employee herein and the performance by the Employee of Employee's obligations hereunder, during the Employment Period, the Employer shall pay the Employee, not less than twice a month, a base salary at the rate of U.S. $150,000 per annum (the "Base Salary").

    (b) During the Employment Period, the Employee shall be eligible to receive bonus payments as set forth in the offer letter by and between the Employee and the Employer dated May 14, 2001 attached hereto as Exhibit B (the "Offer Letter"), and thereafter and/or in additional thereto, other bonus payments subject to the rules of any then existing applicable bonus plan and in the Employer's sole and absolute discretion.

    (c) During the Employment Period, the Employee shall be eligible to receive stock-based compensation as set forth in the Offer Letter.

    (d) During the Employment Period, the Employee shall be entitled to holidays, vacation, sick, personal, and paid time-off ("PTO") days in accordance with the policies of the Employer.

    (e) During the Employment Period, the Employee shall be entitled to participate in any and all employee welfare and benefit plans applicable to similarly situated employees to the extent permitted by the particular plan and applicable law.

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    (f)  The compensation provided in this Agreement shall be treated as such for income tax purposes by the Employer and the Employee and shall be paid subject to any deductions authorized by the Employee and any and all tax and related withholdings required by applicable law.

    3.  Employment Period.

    (a) The Employment Period is indefinite and shall be terminable at will by either the Employee or the Employer, subject to the rights and obligations set forth in the Offer Letter and Sections 4 and 5 below. This Agreement shall become effective only upon the successful completion of the tender offer for the outstanding shares of the Employer's common stock in accordance with the provisions of Article II of the Agreement and Plan of Merger by and among Cable & Wireless plc, the Employer, and Dali Acquisition Corp. dated May 14, 2001 (the "Tender Offer"). Unless and until the Tender Offer has been successfully completed, this Agreement shall be void and of no force and effect.

    (b) For purposes of this Agreement, the term "Disability" shall mean that, as a result of the Employee's incapacity due to physical or mental illness, the Employee shall have been unable to substantially perform Employee's duties hereunder, either with or without reasonable accommodation, for a period of six (6) consecutive months or 180 days within any 270 day period.

    (c) For purposes of this Agreement, the term "Cause" shall mean (i) willful misconduct or dishonesty on the part of the Employee, which in either case is materially and demonstrably injurious to the Employer, (ii) the willful and continued failure by the Employee to perform substantially Employee's duties with the Employer (other than any such failure resulting from Employee's incapacity due to physical or mental illness) for a period of thirty (30) consecutive days after a written demand for substantial performance is delivered to Employee by the Employer, which specifically identifies the manner in which the Employer believes that the Employee has not substantially performed Employee's duties, or (iii) the willful engaging by the Employee in illegal conduct which is materially and demonstrably injurious to the Employer.

    (d) For purposes of this Agreement, termination by the Employee of the Employee's employment for "Good Reason" means the Employee's resignation within ninety (90) days following (i) a material reduction in the scope of Employee's duties and responsibilities, (ii) a reduction in Employee's Base Salary, or (iii) a relocation of Employee's principal place of employment by more than thirty-five (35) miles.

    4.  Termination Procedure.

    (a) Notice of Termination. Any termination of the Employee's employment by the Employer or by the Employee during the Employment Period shall be communicated by written "Notice of Termination" to the other party hereto in accordance with Section 8(a).

    (b) Termination Date. For purposes of this Agreement, "Termination Date" shall mean (i) if the Employee's employment is terminated by Employee's death, the date of Employee's death, (ii) if the Employee's employment is terminated for Cause, the date on which the Employer communicates the termination to the Employee, (iii) if the Employee's employment is terminated on account of the Employee's Disability, thirty (30) days after Notice of Termination (provided that the Employee shall not have returned to the substantial performance of the Employee's duties on a full-time basis during such thirty (30) day period), and (iv) if the Employee's employment is terminated for any other reason, the date on which a Notice of Termination is given or any later date set forth in such Notice of Termination.

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    5.  Severance Arrangements.

    If the Employer terminates the Employee's employment with the Employer for any reason other than Cause, or the Employee terminates the Employee's employment for Good Reason, the Employee shall be entitled to (i) salary continuation payments at the Employee's base salary effective at the time of termination, and (ii) continued coverage for the Employee and Employee's dependents under the Employer's group health plans at the Employer's full expense. The Employee shall be entitled to the salary continuation payments and the continued group health plan coverage for a period of six months or such longer period specified in the Offer Letter, if any. The Employee shall be entitled to any severance arrangements provided in the Offer Letter.

    6.  Restrictive Covenants.

    (a) The Employee agrees that during the Employment Period and thereafter Employee will not appropriate for Employee's own use, disclose, divulge, furnish or make available to any person, unless authorized by the Employer in writing, any confidential or proprietary information concerning the Employer or its affiliates, including without limitation any confidential or proprietary information concerning the operations, plans or methods (proposed or otherwise) of doing business of the Employer or any of its affiliates (the "Information"); provided, that the term "Information" shall not include such information which is or becomes generally available to the public other than as a result of a disclosure by the Employee in violation of this Agreement or any other unauthorized disclosure. Notwithstanding the foregoing, the Employee may disclose Information to the extent Employee is compelled to do so by lawful service of process, subpoena, court order, or as Employee is otherwise compelled to do by law or the rules or regulations of any regulatory body to which Employee is subject, in which event Employee agrees to provide the Employer with a copy of the documents seeking disclosure of such information promptly upon receipt of such documents and prior to Employee's disclosure of any such information, so that the Employer may, upon notice to the Employee, take such action as the Employer deems appropriate in relation to such subpoena or request.

    (b) The Employee agrees that all right, title and interest to all works of whatever nature generated in the course of Employee's employment with the Employer or its affiliates resides with the Employer. The Employee agrees that Employee will return to the Employer or its affiliates, not later five (5) days after the Termination Date, all property, in whatever form (including computer files and other electronic data), of the Employer in Employee's possession, including without limitation, all copies (in whatever form) of all files or other information pertaining to the Employer, its officers, directors, shareholders, customers or affiliates, and any business or business opportunity of the Employer and its affiliates.

    (c) Except with the prior written consent of the Employer, the Employee shall not, during the Employment Period and for the one-year period immediately following the Termination Date, hire, offer to hire, entice away or in any manner persuade or attempt to persuade any officer, employee or agent of the Employer, or any of its affiliates, or any then current or prospective customer, client or supplier of the Employer, or any of its affiliates, to discontinue or limit his or her relationship with the Employer, or affiliates or to otherwise do business with any competing business of the Employer.

    (d) The parties hereto hereby declare that it is impossible to measure in money the damages which will accrue to Employer by reason of a failure by Employee to perform any of Employee's obligations under this Section 6. Accordingly, if Employer or any of its affiliates institutes any action or proceeding to enforce the provisions hereof, to the extent permitted by applicable law, the Employer shall be entitled to seek injunctive relief and specific performance in addition to any other remedies available to the Employer.

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    (e) The restrictions in this Section 6 shall be in addition to any restrictions imposed on Employee by statute or at common law.

    7.  Representations and Acknowledgments.

    The Employee hereby represents and warrants to the Employer that the execution, delivery and performance of this Agreement does not violate any provision of any agreement which the Employee has with any former employer (a "Former Employer"). The Employee further acknowledges that to the extent the Employee has an obligation to the Former Employer not to disclose certain confidential information, Employee intends to honor such obligation and that honoring such obligation does not violate the foregoing representations and warranties made by the Employee.

    8.  Miscellaneous.

    (a) Any notice or other communication required or permitted under this Agreement shall be effective only if it is in writing and delivered personally or sent by registered or certified mail, postage prepaid, addressed as follows (or if it is sent through any other method agreed upon by the parties):

If to the Employer:
Digital Island, Inc.
45 Fremont Street, Suite 1200
San Francisco, CA 94105
Attention: Office of the General Counsel

If to the Employee:
Addo Barrows
2 Townsend St., Unit 4-205
San Francisco, CA 94107

or to such other address as any party hereto may designate by notice to the other, and if delivered personally, shall be deemed to have been received upon receipt or if sent by registered mail, shall be deemed to have been received three days after it is postmarked.

    (b) This Agreement, together with the Offer Letter and any exhibits attached hereto, constitutes the entire Agreement among the parties hereto with respect to the Employee's employment, and supersedes and is in full substitution for any and all prior understandings or agreements with respect to the Employee's employment with the Employer. To the extent any provision of this Agreement conflicts with any provision of the Offer Letter, the provision most favorable to the Employee shall control.

    (c) This Agreement may be amended only by an instrument in writing signed by the parties hereto, and any provision hereof may be waived only by an instrument in writing signed by the party or parties against whom or which enforcement of such waiver is sought. The failure of any party hereto at any time to require the performance by any other party hereto of any provision hereof shall in no way affect the full right to require such performance at any time thereafter, nor shall the waiver by any party hereto of a breach of any provision hereof be taken or held to be a waiver of any succeeding breach of such provision or a waiver of the provision itself or a waiver of any other provision of this Agreement.

    (d) 

     (i) This Agreement is binding on and is for the benefit of the parties hereto and their respective successors, heirs, executors, administrators and other legal representatives. Neither this Agreement nor any right or obligation hereunder may be assigned by the Employee.

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    (ii) The Employer shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Employer expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Employer would have been required to perform it if no such succession had taken place. As used in this Agreement, "the Employer" shall mean both the Employer as defined above and any such successor that assumes and agrees to perform this Agreement, by operation of law or otherwise.

    (e) If any provision of this Agreement or portion thereof is so broad, in scope or duration, so as to be unenforceable, such provision or portion thereof shall be interpreted to be only so broad as is enforceable.

    (f)  The Employer may withhold from any amounts payable to the Employee hereunder all federal, state, city or other taxes that the Employer may reasonably determine are required to be withheld pursuant to any applicable law or regulation.

    (g) This Agreement shall be governed by and construed in accordance with the laws of the state of California, without reference to its principles of conflicts of law. The Employer and the Employee agree that any dispute arising out of or related to this Agreement shall be resolved in accordance with the Arbitration Agreement attached hereto as Exhibit A. To the extent consistent with the Arbitration Agreement attached hereto as Exhibit A, the Employer and the Employee hereby consent to the exclusive jurisdiction of the courts of the state of California and the United States District Court for the Northern District of California and superior federal courts.

    (h) This Agreement may be executed in several counterparts, including by the exchange of facsimile signature pages containing the signatures of one or both parties, each of which shall be deemed an original, but all of which shall constitute one and the same instrument.

    (i)  The headings in this Agreement are inserted for convenience of reference only and shall not be a part of or control or affect the meaning of any provision hereof.

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

/s/ ADDO BARROWS (Signature)
Addo Barrows
/s/ RUANN ERNST DIGITAL ISLAND, INC. By: Ruann Ernst Title: Chairman & CEO	/s/ AVERY DUFF CABLE & WIRELESS PLC By: Avery Duff Title: Executive Vice President, Human Resources

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EXHIBIT A: ARBITRATION AGREEMENT

1.

To the maximum extent permitted by law, I, Addo Barrows and Digital Island, Inc. (the "Company") (collectively, the "parties") agree that, except as noted below, any controversy, claim or dispute arising out of or related to my employment or the termination thereof ("claims") shall be arbitrated in accordance with the following procedure:



(a)

Any and all claims shall be submitted to final and binding arbitration before the American Arbitration Association ("AAA") in the city closest to my place of work at the Company where the AAA has an office. Such arbitration shall be in accordance with the AAA's then current version of the National Rules for the Resolution of Employment Disputes. The arbitrator shall be selected in accordance with the AAA's selection procedures in effect at the time, and shall be a member of the AAA's panel of arbitrators for employment disputes. Either party may initiate arbitration proceedings by filing a demand for arbitration with the AAA in the city closest to my place of work at the Company where AAA has an office.



(b)

The arbitrator shall have the authority to grant any relief authorized by law.



(c)

The arbitrator shall have exclusive authority to resolve all claims covered by this arbitration agreement, and any dispute relating to the interpretation, applicability, enforceability or formation of this arbitration agreement, including, but not limited to, any claim that all or any part of this arbitration agreement is void or voidable. Any issues involving the arbitrability of a dispute shall be governed by the Federal Arbitration Act, 9 U.S.C. § 1 et seq.



(d)

The Company will pay all arbitration fees, deposits and administrative costs assessed by the AAA; except that I may be required to pay administrative fees to the AAA not to exceed the amount of the then-current filing fee for a civil action filed in the court of general jurisdiction in the state where I was last employed by the Company. The arbitrator shall have power to award attorneys' fees, expert witness fees and costs according to statute, or according to a separate written agreement between the parties, or the National Rules for the Resolution of Employment Disputes of the AAA, but shall have no other power to award attorneys' fees, costs or expert witness fees.



(e)

The claims covered by the above include, but are not limited to, claims for wrongful termination, unpaid wages or compensation, breach of contract, torts, violation of public policy, claims for harassment or discrimination (including, but not limited to, race, sex, religion, national origin, age, marital status, medical condition, disability, or sexual orientation), claims for benefits (except where an employee benefit or pension plan specifies a procedure for resolving claims different from this one), claims for physical or mental harm or distress, or any other employment-related claims under any federal, state or other governmental law, statute, regulation or ordinance, including, but not limited to, Title VII of the Civil Rights Act of 1965, the Americans With Disabilities Act, the Age Discrimination in Employment Act, the California Fair Employment and Housing Act, and any other statutes or laws relating to an employee's relationship with his/her employer. However, claims for workers' compensation benefits and unemployment compensation benefits are not covered by this arbitration agreement, and such claims may be presented to the appropriate court or government agency.



(f)

Notwithstanding this agreement to arbitrate, neither party waives the right to seek through judicial process, preliminary injunctive relief to preserve the status quo or prevent irreparable injury before the matter can be heard in arbitration.

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(g)

The arbitrator shall issue a written arbitration decision stating the arbitrator's essential findings and conclusions upon which any award is based. A party's right for review of the decision is limited to grounds provided under applicable law.



(h)

The parties agree that the arbitration shall be final and binding and any arbitration award shall be enforceable in any court having jurisdiction to enforce this arbitration agreement.

2.

BY AGREEING TO THIS BINDING ARBITRATION PROVISION, BOTH THE COMPANY AND I GIVE UP ALL RIGHTS TO TRIAL BY JURY, EXCEPT AS EXPRESSLY PROVIDED HEREIN.



3.

I agree that this agreement to arbitrate shall survive the termination of my employment. This is the complete agreement of the parties on the subject of arbitration of disputes. This agreement supersedes any prior or contemporaneous oral or written understanding on the subject. This agreement cannot be changed unless in writing, signed by me and the Chief Executive Officer of the Company or his or her delegate.

AGREED TO AND ACCEPTED:
/s/ ADDO BARROWS (Signature)	Dated: May 14, 2001
Addo Barrows
/s/ RUANN ERNST DIGITAL ISLAND, INC.	/s/ AVERY DUFF CABLE & WIRELESS PLC
By: Ruann Ernst Title: Chairman & CEO	By: Avery Duff Title: Executive Vice President, Human Resources

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Exhibit (d)(9)
EMPLOYMENT AGREEMENT
EXHIBIT A: ARBITRATION AGREEMENT

EX-99.(D)(10)

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Exhibit (d)(10)

Digital Island, Inc.
45 Fremont Street, Suite 1200
San Francisco, CA 94105

May 14, 2001

Addo Barrows
2 Townsend St., Unit 4-205
San Francisco, CA 94107

Dear Addo:

We take great pleasure in confirming your continued employment with Digital Island, Inc. (the "Company"). As you are aware, Cable & Wireless plc ("Cable & Wireless") is acquiring the Company. As a result, Digital Island, Inc. will become a wholly owned subsidiary of Cable & Wireless. Your continued employment with the Company is subject to your signing a formal Employment Agreement with the Company. The new Employment Agreement will become effective upon the successful completion of the tender offer for the outstanding shares of the Company's common stock in accordance with the provisions of Article II of the Agreement and Plan of Merger by and among Cable & Wireless, the Company and Dali Acquisition Corp., dated May 14, 2001 (the "Merger Agreement"). Capitalized terms used in this offer letter but not otherwise defined herein will have the same meaning as assigned to them in the Merger Agreement.

As an employee of the Company, the terms of your continued employment include:

POSITION

Effective the day following the completion of the Offer, you will hold the position of Vice-President, Treasurer with the Company.

BASE SALARY

Your base salary will be $150,000 per year. Your first review will be in October 2001.

BONUS

In addition to your base salary, your remuneration will include a bonus amount, subject to the rules of any applicable bonus plan. The target bonus is a percentage of your base salary, but all determinations of your bonus amount will be in the Company's discretion. For the remainder of fiscal 2001, your bonus targets will remain as in effect on May 1, 2001, and payments will include the unpaid portion of the bonus for your service prior to the acquisition. Within 120 days of the date of this offer letter, the Company will provide you with the details of a new bonus plan for the next bonus period.

WELCOME BONUS

You will be paid a conditional welcome bonus equal to one times your annual base salary (the "Welcome Bonus") if you satisfy the following conditions. If you remain employed with the Company for a period of three (3) consecutive months after the successful completion of the tender offer (the "Closing"), you will be paid 40% of your Welcome Bonus. If you remain employed with the Company for a period of nine (9) consecutive months after the Closing, you will be paid the remaining 60% of your Welcome Bonus. Should your employment terminate by reason of death or Disability (as defined in your Employment Agreement) prior to the completion of the applicable three (3) month or nine (9) month service requirement, the portion of your Welcome Bonus for the applicable period will be pro-rated on the basis of number of months of employment completed during that period (rounded to next whole month).

STOCK-BASED COMPENSATION

In exchange for your effective and irrevocable waivers as set forth below, you will receive the stock-based compensation package described below, after approval by the Board of Directors of Cable & Wireless (the "Board of Directors"). If the Board of Directors does not approve this compensation package, you will become entitled instead to cash payments from the Company which provide you with the same economic benefit as the equity compensation proposed below, with such cash payments to be made on each vesting date for your proposed Cable & Wireless stock options and restricted Cable & Wireless stock awards.

1.

Stock options in shares of Cable & Wireless stock. Within forty-five (45) days following the completion of the Offer, you will be granted stock options to purchase common shares of Cable & Wireless with an exercise price per share equal to the closing selling price per share on the date of grant. The aggregate exercise price of your stock options will be equal to one times your annual base salary. Cable & Wireless expects to adopt and obtain the requisite shareholder approval of a plan under which these stock options would vest at a rate of 25% per year over the four-year period measured from the date of grant. The stock options will be incentive stock options within the meaning of Section 422 of the U.S. Internal Revenue Code, to the maximum extent permissible. In the absence of the requisite shareholder approval, these stock options will vest in accordance with the current Senior Employees Share Option Scheme, with the vesting measured from the date of grant.



2.

Restricted shares of Cable & Wireless stock. At the completion of the Offer, all of your restricted shares of the Company's common stock, whether vested or unvested (the "Restricted Shares") and all of your outstanding stock options, whether vested or unvested, to purchase shares of the Company's common stock will be cancelled, and in return for those cancelled shares and options, you will be awarded restricted shares of Cable & Wireless common stock ("Cable & Wireless Shares"). The conversion process will be effected as follows:

The rollover value of your cancelled Restricted Shares will be determined by multiplying the number of your Restricted Shares by the Per Share Amount paid in the Offer.

The rollover value of each of your cancelled options will be determined by multiplying the number of shares of Company common stock subject to each such option by the excess (if any) of the Per Share Amount paid in the Offer over the exercise price in effect for that option. Any option which has an exercise price equal to or greater than the Per Share Amount will have a zero rollover value.

The combined rollover value of your Restricted Shares and your options will then be divided by the average closing selling price per common share of Cable & Wireless for the five (5) consecutive trading days ending with the completion date of the Offer to determine the number of Cable & Wireless Shares.

3.

Timing of Awards. Your restricted Cable & Wireless Shares will be awarded as follows:



(a)

You will be awarded 50% of your restricted shares on the 12-month anniversary of the Closing if you are then employed by the Company. In addition, subject to substantial achievement of Company performance against the agreed business plan, you will be awarded bonus shares in an amount equal to 25% of the restricted shares awarded under this paragraph (a).



(b)

You will be awarded another 50% of your restricted shares on the 24-month anniversary of the Closing if you are then employed by the Company. In addition, subject to substantial achievement of Company performance against the agreed business plan, you will be awarded bonus shares in an amount equal to 50% of the restricted shares awarded under this paragraph (b).

4.

Additional grants. In addition to the above, you may be eligible for consideration of grants of stock options in shares of Cable & Wireless stock (together with the stock options described in

item 1 of this section, the "Cable & Wireless Options"). In cases of outstanding performance, you also may be eligible for consideration of grants of Cable & Wireless Shares.

TERM OF EMPLOYMENT

Your employment is terminable at will by either you or the Company.

SEVERANCE ARRANGEMENTS

If the Company terminates your employment with the Company for any reason other than for Cause or if you terminate your employment with the Company for Good Reason (as Cause and Good Reason are defined in your Employment Agreement), then (a) your Cable & Wireless Options and Cable & Wireless Shares will vest fully and immediately, and you will also immediately vest in and become entitled to the maximum number of bonus shares described in item 3 of the Stock-Based Compensation section of this offer letter, (b) you will be entitled to salary continuation payments at the your base salary effective at the time of termination for a period of six months, and (c) you and your eligible dependents will be entitled to continued health care coverage under the Company's group health plan at no cost to you for a period of six months.

If the Company terminates your employment with the Company for any reason other than for Cause or if you terminate your employment with the Company for Good Reason (as Cause and Good Reason are defined in your Employment Agreement) within 9 months of the Closing, you will be entitled to payment of the portion of your Welcome Bonus that was unpaid on the date of your termination.

If you terminate your employment with the Company during the 12-month period commencing immediately after the Closing, you will be entitled to a severance payment equal to the sum of (a) the amount you would have received if you had exercised all of your vested Company stock options and the options that would have become vested had the options continued in effect until your termination of employment (without regard to any options that would have vested solely on account of a "change in control" or "corporate transaction" as defined in the Stock Plans or your stock option agreements) and tendered the stock acquired upon exercise under the Offer, plus (b) the amount you would have received if you had tendered under the Offer all of your vested Restricted Shares in the Company and the Restricted Shares that would have become vested had you continued to hold the Restricted Shares until your termination of employment (without regard to any restricted shares that would have vested solely on account of a "change in control" or "corporate transaction" as defined in the Stock Plans or your restricted stock issuance agreement).

In the event that any benefits or payments to which you become entitled upon a termination of your employment within twelve (12) months following the Closing would otherwise constitute an excess parachute payment under Section 280G of the U.S. Internal Revenue Code, then such benefits or payments shall be subject to reduction to the extent necessary to assure that you receive the greater of (i) the amount that would not constitute an excess parachute payment, or (ii) the amount which yields you the greatest after-tax amount of benefits after taking into account any excise tax imposed on the benefits provided to you under this offer letter (or any other benefits to which you may be entitled in connection with your termination) under Section 4999 of the U.S. Internal Revenue Code.

Should any reduction in your benefits or payments become necessary as a result of such limitation, then you will have the right to select the particular benefits or payments which are to be reduced.

VACATION AND PERSONAL DAYS

You will be entitled to vacation and personal days in accordance with the policies established by the Company.

HEALTH AND WELFARE BENEFITS

You will be entitled to participate in any and all employee welfare and health benefit plans applicable to similarly situated employees to the extent permitted by the particular plan and applicable law.

WAIVERS

As a condition of receiving Cable & Wireless Options and Cable & Wireless Shares, you irrevocably waive, effective upon the successful completion of the Offer, any and all claims to benefits that would have been payable to you on account of a "change in control" of or a "corporate transaction" with respect to the Company (as such terms may be defined in any Company stock option plan or any stock option agreement, restricted stock issuance agreement, employment agreement, or other agreement entered into by and between you and the Company), which benefits include but are not limited to salary continuation payments, bonus payments, and acceleration of vesting of restricted stock or options.

You understand and agree that the Restricted Shares granted to you under the Digital Island, Inc. 1999 Stock Incentive Plan will be forfeited upon the successful completion of the Offer and that you waive any and all rights as a holder of those Restricted Shares upon such forfeiture. As a result of your signing this offer letter, the Restricted Shares shall automatically be deemed forfeited upon the successful completion of the Offer and the Company shall be deemed the owner and holder of those shares upon such forfeiture, whether or not the certificates therefor have been delivered to the Company.

You further understand and agree that, as a result of your signing this offer letter, any and all stock options granted with respect to stock in the Company under the Digital Island, Inc. 1999 Stock Incentive Plan or the Digital Island, Inc. 2000 Supplemental Stock Option Plan (collectively the "Stock Plans") will be cancelled upon the successful completion of the Offer, and that you waive any and all rights or entitlements to purchase stock in the Company pursuant to those cancelled options. You also waive your rights to accelerated vesting of any such options, to the extent such acceleration would occur upon the purchase by Cable & Wireless of Digital Island, Inc.

CONFIDENTIALITY PROVISION

Your acceptance shall include agreement to maintain all of the terms and conditions of this offer letter in strict confidence as shall the Company. To fulfill this obligation, you shall not directly or indirectly communicate, make known, or divulge to any person, agency or court, except your spouse, accountant or attorney, any information whatsoever regarding this offer letter, unless compelled to do so by legal process or unless prior approval is given in writing by the Chief Executive Officer of Cable & Wireless Global. You shall direct your spouse, accountant, and attorney not to breach this confidentiality commitment.

If you accept our offer letter, please sign the original offer letter and the Employment Agreement and return these materials to us in accordance with our discussions. Please make a copy for your records.

I am very pleased that you will be joining us and I look forward to working with you. Should you have any questions concerning this offer and contract, please do not hesitate to discuss them with me.

Sincerely,

/s/ Avery Duff

Avery Duff
Executive Vice President, Human Resources
Cable & Wireless Global

I, Addo Barrows, do hereby accept and confirm the terms of this offer of continued employment and acknowledge that I have read the above described offer letter and certify that I have not signed an agreement of confidentiality, covenant not to compete, nor any other type of agreement with restrictive

covenants of any kind or nature with any of my employers, past or present, that would restrict, prevent, or otherwise preclude my employment with the Company.

/s/ Addo Barrows	May 14, 2001
SIGNATURE	DATE

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Exhibit (d)(10)