SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
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IFX CORPORATION
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(Name of Registrant as Specified In Its Charter)
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IFX CORPORATION
15050 N.W. 79 Court
Suite 200
Miami Lakes, Florida 33016
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NOTICE OF 2001 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 7, 2001
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To our Stockholders:
We are notifying you that the Annual Meeting of Stockholders of IFX
Corporation (the "Company") will be held at the offices of the Company, 15050
N.W. 79 Court, Suite 200, Miami Lakes, Florida 33016 at 10:00 a.m. local time
for the following purposes:
1. to approve the amendment of the Restated Certificate of Incorporation of
the Company to increase the number of authorized shares of common stock
and preferred stock of the Company;
2. to approve the issuance of additional shares of stock of the Company,
the "New Stock";
3. to approve amendments to the Certificates of Designation of the
Company's Series A Convertible Preferred Stock and Series B Convertible
Preferred Stock;
4. to elect eight directors to the Board of Directors;
5. to ratify the appointment of Ernst & Young LLP as independent auditors
for the Company's fiscal year ending June 30, 2002; and
6. to transact such other business as may properly come before the meeting.
Each of these matters is described in further detail in the enclosed proxy
statement. We have also enclosed a copy of our Annual Report on Form 10-K for
the fiscal year ended June 30, 2001. Only stockholders of record at the close
of business on November 1, 2001 are entitled to vote at the meeting or any
postponement or adjournment of the meeting. A complete list of these
stockholders will be available at our principal executive offices prior to the
meeting.
Please use this opportunity to take part in the Company's affairs by voting
your shares. Whether or not you plan to attend the meeting, please complete the
enclosed proxy card and return it in the envelope provided as promptly as
possible. Your proxy can be withdrawn by you at any time before it is voted.
By Order Of The Board Of Directors
Jose Leiman, Secretary
November 26, 2001
Chicago, Illinois
TABLE OF CONTENTS
Page
----
ABOUT THE MEETING............................................................. 1
What is the purpose of the annual meeting?................................. 1
What are IFX's voting recommendations?..................................... 1
Who is entitled to vote?................................................... 1
What constitutes a quorum?................................................. 2
What vote is required to approve each item?................................ 2
How do I vote?............................................................. 2
Can I vote by telephone or electronically?................................. 3
Can I change my vote after I return my proxy card?......................... 3
What happens if additional proposals are presented at the meeting?......... 3
Who will bear the costs of soliciting votes for the meeting?............... 3
STOCK OWNERSHIP............................................................... 4
PROPOSALS TO BE VOTED ON...................................................... 5
Background................................................................. 5
Effect On Ownership Percentage of Company.................................. 5
Effect On General Voting Power............................................. 6
Effect On Vote For Election Of Directors................................... 6
PROPOSAL ONE: AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION.............. 6
Vote Required.............................................................. 7
Recommendation of the Board of Directors................................... 7
PROPOSAL TWO: ISSUANCE OF NEW STOCK........................................... 7
Terms of the Series C Preferred Stock...................................... 8
Vote Required.............................................................. 9
Recommendation of the Board of Directors................................... 9
PROPOSAL THREE: CERTIFICATES OF DESIGNATION AMENDMENTS........................ 10
Background................................................................. 10
Current Terms of the Series A Preferred Stock and Series B Preferred Stock. 10
Changes to Reflect Issuance of Series C Preferred Stock.................... 11
Vote Required.............................................................. 13
Recommendation of the Board of Directors................................... 13
PROPOSAL FOUR: ELECTION OF DIRECTORS.......................................... 13
Nominees for Election to the Board of Directors............................ 14
Vote Required.............................................................. 15
Board of Directors Recommendation.......................................... 15
PROPOSAL FIVE: RATIFICATION OF THE ENGAGEMENT OF ERNST & YOUNG................ 15
Audit Fees................................................................. 15
Financial Information System Design and Implementation Fees................ 15
i
Page
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All Other Fees...................................................... 16
Vote Required....................................................... 16
Recommendation of the Board of Directors............................ 16
BOARD STRUCTURE AND COMPENSATION....................................... 16
Board of Directors.................................................. 16
Compensation of Directors........................................... 17
Committees of the Board of Directors................................ 17
Report of the Audit Committee....................................... 17
Compensation Committee Interlocks and Insider Participation......... 18
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION......... 19
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG IFX CORPORATION, THE NASDAQ
STOCK MARKET INDEX AND INDUSTRY INDEX................................ 20
EXECUTIVE OFFICERS AND EXECUTIVE COMPENSATION.......................... 21
Summary Compensation Table.......................................... 21
Employment and Change of Control Agreements......................... 21
Option Grants in Fiscal Year 2001................................... 23
Fiscal Year-End Option Values....................................... 24
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE................ 24
CERTAIN TRANSACTIONS................................................... 24
DISSENTERS' RIGHTS OF APPRAISAL........................................ 25
INTEREST OF OFFICERS AND DIRECTORS IN MATTERS TO BE ACTED UPON......... 25
FINANCIAL AND OTHER INFORMATION........................................ 25
STOCKHOLDER PROPOSALS FOR 2002 PROXY STATEMENT......................... 25
OTHER MATTERS TO BE ACTED UPON AT THE MEETING.......................... 25
Exhibit A--Form of Certificate of Amendment of Restated Certificate of
Incorporation
Exhibit B--Form of Certificate of Designation of Series C Convertible Preferred
Stock
Exhibit C--Form of Second Amended Certificate of Designation of Series A
Convertible Preferred Stock
Exhibit D--Form of Amended Certificate of Designation of Series B Convertible
Preferred Stock
Exhibit E--Charter of the Audit Committee of the Board of Directors of IFX
Corporation
ii
IFX CORPORATION
15050 N.W. 79 Court
Suite 200
Miami Lakes, Florida 33016
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PROXY STATEMENT
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ANNUAL MEETING OF STOCKHOLDERS
December 7, 2001
The Board of Directors of IFX Corporation ("IFX" or the "Company") is asking
for your proxy for use at the annual meeting of stockholders of IFX to be held
on December 7, 2001 at 10:00 a.m. local time and at any postponements or
adjournments of the meeting. The meeting will be held at the principal
executive offices of the Company located at 15050 N.W. 79 Court, Suite 200,
Miami Lakes, Florida 33016. We are initially mailing this proxy statement and
the enclosed proxy to stockholders of IFX on or about November 26, 2001.
ABOUT THE MEETING
What is the purpose of the annual meeting?
At our annual meeting, stockholders will act upon the matters outlined in
the accompanying notice of meeting, including the authorization of the
amendment of the Restated Certificate of Incorporation of the Company,
authorization of the issuance of the New Stock, authorization of the amendment
of the Certificates of Designation for the Company's Series A Convertible
Preferred Stock and Series B Convertible Preferred Stock, election of eight
directors and the ratification of Ernst & Young, LLP as our auditors.
What are IFX's voting recommendations?
Our Board of Directors recommends that you vote your shares "FOR" the
amendment of the Restated Certificate of Incorporation, "FOR" the issuance of
the New Stock, "FOR" the amendment of the Series A Convertible Preferred Stock
and Series B Convertible Preferred Stock Certificates of Designation, "FOR"
each of the nominees to the Board of Directors and "FOR" the ratification of
Ernst & Young, LLP as our auditors.
Who is entitled to vote?
Only stockholders of record at the close of business on November 1, 2001 are
entitled to notice of the annual meeting and to vote at the annual meeting or
any postponements or adjournments thereof. Each share of Common Stock entitles
the holder to one vote on each matter to be voted on. For all matters submitted
to a vote of stockholders, each share of the Company's Series A Preferred Stock
and Series B Preferred Stock (collectively, the "Preferred Stock") entitles the
holder to one vote for each share of Common Stock into which the holder's
Preferred Stock is convertible on the record date. For all matters submitted to
stockholders for a vote, the holders of the Preferred Stock vote with the
holders of Common Stock as a single class. However, holders of Class II Series
B Preferred Stock do not vote for directors. In addition, the holders of each
of the Series A Preferred Stock and Series B Preferred Stock, each voting as a
single class, must approve the amendment of the Restated Certificate of
Incorporation, the issuance of the New Stock and the amendments to the
Certificates of Designation. The holders of the Series A Preferred Stock voting
as a single class are entitled to designate two directors and the holders of
the Class I Series B Preferred Stock voting as a single class are entitled to
designate one director.
What constitutes a quorum?
If stockholders holding a majority of the stock of the Company entitled to
vote on the record date are present at the annual meeting, either in person or
by proxy, we will have a quorum at the meeting, permitting the conduct of
business at the meeting. Any shares represented by proxies that are marked to
abstain from voting on a proposal will be counted as present for purposes of
determining whether we have a quorum. If a broker, bank, custodian, nominee or
other record holder of IFX Common Stock indicates on a proxy that it does not
have discretionary authority to vote certain shares on a particular matter, the
shares held by that record holder (referred to as "broker non-votes") will also
be counted as present in determining whether we have a quorum.
As of the record date, there were 14,276,495 shares of Common Stock issued
and outstanding and entitled to vote, 2,030,869 shares of Series A Preferred
Stock issued and outstanding, 3,994,127 shares of Class I Series B Convertible
Preferred Stock issued and outstanding, and 424,135 shares of Class II Series B
Convertible Preferred Stock issued and outstanding. As of such date, the issued
and outstanding shares of Series A Preferred Stock were convertible into
7,142,857 shares of Common Stock giving the Series A Preferred Stock the right
to vote 7,142,857 shares. The issued and outstanding shares of Series B
Preferred Stock were convertible into 4,418,262 shares of Common Stock giving
the Series B Preferred Stock the right to vote 4,418,262 shares (3,994,127
shares in the election of directors because the Class II Series B Preferred
Stock do not vote in the election of directors).
What vote is required to approve each item?
Director nominees must receive the affirmative vote of a plurality of the
shares represented at the meeting and entitled to vote, meaning that the eight
nominees for director with the most votes will be elected. The remaining
proposals require the affirmative vote of a majority of the votes entitled to
be cast by holders of shares of Common Stock and Preferred Stock represented at
the meeting. In addition, the proposals regarding amending the Restated
Certificate of Incorporation, the authorization of the issuance of the New
Stock and amending the Preferred Stock Certificates of Designation require the
approval of a majority of the Series A Preferred Stock and Series B Preferred
Stock. Abstentions and broker non-votes will not be counted for purposes of
determining whether an item has received the requisite number of votes for
approval.
IFX, Lee S. Casty ("Casty"), Joel M. Eidelstein ("Eidelstein"),
International Technology Investments, LC ("ITI"), Michael Shalom ("Shalom"),
and UBS Capital Americas III, L.P. and UBS Capital LLC (together with UBS
Capital Americas III, L.P., "UBS") have entered into a Second Amended and
Restated Stockholders' Agreement (the "Current Stockholders' Agreement") dated
as of May 7, 2001. Under the Current Stockholders' Agreement, Casty,
Eidelstein, ITI, Shalom and UBS have agreed to vote their shares to elect to
the Board of Directors three persons nominated by UBS (currently, Mark Lama,
Charles Delaney and Charles Moore); one person nominated by ITI (currently,
Michael Shalom); one person nominated by Lee S. Casty (currently, Joel M.
Eidelstein); one person nominated jointly by Mr. Eidelstein and ITI (currently,
George Myers); and two other independent directors (currently, Burton Meyer and
Patrick Delhougne). IFX, Casty, Eidelstein, ITI, Shalom, UBS and the Company
have also entered into a Voting Agreement dated as of October 11, 2001 (the
"Voting Agreement"), in which each of the parties agrees to vote their voting
shares of the Company in favor of the proposals to amend the Company's Restated
Certificate of Incorporation, to issue the New Stock, and to amend the
Preferred Stock Certificates of Designation.
Under the terms of the Current Stockholders Agreement and the Voting
Agreement, the parties to such agreements have agreed to vote all of the stock
of the Company owned by such parties and entitled to vote on each of the
proposals (except for the ratification of our auditors) "FOR" each of the
proposals submitted by the Board of Directors and all such proposals will be
approved.
How do I vote?
You may vote in person at the annual meeting or you may vote by proxy by
signing, dating and mailing the enclosed proxy card. If you vote by proxy, the
individuals named on the card as proxy holders will vote your
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shares in the manner you indicate. If you sign and return the card without
indicating your instructions, your shares will be voted "FOR":
. The amendment to the Restated Certificate of Incorporation of the Company,
. The authorization of the issuance of the New Stock,
. The amendment of the Certificates of Designation for the Series A and B
Preferred Stock,
. The election of the eight nominees for director, and
. The ratification of Ernst & Young as our auditors.
Can I vote by telephone or electronically?
No.
Can I change my vote after I return my proxy card?
Yes. Even after you have submitted your proxy, you may change your vote at
any time before the proxy is exercised at the annual meeting by delivering to
the Secretary of IFX a written notice of revocation or a properly signed proxy
bearing a later date, or by attending the annual meeting and voting in person
(although attendance at the meeting will not cause your previously granted
proxy to be revoked unless you specifically so request).
What happens if additional proposals are presented at the meeting?
Other than the matters described in this proxy statement, we do not expect
any additional matters to be presented for a vote at the annual meeting. If you
vote by proxy, your proxy grants the persons named as proxy holders the
discretion to vote your shares on any additional matters properly presented for
a vote at the meeting.
Who will bear the costs of soliciting votes for the meeting?
IFX will bear the entire cost of the solicitation of proxies from its
stockholders. In addition to the mailing of these proxy materials, the
solicitation of proxies or votes may be made in person, by telephone or by
electronic communication by our directors, officers and employees, who will not
receive any additional compensation for such solicitation activities. We will
also reimburse brokerage houses and other custodians, nominees and fiduciaries
for their reasonable out-of-pocket expenses for forwarding proxy and
solicitation materials to our stockholders. Except as described above, IFX does
not presently intend to solicit proxies other than by mail.
3
STOCK OWNERSHIP
The following table sets forth information regarding beneficial ownership of
the outstanding common stock of the Company as of November 1, 2001 by (a) each
of our directors and executive officers, (b) all of our directors and executive
officers as a group and (c) each person known by the Company to own more than
five percent of the Common Stock of the Company.
Amount and Nature of Approximate
Name /Address(1) Beneficial Ownership Percent of Class
---------------- -------------------- ----------------
Michael Shalom................................. 4,510,201(2) 31.57%
Joel Eidelstein................................ 383,245(3) 2.62%
Jose Leiman.................................... 105,997(4) *
Burton J. Meyer................................ 366,012(5) 2.56%
George A. Myers................................ 7,933(6) *
Lee S. Casty(7)................................ 2,961,410 20.74%
International Technology Investments LC (8).... 4,500,000 31.52%
Mark Lama(9)................................... 12,636,984(11) 49.71%
Charles Moore(9)............................... 12,636,984(11) 49.71%
Charles Delaney(9)............................. 12,636,984(11) 49.71%
UBS Capital Americas III(9).................... 12,636,984(11) 49.71%
Patrick Delhougne.............................. 450(10) *
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All Executive Officers and Directors as a group 18,010,822 69.57%
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* Less than one percent.
(1) The business address for Joel Eidelstein, Michael Shalom, Burton Meyer, and
George Myers is in care of IFX, 15050 N.W. 79 Court, Suite 200, Miami
Lakes, Florida 33016.
(2) Includes 10,201 shares subject to an option which is currently exercisable
and 4,500,000 shares of Common Stock held by International Technology. Mr.
Shalom may be deemed to be an affiliate of International Technology and,
accordingly, Mr. Shalom may be deemed to beneficially own the shares of
Common Stock held by such entity.
(3) Includes 351,750 shares of Common Stock subject to an option granted to Mr.
Eidelstein pursuant to the IFX 1998 Stock Option and Incentive Plan, which
option currently is exercisable.
(4) Consists of 105,997 shares of Common Stock that Mr. Leiman may acquire upon
exercise of currently exercisable options granted to him pursuant to our
Option Plan.
(5) Includes 1,200 shares of Common Stock that Mr. Meyer may acquire upon
exercise of options granted to him by the Company, which options are
currently exercisable. Also includes 237,812 shares of Common Stock that
Mr. Meyer owns jointly with his spouse and 27,000 shares of Common Stock
owned by Mr. Meyer's Individual Retirement Account.
(6) Consists of 6,733 shares of Common Stock held on behalf of Mr. Myers' minor
children under the Uniform Gifts to Minors Act, and 1,200 shares of Common
Stock that Mr. Myers may acquire upon exercise of an option granted to him
by the Company, which option is currently exercisable.
(7) Lee S. Casty's address is 707 Skokie Blvd., 5th Floor, Northbrook, IL 60062.
(8) ITI's address is in care of Adorno & Zeder, 2801 S. Bayshore Drive, Suite
1600, Miami, Florida 33133.
(9) The address of Mark Lama, Charles Moore, Charles Delaney and UBS Capital
Americas III is 299 Park Avenue, New York, New York 10171.
(10) Consists of 450 shares of Common Stock that Mr. Delhougne may acquire upon
exercise of an option granted to him by the company. The address of
Patrick Delhougne is 245 Park Avenue, 33/rd/ Floor, New York, New York
10167.
(11) 2,030,869 of these shares are shares of Series A Preferred Stock, each
share of which is convertible into approximately 3.52 shares of Common
Stock; 3,994,127 of these shares are shares of Class I Series B Preferred
Stock which are convertible on a one-for-one basis into Common Stock. This
includes 176,544 shares of Series A Preferred Stock and 199,706 shares of
Class I Series B Preferred Stock owned by UBS
4
Capital LLC, an affiliate of UBS Capital Americas III. Mark Lama, Charles
Delaney and Charles Moore, as principals of an affiliate of UBS Capital
Americas, may be deemed to beneficially own the shares held by UBS. Charles
Delaney, Mark Lama and Charles Moore disclaim such ownership.
PROPOSALS TO BE VOTED ON
Background.
In order to meet its working capital needs, on October 11, 2001, the Company
entered into an agreement (the "New Stock Purchase Agreement") with UBS for the
purchase by UBS of 3,833,333 shares of the Company's Series C Convertible
Preferred Stock (the "Series C Preferred Stock") in consideration of $7,000,000
in cash and the surrender to the Company of 1,500,000 shares of Common Stock
currently owned by UBS.
The Company and UBS agreed in the New Stock Purchase Agreement to certain
conditions to the closing of the sale of Series C Preferred Stock to UBS (the
"Closing"). The Company agreed to amend its Restated Certificate of
Incorporation to authorize the issuance of more shares of capital stock and to
amend its Certificates of Designation for the Series A Preferred Stock and
Series B Preferred Stock to reflect the issuance of the Series C Preferred
Stock, add participation rights to the Series A Preferred Stock and Series B
Preferred Stock, and make certain other changes. At Closing, the Company and
UBS will enter into a Put Agreement (the "Put") granting UBS, as a stockholder
of Tutopia.com, Inc. ("Tutopia"), the right to exchange its equity investment
in Tutopia (in which IFX holds a minority investment) for additional shares of
convertible preferred stock of IFX within one year. IFX has agreed to permit
the other stockholders of Tutopia to exchange their shares of Tutopia for
shares of IFX if UBS exercises such right. The shares of Series C Preferred
Stock to be issued pursuant to the New Stock Purchase Agreement and the
additional shares of convertible preferred stock and common stock that may be
issued in connection with the Put are collectively the shares of "New Stock"
referred to in Proposal Two of this Proxy Statement. A Third Amended and
Restated Stockholders Agreement (the "New Stockholders Agreement"), by and
among the Company, UBS, ITI, Eidelstein, Shalom and Casty and a Second Amended
and Restated Registration Rights Agreement among the Company, UBS, ITI,
Eidelstein and Casty will also be entered into at the Closing. It is a further
condition to the Closing that the Company shall have restructured certain of
its outstanding debt obligations.
UBS has advanced $3,000,000 to IFX to date and may, but is not obligated to,
advance additional funds, to IFX prior to the Closing. This advance by UBS will
be applied against its purchase price for the Series C Preferred Stock. Any
interest owed by IFX to UBS as a result of the advances will be paid in the
form of additional shares of Series C Preferred Stock based on a purchase price
of $3.00 per share.
The amendment of the Restated Certificate of Incorporation and the
Certificates of Designation requires the approval of the Company's stockholders
under the Delaware General Corporation Law. The issuance of the shares of New
Stock requires approval of the Company's stockholders according to the
stockholder approval requirements of Nasdaq.
Effect On Ownership Percentage of Company.
Prior to the Closing, UBS holds 2,030,869 shares (or 100% of the issued and
outstanding shares) of Series A Preferred Stock, 4,418,262 shares (or 100% of
the issued and outstanding shares) of Series B Preferred Stock consisting of
Class I Series B Preferred Stock and Class II Series B Preferred Stock, and
1,500,000 shares of Common Stock. The Series A Preferred Stock is currently
convertible into 7,142,857 shares of Common Stock and the Series B Preferred
Stock is currently convertible into 4,418,262 shares of Common Stock. The Class
II Series B Preferred Stock is convertible into Class I Series B Preferred
Stock on a share for share basis beginning May 3, 2002. After the issuance of
the Series C Preferred Stock, the Series A Preferred Stock owned by UBS would
be convertible into 8,333,333 shares of Common Stock, the shares of Series B
Preferred Stock owned by UBS would be convertible into approximately 5,154,640
shares of Common Stock, and the 3,833,333 shares of
5
Series C Preferred Stock would be convertible into 3,833,333 shares of Common
Stock. If UBS and other stockholders of Tutopia exercise the Put, additional
shares of Common Stock and an additional series of convertible preferred stock
of the Company could be issued that could, on a fully-converted basis, equal
approximately 8.6 million shares of Company stock (over 59% of the currently
outstanding Common Stock).
Effect On General Voting Power.
In all matters requiring stockholder approval, in addition to any required
class vote of the Series A Preferred Stock or Series B Preferred Stock, the
holders of all shares of the Company's issued and outstanding classes of stock
vote together as a single class (other than Class II Series B Preferred Stock
which does not vote in the election of directors). Prior to the Closing, UBS
controls 13,061,119 votes (or approximately 50.3%). After the Closing, UBS will
control approximately 17,321,557 votes (or approximately 57.6%) assuming
certain IFX debt covenants are waived. If such covenants are not waived, UBS
will receive a portion of its additional equity in the form of non-voting
preferred stock and will own less than 50% of Company stock entitled to vote
for directors. If the Put is exercised by UBS, it would control approximately
22,931,557 votes (or approximately 59.1%).
Effect On Vote For Election Of Directors.
After the Closing, the holders of Common Stock, Series A Preferred Stock,
Class I Series B Preferred Stock and Class I Series C Preferred Stock will be
entitled to vote in the election of directors of the Company. If the Company
receives a waiver of certain outstanding debt covenants, holders of the Series
A Preferred Stock, Class I Series B Preferred Stock and Class I Series C
Preferred Stock will be entitled to designate four directors as a class. In
such case, the parties to the New Stockholders Agreement (who control 65% of
the outstanding voting stock) have agreed to elect, seven members to the Board,
of whom three shall be designated by UBS (initially, Charles W. Moore, Mark O.
Lama and Charles Delaney), one shall be the designated by ITI (initially,
Michael Shalom), one shall be designated by Casty (initially, Joel Eidelstein),
one shall be an independent director (as defined by the NASD) designated by UBS
(initially, Patrick Delhougne), and one shall be an independent director
reasonably acceptable to UBS, Casty and ITI (initially, Burton Meyer). Mr.
Moore, Mr. Lama, Mr. Delaney and Mr. Delhougne will each also initially count
as one of the four directors that the holders of the Preferred Stock are
entitled to elect as a class. If the Company does not receive a waiver of
certain outstanding debt covenants, the New Stockholders Agreement provides
that the Board will have nine directors, of whom five shall be designated by
UBS (initially, Charles W. Moore, Mark O. Lama, Charles Delaney and two
additional directors designated by UBS), one shall be designated by ITI
(initially, Michael Shalom), one shall be designated by Casty (initially, Joel
Eidelstein) and two shall be independent directors reasonably acceptable to
UBS, Casty and ITI (initially, Patrick Delhougne and Burton Meyer).
PROPOSAL ONE:
AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION
IFX's Restated Certificate of Incorporation authorizes the issuance of
50,000,000 shares of Common Stock, $.02 par value and 10,000,000 shares of
Preferred Stock, $1.00 par value. As of November 1, 2001, 14,276,495 shares of
Common Stock were issued and outstanding, and 17,058,887 shares of Common Stock
were reserved for issuance by the Company upon the exercise of options and
warrants and the conversion of the Preferred Stock. As of November 1, 2001,
6,449,131 shares of Preferred Stock were issued and outstanding, which shares
are divided into two series of Convertible Preferred Stock. After the Closing,
12,776,495 shares of Common Stock will be issued and outstanding and 10,282,464
shares of Preferred Stock will be issued and outstanding. If the Put is
exercised in full by UBS and other Tutopia stockholders, approximately
14,061,355 shares of Common Stock would be issued and outstanding and
17,559,131 shares of Preferred Stock would be issued and outstanding. The Board
of Directors recommends that the authorized number of shares of Common Stock be
increased from 50,000,000 shares to 60,000,000 shares, and also that the
authorized number of shares of Preferred Stock be increased from 10,000,000
shares to 20,000,000 shares.
6
The transactions pursuant to the New Stock Purchase Agreement and the Put
require that the Company increase the number of common and preferred shares
available. The Board believes, based on the number of shares of Common Stock
and Preferred Stock currently outstanding and the number of shares the Company
reasonably expects to issue in financings, acquisitions, conversion of
preferred shares, and other transactions, that 50,000,000 is an insufficient
number of shares of Common Stock, and that 10,000,000 is an insufficient number
of shares of Preferred Stock for the Company to be authorized to issue without
additional stockholder approval. Accordingly, the Board of Directors believes
that an increase in the number of authorized shares of Common Stock and
Preferred Stock would be in the best interests of the Company and that
60,000,000 authorized shares of Common Stock and 20,000,000 shares of Preferred
Stock will suffice to maintain the requisite amount of flexibility required by
the Company's ongoing activities as currently contemplated.
If the amendments to the Restated Certificate of Incorporation are adopted,
Article 4 of the Restated Certificate of Incorporation will be amended and
restated to read as shown on Exhibit A.
Vote Required
The proposal to amend the Restated Certificate of Incorporation requires the
affirmative vote of the holders of a majority of the votes entitled to be cast
by holders of all outstanding shares of the Series A Preferred Stock and the
affirmative vote of the holders of a majority of the votes entitled to be cast
by holders of all outstanding shares of the Series B Preferred Stock. This
proposal also requires the affirmative vote of the holders of a majority of the
votes entitled to be cast by the holders of all outstanding shares of Common
Stock, Series A Preferred Stock and Series B Preferred Stock, voting together
as a single class.
Under the terms of the Voting Agreement, the holders of all of the Preferred
Stock and the holders of approximately 65% of the outstanding shares of the
Common Stock have agreed to vote for the approval of the Amendment to the
Restated Certificate of Incorporation. Accordingly, the proposal will be
approved at the Annual Meeting.
Recommendation of the Board of Directors
The Board of Directors recommends that stockholders vote FOR the amendment
to the Company's Restated Certificate of Incorporation to increase the number
of shares of Common Stock and Preferred Stock the Company is authorized to
issue.
PROPOSAL TWO:
ISSUANCE OF NEW STOCK
The Company's listing agreement with Nasdaq requires stockholder approval of
the issuance of common stock, or stock convertible into common stock, if such
issuance will result in a change of control of the Company. Since upon the
issuance of the Series C Preferred Stock, UBS will be able to designate a
majority of the Board of Directors and may own over 50% of the Company's voting
stock, the Company is seeking the approval of stockholders for this issuance.
Following the issuance of the Series C Preferred Stock, each share of Series
A Preferred Stock will be convertible into approximately 4.10 shares of Common
Stock, and each share of Series B Preferred Stock will be convertible into
approximately 1.17 shares of Common Stock. There are currently 14,276,495
shares of Common Stock which have been issued and are outstanding. Following
issuance of all of the Series C Preferred Stock and assuming the immediate
conversion of all of the Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock into Common Stock, the total number of shares of
Common Stock would increase to approximately 30 million shares, an increase of
110%. UBS would hold approximately 17.3 million shares, or approximately 58%,
of these shares.
7
In addition, if UBS and all other stockholders of Tutopia (other than the
Company) exercise the Put, additional shares of Common Stock and an additional
series of convertible preferred stock of the Company could be issued that, on a
fully-converted basis, equal approximately 8.6 million shares of Company stock
(over 59% of the currently outstanding Common Stock) at a price that could be
below the greater of book or market value of the Common Stock at the time of
the issuance of the new convertible preferred stock. Such an issuance would
also require the approval of stockholders under Nasdaq rules. Under the Put,
the new series of convertible preferred stock would have the same terms as the
Series C Preferred Stock as described below except for the participation
feature in the event of liquidation.
Terms of the Series C Preferred Stock
The following is a summary of the material terms of the Series C Preferred
Stock:
Rank. For dividends or distribution of assets upon liquidation,
dissolution or winding up of the Company, the Series C Preferred Stock will
rank pari passu with the Series A Preferred Stock and the Series B Preferred
Stock, and all three classes of Preferred Stock rank senior to the Common
Stock.
Liquidation. In the event of any bankruptcy, liquidation, dissolution or
winding up of the Company, the holders of the Series C Preferred Stock will
receive a liquidation preference equal to the sum of (a) $3.00 per share
plus all accrued but unpaid dividends (if any) plus $0.30 per share per year
from the date of issuance of the shares to the liquidation date (the "Stated
Preference"), plus (b) an amount equal to the per share amount the Series C
Preferred Stock would have been paid if each share of Series C Preferred
Stock and all other outstanding shares of Preferred Stock had been converted
into Common Stock immediately prior to any such liquidation event, after the
full payment of its Stated Preference and the stated preference of the other
Preferred Stock.
However, the amount payable per share of Series C Preferred Stock as a
liquidation preference cannot exceed three and one-half (3-1/2) multiplied
by the Stated Preference.
Voting Rights. Each share of Series C Convertible Preferred Stock will be
entitled to 2.3356 votes. The holders of the Series C Preferred Stock are
entitled to vote with the holders of the Common Stock, the holders of the
Series A Preferred Stock and the holders of the Class I Series B Preferred
Stock, as a single class, on all matters presented to the holders of the
Common Stock. Additionally, the holders of the Series A, Class I Series B
and Class I Series C Preferred Stock voting together as a class will be
entitled to appoint a majority of the Board of Directors.
Restrictions. Without the consent of a majority of the holders of the
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred
Stock voting together as a single class, the Company may not take any of the
following actions:
amend, repeal, modify or supplement any provision of the Company's
Certificate of Incorporation or Bylaws;
issue any capital stock or any options, warrants or other rights
exchangeable or exercisable therefor (with certain permitted exceptions);
pay any dividends on or repurchase, redeem or retire the Common Stock;
reclassify any class or series of any Common Stock into shares having
any preference or priority as to dividends or liquidation superior to or
on a parity with any such preference or priority of Series C Preferred
Stock;
authorize a liquidation, winding up or dissolution of the Company or
any acquisition of the Company;
become party to any agreement where any Company shareholder transfers
stock to a third party which results in the third party possessing the
voting power to elect a majority of the Company's Board of Directors
approve the annual budget of the Company;
8
amend any existing Company stock option plan or (except as approved
by the Compensation Committee of the Board of Directors) adopt any new
stock-based compensation plan;
enter into any financial commitment over and above those approved in
the annual budget in excess of $15 million in the aggregate;
dismiss or hire or modify or enter into any employment agreement, or
other compensation arrangements with any senior officer of the Company;
permit the creation or existence of any lien on any of the Company's
assets with an aggregate value in excess of $15 million;
make any capital expenditure in any fiscal year in excess of $15
million in the aggregate except as prescribed in the approved annual
budget;
acquire any assets or equity or other interest in any other entity
with a value in excess of $15 million in the aggregate except as
prescribed in the approved annual budget;
incur indebtedness in excess of $15 million in the aggregate, except
as prescribed in the approved annual budget;
dispose of or acquire assets with a value in excess of $15 million
other than in the normal course of business;
change in any material respect the nature of the Company's business;
enter into any understanding with any affiliate of the Company, other
than a wholly-owned subsidiary of the Company; or
solicit or negotiate any proposals with respect to Latin Guide, Inc.,
a subsidiary of the Company, or Tutopia or any of its subsidiaries.
Conversion. Each share of Series C Preferred Stock will initially be
convertible into one share of Common Stock.
Adjustments. The conversion rights of the Series C Preferred Stock are
subject to adjustment in the case of certain events to prevent any dilution
in the holdings of the holders of the Series C Preferred Stock (including,
but not limited to, certain issuances of Company equity securities at less
than $3.00 per share).
Preemptive Right. Each holder of the Series C Preferred Stock has the
right to purchase its pro rata share of certain new securities issued by the
Company.
Although this Proxy Statement contains a summary of the Series C Preferred
Stock, this summary is not intended to be complete and reference should be made
to Exhibit B to this Proxy Statement for the complete text of the form of the
Series C Preferred Stock Certificate of Designation.
Vote Required
The proposal to issue the New Stock requires the affirmative vote of the
holders of a majority of the votes entitled to be cast by holders of all
outstanding shares of the Series A Preferred Stock and the affirmative vote of
the holders of a majority of the votes entitled to be cast by holders of all
outstanding shares of the Series B Preferred Stock. This proposal also requires
the affirmative vote of the holders of a majority of the votes entitled to be
cast by the holders of all outstanding shares of Common Stock, Series A
Preferred Stock and Series B Preferred Stock, voting together as a single class.
Under the terms of the Voting Agreement, the holders of all of the Preferred
Stock and the holders of approximately 65% of the outstanding shares of the
Common Stock have agreed to vote for the issuance of the New Stock.
Accordingly, the proposal will be approved at the Annual Meeting.
Recommendation of the Board of Directors
The Board of Directors of the Company unanimously recommends that the
stockholders vote FOR the issuance of the New Stock.
9
PROPOSAL THREE:
CERTIFICATES OF DESIGNATION AMENDMENTS
Background
Certain provisions of the Certificates of Designation for the Series A
Preferred Stock and the Series B Preferred Stock will be amended as a result of
the issuance of the Series C Preferred Stock.
Current Terms of the Series A Preferred Stock and Series B Preferred Stock
The following is a summary of the current material terms of the Series A
Preferred Stock and the Series B Preferred Stock:
Rank. For dividends or distribution of assets upon liquidation,
dissolution or winding up of the Company, the Series A Preferred Stock and
the Series B Preferred Stock are pari passu and both classes of Preferred
Stock rank senior to the Common Stock.
Liquidation Preference. In the event of any bankruptcy, liquidation,
dissolution or winding up, or merger, of the Company, the holders of the
Series A Preferred Stock receive a liquidation preference of $12.31 per
share (the current Stated Value of each share of the Series A Preferred
Stock) plus all accrued but unpaid dividends (if any) plus $1.23 per share
per year from the date of issuance of the shares to the liquidation date;
and the holders of the Series B Preferred Stock receive a liquidation
preference of $3.50 per share (the current Stated Value of each share of the
Series B Preferred Stock) plus all accrued but unpaid dividends (if any);
plus $0.35 per share per year from the date of issuance of the shares to the
liquidation date.
Voting Rights. Each share of Series A Preferred Stock and Series B
Preferred Stock is entitled to one vote for each share of Common Stock into
which the Preferred Stock is convertible (except that Class II Series B
Preferred Stock cannot vote for directors). The holders of the Series A
Preferred Stock and the Series B Preferred Stock are entitled to vote with
the holders of the Common Stock, as a single class, on all matters presented
to the holders of the Common Stock (except that Class II Series B Preferred
Stock cannot vote for directors). The holders of the Series A Convertible
Stock are also entitled to designate two directors as a class and the
holders of the Class I Series B Preferred Stock are entitled to designate
one director as a class.
Restrictions. Without the consent of a majority of the holders of the
Series A Preferred Stock and the majority of the holders of the Series B
Preferred Stock, the Company may not take any of the following actions:
amend, repeal, modify or supplement any provision of the Company's
Certificate of Incorporation or Bylaws;
issue any capital stock or any options, warrants or other rights
exchangeable or exercisable therefor (with certain permitted exceptions);
pay any dividends on or repurchase, redeem or retire the Common Stock;
reclassify any class or series of any Common Stock into shares having
any preference or priority as to dividends or liquidation superior to or
on a parity with any such preference or priority of the Series A
Preferred Stock or Series B Preferred Stock;
authorize a liquidation, winding up or dissolution of the Company or
any acquisition of the Company;
become party to any agreement where any Company shareholder transfers
stock to a third party which results in the third party possessing the
voting power to elect a majority of the Company's Board of Directors;
approve the annual budget of the Company;
10
amend any existing Company stock option plan or (except as approved
by the Compensation Committee of the Board of Directors) adopt any new
stock-based compensation plan;
enter into any financial commitment over and above those approved in
the annual budget in excess of $15 million in the aggregate;
dismiss or hire or modify or enter into any employment agreement, or
other compensation arrangements with any senior officer of the Company;
permit the creation or existence of any lien on any of the Company's
assets with an aggregate value in excess of $15 million;
make any capital expenditure in any fiscal year in excess of $15
million in the aggregate except as prescribed in the approved annual
budget;
acquire any assets or equity or other interest in any other entity
with a value in excess of $15 million in the aggregate except as
prescribed in the approved annual budget;
incur indebtedness in excess of $15 million in the aggregate, except
as prescribed in the approved annual budget;
dispose of or acquire assets with a value in excess of $15 million
other than in the normal course of business;
change in any material respect the nature of the Company's business;
enter into any understanding with any affiliate of the Company, other
than a wholly-owned subsidiary of the Company; or
solicit or negotiate any proposals with respect to Latin Guide, Inc.,
a subsidiary of the Company, or Tutopia or any of its subsidiaries.
Conversion. Each share of Series A Preferred Stock is convertible into
approximately 3.52 shares of Common Stock and each share of Series B
Preferred Stock is convertible into one share of Common Stock.
Adjustments. The conversion rights of the Series A Preferred Stock and
the Series B Preferred Stock are subject to adjustment in the case of
certain events to prevent dilution in the holdings of the holders of the
Series A Preferred Stock and the Series B Preferred Stock (including, but
not limited to, certain issuances of Company equity securities at less than
$3.50 per share).
Preemptive Right. Each holder of the Series A Preferred Stock and Series
B Preferred Stock has the right of first refusal to purchase its pro rata
share of certain new securities issued by the Company.
Changes to Reflect Issuance of Series C Preferred Stock
Upon issuance of the Series C Preferred Stock, certain material terms of the
Series A Preferred Stock and Series B Preferred Stock with respect to rank,
liquidation preference (including the addition of a participating preference),
voting rights, conversion rate and adjustments to conversion rate will change
as follows:
Rank. For dividends or distribution of assets upon liquidation,
dissolution or winding up of the Company, the Series C Preferred Stock
will rank pari passu with the Series A Preferred Stock and the Series B
Preferred Stock. All three classes of Preferred Stock will rank senior
to the Common Stock.
Liquidation Preference. In the event of any bankruptcy, liquidation,
dissolution or winding up of the Company, the holders of the Series A
Preferred Stock will receive a liquidation preference equal to the sum
of (a) $12.31 per share plus all accrued but unpaid dividends (if any)
plus $1.23 per share per year from the date of issuance of the shares to
the liquidation date (the "Stated Preference"), plus (b) an amount equal
to the per share amount the Series A Preferred Stock would have been
paid if each share of the Series A Preferred Stock and all other
outstanding shares of Preferred Stock had been converted into Common
Stock immediately prior to any such liquidation event, after the full
payment of its Stated Preference and the stated preference of the other
Preferred Stock.
11
The holders of the Series B Preferred Stock will receive a
liquidation preference equal to the sum of (a) $3.50 per share plus all
accrued but unpaid dividends (if any) plus $0.35 per share per year from
the date of issuance of the shares to the liquidation date (the "Stated
Preference"), plus (b) an amount equal to the per share amount the
Series B Preferred Stock would have been paid if each share of the
Series B Preferred Stock and all other outstanding shares of Preferred
Stock had been converted into Common Stock immediately prior to any such
liquidation event, after the full payment of its Stated Preference and
the stated preference of the other Preferred Stock.
However, the amount payable per share of Series A Preferred Stock and
Series B Preferred Stock as a liquidation preference cannot exceed three
and one-half (3-1/2) multiplied by the applicable Stated Preference.
Voting Rights. Each share of Series A Preferred Stock will be
entitled to one vote and each share of Series B Preferred Stock will be
entitled to 1.4344 votes. The holders of the Series A Preferred Stock,
the Series B Preferred Stock and the Series C Preferred Stock are
entitled to vote with the holders of the Common Stock, as a single
class, on all matters presented to the holders of the Common Stock.
However, the holders of the Class II Series B Preferred Stock and the
Class II Series C Preferred Stock cannot vote for directors.
Additionally, the holders of the Series A Preferred Stock, Class I
Series Preferred Stock and the Class I Series C Preferred Stock, voting
together as a class, will be entitled to appoint a majority of the Board
of Directors.
Restrictions. Without the consent of a majority of the holders of the
Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock voting together as a single class, the Company may not
take any of the following actions:
amend, repeal, modify or supplement any provision of the Company's
Certificate of Incorporation or Bylaws;
issue any capital stock or any options, warrants or other rights
exchangeable or exercisable therefor (with certain permitted
exceptions);
pay any dividends on or repurchase, redeem or retire the Common
Stock;
reclassify any class or series of any Common Stock into shares
having any preference or priority as to dividends or liquidation
superior to or on a parity with any such preference or priority of
Series C Preferred Stock;
authorize a liquidation, winding up or dissolution of the Company
or any acquisition of the Company;
become party to any agreement where any Company shareholder
transfers stock to a third party which results in the third party
possessing the voting power to elect a majority of the Company's
Board of Directors
approve the annual budget of the Company;
amend any existing Company stock option plan or (except as
approved by the Compensation Committee of the Board of Directors)
adopt any new stock-based compensation plan;
enter into any financial commitment over and above those approved
in the annual budget in excess of $15 million in the aggregate;
dismiss or hire or modify or enter into any employment agreement,
or other compensation arrangements with any senior officer of the
Company;
permit the creation or existence of any lien on any of the
Company's assets with an aggregate value in excess of $15 million;
make any capital expenditure in any fiscal year in excess of $15
million in the aggregate except as prescribed in the approved annual
budget;
12
acquire any assets or equity or other interest in any other entity
with a value in excess of $15 million in the aggregate except as
prescribed in the approved annual budget;
incur indebtedness in excess of $15 million in the aggregate,
except as prescribed in the approved annual budget;
dispose of or acquire assets with a value in excess of $15 million
other than in the normal course of business;
change in any material respect the nature of the Company's
business;
enter into any understanding with any affiliate of the Company,
other than a wholly-owned subsidiary of the Company; or
solicit or negotiate any proposals with respect to Latin Guide,
Inc., a subsidiary of the Company, or Tutopia or any of its
subsidiaries.
Conversion. After the issuance of the Series C Preferred Stock, each
share of Series A Preferred Stock will be convertible into approximately
4.10 shares of Common Stock and each share of Series B Preferred Stock
will be convertible into approximately 1.17 shares of Common Stock.
Adjustments. The conversion rights of the Series A Preferred Stock
and Series B Preferred Stock are subject to adjustment in the case of
certain events to prevent dilution in the holdings of the holders of the
Series A Preferred Stock and Series B Preferred Stock (including, but
not limited to, certain issuances of Company equity securities at less
than $3.00 per share.)
Although this Proxy Statement contains a summary of the Series A Preferred
Stock and Series B Preferred Stock, this summary is not intended to be complete
and reference should be made to Exhibit C to this Proxy Statement for the
complete text of the form of Amended Series A Preferred Stock Certificate of
Designation and Exhibit D to this Proxy Statement for the complete text of the
form of Amended Series B Preferred Stock Certificate of Designation.
Vote Required
The proposal to amend the Certificates of Designation requires the
affirmative vote of the holders of a majority of the votes entitled to be cast
by holders of all outstanding shares of the Series A Preferred Stock and the
affirmative vote of the holders of a majority of the votes entitled to be cast
by holders of all outstanding shares of the Series B Preferred Stock. This
proposal also requires the affirmative vote of the holders of a majority of the
votes entitled to be cast by the holders of all outstanding shares of Common
Stock, Series A Preferred Stock and Series B Preferred Stock, voting together
as a single class.
Under the terms of the Voting Agreement, the holders of all of the Preferred
Stock and the holders of approximately 65% of the outstanding shares of the
Common Stock have agreed to vote for the issuance of the Series C Preferred
Stock. Accordingly, the proposal will be approved at the Annual Meeting.
Recommendation of the Board of Directors
The Board of Directors of the Company unanimously recommends that the
stockholders vote FOR the amendment of the certificates of designation.
PROPOSAL FOUR:
ELECTION OF DIRECTORS
Eight directors will be elected at the Annual Meeting to serve for one-year
terms. Except as described below, the Board of Directors has no reason to
believe that any of the nominees will not be a candidate or, if elected, will
be unable or unwilling to serve as a director. In no event will the proxies be
voted for a greater number of persons than the number of nominees named.
13
Upon the Closing, under the New Stockholders Agreement, the Board will be
restructured. The parties to the New Stockholders Agreement (who control 65% of
the outstanding voting stock) have agreed to elect, if the Company receives a
waiver of certain outstanding debt covenants, seven members to the Board. If
this occurs, George Myers has agreed to resign from the Board. If the Company
does not receive a waiver of certain outstanding debt covenants, the New
Stockholder Agreement provides that the Board shall have nine directors and UBS
shall designate the two additional directors. The Board of Directors has
nominated and urges you to vote "FOR" the election of the eight nominees listed
below. In the event a nominee is not available to serve for any reason when the
election occurs, it is intended that the proxies will be voted for the election
of the other nominees and may be voted for any substitute nominee.
Nominees for Election to the Board of Directors.
The following is information regarding nominees for election as directors of
the Company. Each of the nominees presently is serving as a director of the
Company.
Michael Shalom, 30, was elected as IFX's Chief Executive Officer on
September 8, 1999 and has served as a director of Emerging Networks, Inc., a
subsidiary of IFX, since November 1998. Prior to July 1999, Mr. Shalom was a
principal of, and was actively involved in the management of the INTCOMEX group
of companies, which group is a Latin American wholesale distributor of
microcomputers, networking products, mass storage products, multimedia
products, computer peripheral equipment and computer components. Mr. Shalom is
also a principal at ITI.
Joel M. Eidelstein, 34, has served as a director of the Company since
November 1990 and, since November 9, 1996, he has served as the President of
the Company. Mr. Eidelstein graduated from Brandeis University in May 1988.
From June 1988 until June 1996, he was an independent commodity futures trader
and a floor manager with Index Futures Group, Inc. Mr. Eidelstein also is a
principal shareholder of ePagos, Inc., an Internet communications software
development company in which IFX owns an interest.
Patrick Delhougne, 37, is a partner in Ray & Berndtson's technology
practice. Prior to joining Ray & Berndtson, Mr. Delhougne was an equity sales
associate and analyst for J. P. Morgan in London and New York. Previously, he
was a case team leader with Bain & Co. in Munich, Germany responsible for
managing strategy consulting projects. Mr. Delhougne began his career with
Siemens PLC in London, working as the assistant to the chief executive officer
and chief financial officer. He was subsequently promoted to corporate planner
in the regional strategy group, working with the board of directors at Siemens
AG in Munich. He also worked for the Siemens Transportation Group in Erlangen
as a commercial manager. Mr. Delhougne earned a B.B.A. from the U.S.
International University--Europe (Summa Cum Laude), a postgraduate diploma from
the London School of Economics, and an M.B.A. from the Harvard Graduate School
of Business Administration, which he attended on the Werner von Siemens
Scholarship.
Charles Delaney, 42, has served as a director since May 200. Mr. Delaney is
President of UBS Capital Americas which is the manager of two private equity
funds that make investments in the U.S. and Latin America. Mr. Delaney served
as President of UBS Capital LLC from May 1989 to December 1999. UBS Capital
Americas and UBS Capital LLC are affiliated with UBS AG. Mr. Delaney serves on
the Boards of Directors of AMS Holdings Corp., Aurora Foods Inc. and Edison
Schools Inc.
Burton J. Meyer, 54, has served as a director of the Company since May 1999.
Mr. Meyer previously served as director of the Company from August 1986 until
July 1, 1996 and as President of the Company from July 1987 until July 1, 1996.
Mr. Meyer served as an Executive Vice President of E.D. & F. Man International,
an international futures and conglomerate brokerage, from July 1996 to June 30,
2000.
Mark O. Lama, 40, was elected to the board of directors of IFX in June 2000
and Tutopia in August 2000. Mr. Lama is a principal of UBS Capital Americas.
Prior to joining UBS Capital Americas in 1998, he worked in
14
the U.S. and Latin America groups of Chase Capital Partners (a private equity
firm), the Banking and Corporate Finance Group of Chemical Bank and the
Emerging Markets group at Salomon Brothers, Inc. Mr. Lama holds an M.B.A. from
Harvard Business School, a B.S. from Columbia University and a B.A. from
Colgate University.
Charles W. Moore, 35, was elected to the board of directors of IFX in June
2000 and Tutopia in August 2000. Mr. Moore has been elected to serve as the
Preferred Stock Director. Mr. Moore is a partner of UBS Capital Americas. In
this role, Mr. Moore has senior responsibility for all
telecommunications-related investments of UBS Capital Americas. Prior to
joining UBS Capital, Mr. Moore invested for Greenwich Street Capital Partners,
LP from November 1994 to March 1997 and prior thereto worked at Morgan Stanley
& Co. in their investment banking division. Other boards of directors on which
Mr. Moore serves include: Sonexis (Boston, MA); Velocita (Reston, VA);
Dynamicsoft, Inc. (East Hanover, NJ). Mr. Moore is a graduate of the University
of Michigan and the University of Chicago Graduate School of Business.
George A. Myers, 51, has served as a director of the Company since November
1990. Mr. Myers has been managing general partner of MC Capital, a diversified
real estate company with offices in Chicago, Illinois, Phoenix, Arizona, and
San Diego, California since 1981.
Vote Required
Director nominees must receive the affirmative vote of a plurality of the
votes represented at the meeting and entitled to vote for directors, meaning
that the eight nominees for director with the most votes will be elected.
UBS, ITI and Casty, the beneficial owners of an aggregate of approximately
79% of the shares entitled to vote for directors, have contractually agreed to
vote all of their shares for election to the Company's Board of Directors of
Mark O. Lama, Charles Moore, Michael Shalom, Joel Eidelstein, Charles Delaney,
Burton Meyer, George Myers and Patrick Delhougne. Accordingly, all of the
nominees will be elected at the Annual Meeting.
Board of Directors Recommendation
Our Board recommends that you vote "FOR" all of the nominees for election as
directors.
PROPOSAL FIVE:
RATIFICATION OF THE ENGAGEMENT OF
ERNST & YOUNG
Ernst & Young LLP audited the Company's financial statements for fiscal year
2001. The Board of Directors has engaged Ernst & Young LLP to audit the
financial statements of the Company for fiscal year 2002, subject to
ratification by the stockholders.
It is expected that a representative of Ernst & Young LLP will be available
during the Annual Meeting and will have an opportunity to make a statement, if
such representative so desires, and to respond to appropriate questions.
Audit Fees
The aggregate fees billed to the Company by Ernst & Young, LLP as the
Company's independent public accountants for the audit of the fiscal year 2001
financial statements and for the review of the interim financial statements
included in the Company's fiscal year 2001 quarterly reports on Form 10-Q
totaled $474,390.
Financial Information System Design and Implementation Fees
The Company did not engage Ernst & Young to provide professional services to
the Company relating to financial information systems design and implementation
during fiscal year 2001.
15
All Other Fees
The aggregate fees billed to the Company by Ernst & Young for services
rendered to the Company during fiscal year 2001, other than the services
described under "Audit Fees" and "Financial Information Systems Design and
Implementation Fees," totaled $94,456. These fees were for tax consulting
services.
As set forth in the Audit Committee Report on page 23, the Audit Committee
has considered the provision of non-audit services described in "All Other
Fees" and has determined it is compatible with maintaining the independence of
Ernst & Young. The Audit Committee will consider in advance of the provision of
any significant non-audit services by Ernst & Young whether the provision of
such services is compatible with maintaining the independence of such
accountants.
Vote Required
The ratification of Ernst & Young LLP as independent auditors requires the
affirmative vote of the holders of a majority of the votes entitled to be cast
by holders of all outstanding shares of the Series A Preferred Stock and the
affirmative vote of the holders of a majority of the votes entitled to be cast
by holders of all outstanding shares of the Series B Preferred Stock. This
proposal also requires the affirmative vote of the holders of a majority of the
votes entitled to be cast by the holders of all outstanding shares of Common
Stock, Series A Preferred Stock and Series B Preferred Stock, voting together
as a single class.
Recommendation of the Board of Directors
The Board of Directors of the Company unanimously recommends that
stockholders vote FOR ratification of Ernst & Young LLP as independent auditors.
BOARD STRUCTURE AND COMPENSATION
Board of Directors
Directors are elected on an annual basis. Each director of the Company holds
office until the next annual meeting of stockholders or until that director's
successor has been elected and qualified. The number of directors that
constitute the full board is fixed from time to time by resolution of the Board
of Directors. There are eight persons currently serving as directors.
After the Closing, the holders of Common Stock, Series A Preferred Stock,
Class I Series B Preferred Stock and Class I Series C Preferred Stock will be
entitled to vote in the election of directors of the Company. If the Company
receives a waiver of certain outstanding debt covenants, holders of the Series
A Preferred Stock, Class I Series B Preferred Stock and Class I Series C
Preferred Stock will be entitled to designate four directors as a class. In
such case, the parties to the New Stockholders Agreement (who control 65% of
the outstanding voting stock) have agreed to elect seven members to the Board,
of whom three shall be designated by UBS (initially, Charles W. Moore, Mark O.
Lama and Charles Delaney), one shall be the designated by ITI (initially,
Michael Shalom), one shall be designated by Casty (initially, Joel Eidelstein),
one shall be an independent director (as defined by the NASD) designated by UBS
(initially, Patrick Delhougne), and one shall be an independent director
reasonably acceptable to UBS, Casty and ITI (initially, Burton Meyer). If this
occurs, George Myers has agreed to resign from the Board.
If the Company does not receive a waiver of certain outstanding debt
covenants, the New Stockholder Agreement provides that the Board shall have
nine directors, of whom five shall be designated by UBS (initially, Charles W.
Moore, Mark O. Lama, Charles Delaney and two additional directors designated by
UBS), one shall be designated by ITI (initially, Michael Shalom), one shall be
designated by Casty (initially, Joel Eidelstein) and two shall be independent
directors reasonably acceptable to UBS, Casty and ITI (initially, Patrick
Delhougne and Burton Meyer. If this occurs, George Myers has agreed to resign
from the Board.
16
During fiscal year 2001, the Board of Directors held six meetings and took
all other actions pursuant to unanimous written consents in lieu of meetings.
Each of the current directors attended at least 75% of all meetings of the
Board of Directors during fiscal year 2001 called during the time he or she
served.
Compensation of Directors
Directors do not receive cash compensation in connection with their duties
as directors, but may be reimbursed for expenses incurred by them in connection
with their services as directors.
The Company grants stock options under our Directors Stock Option Plan to
each director who is not an IFX employee and who is not a beneficial owner of
5% or more of the Company's Common Stock (as determined in accordance with Rule
13d-3 of the Securities Exchange Act of 1934). Under this plan, we grant each
non-employee director an option to buy 450 shares of our Common Stock when the
director is first elected and an option to buy an additional 450 shares of
Common Stock at each annual meeting until he or she is no longer a director. If
a director serves on a committee of the board, he or she is granted an
additional option to buy 75 shares for each year of service. The exercise price
for the options is equal to 100% of the fair market value of our Common Stock
on the date of grant. The options cannot be exercised until six months after
the date of grant. Each option terminates on the earlier of a director's
termination for cause, one year after a director's death, or ten years from the
date of grant. Mr. Myers and Mr. Meyer have each been granted options to
purchase 1,200 shares of Company Common Stock for their services as directors
since November 9, 1999. Mr. Delhougne was granted 450 shares upon his election
to the Board on May 2, 2001. Mr. Eidelstein and Mr. Shalom, as employees, and
Mr. Delaney, Mr. Moore and Mr. Lama, as 5% or more beneficial owners, did not
receive any options under the plan.
Committees of the Board of Directors
The Board of Directors has a standing Audit Committee and Compensation
Committee to assist the Board in the discharge of its responsibilities. The
current members of the Audit Committee are George A. Myers, Burton J. Meyer and
Mark O. Lama. Mr. Myers. and Mr. Meyer are independent directors as defined by
Rule 4200(a)(15) of the NASD Listing Rules. Under Rule 4460(d)(2)(B) of the
NASD's listing Rules, the Board of Directors believes that it is in the best
interest of IFX and its stockholders to appoint Mr. Lama to the Audit Committee
even though Mr. Lama is not "independent" of IFX according to the NASD Rules.
Mr. Lama's experience and knowledge of the Company through his work with UBS
make him a valuable member of the Audit Committee. Each of the Audit Committee
and the Compensation Committee held one meeting during fiscal year 2001 which
was attended by all of its respective members.
The Compensation Committee develops and oversees the Company's compensation
policy and approves salaries and annual bonuses for senior management of the
Company. The Compensation Committee currently consists of George Myers, Burton
J. Meyer and Charles W. Moore.
Report of the Audit Committee
The Audit Committee of the Board of Directors is composed of two independent
directors and one non-independent director as defined by and in accordance with
NASD rules. The Audit Committee operates under a written charter adopted by the
Board of Directors (attached as Exhibit E to this Proxy Statement). The Audit
Committee recommends to the Board of Directors, subject to stockholder
ratification, the selection of the Company's independent accountants.
Management is responsible for the Company's internal controls and the
financial reporting process. The independent accountants are responsible for
performing an independent audit of the Company's consolidated financial
statements in accordance with generally accepted auditing standards and to
issue a report thereon. The Audit Committee's responsibility is to monitor and
oversee these processes.
17
In this context, the Audit Committee held discussions with management and
the independent accountants. Management represented to the Audit Committee that
the Company's consolidated financial statements were prepared in accordance
with generally accepted accounting principles, and the Audit Committee has
reviewed and discussed the consolidated financial statements with management
and the independent accountants. The Audit Committee discussed with the
independent accountants matters required to be discussed by Statement on
Auditing Standards No. 61 (Communication with Audit Committees).
The Company's independent accountants also provided to the Audit Committee
the written disclosures required by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees), and the Audit Committee
discussed with the independent accountants the firm's independence.
Additionally, the Audit Committee has considered whether the independent public
accountant's provision of "other non-audit services" to the Company is
compatible with the auditor's independence. The members of the Audit Committee
are not professionally engaged in the practice of auditing or accounting and
are not experts in the fields of accounting or auditing, including in respect
of auditor independence. Members of the Audit Committee rely without
verification on the information provided to them and on the representations
made by management and the independent auditors.
Based on the Audit Committee's discussion with management and the
independent accountants and the Audit Committee's review of the representation
of management and the report of the independent accountants to the Audit
Committee, the Audit Committee recommended that the Board of Directors include
the audited consolidated financial statements in the Corporation's Annual
Report on Form 10-K for the fiscal year ended June 30, 2001 filed with the
Securities and Exchange Commission.
SUBMITTED BY THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS
George Myers
Burton J. Meyer
Mark O. Lama
Compensation Committee Interlocks and Insider Participation
The current members of the compensation committee are George Myers, Burton
J. Meyer and Charles W. Moore. Mr. Meyer previously served as an officer of IFX
from 1987 to June 1996. On July 1, 1996, IFX sold assets to E.D.& F. Man
International, Inc. Burton J. Meyer, served as Executive Vice President of
E.D.& F. Man International, Inc. from July 1996 to June 30, 2000.
Mr. Delaney is the Chief Executive Officer, Mr. Moore is a director and Mr.
Lama a principal, of UBS Capital Americas, LLC, an affiliate of UBS Capital
Americas III, L.P. and UBS Capital LLC, which together purchased $25 million of
IFX Preferred Stock in June and July 2000 (UBS received a $750,000 private
equity fee in connection with this transaction), $15.4 million of IFX Preferred
Stock in May 2001 (UBS received a $462,000 private equity fee in connection
with this transaction), $15 million of preferred stock in Tutopia.com, Inc. in
August 2000 and $1.83 million of Tutopia preferred stock in May 2001. If
approved at the Annual Meeting, UBS will purchase IFX Preferred Stock in
exchange for $7 million and 1.5 million shares of Common Stock currently owned
by UBS. UBS will have the right to put its interest in Tutopia to IFX in
exchange for additional IFX Preferred Stock Mr. Delaney, Mr. Moore and Mr. Lama
have an investment interest in UBS and thus may benefit from transactions
between UBS on the one hand and IFX and its subsidiaries on the other.
18
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Director, among other things,
develops and oversee the Company's compensation policy and approve salaries and
annual bonuses for senior management of the Company. The Compensation Committee
currently consists of George Myers, Burton J. Meyer and Charles W. Moore.
The Company's compensation policy for senior management historically
consisted almost exclusively of cash salaries and, from time to time,
discretionary performance bonuses. In fiscal year 1999, the Board of Directors
implemented a change in the Company's compensation policy to add a significant
long-term equity component to the compensation paid to its senior management.
The Board's goal was to strengthen the Company's ability to recruit, motivate
and retain highly-qualified individuals. The Compensation Committee believes
that stock options and restricted stock, which vest over time and will be
subject to forfeiture, better align the interests of the Company's senior
management with the interests of the Company's stockholders. The Compensation
Committee also believes that substantial equity ownership by individuals in
leadership positions within the Company will help to ensure that such
individuals remain focused on building stockholder value.
In reviewing annual salary, salary increases and equity compensation for
individual executive officers, including the chief executive officer, the
Compensation Committee consider various factors, such as the executive's
contribution to the Company's operating effectiveness and profitability; the
executive's achievement of pre-established goals and performance targets; the
level of responsibility, scope and complexity of such executive's position
relative to other executive management; and the salary levels of other
companies in the same industry.
SUBMITTED BY THE COMPENSATION
COMMITTEE OF THE BOARD OF
DIRECTORS
George A. Myers
Burton J. Meyer
Charles W. Moore
November 6, 2001
19
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG IFX CORPORATION,
THE NASDAQ STOCK MARKET INDEX AND INDUSTRY INDEX
IFX's primary business was providing commodity brokerage services until July
1996 when we sold substantially all of these assets. From July 1996 through
February 1999, IFX's revenues consisted primarily of payments and earnings
related to these discontinued operations. In November 1998, the Company started
its Internet business in Latin America.
The graph below compares the cumulative total shareholder return on the
Common Stock since the Company's fiscal year ended June 1996 with the
cumulative total return of the Nasdaq Stock Market and the cumulative total
return of the MG Industry Group 850 Internet Service Providers over the same
period (assuming the investment on June 30, 1996 of $100 in each of the Common
Stock, the Nasdaq Stock Market and the MG Industry 850 Internet Service
Providers).
[CHART]
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN
AMONG IFX CORPORATION, THE NASDAQ STOCK MARKET (U.S.) INDEX
AND MG GROUP INDEX
IFX MG Group NASDAQ Market
Corporation Index Index
1996 100 100 100
1997 139.99 96.45 121.61
1998 243.93 328.67 160.07
1999 2367.24 1216.88 230.25
2000 1487.52 1111.50 340.31
2001 236.72 195.73 187.52
ASSUMES $100 INVESTED ON JULY 1,1996
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING JUNE 30, 2001
Fiscal Year Ended June 30,
---------------------------------------------------
1996 1997 1998 1999 2000 2001
------- ------- ------- --------- --------- -------
IFX Corporation........... $100.00 $139.99 $243.93 $2,367.24 $1,487.52 $236.72
Internet Service Providers 100.00 96.45 328.67 1,216.88 1,111.50 195.73
NASDAQ Market Index....... 100.00 121.61 160.07 230.25 340.31 187.52
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Exchange
Act that might incorporate future filings, including this proxy statement, in
whole or in part, the report presented above and the performance graph
following the report shall not be incorporated by reference into any such
filings.
20
EXECUTIVE OFFICERS AND EXECUTIVE COMPENSATION
The following table presents the total compensation paid or accrued during
fiscal years 2001, 2000 and 1999 to each of our executive officers.
Summary Compensation Table
Long Term
Annual Compensation Compensation
------------------- ------------
Securities
Underlying
Year Ended Salary Bonus Options
Name and Principal Position June 30 ($) ($) (#)
--------------------------- ---------- -------- -------- ------------
Michael F. Shalom, CEO....... 2001 $237,500 $ 50,000 299,800
2000 $162,500 $ 50,000 30,000
1999 -- -- --
Joel M. Eidelstein, President 2001 $253,125 $ 61,827 28,500
2000 $150,000 $ 50,000 300,000
1999 $ 50,000 -- 300,000
Jose Leiman, CFO............. 2001 $225,792 $275,000 275,000
2000 $225,000 $ 25,000 227,500
1999 -- -- --
Zalman Lekach, COO(1)........ 2001 $222,981 -- 192,500
2000 $151,200 $225,000 374,167
1999 $ 24,600 --
We refer you to "Election of Directors" above for biographies of Joel
Eidelstein and Michael Shalom. Jose Leiman, age 41, has served as Chief
Financial Officer of the Company since August 1, 1999. From March 1996 to June
1999, Mr. Leiman was a CPA and tax attorney with Ernst & Young LLP, an
international accounting firm. Prior to joining Ernst & Young LLP, Mr. Leiman
was an attorney with Dewey Ballantine LLP, an international law firm. Mr.
Leiman has also worked as a CPA with Price Waterhouse Coopers.
Employment and Change of Control Agreements
Mr. Eidelstein serves as the President of the Company for a three-year term
which began January 1, 2000 pursuant to an employment agreement dated as of May
7, 2001. The term of the employment agreement is subject to automatic
extensions unless notified otherwise by either the Company or Mr. Eidelstein.
Mr. Eidelstein's base salary is $250,000. He is eligible to receive a $50,000
bonus per year if certain performance criteria are met. If Mr. Eidelstein is
involuntarily terminated during the term of the employment agreement (except
for cause) he receives a lump sum amount of accrued but unpaid salary and a
pro-rata bonus and all of his options immediately vest. He also receives an
amount equal to the product of the number of whole and fractional years
remaining until the end of the employment agreement's term multiplied by his
annualized current salary plus bonus for the prior year. If Mr. Eidelstein is
terminated within two years after a "Change of Control", he receives an amount
equal to the product of the number of whole and fractional years remaining
until the end of the employment agreement's term multiplied by three times his
annualized current salary and highest previous annual bonus. The agreement
prohibits Mr. Eidelstein from disclosing confidential information regarding the
Company, and during the period of his employment with the Company and for one
year thereafter, being involved in any capacity with any business competitive
with the Company in the United States, Latin America or in any other market in
which the Company is then conducting business.
- --------
(1) Mr. Lekach resigned as the Chief Operating Officer of the Company on June
15, 2001 and his options granted during 2001 were forfeited on that date.
21
Mr. Shalom serves as the Chief Executive Officer of the Company for a
three-year term which began January 1, 2000 pursuant to an employment agreement
dated as of May 7, 2001. The term of the employment agreement is subject to
automatic extensions unless notified otherwise by either the Company or Mr.
Shalom. Mr. Shalom's base salary is $250,000. He is eligible to receive a
$50,000 bonus per year if certain performance criteria are met. If Mr. Shalom
is involuntarily terminated during the term of the employment agreement (except
for cause) he receives a lump sum amount of accrued but unpaid salary and a
pro-rata bonus and all of his options immediately vest. He also receives an
amount equal to the product of the number of whole and fractional years
remaining until the end of the employment agreement's term multiplied by his
annualized current salary plus bonus for the prior year. If Mr. Shalom is
terminated within two years after a "Change of Control", he receives an amount
equal to the product of the number of whole and fractional years remaining
until the end of the employment agreement's term multiplied by three times his
annualized current salary and highest previous annual bonus. The agreement
prohibits Mr. Shalom from disclosing confidential information regarding the
Company, and during the period of his employment with the Company and for one
year thereafter being involved in any capacity with any business competitive
with the Company in the United States, Latin America or in any other market in
which the Company is then conducting business.
Jose Leiman serves as the Chief Financial Officer of the Company pursuant to
a two-year employment agreement which commenced on May 7, 2001. The term of the
employment agreement is subject to automatic extension unless notified
otherwise by either the Company or Mr. Leiman. Mr. Leiman's base salary is
$235,000 per year for the first year of the agreement and $260,000 per year
thereafter. He received a performance bonus of $250,000 for his service during
the past two years and will receive a minimum bonus of $50,000 per fiscal year
up to a maximum of $125,000 per year. If Mr. Leiman is involuntarily terminated
during the term of the employment agreement (except for "cause"), he receives a
lump sum amount of accrued but unpaid salary and a pro-rata bonus and all of
his options under the 1998 Stock Option Plan immediately vest. He also receives
an amount equal to the product of the number of whole and fractional years
remaining until the end of the employment agreement's term multiplied by his
annualized current salary plus bonus for the prior year. If Mr. Leiman is
terminated within two years after a "Change of Control" (as defined in the
employment agreement), he receives an amount equal to the product of the number
of whole and fractional years remaining until the end of the employment
agreement's term multiplied by three times his annualized current salary and
highest previous annual bonus. The agreement prohibits Mr. Leiman from
disclosing confidential information regarding the Company, and during the
period of his employment with the Company and for one year thereafter from
being involved in any capacity with any business competitive with the Company
in the United States, Latin America or in any other market in which the Company
is then conducting business.
Under the agreements of Messrs. Eidelstein, Shalom and Leiman, a "Change in
Control" means the occurrence of any one of the following events: (a) any
consolidation, merger or other similar transaction involving IFX, if following
which the stockholders of IFX immediately prior to such transaction fail to
hold more than 50% of the outstanding voting securities of the continuing or
succeeding corporation in substantially the same proportions, or which
contemplates that all or substantially all of the business and/or assets of IFX
will be controlled by another corporation; (b) any sale, lease, exchange or
transfer (in one transaction or series of related transactions) of all or
substantially all of the assets of IFX; (c) approval by the stockholders of IFX
of any plan or proposal for the liquidation or dissolution of IFX, unless such
plan or proposal is abandoned within 60 days following such approval; (d) the
acquisition by any "person" (as such term is used in Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934), or two or more Persons acting
in concert, of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 50% or more of the outstanding shares of
voting stock of IFX; provided, however, that for purposes of the foregoing,
"person" excludes UBS Capital Americas III, L.P., UBS Capital, LLC, Lee S.
Casty, the Casty Grantor Subtrust, International Technology Investments, LC or
any of their Affiliates, any underwriter purchasing shares of IFX with the
intent of reselling them, or (e) if, during any period of 24 consecutive
calendar months commencing on the date of this Agreement, those individuals
(the "Continuing Directors") who either (i) were directors of IFX on the first
day of each such period, or (ii) subsequently became directors of IFX and whose
actual election or initial nomination for
22
election subsequent to that date was approved by a majority of the Continuing
Directors then on the board of directors of IFX, cease to constitute a majority
of the board of directors of IFX.
On June 15, 2001, IFX entered into a Payment and Release Agreement with
Zalman Lekach, the Company's Chief Operating Officer, who voluntarily resigned
from IFX. Under the terms of this Payment and Release Agreement, Mr. Lekach
received a severance payment of $41,236.21 and the right to exercise vested
options in the amount of 263,030 at exercise prices ranging from $8.75 to
$20.00 was extended until June 30, 2003. Mr. Lekach released IFX from any
claims he may have against IFX.
Option Grants and Exercises in Fiscal Year 2001
The following table sets forth information with respect to options that were
granted in fiscal year 2001 to our executive officers. No stock appreciation
rights ("SARs") were granted to any of the persons listed on the table below
during fiscal year 2001.
Option Grants in Fiscal Year 2001
Potential Realizable
Value at Assumed
Annual Rates Of
Number of Percent of Stock Price
Securities Total Options Appreciation for
Underlying Granted To Exercise Option Term (1)
Options Employees In Price Expiration --------------------
Name Granted Fiscal Year ($/Share) Date 5% 10%
---- ---------- ------------- --------- ---------- --- --------
Michael F. Shalom . 74,800 6.05% 3.50 05/07/2011 0 $ 73,841
225,000 18.21% 3.50 05/07/2011 0 $222,114
Joel M. Eidelstein. 8,500 .68% 3.50 05/07/2011 0 $ 8,391
20,000 1.62% 3.50 05/07/2011 0 $ 19,743
Jose Leiman........ 75,000 6.07% 3.50 05/07/2011 0 $ 74,038
50,000 4.05% 3.50 05/07/2011 0 $ 49,359
150,000 12.14% 3.50 05/07/2011 0 $148,076
Zalman Lekach...... 42,500 3.44% 3.50 05/07/2001* 0 $ 41,955
150,000 12.14% 3.50 05/07/2001* 0 $148,076
- --------
* These options were forfeited by Mr. Lekach when he resigned on June 15, 2001.
(1) The amounts shown in these columns are the result of calculations at
assumed annual rates required by the SEC and are not intended to forecast
possible future appreciation, if any, of the price of the Company's Common
Stock. The Company did not use an alternative formula for a grant date
valuation, as the Company is not aware of any formula that will determine
with reasonable accuracy a present value based on future unknown or
volatile factors.
23
The following table sets forth information with respect to the values at
fiscal year-end of unexercised options to purchase shares of the Company's
Common Stock held by each of the executive officers named in the Summary
Compensation Table above. No stock options were exercised by any of our
directors or executive officers during fiscal year 2001.
Fiscal Year-End Option Values
Number of Securities
Underlying Unexercised Value of unexercised in-the-
Shares Options/SARs at money options/SARs
Acquired on Value June 30, 2001 at June 30, 2001
Name Exercise Realized($) Exercisable/Unexercisable Exercisable/Unexercisable($)
---- ----------- ----------- ------------------------- ----------------------------
Michael F. Shalom.......................... 0 0 10,201/329,800 0/0
Joel M. Eidelstein......................... 0 0 351,750/160,479 0/0
Jose Leiman................................ 0 0 105,997/452,300 0/0
Zalman Lekach.............................. 0 0 263,030/0 0/0
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's officers and
directors, and persons who own more than 10% of the Company's Common Stock, to
file with the Securities and Exchange Commission reports of ownership and
changes in ownership and to provide copies of such reports to the Company and
to the Nasdaq Stock Market. Based solely on a review of the copies of such
reports furnished to the Company, or written representations that no reports on
Form 5 were required, the Company believes that all officers, directors and 10%
beneficial owners complied with all Section 16(a) filing requirements during
fiscal year 2001.
CERTAIN TRANSACTIONS
Facilito.com IFX owns approximately a 49.9% interest in Facilito, a company
which provides e-commerce solutions. The remaining 50.1% interest in Facilito
is held by The Intcomex Group. The Intcomex Group is owned by family members of
Michael Shalom, IFX's Chief Executive Officer. Facilito is currently in the
process of redeeming the interest held by IFX for aggregate payments equaling
$75,000.
Yupi Shares. Pursuant to an Amended and Restated Stock Purchase Agreement,
dated as of June 12, 2000, between IFX Online, Inc., a subsidiary of the
Company, and Lee Casty, a significant stockholder of IFX, IFX Online sold a
part of its shares of Yupi Preferred Stock to Mr. Casty for a total purchase
price of $5 million. The proceeds were used for the Company's working capital.
During August 2001, a subsidiary of Microsoft Corporation acquired Yupi. IFX
has received approximately $46,000 with respect to this acquisition, of which
approximately $16,000 is payable to Casty.
UBS Capital Americas. Mr. Delaney is the President, Mr. Moore is a partner
and Mr. Lama a principal, of UBS Capital Americas, LLC, an affiliate of UBS
Capital Americas III, L.P. and UBS Capital LLC, which together purchased $25
million of IFX Preferred Stock in June and July 2000 (UBS received a $750,000
private equity fee in connection with this transaction), $15.4 million of IFX
Preferred Stock in May 2001 (UBS received a $462,000 private equity fee in
connection with this transaction), $15 million of preferred stock in
Tutopia.com, Inc. in August 2000 and $1.83 million of Tutopia stock in 2001. If
approved at the Annual Meeting, UBS will purchase IFX Preferred Stock in
exchange for $7 million and 1.5 million shares of Common Stock currently owned
by UBS. UBS will have the right to put its interest in Tutopia to IFX in
exchange for additional IFX Preferred Stock. Mr. Delaney, Mr. Moore and Mr.
Lama have an investment interest in UBS and thus may benefit from transactions
between UBS on the one hand and IFX and its subsidiaries on the other.
24
Other Tutopia Share Purchases. On August 31, 2000, James Casty, a brother of
Lee S. Casty, a significant stockholder of the Company purchased 53,591 shares
of preferred stock of Tutopia. On August 31, 2000, an entity controlled by Lee
Casty, purchased approximately 2,317,500 preferred shares of Tutopia.com, Inc.
in exchange for $4.9 million. The purchase was made pursuant to a private
placement of $20,000,000 of preferred stock of Tutopia.
Patrick A. Delhougne. In April 2001, the Company engaged Ray & Berndtson to
conduct an executive search for candidates for the Board of Directors of IFX.
The fees for this engagement were $50,000, plus expenses. Mr. Delhougne is a
partner in Ray & Berndtson.
DISSENTERS' RIGHTS OF APPRAISAL
No action was taken in connection with the Proposals by the Board of
Directors or the voting stockholders for which the Delaware General Corporation
Law, the Company's Certificate of Incorporation, as amended, or the Company's
Bylaws, as amended, provide a right of a stockholder to dissent and obtain
appraisal of or payment for such stockholder's shares.
INTEREST OF OFFICERS AND DIRECTORS IN MATTERS TO BE ACTED UPON
Mark Lama and Charles Moore and Charles Delaney are affiliates of UBS and
therefore can benefit indirectly from UBS' investment.
No other officer or director of the Company has any substantial interest in
the Proposals, except insofar as such officers or directors may be
stockholders, or holders of derivative securities, of the Company, in which
case the implementation of the Proposals will affect them in the same manner as
its affect all other stockholders, or holders of derivative securities, of the
Company.
FINANCIAL AND OTHER INFORMATION
The Company's financial statements are incorporated herein by reference to
the Company's Annual Report on Form 10-K for the fiscal year ended June 30,
2001 (filed with the SEC on October 15, 2001).
STOCKHOLDER PROPOSALS FOR 2002 PROXY STATEMENT
Proposals by stockholders for inclusion in the Company's Proxy Statement and
form of proxy relating to the 2002 Annual Meeting of Stockholders, which is
currently scheduled to be held on November 1, 2002, should be addressed to the
Secretary, IFX Corporation, 15050 N.W. 79 Court, Suite 200, Miami Lakes,
Florida 33016, and must be received at such address no later than July 6, 2002.
OTHER MATTERS TO BE ACTED UPON AT THE MEETING
The management of the Company knows of no other matters to be presented at
the meeting. Should any other matter requiring a vote of stockholders arise at
the meeting, the persons named in the proxy will vote the proxies in accordance
with their best judgment.
25
EXHIBIT A
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
IFX CORPORATION
It is hereby certified that:
1. The name of the Corporation is IFX Corporation (the "Corporation").
2. The amendment to the Restated Certificate of Incorporation effected by
this Certificate is as follows:
Article Fourth is hereby deleted in its entirety and the following is hereby
substituted therefor:
FOURTH: The authorized capital stock of the Corporation is
1. Class Par Value Number of Shares Authorized
----- --------- ---------------------------
Common $0.02 60,000,000
Preferred $1.00 20,000,000
2. The preferences, qualifications, limitations, restrictions and the special
or relative rights of the shares of each class are:
A. Preferred Stock. The Preferred Stock may be issued from time to time in one
or more series. The Board of Directors is hereby authorized to
provide for the issuance of shares of Preferred Stock as a class
or in series and, by filing a statement pursuant to the General
Corporation Law of the State of Delaware (hereinafter referred to
as a "Preferred Stock Designation"), to establish from time to
time the number of shares to be included in each such series, and
to fix the designation, powers, preferences and rights of the
shares of each such series and the qualifications, limitations and
restrictions thereof. The authority of the Board of Directors with
respect to each series shall include, but not be limited to,
determination of the following:
(i) The designation of the series, which may be by distinguishing number,
letter or title:
(ii) The number of shares of the series, which number the Board of
Directors may thereafter (except where otherwise provided in the Preferred
Stock Designation) increase or decrease;
(iii) The dividend rate on the shares of the class or of any series,
whether dividends shall becumulative, and, if so, from which date or dates,
and the relative rights of priority, if any, of payment of dividends on
shares of the class or of that series;
(iv) Dates at which dividends, if any, shall be payable;
(v) Whether or not the shares of the class or of any series shall be
redeemable, and, if so, the terms and conditions of such redemption,
including the date or date upon or after which they shall be redeemable and
the amount per share payable in case of redemption, which amount may vary
under different conditions and at different redemption dates;
(vi) The terms and amounts of a sinking fund, if any, provided for the
purchase or redemption of shares of the class or any series;
(vii) The rights of the shares of the class or of any series in the event
of voluntary or involuntary dissolution or winding up of the Corporation,
and the relative rights of priority, if any, of payment of shares of the
class or of that series;
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(viii) Whether the shares of the series shall be convertible into shares
of any other class or series, or any other security, of the Corporation or
any other corporation, and, if so, the rate or rates, any adjustments
thereof, the date or dates of which such shares shall be convertible and
all other terms and conditions upon which such conversion may be made;
(ix) Restrictions on the issuance of shares of the same series or of any
other class or series;
(x) The voting rights, if any, of the holders of shares of the series; and
(xi) Any other powers, preferences, rights, qualifications, limitations,
and restrictions of the class or of any series.
B. Common Stock.
(i) The Common Stock shall be subject to the express terms of the
Preferred Stock and any series thereof.
(ii) Except as may be provided in this Restated Certificate of
Incorporation or in a Preferred Stock Designation, the holders of shares of
the Common Stock shall have the exclusive right to vote on all matters (for
which a common stockholder shall be entitled to vote thereon) at all
meeting of the stockholders of the Corporation, and shall be entitled to
one vote for each share of the Common Stock entitled to vote at such
meeting. There shall be no cumulative voting rights with respect to any
shares of the Corporation's stock.
3. The aforesaid amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
executed by its duly authorized representative this day of , 2001.
IFX CORPORATION.
By:
Its:
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EXHIBIT B
CERTIFICATE OF DESIGNATION, NUMBER, POWERS,
PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL AND OTHER RIGHTS OF SERIES C
CONVERTIBLE PREFERRED STOCK
OF
IFX CORPORATION
IFX Corporation (the "Corporation"), a corporation organized and existing
under the General Corporation Law of the State of Delaware, hereby certifies
that, pursuant to the provisions of Section 151 of the General Corporation Law
of the State of Delaware, its Board of Directors, at a meeting duly held on
, 2001 adopted the following resolution:
WHEREAS, the Board of Directors of the Corporation is authorized by the
Restated Certificate of Incorporation to issue up to shares of preferred
stock in one or more series and, in connection with the creation of any series,
to fix by the resolutions providing for the issuance of shares the powers,
designations, preferences and relative, participating, optional or other rights
of the series and the qualifications, limitations or restrictions thereof; and
WHEREAS, it is the desire of the Board of Directors of the Corporation,
pursuant to such authority, to authorize and fix terms and provisions of a
series of preferred stock, and the number of shares constituting such series.
NOW, THEREFORE, BE IT RESOLVED, that there is hereby authorized a series of
preferred stock on the terms and with the provisions herein set forth on Annex
A attached to this resolution.
Name: Joel Eidelstein
Title: President
ATTEST:
_____________________________________
Name:
Title:
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ANNEX A
SERIES C CONVERTIBLE PREFERRED STOCK
The powers, designations, preferences and relative, participating, optional
or other rights of the Series C Convertible Preferred Stock of IFX Corporation
(the "Corporation") are as follows:
1. DESIGNATION AND AMOUNT.
This series of preferred stock shall be designated as "Series C Convertible
Preferred Stock" and shall be divided into two classes: Class I Series C
Convertible Preferred Stock ("Class I Series C Preferred Stock") and Class II
Series C Convertible Preferred Stock ("Class II Series C Preferred Stock", and
together with the Class I Series C Preferred Stock, the "Series C Convertible
Preferred Stock"). The Series C Convertible Preferred Stock shall have $1.00
par value per share. The number of authorized shares of the Class I Series C
Convertible Preferred Stock shall be shares. The number of authorized
shares of the Class II Series C Preferred Stock shall be shares. Shares of
the Series C Convertible Preferred Stock shall have a stated value of Three and
00/100 Dollars ($3.00) per share (the "Stated Value"). The Corporation has
previously authorized (i) 2,030,869 shares of its Series A Convertible
Preferred Stock, par value $1.00 per share (the "Series A Convertible Preferred
Stock") having the number, powers, preferences and relative, participating,
optional and other rights as set forth in the Amended Certificate of
Designation filed with the Secretary of State of the State of Delaware on the
date of the filing hereof (the "Series A Certificate") and (ii) 4,418,262
shares of its Series B Convertible Preferred Stock, par value $1.00 per share,
consisting of 3,994,127 shares of Class I Series B Convertible Preferred Stock
("Class I Series B Preferred") and 424,135 shares of Class II Series B
Convertible Preferred Stock ("Class II Series B Preferred" and, collectively,
the "Series B Convertible Preferred Stock") having the number, powers,
preferences and relative, participating, optional and other rights as set forth
in the Amended Certificate of Designation filed with the Secretary of State of
the State of Delaware on the date of the filing hereof (the "Series B
Certificate"). The Series A Convertible Preferred Stock, the Series B
Convertible Preferred Stock, the Series C Convertible Preferred Stock and
shares of any other class or series of preferred stock of the Corporation which
is convertible, directly or indirectly, into Common Stock, whether at the time
of issuance or upon passage of time or the occurrence of some future event, are
collectively referred to herein as "Convertible Preferred Stock."
2. DIVIDENDS.
(a) Right to Receive Dividends. Holders of Series C Convertible Preferred
Stock shall be entitled to receive dividends when, as and if declared by the
Board of Directors of the Corporation (the "Board of Directors").
(b) Participation with Common Stock. In the event the Board of Directors
shall elect to pay or declare and set apart for payment any dividend on any
shares of common stock, par value $.02 per share, of the Corporation (the
"Common Stock") in cash out of funds legally available therefor or in stock or
other consideration, the holders of the Series C Convertible Preferred Stock
shall be entitled to receive, before any dividend shall be declared and paid or
set aside for the Common Stock, dividends payable in the form and in an amount
per share equal to the per share amount that would have been payable to such
holders had such holders converted their Series C Convertible Preferred Stock
into Common Stock and had all other holders of Convertible Preferred Stock
converted such shares into Common Stock.
(c) Dividend Preference. Dividends on the Series C Convertible Preferred
Stock shall be payable before any dividends or distributions or other payments
shall be paid or set aside for payment upon the Common Stock or any other stock
ranking on liquidation or as to dividends or distributions junior to the Series
C Convertible Preferred Stock (any such stock, together with the Common Stock,
being referred to hereinafter as "Junior Stock"). If there shall be outstanding
shares of any class or series of capital stock which is entitled to share
ratably with the Series C Convertible Preferred Stock in the payment of
dividends or distributions or upon liquidation ("Parity Securities"), no full
dividends shall be declared or paid or set apart for payment on any such
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securities unless dividends have been or contemporaneously are ratably declared
and paid or declared and a sum sufficient for the payment thereof set apart for
such payment on the Series C Convertible Preferred Stock.
3. LIQUIDATION PREFERENCE.
(a) In the event of any bankruptcy, liquidation, dissolution or winding up
of the Corporation, either voluntary or involuntary, each holder of Series C
Convertible Preferred Stock at the time thereof shall be entitled to receive,
prior and in preference to any distribution of any of the assets or funds of
the Corporation to the holders of the Common Stock or other Junior Stock by
reason of their ownership of such stock, an amount per share of Series C
Convertible Preferred Stock equal to the sum of
(i) (x) the applicable Stated Value plus any declared and unpaid
dividends to the date of liquidation, plus (y) 10% of such Stated Value per
annum, calculated from the date of issuance of such share through date of
payment of the Liquidation Preference as set forth in this Section 3 ((x)
and (y), collectively, the "Stated Preference"); plus
(ii) an amount equal to such amount per share of Series C Preferred Stock
as would have been payable had each share of Series C Preferred Stock and
all outstanding shares of Convertible Preferred Stock been converted into
Common Stock immediately prior to such bankruptcy, liquidation, dissolution
or winding up of the Corporation after giving effect to the full payment of
the Stated Preference under the preceding paragraph (i) and the stated
preference of the other Convertible Preferred Stock;
provided, that if the amount payable per share of Series C Convertible
Preferred Stock pursuant to the foregoing paragraphs (i) and (ii) exceeds three
and one-half (3 1/2) multiplied by the Stated Preference (the "Maximum
Amount"), each holder of Series C Convertible Preferred Stock shall only be
entitled to receive such Maximum Amount. The sum of the amounts in (i) and (ii)
above is referred to herein as the "Liquidation Preference". For purposes of
the foregoing, shares of Class I Series C Preferred Stock issued upon
conversion of the Class II Series C Preferred Stock shall be deemed to have
been issued at the time such shares of Class II Series C Preferred Stock were
issued.
After the payment of the full Liquidation Preference on account of all
shares of Series C Convertible Preferred Stock as set forth in this Section 3
and any preferential amounts to which the holders of Parity Securities are
entitled, the remaining assets of the Corporation legally available for
distribution, if any, shall be distributed ratably to the holders of the Common
Stock. If the assets and funds legally available for distribution among the
holders of Series C Convertible Preferred Stock shall be insufficient to permit
the payment to the holders of the full aforesaid Liquidation Preference, then
the assets and funds shall be distributed ratably among holders of Series C
Convertible Preferred Stock in proportion to the number of shares of Series C
Convertible Preferred Stock owned by each holder. If the assets and funds of
the Corporation available for distribution to stockholders upon any bankruptcy,
liquidation, dissolution or winding up of the affairs of the Corporation,
whether voluntary or involuntary, shall be insufficient to permit the payment
to holders of the full aforesaid Liquidation Preference and amounts payable to
holders of outstanding Parity Securities, the holders of Series C Convertible
Preferred Stock and the holders of such other Parity Securities shall share
ratably (and ratably as to cash, in-kind or other distributions) in any
distribution of assets of the Corporation in proportion to the full respective
preferential amounts to which they are entitled.
(b) Except as described in the following sentence, a merger,
recapitalization, reorganization, sale of voting control to a single buyer or a
group of related buyers in one or a series of related transactions, or other
business combination transaction involving the Corporation in which the
shareholders of the Corporation immediately prior to the consummation of such
transaction do not own at least a majority of the outstanding shares of the
surviving corporation or the Corporation (as applicable) immediately following
the consummation of such transaction or sale of all or substantially all of the
assets of the Corporation (collectively, a "Liquidation Event") shall be deemed
to be a liquidation of the Corporation. Notwithstanding the foregoing, the
following shall not be deemed to be a Liquidation Event: (i) a merger,
recapitalization, sale of voting control or other business
B-3
combination transaction with an Affiliate (as such term is defined in Section
12b-2 of the Rules and Regulations under the Securities Exchange Act of 1934,
as amended) of UBS Capital Americas III, L.P. or UBS Capital LLC (together with
any such Affiliate, "UBS"), or (ii) a merger of the Corporation with a public
company (A) in which the merger consideration to be received by the holders of
the Series C Convertible Preferred Stock is fully registered marketable
securities (the "Merger Shares") which are not subject to any restrictions on
transfer, (B) in which the value of such merger consideration for each share of
Series C Convertible Preferred Stock, valued at the average closing price of
the Merger Shares for the 30 days prior to the consummation of the merger, or
such lesser period which follows the public announcement of the merger, is
greater than 110% of the Liquidation Preference per share as of the date of
consummation of the merger, and (C) with aggregate trading volume for the 30
calendar days prior to the merger date of at least 10 times the aggregate
number of Merger Shares received by all holders of Convertible Preferred Stock.
(c) In any Liquidation Event, if the consideration received by the
Corporation is other than cash, its value will be deemed its fair market value
as determined in good faith by the Board of Directors. Any securities shall be
valued as follows:
(i) Securities not subject to investment letter or other similar
restrictions on free marketability covered by subsection (ii) below:
(A) If traded on a securities exchange or through The Nasdaq National
Market or Small Cap Market, the value shall be deemed to be the average
of the closing prices of the securities on such quotation system over
the thirty (30) day period ending three (3) days prior to the closing of
the Liquidation Event;
(B) If actively traded over-the-counter, the value shall be deemed to
be the average of the closing bid or sale prices (whichever is
applicable) over the thirty (30) day period ending three (3) days prior
to the closing of the Liquidation Event; and
(C) If there is no active public market, the value shall be the fair
market value thereof, as mutually determined by the Board of Directors
and the holders of at least a majority of the voting power of all then
outstanding shares of Convertible Preferred Stock, voting as a single
class.
(ii) The method of valuation of securities subject to investment letter
or other restrictions on free marketability (other than restrictions arising
solely by virtue of a shareholder's status as an affiliate or former
affiliate) shall be to make an appropriate discount from the market value
determined as above in subsections (i)(A), (B) or (C) to reflect the
approximate fair market value thereof, as mutually determined by the Board
of Directors and the holders of at least a majority of the voting power of
all then outstanding shares of Convertible Preferred Stock, voting as a
single class.
4. VOTING RIGHTS.
In addition to any voting rights provided elsewhere herein or in the
Corporation's Certificate of Incorporation, as it may be amended or restated
from time to time (the "Certificate of Incorporation"), and any voting rights
provided by law, the holders of shares of Series C Convertible Preferred Stock
shall have the following voting rights:
(a) Election of Directors.
[Section 4(a) shall read as follows if certain of the Company's indebtedness
has been restructured in a manner satisfactory to UBS and the Company:
(i) Subject to the terms hereof, the holders of the Class I Series C
Preferred Stock, together with the holders of any other class or series of
Convertible Preferred Stock, the terms of which expressly entitle the holder
thereof to vote in the election of directors designated by holders of
Convertible Preferred Stock (collectively, "Voting Preferred Stock") shall
have the right to elect four (4) directors, one (1) of which shall be an
Independent Director (as defined below). Such directors shall be elected by
the holders of at least a
B-4
majority of the voting power of all then outstanding shares of Voting
Preferred Stock, voting as a single class. "Independent Director" has the
meaning specified in Rule 4200(a)(14) of the NASD listing standards, as in
effect on the date hereof and as the same may be amended or supplemented, or
in any successor rule or regulation.
(ii) Any director elected by the holders of Voting Preferred Stock shall
be referred to herein as a "Preferred Director." Subject to Section 4(a)(v),
the initial term of any director to be appointed pursuant to Section 4(a)(i)
will commence upon his/her election by the holders of Voting Preferred Stock
and shall expire at the first annual meeting of stockholders of the
Corporation following his/her election. Upon expiration of the initial term
of such Preferred Director, so long as the Voting Preferred Stock is
outstanding, the holders of such Voting Preferred Stock shall have the right
to elect a Preferred Director to replace such director in the same manner
described above in Section 4(a)(i). Subject to Section 4(a)(v), a Preferred
Director so elected shall hold office for a term expiring at the annual
meeting of stockholders in the year following the election of such director.
Notwithstanding the foregoing, but subject to Section 4(a)(v), a Preferred
Director elected under Section 4(a)(i) shall serve until such Preferred
Director's successor is duly elected and qualified or until such director's
earlier removal as provided in Section 4(a)(iii) or death or resignation
and, in the event a vacancy occurs, a replacement Preferred Director shall
be selected as provided in Section 4(a)(i).
(iii) A Preferred Director may be removed by, and shall not be removed
except by, the vote of at least a majority of the voting power of all then
outstanding shares of Voting Preferred Stock, voting as a single class.
(iv) The Corporation shall at all times reserve and keep available
sufficient vacant seats on the Board of Directors solely for the purpose of
enabling the holders of the Voting Preferred Stock to designate Preferred
Directors as provided in this Section 4(a).
(v) This Section 4(a) shall survive a Qualified Public Offering (as
defined in Section 5(b) below) and until such time thereafter as less than
an aggregate of 25% of the authorized Convertible Preferred Stock remains
outstanding.
(vi) The holders of shares of Class II Series C Preferred Stock shall not
be entitled to vote in elections of directors.]
[Section 4(a) shall read as follows if certain of the Company's indebtedness
to Lucent has NOT been restructured in a manner satisfactory to UBS and the
Company:
The holders of shares of Class I Series C Preferred Stock shall be
entitled to vote in elections of directors. The holders of shares of Class
II Series C Preferred Stock shall not be entitled to vote in elections of
directors.]
(b) Certain Corporate Actions. Until a Qualified Public Offering or until
such time as less than an aggregate of 25% of the authorized Convertible
Preferred Stock remains outstanding, the Corporation shall not, and shall not
permit any of its subsidiaries to, without first obtaining the affirmative vote
or written consent of the holders of at least a majority of the voting power of
all then outstanding shares of Convertible Preferred Stock, voting as a single
class:
(A) amend, repeal, modify or supplement any provision of the Certificate
of Incorporation (including any certificate of designation forming a part
thereof), the Bylaws of the Corporation, or any successor certificate of
incorporation or bylaws or this Certificate of Designation, Number, Powers,
Preferences and Relative, Participating, Optional and Other Rights of Series
C Convertible Preferred Stock (the "Certificate of Designation");
(B) authorize or permit the Corporation or any subsidiary of the
Corporation to issue any capital stock or any options, warrants or other
rights exchangeable or exercisable therefor, other than (i) shares of Series
C Convertible Preferred Stock pursuant to the Preferred Stock Purchase
Agreement, dated as of , 2001, among the Corporation and UBS (the
"Preferred Stock Purchase Agreement"), (ii) Common Stock
B-5
upon conversion of Convertible Preferred Stock, or upon the exercise of
stock options to purchase up to 4,243,037 shares of Common Stock, (iii)
shares of Class I Series B Preferred Stock issued upon conversion of Class
II Series B Preferred Stock, (iv) shares of Class I Series C Preferred Stock
issued upon conversion of Class II Series C Preferred Stock, (v) securities
issued as consideration for any acquisition approved by a majority of the
Board of Directors (including the affirmative vote of the [Preferred
Directors]), (vi) up to $15 million of Common Stock, issued as consideration
for any acquisition approved by a majority of the Board of Directors
(without the affirmative vote of the [Preferred Directors]), provided such
Common Stock is valued at no less than the greater of (1) the Stated Value
(as adjusted for stock splits, combinations, stock dividends and the like)
and (2) the average of the closing price for the Common Stock for the 30
days prior to the issuance, (vii) a warrant to purchase 210,000 shares of
Common Stock to Spinway, Inc. (the "Spinway Warrant"), (viii) 210,000 shares
of Common Stock upon exercise of the Spinway Warrant, (ix) shares of Common
Stock in exchange for shares of common stock, par value $.001 per share
("Tutopia Stock"), of Tutopia.com, Inc. ("Tutopia"), upon a
change-in-control of the Corporation pursuant to the Stockholders Agreement,
dated as of April 24, 2000, by and among the Corporation, Tutopia and the
other parties signatory thereto (the "Tutopia Stockholders Agreement") or
(x) shares of Common Stock and/or Convertible Preferred Stock issued
pursuant to that certain Put Agreement, dated , 2001 among the
Corporation, UBS and the other parties named therein (the "Tutopia Put
Agreement");
(C) reclassify any class or series of any Common Stock into shares having
any preference or priority as to dividends or liquidation superior to or on
a parity with any such preference or priority of Convertible Preferred Stock;
(D) authorize or effect, in a single transaction or through a series of
related transactions, (1) a liquidation, winding up or dissolution of the
Corporation or adoption of any plan for the same; (2) a Liquidation Event;
or (3) any direct or indirect purchase or other acquisition by the
Corporation or any of its subsidiaries of any capital stock (other than the
Convertible Preferred Stock pursuant to its terms);
(E) enter into or otherwise become a party to any agreement whereby any
shareholder or shareholders of the Corporation shall transfer capital stock
of the Corporation to an independent third party or a group of independent
third parties pursuant to which such parties acquire capital stock of the
Corporation possessing the voting power to elect a majority of the Board of
Directors;
(F) declare or pay or set aside for payment any dividend or distribution
or other payment upon the Common Stock or upon any other Junior Stock, nor
redeem, purchase or otherwise acquire any Common Stock or other Junior Stock
for any consideration (or pay or make available any moneys, whether by means
of a sinking fund or otherwise, for the redemption of or other distribution
or payment with respect to any shares of any Common Stock or other Junior
Stock), except for the repurchase of shares of Common Stock from directors,
consultants or employees of the Corporation or any subsidiary pursuant to
agreements approved by the disinterested directors on the Board of
Directors, under which the Corporation has the right to repurchase such
shares upon the occurrence of certain events, including but not limited to,
termination of employment or services;
(G) approve the annual budget of the Corporation and its subsidiaries
(the "Annual Budget");
(H) enter into any financial commitment over and above those approved in
the annual budget in excess of $15 million in the aggregate (for the
Corporation and its subsidiaries, taken together), except as prescribed in
the Annual Budget;
(I) dismiss or hire or modify or enter into any employment agreement,
non-competition agreement, bonus or stock issuance arrangements or other
compensation (including, without limitation, fringe benefit) arrangements
with its President, Chief Executive Officer or Chief Financial Officer, or
other equivalent or senior level officer;
(J) permit the creation or existence of any lien, mortgage, pledge,
hypothecation, assignment, security interest, charge or encumbrance, or
preference, priority or other security agreement or preferential arrangement
of any kind or nature whatsoever on any of the Corporation's or any of its
subsidiaries' assets
B-6
with an aggregate value in excess of $15 million, except as part of any
financing in the ordinary course of business;
(K) make any capital expenditure in any fiscal year in excess of $15
million in the aggregate (for the Corporation and its subsidiaries, taken
together), except as prescribed in the Annual Budget;
(L) acquire any assets or equity or other interest in any other entity
with a value in excess of $15 million in the aggregate (for the Corporation
and its subsidiaries, taken together), except as prescribed in the Annual
Budget;
(M) incur indebtedness for borrowed money (including, without limitation,
any capitalized lease obligations, accounts receivable financing or other
asset-backed financing), any guarantee or other similar contingent
obligation or any lease financing (whether a capitalized lease, operating
lease, pursuant to a sale leaseback arrangement or otherwise), in excess of
$15 million in the aggregate (for the Corporation and its subsidiaries,
taken together), except as prescribed in the Annual Budget;
(N) amend, supplement, restate, revise, waive or otherwise modify any
stock option plan, agreement or other arrangement of the Corporation (each,
a "Stock Option Plan"), as in effect on , 2001;
(O) create or adopt any stock option plan, stock appreciation rights
plan, bonus plan or similar plan that was not in existence on , 2001,
except as approved by the Compensation Committee of the Board of Directors;
(P) dispose of or acquire assets with a value in excess of $15 million
other than in the normal course of business;
(Q) liquidate, dissolve or voluntarily elect to commence bankruptcy or
insolvency proceedings under applicable laws;
(R) change in any material respect the nature of the business of the
Corporation and its subsidiaries taken as a whole;
(S) enter into any transaction, or any agreement or understanding with
any affiliate of the Corporation or any subsidiary thereof, other than a
wholly-owned subsidiary of the Corporation;
(T) (i) solicit or negotiate any inquiries or proposals with respect to
(x) any direct or indirect issuance, sale, disposition or redemption of any
securities of Latin Guide, Inc. ("LGI"), Tutopia or any of Tutopia's
subsidiaries, (y) the direct or indirect sale or disposition of all or any
material portion of the assets or business of LGI, Tutopia or any of
Tutopia's subsidiaries, or (z) any merger, reorganization, consolidation or
recapitalization or other similar transaction involving LGI, Tutopia or any
of Tutopia's subsidiaries; or (ii) discuss with or provide to any person or
entity information of LGI, Tutopia or any of Tutopia's subsidiaries with
respect to or in contemplation of any of the foregoing; or
(U) agree to do any of the foregoing.
(c) Additional Voting Rights. Except as required by law, the holders of
Series C Convertible Preferred Stock shall be entitled to notice of any
stockholders' meeting and to vote together as a single class with the holders
of Common Stock (and any other capital stock of the Corporation entitled to
vote), upon any matter submitted to the stockholders for a vote as follows: (i)
the holders of the Series C Convertible Preferred Stock shall have 2.3356 votes
per share, (ii) the holders of shares of any other Convertible Preferred Stock
shall have the number of votes per share provided in the Certificate of
Designation for such class of Convertible Preferred Stock, and (iii) the
holders of Common Stock shall have one (1) vote per share of Common Stock.
Notwithstanding the foregoing, Class II Preferred Stock shall not be entitled
to vote in elections of directors.
(d) Manner of Voting. Whenever a vote of the holders of Series A Convertible
Preferred Stock, Series B Convertible Preferred Stock, Series C Convertible
Preferred Stock and/or other shares of Convertible Preferred Stock shall be
taken pursuant to the provisions of this Certificate of Designation or
otherwise, (i) the holders of Series C Convertible Preferred Stock shall have
2.3356 votes per share, and (ii) the holders of shares of any other Convertible
Preferred Stock shall have the numbers of votes per share provided in the
Certificate of Designation for such class of Convertible Preferred Stock.
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5. CONVERSION.
Shares of Series C Convertible Preferred Stock may be converted into shares
of Common Stock, on the terms and conditions set forth in this Section 5.
(a) Optional Conversion.
(i) At any time and from time to time, each holder of shares of Class I
Series C Preferred Stock may, upon written notice to the Corporation,
convert all or any portion of such shares held by such holder into the
number of shares of Common Stock determined by dividing (x) the applicable
Stated Preference multiplied by the number of shares surrendered for
conversion plus any declared but unpaid dividends on such shares, by (y) the
Conversion Price on the date of conversion determined in accordance with
Section 5(c).
(ii) References in this Section 5 to "Common Stock" shall include all
stock or other securities or property (including cash) into which Common
Stock is converted following any merger, reorganization or reclassification
of the capital stock of the Corporation.
(b) Mandatory Conversion. Each share of Series C Convertible Preferred Stock
shall automatically be converted into such number of shares of Common Stock as
is determined by dividing (x) the Stated Preference multiplied by the number of
shares surrendered for conversion plus any declared but unpaid dividends on
such shares, by (y) the Conversion Price on the date of conversion determined
in accordance with Section 5(c), without further action by the holders of such
shares and whether or not the certificates representing such shares are
surrendered to the Corporation or its transfer agent, upon the closing of an
underwritten public offering of shares of Common Stock for which the
Corporation has obtained a firm commitment from one or more underwriter(s) for
at least: $60 million of Common Stock and in which the Corporation receives
gross proceeds from the sale of Common Stock to the public of at least $45
million (before deduction of underwriter's discounts and commissions), and
which values the equity of the Corporation at no less than $200 million
pre-offering (a "Qualified Public Offering"). Except for the purposes of the
calculation in the immediately preceding sentence, in the event of a Qualified
Public Offering, the person(s) entitled to receive the Common Stock issuable
upon conversion of Series C Convertible Preferred Stock shall not be deemed to
have converted such Series C Convertible Preferred Stock until the closing of
such offering.
(c) Conversion Price. The Conversion Price per share for the Series C
Convertible Preferred Stock shall be Three and 00/100 Dollars ($3.00), subject
to adjustment as provided in Section 6 hereof.
(d) Common Stock. The Common Stock to be issued upon conversion hereunder
shall be fully paid and nonassessable.
(e) Procedures for Conversion.
(i) In order to convert shares of Class I Series C Preferred Stock into
shares of Common Stock pursuant to Section 5(a) (or, in the case of an
automatic conversion of Class I Series C Preferred Stock and Class II Series
C Preferred Stock pursuant to Section 5(b), to receive a certificate for
such holder's shares of Common Stock outstanding as a result of such
conversion), the holder shall surrender the certificate or certificates
therefore, duly endorsed for transfer, at any time during normal business
hours, to the Corporation at its principal or at such other office or agency
then maintained by it for such purpose (the "Payment Office"), accompanied,
in the case of a conversion pursuant to Section 5(a), by written notice to
the Corporation of such holder's election to convert and (if so required by
the Corporation or any conversion agent) by an instrument of transfer, in
form reasonably satisfactory to the Corporation and to any conversion agent,
duly executed by the registered holder or by his duly authorized attorney,
and any taxes required pursuant to Section 5(e)(iii). As promptly as
practicable after the surrender for conversion of any share of Series C
Convertible Preferred Stock in the manner provided in the preceding
sentence, and the payment in cash of any amount required by the provisions
of Section 5(e)(iii), but in any event within five Trading Days of such
surrender for payment, the Corporation will deliver or cause to be delivered
at the Payment Office to
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or upon the written order of the holder of such shares, certificates
representing the number of full shares of Common Stock issuable upon such
conversion, issued in such name or names as such holder may direct. Such
conversion shall be deemed to have been made immediately prior to the close
of business on the date of such surrender of the shares in proper order for
conversion, and all rights of the holder of such shares as a holder of such
shares shall cease at such time and the person or persons in whose name or
names the certificates for such shares of Common Stock are to be issued
shall be treated for all purposes as having become the record holder or
holders thereof at such time; provided, however, that any such surrender and
payment on any date when the stock transfer books of the Corporation shall
be closed shall constitute the person or persons in whose name or names the
certificates for such shares of Common Stock are to be issued as the record
holder or holders thereof for all purposes immediately prior to the close of
business on the next succeeding day on which such stock transfer books are
opened and such conversion shall be at the Conversion Price in effect at
such time on such succeeding day.
For purposes hereof, "Trading Day" shall mean (i) any day on which stock is
traded on the principal stock exchange on which the Common Stock is listed or
admitted to trading, (ii) if the Common Stock is not then listed or admitted to
trading on any stock exchange but is traded on the Nasdaq Stock Market, any day
on which stock is traded on the Nasdaq Stock Market, or (iii) if the Common
Stock is not then traded on the Nasdaq Stock Market, any day on which stock is
traded in the over-the-counter market, as reported by the National Quotation
Bureau Incorporated (or any similar organization or agency succeeding to its
functions of reporting prices).
(ii) The Corporation shall not be required to issue fractional shares of
Common Stock upon conversion of shares of Series C Convertible Preferred
Stock. At the Corporation's discretion, in the event the Corporation
determines not to issue fractional shares, in lieu of any fractional shares
to which the holder would otherwise be entitled, the Corporation shall pay
cash equal to such fraction multiplied by the closing price of the Common
Stock on the date of conversion.
(iii) The issuance of certificates for shares of Common Stock upon
conversion shall be made without charge for any issue, stamp or other
similar tax in respect of such issuance. However, if any such certificate is
to be issued in a name other than that of the holder of record of the shares
converted, the person or persons requesting the issuance thereof shall pay
to the Corporation the amount of any tax which may be payable in respect of
any transfer involved in such issuance or shall establish to the
satisfaction of the Corporation that such tax has been paid or is not
payable.
(f) Reservation of Stock Issuable Upon Conversion. The Corporation shall
reserve and keep available out of its authorized but unissued shares of Common
Stock, solely for the purpose of effecting the conversion of the shares of the
Series C Convertible Preferred Stock, shares of Common Stock. If at any
time the number of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of all then outstanding shares of the
Series C Convertible Preferred Stock without regard to whether the holders of
Series C Convertible Preferred Stock are then entitled to convert, the
Corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purpose,
including, without limitation, taking appropriate board action, recommending
such an increase to the holders of Common Stock, holding shareholders meetings,
soliciting votes and proxies in favor of such increase to obtain the requisite
stockholder approval and upon such approval, the Corporation shall reserve and
keep available such additional shares solely for the purpose of effecting the
conversion of the shares of the Series C Convertible Preferred Stock.
(g) Merger, Etc.
(i) Notwithstanding any other provision hereof, in case of any merger or
other business combination transaction involving the Corporation which does
not constitute a Liquidation Event, then, concurrently with the consummation
of such transaction, provision shall be made so that each share of Series C
Convertible Preferred Stock shall thereafter be convertible into the number
of shares of stock or other securities or property (including cash) to which
a holder of the number of shares of Common Stock deliverable upon conversion
of such share of Series C Convertible Preferred Stock would have been
entitled assuming conversion immediately prior to the closing of the
transaction.
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(ii) In case of any merger or other business combination transaction
involving the Corporation which does not constitute a Liquidation Event, in
which the Corporation is not the surviving entity, and the Corporation or
the holders do not otherwise convert all outstanding shares of Series C
Convertible Preferred Stock, the Series C Convertible Preferred Stock shall
be converted into or exchanged for and shall become shares of the surviving
corporation having, in respect of the surviving corporation, substantially
the same powers, preferences and relative participating, optional or other
special rights, and the qualifications, limitations or restrictions thereon,
that the Series C Convertible Preferred Stock had immediately prior to such
transaction.
(h) Conversion of Class II Series C Preferred Stock.
(i) Beginning on the first anniversary of the date of filing of this
Certificate, each holder of shares of Class II Series C Preferred Stock may
at any time convert all or any portion of such shares held by such holder
into one share of Class I Series C Preferred Stock for each share of Class
II Series C Preferred Stock surrendered for conversion. The holder of each
share of Class II Series C Preferred Stock to be converted shall surrender
the certificate or certificates therefor, duly endorsed for transfer, at any
time during normal business hours, to Payment Office, accompanied by written
notice to the Corporation of such holder's election to convert. Within 5
Trading Days of such surrender the Corporation will deliver or cause to be
delivered at the Payment Office, certificates representing the number of
shares of Class I Series C Preferred Stock issuable upon such conversion,
issued in such name or names as such holder may direct. Such conversion
shall be deemed to have been made immediately prior to the close of business
on the date of such surrender of the shares.
(ii) The Corporation shall reserve and keep available out of its
authorized but unissued shares of Class I Series C Preferred Stock, solely
for the purpose of effecting the conversion of the shares of the Class II
Series C Preferred Stock, shares of Class I Series C Preferred Stock.
If at any time the number of authorized but unissued shares of Class I
Series C Preferred Stock shall not be sufficient to effect the conversion of
all then outstanding shares of the Class II Series C Preferred Stock without
regard to whether the holders of Class II Series C Preferred Stock are then
entitled to convert, the Corporation will take such corporate action as may,
in the opinion of its counsel, be necessary to increase its authorized but
unissued shares of Class I Series C Preferred Stock to such number of shares
as shall be sufficient for such purpose, including, without limitation,
taking appropriate board action, recommending such an increase to the
stockholders, holding stockholders meetings, soliciting votes and proxies in
favor of such increase to obtain the requisite stockholder approval and upon
such approval, the Corporation shall reserve and keep available such
additional shares solely for the purpose of effecting the conversion of the
shares of the Class II Series C Preferred Stock.
16. ADJUSTMENTS.
The Conversion Price shall be subject to adjustment from time to time as set
forth in this Section 6. The Corporation shall give holders of Series C
Convertible Preferred Stock notice of any event described below which requires
an adjustment pursuant to this Section 6 at the time of such event.
(a) Definitions. As used in this Section 6, the following terms have the
respective meanings set forth below:
"Additional Shares of Common Stock" shall mean all shares of Common Stock
issued by the Corporation after the Closing (as defined in the Preferred
Stock Purchase Agreement).
"Convertible Securities" shall mean evidences of indebtedness, shares of
stock of other securities which are convertible into or exchangeable, with
or without payment of additional consideration in cash or property, for
Additional Shares of Common Stock, either immediately or upon the occurrence
of a specified date or a specified event.
B-10
"Fully Diluted Outstanding" shall mean, when used with reference to
Common Stock, at any date as of which the number of shares thereof is to be
determined, all shares of Common Stock Outstanding at such date and all
shares of Common Stock issuable in respect of Series C Convertible Preferred
Stock outstanding on such date and other securities convertible into, or
options or warrants to purchase, shares of Common Stock outstanding on such
date, whether or not such options, warrants or other securities are
presently convertible or exercisable.
"Other Property" shall have the meaning set forth in Section 6(i).
"Outstanding" shall mean, when used with reference to Common Stock, at
any date as of which the number of shares thereof is to be determined, all
issued shares of Common Stock, except shares then owned or held by or for
the account of the Corporation or any subsidiary of the Corporation, and
shall include all shares issuable in respect of outstanding scrip or any
certificates representing fractional interests in shares of Common Stock.
"Overage" shall mean the total number of shares of Common Stock issued in
connection with the Subject Transactions above the Share Allowance.
"Permitted Issuances" shall mean (i) the issuance of up to 4,243,037
shares of Common Stock issuable pursuant to options to purchase Common Stock
under the Stock Option Plan, (ii) shares of Common Stock issued or issuable
in connection with a Qualified Public Offering, (iii) shares of Common Stock
issued in connection with the Subject Transactions or upon conversion of
Convertible Preferred Stock, (iv) shares of Class I Series B Preferred Stock
issued upon conversion of the Class II Series B Preferred Stock, (v) shares
of Class I Series C Preferred Stock issued upon conversion of Class II
Series C Preferred Stock, (vi) securities issued as consideration for any
acquisition approved by a majority of the Board of Directors (including the
affirmative vote of the [Preferred Directors]), (vii) the issuance of an
aggregate of up to 100,000 additional shares of Common Stock (as adjusted
for stock splits, combinations, stock dividends and the like) in
transactions approved by a majority of the Board of Directors, (viii) the
issuance of an aggregate of up to another 100,000 additional shares of
Common Stock (as adjusted for stock splits, combinations, stock dividends
and the like) in transactions approved by a majority of the Board of
Directors (including the affirmative vote of the [Preferred Directors]),
(ix) the Spinway Warrant, (x) 210,000 shares of Common Stock upon exercise
of the Spinway Warrant, (xi) shares of Common Stock and/or Convertible
Preferred Stock issued pursuant to the Tutopia Put Agreement, and (xii) such
other issuances as shall be approved in advance by the holders of at least a
majority of the voting power of all then outstanding shares of Convertible
Preferred Stock, voting as a single class.
"Qualified Private Offering" shall mean a private equity offering to
investors other than UBS resulting in gross proceeds to the Corporation of
at least $30 million, in which the securities issued contain anti-dilution
provisions no more favorable to the investor than the anti-dilution
provisions of the Series C Convertible Preferred Stock which take effect
following the consummation of a Qualified Private Offering.
"Share Allowance" shall mean 428,571 shares of Common Stock.
"Stock Option Plan" shall mean the IFX Corporation Directors Stock Option
Plan, the 1998 IFX Corporation Stock Option and Incentive Plan, as amended,
and the IFX Corporation 2001 Stock Option Plan.
"Subject Transactions" shall mean (i) any acquisition consummated prior
to the filing hereof, including, without limitation, the acquisitions of Mr.
Help Informatica S/C Ltda., Zupernet Ltda. and Redescape, L.L.C., (ii) the
Consulting Agreement, dated as of May 27, 1999 by and between the
Corporation and Brian Reale and (iii) the conversion of Tutopia Stock into
Common Stock pursuant to the Tutopia Stockholders Agreement.
(b) Stock Dividends, Subdivisions and Combinations. If at any time the
Corporation shall:
(i) take a record of the holders of its Common Stock for the purpose of
entitling them to receive a dividend payable in, or other distribution of,
Additional Shares of Common Stock,
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(ii) subdivide its outstanding shares of Common Stock into a larger
number of shares of Common Stock, or
(iii) combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock,
then the applicable Conversion Price immediately after the occurrence of any
such event shall be adjusted to equal the product of (A) the Conversion Price
immediately prior to the occurrence of such event and (B) a fraction, the
numerator of which shall be the number of Fully Diluted Outstanding shares of
Common Stock immediately prior to the occurrence of such event and the
denominator of which shall be the number of Fully Diluted Outstanding shares of
Common Stock immediately after the occurrence of such event.
(c) Issuance of Additional Shares of Common Stock.
(i) In the event that prior to the consummation of or in connection with
a Qualified Private Offering, the Corporation shall issue or sell any
Additional Shares of Common Stock, other than Permitted Issuances, for a
consideration per Additional Share of Common Stock less than the applicable
Conversion Price, then the applicable Conversion Price shall be reduced to
the consideration per Additional Share of Common Stock paid for such
Additional Shares of Common Stock.
(ii) In the event that following the consummation of a Qualified Private
Offering, the Corporation shall issue or sell any Additional Shares of
Common Stock, other than Permitted Issuances, for a consideration per
Additional Share of Common Stock less than the applicable Conversion Price,
then the applicable Conversion Price shall be reduced to a price determined
by dividing (A) an amount equal to the sum of (x) the number of Fully
Diluted Outstanding shares of Common Stock immediately prior to such issue
or sale multiplied by the then existing Conversion Price plus (y) the
aggregate consideration, if any, received by the Corporation upon such issue
or sale, by (B) the total number of Fully Diluted Outstanding shares of
Common Stock outstanding immediately after such issue or sale.
(iii) The provisions of this Section 6(c) shall not apply to any issuance
of Additional Shares of Common Stock for which an adjustment is provided
under Section 6(b). No adjustment shall be made under this Section 6(c) upon
the issuance of any Additional Shares of Common Stock which are issued
pursuant to the exercise of any warrants or other subscription or purchase
rights or pursuant to the exercise of any conversion or exchange rights in
any Convertible Securities, if any such adjustment shall previously have
been made upon the issuance of such warrants or other rights or upon the
issuance of such Convertible Securities (or upon the issuance of any warrant
or other rights therefor) pursuant to Section 6(d) or Section 6(e).
(d) Issuance of Warrants or Other Rights. Except with respect to Permitted
Issuances, if at any time the Corporation shall take a record of the holders of
its Common Stock for the purpose of entitling them to receive a distribution
of, or shall in any manner (whether directly or by assumption in a merger in
which the Corporation is the surviving corporation) issue or sell, any warrants
or other rights to subscribe for or purchase any Additional Shares of Common
Stock or any Convertible Securities, whether or not the rights to exchange or
convert thereunder are immediately exercisable, and the price per share for
which Common Stock is issuable upon the exercise of such warrants or other
rights or upon conversion or exchange of such Convertible Securities shall be
less than the applicable Conversion Price in effect immediately prior to the
time of such distribution, issue or sale, then the applicable Conversion Price
shall be adjusted as provided in Section 6(c)(i) or (ii), as applicable, on the
basis that (i) the maximum number of Additional Shares of Common Stock issuable
pursuant to all such warrants or other rights or necessary to effect the
conversion or exchange of all such Convertible Securities shall be deemed to
have been issued and outstanding, (ii) the price per share for such Additional
Shares of Common Stock shall be deemed to be the lowest price per share at
which such Additional Shares of Common Stock are issuable to such holders, and
(iii) the Corporation shall have received all of the consideration, if any,
payable for such warrants or other rights as of the date of the actual issuance
thereof. No further adjustments of the
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Conversion Price shall be made upon the actual issue of such Common Stock or of
such Convertible Securities upon exercise of such warrants or other rights or
upon the actual issue of such Common Stock upon such conversion or exchange of
such Convertible Securities.
(e) Issuance of Convertible Securities. Except with respect to Permitted
Issuances, if at any time the Corporation shall take a record of the holders of
its Common Stock for the purpose of entitling them to receive a distribution
of, or shall in any manner (whether directly or by assumption in a merger in
which the Corporation is the surviving corporation) issue or sell, any
Convertible Securities, whether or not the rights to exchange or convert
thereunder are immediately exercisable, and the price per share for which
Common Stock is issuable upon such conversion or exchange shall be less than
the applicable Conversion Price in effect immediately prior to the time of such
issue or sale, then the applicable Conversion Price shall be adjusted as
provided in Section 6(c)(i) or (ii), as applicable, on the basis that (i) the
maximum number of Additional Shares of Common Stock issuable upon the
conversion or exchange of all such Convertible Securities shall be deemed to
have been issued and outstanding, (ii) the price per share of such Additional
Shares of Common Stock shall be deemed to be the lowest possible price in any
range of prices at which such Additional Shares of Common Stock are available
to such holders, and (iii) the Corporation shall have received all of the
consideration payable therefor, if any, as of the date of actual issuance of
such Convertible Securities. No further adjustment of the Conversion Price
shall be made under this Section 6(e) upon the issuance of any Convertible
Securities which are issued pursuant to the exercise of any warrants or other
subscription or purchase rights therefor, if any such adjustment shall
previously have been made upon the issuance of such warrants or other rights
pursuant to Section 6(d). No further adjustments of the Conversion Price shall
be made upon the actual issue of such Common Stock upon conversion or exchange
of such Convertible Securities and, if any issue or sale of such Convertible
Securities is made upon exercise of any warrant or other right to subscribe for
or to purchase or any warrant or other right to purchase any such Convertible
Securities for which adjustments thereof have been or are to be made pursuant
to other provisions of this Section 6, no further adjustments shall be made by
reason of such issue or sale.
(f) Superseding Adjustment. If, at any time after any adjustment of the
applicable Conversion Price shall have been made pursuant to Section 6(d) or
6(e) as the result of any issuance of warrants, rights or Convertible
Securities, and either
(i) such warrants or rights, or the right of conversion or exchange in
such other Convertible Securities, shall expire, and all or a portion of
such warrants or rights, or the right of conversion or exchange with respect
to all or a portion of such other Convertible Securities, as the case may
be, shall not have been exercised, or
(ii) the consideration per share for which shares of Common Stock are
issuable pursuant to such warrants or rights, or such other Convertible
Securities, shall be increased or decreased by virtue of provisions therein
contained,
then such previous adjustment shall be rescinded and annulled and the
Additional Shares of Common Stock which were deemed to have been issued by
virtue of the computation made in connection with the adjustment so rescinded
and annulled shall no longer be deemed to have been issued by virtue of such
computation. Thereupon, a recomputation shall be made of the effect of such
rights or options or other Convertible Securities on the applicable Conversion
Price, on the basis of
(iii) treating the number of Additional Shares of Common Stock or other
property, if any, theretofore actually issued or issuable pursuant to the
previous exercise of any such warrants or rights or any such right of
conversion or exchange, as having been issued on the date or dates of any
such exercise and for the consideration actually received and receivable
therefor, and
(iv) treating any such warrants or rights or any such other Convertible
Securities which then remain outstanding as having been granted or issued
immediately after the time of such increase or decrease of the consideration
per share for which shares of Common Stock or other property are issuable
under such warrants or rights or other Convertible Securities.
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(g) Subject Transactions Adjustment. If the Corporation issues a number of
shares of Common Stock greater than the Share Allowance in connection with the
Subject Transactions, the Conversion Price shall be adjusted to a dollar
resulting from the following:
$40,464,918
________________________________________________________
1.010948(12,919,702 + Overage)-1,500,000
Notwithstanding the foregoing, an adjustment under this subsection (g) shall
only be made to the extent such adjustment results in a reduction of the then
current Conversion Price.
(h) Other Provisions Applicable to Adjustments Under This Section. The
following provisions shall be applicable to the making of adjustments provided
for in this Section 6:
(i) Computation of Consideration. To the extent that any Additional
Shares of Common Stock or any Convertible Securities or any warrants or
other rights to subscribe for or purchase any Additional Shares of Common
Stock or any Convertible Securities shall be issued for cash consideration,
the consideration received by the Corporation therefor shall be the amount
of the cash received by the Corporation therefor, or, if such Additional
Shares of Common Stock or Convertible Securities are offered by the
Corporation for subscription, the subscription price, or, if such Additional
Shares of Common Stock or Convertible Securities are sold to underwriters or
dealers for public offering without a subscription offering, the public
offering price (in any such case subtracting any amounts paid or receivable
for accrued interest or accrued dividends, but not subtracting any
compensation, discounts or expenses paid or incurred by the Corporation for
and in the underwriting of, or otherwise in connection with, the issuance
thereof). To the extent that such issuance shall be for a consideration
other than cash, then, except as herein otherwise expressly provided, the
amount of such consideration shall be deemed to be the fair value of such
consideration at the time of such issuance as determined in good faith by
the Board of Directors. In case any Additional Shares of Common Stock or any
Convertible Securities or any warrants or other rights to subscribe for or
purchase such Additional Shares of Common Stock or Convertible Securities
shall be issued in connection with any merger in which the Corporation
issues any securities, the amount of consideration therefor shall be deemed
to be the fair value, as determined in good faith by the Board of Directors,
of such portion of the assets and business of the nonsurviving corporation
as the Board of Directors in good faith shall determine to be attributable
to such Additional Shares of Common Stock, Convertible Securities, warrants
or other rights, as the case may be. The consideration for any Additional
Shares of Common Stock issuable pursuant to any warrants or other rights to
subscribe for or purchase the same shall be the consideration received by
the Corporation for issuing such warrants or other rights plus the
additional consideration payable to the Corporation upon exercise of such
warrants or other rights. The consideration for any Additional Shares of
Common Stock issuable pursuant to the terms of any Convertible Securities
shall be the consideration, if any, received by the Corporation for issuing
warrants or other rights to subscribe for or purchase such Convertible
Securities, plus the consideration paid or payable to the Corporation in
respect of the subscription for or purchase of such Convertible Securities,
plus the additional consideration, if any, payable to the Corporation upon
the exercise of the right of conversion or exchange in such Convertible
Securities. In case of the issuance at any time of any Additional Shares of
Common Stock or Convertible Securities in payment or satisfaction of any
dividends upon any class of stock other than Common Stock, the Corporation
shall be deemed to have received for such Additional Shares of Common Stock
or Convertible Securities a consideration equal to the amount of such
dividend so paid or satisfied.
(ii) When Adjustments to Be Made; Class II Series C Preferred Stock
Adjustments. The adjustments required by this Section 6 shall be made
whenever and as often as any specified event requiring an adjustment shall
occur. For the purpose of any adjustment, any specified event shall be
deemed to have occurred at the close of business on the date of its
occurrence. For the avoidance of doubt, shares of Class I Series C Preferred
Stock issued upon conversion of Class II Series C Preferred Stock shall be
entitled to the same adjustments to the Conversion Price, the number of
shares of Common Stock issuable upon conversion thereof or otherwise under
this Section 6, as if such shares of Class I Series C Preferred Stock had
been issued at the time such shares of Class II Series C Preferred Stock
were issued.
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(iii) When Adjustment Not Required. If the Corporation shall take a
record of the holders of its Common Stock for the purpose of entitling them
to receive a dividend or distribution or subscription or purchase rights and
shall, thereafter and before the distribution to stockholders thereof,
legally abandon its plan to pay or deliver such dividend, distribution,
subscription or purchase rights, then thereafter no adjustment shall be
required by reason of the taking of such record and any such adjustment
previously made in respect thereof shall be rescinded and annulled.
(iv) Escrow of Common Stock. If after any property becomes distributable
as a result of the provisions of this Section 6 by reason of the taking of
any record of the holders of Common Stock, but prior to the occurrence of
the event for which such record is taken, a holder of shares of Series C
Convertible Preferred Stock exercises its conversion rights pursuant to
Section 5, any Additional Shares of Common Stock issuable and other property
distributable upon exercise by reason of such adjustment shall be held in
escrow for such holder by the Corporation to be issued to such holder upon
and to the extent that the event actually takes place. Notwithstanding any
other provision to the contrary herein, if the event for which such record
was taken fails to occur or is rescinded, then such escrowed shares shall be
canceled by the Corporation and escrowed property returned.
(v) Challenge to Good Faith Determination. Whenever the Board of
Directors shall be required to make a determination in good faith of the
fair value of any item under this Section 6, such determination may be
challenged in good faith by holders of a majority of the outstanding shares
of Convertible Preferred Stock, and any dispute shall be resolved by an
investment banking firm of recognized national standing selected by the
Corporation and acceptable to such holder.
(i) Other Action Affecting Common Stock. In case at any time or from time to
time the Corporation shall take any action in respect of its Common Stock,
other than any action described in this Section 6 for which a specific
adjustment is provided, then, unless such action will not have a materially
adverse effect upon the rights of the holders of shares of Series C Convertible
Preferred Stock, the number of shares of Common Stock or other stock into which
such shares of Series C Convertible Preferred Stock are convertible and/or the
applicable Conversion Price shall be adjusted in such manner as may be
equitable in the circumstances.
(j) Certain Limitations. Notwithstanding anything herein to the contrary,
the Corporation shall not enter into any transaction which, by reason of any
adjustment hereunder, would cause the applicable Conversion Price to be less
than the par value per share of Common Stock.
(k) Notice of Adjustments. Whenever the number of shares of Common Stock
into which shares of Series C Convertible Preferred Stock are convertible or
whenever the applicable Conversion Price shall be adjusted pursuant to this
Section 6, the Corporation shall forthwith prepare a certificate to be executed
by the chief financial officer of the Corporation setting forth, in reasonable
detail, the event requiring the adjustment and the method by which such
adjustment was calculated (including a description of the basis on which the
Board of Directors determined the fair value of any consideration referred to
in Section 6(h)(i)), specifying any change in the applicable Conversion Price
or the number of shares of Common Stock into which shares of Series C
Convertible Preferred Stock are convertible and (if such adjustment was made
pursuant to Section 5(g)(i) or 6(h)) describing the number and kind of any
other shares of stock or Other Property into which shares of Series C
Convertible Preferred Stock are convertible, and any change in the applicable
Conversion Price or prices thereof, after giving effect to such adjustment or
change. The Corporation shall promptly cause a signed copy of such certificate
to be delivered to the holders of Series C Convertible Preferred Stock. The
Corporation shall keep at the Payment Office copies of all such certificates
and cause the same to be available for inspection at said office during normal
business hours by the holders of Series C Convertible Preferred Stock or any
prospective purchaser of shares of Series C Convertible Preferred Stock
designated by such holders.
B-15
7. TRIGGERING EVENTS.
Any of the following actions or events shall constitute a "Triggering Event"
for purposes hereof:
(a) Failure to Pay Dividends. The Corporation shall fail to pay any
dividend on any Series C Convertible Preferred Stock which it is required to
pay in accordance with Section 2 for any reason, including but not limited
to, that such payment is prohibited by applicable law or the Board of
Directors elect not to pay such dividend, or shall otherwise violate any
term of Section 2 and such failure shall not be cured within a period of 30
days after such violation (which cure shall be effected in a manner ensuring
the holders the same yield as if such violation had not occurred).
(b) Failure of Voting Rights. The Corporation shall enter into any
transaction or take any action required to be approved by holders of Series
C Convertible Preferred Stock without obtaining the requisite approval of
the holders of the Series C Convertible Preferred Stock.
(c) Failure to Convert. The Corporation shall fail for any reason to
issue Common Stock or Class I Series C Preferred Stock, as applicable, as
required under Section 5 upon the request of any holder of Class I Series C
Preferred Stock or Class II Series C Preferred Stock, as the case may be, as
provided in Section 5 or shall fail for any reason to comply in any material
respect with any term of Section 5(f) or any other term of Section 5 hereof.
(d) Registration Rights Agreement. The Corporation shall fail in any
material respect to comply with the rights of the holders of Series C
Convertible Preferred Stock pursuant to the Second Amended and Restated
Registration Rights Agreement, dated as of , 2001, among the
Corporation, UBS and certain other stockholders of the Corporation, and such
failure shall continue for a period of 30 days after notice from any such
holder.
(e) Preferred Stock Purchase Agreement. The Corporation shall fail to
comply with Section 6(f) or 6(g) of the Preferred Stock Purchase Agreement
and such failure shall continue for a period of 30 days after notice from
the Purchasers or the representations made under Section 4(c) or 4(u) of the
Preferred Stock Purchase Agreement shall prove to have been incorrect or
misleading in any material respect when made pursuant thereto or any other
material representation made under the Preferred Stock Purchase Agreement
shall prove to have been incorrect or misleading in any substantial material
respect when made.
(f) There shall have occurred and be continuing a "Triggering Event"
pursuant to the terms of any other class or series of Convertible Preferred
Stock.
(g) Notwithstanding the foregoing, if a majority of the [Preferred
Directors] directors affirmatively vote in favor of a transaction or other
action by the Corporation which would constitute a Triggering Event under
Section 7(b) or 7(d), such action or event shall not be considered a
Triggering Event.
8. REMEDIES.
(a) In the event that a Triggering Event described in Section 7 shall occur
and be continuing, each holder of Series C Convertible Preferred Stock shall be
entitled to receive all cash and other dividends, distributions and other
payments which would be paid or payable to a holder of a number of shares of
Common Stock into which the shares of Series C Convertible Preferred Stock held
by such holder are convertible at such time (without regard to the number of
shares of Common Stock which are authorized or reserved for issuance at such
time and without regard to whether such shares of Series C Convertible
Preferred Stock are then currently convertible into Common Stock at the option
of the holder).
(b) [Section 8(b) shall read as follows if certain of the Company's
indebtedness has been restructured in a manner satisfactory to UBS and the
Company:
Upon the occurrence and during the continuance of any Triggering Event,
to the extent the Preferred Directors do not already constitute a majority
of the Board of Directors, the size of the Board of Directors shall
immediately be increased by the minimum number of directors which, if all of
such additional
B-16
directors were deemed "Preferred Directors," would result in such Preferred
Directors constituting a majority of the Board of Directors, and the holders
of Voting Preferred Stock shall be entitled to appoint such newly created
directors by vote of the holders of at least a majority of the voting power
of all then outstanding shares of Voting Preferred Stock, voting as a single
class.]
[Section 8(b) shall read as follows if certain of the Company's
indebtedness has NOT been restructured in a manner satisfactory to UBS and
the Company:
Upon the occurrence and during the continuance of any Triggering Event,
the size of the Board of Directors shall immediately be increased by the
minimum number of directors which, if all of such additional directors were
appointed by the holders of Voting Preferred Stock, would result in such
directors constituting a majority of the Board of Directors, and the holders
of Voting Preferred Stock shall be entitled to appoint such newly created
directors by vote of the holders of at least a majority of the voting power
of all then outstanding shares of Voting Preferred Stock, voting as a single
class.]
(c) Upon the occurrence and during the continuance of any Triggering Event,
any holder of shares of Series C Convertible Preferred Stock, at its election,
may, by notice to the Corporation (the "Put Notice"), demand repurchase of all
or any portion of such holder's shares of Series C Convertible Preferred Stock
for a cash purchase price in an amount per share equal to the Liquidation
Preference. The Corporation shall, on the date (not less than 10 business days
after the date of the Put Notice) designated in such Put Notice, repurchase
from the holder such holder's shares of Series C Convertible Preferred Stock
specified in the Notice. On the date of any repurchase of shares of Series C
Convertible Preferred Stock pursuant to this Section 8(c), the holder thereof
shall surrender for redemption a certificate for the number of shares of Series
C Convertible Preferred Stock being redeemed, without any representation or
warranty (other than that the holder has good and marketable title thereto,
free and clear of liens, encumbrances and restrictions of any kind), against
payment therefor of the repurchase price by, at the option of the holder, (i)
wire transfer to an account designated by the holder for such purpose or (ii) a
certified or official bank check payable to the order of the holder. If less
than all of the holder's shares of Series C Convertible Preferred Stock
represented by a single certificate are being redeemed, the Corporation shall
cancel such certificate and issue in the name of, and deliver to, the holder a
new certificate for the portion not being redeemed. At any time following
delivery of a Put Notice but prior to the date of repurchase, any holder of
Series C Convertible Preferred Stock may, by notice to the Corporation,
withdraw the repurchase demand contained in the Put Notice. Notwithstanding the
foregoing, the holders of Series C Preferred Stock shall not be entitled to
exercise their repurchase rights hereunder unless the holders of Convertible
Preferred Stock elect to exercise such repurchase rights by vote of the holders
of at least a majority of the voting power of all then outstanding shares of
Convertible Preferred Stock, voting as a single class.
(d) The Corporation stipulates that the remedies at law of each holder of
Series C Convertible Preferred Stock in the event of any Triggering Event or
threatened Triggering Event or otherwise or other failure in the performance of
or compliance with any of the terms hereof are not and will not be adequate and
that, to the fullest extent permitted by law, such terms may be specifically
enforced by a decree for the specific performance of any agreement contained
herein or by an injunction against a violation of any of the terms hereof or
otherwise without requiring any holder to post a bond or other. security except
to the extent required by applicable law.
(e) Any holder of Series C Convertible Preferred Stock shall be entitled to
recover from the Corporation the reasonable attorneys' fees and expenses
incurred by such holder in connection with any Triggering Event or enforcement
by such holder of any obligation of the Corporation hereunder.
(f) No failure or delay on the part of any holder of Series C Convertible
Preferred Stock in exercising any right, power or remedy hereunder or under
applicable law or otherwise shall operate as a waiver thereof; nor shall any
single or partial exercise of any such right, power or remedy preclude any
other or further exercise thereof or the exercise of any other right, power or
remedy hereunder or thereunder. The remedies herein provided are cumulative and
not exclusive of any remedies provided by law or otherwise.
B-17
9. PREEMPTIVE RIGHT.
(a) Each holder of Series C Convertible Preferred Stock or Common Stock
issued upon conversion of Series C Convertible Preferred Stock, shall have a
right of first refusal (the "Preemptive Right") to purchase its pro rata share,
based on such holder's percentage ownership interest in the Corporation, of New
Securities (as defined below) which the Corporation, from time to time,
proposes to sell and issue (subject to such requirements and restrictions
imposed by the Securities Act of 1933, as amended, and state securities laws
and to the actual issuance of the New Securities). The pro rata shares of any
holder of Series C Convertible Preferred Stock or Common Stock issued upon
conversion of Series C Convertible Preferred Stock, for purposes of this
Preemptive Right, shall be the ratio of (i) the number of shares of Common
Stock owned, of record or beneficially, by such holder (including all shares
issuable upon conversion of the Series C Convertible Preferred Stock, whether
or not then currently convertible, or the exercise or conversion of any other
option, warrant or convertible security held by such holder) immediately prior
to the issuance of the New Securities, to (ii) the total number of shares of
Common Stock issued and outstanding immediately prior to the issuance of the
New Securities, determined on a fully diluted basis after giving effect to the
exercise in full of then outstanding options and warrants and the conversion of
all securities convertible into shares of Common Stock; provided, however, that
if any holder of Series C Convertible Preferred Stock or Common Stock issued
upon conversion of Series C Convertible Preferred Stock does not elect to
purchase its entire pro rata share of such New Securities, then each other
holder that has elected to purchase its entire pro rata share shall have the
right to purchase up to a number of such unpurchased portion, in addition to
its own, in the proportion that (1) the number of shares of Common Stock owned,
of record or beneficially, by such holder (including all shares issuable upon
conversion of the Series C Convertible Preferred Stock, whether or not then
currently convertible, or the exercise or conversion of any other option,
warrant or convertible security held by such holder) immediately prior to the
issuance of the New Securities bears to (2) the number of shares of Common
Stock owned, of record or beneficially, by all holders of Series C Convertible
Preferred Stock or Common Stock issued upon conversion of Series C Convertible
Preferred Stock (including all shares issuable upon conversion of the Series C
Convertible Preferred Stock, whether or not then currently convertible, or the
exercise or conversion of any other option, warrant or convertible security
held by such holders) immediately prior to the issuance of the New Securities.
The overallotment mechanism set forth in this paragraph shall be repeatedly
applied until all New Securities available for purchase by holders of Series C
Convertible Preferred Stock or Common Stock issued upon conversion of Series C
Convertible Preferred Stock have been purchased or no holders remain who have
indicated a desire to purchase any unsubscribed for portion in their notice to
the Corporation.
(b) "New Securities" shall mean (a) any capital stock of the Corporation,
rights, options or warrants to purchase capital stock and securities of any
type whatsoever that are, or may become convertible into or exchangeable for
capital stock and (b) so-called "high yield" bonds, debt instruments with
equity like features or other similar debt instruments, which bear a rating
lower than investment-grade or are unrated, issued by the Corporation;
provided, however, that the term "New Securities" does not include (i) the
issuance of up to 4,243,037 shares of Common Stock issuable pursuant to options
to purchase Common Stock under the Stock Option Plan, (ii) shares of Common
Stock issued or issuable in connection with a Qualified Public Offering, (iii)
shares of Common Stock issued upon conversion of Convertible Preferred Stock,
(iv) shares of Class I Series B Preferred Stock issued upon conversion of Class
II Series B Preferred Stock, (v) shares of Class I Series C Preferred Stock
issued upon conversion of Class II Series C Preferred Stock, (vi) securities
issued as consideration for any acquisition approved by a majority of the Board
of Directors (including the affirmative vote of the [Preferred Directors]),
(vii) the Spinway Warrant, (viii) 210,000 shares of Common Stock upon exercise
of the Spinway Warrant, (ix) shares of Common Stock in exchange for shares of
Tutopia Stock upon a change-in-control of the Corporation pursuant to the
Tutopia Stockholders Agreement, (x) shares of Common Stock and/or Convertible
Preferred Stock issued pursuant to the Tutopia Put Agreement, or (xi) any
shares of capital stock of the Corporation, rights, options or warrants to
purchase capital stock and securities of any type whatsoever that are, or may
become convertible into or exchangeable for capital stock that have been
approved in advance by the holders of at least a majority of the voting power
of all then outstanding shares of Convertible Preferred Stock, voting as a
single class.
B-18
(c) In the event the Corporation proposes to undertake an issuance of New
Securities, it shall give each holder of Series C Convertible Preferred Stock
or Common Stock issued upon conversion of Series C Convertible Preferred Stock
written notice of its intention, describing the type of New Securities and the
price and the terms upon which the Corporation proposes to issue the same. Each
such holder shall have twenty (20) days from the date of receipt of any such
notice to agree to purchase its pro rata share of such New Securities for the
price and upon the terms specified in the notice by giving written notice to
the Corporation and stating therein the quantity of New Securities to be
purchased.
(d) The Corporation shall have ninety (90) days after expiration of the
twenty (20) day period described in Section 9(c) to sell any New Securities
with respect to which a Preemptive Right was not exercised, at a price not less
than and upon terms no more favorable in the aggregate to the purchasers
thereof than specified in the Corporation's notice. To the extent the
Corporation does not sell all the New Securities offered within said ninety
(90) day period, the Corporation shall not thereafter issue or sell such New
Securities without first again offering such securities to each holder of
Series C Convertible Preferred Stock or Common Stock issued upon conversion of
Series C Convertible Preferred Stock in the manner provided above.
(e) The rights granted under this Section 9 shall expire upon the earlier of
(i) the closing of a Qualified Public Offering and (ii) such time as less than
an aggregate of 25% of the authorized Convertible Preferred Stock remains
outstanding.
10. RANKING.
The Series C Convertible Preferred Stock shall rank pari passu with the
Series A Convertible Preferred Stock and Series B Convertible Preferred Stock
of the Corporation (which shall constitute Parity Securities for purposes
hereof) and any other Parity Securities with respect to amounts receivable upon
a Liquidation Event, dividends, rights and remedies upon Triggering Events or
for any other purpose.
11. AMENDMENTS.
This Certificate of Designation may not be amended without first obtaining
the affirmative vote or written consent of the holders of at least a majority
of the voting power of all then outstanding shares of Convertible Preferred
Stock, voting together as a single class, including the affirmative vote or
written consent of the holders of a majority of the shares of Series C
Convertible Preferred Stock.
B-19
EXHIBIT C
SECOND AMENDED
CERTIFICATE OF DESIGNATION, NUMBER, POWERS,
PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL AND OTHER RIGHTS OF SERIES A
CONVERTIBLE PREFERRED STOCK
OF
IFX CORPORATION
IFX Corporation (the "Corporation"), a corporation organized and existing
under the General Corporation Law of the State of Delaware, hereby certifies
that, pursuant to the provisions of Section 151 of the General Corporation Law
of the State of Delaware, its Board of Directors, at a meeting duly held on
, 2001 adopted the following resolution:
WHEREAS, the Board of Directors of the Corporation is authorized by the
Restated Certificate of Incorporation to issue up to shares of preferred
stock in one or more series and, in connection with the creation of any series,
to fix by the resolutions providing for the issuance of shares the powers,
designations, preferences and relative, participating, optional or other rights
of the series and the qualifications, limitations or restrictions thereof; and
WHEREAS, the Board of Directors authorized and fixed the terms and
provisions of the Class I and Class II Series A Convertible Preferred Stock of
the Corporation pursuant to resolutions dated March 8 and May 2, 2001 and by
filing with the Secretary of State of the State of Delaware an Amended
Certificate of Designation, Number, Powers, Preferences and Relative,
Participating, Optional and other Rights of Series A Convertible Preferred
Stock on May 3, 2001 (the "Original Certificate"); and
WHEREAS, it is the desire of the Board of Directors of the Corporation,
pursuant to such authority and the requisite vote of the holders of the Series
A Convertible Preferred Stock pursuant to the Original Certificate and the
requisite vote of the holders of the common stock pursuant to the General
Corporation Law of the State of Delaware, to amend and restate the Original
Certificate in its entirety.
NOW, THEREFORE, BE IT RESOLVED, that the Series A Convertible Preferred
Stock of the Corporation shall have the terms and provisions herein set forth
on Annex A attached to this resolution.
_____________________________________
Name: Joel Eidelstein
Title: President
ATTEST:
_____________________________________
Name: Joel Eidelstein
Title: Chief Financial Officer
C-1
ANNEX A
SERIES A CONVERTIBLE PREFERRED STOCK
The powers, designations, preferences and relative, participating, optional
or other rights of the Series A Convertible Preferred Stock of IFX Corporation
(the "Corporation") are as follows:
1. DESIGNATION AND AMOUNT.
This series of preferred stock shall be designated as "Series A Convertible
Preferred Stock" and shall be divided into two classes: Class I Series A
Convertible Preferred Stock ("Class I Preferred") and Class II Series A
Convertible Preferred Stock ("Class II Preferred," and together with the Class
I Preferred, the "Series A Convertible Preferred Stock"). The Series A
Convertible Preferred Stock shall have $1.00 par value per share. The number of
authorized shares constituting the Class I Preferred shall be 1,210,398 shares.
The number of authorized shares constituting the Class II Preferred shall be
820,471 shares. Shares of the Class I Preferred and Class II Preferred each
have a stated value of Twelve and 31/100 Dollars ($12.31) (the "Stated Value")
per share. The Corporation has also previously authorized 4,418,262 shares of
its Series B Convertible Preferred Stock, par value $1.00 per share, consisting
of 4,418,262 shares of Class I Series B Convertible Preferred Stock ("Class I
Series B Preferred") and 424,135 shares of Class II Series B Convertible
Preferred Stock ("Class II Series B Preferred" and, collectively, the "Series B
Convertible Preferred Stock") having the number, powers, preferences and
relative, participating, optional and other rights as set forth in the Amended
Certificate of Designation filed with the Secretary of State of the State of
Delaware on the date of the filing hereof (the "Series B Certificate"). The
Corporation has also authorized shares of its Series C Convertible
Preferred Stock, par value $1.00 per share, consisting of shares of Class I
Series C Convertible Preferred Stock ("Class I Series C Preferred") and
shares of Class II Series C Convertible Preferred Stock ("Class II Series C
Preferred") and collectively (the "Series C Convertible Preferred Stock")
having the number, powers, preferences and relative, participating, optional
and other rights as set forth in the Certificate of Designation filed with the
Secretary of State of the State of Delaware on the date of the filing hereof
(the "Series C Certificate"). The Series A Convertible Preferred Stock, the
Series B Convertible Preferred Stock, the Series C Convertible Preferred Stock
and shares of any other class or series of preferred stock of the Corporation
which is convertible, directly or indirectly, into Common Stock, whether at the
time of issuance or upon passage of time or the occurrence of some future
event, are collectively referred to herein as "Convertible Preferred Stock."
2. DIVIDENDS.
(a) Right to Receive Dividends. Holders of Series A Convertible Preferred
Stock shall be entitled to receive dividends when, as and if declared by the
Board of Directors of the Corporation (the "Board of Directors").
(b) Participation with Common Stock. In the event the Board of Directors
shall elect to pay or declare and set apart for payment any dividend on any
shares of common stock, par value $.02 per share, of the Corporation (the
"Common Stock") in cash out of funds legally available therefor or in stock or
other consideration, the holders of the Series A Convertible Preferred Stock
shall be entitled to receive, before any dividend shall be declared and paid or
set aside for the Common Stock, dividends payable in the form and in an amount
per share equal to the per share amount that would have been payable to such
holders had such holders converted their Series A Convertible Preferred Stock
into Common Stock and had all other holders of Convertible Preferred Stock
converted such shares into Common Stock.
(c) Dividend Preference. Dividends on the Series A Convertible Preferred
Stock shall be payable before any dividends or distributions or other payments
shall be paid or set aside for payment upon the Common Stock or any other stock
ranking on liquidation or as to dividends or distributions junior to the Series
A Convertible Preferred Stock (any such stock, together with the Common Stock,
being referred to hereinafter as "Junior
C-2
Stock"). If there shall be outstanding shares of any class or series of capital
stock which is entitled to share ratably with the Series A Convertible
Preferred Stock in the payment of dividends or distributions or upon
liquidation ("Parity Securities"), no full dividends shall be declared or paid
or set apart for payment on any such securities unless dividends have been or
contemporaneously are ratably declared and paid or declared and a sum
sufficient for the payment thereof set apart for such payment on the Series A
Convertible Preferred Stock.
3. LIQUIDATION PREFERENCE.
(a) In the event of any bankruptcy, liquidation, dissolution or winding up
of the Corporation, either voluntary or involuntary, each holder of Series A
Convertible Preferred Stock at the time thereof shall be entitled to receive,
prior and in preference to any distribution of any of the assets or funds of
the Corporation to the holders of the Common Stock or other Junior Stock by
reason of their ownership of such stock, an amount per share of Series A
Convertible Preferred Stock equal to the sum of
(i) (x) the applicable Stated Value plus any declared and unpaid
dividends to the date of liquidation, plus (y) 10% of such Stated Value per
annum, calculated from the date of issuance of such share through date of
payment of the Liquidation Preference as set forth in this Section 3 ((x)
and (y), collectively, the "Stated Preference"); plus
(ii) an amount equal to such amount per share of Series A Preferred Stock
as would have been payable had each share of Series A Preferred Stock and
all outstanding shares of Convertible Preferred Stock been converted into
Common Stock immediately prior to such bankruptcy, liquidation, dissolution
or winding up of the Corporation after giving effect to the full payment of
the Stated Preference under the preceding paragraph (i) and the stated
preference of the other Convertible Preferred Stock;
provided, that if the amount payable per share of Series A Convertible
Preferred Stock pursuant to the foregoing paragraphs (i) and (ii) exceeds three
and one-half (3-1/2) multiplied by the Stated Preference (the "Maximum
Amount"), each holder of Series A Convertible Preferred Stock shall only be
entitled to receive such Maximum Amount. The sum of the amounts in (i) and (ii)
above is referred to herein as the "Liquidation Preference".
After the payment of the full Liquidation Preference on account of all
shares of Series A Convertible Preferred Stock as set forth in this Section 3
and any preferential amounts to which the holders of Parity Securities are
entitled, the remaining assets of the Corporation legally available for
distribution, if any, shall be distributed ratably to the holders of the Common
Stock. If the assets and funds legally available for distribution among the
holders of Series A Convertible Preferred Stock shall be insufficient to permit
the payment to the holders of the full aforesaid Liquidation Preference, then
the assets and funds shall be distributed ratably among holders of Series A
Convertible Preferred Stock in proportion to the number of shares of Series A
Convertible Preferred Stock owned by each holder. If the assets and funds of
the Corporation available for distribution to stockholders upon any bankruptcy,
liquidation, dissolution or winding up of the affairs of the Corporation,
whether voluntary or involuntary, shall be insufficient to permit the payment
to holders of the full aforesaid Liquidation Preference and amounts payable to
holders of outstanding Parity Securities, the holders of Series A Convertible
Preferred Stock and the holders of such other Parity Securities shall share
ratably (and ratably as to cash, in-kind or other distributions) in any
distribution of assets of the Corporation in proportion to the full respective
preferential amounts to which they are entitled.
(b) Except as described in the following sentence, a merger,
recapitalization, reorganization, sale of voting control to a single buyer or a
group of related buyers in one or a series of related transactions, or other
business combination transaction involving the Corporation in which the
shareholders of the Corporation immediately prior to the consummation of such
transaction do not own at least a majority of the outstanding shares of the
surviving corporation or the Corporation (as applicable) immediately following
the consummation of such transaction or sale of all or substantially all of the
assets of the Corporation (collectively, a "Liquidation Event") shall be deemed
to be a liquidation of the Corporation. Notwithstanding the foregoing, the
following shall not be deemed to be a Liquidation Event: (i) a merger,
recapitalization, sale of voting control or other business
C-3
combination transaction with an Affiliate (as such term is defined in Section
12b-2 of the Rules and Regulations under the Securities Exchange Act of 1934,
as amended) of UBS Capital Americas III, L.P. or UBS Capital LLC (together with
any such Affiliate, "UBS"), or (ii) a merger of the Corporation with a public
company (A) in which the merger consideration to be received by the holders of
the Series B Convertible Preferred Stock is fully registered marketable
securities (the "Merger Shares") which are not subject to any restrictions on
transfer, (B) in which the value of such merger consideration for each share of
Series A Convertible Preferred Stock, valued at the average closing price of
the Merger Shares for the 30 days prior to the consummation of the merger, or
such lesser period which follows the public announcement of the merger, is
greater than 110% of the Liquidation Preference per share as of the date of
consummation of the merger, and (C) with aggregate trading volume for the 30
calendar days prior to the merger date of at least 10 times the aggregate
number of Merger Shares received by all holders of Convertible Preferred Stock.
(c) In any Liquidation Event, if the consideration received by the
Corporation is other than cash, its value will be deemed its fair market value
as determined in good faith by the Board of Directors. Any securities shall be
valued as follows:
(i) Securities not subject to investment letter or other similar
restrictions on free marketability covered by subsection (ii) below:
(A) If traded on a securities exchange or through The Nasdaq National
Market or Small Cap Market, the value shall be deemed to be the average
of the closing prices of the securities on such quotation system over
the thirty (30) day period ending three (3) days prior to the closing of
the Liquidation Event;
(B) If actively traded over-the-counter, the value shall be deemed to
be the average of the closing bid or sale prices (whichever is
applicable) over the thirty (30) day period ending three (3) days prior
to the closing of the Liquidation Event; and
(C) If there is no active public market, the value shall be the fair
market value thereof, as mutually determined by the Board of Directors
and the holders of at least a majority of the voting power of all then
outstanding shares of Convertible Preferred Stock, voting as a single
class.
(ii) The method of valuation of securities subject to investment letter
or other restrictions on free marketability (other than restrictions arising
solely by virtue of a shareholder's status as an affiliate or former
affiliate) shall be to make an appropriate discount from the market value
determined as above in subsections (i)(A), (B) or (C) to reflect the
approximate fair market value thereof, as mutually determined by the Board
of Directors and the holders of at least a majority of the voting power of
all then outstanding shares of Convertible Preferred Stock, voting as a
single class.
4. VOTING RIGHTS.
In addition to any voting rights provided elsewhere herein or in the
Corporation's Certificate of Incorporation, as it may be amended or restated
from time to time (the "Certificate of Incorporation"), and any voting rights
provided by law, the holders of shares of Series A Convertible Preferred Stock
shall have the following voting rights:
(a) Election of Directors.
(i) Subject to the terms hereof, the holders of the Series A Preferred
Stock, together with the holders of any other class or series of Convertible
Preferred Stock, the terms of which expressly entitle the holder thereof to
vote in the election of directors designated by holders of Convertible
Preferred Stock (collectively, "Voting Preferred Stock") shall have the
right to elect four (4) directors, one (1) of which shall be an Independent
Director (as defined below). Such directors shall be elected by the holders
of at least a majority of the voting power of all then outstanding shares of
Voting Preferred Stock, voting as a single class. "Independent Director" has
the meaning specified in Rule 4200(a)(14) of the NASD listing standards, as
in effect on the date hereof and as the same may be amended or supplemented,
or in any successor rule or regulation.
C-4
(ii) Any director elected by the holders of Voting Preferred Stock shall
be referred to herein as a "Preferred Director." Subject to Section 4(a)(v),
the initial term of any director to be appointed pursuant to Section 4(a)(i)
will commence upon his/her election by the holders of Voting Preferred Stock
and shall expire at the first annual meeting of stockholders of the
Corporation following his/her election. Upon expiration of the initial term
of such Preferred Director, so long as the Voting Preferred Stock is
outstanding, the holders of such Voting Preferred Stock shall have the right
to elect a Preferred Director to replace such director in the same manner
described above in Section 4(a)(i). Subject to Section 4(a)(v), a Preferred
Director so elected shall hold office for a term expiring at the annual
meeting of stockholders in the year following the election of such director.
Notwithstanding the foregoing, but subject to Section 4(a)(v), a Preferred
Director elected under Section 4(a)(i) shall serve until such Preferred
Director's successor is duly elected and qualified or until such director's
earlier removal as provided in Section 4(a)(iii) or death or resignation
and, in the event a vacancy occurs, a replacement Preferred Director shall
be selected as provided in Section 4(a)(i).
(iii) A Preferred Director may be removed by, and shall not be removed
except by, the vote of at least a majority of the voting power of all then
outstanding shares of Voting Preferred Stock, voting as a single class.
(iv) The Corporation shall at all times reserve and keep available
sufficient vacant seats on the Board of Directors solely for the purpose of
enabling the holders of the Voting Preferred Stock to designate Preferred
Directors as provided in this Section 4(a).
(v) This Section 4(a) shall survive a Qualified Public Offering (as
defined in Section 5(b) below) and until such time thereafter as less than
an aggregate of 25% of the authorized Convertible Preferred Stock remains
outstanding.
[Section 4(a) shall read as follows if certain of the Company's indebtedness
has NOT been restructured in a manner satisfactory to UBS and the Company:
The holders of shares of Series A Preferred Stock shall be entitled to
vote in elections of directors.]
(b) Certain Corporate Actions. Until a Qualified Public Offering or until
such time as less than an aggregate of 25% of the authorized Convertible
Preferred Stock remains outstanding, the Corporation shall not, and shall not
permit any of its subsidiaries to, without first obtaining the affirmative vote
or written consent of the holders of at least a majority of the voting power of
all then outstanding shares of Convertible Preferred Stock, voting as a single
class:
(A) amend, repeal, modify or supplement any provision of the Certificate
of Incorporation (including any certificate of designation forming a part
thereof), the Bylaws of the Corporation, or any successor certificate of
incorporation or bylaws or this Amended Certificate of Designation, Number,
Powers, Preferences and Relative, Participating, Optional and Other Rights
of Series A Convertible Preferred Stock (the "Certificate of Designation");
(B) authorize or permit the Corporation or any subsidiary of the
Corporation to issue any capital stock or any options, warrants or other
rights exchangeable or exercisable therefor, other than (i) shares of Series
C Convertible Preferred Stock pursuant to the Preferred Stock Purchase
Agreement, dated as of , 2001, among the Corporation and UBS (the
"Preferred Stock Purchase Agreement"), (ii) Common Stock upon conversion of
Convertible Preferred Stock, or upon the exercise of stock options to
purchase up to 4,243,037 shares of Common Stock, (iii) shares of Class I
Series B Preferred Stock issued upon conversion of Class II Series B
Preferred Stock, (iv) shares of Class I Series C Preferred Stock issued upon
conversion of Class II Series C Preferred Stock, (v) securities issued as
consideration for any acquisition approved by a majority of the Board of
Directors (including the affirmative vote of the [Preferred Directors]),
(vi) up to $15 million of Common Stock, issued as consideration for any
acquisition approved by a majority of the Board of Directors (without the
affirmative vote of the [Preferred Directors]), provided such Common Stock
is valued at no less than the greater of (1) the Stated Value (as adjusted
for stock splits, combinations, stock
C-5
dividends and the like) and (2) the average of the closing price for the
Common Stock for the 30 days prior to the issuance, (vii) a warrant to
purchase 210,000 shares of Common Stock to Spinway, Inc. (the "Spinway
Warrant"), (viii) 210,000 shares of Common Stock upon exercise of the
Spinway Warrant, (ix) shares of Common Stock in exchange for shares of
common stock, par value $.001 per share ("Tutopia Stock"), of Tutopia.com,
Inc. ("Tutopia"), upon a change-in-control of the Corporation pursuant to
the Stockholders Agreement, dated as of April 24, 2000, by and among the
Corporation, Tutopia and the other parties signatory thereto (the "Tutopia
Stockholders Agreement") or (x) shares of Common Stock and/or Convertible
Preferred Stock issued pursuant to that certain Put Agreement, dated ,
2001 among the Corporation, UBS and the other parties named therein (the
"Tutopia Put Agreement");
(C) reclassify any class or series of any Common Stock into shares having
any preference or priority as to dividends or liquidation superior to or on
a parity with any such preference or priority of Convertible Preferred Stock;
(D) authorize or effect, in a single transaction or through a series of
related transactions, (1) a liquidation, winding up or dissolution of the
Corporation or adoption of any plan for the same; (2) a Liquidation Event;
or (3) any direct or indirect purchase or other acquisition by the
Corporation or any of its subsidiaries of any capital stock (other than the
Convertible Preferred Stock pursuant to its terms);
(E) enter into or otherwise become a party to any agreement whereby any
shareholder or shareholders of the Corporation shall transfer capital stock
of the Corporation to an independent third party or a group of independent
third parties pursuant to which such parties acquire capital stock of the
Corporation possessing the voting power to elect a majority of the Board of
Directors;
(F) declare or pay or set aside for payment any dividend or distribution
or other payment upon the Common Stock or upon any other Junior Stock, nor
redeem, purchase or otherwise acquire any Common Stock or other Junior Stock
for any consideration (or pay or make available any moneys, whether by means
of a sinking fund or otherwise, for the redemption of or other distribution
or payment with respect to any shares of any Common Stock or other Junior
Stock), except for the repurchase of shares of Common Stock from directors,
consultants or employees of the Corporation or any subsidiary pursuant to
agreements approved by the disinterested directors on the Board of
Directors, under which the Corporation has the right to repurchase such
shares upon the occurrence of certain events, including but not limited to,
termination of employment or services;
(G) approve the annual budget of the Corporation and its subsidiaries
(the "Annual Budget");
(H) enter into any financial commitment over and above those approved in
the annual budget in excess of $15 million in the aggregate (for the
Corporation and its subsidiaries, taken together), except as prescribed in
the Annual Budget;
(I) dismiss or hire or modify or enter into any employment agreement,
non-competition agreement, bonus or stock issuance arrangements or other
compensation (including, without limitation, fringe benefit) arrangements
with its President, Chief Executive Officer or Chief Financial Officer, or
other equivalent or senior level officer;
(J) permit the creation or existence of any lien, mortgage, pledge,
hypothecation, assignment, security interest, charge or encumbrance, or
preference, priority or other security agreement or preferential arrangement
of any kind or nature whatsoever on any of the Corporation's or any of its
subsidiaries' assets with an aggregate value in excess of $15 million,
except as part of any financing in the ordinary course of business;
(K) make any capital expenditure in any fiscal year in excess of $15
million in the aggregate (for the Corporation and its subsidiaries, taken
together), except as prescribed in the Annual Budget;
(L) acquire any assets or equity or other interest in any other entity
with a value in excess of $15 million in the aggregate (for the Corporation
and its subsidiaries, taken together), except as prescribed in the Annual
Budget;
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(M) incur indebtedness for borrowed money (including, without limitation,
any capitalized lease obligations, accounts receivable financing or other
asset-backed financing), any guarantee or other similar contingent
obligation or any lease financing (whether a capitalized lease, operating
lease, pursuant to a sale leaseback arrangement or otherwise), in excess of
$15 million in the aggregate (for the Corporation and its subsidiaries,
taken together), except as prescribed in the Annual Budget;
(N) amend, supplement, restate, revise, waive or otherwise modify any
stock option plan, agreement or other arrangement of the Corporation (each,
a "Stock Option Plan"), as in effect on , 2001;
(O) create or adopt any stock option plan, stock appreciation rights
plan, bonus plan or similar plan that was not in existence on , 2001,
except as approved by the Compensation Committee of the Board of Directors;
(P) dispose of or acquire assets with a value in excess of $15 million
other than in the normal course of business;
(Q) liquidate, dissolve or voluntarily elect to commence bankruptcy or
insolvency proceedings under applicable laws;
(R) change in any material respect the nature of the business of the
Corporation and its subsidiaries taken as a whole;
(S) enter into any transaction, or any agreement or understanding with
any affiliate of the Corporation or any subsidiary thereof, other than a
wholly-owned subsidiary of the Corporation;
(T) (i) solicit or negotiate any inquiries or proposals with respect to
(x) any direct or indirect issuance, sale, disposition or redemption of any
securities of Latin Guide, Inc. ("LGI"), Tutopia or any of Tutopia's
subsidiaries, (y) the direct or indirect sale or disposition of all or any
material portion of the assets or business of LGI, Tutopia or any of
Tutopia's subsidiaries, or (z) any merger, reorganization, consolidation or
recapitalization or other similar transaction involving LGI, Tutopia or any
of Tutopia's subsidiaries; or (ii) discuss with or provide to any person or
entity information of LGI, Tutopia or any of Tutopia's subsidiaries with
respect to or in contemplation of any of the foregoing; or
(U) agree to do any of the foregoing.
(c) Additional Voting Rights. Except as required by law, the holders of
Series A Convertible Preferred Stock shall be entitled to notice of any
stockholders' meeting and to vote together as a single class with the holders
of Common Stock (and any other capital stock of the Corporation entitled to
vote), upon any matter submitted to the stockholders for a vote as follows: (i)
the holders of the Series A Convertible Preferred Stock shall have one (1) vote
per share (ii) the holders of shares of any other Convertible Preferred Stock
shall have the number of votes per share provided in the Certificate of
Designation for such Class of Convertible Preferred Stock and (iii) the holders
of Common Stock shall have one (1) vote per share of Common Stock.
(d) Manner of Voting. Whenever a vote of the holders of Series A Convertible
Preferred Stock, Series B Convertible Preferred Stock, Series C Convertible
Preferred Stock and/or other shares of Convertible Preferred Stock shall be
taken pursuant to the provisions of this Certificate of Designation or
otherwise, (i) the holders of Series A Convertible Preferred Stock shall have
one (1) vote per share and (ii) the holders of shares of any other Convertible
Preferred Stock shall have the number of votes per share provided in the
Certificate of Designation for such Class of Convertible Preferred Stock.
5. CONVERSION.
Shares of Series A Convertible Preferred Stock may be converted into shares
of Common Stock, on the terms and conditions set forth in this Section 5.
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(a) Optional Conversion.
(i) At any time and from time to time, each holder of shares of Series A
Preferred Stock may, upon written notice to the Corporation, convert all or
any portion of such shares held by such holder into the number of shares of
Common Stock determined by dividing (x) the applicable Stated Preference
multiplied by the number of shares surrendered for conversion plus any
declared but unpaid dividends on such shares, by (y) the Conversion Price on
the date of conversion determined in accordance with Section 5(c).
(ii) References in this Section 5 to "Common Stock" shall include all
stock or other securities or property (including cash) into which Common
Stock is converted following any merger, reorganization or reclassification
of the capital stock of the Corporation.
(b) Mandatory Conversion. Each share of Series A Convertible Preferred Stock
shall automatically be converted into such number of shares of Common Stock as
is determined by dividing (x) the Stated Preference multiplied by the number of
shares surrendered for conversion plus any declared but unpaid dividends on
such shares, by (y) the Conversion Price on the date of conversion determined
in accordance with Section 5(c), without further action by the holders of such
shares and whether or not the certificates representing such shares are
surrendered to the Corporation or its transfer agent, upon the closing of an
underwritten public offering of shares of Common Stock for which the
Corporation has obtained a firm commitment from one or more underwriter(s) for
at least: $60 million of Common Stock and in which the Corporation receives
gross proceeds from the sale of Common Stock to the public of at least $45
million (before deduction of underwriter's discounts and commissions), and
which values the equity of the Corporation at no less than $200 million
pre-offering (a "Qualified Public Offering"). Except for the purposes of the
calculation in the immediately preceding sentence, in the event of a Qualified
Public Offering, the person(s) entitled to receive the Common Stock issuable
upon conversion of Series A Convertible Preferred Stock shall not be deemed to
have converted such Series A Convertible Preferred Stock until the closing of
such offering.
(c) Conversion Price. The Conversion Price per share for the Series A
Convertible Preferred Stock shall be Three and 00/100 Dollars ($3.00), subject
to adjustment as provided in Section 6 hereof.
(d) Common Stock. The Common Stock to be issued upon conversion hereunder
shall be fully paid and nonassessable.
(e) Procedures for Conversion.
(i) In order to convert shares of Series A Convertible Preferred Stock
into shares of Common Stock pursuant to Section 5(a) (or, in the case of an
automatic conversion of Series A Preferred Stock pursuant to Section 5(b),
to receive a certificate for such holder's shares of Common Stock
outstanding as a result of such conversion), the holder shall surrender the
certificate or certificates therefore, duly endorsed for transfer, at any
time during normal business hours, to the Corporation at its principal or at
such other office or agency then maintained by it for such purpose (the
"Payment Office"), accompanied, in the case of a conversion pursuant to
Section 5(a), by written notice to the Corporation of such holder's election
to convert and (if so required by the Corporation or any conversion agent)
by an instrument of transfer, in form reasonably satisfactory to the
Corporation and to any conversion agent, duly executed by the registered
holder or by his duly authorized attorney, and any taxes required pursuant
to Section 5(e)(iii). As promptly as practicable after the surrender for
conversion of any share of Series A Convertible Preferred Stock in the
manner provided in the preceding sentence, and the payment in cash of any
amount required by the provisions of Section 5(e)(iii), but in any event
within five Trading Days of such surrender for payment, the Corporation will
deliver or cause to be delivered at the Payment Office to or upon the
written order of the holder of such shares, certificates representing the
number of full shares of Common Stock issuable upon such conversion, issued
in such name or names as such holder may direct. Such conversion shall be
deemed to have been made immediately prior to the close of business on the
date of such surrender of the shares in proper order for conversion, and all
rights of the holder of such shares as a holder of such shares shall cease
at such time and the person or persons in whose name or names the
certificates for such shares of Common
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Stock are to be issued shall be treated for all purposes as having become
the record holder or holders thereof at such time; provided, however, that
any such surrender and payment on any date when the stock transfer books of
the Corporation shall be closed shall constitute the person or persons in
whose name or names the certificates for such shares of Common Stock are to
be issued as the record holder or holders thereof for all purposes
immediately prior to the close of business on the next succeeding day on
which such stock transfer books are opened and such conversion shall be at
the Conversion Price in effect at such time on such succeeding day.
For purposes hereof, "Trading Day" shall mean (i) any day on which stock is
traded on the principal stock exchange on which the Common Stock is listed or
admitted to trading, (ii) if the Common Stock is not then listed or admitted to
trading on any stock exchange but is traded on the Nasdaq Stock Market, any day
on which stock is traded on the Nasdaq Stock Market, or (iii) if the Common
Stock is not then traded on the Nasdaq Stock Market, any day on which stock is
traded in the over-the-counter market, as reported by the National Quotation
Bureau Incorporated (or any similar organization or agency succeeding to its
functions of reporting prices).
(ii) The Corporation shall not be required to issue fractional shares of
Common Stock upon conversion of shares of Series A Convertible Preferred
Stock. At the Corporation's discretion, in the event the Corporation
determines not to issue fractional shares, in lieu of any fractional shares
to which the holder would otherwise be entitled, the Corporation shall pay
cash equal to such fraction multiplied by the closing price of the Common
Stock on the date of conversion.
(iii) The issuance of certificates for shares of Common Stock upon
conversion shall be made without charge for any issue, stamp or other
similar tax in respect of such issuance. However, if any such certificate is
to be issued in a name other than that of the holder of record of the shares
converted, the person or persons requesting the issuance thereof shall pay
to the Corporation the amount of any tax which may be payable in respect of
any transfer involved in such issuance or shall establish to the
satisfaction of the Corporation that such tax has been paid or is not
payable.
(f) Reservation of Stock Issuable Upon Conversion. The Corporation shall
reserve and keep available out of its authorized but unissued shares of Common
Stock, solely for the purpose of effecting the conversion of the shares of the
Series A Convertible Preferred Stock, 8,333,332 shares of Common Stock. If at
any time the number of authorized but unissued shares of Common Stock shall not
be sufficient to effect the conversion of all then outstanding shares of the
Series A Convertible Preferred Stock without regard to whether the holders of
Series A Convertible Preferred Stock are then entitled to convert, the
Corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purpose,
including, without limitation, taking appropriate board action, recommending
such an increase to the holders of Common Stock, holding shareholders meetings,
soliciting votes and proxies in favor of such increase to obtain the requisite
stockholder approval and upon such approval, the Corporation shall reserve and
keep available such additional shares solely for the purpose of effecting the
conversion of the shares of the Series A Convertible Preferred Stock.
(g) Merger, Etc.
(i) Notwithstanding any other provision hereof, in case of any merger or
other business combination transaction involving the Corporation which does
not constitute a Liquidation Event, then, concurrently with the consummation
of such transaction, provision shall be made so that each share of Series A
Convertible Preferred Stock shall thereafter be convertible into the number
of shares of stock or other securities or property (including cash) to which
a holder of the number of shares of Common Stock deliverable upon conversion
of such share of Series A Convertible Preferred Stock would have been
entitled assuming conversion immediately prior to the closing of the
transaction.
(ii) In case of any merger or other business combination transaction
involving the Corporation which does not constitute a Liquidation Event, in
which the Corporation is not the surviving entity, and the Corporation or
the holders do not otherwise convert all outstanding shares of Series A
Convertible Preferred
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Stock, the Series A Convertible Preferred Stock shall be converted into or
exchanged for and shall become shares of the surviving corporation having,
in respect of the surviving corporation, substantially the same powers,
preferences and relative participating, optional or other special rights,
and the qualifications, limitations or restrictions thereon, that the Series
A Convertible Preferred Stock had immediately prior to such transaction.
6. ADJUSTMENTS.
The Conversion Price shall be subject to adjustment from time to time as set
forth in this Section 6. The Corporation shall give holders of Series A
Convertible Preferred Stock notice of any event described below which requires
an adjustment pursuant to this Section 6 at the time of such event.
(a) Definitions. As used in this Section 6, the following terms have the
respective meanings set forth below:
"Additional Shares of Common Stock" shall mean all shares of Common Stock
issued by the Corporation after the Closing (as defined in the Preferred
Stock Purchase Agreement).
"Convertible Securities" shall mean evidences of indebtedness, shares of
stock of other securities which are convertible into or exchangeable, with
or without payment of additional consideration in cash or property, for
Additional Shares of Common Stock, either immediately or upon the occurrence
of a specified date or a specified event.
"Fully Diluted Outstanding" shall mean, when used with reference to
Common Stock, at any date as of which the number of shares thereof is to be
determined, all shares of Common Stock Outstanding at such date and all
shares of Common Stock issuable in respect of Series C Convertible Preferred
Stock outstanding on such date and other securities convertible into, or
options or warrants to purchase, shares of Common Stock outstanding on such
date, whether or not such options, warrants or other securities are
presently convertible or exercisable.
"Other Property" shall have the meaning set forth in Section 6(i).
"Outstanding" shall mean, when used with reference to Common Stock, at
any date as of which the number of shares thereof is to be determined, all
issued shares of Common Stock, except shares then owned or held by or for
the account of the Corporation or any subsidiary of the Corporation, and
shall include all shares issuable in respect of outstanding scrip or any
certificates representing fractional interests in shares of Common Stock.
"Overage" shall mean the total number of shares of Common Stock issued in
connection with the Subject Transactions above the Share Allowance.
"Permitted Issuances" shall mean (i) the issuance of up to 4,243,037
shares of Common Stock issuable pursuant to options to purchase Common Stock
under the Stock Option Plan, (ii) shares of Common Stock issued or issuable
in connection with a Qualified Public Offering, (iii) shares of Common Stock
issued in connection with the Subject Transactions or upon conversion of
Convertible Preferred Stock, (iv) shares of Class I Series B Preferred Stock
issued upon conversion of the Class II Series B Preferred Stock, (v) shares
of Class I Series C Preferred Stock issued upon conversion of Class II
Series C Preferred Stock, (vi) securities issued as consideration for any
acquisition approved by a majority of the Board of Directors (including the
affirmative vote of the [Preferred Directors]), (vii) the issuance of an
aggregate of up to 100,000 additional shares of Common Stock (as adjusted
for stock splits, combinations, stock dividends and the like) in
transactions approved by a majority of the Board of Directors, (viii) the
issuance of an aggregate of up to another 100,000 additional shares of
Common Stock (as adjusted for stock splits, combinations, stock dividends
and the like) in transactions approved by a majority of the Board of
Directors (including the affirmative vote of the [Preferred Directors]),
(ix) the Spinway Warrant, (x) 210,000 shares of Common
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Stock upon exercise of the Spinway Warrant, (xi) shares of Common Stock
and/or Convertible Preferred Stock issued pursuant to the Tutopia Put
Agreement, and (xii) such other issuances as shall be approved in advance by
the holders of at least a majority of the voting power of all then
outstanding shares of Convertible Preferred Stock, voting as a single class.
"Qualified Private Offering" shall mean a private equity offering to
investors other than UBS resulting in gross proceeds to the Corporation of
at least $30 million, in which the securities issued contain anti-dilution
provisions no more favorable to the investor than the anti-dilution
provisions of the Series A Convertible Preferred Stock which take effect
following the consummation of a Qualified Private Offering.
"Share Allowance" shall mean 428,571 shares of Common Stock.
"Stock Option Plan" shall mean the IFX Corporation Directors Stock Option
Plan, the 1998 IFX Corporation Stock Option and Incentive Plan, as amended,
and the IFX Corporation 2001 Stock Option Plan.
"Subject Transactions" shall mean (i) any acquisition consummated prior
to the filing hereof, including, without limitation, the acquisitions of Mr.
Help Informatica S/C Ltda., Zupernet Ltda. and Redescape, L.L.C., (ii) the
Consulting Agreement, dated as of May 27, 1999 by and between the
Corporation and Brian Reale and (iii) the conversion of Tutopia Stock into
Common Stock pursuant to the Tutopia Stockholders Agreement.
(b) Stock Dividends, Subdivisions and Combinations. If at any time the
Corporation shall:
(i) take a record of the holders of its Common Stock for the purpose of
entitling them to receive a dividend payable in, or other distribution of,
Additional Shares of Common Stock,
(ii) subdivide its outstanding shares of Common Stock into a larger
number of shares of Common Stock, or
(iii) combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock,
then the applicable Conversion Price immediately after the occurrence of any
such event shall be adjusted to equal the product of (A) the Conversion Price
immediately prior to the occurrence of such event and (B) a fraction, the
numerator of which shall be the number of Fully Diluted Outstanding shares of
Common Stock immediately prior to the occurrence of such event and the
denominator of which shall be the number of Fully Diluted Outstanding shares of
Common Stock immediately after the occurrence of such event.
(c) Issuance of Additional Shares of Common Stock.
(i) In the event that prior to the consummation of or in connection with
a Qualified Private Offering, the Corporation shall issue or sell any
Additional Shares of Common Stock, other than Permitted Issuances, for a
consideration per Additional Share of Common Stock less than the applicable
Conversion Price, then the applicable Conversion Price shall be reduced to
the consideration per Additional Share of Common Stock paid for such
Additional Shares of Common Stock.
(ii) In the event that following the consummation of a Qualified Private
Offering, the Corporation shall issue or sell any Additional Shares of
Common Stock, other than Permitted Issuances, for a consideration per
Additional Share of Common Stock less than the applicable Conversion Price,
then the applicable Conversion Price shall be reduced to a price determined
by dividing (A) an amount equal to the sum of (x) the number of Fully
Diluted Outstanding shares of Common Stock immediately prior to such issue
or sale multiplied by the then existing Conversion Price plus (y) the
aggregate consideration, if any, received by the Corporation upon such issue
or sale, by (B) the total number of Fully Diluted Outstanding shares of
Common Stock outstanding immediately after such issue or sale.
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(iii) The provisions of this Section 6(c) shall not apply to any issuance
of Additional Shares of Common Stock for which an adjustment is provided
under Section 6(b). No adjustment shall be made under this Section 6(c) upon
the issuance of any Additional Shares of Common Stock which are issued
pursuant to the exercise of any warrants or other subscription or purchase
rights or pursuant to the exercise of any conversion or exchange rights in
any Convertible Securities, if any such adjustment shall previously have
been made upon the issuance of such warrants or other rights or upon the
issuance of such Convertible Securities (or upon the issuance of any warrant
or other rights therefor) pursuant to Section 6(d) or Section 6(e).
(d) Issuance of Warrants or Other Rights. Except with respect to Permitted
Issuances, if at any time the Corporation shall take a record of the holders of
its Common Stock for the purpose of entitling them to receive a distribution
of, or shall in any manner (whether directly or by assumption in a merger in
which the Corporation is the surviving corporation) issue or sell, any warrants
or other rights to subscribe for or purchase any Additional Shares of Common
Stock or any Convertible Securities, whether or not the rights to exchange or
convert thereunder are immediately exercisable, and the price per share for
which Common Stock is issuable upon the exercise of such warrants or other
rights or upon conversion or exchange of such Convertible Securities shall be
less than the applicable Conversion Price in effect immediately prior to the
time of such distribution, issue or sale, then the applicable Conversion Price
shall be adjusted as provided in Section 6(c)(i) or (ii), as applicable, on the
basis that (i) the maximum number of Additional Shares of Common Stock issuable
pursuant to all such warrants or other rights or necessary to effect the
conversion or exchange of all such Convertible Securities shall be deemed to
have been issued and outstanding, (ii) the price per share for such Additional
Shares of Common Stock shall be deemed to be the lowest price per share at
which such Additional Shares of Common Stock are issuable to such holders, and
(iii) the Corporation shall have received all of the consideration, if any,
payable for such warrants or other rights as of the date of the actual issuance
thereof. No further adjustments of the Conversion Price shall be made upon the
actual issue of such Common Stock or of such Convertible Securities upon
exercise of such warrants or other rights or upon the actual issue of such
Common Stock upon such conversion or exchange of such Convertible Securities.
(e) Issuance of Convertible Securities. Except with respect to Permitted
Issuances, if at any time the Corporation shall take a record of the holders of
its Common Stock for the purpose of entitling them to receive a distribution
of, or shall in any manner (whether directly or by assumption in a merger in
which the Corporation is the surviving corporation) issue or sell, any
Convertible Securities, whether or not the rights to exchange or convert
thereunder are immediately exercisable, and the price per share for which
Common Stock is issuable upon such conversion or exchange shall be less than
the applicable Conversion Price in effect immediately prior to the time of such
issue or sale, then the applicable Conversion Price shall be adjusted as
provided in Section 6(c)(i) or (ii), as applicable, on the basis that (i) the
maximum number of Additional Shares of Common Stock issuable upon the
conversion or exchange of all such Convertible Securities shall be deemed to
have been issued and outstanding, (ii) the price per share of such Additional
Shares of Common Stock shall be deemed to be the lowest possible price in any
range of prices at which such Additional Shares of Common Stock are available
to such holders, and (iii) the Corporation shall have received all of the
consideration payable therefor, if any, as of the date of actual issuance of
such Convertible Securities. No further adjustment of the Conversion Price
shall be made under this Section 6(e) upon the issuance of any Convertible
Securities which are issued pursuant to the exercise of any warrants or other
subscription or purchase rights therefor, if any such adjustment shall
previously have been made upon the issuance of such warrants or other rights
pursuant to Section 6(d). No further adjustments of the Conversion Price shall
be made upon the actual issue of such Common Stock upon conversion or exchange
of such Convertible Securities and, if any issue or sale of such Convertible
Securities is made upon exercise of any warrant or other right to subscribe for
or to purchase or any warrant or other right to purchase any such Convertible
Securities for which adjustments thereof have been or are to be made pursuant
to other provisions of this Section 6, no further adjustments shall be made by
reason of such issue or sale.
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(f) Superseding Adjustment. If, at any time after any adjustment of the
applicable Conversion Price shall have been made pursuant to Section 6(d) or
6(e) as the result of any issuance of warrants, rights or Convertible
Securities, and either
(i) such warrants or rights, or the right of conversion or exchange in
such other Convertible Securities, shall expire, and all or a portion of
such warrants or rights, or the right of conversion or exchange with respect
to all or a portion of such other Convertible Securities, as the case may
be, shall not have been exercised, or
(ii) the consideration per share for which shares of Common Stock are
issuable pursuant to such warrants or rights, or such other Convertible
Securities, shall be increased or decreased by virtue of provisions therein
contained,
then such previous adjustment shall be rescinded and annulled and the
Additional Shares of Common Stock which were deemed to have been issued by
virtue of the computation made in connection with the adjustment so rescinded
and annulled shall no longer be deemed to have been issued by virtue of such
computation. Thereupon, a recomputation shall be made of the effect of such
rights or options or other Convertible Securities on the applicable Conversion
Price, on the basis of
(iii) treating the number of Additional Shares of Common Stock or other
property, if any, theretofore actually issued or issuable pursuant to the
previous exercise of any such warrants or rights or any such right of
conversion or exchange, as having been issued on the date or dates of any
such exercise and for the consideration actually received and receivable
therefor, and
(iv) treating any such warrants or rights or any such other Convertible
Securities which then remain outstanding as having been granted or issued
immediately after the time of such increase or decrease of the consideration
per share for which shares of Common Stock or other property are issuable
under such warrants or rights or other Convertible Securities.
(g) Subject Transactions Adjustment. If the Corporation issues a number of
shares of Common Stock greater than the Share Allowance in connection with the
Subject Transactions, the Conversion Price shall be adjusted to a dollar
resulting from the following:
$40,464,918
_______________________________________________________
1.010948(12,919,702 + Overage)-1,500,000
Notwithstanding the foregoing, an adjustment under this subsection (g) shall
only be made to the extent such adjustment results in a reduction of the then
current Conversion Price.
(h) Other Provisions Applicable to Adjustments Under This Section. The
following provisions shall be applicable to the making of adjustments provided
for in this Section 6:
(i) Computation of Consideration. To the extent that any Additional
Shares of Common Stock or any Convertible Securities or any warrants or
other rights to subscribe for or purchase any Additional Shares of Common
Stock or any Convertible Securities shall be issued for cash consideration,
the consideration received by the Corporation therefor shall be the amount
of the cash received by the Corporation therefor, or, if such Additional
Shares of Common Stock or Convertible Securities are offered by the
Corporation for subscription, the subscription price, or, if such Additional
Shares of Common Stock or Convertible Securities are sold to underwriters or
dealers for public offering without a subscription offering, the public
offering price (in any such case subtracting any amounts paid or receivable
for accrued interest or accrued dividends, but not subtracting any
compensation, discounts or expenses paid or incurred by the Corporation for
and in the underwriting of, or otherwise in connection with, the issuance
thereof). To the extent that such issuance shall be for a consideration
other than cash, then, except as herein otherwise expressly provided, the
amount of such consideration shall be deemed to be the fair value of such
consideration at the time of such issuance as determined in good faith by
the Board of Directors. In case any Additional Shares of
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Common Stock or any Convertible Securities or any warrants or other rights
to subscribe for or purchase such Additional Shares of Common Stock or
Convertible Securities shall be issued in connection with any merger in
which the Corporation issues any securities, the amount of consideration
therefor shall be deemed to be the fair value, as determined in good faith
by the Board of Directors, of such portion of the assets and business of the
nonsurviving corporation as the Board of Directors in good faith shall
determine to be attributable to such Additional Shares of Common Stock,
Convertible Securities, warrants or other rights, as the case may be. The
consideration for any Additional Shares of Common Stock issuable pursuant to
any warrants or other rights to subscribe for or purchase the same shall be
the consideration received by the Corporation for issuing such warrants or
other rights plus the additional consideration payable to the Corporation
upon exercise of such warrants or other rights. The consideration for any
Additional Shares of Common Stock issuable pursuant to the terms of any
Convertible Securities shall be the consideration, if any, received by the
Corporation for issuing warrants or other rights to subscribe for or
purchase such Convertible Securities, plus the consideration paid or payable
to the Corporation in respect of the subscription for or purchase of such
Convertible Securities, plus the additional consideration, if any, payable
to the Corporation upon the exercise of the right of conversion or exchange
in such Convertible Securities. In case of the issuance at any time of any
Additional Shares of Common Stock or Convertible Securities in payment or
satisfaction of any dividends upon any class of stock other than Common
Stock, the Corporation shall be deemed to have received for such Additional
Shares of Common Stock or Convertible Securities a consideration equal to
the amount of such dividend so paid or satisfied.
(ii) When Adjustments to Be Made. The adjustments required by this
Section 6 shall be made whenever and as often as any specified event
requiring an adjustment shall occur. For the purpose of any adjustment, any
specified event shall be deemed to have occurred at the close of business on
the date of its occurrence.
(iii) When Adjustment Not Required. If the Corporation shall take a
record of the holders of its Common Stock for the purpose of entitling them
to receive a dividend or distribution or subscription or purchase rights and
shall, thereafter and before the distribution to stockholders thereof,
legally abandon its plan to pay or deliver such dividend, distribution,
subscription or purchase rights, then thereafter no adjustment shall be
required by reason of the taking of such record and any such adjustment
previously made in respect thereof shall be rescinded and annulled.
(iv) Escrow of Common Stock. If after any property becomes distributable
as a result of the provisions of this Section 6 by reason of the taking of
any record of the holders of Common Stock, but prior to the occurrence of
the event for which such record is taken, a holder of shares of Series A
Convertible Preferred Stock exercises its conversion rights pursuant to
Section 5, any Additional Shares of Common Stock issuable and other property
distributable upon exercise by reason of such adjustment shall be held in
escrow for such holder by the Corporation to be issued to such holder upon
and to the extent that the event actually takes place. Notwithstanding any
other provision to the contrary herein, if the event for which such record
was taken fails to occur or is rescinded, then such escrowed shares shall be
canceled by the Corporation and escrowed property returned.
(v) Challenge to Good Faith Determination. Whenever the Board of
Directors shall be required to make a determination in good faith of the
fair value of any item under this Section 6, such determination may be
challenged in good faith by holders of a majority of the outstanding shares
of Convertible Preferred Stock, and any dispute shall be resolved by an
investment banking firm of recognized national standing selected by the
Corporation and acceptable to such holder.
(i) Other Action Affecting Common Stock. In case at any time or from time to
time the Corporation shall take any action in respect of its Common Stock,
other than any action described in this Section 6 for which a specific
adjustment is provided, then, unless such action will not have a materially
adverse effect upon the rights of the holders of shares of Series C Convertible
Preferred Stock, the number of shares of Common Stock or other stock into which
such shares of Series A Convertible Preferred Stock are convertible and/or the
applicable Conversion Price shall be adjusted in such manner as may be
equitable in the circumstances.
C-14
(j) Certain Limitations. Notwithstanding anything herein to the contrary,
the Corporation shall not enter into any transaction which, by reason of any
adjustment hereunder, would cause the applicable Conversion Price to be less
than the par value per share of Common Stock.
(k) Notice of Adjustments. Whenever the number of shares of Common Stock
into which shares of Series A Convertible Preferred Stock are convertible or
whenever the applicable Conversion Price shall be adjusted pursuant to this
Section 6, the Corporation shall forthwith prepare a certificate to be executed
by the chief financial officer of the Corporation setting forth, in reasonable
detail, the event requiring the adjustment and the method by which such
adjustment was calculated (including a description of the basis on which the
Board of Directors determined the fair value of any consideration referred to
in Section 6(h)(i)), specifying any change in the applicable Conversion Price
or the number of shares of Common Stock into which shares of Series A
Convertible Preferred Stock are convertible and (if such adjustment was made
pursuant to Section 5(g)(i) or 6(h)) describing the number and kind of any
other shares of stock or Other Property into which shares of Series A
Convertible Preferred Stock are convertible, and any change in the applicable
Conversion Price or prices thereof, after giving effect to such adjustment or
change. The Corporation shall promptly cause a signed copy of such certificate
to be delivered to the holders of Series A Convertible Preferred Stock. The
Corporation shall keep at the Payment Office copies of all such certificates
and cause the same to be available for inspection at said office during normal
business hours by the holders of Series A Convertible Preferred Stock or any
prospective purchaser of shares of Series A Convertible Preferred Stock
designated by such holders.
7. TRIGGERING EVENTS.
Any of the following actions or events shall constitute a "Triggering Event"
for purposes hereof:
(a) Failure to Pay Dividends. The Corporation shall fail to pay any
dividend on any Series A Convertible Preferred Stock which it is required to
pay in accordance with Section 2 for any reason, including but not limited
to, that such payment is prohibited by applicable law or the Board of
Directors elect not to pay such dividend, or shall otherwise violate any
term of Section 2 and such failure shall not be cured within a period of 30
days after such violation (which cure shall be effected in a manner ensuring
the holders the same yield as if such violation had not occurred).
(b) Failure of Voting Rights. The Corporation shall enter into any
transaction or take any action required to be approved by holders of Series
A Convertible Preferred Stock without obtaining the requisite approval of
the holders of the Series A Convertible Preferred Stock.
(c) Failure to Convert. The Corporation shall fail for any reason to
issue Common Stock as required under Section 5 upon the request of any
holder of Series A Convertible Preferred Stock as provided in Section 5 or
shall fail for any reason to comply in any material respect with any term of
Section 5(f) or any other term of Section 5 hereof.
(d) Registration Rights Agreement. The Corporation shall fail in any
material respect to comply with the rights of the holders of Series A
Convertible Preferred Stock pursuant to the Second Amended and Restated
Registration Rights Agreement, dated as of , 2001, among the
Corporation, UBS and certain other stockholders of the Corporation, and such
failure shall continue for a period of 30 days after notice from any such
holder.
(e) Preferred Stock Purchase Agreement. The Corporation shall fail to
comply with Section 6(f) or 6(g) of the Preferred Stock Purchase Agreement
and such failure shall continue for a period of 30 days after notice from
the Purchasers or the representations made under Section 4(c) or 4(u) of the
Preferred Stock Purchase Agreement shall prove to have been incorrect or
misleading in any material respect when made pursuant thereto or any other
material representation made under the Preferred Stock Purchase Agreement
shall prove to have been incorrect or misleading in any substantial material
respect when made.
(f) There shall have occurred and be continuing a "Triggering Event"
pursuant to the terms of any other class or series of Convertible Preferred
Stock.
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(g) Notwithstanding the foregoing, if a majority of the [Preferred
Directors] directors affirmatively vote in favor of a transaction or other
action by the Corporation which would constitute a Triggering Event under
Section 7(b) or 7(d), such action or event shall not be considered a
Triggering Event.
8. REMEDIES.
(a) In the event that a Triggering Event described in Section 7 shall occur
and be continuing, each holder of Series A Convertible Preferred Stock shall be
entitled to receive all cash and other dividends, distributions and other
payments which would be paid or payable to a holder of a number of shares of
Common Stock into which the shares of Series A Convertible Preferred Stock held
by such holder are convertible at such time (without regard to the number of
shares of Common Stock which are authorized or reserved for issuance at such
time).
(b) [Section 8(b) shall read as follows if certain of the Company's
indebtedness has been restructured in a manner satisfactory to UBS and the
Company:
Upon the occurrence and during the continuance of any Triggering Event,
to the extent the Preferred Directors do not already constitute a majority
of the Board of Directors, the size of the Board of Directors shall
immediately be increased by the minimum number of directors which, if all of
such additional directors were deemed "Preferred Directors," would result in
such Preferred Directors constituting a majority of the Board of Directors,
and the holders of Voting Preferred Stock shall be entitled to appoint such
newly created directors by vote of the holders of at least a majority of the
voting power of all then outstanding shares of Voting Preferred Stock,
voting as a single class.]
[Section 8(b) shall read as follows if certain of the Corporation's
indebtedness has NOT been restructured in a manner satisfactory to UBS and the
Company:
Upon the occurrence and during the continuance of any Triggering Event,
the size of the Board of Directors shall immediately be increased by the
minimum number of directors which, if all of such additional directors were
appointed by the holders of Voting Preferred Stock, would result in such
directors constituting a majority of the Board of Directors, and the holders
of Voting Preferred Stock shall be entitled to appoint such newly created
directors by vote of the holders of at least a majority of the voting power
of all then outstanding shares of Voting Preferred Stock, voting as a single
class.]
(c) Upon the occurrence and during the continuance of any Triggering Event,
any holder of shares of Series A Convertible Preferred Stock, at its election,
may, by notice to the Corporation (the "Put Notice"), demand repurchase of all
or any portion of such holder's shares of Series A Convertible Preferred Stock
for a cash purchase price in an amount per share equal to the Liquidation
Preference. The Corporation shall, on the date (not less than 10 business days
after the date of the Put Notice) designated in such Put Notice, repurchase
from the holder such holder's shares of Series A Convertible Preferred Stock
specified in the Notice. On the date of any repurchase of shares of Series A
Convertible Preferred Stock pursuant to this Section 8(c), the holder thereof
shall surrender for redemption a certificate for the number of shares of Series
A Convertible Preferred Stock being redeemed, without any representation or
warranty (other than that the holder has good and marketable title thereto,
free and clear of liens, encumbrances and restrictions of any kind), against
payment therefor of the repurchase price by, at the option of the holder, (i)
wire transfer to an account designated by the holder for such purpose or (ii) a
certified or official bank check payable to the order of the holder. If less
than all of the holder's shares of Series A Convertible Preferred Stock
represented by a single certificate are being redeemed, the Corporation shall
cancel such certificate and issue in the name of, and deliver to, the holder a
new certificate for the portion not being redeemed. At any time following
delivery of a Put Notice but prior to the date of repurchase, any holder of
Series A Convertible Preferred Stock may, by notice to the Corporation,
withdraw the repurchase demand contained in the Put Notice. Notwithstanding the
foregoing, the holders of Series A Preferred Stock shall not be entitled to
exercise their repurchase rights hereunder unless the holders of Convertible
Preferred Stock elect to exercise such repurchase rights by vote of the holders
of at least a majority of the voting power of all then outstanding shares of
Convertible Preferred Stock, voting as a single class.
C-16
(d) The Corporation stipulates that the remedies at law of each holder of
Series A Convertible Preferred Stock in the event of any Triggering Event or
threatened Triggering Event or otherwise or other failure in the performance of
or compliance with any of the terms hereof are not and will not be adequate and
that, to the fullest extent permitted by law, such terms may be specifically
enforced by a decree for the specific performance of any agreement contained
herein or by an injunction against a violation of any of the terms hereof or
otherwise without requiring any holder to post a bond or other security except
to the extent required by applicable law.
(e) Any holder of Series A Convertible Preferred Stock shall be entitled to
recover from the Corporation the reasonable attorneys' fees and expenses
incurred by such holder in connection with any Triggering Event or enforcement
by such holder of any obligation of the Corporation hereunder.
(f) No failure or delay on the part of any holder of Series A Convertible
Preferred Stock in exercising any right, power or remedy hereunder or under
applicable law or otherwise shall operate as a waiver thereof; nor shall any
single or partial exercise of any such right, power or remedy preclude any
other or further exercise thereof or the exercise of any other right, power or
remedy hereunder or thereunder. The remedies herein provided are cumulative and
not exclusive of any remedies provided by law or otherwise.
9. PREEMPTIVE RIGHT.
(a) Each holder of Series A Convertible Preferred Stock or Common Stock
issued upon conversion of Series A Convertible Preferred Stock, shall have a
right of first refusal (the "Preemptive Right") to purchase its pro rata share,
based on such holder's percentage ownership interest in the Corporation, of New
Securities (as defined below) which the Corporation, from time to time,
proposes to sell and issue (subject to such requirements and restrictions
imposed by the Securities Act of 1933, as amended, and state securities laws
and to the actual issuance of the New Securities). The pro rata shares of any
holder of Series A Convertible Preferred Stock or Common Stock issued upon
conversion of Series A Convertible Preferred Stock, for purposes of this
Preemptive Right, shall be the ratio of (i) the number of shares of Common
Stock owned, of record or beneficially, by such holder (including all shares
issuable upon conversion of the Series A Convertible Preferred Stock, whether
or not then currently convertible, or the exercise or conversion of any other
option, warrant or convertible security held by such holder) immediately prior
to the issuance of the New Securities, to (ii) the total number of shares of
Common Stock issued and outstanding immediately prior to the issuance of the
New Securities, determined on a fully diluted basis after giving effect to the
exercise in full of then outstanding options and warrants and the conversion of
all securities convertible into shares of Common Stock; provided, however, that
if any holder of Series A Convertible Preferred Stock or Common Stock issued
upon conversion of Series A Convertible Preferred Stock does not elect to
purchase its entire pro rata share of such New Securities, then each other
holder that has elected to purchase its entire pro rata share shall have the
right to purchase up to a number of such unpurchased portion, in addition to
its own, in the proportion that (1) the number of shares of Common Stock owned,
of record or beneficially, by such holder (including all shares issuable upon
conversion of the Series A Convertible Preferred Stock, whether or not then
currently convertible, or the exercise or conversion of any other option,
warrant or convertible security held by such holder) immediately prior to the
issuance of the New Securities bears to (2) the number of shares of Common
Stock owned, of record or beneficially, by all holders of Series A Convertible
Preferred Stock or Common Stock issued upon conversion of Series A Convertible
Preferred Stock (including all shares issuable upon conversion of the Series A
Convertible Preferred Stock, whether or not then currently convertible, or the
exercise or conversion of any other option, warrant or convertible security
held by such holders) immediately prior to the issuance of the New Securities.
The overallotment mechanism set forth in this paragraph shall be repeatedly
applied until all New Securities available for purchase by holders of Series A
Convertible Preferred Stock or Common Stock issued upon conversion of Series A
Convertible Preferred Stock have been purchased or no holders remain who have
indicated a desire to purchase any unsubscribed for portion in their notice to
the Corporation.
(b) "New Securities" shall mean (a) any capital stock of the Corporation,
rights, options or warrants to purchase capital stock and securities of any
type whatsoever that are, or may become convertible into or
C-17
exchangeable for capital stock and (b) so-called "high yield" bonds, debt
instruments with equity like features or other similar debt instruments, which
bear a rating lower than investment-grade or are unrated, issued by the
Corporation; provided, however, that the term "New Securities" does not include
(i) the issuance of up to 4,243,037 shares of Common Stock issuable pursuant to
options to purchase Common Stock under the Stock Option Plan, (ii) shares of
Common Stock issued or issuable in connection with a Qualified Public Offering,
(iii) shares of Common Stock issued upon conversion of Convertible Preferred
Stock, (iv) shares of Class I Series B Preferred Stock issued upon conversion
of Class II Series B Preferred Stock, (v) shares of Class I Series C Preferred
Stock issued upon conversion of Class II Series C Preferred Stock, (vi)
securities issued as consideration for any acquisition approved by a majority
of the Board of Directors (including the affirmative vote of the [Preferred
Directors]), (vii) the Spinway Warrant, (viii) 210,000 shares of Common Stock
upon exercise of the Spinway Warrant, (ix) shares of Common Stock in exchange
for shares of Tutopia Stock upon a change-in-control of the Corporation
pursuant to the Tutopia Stockholders Agreement, (x) shares of Common Stock
and/or Convertible Preferred Stock issued pursuant to the Tutopia Put
Agreement, or (xi) any shares of capital stock of the Corporation, rights,
options or warrants to purchase capital stock and securities of any type
whatsoever that are, or may become convertible into or exchangeable for capital
stock that have been approved in advance by the holders of at least a majority
of the voting power of all then outstanding shares of Convertible Preferred
Stock, voting as a single class.
(c) In the event the Corporation proposes to undertake an issuance of New
Securities, it shall give each holder of Series A Convertible Preferred Stock
or Common Stock issued upon conversion of Series A Convertible Preferred Stock
written notice of its intention, describing the type of New Securities and the
price and the terms upon which the Corporation proposes to issue the same. Each
such holder shall have twenty (20) days from the date of receipt of any such
notice to agree to purchase its pro rata share of such New Securities for the
price and upon the terms specified in the notice by giving written notice to
the Corporation and stating therein the quantity of New Securities to be
purchased.
(d) The Corporation shall have ninety (90) days after expiration of the
twenty (20) day period described in Section 9(c) to sell any New Securities
with respect to which a Preemptive Right was not exercised, at a price not less
than and upon terms no more favorable in the aggregate to the purchasers
thereof than specified in the Corporation's notice. To the extent the
Corporation does not sell all the New Securities offered within said ninety
(90) day period, the Corporation shall not thereafter issue or sell such New
Securities without first again offering such securities to each holder of
Series A Convertible Preferred Stock or Common Stock issued upon conversion of
Series A Convertible Preferred Stock in the manner provided above.
(e) The rights granted under this Section 9 shall expire upon the earlier of
(i) the closing of a Qualified Public Offering and (ii) such time as less than
an aggregate of 25% of the authorized Convertible Preferred Stock remains
outstanding.
10. RANKING.
The Series A Convertible Preferred Stock shall rank pari passu with the
Series B Convertible Preferred Stock and Series C Convertible Preferred Stock
of the Corporation (which shall constitute Parity Securities for purposes
hereof) and any other Parity Securities with respect to amounts receivable upon
a Liquidation Event, dividends, rights and remedies upon Triggering Events or
for any other purpose.
11. AMENDMENTS.
This Certificate of Designation may not be amended without first obtaining
the affirmative vote or written consent of the holders of at least a majority
of the voting power of all then outstanding shares of Convertible Preferred
Stock, voting together as a single class, including the affirmative vote or
written consent of the holders of a majority of the shares of Series A
Convertible Preferred Stock.
C-18
EXHIBIT D
AMENDED
CERTIFICATE OF DESIGNATION, NUMBER, POWERS,
PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL AND OTHER RIGHTS OF SERIES B
CONVERTIBLE PREFERRED STOCK
OF
IFX CORPORATION
IFX Corporation (the "Corporation"), a corporation organized and existing
under the General Corporation Law of the State of Delaware, hereby certifies
that, pursuant to the provisions of Section 151 of the General Corporation Law
of the State of Delaware, its Board of Directors, at a meeting duly held on
, 2001 adopted the following resolution:
WHEREAS, the Board of Directors of the Corporation is authorized by the
Restated Certificate of Incorporation to issue up to shares of preferred
stock in one or more series and, in connection with the creation of any series,
to fix by the resolutions providing for the issuance of shares the powers,
designations, preferences and relative, participating, optional or other rights
of the series and the qualifications, limitations or restrictions thereof; and
WHEREAS, the Board of Directors authorized and fixed the terms and
provisions of the Class I and Class II Series B Convertible Preferred Stock of
the Corporation pursuant to resolutions dated March 8 and May 2, 2001 and by
filing with the Secretary of State of the State of Delaware a Certificate of
Designation, Number, Powers, Preferences and Relative, Participating, Optional
and other Rights of Series B Convertible Preferred Stock on May 3, 2001 (the
"Original Certificate"); and
WHEREAS, it is the desire of the Board of Directors of the Corporation,
pursuant to such authority and the requisite vote of the holders of the Series
B Convertible Preferred Stock pursuant to the Original Certificate and the
requisite vote of the holders of the common stock pursuant to the General
Corporation Law of the State of Delaware, to amend and restate the Original
Certificate in its entirety.
NOW, THEREFORE, BE IT RESOLVED, that there is hereby authorized a series of
preferred stock on the terms and with the provisions herein set forth on Annex
A attached to this resolution.
Name: Joel Eidelstein
Title: President
ATTEST:
---------------------
Name:
Title:
D-1
ANNEX A
SERIES B CONVERTIBLE PREFERRED STOCK
The powers, designations, preferences and relative, participating, optional
or other rights of the Series B Convertible Preferred Stock of IFX Corporation
(the "Corporation") are as follows:
1. DESIGNATION AND AMOUNT.
This series of preferred stock shall be designated as "Series B Convertible
Preferred Stock" and shall be divided into two classes: Class I Series B
Convertible Preferred Stock ("Class I Series B Preferred Stock") and Class II
Series B Convertible Preferred Stock ("Class B Series B Preferred Stock", and
together with the Class I Series B Preferred Stock, the "Series B Convertible
Preferred Stock"). The Series B Convertible Preferred Stock shall have $1.00
par value per share. The number of authorized shares of the Class I Series B
Preferred Stock shall be 4,418,262 shares. The number of authorized shares of
the Class II Series B Preferred Stock shall be 424,135 shares. Shares of the
Series B Convertible Preferred Stock shall have a stated value of Three and
50/100 Dollars ($3.50) per share (the "Stated Value"). The Corporation has
previously authorized and issued 2,030,869 shares of its Series A Convertible
Preferred Stock, par value $1.00 per share (the "Series A Convertible Preferred
Stock") having the number, powers, preferences and relative, participating,
optional and other rights as set forth in the Second Amended Certificate of
Designation filed with the Secretary of State of the State of Delaware on the
date of the filing hereof (the "Series A Certificate"). The Corporation has
also authorized shares of its Series C Convertible Preferred Stock, par
value $1.00 per share, consisting of shares of Class I Series C Convertible
Preferred Stock ("Class I Series C Preferred") and shares of Class II
Series C Convertible Preferred Stock ("Class II Series C Preferred" and,
collectively, the "Series C Convertible Preferred Stock") having the number,
powers, preferences and relative, participating, optional and other rights as
set forth in the Certificate of Designation filed with the Secretary of State
of the State of Delaware on the date of the filing hereof (the "Series C
Certificate"). The Series A Convertible Preferred Stock, the Series B
Convertible Preferred Stock, the Series C Convertible Preferred Stock and
shares of any other class or series of preferred stock of the Corporation which
is convertible, directly or indirectly, into Common Stock, whether at the time
of issuance or upon passage of time or the occurrence of some future event, are
collectively referred to herein as "Convertible Preferred Stock."
2. DIVIDENDS.
(a) Right to Receive Dividends. Holders of Series B Convertible Preferred
Stock shall be entitled to receive dividends when, as and if declared by the
Board of Directors of the Corporation (the "Board of Directors").
(b) Participation with Common Stock. In the event the Board of Directors
shall elect to pay or declare and set apart for payment any dividend on any
shares of common stock, par value $.02 per share, of the Corporation (the
"Common Stock") in cash out of funds legally available therefor or in stock or
other consideration, the holders of the Series B Convertible Preferred Stock
shall be entitled to receive, before any dividend shall be declared and paid or
set aside for the Common Stock, dividends payable in the form and in an amount
per share equal to the per share amount that would have been payable to such
holders had such holders converted their Series B Convertible Preferred Stock
into Common Stock and had all other holders of Convertible Preferred Stock
converted such shares into Common Stock.
(c) Dividend Preference. Dividends on the Series B Convertible Preferred
Stock shall be payable before any dividends or distributions or other payments
shall be paid or set aside for payment upon the Common Stock or any other stock
ranking on liquidation or as to dividends or distributions junior to the Series
B Convertible Preferred Stock (any such stock, together with the Common Stock,
being referred to hereinafter as "Junior Stock"). If there shall be outstanding
shares of any class or series of capital stock which is entitled to share
ratably with the Series B Convertible Preferred Stock in the payment of
dividends or distributions or upon
D-2
liquidation ("Parity Securities"), no full dividends shall be declared or paid
or set apart for payment on any such securities unless dividends have been or
contemporaneously are ratably declared and paid or declared and a sum
sufficient for the payment thereof set apart for such payment on the Series B
Convertible Preferred Stock.
3. LIQUIDATION PREFERENCE.
(a) In the event of any bankruptcy, liquidation, dissolution or winding up
of the Corporation, either voluntary or involuntary, each holder of Series B
Convertible Preferred Stock at the time thereof shall be entitled to receive,
prior and in preference to any distribution of any of the assets or funds of
the Corporation to the holders of the Common Stock or other Junior Stock by
reason of their ownership of such stock, an amount per share of Series B
Convertible Preferred Stock equal to the sum of
(i) (x) the applicable Stated Value plus any declared and unpaid
dividends to the date of liquidation, plus (y) 10% of such Stated Value per
annum, calculated from the date of issuance of such share through date of
payment of the Liquidation Preference as set forth in this Section 3 ((x)
and (y), collectively, the "Stated Preference"); plus
(ii) an amount equal to such amount per share of Series B Preferred Stock
as would have been payable had each share of Series B Preferred Stock and
all outstanding shares of Convertible Preferred Stock been converted into
Common Stock immediately prior to such bankruptcy, liquidation, dissolution
or winding up of the Corporation after giving effect to the full payment of
the Stated Preference under the preceding paragraph (i) and the stated
preference of the other Convertible Preferred Stock;
provided, that if the amount payable per share of Series B Convertible
Preferred Stock pursuant to the foregoing paragraphs (i) and (ii) exceeds three
and one-half (3 1/2) multiplied by the Stated Preference (the "Maximum
Amount"), each holder of Series B Convertible Preferred Stock shall only be
entitled to receive such Maximum Amount. The sum of the amounts in (i) and (ii)
above is referred to herein as the "Liquidation Preference". For purposes of
the foregoing, shares of Class I Series B Preferred Stock issued upon
conversion of the Class II Series B Preferred Stock shall be deemed to have
been issued at the time such shares of Class II Series B Preferred Stock were
issued.
After the payment of the full Liquidation Preference on account of all
shares of Series B Convertible Preferred Stock as set forth in this Section 3
and any preferential amounts to which the holders of Parity Securities are
entitled, the remaining assets of the Corporation legally available for
distribution, if any, shall be distributed ratably to the holders of the Common
Stock. If the assets and funds legally available for distribution among the
holders of Series B Convertible Preferred Stock shall be insufficient to permit
the payment to the holders of the full aforesaid Liquidation Preference, then
the assets and funds shall be distributed ratably among holders of Series B
Convertible Preferred Stock in proportion to the number of shares of Series B
Convertible Preferred Stock owned by each holder. If the assets and funds of
the Corporation available for distribution to stockholders upon any bankruptcy,
liquidation, dissolution or winding up of the affairs of the Corporation,
whether voluntary or involuntary, shall be insufficient to permit the payment
to holders of the full aforesaid Liquidation Preference and amounts payable to
holders of outstanding Parity Securities, the holders of Series B Convertible
Preferred Stock and the holders of such other Parity Securities shall share
ratably (and ratably as to cash, in-kind or other distributions) in any
distribution of assets of the Corporation in proportion to the full respective
preferential amounts to which they are entitled.
(b) Except as described in the following sentence, a merger,
recapitalization, reorganization, sale of voting control to a single buyer or a
group of related buyers in one or a series of related transactions, or other
business combination transaction involving the Corporation in which the
shareholders of the Corporation immediately prior to the consummation of such
transaction do not own at least a majority of the outstanding shares of the
surviving corporation or the Corporation (as applicable) immediately following
the consummation of such transaction or sale of all or substantially all of the
assets of the Corporation (collectively, a "Liquidation Event") shall be deemed
to be a liquidation of the Corporation. Notwithstanding the foregoing, the
following shall not be
D-3
deemed to be a Liquidation Event: (i) a merger, recapitalization, sale of
voting control or other business combination transaction with an Affiliate (as
such term is defined in Section 12b-2 of the Rules and Regulations under the
Securities Exchange Act of 1934, as amended) of UBS Capital Americas III, L.P.
or UBS Capital LLC (together with any such Affiliate, "UBS"), or (ii) a merger
of the Corporation with a public company (A) in which the merger consideration
to be received by the holders of the Series B Convertible Preferred Stock is
fully registered marketable securities (the "Merger Shares") which are not
subject to any restrictions on transfer, (B) in which the value of such merger
consideration for each share of Series B Convertible Preferred Stock, valued at
the average closing price of the Merger Shares for the 30 days prior to the
consummation of the merger, or such lesser period which follows the public
announcement of the merger, is greater than 110% of the Liquidation Preference
per share as of the date of consummation of the merger, and (C) with aggregate
trading volume for the 30 calendar days prior to the merger date of at least 10
times the aggregate number of Merger Shares received by all holders of
Convertible Preferred Stock.
(c) In any Liquidation Event, if the consideration received by the
Corporation is other than cash, its value will be deemed its fair market value
as determined in good faith by the Board of Directors. Any securities shall be
valued as follows:
(i) Securities not subject to investment letter or other similar
restrictions on free marketability covered by subsection (ii) below:
(A) If traded on a securities exchange or through The Nasdaq National
Market or Small Cap Market, the value shall be deemed to be the average
of the closing prices of the securities on such quotation system over
the thirty (30) day period ending three (3) days prior to the closing of
the Liquidation Event;
(B) If actively traded over-the-counter, the value shall be deemed to
be the average of the closing bid or sale prices (whichever is
applicable) over the thirty (30) day period ending three (3) days prior
to the closing of the Liquidation Event; and
(C) If there is no active public market, the value shall be the fair
market value thereof, as mutually determined by the Board of Directors
and the holders of at least a majority of the voting power of all then
outstanding shares of Convertible Preferred Stock, voting as a single
class.
(ii) The method of valuation of securities subject to investment letter
or other restrictions on free marketability (other than restrictions arising
solely by virtue of a shareholder's status as an affiliate or former
affiliate) shall be to make an appropriate discount from the market value
determined as above in subsections (i)(A), (B) or (C) to reflect the
approximate fair market value thereof, as mutually determined by the Board
of Directors and the holders of at least a majority of the voting power of
all then outstanding shares of Convertible Preferred Stock, voting as a
single class.
4. VOTING RIGHTS.
In addition to any voting rights provided elsewhere herein or in the
Corporation's Certificate of Incorporation, as it may be amended or restated
from time to time (the "Certificate of Incorporation"), and any voting rights
provided by law, the holders of shares of Series B Convertible Preferred Stock
shall have the following voting rights:
(a) Election of Directors.
[Section 4(a) shall read as follows if certain of the Company's indebtedness
has been restructured in a manner satisfactory to UBS and the Company:
(i) Subject to the terms hereof, the holders of the Class I Series B
Preferred Stock, together with the holders of any other class or series of
Convertible Preferred Stock, the terms of which expressly entitle the holder
thereof to vote in the election of directors designated by holders of
Convertible Preferred Stock
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(collectively, "Voting Preferred Stock") shall have the right to elect four
(4) directors, one (1) of which shall be an Independent Director (as defined
below). Such directors shall be elected by the holders of at least a
majority of the voting power of all then outstanding shares of Voting
Preferred Stock, voting as a single class. "Independent Director" has the
meaning specified in Rule 4200(a)(14) of the NASD listing standards, as in
effect on the date hereof and as the same may be amended or supplemented, or
in any successor rule or regulation.
(ii) Any director elected by the holders of Voting Preferred Stock shall
be referred to herein as a "Preferred Director." Subject to Section 4(a)(v),
the initial term of any director to be appointed pursuant to Section 4(a)(i)
will commence upon his/her election by the holders of Voting Preferred Stock
and shall expire at the first annual meeting of stockholders of the
Corporation following his/her election. Upon expiration of the initial term
of such Preferred Director, so long as the Voting Preferred Stock is
outstanding, the holders of such Voting Preferred Stock shall have the right
to elect a Preferred Director to replace such director in the same manner
described above in Section 4(a)(i). Subject to Section 4(a)(v), a Preferred
Director so elected shall hold office for a term expiring at the annual
meeting of stockholders in the year following the election of such director.
Notwithstanding the foregoing, but subject to Section 4(a)(v), a Preferred
Director elected under Section 4(a)(i) shall serve until such Preferred
Director's successor is duly elected and qualified or until such director's
earlier removal as provided in Section 4(a)(iii) or death or resignation
and, in the event a vacancy occurs, a replacement Preferred Director shall
be selected as provided in Section 4(a)(i).
(iii) A Preferred Director may be removed by, and shall not be removed
except by, the vote of at least a majority of the voting power of all then
outstanding shares of Voting Preferred Stock, voting as a single class.
(iv) The Corporation shall at all times reserve and keep available
sufficient vacant seats on the Board of Directors solely for the purpose of
enabling the holders of the Voting Preferred Stock to designate Preferred
Directors as provided in this Section 4(a).
(v) This Section 4(a) shall survive a Qualified Public Offering (as
defined in Section 5(b) below) and until such time thereafter as less than
an aggregate of 25% of the authorized Convertible Preferred Stock remains
outstanding.
(vi) The holders of shares of Class II Series B Preferred Stock shall not
be entitled to vote in elections of directors.]
[Section 4(a) shall read as follows if certain of the Company's indebtedness
has NOT been restructured in a manner satisfactory to UBS and the Company:
The holders of shares of Class I Series B Preferred Stock shall be
entitled to vote in elections of directors. The holders of shares of Class
II Series B Preferred Stock shall not be entitled to vote in elections of
directors.]
(b) Certain Corporate Actions. Until a Qualified Public Offering or until
such time as less than an aggregate of 25% of the authorized Convertible
Preferred Stock remains outstanding, the Corporation shall not, and shall not
permit any of its subsidiaries to, without first obtaining the affirmative vote
or written consent of the holders of at least a majority of the voting power of
all then outstanding shares of Convertible Preferred Stock, voting as a single
class:
(A) amend, repeal, modify or supplement any provision of the Certificate
of Incorporation (including any certificate of designation forming a part
thereof), the Bylaws of the Corporation, or any successor certificate of
incorporation or bylaws or this Amended Certificate of Designation, Number,
Powers, Preferences and Relative, Participating, Optional and Other Rights
of Series B Convertible Preferred Stock (the "Certificate of Designation");
D-5
(B) authorize or permit the Corporation or any subsidiary of the
Corporation to issue any capital stock or any options, warrants or other
rights exchangeable or exercisable therefor, other than (i) shares of Series
C Convertible Preferred Stock pursuant to the Series C Convertible Preferred
Stock Purchase Agreement, dated as of October 11, 2001, among the
Corporation and UBS (the "Preferred Stock Purchase Agreement"), (ii) Common
Stock upon conversion of Convertible Preferred Stock, or upon the exercise
of stock options to purchase up to 4,243,037 shares of Common Stock, (iii)
shares of Class I Series B Preferred Stock issued upon conversion of Class
II Series B Preferred Stock, (iv) shares of Class I Series C Preferred Stock
issued upon conversion of Class II Series C Preferred Stock, (v) securities
issued as consideration for any acquisition approved by a majority of the
Board of Directors (including the affirmative vote of the [Preferred
Directors]), (vi) up to $15 million of Common Stock, issued as consideration
for any acquisition approved by a majority of the Board of Directors
(without the affirmative vote of the [Preferred Directors]), provided such
Common Stock is valued at no less than the greater of (1) the Stated Value
(as adjusted for stock splits, combinations, stock dividends and the like)
and (2) the average of the closing price for the Common Stock for the 30
days prior to the issuance, (vii) a warrant to purchase 210,000 shares of
Common Stock to Spinway, Inc. (the "Spinway Warrant"), (viii) 210,000 shares
of Common Stock upon exercise of the Spinway Warrant, (ix) shares of Common
Stock in exchange for shares of common stock, par value $.001 per share
("Tutopia Stock"), of Tutopia.com, Inc. ("Tutopia"), upon a
change-in-control of the Corporation pursuant to the Stockholders Agreement,
dated as of April 24, 2000, by and among the Corporation, Tutopia and the
other parties signatory thereto (the "Tutopia Stockholders Agreement") or
(x) shares of Common Stock and/or Convertible Preferred Stock issued
pursuant to that certain Put Agreement, dated , 2001 among the
Corporation, UBS and the other parties named therein (the "Tutopia Put
Agreement");
(C) reclassify any class or series of any Common Stock into shares having
any preference or priority as to dividends or liquidation superior to or on
a parity with any such preference or priority of Convertible Preferred Stock;
(D) authorize or effect, in a single transaction or through a series of
related transactions, (1) a liquidation, winding up or dissolution of the
Corporation or adoption of any plan for the same; (2) a Liquidation Event;
or (3) any direct or indirect purchase or other acquisition by the
Corporation or any of its subsidiaries of any capital stock (other than the
Convertible Preferred Stock pursuant to its terms);
(E) enter into or otherwise become a party to any agreement whereby any
shareholder or shareholders of the Corporation shall transfer capital stock
of the Corporation to an independent third party or a group of independent
third parties pursuant to which such parties acquire capital stock of the
Corporation possessing the voting power to elect a majority of the Board of
Directors;
(F) declare or pay or set aside for payment any dividend or distribution
or other payment upon the Common Stock or upon any other Junior Stock, nor
redeem, purchase or otherwise acquire any Common Stock or other Junior Stock
for any consideration (or pay or make available any moneys, whether by means
of a sinking fund or otherwise, for the redemption of or other distribution
or payment with respect to any shares of any Common Stock or other Junior
Stock), except for the repurchase of shares of Common Stock from directors,
consultants or employees of the Corporation or any subsidiary pursuant to
agreements approved by the disinterested directors on the Board of
Directors, under which the Corporation has the right to repurchase such
shares upon the occurrence of certain events, including but not limited to,
termination of employment or services;
(G) approve the annual budget of the Corporation and its subsidiaries
(the "Annual Budget");
(H) enter into any financial commitment over and above those approved in
the annual budget in excess of $15 million in the aggregate (for the
Corporation and its subsidiaries, taken together), except as prescribed in
the Annual Budget;
(I) dismiss or hire or modify or enter into any employment agreement,
non-competition agreement, bonus or stock issuance arrangements or other
compensation (including, without limitation, fringe benefit)
D-6
arrangements with its President, Chief Executive Officer or Chief Financial
Officer, or other equivalent or senior level officer;
(J) permit the creation or existence of any lien, mortgage, pledge,
hypothecation, assignment, security interest, charge or encumbrance, or
preference, priority or other security agreement or preferential arrangement
of any kind or nature whatsoever on any of the Corporation's or any of its
subsidiaries' assets with an aggregate value in excess of $15 million,
except as part of any financing in the ordinary course of business;
(K) make any capital expenditure in any fiscal year in excess of $15
million in the aggregate (for the Corporation and its subsidiaries, taken
together), except as prescribed in the Annual Budget;
(L) acquire any assets or equity or other interest in any other entity
with a value in excess of $15 million in the aggregate (for the Corporation
and its subsidiaries, taken together), except as prescribed in the Annual
Budget;
(M) incur indebtedness for borrowed money (including, without limitation,
any capitalized lease obligations, accounts receivable financing or other
asset-backed financing), any guarantee or other similar contingent
obligation or any lease financing (whether a capitalized lease, operating
lease, pursuant to a sale leaseback arrangement or otherwise), in excess of
$15 million in the aggregate (for the Corporation and its subsidiaries,
taken together), except as prescribed in the Annual Budget;
(N) amend, supplement, restate, revise, waive or otherwise modify any
stock option plan, agreement or other arrangement of the Corporation (each,
a "Stock Option Plan"), as in effect on , 2001;
(O) create or adopt any stock option plan, stock appreciation rights
plan, bonus plan or similar plan that was not in existence on , 2001,
except as approved by the Compensation Committee of the Board of Directors;
(P) dispose of or acquire assets with a value in excess of $15 million
other than in the normal course of business;
(Q) liquidate, dissolve or voluntarily elect to commence bankruptcy or
insolvency proceedings under applicable laws;
(R) change in any material respect the nature of the business of the
Corporation and its subsidiaries taken as a whole;
(S) enter into any transaction, or any agreement or understanding with
any affiliate of the Corporation or any subsidiary thereof, other than a
wholly-owned subsidiary of the Corporation;
(T) (i) solicit or negotiate any inquiries or proposals with respect to
(x) any direct or indirect issuance, sale, disposition or redemption of any
securities of Latin Guide, Inc. ("LGI"), Tutopia or any of Tutopia's
subsidiaries, (y) the direct or indirect sale or disposition of all or any
material portion of the assets or business of LGI, Tutopia or any of
Tutopia's subsidiaries, or (z) any merger, reorganization, consolidation or
recapitalization or other similar transaction involving LGI, Tutopia or any
of Tutopia's subsidiaries; or (ii) discuss with or provide to any person or
entity information of LGI, Tutopia or any of Tutopia's subsidiaries with
respect to or in contemplation of any of the foregoing; or
(U) agree to do any of the foregoing.
(c) Additional Voting Rights. Except as required by law, the holders of
Series B Convertible Preferred Stock shall be entitled to notice of any
stockholders' meeting and to vote together as a single class with the holders
of Common Stock (and any other capital stock of the Corporation entitled to
vote), upon any matter submitted to the stockholders for a vote as follows: (i)
the holders of the Series B Convertible Preferred Stock shall have 1.4344 votes
per share, (ii) the holders of shares of any other Convertible Preferred Stock
shall have the number of votes per share provided in the Certificate of
Designation for such Class of Convertible Preferred Stock and (iii) the holders
of Common Stock shall have one (1) vote per share of Common Stock.
Notwithstanding the foregoing, Class II Preferred Stock shall not be entitled
to vote in elections of directors.
D-7
(d) Manner of Voting. Whenever a vote of the holders of Series A Convertible
Preferred Stock, Series B Convertible Preferred Stock, Series C Convertible
Preferred Stock and/or other shares of Convertible Preferred Stock shall be
taken pursuant to the provisions of this Certificate of Designation or
otherwise, (i) the holders of Series B Convertible Preferred Stock shall have
1.4344 votes per share and (ii) the holders of shares of any other Convertible
Preferred Stock shall have the number of votes per share provided in the
Certificate of Designation for such Class of Convertible Preferred Stock.
5. CONVERSION.
Shares of Series B Convertible Preferred Stock may be converted into shares
of Common Stock, on the terms and conditions set forth in this Section 5.
(a) Optional Conversion.
(i) At any time and from time to time, each holder of shares of Class I
Series B Preferred Stock may, upon written notice to the Corporation,
convert all or any portion of such shares held by such holder into the
number of shares of Common Stock determined by dividing (x) the applicable
Stated Preference multiplied by the number of shares surrendered for
conversion plus any declared but unpaid dividends on such shares, by (y) the
Conversion Price on the date of conversion determined in accordance with
Section 5(c).
(ii) References in this Section 5 to "Common Stock" shall include all
stock or other securities or property (including cash) into which Common
Stock is converted following any merger, reorganization or reclassification
of the capital stock of the Corporation.
(b) Mandatory Conversion. Each share of Series B Convertible Preferred Stock
shall automatically be converted into such number of shares of Common Stock as
is determined by dividing (x) the Stated Preference multiplied by the number of
shares surrendered for conversion plus any declared but unpaid dividends on
such shares, by (y) the Conversion Price on the date of conversion determined
in accordance with Section 5(c), without further action by the holders of such
shares and whether or not the certificates representing such shares are
surrendered to the Corporation or its transfer agent, upon the closing of an
underwritten public offering of shares of Common Stock for which the
Corporation has obtained a firm commitment from one or more underwriter(s) for
at least: $60 million of Common Stock and in which the Corporation receives
gross proceeds from the sale of Common Stock to the public of at least $45
million (before deduction of underwriter's discounts and commissions), and
which values the equity of the Corporation at no less than $200 million
pre-offering (a "Qualified Public Offering"). Except for the purposes of the
calculation in the immediately preceding sentence, in the event of a Qualified
Public Offering, the person(s) entitled to receive the Common Stock issuable
upon conversion of Series B Convertible Preferred Stock shall not be deemed to
have converted such Series B Convertible Preferred Stock until the closing of
such offering.
(c) Conversion Price. The Conversion Price per share for the Series B
Convertible Preferred Stock shall be Three and 00/100 Dollars ($3.00), subject
to adjustment as provided in Section 6 hereof.
(d) Common Stock. The Common Stock to be issued upon conversion hereunder
shall be fully paid and nonassessable.
(e) Procedures for Conversion.
(i) In order to convert shares of Class I Series B Preferred Stock into
shares of Common Stock pursuant to Section 5(a) (or, in the case of an
automatic conversion of Class I Series B Preferred Stock and Class II Series
B Preferred Stock pursuant to Section 5(b), to receive a certificate for
such holder's shares of Common Stock outstanding as a result of such
conversion), the holder shall surrender the certificate or certificates
therefore, duly endorsed for transfer, at any time during normal business
hours, to the Corporation at its principal or at such other office or agency
then maintained by it for such purpose (the "Payment Office"), accompanied,
in the case of a conversion pursuant to Section 5(a), by written notice to
D-8
the Corporation of such holder's election to convert and (if so required by
the Corporation or any conversion agent) by an instrument of transfer, in
form reasonably satisfactory to the Corporation and to any conversion agent,
duly executed by the registered holder or by his duly authorized attorney,
and any taxes required pursuant to Section 5(e)(iii). As promptly as
practicable after the surrender for conversion of any share of Series B
Convertible Preferred Stock in the manner provided in the preceding
sentence, and the payment in cash of any amount required by the provisions
of Section 5(e)(iii), but in any event within five Trading Days of such
surrender for payment, the Corporation will deliver or cause to be delivered
at the Payment Office to or upon the written order of the holder of such
shares, certificates representing the number of full shares of Common Stock
issuable upon such conversion, issued in such name or names as such holder
may direct. Such conversion shall be deemed to have been made immediately
prior to the close of business on the date of such surrender of the shares
in proper order for conversion, and all rights of the holder of such shares
as a holder of such shares shall cease at such time and the person or
persons in whose name or names the certificates for such shares of Common
Stock are to be issued shall be treated for all purposes as having become
the record holder or holders thereof at such time; provided, however, that
any such surrender and payment on any date when the stock transfer books of
the Corporation shall be closed shall constitute the person or persons in
whose name or names the certificates for such shares of Common Stock are to
be issued as the record holder or holders thereof for all purposes
immediately prior to the close of business on the next succeeding day on
which such stock transfer books are opened and such conversion shall be at
the Conversion Price in effect at such time on such succeeding day.
For purposes hereof, "Trading Day" shall mean (i) any day on which stock is
traded on the principal stock exchange on which the Common Stock is listed or
admitted to trading, (ii) if the Common Stock is not then listed or admitted to
trading on any stock exchange but is traded on the Nasdaq Stock Market, any day
on which stock is traded on the Nasdaq Stock Market, or (iii) if the Common
Stock is not then traded on the Nasdaq Stock Market, any day on which stock is
traded in the over-the-counter market, as reported by the National Quotation
Bureau Incorporated (or any similar organization or agency succeeding to its
functions of reporting prices).
(ii) The Corporation shall not be required to issue fractional shares of
Common Stock upon conversion of shares of Series B Convertible Preferred
Stock. At the Corporation's discretion, in the event the Corporation
determines not to issue fractional shares, in lieu of any fractional shares
to which the holder would otherwise be entitled, the Corporation shall pay
cash equal to such fraction multiplied by the closing price of the Common
Stock on the date of conversion.
(iii) The issuance of certificates for shares of Common Stock upon
conversion shall be made without charge for any issue, stamp or other
similar tax in respect of such issuance. However, if any such certificate is
to be issued in a name other than that of the holder of record of the shares
converted, the person or persons requesting the issuance thereof shall pay
to the Corporation the amount of any tax which may be payable in respect of
any transfer involved in such issuance or shall establish to the
satisfaction of the Corporation that such tax has been paid or is not
payable.
(f) Reservation of Stock Issuable Upon Conversion. The Corporation shall
reserve and keep available out of its authorized but unissued shares of Common
Stock, solely for the purpose of effecting the conversion of the shares of the
Series B Convertible Preferred Stock, 5,154,639 shares of Common Stock. If at
any time the number of authorized but unissued shares of Common Stock shall not
be sufficient to effect the conversion of all then outstanding shares of the
Series B Convertible Preferred Stock without regard to whether the holders of
Series B Convertible Preferred Stock are then entitled to convert, the
Corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purpose,
including, without limitation, taking appropriate board action, recommending
such an increase to the holders of Common Stock, holding shareholders meetings,
soliciting votes and proxies in favor of such increase to obtain the requisite
stockholder approval and upon such approval, the Corporation shall reserve and
keep available such additional shares solely for the purpose of effecting the
conversion of the shares of the Series B Convertible Preferred Stock.
D-9
(g) Merger, Etc.
(i) Notwithstanding any other provision hereof, in case of any merger or
other business combination transaction involving the Corporation which does
not constitute a Liquidation Event, then, concurrently with the consummation
of such transaction, provision shall be made so that each share of Series B
Convertible Preferred Stock shall thereafter be convertible into the number
of shares of stock or other securities or property (including cash) to which
a holder of the number of shares of Common Stock deliverable upon conversion
of such share of Series B Convertible Preferred Stock would have been
entitled assuming conversion immediately prior to the closing of the
transaction.
(ii) In case of any merger or other business combination transaction
involving the Corporation which does not constitute a Liquidation Event, in
which the Corporation is not the surviving entity, and the Corporation or
the holders do not otherwise convert all outstanding shares of Series B
Convertible Preferred Stock, the Series B Convertible Preferred Stock shall
be converted into or exchanged for and shall become shares of the surviving
corporation having, in respect of the surviving corporation, substantially
the same powers, preferences and relative participating, optional or other
special rights, and the qualifications, limitations or restrictions thereon,
that the Series B Convertible Preferred Stock had immediately prior to such
transaction.
(h) Conversion of Class II Series B Preferred Stock.
(i) Beginning on May 3, 2002 each holder of shares of Class II Series B
Preferred Stock may at any time convert all or any portion of such shares
held by such holder into one share of Class I Series B Preferred Stock for
each share of Class II Series B Preferred Stock surrendered for conversion.
The holder of each share of Class II Series B Preferred Stock to be
converted shall surrender the certificate or certificates therefor, duly
endorsed for transfer, at any time during normal business hours, to Payment
Office, accompanied by written notice to the Corporation of such holder's
election to convert. Within 5 Trading Days of such surrender the Corporation
will deliver or cause to be delivered at the Payment Office, certificates
representing the number of shares of Class I Series B Preferred Stock
issuable upon such conversion, issued in such name or names as such holder
may direct. Such conversion shall be deemed to have been made immediately
prior to the close of business on the date of such surrender of the shares.
(ii) The Corporation shall reserve and keep available out of its
authorized but unissued shares of Class I Series B Preferred Stock, solely
for the purpose of effecting the conversion of the shares of the Class II
Series B Preferred Stock, 424,135 shares of Class I Series B Preferred
Stock. If at any time the number of authorized but unissued shares of Class
I Series B Preferred Stock shall not be sufficient to effect the conversion
of all then outstanding shares of the Class II Series B Preferred Stock
without regard to whether the holders of Class II Series B Preferred Stock
are then entitled to convert, the Corporation will take such corporate
action as may, in the opinion of its counsel, be necessary to increase its
authorized but unissued shares of Class I Series B Preferred Stock to such
number of shares as shall be sufficient for such purpose, including, without
limitation, taking appropriate board action, recommending such an increase
to the stockholders, holding stockholders meetings, soliciting votes and
proxies in favor of such increase to obtain the requisite stockholder
approval and upon such approval, the Corporation shall reserve and keep
available such additional shares solely for the purpose of effecting the
conversion of the shares of the Class II Series B Preferred Stock.
6. ADJUSTMENTS.
The Conversion Price shall be subject to adjustment from time to time as set
forth in this Section 6. The Corporation shall give holders of Series B
Convertible Preferred Stock notice of any event described below which requires
an adjustment pursuant to this Section 6 at the time of such event.
D-10
(a) Definitions. As used in this Section 6, the following terms have the
respective meanings set forth below:
"Additional Shares of Common Stock" shall mean all shares of Common Stock
issued by the Corporation after the Closing (as defined in the Preferred
Stock Purchase Agreement).
"Convertible Securities" shall mean evidences of indebtedness, shares of
stock of other securities which are convertible into or exchangeable, with
or without payment of additional consideration in cash or property, for
Additional Shares of Common Stock, either immediately or upon the occurrence
of a specified date or a specified event.
"Fully Diluted Outstanding" shall mean, when used with reference to
Common Stock, at any date as of which the number of shares thereof is to be
determined, all shares of Common Stock Outstanding at such date and all
shares of Common Stock issuable in respect of Series C Convertible Preferred
Stock outstanding on such date and other securities convertible into, or
options or warrants to purchase, shares of Common Stock outstanding on such
date, whether or not such options, warrants or other securities are
presently convertible or exercisable.
"Other Property" shall have the meaning set forth in Section 6(i).
"Outstanding" shall mean, when used with reference to Common Stock, at
any date as of which the number of shares thereof is to be determined, all
issued shares of Common Stock, except shares then owned or held by or for
the account of the Corporation or any subsidiary of the Corporation, and
shall include all shares issuable in respect of outstanding scrip or any
certificates representing fractional interests in shares of Common Stock.
"Overage" shall mean the total number of shares of Common Stock issued in
connection with the Subject Transactions above the Share Allowance.
"Permitted Issuances" shall mean (i) the issuance of up to 4,243,037
shares of Common Stock issuable pursuant to options to purchase Common Stock
under the Stock Option Plan, (ii) shares of Common Stock issued or issuable
in connection with a Qualified Public Offering, (iii) shares of Common Stock
issued in connection with the Subject Transactions or upon conversion of
Convertible Preferred Stock, (iv) shares of Class I Series B Preferred Stock
issued upon conversion of the Class II Series B Preferred Stock, (v) shares
of Class I Series C Preferred Stock issued upon conversion of Class II
Series C Preferred Stock, (vi) securities issued as consideration for any
acquisition approved by a majority of the Board of Directors (including the
affirmative vote of the [Preferred Directors]), (vii) the issuance of an
aggregate of up to 100,000 additional shares of Common Stock (as adjusted
for stock splits, combinations, stock dividends and the like) in
transactions approved by a majority of the Board of Directors, (viii) the
issuance of an aggregate of up to another 100,000 additional shares of
Common Stock (as adjusted for stock splits, combinations, stock dividends
and the like) in transactions approved by a majority of the Board of
Directors (including the affirmative vote of the [Preferred Directors]),
(ix) the Spinway Warrant, (x) 210,000 shares of Common Stock upon exercise
of the Spinway Warrant, (xi) shares of Common Stock and/or Convertible
Preferred Stock issued pursuant to the Tutopia Put Agreement, and (xii) such
other issuances as shall be approved in advance by the holders of at least a
majority of the voting power of all then outstanding shares of Convertible
Preferred Stock, voting as a single class.
"Qualified Private Offering" shall mean a private equity offering to
investors other than UBS resulting in gross proceeds to the Corporation of
at least $30 million, in which the securities issued contain anti-dilution
provisions no more favorable to the investor than the anti-dilution
provisions of the Series B Convertible Preferred Stock which take effect
following the consummation of a Qualified Private Offering.
"Share Allowance" shall mean 428,571 shares of Common Stock.
"Stock Option Plan" shall mean the IFX Corporation Directors Stock Option
Plan, the 1998 IFX Corporation Stock Option and Incentive Plan, as amended,
and the IFX Corporation 2001 Stock Option Plan.
D-11
"Subject Transactions" shall mean (i) any acquisition consummated prior
to the filing hereof, including, without limitation, the acquisitions of Mr.
Help Informatica S/C Ltda., Zupernet Ltda. and Redescape, L.L.C., (ii) the
Consulting Agreement, dated as of May 27, 1999 by and between the
Corporation and Brian Reale and (iii) the conversion of Tutopia Stock into
Common Stock pursuant to the Tutopia Stockholders Agreement.
(b) Stock Dividends, Subdivisions and Combinations. If at any time the
Corporation shall:
(i) take a record of the holders of its Common Stock for the purpose of
entitling them to receive a dividend payable in, or other distribution of,
Additional Shares of Common Stock,
(ii) subdivide its outstanding shares of Common Stock into a larger
number of shares of Common Stock, or
(iii) combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock,
then the applicable Conversion Price immediately after the occurrence of any
such event shall be adjusted to equal the product of (A) the Conversion Price
immediately prior to the occurrence of such event and (B) a fraction, the
numerator of which shall be the number of Fully Diluted Outstanding shares of
Common Stock immediately prior to the occurrence of such event and the
denominator of which shall be the number of Fully Diluted Outstanding shares of
Common Stock immediately after the occurrence of such event.
(c) Issuance of Additional Shares of Common Stock.
(i) In the event that prior to the consummation of or in connection with
a Qualified Private Offering, the Corporation shall issue or sell any
Additional Shares of Common Stock, other than Permitted Issuances, for a
consideration per Additional Share of Common Stock less than the applicable
Conversion Price, then the applicable Conversion Price shall be reduced to
the consideration per Additional Share of Common Stock paid for such
Additional Shares of Common Stock.
(ii) In the event that following the consummation of a Qualified Private
Offering, the Corporation shall issue or sell any Additional Shares of
Common Stock, other than Permitted Issuances, for a consideration per
Additional Share of Common Stock less than the applicable Conversion Price,
then the applicable Conversion Price shall be reduced to a price determined
by dividing (A) an amount equal to the sum of (x) the number of Fully
Diluted Outstanding shares of Common Stock immediately prior to such issue
or sale multiplied by the then existing Conversion Price plus (y) the
aggregate consideration, if any, received by the Corporation upon such issue
or sale, by (B) the total number of Fully Diluted Outstanding shares of
Common Stock outstanding immediately after such issue or sale.
(iii) The provisions of this Section 6(c) shall not apply to any issuance
of Additional Shares of Common Stock for which an adjustment is provided
under Section 6(b). No adjustment shall be made under this Section 6(c) upon
the issuance of any Additional Shares of Common Stock which are issued
pursuant to the exercise of any warrants or other subscription or purchase
rights or pursuant to the exercise of any conversion or exchange rights in
any Convertible Securities, if any such adjustment shall previously have
been made upon the issuance of such warrants or other rights or upon the
issuance of such Convertible Securities (or upon the issuance of any warrant
or other rights therefor) pursuant to Section 6(d) or Section 6(e).
(d) Issuance of Warrants or Other Rights. Except with respect to Permitted
Issuances, if at any time the Corporation shall take a record of the holders of
its Common Stock for the purpose of entitling them to receive a distribution
of, or shall in any manner (whether directly or by assumption in a merger in
which the Corporation is the surviving corporation) issue or sell, any warrants
or other rights to subscribe for or purchase any Additional Shares of Common
Stock or any Convertible Securities, whether or not the rights to exchange or
convert thereunder are immediately exercisable, and the price per share for
which Common Stock is issuable upon the exercise of such warrants or other
rights or upon conversion or exchange of such Convertible Securities shall be
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less than the applicable Conversion Price in effect immediately prior to the
time of such distribution, issue or sale, then the applicable Conversion Price
shall be adjusted as provided in Section 6(c)(i) or (ii), as applicable, on the
basis that (i) the maximum number of Additional Shares of Common Stock issuable
pursuant to all such warrants or other rights or necessary to effect the
conversion or exchange of all such Convertible Securities shall be deemed to
have been issued and outstanding, (ii) the price per share for such Additional
Shares of Common Stock shall be deemed to be the lowest price per share at
which such Additional Shares of Common Stock are issuable to such holders, and
(iii) the Corporation shall have received all of the consideration, if any,
payable for such warrants or other rights as of the date of the actual issuance
thereof. No further adjustments of the Conversion Price shall be made upon the
actual issue of such Common Stock or of such Convertible Securities upon
exercise of such warrants or other rights or upon the actual issue of such
Common Stock upon such conversion or exchange of such Convertible Securities.
(e) Issuance of Convertible Securities. Except with respect to Permitted
Issuances, if at any time the Corporation shall take a record of the holders of
its Common Stock for the purpose of entitling them to receive a distribution
of, or shall in any manner (whether directly or by assumption in a merger in
which the Corporation is the surviving corporation) issue or sell, any
Convertible Securities, whether or not the rights to exchange or convert
thereunder are immediately exercisable, and the price per share for which
Common Stock is issuable upon such conversion or exchange shall be less than
the applicable Conversion Price in effect immediately prior to the time of such
issue or sale, then the applicable Conversion Price shall be adjusted as
provided in Section 6(c)(i) or (ii), as applicable, on the basis that (i) the
maximum number of Additional Shares of Common Stock issuable upon the
conversion or exchange of all such Convertible Securities shall be deemed to
have been issued and outstanding, (ii) the price per share of such Additional
Shares of Common Stock shall be deemed to be the lowest possible price in any
range of prices at which such Additional Shares of Common Stock are available
to such holders, and (iii) the Corporation shall have received all of the
consideration payable therefor, if any, as of the date of actual issuance of
such Convertible Securities. No further adjustment of the Conversion Price
shall be made under this Section 6(e) upon the issuance of any Convertible
Securities which are issued pursuant to the exercise of any warrants or other
subscription or purchase rights therefor, if any such adjustment shall
previously have been made upon the issuance of such warrants or other rights
pursuant to Section 6(d). No further adjustments of the Conversion Price shall
be made upon the actual issue of such Common Stock upon conversion or exchange
of such Convertible Securities and, if any issue or sale of such Convertible
Securities is made upon exercise of any warrant or other right to subscribe for
or to purchase or any warrant or other right to purchase any such Convertible
Securities for which adjustments thereof have been or are to be made pursuant
to other provisions of this Section 6, no further adjustments shall be made by
reason of such issue or sale.
(f) Superseding Adjustment. If, at any time after any adjustment of the
applicable Conversion Price shall have been made pursuant to Section 6(d) or
6(e) as the result of any issuance of warrants, rights or Convertible
Securities, and either
(i) such warrants or rights, or the right of conversion or exchange in
such other Convertible Securities, shall expire, and all or a portion of
such warrants or rights, or the right of conversion or exchange with respect
to all or a portion of such other Convertible Securities, as the case may
be, shall not have been exercised, or
(ii) the consideration per share for which shares of Common Stock are
issuable pursuant to such warrants or rights, or such other Convertible
Securities, shall be increased or decreased by virtue of provisions therein
contained,
then such previous adjustment shall be rescinded and annulled and the
Additional Shares of Common Stock which were deemed to have been issued by
virtue of the computation made in connection with the adjustment so rescinded
and annulled shall no longer be deemed to have been issued by virtue of such
computation. Thereupon, a recomputation shall be made of the effect of such
rights or options or other Convertible Securities on the applicable Conversion
Price, on the basis of
(iii) treating the number of Additional Shares of Common Stock or other
property, if any, theretofore actually issued or issuable pursuant to the
previous exercise of any such warrants or rights or any such right
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of conversion or exchange, as having been issued on the date or dates of any
such exercise and for the consideration actually received and receivable
therefor, and
(iv) treating any such warrants or rights or any such other Convertible
Securities which then remain outstanding as having been granted or issued
immediately after the time of such increase or decrease of the consideration
per share for which shares of Common Stock or other property are issuable
under such warrants or rights or other Convertible Securities.
(g) Subject Transactions Adjustment. If the Corporation issues a number of
shares of Common Stock greater than the Share Allowance in connection with the
Subject Transactions, the Conversion Price shall be adjusted to a dollar
resulting from the following:
$40,464,918
________________________________________________________
1.010948(12,919,702 + Overage-1,500,000
Notwithstanding the foregoing, an adjustment under this subsection (g) shall
only be made to the extent such adjustment results in a reduction of the then
current Conversion Price.
(h) Other Provisions Applicable to Adjustments Under This Section. The
following provisions shall be applicable to the making of adjustments provided
for in this Section 6:
(i) Computation of Consideration. To the extent that any Additional
Shares of Common Stock or any Convertible Securities or any warrants or
other rights to subscribe for or purchase any Additional Shares of Common
Stock or any Convertible Securities shall be issued for cash consideration,
the consideration received by the Corporation therefor shall be the amount
of the cash received by the Corporation therefor, or, if such Additional
Shares of Common Stock or Convertible Securities are offered by the
Corporation for subscription, the subscription price, or, if such Additional
Shares of Common Stock or Convertible Securities are sold to underwriters or
dealers for public offering without a subscription offering, the public
offering price (in any such case subtracting any amounts paid or receivable
for accrued interest or accrued dividends, but not subtracting any
compensation, discounts or expenses paid or incurred by the Corporation for
and in the underwriting of, or otherwise in connection with, the issuance
thereof). To the extent that such issuance shall be for a consideration
other than cash, then, except as herein otherwise expressly provided, the
amount of such consideration shall be deemed to be the fair value of such
consideration at the time of such issuance as determined in good faith by
the Board of Directors. In case any Additional Shares of Common Stock or any
Convertible Securities or any warrants or other rights to subscribe for or
purchase such Additional Shares of Common Stock or Convertible Securities
shall be issued in connection with any merger in which the Corporation
issues any securities, the amount of consideration therefor shall be deemed
to be the fair value, as determined in good faith by the Board of Directors,
of such portion of the assets and business of the nonsurviving corporation
as the Board of Directors in good faith shall determine to be attributable
to such Additional Shares of Common Stock, Convertible Securities, warrants
or other rights, as the case may be. The consideration for any Additional
Shares of Common Stock issuable pursuant to any warrants or other rights to
subscribe for or purchase the same shall be the consideration received by
the Corporation for issuing such warrants or other rights plus the
additional consideration payable to the Corporation upon exercise of such
warrants or other rights. The consideration for any Additional Shares of
Common Stock issuable pursuant to the terms of any Convertible Securities
shall be the consideration, if any, received by the Corporation for issuing
warrants or other rights to subscribe for or purchase such Convertible
Securities, plus the consideration paid or payable to the Corporation in
respect of the subscription for or purchase of such Convertible Securities,
plus the additional consideration, if any, payable to the Corporation upon
the exercise of the right of conversion or exchange in such Convertible
Securities. In case of the issuance at any time of any Additional Shares of
Common Stock or Convertible Securities in payment or satisfaction of any
dividends upon any class of stock other than Common Stock, the Corporation
D-14
shall be deemed to have received for such Additional Shares of Common Stock
or Convertible Securities a consideration equal to the amount of such
dividend so paid or satisfied.
(ii) When Adjustments to Be Made; Class II Series B Preferred Stock
Adjustments. The adjustments required by this Section 6 shall be made
whenever and as often as any specified event requiring an adjustment shall
occur. For the purpose of any adjustment, any specified event shall be
deemed to have occurred at the close of business on the date of its
occurrence. For the avoidance of doubt, shares of Class I Series B Preferred
Stock issued upon conversion of Class II Series B Preferred Stock shall be
entitled to the same adjustments to the Conversion Price, the number of
shares of Common Stock issuable upon conversion thereof or otherwise under
this Section 6, as if such shares of Class I Series B Preferred Stock had
been issued at the time such shares of Class II Series B Preferred Stock
were issued.
(iii) When Adjustment Not Required. If the Corporation shall take a
record of the holders of its Common Stock for the purpose of entitling them
to receive a dividend or distribution or subscription or purchase rights and
shall, thereafter and before the distribution to stockholders thereof,
legally abandon its plan to pay or deliver such dividend, distribution,
subscription or purchase rights, then thereafter no adjustment shall be
required by reason of the taking of such record and any such adjustment
previously made in respect thereof shall be rescinded and annulled.
(iv) Escrow of Common Stock. If after any property becomes distributable
as a result of the provisions of this Section 6 by reason of the taking of
any record of the holders of Common Stock, but prior to the occurrence of
the event for which such record is taken, a holder of shares of Series B
Convertible Preferred Stock exercises its conversion rights pursuant to
Section 5, any Additional Shares of Common Stock issuable and other property
distributable upon exercise by reason of such adjustment shall be held in
escrow for such holder by the Corporation to be issued to such holder upon
and to the extent that the event actually takes place. Notwithstanding any
other provision to the contrary herein, if the event for which such record
was taken fails to occur or is rescinded, then such escrowed shares shall be
canceled by the Corporation and escrowed property returned.
(v) Challenge to Good Faith Determination. Whenever the Board of
Directors shall be required to make a determination in good faith of the
fair value of any item under this Section 6, such determination may be
challenged in good faith by holders of a majority of the outstanding shares
of Convertible Preferred Stock, and any dispute shall be resolved by an
investment banking firm of recognized national standing selected by the
Corporation and acceptable to such holder.
(i) Other Action Affecting Common Stock. In case at any time or from time to
time the Corporation shall take any action in respect of its Common Stock,
other than any action described in this Section 6 for which a specific
adjustment is provided, then, unless such action will not have a materially
adverse effect upon the rights of the holders of shares of Series B Convertible
Preferred Stock, the number of shares of Common Stock or other stock into which
such shares of Series B Convertible Preferred Stock are convertible and/or the
applicable Conversion Price shall be adjusted in such manner as may be
equitable in the circumstances.
(j) Certain Limitations. Notwithstanding anything herein to the contrary,
the Corporation shall not enter into any transaction which, by reason of any
adjustment hereunder, would cause the applicable Conversion Price to be less
than the par value per share of Common Stock.
(k) Notice of Adjustments. Whenever the number of shares of Common Stock
into which shares of Series B Convertible Preferred Stock are convertible or
whenever the applicable Conversion Price shall be adjusted pursuant to this
Section 6, the Corporation shall forthwith prepare a certificate to be executed
by the chief financial officer of the Corporation setting forth, in reasonable
detail, the event requiring the adjustment and the method by which such
adjustment was calculated (including a description of the basis on which the
Board of Directors determined the fair value of any consideration referred to
in Section 6(h)(i)), specifying any change in the applicable Conversion Price
or the number of shares of Common Stock into which shares of Series B
Convertible Preferred Stock are convertible and (if such adjustment was made
pursuant to Section 5(g)(i) or 6(h)) describing the number and kind of any
other shares of stock or Other Property into which shares of Series B
D-15
Convertible Preferred Stock are convertible, and any change in the applicable
Conversion Price or prices thereof, after giving effect to such adjustment or
change. The Corporation shall promptly cause a signed copy of such certificate
to be delivered to the holders of Series B Convertible Preferred Stock. The
Corporation shall keep at the Payment Office copies of all such certificates
and cause the same to be available for inspection at said office during normal
business hours by the holders of Series B Convertible Preferred Stock or any
prospective purchaser of shares of Series B Convertible Preferred Stock
designated by such holders.
7. TRIGGERING EVENTS.
Any of the following actions or events shall constitute a "Triggering Event"
for purposes hereof:
(a) Failure to Pay Dividends. The Corporation shall fail to pay any
dividend on any Series B Convertible Preferred Stock which it is required to
pay in accordance with Section 2 for any reason, including but not limited
to, that such payment is prohibited by applicable law or the Board of
Directors elect not to pay such dividend, or shall otherwise violate any
term of Section 2 and such failure shall not be cured within a period of 30
days after such violation (which cure shall be effected in a manner ensuring
the holders the same yield as if such violation had not occurred).
(b) Failure of Voting Rights. The Corporation shall enter into any
transaction or take any action required to be approved by holders of Series
B Convertible Preferred Stock without obtaining the requisite approval of
the holders of the Series B Convertible Preferred Stock.
(c) Failure to Convert. The Corporation shall fail for any reason to
issue Common Stock or Class I Series B Preferred Stock, as applicable, as
required under Section 5 upon the request of any holder of Class I Series B
Preferred Stock or Class II Series B Preferred Stock, as the case may be, as
provided in Section 5 or shall fail for any reason to comply in any material
respect with any term of Section 5(f) or any other term of Section 5 hereof.
(d) Registration Rights Agreement. The Corporation shall fail in any
material respect to comply with the rights of the holders of Series B
Convertible Preferred Stock pursuant to the Second Amended and Restated
Registration Rights Agreement, dated as of , 2001, among the
Corporation, UBS and certain other stockholders of the Corporation, and such
failure shall continue for a period of 30 days after notice from any such
holder.
(e) Preferred Stock Purchase Agreement. The Corporation shall fail to
comply with Section 6(f) or 6(g) of the Preferred Stock Purchase Agreement
and such failure shall continue for a period of 30 days after notice from
the Purchasers or the representations made under Section 4(c) or 4(u) of the
Preferred Stock Purchase Agreement shall prove to have been incorrect or
misleading in any material respect when made pursuant thereto or any other
material representation made under the Preferred Stock Purchase Agreement
shall prove to have been incorrect or misleading in any substantial material
respect when made.
(f) There shall have occurred and be continuing a "Triggering Event"
pursuant to the terms of any other class or series of Convertible Preferred
Stock.
(g) Notwithstanding the foregoing, if a majority of the [Preferred
Directors] directors affirmatively vote in favor of a transaction or other
action by the Corporation which would constitute a Triggering Event under
Section 7(b) or 7(d), such action or event shall not be considered a
Triggering Event.
8. REMEDIES.
(a) In the event that a Triggering Event described in Section 7 shall occur
and be continuing, each holder of Series B Convertible Preferred Stock shall be
entitled to receive all cash and other dividends, distributions and other
payments which would be paid or payable to a holder of a number of shares of
Common Stock into which the shares of Series B Convertible Preferred Stock held
by such holder are convertible at such time (without regard to the number of
shares of Common Stock which are authorized or reserved for issuance at such
time and without regard to whether such shares of Series B Convertible
Preferred Stock are then currently convertible into Common Stock at the option
of the holder).
D-16
(b) [Section 8(b) shall read as follows if certain of the Company's
indebtedness has been restructured in a manner satisfactory to UBS and the
Company: Upon the occurrence and during the continuance of any Triggering
Event, to the extent the Preferred Directors do not already constitute a
majority of the Board of Directors, the size of the Board of Directors shall
immediately be increased by the minimum number of directors which, if all of
such additional directors were deemed "Preferred Directors," would result in
such Preferred Directors constituting a majority of the Board of Directors, and
the holders of Voting Preferred Stock shall be entitled to appoint such newly
created directors by vote of the holders of at least a majority of the voting
power of all then outstanding shares of Voting Preferred Stock, voting as a
single class.]
[Section 8(b) shall read as follows if certain of the Company's indebtedness
has NOT been restructured in a manner satisfactory to UBS and the Company:
Upon the occurrence and during the continuance of any Triggering Event,
the size of the Board of Directors shall immediately be increased by the
minimum number of directors which, if all of such additional directors were
appointed by the holders of Voting Preferred Stock, would result in such
directors constituting a majority of the Board of Directors, and the holders
of Voting Preferred Stock shall be entitled to appoint such newly created
directors by vote of the holders of at least a majority of the voting power
of all then outstanding shares of Voting Preferred Stock, voting as a single
class.]
(c) Upon the occurrence and during the continuance of any Triggering Event,
any holder of shares of Series B Convertible Preferred Stock, at its election,
may, by notice to the Corporation (the "Put Notice"), demand repurchase of all
or any portion of such holder's shares of Series B Convertible Preferred Stock
for a cash purchase price in an amount per share equal to the Liquidation
Preference. The Corporation shall, on the date (not less than 10 business days
after the date of the Put Notice) designated in such Put Notice, repurchase
from the holder such holder's shares of Series B Convertible Preferred Stock
specified in the Notice. On the date of any repurchase of shares of Series B
Convertible Preferred Stock pursuant to this Section 8(c), the holder thereof
shall surrender for redemption a certificate for the number of shares of Series
B Convertible Preferred Stock being redeemed, without any representation or
warranty (other than that the holder has good and marketable title thereto,
free and clear of liens, encumbrances and restrictions of any kind), against
payment therefor of the repurchase price by, at the option of the holder, (i)
wire transfer to an account designated by the holder for such purpose or (ii) a
certified or official bank check payable to the order of the holder. If less
than all of the holder's shares of Series B Convertible Preferred Stock
represented by a single certificate are being redeemed, the Corporation shall
cancel such certificate and issue in the name of, and deliver to, the holder a
new certificate for the portion not being redeemed. At any time following
delivery of a Put Notice but prior to the date of repurchase, any holder of
Series B Convertible Preferred Stock may, by notice to the Corporation,
withdraw the repurchase demand contained in the Put Notice. Notwithstanding the
foregoing, the holders of Series B Preferred Stock shall not be entitled to
exercise their repurchase rights hereunder unless the holders of Convertible
Preferred Stock elect to exercise such repurchase rights by vote of the holders
of at least a majority of the voting power of all then outstanding shares of
Convertible Preferred Stock, voting as a single class.
(d) The Corporation stipulates that the remedies at law of each holder of
Series B Convertible Preferred Stock in the event of any Triggering Event or
threatened Triggering Event or otherwise or other failure in the performance of
or compliance with any of the terms hereof are not and will not be adequate and
that, to the fullest extent permitted by law, such terms may be specifically
enforced by a decree for the specific performance of any agreement contained
herein or by an injunction against a violation of any of the terms hereof or
otherwise without requiring any holder to post a bond or other security except
to the extent required by applicable law.
(e) Any holder of Series B Convertible Preferred Stock shall be entitled to
recover from the Corporation the reasonable attorneys' fees and expenses
incurred by such holder in connection with any Triggering Event or enforcement
by such holder of any obligation of the Corporation hereunder.
(f) No failure or delay on the part of any holder of Series B Convertible
Preferred Stock in exercising any right, power or remedy hereunder or under
applicable law or otherwise shall operate as a waiver thereof; nor shall
D-17
any single or partial exercise of any such right, power or remedy preclude any
other or further exercise thereof or the exercise of any other right, power or
remedy hereunder or thereunder. The remedies herein provided are cumulative and
not exclusive of any remedies provided by law or otherwise.
9. PREEMPTIVE RIGHT.
(a) Each holder of Series B Convertible Preferred Stock or Common Stock
issued upon conversion of Series B Convertible Preferred Stock, shall have a
right of first refusal (the "Preemptive Right") to purchase its pro rata share,
based on such holder's percentage ownership interest in the Corporation, of New
Securities (as defined below) which the Corporation, from time to time,
proposes to sell and issue (subject to such requirements and restrictions
imposed by the Securities Act of 1933, as amended, and state securities laws
and to the actual issuance of the New Securities). The pro rata shares of any
holder of Series B Convertible Preferred Stock or Common Stock issued upon
conversion of Series B Convertible Preferred Stock, for purposes of this
Preemptive Right, shall be the ratio of (i) the number of shares of Common
Stock owned, of record or beneficially, by such holder (including all shares
issuable upon conversion of the Series B Convertible Preferred Stock, whether
or not then currently convertible, or the exercise or conversion of any other
option, warrant or convertible security held by such holder) immediately prior
to the issuance of the New Securities, to (ii) the total number of shares of
Common Stock issued and outstanding immediately prior to the issuance of the
New Securities, determined on a fully diluted basis after giving effect to the
exercise in full of then outstanding options and warrants and the conversion of
all securities convertible into shares of Common Stock; provided, however, that
if any holder of Series B Convertible Preferred Stock or Common Stock issued
upon conversion of Series B Convertible Preferred Stock does not elect to
purchase its entire pro rata share of such New Securities, then each other
holder that has elected to purchase its entire pro rata share shall have the
right to purchase up to a number of such unpurchased portion, in addition to
its own, in the proportion that (1) the number of shares of Common Stock owned,
of record or beneficially, by such holder (including all shares issuable upon
conversion of the Series B Convertible Preferred Stock, whether or not then
currently convertible, or the exercise or conversion of any other option,
warrant or convertible security held by such holder) immediately prior to the
issuance of the New Securities bears to (2) the number of shares of Common
Stock owned, of record or beneficially, by all holders of Series B Convertible
Preferred Stock or Common Stock issued upon conversion of Series B Convertible
Preferred Stock (including all shares issuable upon conversion of the Series B
Convertible Preferred Stock, whether or not then currently convertible, or the
exercise or conversion of any other option, warrant or convertible security
held by such holders) immediately prior to the issuance of the New Securities.
The overallotment mechanism set forth in this paragraph shall be repeatedly
applied until all New Securities available for purchase by holders of Series B
Convertible Preferred Stock or Common Stock issued upon conversion of Series B
Convertible Preferred Stock have been purchased or no holders remain who have
indicated a desire to purchase any unsubscribed for portion in their notice to
the Corporation.
(b) "New Securities" shall mean (a) any capital stock of the Corporation,
rights, options or warrants to purchase capital stock and securities of any
type whatsoever that are, or may become convertible into or exchangeable for
capital stock and (b) so-called "high yield" bonds, debt instruments with
equity like features or other similar debt instruments, which bear a rating
lower than investment-grade or are unrated, issued by the Corporation;
provided, however, that the term "New Securities" does not include (i) the
issuance of up to 4,243,037 shares of Common Stock issuable pursuant to options
to purchase Common Stock under the Stock Option Plan, (ii) shares of Common
Stock issued or issuable in connection with a Qualified Public Offering, (iii)
shares of Common Stock issued upon conversion of Convertible Preferred Stock,
(iv) shares of Class I Series B Preferred Stock issued upon conversion of Class
II Series B Preferred Stock, (v) shares of Class I Series C Preferred Stock
issued upon conversion of Class II Series C Preferred Stock, (vi) securities
issued as consideration for any acquisition approved by a majority of the Board
of Directors (including the affirmative vote of the [Preferred Directors]),
(vii) the Spinway Warrant, (viii) 210,000 shares of Common Stock upon exercise
of the Spinway Warrant, (ix) shares of Common Stock in exchange for shares of
Tutopia Stock upon a change-in-control of the Corporation pursuant to the
Tutopia Stockholders Agreement, (x) shares of Common Stock and/or Convertible
Preferred Stock issued pursuant to the Tutopia Put Agreement, or (xi) any
shares of capital stock of
D-18
the Corporation, rights, options or warrants to purchase capital stock and
securities of any type whatsoever that are, or may become convertible into or
exchangeable for capital stock that have been approved in advance by the
holders of at least a majority of the voting power of all then outstanding
shares of Convertible Preferred Stock, voting as a single class.
(c) In the event the Corporation proposes to undertake an issuance of New
Securities, it shall give each holder of Series B Convertible Preferred Stock
or Common Stock issued upon conversion of Series B Convertible Preferred Stock
written notice of its intention, describing the type of New Securities and the
price and the terms upon which the Corporation proposes to issue the same. Each
such holder shall have twenty (20) days from the date of receipt of any such
notice to agree to purchase its pro rata share of such New Securities for the
price and upon the terms specified in the notice by giving written notice to
the Corporation and stating therein the quantity of New Securities to be
purchased.
(d) The Corporation shall have ninety (90) days after expiration of the
twenty (20) day period described in Section 9(c) to sell any New Securities
with respect to which a Preemptive Right was not exercised, at a price not less
than and upon terms no more favorable in the aggregate to the purchasers
thereof than specified in the Corporation's notice. To the extent the
Corporation does not sell all the New Securities offered within said ninety
(90) day period, the Corporation shall not thereafter issue or sell such New
Securities without first again offering such securities to each holder of
Series B Convertible Preferred Stock or Common Stock issued upon conversion of
Series B Convertible Preferred Stock in the manner provided above.
(e) The rights granted under this Section 9 shall expire upon the earlier of
(i) the closing of a Qualified Public Offering and (ii) such time as less than
an aggregate of 25% of the authorized Convertible Preferred Stock remains
outstanding.
10. RANKING.
The Series B Convertible Preferred Stock shall rank pari passu with the
Series A Convertible Preferred Stock and Series C Convertible Preferred Stock
of the Corporation (which shall constitute Parity Securities for purposes
hereof) and any other Parity Securities with respect to amounts receivable upon
a Liquidation Event, dividends, rights and remedies upon Triggering Events or
for any other purpose.
11. AMENDMENTS.
This Certificate of Designation may not be amended without first obtaining
the affirmative vote or written consent of the holders of at least a majority
of the voting power of all then outstanding shares of Convertible Preferred
Stock, voting together as a single class, including the affirmative vote or
written consent of the holders of a majority of the shares of Series B
Convertible Preferred Stock.
D-19
Exhibit E
CHARTER OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
OF IFX CORPORATION
I. Purpose
The primary function of the Audit Committee (the "Committee") of the Board
of Directors of IFX Corporation (the "Corporation") is to assist the Board of
Directors in fulfilling its oversight responsibilities by:
. Serving as an independent and objective party to monitor the Corporation's
financial reporting processes and internal control systems;
. Reviewing and appraising the audit efforts of the Corporation's
independent accountants and internal auditors; and
. Providing an open avenue of communication among the Corporation's
independent accountants, financial and senior management, internal
auditors and Board of Directors.
The Committee will primarily fulfill these responsibilities by carrying out the
activities enumerated in Section III of this Charter.
II. Composition
The Committee shall be comprised of three or more directors as determined by
the Board, each of whom shall be independent directors, and free from any
relationship that, in the opinion of the Board, would interfere with the
exercise of his or her independent judgment as a member of the Committee. All
members of the Committee shall have a working familiarity with basic finance
and accounting practices, and at least one member of the Committee shall have
accounting or related financial management expertise.
III. Responsibilities and Duties
To fulfill its responsibilities and duties, the Audit Committee will:
1. Hold such regular meetings as may be necessary and such special meetings
as may be called by the Chairman of the Committee or at the request of
the independent accountants;
2. Review and update, as necessary, the Committee's Charter annually;
3. Instruct the independent accountants that they are ultimately
accountable to the Board of Directors and the Committee;
4. Recommend to the Board of Directors the independent accountants to be
nominated, approve the compensation of the independent accountants, and
review and approve the discharge of the independent accountants;
5. Review and concur in the appointment, replacement, reassignment, or
dismissal of the director of internal auditing;
6. Confirm and assure the independence of the internal auditors and the
independent accountants, including a review of management consulting
services and related fees provided by the independent accountants;
7. Meet with the independent accountants and financial management to review
the scope of the proposed audit for the current year and the audit
procedures to be utilized and, at the conclusion of the annual audit,
review with the independent accountants and financial management:
(a) The Corporation's audited financial statements and related footnotes;
E-1
(b) The independent accountants' audit of the financial statements and
their report thereon;
(c) Any significant changes required in the independent accountants'
audit plan;
(d) Any serious difficulties or disputes with management encountered
during the course of the audit; and
(e) Other matters related to the conduct of the audit which are to be
communicated to the Committee under generally accepted auditing
standards.
8. Review with the independent accountants, the internal auditors and
financial and accounting personnel the adequacy and effectiveness of the
accounting and financial controls of the Corporation and elicit any
recommendations for the improvement of such controls.
9. Discuss with the independent accountants and financial management their
qualitative judgments about the appropriateness, not just the
acceptability, of accounting principles and financial disclosure
practices used and, particularly, the degree of aggressiveness or
conservatism of such practices;
10. Review the internal audit function of the Corporation, including the
proposed audit plans for the coming year and the coordination of such
plans with the independent accountants;
11. Receive, on a periodic basis, a summary of findings from completed
internal audits;
12. Provide sufficient opportunity for the internal auditors and independent
accountants to meet with the Committee without members of management
present to discuss any matters that the Committee or these groups
believe should be discussed privately;
13. Review accounting and financial human resources and succession planning
within the Corporation;
14. Conduct or authorize investigations into any matters within the
Committee's scope of responsibilities, and retain independent counsel,
accountants, or others to assist it in the conduct of any such
investigation;
15. Report through its Chairman to the Board of Directors following the
meetings of the Audit Committee; and
16. Maintain minutes or other records of meetings of the Audit Committee.
E-2
REVOCABLE PROXY REVOCABLE PROXY
IFX CORPORATION
THIS PROXY IS SOLICITED ON BEHALF
OF THE BOARD OF DIRECTORS
The undersigned hereby appoint(s) Joel M. Eidelstein and Jose Leiman,
or either of them, with full power of substitution, as proxies of the
undersigned, with all the powers that the undersigned would possess if
personally present to cast all votes that the undersigned would be entitled to
vote at the annual meeting of stockholders of IFX Corporation ("the Company") to
be held on December 7, 2001, at the offices of the Company, 15050 N.W. 79 Court,
Suite 200, Miami Lakes, Florida 33016 at 10:00 a.m. local time, and any and all
adjournments and postponements thereof, including (without limiting the
generality of the foregoing) to vote and act as follows on the reverse side.
This proxy will be voted at the annual meeting or any adjournments or
postponements thereof as specified. If no specifications are made, this proxy
will be voted for the election of each of nominees for directors named on the
reverse side and for each of the proposals described in the proxy statement.
This proxy hereby revokes all prior proxies given with respect to the shares of
the undersigned.
(Continued and to be signed on reverse side.)
IFX CORPORATION
PLEASE MARK VOTE IN BOX IN THE FOLLOWING MANNER USING DARK INK ONLY [X]
1. Election of Directors: For All Withhold For All
Nominees: Michael Shalom, Joel M. Eidelstein, [__] Authority Except Those
Patrick Delhougne, Charles Delaney, Burton J. Meyer, For All Whose Name
Mark O. Lama, Charles W. Moore and George A. Myers. [__] Appears Below
______________
______________
2. Amendment of Restated Certificate of Incorporation. For Against Abstain
[__] [__] [__]
3. Issuance of new Preferred Stock. For Against Abstain
[__] [__] [__]
4. Certificates of Designation amendments. For Against Abstain
[__] [__] [__]
5. Ratification of the engagement of Ernst & Young LLP. For Against Abstain
[__] [__] [__]
6. The persons named in this proxy also may vote, in their discretion, upon
such other matters as may properly come before the meeting or any
adjournment thereof.
Please complete, sign and mail this proxy promptly in the enclosed envelope. No
postage is required for mailing in the United States.
Dated:________________, 200__
Signature(s) ____________________________________
IMPORTANT: Please date this proxy and sign exactly as your name appears on this
proxy. If shares are held by joint tenants, both should sign. When signing as
attorney, executor, administrator, trustee or guardian, please give title as
such. Is a corporation, please sign in full corporate name by president, or
authorized officer. If a partnership, please sign in partnership name by
authorized person.