Exhibit 4.1
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 10,000,000 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:
Title:
ATTEST:
_____________________________
Name:
Title:
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" (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 Series B Convertible Preferred Stock shall be
4,418,262 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
Amended and Restated 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").
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 pursuant to Section 5 below.
(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 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 (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 (the "Liquidation Preference"). 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 preferential amount, 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 preferential
amount 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 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
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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
Series B 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 Series B Convertible Preferred Stock.
(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 Series B Convertible Preferred Stock.
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:
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(a) Election of Directors.
(i) Subject to the terms hereof, the holders of the Series B
Convertible Preferred Stock, voting as a single class, shall have the right to
elect one director (in addition to the directors elected by the holders of
Common Stock or any other capital stock of the Corporation) with each holder of
a share of Series B Convertible Preferred Stock entitled to one vote per share
held by such holder.
(ii) Any director elected by the holders of shares of Series B
Convertible Preferred Stock shall be referred to herein as a "Series B Preferred
Director." Subject to Section 4(a)(v), the initial term of the director to be
appointed pursuant to Section 4(a)(i) will commence upon his/her election by the
Series B Convertible 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 Series B Preferred Director, so long as
the Series B Convertible Preferred Stock is outstanding, the holders of the
Series B Convertible Preferred Stock shall have the right to elect a Series B
Preferred Director to replace such director in the same manner described above
in Section 4(a)(i). Subject to Section 4(a)(v), a Series B 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 Series B
Preferred Director elected under Section 4(a)(i) shall serve until such Series B
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 Series B Preferred
Director shall be selected as provided in Section 4(a)(i).
(iii) A Series B Preferred Director may be removed by, and shall
not be removed except by, the vote of the holders of record of a majority of the
outstanding shares of Series B Convertible Preferred Stock, voting together as a
single class.
(iv) The Corporation shall at all times reserve and keep
available a vacant seat on the Board of Directors solely for the purpose of
enabling the holders of the Series B Convertible Preferred Stock to designate a
Series B Preferred Director 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
the holders of Series B Convertible Preferred Stock and their Affiliates own in
the aggregate less than 25% of their initial holdings of Series B Shares.
(b) Certain Corporate Actions.
Until a Qualified Public Offering or until such time as less than
an aggregate of 50% of the number of shares of Series B Convertible Preferred
Stock issued pursuant to the Preferred Stock Purchase Agreement dated as of
March __, 2001 by and between the Corporation and UBS (the "Preferred Stock
Purchase Agreement") (as adjusted in connection with the events described in
Section 6) are outstanding, the Corporation shall not, and shall not permit any
of its
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subsidiaries to, without first obtaining the affirmative vote or written consent
of the holders of a majority of the shares of Series B Convertible Preferred
Stock.
(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 B 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 B Convertible Preferred Stock pursuant to the Preferred Stock
Purchase Agreement, (ii) Common Stock upon conversion of the Series A
Convertible Preferred Stock or the Series B Convertible Preferred Stock, or
upon the exercise of stock options to purchase up to 4,243,037 shares of
Common Stock, (iii) securities issued as consideration for any acquisition
approved by a majority of the Board of Directors (including the affirmative
vote of the Series B Preferred Director), (iv) 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 Series B
Preferred Director), 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,
(v) a warrant to purchase 210,000 shares of Common Stock to Spinway, Inc.
(the "Spinway Warrant"), (vi) 210,000 shares of Common Stock upon exercise
of the Spinway Warrant, or (vii) 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");
(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 Series B
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 Series A Convertible Preferred Stock or the Series B
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
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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;
(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
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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),
on an as-converted basis, 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 for each full share of Common Stock into which their
respective shares of Series A Convertible Preferred Stock are convertible on the
record date for the vote and (ii) the holders of Common Stock shall have one (1)
vote per share of Common Stock.
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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 Series B Convertible Preferred Stock may, upon 30 days'
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 Value 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 applicable Stated Value
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 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 50/100 Dollars ($3.50), 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 B Convertible Preferred
Stock into shares of Common Stock pursuant to Section 5(a) (or, in the case of
an automatic conversion pursuant to Section 5(b), to receive a certificate for
such holder's shares of Common Stock
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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 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
9
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. Subject to the
limitation set forth in the last sentence of this Section 5(f), 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, 4,418,262 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.
(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.
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
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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 B 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 Series A
Convertible Preferred Stock or Series B Convertible Preferred Stock, (iv)
securities issued as consideration for any acquisition approved by a majority of
the Board of Directors (including the affirmative vote of the Series B Preferred
Director), (v) 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, (vi)
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 Series B Preferred Director), (vii) the
Spinway Warrant, (viii) 210,000 shares of Common Stock upon exercise of the
Spinway
11
Warrant, and (ix) such other issuances as shall be approved in advance by a
majority of the shares of Series B Convertible Preferred Stock.
"Qualified Private Offering" shall mean a private equity offering
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.
"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
12
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 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
13
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,
14
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
15
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 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
16
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 a holder of shares of Series B 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 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.
17
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 as required under Section 5 upon the request of any holder of
Series B 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 B
Convertible Preferred Stock pursuant to the Amended and Restated Registration
Rights Agreement, dated as of ________, 2001, among the Corporation, UBS and
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(e) 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) Notwithstanding the foregoing, if the Series B Director
affirmatively votes 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
18
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).
(b) 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
deemed "Series B Preferred Directors," would result in Series B Preferred
Directors constituting a majority of the Board of Directors and the holders of
Series B Convertible Preferred Stock shall be entitled to appoint such newly
created directors; provided, however, that upon the occurrence of any Triggering
-------- -------
Event which is also a "Triggering Event" as defined in the Series A Certificate,
the holders of the Series A Convertible Preferred Stock and the holders of the
Series B Convertible Preferred Stock, shall be entitled to appoint, by voting
together as a single class, a majority of the Board of Directors with each of
such holders having one vote for each full share of Common Stock into which
their shares of Series A Convertible Preferred Stock and/or Series B Convertible
Preferred Stock, as the case may be, are convertible on the record date for the
vote.
(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.
(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
19
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 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 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 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 or the
exercise or conversion of any other option, warrant or
20
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 Series A Convertible
Preferred Stock or Series B Convertible Preferred Stock, (iv) securities issued
as consideration for any acquisition approved by a majority of the Board of
Directors (including the affirmative vote of the Series B Preferred Director),
(v) the Spinway Warrant, (vi) 210,000 shares of Common Stock upon exercise of
the Spinway Warrant, (vii) 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, or (viii) 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 after first receiving the affirmative vote or
written consent of the holders of a majority of the shares of Series B
Convertible Preferred Stock.
(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) business 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) business 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.
21
(e) The rights granted under this Section 9 to each holder of Series
B Convertible Preferred Stock or Common Stock issued upon conversion of Series B
Convertible Preferred Stock shall expire upon the earlier of (i) the closing of
a Qualified Public Offering and (ii) such time as there is no longer outstanding
at least 50% of the number of shares of Series B Convertible Preferred Stock
(including, for this purpose, Common Stock issued upon conversion of the Series
B Convertible Preferred Stock) issued pursuant to the Preferred Stock Purchase
Agreement (as adjusted in connection with the events described in Section 6).
10 RANKING.
The Series B Convertible Preferred Stock shall rank pari passu with
the Series A Convertible Preferred Stock of the Corporation (which shall
constitute Parity Securities for purposes hereof) with respect to amounts
receivable upon a Liquidation Event, dividends, rights and remedies upon
Triggering Events or for any other purpose.
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