Preliminary Copies
SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c)
of the Securities Exchange Act of 1934
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Check the appropriate box:
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by Rule 14c-5(d)(2))
[_] Definitive Information Statement
IFX CORPORATION
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(Name of Registrant as Specified in Its Charter)
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Preliminary Copies
IFX Corporation
Information Statement
March ____, 2001
WE ARE NOT ASKING YOU FOR A PROXY AND YOU
ARE REQUESTED NOT TO SEND US A PROXY
________________________
Introduction
This Information Statement is furnished by IFX Corporation ( "IFX" or the
"Company") in connection with the prior action taken by the holders of a
majority of the voting shares of the Company, consisting of the Company's common
stock, par value $0.02 per share (the "Common Stock") and the Company's Series A
Convertible Preferred Stock ("Series A Preferred Stock"), voting together as a
single class. This information statement is furnished in compliance with Section
14(c) of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
This Information Statement is for your information only. The Board of
Directors is not soliciting any proxies or consents from any stockholders in
connection with the described proposals. The proposals described herein have
already been approved by the written consent of the holders of a majority of the
voting shares. The actions described in the proposals will take effect, with no
further action on the part of any stockholders, no earlier than the date 20 days
from the date on which this Information Statement is mailed (the "Notice
Effective Date"). This Information Statement is being mailed on or about March
___, 2001, to all holders of Common Stock who did not consent to any of the
proposals. All holders of Series A Preferred Stock have consented to the
proposals.
The principal executive offices of the Company are located at 707 Skokie
Boulevard, Northbrook, Illinois, 60062, and its telephone number is (847) 412-
9411.
Background
In order to meet its working capital needs, on March 13, 2001, the Company
entered into an agreement (the "Stock Purchase Agreement") with UBS Capital
Americas III, L.P. and UBS Capital LLC (collectively, "UBS") for the purchase by
UBS of 4,418,262 shares of the Company's Series B Convertible Preferred Stock
(the "Series B Preferred Stock") at a price of $3.50 per share (the
"Investment") for an aggregate purchase price of $15,463,917.
The Company and UBS agreed in the Stock Purchase Agreement that as a
condition to the closing of the sale of Series B Preferred Stock to UBS (the
"Closing"), the Company would: (a) amend its Certificate of Designation for the
Series A Preferred Stock to reflect the issuance of the Series B Preferred Stock
and certain other changes, (b) amend its 1998 Stock Option Plan
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and (c) adopt the 2001 Stock Option Plan. In addition, at the same time as the
Closing, UBS will invest $1.83 million in Tutopia.com, Inc. ("Tutopia") , a
former subsidiary of the Company, and IFX will invest $3.17 million in Tutopia.
A Second Amended and Restated Stockholders Agreement (the "Stockholder
Agreement"), by and among UBS, International Technology Investments, LC ("ITI"),
Joel Eidelstein ("Eidelstein") , Michael Shalom ("Shalom") and the Casty Grantor
Subtrust (`Casty") and an Amended and Restated Registration Rights Agreement
among the Company, UBS, ITI, Eidelstein and Casty will also be entered into at
the Closing.
The issuance of the shares of Series B Convertible Preferred Stock to UBS,
the amendment of the 1998 Stock Option Plan and the adoption of the 2001 Stock
Option Plan require approval of the Company's stockholders according to the
stockholder approval requirements of Nasdaq. The amendment to the Series A
Preferred Stock Certificate of Designation requires the approval of the
Company's stockholders under the Delaware General Corporation Law.
SUMMARY OF PROPOSALS
On March 13, 2001, the holders of a majority of the Company's stock
entitled to cast votes for such matters consented, in writing, to the following
proposals made by the Company's Board of Directors (the "Board of Directors"):
- Stock Issuance Proposal. The first proposal (which is referred to in
-----------------------
this Information Statement as the "Stock Issuance Proposal") is to
authorize the issuance of 4,418,262 shares of Series B Preferred Stock
pursuant to the Stock Purchase Agreement.
- Certificate of Designation Amendment Proposal. The second proposal is to
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amend the Certificate of Designation for the Series A Preferred Stock to
reflect the issuance of the Series B Preferred Stock and to make certain
other changes.
- Amended and Restated 1998 Stock Option Plan Proposal. The third proposal
----------------------------------------------------
is to approve the Amended and Restated 1998 Stock Option Plan. The
Amended and Restated 1998 Stock Option Plan, among other things,
increases the number of shares of Common Stock authorized for issuance
under the 1998 Stock Option Plan from 3,900,000 to 4,631,790 shares.
- 2001 Stock Option Plan Proposal. The fourth proposal is the approval of
-------------------------------
the 2001 Stock Option Plan. This plan authorizes the issuance of up to
1,290,113 shares of Common Stock on the exercise of options.
This Information Statement is being provided to you because you are a
holder of the Common Stock and you did not provide your written consent to the
Stock Issuance Proposal, the Certificate of Designation Amendment Proposal, the
Amended and Restated 1998 Stock Option Plan Proposal or the 2001 Stock Option
Plan Proposal (collectively, the "Proposals"). Even though you did not provide
your consent, the holders of a majority of the Series A Preferred Stock and
Common Stock voting as a single class did provide their consent (the "Consent")
which allows the Company to take the actions described in the Proposals as of
the Notice Effective Date. The majority of the holders of the Series A Preferred
Stock voting separately as
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a class has also approved the Proposals as required by the Company's Certificate
of Incorporation.
A more detailed description of each of these Proposals can be found below.
THE STOCK ISSUANCE PROPOSAL
Background
Pursuant to the Company's Certificate of Incorporation, there are
10,000,000 shares of Preferred Stock which are authorized for issuance. Of those
10,000,000 shares of Preferred Stock, 2,030,869 shares have been designated as
Series A Preferred Stock and were issued to UBS in 2000.
On March 13, 2001, the holders of the Series A Preferred Stock approved (as
required by the Certificate of Incorporation), the Board of Director's
designation of 4,418,262 of the undesignated preferred shares as shares of
Series B Preferred Stock.
The Company's listing agreement with Nasdaq requires stockholder approval
of the issuance of common stock for cash (other than in a public offering of
common stock) or stock convertible into common stock, if the common stock has,
or will have upon issuance, voting power equal to or in excess of 20% of the
voting power outstanding before the issuance of such stock or convertible
securities.
The Series A Preferred Stock currently is, and the Series B Preferred Stock
upon its designation will be, convertible, at the discretion of the holder
thereof, into shares of Common Stock. Each share of Series B Preferred Stock
upon its designation will be convertible into one share of Common Stock. Each
share of Series A Preferred Stock is currently convertible into one share of
Common Stock. However, following the issuance of the Series B Preferred Stock,
each share of Series A Preferred Stock will be convertible into approximately
3.52 shares of Common Stock. There are currently 13,978,645 shares of Common
Stock which have been issued and are outstanding. Following issuance of all of
the Series B Preferred Stock and assuming the immediate conversion of all of the
Series A Preferred Stock and Series B Preferred Stock into Common Stock, the
total number of shares of Common Stock would increase to approximately
25,539,853 shares. UBS would hold 13,061,208, or approximately 51.14%, of these
shares.
Terms Of The Series B Preferred Stock
The following is a summary of the material terms of the Series B Preferred
Stock:
- Rank. For dividends or distribution of assets upon liquidation,
dissolution or winding up of the Company, the Series B Preferred Stock
ranks pari passu with the Series A Preferred Stock, and both classes
of Preferred Stock rank senior to the Common Stock.
- Liquidation. In the event of any liquidation, dissolution or winding
up (including a merger or acquisition of the Company), the holders of
the Series B Preferred
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Stock will 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 B Convertible Preferred Stock will
be entitled to one vote for each share of Common Stock into which the
Series B Preferred Stock is convertible. The holders of the Series B
Preferred Stock are entitled to vote with the holders of the Common
Stock and the holders of the Series A Preferred Stock, as a single
class, on all matters presented to the holders of the Common Stock.
Additionally, the holders of the Series B Preferred Stock will be
entitled to select one director as a class.
- Restrictions. Without the consent of a 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 Series A Convertible Preferred Stock;
- authorize a liquidation, winding up or dissolution of the Company
or any acquisition of the Company;
- approve the annual budget of the Company;
- 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;
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- acquire any assets or equity or other interest in any other
entity with a value in excess of $15 million in the 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; or
- dispose of or acquire assets with a value in excess of $15
million other than in the normal course of business;
- Conversion. Each share of Series B Preferred Stock is initially
convertible into one share of Common Stock.
- Adjustments. The conversion rights of the Series B 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 B Preferred
(including, but not limited to, certain issuances of Company stock at
less than $3.50 per share).
- Preemptive Right. Each holder of the Series B Preferred Stock has the
right to purchase its pro rata share of certain new securities issued
by the Company.
Although this Information Statement contains a summary of the terms of the
Series B Preferred Stock, this summary is not intended to be complete and
reference should be made to Exhibit A to this Information Statement for the
complete text of the Series B Preferred Stock Certificate of Designation.
Vote Required
The Stock Issuance Proposal 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. The Stock Issuance 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 and Series A Preferred
Stock, voting together as a single class. The Company has received all of the
necessary approvals as a result of receipt of the Consent.
CERTIFICATE OF DESIGNATION AMENDMENT PROPOSAL
Background
Certain provision of the Certificate of Designation for the Series A
Preferred Stock will be amended as a result of the Investment. To reflect these
amendments, the Certificate of Designation for the Series A Preferred Stock will
be amended and restated.
Changes to Reflect Issuance of Series B Preferred Stock
The terms of the Series A Preferred Stock both before and after the
amendments provides for adjustments to the conversion ratio in the event other
equity securities of the Company are issued at a price below the Stated Value of
the Series A Preferred Stock. The
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Stated Value of the Series A Preferred Stock is $12.31. As a result of the
issuance of the Series B Preferred Stock at $3.50 per share, the conversion
ratio for the Series A Preferred Stock is now approximately 3.52 shares of
Common Stock for each share of Series A Preferred Stock.
Change in Voting Rights
The Series A Preferred Stock currently does not have the right to vote with
the holders of the Common Stock for the election of directors to the Board of
Directors of the Company. Holders of the Series A Preferred Stock, voting
separately as a class, currently have the right to appoint one director. Under
the amendment, the holders of the Series A Preferred Stock, voting separately,
will have the right to appoint two directors as a class and the right to vote
(based on the number of shares of the Common Stock the Series A Preferred Stock
is convertible into) for all matters subject to the vote of the holders of the
Common Stock.
Terms of the Series A Preferred Stock
The following is a summary of the material terms of the Series A Preferred
Stock as amended by the Proposal.:
- Rank. For dividends or distribution of assets upon liquidation,
dissolution or winding up of the Company, the Series A Preferred Stock
ranks equally to the Series B Preferred Stock, and both classes of
Preferred Stock rank senior to the Common Stock.
- Liquidation. In the event of any liquidation, dissolution or winding
up, or merger, of the Company, the holders of the Series A Preferred
Stock will receive a liquidation preference of: $12.31 per share (the
current Stated Value of each share of the Series B 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.
- Voting Rights. Each share of Series A Preferred Stock will be entitled
to one vote for each share of Common Stock into which the Series A
Preferred Stock is convertible. The holders of the Series A Preferred
Stock are entitled to vote with the holders of the Common Stock and
the holders of the Series B Preferred Stock, as a single class, on all
matters presented to the holders of the Common Stock, except that the
holders of the Series A Convertible Stock will also be entitled to
select two directors as a class.
- Restrictions. Without the consent of the holders of the majority of
the holders of the Series A 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);
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- 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 A Convertible Preferred Stock;
- authorize a liquidation, winding up or dissolution of the Company
or any acquisition of the Company;
- approve the annual budget of the Company;
- 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 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;
- Conversion. Each share of Series A Preferred Stock will be convertible
into approximately 3.52 shares of Common Stock.
- Adjustments. The conversion rights of the Series B 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 B Preferred
Stock (including, but not limited to, certain issuances of Company
stock at less than $3.50 per share.)
- Preemptive Right. Each holder of the Series B Preferred Stock has the
right of first refusal to purchase its pro rata share of certain new
securities issued by the Company.
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This summary is not intended to be complete and reference should be made to
Exhibit B to this Information Statement for the complete text of the amended and
restated Series A Preferred Stock Certificate of Designation.
Vote Required
The Certificate of Designation Proposal requires the affirmative vote of
the holders of a majority of the votes entitled to be cast by holders of a
majority of the Series A Preferred Stock, voting as a single class, and also all
outstanding shares of Common Stock and Series A Preferred Stock, voting together
as a single class. The Company has received all of the necessary approvals as a
result of the receipt of the Consent.
Effect On Ownership Percentage of Company.
Prior to the UBS Investment, UBS holds (i) 2,030,809 shares (or 100% of the
issued and outstanding shares) of Series A Preferred Stock, and (ii) 1,500,000
shares of Common Stock. After the Closing, UBS would own (x) 2,030,809 shares of
Series A Preferred Stock convertible into approximately 7,142,857 shares of
Common Stock, (y) 4,418,262 shares of Series B Preferred Stock convertible into
4,418,262 shares of Common Stock, and (z) 1,500,000 shares of 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 the 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. Prior to the Closing, UBS controlled 3,530,809
votes (or 25.01%) in general matters other than the election of the Board of
Directors. After the Closing, UBS will control approximately 13,061,119 votes
(or 51.14%) in general matters and will be entitled to vote for the election of
the Board of Directors.
Effect On Vote For Election Of Directors.
The holders of Common Stock, Series A Preferred Stock and Series B
Preferred Stock are entitled to vote in the election of directors of the
Company. The Board consists of 7 members. Holders of the Series A Preferred
Stock are entitled to elect two directors as a class. The holders of Series B
Preferred Stock are entitled to elect one director as a class. Pursuant to the
Stockholder Agreement, each of ITI and Casty is entitled to designate one
director, ITI and Casty, jointly, are entitled to designate one director, and
UBS, ITI and Casty jointly are entitled to designate one director. UBS as a
holder of a majority of the Series A Preferred Stock and Series B Preferred
Stock is also entitled to designate three directors under the terms of the
Series A Preferred Stock and Series B Preferred Stock. The current director
designated by ITI is Michael Shalom. The current director designated by Casty is
George Myers. The director to be jointly designated by UBS, ITI and Casty has
not yet been selected. Burton Myers has agreed to resign from the Board of
Directors once this director is designated. UBS currently has two designated
directors, Mark Lama and Charles Moore who will continue as designated directors
after the Closing. Zalman Lekach has agreed to resign from the Board of
Directors in order to
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allow UBS to designate its third director. UBS has designated Charles Delaney as
the third director to serve after the Closing.
Mr. Delaney is the President and Chief Executive Officer of UBS Capital
Americas which manages $1.5 billion in private equity commitments dedicated to
investments in North and South America, including investments in the
telecommunications, software, and Internet sectors. In 1992, Mr. Delaney founded
UBS AG's private equity businesses in North America and Latin America. In 1999
Mr. Delaney and the partners of UBS Capital Americas raised two direct
investment funds totaling $1.5 billion which are managed by the partners of UBS
Capital Americas. Upon raising these UBS sponsored funds, Mr. Delaney became
the Chief Executive Officer of UBS Capital Americas (and the various related
funds management companies). From 1989 to 1992, Mr. Delaney was in charge of
the Leveraged Finance Group of UBS AG in North America, which financed private
equity transactions. Prior to joining UBS, he worked for the Hong Kong and
Shanghai Banking Group in New York, London and Greece. Mr. Delaney is a
graduate of Lehigh University. Mr. Delaney is also a director of AMS Holdings
Corp., Aurora Foods Inc. and Edison Schools Inc.
PROPOSAL TO AMEND THE
IFX CORPORATION AMENDED AND
RESTATED 1998 STOCK OPTION PLAN
Introduction
In connection with the Investment, the Company has adopted an amendment to
the 1998 Stock Option Plan, subject to stockholder approval, to increase the
amount of shares that may be awarded under the 1998 Stock Option Plan and make
certain other changes in the 1998 Stock Option Plan. As of ___________, 2001,
options covering ________ shares of Common Stock had been granted and were
outstanding under the 1998 Stock Option Plan. An additional __________ shares
of restricted Common Stock had been granted under the 1998 Stock Option Plan.
The 1998 Stock Option Plan was adopted by the Board of Directors on
November 10, 1998, and approved by the stockholders of IFX on February 3, 1999.
The 1998 Stock Option Plan was amended by the stockholders on November 9, 1999,
to increase the number of shares reserved for issuance from 900,000 to 1,800,000
and on January 8, 2001, to increase the number of shares reserved for issuance
from 1,800,000 to 3,900,000. The shares reserved for issuance under the 1998
Stock Option Plan may be issued in the form of incentive stock options ("ISOs"),
as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), stock options that are not intended to qualify under Section 422 of the
Code ("NSOs") and shares of restricted Common Stock ("Restricted Stock"). The
1998 Stock Option Plan also authorizes the award of phantom stock and stock
appreciation rights ("SARs"). The purposes of the 1998 Stock Option Plan are to
(a) attract and retain high quality directors, officers, employees and
consultants of the Company or any of its subsidiaries, (b) motivate such persons
to promote the long-term success of the business of the Company and its
subsidiaries, and (c) reward individual
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achievement and enable directors, officers, employees and consultants of the
Company and its subsidiaries to participate in the long-term growth and
financial success of the Company.
The amendment to the 1998 Stock Option Plan increases the number of shares
authorized for issuance under the 1998 Stock Option Plan from 3,900,000 to
4,631,790. The amendment also provides that all awards granted after the Closing
will vest immediately in the event of a Change-in-Control of the Company (as
defined in the amended and restated 1998 Stock Option Plan).
The following is a summary description of the material features of the 1998
Stock Option Plan, as amended by this Proposal. This summary is not intended to
be complete and reference should be made to Exhibit C to this Information
Statement for the complete text of the amended and restated 1998 Stock Option
Plan.
Administration. The 1998 Stock Option Plan is administered by the
Compensation Committee of the Board of Directors. To the extent necessary for
the grant of awards under the Option Plan to qualify for favorable tax or
securities treatment, each member of the Compensation Committee will either
qualify as an outside or non-employee director as defined by Section 162(m) of
the Code and/or the Securities Exchange Act of 1934 or the full Board of
Directors will approve such awards. Subject to the express provisions of the
1998 Stock Option Plan, the Compensation Committee has sole discretion to select
which individuals are eligible to participate in the 1998 Stock Option Plan, who
will receive awards under the 1998 Stock Option Plan, and the pricing and
vesting schedule of awards. The Compensation Committee also has authority to
interpret the 1998 Stock Option Plan and to establish rules and regulations
relating to the 1998 Stock Option Plan.
Eligibility. Awards under the 1998 Stock Option Plan may be granted to
officers, employees, non-employee directors, independent contractors or
consultants of the Company or any subsidiary, and to persons to whom an offer of
employment has been extended.
Shares Available. The 1998 Stock Option Plan Proposal increases the number
of shares that may be granted under the 1998 Stock Option Plan. There is no
minimum number of shares that may be granted to any participant; however, no
participant in the 1998 Stock Option Plan may be granted awards in any calendar
year in respect of more than 300,000 shares of Common Stock. Common Stock
issued under the 1998 Stock Option Plan may be authorized but unissued shares of
Common Stock, or shares that have been reacquired by the Company and held in
treasury. Upon the expiration or termination of options or other awards granted
under the 1998 Stock Option Plan, the shares of Common Stock that were subject
to such awards will be available to cover awards subsequently granted under the
1998 Stock Option Plan.
Exercise Price of Options. Subject to the provisions of the 1998 Stock
Option Plan, the exercise price for each option under the 1998 Stock Option Plan
is determined by the Compensation Committee at the time the option is granted
and will be specified in an option or other applicable agreement. The exercise
price of an ISO may not be less than the fair market value of the Common Stock
on the date the ISO is granted; there are no restrictions on the exercise price
of an NSO. "Fair market value" is determined by the Compensation Committee, in
good faith, taking into account the price of the Common Stock as reported on the
Nasdaq
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SmallCap Market. The exercise price of Options granted under the 1998 Stock
Option Plan is payable in cash, or in such other form of consideration as the
Compensation Committee or the Board of Directors may approve.
Exercise of Awards. Unless otherwise determined by the Compensation
Committee or the Board of Directors, awards under the 1998 Stock Option Plan are
exercisable for ten years after the date of grant, and vest, in specified
increments, over the four years following the date of grant. Awards terminate
(a) if the participant's employment with the Company is terminated for cause,
(b) 30 days after the participant's termination of employment with the Company
for any other reason, other than death or permanent disability, or (c) six
months following the participant's death or permanent disability. Options, SARs
and phantom stock are not transferred except by will or inheritance law, or
pursuant to a qualified domestic relations order as defined in Section 414(p) of
the Code.
- Income Tax Consequences. Following is a brief summary of the principal
federal income tax consequences of awards under the 1998 Stock Option Plan.
This summary is not an exhaustive description and does not describe all
applicable federal, state or local tax laws.
Incentive Stock Options. A Plan participant is not subject to federal
income tax at the time of grant or exercise of an ISO. However, the excess
of the fair market value of the shares at the time of exercise over the
exercise price constitutes an adjustment to the option holder's income in
computing alternative minimum taxable income for the year of exercise. If
an option holder does not dispose of such shares of Common Stock within two
years after the ISO was granted or one year after it was exercised (a
"disqualifying disposition"), any amount realized in excess of the exercise
price generally will be treated as long-term capital gain or loss and the
Company will not be entitled to a tax deduction.
If an option holder makes a "disqualifying disposition," he or she
will realize ordinary income in an amount equal to the lesser of (i) the
excess of the fair market value of the Common Stock on the exercise date
over the exercise price, or (ii) the excess if any, of the amount realized
upon disposition over the exercise price. In such event, the Company will
be entitled to a deduction in an amount equal to the ordinary income
realized by the option holder. If the amount realized exceeds the fair
market value of the shares on the date of exercise, any additional amount
will be capital gain; if less, the option holder will recognize a capital
loss.
Non-Qualified Stock Options. No income is realized by an option
holder upon the grant of an NSO. Upon exercise, the amount by which the
fair market value of the Common Stock on the date of exercise exceeds the
exercise price will constitute ordinary income to an option holder and the
Company will be entitled to a corresponding deduction. Any gains or losses
realized upon subsequent sale of the Common Stock will be treated as
capital gains or losses, with the basis of such shares equal to their fair
market value on the exercise date.
Restricted Stock. Generally, no income is realized when a participant
is granted restricted stock until the restrictions imposed lapse and the
stock becomes transferable, at which time the participant will recognize
the then fair market value of the non-restricted
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shares as ordinary income. However, a plan participant may make an election
under Section 83(b) of the Code to cause the market value of the shares to
be taxed as compensation income on the date of grant. In this case, any
future appreciation (or depreciation) in the value of the stock subject to
the grant will be taxed as capital gain (or loss) at the time the stock is
sold.
Section 162(m). Section 162(m) of the Code limits the deductibility
(under certain circumstances) of compensation that exceeds $1,000,000
annually that the Company pays its chief executive officer and other four
most highly compensated officers as determined at the end of each taxable
year. Section 162(m) and its regulations provide certain exclusions from
the amounts included in the $1,000,000 limitation, including compensation
that is "qualified performance-based compensation" within the meaning of
the regulations. It should be noted that while the Company's intent is to
prevent Section 162(m) of the Code from limiting the Company's
deductibility with respect to NSO's, no advance determination will be
obtained from the Internal Revenue Service in this regard.
Change in Control. Except as otherwise provided in a particular
option agreement, in the event of a Change in Control (as defined in
the 1998 Stock Option Plan), all options granted after the Closing shall
become immediately exercisable with respect to 100% of the shares subject
to such options. In the event such acceleration occurs and depending upon
the individual circumstances of the recipient, certain amounts with respect
to such Options may constitute "excess parachute payments" under the
"golden parachute" provisions of the Code. Pursuant to these provisions, a
recipient will be subject to a 20% excise tax on any "excess parachute
payments" and the Company will be denied any deduction with respect to such
payment.
Miscellaneous. The 1998 Stock Option Plan is not qualified under
Section 401(a) of the Code and is not subject to any of the provisions of
the Employee Retirement Income Security Act of 1974, as amended.
Summary of Awards
From November 10, 1998, through March 13, 2001, the following awards have
been granted under the 1998 Stock Option Plan:
IFX 1998 STOCK OPTION AND INCENTIVE PLAN AWARDS
Number of Shares
of Common Stock
Name and Position Subject to Options
----------------- ------------------
Michael F. Shalom, CEO 30,000
Joel M. Eidelstein, President 600,000
Jose Leiman, CFO 227,500
Zalman Lekach 374,167
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All Current Executive Officers as a Group 1,231,667
Non-Executive Officer Employees 1,215,000
Effective at the Closing, Michael Shalom will receive an additional 74,800
options under the 1998 Stock Option Plan, Joel Eidelstein will receive an
additional 8,500 options under the 1998 Stock Option Plan and Jose Leiman will
each receive an additional 125,000 options under the 1998 Stock Option Plan.
All of these options will be granted at the price of $3.50 per share.
Because the value of the options depends upon the market value, from time
to time, of the underlying shares of Common Stock, the Company is unable to
readily determine the value of such option grants.
Vote Required
The Amended and Restated 1998 Stock Option Plan Proposal requires the
affirmative vote of the holders of a majority of the votes entitled to be cast
by holders of a majority of the Series A Preferred Stock, voting as a single
class, and also all outstanding shares of Common Stock and Series A Preferred
Stock, voting together as a single class. The Company has received all of the
necessary approvals as a result of the receipt of the Consent.
PROPOSAL TO ADOPT
IFX CORPORATION
2001 STOCK OPTION PLAN
Introduction
As part of the Investment, the Company agreed to adopt the 2001 Stock
Option Plan.
The 2001 Stock Option Plan was adopted by the Board of Directors on March
8, 2001, subject to stockholder approval and the closing of the Investment. The
shares reserved for issuance under the 2001 Stock Option Plan may be issued in
the form of ISO's or NSO's. The 2001 Stock Option Plan is intended to advance
the best interests of the Company by allowing certain employees to acquire an
ownership interest in the Company, thereby motivating them to contribute to the
success of the Company and to remain in the Company's employ. The availability
of stock options under the 2001 Stock Option Plan will also enhance the
Company's ability to attract and retain individuals of exceptional talent to
contribute to the sustained progress, growth and profitability of the Company.
The recipients of options, the number of options and the type of options
(whether ISO's or NSO's) granted to each such recipient shall be subject to the
approval of UBS.
The following is a summary description of the material features of the 2001
Stock Option Plan. This summary is not intended to be complete and reference
should be made to Exhibit D to this Information Statement for the complete text
of the 2001 Stock Option Plan.
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Administration. The 2001 Stock Option Plan is administered by the Board's
Compensation Committee, subject to rights of approval by preferred stockholders.
To the extent necessary for the grant of awards under the 2001 Stock Option Plan
to qualify for favorable tax or securities treatment, each member of the
Compensation Committee will either qualify as an outside or non-employee
director as defined by Section 162(m) of the Code and/or the Securities Exchange
Act of 1934 or the full Board of Directors will approve such awards. Subject to
the express provisions of the 2001 Stock Option Plan, the Compensation Committee
has the responsibility and authority to (subject to the approval of UBS): (a)
approve the award of options under the 2001 Stock Option Plan; (b) interpret the
2001 Stock Option Plan and adopt, amend and rescind administrative guidelines
and other rules and regulations relating to the 2001 Stock Option Plan; (c) and
take all other actions necessary or advisable for the implementation and
administration of the Plan, including actions necessary or advisable in
connection with the grant of options.
Eligibility. Awards under the 2001 Stock Option Plan may be granted to
employees of the Company or any subsidiary as selected by the Compensation
Committee and approved by UBS. Common Stock issued under the 2001 Stock Option
Plan may be authorized but unissued shares of Common Stock, or shares that have
been reacquired by the Company and held in treasury. Upon the expiration or
termination of options or other awards granted under the 2001 Stock Option Plan,
the shares of Common Stock that were subject to such awards will be available to
cover awards subsequently granted under the 2001 Stock Option Plan.
Exercise Price of Options. The exercise price for each ISO granted under
the 2001 Stock Option Plan shall be the greater of the fair market value (as
defined in the 2001 Stock Option Plan) of the Common Stock on the date of grant
and $3.50 per share. The exercise price for each NSO granted under the 2001
Stock Option Plan shall be $3.50 per share. The exercise price of options
granted under the 2001 Stock Option Plan is payable in cash or in shares of
Company stock held for longer than six months.
Exercise of Awards. Awards under the 2001 Stock Option Plan are
exercisable for ten years after the date of grant, and vest on June 30, 2006
subject to certain contingencies that would accelerate vesting. If EBITDA,
which is defined as IFX's consolidated earnings before interest, taxes,
depreciation and amortization (excluding the effect of earnout payments made in
connection with the acquisition of a business, any charges for non-cash employee
compensation and any gains or losses from investment income, including gains or
losses for non-consolidated subsidiaries), for any year equals or exceeds the
Target EBITDA for such year as set forth in the 2001 Stock Option Plan, then 25%
of each participant's options shall vest. A certain portion of granted options
will also vest in the event of a Change in Control (as defined in the 2001 Stock
Option Plan), subject to forfeiture if the participant does not meet certain
employment requirements following the Change in Control.
Awards expire on a participant's termination of employment for any reason,
except that options which are then exercisable may be exercised within ninety
days of termination. If a
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participant is terminated for cause, all options expire and are forfeited.
Options are transferable to family members and certain affiliates.
Certain Federal Income Tax Consequences. Following is a brief summary of
the principal federal income tax consequences of awards under the 2001 Stock
Option Plan. This summary is not an exhaustive description and does not
describe all applicable federal, state or local tax laws.
Incentive Stock Options. A Plan participant is not subject to federal
income tax at the time of grant or exercise of an ISO. However, the excess
of the fair market value of the shares at the time of exercise over the
exercise price constitutes an adjustment to the option holder's income in
computing alternative minimum taxable income for the year of exercise. If
an option holder does not dispose of such shares of Common Stock within two
years after the ISO was granted or one year after it was exercised (a
"disqualifying disposition"), any amount utilized in excess of the exercise
price generally will be treated as long-term capital gain or loss and the
Company will not be entitled to a tax deduction.
If an option holder makes a "disqualifying disposition," he or she
will realize ordinary income in an amount equal to the lesser of (i) the
excess of the fair market value of the Common Stock on the exercise date
over the exercise price, or (ii) the excess if any, of the amount realized
upon disposition over the exercise price. In such event, the Company will
be entitled to a deduction in an amount equal to the ordinary income
realized by the option holder. If the amount realized exceeds the fair
market value of the shares on the date of exercise, any additional amount
will be capital gain; if less, the option holder will recognize a capital
loss.
Non-Qualified Stock Options. No income is realized by an option
holder upon the grant of an NSO. Upon the exercise of an NSO, however, the
amount by which the fair market value of the Common Stock on the date of
exercise exceeds the exercise price will be taxed as ordinary income to an
option holder and the Company will be entitled to a deduction in an equal
amount. Such amount will not be an adjustment to income in computing
alternative minimum taxable income. Upon subsequent sales of NSO Stock, an
option holder may realize short-term or long-term capital gain or loss,
depending upon the holding period of the shares, if such shares constitute
capital assets in an option holder's hands. The gain or loss will be
measured by the difference between the sales price and the tax basis of the
shares sold. The tax basis for this purpose will be the sum of the
exercise price and the amount of ordinary income realized by the option
holder as a result of such exercise.
Section 162(m). Section 162(m) of the Code limits the deductibility
(under certain circumstances) of compensation that exceeds $1,000,000
annually that the Company pays its chief executive officer and other four
most highly compensated officers as determined at the end of each taxable
year. Section 162(m) and its regulations provide certain exclusions from
the amounts included in the $1,000,000 limitation, including compensation
that is "qualified performance-based compensation" within the meaning of
the regulations. It should be noted that while the Company's intent is to
prevent Section
17
162(m) of the Code from limiting the Company's deductibility with respect
to NSO's, no advance determination will be obtained from the Internal
Revenue Service in this regard.
Change in Control. In the event that an acceleration of vesting
occurs due to a Change in Control, and depending upon the individual
circumstances of the recipient, certain amounts with respect to such
options may constitute "excess parachute payments" under the "golden
parachute" provisions of the Code. Pursuant to these provisions, a
recipient will be subject to a 20% excise tax on any "excess parachute
payments" and the Company will be denied any deduction with respect to such
payment.
Miscellaneous. The 2001 Stock Option Plan is not qualified under
Section 401(a) of the Code and is not subject to any of the provisions of
the Employee Retirement Income Security Act of 1974, as amended.
Summary of Awards
Upon closing of the Investment, the Company intends to grant the following
awards under the 2001 Stock Option Plan, each exercisable at $3.50 per share:
IFX 2001 STOCK OPTION PLAN AWARDS
Number of Shares
of Common Stock
Name and Position Subject to Options
----------------- ------------------
Michael Shalom, CEO 225,000
Joel M. Eidelstein, President 20,000
Jose Leiman, CFO 150,000
Zalman Lekach _______
All Current Executive Officers as a Group _______
Non-Executive Officer Employees _______
Because the value of the options depends upon the market value, from time
to time, of the underlying shares of Common Stock, the Company is unable to
readily determine the value of such option grants.
Vote Required
The 2001 Stock Option Plan Proposal requires the affirmative vote of the
holders of a majority of the votes entitled to be cast by holders of a majority
of the Series A Preferred Stock, voting as a single class, and also all
outstanding shares of Common Stock and Series A Preferred Stock, voting together
as a single class. The Company has received all of the necessary approvals as a
result of the receipt of the Consent.
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PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding beneficial ownership
(as determined in accordance with Rule 13d-3 under the Securities Exchange Act
of 1943, as amended) of the outstanding Common Stock of the Company as of March
___, 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.
Smount and Nature of Appropriate Percent of
Name / Address (1) Beneficial Ownership Class
Michael Shalom 4,510,201 (2) 31.95 %
Joel Eidelstein 383,245 (3) 2.71 %
Jose Leiman 105,997 (4) *
Zalman Lekach 89,268 (5) *
Burton J. Meyer 365,412 (6) 2.59 %
George A. Myers 7,333 (7) *
Casty Grantor Subtrust(8) 2,960,282 20.97 %
International Technology Investments, 4,500,000 31.87 %
LC(10)
Mark Lama(11) 3,530,869 (12) 25.01 %
Charles Moore(11) 3,530,869 (12) 25.01 %
UBS Capital Americas III(11) 3,530,869 (12) 25.01 %
- ----------------------------------------------------------------------------------------------
ALL EXECUTIVE OFFICERS AND DIRECTORS 8,992,325 63.69 %
AS A GROUP
* Less than one percent.
(1) The business address for Joel Eidelstein, Zalman Lekach, Michael Shalom,
Jose Leiman, Burton Meyer, and George Myers is in care of IFX, 707
Skokie Blvd., 5th Floor, Northbrook, IL 60062.
(2) Includes 10,201 shares subject to an option which is currently
exercisable and 4,500,000 shares of Common Stock held by ITI. 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 options granted to
Mr. Eidelstein pursuant to the 1998 Stock Option Plan, which options are
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 the 1998 Stock Option Plan.
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(5) Includes 84,942 shares of Common Stock that Mr. Lekach may acquire upon
exercise of currently exercisable options granted to him pursuant to the
1998 Stock Option Plan.
(6) Includes 600 shares of Common Stock that Mr. Meyer may acquire upon
exercise of an option granted under the 1998 Stock Option Plan, which
option is 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.
(7) Consists of 6,733 shares of Common Stock held on behalf of Mr. Myers'
minor children under the Uniform Gifts to Minors Act, and 600 shares of
Common Stock that Mr. Myers may acquire upon exercise of an option
granted under the 1998 Stock Option Plan, which option is currently
exercisable.
(8) The Casty Grantor Subtrust's address is _______________________.
(9) ITI's address is in care of Adorno & Zeder, 2801 S. Bayshore Drive,
Suite 1600, Miami, Florida 33133.
(10) The address of Mark Lama, Charles Moore and UBS Capital Americas III is
299 Park Avenue, New York, New York 10171.
(11) 2,030,869 of these shares are Series A Preferred Shares which are
currently convertible on a one-for-one basis into Common Stock,
including 176,544 shares of Series A Preferred Stock owned by UBS
Capital LLC. Mark Lama and Charles Moore as principals of an affiliate
of UBS Capital Americas III may be deemed to beneficially own the shares
held by UBS. Mark Lama and Charles Moore disclaim such ownership.
DISSENTERS' RIGHTS OF APPRAISAL
No action was taken in connection with the Proposal 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
Michael Shalom, Joel Eidelstein, Jose Leiman and Zalman Lekach have all
been granted options under the 1998 Stock Option Plan and will be granted
options under the 2001 Stock Option Plan. The employment agreements of Michael
Shalom, Joel Eidelstein and Jose Leiman will be amended at the Closing. The
significant change in each of Michael Shalom's and Joel Eidelstein's employment
agreement is to provide for a cash bonus for calendar year 2001 of $50,000
payable to each of them if the Company has EBITDA greater than zero for the
fourth calendar quarter of 2001.
Jose Leiman's new employment agreement provides for the following: Mr.
Leiman will continue to serve as the Chief Financial Officer of the Company
pursuant to a two-year employment agreement which will commence on the date of
Closing. 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 for the first year of the agreement and
$260,000 per year thereafter. He will receive a performance bonus of $250,000
for his service during the past two years and will receive a minimum bonus of
$50,000 per year up to a maximum of $150,000 per year. If Mr. Leiman is
involuntarily terminated during the term of the
20
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.
Mark Lama and Charles Moore 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.
EXECUTIVE COMPENSATION
Information with respect to the executive compensation of the Company is
incorporated herein by this reference to the Company's definitive Proxy
Statement for the Company's 2000 Annual Meeting of Stockholders which was filed
with the Securities and Exchange Commission (the "SEC") on December 22, 2000,
and mailed to all of the holders of the Common Stock and Series A Preferred
Stock.
FINANCIAL AND OTHER INFORMATION
The Company's financial statements are incorporated herein by this
reference to the Company's Annual Report on Form 10-K for the fiscal year ending
June 30, 2000 (filed with the SEC on September 28, 2000), the Company's Form 10-
K/A filed with the SEC on November 20, 2000 and the Company's Quarterly Report
on Form 10-Q for the quarter ending September 30, 2000 (filed with the SEC on
November 20, 2000), and the quarter ending December 31, 2000 (filed with the SEC
on February 14, 2001).
STOCKHOLDER PROPOSALS AND SUBMISSIONS
No security holder entitled to consent has submitted to the Company a
proposal which is accompanied by notice of such security holders' intention to
present the proposal for action at a future meeting of the stockholders of the
Company.
IFX CORPORATION
21
---------------------------
/s/ Colleen Downes
Colleen Downes
SECRETARY
March ____, 2001
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