Exhibit 4.1
AMENDED CERTIFICATE OF DESIGNATION, NUMBER, POWERS,
PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL AND OTHER RIGHTS OF SERIES A
CONVERTIBLE PREFERRED STOCK
OF
IFX CORPORATION
IFX Corporation (the "Corporation"), a corporation organized
and existing under the General Corporation Law of the State of Delaware, hereby
certifies that, pursuant to the provisions of Section 151 of the General
Corporation Law of the State of Delaware, its Board of Directors, at meetings
duly held on March 8 and May 2, 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, the Board of Directors authorized and fixed the terms
and provisions of the Class I and Class II Series A Convertible Preferred Stock
of the Corporation pursuant to a resolution dated June 15, 2000 and by filing
with the Secretary of State of the State of Delaware a Certificate of
Designation, Number, Powers, Preferences and Relative, Participating, Optional
and other Rights of Series A Convertible Preferred Stock on June 15, 2000 which
certificate was amended by the Certificate of Amendment of Restated Certificate
of Incorporation of IFX Corporation filed with the Secretary of State of the
State of Delaware on November 8, 2000 (together, the "Original Certificate");
and
WHEREAS, it is the desire of the Board of Directors of the
Corporation, pursuant to such authority and the requisite vote of the holders of
the Series A Convertible Preferred Stock pursuant to the Original Certificate
and the requisite vote of the holders of the common stock pursuant to the
General Corporation Law of the State of Delaware, to amend the Original
Certificate in its entirety.
NOW, THEREFORE, BE IT RESOLVED, that the Series A Convertible
Preferred Stock of the Corporation shall have the terms and provisions herein
set forth on Annex A attached to this resolution.
Name: /s/ Joel Eidelstein
Title: President
ATTEST:
/s/ Jose Leiman
- ---------------
Name: Jose Leiman
Title: Chief Financial Officer
ANNEX A
SERIES A CONVERTIBLE PREFERRED STOCK
The powers, designations, preferences and relative,
participating, optional or other rights of the Series A Convertible Preferred
Stock of IFX Corporation (the "Corporation") are as follows:
1. DESIGNATION AND AMOUNT.
This series of preferred stock shall be designated as "Series
A Convertible Preferred Stock" and shall be divided into two classes: Class I
Series A Convertible Preferred Stock ("Class I Preferred") and Class II Series A
Convertible Preferred Stock ("Class II Preferred," and together with the Class I
Preferred, the "Series A Convertible Preferred Stock"). The Series A Convertible
Preferred Stock shall have $1.00 par value per share. The number of authorized
shares constituting the Class I Preferred shall be 1,210,398 shares. The number
of authorized shares constituting the Class II Preferred shall be 820,471
shares. Shares of the Class I Preferred have a stated value of Twelve and 31/100
Dollars ($12.31) per share and pursuant to the Series A Stock Purchase Agreement
(the "Series A Stock Purchase Agreement") dated June 15, 2000 among the Company,
UBS Capital Americas III, L.P. and UBS Capital LLC (together "UBS") the stated
value of the shares of the Class II Preferred has been determined and shall
hereinafter be Twelve and 31/100 Dollars ($12.31) (as applicable to the Class I
Preferred or the Class II Preferred, as the case may be, the "Stated Value").
The Corporation has also authorized 4,418,262 shares of Series B Convertible
Preferred Stock, par value $1.00 per share (the "Series B Convertible Preferred
Stock") having the number, powers, preferences and relative, participating,
optional and other rights as set forth in the Certificate of Designation filed
with the Secretary of State of the State of Delaware on the date of the filing
hereof (the "Series B Certificate").
2. DIVIDENDS.
(a) Right to Receive Dividends. Holders of Series A
Convertible Preferred Stock shall be entitled to receive dividends when, as and
if declared by the Board of Directors of the Corporation (the "Board of
Directors").
(b) Participation with Common Stock. In the event the Board of
Directors shall elect to pay or declare and set apart for payment any dividend
on any shares of common stock, par value $.02 per share, of the Corporation (the
"Common Stock") in cash out of funds legally available therefor or in stock or
other consideration, the holders of the Series A Convertible Preferred Stock
shall be entitled to receive, before any dividend shall be declared and paid or
set aside for the Common Stock, dividends payable in the form and in an amount
per share equal to the per share amount that would have been payable to such
holders had such holders converted their Series A Convertible Preferred Stock
into Common Stock pursuant to Section 5 below.
(c) Dividend Preference. Dividends on the Series A Convertible
Preferred Stock shall be payable before any dividends or distributions or other
payments shall be paid or set aside for payment upon the Common Stock or any
other stock ranking on liquidation or as to
-2-
dividends or distributions junior to the Series A Convertible Preferred Stock
(any such stock, together with the Common Stock, being referred to hereinafter
as "Junior Stock"). If there shall be outstanding shares of any class or series
of capital stock which is entitled to share ratably with the Series A
Convertible Preferred Stock in the payment of dividends or distributions or upon
liquidation ("Parity Securities"), no full dividends shall be declared or paid
or set apart for payment on any such securities unless dividends have been or
contemporaneously are ratably declared and paid or declared and a sum sufficient
for the payment thereof set apart for such payment on the Series A Convertible
Preferred Stock.
3. LIQUIDATION PREFERENCE.
(a) In the event of any bankruptcy, liquidation, dissolution
or winding up of the Corporation, either voluntary or involuntary, each holder
of Series A Convertible Preferred Stock at the time thereof shall be entitled to
receive, prior and in preference to any distribution of any of the assets or
funds of the Corporation to the holders of the Common Stock or other Junior
Stock by reason of their ownership of such stock, an amount per share of Series
A Convertible Preferred Stock equal to the sum of (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 A Convertible
Preferred Stock as set forth in this Section 3 and any preferential amounts to
which the holders of Parity Securities are entitled, the remaining assets of the
Corporation legally available for distribution, if any, shall be distributed
ratably to the holders of the Common Stock. If the assets and funds legally
available for distribution among the holders of Series A Convertible Preferred
Stock shall be insufficient to permit the payment to the holders of the full
aforesaid preferential amount, then the assets and funds shall be distributed
ratably among holders of Series A Convertible Preferred Stock in proportion to
the number of shares of Series A Convertible Preferred Stock owned by each
holder. If the assets and funds of the Corporation available for distribution to
stockholders upon any bankruptcy, liquidation, dissolution or winding up of the
affairs of the Corporation, whether voluntary or involuntary, shall be
insufficient to permit the payment to holders of the full aforesaid preferential
amount and amounts payable to holders of outstanding Parity Securities, the
holders of Series A Convertible Preferred Stock and the holders of such other
Parity Securities shall share ratably (and ratably as to cash, in-kind or other
distributions) in any distribution of assets of the Corporation in proportion to
the full respective preferential amounts to which they are entitled.
(b) Except as described in the following sentence, a merger,
recapitalization, reorganization, sale of voting control to a single buyer or a
group of related buyers in one or a series of related transactions, or other
business combination transaction involving the Corporation in which the
shareholders of the Corporation immediately prior to the consummation of such
transaction do not own at least a majority of the outstanding shares of the
surviving corporation or the Corporation (as applicable) immediately following
the consummation of such transaction or sale of all or substantially all of the
assets of the Corporation (collectively, a "Liquidation Event") shall be deemed
to be a liquidation of the Corporation. Notwithstanding the foregoing, the
following shall not be deemed to be a Liquidation Event: (i) a merger,
recapitalization, sale of voting control or other business
-3-
combination transaction with an Affiliate (as such term is defined in Section
12b-2 of the Rules and Regulations under the Securities Exchange Act of 1934, as
amended) of UBS, 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 A
Convertible Preferred Stock is fully registered marketable securities (the
"Merger Shares") which are not subject to any restrictions on transfer, (B) in
which the value of such merger consideration for each share of Series A
Convertible Preferred Stock, valued at the average closing price of the Merger
Shares for the 30 days prior to the consummation of the merger, or such lesser
period which follows the public announcement of the merger, is greater than 110%
of the Liquidation Preference per share as of the date of consummation of the
merger, and (C) with aggregate trading volume for the 30 calendar days prior to
the merger date of at least 10 times the aggregate number of Merger Shares
received by all holders of Series A 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 A 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 A 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
-4-
of Incorporation"), and any voting rights provided by law, the holders of shares
of Series A Convertible Preferred Stock shall have the following voting rights:
(a) Election of Directors.
(i) Subject to the terms hereof, the holders
of the Series A Convertible Preferred Stock, voting as a single class, shall
have the right to elect two directors (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 A Convertible Preferred Stock entitled to one
vote per share held by such holder.
(ii) Any director elected by the holders of
shares of Series A Convertible Preferred Stock shall be referred to herein as a
"Series A Preferred Director." Subject to Section 4(a)(v), the initial term of
each director to be appointed pursuant to Section 4(a)(i) will commence upon
his/her election by the Series A 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 A Preferred
Director, so long as the Series A Convertible Preferred Stock is outstanding,
the holders of the Series A Convertible Preferred Stock shall have the right to
elect a Series A Preferred Director to replace such director in the same manner
described above in Section 4(a)(i). Subject to Section 4(a)(v), a Series A
Preferred Director so elected shall hold office for a term expiring at the
annual meeting of stockholders in the year following the election of such
director. Notwithstanding the foregoing, but subject to Section 4(a)(v), a
Series A Preferred Director elected under Section 4(a)(i) shall serve until such
Series A 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 A Preferred
Director shall be selected as provided in Section 4(a)(i).
(iii) A Series A 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 A Convertible Preferred
Stock, voting together as a single class.
(iv) The Corporation shall at all times
reserve and keep available two vacant seats on the Board of Directors solely for
the purpose of enabling the holders of the Series A Convertible Preferred Stock
to designate a Series A 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 A Convertible Preferred Stock and their
Affiliates own in the aggregate less than 25% of their initial holdings of
Series A Shares determined after the Subsequent Closing (as defined in the
Series A Stock Purchase Agreement).
(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 A Convertible
Preferred Stock issued pursuant to the Series A Stock Purchase Agreement (as
adjusted in connection with the events
-5-
described in Section 6) determined after the Subsequent Closing are outstanding,
the Corporation shall not, and shall not permit any of its subsidiaries to,
without first obtaining the affirmative vote or written consent of the holders
of a majority of the shares of Series A Convertible Preferred Stock, voting as a
single class in accordance with Section 4(d):
(A) amend, repeal, modify or supplement any
provision of the Certificate of Incorporation (including any
certificate of designation forming a part thereof), the Bylaws of the
Corporation, or any successor certificate of incorporation or bylaws or
this Amended Certificate of Designation, Number, Powers, Preferences
and Relative, Participating, Optional and Other Rights of Series A
Convertible Preferred Stock (the "Amended 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 A Convertible Preferred Stock pursuant
to the Series A 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) shares of Class
I Series B Convertible Preferred Stock of the Corporation, par value
$1.00 per share (the "Class I Series B Preferred Stock"), issued upon
conversion of the Class II Series B Convertible Preferred Stock, par
value $1.00 per share (the "Class II Series B 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 A Preferred Directors), (v) 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 A Preferred Directors), provided such Common Stock is valued at
no less than the greater of (1) the Stated Value (as adjusted for stock
splits, combinations, stock dividends and the like) and (2) the average
of the closing price for the Common Stock for the 30 days prior to the
issuance, (vi) a warrant to purchase 210,000 shares of Common Stock to
Spinway, Inc. (the "Spinway Warrant"), (vii) 210,000 shares of Common
Stock upon exercise of the Spinway Warrant, or (viii) 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 A 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 Series B Convertible Preferred Stock pursuant to its
terms);
-6-
(E) enter into or otherwise become a party
to any agreement whereby any shareholder or shareholders of the
Corporation shall transfer capital stock of the Corporation to an
independent third party or a group of independent third parties
pursuant to which such parties acquire capital stock of the Corporation
possessing the voting power to elect a majority of the Board of
Directors;
(F) declare or pay or set aside for payment
any dividend or distribution or other payment upon the Common Stock or
upon any other Junior Stock, nor redeem, purchase or otherwise acquire
any Common Stock or other Junior Stock for any consideration (or pay or
make available any moneys, whether by means of a sinking fund or
otherwise, for the redemption of or other distribution or payment with
respect to any shares of any Common Stock or other Junior Stock),
except for the repurchase of shares of Common Stock from directors,
consultants or employees of the Corporation or any subsidiary pursuant
to agreements approved by the disinterested directors on the Board of
Directors, under which the Corporation has the right to repurchase such
shares upon the occurrence of certain events, including but not limited
to, termination of employment or services;
(G) approve the annual budget of the
Corporation and its subsidiaries (the "Annual Budget");
(H) enter into any financial commitment over
and above those approved in the annual budget in excess of $15 million
in the aggregate (for the Corporation and its subsidiaries, taken
together), except as prescribed in the Annual Budget;
(I) dismiss or hire or modify or enter into
any employment agreement, non-competition agreement, bonus or stock
issuance arrangements or other compensation (including, without
limitation, fringe benefit) arrangements with its President, Chief
Executive Officer or Chief Financial Officer, or other equivalent or
senior level officer;
(J) permit the creation or existence of any
lien, mortgage, pledge, hypothecation, assignment, security interest,
charge or encumbrance, or preference, priority or other security
agreement or preferential arrangement of any kind or nature whatsoever
on any of the Corporation's or any of its subsidiaries' assets with an
aggregate value in excess of $15 million, except as part of any
financing in the ordinary course of business;
(K) make any capital expenditure in any
fiscal year in excess of $15 million in the aggregate (for the
Corporation and its subsidiaries, taken together), except as prescribed
in the Annual Budget;
(L) acquire any assets or equity or other
interest in any other entity with a value in excess of $15 million in
the aggregate (for the Corporation and its subsidiaries, taken
together), except as prescribed in the Annual Budget;
-7-
(M) incur indebtedness for borrowed money
(including, without limitation, any capitalized lease obligations,
accounts receivable financing or other asset-backed financing), any
guarantee or other similar contingent obligation or any lease financing
(whether a capitalized lease, operating lease, pursuant to a sale
leaseback arrangement or otherwise), in excess of $15 million in the
aggregate (for the Corporation and its subsidiaries, taken together),
except as prescribed in the Annual Budget;
(N) amend, supplement, restate, revise,
waive or otherwise modify any stock option plan, agreement or other
arrangement of the Corporation (each, a "Stock Option Plan"), as in
effect on May 3, 2001;
(O) create or adopt any stock option plan,
stock appreciation rights plan, bonus plan or similar plan that was not
in existence on May 3, 2001, except as approved by the Compensation
Committee of the Board of Directors;
(P) dispose of or acquire assets with a
value in excess of $15 million other than in the normal course of
business;
(Q) liquidate, dissolve or voluntarily elect
to commence bankruptcy or insolvency proceedings under applicable laws;
(R) change in any material respect the
nature of the business of the Corporation and its subsidiaries taken as
a whole;
(S) enter into any transaction, or any
agreement or understanding with any affiliate of the Corporation or any
subsidiary thereof, other than a wholly-owned subsidiary of the
Corporation;
(T) (i) solicit or negotiate any inquiries
or proposals with respect to (x) any direct or indirect issuance, sale,
disposition or redemption of any securities of Latin Guide, Inc.
("LGI"), Tutopia or any of Tutopia's subsidiaries, (y) the direct or
indirect sale or disposition of all or any material portion of the
assets or business of LGI, Tutopia or any of Tutopia's subsidiaries, or
(z) any merger, reorganization, consolidation or recapitalization or
other similar transaction involving LGI, Tutopia or any of Tutopia's
subsidiaries; or (ii) discuss with or provide to any person or entity
information of LGI, Tutopia or any of Tutopia's subsidiaries with
respect to or in contemplation of any of the foregoing; or
(U) agree to do any of the foregoing.
(c) Additional Voting Rights. Except as required by law, the
holders of Series A Convertible Preferred Stock shall be entitled to notice of
any stockholders' meeting and to vote together as a single class with the
holders of Common Stock (and any other capital stock of the Corporation entitled
to vote), 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.
-8-
5. CONVERSION.
Shares of Series A Convertible Preferred Stock may be
converted into shares of Common Stock, on the terms and conditions set forth in
this Section 5.
(a) Optional Conversion. (i) At any time and from time to
time, each holder of shares of Series A 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 A 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 A Convertible Preferred Stock until the closing of such offering.
(c) Conversion Price. The Conversion Price per share for the
Class I Preferred and Class II Preferred 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 A
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 outstanding as a result
of such conversion), the holder shall surrender the certificate or
-9-
certificates therefore, duly endorsed for transfer, at any time during normal
business hours, to the Corporation at its principal or at such other office or
agency then maintained by it for such purpose (the "Payment Office"),
accompanied, in the case of a conversion pursuant to Section 5(a), by written
notice to the Corporation of such holder's election to convert and (if so
required by the Corporation or any conversion agent) by an instrument of
transfer, in form reasonably satisfactory to the Corporation and to any
conversion agent, duly executed by the registered holder or by his duly
authorized attorney, and any taxes required pursuant to Section 5(e)(iii). As
promptly as practicable after the surrender for conversion of any share of
Series A Convertible Preferred Stock in the manner provided in the preceding
sentence, and the payment in cash of any amount required by the provisions of
Section 5(e)(iii), but in any event within five Trading Days of such surrender
for payment, the Corporation will deliver or cause to be delivered at the
Payment Office to or upon the written order of the holder of such shares,
certificates representing the number of full shares of Common Stock issuable
upon such conversion, issued in such name or names as such holder may direct.
Such conversion shall be deemed to have been made immediately prior to the close
of business on the date of such surrender of the shares in proper order for
conversion, and all rights of the holder of such shares as a holder of such
shares shall cease at such time and the person or persons in whose name or names
the certificates for such shares of Common Stock are to be issued shall be
treated for all purposes as having become the record holder or holders thereof
at such time; provided, however, that any such surrender and payment on any date
when the stock transfer books of the Corporation shall be closed shall
constitute the person or persons in whose name or names the certificates for
such shares of Common Stock are to be issued as the record holder or holders
thereof for all purposes immediately prior to the close of business on the next
succeeding day on which such stock transfer books are opened and such conversion
shall be at the Conversion Price in effect at such time on such succeeding day.
For purposes hereof, "Trading Day" shall mean (i) any day on
which stock is traded on the principal stock exchange on which the Common Stock
is listed or admitted to trading, (ii) if the Common Stock is not then listed or
admitted to trading on any stock exchange but is traded on the Nasdaq Stock
Market, any day on which stock is traded on the Nasdaq Stock Market, or (iii) if
the Common Stock is not then traded on the Nasdaq Stock Market, any day on which
stock is traded in the over-the-counter market, as reported by the National
Quotation Bureau Incorporated (or any similar organization or agency succeeding
to its functions of reporting prices).
(ii) The Corporation shall not be required
to issue fractional shares of Common Stock upon conversion of shares of Series A
Convertible Preferred Stock. At the Corporation's discretion, in the event the
Corporation determines not to issue fractional shares, in lieu of any fractional
shares to which the holder would otherwise be entitled, the Corporation shall
pay cash equal to such fraction multiplied by the closing price of the Common
Stock on the date of conversion.
(iii) The issuance of certificates for
shares of Common Stock upon conversion shall be made without charge for any
issue, stamp or other similar tax in respect of such issuance. However, if any
such certificate is to be issued in a name other than that of the holder of
record of the shares converted, the person or persons requesting the issuance
thereof shall pay to the Corporation the amount of any tax which may be payable
in respect of any
-10-
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 A Convertible Preferred Stock, 7,142,857 shares of
Common Stock. If at any time the number of authorized but unissued shares of
Common Stock shall not be sufficient to effect the conversion of all then
outstanding shares of the Series A Convertible Preferred Stock without regard to
whether the holders of Series A Convertible Preferred Stock are then entitled to
convert, the Corporation will take such corporate action as may, in the opinion
of its counsel, be necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for such purpose,
including, without limitation, taking appropriate board action, recommending
such an increase to the holders of Common Stock, holding shareholders meetings,
soliciting votes and proxies in favor of such increase to obtain the requisite
stockholder approval and upon such approval, the Corporation shall reserve and
keep available such additional shares solely for the purpose of effecting the
conversion of the shares of the Series A Convertible Preferred Stock.
(g) Merger, Etc.
(i) Notwithstanding any other provision
hereof, in case of any merger or other business combination transaction
involving the Corporation which does not constitute a Liquidation Event, then,
concurrently with the consummation of such transaction, provision shall be made
so that each share of Series A Convertible Preferred Stock shall thereafter be
convertible into the number of shares of stock or other securities or property
(including cash) to which a holder of the number of shares of Common Stock
deliverable upon conversion of such share of Series A Convertible Preferred
Stock would have been entitled assuming conversion immediately prior to the
closing of the transaction.
(ii) In case of any merger or other business
combination transaction involving the Corporation which does not constitute a
Liquidation Event, in which the Corporation is not the surviving entity, and the
Corporation or the holders do not otherwise convert all outstanding shares of
Series A Convertible Preferred Stock, the Series A Convertible Preferred Stock
shall be converted into or exchanged for and shall become shares of the
surviving corporation having, in respect of the surviving corporation,
substantially the same powers, preferences and relative participating, optional
or other special rights, and the qualifications, limitations or restrictions
thereon, that the Series A Convertible Preferred Stock had immediately prior to
such transaction.
6. ADJUSTMENTS.
The Conversion Price shall be subject to adjustment from time
to time as set forth in this Section 6. The Corporation shall give holders of
Series A Convertible Preferred Stock notice of any event described below which
requires an adjustment pursuant to this Section 6 at the time of such event.
-11-
(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
Series A 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 A 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 Stock Option Plan, (ii) shares of Common Stock issued in connection
with the Subject Transactions 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) shares
of Class I Series B Preferred Stock issued upon conversion of Class II Series B
Preferred Stock, (v) securities issued as consideration for any acquisition
approved by a majority of the Board of Directors (including the affirmative vote
of the Series A Preferred Directors ), (vi) the issuance on or after June 15,
2000 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, (vii) the
issuance on or after June 15, 2000 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 A Preferred
Directors), (viii) the Spinway Warrant, (ix) 210,000 shares of Common Stock upon
exercise of the Spinway Warrant, and (x) such other issuances as shall be
approved in advance by a majority of the shares of Series A Convertible
Preferred Stock, voting as a single class.
-12-
"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 A
Convertible Preferred Stock which take effect following the consummation of a
Qualified Private Offering.
"Share Allowance" shall mean 428,571 shares of Common Stock.
"Stock Option Plan" shall mean the IFX Corporation Directors
Stock Option Plan, the 1998 IFX Corporation Stock Option and Incentive Plan, as
amended, and the IFX Corporation 2001 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. (ii) In the
event that prior to the consummation of or in connection with a Qualified
Private Offering, the Corporation shall issue or sell any Additional Shares of
Common Stock, other than Permitted Issuances, for a consideration per Additional
Share of Common Stock less than the applicable Conversion Price, then the
applicable Conversion Price shall be reduced to the consideration per Additional
Share of Common Stock paid for such Additional Shares of Common Stock.
(ii) In the event that following the
consummation of a Qualified Private Offering, the Corporation shall issue or
sell any Additional Shares of Common Stock, other than Permitted Issuances, for
a consideration per Additional Share of Common
-13-
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 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
-14-
shall be adjusted as provided in Section 6(c)(i) or (ii), as applicable, on the
basis that (i) the maximum number of Additional Shares of Common Stock issuable
upon the conversion or exchange of all such Convertible Securities shall be
deemed to have been issued and outstanding, (ii) the price per share of such
Additional Shares of Common Stock shall be deemed to be the lowest possible
price in any range of prices at which such Additional Shares of Common Stock are
available to such holders, and (iii) the Corporation shall have received all of
the consideration payable therefor, if any, as of the date of actual issuance of
such Convertible Securities. No further adjustment of the Conversion Price shall
be made under this Section 6(e) upon the issuance of any Convertible Securities
which are issued pursuant to the exercise of any warrants or other subscription
or purchase rights therefor, if any such adjustment shall previously have been
made upon the issuance of such warrants or other rights pursuant to Section
6(d). No further adjustments of the Conversion Price shall be made upon the
actual issue of such Common Stock upon conversion or exchange of such
Convertible Securities and, if any issue or sale of such Convertible Securities
is made upon exercise of any warrant or other right to subscribe for or to
purchase or any warrant or other right to purchase any such Convertible
Securities for which adjustments thereof have been or are to be made pursuant to
other provisions of this Section 6, no further adjustments shall be made by
reason of such issue or sale.
(f) Superseding Adjustment. If, at any time after any
adjustment of the applicable Conversion Price shall have been made pursuant to
Section 6(d) or 6(e) as the result of any issuance of warrants, rights or
Convertible Securities, and either
(i) such warrants or rights, or the right of
conversion or exchange in such other Convertible Securities,
shall expire, and all or a portion of such warrants or rights,
or the right of conversion or exchange with respect to all or
a portion of such other Convertible Securities, as the case
may be, shall not have been exercised, or
(ii) the consideration per share for which
shares of Common Stock are issuable pursuant to such warrants
or rights, or such other Convertible Securities, shall be
increased or decreased by virtue of provisions therein
contained,
then such previous adjustment shall be rescinded and annulled and the Additional
Shares of Common Stock which were deemed to have been issued by virtue of the
computation made in connection with the adjustment so rescinded and annulled
shall no longer be deemed to have been issued by virtue of such computation.
Thereupon, a recomputation shall be made of the effect of such rights or options
or other Convertible Securities on the applicable Conversion Price, on the basis
of
(iii) treating the number of Additional
Shares of Common Stock or other property, if any, theretofore
actually issued or issuable pursuant to the previous exercise
of any such warrants or rights or any such right of conversion
or exchange, as having been issued on the date or dates of any
such exercise and for the consideration actually received and
receivable therefor, and
-15-
(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 amount resulting from the following:
$40,464,918
------------------------------------------
1.010948(12,919,702 + Overage) - 1,500,000
Notwithstanding the foregoing, an adjustment under this subsection (g) shall
only be made to the extent such adjustment results in a reduction of the then
current Conversion Price.
(h) Other Provisions Applicable to Adjustments Under This
Section. The following provisions shall be applicable to the making of
adjustments provided for in this Section 6:
(i) Computation of Consideration. To the
extent that any Additional Shares of Common Stock or any
Convertible Securities or any warrants or other rights to
subscribe for or purchase any Additional Shares of Common
Stock or any Convertible Securities shall be issued for cash
consideration, the consideration received by the Corporation
therefor shall be the amount of the cash received by the
Corporation therefor, or, if such Additional Shares of Common
Stock or Convertible Securities are offered by the Corporation
for subscription, the subscription price, or, if such
Additional Shares of Common Stock or Convertible Securities
are sold to underwriters or dealers for public offering
without a subscription offering, the public offering price (in
any such case subtracting any amounts paid or receivable for
accrued interest or accrued dividends, but not subtracting any
compensation, discounts or expenses paid or incurred by the
Corporation for and in the underwriting of, or otherwise in
connection with, the issuance thereof). To the extent that
such issuance shall be for a consideration other than cash,
then, except as herein otherwise expressly provided, the
amount of such consideration shall be deemed to be the fair
value of such consideration at the time of such issuance as
determined in good faith by the Board of Directors. In case
any Additional Shares of Common Stock or any Convertible
Securities or any warrants or other rights to subscribe for or
purchase such Additional Shares of Common Stock or Convertible
Securities shall be issued in connection with any merger in
which the Corporation issues any securities, the amount of
consideration therefor shall be deemed to be the fair value,
as determined in good faith by the Board of Directors, of such
portion of the assets and business of the nonsurviving
corporation as the Board of Directors in good faith shall
determine to be attributable to such Additional Shares of
Common Stock, Convertible Securities, warrants or other
rights, as the case may
-16-
be. The consideration for any Additional Shares of Common
Stock issuable pursuant to any warrants or other rights to
subscribe for or purchase the same shall be the consideration
received by the Corporation for issuing such warrants or other
rights plus the additional consideration payable to the
Corporation upon exercise of such warrants or other rights.
The consideration for any Additional Shares of Common Stock
issuable pursuant to the terms of any Convertible Securities
shall be the consideration, if any, received by the
Corporation for issuing warrants or other rights to subscribe
for or purchase such Convertible Securities, plus the
consideration paid or payable to the Corporation in respect of
the subscription for or purchase of such Convertible
Securities, plus the additional consideration, if any, payable
to the Corporation upon the exercise of the right of
conversion or exchange in such Convertible Securities. In case
of the issuance at any time of any Additional Shares of Common
Stock or Convertible Securities in payment or satisfaction of
any dividends upon any class of stock other than Common Stock,
the Corporation shall be deemed to have received for such
Additional Shares of Common Stock or Convertible Securities a
consideration equal to the amount of such dividend so paid or
satisfied.
(ii) When Adjustments to Be Made. The
adjustments required by this Section 6 shall be made whenever
and as often as any specified event requiring an adjustment
shall occur. For the purpose of any adjustment, any specified
event shall be deemed to have occurred at the close of
business on the date of its occurrence.
(iii) When Adjustment Not Required. If the
Corporation shall take a record of the holders of its Common
Stock for the purpose of entitling them to receive a dividend
or distribution or subscription or purchase rights and shall,
thereafter and before the distribution to stockholders
thereof, legally abandon its plan to pay or deliver such
dividend, distribution, subscription or purchase rights, then
thereafter no adjustment shall be required by reason of the
taking of such record and any such adjustment previously made
in respect thereof shall be rescinded and annulled.
(iv) Escrow of Common Stock. If after any
property becomes distributable as a result of the provisions
of this Section 6 by reason of the taking of any record of the
holders of Common Stock, but prior to the occurrence of the
event for which such record is taken, a holder of shares of
Series A Convertible Preferred Stock exercises its conversion
rights pursuant to Section 5, any Additional Shares of Common
Stock issuable and other property distributable upon exercise
by reason of such adjustment shall be held in escrow for such
holder by the Corporation to be issued to such holder upon and
to the extent that the event actually takes place.
Notwithstanding any other provision to the contrary herein, if
the event for which such record was taken fails to occur or is
rescinded, then such escrowed shares shall be canceled by the
Corporation and escrowed property returned.
-17-
(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 A 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 A
Convertible Preferred Stock, the number of shares of Common Stock or other stock
into which such shares of Series A Convertible Preferred Stock are convertible
and/or the applicable Conversion Price shall be adjusted in such manner as may
be equitable in the circumstances.
(j) Certain Limitations. Notwithstanding anything herein to
the contrary, the Corporation shall not enter into any transaction which, by
reason of any adjustment hereunder, would cause the applicable Conversion Price
to be less than the par value per share of Common Stock.
(k) Notice of Adjustments. Whenever the number of shares of
Common Stock into which shares of Series A Convertible Preferred Stock are
convertible or whenever the applicable Conversion Price shall be adjusted
pursuant to this Section 6, the Corporation shall forthwith prepare a
certificate to be executed by the chief financial officer of the Corporation
setting forth, in reasonable detail, the event requiring the adjustment and the
method by which such adjustment was calculated (including a description of the
basis on which the Board of Directors determined the fair value of any
consideration referred to in Section 6(h)(i)), specifying any change in the
applicable Conversion Price or the number of shares of Common Stock into which
shares of Series A Convertible Preferred Stock are convertible and (if such
adjustment was made pursuant to Section 5(g)(i) or 6(h)) describing the number
and kind of any other shares of stock or Other Property into which shares of
Series A Convertible Preferred Stock are convertible, and any change in the
applicable Conversion Price or prices thereof, after giving effect to such
adjustment or change. The Corporation shall promptly cause a signed copy of such
certificate to be delivered to the holders of Series A Convertible Preferred
Stock. The Corporation shall keep at the Payment Office copies of all such
certificates and cause the same to be available for inspection at said office
during normal business hours by the holders of Series A Convertible Preferred
Stock or any prospective purchaser of shares of Series A Convertible Preferred
Stock designated by such holders.
7. TRIGGERING EVENTS.
Any of the following actions or events shall constitute a
"Triggering Event" for purposes hereof:
(a) Failure to Pay Dividends. The Corporation shall fail to
pay any dividend on any Series A Convertible Preferred Stock which it is
required to pay in accordance with Section 2 for any reason, including but not
limited to, that such payment is prohibited by
-18-
applicable law or the Board of Directors elect not to pay such dividend, or
shall otherwise violate any term of Section 2 and such failure shall not be
cured within a period of 30 days after such violation (which cure shall be
effected in a manner ensuring the holders the same yield as if such violation
had not occurred).
(b) Failure of Voting Rights. The Corporation shall enter into
any transaction or take any action required to be approved by holders of Series
A Convertible Preferred Stock without obtaining the requisite approval of the
holders of the Series A Convertible Preferred Stock.
(c) Failure to Convert. The Corporation shall fail for any
reason to issue Common Stock as required under Section 5 upon the request of any
holder of Series A Convertible Preferred Stock as provided in Section 5 or shall
fail for any reason to comply in any material respect with any term of Section
5(f) or any other term of Section 5 hereof.
(d) Registration Rights Agreement. The Corporation shall fail
in any material respect to comply with the rights of the holders of Series A
Convertible Preferred Stock pursuant to the Amended and Restated Registration
Rights Agreement, dated as of May__, 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) Series A Stock Purchase Agreement. The Corporation shall
fail to comply with Section 3, 6(e) or 6(g) of the Series A 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 Series A 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 Series A 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 A Preferred
Directors affirmatively vote in favor of a transaction or other action by the
Corporation which would constitute a Triggering Event under Section 7(b) or
7(d), such action or event shall not be considered a Triggering Event.
8. REMEDIES.
(a) In the event that a Triggering Event described in Section
7 shall occur and be continuing, each holder of Series A Convertible Preferred
Stock shall be entitled to receive all cash and other dividends, distributions
and other payments which would be paid or payable to a holder of a number of
shares of Common Stock into which the shares of Series A Convertible Preferred
Stock held by such holder are convertible at such time (without regard to the
number of shares of Common Stock which are authorized or reserved for issuance
at such time).
(b) 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 A Preferred Directors," would result in Series A
Preferred Directors constituting a majority of the Board of Directors and
-19-
the holders of Series A 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 B
Certificate, the holders of the Series A Convertible Preferred Stock and the
holders of the Class I Series B 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 Class I Series
B 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 A Convertible Preferred Stock,
at its election, may, by notice to the Corporation (the "Put Notice"), demand
repurchase of all or any portion of such holder's shares of Series A Convertible
Preferred Stock for a cash purchase price in an amount per share equal to the
Liquidation Preference. The Corporation shall, on the date (not less than 10
business days after the date of the Put Notice) designated in such Put Notice,
repurchase from the Holder such holder's shares of Series A Convertible
Preferred Stock specified in the Notice. On the date of any repurchase of shares
of Series A Convertible Preferred Stock pursuant to this Section 8(c), the
holder thereof shall surrender for redemption a certificate for the number of
shares of Series A Convertible Preferred Stock being redeemed, without any
representation or warranty (other than that the holder has good and marketable
title thereto, free and clear of liens, encumbrances and restrictions of any
kind), against payment therefor of the repurchase price by, at the option of the
holder, (i) wire transfer to an account designated by the holder for such
purpose or (ii) a certified or official bank check payable to the order of the
holder. If less than all of the holder's shares of Series A Convertible
Preferred Stock represented by a single certificate are being redeemed, the
Corporation shall cancel such certificate and issue in the name of, and deliver
to, the holder a new certificate for the portion not being redeemed. At any time
following delivery of a Put Notice but prior to the date of repurchase, any
holder of Series A Convertible Preferred Stock may, by notice to the
Corporation, withdraw the repurchase demand contained in the Put Notice.
(d) The Corporation stipulates that the remedies at law of
each holder of Series A Convertible Preferred Stock in the event of any
Triggering Event or threatened Triggering Event or otherwise or other failure in
the performance of or compliance with any of the terms hereof are not and will
not be adequate and that, to the fullest extent permitted by law, such terms may
be specifically enforced by a decree for the specific performance of any
agreement contained herein or by an injunction against a violation of any of the
terms hereof or otherwise without requiring any holder to post a bond or other
security except to the extent required by applicable law.
(e) Any holder of Series A Convertible Preferred Stock shall
be entitled to recover from the Corporation the reasonable attorneys' fees and
expenses incurred by such holder in connection with any Triggering Event or
enforcement by such holder of any obligation of the Corporation hereunder.
(f) No failure or delay on the part of any holder of Series A
Convertible Preferred Stock in exercising any right, power or remedy hereunder
or under applicable law or otherwise shall operate as a waiver thereof; nor
shall any single or partial exercise of any such
-20-
right, power or remedy preclude any other or further exercise thereof or the
exercise of any other right, power or remedy hereunder or thereunder. The
remedies herein provided are cumulative and not exclusive of any remedies
provided by law or otherwise.
9. PREEMPTIVE RIGHT.
(a) Each holder of Series A Convertible Preferred Stock or
Common Stock issued upon conversion of Series A Convertible Preferred Stock,
shall have a right of first refusal (the "Preemptive Right") to purchase its pro
rata share, based on such holder's percentage ownership interest in the
Corporation, of New Securities (as defined below) which the Corporation, from
time to time, proposes to sell and issue (subject to such requirements and
restrictions imposed by the Securities Act of 1933, as amended, and state
securities laws and to the actual issuance of the New Securities). The pro rata
shares of any holder of Series A Convertible Preferred Stock or Common Stock
issued upon conversion of Series A Convertible Preferred Stock, for purposes of
this Preemptive Right, shall be the ratio of (i) the number of shares of Common
Stock owned, of record or beneficially, by such holder (including all shares
issuable upon conversion of the Series A Convertible Preferred Stock or the
exercise or conversion of any other option, warrant or convertible security held
by such holder) immediately prior to the issuance of the New Securities, to (ii)
the total number of shares of Common Stock issued and outstanding immediately
prior to the issuance of the New Securities, determined on a fully diluted basis
after giving effect to the exercise in full of then outstanding options and
warrants and the conversion of all securities convertible into shares of Common
Stock; provided, however, that if any holder of Series A Convertible Preferred
Stock or Common Stock issued upon conversion of Series A Convertible Preferred
Stock does not elect to purchase its entire pro rata share of such New
Securities, then each other holder that has elected to purchase its entire pro
rata share shall have the right to purchase up to a number of such unpurchased
portion, in addition to its own, in the proportion that (1) the number of shares
of Common Stock owned, of record or beneficially, by such holder (including all
shares issuable upon conversion of the Series A Convertible Preferred Stock or
the exercise or conversion of any other option, warrant or convertible security
held by such holder) immediately prior to the issuance of the New Securities
bears to (2) the number of shares of Common Stock owned, of record or
beneficially, by all holders of Series A Convertible Preferred Stock or Common
Stock issued upon conversion of Series A Convertible Preferred Stock (including
all shares issuable upon conversion of the Series A Convertible Preferred Stock
or the exercise or conversion of any other option, warrant or convertible
security held by such holders) immediately prior to the issuance of the New
Securities. The overallotment mechanism set forth in this paragraph shall be
repeatedly applied until all New Securities available for purchase by holders of
Series A Convertible Preferred Stock or Common Stock issued upon conversion of
Series A Convertible Preferred Stock have been purchased or no holders remain
who have indicated a desire to purchase any unsubscribed for portion in their
notice to the Corporation.
(b) "New Securities" shall mean (a) any capital stock of the
Corporation, rights, options or warrants to purchase capital stock and
securities of any type whatsoever that are, or may become convertible into or
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
-21-
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) shares of Class I Series B Preferred Stock issued upon
conversion of Class II Series B Preferred Stock, (v) securities issued as
consideration for any acquisition approved by a majority of the Board of
Directors (including the affirmative vote of the Series A Preferred Directors ),
(vi) the Spinway Warrant, (vii) 210,000 shares of Common Stock upon exercise of
the Spinway Warrant, (viii) 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 (ix) 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 A
Convertible Preferred Stock.
(c) In the event the Corporation proposes to undertake an
issuance of New Securities, it shall give each holder of Series A Convertible
Preferred Stock or Common Stock issued upon conversion of Series A Convertible
Preferred Stock written notice of its intention, describing the type of New
Securities and the price and the terms upon which the Corporation proposes to
issue the same. Each such holder shall have twenty (20) 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 A Convertible Preferred Stock or Common Stock issued upon
conversion of Series A Convertible Preferred Stock in the manner provided above.
(e) The rights granted under this Section 9 to each holder of
Series A Convertible Preferred Stock or Common Stock issued upon conversion of
Series A 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 A Convertible
Preferred Stock (including, for this purpose, Common Stock issued upon
conversion of the Series A Convertible Preferred Stock) issued pursuant to the
Series A Stock Purchase Agreement (as adjusted in connection with the events
described in Section 6) determined after the Subsequent Closing (as defined in
the Series A Stock Purchase Agreement).
10. RANKING.
The Series A Convertible Preferred Stock shall rank pari passu
with the Series B Convertible Preferred Stock of the Corporation (which shall
constitute Parity Securities for
-22-
purposes hereof) with respect to amounts receivable upon a Liquidation Event,
dividends, rights and remedies upon Triggering Event or for any other purpose.
-23-