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:
[_] Preliminary Information Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule 14c-
5(d)(2))
[X] Definitive Information Statement
IFX CORPORATION
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(Name of Registrant as Specified in Its Charter)
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Notes:
IFX CORPORATION
15050 N.W. 79 Court
Suite 200
Miami Lakes, Florida 33016
Information Statement
May 2, 2002
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 power of the Company, consisting of the Company's common
stock, par value $0.02 per share (the "Common Stock") and the Company's
Convertible Preferred Stock (the "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") and
Section 228 of the Delaware General Corporation Law.
As of February 19, 2002, 12,776,495 shares of Common Stock were issued and
outstanding. As of February 19, 2002, 10,325,372 shares of Preferred Stock were
issued and outstanding, which shares are divided into three series of
Convertible Preferred Stock. Each share of Common Stock entitles the holder to
one vote on each matter to be voted on. For all matters submitted to a vote of
stockholders, each share of the Series A Convertible Preferred Stock entitles
the holder to one vote; each share of Series B Convertible Preferred Stock
entitles the holder to 1.43 votes; and each share of Series C Convertible
Preferred Stock entitles the holder to 2.34 votes. For all matters submitted to
stockholders for a vote, the holders of the Preferred Stock vote with the
holders of Common Stock as a single class.
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 below have
already been approved by the written consent of the holders of shares
constituting a majority of the voting power (the "Consent"). 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 May 2, 2002, to all holders of
Common Stock who did not consent to the proposals. All holders of the Preferred
Stock have consented to the proposals.
Background
On February 19, 2002, UBS Capital Americas III, L.P. and UBS Capital LLC
(collectively, "UBS") purchased an aggregate of 3,876,241 shares of the
Company's Series C Convertible Preferred Stock (the "Series C Preferred Stock")
for a purchase price of $7 million in cash, the surrender of 1,500,000 shares of
IFX Common Stock currently held by UBS Capital, and cancellation of indebtedness
of approximately $128,724. The source of the cash portion of the purchase price
was UBS's working capital.
Under the terms of the Certificates of Designation for the Preferred Stock
and the Third Amended and Restated Stockholders Agreement dated as of February
19, 2002, among the Company, UBS, International Technology Investments, LC,
("ITI"), Joel Eidelstein ("Eidelstein"), Michael Shalom ("Shalom") and Lee S.
Casty ("Casty") (the "Third Stockholders Agreement"), the Company's Board of
Directors has been reduced to seven members from eight (George Myers has
resigned as a member of the Board of Directors) and UBS is entitled to appoint
four out of seven members of the Board of Directors. UBS also has the right to
jointly designate a fifth director in conjunction with ITI and Casty. Casty and
ITI each have the right to appoint one director. Prior to the issuance of the
Series C Preferred Stock and the execution of the Third Stockholders Agreement,
UBS had the right to appoint three members of an eight member Board of
Directors, and to jointly designate a fourth director in conjunction with ITI
and Casty. After the purchase of the Series C Preferred Stock, UBS owns
approximately 58% of the voting shares of the Company (assuming conversion of
all of the Preferred Stock into Common Stock) The foregoing transactions could
be deemed a "change in control" (as defined by the Securities and Exchange
Commission and/or Nasdaq) of IFX.
In order to further meet its working capital needs, on February 19, 2002,
the Company also entered into a Series D Convertible Preferred Stock Purchase
Agreement (the "Purchase Agreement") with UBS, ITI, LSC, LLC ("LSC") and Jak
Bursztyn ("Bursztyn") (collectively, UBS, ITI, LSC and Bursztyn are referred to
as the "Purchasers"). Shalom, the Chief Executive Officer of IFX, is an
affiliate of ITI. LSC is an entity affiliated with Casty, a current affiliate of
the Company. The Purchase Agreement provides for the purchase of newly-issued
shares of the Company's Series D Convertible Preferred Stock (the "Series D
Preferred Stock") for $5,000,000 in cash and the exchange of certain shares of
IFX's Common Stock and Preferred Stock. The terms of the Series D Preferred
Stock are set forth below.
UBS will invest approximately $3.33 million in cash and surrender 750,000
shares of the Series C Preferred Stock owned by UBS in exchange for
approximately 4.6 million shares of Series D Preferred Stock. Each of ITI and
LSC will invest approximately $0.8 million in cash and surrender approximately
333,500 shares of Common Stock in exchange for approximately 844,000 shares of
Series D Preferred Stock. Bursztyn will invest approximately $40,000 in cash and
surrender approximately 17,000 shares of Common Stock in exchange for
approximately 43,000 shares of Series D Preferred Stock.
As a condition to the closing of the sale of Series D Preferred Stock (the
"Closing"), the Company agreed to amend its Certificate of Incorporation to
increase the amount of authorized Common Stock from 60 million shares to 110
million shares and the amount of authorized preferred stock from 20 million
shares to 40 million shares and to obtain stockholder consent
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under Delaware law to the issuance of the Series D Preferred Stock. In addition,
at the same time as the Closing, UBS, ITI, LSC and Bursztyn will invest an
aggregate of $1 million in Tutopia.com, Inc. ("Tutopia") a current customer and
former subsidiary of the Company (in which the Company still holds an
approximately 48% interest prior to the new investment and assuming the full
conversion of all outstanding Tutopia preferred shares) in exchange for Series B
Convertible Preferred Shares of Tutopia (the "Tutopia Series B Preferred
Stock"). Bursztyn is the President of Tutopia.
The Purchasers may, but are not required, to advance funds to the Company
prior to the Closing. As of April 30, 2002, $2 million had been advanced. At
Closing, any outstanding principal will be applied to the Series D Preferred
Stock purchase price and any outstanding interest will be applied to purchase
additional shares of the Series D Preferred Stock at a price of $1.20 per
share.
The Company and UBS have entered into a Put Agreement (the "Put") dated as
of February 19, 2002 granting UBS, as a stockholder of Tutopia, the right to
exchange its equity investment in Tutopia for up to 5,610,000 shares of a newly
designated class of convertible preferred stock (the "New Preferred Stock") of
IFX within one year. The New Preferred Stock will have substantially the same
terms and conditions as the Series C Preferred Stock, other than the right to
participate with holders of the Common Stock in distributions by the Company
upon a bankruptcy, liquidation, dissolution or winding up of the Company. IFX
has agreed to permit certain other stockholders of Tutopia to exchange their
shares of Tutopia for shares of stock of IFX if UBS exercises such right.
At the Closing, the Company and UBS will enter in an Amended and Restated
Put Agreement (the "Amended Put"), under which for one year, UBS will be
entitled to exchange its newly purchased shares of Tutopia Series B Preferred
Stock for up to 555,556 shares of Series D Preferred Stock and the shares of
Tutopia which it currently owns for up to 5,610,000 shares of New Preferred
Stock. Certain other stockholders of Tutopia will also be able to exchange their
Tutopia shares for up to approximately 1.3 million shares of New Preferred
Stock.
A Fourth Amended and Restated Stockholders Agreement (the "New Stockholders
Agreement"), by and among the Company, UBS, ITI, Eidelstein, Shalom, Casty,
Bursztyn and LSC and a Third Amended and Restated Registration Rights Agreement
among the Company, UBS, ITI, Bursztyn , Casty and LSC will also be entered into
at the Closing.
On March 15, 2002, the Company and its subsidiary, IFX Communications
Ventures, Inc. ("CVI") signed a binding term sheet with T1MSN, Corp., a joint
venture between Microsoft Corporation and Telmex. Pursuant to the term sheet,
CVI will provide network services to T1MSN in certain Latin American countries.
As part of the agreement, IFX will issue T1MSN warrants ("TIMSN Warrants") to
purchase IFX Common Stock in an amount equal to 15% of the fully diluted equity
of IFX for a purchase price of $0.85 per share (the closing price of IFX Common
Stock on March 15, 2002). The T1MSN Warrants will vest and be exercisable based
on the renewal of the agreement to provide network services and the satisfaction
of certain performance related goals. The parties plan to negotiate definitive
documentation during the 30-day period of the term sheet.
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The issuance of the shares of Series D Preferred Stock requires the
approval of holders of shares entitled to cast a majority of the votes entitled
to be cast by the Company's stockholders according to the stockholder approval
requirements of Nasdaq. The amendment to the Company's Restated Certificate of
Incorporation requires the approval of holders of shares entitled to cast a
majority of the votes entitled to be cast by the Company's stockholders under
the Delaware General Corporation Law.
PROPOSAL ONE:
AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION
IFX's Restated Certificate of Incorporation authorizes the issuance of
60,000,000 shares of Common Stock, $.02 par value and 20,000,000 shares of
Preferred Stock, $1.00 par value. As of February 19, 2002, 12,776,495 shares of
Common Stock were issued and outstanding, and approximately 46,787,754 shares of
Common Stock were reserved for issuance by the Company upon the exercise of
options and warrants and the conversion of the Preferred Stock. As of February
19, 2002, 10,325,372 shares of Preferred Stock were issued and outstanding,
which shares are divided into three series of Convertible Preferred Stock. After
the Closing, 12,092,495 shares of Common Stock will be issued and outstanding;
approximately 15,959,038 shares of Preferred Stock, which shares will be divided
into four series of Preferred Stock, will be issued and outstanding; and
approximately 47 million shares of Common Stock will be reserved for issuance
upon exercise of options, warrants, the TI Warrants and the Amended Put and the
conversion of the Preferred Stock. If the Amended Put is exercised in full by
UBS and other Tutopia stockholders, then after the Closing approximately 12.1
million shares of Common Stock would be issued and outstanding and approximately
16 million shares of Preferred Stock would be issued and outstanding. The Board
of Directors recommends that the authorized number of shares of Common Stock be
increased from 60,000,000 shares to 110,000,000 shares, and also that the
authorized number of shares of Preferred Stock be increased from 20,000,000
shares to 40,000,000 shares.
The transactions pursuant to the Purchase Agreement require that the
Company increase the number of common and preferred shares available. The Board
believes, based on the number of shares of Common Stock and Preferred Stock
currently outstanding and the number of shares the Company reasonably expects to
issue in financings, acquisitions, conversion of preferred shares, and other
transactions, that 60,000,000 is an insufficient number of shares of Common
Stock, and that 20,000,000 is an insufficient number of shares of Preferred
Stock for the Company to be authorized to issue without additional stockholder
approval. Accordingly, the Board of Directors believes that an increase in the
number of authorized shares of Common Stock and Preferred Stock would be in the
best interests of the Company and that 110,000,000 authorized shares of Common
Stock and 40,000,000 shares of Preferred Stock will suffice to maintain the
requisite amount of flexibility required by the Company's ongoing activities as
currently contemplated.
Article 4 of the Restated Certificate of Incorporation will be amended and
restated to read as shown on Exhibit A.
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4
Vote Required
The amendment to the Restated Certificate of Incorporation requires the
affirmative vote of the holders of a majority of the votes entitled to be cast
by holders of the Preferred Stock, voting as a single class, and also all
outstanding shares of Common Stock and Preferred Stock, voting together as a
single class. The Company has received the necessary stockholder approval as a
result of the receipt of the Consent.
PROPOSAL TWO:
PROPOSAL TO ISSUE SERIES D PREFERRED STOCK
At the Closing, the Company will issue up to approximately 6,383,667 shares
of Series D Preferred Stock. Each share of the Series D Preferred Stock will be
convertible into two shares of Common Stock. The Company's listing agreement
with Nasdaq requires stockholder approval of the issuance of common stock (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 and
the stock is being issued for less than the greater of book or market value of
the Common Stock as of the time of issuance. The issuance of the Series D
Preferred Stock may be deemed to have occurred at less than market value.
Effect On Ownership Percentage of Company
Prior to the Closing, UBS holds 2,030,869 shares (or 100% of the issued and
outstanding shares) of the Company's Series A Convertible Preferred Stock (the
"Class A Preferred Stock"), 4,418,262 shares (or 100% of the issued and
outstanding shares) of Company's Series B Convertible Preferred Stock (the
"Series B Preferred Stock") consisting of Class I Series B Preferred Stock and
Class II Series B Preferred Stock (the Class II Series B Preferred Stock is
convertible into Class I Series B Preferred Stock on a share for share basis at
any time) and 3,876,241 shares of Series C Preferred Stock (or 100% of the
issued and outstanding shares).
Each share of Series A Preferred Stock is convertible into approximately
4.1033 shares of Common Stock (an aggregate of approximately 8,333,265 shares of
Common Stock), each share of Series B Preferred Stock is convertible into
approximately 1.1667 shares of Common Stock (an aggregate of approximately
5,154,786 shares of Common Stock) and each share of Series C Preferred Stock is
convertible into one share of Common Stock (an aggregate of 3,876,241 shares of
Common Stock). There are currently 12,776,495 shares of Common Stock which have
been issued and are outstanding. Prior to the issuance of the Series D Preferred
Stock and assuming the immediate conversion of all of the Series A Preferred
Stock, the Series B Preferred Stock and the Series C Preferred Stock, the total
number of shares of Common Stock outstanding would be approximately 30.1 million
shares.
Following issuance of the Series D Preferred Stock at the Closing and
assuming the immediate conversion of all of the Preferred Stock (including the
Series D Preferred Stock) into Common Stock, the total number of shares of
Common Stock would increase to approximately 41.5 million shares, an increase of
approximately 10 million shares from the current number of shares outstanding on
a fully converted basis. UBS would hold approximately 25.9 million
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shares, or approximately 62.5%, of these shares; LSC and Lee Casty together
would hold approximately 4.3 million shares, or approximately 10.4% of these
shares and ITI would hold approximately 5.9 million shares, or approximately
14.1% of these shares. If the Amended Put were also fully exercised and assuming
the immediate conversion of all of the Preferred Stock (including the Series D
Preferred Stock and the New Preferred Stock, the total number of shares of
Common Stock would increase to approximately 51.7 million shares, an increase of
39 million shares over the 12.7 million shares currently outstanding.
Effect On General Voting Power.
In all matters requiring stockholder approval, in addition to any required
class vote of the Preferred Stock, the holders of all shares of the Company's
issued and outstanding classes of stock vote together as a single class (other
than Class II Series B Preferred Stock which does not vote in the election of
directors). Prior to the Closing, UBS controls approximately 17.4 million votes
(or approximately 57%); LSC and Lee Casty together control approximately 3
million votes (or approximately 9.8%) and ITI controls approximately 4.5 million
votes (or approximately 15%). After the Closing, UBS will control approximately
23.4 million votes (or approximately 61.0%); LSC (and Casty) will control
approximately 4 million votes (or approximately 10.5% ) and ITI will control
approximately 5.6 million votes (or approximately 14.5%).
Effect On Vote For Election Of Directors.
After the Closing, the voting rights with respect to the election of the
Board of Directors will remain essentially unchanged. The holders of the
Preferred Stock, including the Series D Preferred Stock, but excluding Class II
Series B Preferred Stock will be entitled to designate four directors as a
class. The parties to the New Stockholders Agreement (who control 86.5% of the
outstanding voting stock) have agreed to elect seven members to the Board, of
whom three shall be designated by UBS (currently, Charles W. Moore, Mark O. Lama
and Charles Delaney), one shall be the designated by ITI (currently, Michael
Shalom), one shall be designated by LSC (currently, Joel Eidelstein), one shall
be an independent director (as defined by the NASD) designated by UBS
(currently, Patrick Delhougne), and one shall be an independent director
reasonably acceptable to UBS, LSC and ITI (currently, Burton Meyer). Mr. Moore,
Mr. Lama, Mr. Delaney and Mr. Delhougne will also currently count as one of the
four directors that the holders of the Preferred Stock are entitled to elect as
a class.
Terms of the Series D Preferred Stock
The following is a summary of the material terms of the Series D Preferred
Stock:
Rank. For dividends or distribution of assets upon liquidation,
dissolution or winding up of the Company, the Series D Preferred Stock
will rank pari passu with the Series A Preferred Stock, the Series B
Preferred Stock and the Series C
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Preferred Stock, and all four classes of Preferred Stock rank senior
to the Common Stock.
Liquidation. In the event of any bankruptcy, liquidation, dissolution
or winding up of the Company, the holders of the Series D Preferred
Stock will receive a liquidation preference equal to the sum of (a)
$6.00 per share plus all accrued but unpaid dividends (if any) plus
$0.60 per share per year from the date of issuance of the shares to
the liquidation date (the "Stated Preference"), plus (b) an amount
equal to the per share amount the Series D Preferred Stock would have
been paid if each share of Series D Preferred Stock and all other
outstanding shares of Preferred Stock had been converted into Common
Stock immediately prior to any such liquidation event, after the full
payment of its Stated Preference and the stated preference of the
other Preferred Stock.
However, the amount payable per share of Series D Preferred Stock as a
liquidation preference cannot exceed three and one-half (3-1/2)
multiplied by the Stated Preference.
Voting Rights. Each share of Series D Preferred Stock will be entitled
to 1.67 votes. The holders of the Preferred Stock, including the
Series D Preferred Stock, are entitled to vote with the holders of the
Common Stock, as a single class, on all matters presented to the
holders of the Common Stock. However, the holders of the Class II
Series B Preferred Stock cannot vote for directors. Additionally, the
holders of the Series A Preferred Stock, Class I Series B Preferred
Stock, Series C Preferred Stock and the Series D Preferred Stock
voting together as a class, will be entitled to appoint a majority of
the Board of Directors.
Restrictions. Without the consent of a majority of the voting power of
the Preferred Stock, including the Series D Preferred Stock, voting
together as a single class, the Company may not take any of the
following actions:
amend, repeal, modify or supplement any provision of the
Company's Certificate of Incorporation or Bylaws;
issue any capital stock or any options, warrants or other rights
exchangeable or exercisable therefor (with certain permitted
exceptions);
pay any dividends on or repurchase, redeem or retire the Common
Stock;
reclassify any class or series of any Common Stock into shares
having any preference or priority as to dividends or liquidation
superior to or on a parity with any such preference or priority
of Series D Preferred Stock;
authorize a liquidation, winding up or dissolution of the Company
or any acquisition of the Company;
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become party to any agreement where any Company shareholder
transfers stock to a third party which results in the third party
possessing the voting power to elect a majority of the Company's
Board of Directors
approve the annual budget of the Company;
amend any existing Company stock option plan or (except as
approved by the Compensation Committee of the Board of Directors)
adopt any new stock-based compensation plan;
enter into any financial commitment over and above those approved
in the annual budget in excess of $15 million in the aggregate;
dismiss or hire or modify or enter into any employment agreement,
or other compensation arrangements with any senior officer of the
Company;
permit the creation or existence of any lien on any of the
Company's assets with an aggregate value in excess of $15
million;
make any capital expenditure in any fiscal year in excess of $15
million in the aggregate except as prescribed in the approved
annual budget;
acquire any assets or equity or other interest in any other
entity with a value in excess of $15 million in the aggregate
except as prescribed in the approved annual budget;
incur indebtedness in excess of $15 million in the aggregate,
except as prescribed in the approved annual budget;
dispose of or acquire assets with a value in excess of $15
million other than in the normal course of business;
change in any material respect the nature of the Company's
business;
enter into any understanding with any affiliate of the Company,
other than a wholly-owned subsidiary of the Company; or
solicit or negotiate any proposals with respect to Latin Guide,
Inc., a subsidiary of the Company, or Tutopia or any of its
subsidiaries.
Conversion. Each share of Series D Preferred Stock will initially be
convertible into two shares of Common Stock.
Adjustments. The conversion rights of the Series D 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 D Preferred
Stock (including, but not limited to, certain issuances of Company
equity securities at less than $0.60 per share).
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Preemptive Right. Each holder of the Series D 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 Series D
Preferred Stock, this summary is not intended to be complete and reference
should be made to Exhibit B to this Information Statement for the complete text
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of the form of the Series D Preferred Stock Certificate of Designation.
Vote Required
The proposal to issue the Series D Preferred Stock requires the affirmative
vote of the holders of a majority of the votes entitled to be cast by holders of
the Preferred Stock. The amendment to the Restated Certificate of Incorporation
requires the affirmative vote of the holders of a majority of the votes entitled
to be cast by holders of the Preferred Stock, voting as a single class, and also
all outstanding shares of Common Stock and Preferred Stock, voting together as a
single class. The Company has received the necessary stockholder approval as a
result of the receipt of the Consent.
STOCK OWNERSHIP
The following table sets forth information regarding beneficial ownership
of the outstanding common stock of the Company as of February 19, 2002 by (a)
each of our directors and executive officers, (b) all of our directors and
executive officers as a group and (c) each person known by the Company to own
more than five percent of the Common Stock of the Company.
Amount and Nature of Approximate
Name / Address /(1)/ Beneficial Ownership Percent of Class
Michael Shalom 4,510,201 /(2)/ 31.57%
Joel Eidelstein 383,245 /(3)/ 2.62%
Jose Leiman 105,997 /(4)/ *
Burton J. Meyer 366,012 /(5)/ 2.56%
Lee S. Casty /(7)/ 2,961,410 /(6)/ 20.74%
International Technology Investments LC /(8)/ 4,500,000 /(6)/ 31.52%
Mark Lama /(9)/ 17,364,292 /(11)/ 57.61%
Charles Moore /(9)/ 17,364,292 /(11)/ 57.61%
Charles Delaney /(9)/ 17,364,292 /(11)/ 57.61%
UBS Capital Americas III, L.P. /(9)/ 17,364,292 /(11)/ 57.61%
Patrick Delhougne 450 /(10)/ *
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ALL EXECUTIVE OFFICERS AND DIRECTORS AS A GROUP 25,691,607 85.24%
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* Less than one percent.
(1) The business address for Joel Eidelstein, Michael Shalom and Burton Meyer
is in care of IFX, 15050 N.W. 79 Court, Suite 200, Miami Lakes, Florida
33016.
(2) Includes 10,201 shares subject to an option which is currently exercisable
and 4,500,000 shares of Common Stock held by ITI. Mr. Shalom may be deemed
to be an affiliate of ITI and, accordingly, Mr. Shalom may be deemed to
beneficially own the shares of Common Stock held by such entity.
(3) Includes 351,750 shares of Common Stock subject to an option granted to Mr.
Eidelstein pursuant to the IFX 1998 Stock Option and Incentive Plan, which
option currently is exercisable.
(4) Consists of 105,997 shares of Common Stock that Mr. Leiman may acquire upon
exercise of currently exercisable options granted to him pursuant to our
Option Plan.
(5) Includes 1,200 shares of Common Stock that Mr. Meyer may acquire upon
exercise of options granted to him by the Company, which options are
currently exercisable. Also includes 237,812 shares of Common Stock that
Mr. Meyer owns jointly with his spouse and 27,000 shares of Common Stock
owned by Mr. Meyer's Individual Retirement Account.
(6) Excludes shares of Series D Preferred Stock to be purchased, and includes
333,333 shares of Common Stock to be exchanged at the Closing.
(7) Lee S. Casty's address is 707 Skokie Blvd., 5th Floor, Northbrook, IL
60062.
(8) ITI's address is in care of Adorno & Zeder, 2801 S. Bayshore Drive, Suite
1600, Miami, Florida 33133.
(9) The address of Mark Lama, Charles Moore, Charles Delaney and UBS Capital
Americas III is 299 Park Avenue, New York, New York 10171.
(10) Consists of 450 shares of Common Stock that Mr. Delhougne may acquire upon
exercise of an option granted to him by the company. The address of Patrick
Delhougne is 245 Park Avenue, 33rd Floor, New York, New York 10167.
(11) 2,030,869 of these shares are shares of Series A Preferred Stock, each
share of which is convertible into 4.1033 shares of Common Stock; 4,418,262
of these shares are shares of Series B Preferred Stock, each share of which
is convertible into 1.1667 shares of Common Stock; 3,876,241 of these
shares are shares of Series C Preferred Stock which are convertible on a
one-for-one basis into Common Stock; and 5,610,000 of these shares are
shares of a newly designated class of convertible preferred stock of the
Company ("New Preferred Stock") issuable upon exercise of the Put by UBS,
which shares, upon issuance, would be convertible on a one-for-one basis
into Common Stock. This includes 101,543 shares of Series A Preferred
Stock, 220,413 shares of Series B Preferred Stock, 193,812 shares of Series
C Preferred Stock, and 280,000 shares of New Preferred Stock beneficially
owned by UBS Capital LLC. Charles Delaney, Mark Lama and Charles Moore, as
principals of an entity that manages and advises the investments of UBS
Capital Americas III, L.P., may be deemed to beneficially own the shares
held by UBS. Messrs. Delaney, Lama and Moore disclaim such ownership.
Excludes shares of Series D Preferred Stock to be purchased, and includes
750,000 shares of Series C Preferred Stock to be exchanged at the Closing.
DISSENTERS' RIGHTS OF APPRAISAL
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No action was taken in connection with the proposals by the Board of
Directors or the voting stockholders for which the Delaware General Corporation
Law, the Company's Restated 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
Charles Delaney, Mark Lama and Charles Moore are affiliates of UBS and
therefore can benefit indirectly from UBS' investment. Michael Shalom is an
affiliate of ITI and therefore can benefit indirectly from ITI's 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 it
affects all other stockholders, or holders of derivative securities, of the
Company.
FINANCIAL AND OTHER INFORMATION
The Company's financial statements are incorporated herein by reference to
the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2001
(filed with the SEC on October 15, 2001) and Quarterly Reports on Form 10-Q for
the quarters ended September 30, 2001 (filed with the SEC on November 14, 2001)
and December 31, 2001 (filed with the SEC on February 19, 2002.
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
/s/ Jose Leiman
Jose Leiman
Secretary
May 2, 2002
11
EXHIBIT A
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
IFX CORPORATION
It is hereby certified that:
1. The name of the Corporation is IFX Corporation (the "Corporation").
2. The amendment to the Restated Certificate of Incorporation effected by
this Certificate is as follows:
Article Fourth is hereby deleted in its entirety and the following is
hereby substituted therefor:
FOURTH: The authorized capital stock of the Corporation is
1. Class Par Value Number of Shares
----- --------- ----------------
Authorized
----------
Common $0.02 110,000,000
Preferred $1.00 40,000,000
2. The preferences, qualifications, limitations, restrictions and the special
or relative rights of the shares of each class are:
A. Preferred Stock. The Preferred Stock may be issued from time to time in
---------------
one or more series. The Board of Directors is hereby authorized to provide
for the issuance of shares of Preferred Stock as a class or in series and,
by filing a statement pursuant to the General Corporation Law of the State
of Delaware (hereinafter referred to as a "Preferred Stock Designation"),
to establish from time to time the number of shares to be included in each
such series, and to fix the designation, powers, preferences and rights of
the shares of each such series and the qualifications, limitations and
restrictions thereof. The authority of the Board of Directors with respect
to each series shall include, but not be limited to, determination of the
following:
(i) The designation of the series, which may be by
distinguishing number, letter or title:
(ii) The number of shares of the series, which number the Board
of Directors may thereafter (except where otherwise provided in the
Preferred Stock Designation) increase or decrease;
(iii) The dividend rate on the shares of the class or of any
series, whether dividends shall be cumulative, and, if so, from which
date or dates, and the relative rights of priority, if any, of payment
of dividends on shares of the class or of that series;
(iv) Dates at which dividends, if any, shall be payable;
(v) Whether or not the shares of the class or of any series
shall be redeemable, and, if so, the terms and conditions of such
redemption, including the date or date upon or after which they shall
be redeemable and the amount per share payable in case of redemption,
which amount may vary under different conditions and at different
redemption dates;
(vi) The terms and amounts of a sinking fund, if any, provided
for the purchase or redemption of shares of the class or any series;
(vii) The rights of the shares of the class or of any series in
the event of voluntary or involuntary dissolution or winding up of the
Corporation, and the relative rights of priority, if any, of payment
of shares of the class or of that series;
(viii) Whether the shares of the series shall be convertible into
shares of any other class or series, or any other security, of the
Corporation or any other corporation, and, if so, the rate or rates,
any adjustments thereof, the date or dates of which such shares shall
be convertible and all other terms and conditions upon which such
conversion may be made;
(ix) Restrictions on the issuance of shares of the same series or
of any other class or series;
(x) The voting rights, if any, of the holders of shares of the
series; and
(xi) Any other powers, preferences, rights, qualifications,
limitations, and restrictions of the class or of any series.
B. Common Stock.
------------
-2-
(i) The Common Stock shall be subject to the express terms of
the Preferred Stock and any series thereof.
(ii) Except as may be provided in this Restated Certificate of
Incorporation or in a Preferred Stock Designation, the holders of
shares of the Common Stock shall have the exclusive right to vote on
all matters (for which a common stockholder shall be entitled to vote
thereon) at all meeting of the stockholders of the Corporation, and
shall be entitled to one vote for each share of the Common Stock
entitled to vote at such meeting. There shall be no cumulative voting
rights with respect to any shares of the Corporation's stock.
3. The aforesaid amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware .
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
executed by its duly authorized representative this ____ day of _____, 2002.
IFX CORPORATION.
By: ____________________________
Its:________________________
-3-
EXHIBIT B
CERTIFICATE OF DESIGNATION, NUMBER,POWERS,
PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL AND OTHER RIGHTS OF SERIES D
CONVERTIBLE PREFERRED STOCK
OF
IFX CORPORATION
IFX Corporation (the "Corporation"), a corporation organized and
existing under the General Corporation Law of the State of Delaware, hereby
certifies that, pursuant to the provisions of Section 151 of the General
Corporation Law of the State of Delaware, its Board of Directors, at a meeting
duly held on ________ __, 2002 adopted the following resolution:
WHEREAS, the Board of Directors of the Corporation is authorized by
the Restated Certificate of Incorporation to issue up to 20,000,000 shares of
preferred stock ("Preferred Stock") in one or more series and, in connection
with the creation of any series, to fix by the resolutions providing for the
issuance of shares the powers, designations, preferences and relative,
participating, optional or other rights of the series and the qualifications,
limitations or restrictions thereof; and
WHEREAS, it is the desire of the Board of Directors of the
Corporation, pursuant to such authority, to authorize and fix terms and
provisions of a series of preferred stock, and the number of shares constituting
such series.
NOW, THEREFORE, BE IT RESOLVED, that there is hereby authorized a
series of preferred stock on the terms and with the provisions herein set forth
on Annex A attached to this resolution.
___________________
Name: Joel Eidelstein
Title: President
ATTEST:
________________________________
Name: Jose Leiman
Title: Chief Financial Officer
ANNEX A
SERIES D CONVERTIBLE PREFERRED STOCK
The powers, designations, preferences and relative, participating,
optional or other rights of the Series D 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 D
Convertible Preferred Stock." The Series D Convertible Preferred Stock shall
have $1.00 par value per share. The number of authorized shares of the Series D
Convertible Preferred Stock shall be ________ shares. Shares of the Series D
Convertible Preferred Stock shall have a stated value of Six and 00/100 Dollars
($6.00) per share (the "Stated Value"). The Corporation has previously
authorized (i) 2,030,869 shares of its Series A Convertible Preferred Stock, par
value $1.00 per share (the "Series A Convertible Preferred Stock") having the
number, powers, preferences and relative, participating, optional and other
rights as set forth in the Amended Certificate of Designation on file with the
Secretary of State of the State of Delaware (the "Series A Certificate"), (ii)
4,418,262 shares of its 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 Amended Certificate of Designation on file with the Secretary
of State of the State of Delaware (the "Series B Certificate"), and 3,876,241
shares of its Series C Convertible Preferred Stock, par value $1.00 per share
the "Series C Convertible Preferred Stock"), having the number, powers,
preferences and relative, participating, optional and other rights as set forth
in the Certificate of Designation on file with the Secretary of State of the
State of Delaware (the "Series C Certificate"). The Series A Convertible
Preferred Stock, the Series B Convertible Preferred Stock, the Series C
Convertible Preferred Stock, the Series D Convertible Preferred Stock and shares
of any other class or series of preferred stock of the Corporation which is
convertible, directly or indirectly, into Common Stock, whether at the time of
issuance or upon passage of time or the occurrence of some future event, are
collectively referred to herein as "Convertible Preferred Stock."
2. DIVIDENDS.
(a) Right to Receive Dividends. Holders of Series D 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 D 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 D Convertible Preferred Stock into Common Stock
and had all other holders of Convertible Preferred Stock converted such shares
into Common Stock.
(c) Dividend Preference. Dividends on the Series D Convertible
Preferred Stock shall be payable before any dividends or distributions or other
payments shall be paid or set aside for payment upon the Common Stock or any
other stock ranking on liquidation or as to dividends or distributions junior to
the Series D 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 D 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 D Convertible Preferred Stock.
3. LIQUIDATION PREFERENCE.
(a) In the event of any bankruptcy, liquidation, dissolution or
winding up of the Corporation (a "Liquidation"), either voluntary or
involuntary, each holder of Series D 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 D Convertible Preferred Stock equal to the
sum of:
(i) (x) the applicable Stated Value plus any declared and
unpaid dividends to the date of liquidation, plus (y) 10% of such Stated Value
per annum, calculated from the date of issuance of such share through date of
payment of the Liquidation Preference as set forth in this Section 3 ((x) and
(y), collectively, the "Stated Preference"); plus
(ii) an amount equal to such amount per share of Series D
Preferred Stock as would have been payable had each share of Series D Preferred
Stock and all outstanding shares of Convertible Preferred Stock (to the extent
such shares of other Convertible Preferred Stock are actually converted into
Common Stock at such time or if such shares of other Convertible Preferred Stock
contain a participation feature which allows them to receive amounts in excess
of their Stated Preference without actually being converted) been converted into
Common Stock immediately prior to such Liquidation of the Corporation after
giving effect to the full payment of the Stated Preference under the preceding
paragraph (i) and the stated preference of the other Preferred Stock (unless
such other Preferred Stock has actually been converted into Common Stock);
provided, that if the amount payable per share of Series D Convertible Preferred
Stock pursuant to the foregoing paragraphs (i) and (ii) exceeds three and one-
half (3-1/2) multiplied by the Stated Preference (the "Maximum Amount"), each
holder of Series D Convertible Preferred Stock shall only be entitled to receive
such Maximum Amount. The sum of the amounts in (i) and (ii) above is referred to
herein as the "Liquidation Preference".
After the payment of the full Liquidation Preference on account of all shares of
Series D 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
2
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 D Convertible Preferred Stock shall be insufficient
to permit the payment to the holders of the full aforesaid Liquidation
Preference, then the assets and funds shall be distributed ratably among holders
of Series D Convertible Preferred Stock in proportion to the number of shares of
Series D Convertible Preferred Stock owned by each holder. If the assets and
funds of the Corporation available for distribution to stockholders upon any
Liquidation of the Corporation, whether voluntary or involuntary, shall be
insufficient to permit the payment to holders of the full aforesaid Liquidation
Preference and amounts payable to holders of outstanding Parity Securities, the
holders of Series D Convertible Preferred Stock and the holders of such other
Parity Securities shall share ratably (and ratably as to cash, in-kind or other
distributions) in any distribution of assets of the Corporation in proportion to
the full respective preferential amounts to which they are entitled.
(b) Except as described in the following sentence, a merger,
recapitalization, reorganization, sale of voting control to a single buyer or a
group of related buyers in one or a series of related transactions, or other
business combination transaction involving the Corporation in which the
shareholders of the Corporation immediately prior to the consummation of such
transaction do not own at least a majority of the outstanding shares of the
surviving corporation or the Corporation (as applicable) immediately following
the consummation of such transaction or sale of all or substantially all of the
assets of the Corporation (collectively, a "Liquidation Event") shall be deemed
to be a Liquidation of the Corporation. Notwithstanding the foregoing, the
following shall not be deemed to be a Liquidation Event: (i) a merger,
recapitalization, sale of voting control or other business combination
transaction with an Affiliate (as such term is defined in Section 12b-2 of the
Rules and Regulations under the Securities Exchange Act of 1934, as amended) of
UBS Capital Americas III, L.P. or UBS Capital LLC (together with any such
Affiliate, "UBS"), or (ii) a merger of the Corporation with a public company (A)
in which the merger consideration to be received by the holders of the Series D
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 D
Convertible Preferred Stock, valued at the average closing price of the Merger
Shares for the 30 days prior to the consummation of the merger, or such lesser
period which follows the public announcement of the merger, is greater than 110%
of the Liquidation Preference per share as of the date of consummation of the
merger, and (C) with aggregate trading volume for the 30 calendar days prior to
the merger date of at least 10 times the aggregate number of Merger Shares
received by all holders of Convertible Preferred Stock.
(c) In any Liquidation Event, if the consideration received by the
Corporation is other than cash, its value will be deemed its fair market value
as determined in good faith by the Board of Directors. Any securities shall be
valued as follows:
(i) Securities not subject to investment letter or other
similar restrictions on free marketability covered by subsection (ii) below:
(A) If traded on a securities exchange or through The
Nasdaq National Market or Small Cap Market, the value shall be deemed to be
the average of the
3
closing prices of the securities on such quotation system over the thirty
(30) day period ending three (3) days prior to the closing of the
Liquidation Event;
(B) If actively traded over-the-counter, the value shall be
deemed to be the average of the closing bid or sale prices (whichever is
applicable) over the thirty (30) day period ending three (3) days prior to
the closing of the Liquidation Event; and
(C) If there is no active public market, the value shall be
the fair market value thereof, as mutually determined by the Board of
Directors and the holders of at least a majority of the voting power of all
then outstanding shares of Convertible Preferred Stock, voting as a single
class.
(ii) The method of valuation of securities subject to
investment letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a shareholder's status as an affiliate
or former affiliate) shall be to make an appropriate discount from the market
value determined as above in subsections (i)(A), (B) or (C) to reflect the
approximate fair market value thereof, as mutually determined by the Board of
Directors and the holders of at least a majority of the voting power of all then
outstanding shares of Convertible Preferred Stock, voting as a single class.
4. VOTING RIGHTS.
In addition to any voting rights provided elsewhere herein or in the
Corporation's Certificate of Incorporation, as it may be amended or restated
from time to time (the "Certificate of Incorporation"), and any voting rights
provided by law, the holders of shares of Series D Convertible Preferred Stock
shall have the following voting rights:
(a) Election of Directors.
(i) Subject to the terms hereof, the holders of the Series
D Preferred Stock, together with the holders of any other class or series of
Convertible Preferred Stock, the terms of which expressly entitle the holder
thereof to vote in the election of directors designated by holders of
Convertible Preferred Stock (collectively, "Voting Preferred Stock") shall have
the right to elect four (4) directors, one (1) of which shall be an Independent
Director (as defined below). Such directors shall be elected by the holders of
at least a majority of the voting power of all then outstanding shares of Voting
Preferred Stock, voting as a single class. "Independent Director" has the
meaning specified in Rule 4200(a)(14) of the NASD listing standards, as in
effect on the date hereof and as the same may be amended or supplemented, or in
any successor rule or regulation.
(ii) Any director elected by the holders of Voting Preferred
Stock shall be referred to herein as a "Preferred Director." Subject to Section
4(a)(v), the initial term of any director to be appointed pursuant to Section
4(a)(i) will commence upon his/her election by the holders of Voting Preferred
Stock and shall expire at the first annual meeting of stockholders of the
Corporation following his/her election. Upon expiration of the initial term of
such Preferred Director, so long as the Voting Preferred Stock is outstanding,
the holders of such Voting Preferred Stock shall have the right to elect a
Preferred Director to replace such director
4
in the same manner described above in Section 4(a)(i). Subject to Section
4(a)(v), a Preferred Director so elected shall hold office for a term expiring
at the annual meeting of stockholders in the year following the election of such
director. Notwithstanding the foregoing, but subject to Section 4(a)(v), a
Preferred Director elected under Section 4(a)(i) shall serve until such
Preferred Director's successor is duly elected and qualified or until such
director's earlier removal as provided in Section 4(a)(iii) or death or
resignation and, in the event a vacancy occurs, a replacement Preferred Director
shall be selected as provided in Section 4(a)(i).
(iii) A Preferred Director may be removed by, and shall not
be removed except by, the vote of at least a majority of the voting power of all
then outstanding shares of Voting Preferred Stock, voting as a single class.
(iv) The Corporation shall at all times reserve and keep
available sufficient vacant seats on the Board of Directors solely for the
purpose of enabling the holders of the Voting Preferred Stock to designate
Preferred Directors as provided in this Section 4(a).
(v) This Section 4(a) shall survive a Qualified Public
Offering (as defined in Section 5(b) below) and until such time thereafter as
less than an aggregate of 25% of the authorized Convertible Preferred Stock
remains outstanding.
(b) Certain Corporate Actions. Until a Qualified Public Offering or
until such time as less than an aggregate of 25% of the authorized Convertible
Preferred Stock remains outstanding, the Corporation shall not, and shall not
permit any of its subsidiaries to, without first obtaining the affirmative vote
or written consent of the holders of at least a majority of the voting power of
all then outstanding shares of Convertible Preferred Stock, voting as a single
class:
(A) amend, repeal, modify or supplement any provision of
the Certificate of Incorporation (including any certificate of designation
forming a part thereof), the Bylaws of the Corporation, or any successor
certificate of incorporation or bylaws or this Certificate of Designation,
Number, Powers, Preferences and Relative, Participating, Optional and Other
Rights of Series D Convertible Preferred Stock (the "Certificate of
Designation");
(B) authorize or permit the Corporation or any subsidiary
of the Corporation to issue any capital stock or any options, warrants or
other rights exchangeable or exercisable therefor, other than (i) shares of
Series D Convertible Preferred Stock pursuant to the Preferred Stock
Purchase Agreement, dated as of _________ __, 2002, among the Corporation,
UBS, LSC, LLC and International Technology Investments, LC (the "Preferred
Stock Purchase Agreement"), (ii) Common Stock upon conversion of
Convertible Preferred Stock, or upon the exercise of stock options to
purchase up to 4,243,037 shares of Common Stock, (iii) shares of Class I
Series B Preferred Stock issued upon conversion of Class II Series B
Preferred Stock, (iv) securities issued as consideration for any
acquisition approved by a majority of the Board of Directors (including the
affirmative vote of the 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
Preferred
5
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, (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") or (ix) shares of Common Stock and/or
Convertible Preferred Stock issued pursuant to that certain Amended and
Restated Put Agreement, dated _________ __, 2002 among the Corporation, UBS
and the other parties named therein (the "Tutopia Put Agreement"); and (x)
a warrant dated February ___, 2002 for 500,000 shares issued to Lucent
Technologies Inc. and any shares of Common Stock issued on exercise of such
warrant;
(C) reclassify any class or series of any Common Stock
into shares having any preference or priority as to dividends or
liquidation superior to or on a parity with any such preference or priority
of Convertible Preferred Stock;
(D) authorize or effect, in a single transaction or
through a series of related transactions, (1) a liquidation, winding up or
dissolution of the Corporation or adoption of any plan for the same; (2) a
Liquidation Event; or (3) any direct or indirect purchase or other
acquisition by the Corporation or any of its subsidiaries of any capital
stock (other than the Convertible Preferred Stock pursuant to its terms);
(E) enter into or otherwise become a party to any
agreement whereby any shareholder or shareholders of the Corporation shall
transfer capital stock of the Corporation to an independent third party or
a group of independent third parties pursuant to which such parties acquire
capital stock of the Corporation possessing the voting power to elect a
majority of the Board of Directors;
(F) declare or pay or set aside for payment any dividend
or distribution or other payment upon the Common Stock or upon any other
Junior Stock, nor redeem, purchase or otherwise acquire any Common Stock or
other Junior Stock for any consideration (or pay or make available any
moneys, whether by means of a sinking fund or otherwise, for the redemption
of or other distribution or payment with respect to any shares of any
Common Stock or other Junior Stock), except for the repurchase of shares of
Common Stock from directors, consultants or employees of the Corporation or
any subsidiary pursuant to agreements approved by the disinterested
directors on the Board of Directors, under which the Corporation has the
right to repurchase such shares upon the occurrence of certain events,
including but not limited to, termination of employment or services;
(G) approve the annual budget of the Corporation and its
subsidiaries (the "Annual Budget");
6
(H) enter into any financial commitment over and above
those approved in the annual budget in excess of $15 million in the
aggregate (for the Corporation and its subsidiaries, taken together),
except as prescribed in the Annual Budget;
(I) dismiss or hire or modify or enter into any
employment agreement, non-competition agreement, bonus or stock issuance
arrangements or other compensation (including, without limitation, fringe
benefit) arrangements with its President, Chief Executive Officer or Chief
Financial Officer, or other equivalent or senior level officer;
(J) permit the creation or existence of any lien,
mortgage, pledge, hypothecation, assignment, security interest, charge or
encumbrance, or preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever on any of the
Corporation's or any of its subsidiaries' assets with an aggregate value in
excess of $15 million, except as part of any financing in the ordinary
course of business;
(K) make any capital expenditure in any fiscal year in
excess of $15 million in the aggregate (for the Corporation and its
subsidiaries, taken together), except as prescribed in the Annual Budget;
(L) acquire any assets or equity or other interest in any
other entity with a value in excess of $15 million in the aggregate (for
the Corporation and its subsidiaries, taken together), except as prescribed
in the Annual Budget;
(M) incur indebtedness for borrowed money (including,
without limitation, any capitalized lease obligations, accounts receivable
financing or other asset-backed financing), any guarantee or other similar
contingent obligation or any lease financing (whether a capitalized lease,
operating lease, pursuant to a sale leaseback arrangement or 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 ________ __,
2002;
(O) create or adopt any stock option plan, stock
appreciation rights plan, bonus plan or similar plan that was not in
existence on ________ __, 2002, 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;
7
(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 D 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 D Convertible Preferred Stock
shall have 1.54 votes per share of Series D Convertible Preferred Stock, (ii)
the holders of any other series of Convertible Preferred Stock shall be entitled
to the number of votes specified in the Certificate of Designation creating that
series of Convertible Preferred Stock, and (iii) the holders of Common Stock
shall have one (1) vote per share of Common Stock.
(d) Manner of Voting. Whenever a vote of the holders of Series A
Convertible Preferred Stock, Series B Convertible Preferred Stock, Series C
Convertible Preferred Stock, Series D Preferred Stock and/or other shares of
Convertible Preferred Stock shall be taken pursuant to the provisions of this
Certificate of Designation or otherwise, the holders of Series D Convertible
Preferred Stock and the holders of the other Convertible Preferred Stock shall
be entitled to the number of votes specified in the Certificate of Designation
creating that series of Convertible Preferred Stock.
5. CONVERSION.
Shares of Series D 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 D Preferred Stock may, upon written notice to the Corporation,
convert all or any portion of such shares held by such holder into the number of
shares of Common Stock determined by dividing (x) the applicable Stated
Preference multiplied by the number of shares surrendered for
8
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 D Convertible
Preferred Stock shall automatically be converted into such number of shares of
Common Stock as is determined by dividing (x) one-half (1/2) of the Stated
Preference multiplied by the number of shares surrendered for conversion plus
any declared but unpaid dividends on such shares, by (y) the Conversion Price on
the date of conversion determined in accordance with Section 5(c), without
further action by the holders of such shares and whether or not the certificates
representing such shares are surrendered to the Corporation or its transfer
agent, upon the closing of an underwritten public offering of shares of Common
Stock for which the Corporation has obtained a firm commitment from one or more
underwriter(s) for at least: $60 million of Common Stock and in which the
Corporation receives gross proceeds from the sale of Common Stock to the public
of at least $45 million (before deduction of underwriter's discounts and
commissions), and which values the equity of the Corporation at no less than
$200 million pre-offering (a "Qualified Public Offering"). Except for the
purposes of the calculation in the immediately preceding sentence, in the event
of a Qualified Public Offering, the person(s) entitled to receive the Common
Stock issuable upon conversion of Series D Convertible Preferred Stock shall not
be deemed to have converted such Series D Convertible Preferred Stock until the
closing of such offering.
(c) Conversion Price. The Conversion Price per share for the Series D
Convertible Preferred Stock shall be Sixty Cents ($0.60), 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 D Preferred Stock
into shares of Common Stock pursuant to Section 5(a) (or, in the case of an
automatic conversion of Series D Preferred Stock pursuant to Section 5(b), to
receive a certificate for such holder's shares of Common Stock outstanding as a
result of such conversion), the holder shall surrender the certificate or
certificates therefore, duly endorsed for transfer, at any time during normal
business hours, to the Corporation at its principal or at such other office or
agency then maintained by it for such purpose (the "Payment Office"),
accompanied, in the case of a conversion pursuant to Section 5(a), by written
notice to the Corporation of such holder's election to convert and (if so
required by the Corporation or any conversion agent) by an instrument of
transfer, in form reasonably satisfactory to the Corporation and to any
conversion agent, duly executed by the registered holder or by his duly
authorized attorney, and any taxes required pursuant to Section 5(e)(iii). As
promptly as practicable after the surrender for conversion of any share of
9
Series D 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 D
Convertible Preferred Stock. At the Corporation's discretion, in the event the
Corporation determines not to issue fractional shares, in lieu of any fractional
shares to which the holder would otherwise be entitled, the Corporation shall
pay cash equal to such fraction multiplied by the closing price of the Common
Stock on the date of conversion.
(iii) The issuance of certificates for shares of Common
Stock upon conversion shall be made without charge for any issue, stamp or other
similar tax in respect of such issuance. However, if any such certificate is to
be issued in a name other than that of the holder of record of the shares
converted, the person or persons requesting the issuance thereof shall pay to
the Corporation the amount of any tax which may be payable in respect of any
transfer involved in such issuance or shall establish to the satisfaction of the
Corporation that such tax has been paid or is not payable.
(f) Reservation of Stock Issuable Upon Conversion. The Corporation
shall reserve and keep available out of its authorized but unissued shares of
Common Stock, solely for the purpose of effecting the conversion of the shares
of the Series D Convertible Preferred Stock, ________ shares of Common Stock.
If at any time the number of authorized but unissued shares of Common Stock
shall not be sufficient to effect the conversion of all then outstanding shares
of
10
the Series D Convertible Preferred Stock without regard to whether the holders
of Series D 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 D 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 D 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 D 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 D
Convertible Preferred Stock, the Series D 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 D 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 D
Convertible Preferred Stock notice of any event described below which requires
an adjustment pursuant to this Section 6 at the time of such event.
(a) Definitions. As used in this Section 6, the following terms have
the respective meanings set forth below:
"Additional Shares of Common Stock" shall mean all shares of Common
Stock issued by the Corporation after the Closing (as defined in the Preferred
Stock Purchase Agreement).
"Convertible Securities" shall mean evidences of indebtedness, shares
of stock of other securities which are convertible into or exchangeable, with or
without payment of
11
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 D Convertible Preferred Stock
outstanding on such date and other securities convertible into, or options or
warrants to purchase, shares of Common Stock outstanding on such date, whether
or not such options, warrants or other securities are presently convertible or
exercisable.
"Other Property" shall have the meaning set forth in Section 6(i).
"Outstanding" shall mean, when used with reference to Common Stock, at
any date as of which the number of shares thereof is to be determined, all
issued shares of Common Stock, except shares then owned or held by or for the
account of the Corporation or any subsidiary of the Corporation, and shall
include all shares issuable in respect of outstanding scrip or any certificates
representing fractional interests in shares of Common Stock.
"Overage" shall mean the total number of shares of Common Stock issued
in connection with the Subject Transactions above the Share Allowance.
"Permitted Issuances" shall mean (i) the issuance of up to 4,243,037
shares of Common Stock issuable pursuant to options to purchase Common Stock
under the Stock Option Plan, (ii) shares of Common Stock issued or issuable in
connection with a Qualified Public Offering, (iii) shares of Common Stock issued
in connection with the Subject Transactions or upon conversion of Convertible
Preferred Stock, (iv) shares of Class I Series B Preferred Stock issued upon
conversion of the Class II Series B Preferred Stock, (v) securities issued as
consideration for any acquisition approved by a majority of the Board of
Directors (including the affirmative vote of the Preferred Directors), (vi) the
issuance of an aggregate of up to 100,000 additional shares of Common Stock (as
adjusted for stock splits, combinations, stock dividends and the like) in
transactions approved by a majority of the Board of Directors, (vii) the
issuance of an aggregate of up to another 100,000 additional shares of Common
Stock (as adjusted for stock splits, combinations, stock dividends and the like)
in transactions approved by a majority of the Board of Directors (including the
affirmative vote of the Preferred Directors), (viii) the Spinway Warrant, (ix)
210,000 shares of Common Stock upon exercise of the Spinway Warrant, (x) shares
of Common Stock and/or Convertible Preferred Stock issued pursuant to the
Tutopia Put Agreement, (xii) such other issuances as shall be approved in
advance by the holders of at least a majority of the voting power of all then
outstanding shares of Convertible Preferred Stock, voting as a single class;
(xiii) a warrant dated February ___, 2002 for 500,000 shares issued to Lucent
Technologies Inc. and any shares of Common Stock issued on exercise of such
warrant;
"Qualified Private Offering" shall mean a private equity offering to
investors other than UBS resulting in gross proceeds to the Corporation of at
least $30 million, in which the securities issued contain anti-dilution
provisions no more favorable to the investor than the anti-dilution provisions
of the Series D Convertible Preferred Stock which take effect following the
consummation of a Qualified Private Offering.
12
"Share Allowance" shall mean 428,571 shares of Common Stock.
"Stock Option Plan" shall mean the IFX Corporation Directors Stock
Option Plan, the 1998 IFX Corporation Stock Option and Incentive Plan, as
amended, and the IFX Corporation 2001 Stock Option Plan.
"Subject Transactions" shall mean (i) any acquisition consummated
prior to the filing hereof, including, without limitation, the acquisitions of
Mr. Help Informatica S/C Ltda., Zupernet Ltda. and Redescape, L.L.C., (ii) the
Consulting Agreement, dated as of May 27, 1999 by and between the Corporation
and Brian Reale and (iii) the conversion of Tutopia Stock into Common Stock
pursuant to the Tutopia Stockholders Agreement.
(b) Stock Dividends, Subdivisions and Combinations. If at any time
the Corporation shall:
(i) take a record of the holders of its Common Stock for
the purpose of entitling them to receive a dividend payable in, or other
distribution of, Additional Shares of Common Stock,
(ii) subdivide its outstanding shares of Common Stock into
a larger number of shares of Common Stock, or
(iii) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock,
then the applicable Conversion Price immediately after the occurrence of any
such event shall be adjusted to equal the product of (A) the Conversion Price
immediately prior to the occurrence of such event and (B) a fraction, the
numerator of which shall be the number of Fully Diluted Outstanding shares of
Common Stock immediately prior to the occurrence of such event and the
denominator of which shall be the number of Fully Diluted Outstanding shares of
Common Stock immediately after the occurrence of such event.
(c) Issuance of Additional Shares of Common Stock.
(i) In the event that prior to the consummation of or in
connection with a Qualified Private Offering, the Corporation shall issue or
sell any Additional Shares of Common Stock, other than Permitted Issuances, for
a consideration per Additional Share of Common Stock less than the applicable
Conversion Price, then the applicable Conversion Price shall be reduced to the
consideration per Additional Share of Common Stock paid for such Additional
Shares of Common Stock.
(ii) In the event that following the consummation of a
Qualified Private Offering, the Corporation shall issue or sell any Additional
Shares of Common Stock, other than Permitted Issuances, for a consideration per
Additional Share of Common Stock less than the applicable Conversion Price, then
the applicable Conversion Price shall be reduced to a price determined by
dividing (A) an amount equal to the sum of (x) the number of Fully Diluted
Outstanding shares of Common Stock immediately prior to such issue or sale
multiplied by the then existing Conversion Price plus (y) the aggregate
consideration, if any,
13
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 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
14
lowest possible price in any range of prices at which such Additional Shares of
Common Stock are available to such holders, and (iii) the Corporation shall have
received all of the consideration payable therefor, if any, as of the date of
actual issuance of such Convertible Securities. No further adjustment of the
Conversion Price shall be made under this Section 6(e) upon the issuance of any
Convertible Securities which are issued pursuant to the exercise of any warrants
or other subscription or purchase rights therefor, if any such adjustment shall
previously have been made upon the issuance of such warrants or other rights
pursuant to Section 6(d). No further adjustments of the Conversion Price shall
be made upon the actual issue of such Common Stock upon conversion or exchange
of such Convertible Securities and, if any issue or sale of such Convertible
Securities is made upon exercise of any warrant or other right to subscribe for
or to purchase or any warrant or other right to purchase any such Convertible
Securities for which adjustments thereof have been or are to be made pursuant to
other provisions of this Section 6, no further adjustments shall be made by
reason of such issue or sale.
(f) Superseding Adjustment. If, at any time after any adjustment of
the applicable Conversion Price shall have been made pursuant to Section 6(d) or
6(e) as the result of any issuance of warrants, rights or Convertible
Securities, and either
(i) such warrants or rights, or the right of conversion or
exchange in such other Convertible Securities, shall expire, and all or a
portion of such warrants or rights, or the right of conversion or exchange with
respect to all or a portion of such other Convertible Securities, as the case
may be, shall not have been exercised, or
(ii) the consideration per share for which shares of Common
Stock are issuable pursuant to such warrants or rights, or such other
Convertible Securities, shall be increased or decreased by virtue of provisions
therein contained,
then such previous adjustment shall be rescinded and annulled and the Additional
Shares of Common Stock which were deemed to have been issued by virtue of the
computation made in connection with the adjustment so rescinded and annulled
shall no longer be deemed to have been issued by virtue of such computation.
Thereupon, a recomputation shall be made of the effect of such rights or options
or other Convertible Securities on the applicable Conversion Price, on the basis
of
(iii) treating the number of Additional Shares of Common
Stock or other property, if any, theretofore actually issued or issuable
pursuant to the previous exercise of any such warrants or rights or any such
right of conversion or exchange, as having been issued on the date or dates of
any such exercise and for the consideration actually received and receivable
therefor, and
(iv) treating any such warrants or rights or any such other
Convertible Securities which then remain outstanding as having been granted or
issued immediately after the time of such increase or decrease of the
consideration per share for which shares of Common Stock or other property are
issuable under such warrants or rights or other Convertible Securities.
15
(g) Subject Transactions Adjustment. If the Corporation issues a
number of shares of Common Stock greater than the Share Allowance in connection
with the Subject Transactions, the Conversion Price shall be adjusted to a
dollar resulting from the following:
$40,464,918
----------------------------------------------
1.010948(12,919,702 + Overage) - 1,500,000
Notwithstanding the foregoing, an adjustment under this subsection (g) shall
only be made to the extent such adjustment results in a reduction of the then
current Conversion Price.
(h) Other Provisions Applicable to Adjustments Under This Section.
The following provisions shall be applicable to the making of adjustments
provided for in this Section 6:
(i) Computation of Consideration. To the extent that any
Additional Shares of Common Stock or any Convertible Securities or any warrants
or other rights to subscribe for or purchase any Additional Shares of Common
Stock or any Convertible Securities shall be issued for cash consideration, the
consideration received by the Corporation therefor shall be the amount of the
cash received by the Corporation therefor, or, if such Additional Shares of
Common Stock or Convertible Securities are offered by the Corporation for
subscription, the subscription price, or, if such Additional Shares of Common
Stock or Convertible Securities are sold to underwriters or dealers for public
offering without a subscription offering, the public offering price (in any such
case subtracting any amounts paid or receivable for accrued interest or accrued
dividends, but not subtracting any compensation, discounts or expenses paid or
incurred by the Corporation for and in the underwriting of, or otherwise in
connection with, the issuance thereof). To the extent that such issuance shall
be for a consideration other than cash, then, except as herein otherwise
expressly provided, the amount of such consideration shall be deemed to be the
fair value of such consideration at the time of such issuance as determined in
good faith by the Board of Directors. In case any Additional Shares of Common
Stock or any Convertible Securities or any warrants or other rights to subscribe
for or purchase such Additional Shares of Common Stock or Convertible Securities
shall be issued in connection with any merger in which the Corporation issues
any securities, the amount of consideration therefor shall be deemed to be the
fair value, as determined in good faith by the Board of Directors, of such
portion of the assets and business of the nonsurviving corporation as the Board
of Directors in good faith shall determine to be attributable to such Additional
Shares of Common Stock, Convertible Securities, warrants or other rights, as the
case may be. The consideration for any Additional Shares of Common Stock
issuable pursuant to any warrants or other rights to subscribe for or purchase
the same shall be the consideration received by the Corporation for issuing such
warrants or other rights plus the additional consideration payable to the
Corporation upon exercise of such warrants or other rights. The consideration
for any Additional Shares of Common Stock issuable pursuant to the terms of any
Convertible Securities shall be the consideration, if any, received by the
Corporation for issuing warrants or other rights to subscribe for or purchase
such Convertible Securities, plus the consideration paid or payable to the
Corporation in respect of the subscription for or purchase of such Convertible
Securities, plus the additional consideration, if any, payable to the
Corporation upon the exercise of the right of conversion or exchange in such
Convertible Securities. In case of the issuance at any time of any Additional
Shares of Common Stock or Convertible Securities in payment or
16
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 D
Convertible Preferred Stock exercises its conversion rights pursuant to Section
5, any Additional Shares of Common Stock issuable and other property
distributable upon exercise by reason of such adjustment shall be held in escrow
for such holder by the Corporation to be issued to such holder upon and to the
extent that the event actually takes place. Notwithstanding any other provision
to the contrary herein, if the event for which such record was taken fails to
occur or is rescinded, then such escrowed shares shall be canceled by the
Corporation and escrowed property returned.
(v) Challenge to Good Faith Determination. Whenever the
Board of Directors shall be required to make a determination in good faith of
the fair value of any item under this Section 6, such determination may be
challenged in good faith by holders of a majority of the outstanding shares of
Convertible Preferred Stock, and any dispute shall be resolved by an investment
banking firm of recognized national standing selected by the Corporation and
acceptable to such holder.
(i) Other Action Affecting Common Stock. In case at any time or from
time to time the Corporation shall take any action in respect of its Common
Stock, other than any action described in this Section 6 for which a specific
adjustment is provided, then, unless such action will not have a materially
adverse effect upon the rights of the holders of shares of Series D Convertible
Preferred Stock, the number of shares of Common Stock or other stock into which
such shares of Series D 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.
17
(k) Notice of Adjustments. Whenever the number of shares of Common
Stock into which shares of Series D 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 D 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 D 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 D 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 D Convertible Preferred Stock or any
prospective purchaser of shares of Series D 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 D Convertible Preferred Stock which it is required to pay
in accordance with Section 2 for any reason, including but not limited to, that
such payment is prohibited by applicable law or the Board of Directors elect not
to pay such dividend, or shall otherwise violate any term of Section 2 and such
failure shall not be cured within a period of 30 days after such violation
(which cure shall be effected in a manner ensuring the holders the same yield as
if such violation had not occurred).
(b) Failure of Voting Rights. The Corporation shall enter into any
transaction or take any action required to be approved by holders of Series D
Convertible Preferred Stock without obtaining the requisite approval of the
holders of the Series D 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 D 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 D
Convertible Preferred Stock pursuant to the Third Amended and Restated
Registration Rights Agreement, dated as of ________ __, 2002, among the
Corporation, UBS and certain other stockholders of the Corporation, and such
failure shall continue for a period of 30 days after notice from any such
holder.
18
(e) Preferred Stock Purchase Agreement. The Corporation shall fail to
comply with Section 6(f) or 6(g) of the Preferred Stock Purchase Agreement and
such failure shall continue for a period of 30 days after notice from the
Purchasers or the representations made under Section 4(c) or 4(u) of the
Preferred Stock Purchase Agreement shall prove to have been incorrect or
misleading in any material respect when made pursuant thereto or any other
material representation made under the Preferred Stock Purchase Agreement shall
prove to have been incorrect or misleading in any substantial material respect
when made.
(f) There shall have occurred and be continuing a "Triggering Event"
pursuant to the terms of any other class or series of Convertible Preferred
Stock.
(g) Notwithstanding the foregoing, if a majority of the Preferred
Directors directors affirmatively vote in favor of a transaction or other action
by the Corporation which would constitute a Triggering Event under Section 7(b)
or 7(d), such action or event shall not be considered a Triggering Event.
8. REMEDIES.
(a) In the event that a Triggering Event described in Section 7 shall
occur and be continuing, each holder of Series D 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 D Convertible Preferred Stock
held by such holder are convertible at such time (without regard to the number
of shares of Common Stock which are authorized or reserved for issuance at such
time and without regard to whether such shares of Series D Convertible Preferred
Stock are then currently convertible into Common Stock at the option of the
holder).
(b) Upon the occurrence and during the continuance of any Triggering
Event, to the extent the Preferred Directors do not already constitute a
majority of the Board of Directors, the size of the Board of Directors shall
immediately be increased by the minimum number of directors which, if all of
such additional directors were deemed "Preferred Directors," would result in
such Preferred Directors constituting a majority of the Board of Directors, and
the holders of Voting Preferred Stock shall be entitled to appoint such newly
created directors by vote of the holders of at least a majority of the voting
power of all then outstanding shares of Voting Preferred Stock, voting as a
single class.
(c) Upon the occurrence and during the continuance of any Triggering
Event, any holder of shares of Series D 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 D 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 D Convertible
Preferred Stock specified in the Notice. On the date of any repurchase of
shares of Series D 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 D 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
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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 D
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 D Convertible Preferred Stock may, by notice
to the Corporation, withdraw the repurchase demand contained in the Put Notice.
Notwithstanding the foregoing, the holders of Series D Preferred Stock shall not
be entitled to exercise their repurchase rights hereunder unless the holders of
Convertible Preferred Stock elect to exercise such repurchase rights by vote of
the holders of at least a majority of the voting power of all then outstanding
shares of Convertible Preferred Stock, voting as a single class.
(d) The Corporation stipulates that the remedies at law of each
holder of Series D 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 D 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 D
Convertible Preferred Stock in exercising any right, power or remedy hereunder
or under applicable law or otherwise shall operate as a waiver thereof; nor
shall any single or partial exercise of any such right, power or remedy preclude
any other or further exercise thereof or the exercise of any other right, power
or remedy hereunder or thereunder. The remedies herein provided are cumulative
and not exclusive of any remedies provided by law or otherwise.
9. PREEMPTIVE RIGHT.
(a) Each holder of at least 518,000 shares of Series D Convertible
Preferred Stock or Common Stock issued upon conversion of Series D Convertible
Preferred Stock (including any shares held by such person's affiliates), 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 D Convertible Preferred Stock or Common Stock issued upon
conversion of Series D Convertible Preferred Stock, for purposes of this
Preemptive Right, shall be the ratio of (i) the number of shares of Common Stock
owned, of
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record or beneficially, by such holder (including all shares issuable upon
conversion of the Series D Convertible Preferred Stock, whether or not then
currently convertible, or the exercise or conversion of any other option,
warrant or convertible security held by such holder) immediately prior to the
issuance of the New Securities, to (ii) the total number of shares of Common
Stock issued and outstanding immediately prior to the issuance of the New
Securities, determined on a fully diluted basis after giving effect to the
exercise in full of then outstanding options and warrants and the conversion of
all securities convertible into shares of Common Stock; provided, however, that
-------- -------
if any holder of Series D Convertible Preferred Stock or Common Stock issued
upon conversion of Series D 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 D Convertible Preferred Stock, whether or not then
currently convertible, or the exercise or conversion of any other option,
warrant or convertible security held by such holder) immediately prior to the
issuance of the New Securities bears to (2) the number of shares of Common Stock
owned, of record or beneficially, by all holders of Series D Convertible
Preferred Stock or Common Stock issued upon conversion of Series D Convertible
Preferred Stock (including all shares issuable upon conversion of the Series D
Convertible Preferred Stock, whether or not then currently convertible, or the
exercise or conversion of any other option, warrant or convertible security held
by such holders) immediately prior to the issuance of the New Securities. The
overallotment mechanism set forth in this paragraph shall be repeatedly applied
until all New Securities available for purchase by holders of Series D
Convertible Preferred Stock or Common Stock issued upon conversion of Series D
Convertible Preferred Stock have been purchased or no holders remain who have
indicated a desire to purchase any unsubscribed for portion in their notice to
the Corporation.
(b) "New Securities" shall mean (a) any capital stock of the
Corporation, rights, options or warrants to purchase capital stock and
securities of any type whatsoever that are, or may become convertible into or
exchangeable for capital stock and (b) so-called "high yield" bonds, debt
instruments with equity like features or other similar debt instruments, which
bear a rating lower than investment-grade or are unrated, issued by the
Corporation; provided, however, that the term "New Securities" does not include
-------- -------
(i) the issuance of up to 4,243,037 shares of Common Stock issuable pursuant to
options to purchase Common Stock under the Stock Option Plan, (ii) shares of
Common Stock issued or issuable in connection with a Qualified Public Offering,
(iii) shares of Common Stock issued upon conversion of Convertible Preferred
Stock, (iv) shares of Class I Series B Preferred Stock issued upon conversion of
Class II Series B Preferred Stock, (v) securities issued as consideration for
any acquisition approved by a majority of the Board of Directors (including the
affirmative vote of the Preferred Directors), (vi) 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, (ix)
shares of Common Stock and/or Convertible Preferred Stock issued pursuant to the
Tutopia Put Agreement, (x) any shares of capital stock of the Corporation,
rights, options or warrants to purchase capital stock and securities of any type
whatsoever that are, or may become convertible into or exchangeable for capital
stock that have been approved in advance by the holders of at least a majority
of the voting power of all then outstanding shares of Convertible Preferred
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Stock, voting as a single class; (xi) a warrant dated February ___, 2002 for
500,000 shares issued to Lucent Technologies Inc. and any shares of Common Stock
issued on exercise of such warrant.
(c) In the event the Corporation proposes to undertake an issuance of
New Securities, it shall give each holder of Series D Convertible Preferred
Stock or Common Stock issued upon conversion of Series D Convertible Preferred
Stock written notice of its intention, describing the type of New Securities and
the price and the terms upon which the Corporation proposes to issue the same.
Each such holder shall have twenty (20) days from the date of receipt of any
such notice to agree to purchase its pro rata share of such New Securities for
the price and upon the terms specified in the notice by giving written notice to
the Corporation and stating therein the quantity of New Securities to be
purchased.
(d) The Corporation shall have ninety (90) days after expiration of
the twenty (20) day period described in Section 9(c) to sell any New Securities
with respect to which a Preemptive Right was not exercised, at a price not less
than and upon terms no more favorable in the aggregate to the purchasers thereof
than specified in the Corporation's notice. To the extent the Corporation does
not sell all the New Securities offered within said ninety (90) day period, the
Corporation shall not thereafter issue or sell such New Securities without first
again offering such securities to each holder of Series D Convertible Preferred
Stock or Common Stock issued upon conversion of Series D Convertible Preferred
Stock in the manner provided above.
(e) The rights granted under this Section 9 shall expire upon the
earlier of (i) the closing of a Qualified Public Offering and (ii) such time as
less than an aggregate of 25% of the authorized Convertible Preferred Stock
remains outstanding.
10. RANKING.
The Series D Convertible Preferred Stock shall rank pari passu with
the Series A Convertible Preferred Stock, Series B Convertible Preferred Stock
and Series C Convertible Preferred Stock of the Corporation (which shall
constitute Parity Securities for purposes hereof) and any other Parity
Securities with respect to amounts receivable upon a Liquidation Event,
dividends, rights and remedies upon Triggering Events or for any other purpose.
11. AMENDMENTS.
This Certificate of Designation may not be amended without first
obtaining the affirmative vote or written consent of the holders of at least a
majority of the voting power of all then outstanding shares of Convertible
Preferred Stock, voting together as a single class, including the affirmative
vote or written consent of the holders of a majority of the shares of Series D
Convertible Preferred Stock.
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