0000940180-01-500377.txt : 20011019 0000940180-01-500377.hdr.sgml : 20011019 ACCESSION NUMBER: 0000940180-01-500377 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20011015 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IFX CORP CENTRAL INDEX KEY: 0000792861 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING, DATA PROCESSING, ETC. [7370] IRS NUMBER: 363399452 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-15187 FILM NUMBER: 1759589 BUSINESS ADDRESS: STREET 1: 707 SKOKIE BLVD 5TH FLOOR CITY: NORTHBROOK STATE: IL ZIP: 60062 BUSINESS PHONE: 8474129411 MAIL ADDRESS: STREET 1: 707 SKOKIE BLVD 5TH FLOOR CITY: NORTHBROOK STATE: IL ZIP: 60062 FORMER COMPANY: FORMER CONFORMED NAME: 312 FUTURES INC DATE OF NAME CHANGE: 19860916 FORMER COMPANY: FORMER CONFORMED NAME: CARL JACK 312 FUTURES INC DATE OF NAME CHANGE: 19920703 10-K 1 d10k.txt FORM 10K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended June 30, 2001 or [_] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission file number 0-15187 IFX CORPORATION (Exact name of Registrant as specified in its charter) Delaware 36-3399452 --------------------------------- -------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 15050 NW 79/th/ Court, Ste. 200 Miami Lakes, Florida 33016 (Address of principal executive offices) (Zip code) --------------------------------------------------------------- (305) 512-1100 --------------------------------------------------------------- (Registrant's telephone number, including area code) Securities registers pursuant to Section 12(b) of the Act: None ---- Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.02 par value ---------------------------- Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ - Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [_] As of August 31, 2001, the aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $5,500,000 based on the $1.05 per share closing price on the NASDAQ National Market on such date. As of August 31, 2001, there were 14,276,495 outstanding shares of the Registrant's common stock. DOCUMENTS INCORPORATED BY REFERENCE Portions of our Proxy Statement for the Annual Meeting of Stockholders to be filed within 120 days after June 30, 2001 are incorporated herein by reference in response to Part III, Items 11 through 13, inclusive.
TABLE OF CONTENTS ----------------- Page ---- PART I Item 1. Business........................................................ 3 Item 2. Properties...................................................... 11 Item 3. Legal Proceedings............................................... 11 Item 4. Submission of Matters to a Vote of Security Holders............. 12 PART II Item 5. Market for IFX's Common Equity and Related Stockholder Matters............................................. 12 Item 6. Selected Financial Data......................................... 13 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................... 14 Item 7a. Quantitative and Qualitative Disclosures About Market Risk...... 20 Item 8. Financial Statements and Supplementary Data..................... 21 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures......................... 41 PART III Item 10. Directors and Executive Officers of the Registrant............................................... 41 Item 11. Executive Compensation.......................................... 41 Item 12. Security Ownership of Certain Beneficial Owners and Management........................................... 41 Item 13. Certain Relationships and Related Transactions.................. 41 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K......................................... 42 Signatures.............................................................................. 45
2 FORWARD LOOKING STATEMENTS Except for the historical information contained herein, the following discussion contains forward-looking statements that involve risks and uncertainties. When used herein, the words, "intend," "anticipate," "believe," "estimate," "may," "should," "plans," "will," "continue," "expect," and similar expressions as they relate to the Company are intended to identify such forward-looking statements. The Company's actual results, performance or achievements could differ materially from those discussed here. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in Item 1, "Business" as well as Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations." PART I ITEM 1. BUSINESS Introduction IFX Corporation (IFX Corporation and its subsidiaries are referred to herein as "IFX", "IFX Networks" or the "Company") was incorporated in Delaware in 1985. The Company's operations are headquartered in Miami, Florida. IFX has established a pan-regional Internet Protocol ("IP") network through a series of acquisitions and Company initiated start-up operations. The IFX network currently reaches over 100 cities in 14 countries: Argentina, Bolivia, Brazil, Chile, Colombia, El Salvador, Honduras, Guatemala, Mexico, Nicaragua, Panama, Uruguay, Venezuela and the United States. IFX has over 60 Company-owned Points of Presence ("POPs") with over 500 employees in the United States and Latin America. IFX's network infrastructure, which is marketed under the IFX Networks brand name, provides Internet network connectivity and offers a broad range of value-added services to multinational, ISP's, carriers and small to medium-sized businesses in Latin America. IFX has an extensive geographic network in Latin America using Lucent, Nortel, Cisco, Sun and IBM equipment. IFX previously marketed its network offerings in Latin America under the "Unete" brand name, but management believes that the name "IFX Networks" better reflects the focus of the company and plans on using the IFX Networks name going forward. Although the Company's primary focus is to pursue multinational, ISP's, carriers and small to medium-sized businesses in Latin America, the Company continues to provide consumer Internet product and services that result in higher gross profit due to its relatively low cost of revenues. IFX is a region-wide provider of Internet access and value-added IP based services focused on offering network solutions including region-wide wholesale and private label Internet access, dedicated fixed wireline and wireless Internet access, unlimited dial-up roaming access to IFX Network's POPs throughout the Latin American region, web design, web-hosting and co-location, dial-up local area network, or LAN services as well as virtual private network, or VPN services, and full technical support. The IFX network is composed of the following: . Over 60 Company-owned POPs. A POP is an interlinked group of modems, routers and other computer equipment, located in a particular city that allows a nearby subscriber to access the Internet through a local telephone call. . Approximately 39,500 Remote Access Servers, or RAS ports. . Network Operating Centers in 13 Latin American countries and the US. IFX continues to provide consumer Internet products and services in Latin America. 3 Network Operating Centers in 13 Latin American Countries and the US. Among the services offered by IFX Networks, there is the wholesaling of its IP network infrastructure to parties that wish to offer Internet services in the region, such as Tutopia.com, Inc. (referred to herein as "Tutopia"), a leading provider of free Internet access on a pan-regional level. Tutopia, which was a majority-owned and controlled subsidiary of IFX until August 31, 2000, pioneered free Internet access on a regional basis starting in January 2000 and currently, operates in 9 countries - Argentina, Chile, Colombia, El Salvador, Guatemala, Honduras, Mexico, Panama and Venezuela, with over 2 million registered users in the region. As of June 30, 2001, IFX had an approximately 48% interest in the shares of Tutopia. IFX Historical Background IFX was founded in 1985 as a commodities brokerage house. Since its initial public offering in 1985, IFX has been listed on the NASDAQ SmallCap Market under the symbol "FUTR". Prior to July 1996, IFX's primary business was providing commodity brokerage services. On July 1, 1996, IFX sold substantially all of its brokerage assets (other than certain assets of its then majority-owned U.K. subsidiary) to E.D. & F. Man International, Inc. ("MINC"), a unit of E.D. & F. Man Group, PLC, a London based international trading and finance conglomerate. The purchase price consisted of cash earn-out payments based upon the sold business's profitability through December 31, 2001. From July 1996 through February 1999, IFX's revenues consisted primarily of earn-out payments from the asset sale, interest income and income from operations of its former majority-owned British subsidiary, IFX Ltd., which conducts foreign exchange business as a registrant of the British Securities and Futures Authority. In November 1998, IFX decided to pursue an Internet strategy in Latin America, opened an office in South Florida and started recruiting new management and operational teams. In June 1999, IFX continued the divesture of its non-network business by selling its 50.1% interest in IFX Ltd. The purchase price consisted of $2.45 million in cash, a note receivable, and a redeemable preference share entitling IFX to quarterly payments equal to approximately 30% of the net profits of IFX Ltd. through June 30, 2002. In September 2000, IFX sold its IFX Ltd. redeemable preference share to the other shareholders of IFX Ltd. for $2.4 million, thus terminating IFX's right to earn-out payments from IFX Ltd. The IFX Network IFX operates a region-wide Latin American IP-based network, providing a reliable data transmission path connecting its customers to the Internet. In order to develop a network with region-wide coverage, IFX pursued an extensive acquisition strategy focused on acquiring established Internet service providers ("ISP's") with POPs in the major markets in Latin America that are operated by local management teams. . Network Infrastructure. The IFX network infrastructure consists of three primary tiers: local POPs; a middle tier, which connects the POPs to national hubs; and a backbone tier, which connects the national hubs to the Internet. The IFX network currently includes approximately 63 POPs owned by the Company and 26 virtual POPs operated by third-party network providers. Each POP is connected to one of IFX's 14 national hubs in each respective country through a dedicated point-to-point line, typically provided by a local telecommunications carrier. The Company's POPs are connected to the Internet by multiple leased, high-speed links, including both satellite-based connections and fiber optic connections. IFX believes that its network capacity is adequate for the provision of current and planned access and value-added services, but IFX intends to opportunistically expand its network as trans-oceanic and land-based network capacity becomes commercially available and as the need for additional network capacity arises. 4 IFX's network includes POPs in the following cities: ARGENTINA CHILE MEXICO --------- ----- ------ Buenos Aires Antofagasta Guadalajara Cordoba Chillan Mexico City Mendoza Concepcion Monterrey Rosario La Serena Toluca Los Angeles BOLIVIA Rancagua NICARAGUA ------- Santiago --------- Cochabamba Talca Managua La Paz Temuco Santa Cruz Valparaiso PANAMA Sucre ------ Tarija Panama City COLOMBIA UNITED STATES -------- ------------- BRAZIL Barranquilla Miami, Florida ------ Bogota Belo Horizonte Cali Blumenau Medellin URUGUAY Campo Bom ------- Canoas Ciudad de la Costa Curtiba Montevideo Florianopolis EL SALVADOR Pando Fortaleza ----------- Joinville San Salvador Novo Hamburgo VENEZUELA Pelotas --------- Porto Alegre GUATEMALA Barquisimeto Rio de Janeiro --------- Caracas Salvador Guatemala City Maracaibo Santa Maria Maturin Sao Leopoldo HONDURAS Porlamar Sao Paulo -------- Puerto La Cruz San Pedro Sula Puerto Ordaz Tegucigalapa Punto Fijo Valencia Valera . Network Management. IFX considers world-class network management essential for monitoring its network in multiple countries, maintaining high customer satisfaction and improving network quality. In addition to region-wide network monitoring capability at its headquarters in Miami, Florida, IFX has established network operating systems in multiple Latin American countries that monitor the performance of IFX's network equipment. With these systems, IFX is able to efficiently identify and correct network problems either remotely or by local dispatch. . Sales and Customer Service. IFX offers its service through a sales approach that makes use of local technical talent who understand customer applications to help provide bundled Internet solutions consisting of Internet access and other value-added services. This localized approach allows the Company to provide end-to-end customer solutions and ongoing support. IFX's direct sales force offers a core base of technically competent, locally based and experience Internet sales representatives. IFX provides business customers with technical support and customer service through its local customer service representative. 5 Business Strategy IFX's goal is to become a leading provider of IP based network solutions to multinational, ISP's, carriers, and small to medium-sized businesses in Latin America through the delivery of single source Internet solutions. IFX believes that many businesses are seeking to increase their use of the Internet as a business tool and are integrating web-based services into their business processes. Many businesses desire economical Internet access for their corporate offices and their employees who travel, thereby creating demand for region-wide dedicated and dial-up Internet access. In addition, IFX's management believes that within the business marketplace there is a significant opportunity to upgrade customers to increasingly higher margin value-added services. IFX anticipates that businesses will continue to seek to outsource certain information technology functions to full-service IP-based network providers, such as IFX, in order to reduce costs and improve results. Products and Services Business Products and Services IFX offers services in four basic portfolios: IFX Dedicated connectivity, IFX Dial-up, IFX Co-location, and IFX Web hosting to small to medium-sized businesses, multinationals, ISP's and carriers in business in Latin America. IFX dedicated connectivity . International Private Line ("IPL"): Point-to-Point Time Division Multiplex ("TDM") physical connection for a customer's exclusive use. The customer defines protocol and service. This service can be used for convergence of voice, video, and data for customers who require the highest level of security. . Private Asynchronous Transfer Mode ("ATM"): Permanent Virtual Circuit from customer premise to customer premise running ATM protocol. Use includes mission critical data or voice transmission for customers that want high speed fixed bandwidth at a lower price then an IPL. . Clear Channel IP: Premium IP service for access to the global Internet with guaranteed bandwidth on IFX's backbone thereby providing network monitoring reports to guarantee quality of service. This product is ideal for ISP's, carriers, multinational companies or small and medium sized businesses that have mission critical data or for the use of voice over IP ("VOIP"). . Dedicated IP: Basic IP services for access to the global Internet for companies needing basic Internet connectivity. IFX dial-up . Wholesale Dial-up: Allows customers to utilize the dial-up connectivity resources of the IFX Dial Network on a wholesale basis. This product is ideal for ISP's, carriers, and multinational companies who require local country dial-up access, multi-country dial-up access, global roaming dial-up access or Virtual Internet Service Provider ("VISP"). . Corporate Dial-up: Unlimited roaming that enables end users to access the Internet or their corporate extranet while traveling. IFX co-location . Managed Co-location: Outsourcing the management and day-to-day operations at an IFX Data Center. Provides reliable and scalable network management around the clock. Intended for use by carriers, ISP's, and small to medium enterprises and multinational companies. 6 . Basic Co-location: Servers are maintained at an IFX POP for bandwidth management and reliable connectivity to the Internet. For customers needing space in Data Centers without remote hands-on support. IFX web hosting IFX offers web hosting products and services allowing customers to use IFX's web servers to maintain customer's independent web sites. With web hosting, businesses can create a presence on the Internet, furthering their business, marketing and customer service campaigns. IFX's web hosting products and services include web site maintenance and ongoing consulting services by IFX. Although the Company's primary focus is to pursue multinational, ISP's, carriers and small to medium-sized businesses in Latin America, the Company continues to provide consumer Internet products and services. Competition The market for Internet access and value-added products and services has become increasingly more competitive, especially in Latin America as Internet usage has grown, and management expects that this trend will continue. While Internet usage is lower in Latin America than in more mature markets such as the United States, many new entrants have been attracted by the large potential market size. Though the Company's specific competitors vary from market to market, they include the following types of businesses: [] Internet services providers. Depending on the market, IFX's primary competitors may be small, local Internet service providers with limited ranges of service and geographic reach, or large international or regional service providers with broad service offerings, large network capacities and wide geographic presence. [] Telecommunications companies. Many of the major international telecommunications companies offer Internet services in the same markets as IFX. Some telecommunications providers are subsidized or government owned. In several markets in which IFX Networks operates, former telecommunications monopolies have been deregulated and privatized, and have also become providers of Internet services. New telecommunication company entrants to these markets, which are beginning to use high-speed wireless technology to bypass overcrowded existing networks, are offering Internet and corporate data services as well. Generally, these network-based companies focus on consumer dial-up Internet access, large corporate accounts and customer bases that can generate high volume data traffic to carry on their networks. [] Cable television companies. Cable operators in some of the Company's markets have either introduced or announced that they intend to introduce Internet access services, both by upgrading their networks and using new, cable modem technology. The existing customers of those cable operators are primarily residential and their physical networks are largely limited to residential areas. Management believes IFX can compete effectively in the Latin American Internet market. However, any one of the following developments in Latin America could materially and adversely affect IFX's business, financial condition and results of operations: . Growth in the number or strength of strategic alliances among IFX's competitors continues to grow; . New platforms for Internet access arising from technological developments; . An increased number of global and local companies enter these markets; . Loss of users; . Reduced Internet advertising; . Loss of market share; . Reduced page views; . Price reductions and lower profit margins; and . Lower advertising rates. 7 IFX faces competition on both a country-specific and region-wide level. IFX's competitors may develop products and services that are better than the products and services that the Company offers or that may achieve greater market acceptance. It is also possible that new competitors may emerge and acquire significant market share. Some of IFX's established competitors and potential new competitors may also have better brand recognition and significantly greater financial, technical and marketing resources than IFX. Government Regulation To date, government regulations have not materially restricted the Company's ability to offer Internet products and services in the Company's core target countries. However, the legal and regulatory environment that pertains to the Internet is uncertain and may change. New laws and regulations may be adopted or existing laws may be applied to the Internet and e-commerce. New and existing laws may cover issues like: . Sales and other taxes; . User privacy; . Pricing controls; . Characteristics and quality of products and services; . Consumer protection; . Cross-border restrictions; . Foreign investment restrictions; . Currency controls; . Licensing requirements; . Libel and defamation; . Copyright, trademark and patent infringement; . Pornography; and . Nature and content of Internet materials. Legislation in these areas could slow the growth of Internet use and decrease the acceptance of the Internet as a communications and commercial medium. It may take years to determine how existing laws such as those governing intellectual property, privacy, libel and taxation apply to the Internet. Any new legislation or regulation regarding the Internet, or the application of existing laws and regulations to the Internet, could have an adverse effect on IFX's business. The growth of the Internet coupled with publicity regarding Internet fraud can also lead to the enactment of more stringent consumer protection laws. These laws may impose additional burdens on the Company's business. Employees As of June 30, 2001, IFX employed approximately 500 employees. IFX believes that its success is dependent in part upon the Company's ability to attract and retain qualified, experienced employees. IFX considers its relationship with its employees to be good. Labor laws in Latin America are generally more protective of employees than in the United States. Unlike in the United States where an employer will often have the right to terminate an employee at will, most countries in Latin America have laws protecting employees from being terminated without paying severance compensation in established statutory amounts. In some Latin American countries, the law establishes a minimum number of vacation days. Intellectual Property and Proprietary Rights IFX relies on trademark and copyright laws, laws restricting unfair competition, laws relating to trade secret protection and confidentiality and/or license agreements with the Company's employees, customers, partners and others to protect its intellectual property rights. Courts and legislatures in each country continue to address the issues of the applicability and enforceability of legal principles concerning intellectual property rights in an Internet context, which remain substantially uncertain. Many of the countries in which IFX operates have signed international treaties relating to the protection of intellectual property. However, the courts in many of these countries have not had the opportunity to address the legal issues within the Internet context to the same degree as courts in the United States. Therefore, IFX cannot determine whether the intellectual property of its non-U.S. operations will be subject to a lesser or different degree of protection than that generally afforded in the United States. The Company uses "IFX" as the primary business name for its operations. The Company uses "IFX Networks" as a brand name for end products and services in Latin America. In Latin America, the Company pursues the registration of trademarks for marks that the Company believes are unique and will be used by IFX over an extended period of time. IFX has initiated its registration of the IFX Networks mark in most countries in Latin America. Where IFX has not registered our marks, competitors with senior rights in marks similar to IFX's may be able to argue successfully that IFX should be barred from continuing to use the IFX Networks mark, or competitors may adopt product or service names similar to IFX's, thereby impending IFX's ability to build brand identity, which could lead to customer confusion. It is also difficult and expensive to defend trademark infringement litigation and to police the unauthorized use of marks. IFX Networks starter software and installation programs are key parts of the services the Company provides to dial-up subscribers. IFX's goal is to automatically configure an individual user's Internet access programs after the user's initial entry with this software. IFX has obtained permission and, where necessary, licenses from the companies that manufacture the software that IFX uses. 8 DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY The directors and executive officers of the Company and their ages as of September 15, 2001 are as follows: Name Age Office ------------------------ ----- --------------------------------------- Joel M. Eidelstein 35 Chairman of the Board and President Michael Shalom 31 Chief Executive Officer and Director Jose Leiman 41 Chief Financial Officer Charles Delaney 43 Director Patrick Delhougne 37 Director Mark O. Lama 39 Director Burton J. Meyer 54 Director Charles W. Moore 36 Director George A. Myers 51 Director Joel M. Eidelstein has served as a director of the Company since November 1990 and since November 9, 1996 he has served as the President of the Company. Mr. Eidelstein graduated from Brandeis University in May 1988 and was an independent commodity futures trader and a floor manager with Index Futures Group, Inc. from June 1988 until June 1996. Mr. Eidelstein also is a principal shareholder of ePagos, Inc., an Internet communications software development company in which IFX owns an interest. Michael Shalom was elected as IFX's Chief Executive Officer on September 8, 1999 and has served as a director of IFX Networks, Ltd., a subsidiary of IFX, since November 1998. Prior to July 1999, Mr. Shalom was a principal of, and was actively involved in the management of the INTCOMEX group of companies, which is a Latin American wholesale distributor of microcomputers, networking products, mass storage products, multimedia products, computer peripheral equipment and computer components. Mr. Shalom is also a principal of International Technology Investments ("ITI"). Jose Leiman has served as Chief Financial Officer of the Company since July 1, 1999. From March 1996 to June 1999, Mr. Leiman was a CPA and tax attorney with Ernst & Young LLP, an international accounting firm. Prior to joining Ernst & Young LLP, Mr. Leiman was an attorney with Dewey Ballantine LLP, an international law firm. Mr. Leiman has also worked as a CPA with Price Waterhouse. Mr. Leiman holds J.D. (magna cum laude and order of the coif) and L.L.M. degrees from Georgetown University Law Center in Washington, D.C. and a B.B.A. degree with high honors from Florida International University. Mr. Leiman is admitted to practice law in Florida and Washington, D.C., and is also a Certified Management Accountant as well as a Certified Public Accountant. Charles Delaney is the President and Chief Executive Officer of UBS Capital Americas, which manages $1.5 billion in private equity commitments dedicated to investments in North and South America, including investments in the telecommunications, software, and Internet sectors. In 1992, Mr. Delaney founded UBS AG's private equity businesses in North America and Latin America. In 1999 Mr. Delaney and the partners of UBS Capital Americas raised two direct investment funds totaling $1.5 billion that are managed by the partners of UBS Capital Americas. Upon raising these UBS sponsored funds, Mr. Delaney became the Chief Executive Officer of UBS Capital Americas (and the various related funds management companies). From 1989 to 1992, Mr. Delaney was in charge of the Leveraged Finance Group of UBS AG in North America, which financed private equity transactions. Prior to joining UBS, he worked for the Hong Kong and Shanghai Banking Group in New York, London and Greece. Mr. Delaney is a graduate of Lehigh University. Mr. Delaney is also a director of AMS Holdings Corp., Aurora Foods Inc. and Edison Schools Inc. 9 Patrick Delhougne is a partner in Ray & Berndtson's technology practice. Prior to joining Ray & Berndtson, Mr. Delhougne was an equity sales associate and analyst for J.P. Morgan in London and New York. Previously, he was a case team leader with Bain & Co. in Munich, Germany responsible for managing strategy consulting projects. Mr. Delhougne began his career with Siemens PLC in London, working as the assistant to the chief executive officer and chief financial officer. He was subsequently promoted to corporate planner in the regional strategy group, working with the board of directors at Siemens AG in Munich. He also worked for the Siemens Transportation Group in Erlangen as a commercial manager. Mr. Delhougne earned a B.B.A degree from the U.S. International University - Europe (Summa Cum Laude), a postgraduate diploma from the London School of Economics, and an M.B.A. from the Harvard Graduate School of Business Administration, which he attended on the Werner von Siemens Scholarship. Mark O. Lama was elected to the board of directors of IFX in June 2000 and Tutopia in August 2000. Mr. Lama is a principal of UBS Capital Americas. Prior to joining UBS Capital Americas in 1998, he worked in the U.S. and Latin America groups of Chase Capital Partners (a private equity firm), the Banking and Corporate Finance Group of Chemical Bank and the Emerging Markets group at Salomon Brothers, Inc. Mr. Lama holds an M.B.A. from Harvard Business School, a B.S. from Columbia University and a B.A. from Colgate University. Burton J. Meyer has served as a director of the Company since May 1999. Mr. Meyer previously served as director of the Company from August 1986 until July 1, 1996 and as President of the Company from July 1987 until July 1, 1996. Mr. Meyer served as an Executive Vice President of E.D. & F. Man International, Inc., an international futures and conglomerate brokerage, from July 1996 to June 30, 2000. Charles W. Moore was elected to the board of directors of IFX in June 2000 and Tutopia in August 2000. Mr. Moore is partner of UBS Capital Americas. In this role, Mr. Moore has senior responsibility for all telecommunications- related investments of UBS Capital Americas. Prior to joining UBS Capital, Mr. Moore invested for Greenwich Street Capital Partners, LP from November 1994 to March 1997 and prior thereto worked at Morgan Stanley & Co. in their investment banking division. Other boards of directors on which Mr. Moore serves include: Aduronet, Ltd. (London, UK); WorkNet Communications (St. Louis, MO); Netstream Communications (Roseville, CA); eYak, Inc. (Boston, MA); PF.Net (Reston, VA); Netrail, Inc. (Atlanta, GA); Dynamicsoft, Inc. (East Hanover, NJ); and Tutopia.com, Inc. (Miami, FL), a former subsidiary of the Company. Mr. Moore is a graduate of the University of Michigan and the University of Chicago Graduate School of Business. George A. Myers has served as a director of the Company since November 1990. Mr. Myers has been managing general partner of MC Capital, a diversified real estate company with offices in Chicago, Illinois, Phoenix, Arizona, and San Diego, California since 1981. Directors are elected and serve until the next annual meeting or until their successors are elected and qualified. Officers are elected annually by the Board of Directors. In May 2001 the Board of Directors of the Company was increased to eight directors from seven directors. UBS Capital Americas III, L.P. and UBS Capital LLC (collectively, the "UBS Capital Americas") are entitled to select three directors. Further, Lee S. Casty ("Casty") is entitled to appoint one director and International Technology Investments, LLC ("ITI") is entitled to appoint one director. ITI and Casty are entitled to jointly select an additional director. Also, ITI, Casty and UBS Capital Americas are jointly entitled to select two additional directors who qualify as "independent directors" in accordance with NASDAQ rules. Effective with the purchase of the Series B Convertible Preferred Stock by UBS Capital Americas, Charles Delaney and Patrick Delhougne were appointed as directors. 10 ITEM 2. PROPERTIES The Company's corporate headquarters are at 15050 N.W. 79/th/ Court, Suite 200, Miami Lakes, Florida, 33016. Corporate headquarters includes the Company's offices for coordinating and supporting IFX's Latin American operations and is located in approximately 12,500 square feet of office space under a lease that expires in July 2004. The Company leases office space in 200 West Adams Street, Suite 1500, Chicago, IL 60606. This space served as the Company's previous corporate headquarters. However, this office space has been sub-leased in its entirety until the end of the lease, and for an amount equal to the lease payments. The Company leases office space in 707 Skokie Blvd, Northbrook, IL. This space also served as the Company's previous corporate headquarters. The Company also leases offices in 13 Latin America countries that are used for general operations, for sales offices and for equipment co-location. ITEM 3. LEGAL PROCEEDINGS The Company is a defendant in, and may be threatened with, various legal proceedings arising from its regular business activities. Management, after consultation with legal counsel, is of the opinion that the ultimate liability, if any, resulting from any pending action or proceedings will not have a material effect on the financial position or results of operations of the Company. Legal proceedings with respect to discontinued operations In April 1994, Index, Futures Group, Inc. ("Index") without admitting or denying the allegations, paid $100,000 to the CFTC, settling an administrative action filed on September 29, 1992. In a related action, the equity receiver of a commodity pool operator brought an action to recover losses of approximately $600,000, alleging various theories such as constructive trust, negligence, breach of fiduciary duty and conversion. On May 29, 1996, the district judge dismissed the complaint in its entirety. On December 4, 1997, the Court of Appeals affirmed the district judge's dismissal of all claims against Index. On January 13, 1998, the Court of Appeals denied the Supplemental Plaintiffs' request for a rehearing of its appeal. On October 2, 1998, the attorney for the equity receiver of the commodity pool filed a class-action suit on behalf of a putative class composed of persons who had given money to the commodity pool operator to invest, some of which was deposited in brokerage accounts at Index by the commodity pool operator. (Wesselhoff v. FX Chicago, Inc. et al., Circuit Court of Cook County, Chancery Division, case number 98-CH-13396). The plaintiff seeks damages of $600,000 plus prejudgment interest, punitive damages, and lost investment opportunity. The Company believes that the allegations in the complaint against FX Chicago, Inc. and the Company are without merit and will defend vigorously. A German citizen, seeking damages of 6,403,519.19 Deutschmark (approximately $3.0 million given the exchange rate as of August 31, 2001), filed a lawsuit in September 1998, in Germany, against an affiliate of E.D.& F. Man International, Inc. (MINC) which is a unit of E.D.& F. Man Group. The complaint arose out of transactions that occurred in an account introduced by Index Futures Group, AG ("Index AG"), an introducing broker of Index, prior to the asset sale. The Plaintiff alleges that under German law, MINC's affiliate is successor to Index AG, and thus assumed any liabilities of Index AG. Pursuant to the asset sale agreement with E.D.&F Man Group, Index is responsible for any liability "arising out of any state of facts with respect to such Assigned Contract existing on or prior to the Closing Date". MINC has retained counsel in Germany to represent its interests in this matter. As Index AG was an introducing broker of Index and not a former subsidiary of the Company or Index, the Company does not believe that it will ultimately be liable for damages. In April 1999, MINC's German counsel reported that the Dusseldorf District Court dismissed all claims against MINC. However, the plaintiff has filed an appeal with the Dusseldorf Court of Appeals. On August 23, 1999, a lawsuit was filed in the Circuit Court of Cook County naming Index and two individuals as defendants (Craig Bordon v. Sean S. Mayo, et al., 99L-09368). The complaint alleges breach of contract and damages "in excess of" $50,000. The Company has not yet been served with the complaint. Based upon the allegations as set forth in the complaint, the Company believes that the claim is without merit. 11 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the fourth quarter of the fiscal year ending June 30, 2001. PART II ITEM 5. MARKET FOR IFX's COMMON EQUITY AND RELATED STOCKHOLDER MATTERS IFX's stock is traded on the NASDAQ SmallCap Market under the symbol "FUTR". Set forth below is the range of high and low trade prices per share of the common stock in the NASDAQ SmallCap Market as reported by NASDAQ for the periods indicated. The quotations do not include retail markups, markdowns, or commissions. Fiscal Year 2001: High Low ------------------------------------------ First Quarter $ 13.13 $ 5.50 Second Quarter 7.31 1.78 Third Quarter 5.25 2.03 Fourth Quarter 2.66 1.49 Fiscal Year 2000: High Low ------------------------------------------ First Quarter $ 24.38 $ 14.88 Second Quarter 34.75 16.13 Third Quarter 37.94 27.25 Fourth Quarter 35.00 11.25 Fiscal Year 1999: High Low ------------------------------------------ First Quarter $ 2.44 $ 1.81 Second Quarter 12.50 1.25 Third Quarter 12.63 5.88 Fourth Quarter 21.50 9.38 As of August 31, 2001, there were 195 holders of record and 1,644 beneficial owners of the Registrant's common stock. The Registrant has not paid a cash dividend on its common stock and does not expect to pay any cash dividends in the foreseeable future. 12 ITEM 6. SELECTED FINANCIAL DATA The selected financial data for the fiscal years presented below is derived from the audited consolidated financial statements of the Company. The following table summarizes selected historical information of the Company and its subsidiaries for each of the last five years. Certain of the amounts presented have been restated as discussed in note 1 of the fiscal 2001 consolidated financial statements. The data should be read in conjunction with the other financial information included herein, including "Management's Discussion and Analysis of Financial Condition and Results of Operations", and the consolidated financial statements and their related notes.
---------------------------------------------------------------------------------------------------------------------- Fiscal Year Ended June 30, 2001 2000 1999 1998 1997 (Restated) (in thousands, except share and per share amounts) ---------------------------------------------------------------------------------------------------------------------- Statement of Operations Data: Total revenues $ 32,122 $ 10,689 $ 725 $ - $ - Loss from continuing operations (61,189) (47,844) (1,715) (209) (428) Basic and diluted loss from continuing operations per share $ (4.44) $ (4.71) $ (0.26) $ (0.03) $ (0.07) Weighted average common shares outstanding 13,784,897 10,153,565 6,498,204 6,246,545 6,616,893 Balance Sheet Data: Working capital $ (11,580) $ 3,480 $ 7,221 $ 10,564 $ - Total assets 48,524 61,297 18,862 11,543 10,031 Capital-lease obligations 16,068 10,968 - - - Long-term debt (excluding current portion and capital-lease obligations) 296 375 317 - - Stockholders' equity $ 10,421 $ 32,543 $ 16,097 $ 11,335 $ 8,204 ----------------------------------------------------------------------------------------------------------------------
13 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Company's consolidated financial statements and notes thereto included elsewhere herein. This discussion and analysis reflects the adjustments made to segregate the discontinued operations ("discontinued operations") that resulted from the sale of the Company's brokerage assets in July 1996 to E.D. & F. Man International, Inc., a unit of E.D. & F. Man Group, PLC, a London based international trading and finance conglomerate; and from divesture in June 1999 of IFX's 50.1% interest in IFX Ltd. Discontinued operations are shown under a separate line item on the Company's consolidated statements of operations for fiscal years 2001, 2000 and 1999; and in the Company's consolidated balance sheet for fiscal years 2001 and 2000 included elsewhere herein. In addition, during September 2000, the Company's voting interest in its majority-owned subsidiary Tutopia.com, Inc. ("Tutopia") fell below 50%. As a result, the Company deconsolidated Tutopia and began accounting for its investment under the equity method. Accordingly, the Company restated its fiscal 2000 consolidated financial statements as if Tutopia had been accounted for under the equity method since its inception in January 2000. In April 2000, Tutopia issued common stock representing approximately a 15% interest in Tutopia to shareholders other than the Company, at a price per common share exceeding the Company's carrying value for the Company's investment in Tutopia's common stock. The restated financial statements reflect an increase in the Company's investment in Tutopia of approximately $4 million as of June 30, 2000, to record the amount in excess of the Company's carrying value as a capital transaction. During the past two fiscal years, IFX has become a region-wide provider of Internet access and value-added IP based services focused on offering network solutions to ISP's, multinationals, carriers and small to medium-sized businesses throughout Latin America. Offerings include region-wide wholesale and private label Internet access, dedicated fixed wireline and wireless Internet access, unlimited dial-up roaming access to IFX Network's Points of Presence or POPs throughout the region, web design, web-hosting and co-location, dial-up local area network, or LAN services as well as virtual private network, or VPN services, and full technical support. The IFX network is composed of the following: . Over 60 Company-owned POPs. A POP is an interlinked group of modems, routers and other computer equipment, located in a particular city that allows a nearby subscriber to access the Internet through a local telephone call. . Approximately 39,500 Remote Access Servers, or RAS ports. . Network Operating Centers in 13 Latin American countries and the US. Among the services offered by IFX Networks is the wholesaling of its IP network infrastructure to parties that wish to offer Internet services in the region, such as Tutopia, a leading provider of free Internet access on a pan-regional level. Tutopia helped pioneer free Internet access on a regional basis starting in January 2000 and currently operates in 9 countries - Argentina, Chile, Colombia, El Salvador, Guatemala, Honduras, Mexico, Panama and Venezuela, with over 2 million registered users in the region. As of September 15, 2001, IFX has an approximate 48% ownership interest (assuming the conversion of all outstanding preferred stock into common stock) in Tutopia. 14 The following table sets forth, for the fiscal periods indicated, the percentage of total revenues represented by certain items in the Company's consolidated statement of operations:
Fiscal Year Ended June 30, 2001 2000 1999 ------------ ----------- ------------- (Restated) Dial-up 22.3% 77.3% 85.0% Dedicated line services 22.4 12.6 3.9 Web hosting and design services 4.0 3.5 11.1 Sales to related party 43.1 - - Other 8.2 6.6 - ----------- ---------- --------- TOTAL REVENUES 100.0 100.0 100.0 Cost of revenues 64.7 79.4 61.4 ----------- ---------- --------- Gross profit 35.3 20.6 38.6 General and administrative 84.1 180.6 371.1 Sales and marketing 11.0 21.1 34.1 Depreciation and amortization 53.2 75.3 32.0 Non-cash stock compensation 22.3 59.5 5.4 Impairment of acquired customer base 34.0 - - Contract cancellation costs - 45.9 - ----------- ---------- --------- Total operating expenses 204.6 382.4 442.6 ----------- ---------- --------- Operating loss from continuing operations (169.3) (361.8) (404.0) ----------- ---------- --------- OTHER INCOME (EXPENSE): (25.8) (111.7) 55.8 ----------- ---------- --------- Loss from continuing operations before income taxes (195.1) (473.5) (348.2) Income tax benefit 4.8 25.9 111.8 ----------- ---------- --------- Loss from continuing operations (190.3) (447.6) (236.4) Income from discontinued operations, net of taxes 8.8 18.4 429.8 ----------- ---------- --------- Net (loss) income (181.5)% (429.2)% 193.4% =========== ========== =========
CONTINUING OPERATIONS Revenues The companies that IFX has acquired generally had both business and consumer customers at the time of acquisition. Management plans to grow IFX's customer base and revenues primarily by marketing Internet access and value-added services to the ISP's, multinationals, carriers and small to medium -sized businesses in the Company's markets. IFX expects that revenue from the sale of the Company's value-added services (such as dedicated line and web hosting and design services) will increase more rapidly than revenue from the sale of Internet access services. As a result, IFX's current customer and revenue mix is not expected to be indicative of the Company's future customer and revenue mix. IFX provides Internet access service to customers under contracts that typically range from one month for dial-up access services to one year or more for dedicated access services. 15 IFX also derives revenues by providing wholesale Internet access to businesses that resell such access on a branded or private label basis. Fees for wholesale access are generally billed on a monthly basis after services are rendered. Wholesale access customers are billed on either a per port basis or a per hour basis. Wholesale Internet access service revenues are recognized in the period in which the services are provided. Revenues from value-added Internet services come from web hosting, domain name registration and co-location services. These revenues are recognized in the period in which the services are provided. Internet access charges and fees for value-added services vary among the countries in which IFX does business, depending on competition, economic and regulatory environments and other market factors. In some markets, the Company has reduced prices, such as for access services, as a result of competitive pressure. The Company expects that price reductions will continue in IFX's markets as the demand for, and supply of, Internet services continue to grow. The period-to-period comparisons of our results of operations set forth below reflect acquisitions that we made during the applicable period. Results of operations from acquisitions effected during a period have been included from the time of the closing of the acquisition. For the fiscal year ended June 30, 2001, total revenues increased to $32.1 million from $10.7 million, an increase of $21.4 million or 200.5% in fiscal 2001 from fiscal 2000. Approximately $13.8 million of the increase is attributable to services provided to Tutopia, a related party. Revenues resulting from dedicated line services increased by $5.8 million to $7.2 million for fiscal year 2001 from fiscal year 2000 as a result of management's focus on corporate clients. Web hosting and design services revenues increased to $1.3 million from $0.4 million in fiscal 2001 from fiscal 2000. Revenue relating to dial-up decreased 13.1% in fiscal 2001 to $7.2 million from $8.2 million in fiscal 2000, as the Company continues to pursue its business strategy of focusing on business clients and not individual dial-up consumers. Other revenue increased $1.9 million to $2.6 million in fiscal 2001 from fiscal 2000, of which approximately $1.6 million of the increase is attributable to revenues received from various Latin American telephone companies through revenue sharing arrangements. Revenues increased to $10.7 million for the year ended June 30, 2000, from $0.7 million for the year ended June 30, 1999. The increase in revenues was related to the Company's expansion of IFX's user base resulting from acquisitions in Latin America and the growth in value-added services such as dedicated access. Costs of Revenues IFX Network's costs of revenues primarily consist of costs incurred to carry customer traffic to and over the Internet. IFX leases lines that connect the Company's POPs to IFX's national hubs. The Company pays third party network providers for transit that allows IFX Networks to transmit the Company's customers' information to or from the Internet. IFX also has other recurring telecommunications costs, including the cost of local telephone lines that customers use to reach IFX Network's POPs and access the Company's services, and satellite bandwidth costs to connect the national hubs to the Internet backbone via IFX's Miami facilities. Management expects operating costs from providing Internet services to increase as capacity is increased to meet customer demand. The Company expects that costs of revenues will decline as a percentage of revenues as IFX expands the Company's network facilities under long-term leases and as competition drives down the overall price of such services. Management also expects cost of revenues to decrease as wireless technology usage expands and the telecommunication markets in Latin America deregulate. Gross profit increased to 35.3% for the fiscal year ended June 30, 2001 as compared to 20.6% for the fiscal year ended June 30, 2000. The increase in gross profit results from management's continued efforts to reduce costs of revenues by increasing efficiencies of the Company's use of its equipment as well as solidifying IFX's network throughout Latin America resulting in the reduction of third party costs. Gross profit decreased to 20.6% for the year ended June 30, 2000 as compared to 38.6% for the year ended June 30, 1999. The decrease in gross profit was related to the Company's network expansion in order to accommodate the growth in the user base, especially for Tutopia and for dedicated access. 16 General and Administrative Expenses IFX's general and administrative expenses are comprised primarily of compensation costs. Compensation costs include salaries and related benefits, commissions and bonuses. Other general and administrative expenses include the costs of travel, rent, utilities, telecommunications, insurance and professional fees. Management expects that the Company's general and administrative expenses will increase to support IFX's growth. General and administrative expenses increased to $27.0 million for the fiscal year ended June 30, 2001 as compared to the general and administrative expenses of $19.3 million for the fiscal year ended June 30, 2000. The increase is primarily due to costs incurred to support the increase in sales during fiscal 2001. As a percentage of total revenue, general and administrative expenses decreased 96.5 percentage points to 84.1% in fiscal 2001 from 180.6% in fiscal 2000 as a result of management's cost reduction efforts. General and administrative expenses increased to $19.3 million for the year ended June 30, 2000 from $2.7 million for the year ended June 30, 1999. General and administrative expenses increased primarily because of the increase in payroll, which was increased to support the Company's revenue; and for legal, accounting and consulting fees related to the Company's continued expansion in Latin America. Sales and Marketing Sales and marketing expenses consist primarily of advertising costs, distribution costs and related production costs. Sales and marketing expenses increased $1.3 million to $3.5 million for the fiscal year ended June 30, 2001 as compared to $2.2 million for the fiscal year ended June 30, 2000. The increase is primarily due to costs incurred to support the increase in sales during fiscal 2001. As a percentage of total revenue, sales and marketing expenses decreased 10.1 percentage points to 11.0% in fiscal 2001 from 21.1% in fiscal 2000 as a result of sales growing at a much faster pace than the Company's marketing expenditures. Sales and marketing expense increased to $2.2 million for the year ended June 30, 2000 from $0.2 million for the year ended June 30, 1999. The increase in fiscal 2000 from fiscal 1999 is primarily attributable to costs associated with the Company's growth in advertising during fiscal 2000. Depreciation and Amortization A large component of the Company's depreciation and amortization expense is related to the amortization of acquired customer base. The value of acquired customer bases, which is amortized over three years using the straight-line method, was created as a result of the allocation of the price paid to acquire a company that was in excess of the value of its tangible assets. Depreciation expense is primarily related to telecommunications equipment, computers and network infrastructure. Assets are depreciated over their useful lives, generally ranging from three to ten years. Management expects that depreciation expense will increase as the Company's network infrastructure is expanded. Depreciation and amortization expense increased $9.0 million to $17.1 million for the year ended June 30, 2001 from $8.1 million for the year ended June 30, 2000. The increase in depreciation and amortization is a direct result of increases in computer equipment and assets under capital leases that primarily consisted of computer and related equipment. Such assets were purchased to support the increased levels of operations and anticipated future growth of the Company. Depreciation and amortization expenses increased to $8.1 million for the year ended June 30, 2000 from $0.2 million for the year ended June 30, 1999. The increase in depreciation and amortization expense is attributable to the increase in property and equipment and the acquired customer base due to the acquisitions the Company completed in Latin America during late fiscal 1999 and 2000. 17 Non-Cash Stock-Based Compensation Expense For the fiscal year ended June 30, 2001, the Company recorded $7.2 million as non-cash stock compensation, an increase of $0.8 million from $6.4 million as recorded for the fiscal year ended June 30, 2000. IFX has recorded non-cash stock compensation totaling $6.4 million in connection with the grant of stock options to employees during the year ended June 30, 2000 as compared to $39,000 for the year ended June 30, 1999. The increase in fiscal 2001 is attributable predominantly to the amortization related to the increase of additional employee options in fiscal 2000. Amortization of such amounts in fiscal 2002 is expected to be approximately $4.5 million. Impairment of Acquired Customer Base At June 30, 2001, the Company estimated that the undiscounted cash flows associated with its acquired customer base may not be sufficient to recover the net book value of such assets. In accordance with SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS 121"), the Company has recorded an impairment charge of approximately $10.9 million. This non-cash impairment charge was at estimated fair value. The estimates of the fair value of the long-lived assets are based on a valuation of such assets performed by management. The estimated fair values, as required by SFAS 121, did not consider the value of such assets in a forced sale or liquidation and were based primarily on an analysis of the operations' discounted net cash flows. Contract Cancellation Costs During fiscal 2000, IFX recorded $4.9 million relating to the cancellation of certain contracts, which represent one-time charges of a non-recurring nature. The acceleration and settlement of certain consulting agreements were paid in shares of IFX common stock with an approximate value of $4.2 million at the time of issuance. Other Income/(Expense) During fiscal 2001, IFX recorded $8.3 million as other expense as compared to other expense of $11.9 million during fiscal 2000. Other expense in fiscal 2001 is primarily attributable to $3.2 million of the Company's share of the losses of its equity method investee. In addition, the Company incurred costs associated with interest expense of $1.9 million and realized a loss on investments of $2.5 million. As a result of the deconsolidation and treatment of Tutopia as an equity investment, the Company expensed approximately $11.8 million related to the results for Tutopia in fiscal 2000. In addition, interest expense increased to $0.6 million for the year ended June 30, 2000, as compared to $0 for the year ended June 30, 1999. Beneficial Conversion Feature of Preferred Stock In May 2001, the Company issued approximately 4.4 million shares of convertible preferred stock for $15.5 million, of which each share is convertible into one share of the IFX common stock. In June and July 2000, the Company issued approximately 2 million shares of preferred stock for $25.0 million that were each convertible into one share of IFX common stock at a conversion price of $12.31 per share. As part of the May 2001 issuance of preferred stock, the conversion ratio of the 2 million shares of preferred stock was automatically adjusted to 3.52 shares of common stock for each preferred share. The change in the conversion ratio resulted in a $25.0 million non-cash beneficial conversion feature that was recognized as a deemed dividend to preferred shareholders in the 2001 statement of operations. 18 Income tax benefit For the year ended June 30, 2001, the Company recorded a tax benefit of approximately $1.5 million from its continuing operations compared to a benefit of $2.8 million for the year ended June 30, 2000. The fiscal 2001 benefit is due to utilization of net operating losses against income from discontinued operations. The effective tax rate for fiscal 2001 and 2000 was approximately 2% and 5%, respectively. Operating losses that could not be utilized to recover prior year tax liabilities have been fully reserved with a valuation allowance at June 30, 2001 and 2000. For the year ended June 30, 2000, the Company recorded a tax benefit of approximately $2.8 million from its continuing operations compared to a benefit of $0.8 million for the year ended June 30, 1999. The effective tax rate for fiscal 2000 and 1999 was 5% and 32%, respectively. The benefits consist of tax expense related to discontinued operations and amounts to be received from the utilization of net operating loss carry-backs to periods in which the Company incurred a tax liability. Operating losses that could not be utilized to recover prior year tax liabilities have been fully reserved with a valuation allowance at June 30, 2000 and 1999. Income from discontinued operations, net For the year ended June 30, 2001, the Company had income from discontinued operations of approximately $2.8 million, net of taxes, as compared to $2.0 million earned for the year ended June 30, 2000. The increase results from the $2.4 million sale of a redeemable preference share during fiscal 2001, thereby reducing future earn-out payments. For the year ended June 30, 2000, the Company earned net of taxes approximately $2.0 million from its discontinued operations. That compares to $3.1 million earned for the year ended June 30, 1999. The decrease was related to lower profitability of the businesses sold and the lower earn-out percentage the Company receives. FINANCIAL CONDITION Liquidity and Capital Resources For the year ended June 30, 2001, cash used in operating activities was approximately $15.0 million compared to cash used of $15.8 million for fiscal 2000. The revenues from Internet operations and earn-out payments related to discontinued operations provided the majority of cash in fiscal 2001. The cash used in operations is mainly related to the connectivity expenses of the Company's network, operating leases, payroll and advertising. In addition, IFX invests cash not needed for operations at any of its subsidiaries in short-term investments such as U.S. Government obligations and overnight time deposits. As of June 30, 2001, the Company had approximately $7.6 million of unrestricted cash and equivalents. The Company's receivables and deferred revenues have increased as a result of increased sales, as have prepaid expenses, accounts payable and accrued expenses. For the year ended June 30, 2001, cash used in investing activities was approximately $13.0 million compared to cash used in investing activities of $2.5 million for the same period in fiscal 2000. A majority of the cash used in investing activities relates to the acquisition of approximately $7.1 million in property and equipment, a $3.1 million investment in Tutopia and $0.7 million of payments on liabilities related to acquisitions. In addition, as a requirement of certain capital lease obligations which were entered into during fiscal 2001, the Company was obligated to maintain restricted cash of $2.1 million at June 30, 2001. For the year ended June 30, 2001, cash provided by financing activities was approximately $22.7 million compared to $27.0 million for fiscal 2000. IFX received a $25.6 million investment by UBS Capital and certain other shareholders during fiscal 2001 through the sale of approximately 5.2 million shares of preferred stock. Cash of approximately $2.9 million was used for payments of capital lease obligations. 19 In connection with certain of its capital lease agreements, the Company is required to maintain cash of $2.1 million in restricted interest-bearing accounts. In addition, one capital lease agreement contains covenants that require the Company to maintain certain operating ratios, limitations on debt and a minimum level of total revenues. As of June 30, 2001, IFX did not meet the minimum level of revenue covenant that required the Company to have $38 million in total revenues for fiscal 2001 versus the $32 million actually recognized. As a result, $1.6 million of long-term lease obligations have been reclassified as current liabilities. The Company is in negotiation to obtain a waiver of this requirement during the second quarter of fiscal 2002. At June 30, 2001, the Company had a working capital deficit of $11.6 million. The Company has also incurred significant operating losses and operating cash flow deficiencies during the past several fiscal years. As a result, the Company is dependent on funding from outside sources and existing shareholders to meet its ongoing commitments and obligations. On October 11, 2001, UBS Capital Americas agreed to invest an additional $7 million of cash and surrender 1.5 million shares of IFX common stock currently held by UBS Capital Americas in exchange for approximately 3.8 million shares of newly issued IFX Series C Preferred Stock. Each share of Series C Preferred Stock will initially be convertible into one share of IFX common stock. The Series C Preferred Stock carries a liquidation preference of $3.00 per share and will also participate with the IFX common stock after UBS Capital Americas receives its liquidation preference and accrued dividends, provided that the maximum amount which can be received with respect to the Series C Preferred Stock after taking into account the participation feature is limited to 3-1/2 times the sum of the Series C Preferred Stock liquidation preference and accrued dividends. The UBS Capital Americas investment in IFX is expected to close promptly following IFX's annual meeting (which is expected to occur on or before December 10, 2001) and the completion of other customary closing conditions. UBS Capital Americas and certain other shareholders of IFX (together constituting a majority of the outstanding shares) have entered into an agreement obligating them to vote in favor of this transaction. In addition, this transaction has already been approved by the Board of Directors of IFX. This investment will cause the conversion ratio of the approximately 2 million shares of Series A Preferred Stock held by UBS Capital Americas to be adjusted so that each share of Series A Preferred Stock will be convertible into approximately 4.1 shares of IFX common stock, rather than 3.52 share of IFX common stock as currently provided. This investment will also cause the conversion ratio of the approximately 4.4 million shares of Series B Preferred Stock held by UBS Capital Americas to be adjusted so that each share of Series B Preferred Stock will be convertible into approximately 1.167 shares of IFX common stock, rather than 1 share of IFX common stock as originally provided. The terms of both the Series A and B preferred shares will be amended to add the same limited participation feature as in the Series C Preferred Stock. As part of this transaction, IFX will also provide UBS Capital Americas with the ability to exchange its equity investment in Tutopia.com, Inc. (in which IFX holds a minority investment) for additional shares of IFX preferred stock within one year of closing. After the purchase of the Series C Preferred Stock, UBS Capital will own approximately 57% percent of the shares of IFX (assuming conversion of all IFX convertible preferred stock into IFX common stock) and will be entitled to appoint a majority of the IFX Board of Directors. After the close of this UBS Capital Americas investment, IFX would have approximately 30 million shares of common stock outstanding if all of IFX's convertible preferred stock were converted into common stock. As a result of the transaction discussed above, the Company anticipates increasing the number of common shares authorized from 50 million to 60 million increasing the number of preferred shares from 10 million to 20 million. The Company has also received a commitment for a deferral of payment of approximately $4 million of principal on one of its capital lease commitments through approximately November 2002. In consideration for this deferral and extension, the Company will grant to the lessor 500,000 warrants to purchase shares of the Company's common stock at $1 per share. Such warrants are immediately exercisable and expire 10 years from date of grant. Management also expects to utilize existing cash and cash-equivalents together with operating cash flows, funds from future earn-out payments, and amounts to be paid by Tutopia to fund operations. In the past, the Company has raised funds through the issuance of debt and equity securities and, as discussed above, IFX has committed to sell additional shares of preferred stock to UBS through the issuance of Series C Preferred Stock. Management is not certain whether the Company will be able to continue raising funds through the issuance of securities or through other means on acceptable terms, or at all. The Company's inability to raise sufficient funds in the future could affect IFX's ability to meet its expansion plans, satisfy capital lease and other obligations and IFX would have to postpone most of the Company's expansion goals and capital expenditures until financing is obtained. Cash needs will also be affected by whether Tutopia is able to fulfill its obligations to make cash payments under its network agreement with IFX. The shares of the Company's common stock are currently listed on the NASDAQ Small Cap Market. Due to the decline in the price of the common stock, the common stock could be suspended or delisted from the NASDAQ due to their minimum trading requirements, particularly if the Company's stock price is below $1.00 per share for a prolonged period or certain financial requirements imposed by NASDAQ are not met. However, NASDAQ has announced that it has suspended enforcement of these minimum trading requirements until January 2, 2002. If the shares of the Company's common stock were to be suspended or delisted from the NASDAQ system, it would be much more difficult to dispose of the common stock or obtain accurate quotations as to the price of the securities. This in turn could make it more difficult for the Company to issue to make future debt or equity offerings in the future. Forward-Looking Statements The statements contained herein that are not historical facts are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements can be identified by the use of forward-looking terminology such as "believes," "intends," "plans," "continue," "expects," "may," "will," "should," or "anticipates" or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties. The Company wishes to caution you that these forward-looking statements addressing the timing, costs and scope of the Company's acquisition of, or investments in, existing or future ISP's, the revenue and profitability levels of the ISP's in which the Company invests, the anticipated reduction in operating costs resulting from the integration and optimization of those ISP's the liquidity accounts of the Company, and other matters contained herein regarding matters that are not historical facts, are only predictions. The Company can give no assurance that the future results indicated, whether expressed or implied, will be achieved. These projections and other forward-looking statements are based upon a variety of assumptions relating to the Company's business, which, although the Company considers reasonable, may not be realized. Because of the number and uncertainties of the assumptions underlying the Company's projections and forward-looking statements, some of the assumptions may not materialize and unanticipated events and circumstances may occur subsequent to the date of this report. These forward-looking statements are based on current expectations, and the Company assumes no obligation to update this information. The inclusion of projections and other forward-looking statements should not be regarded as a representation by the Company or any person that these estimates and projections will be realized, and actual results may vary materially. Recent Accounting Pronouncements In July 2001, the FASB issued Statement No. 141, "Business Combinations," ("SFAS 141") and Statement No. 142, "Goodwill and Other Intangible Assets "("SFAS 142"). SFAS 141 requires that the purchase method of accounting be used for all business combinations completed after June 30, 2001. SFAS 141 also specifies that intangible assets acquired in a purchase method business combination must meet certain criteria to be recognized and reported apart from goodwill. SFAS 142 will require that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead they will be tested for impairment at least annually in accordance with the provisions of SFAS 142. SFAS 142 will also require that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." At the July 2001 Emerging Issues Task Force meeting, the SEC staff announced that, among other things, preferred securities that are redeemable upon the occurrence of an event outside the control of the issuer, such as the change in control, are required to be classified outside of equity (EITF D-98 Classification and Measurement of Redeemable Securities). The Company is currently evaluating the impact of this EITF, which may result in the Company reclassifying its preferred stock as mezzanine debt. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Exchange Rate and Inflation Risk The Company's continuing operations are focused primarily in Latin America, subjecting IFX to certain political, economic and commercial risks and uncertainty not typically found in the U.S. The Company's exposure to market risk is directly related to its role as a Latin American Internet services company. The Company's primary market risk exposure relates to foreign exchange rate risk. Foreign exchange rate risk arises from the possibility that changes in foreign currency exchange rates will adversely impact the value of the Company's assets, liabilities and/or equity. When the Company operates in a foreign country, the value of the local currency will probably fluctuate. This fluctuation can cause the Company to gain or lose on the translation to U.S. dollars. Interest Rate Risk The Company's short-term investments are classified as cash and cash equivalents with original maturities of three months or less. Therefore, changes in the market's interest rates do not affect the value of the Company's investments. 20 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA CONSOLIDATED BALANCE SHEETS IFX Corporation and Subsidiaries
June 30, 2001 June 30, 2000 ------------- ------------- ASSETS (Restated) Current assets: Cash and cash equivalents $ 7,647,700 $ 13,835,500 Restricted cash 981,400 -- Receivables, net of allowance for doubtful accounts of $1,955,800 and $922,500 at June 30, 2001 and 2000, respectively 2,692,400 1,208,600 Net assets of discontinued operations 138,900 952,600 Due from related party 910,500 -- Prepaid expenses 1,261,200 746,000 Income taxes receivable -- 1,632,600 ------------ ------------ Total current assets 13,632,100 18,375,300 ------------ ------------ Property and equipment, net 24,284,500 15,190,300 Other assets: Restricted cash - non-current 1,131,700 -- Acquired customer base, net of accumulated amortization of $4,493,500 and $5,511,800 at June 30, 2001 and 2000, respectively 3,953,900 21,220,500 Investments 3,009,000 4,245,100 Foreign taxes recoverable 1,976,100 1,422,400 Other 536,300 843,100 ------------ ------------ Total other assets 10,607,000 27,731,100 ------------ ------------ $ 48,523,600 $ 61,296,700 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 10,926,300 $ 6,683,300 Accrued expenses 5,257,200 4,346,400 Deferred revenues 1,102,700 361,900 Liabilities related to acquisitions -- 1,568,000 Current portion of capital lease obligations 7,926,000 1,935,300 ------------ ------------ Total current liabilities 25,212,200 14,894,900 Long-term liabilities: Notes payable and other long-term liabilities 296,400 374,700 Deferred gain on sale of investment 4,451,900 4,451,900 Capital lease obligations, less current portion 8,142,100 9,032,500 ------------ ------------ Total long-term liabilities 12,890,400 13,859,100 ------------ ------------ Total liabilities 38,102,600 28,754,000 ------------ ------------ Stockholders' equity: Preferred Stock, convertible, $1.00 par value; 10,000,000 shares authorized, 6,449,131 and 1,210,398 issued and outstanding at June 30, 2001 and 2000, respectively 40,463,900 14,900,000 Common stock, $.02 par value; 50,000,000 shares authorized, 14,276,495 and 13,295,183 shares issued and outstanding at June 30, 2001 and 2000, respectively 285,500 265,900 Additional paid-in capital 77,054,600 70,898,100 Accumulated deficit (99,415,000) (41,059,800) Accumulated other comprehensive loss (1,118,500) (329,000) Deferred compensation (6,849,500) (12,132,500) ------------ ------------ Total stockholders' equity 10,421,000 32,542,700 ------------ ------------ $ 48,523,600 $ 61,296,700 ============ ============
See notes to consolidated financial statements 21 CONSOLIDATED STATEMENT OF OPERATIONS IFX Corporation and Subsidiaries
Fiscal year ended June 30, 2001 2000 1999 ----------------- ----------------- ---------------- (Restated) REVENUES: Dial-up $ 7,172,500 $ 8,249,600 $ 616,300 Dedicated line services 7,188,900 1,351,100 28,200 Web hosting and design services 1,283,600 379,000 80,800 Sales to related party 13,842,700 -- -- Other 2,634,100 709,600 -- ----------------- ----------------- ---------------- Total revenues 32,121,800 10,689,300 725,300 COSTS AND EXPENSES: Cost of revenues 20,796,900 8,487,000 445,500 General and administrative 27,030,000 19,304,300 2,691,800 Sales and marketing 3,547,200 2,252,000 247,600 Depreciation and amortization 17,093,800 8,053,100 232,400 Non-cash stock compensation 7,150,600 6,359,100 39,000 Impairment of acquired customer base 10,919,100 -- -- Contract cancellation costs -- 4,906,700 -- ----------------- ----------------- ---------------- Total operating expenses 86,537,600 49,362,200 3,656,300 ----------------- ----------------- ---------------- Operating loss from continuing operations (54,415,800) (38,672,900) (2,931,000) OTHER INCOME (EXPENSE): Interest income 614,100 343,300 376,100 Interest expense (1,918,400) (611,300) -- Loss on investments (2,505,700) -- -- Equity in loss of investees (3,181,400) (11,775,700) (107,700) Other (1,307,300) 101,200 136,200 ----------------- ----------------- ---------------- Total other (expense) income, net (8,298,700) (11,942,500) 404,600 Loss from continuing operations before income taxes (62,714,500) (50,615,400) (2,526,400) Income tax benefit 1,525,800 2,771,400 811,000 ----------------- ----------------- ---------------- Loss from continuing operations (61,188,700) (47,844,000) (1,715,400) Income from discontinued operations, net of taxes 2,833,500 1,967,000 3,117,600 ----------------- ----------------- ---------------- Net (loss) income (58,355,200) (45,877,000) 1,402,200 Deemed dividend on preferred stock (as a result of beneficial conversion feature) (25,000,000) -- -- ----------------- ----------------- ---------------- Net (loss) income available to common stockholders $ (83,355,200) $ (45,877,000) $ 1,402,200 ================= ================= ================ BASIC AND DILUTED (LOSS) INCOME PER SHARE: Loss from continuing operations $ (4.44) $ (4.71) $ (0.26) Discontinued operations 0.20 0.19 0.48 ----------------- ----------------- ---------------- Net (loss) income per share (4.24) (4.52) 0.22 Deemed dividend on preferred stock (as a result of beneficial conversion feature) (1.81) -- -- ----------------- ----------------- ---------------- Net (loss) income per share available to common stockholders $ (6.05) $ (4.52) $ 0.22 ================= ================= ================ WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 13,784,897 10,153,565 6,498,204 ================= ================= ================
See notes to consolidated financial statements 22 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY IFX Corporation and Subsidiaries
Accumulated Additional Retained Other Preferred Common Stock Paid-in Deferred Earnings Comprehensive Stock Shares Amount Capital Compensation (Deficit) Income (loss) Total -------------------------------------------------------------------------------------------------------- Balance at June 30, 1998 $ -- 6,155,540 $ 123,100 $ 7,842,700 $ -- $ 3,415,000 $ (45,700) $ 11,335,100 Stock issued for cash -- 500,000 10,000 990,000 -- -- 1,000,000 Stock and options issued for acquisitions -- 174,700 3,500 2,297,900 -- -- 2,301,400 Compensation associated with grant of stock options and warrants -- -- 39,000 -- -- 39,000 Deferred compensation associated with grant of stock options -- -- -- 129,500 (129,500) -- -- -- Net income -- -- -- -- 1,402,200 1,402,200 Foreign currency translation -- -- -- -- -- 19,700 19,700 ------------- Comprehensive income -- 1,421,900 -------------------------------------------------------------------------------------------------------- Balance at June 30, 1999 -- 6,830,240 136,600 11,299,100 (129,500) 4,817,200 (26,000) 16,097,400 Stock issued for cash -- 5,541,511 110,800 11,020,800 -- -- -- 11,131,600 Stock issued for acquisitions -- 835,598 16,700 20,938,200 -- -- -- 20,954,900 Stock issued for contract termination -- 119,314 2,400 4,154,300 -- -- -- 4,156,700 Issuance of preferred stock 14,900,000 -- -- -- -- -- -- 14,900,000 Compensation expense associated with variable stock options -- -- -- 1,144,400 -- -- -- 1,144,400 Deferred compensation associated with grant of stock options -- -- -- 17,217,700 (12,003,000) -- -- 5,214,700 Common stock retired -- (31,480) (600) (615,200) -- -- -- (615,800) Increase in investment in equity investee as a result of sale of stock by Tutopia -- -- -- 4,079,800 -- -- -- 4,079,800 Compensation expense associated with warrants for contract termination -- -- -- 1,659,000 -- -- -- 1,659,000 Net loss -- -- -- -- -- (45,877,000) -- (45,877,000) Foreign currency translation -- -- -- -- -- -- (303,000) (303,000) ------------- Comprehensive loss -- -- -- -- -- -- -- (46,180,000) -------------------------------------------------------------------------------------------------------- Balance at June 30, 2000 14,900,000 13,295,183 265,900 70,898,100 (12,132,500) (41,059,800) (329,000) 32,542,700 Stock issued for contract termination -- 6,000 100 77,600 -- -- -- 77,700 Stock issued for liabilities related to acquisitions -- 733,666 14,700 4,293,800 -- -- -- 4,308,500 Issuance of preferred stock 25,563,900 -- -- -- -- -- -- 25,563,900 Compensation associated with grant of stock -- 241,646 4,800 2,122,400 -- -- -- 2,127,200 Deferred compensation associated with grant of stock options -- -- -- (337,300) 5,283,000 -- -- 4,945,700 Beneficial conversion feature 25,000,000 -- -- (25,000,000) -- -- -- -- Deemed dividend to preferred shareholders (25,000,000) -- -- 25,000,000 -- -- -- -- Net loss -- -- -- -- -- (58,355,200) -- (58,355,200) Foreign currency translation -- -- -- -- -- -- (789,500) (789,500) ------------- Comprehensive loss -- -- -- -- -- -- -- (59,144,700) -------------------------------------------------------------------------------------------------------- Balance at June 30, 2001 $ 40,463,900 14,276,495 $ 285,500 $ 77,054,600 $ (6,849,500) $(99,415,000) $(1,118,500) $ 10,421,000 ========================================================================================================
See notes to consolidated financial statements 23 CONSOLIDATED STATEMENT OF CASH FLOWS IFX Corporation and Subsidiaries
For the fiscal year ended June 30, 2001 2000 1999 ------------------ ----------------- --------------- (Restated) CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) income $ (58,355,200) $ (45,877,000) $ 1,402,200 Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: Depreciation 7,239,600 2,696,800 76,900 Amortization 9,854,200 5,356,300 155,500 Doubtful account expenses, net of write-offs 1,033,300 842,400 80,100 Compensation associated with stock options 7,150,600 6,359,100 39,000 Compensation associated with consulting agreements -- 4,156,700 -- Loss on investments 2,505,700 -- -- Impairment of acquired customer base 10,919,100 -- -- Loss valuation allowance on investments 350,400 -- -- Equity in loss of equity investees 3,181,400 330,200 107,700 Effect of deconsolidation of Tutopia.com (2,391,900) 4,674,300 -- Change in net assets of discontinued operations 813,700 2,774,300 1,307,600 Changes in operating asset and liabilities: Foreign taxes recoverable (553,700) (1,422,400) -- Receivables (2,426,300) (1,112,100) (218,700) Other assets 306,900 (24,300) (129,500) Due from related party (910,500) -- -- Income taxes receivable 1,632,600 (1,632,600) -- Prepaid expenses (515,200) (746,000) -- Deferred revenues 740,800 361,900 -- Accounts payable and accrued expenses 4,419,900 7,464,400 840,100 ------------------ ----------------- --------------- Cash (used in) provided by operating activities (15,004,600) (15,798,000) 3,660,900 ------------------ ----------------- --------------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisitions, primarily customer base (656,600) (2,443,900) (443,800) Investments (3,135,000) 4,171,500 (3,342,500) Restricted cash (2,113,100) -- -- (Increase) in notes receivable -- (2,700) (1,100) Purchases of property and equipment (7,140,400) (4,236,200) (991,200) ------------------ ----------------- --------------- Cash used in investing activities (13,045,100) (2,511,300) (4,778,600) ------------------ ----------------- --------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds (payments) of notes payable and other long-term liabilities 27,300 34,900 (13,000) Repayment of capital lease obligations (2,939,800) -- -- Proceeds from short-term vendor financing -- 898,500 -- Issuance of common stock -- 11,131,600 1,000,000 Issuance of preferred stock 25,563,900 14,900,000 -- ------------------ ----------------- --------------- Cash provided by financing activities 22,651,400 26,965,000 987,000 ------------------ ----------------- --------------- Effect of exchange rate changes on cash and cash equivalents (789,500) (303,000) (19,700) ------------------ ----------------- --------------- Net (decrease) increase in cash and cash equivalents (6,187,800) 8,352,700 (150,400) Cash and cash equivalents, beginning of period 13,835,500 5,482,800 5,633,200 ------------------ ----------------- --------------- Cash and cash equivalents, end of period $ 7,647,700 $ 13,835,500 $ 5,482,800 ================== ================= =============== Supplemental disclosure of cash flow information Cash paid for interest $ 1,918,400 $ 611,300 $ -- ================== ================= =============== Supplemental non-cash investing and financing activities disclosure: Value of stock issued in conjunction with liabilities related to acquisitions $ 4,308,500 $ 20,954,900 $ 2,301,400 ================== ================= =============== Acquisition of equipment through capital lease obligations $ 8,186,800 $ 1,000,000 $ 2,300,000 ================== ================= =============== Acquisition of equipment through increase in accounts payable $ 940,700 $ -- $ -- ================== ================= ===============
See notes to consolidated financial statements 24 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS IFX Corporation and Subsidiaries June 30, 2001 Note 1 Summary of Significant Accounting Policies Basis of Presentation: The consolidated financial statements include the accounts of IFX Corporation and its wholly-owned subsidiaries (collectively referred to herein as "IFX", "IFX Networks" or the "Company") for which it has a controlling financial interest. All intercompany accounts and transactions are eliminated in consolidation. As more fully discussed in Note 15, during September 2000, the Company's voting interest in its majority-owned subsidiary, Tutopia.com, Inc. ("Tutopia") was reduced from approximately 85% to approximately 48%. As a result of this reduction, the Company deconsolidated Tutopia and began accounting for Tutopia under the equity method. Accordingly, the Company has restated its consolidated financial statements as if Tutopia had been accounted for under the equity method since its inception in January 2000. In addition, in April 2000, Tutopia issued common stock representing approximately a 15% interest in Tutopia to shareholders other than the Company, at a price per common share exceeding the Company's carrying value for the Company's investment in Tutopia's common stock. The restated financial statements reflect an increase in the Company's investment in Tutopia of approximately $4 million as of June 30, 2000 to record the amount in excess of the Company's carrying value as a capital transaction. Fiscal Year: The Company's fiscal year end is June 30. References herein to fiscal 2001, 2000 and 1999 refer to the twelve-month periods ended June 30, 2001, 2000 and 1999, respectively. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Revenue Recognition: Revenue from customer contracts related to dial-up access, dedicated phone line and web hosting fees are recognized ratably over the term of the underlying contract, which is generally from one month to three years. Cash received in advance of revenues earned is recorded as deferred revenues. Incremental revenues derived from other services are recognized as earned. Credit Risk: Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash, investments and trade accounts receivable. The Company's receivables potentially subject the Company to credit risk, as collateral is generally not required. The Company's risk of loss is limited to billings to customers for services. The use of pre-approved charges to customer credit cards and the ability of IFX to terminate Internet access on delinquent accounts, helps limit the risk of these losses. In addition, the large number of customers comprising the Company's customer base helps mitigate the concentration of credit risk. Sources of Supplies: The Company relies on third-party networks, local telephone companies and other companies to provide data communications capacity. Although management feels alternative telecommunications facilities could be found in a timely manner, any disruption of these services could have an adverse effect on the Company's operating results. Cash and Cash Equivalents: The Company considers as cash equivalents all financial instruments with maturity of three months or less when purchased. Restricted Cash: During fiscal 2001, the Company entered into capital lease agreements relating to computer equipment for expansion of the Company's Network. As part of certain of these capital lease agreements, the Company is required to maintain a minimum amount of cash ($2.1 million at June 30, 2001) in restricted interest-bearing accounts. Fair Value of Financial Instruments: The carrying amounts of the Company's cash and cash equivalents, restricted cash, receivables, accounts payable and notes payable approximate fair value due to the short-term nature of these items. 25 Long-Lived Assets: In the event that facts and circumstances indicate that the carrying value of the Company's long-lived assets may be impaired, an evaluation of recoverability is performed. If an evaluation is required, the estimated future undiscounted cash flow associated with the asset is compared to the asset's carrying amount to determine if a write-down is required. Property and Equipment: Property and equipment are stated at cost. Depreciation and amortization is provided using the straight-line method over the estimated useful lives of the assets, commencing when assets are installed or placed in service. The estimated useful lives generally range between 3 and 10 years. Acquired Customer Base: Acquired customer base consists of the excess of the purchase price paid over the tangible net assets of acquired companies. The Company capitalizes specific costs incurred for the purchase of customer bases from other Internet Service Providers ("ISP's"). Acquired customer base, net of amortization, at June 30, 2001 was approximately $4.0 million. Amortization is provided using the straight-line method over three years commencing when the customer base is acquired. Amortization expense was approximately $9.9 and $5.4 million for the years ended June 30, 2001 and June 30, 2000, respectively. In addition, at June 30, 2001, the Company estimated that the undiscounted cash flows associated with its acquired customer base may not be sufficient to recover the net book value of such assets. In accordance with SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" the Company has recorded an impairment charge of approximately $10.9 million in the fourth quarter of fiscal 2001. This non-cash impairment charge was at estimated fair value. The estimated fair values, as required by SFAS 121, did not consider the value of such assets in a forced sale or liquidation and was based primarily on an analysis of the operations' net cash flows. Advertising and Marketing Expenses: The Company expenses all advertising and marketing costs as they are incurred. Advertising expense was $3.5 million, $2.3 million, and $0.2 million during fiscal 2001, 2000 and 1999, respectively. Risks and Uncertainties: The Company's operations are subject to certain risks and uncertainties, including those associated with: a brief history operating in the Internet network business; losses from continuing operations; negative cash flow and fluctuations in operating results and in foreign currency exchange rates; funding expansion and acquisitions; political and economic risks associated with international operations; dependence on key personnel; dependence on suppliers for operation of the network; the need to implement additional management information systems; increasing competition from competitors with lower cost structures, greater recourses, or greater brand recognition; regulatory risks in the countries in which the Company operates; decreased growth in Internet usage; financing arrangement terms that may restrict operations; and pending litigation related to the discontinued operations. Reclassification: Certain amounts previously reported have been reclassified to conform to the current method of presentation. Stock-Based Compensation: The Company grants stock options generally for a fixed number of shares with an exercise price equal to or below the fair value of the shares at the date of grant. The Company accounts for stock option grants to employees in accordance with Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees", and accordingly, recognizes compensation expense only if the market value of the underlying shares on the date of the grant is above the exercise price of the options. Computation of Earnings or Loss per Common Share: The Company calculates earnings or loss per common share in accordance with Statement of Financial Accounting Standards ("SFAS") No. 128, "Computation of Earnings Per Share". Accordingly, basic earnings per share are computed using the weighted average number of common shares outstanding during the period. Diluted earnings per common share is calculated based upon the sum of the weighted average number of shares outstanding and the weighted average number of potentially dilutive securities consisting of stock options and common shares issuable upon the conversion of the Preferred Stock. Potentially dilutive securities have been excluded from the calculation of diluted loss per common share since their effect would have been anti-dilutive. Approximately 3.0 million such potentially dilutive securities were excluded from the fiscal 2001 earnings per share calculation. 26 New Pronouncements: In July 2001, the FASB issued Statement No. 141, "Business Combinations" ("SFAS 141") and Statement No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 141 requires that the purchase method of accounting be used for all business combinations completed after June 30, 2001. SFAS 141 also specifies that intangible assets acquired in a purchase method business combination must meet certain criteria to be recognized and reported apart from goodwill. SFAS 142 will require that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead they will be tested for impairment at least annually in accordance with the provisions of SFAS 142. SFAS 142 will also require that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". The Company is required to adopt the provisions of SFAS 141 immediately, and SFAS 142 effective July 1, 2001. Furthermore, any goodwill and any intangible asset determined to have an indefinite useful life that are acquired in a purchase business combination completed after June 30, 2001 will not be amortized, but will continue to be evaluated for permanent impairment. The Company does not believe that either of these pronouncements will have a significant impact on the Company's financial condition or results of operations. At the July 2001 Emerging Issues Task Force meeting, the SEC staff announced that, among other things, preferred securities that are redeemable upon the occurrence of an event outside the control of the issuer, such as a change in control, are required to be classified outside of equity (EIFT D-98 Classification and Measurement of Redeemable Securities). The Company is currently evaluating the potential impact of this EITF, which may result in the Company reclassifying its preferred stock as mezzanine debt. Cost of Computer Software: Effective July 1, 1999, the Company adopted SOP 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," which requires that certain costs for the development of internal use software should be capitalized, including the costs of coding, software configuration, upgrades and enhancements. For the year ended June 30, 2001 and 2000, the Company capitalized $1.5 million and $2.1 million, respectively. Investments: At June 30, 2000, the Company had investments for which it did not have the ability to exercise influence over the investees; therefore, the Company accounts for these investments under the cost method. Approximately $2.5 million of the Company's investments were written off during the fourth quarter of fiscal 2001 based on management's estimation that the value of such investments had been impaired. Foreign Currency Translation: The functional currency of the Company's active subsidiaries is the local currency. Foreign currency transactions and financial statements (except for those relating to countries with highly inflationary economies) are translated into U.S. dollars at the rate in effect on the date of the transaction or the date of the financial statements, except that revenues, costs and expenses are translated at average exchange rates during each reporting period. Resulting translation adjustments and transaction gains or losses attributable to certain Intercompany transactions that are of a long-term investment nature are excluded from results of operations and accumulated in accumulated other comprehensive income (loss), a separate component of consolidated stockholders' equity. Gains and losses attributable to other Intercompany transactions are included in results of operations. Liquidity Assessment: At June 30, 2001, the Company had a working capital deficit of $11.6 million. In addition, the Company has incurred significant operating losses and operating cash flow deficiencies during the past several fiscal years. As a result, the Company is dependent on funding from outside sources and existing shareholders to meet its ongoing commitments and obligations. On October 11, 2001, UBS Capital Americas agreed to invest an additional $7 million of cash and surrender 1.5 million shares of IFX common stock currently held by UBS Capital Americas in exchange for approximately 3.8 million shares of newly issued IFX Series C Preferred Stock. Each share of Series C Preferred Stock will initially be convertible into one share of IFX common stock. The Series C Preferred Stock carries a liquidation preference of $3.00 per share and will also participate with the IFX common stock after UBS Capital Americas receives its liquidation preference and accrued dividends, provided that the maximum amount which can be received with respect to the Series C Preferred Stock after taking into account the participation feature is limited to 3-1/2 times the sum of the Series C Preferred Stock liquidation preference and accrued dividends. The UBS Capital Americas investment in IFX is expected to close promptly following IFX's annual meeting (which is expected to occur on or before December 10, 2001) and the completion of other customary closing conditions. UBS Capital Americas and certain other shareholders of IFX (together constituting a majority of the outstanding shares) have entered into an agreement obligating them to vote in favor of this transaction. In addition, this transaction has already been approved by the Board of Directors of IFX. This investment will cause the conversion ratio of the approximately 2 million shares of Series A Preferred Stock held by UBS Capital Americas to be adjusted so that each share of Series A Preferred Stock will be convertible into approximately 4.1 shares of IFX common stock, rather than 3.52 share of IFX common stock as currently provided. This investment will also cause the conversion ratio of the approximately 4.4 million shares of Series B Preferred Stock held by UBS Capital Americas to be adjusted so that each share of Series B Preferred Stock will be convertible into approximately 1.167 shares of IFX common stock, rather than 1 share of IFX common stock as originally provided. The terms of both the Series A and B preferred shares will be amended to add the same limited participation feature as in the Series C Preferred Stock. As part of this transaction, IFX will also provide UBS Capital Americas with the ability to exchange its equity investment in Tutopia.com, Inc. (in which IFX holds a minority investment) for additional shares of IFX preferred stock within one year of closing. After the purchase of the Series C Preferred Stock, UBS Capital will own approximately 57% percent of the shares of IFX (assuming conversion of all IFX convertible preferred stock into IFX common stock) and will be entitled to appoint a majority of the IFX Board of Directors. After the close of this UBS Capital Americas investment, IFX would have approximately 30 million shares of common stock outstanding if all of IFX's convertible preferred stock were converted into common stock. As a result of the transaction discussed above, the Company anticipates increasing the number of common shares authorized from 50 million to 60 million increasing the number of preferred shares from 10 million to 20 million. Subsequent to June 30, 2001, the Company also received a commitment for a deferral of payment of approximately $4 million of principal on one of its capital lease commitments through approximately November 2002. In consideration for this waiver and extension, the Company will issue to the lessor 500,000 warrants to purchase shares of the Company's common stock for $1 per share. Such warrants are immediately exercisable and expire 10 years from date of grant. In addition, management expects to utilize existing cash and cash-equivalents together with operating cash flows, funds from earn-out payments, and amounts to be paid by Tutopia to fund the Company's operations. As a result of slower than anticipated reductions in general and administrative expenses and slower dedicated-line revenue growth than anticipated, IFX raised additional equity capital during the quarter ended June 30, 2001. In the past, the Company has raised funds through the issuance of debt and equity securities and IFX may be required to obtain additional capital during fiscal 2002. Management is not certain whether the Company in the future will be able to continue raising funds through the issuance of securities or through other means on acceptable terms, or at all. The Company's inability to raise sufficient funds in the future could materially adversely affect IFX's operating results and financial condition, as well as its ability to meet its expansion plans and to satisfy capital lease and other obligations. Cash needs will also be affected by whether Tutopia is able to fulfill its obligations to make cash payments under its network agreement with IFX. Note 2 Discontinued Operations In June 1999, IFX divested its 50.1% interest in IFX Ltd. in exchange for approximately $2.45 million and a redeemable preference share entitling IFX to quarterly payments equal to approximately 30% of the net profits, as specifically defined, of IFX Ltd. through June 30, 2002. Following the sale of its U.K. subsidiary, IFX decided not to invest the sales proceeds in the trading business and, instead, decided to continue to develop businesses in the Internet industry. Accordingly, the Company has accounted for this disposal, and the disposal of operations related to the same business segment made in prior years, as noted below, as discontinued operations. In September 2000, IFX sold its IFX Ltd. redeemable preference share to the other shareholders of IFX Ltd. for $2.4 million, thus terminating IFX's right to future earn-out payments from IFX Ltd. 27 The following table summarizes financial information related to the Company's discontinued operations:
Fiscal year ended June 30, ----------------------------------------------- 2001 2000 1999 ----------------------------------------------- Income from discontinued operations before income taxes $ 4,359,300 $ 3,026,100 $ 4,785,500 Income tax provision on discontinued operation (1,525,800) (1,059,100) (1,667,900) ----------------------------------------------- Income from discontinued operations, net of taxes $ 2,833,500 $ 1,967,000 $ 3,117,600 ===============================================
The information set forth in the remaining notes to consolidated financial statements relates to continuing operations unless otherwise specified. Note 3 Acquisitions A majority of IFX's acquisitions have been structured such that the Company pays an agreed upon percentage of the purchase price at closing ("first payment") with the remainder of the purchase price paid 60 to 360 days after closing ("second payment"). The amounts owed by IFX to the Internet Service Providers ("ISP's") it has acquired are classified as liabilities related to acquisitions. During fiscal 2001, the Company settled such liabilities through the issuance of 733,666 shares of common stock with a fair market value of $4.3 million and cash of $0.7 million. The Company accounts for acquisitions under the purchase method of accounting and the results of operations of the acquired entities have been included in the financial statements of the Company from the respective dates of acquisition. During fiscal 2000, the Company acquired 18 companies for a total purchase price of approximately $26.0 million, of which approximately $2.4 million was paid in cash, approximately $20.9 million was paid by issuing 835,598 shares of the Company's common stock, approximately $1.6 million was recorded as a liability related to acquisitions and the Company assumed approximately $0.7 million in accounts payable and accrued expenses. No material acquisitions were made during fiscal 2001. The following unaudited pro forma data summarizes the results of operations for the periods indicated as if the acquisitions, which were made during fiscal 2000, had been completed on July 1, 1999, the beginning of fiscal 2000. The pro forma data gives effect to actual operating results prior to the acquisitions and adjustments to goodwill amortization and income taxes. These pro forma amounts do not purport to be indicative of the results that would have actually been obtained if the acquisitions had occurred on July 1, 1999 or that may be obtained in the future. The pro forma data does not give effect to acquisitions completed subsequent to June 30, 2000 since such amounts are immaterial.
Year Ended June 30, 2000 ------------------------ (Unaudited) Total revenues................................... $ 14,306,500 Net loss......................................... (54,978,400) Basic and diluted net loss per common share...... $ (5.41)
Note 4 Property and Equipment Property and equipment consists of the following:
June 30, ------------------------------------- 2001 2000 ------------------------------------- Computer equipment $ 7,647,800 $ 3,817,600 Furniture and fixtures 1,445,900 671,800 Leasehold improvements 1,172,500 728,600 Assets under capital lease agreements 19,062,500 10,918,700 Software 3,638,900 2,102,400 Other 1,701,900 162,400 ------------------------------------- 34,669,500 18,401,500 Less accumulated depreciation and amortization (10,385,000) (3,211,200) ------------------------------------- Property and equipment, net $ 24,284,500 $ 15,190,300 =====================================
Accumulated amortization of assets under capital lease agreements was approximately $5.4 million at June 30, 2001. Amortization expense related to capital leases is included in depreciation and amortization in the consolidated statement of operation. 28 Note 5 Accrued Expenses Accrued expenses consist of the following:
June 30, --------------------------------- 2001 2000 ------------------------------------------------------------------------------ Salaries and employee benefits $ 1,078,800 $ 599,200 Legal and professional fees 1,271,800 1,680,800 Telecommunications 2,192,500 763,900 Foreign and local taxes 146,400 915,900 All other 567,700 386,600 ------------------------------------------------------------------------------ Total $ 5,257,200 $ 4,346,400 ==============================================================================
Note 6 Commitments Operating and Capital Leases The Company maintains facilities and offices at various locations throughout the United States and Latin America for general corporate purposes, including technology centers, customer call centers, office space and headquarters. The Company also leases office space in Chicago, Illinois, but subsequent to August 28, 1998, this space was subleased through the end of the lease term for an amount equal to the lease payments. In addition to office leases, the Company is entering into lease agreements for satellite bandwidth. Lease expense related to continuing operations amounted to $1.5 million, $2.0 million and $0.1 million in fiscal 2001, 2000 and 1999, respectively. Operating lease commitments at June 30, 2001 were approximately $3.5 million through the year 2006 of which $0.6 million is related to satellite bandwidth. At June 30, 2001, the Company had capital lease obligations of approximately $16.1 million. All the capital leases entered into by the Company were to finance equipment and software for the Company's network. Future minimum payments under capital leases and non-cancelable operating leases with initial terms of one year or more consisted of the following at June 30, 2001:
Operating Net Operating Lease Sublease Lease Capital Lease Total Fiscal Year Obligations Rentals Obligations Obligations Obligations ---------------------------------------------------------------------------------------------------------- 2002 $ 2,209,000 $ (397,500) $ 1,811,500 $ 7,997,700 $ 9,809,200 2003 871,200 (66,600) 804,600 7,480,900 8,285,500 2004 354,900 - 354,900 3,165,600 3,520,500 2005 57,700 - 57,700 88,300 146,000 2006 44,800 - 44,800 - 44,800 ---------------------------------------------------------------------------------------------------------- Total lease obligations $ 3,537,600 $ (464,100) $ 3,073,500 18,732,500 $ 21,806,000 =========== ========== =========== ============ Amount representing interest 2,664,400 -------------- Present value of net minimum lease payments $ 16,068,100 ==============
In connection with certain of its capital lease agreements, the Company is required to maintain cash of $2.1 million in restricted interest-bearing accounts. In addition, one capital lease agreement contains covenants that require the Company to maintain certain operating ratios, limitations on debt and a minimum level of total revenues. As of June 30, 2001, IFX did not meet a revenue covenant that required the Company to have $38 million in total revenues for fiscal 2001 versus the $32 million actually recognized. As a result, $1.6 million of long-term lease obligations have been reclassified to current liabilities. The Company is in negotiation to obtain a waiver of this requirement during the second quarter of fiscal 2002. 29 Other A limited indemnification agreement was issued to a buyer of the Company's brokerage assets. This agreement covers potential customer claims arising from activity prior to the sale. Employment agreements The Company has employment agreements with several of its officers. The agreements generally require continuation of salary and provide other benefits subsequent to termination or change of control in the Company. Note 7 Notes payable and other long-term liabilities In connection with certain acquisitions, the Company assumed notes payable aggregating to a principal amount of approximately $0.3 million as of June 30, 2001. Note 8 Litigation Contingencies The Company may be threatened with legal proceedings arising from its regular business activities. In addition, certain of the Company's discontinued operations are involved in litigation that may impact the Company in the event of an unfavorable outcome. Management, after consultation with legal counsel, is of the opinion that the ultimate liability, if any, resulting from any pending action or proceedings will not have a material effect on the financial position or results of operations of the Company. Note 9 Stockholders' Equity Common Stock At June 30, 2001, there were 14,276,495 outstanding shares of common stock, approximately 4,631,790 shares of the Company's common stock reserved for stock options and warrants, and 210,000 warrants which were granted in fiscal 1999 and remain outstanding. During fiscal 2001, IFX issued 6,000, 733,666 and 241,646 shares of common stock for contract termination liabilities related to acquisitions and shares of stock granted to employees for compensation, respectively. Preferred Stock The Company is authorized to issue shares of preferred stock in series with such preferences and designations as the Company's Board of Directors may determine. The Board can, without shareholder approval, issue preferred stock with voting, dividend, liquidation, and conversion rights. This could dilute the voting strength of the holders of the common stock and may help IFX's management impede a takeover or attempted change in control. As of June 30, 2001, the Company has 6,449,131 preferred shares outstanding. As reported on the Company's Reports on Forms 8-K dated March 16, 2001 and May 10, 2001, the Company received approximately $15.5 million in funding from UBS Capital Americas to be used for working capital purposes. Pursuant to the Stock Purchase Agreement dated as of March 13, 2001, by and among the Company and UBS Capital Americas, as amended by Amendment No. 1 to the Stock Purchase Agreement dated as of March 13, 2001, UBS Capital Americas purchased 3,994,127 shares of IFX's Class I Series B Convertible Preferred Stock and 424,135 shares of IFX's Class II Series B Convertible Preferred Stock on May 7, 2001. All of the shares were purchased at $3.50 per share. The Class I Series B Convertible Preferred Stock has full voting rights and each preferred share is convertible into one share of IFX's common stock. The Class II Series B Convertible Preferred Stock has the same rights as the Class I Series B Convertible Preferred Stock except that it may not vote for the Board of Directors. At the election of UBS Capital Americas, each share of the Class II Series B Convertible Preferred Stock is convertible after one year into one share of Class I Convertible Preferred Stock. Under the terms of the Series A Preferred Stock previously issued by IFX, this investment caused the conversion ratio of the approximately 2 million shares of Series A Preferred Stock held by UBS Capital Americas to be adjusted so that each share of Series A Preferred Stock will be convertible into approximately 3.52 shares of the Company's common stock, rather than one share of the Company's common stock as originally provided. The Series A conversion ratio adjustment resulted in a beneficial conversion feature of approximately $25 million. Such amount has been recognized as a deemed dividend to preferred shareholder in May 2001. 30 In 2000, IFX has issued 2,030,869 shares of IFX Class I Series A Preferred Stock and IFX Class II Series A Preferred Stock to UBS Capital Americas III in exchange for $25 million, of which $14.9 million was received by the Company on June 16, 2000 and $10.1 million was received on July 17, 2000. Each share is exchangeable for 3.52 share of common stock, subject to adjustment if IFX issues shares of common stock (or certain common stock equivalents as discussed above) at less than $3.50 per share. Each share of preferred stock has a liquidation preference equal to the sum of: a) $12.31 per share and b) $1.231 for each year that the preferred share is outstanding. The liquidation preference is payable in the event of a liquidation of IFX as well as 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 IFX in which the shareholders of IFX immediately prior to the consummation of such transaction do not own at least a majority of the outstanding shares of the surviving corporation or IFX (as applicable) immediately following the consummation of such transaction or sale of all or substantially all of the assets of IFX. Dividends accrue on the shares at the same rate that dividends accrue on shares of IFX common stock in and when declared by the Company's Board of Directors. At June 30, 2001, the Company's Series A and Series B Preferred Stock had a liquidation preference of approximately $44 million (10% per annum liquidation preference return). Investment in Tutopia. On the closing of the sale of the IFX Series B Preferred Stock to UBS Capital Americas, UBS Capital Americas and IFX invested approximately $1.8 million and $3.1 million, respectively, in Series A Convertible Preferred Stock of Tutopia. After the investment, the Company's voting interest in Tutopia remained less than 50%. On August 31, 2000, UBS Capital Americas and certain other shareholders of the Company invested a total of $20 million in Tutopia in exchange for Series A Preferred Stock of Tutopia. Following these investments, assuming the exchange of all of the Series A Preferred Stock for Tutopia common stock, IFX will indirectly own approximately 48% of the outstanding stock of Tutopia. Also, the majority of the owners of the Series A Convertible Preferred Stock receive the right to appoint a majority of the directors of Tutopia. Note 10 Stock-Based Compensation Plans Directors Stock Option Plan During November 1999, the Company's shareholders approved the IFX Corporation Directors Stock Option Plan (the "Directors Plan"). In general, the Directors Plan provides that each non-employee eligible director automatically will receive an option to purchase (i) 450 shares of common stock upon such director's initial election to the Board of Directors of the Company, provided such director is elected after the effective date of the Directors Plan, and (ii) for each year thereafter and on the date of each annual meeting of the stockholders of the Company, 450 shares of common stock for service as a director and 75 shares of common stock for each Committee of the Board of Directors upon which such director serves. Employee Stock Option Plan During November 1999, the Company approved an amendment to the IFX Corporation 1998 Stock Option and Incentive Plan (the "Option Plan") to increase the number of shares of common stock available for issuance under the Option Plan from 900,000 to 1,800,000. In June 2000, the Company's shareholders voted to increase the size of the Option Plan by an additional 600,000 shares and an additional 600,000 shares were reserved for issuance pursuant to the 1998 Stock Option Plan. In connection with the granting of stock options to employees in fiscal 2000, the Company recorded deferred compensation of approximately $17.2 million. Deferred compensation is being amortized for financial reporting purposes over the vesting period of the options. The amount recognized as expense during fiscal 2001, 2000 and 1999 amounted to approximately $4.9 million, $5.2 million and $39,000, respectively. No options were granted during fiscal 2001 for which compensation expense was recorded. In connection with the sale of the Series B Preferred Stock in May 2001, the Company has agreed to (i) amended the Option Plan to, among other things, increase the number of shares of common stock available for issuance under the Option Plan to 4,631,790 shares of common stock and (ii) adopted the IFX Corporation 2001 Stock Option Plan (the "2001 Plan"). Options under the 2001 Plan will vest thirty four percent (34%) one year after the date granted, and eight and one quarter percent (8.25%) on the last day of each of the following quarters. 31 The following table summarizes the Company's stock option activity:
Weighted Average Shares Exercise Price ------------------------------------------------------------------------- Outstanding at June 30, 1999 442,500 $ 5.97 Granted 1,896,167 12.54 Cancelled (34,750) 18.21 Exercised (9,033) 9.71 ------------------------------------------------------------------------- Outstanding at June 30, 2000 2,294,884 10.05 Granted 826,450 4.68 Cancelled (165,518) 17.98 ------------------------------------------------------------------------- Outstanding at June 30, 2001 2,955,816 $ 9.28 =========================================================================
The following table summarizes information concerning outstanding options at June 30, 2001:
Weighted Average Weighted Remaining Exercise Price Number of Average Contractual Life Number Weighted Average Range Shares Exercise Price (in years) Exercisable Exercise Price -------------------------------------------------------------------------------------------------------------- $ 3.00 to 5.00 951,825 $ 3.34 9.1 225,333 $ 3.00 5.01 to 10.00 1,178,134 8.75 8.9 94,141 7.85 10.01 to 15.00 398,166 14.04 8.1 142,500 13.47 15.01 to 20.00 407,691 19.20 8.4 153,857 18.94 20.01 to 30.00 20,000 26.25 8.2 20,000 26.25 ------------ ------------- 2,955,816 $ 9.28 8.8 635,831 $10.65 ============ =============
Statement of Financial Accounting Standards No. 123 The Company has elected to account for its stock-based compensation plans under APB No. 25, however, the Company has computed for pro forma disclosure purposes the fair value of all options granted using the Black-Scholes option-pricing model as prescribed by SFAS No. 123 using the following weighted-average assumptions.
Year Ended June 30, --------------------------------------------- 2001 2000 1999 --------------------------------------------- Risk-Free Interest Rate 5.65% 6.00% 5.50% Expected Dividend Yield 0.00% 0.00% 0.00% Expected Lives 5.0 years 5.0 years 5.0 years Expected Volatility 1.01 0.96 1.25
The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. The per share weighted average fair value of options granted during fiscal 2001, 2000 and 1999 was $9.28, $10.05 and $5.97, respectively. 32 The Company's pro forma information is as follows:
Fiscal year ended June 30, ----------------------------------------------------- 2001 2000 1999 ----------------------------------------------------- Net(loss) income As reported $ (58,355,200) $ (45,877,000) $ 1,402,200 Pro forma $ (68,950,700) $ (55,119,000) $ 1,288,600 Basic and diluted earnings (loss) per share As reported $ (4.24) $ (4.52) $ 0.22 Pro forma $ (5.01) $ (5.43) $ 0.20
Note 11 Segment Reporting The Company is structured primarily around the geographic markets it serves and operates reportable segments in Argentina, Bolivia, Brazil, Chile, Colombia, Mexico, Venezuela, Central America and the United States and all other. All of the segments provide Internet related services. Selected financial information for the years ended June 30, 2001 and 2000 by segment is presented below:
2001 2000 --------------------------------------------------------------------------------------------------------- Loss from continuing Loss from continuing operations before operations before Revenues income taxes Total assets Revenues income taxes Total assets --------------------------------------------------------------------------------------------------------- Argentina $ 3,766,700 $ (1,909,600) $ 2,615,100 $ 70,300 $ (3,226,800) $ 988,200 Bolivia 1,513,400 (759,100) 1,102,100 660,100 (816,200) 1,238,700 Brazil 5,725,100 (7,720,400) 14,073,800 3,767,300 (4,813,800) 17,107,300 Chile 3,842,600 (787,300) 2,339,400 1,974,300 (1,965,400) 6,211,100 Colombia 1,945,200 (1,047,000) 1,554,300 119,800 (1,127,900) 884,000 Mexico 3,999,400 (2,563,900) 4,575,000 1,461,900 (2,804,900) 7,513,300 Venezuela 2,730,400 (1,311,800) 2,111,200 1,633,300 (573,800) 2,711,200 Central America 2,170,400 (2,341,300) 1,497,600 550,900 (1,289,600) 2,961,300 United States and all other 6,428,600 (44,274,100) 18,655,100 451,400 (33,997,000) 21,681,600 ---------------------------------------------------------------------------------------------------------------------------- Total $ 32,121,800 $ (62,714,500) $ 48,523,600 $ 10,689,300 $ (50,615,400) $ 61,296,700 ============================================================================================================================
Included in the above table are sales to Tutopia of approximately $13.8 million and $0 for fiscal 2001 and 2000, respectively. Sales to Tutopia represented approximately 43.1% of IFX's total revenues for the fiscal year ended June 30, 2001. Note 12 Foreign Taxes Recoverable In general, IFX's foreign subsidiaries pay a Foreign Value Added Tax ("VAT") on their purchases. The foreign taxes recoverable is the difference between what IFX has paid in VAT Taxes and what it has collected in VAT from the Company's customers. At June 30, 2001, IFX had a net difference of approximately $2.0 million that is classified as Foreign Taxes Recoverable in the accompanying consolidated balance sheet. 33 Note 13 Income Taxes The Company accounts for income taxes under FASB Statement No. 109, "Accounting for Income Taxes" (FASB 109). Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The benefit relating to income taxes for each of the years ended June 30, is as follows: Year ended June 30, ----------------------------------------------- 2001 2000 1999 ----------------------------------------------- Current $ 1,525,800 $ 2,771,400 $ 811,000 Deferred - - - ----------------------------------------------- Total Benefit $ 1,525,800 $ 2,771,400 $ 811,000 =============================================== The benefit reflected is due primarily to the utilization of net operating losses against income from discontinued operations. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's net deferred income taxes are as follows: Fiscal Year End ---------------------------------- 2001 2000 ---------------------------------- DEFERRED TAX ASSETS: Bad debt reserve $ 684,600 $ 347,100 Depreciation 73,700 59,600 Other accruals 98,400 56,100 Amortization 4,357,300 1,390,500 Deferred gain on investment 1,674,500 1,674,500 Writeoff of investments 965,400 -- Impairment of customer base 3,614,400 -- Tax credits 761,400 761,400 NOL carry-forward 19,298,200 9,639,100 --------------------------------- Deferred tax assets 31,527,900 13,928,300 Less valuation allowance (31,325,900) (13,702,900) --------------------------------- Total deferred tax assets 202,000 225,400 Deferred tax liabilities: Other liabilities (202,000) (225,400) --------------------------------- Total deferred tax liabilities (202,000) (225,400) --------------------------------- Total net deferred taxes $ -- $ -- ================================= 34 SFAS 109 requires a valuation allowance to reduce the deferred tax assets reported if, based on the weight of the evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. After consideration of all the evidence, both positive and negative, management has determined that a $31.3 million valuation allowance is necessary to reduce the net deferred tax asset to an amount that will more likely than not be realized. The change in the valuation allowance for the current year is $17.6 million. At June 30, 2001, the Company has available net operating loss carry forwards as follows: Losses expiring in fiscal 2002-2003 ----------------------------------- El Salvador $ (719,300) Guatemala (678,700) Costa Rica (480,200) Honduras (701,000) Uruguay (263,800) Venezuela (1,885,600) Losses expiring in fiscal 2004-2005 ----------------------------------- Nicaragua $ (286,500) Argentina (5,136,400) Colombia (2,260,900) Panama (765,100) Losses expiring after 2010 -------------------------- Mexico (4,826,800) United States (51,284,100) Losses with indefinite life: --------------------------- Bolivia (1,469,400) Brazil (12,534,100) Chile (2,318,500) The United States and foreign components of loss from continuing operations before income taxes are as follows: For the Year Ending June 30, ------------------------------------------------ 2001 2000 1999 ------------------------------------------------ United States $(43,970,000) $(24,775,900) $ (1,458,500) Foreign (18,744,500) (25,839,500) (1,067,900) ------------------------------------------------ Total $(62,714,500) $(50,615,400) $ (2,526,400) ================================================ 35 Reconciliation of the total provision for income taxes to the Federal statutory rate for the years ended June 30, is as follows: Years ended June 30, --------------------------------------- 2001 2000 1999 --------------------------------------- Tax at U.S. statutory rate (34)% (34)% (34)% State taxes, net of federal benefit (3) (2) -- Stock option expense 3 3 -- Warrant expense -- 1 -- Other 1 -- 2 Change in valuation allowance 30 27 -- --------------------------------------- (3)% (5)% (32)% ======================================= During fiscal year 2001, IFX received a refund of approximately $1.6 million related to the carry back of net operating losses to fiscal 1999 and 2000. Note 14 Related Party Transactions The Company believes that all transactions disclosed below and in Note 15 have been, and the Company's Board of Directors intends that any future transactions with its officers, directors, affiliates or principal stockholders will be, on terms that are no less favorable to the Company than those that are obtainable in arm's length transactions with unaffiliated third parties. UBS Capital Americas: On an as converted basis, UBS Capital owns approximately 50% of the Company and approximately 34% of the Company's investee, Tutopia. During fiscal 2001 and 2000, UBS Capital made significant investments in both the Company and Tutopia as more fully discussed in Note 9. Sales to Tutopia accounted for approximately 43.1% of the Company's total sales for fiscal 2001. Tutopia was a consolidated subsidiary of the Company during fiscal 2000 as more fully discussed in Note 1, and was deconsolidated from the operations of the Company in September 2000. Tutopia had only nominal revenues in fiscal 2000 and revenues of approximately $2.1 million in fiscal 2001. To date, Tutopia has been dependent upon funding from UBS and the Company to pay for the services provided by IFX. Should UBS or the Company be unwilling or unable to make additional investments, or should Tutopia be unable to pay the Company through its operations, the financial condition and operating results of the Company may be seriously impacted. Mr. Moore is a director and Mr. Lama a principal of UBS Capital Americas, LLC, an affiliate of UBS Capital Americas, which purchased $25 million of IFX Preferred Stock in June and July 2000 and $15 million of preferred stock in Tutopia, a former subsidiary of IFX, in August 2000. Mr. Moore and Mr. Lama have an investment interest in UBS and thus may benefit from transactions between UBS on the one hand and IFX and its subsidiaries on the other. 36 UBS Capital Investment In IFX: As reported on the Company's Reports on Forms 8-K dated March 16, 2001 and May 10, 2001, the Company received approximately $15.5 million in funding from UBS Capital Americas to be used for working capital purposes. Pursuant to the Stock Purchase Agreement dated as of March 13, 2001, by and among the Company and UBS Capital Americas, as amended by Amendment No. 1 to the Stock Purchase Agreement dated as of May 7, 2001, UBS Capital Americas purchased 3,994,127 shares of IFX's Class I Series B Convertible Preferred Stock and 424,135 shares of IFX's Class II Series B Convertible Preferred Stock. All of the shares were purchased at $3.50 per share. The Class I Series B Convertible Preferred Stock has full voting rights and each preferred share is convertible into one share of the IFX's common stock. The Class II Series B Convertible Preferred Stock has the same rights as the Class I Series B Convertible Preferred Stock except that it may not vote for the Board of Directors. At the election of UBS Capital Americas, each share of the Class II Series B Convertible Preferred Stock is convertible after one year into one share of Class I Convertible Preferred Stock. Under the terms of the Series A Preferred Stock previously issued by IFX, this investment caused the conversion ratio of the approximately 2 million shares of Series A Preferred Stock held by the Purchasers to be adjusted so that each share of Series A Preferred Stock will be convertible into approximately 3.52 shares of the Company's common stock, rather than one share of the Company's common stock as originally provided. The Series B conversion ratio adjustment results in a beneficial conversion feature of approximately $25 million. Such amount was recognized as a dividend to preferred shareholder in May 2001. Yupi Shares: Pursuant to an Amended and Restated Stock Purchase Agreement, dated as of June 12, 2000 between IFX Online, a subsidiary of the Company, and Lee Casty, a significant stockholder of IFX, IFX Online sold a part of its shares of Yupi Preferred Stock to Mr. Casty for a total purchase price of approximately $5.0 million. The proceeds were used for the Company's working capital. As a result of Yupi abandoning its IPO plans the Agreement noted above was amended to provide Casty with a minimum return on his investment in the event IFX entered into an agreement to sell its investment in Yupi. This contingency kept IFX from recognizing a gain on the sale until any potential payments to Casty were resolved or otherwise settled. Accordingly, the $1.9 million gain previously recognized was reversed in the fourth quarter of fiscal 2000. In August 2001 Yupi entered into a merger agreement with T1MSN Corp. The Company received proceeds of approximately $46,000 with respect to such merger, of which approximately $16,000 is payable to Casty. Note 15 Tutopia.com, Inc. During September 2000, the Company's voting interest in its majority-owned subsidiary, Tutopia was reduced from approximately 85% to approximately 48%. As a result of this reduction, the Company deconsolidated Tutopia and began accounting for Tutopia under the equity method. For the fiscal year ended June 30, 2001, IFX derived approximately 43.1% of its total revenues from Tutopia. At June 30, 2001, IFX has accounts receivable from Tutopia in the amount of approximately $0.9 million, of which approximately $0.6 million is related to services provided to Tutopia's Brazilian operations. Tutopia ceased Brazilian operations during fiscal 2001. IFX and Tutopia entered into an agreement whereby Tutopia will pay the portion related to Tutopia's Brazilian operations by June 2002, consequently, IFX has elected to defer recognition of revenue on the $0.6 million until payment has been received from Tutopia. 37 The unaudited operating results of Tutopia are as follows: Fiscal year ended June 30, 2001 2000 (Unaudited) (Unaudited) ---------------- ----------------- Revenues $ 2,113,100 $ 58,300 Operating expenses 25,328,700 13,937,600 ---------------- ----------------- Operating loss (23,215,600) (13,879,300) Net loss $ (22,918,800) $ (13,457,300) ================ ================= During the first quarter of fiscal 2001, the Company's investment in Tutopia was reduced to $0 under the equity method of accounting. In May 2001, IFX invested an additional $3.1 million in Tutopia as a result of the UBS investment in IFX. As a result of this investment, the Company expensed 0.2 million of losses related to its proportionate share of Tutopia's losses. Selected financial information from Tutopia's Balance Sheet: June 30, 2001 (Unaudited) ---------------- Current assets $ 4,825,900 Non-current assets 431,400 Total assets 6,286,100 Current liabilities 1,288,600 Long-term liabilities -- Total liabilities 1,288,600 Stockholder's equity 4,994,500 38 Note 16 Quarterly Financial Data (Unaudited)
Quarter ended ------------------------------------------------------------------------------------------------------------------------------ 9/30/00 12/31/00 3/31/01 6/30/01 Total ------------------------------------------------------------------------------------------------------------------------------ Revenue $ 7,490,500 $ 8,328,100 $ 8,787,800 $ 7,515,400 $ 32,121,800 Cost of revenues 4,927,300 5,386,400 5,213,900 5,269,300 20,796,900 Income from discontinued operations, net 1,911,700 395,800 406,300 119,700 2,833,500 Net loss (11,308,700) (10,385,700) (9,388,300) (27,272,500) (58,355,200) Deemed dividend on preferred stock (as a result of beneficial conversion feature) - - - (25,000,000) (25,000,000) ------------------------------------------------------------------------------------------------------------------------------ Net loss available to common stockholders $ (11,308,700) $ (10,385,700) $ (9,388,300) $(52,272,500) $ (83,355,200) ============================================================================================================================== Per share - basic and diluted: Continuing operations $ (0.99) $ (0.79) $ (0.70) $ (1.96) $ (4.44) Discontinued operations 0.14 0.03 0.03 0.00 0.20 --------------------------------------------------------------------------------- Net loss (0.85) (0.76) (0.67) (1.96) (4.24) Deemed dividend on preferred stock (as a result of beneficial conversion feature) - - - (1.81) (1.81) ------------------------------------------------------------------------------------------------------------------------------ Net loss available to common stockholders $ (0.85) $ (0.76) $ (0.67) $ (3.77) $ (6.05) ============================================================================================================================== Quarter ended ------------------------------------------------------------------------------------------------------------------------------ 9/30/99 12/31/99 3/31/00 6/30/00 Total ------------------------------------------------------------------------------------------------------------------------------ (Restated) (Restated) Revenue $ 1,218,600 $ 2,598,000 $ 3,269,200 $ 3,603,500 $ 10,689,300 Cost of revenues 1,076,600 1,471,300 2,385,600 3,553,500 8,487,000 Income from discontinued operations, net 442,300 497,700 494,600 532,400 1,967,000 Net loss $ (3,689,200) $ (5,898,700) $(10,966,700) $(25,322,400) $ (45,877,000) Per share - basic and diluted: Continuing operations $ (0.56) $ (0.74) $ (1.01) $ (2.40) $ (4.71) Discontinued operations 0.06 0.06 0.04 0.03 0.19 ------------------------------------------------------------------------------------------------------------------------------ Net loss $ (0.50) $ (0.68) $ (0.97) $ (2.37) $ (4.52) ==============================================================================================================================
As discussed in Note 1, the Company determined that the undiscounted cash flows associated with acquired customer base would not be sufficient to recover the net book value of such assets resulting in the Company recording an impairment charge of approximately $10.9 million during the fourth quarter of fiscal 2001. In May 2001, the Company completed the issuance of approximately 4.4 million shares of convertible preferred stock for $15.5 million, of which each share is convertible into one share of the IFX common stock. Prior to May 2001, the Company had issued approximately 2 million shares of preferred stock for $25.0 million in June and July 2000 that were each convertible into one share of IFX common stock at a conversion price of $12.31 per share. As part of the May 2001 sale of preferred stock, the conversion ratio of the 2 million shares of preferred stock was automatically adjusted to 3.52 shares of common stock for each preferred share. The change in the conversion ratio resulted in a $25.0 million non-cash beneficial conversion feature that was recognized as a deemed dividend to preferred shareholders in the 2001 statement of operations. In June 2001, IFX recognized a loss on its Yupi investment in the amount of approximately $2.5 million based on management's determination that the value of such investment had been impaired. In addition, during September 2000, the Company's voting interest in its majority-owned subsidiary Tutopia fell below 50%. As a result, the Company deconsolidated Tutopia and began accounting for its investment under the equity method. Accordingly, the Company restated its fiscal 2000 consolidated financial statements as if Tutopia had been accounted for under the equity method since its inception in January 2000. 39 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Stockholders of IFX Corporation and Subsidiaries We have audited the accompanying consolidated balance sheets of IFX Corporation and subsidiaries as of June 30, 2001 and June 30, 2000, and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for each of the three years in the period ended June 30, 2001. Our audits also included the financial statement schedules listed in the Index at Item 14(a). These financial statements and schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of IFX Corporation and subsidiaries at June 30, 2001, 2000 and 1999, and the consolidated results of their operations and their cash flows for each of the three years in the period ended June 30, 2001, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. As discussed in Note 1, the consolidated financial statements for the year ended June 30, 2000 have been restated. /s/ ERNST & YOUNG LLP Miami, Florida, September 10, 2001, except for the 29th through 33rd paragraphs of Note 1, as to which the date is October 11, 2001 40 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES None PART III -------------------------------------------------------------------------------- ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Certain information with respect to directors and executive officers is set forth in Part I of this Report. Additional information required by this Item is incorporated herein by reference to the section entitled "Compliance with Section 16(a) of the Securities and Exchange Act of 1934" of the Proxy Statement related to the Company's 2001 Annual Meeting of Stockholders to be filed by the Company with the Securities and Exchange Commission (the "Definitive Proxy Statement"). ITEM 11. EXECUTIVE COMPENSATION The information required by this Item is incorporated herein by reference to the sections entitled "Executive Compensation" and "Certain Transactions" of the Definitive Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item is incorporated herein by reference to the section entitled "Security Ownership of Certain Beneficial Owners and Management" of the Definitive Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item is incorporated herein by reference to the sections entitled "Certain Transactions" and "Compensation Committee Interlocks and Insider Participation" of the Definitive Proxy Statement. 41 PART IV -------------------------------------------------------------------------------- ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a.) 1. Financial Statements The following financial statements are attached to this Form 10-K.
Form 10-K Page Number ----------------- Report of Independent Certified Public Accountants 40 Consolidated Balance Sheets as of June 30, 2001 and 2000 21 Consolidated Statements of Operations for the years ended June 30, 2001, 2000 and 1999 22 Consolidated Statements of Changes in Stockholders' Equity for the years ended June 30, 2001, 2000 and 1999 23 Consolidated Statements of Cash Flows for the years ended June 30, 2001, 2000 and 1999 24 Notes to Consolidated Financial Statements 25
2. Financial Statement Schedules SCHEDULE II IFX CORPORATION AND SUBSIDIARIES Valuation and Qualifying Accounts (For Continuing Operations)
Additions ------------------------------- Charged to Balance at (Benefits Charged to Beginning of Against) Costs Other Accounts Deductions Balance at Description Period and Expenses (Describe) (Describe) End of Period --------------------------------------------------------------------------------------------------------------- Allowance for Doubtful Accounts For the year ended June 30, 2001 $ 922,500 $ 1,033,300 $ -- $ -- $ 1,955,800 For the year ended June 30, 2000 80,100 842,400 -- -- 922,500 For the year ended June 30, 1999/1/ -- 80,100 -- -- 80,100 ---------------------------------------------------------------------------------------------------------------
/1/ Reclassified to net assets of discontinued operations
Additions --------------------------------- Charged to Balance at (Benefits Charged to Beginning of Against) Costs Other Accounts Deductions Balance at End Description Period and Expenses (Describe) (Describe) of Period -------------------------------------------------------------------------------------------------------------------------- Deferred Tax Valuation Account For the year ended June 30, 2001 $ 13,702,900 $ -- $ 17,623,000/1/ $ -- $ 31,325,900 For the year ended June 30, 2000 -- -- 13,702,900/1/ -- 13,702,900 For the year ended June 30, 1999 -- -- -- -- -- --------------------------------------------------------------------------------------------------------------------------
/1/ Record a valuation allowance for deferred tax assets. All other schedules called for under Regulation S-X are not submitted because they are not applicable or not required or because the required information is not material or is included in the financial statements or notes thereto. 42 Exhibit 21.1 SUBSIDIARIES OF THE REGISTRANT
Level Name of Subsidiary Jurisdiction Relationship to Parent ----- ------------------ ------------ ---------------------- IFX CORP. State of Delaware N/A 1 IFX/Communications Ventures, Inc. State of Delaware 100% owned subsidiary 2 FX Chicago, Inc. State of Delaware 100% owned subsidiary 3 IFX/Telecom, Inc. State of Delaware 100% owned subsidiary 4 IFX/EN, Inc. State of Delaware 100% owned subsidiary 4a (a) IFX Networks, Ltd. British Virgin Islands 100% owned subsidiary 4a-1 (i) IFX Online, Inc. State of Delaware 100% owned subsidiary 4a-2 (ii) IFX/ENI-SPC I, Inc. British Virgin Islands 100% owned subsidiary 4a-2-1 (A) Unete.com, SRL/1/ Venezuela 100% owned subsidiary 4a-3 (iii) IFX/ENI-SPC II, Inc. British Virgin Islands 100% owned subsidiary 4a-3-1 (A) IFX Networks Costa Rica, SRL Costa Rica 100% owned subsidiary 4a-4 (iv) IFX/ENI-SPC III, Inc. British Virgin Islands 100% owned subsidiary 4a-4-1 (A) IFX Networks Colombia, Ltda. Colombia 100% owned subsidiary 4a-5 (v) IFX/ENI-SPC IV, Inc. British Virgin Islands 100% owned subsidiary 4a-5-1 (A) Servicios de Internet ENI Chile, Ltda. Chile 100% owned subsidiary 4a-5-1-1 (1) IFX Networks Chile, S.A. Chile 100% owned subsidiary 4a-5-1-2 (2) IFX Chile Larga Distancia, S.A. Chile 100% owned subsidiary 4a-6 (vi) IFX/ENI-SPC V, Inc. British Virgin Islands 100% owned subsidiary 4a-6-1 (A) IFX Networks Argentina, SRL Argentina 100% owned subsidiary 4a-7 (vii) IFX/ENI-SPC VI, Inc. British Virgin Islands 100% owned subsidiary 4a-8 (viii) IFXENI-SPC VII, Inc. British Virgin Islands 100% owned subsidiary 4a-8-1 (A) Unete.com Uruguay, S.A./2/ Uruguay 100% owned subsidiary 4a-9 (ix) IFX/ENI-SPC VIII, Inc. British Virgin Islands 100% owned subsidiary 4a-9-1 (A) IFX Networks Bolivia, Ltda. Bolivia 100% owned subsidiary 4a-10 (x) IFX/ENI-SPC IX, Inc. British Virgin Islands 100% owned subsidiary 4a-11 (xi) IFX/ENI-SPC X, Inc. British Virgin Islands 100% owned subsidiary 4a-12 (xii) ENI/SPC Mexican Holdings, Inc. State of Delaware 100% owned subsidiary 4a-12-1 (A) IFX Networks Mexico, S. de R.L. de C.V. Mexico 100% owned subsidiary 4a-13 (xiii) IFX/ENI-SPC Ecuador, Inc. British Virgin Islands 100% owned subsidiary 4a-13-1 (A) Unete.com C. Ltda. Ecuador 100% owned subsidiary 4a-14 (xiv) IFX/ENI-SPC El Salvador, Inc. British Virgin Islands 100% owned subsidiary 4a-14-1 (A) IFX Networks El Salvador, Ltda. de CV El Salvador 100% owned subsidiary 4a-15 (xv) IFX/ENI-SPC Guatemala, Inc. British Virgin Islands 100% owned subsidiary 4a-15-1 (A) IFX Networks Guatemala Ltda. Guatemala 100% owned subsidiary 4a-16 (xvi) IFX Networks Nicaragua, Inc. British Virgin Islands 100% owned subsidiary 4a-16-1 IFX Networks Nicaragua, Inc., and Compania Ltda Nicaragua 100% owned subsidiary 4a-17 (xvii) IFX/ENI-SPC Honduras, Inc. British Virgin Islands 100% owned subsidiary 4a-17-1 (A) Unete.com de Honduras S de RL./3/ Honduras 100% owned subsidiary 4a-18 (xviii) IFX/ENI-SPC Panama, Inc. British Virgin Islands 100% owned subsidiary 4a-18-1 (A) IFX Networks Panama, SA Panama 100% owned subsidiary 4a-19 (xix) IFX/ENI-SPC Uruguay, Inc. British Virgin Islands 100% owned subsidiary 4a-20 (xx) Minority Stock Holding Corp. British Virgin Islands 100% owned subsidiary 4a-21 (xxi) ENI Brazilian Holdings, LLC. State of Delaware 100% owned subsidiary 4a-21-1 (A) IFX do Brasil, Ltda. Brazil 100% owned subsidiary 4a-21-2 (B) IFX Telecomunicacoes do Brasil Ltda Brazil 100% owned subsidiary 4a-22 (xxii) CELC/IFX, LLC State of Delaware 100% owned subsidiary 4a-22-1 (A) Communications Equipment Leasing Corp. British Virgin Islands 100% owned subsidiary 4a-23 (xxiii) IFX/CELC II, Inc. State of Delaware 100% owned subsidiary 5 IFX Facilito, Inc. State of Delaware 100% owned subsidiary 6 Latin Guide, Inc. State of Delaware 100% owned subsidiary
________________________________________ /1/ In the process of changing its legal name to IFX Networks Venezuela, S.R.L. /2/ In the process of changing its legal name to IFX Networks Uruguay, Ltda. /3/ In the process of changing its legal name to IFX Networks Honduras, S. de R.L. 43 PART IV -------------------------------------------------------------------------------- ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a.) 1. Financial Statements The following financial statements are attached to this Form 10-K.
Form 10-K Page Number ----------------- Report of Independent Certified Public Accountants 40 Consolidated Balance Sheets as of June 30, 2001 and 2000 21 Consolidated Statements of Operations for the years ended June 30, 2001, 2000 and 1999 22 Consolidated Statements of Changes in Stockholders' Equity for the years ended June 30, 2001, 2000 and 1999 23 Consolidated Statements of Cash Flows for the years ended June 30, 2001, 2000 and 1999 24 Notes to Consolidated Financial Statements 25
2. Financial Statement Schedules SCHEDULE II IFX CORPORATION AND SUBSIDIARIES Valuation and Qualifying Accounts (For Continuing Operations)
Additions ------------------------------- Charged to Balance at (Benefits Charged to Beginning of Against) Costs Other Accounts Deductions Balance at Description Period and Expenses (Describe) (Describe) End of Period --------------------------------------------------------------------------------------------------------------- Allowance for Doubtful Accounts For the year ended June 30, 2001 $ 922,500 $ 1,033,300 $ -- $ -- $ 1,955,800 For the year ended June 30, 2000 80,100 842,400 -- -- 922,500 For the year ended June 30, 1999/1/ -- 80,100 -- -- 80,100 ---------------------------------------------------------------------------------------------------------------
/1/ Reclassified to net assets of discontinued operations
Additions --------------------------------- Charged to Balance at (Benefits Charged to Beginning of Against) Costs Other Accounts Deductions Balance at End Description Period and Expenses (Describe) (Describe) of Period -------------------------------------------------------------------------------------------------------------------------- Deferred Tax Valuation Account For the year ended June 30, 2001 $ 13,702,900 $ -- $ 17,623,000/1/ $ -- $ 31,325,900 For the year ended June 30, 2000 -- -- 13,702,900/1/ -- 13,702,900 For the year ended June 30, 1999 -- -- -- -- -- --------------------------------------------------------------------------------------------------------------------------
/1/ Record a valuation allowance for deferred tax assets. All other schedules called for under Regulation S-X are not submitted because they are not applicable or not required or because the required information is not material or is included in the financial statements or notes thereto. 42 3 Exhibits The exhibits listed on the Exhibit Index on page 44 of this Form 10-K are filed herewith or are incorporated herein by reference. The Company filed reports on Form 8-K on May 10, 2001. Exhibit Number Description of Exhibit -------------- ---------------------- 3.1/1/ Restated Certificate of Incorporation of the Registrant 3.2/2/ Certificate of Amendment of Restated Certificate of Incorporation of the Registrant 3.3/1/ By-laws, effective June 15, 2000 4.1/3/ Amended Certificate of Designation, Powers, Preferences and Rights of Series A Convertible Preferred Stock of the Registrant 4.2/3/ Certificate of Designation, Powers, Preferences and Rights of Series B Convertible Preferred Stock of the Registrant 4.3/3/ Amended and Restated Registration Rights Agreement dated as of May 7, 2001 among the Registrant, UBS Capital Americas III, L.P., UBS Capital LLC, International Technology Investments, LC and Casty Grantor Subtrust 10.1/3/ Second Amended and Restated Stockholders Agreement dated as of May 7, 2001 among Registrant, UBS Capital Americas III, L.P., UBS Capital LLC, International Technology Investments, LC, Joel Eidelstein, Michael Shalom and Casty Grantor Subtrust 10.2/4/ Series B Convertible Stock Purchase Agreement dated as of March 13, 2001 among the Registrant, UBS Capital Americas III, L.P. and UBS Capital LLC 10.3/3/ Amendment No. 1 to Purchase Agreement dated as of May 7, 2001 among the Registrant, UBS Capital Americas III, L.P. and UBS Capital LLC 10.4/1/ Form of Non-Qualified Stock Option Agreement (1998 Stock Option Plan) between the Registrant and employee with attached schedule describing actual option grants 10.5/4/ Form of Stock Option Agreement (2001 Option Plan) between the Registrant and employee with attached schedule describing actual option grants 10.6 Employment Agreement dated as of May 7, 2001 between Joel Eidelstein and the Registrant 10.8 Employment Agreement dated as of May 7, 2001 between Michael Shalom and the Registrant 10.9 Payment and Release Agreement dated June 15, 2001, between Zalman Lekach and the Registrant 10.11 Employment Agreement dated as of May 7, 2001 between Jose Leiman and the Registrant 10.12/1/ Amended and Restated Stock Purchase Agreement dated as of June 12, 2000 between the Registrant and Lee S. Casty 10.13 Agreement between Registrant and Lee S. Casty dated August 28, 2001 10.14/4/ Form of Directors Stock Option Agreement with attached schedule describing actual option grants 10.15/6/ Dial Access Agreement dated as of August 30, 2000 between Tutopia.com, Inc. and the Registrant 10.16/5/ Revenue Sharing Agreement dated as of August 31, 2000 between Tutopia.com, Inc. and the Registrant 10.17/2/ Inter-Company Services Agreement dated as of August 31, 2000 between Tutopia.com, Inc. and the Registrant 10.18/2/ Share Sale Agreement, dated August 24, 2000, between Duncan Lawrie Offshore Services Limited in its capacity as trustee for The IFX Group Trust and the Registrant 10.19/6/ Lucent Technologies Agreement 21.1/5/ List of subsidiaries of the Company 23.1/5/ Consent of Ernst & Young LLP ____________________________________ /1/ Incorporated by reference to Registrant's Report on Form 8-K filed on July 5, 2000 /2/ Incorporated by reference to Registrant's Report on Form 10-Q filed on February 14, 2001 /3/ Incorporated by reference to Registrant's Report on Form 8-K filed on May 10, 2001 /4/ Incorporated by reference to Registrant's Report on Form 8-K filed on March 16, 2001 /5/ Incorporated by reference to Registrant's Annual Report on Form 10-K filed on September 28, 2000 /6/ Incorporated by reference to Registrant's Report on Form 10-Q filed on November 15, 1999 44 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Miami, State of Florida, on October 12, 2001. IFX CORPORATION By: /s/ Michael Shalom -------------------------------- Michael Shalom, Chief Executive Officer 45 KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Michael Shalom, and each of them, his/her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, to sign, execute and file with the Securities and Exchange Commission (or any other governmental or regulatory authority), for us and in our names in the capacities indicated below, this registration statement on Form 10-K (including all amendments thereto) with all exhibits and any and all documents required to be filed with respect thereto, granting unto said attorneys-in-fact and agents and each of them, full power and authority to do and to perform each and every act and thing necessary and/or desirable to be done in and about the premises in order to effectuate the same as fully to all intents and purposes as he himself/she herself might or could do if personally present, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- /s/ Joel M. Eidelstein Chairman of the Board and President October 12, 2001 ------------------------------ ---------------------- Joel M. Eidelstein /s/ Michael Shalom Chief Executive Officer October 12, 2001 ------------------------------ ---------------------- Michael Shalom (Principal Executive Officer) /s/ Jose Leiman Chief Financial Officer October 12, 2001 ------------------------------ ---------------------- (Principal Financial and Accounting Jose Leiman Officer) /s/ Charles Delaney Director October 12, 2001 ------------------------------ ---------------------- Charles Delaney /s/ Patrick Delhougne Director October 12, 2001 ------------------------------ ---------------------- Patrick Delhougne /s/ Mark O. Lama Director October 12, 2001 ------------------------------ ---------------------- Mark O. Lama /s/ Burton J. Meyer Director October 12, 2001 ------------------------------ ---------------------- Burton J. Meyer /s/ Charles W. Moore Director October 12, 2001 ------------------------------ ---------------------- Charles W. Moore /s/ George A. Myers Director October 12, 2001 ------------------------------ ---------------------- George A. Myers
46 EX-10.6 3 dex106.txt EMPLOYMENT AGREEMENT BETWEEN JOEL EIDELSTEIN Exhibit 10.6 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of May 7, --------- 2001, by and between IFX CORPORATION, a Delaware corporation ("IFX" and, collectively with its subsidiaries, "Employer"), and JOEL EIDELSTEIN -------- ("Employee"). -------- W I T N E S S E T H: WHEREAS, Employer is in the business of acquiring, developing and maintaining Internet access and related services in Latin America and other non- U.S. jurisdictions (the "Business"); WHEREAS, Employer desires to continue to employ Employee to oversee all management and day-to-day operations as President of Employer, and Employee desires to continue such employment, on the terms and subject to the conditions set forth herein; WHEREAS, Employee's existing Employment Agreement (the "Prior Agreement") is dated as of January 1, 2000, and both Employee and Employer believe it would be in the best interests of both Employee and Employer to amend and restate the Prior Agreement by entering into this Agreement; WHEREAS, Employee has had an opportunity to review the terms and conditions of this Agreement, to negotiate the terms hereof and to engage legal counsel on his behalf if he so desires. NOW THEREFORE, in consideration of Employer's continued employment of Employee, the terms, conditions and covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Employee and Employer, intending to be legally bound, hereby agree as follows: ARTICLE I DEFINITIONS 1.1 Terms Defined Herein. Except as otherwise herein expressly -------------------- provided, the following terms and phrases shall have the meanings set forth below: "Affiliate" means (a) in the case of an entity, any Person who or which, --------- directly or indirectly, through one or more intermediaries, controls or is controlled by, or is under common control with, any specified Person or (b) in the case of an individual, such individual's spouse, children, grandchildren or parents or a trust primarily for the benefit of any of the foregoing. "Cause" means (a) the willful and continued failure by Employee to ----- substantially perform his duties under this Agreement (other than any failure resulting from Employee's death or incapacity due to physical or mental illness) for five days after written demand for substantial performance is delivered by Employer which specifically identifies the manner in which Employer believes Employee has not substantially performed his duties and which notice is specifically identified as being issued pursuant to this paragraph, (b) the commission by Employee of theft, embezzlement, fraud or misappropriation of funds against Employer or the willful engaging by Employee in other misconduct which is materially injurious to Employer, (c) the willful violation by Employee of Section 3.1, 3.2, 3.3 or 3.4 of this Agreement or (d) the conviction of Employee of a felony involving fraud, dishonesty or moral turpitude. Notwithstanding anything to the contrary contained herein, none of the following events shall be treated as "cause": (i) bad judgment, (ii) negligence, or (iii) any act or omission that Employee believed in good faith to have been in or not opposed to the interests of the Company. "Change in Control" means the occurrence of any one of the following ----------------- events: (a) any consolidation, merger or other similar transaction involving IFX, following which the stockholders of IFX immediately prior to such transaction fail to hold more than 50% of the outstanding voting securities of the continuing or succeeding corporation in substantially the same proportions, or which contemplates that all or substantially all of the business and/or assets of IFX will be controlled by another corporation; (b) any sale, lease, exchange or transfer (in one transaction or series of related transactions) of all or substantially all of the assets of IFX; (c) approval by the stockholders of IFX of any plan or proposal for the liquidation or dissolution of IFX, unless such plan or proposal is abandoned within 60 days following such approval; (d) the acquisition by any "person" (as such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934), or two or more Persons acting in concert, of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or more of the outstanding shares of voting stock of IFX; provided, however, that for purposes of the foregoing, -------- ------- "person" excludes UBS Capital Americas III, L.P., UBS Capital, LLC, Lee S. Casty, the Casty Grantor Subtrust, International Technology Investments, LC or any of their Affiliates, any underwriter purchasing shares of IFX with the intent of reselling them, or (e) if, during any period of 24 consecutive calendar months commencing on the date of this Agreement, those individuals (the "Continuing Directors") who either (i) were directors of IFX on the first day of -------------------- each such period, or (ii) subsequently became directors of IFX and whose actual election or initial nomination for election subsequent to that date was approved by a majority of the Continuing Directors then on the board of directors of IFX, cease to constitute a majority of the board of directors of IFX. "Common Stock" means shares of common stock, par value $.02 per share, of ------------ IFX. "Disability" means disability as defined in Employer's disability insurance ---------- plan then in effect. "Involuntary Termination" means if Employer terminates Employee for any ----------------------- reason other than Cause or if Employee terminates his employment with Employer 2 (a) within 30 days after Employer materially reduces Employee's duties and responsibilities hereunder; (b) upon material breach of this Agreement by Employer which remains uncured for 30 days following notice thereof from Employee to Employer, provided that Employee gives notice of termination within 5 days of expiration of such thirty day period; (c) the failure to nominate or elect Employee as President, Chief Executive Officer or Chief Operating Officer of IFX; (d) causing or requiring Employee to report to anyone other than Michael Shalom or the Board; (e) assignment of duties materially inconsistent with his position and duties described in this Agreement; (f) the failure of IFX to assign this Agreement to a successor to IFX or the failure of a successor to IFX to explicitly assume and agree to be bound by this Agreement; (g) requiring Employee to be principally located at any office or location more than 50 miles from IFX's current office in Miami Lakes, Florida; or (h) a termination of employment by Employee for any reason or no reason during the 30-day period commencing 12 months after a Change in Control; provided, however, that in the -------- ------- such five-day period, then any such breach shall not be deemed to justify Employee's "Involuntary Termination" hereunder so long as Employer is diligently and in good faith pursuing a cure and such breach is cured no later than 30 days following receipt of the foregoing written notice from Employee. "Person" means any individual, partnership, corporation, limited liability ------ company, joint venture, trust, firm, association, unincorporated organization or other entity. "1998 Plan" means the IFX Corporation 1998 Stock Option and Incentive Plan, --------- as amended, together with any successor thereto. "2001 Plan" means the IFX Corporation 2001 Stock Option Plan, as amended, --------- together with any successor thereto. ARTICLE II TERMS OF EMPLOYMENT 2.1 Employment; Scope of Duties. --------------------------- (a) Employer hereby continues to employ Employee as President of Employer to act as chief operating officer of Employer and to manage and oversee all day-to-day operations of Employer, and Employee hereby accepts such employment with Employer. In performing his duties hereunder, Employee shall report solely to, and shall be subject to the supervision of, the Board of Directors or Michael Shalom. (b) Employee shall devote his best efforts and full business time and attention to the performance of services for Employer in accordance with the terms hereof. During the Term (as defined in Section 2.4), Employee shall not engage in any other business or professional activities, either on a full-time or part-time basis, as an employee, consultant or in any other capacity, whether or not he receives any compensation therefor, without the prior written consent of Employer's Board of Directors; provided, however, that nothing herein shall -------- ------- prevent Employee from (i) making and managing personal 3 investments consistent with Section 3.3 of this Agreement, (ii) from engaging in community and/or charitable activities, so long as such activities, either singly or in the aggregate, do not interfere with the proper performance of Employee's responsibilities to Employer, or (iii) being involved as an officer, director, employee or consultant of ePagos, Inc., or any subsidiary or Affiliate of Employer (including but not limited to Tutopia.com, Inc.). 2.2 Compensation. ------------ (a) As compensation for Employee's services hereunder during the Term, Employer shall pay to Employee (the "Salary"), during calendar year 2001 and subsequent years of the Term, $250,000, less applicable income tax withholdings. The Salary shall be payable in equal biweekly installments in accordance with Employer's customary compensation policies. If, during the term of this Agreement, the Employee should be prevented from performing his duties by reason of Disability, amounts payable by Employer hereunder shall be reduced by the amounts payable under the Employer's disability insurance policy. (b) In addition to the Salary, Employer will pay a cash bonus to Employee for calendar year 2001 of $50,000 if Employer has EBITDA greater than zero for the fourth calendar quarter of 2001. The bonus, if any, shall be payable at a time to be determined by Employer, but in any event no later than 90 days after the end of such calendar year. For these purposes, EBITDA shall mean the consolidated earnings of Employer before interest, taxes, depreciation and amortization, but excluding: i) the effect of earnout payments made in connection with the acquisition of a business or enterprise approved by the Board of IFX, (ii) any charges for non-cash employee compensation, (iii) any gains or losses from investment income, and (iv) gains or losses from non- consolidated subsidiaries. Bonuses for subsequent years shall be determined by the Board of Directors of IFX. (c) In addition to the Salary and bonuses, Employee shall be granted Options as shown on Exhibit A hereto. The Options shall be evidenced by a standard option agreement between Employer and Employee in a form approved by the Compensation Committee or the Board of Directors of Employer and are in addition to options previously granted to Employee under the Prior Agreement. 2.3 Employee Benefits. ----------------- (a) Employee shall be entitled to such paid holidays and vacation time as is consistent with Employer's standard holiday and vacation policy for executive employees of Employer. (b) Subject to Employer's rules, policies and regulations as in effect from time to time (and subject to applicable eligibility requirements, including a minimum employment period), Employee shall be entitled to (i) group life insurance, disability or accident, death or dismemberment insurance, (ii) medical and/or dental insurance program; provided that regardless of the payment for other employees, Employee's 4 premiums for himself and his family shall be paid in full by Employer and shall be for a preferred provider plan or similar plan, (iii) 401(k) benefit plan, if and when Employer establishes such a plan, (iv) other employee benefits that Employer may, in its sole discretion, make generally available to employees of Employer of the same level and responsibility as Employee, (v) all cell phone bills (provided that substantially all calls are made for business related to the Employer, (vi) a car allowance of $750 per month, (vii) high-speed internet access from Employee's principal residence. 2.4 Term. Employee's employment pursuant to this Agreement commenced on ---- January 1, 2000, and shall continue in effect for three years from such date unless otherwise terminated in accordance with Section 2.5. Commencing on January 1, 2001, the Term has been and shall continue to automatically be extended each day by one day, until a date which is two years following the first date, if any, that Employer delivers to Employee or Employee delivers to Employer, as the case may be, written notice that the Term will not be automatically extended. The period of time during which Employee remains employed by Employer pursuant to this Section 2.4 is referred to herein as the "Term." 2.5 Termination of Employment. ------------------------- (a) Disability. ---------- (i) If during the term of this Agreement, the Employee should be prevented from performing his duties by reason of Disability for a continuous period greater than 180 days, Employer may terminate the Employee's employment hereunder by giving written notice thereof to the Employee, effective on the date set forth in the notice (which date shall be not less than 15 business days after the notice is given). For purposes hereof, a continuous period of incapacity shall not be deemed interrupted until the Employee returns to substantially full time work for a period of at least 30 days. (ii) If termination of employment results or occurs due to Disability under this Section 2.5(a), Employee shall receive no other compensation hereunder; provided, however, that until Employee receives disability insurance payments under Employer's disability insurance coverage, Employee shall receive his Salary. All Options held by Employee under the 1998 Plan shall vest immediately upon the date of termination for Disability. (b) Death. ----- (i) In the event of the Employee's death during the term of this Agreement, the Employee's employment hereunder shall be deemed terminated as of the date of the Employee's death. Employee's family shall be entitled to receive fully paid health and dental insurance coverage for one year after Employee's death and all Options held by Employee under the 1998 Plan shall vest immediately. 5 (c) Cause. ----- (i) This Agreement and the Employee's employment hereunder may be terminated at any time by the Company for Cause. (ii) If the Employee's employment is terminated by the Company for Cause or Employee terminates his employment other than by reason of death, Disability or an Involuntary Termination, Employee shall be entitled to no additional payments hereunder and Employee's Options shall be treated as required under the 1998 Plan and the 2001 Plan. (d) Involuntary Termination. In the event of an Involuntary Termination, ----------------------- Employee shall receive the following: (i) immediately after the date of termination, a lump-sum amount in immediately available funds equal to the sum of Executive's accrued but unpaid Salary and a pro-rated portion of the annual bonus paid to Employee for the prior fiscal year; (ii) immediately after the date of termination, a lump-sum amount in immediately available funds equal to the product of the number of whole and fractional years included in the period from the date of termination until the end of the Term (the "Severance Period") multiplied by the sum of Employee's annualized Salary for the current year of the Term plus the bonus for the prior year; (iii) the continuation of the benefits (or, if such benefits are not available, the after-tax economic equivalent thereof) specified in Section 2.3(b) to which Employee is entitled as of the date of termination for the entire duration of the Severance Period or, at the election of Employee, an immediate lump-sum cash payment equal to the value of such benefits; provided that with respect to any benefit to be provided on an insured basis, such value shall be the present value of the premiums expected to be paid for such coverage, and with respect to other benefits, such value shall be the present value of the expected net cost to the Company of providing such benefits; (iv) all options held by Employee under the 1998 Plan shall vest immediately; and (v) all contractual restrictions on the transfer, sale or pledge of the common stock held by the Employee will be immediately extinguished and released. (e) Termination After a Change of Control. If a Termination without ------------------------------------- Cause or an Involuntary Termination occurs within two years after a Change of Control, then Executive shall receive the payments required by Section 2.5(d), except that for purposes of Section 2.5(d)(ii), Executive shall receive three (3.0) times the sum of: i) Employee's annualized Salary in the year of the Change of Control and ii) the highest bonus received by Employee from the Company in the year of the Change of Control or any prior year. (f) Other Termination Benefits. Other than any amounts or benefits -------------------------- payable upon a Termination of Employment hereunder, Executive shall, except as otherwise 6 specifically provided herein, not be entitled to any payments or benefits provided hereunder or under the terms of any plan, policy or program of the Company or as otherwise required by applicable law. ARTICLE III COVENANTS AND AGREEMENTS 3.1 Records and Confidential Data. ----------------------------- (a) Employee acknowledges that, in connection with the performance of his duties hereunder, Employer and its Affiliates will make available to Employee, and/or Employee will have access to, certain Confidential Information (as defined below) of Employer and its Affiliates. Employee acknowledges and agrees that any and all Confidential Information learned or obtained by Employee during the course of his employment by Employer or otherwise, whether developed by Employee alone or in conjunction with others or otherwise, shall be and is the property of Employer and its Affiliates. Employee shall keep all Confidential Information confidential and shall not use any Confidential Information in any manner other than in connection with Employee's discharge of his duties hereunder. (b) Following the first to occur of the termination of Employee's employment hereunder, or as soon as reasonably possible after Employer's written request, Employee shall return to Employer all written Confidential Information which has been provided to Employee and Employee shall destroy all copies of any analyses, compilations, studies or other documents prepared by Employee or for Employee's use containing or reflecting any Confidential Information. Within five business days after receipt of such request by Employee, Employee shall, upon written request of Employer, deliver to Employer a notarized document certifying that such written Confidential Information has been returned or destroyed in accordance with this Section 3.1(b). (c) For purposes of this Agreement, "Confidential Information" shall mean ------------------------ all confidential and proprietary information of Employer and/or its Affiliates, including, without limitation, confidential and proprietary information that is derived from or regarding reports, investigations, experiments, research, trade secrets, work in progress, web site drawing, designs, plans, proposals, requests for proposals, bids, codes, marketing and sales programs, acquisition targets or strategies, information regarding subscribers or web site viewers, client lists, client mailing lists, supplier lists, financial projections, cost summaries, payor information, pricing formulae, marketing studies relating to prospective business opportunities and all other confidential and proprietary materials or information prepared for or by Employer and/or any of its Affiliates. For purposes of this Agreement, Confidential Information shall not include and Employee's obligations under this Section 3.1 shall not extend to (i) information which is generally available to the public, (ii) information obtained by Employee from Persons not under agreement to maintain the confidentiality of the same, and (iii) information which is required to be disclosed by law or legal process (after giving Employer prior written notice thereof and an opportunity to contest such disclosure). 7 3.2 Inventions and Other Matters. ---------------------------- (a) Employee agrees that all, inventions, discoveries or improvements made during the period of Employee's employment with Employer, including, without limitation, computer software (including source code, operating systems and specifications, data, data bases, files documentation and other materials related thereto), HTML or other scripts, web site designs, art work, visual images, programming code and programs, processes, uses, apparatuses, specialized information relating in any way to or that is useful in the business or products of Employer or Employer's actual or demonstrably anticipated research or development, designs or compositions of any kind that Employee, individually or with others, may originate or develop while employed by Employer (collectively, "Inventions"), belong to and shall be the sole property of Employer and ---------- constitute and shall constitute works specially ordered or commissioned as "works made for hire" under the United States Copyright Act and other applicable law. Without limiting the foregoing, Employee hereby assigns and transfers to Employer all rights of whatever nature that Employee may have, including, without limitation, any patent, trade secret, trademark or service mark rights (and any goodwill appurtenant thereto), any rights of publicity and any right, title and interest in any copyright and any right that may affix under any copyright law now or hereinafter in force and effect in the United States of America or in any other country or countries, in and to any Invention. Employee acknowledges and agrees that Employer shall have the royalty-free right to use in its businesses, and to make and sell products, processes, programs, systems designs, methods, formulas, apparatus, techniques, and services derived from any Inventions (whether or not patentable or copyrightable), as well as all improvements thereof or know-how related thereto. The provisions of this Section 3.2 shall survive termination of this Agreement for any reason. (b) For purposes of this Agreement, an Invention shall be deemed to have been "made during the period of Employee's employment" if, during such period, the Invention was conceived, in part or in whole, or first actually reduced to practice. Employee agrees that any patent, copyright or trade mark application (i) covering intellectual property that relates to services performed by Employee hereunder or that is applicable to those products or services of Employer that were within the scope of Employee's responsibilities hereunder, and (ii) that is filed by or for the benefit of Employee or any of his Affiliates within one year after termination of Employee's employment shall be presumed to relate to an Invention made during the term of his employment and Employee shall have the burden of proof to prove otherwise. (c) This Section 3.2 shall not apply to an Invention for which no equipment, supplies, facilities or Confidential Information (as defined below) of Employer was used and that was developed entirely on Employee's own time, unless (i) the invention relates or is applicable to the services performed by Employee hereunder or that is applicable to those services or products of Employer that were within the scope of Employee's responsibilities hereunder, or (ii) results from any work relating to the Business that was performed, caused to be performed, or supervised by Employee for or on behalf of Employer. 8 (d) Employee agrees, without further consideration, to (i) promptly disclose each such Invention to Employer, to Employee's immediate supervisor and to such other individuals as Employer may direct, (ii) execute and to join others in executing such applications, assignments and other documents as may be necessary or convenient to vest in Employer, or its designee, full title to each such Invention and as may be necessary or convenient to obtain United States and foreign patents and copyrights thereon, to the extent Employer may so choose in its sole discretion, (iii) testify in any legal proceeding relative to such Invention whenever requested to do so by Employer, and (iv) furnish all facts relating to such Inventions or the history thereof. (e) Employee agrees that he will not at any time, except as authorized or directed by Employer, publish or disclose any information or knowledge concerning any Inventions. 3.3 Non-Competition. --------------- (a) Employer and Employee recognize that Employee has been retained to occupy a position of trust that constitutes part of the professional, management and executive staff of Employer. Employee, for and in consideration of the payments, rights and benefits provided herein, agrees that so long as he is employed by Employer and, if Employer terminates Employee's employment for Cause or if Employee terminates his employment with Employer for any reason other than pursuant to an Involuntary Termination, for a period of one year thereafter, Employee shall not (i) work or act as an officer or director of or compensated consultant to, (ii) assist, (iii) own, directly or through any Affiliate or joint venture, a 10% or greater interest in, or (iv) make a financial investment (other than a passive, economic investment), whether in the form of equity or debt, in any business that is directly competitive with the Business in the United States, Latin America or in any other market in which Employer is conducting the Business at the time Employee's employment with Employer is terminated. (b) Notwithstanding the foregoing, nothing herein shall prohibit Employee from holding ten percent (10%) or less of any class of voting securities of any entity whose equity securities are listed on a national securities exchange or regularly traded in the over-the-counter market and for which quotations are readily available on the National Association of Securities Dealers Automated Quotation system. (c) If Employer terminates Employee's employment for Cause or if Employee terminates his employment with Employer for any reason other than pursuant to an Involuntary Termination, for a period of one year thereafter, Employee shall promptly notify Employer of each employment or agency relationship entered into by Employee, and each corporation, proprietorship or other entity formed or used by Employee, the business of which is directly competitive with the Business. The provisions of this Section 3.3 shall survive termination of this Agreement for any reason. 9 3.4 Non-Solicitation and Non-Interference. -------------------------------------- (a) Employee acknowledges that Employer has invested substantial time and effort in assembling its present staff of personnel. Employee agrees that so long as he is employed by Employer and for a period of one year thereafter, Employee shall not, directly or indirectly, employ, solicit for employment, or advise or recommend to any other Person that such other Person employ or solicit for employment, any of Employer's employees or recommend to any employee of Employer that he/she cease to be employed by Employer; provided that the -------- ---- restrictions set forth in the immediately preceding sentence shall not apply to any solicitation directed at the public in general e.g., advertisements in publications of general circulation, etc. or to inquiries for employment that were unsolicited, directly or indirectly, by Employee. (b) Employee acknowledges that all customers of Employer, which Employee has serviced or hereafter services during Employee's employment by Employer and all prospective customers from whom Employee has solicited or may solicit business while in the employ of Employer, shall be solely the customers of Employer. Employee agrees that so long as he is employed by Employer and for a period of one year thereafter, Employee shall not either directly or indirectly solicit business, as to products or services competitive with the Business, from any of Employer's customers with whom Employee had contact during his employment with Employer. (c) Employee agrees that so long as he is employed by Employer and for a period of one year thereafter, Employee shall not, directly or indirectly, (i) intentionally disrupt or attempt to disrupt or terminate any relationship between Employer and any of its Business suppliers, clients or employees, or (ii) disparage, malign or discredit the name or reputation of Employer to any customers, clients or suppliers of the Business. Employee agrees that during such one year period, he will not influence or attempt to influence any of the customers or clients of Employer to cease doing business with Employer. 3.5 Restrictions Reasonable. Employee agrees that the restrictions ----------------------- contained in Sections 3.3 and 3.4 are reasonable as to time and geographic scope because of the nature of the Business and Employee agrees, in particular, that the geographic scope of this restriction is reasonable because companies in the same industry as the Business compete on an international basis. Employee acknowledges that Employer is in direct competition with all other companies that provide services and products similar to the Business products and services throughout the United States and Latin America and, because of the nature of the Business, Employee expressly agrees that the covenants contained in Sections 3.3 and 3.4 cannot reasonably be limited to any smaller geographic area. The provisions of Sections 3.3 and 3.4 shall survive termination of this Agreement for any reason. 3.6 Prior Obligations. Employee represents and warrants that (a) Employee ----------------- has no obligation of confidence or other commitments to any previous employer or any others that conflict with this Agreement or restrict Employee's field of activities, and (b) no other agreement to which Employee is subject will conflict with, prevent, be 10 breached by, interfere with or in any manner affect the terms and conditions of this Agreement. 3.7 Injunctive Relief. Employee acknowledge that damages would be an ----------------- inadequate remedy for Employee's breach of any of the provisions of Sections 3.1, 3.2, 3.3 and/or 3.4 of this Agreement, and that breach of any of such provisions will result in immeasurable and irreparable harm to Employer. Therefore, in addition to any other remedy to which Employer may be entitled by reason of Employee's breach or threatened breach of any such provision, Employer shall be entitled to seek and obtain a temporary restraining order, a preliminary and/or permanent injunction, or any other form of equitable relief from any court of competent jurisdiction restraining Employee from committing or continuing any breach of such Section, without the necessity of posting a bond. It is further agreed that the existence of any claim or cause of action on the part of Employee against Employer, whether arising from this Agreement or otherwise, shall in no way constitute a defense to the enforcement of the provisions of Sections 3.1, 3.2, 3.3 and/or 3.4 of this Agreement. ARTICLE IV MISCELLANEOUS 4.1 Notices. All notices and other communications hereunder shall be in ------- writing and shall be deemed given (a) when made, if delivered personally, (b) three business days after being mailed by certified or registered mail, postage prepaid, return receipt requested, or (c) two business days after delivery to a reputable overnight courier service, to the parties, their successors in interest or their assignees at the following addresses, or at such other addresses as the parties may designate by written notice in the manner aforesaid: To Employer: IFX Corporation c/o IFX Communications Ventures Inc. 15050 N.W. 79 Court Suite 200 Miami Lakes, Florida 33016 Attention: President To Employee, to his home address as recorded in the payroll records of Employer from time to time. 4.2 Governing Law. This Agreement shall be governed as to its validity ------------- and effect by the internal laws of the State of Florida, without regard to its rules regarding conflicts of law. 4.3 Agreement To Arbitrate. ---------------------- (a) Employer and Employee agree that any disputes that arise between Employee and Employer (or any of Employer's officers, directors, stockholders, supervisors, employees, agents, Affiliates or successors), excluding disputes arising out 11 of Section 3.1, 3.2, 3.3 or 3.4, that cannot be resolved informally shall be decided by submission of the dispute to binding arbitration before a sole neutral arbitrator who is a retired federal judge pursuant to the American Arbitration Association Commercial Arbitration Rules governing such proceedings, and not by a lawsuit or by resort to court process, except as specifically set forth below. Both parties acknowledge and agree that they are giving up their respective constitutional rights to have any such dispute decided in a court of law before a jury, and instead are accepting the use of the arbitration process. This Section 4.3(a) applies to any and all disputes, including, by way of -------------------- example only and not limited to, disputes regarding termination of Employee's ------------------------------- employment; discrimination and unlawful harassment of any kind (including, without limitation, claims arising under Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. (S)2000(e) et seq. and the Civil Rights Act of 1991; the Age Discrimination in Employment Act, as amended, 29 U.S.C. (S)621, et seq.; the Americans with Disabilities Act of 1990, 42 U.S.C. (S)12101 et seq.; the Family and Medical Leave Act of 1993, 29 U.S.C. (S)2612 et seq.; and all applicable state and local anti-discrimination laws and constitutional provisions); disputes arising under any other applicable federal, state or local labor statutes, regulations or orders; disputes regarding assault and battery; negligent supervision; defamation; invasion of privacy; wages and overtime; and disputes regarding the formation and enforceability of this Section 4.3(a). The following types of disputes are excluded from the scope of coverage of this Section 4.3(a): (i) workers' compensation claims by Employee for on-the-job injuries; and (ii) any and all claims by Employer against Employee, including claims for injunctive relief, arising out of Employee's breach or threatened breach of Section 3.1, 3.2, 3.3 or 3.4 of this Agreement. (b) General Rules of Arbitration. Either party shall have the right to have ---------------------------- counsel represent him/it at the arbitration hearing and in pre-arbitration proceedings. Pre-arbitration discovery shall be permitted in accordance with the Federal Rules of Civil Procedure, except that (i) there shall be no limit on the number of depositions that may be noticed by either party, and (ii) in connection with any pre-arbitration disclosure of expert testimony in accordance with Rule 26(a)(2), the timing of the expert disclosure shall be set by the arbitrator. (c) Authority of Arbitrator. The arbitrator shall have the authority to (i) ----------------------- resolve any discovery disputes that arise between the parties; (ii) resolve any dispute relating to the interpretation, applicability or enforceability of this Section 4.3; and (iii) entertain a motion to dismiss and a motion for summary judgment, applying the standards governing such motions under Federal Rule Of Civil Procedure 12(b)(6) and Rule 56. The arbitrator is required to render his decision in writing, with an opinion stating the bases of his decision. Either party has the right to file a post-arbitration brief, which shall be considered by the arbitrator. (d) Payment of Costs and Fees. Each party shall bear its own costs and ------------------------- attorneys' fees incurred in connection with the arbitration. The arbitrator shall have the discretion to award costs to the prevailing party. The arbitrator's fees shall be borne equally by the parties. Each party shall post his or its portion of the arbitrator's anticipated fee prior to the commencement of the arbitration. 12 (e) Appeals. Either side shall have the right to appeal the arbitrator's ------- decision by applying to a Court (as defined in Section 4.4) for an order vacating the award for any of the reasons set forth in 9 U.S.C. (S)10, or on the basis that the arbitrator has made a mistake of law or fact. The arbitration decision shall stand if it is supported by substantial evidence. 4.4 Jurisdiction; Service of Process. Each of the parties hereto agrees -------------------------------- that any action or proceeding initiated or otherwise brought to judicial proceedings by either Employee or Employer concerning the subject matter of this Agreement that is not subject to Section 4.3, shall be litigated in the United States District Court for Dade County, Florida or, in the event such court cannot or will not exercise jurisdiction, in the state courts of the State of Florida covering Miami, Dade County, Florida (the "Courts"). Each of the ------ parties hereto expressly submits to the jurisdiction and venue of the Courts. Each party hereto waives any claim that the Courts are an inconvenient forum or an improper forum based on lack of venue or jurisdiction. Each party shall bear its own costs and attorneys' fees incurred in connection with any such actions or proceedings. 4.5 Successors and Assigns. This Agreement shall be binding upon and ---------------------- shall inure to the benefit of (a) the heirs, executors and legal representatives of Employee, upon Employee's death or incapacity, and (b) any successor of Employer, and any such successor shall be deemed substituted for Employee or Employer, as the case may be, under the terms hereof for all purposes; provided, -------- however, that any such assignment shall not relieve Employer from its ------- obligations hereunder. As used in this Agreement, "successor" shall include any Person that at any time, whether by purchase, merger, consolidation or otherwise, directly or indirectly acquires a majority of the assets, business or stock of Employer; provided, however, that no acquisition of the stock of Employer by UBS Capital Americas III, L.P., UBS Capital LLC or any of their respective Affiliates (collectively, "UBS") shall cause UBS to be treated as a "successor" hereunder. 4.6 Integration. This Agreement, the Plan and any option agreement ----------- Employee will be required to execute, constitute the entire agreement between the parties with respect to all matters covered herein, including but not limited to the parties' employment relationship and Employee's entitlement to compensation, commissions and benefits from Employer or any of its Affiliated companies and/or the termination of Employee's employment. This Agreement supersedes all prior oral or written understandings and agreements relating to its subject matter and all other business relationships between Employer and/or its Affiliated companies. 4.7 No Representations. No Person has made or has the authority to make ------------------ any representations or promises on behalf of any of the parties which are inconsistent with the representations or promises contained in this Agreement, and this Agreement has not been executed in reliance on any representations or promises not set forth herein. 4.8 Amendments. This Agreement may be modified only by a written ---------- instrument executed by the parties that is designated as an amendment to this Agreement. 13 4.9 Counterparts. This Agreement is being executed in one or more ------------ counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 4.10 Severability and Non-Waiver. Any provision of this Agreement (or --------------------------- portion thereof) which is deemed invalid, illegal or unenforceable in any jurisdiction shall, as to that jurisdiction and subject to this Section, be ineffective to the extent of such invalidity, illegality or unenforceability, without affecting in any way the remaining provisions thereof in such jurisdiction or rendering that or any other provisions of this Agreement invalid, illegal, or unenforceable in any other jurisdiction. If any covenant should be deemed invalid, illegal or unenforceable because its scope is considered excessive, such covenant shall be modified so that the scope of the covenant is reduced only to the minimum extent necessary to render the modified covenant valid, legal and enforceable. 4.11 Voluntary and Knowledgeable Act. Employee represents and warrants ------------------------------- that he has been represented by independent legal counsel of his own choosing and that he has read and understands each and every provision of this Agreement and has freely and voluntarily entered into this Agreement. 4.12 Late Payments. If the Employer fails to pay any amount provided under ------------- this Agreement or any other plan or program sponsored by Employer when due, the Employer shall pay interest on such amount at a rate equal to (i) the highest rate of interest charged by the Employer's principal lender plus 200 basis points, or (ii) in the absence of such a lender, 300 basis points over the prime commercial lending rate announced by Harris Trust and Savings Bank on the date such amount is due or, if no such rate shall be announced on such date, the immediately prior date on which Harris Trust and Savings Bank announced such a rate; provided, however, that if the interest rate determined in accordance with this Section exceeds the highest legally-permissible interest rate, then the interest rate shall be the highest legally-permissible interest rate. 4.13 Effective Date. Notwithstanding anything contained herein to the -------------- contrary, this Agreement shall become effective at the Closing (as defined in the Stock Purchase Agreement dated March 13, 2001, by and among IFX, UBS, and the other parties signatory thereto). 14 IN WITNESS WHEREOF, the parties hereto have executed this Employment Agreement as of the date first above written. EMPLOYER: IFX CORPORATION By: /s/ Michael Shalom ------------------------- Name: Michael Shalom Title: CEO Date: March 13, 2001 EMPLOYEE: /s/ Joel Eidelstein ---------------------------- Joel Eidelstein Date: March 13, 2001 15 EX-10.8 4 dex108.txt EMPLOYMENT AGREEMENT BETWEEN MICHAEL SHALOM EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of May --------- 7, 2001, by and between IFX CORPORATION, a Delaware corporation ("IFX" and, --- collectively with its subsidiaries, "Employer"), and MICHAEL SHALOM -------- ("Employee"). -------- W I T N E S S E T H: -------------------- WHEREAS, Employer is in the business of acquiring, developing and maintaining Internet access and related services in Latin America and other non- U.S. jurisdictions (the "Business"); WHEREAS, Employer desires to continue to employ Employee to oversee all management and day-to-day operations as Chief Executive Officer of Employer, and Employee desires to continue such employment, on the terms and subject to the conditions set forth herein; WHEREAS, Employee's existing Employment Agreement (the "Prior Agreement") is dated as of January 1, 2000, and both Employee and Employer believe it would be in the best interests of both Employee and Employer to amend and restate the Prior Agreement by entering into this Agreement; and WHEREAS, Employee has had an opportunity to review the terms and conditions of this Agreement, to negotiate the terms hereof and to engage legal counsel on his behalf if he so desires. NOW THEREFORE, in consideration of Employer's continued employment of Employee, the terms, conditions and covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Employee and Employer, intending to be legally bound, hereby agree as follows: ARTICLE I DEFINITIONS 1.1 Terms Defined Herein. Except as otherwise herein expressly provided, -------------------- the following terms and phrases shall have the meanings set forth below: "Affiliate" means (a) in the case of an entity, any Person who or which, --------- directly or indirectly, through one or more intermediaries, controls or is controlled by, or is under common control with, any specified Person or (b) in the case of an individual, such individual's spouse, children, grandchildren or parents or a trust primarily for the benefit of any of the foregoing. "Cause" means (a) the willful and continued failure by Employee to ----- substantially perform his duties under this Agreement (other than any failure resulting from Employee's death or incapacity due to physical or mental illness) for five days after written demand for substantial performance is delivered by Employer which specifically identifies the manner in which Employer believes Employee has not substantially performed his duties and which notice is specifically identified as being issued pursuant to this paragraph, (b) the commission by Employee of theft, embezzlement, fraud or misappropriation of funds against Employer or the willful engaging by Employee in other misconduct which is materially injurious to Employer, (c) the willful violation by Employee of Section 3.1, 3.2, 3.3 or 3.4 of this Agreement or (d) the conviction of Employee of a felony involving fraud, dishonesty or moral turpitude. Notwithstanding anything to the contrary contained herein, none of the following events shall be treated as "cause:" (i) bad judgment, (ii) negligence, or (iii) any act or omission that Employee believed in good faith to have been in or not opposed to the interests of the Company. "Change in Control" means the occurrence of any one of the following ----------------- events: (a) any consolidation, merger or other similar transaction involving IFX, following which the stockholders of IFX immediately prior to such transaction fail to hold more than 50% of the outstanding voting securities of the continuing or succeeding corporation in substantially the same proportions, or which contemplates that all or substantially all of the business and/or assets of IFX will be controlled by another corporation; (b) any sale, lease, exchange or transfer (in one transaction or series of related transactions) of all or substantially all of the assets of IFX; (c) approval by the stockholders of IFX of any plan or proposal for the liquidation or dissolution of IFX, unless such plan or proposal is abandoned within 60 days following such approval; (d) the acquisition by any "person" (as such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934), or two or more Persons acting in concert, of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or more of the outstanding shares of voting stock of IFX; provided, however, that for purposes of the foregoing, -------- ------- "person" excludes UBS Capital Americas III, L.P., UBS Capital LLC, Lee S. Casty, the Casty Grantor Subtrust, International Technology Investments, LC or any of their Affiliates, any underwriter purchasing shares of IFX with the intent of reselling them, or (e) if, during any period of 24 consecutive calendar months commencing on the date of this Agreement, those individuals (the "Continuing ---------- Directors") who either (i) were directors of IFX on the first day of each such --------- period, or (ii) subsequently became directors of IFX and whose actual election or initial nomination for election subsequent to that date was approved by a majority of the Continuing Directors then on the board of directors of IFX, cease to constitute a majority of the board of directors of IFX. "Common Stock" means shares of common stock, par value $.02 per share, of ------------ IFX. "Disability" means disability as defined in Employer's disability insurance ---------- plan then in effect. "Involuntary Termination" means if Employer terminates Employee for any ----------------------- reason other than Cause or if Employee terminates his employment with Employer (a) within 30 days after Employer materially reduces Employee's duties and responsibilities hereunder; (b) upon material breach of this Agreement by Employer which remains uncured for thirty (30) days following notice from Employee to Employer, provided that Employee gives notice of termination within -2- five (5) days of expiration of such 30-day period; (c) the failure to nominate or elect Employee as President, Chief Executive Officer or Chief Operating Officer of IFX; (d) causing or requiring Employee to report to anyone other than the Board; (e) assignment of duties materially inconsistent with his position and duties described in this Agreement; (f) the failure of IFX to assign this Agreement to a successor to IFX or the failure of a successor to IFX to explicitly assume and agree to be bound by this Agreement; (g) requiring Employee to be principally located at any office or location more than 50 miles from IFX's current office in Miami Lakes, Florida; or (h) a termination of employment by Employee for any reason or no reason during the 30-day period commencing 12 months after a Change in Control; provided, however, that in the -------- ------- event such breach is curable but Employer is unable to cure such breach within such five-day period, then any such breach shall not be deemed to justify Employee's "Involuntary Termination" hereunder so long as Employer is diligently and in good faith pursuing a cure and such breach is cured no later than 30 days following receipt of the foregoing written notice from Employee. "Person" means any individual, partnership, corporation, limited liability ------ company, joint venture, trust, firm, association, unincorporated organization or other entity. "1998 Plan" means the IFX Corporation 1998 Stock Option and Incentive Plan, --------- as amended, together with any successor thereto. "2001 Plan" means the IFX Corporation 2001 Stock Option Plan, as amended, --------- together with any successor thereto. ARTICLE II TERMS OF EMPLOYMENT 2.1 Employment; Scope of Duties. ---------------------------- (a) Employer hereby continues to employ Employee as President of Employer to act as chief operating officer of Employer and to manage and oversee all day- to-day operations of Employer, and Employee hereby accepts such employment with Employer. In performing his duties hereunder, Employee shall report solely to, and shall be subject to the supervision of, the Board of Directors. (b) Employee shall devote his best efforts and full business time and attention to the performance of services for Employer in accordance with the terms hereof. During the Term (as defined in Section 2.4), Employee shall not engage in any other business or professional activities, either on a full-time or part-time basis, as an employee, consultant or in any other capacity, whether or not he receives any compensation therefor, without the prior written consent of Employer's Board of Directors; provided, however, that nothing herein shall -------- ------- prevent Employee from (i) making and managing personal investments consistent with Section 3.3 of this Agreement, (ii) from engaging in community and/or charitable activities, so long as such activities, either singly or in the aggregate, do not interfere with the proper performance of Employee's responsibilities to Employer, or (iii) being involved as an officer, director, employee or consultant of Telcom.Net, Inc., Software Brokers of America, Inc. a/k/a INTCOMEX and/or -3- its affiliates, and International Technology Investments, LC, or any subsidiary or Affiliate of Employer (including but not limited to Tutopia.com, Inc.). 2.2 Compensation. ------------- (a) As compensation for Employee's services hereunder during the Term, Employer shall pay to Employee (the "Salary"), during calendar year 2001 and subsequent years of the Term, $250,000, less applicable income tax withholdings. The Salary shall be payable in equal biweekly installments in accordance with Employer's customary compensation policies. If, during the term of this Agreement, the Employee should be prevented from performing his duties by reason of Disability, amounts payable by Employer hereunder shall be reduced by the amounts payable under the Employer's disability insurance policy. (b) In addition to the Salary, Employer will pay a cash bonus to Employee for calendar year 2001 of $50,000 if Employer has EBITDA greater than zero for the fourth calendar quarter of 2001. The bonus, if any, shall be payable at a time to be determined by Employer, but in any event no later than 90 days after the end of such calendar year. For these purposes, EBITDA shall mean the consolidated earnings of Employer before interest, taxes, depreciation and amortization, but excluding: i) the effect of earnout payments made in connection with the acquisition of a business or enterprise approved by the Board of IFX, (ii) any charges for non-cash employee compensation, (iii) any gains or losses from investment income, and (iv) gains or losses from non- consolidated subsidiaries. Bonuses for subsequent years shall be determined by the Board of Directors of IFX. (c) In addition to the Salary and bonuses, Employee shall be granted Options as shown on Exhibit A hereto. The Options shall be evidenced by a standard option agreement between Employer and Employee in a form approved by the Compensation Committee or the Board of Directors of Employer and are in addition to options previously granted to Employee under the Prior Agreement. 2.3 Employee Benefits. ------------------ (a) Employee shall be entitled to such paid holidays and vacation time as is consistent with Employer's standard holiday and vacation policy for executive employees of Employer. (b) Subject to Employer's rules, policies and regulations as in effect from time to time (and subject to applicable eligibility requirements, including a minimum employment period), Employee shall be entitled to (i) group life insurance, disability or accident, death or dismemberment insurance, (ii) medical and/or dental insurance program; provided that regardless of the payment for other employees, Employee's premiums for himself and his family shall be paid in full by Employer and shall be for a preferred provider plan or similar plan, (iii) 401(k) benefit plan, if and when Employer establishes such a plan, (iv) other employee benefits that Employer may, in its sole discretion, make generally available to employees of Employer of the same level and responsibility as Employee, (v) all cell phone bills (provided that substantially all calls are made for business related to the Employer, (vi) a car allowance of $750 per month, (vii) high-speed internet access from Employee's principal residence. -4- 2.4 Term. Employee's employment pursuant to this Agreement commenced on ---- January 1, 2000, and shall continue in effect for three years from such date unless otherwise terminated in accordance with Section 2.5. Commencing on January 1, 2001, the Term has been and shall continue to be automatically extended each day by one day, until a date which is two years following the first date, if any, that Employer delivers to Employee or Employee delivers to Employer, as the case may be, written notice that the Term will not be automatically extended. The period of time during which Employee remains employed by Employer pursuant to this Section 2.4 is referred to herein as the "Term." ---- 2.5 Termination of Employment. ------------------------- (a) Disability. ---------- (i) If during the term of this Agreement, the Employee should be prevented from performing his duties by reason of Disability for a continuous period greater than 180 days, Employer may terminate the Employee's employment hereunder by giving written notice thereof to the Employee, effective on the date set forth in the notice (which date shall be not less than 15 business days after the notice is given). For purposes hereof, a continuous period of incapacity shall not be deemed interrupted until the Employee returns to substantially full time work for a period of at least 30 days. (ii) If termination of employment results or occurs due to Disability under this Section 2.5(a), Employee shall receive no other compensation hereunder; provided, however, that until Employee receives disability insurance payments under Employer's disability insurance coverage, Employee shall receive his Salary. All Options held by Employee under the 1998 Plan shall vest immediately upon the date of termination for Disability. (b) Death. ----- (i) In the event of the Employee's death during the term of this Agreement, the Employee's employment hereunder shall be deemed terminated as of the date of the Employee's death. Employee's family shall be entitled to receive fully paid health and dental insurance coverage for one year after Employee's death and all Options held by Employee under the 1998 Plan shall vest immediately. (c) Cause. ----- (i) This Agreement and the Employee's employment hereunder may be terminated at any time by the Company for Cause. (ii) If the Employee's employment is terminated by the Company for Cause or Employee terminates his employment other than by reason of death, Disability or an Involuntary Termination, Employee shall be entitled to no additional payments hereunder and Employee's Options shall be treated as required under the 1998 Plan and the 2001 Plan (collectively referred to as the "Plans"). (d) Involuntary Termination. In the event of an Involuntary Termination, ----------------------- Employee shall receive the following: -5- (i) immediately after the date of termination, a lump-sum amount in immediately available funds equal to the sum of Executive's accrued but unpaid Salary and a pro-rated portion of the annual bonus paid to Employee for the prior fiscal year; (ii) immediately after the date of termination, a lump-sum amount in immediately available funds equal to the product of the number of whole and fractional years included in the period from the date of termination until the end of the Term (the "Severance Period") multiplied by the sum of Employee's annualized Salary for the current year of the Term plus the bonus for the prior fiscal year; (iii) the continuation of the benefits (or, if such benefits are not available, the after-tax economic equivalent thereof) specified in Section 2.3(b) to which Employee is entitled as of the date of termination for the entire duration of the Severance Period or, at the election of Employee, an immediate lump-sum cash payment equal to the value of such benefits; provided that with respect to any benefit to be provided on an insured basis, such value shall be the present value of the premiums expected to be paid for such coverage, and with respect to other benefits, such value shall be the present value of the expected net cost to the Company of providing such benefits; (iv) All options held by Employee under the 1998 Plan shall vest immediately; and (v) All contractual restrictions on the transfer, sale or pledge of the common stock will be immediately extinguished and released with respect to an aggregate of 4,500 shares of common stock held directly by the Employee, his wife and his children. (e) Termination After a Change of Control. If a Termination without Cause ------------------------------------- or an Involuntary Termination occurs within two years after a Change of Control, then Executive shall receive the payments required by Section 2.5(d), except that for purposes of Section 2.5(d)(ii), Executive shall receive three (3.0) times the sum of: i) Employee's annualized Salary in the year of the Change of Control and ii) the highest bonus received by Employee from the Company in the year of the Change of Control or any prior year. (f) Other Termination Benefits. Other than any amounts or benefits -------------------------- payable upon a Termination of Employment hereunder, Executive shall, except as otherwise specifically provided herein, not be entitled to any payments or benefits provided hereunder or under the terms of any plan, policy or program of the Company or as otherwise required by applicable law. ARTICLE III COVENANTS AND AGREEMENTS 3.1 Records and Confidential Data. ----------------------------- (a) Employee acknowledges that, in connection with the performance of his duties hereunder, Employer and its Affiliates will make available to Employee, and/or Employee will have access to, certain Confidential Information (as defined below) of Employer and its Affiliates. Employee acknowledges and agrees that any and all Confidential Information learned or obtained by Employee during the course of his employment by Employer or otherwise, whether developed by Employee alone or in conjunction with others or otherwise, shall be and is -6- the property of Employer and its Affiliates. Employee shall keep all Confidential Information confidential and shall not use any Confidential Information in any manner other than in connection with Employee's discharge of his duties hereunder. (b) Following the first to occur of the termination of Employee's employment hereunder, or as soon as reasonably possible after Employer's written request, Employee shall return to Employer all written Confidential Information which has been provided to Employee and Employee shall destroy all copies of any analyses, compilations, studies or other documents prepared by Employee or for Employee's use containing or reflecting any Confidential Information. Within five business days after receipt of such request by Employee, Employee shall, upon written request of Employer, deliver to Employer a notarized document certifying that such written Confidential Information has been returned or destroyed in accordance with this Section 3.1(b). (c) For purposes of this Agreement, "Confidential Information" shall mean ------------------------ all confidential and proprietary information of Employer and/or its Affiliates, including, without limitation, confidential and proprietary information that is derived from or regarding reports, investigations, experiments, research, trade secrets, work in progress, web site drawing, designs, plans, proposals, requests for proposals, bids, codes, marketing and sales programs, acquisition targets or strategies, information regarding subscribers or web site viewers, client lists, client mailing lists, supplier lists, financial projections, cost summaries, payor information, pricing formulae, marketing studies relating to prospective business opportunities and all other confidential and proprietary materials or information prepared for or by Employer and/or any of its Affiliates. For purposes of this Agreement, Confidential Information shall not include and Employee's obligations under this Section 3.1 shall not extend to (i) information which is generally available to the public, (ii) information obtained by Employee from Persons not under agreement to maintain the confidentiality of the same, and (iii) information which is required to be disclosed by law or legal process (after giving Employer prior written notice thereof and an opportunity to contest such disclosure). 3.2 Inventions and Other Matters. ---------------------------- (a) Employee agrees that all inventions, discoveries or improvements made during the period of Employee's employment with Employer, including, without limitation, computer software (including source code, operating systems and specifications, data, data bases, files documentation and other materials related thereto), HTML or other scripts, web site designs, art work, visual images, programming code and programs, processes, uses, apparatuses, specialized information relating in any way to or that is useful in the business or products of Employer or Employer's actual or demonstrably anticipated research or development, designs or compositions of any kind that Employee, individually or with others, may originate or develop while employed by Employer (collectively, "Inventions"), belong to and shall be the sole property of Employer and ---------- constitute and shall constitute works specially ordered or commissioned as "works made for hire" under the United States Copyright Act and other applicable law. Without limiting the foregoing, Employee hereby assigns and transfers to Employer all rights of whatever nature that Employee may have, including, without limitation, any patent, trade secret, trademark or service mark rights (and any goodwill appurtenant thereto), any rights of publicity and any right, title and interest in any copyright and any right that may affix under any copyright law now or -7- hereinafter in force and effect in the United States of America or in any other country or countries, in and to any Invention. Employee acknowledges and agrees that Employer shall have the royalty-free right to use in its businesses, and to make and sell products, processes, programs, systems designs, methods, formulas, apparatus, techniques, and services derived from any Inventions (whether or not patentable or copyrightable), as well as all improvements thereof or know-how related thereto. The provisions of this Section 3.2 shall survive termination of this Agreement for any reason. (b) For purposes of this Agreement, an Invention shall be deemed to have been "made during the period of Employee's employment" if, during such period, the Invention was conceived, in part or in whole, or first actually reduced to practice. Employee agrees that any patent, copyright or trade mark application (i) covering intellectual property that relates to services performed by Employee hereunder or that is applicable to those products or services of Employer that were within the scope of Employee's responsibilities hereunder, and (ii) that is filed by or for the benefit of Employee or any of his Affiliates within one year after termination of Employee's employment shall be presumed to relate to an Invention made during the term of his employment and Employee shall have the burden of proof to prove otherwise. (c) This Section 3.2 shall not apply to an Invention for which no equipment, supplies, facilities or Confidential Information (as defined below) of Employer was used and that was developed entirely on Employee's own time, unless (i) the invention relates or is applicable to the services performed by Employee hereunder or that is applicable to those services or products of Employer that were within the scope of Employee's responsibilities hereunder, or (ii) results from any work relating to the Business that was performed, caused to be performed, or supervised by Employee for or on behalf of Employer. (d) Employee agrees, without further consideration, to (i) promptly disclose each such Invention to Employer, to Employee's immediate supervisor and to such other individuals as Employer may direct, (ii) execute and to join others in executing such applications, assignments and other documents as may be necessary or convenient to vest in Employer, or its designee, full title to each such Invention and as may be necessary or convenient to obtain United States and foreign patents and copyrights thereon, to the extent Employer may so choose in its sole discretion, (iii) testify in any legal proceeding relative to such Invention whenever requested to do so by Employer, and (iv) furnish all facts relating to such Inventions or the history thereof. (e) Employee agrees that he will not at any time, except as authorized or directed by Employer, publish or disclose any information or knowledge concerning any Inventions. 3.3 Non-Competition. ---------------- (a) Employer and Employee recognize that Employee has been retained to occupy a position of trust that constitutes part of the professional, management and executive staff of Employer. Employee, for and in consideration of the payments, rights and benefits provided herein, agrees that so long as he is employed by Employer and, if Employer terminates Employee's employment for Cause or if Employee terminates his employment with Employer for any reason other than pursuant to an Involuntary Termination, for a period of one year -8- thereafter, Employee shall not (i) work or act as an officer or director of or compensated consultant to, (ii) assist, (iii) own, directly or through any Affiliate or joint venture, a 10% or greater interest in, or (iv) make a financial investment (other than a passive, economic investment), whether in the form of equity or debt, in any business that is directly competitive with the Business in the United States, Latin America or in any other market in which Employer is conducting the Business at the time Employee's employment with Employer is terminated. (b) Notwithstanding the foregoing, nothing herein shall prohibit Employee from holding ten percent (10 %) or less of any class of voting securities of any entity whose equity securities are listed on a national securities exchange or regularly traded in the over-the-counter market and for which quotations are readily available on the National Association of Securities Dealers Automated Quotation system. (c) If Employer terminates Employee's employment for Cause or if Employee terminates his employment with Employer for any reason other than pursuant to an Involuntary Termination, for a period of one year thereafter, Employee shall promptly notify Employer of each employment or agency relationship entered into by Employee, and each corporation, proprietorship or other entity formed or used by Employee, the business of which is directly competitive with the Business. The provisions of this Section 3.3 shall survive termination of this Agreement for any reason. 3.4 Non-Solicitation and Non-Interference. -------------------------------------- (a) Employee acknowledges that Employer has invested substantial time and effort in assembling its present staff of personnel. Employee agrees that so long as he is employed by Employer and for a period of one year thereafter, Employee shall not, directly or indirectly, employ, solicit for employment, or advise or recommend to any other Person that such other Person employ or solicit for employment, any of Employer's employees or recommend to any employee of Employer that he/she cease to be employed by Employer; provided that the -------- ---- restrictions set forth in the immediately preceding sentence shall not apply to any solicitation directed at the public in general e.g., advertisements in publications of general circulation, etc. or to inquiries for employment that were unsolicited, directly or indirectly, by Employee. (b) Employee acknowledges that all customers of Employer, which Employee has serviced or hereafter services during Employee's employment by Employer and all prospective customers from whom Employee has solicited or may solicit business while in the employ of Employer, shall be solely the customers of Employer. Employee agrees that so long as he is employed by Employer and for a period of one year thereafter, Employee shall not either directly or indirectly solicit business, as to products or services competitive with the Business, from any of Employer's customers with whom Employee had contact during his employment with Employer. (c) Employee agrees that so long as he is employed by Employer and for a period of one year thereafter, Employee shall not, directly or indirectly, (i) intentionally disrupt or attempt to disrupt or terminate any relationship between Employer and any of its Business suppliers, clients or employees, or (ii) disparage, malign or discredit the name or reputation of Employer to any customers, clients or suppliers of the Business. Employee agrees that during such one year -9- period, he will not influence or attempt to influence any of the customers or clients of Employer to cease doing business with Employer. 3.5 Restrictions Reasonable. Employee agrees that the restrictions ----------------------- contained in Sections 3.3 and 3.4 are reasonable as to time and geographic scope because of the nature of the Business and Employee agrees, in particular, that the geographic scope of this restriction is reasonable because companies in the same industry as the Business compete on an international basis. Employee acknowledges that Employer is in direct competition with all other companies that provide services and products similar to the Business products and services throughout the United States and Latin America and, because of the nature of the Business, Employee expressly agrees that the covenants contained in Sections 3.3 and 3.4 cannot reasonably be limited to any smaller geographic area. The provisions of Sections 3.3 and 3.4 shall survive termination of this Agreement for any reason. 3.6 Prior Obligations. Employee represents and warrants that (a) Employee ----------------- has no obligation of confidence or other commitments to any previous employer or any others that conflict with this Agreement or restrict Employee's field of activities, and (b) no other agreement to which Employee is subject will conflict with, prevent, be breached by, interfere with or in any manner affect the terms and conditions of this Agreement. 3.7 Injunctive Relief. Employee acknowledge that damages would be an ----------------- inadequate remedy for Employee's breach of any of the provisions of Sections 3.1, 3.2, 3.3 and/or 3.4 of this Agreement, and that breach of any of such provisions will result in immeasurable and irreparable harm to Employer. Therefore, in addition to any other remedy to which Employer may be entitled by reason of Employee's breach or threatened breach of any such provision, Employer shall be entitled to seek and obtain a temporary restraining order, a preliminary and/or permanent injunction, or any other form of equitable relief from any court of competent jurisdiction restraining Employee from committing or continuing any breach of such Section, without the necessity of posting a bond. It is further agreed that the existence of any claim or cause of action on the part of Employee against Employer, whether arising from this Agreement or otherwise, shall in no way constitute a defense to the enforcement of the provisions of Sections 3.1, 3.2, 3.3 and/or 3.4 of this Agreement. ARTICLE IV MISCELLANEOUS 4.1 Notices. All notices and other communications hereunder shall be in ------- writing and shall be deemed given (a) when made, if delivered personally, (b) three business days after being mailed by certified or registered mail, postage prepaid, return receipt requested, or (c) two business days after delivery to a reputable overnight courier service, to the parties, their successors in interest or their assignees at the following addresses, or at such other addresses as the parties may designate by written notice in the manner aforesaid: -10- To Employer: IFX Corporation c/o IFX Communications Ventures, Inc. 15050 N.W. 79 Court Suite 200 Miami Lakes, Florida 33016 Attention: President To Employee, to his home address as recorded in the payroll records of Employer from time to time. 4.2 Governing Law. This Agreement shall be governed as to its validity ------------- and effect by the internal laws of the State of Florida, without regard to its rules regarding conflicts of law. 4.3 Agreement To Arbitrate. ----------------------- (a) Employer and Employee agree that any disputes that arise between Employee and Employer (or any of Employer's officers, directors, stockholders, supervisors, employees, agents, Affiliates or successors), excluding disputes arising out of Section 3.1, 3.2, 3.3 or 3.4, that cannot be resolved informally shall be decided by submission of the dispute to binding arbitration before a sole neutral arbitrator who is a retired federal judge pursuant to the American Arbitration Association Commercial Arbitration Rules governing such proceedings, and not by a lawsuit or by resort to court process, except as specifically set forth below. Both parties acknowledge and agree that they are giving up their respective constitutional rights to have any such dispute decided in a court of law before a jury, and instead are accepting the use of the arbitration process. This Section 4.3(a) applies to any and all disputes, including, by way of -------------------- example only and not limited to, disputes regarding termination of Employee's ------------------------------- employment; discrimination and unlawful harassment of any kind (including, without limitation, claims arising under Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. (S)2000(e) et seq. and the Civil Rights Act of 1991; the Age Discrimination in Employment Act, as amended, 29 U.S.C. (S)621, et seq.; the Americans with Disabilities Act of 1990, 42 U.S.C. (S)12101 et seq.; the Family and Medical Leave Act of 1993, 29 U.S.C. (S)2612 et seq.; and all applicable state and local anti-discrimination laws and constitutional provisions); disputes arising under any other applicable federal, state or local labor statutes, regulations or orders; disputes regarding assault and battery; negligent supervision; defamation; invasion of privacy; wages and overtime; and disputes regarding the formation and enforceability of this Section 4.3(a). The following types of disputes are excluded from the scope of coverage of this Section 4.3(a): (i) workers' compensation claims by Employee for on-the-job injuries; and (ii) any and all claims by Employer against Employee, including claims for injunctive relief, arising out of Employee's breach or threatened breach of Section 3.1, 3.2, 3.3 or 3.4 of this Agreement. (b) General Rules of Arbitration. Either party shall have the right to ---------------------------- have counsel represent him/it at the arbitration hearing and in pre-arbitration proceedings. Pre-arbitration discovery shall be permitted in accordance with the Federal Rules of Civil Procedure, except that (i) there shall be no limit on the number of depositions that may be noticed by either party, and -11- (ii) in connection with any pre-arbitration disclosure of expert testimony in accordance with Rule 26(a)(2), the timing of the expert disclosure shall be set by the arbitrator. (c) Authority of Arbitrator. The arbitrator shall have the authority to ----------------------- (i) resolve any discovery disputes that arise between the parties; (ii) resolve any dispute relating to the interpretation, applicability or enforceability of this Section 4.3; and (iii) entertain a motion to dismiss and a motion for summary judgment, applying the standards governing such motions under Federal Rule Of Civil Procedure 12(b)(6) and Rule 56. The arbitrator is required to render his decision in writing, with an opinion stating the bases of his decision. Either party has the right to file a post-arbitration brief, which shall be considered by the arbitrator. (d) Payment of Costs and Fees. Each party shall bear its own costs and ------------------------- attorneys' fees incurred in connection with the arbitration. The arbitrator shall have the discretion to award costs to the prevailing party. The arbitrator's fees shall be borne equally by the parties. Each party shall post his or its portion of the arbitrator's anticipated fee prior to the commencement of the arbitration. (e) Appeals. Either side shall have the right to appeal the arbitrator's ------- decision by applying to a Court (as defined in Section 4.4) for an order vacating the award for any of the reasons set forth in 9 U.S.C. (S)10, or on the basis that the arbitrator has made a mistake of law or fact. The arbitration decision shall stand if it is supported by substantial evidence. 4.4 Jurisdiction; Service of Process. Each of the parties hereto agrees -------------------------------- that any action or proceeding initiated or otherwise brought to judicial proceedings by either Employee or Employer concerning the subject matter of this Agreement that is not subject to Section 4.3, shall be litigated in the United States District Court for Dade County, Florida or, in the event such court cannot or will not exercise jurisdiction, in the state courts of the State of Florida covering Miami, Dade County, Florida (the "Courts"). Each of the ------ parties hereto expressly submits to the jurisdiction and venue of the Courts. Each party hereto waives any claim that the Courts are an inconvenient forum or an improper forum based on lack of venue or jurisdiction. Each party shall bear its own costs and attorneys' fees incurred in connection with any such actions or proceedings. 4.5 Successors and Assigns. This Agreement shall be binding upon and ---------------------- shall inure to the benefit of (a) the heirs, executors and legal representatives of Employee, upon Employee's death or incapacity, and (b) any successor of Employer, and any such successor shall be deemed substituted for Employee or Employer, as the case may be, under the terms hereof for all purposes; provided, -------- however, that any such assignment shall not relieve Employer from its ------- obligations hereunder. As used in this Agreement, "successor" shall include any Person that at any time, whether by purchase, merger, consolidation or otherwise, directly or indirectly acquires a majority of the assets, business or stock of Employer; provided, however, that no acquisition of the stock of Employer by UBS Capital Americas III, L.P., UBS Capital LLC or any of their respective Affiliates (collectively, "UBS") shall cause UBS to be treated as a successor hereunder. 4.6 Integration. This Agreement, the Plan and any option agreement ----------- Employee will be required to execute, constitute the entire agreement between the parties with respect to all -12- matters covered herein, including but not limited to the parties' employment relationship and Employee's entitlement to compensation, commissions and benefits from Employer or any of its Affiliated companies and/or the termination of Employee's employment. This Agreement supersedes all prior oral or written understandings and agreements relating to its subject matter and all other business relationships between Employer and/or its Affiliated companies. 4.7 No Representations. No Person has made or has the authority to make ------------------ any representations or promises on behalf of any of the parties which are inconsistent with the representations or promises contained in this Agreement, and this Agreement has not been executed in reliance on any representations or promises not set forth herein. 4.8 Amendments. This Agreement may be modified only by a written ---------- instrument executed by the parties that is designated as an amendment to this Agreement. 4.9 Counterparts. This Agreement is being executed in one or more ------------ counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 4.10 Severability and Non-Waiver. Any provision of this Agreement (or --------------------------- portion thereof) which is deemed invalid, illegal or unenforceable in any jurisdiction shall, as to that jurisdiction and subject to this Section, be ineffective to the extent of such invalidity, illegality or unenforceability, without affecting in any way the remaining provisions thereof in such jurisdiction or rendering that or any other provisions of this Agreement invalid, illegal, or unenforceable in any other jurisdiction. If any covenant should be deemed invalid, illegal or unenforceable because its scope is considered excessive, such covenant shall be modified so that the scope of the covenant is reduced only to the minimum extent necessary to render the modified covenant valid, legal and enforceable. 4.11 Voluntary and Knowledgeable Act. Employee represents and warrants ------------------------------- that he has been represented by independent legal counsel of his own choosing and that he has read and understands each and every provision of this Agreement and has freely and voluntarily entered into this Agreement. 4.12 Late Payments. If the Employer fails to pay any amount provided under ------------- this Agreement or any other plan or program sponsored by Employer when due, the Employer shall pay interest on such amount at a rate equal to (i) the highest rate of interest charged by the Employer's principal lender plus 200 basis points, or (ii) in the absence of such a lender, 300 basis points over the prime commercial lending rate announced by Harris Trust and Savings Bank on the date such amount is due or, if no such rate shall be announced on such date, the immediately prior date on which Harris Trust and Savings Bank announced such a rate; provided, however, that if the interest rate determined in accordance with this Section exceeds the highest legally-permissible interest rate, then the interest rate shall be the highest legally-permissible interest rate. 4.13 Effective Date. Notwithstanding anything contained herein to the -------------- contrary, this Agreement shall become effective at the Closing (as defined in the Stock Purchase Agreement dated March 13, 2001, by and among IFX, UBS, and the other parties signatory thereto). -13- IN WITNESS WHEREOF, the parties hereto have executed this Employment Agreement as of the date first above written. EMPLOYER: IFX CORPORATION By: /s/ Joel Eidelstein ----------------------------- Name: Joel Eidelstein Title: President Dated as of March 13, 2001 EMPLOYEE: /s/ Michael Shalom ----------------------------------- Michael Shalom Dated as of March 13, 2001 -14- EXHIBIT A TO EMPLOYEE AGREEMENT (Michael Shalom) Option Grants ------------- A. Each Option granted to Employee pursuant to this Employment Agreement shall be subject to, and exercisable in accordance with, the terms and conditions set forth under the applicable Plan. B. Each Option granted pursuant to this Employment Agreement shall be granted, in the case of the Options granted under the 1998 Plan, as of the Closing, and in the case of the Options granted under the 2001 Plan, the date of the adoption of such plan (the "Option Date"), and shall be evidenced by a standard option agreement between IFX and Employee in a form approved by the Compensation Committee of the Board of Directors of IFX containing the following terms: Amount Exercise Price Vesting Period ------ -------------- -------------- 74,800/1/ $3.50 3 year vesting based on the following schedule: 34% on the first-year anniversary 8.25% quarterly after the first year 225,000/2/ $3.50 Vesting in accordance with the 2001 Plan ___________________________ /1/ Granted under the 1998 Plan. /2/ Granted under the 2001 Plan. -15- EX-10.9 5 dex109.txt PAYMENT AND RELEASE AGREEMENT Payment and Release Agreement This PAYMENT AND RELEASE AGREEMENT (the "Release Agreement"), dated June 15, 2001 (the "Effective Date"), is entered into by and between IFX CORPORATION (the "Company"), a Delaware corporation, and MR. ZALMAN LEKACH (the "Employee") (collectively, the "Parties" and each a "Party"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Parties entered into an Employment Agreement (the "Employment Agreement") dated May 24, 1999, as amended, whereby the Company retained the services of the Employee to, among other things, serve as its Chief Operating Officer (the "Services"); WHEREAS, Employee desired to voluntarily terminate his employment pursuant to the voluntary termination provision of Section 6(c) of the Employment Agreement prior to the termination date of the Employment Agreement; WHEREAS, in recognition for past services by the Employee and in satisfaction of any obligations that Company has under the Employment Agreement, Company desires to make certain payments, transfer certain assets and extend the period during which certain Company options held by employee may be exercised, as more fully described below; WHEREAS, Employee desires to accept such payments and transfers and the extension of the period for the exercisability of his options, in return for a general release of any claims which he may have against Company. NOW, THEREFORE, the Parties hereto agree as follows: Article 1. The Company and the Employee hereby agree that the total payments and transfers (the "Payments") to be paid by the Company to the Employee contemporaneously herewith shall be as follows: a) one (1) Dell Latitude CSx laptop (serial number: 81XNH01) currently in use by Employee; b) a severance payment equivalent to sixty-seven and one-half (67.5) days of his current salary; c) Employee shall continue to receive his current health benefits for sixty (60) days from the Effective Date; and d) notwithstanding anything to the contrary contained in the applicable options agreements, Employee shall have the right to exercise the following vested options listed below to acquire Company common shares until June 30, 2003. Such options must be exercised in writing and by tender of the exercise price in cash prior to June 30, 2003 or such options will be forfeited. Any options not listed below or the unvested portion of any options listed below are hereby forfeited. Grant Date Strike Price Vested 24-May-99 $ 15.00 10,050 01-Jul-99 $ 8.75 8,308 01-Oct-99 $ 8.75 19,134 01-Dec-99 $ 20.00 6,313 01-Jan-00 $ 8.75 19,225 01-Jan-00 $ 8.75 128,924 12-Jun-00 $ 8.75 71,076 -------- -------- 263,030 ======== Company represents that the shares issuable pursuant to the valid exercise of the options listed above will be registered pursuant to a Form S-8 prior to Employee's exercise of such options. In the event that Company breaches this obligation and if Employee exercises options (including payment in full of the exercise price) at a time when the underlying shares are not freely salable because Company has not filed the applicable Form S-8, Company shall be obligated to pay Employee the excess, if any, between the average of the daily high and low of Company stock on the date the Company receives the completed notice of exercise and the average of the daily high and low on the first date that Employee can freely sell the underlying shares by virtue of Form S-8 or otherwise. All payments made hereunder shall be subject to customary withholding and other employment taxes required by law. Article 2. Employee hereby agrees and acknowledges that the above Payments represent the only payments of any kind that he is entitled to receive from the Company, or any other Company affiliate, subsidiary, officer, director, agent, successor, assign, attorney or related company or person (hereinafter collectively referred to as the "IFX Parties") in relation to the Services or to any other service provided by the Employee (or any company or person related to the Employee) to the IFX Parties. Article 3. Consequently, Employee hereby totally releases and forever and irrevocably discharges all and each of the IFX Parties from any and all claims, actions, causes of action, grievances, suits, charges, or complaints of any kind or nature whatsoever, that he ever had or now has, whether fixed or contingent, liquidated or unliquidated, known or unknown, suspected or unsuspected, and whether arising in tort, contract, statute, or equity, before any federal, state, local, or private court, agency, arbitrator, mediator, or other entity, regardless of the relief or remedy. Without limiting the generality of the foregoing, it being the intention of the parties to make this Payment and Release Agreement as broad and as general as the law permits, this Payment and Release Agreement specifically includes any and all subject matter and claims arising from any alleged violation by the IFX Parties under Rule 10b-5 of the Securities Act of 1933, as amended (15 U.S.C. (S) 78j(b)); the Age Discrimination in Employment Act of 1967, as amended; Title VII of the Civil Rights Act of 1964, as amended; the Civil Rights Act of 1866, as amended by the Civil Rights Act of 1991 (42 U.S.C. (S) 1981); the Rehabilitation Act of 1973, as amended; the Employee Retirement Income Security Act of 1974, as amended; the Americans with Disabilities Act; the Family and Medical Leave Act; the Equal Pay Act; Executive Order 11246; Executive Order 11141; and any other statutory claim, employment or other contract or implied contract claims (including, but not limited to, any claims arising under the Employment Agreement, or any stock option agreement between the Company and Employee), or common law claim for fraud, wrongful discharge, breach of an implied covenant of good faith and fair dealing, defamation, or invasion of privacy arising out of or involving his employment with the Company, the termination of his employment with the Company, or involving any continuing effects of his employment with the Company or termination of employment with the Company. Employee further acknowledges that he is aware that statutes exist that render null and void releases and discharges of any claims, rights, demands, liabilities, action and causes of action which are unknown to the releasing or discharging party at the time of execution of the release and discharge. Employee hereby expressly waives, surrenders and agrees to forego any protection to which he would otherwise be entitled by virtue of their existence. Further, Employee hereby waives any legal, civil, criminal, administrative or any other type of action, whether contractual, tort, legal or otherwise, that Employee (or any of his heirs, successors, assigns or affiliates) may have against any of the IFX Parties Article 4. Employee acknowledges and agrees that notwithstanding the termination of the employment relationship, the provisions of the Employment Agreement set forth in Attachment A hereto remain in full force and effect. Article 5. Employee acknowledges and agrees that he has had the opportunity to have this Release and Payment Agreement reviewed by the legal counsel of his choice. This Release Agreement shall be governed by and construed in accordance with the laws of the State of Florida, USA. Article 6. This Release Agreement may be executed in one or more counterparts, and by the different Parties hereto in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same agreement. IN WITNESS WHEREOF, each of the Parties have executed this Release Agreement or caused to be executed by its duly authorized officer or legal representative, as of the date written above. Company: Employee: /s/ Joel Eidelstein /s/ Zalman Lekach ---------------------------- ----------------------------------- Signature Signature Joel Eidelstein Zalman Lekach ----------------------------- ----------------------------------- Name Name President 6/21/01 ----------------------------- ----------------------------------- Title Date 6/21/01 ----------------------------- Date ATTACHMENT A 8. Records and Confidential Data. (a) Employee acknowledges that, in connection with the performance of his duties during the term of this Agreement, the Company and its affiliates will make available to Employee, and/or Employee will have access to, certain Confidential Information (as defined below) of the Company and its affiliates. Employee acknowledges and agrees that any and all Confidential Information learned or obtained by Employee during the course of his employment by the Company or otherwise (including, without limitation, information that Employee obtained through or in connection with his ownership of equity interests in, or services as a director of, the Company), whether developed by Employee alone or in conjunction with others or otherwise, shall be and is the property of the Company and its affiliates. (b) The Confidential Information shall be kept confidential by Employee, shall not be used in any manner which is detrimental to the Company or any of its affiliates, shall not be used other than in connection with Employee's discharge of his duties hereunder, and shall be safeguarded by Employee from unauthorized disclosure. (c) Following the first to occur of the termination of this Agreement or Employee's termination hereunder, as soon as possible after the Company's written request, Employee shall return to the Company all written Confidential Information which has been provided to Employee and Employee shall destroy all copies of any analyses, compilations, studies or other documents prepared by Employee or for Employee's use containing or reflecting any Confidential Information. Within five (5) business days of the receipt of such request by Employee, Employee shall, upon written request of the Company, deliver to the Company a notarized document certifying that such written Confidential Information has been returned or destroyed in accordance with this Section 8(c). (d) For the purposes of this Agreement, "Confidential Information" shall mean all confidential and proprietary information of the Company and/or its affiliates, including, without limitation, information derived from reports, investigations, experiments, research, trade secrets, work in progress, drawing, designs, plans, proposals, requests for proposals, bids, codes, marketing and sales programs, client lists, client mailing lists, medical, psychological, academic and other records and reports, supplier lists, financial projections, cost summaries, payor information, pricing formulae, marketing studies relating to prospective business opportunities and all other concepts, ideas, materials, or information prepared for performed for or by the Company and/or any of its affiliates. For purposes of this Agreement, the Confidential Information shall not include and Employee's obligations under this Section 8 shall not extend to (i) information which is generally available to the public without undue expense or effort, (ii) information obtained by Employee from third persons not under agreement to maintain the confidentiality of the same and (iii) information which is required to be disclosed by law or legal process (after giving the Company prior written notice thereof and an opportunity to contest such disclosure). Without in any way limiting the foregoing, "Confidential Information" also includes all information relating to any options or other awards granted to Employee, pursuant to the Stock Plan or otherwise, including the amount of any such award, the exercise price and the rate of vesting thereof. (e) Employee hereby acknowledges that each subsidiary and affiliate of Employer is expressly made a third party beneficiary hereto for purposes of protecting its rights and interests hereunder. 9. Inventions and Other Matters. (a) Employee agrees that all ideas, inventions, discoveries or improvements made during the period of Employee's employment with Employer, including, without limitation, new machines, devices, computer software (including source code, operating systems and specifications, data, data bases, files documentation and other materials related thereto), programs, processes, uses, apparatuses, specialized information relating in any way to or that is useful in the business or products of Employer or Employer's actual or demonstrably anticipated research or development, designs or compositions of any kind that Employee, individually or with others, may originate or develop while employed by Employer (collectively, "Inventions"), shall belong to and be the sole property of Employer and shall constitute works specially ordered or commissioned as "works made for hire" under the United States Copyright Act and other applicable law. Without limiting the foregoing, Employee hereby assigns and transfers to Employer all rights of whatever nature that Employee may have, including, without limitation, any patent, trade secret, trademark or service mark rights (and any goodwill appurtenant thereto), any rights of publicity and any right, title and interest in any copyright and any right that may affix under any copyright law now or hereinafter in force and effect in the United States of America or in any other country or countries, in and to any Invention. Employee acknowledges and agrees that Employer shall have the royalty-free right to use in its businesses, and to make and sell products, processes, programs, systems designs, methods, formulas, apparatus, techniques, and services derived from any Inventions (whether or not patentable or copyrightable), as well as all improvements thereof or know-how related thereto. (b) For purposes of this Agreement, an Invention shall be deemed to have been "made during the period of Employee's employment" if, during such period, the Invention was conceived, in part or in whole, or first actually reduced to practice. Employee agrees that any patent, copyright or trade mark application filed by or for the benefit of Employee or any of his affiliates within a year after termination of Employee's employment shall be presumed to relate to an Invention made during the term of his employment and Employee shall have the burden of proof to prove otherwise. (c) This Section 9 shall not apply to an Invention for which no equipment, supplies, facilities or Confidential Information (as defined below) of Employer was used and that was developed entirely on Employee's own time, unless (i) the invention relates in any way to or is useful in the business or products of Employer, or Employer's actual or demonstrably anticipated research or development, or (ii) results from any work performed by Employee for or on behalf of Employer. (d) Employee agrees, without further consideration, to (i) promptly disclose each such Invention to Employer, to Employee's immediate supervisor and to such other individuals as Employer may direct, (ii) execute and to join others in executing such applications, assignments and other documents as may be necessary or convenient to vest in Employer, or its designee, full title to each such Invention and as may be necessary or convenient to obtain United States and foreign patents and copyrights thereon, to the extent Employer may so choose in its sole discretion, (iii) testify in any legal proceeding relative to such Invention whenever requested to do so by Employer, and (iv) furnish all facts relating to such Inventions or the history thereof. (e) Employee agrees that he will not at any time, except as authorized or directed by Employer, publish or disclose any information or knowledge concerning any Inventions. 10. Non-Competition. (a) Employer and Employee recognize that Employee has been retained to occupy a position that constitutes part of the professional, management and executive staff of Employer, whose duties will include the formulation and execution of management policy. Employee, for and in consideration of the payments, rights and benefits provided herein, agrees that so long as he is employed by Employer and, if Employer terminates his employment for Cause or if Employee voluntarily terminates his employment with Employer, for a period of one (1) year thereafter, Employee shall not (i) work, (ii) assist, (iii) own any interest, directly or indirectly and whether individually or as a joint venturer, partner, member, officer, director, shareholder, consultant, employee or otherwise, in or (iv) make a financial investment, whether in the form of equity or debt, in any business that is directly or substantially competitive with the Business in the United States, Latin America or in any other market in which Employer is conducting the Business at the time Employee's employment with Employer is terminated, with respect to Employer's clients or customers. (b) Notwithstanding the foregoing, nothing herein shall prohibit Employee from holding five percent (5%) or less of any class of voting securities of any entity whose equity securities are listed on a national securities exchange or regularly traded in the over-the-counter market and for which quotations are readily available on the National Association of Securities Dealers Automated Quotation system. (c) Upon the termination of Employee's employment with Employer, and for one (1) year thereafter, Employee shall immediately notify Employer of each employment or agency relationship entered into by Employee, and each corporation, proprietorship or other entity formed or used by Employee, the business of which is directly or indirectly, similar to or in competition with the Business. The provisions of this Section 10 shall survive termination of this Agreement for any reason. (d) Employee agrees that the restrictions contained in this Section 10 are reasonable as to time and geographic scope because of the nature of the Business and Employee agrees, in particular, that the geographic scope of this restriction is reasonable because companies in the same industry as the Business, compete on a nationwide basis. Employee acknowledges that Employer is in direct competition with all other companies that provide services and products similar to Employer's products and services throughout the United States, Latin America and other markets in which Employer may be conducting the Business at the time Employee's employment with Employer is terminated, and because of the nature of the Business, Employee agrees that the covenants contained in this Section 10 cannot reasonably be limited to any smaller geographic area. 11. Non-Solicitation and Non-Interference. (a) Employee acknowledges that Employer has invested substantial time and effort in assembling its present staff of personnel. Employee agrees that so long as he is employed by Employer and, if Employer terminates his employment for Cause or if Employee voluntarily terminates his employment with Employer, for a period of one (1) year thereafter, Employee shall not either directly or indirectly employ, solicit for employment, or advise or recommend to any other person that such other person employ or solicit for employment, any of Employer's employees. (b) Employee acknowledges that all customers of Employer, which Employee has serviced or hereafter services during Employee's employment by Employer and all prospective customers from whom Employee has solicited or may solicit business while in the employ of Employer, shall be solely the customers of Employer. Employee agrees that so long as he is employed by Employer and, if Employer terminates his employment for Cause or if Employee voluntarily terminates his employment with Employer, for a period of one (1) year thereafter, Employee shall not either directly or indirectly solicit business, as to products or services competitive with the Business of Employer, from any of Employer's customers with whom Employee had contact during his employment with Employer. (c) Employee agrees that so long as he is employed by Employer and, if Employer terminates his employment for Cause or if Employee voluntarily terminates his employment with Employer, for a period of one (1) year thereafter, Employee shall not either directly or indirectly interfere with any relationship between Employer and any of its suppliers, clients or employees. Employee agrees that during such one (1) year period, he will not influence or attempt to influence any of the customers or clients of Employer not to do business with Employer. (d) Employee agrees that the restrictions contained in this Section 11 are reasonable as to time and geographic scope because of the nature of the Business and Employee agrees, in particular, that the geographic scope of this restriction is reasonable because companies in the same industry as the Business compete on a nationwide basis. Employee acknowledges that Employer is in direct competition with all other companies that provide services and products similar to Employer's products and services on an outsourced basis throughout the United States, Latin America and other markets in which Employer may be conducting the Business at the time Employee's employment with Employer is terminated and, because of the nature of the Business, Employee expressly agrees that the covenants contained in this Section 11 cannot reasonably be limited to any smaller geographic area. EX-10.11 6 dex1011.txt EMPLOYMENT AGREEMENT BETWEEN JOSE LEIMAN Exhibit 10.11 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of May 7, --------- 2001 by and between IFX CORPORATION, a Delaware corporation ("IFX" and, --- collectively with its subsidiaries, "Employer"), and JOSE LEIMAN ("Employee"). -------- -------- W I T N E S S E T H: -------------------- WHEREAS, Employer is in the business of acquiring, developing and maintaining Internet access and related services in Latin America and other non- U.S. jurisdictions (the "Business"); WHEREAS, Employer desires to continue to employ Employee to serve as Chief Financial Officer of Employer, and Employee desires to continue such employment, on the terms and subject to the conditions set forth herein; WHEREAS, Employee's existing Employment Agreement (the "Prior Agreement") is dated as of June 26, 1999, and both Employer and Employee believe it would be in the best interests of both Employer and Employee to extend the term of and otherwise amend and restate the Prior Agreement by entering into this Agreement; and WHEREAS, Employee has had an opportunity to review the terms and conditions of this Agreement, to negotiate the terms hereof and to engage legal counsel on his behalf if he so desires. NOW THEREFORE, in consideration of Employer's continued employment of Employee, the terms, conditions and covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Employee and Employer, intending to be legally bound, hereby agree as follows: ARTICLE I DEFINITIONS 1.1 Terms Defined Herein. Except as otherwise herein expressly provided, -------------------- the following terms and phrases shall have the meanings set forth below: "Affiliate" means (a) in the case of an entity, any Person who or which, --------- directly or indirectly, through one or more intermediaries, controls or is controlled by, or is under common control with, any specified Person or (b) in the case of an individual, such individual's spouse, children, grandchildren or parents or a trust primarily for the benefit of any of the foregoing. "Cause" means (a) the willful and continued failure by Employee to ----- substantially perform his duties under this Agreement (other than any failure resulting from Employee's death or incapacity due to physical or mental illness) for five days after written demand for substantial performance is delivered by Employer which specifically identifies the manner in which Employer believes Employee has not substantially performed his duties and which notice is specifically identified as being issued pursuant to this paragraph, (b) the commission by Employee of theft, embezzlement, fraud or misappropriation of funds against Employer or the willful engaging by Employee in other misconduct which is materially injurious to Employer, (c) the willful violation by Employee of Section 3.1, 3.2, 3.3 or 3.4 of this Agreement or (d) the conviction of Employee of a felony involving fraud, dishonesty or moral turpitude. Notwithstanding anything to the contrary contained herein, none of the following events shall be treated as "cause": (i) bad judgment, (ii) negligence, or (iii) any act or omission that Employee believed in good faith to have been in or not opposed to the interests of the Company. "Change in Control" means the occurrence of any one of the following ----------------- events: (a) any consolidation, merger or other similar transaction involving IFX, following which the stockholders of IFX immediately prior to such transaction fail to hold more than 50% of the outstanding voting securities of the continuing or succeeding corporation in substantially the same proportions, or which contemplates that all or substantially all of the business and/or assets of IFX will be controlled by another corporation; (b) any sale, lease, exchange or transfer (in one transaction or series of related transactions) of all or substantially all of the assets of IFX; (c) approval by the stockholders of IFX of any plan or proposal for the liquidation or dissolution of IFX, unless such plan or proposal is abandoned within 60 days following such approval; (d) the acquisition by any "person" (as such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934), or two or more Persons acting in concert, of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or more of the outstanding shares of voting stock of IFX; provided, however, that for purposes of the foregoing, -------- ------- "person" excludes UBS Capital Americas III, L.P., UBS Capital, LLC, Lee S. Casty, the Casty Grantor Subtrust, International Technology Investments, LC or any of their Affiliates, any underwriter purchasing shares of IFX with the intent of reselling them, or (e) if, during any period of 24 consecutive calendar months commencing on the date of this Agreement, those individuals (the "Continuing Directors") who either (i) were directors of IFX on the first day of -------------------- each such period, or (ii) subsequently became directors of IFX and whose actual election or initial nomination for election subsequent to that date was approved by a majority of the Continuing Directors then on the board of directors of IFX, cease to constitute a majority of the board of directors of IFX. "Common Stock" means shares of common stock, par value $.02 per share, of IFX. ------------ "Disability" means disability as defined in Employer's disability insurance ---------- plan then in effect. "Involuntary Termination" means if Employer terminates Employee for any ----------------------- reason other than Cause or if Employee terminates his employment with Employer 2 (a) within 30 days after Employer materially reduces Employee's duties and responsibilities hereunder; (b) upon material breach of this Agreement by Employer which remains uncured for 30 days following notice thereof from Employee to Employer, provided that Employee gives notice of termination within 5 days of expiration of such thirty day period; (c) the failure to nominate or elect Employee as Chief Financial Officer of IFX; (d) causing or requiring Employee to report to anyone other than Joel Eidelstein, Michael Shalom or the Board; (e) assignment of duties materially inconsistent with his position and duties described in this Agreement; (f) the failure of IFX to assign this Agreement to a successor to IFX or the failure of a successor to IFX to explicitly assume and agree to be bound by this Agreement; (g) requiring Employee to be principally located at any office or location more than 50 miles from IFX's current office in Miami Lakes, Florida; or (h) a termination of employment by Employee for any reason or no reason during the 30-day period commencing 12 months after a Change in Control; provided, however, that in the -------- ------- event such breach is curable but Employer is unable to cure such breach within such five-day period, then any such breach shall not be deemed to justify Employee's "Involuntary Termination" hereunder so long as Employer is diligently and in good faith pursuing a cure and such breach is cured no later than 30 days following receipt of the foregoing written notice from Employee. "Person" means any individual, partnership, corporation, limited liability ------ company, joint venture, trust, firm, association, unincorporated organization or other entity. "1998 Plan" means the IFX Corporation 1998 Stock Option and Incentive Plan, --------- as amended, together with any successor thereto. "2001 Plan" means the IFX Corporation 2001 Stock Option Plan, as amended, --------- together with any successor thereto. ARTICLE II TERMS OF EMPLOYMENT 2.1 Employment; Scope of Duties. --------------------------- (a) Employer hereby continues to employ Employee as Chief Financial Officer of Employer, and Employee hereby accepts such employment with Employer. In performing his duties hereunder, Employee shall report solely to, and shall be subject to the supervision of, the Board of Directors, Joel Eidelstein or Michael Shalom. (b) Employee shall devote his best efforts and full business time and attention to the performance of services for Employer in accordance with the terms hereof. During the Term (as defined in Section 2.4), Employee shall not engage in any other business or professional activities, either on a full-time or part-time basis, as an employee, consultant or in any other capacity, whether or not he receives any compensation therefor, without the prior written consent of Employer's Board of Directors; provided, however, that nothing herein shall -------- ------- prevent Employee from (i) making and managing personal investments consistent with Section 3.3 of this Agreement, (ii) from engaging in 3 community and/or charitable activities, so long as such activities, either singly or in the aggregate, do not interfere with the proper performance of Employee's responsibilities to Employer, or (iii) being involved as an officer, director, employee or consultant of any subsidiary or Affiliate of Employer including for these purposes, Tutopia.com, Inc. 2.2 Compensation. ------------ (a) As compensation for Employee's services hereunder during the Term, Employer shall pay to Employee (the "Salary"), (i) during the first year of the Term, $235,000 per year and (ii) during the second and subsequent years of the Term, $260,000, less applicable income tax withholdings. The Salary shall be payable in equal biweekly installments in accordance with Employer's customary compensation policies. If, during the term of this Agreement, the Employee should be prevented from performing his duties by reason of Disability, amounts payable by Employer hereunder shall be reduced by the amounts payable under the Employer's disability insurance policy. (b) In addition to the Salary, Employer will pay a cash bonus to Employee in reward for his services rendered over the past two years of $250,000 within five business days after the signing of this Agreement. (c) In addition to the Salary and the bonus described in Section 2.2(b), Employer will pay an annual cash bonus to Employee of at least $50,000 and up to a maximum of $125,000. The annual minimum cash bonus of $50,000 shall be paid for each fiscal year of Employer no later than September of such year beginning in September 2001. The additional cash bonus, if any, shall be payable at a time to be determined by Employer, but in any event no later than 90 days after the end of each fiscal year. The amount of the additional bonus, if any, shall be determined by the Board of Directors of IFX. In addition to the Salary and bonuses, Employee shall be granted Options as shown on Exhibit A hereto. The Options shall be evidenced by a standard option agreement between Employer and Employee in a form approved by the Compensation Committee or the Board of Directors of Employer and are in addition to options previously granted to Employee under the Prior Agreement. 2.3 Employee Benefits. ----------------- (a) Employee shall be entitled to such paid holidays and vacation time as is consistent with Employer's standard holiday and vacation policy for executive employees of Employer. (b) Subject to Employer's rules, policies and regulations as in effect from time to time (and subject to applicable eligibility requirements, including a minimum employment period), Employee shall be entitled to (i) group life insurance, disability or accident, death or dismemberment insurance, (ii) medical and/or dental insurance program; provided that regardless of the payment for other employees, Employee's premiums for himself and his family shall be paid in full by Employer and shall be for a preferred provider plan or similar plan, (iii) 401(k) benefit plan, if and when Employer establishes such a plan, (iv) other employee benefits that Employer may, in its sole 4 discretion, make generally available to employees of Employer of the same level and responsibility as Employee, (v) all cell phone bills (provided that substantially all calls are made for business related to the Employer), (vi) a car allowance of $750 per month, (vii) high-speed internet access from Employee's principal residence. 2.4 Term. Employee's employment pursuant to this Agreement shall commence ---- on the date hereof and shall continue in effect for two (2) years from the date hereof unless otherwise terminated in accordance with Section 2.5. Commencing on the date hereof, if Employer has not delivered to Employee or Employee has not delivered to Employer, written notice that the Term will not be extended, the Term shall automatically be extended each day by one day, until a date which is two (2) years following the first date, if any, that Employer delivers to Employee or Employee delivers to Employer, as the case may be, such a written notice. The period of time during which Employee remains employed by Employer pursuant to this Section 2.4 is referred to herein as the "Term." ---- 2.5 Termination of Employment. ------------------------- (a) Disability. ---------- (i) If during the term of this Agreement, the Employee should be prevented from performing his duties by reason of Disability for a continuous period greater than 180 days, Employer may terminate the Employee's employment hereunder by giving written notice thereof to the Employee, effective on the date set forth in the notice (which date shall be not less than 15 business days after the notice is given). For purposes hereof, a continuous period of incapacity shall not be deemed interrupted until the Employee returns to substantially full time work for a period of at least 30 days. (ii) If termination of employment results or occurs due to Disability under this Section 2.5(a), Employee shall receive no other compensation hereunder; provided, however, that until Employee receives disability insurance payments under Employer's disability insurance coverage, Employee shall receive his Salary. All Options held by Employee under the 1998 Plan shall vest immediately upon the date of termination for Disability. (b) Death. ----- (i) In the event of the Employee's death during the term of this Agreement, the Employee's employment hereunder shall be deemed terminated as of the date of the Employee's death. Employee's family shall be entitled to receive fully paid health and dental insurance coverage for one year after Employee's death and all Options held by Employee under the 1998 Plan shall vest immediately. (c) Cause. ----- (i) This Agreement and the Employee's employment hereunder may be terminated at any time by the Company for Cause. 5 (ii) If the Employee's employment is terminated by the Company for Cause or Employee terminates his employment other than by reason of death, Disability or an Involuntary Termination, Employee shall be entitled to no additional payments hereunder and Employee's Options shall be treated as required under the 1998 Plan and the 2001 Plan. (d) Involuntary Termination. In the event of an Involuntary Termination, ----------------------- Employee shall receive the following: (i) immediately after the date of termination, a lump-sum amount in immediately available funds equal to the sum of Executive's accrued but unpaid Salary and a pro-rated portion of the annual bonus paid to Employee for the prior fiscal year; (ii) immediately after the date of termination, a lump-sum amount in immediately available funds equal to the product of the number of whole and fractional years included in the period from the date of termination until the end of the Term (the "Severance Period") multiplied by the sum of Employee's annualized Salary for the current year of the Term plus annual bonus for the prior fiscal year; provided; however; that if the Involuntary Termination occurs in the first year of the Term, then the annual bonus for the purposes of this Section 2.5(d)(ii) and Section 2.5(e) below shall be deemed to be $50,000; (iii) the continuation of the benefits (or, if such benefits are not available, the after-tax economic equivalent thereof) specified in Section 2.3(b) to which Employee is entitled as of the date of termination for the entire duration of the Severance Period or, at the election of Employee, an immediate lump-sum cash payment equal to the value of such benefits; provided that with respect to any benefit to be provided on an insured basis, such value shall be the present value of the premiums expected to be paid for such coverage, and with respect to other benefits, such value shall be the present value of the expected net cost to the Company of providing such benefits; (iv) all options held by Employee under the 1998 Plan shall vest immediately; and (v) all contractual restrictions on the transfer, sale or pledge of the common stock held by the Employee (or his Affiliates) will be immediately extinguished and released. (e) Termination After a Change of Control. If a Termination without Cause or ------------------------------------- an Involuntary Termination occurs within two years after a Change of Control, then Executive shall receive the payments required by Section 2.5(d), except that for purposes of Section 2.5(d)(ii), Executive shall receive three (3.0) times the sum of: i) Employee's annualized Salary in the year of the Change of Control and ii) the highest bonus received by Employee from the Company in the year of the Change of Control or any prior year. (f) Other Termination Benefits. Other than any amounts or benefits payable -------------------------- upon a Termination of Employment hereunder, Executive shall, except as otherwise specifically provided herein, not be entitled to any payments or benefits provided 6 hereunder or under the terms of any plan, policy or program of the Company or as otherwise required by applicable law. ARTICLE III COVENANTS AND AGREEMENTS 3.1 Records and Confidential Data. ----------------------------- (a) Employee acknowledges that, in connection with the performance of his duties hereunder, Employer and its Affiliates will make available to Employee, and/or Employee will have access to, certain Confidential Information (as defined below) of Employer and its Affiliates. Employee acknowledges and agrees that any and all Confidential Information learned or obtained by Employee during the course of his employment by Employer or otherwise, whether developed by Employee alone or in conjunction with others or otherwise, shall be and is the property of Employer and its Affiliates. Employee shall keep all Confidential Information confidential and shall not use any Confidential Information in any manner other than in connection with Employee's discharge of his duties hereunder. (b) Following the first to occur of the termination of Employee's employment hereunder, or as soon as reasonably possible after Employer's written request, Employee shall return to Employer all written Confidential Information which has been provided to Employee and Employee shall destroy all copies of any analyses, compilations, studies or other documents prepared by Employee or for Employee's use containing or reflecting any Confidential Information. Within five business days after receipt of such request by Employee, Employee shall, upon written request of Employer, deliver to Employer a notarized document certifying that such written Confidential Information has been returned or destroyed in accordance with this Section 3.1(b). (c) For purposes of this Agreement, "Confidential Information" shall mean ------------------------ all confidential and proprietary information of Employer and/or its Affiliates, including, without limitation, confidential and proprietary information that is derived from or regarding reports, investigations, experiments, research, trade secrets, work in progress, web site drawing, designs, plans, proposals, requests for proposals, bids, codes, marketing and sales programs, acquisition targets or strategies, information regarding subscribers or web site viewers, client lists, client mailing lists, supplier lists, financial projections, cost summaries, payor information, pricing formulae, marketing studies relating to prospective business opportunities and all other confidential and proprietary materials or information prepared for or by Employer and/or any of its Affiliates. For purposes of this Agreement, Confidential Information shall not include and Employee's obligations under this Section 3.1 shall not extend to (i) information which is generally available to the public, (ii) information obtained by Employee from Persons not under agreement to maintain the confidentiality of the same, and (iii) information which is required to be disclosed by law or legal process (after giving Employer prior written notice thereof and an opportunity to contest such disclosure). 3.2 Inventions and Other Matters. ---------------------------- 7 (a) Employee agrees that all inventions, discoveries or improvements made during the period of Employee's employment with Employer, including, without limitation, computer software (including source code, operating systems and specifications, data, data bases, files documentation and other materials related thereto), HTML or other scripts, web site designs, art work, visual images, programming code and programs, processes, uses, apparatuses, specialized information relating in any way to or that is useful in the business or products of Employer or Employer's actual or demonstrably anticipated research or development, designs or compositions of any kind that Employee, individually or with others, may originate or develop while employed by Employer (collectively, "Inventions"), belong to and shall be the sole property of Employer and ---------- constitute and shall constitute works specially ordered or commissioned as "works made for hire" under the United States Copyright Act and other applicable law. Without limiting the foregoing, Employee hereby assigns and transfers to Employer all rights of whatever nature that Employee may have, including, without limitation, any patent, trade secret, trademark or service mark rights (and any goodwill appurtenant thereto), any rights of publicity and any right, title and interest in any copyright and any right that may affix under any copyright law now or hereinafter in force and effect in the United States of America or in any other country or countries, in and to any Invention. Employee acknowledges and agrees that Employer shall have the royalty-free right to use in its businesses, and to make and sell products, processes, programs, systems designs, methods, formulas, apparatus, techniques, and services derived from any Inventions (whether or not patentable or copyrightable), as well as all improvements thereof or know-how related thereto. The provisions of this Section 3.2 shall survive termination of this Agreement for any reason. (b) For purposes of this Agreement, an Invention shall be deemed to have been "made during the period of Employee's employment" if, during such period, the Invention was conceived, in part or in whole, or first actually reduced to practice. Employee agrees that any patent, copyright or trade mark application (i) covering intellectual property that relates to services performed by Employee hereunder or that is applicable to those products or services of Employer that were within the scope of Employee's responsibilities hereunder, and (ii) that is filed by or for the benefit of Employee or any of his Affiliates within one year after termination of Employee's employment shall be presumed to relate to an Invention made during the term of his employment and Employee shall have the burden of proof to prove otherwise. (c) This Section 3.2 shall not apply to an Invention for which no equipment, supplies, facilities or Confidential Information (as defined below) of Employer was used and that was developed entirely on Employee's own time, unless (i) the invention relates or is applicable to the services performed by Employee hereunder or that is applicable to those services or products of Employer that were within the scope of Employee's responsibilities hereunder, or (ii) results from any work relating to the Business that was performed, caused to be performed, or supervised by Employee for or on behalf of Employer. (d) Employee agrees, without further consideration, to (i) promptly disclose each such Invention to Employer, to Employee's immediate supervisor and to such other 8 individuals as Employer may direct, (ii) execute and to join others in executing such applications, assignments and other documents as may be necessary or convenient to vest in Employer, or its designee, full title to each such Invention and as may be necessary or convenient to obtain United States and foreign patents and copyrights thereon, to the extent Employer may so choose in its sole discretion, (iii) testify in any legal proceeding relative to such Invention whenever requested to do so by Employer, and (iv) furnish all facts relating to such Inventions or the history thereof. (e) Employee agrees that he will not at any time, except as authorized or directed by Employer, publish or disclose any information or knowledge concerning any Inventions. 3.3 Non-Competition. --------------- (a) Employer and Employee recognize that Employee has been retained to occupy a position of trust that constitutes part of the professional, management and executive staff of Employer. Employee, for and in consideration of the payments, rights and benefits provided herein, agrees that so long as he is employed by Employer and, if Employer terminates Employee's employment for Cause or if Employee terminates his employment with Employer for any reason other than pursuant to an Involuntary Termination, for a period of one year thereafter, Employee shall not (i) work or act as an officer or director of or compensated consultant to, (ii) assist, (iii) own, directly or through any Affiliate or joint venture, a 10% or greater interest in, or (iv) make a financial investment (other than a passive, economic investment), whether in the form of equity or debt, in any business that is directly competitive with the Business in the United States, Latin America or in any other market in which Employer is conducting the Business at the time Employee's employment with Employer is terminated. (b) Notwithstanding the foregoing, nothing herein shall prohibit Employee from holding ten percent (10%) or less of any class of voting securities of any entity whose equity securities are listed on a national securities exchange or regularly traded in the over-the-counter market and for which quotations are readily available on the National Association of Securities Dealers Automated Quotation system. (c) If Employer terminates Employee's employment for Cause or if Employee terminates his employment with Employer for any reason other than pursuant to an Involuntary Termination, for a period of one year thereafter, Employee shall promptly notify Employer of each employment or agency relationship entered into by Employee, and each corporation, proprietorship or other entity formed or used by Employee, the business of which is directly competitive with the Business. The provisions of this Section 3.3 shall survive termination of this Agreement for any reason. 3.4 Non-Solicitation and Non-Interference. ------------------------------------- (a) Employee acknowledges that Employer has invested substantial time and effort in assembling its present staff of personnel. Employee agrees that so long as he is employed by Employer and for a period of one year thereafter, Employee shall not, 9 directly or indirectly, employ, solicit for employment, or advise or recommend to any other Person that such other Person employ or solicit for employment, any of Employer's employees or recommend to any employee of Employer that he/she cease to be employed by Employer; provided that the restrictions set forth in -------- ---- the immediately preceding sentence shall not apply to any solicitation directed at the public in general e.g., advertisements in publications of general circulation, etc. or to inquiries for employment that were unsolicited, directly or indirectly, by Employee. (b) Employee acknowledges that all customers of Employer, which Employee has serviced or hereafter services during Employee's employment by Employer and all prospective customers from whom Employee has solicited or may solicit business while in the employ of Employer, shall be solely the customers of Employer. Employee agrees that so long as he is employed by Employer and for a period of one year thereafter, Employee shall not either directly or indirectly solicit business, as to products or services competitive with the Business, from any of Employer's customers with whom Employee had contact during his employment with Employer. (c) Employee agrees that so long as he is employed by Employer and for a period of one year thereafter, Employee shall not, directly or indirectly, (i) intentionally disrupt or attempt to disrupt or terminate any relationship between Employer and any of its Business suppliers, clients or employees, or (ii) disparage, malign or discredit the name or reputation of Employer to any customers, clients or suppliers of the Business. Employee agrees that during such one year period, he will not influence or attempt to influence any of the customers or clients of Employer to cease doing business with Employer. 3.5 Restrictions Reasonable. Employee agrees that the restrictions ----------------------- contained in Sections 3.3 and 3.4 are reasonable as to time and geographic scope because of the nature of the Business and Employee agrees, in particular, that the geographic scope of this restriction is reasonable because companies in the same industry as the Business compete on an international basis. Employee acknowledges that Employer is in direct competition with all other companies that provide services and products similar to the Business products and services throughout the United States and Latin America and, because of the nature of the Business, Employee expressly agrees that the covenants contained in Sections 3.3 and 3.4 cannot reasonably be limited to any smaller geographic area. The provisions of Sections 3.3 and 3.4 shall survive termination of this Agreement for any reason. 3.6 Prior Obligations. Employee represents and warrants that (a) Employee ----------------- has no obligation of confidence or other commitments to any previous employer or any others that conflict with this Agreement or restrict Employee's field of activities, and (b) no other agreement to which Employee is subject will conflict with, prevent, be breached by, interfere with or in any manner affect the terms and conditions of this Agreement. 3.7 Injunctive Relief. Employee acknowledge that damages would be an ----------------- inadequate remedy for Employee's breach of any of the provisions of Sections 3.1, 3.2, 10 3.3 and/or 3.4 of this Agreement, and that breach of any of such provisions will result in immeasurable and irreparable harm to Employer. Therefore, in addition to any other remedy to which Employer may be entitled by reason of Employee's breach or threatened breach of any such provision, Employer shall be entitled to seek and obtain a temporary restraining order, a preliminary and/or permanent injunction, or any other form of equitable relief from any court of competent jurisdiction restraining Employee from committing or continuing any breach of such Section, without the necessity of posting a bond. It is further agreed that the existence of any claim or cause of action on the part of Employee against Employer, whether arising from this Agreement or otherwise, shall in no way constitute a defense to the enforcement of the provisions of Sections 3.1, 3.2, 3.3 and/or 3.4 of this Agreement. ARTICLE IV MISCELLANEOUS 4.1 Notices. All notices and other communications hereunder shall be in ------- writing and shall be deemed given (a) when made, if delivered personally, (b) three business days after being mailed by certified or registered mail, postage prepaid, return receipt requested, or (c) two business days after delivery to a reputable overnight courier service, to the parties, their successors in interest or their assignees at the following addresses, or at such other addresses as the parties may designate by written notice in the manner aforesaid: To Employer: IFX Corporation c/o IFX Communications Ventures Inc. 15050 N.W. 79 Court Suite 200 Miami Lakes, Florida 33016 Attention: President To Employee, to his home address as recorded in the payroll records of Employer from time to time. 4.2 Governing Law. This Agreement shall be governed as to its validity ------------- and effect by the internal laws of the State of Florida, without regard to its rules regarding conflicts of law. 4.3 Agreement To Arbitrate. ---------------------- (a) Employer and Employee agree that any disputes that arise between Employee and Employer (or any of Employer's officers, directors, stockholders, supervisors, employees, agents, Affiliates or successors), excluding disputes arising out of Section 3.1, 3.2, 3.3 or 3.4, that cannot be resolved informally shall be decided by submission of the dispute to binding arbitration before a sole neutral arbitrator who is a retired federal judge pursuant to the American Arbitration Association Commercial Arbitration Rules governing such proceedings, and not by a lawsuit or by resort to court 11 process, except as specifically set forth below. Both parties acknowledge and agree that they are giving up their respective constitutional rights to have any such dispute decided in a court of law before a jury, and instead are accepting the use of the arbitration process. This Section 4.3(a) applies to any and all disputes, including, by way of example only and not limited to, disputes ---------------------------------------------------- regarding termination of Employee's employment; discrimination and unlawful harassment of any kind (including, without limitation, claims arising under Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. (S)2000(e) et seq. and the Civil Rights Act of 1991; the Age Discrimination in Employment Act, as amended, 29 U.S.C. (S)621, et seq.; the Americans with Disabilities Act of 1990, 42 U.S.C. (S)12101 et seq.; the Family and Medical Leave Act of 1993, 29 U.S.C. (S)2612 et seq.; and all applicable state and local anti-discrimination laws and constitutional provisions); disputes arising under any other applicable federal, state or local labor statutes, regulations or orders; disputes regarding assault and battery; negligent supervision; defamation; invasion of privacy; wages and overtime; and disputes regarding the formation and enforceability of this Section 4.3(a). The following types of disputes are excluded from the scope of coverage of this Section 4.3(a): (i) workers' compensation claims by Employee for on-the-job injuries; and (ii) any and all claims by Employer against Employee, including claims for injunctive relief, arising out of Employee's breach or threatened breach of Section 3.1, 3.2, 3.3 or 3.4 of this Agreement. (b) General Rules of Arbitration. Either party shall have the right to ---------------------------- have counsel represent him/it at the arbitration hearing and in pre-arbitration proceedings. Pre-arbitration discovery shall be permitted in accordance with the Federal Rules of Civil Procedure, except that (i) there shall be no limit on the number of depositions that may be noticed by either party, and (ii) in connection with any pre-arbitration disclosure of expert testimony in accordance with Rule 26(a)(2), the timing of the expert disclosure shall be set by the arbitrator. (c) Authority of Arbitrator. The arbitrator shall have the authority to ----------------------- (i) resolve any discovery disputes that arise between the parties; (ii) resolve any dispute relating to the interpretation, applicability or enforceability of this Section 4.3; and (iii) entertain a motion to dismiss and a motion for summary judgment, applying the standards governing such motions under Federal Rule Of Civil Procedure 12(b)(6) and Rule 56. The arbitrator is required to render his decision in writing, with an opinion stating the bases of his decision. Either party has the right to file a post-arbitration brief, which shall be considered by the arbitrator. (d) Payment of Costs and Fees. Each party shall bear its own costs and ------------------------- attorneys' fees incurred in connection with the arbitration. The arbitrator shall have the discretion to award costs to the prevailing party. The arbitrator's fees shall be borne equally by the parties. Each party shall post his or its portion of the arbitrator's anticipated fee prior to the commencement of the arbitration. (e) Appeals. Either side shall have the right to appeal the arbitrator's ------- decision by applying to a Court (as defined in Section 4.4) for an order vacating the award for any of the reasons set forth in 9 U.S.C. (S)10, or on the basis that the arbitrator has made a 12 mistake of law or fact. The arbitration decision shall stand if it is supported by substantial evidence. 4.4 Jurisdiction; Service of Process. Each of the parties hereto agrees -------------------------------- that any action or proceeding initiated or otherwise brought to judicial proceedings by either Employee or Employer concerning the subject matter of this Agreement that is not subject to Section 4.3, shall be litigated in the United States District Court for Dade County, Florida or, in the event such court cannot or will not exercise jurisdiction, in the state courts of the State of Florida covering Miami, Dade County, Florida (the "Courts"). Each of the ------ parties hereto expressly submits to the jurisdiction and venue of the Courts. Each party hereto waives any claim that the Courts are an inconvenient forum or an improper forum based on lack of venue or jurisdiction. Each party shall bear its own costs and attorneys' fees incurred in connection with any such actions or proceedings. 4.5 Successors and Assigns. This Agreement shall be binding upon and ---------------------- shall inure to the benefit of (a) the heirs, executors and legal representatives of Employee, upon Employee's death or incapacity, and (b) any successor of Employer, and any such successor shall be deemed substituted for Employee or Employer, as the case may be, under the terms hereof for all purposes; provided, -------- however, that any such assignment shall not relieve Employer from its ------- obligations hereunder. As used in this Agreement, "successor" shall include any Person that at any time, whether by purchase, merger, consolidation or otherwise, directly or indirectly acquires a majority of the assets, business or stock of Employer; provided, however, that no acquisition of the stock of Employer by UBS Capital Americas III, L.P., UBS Capital LLC or any of their respective Affiliates (collectively, "UBS") shall cause UBS to be treated as a "successor" hereunder. 4.6 Integration. This Agreement, the Plan and any option agreement ----------- Employee will be required to execute, constitute the entire agreement between the parties with respect to all matters covered herein, including but not limited to the parties' employment relationship and Employee's entitlement to compensation, commissions and benefits from Employer or any of its Affiliated companies and/or the termination of Employee's employment. This Agreement supersedes all prior oral or written understandings and agreements relating to its subject matter and all other business relationships between Employer and/or its Affiliated companies. 4.7 No Representations. No Person has made or has the authority to make ------------------ any representations or promises on behalf of any of the parties which are inconsistent with the representations or promises contained in this Agreement, and this Agreement has not been executed in reliance on any representations or promises not set forth herein. 4.8 Amendments. This Agreement may be modified only by a written ---------- instrument executed by the parties that is designated as an amendment to this Agreement. 4.9 Counterparts. This Agreement is being executed in one or more ------------ counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 13 4.10 Severability and Non-Waiver. Any provision of this Agreement (or --------------------------- portion thereof) which is deemed invalid, illegal or unenforceable in any jurisdiction shall, as to that jurisdiction and subject to this Section, be ineffective to the extent of such invalidity, illegality or unenforceability, without affecting in any way the remaining provisions thereof in such jurisdiction or rendering that or any other provisions of this Agreement invalid, illegal, or unenforceable in any other jurisdiction. If any covenant should be deemed invalid, illegal or unenforceable because its scope is considered excessive, such covenant shall be modified so that the scope of the covenant is reduced only to the minimum extent necessary to render the modified covenant valid, legal and enforceable. 4.11 Voluntary and Knowledgeable Act. Employee represents and warrants ------------------------------- that he has been represented by independent legal counsel of his own choosing and that he has read and understands each and every provision of this Agreement and has freely and voluntarily entered into this Agreement. 4.12 Late Payments. If the Employer fails to pay any amount provided under ------------- this Agreement or any other plan or program sponsored by Employer when due, the Employer shall pay interest on such amount at a rate equal to (i) the highest rate of interest charged by the Employer's principal lender plus 200 basis points, or (ii) in the absence of such a lender, 300 basis points over the prime commercial lending rate announced by Harris Trust and Savings Bank on the date such amount is due or, if no such rate shall be announced on such date, the immediately prior date on which Harris Trust and Savings Bank announced such a rate; provided, however, that if the interest rate determined in accordance with this Section exceeds the highest legally-permissible interest rate, then the interest rate shall be the highest legally-permissible interest rate. 4.13 Effective Date. Notwithstanding anything contained herein to the -------------- contrary, this Agreement become effective at the Closing (as defined in the Stock Purchase Agreement dated March 13, 2001, by and among IFX, UBS, and the other signatories thereto). 14 IN WITNESS WHEREOF, the parties hereto have executed this Employment Agreement as of the date first above written. IFX CORPORATION By: /s/ Michael Shalom ------------------------------ Name: Michael Shalom Title: CEO Dated as of March 13, 2001 EMPLOYEE: /s/ Jose Leiman ---------------------------------- Jose Leiman Dated as of March 13, 2001 15 EXHIBIT A TO EMPLOYEE AGREEMENT (Jose Leiman) Option Grants ------------- A. Each Option granted to Employee pursuant to this Employment Agreement shall be subject to, and exercisable in accordance with, the terms and conditions set forth under the applicable Plan. B. Each Option granted pursuant to this Employment Agreement shall be granted, in the case of the Options granted under the 1998 Plan, as of the Closing, and in the case of the Options granted under the 2001 Plan, the date of the adoption of such plan (the "Option Date"), and shall be evidenced by a standard option agreement between IFX and Employee in a form approved by the Compensation Committee or the Board of Directors of IFX containing the following terms: Amount Exercise Price Vesting Period ------ -------------- -------------- 75,000/1/ $3.50 Fully vested on date of grant 50,000/1/ $3.50 3 year vesting based on the following schedule: 34% on the first-year anniversary 8.25% quarterly after the first year 150,000/2/ $3.50 Vesting in accordance with the 2001 Plan ________________________ /1/ Granted under the 1998 Plan. /2/ Granted under the 2001 Plan. EX-10.13 7 dex1013.txt AGREEMENT BETWEEN REGISTRANT AND LEE S. CASTY Exhibit 10.13 August 28, 2001 Mr. Lee Casty 707 Skokie Blvd. 5/th/ Floor Northbrook, IL 60062 Re: Allocation Of Cash Received and Termination Of Agreement Dear Lee: In connection with the merger of Yupi Internet, Inc. into T1/MSN Corp. ("Microsoft"), to date IFX Online, Inc. ("IFX") has received $45,832.76 of cash proceeds from Microsoft. This letter reconciles how IFX and you will split the amounts received from Microsoft. You and IFX entered into an Amended and Restated Stock Purchase Agreement as of June 12, 2000 (the "Agreement") with respect to the Yupi Class A Convertible Preferred Stock (the "Preferred Stock") that you purchased from IFX. In October 1999, on a fully diluted basis (which assumes the conversion of all then outstanding Yupi preferred shares and warrants into common stock), there were 46,774,899 shares of Yupi common stock outstanding. According to the Agreement, if no IPO or change of control of Yupi occurred by August 24, 2000, then your purchase price per share of Preferred Stock would be adjusted (the "Adjusted Price') by dividing $250 million by the number of fully diluted shares of Yupi common stock outstanding. The Adjusted Price per share is $5.34. Accordingly, based on the Adjusted Price, the $5 million you invested in Yupi would have purchased 935,498 shares of Preferred Stock. IFX originally owned 2,736,925 shares of Preferred Stock. This means that based on the Adjusted Price, you purchased 34.181% of IFX's shares of Preferred Stock. Thus, you are entitled to received $15,666.10 (34.181%) of the cash received from Microsoft so far. IFX will pay you 34.181% of any additional proceeds, if any, received from Microsoft with respect to IFX's stake in Yupi. Please sign this letter below to confirm your understanding of this methodology and your waiver and release of all claims against IFX with respect to the Preferred Stock of Yupi and the Agreement (other than the continued right to receive 34.181% of any additional proceeds from Microsoft received with respect to Yupi). Truly yours, IFX Online, Inc. /s/ Michael Shalom ----------------------------------- By: Michael F. Shalom Agreed to and Accepted: this ___ day of __________, 2001. /s/ Lee S. Casty ----------------------------------------------------- Lee S. Casty EX-23.1 8 dex231.txt CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT EXHIBIT 23.1A CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT We consent to the incorporation by reference in the Registration Statements (Form S-3 No. 33-48362, Form S-3 No. 33-45176, Form S-3 No. 33-35878, Form S-3 No. 33-32658, Form S-3 No. 33-94967, Form S-3 No. 33-93389, Form S-3 No. 33-88859, Form S-3 No. 33-88351, Form S-8 No. 33-91991 and Form S-8 No. 33-91989) of IFX Corporation and in the related Prospectus of our report dated September 10, 2001, except for the 29th through 33rd paragraphs of Note 1, as to which the date is October 11, 2001, with respect to the consolidated financial statements and schedule of IFX Corporation included in this Annual Report (Form 10-K) for the year ended June 30, 2001. Miami, Florida October 11, 2001 /s/ ERNST & YOUNG LLP